<PAGE>
As filed with the Securities and Exchange Commission on March 16, 2000
Registration No. 333-94677
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
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Washington, D.C. 20549
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Amendment No. 2
to
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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coolsavings.com inc.
(Exact name of registrant as specified in its charter)
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Michigan 7379 38-3216102
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
8755 West Higgins Road, Suite 100
Chicago, Illinois 60631
(773) 693-1300
(Address, including ZIP code, and telephone number, including area code, of
registrant's principal executive offices)
Steven M. Golden
8755 West Higgins Road, Suite 100
Chicago, Illinois 60631
(773) 693-1300
(Name, address, including ZIP code, and telephone number, including area code,
of agent for service)
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with copies to:
PETER SUGAR DAVID R. LAMARRE
JEFFREY M. WEISS DAVINA K. KAILE
Jaffe, Raitt, Heuer & Weiss, P.C. DANIEL T. DASHIELL
One Woodward Avenue, Suite 2400 Pillsbury Madison & Sutro LLP
Detroit, Michigan 48226 P.O. Box 7880
(313) 961-8380 San Francisco, California 94120
(415) 983-1000
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Approximate date of commencement of proposed sale to public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed
Title of Each Class of Maximum Proposed Maximum Amount of
Securities to be Amount to be Offering Price Aggregate Registration
Registered Registered per Unit(1) Offering Price(1) Fee(2)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock, without
par value.............. 4,830,000 $12.00 $57,960,000 $15,302
</TABLE>
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(1) Estimated pursuant to Rule 457(a) under the Securities Act of 1933 solely
for the purpose of calculating the registration fee.
(2) Previously paid.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. +
+Underwriters may not confirm sales of these securities until the registration +
+statement filed with the Securities and +
+Exchange Commission becomes effective. This prospectus is not an offer to +
+sell these securities and it is not soliciting offers to buy these securities +
+in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MARCH 16, 2000
PROSPECTUS
4,200,000 Shares
[LOGO OF COOLSAVINGS.COM APPEARS HERE]
Common Stock
This is an initial public offering of common stock by coolsavings.com inc.
All of the shares of common stock are being sold by CoolSavings. The estimated
initial offering price will be between $11.00 and $13.00 per share.
--------
There is currently no public market for the common stock. We have applied to
list the common stock on the Nasdaq National Market under the symbol CSAV.
--------
When the offering is completed, our principal stockholders, executive
officers and directors will, in the aggregate, beneficially own approximately
59.6% of our outstanding common stock.
--------
<TABLE>
<CAPTION>
Per Share Total
--------- --------
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds to CoolSavings, before expenses.................... $ $
</TABLE>
CoolSavings has granted the underwriters an option for a period of 30 days to
purchase up to 630,000 additional shares of common stock.
--------
Investing in the common stock involves a high degree of risk.
See "Risk Factors" beginning on page 5.
--------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
CHASE H&Q
LEHMAN BROTHERS
THOMAS WEISEL PARTNERS LLC
, 2000
<PAGE>
Inside Front Cover
Comprehensive E-Marketing Services
[Logo]
coolsavings.com
attract advertisers attracts consumers
active shoppers online and office advertisers
variety of multiple venues
promotional incentives personalized
permission based
household targeting
tracking
screenshot of coolsavings.com
home page
<PAGE>
FIRST PAGE OF GATEFOLD
Screenshot of advertisers'
site offer Tracking leads to
more effective campaigns
Broad array of incentives
on our web site customer logos
Building one-to-one
relationships
Screenshot of targeted e-mail
Variety of places for redemption
and in our targeted e-mails online retailers mall stores national and
regional chains
<PAGE>
SECOND PAGE OF GATEFOLD
Advertisers can deliver, target
and track a wide array of incentives
Broad range of promotional to promote
incentives products or
services in any
online or offline
environment
graphic of
member database
We capture and store
incentives drive detailed member
sales demographic information,
track shopping preferences
and behavior, and
neighborhood businesses with advertiser
cooperation can
track redemption of
these incentives back
to the member household
We use sophisticated
data mining to create
predictive models to
make future targeting
even more effective
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary................................................. 1
Risk Factors....................................................... 5
Forward-Looking Statements......................................... 20
Use of Proceeds.................................................... 21
Dividend Policy.................................................... 21
Capitalization..................................................... 22
Dilution........................................................... 23
Selected Financial Data............................................ 24
Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 25
Business........................................................... 33
Management......................................................... 47
Certain Transactions and Relationships............................. 56
Principal Stockholders............................................. 59
Description of Capital Stock....................................... 61
Shares Eligible For Future Sale.................................... 66
Underwriting....................................................... 68
Legal Matters...................................................... 70
Experts............................................................ 70
Where You Can Find Additional Information.......................... 71
Index to Financial Statements...................................... F-1
</TABLE>
i
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus carefully, including "Risk Factors" and
the financial statements, before making an investment decision.
CoolSavings
We provide a comprehensive set of e-marketing services used by online and
offline advertisers to build one-to-one customer relationships. Under our
established brand, advertisers can deliver, target and track a wide array of
incentives to promote their products or services. We deliver these incentives
to targeted segments of our large audience of consumers, known as members, who
have registered their demographic profiles with us and have given us permission
to deliver personalized savings opportunities to them. These incentives can be
redeemed by our members either online or in stores depending on the particular
promotion. We generate substantially all of our revenues by providing e-
marketing services to our advertisers. The top ten advertisers from which we
generated the most revenues in 1999 were Bigstar, eNutrition.com, First USA,
InsWeb, Kids "R" Us, MCI WorldCom, overstock.com, petopia.com, petsmart.com and
SmarterKids.com. As of March 1, 2000, we had over 6.0 million registered
members, representing nearly 4.8 million households.
The compelling advantages of the Internet as a direct marketing medium have
led to the development of e-marketing services that are designed to enable
businesses to acquire and retain customers and build customer loyalty. The
Direct Marketing Association projects that online direct marketing expenditures
will increase from approximately $1.3 billion in 1999 to approximately $8.6
billion in 2004. In our experience, while online companies are the most
frequent users of our e-marketing services, traditional offline businesses such
as national retailers and consumer packaged goods manufacturers are
increasingly seeking to use our e-marketing services to drive offline sales and
build customer relationships. Furthermore, we believe many online companies and
traditional businesses are devoting larger portions of their marketing budgets
to Internet direct marketing.
Our web site, coolsavings.com, offers convenient and personalized incentives
for goods and services from a broad range of advertisers, including online
retailers, national brick-and-mortar chains, consumer packaged goods
manufacturers, large consumer service providers and neighborhood businesses. We
offer a wide array of promotional services for advertisers including printed
and electronic coupons, personalized e-mails, rebates, samples, sales notices,
gift certificates, contests and banner advertisements. According to Media
Metrix, for January 2000, CoolSavings was the ninth most frequently visited
shopping web site. During the fourth quarter of 1999, we sent an average of
approximately 17.3 million e-mails to our members per month.
With our members' permission, we capture and store detailed member
demographic information, track shopping preferences and behavior, and with
advertiser cooperation can track redemption of these incentives back to our
members' households. In doing so, we have developed an extensive database of
information that we use for the benefit of our advertisers. Although we keep
our members' identities private, we analyze our database with sophisticated
data analysis, targeting and tracking technology to help our advertisers
execute effective promotional campaigns. As our members use the incentives we
offer, we gather extensive shopping behavior and preference information which
further enriches our member profiles for future database marketing.
Our objective is to be the leading provider of e-marketing services to
advertisers. To achieve this objective, we plan to continue to add to our base
of members and advertisers through an active online and offline marketing
program that enhances the CoolSavings brand. We must also continue to enrich
our database and develop deeper data for predictive modeling and targeting
purposes. In order to offer a comprehensive e-marketing solution for
advertisers, we plan to expand the promotional services we offer. Finally, we
intend to continue to pursue relationships to further expand our reach to
consumers and advertisers and enhance our services.
1
<PAGE>
Our business is subject to risks. In particular, we have incurred
significant losses since our inception, including net losses of $16.9 million
in 1999. Our accumulated deficit as of December 31, 1999 was $21.1 million, and
we expect to continue to incur losses for the foreseeable future. Furthermore,
we operate in an emerging and highly competitive market with relatively low
barriers to entry. These risks, as well as others that are important to our
business, are detailed in the Risk Factors section beginning on page 5.
We were incorporated as Interactive Coupon Marketing Group, Inc. in Michigan
in December 1994. In November 1998, we changed our corporate name to
coolsavings.com inc. References in this prospectus to "us," "our" and "we" mean
coolsavings.com inc., and references to "CoolSavings" mean coolsavings.com inc.
or our web site, as the context requires.
Our corporate offices are located at 8755 West Higgins Road, Suite 100,
Chicago, Illinois 60631. Our telephone number at that location is (773) 693-
1300. Our Internet address is http://www.coolsavings.com. Information contained
on our web site is not a part of this prospectus.
2
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered by CoolSavings................. 4,200,000 shares
Common stock to be outstanding after this offering.. 38,905,374 shares
Use of proceeds..................................... For general corporate
purposes, including
operational expenses,
such as personnel and
sales and marketing, and
capital expenditures
Proposed Nasdaq National Market Symbol.............. CSAV
</TABLE>
Unless otherwise indicated, share information in this prospectus:
. is based on our shares outstanding as of December 31, 1999;
. assumes conversion of our convertible subordinated notes into 462,627
shares of common stock upon completion of this offering, based on an
assumed initial public offering price of $12.00 per share;
. assumes conversion of our Series A convertible preferred stock into
2,527,298 shares of common stock upon completion of this offering;
. gives effect to a 1,150-for-1 stock split which will occur prior to
completion of this offering; and
. assumes the underwriters' over-allotment option is not exercised.
------------
The number of shares to be outstanding after this offering excludes, as of
December 31, 1999:
. 4,757,317 shares of common stock reserved for issuance under our 1997
Stock Option Plan, of which 3,864,230 shares are subject to outstanding
options at a weighted average exercise price of $3.76 per share;
. 324,737 shares subject to options granted outside of our 1997 Stock
Option Plan at an exercise price of $0.28 per share; and
. 634,309 shares of common stock reserved for issuance under our 1999 Non-
Employee Director Stock Option Plan, of which 63,250 shares are subject
to outstanding options at a weighted average exercise price of $4.69 per
share.
Unless otherwise indicated, all statistical data regarding CoolSavings
referenced in this prospectus is as of December 31, 1999. This prospectus
contains statistical data regarding Internet usage and the advertising and
marketing industry that we obtained from industry publications, including
reports generated by International Data Corporation, the Direct Marketing
Association, Mediamark Research Inc., NPD Online Research and Media Metrix,
Inc.
We own service mark registrations for the mark COOLSAVINGS, as well as
several other service marks, including, among others, COOLMALLS, COOLTRAVEL,
COOLSAMPLES and COOLCATALOGS, in the United States. We also own common law
rights in these and other marks. In addition, we have applied for United States
federal registrations of several service marks, including our stylized piggy-
bank logo, SAVE. THEN SHOP., SQUEALS OF THE DAY, COOLSAVINGS COUPON MANAGER and
SAVINGSCENTER. We have also obtained a trademark registration in Australia for
COOLSAVINGS and have registration applications pending in the United Kingdom
and Canada. All other trademarks or service marks appearing in this prospectus
are trademarks or service marks of others.
3
<PAGE>
The summary financial data presented below are derived from the financial
statements of CoolSavings. The shares used to compute pro forma loss per share
include convertible subordinated notes and Series A convertible preferred stock
on an as-converted basis, as well as common stock. The pro forma balance sheet
data includes the automatic conversion of our convertible subordinated notes
and Series A convertible preferred stock upon the completion of this offering.
The pro forma as adjusted balance sheet data reflects the receipt of the net
proceeds from the sale of the 4,200,000 shares of common stock offered by
CoolSavings at an assumed initial public offering price of $12.00 per share and
after deducting estimated underwriting discounts and commissions and estimated
offering expenses.
Summary Financial Data
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Inception
through Year Ended December 31,
December 31, --------------------------------------------------
1995 1996 1997 1998 1999
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net revenues.......... $ -- $ -- $ 110 $ 1,143 $ 12,916
Gross profit (loss)... -- -- (38) 715 11,098
Loss from operations.. (16) (883) (2,725) (5,346) (17,133)
Net loss.............. (16) (874) (2,732) (5,741) (16,868)
Historical loss per
common share, basic
and diluted.......... $ (0.00) $ (0.06) $ (0.15) $ (0.27) $ (0.57)
Weighted average
shares used to
compute historical
basic and diluted
loss per common
share................ 10,962,809 13,697,334 18,266,572 21,547,177 29,804,681
Pro forma loss per
common share, basic
and diluted
(unaudited).......... $ (0.58)
Weighted average
shares used to
compute pro forma
basic and diluted
loss per share
(unaudited).......... 30,113,208
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
---------------------------
Pro Pro Forma
Actual Forma As Adjusted
------- ------- -----------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents......................... $17,489 $17,489 $63,429
Working capital................................... 15,703 20,699 66,471
Total assets...................................... 29,590 29,590 75,362
Long-term debt, including current portion......... 878 878 878
Total stockholders' equity........................ 19,120 24,116 69,888
</TABLE>
4
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this prospectus before purchasing our common stock.
Investing in our common stock involves a high degree of risk. Any of the
following risks could materially and adversely affect our business and
quarterly and annual results of operations and could result in a complete loss
of your investment.
Risks Related to Our Business
Our unproven business model makes it difficult to evaluate our business
We launched our web site in February 1997 and operate in a market that is
new and changing rapidly. Because we have an unproven business model, it may be
difficult for you to evaluate an investment in our common stock. In addition,
we face risks, uncertainties, expenses and difficulties frequently encountered
by early stage companies in new and rapidly evolving markets, including the
Internet advertising and direct marketing market. To address these risks and
uncertainties, we must, among other things:
. maintain relationships with existing advertisers and attract additional
advertisers;
. attract members who actively take advantage of our offers and make
purchases, request information and otherwise interact with our
advertisers;
. attract, integrate, motivate and retain qualified personnel;
. enhance our brand recognition;
. develop new promotions and services;
. continue to upgrade and develop our systems and infrastructure to
accommodate potential growth;
. anticipate and adapt to the evolving Internet advertising and direct
marketing market and changes in advertisers' promotional needs and
policies;
. maintain and defend our intellectual property rights; and
. respond to changes in government regulations.
We may not be successful in accomplishing these objectives. Our failure to
do so could harm our business, results of operations and financial condition.
We have a history of losses, we had an accumulated deficit of $21.1 million as
of December 31, 1999 and we anticipate future losses
We incurred net losses of $5.7 million in 1998 and $16.9 million in 1999. As
of December 31, 1999, our accumulated deficit was $21.1 million. We expect to
continue to incur significant operating losses and capital expenditures. In
particular, we expect to invest heavily in sales and marketing activities,
hiring new personnel, enhancing services and technology, expanding and
relocating our facilities and defending our intellectual property. As a result,
we will need to generate significant revenues to achieve and maintain
profitability. Although our revenues have grown in recent quarters, this growth
may not be sustained and we may never become profitable. Even if we do achieve
profitability, we may not sustain or increase profitability on a quarterly or
annual basis.
Our quarterly financial results may fluctuate, making our future financial
results difficult to forecast
Our future operating results may vary significantly due to a variety of
factors, including the following which may be beyond our control:
. advertisers' demand for and use of our services;
5
<PAGE>
. performance-based contracts, under which our revenues depend on our
members' responsiveness to advertisers' offers;
. our members' demand for our services and response to the offers we make
available to them; and
. litigation costs.
As a result, we believe that quarter-to-quarter comparisons of our operating
results may not be meaningful. Moreover, these factors make our revenues
difficult to forecast. In addition, we plan to significantly increase our sales
and marketing, product development and other operating expenses. We base our
estimated expenses in part on projections of future revenue, which are
inherently uncertain. We may be unable to reduce spending quickly enough to
offset any unexpected revenue shortfall, which could cause our business and
operating results to suffer. This would likely affect the market price of our
common stock in a manner which may be unrelated to our long-term operating
performance. It is likely that in one or more future quarters our operating
results will fall below the expectations of securities analysts and investors.
If this happens, our stock price will likely decline, perhaps significantly.
We derive most of our revenues from short-term contracts with our advertisers
Approximately 80% of our current advertising contracts have stated terms of
less than three months. We may be unsuccessful in securing longer commitments.
Some advertisers prefer short-term contracts because they use our service to
promote limited-time promotional events or seasonal products and services. In
addition, new advertisers often request a short-term trial to assess the
effectiveness of our services, particularly because Internet-based promotional
services are relatively new and unproven. The limited duration of our
advertising contracts makes it difficult for us to forecast our revenues. If we
cannot renew our contracts or attract new advertisers, our results of
operations and financial condition will be seriously harmed.
Our operating results are subject to seasonal fluctuations
We believe our operating results will be subject to seasonal fluctuations
that may make our stock price more volatile. Advertising sales in traditional
media, such as television and radio, generally are lower in the first and third
calendar quarters of each year. We anticipate that our future revenues will
reflect these seasonal patterns. However, our limited operating history and the
evolving nature of the Internet advertising market make it difficult for us to
predict the precise future impact of seasonal factors on our business.
We depend on compelling promotional offers by our advertisers
Our members' usage of our services, and the resulting attractiveness of our
service to advertisers, depend upon the quality of the promotional offers we
deliver and our members' interest in them. In addition, under some of our
advertising contracts, our revenues depend on members' responsiveness to
specific promotions. We currently consult with our advertisers about the type
and frequency of incentives they offer, but we cannot control their choice of
promotions or their fulfillment of incentives. If our advertisers' promotional
offers are not attractive to our members, we will not be able to maintain or
expand our membership or generate adequate revenues based on the size of our
membership or on the responses we produce. Moreover, if our members are not
satisfied with the offers our advertisers make available to them, or with the
products or services they receive upon redemption of offers, their negative
experiences might result in publicity that could damage our reputation, which
would harm our efforts to attract and retain members and advertisers.
We depend on the successful introduction of new services and features
To retain and attract members and advertisers, we intend to introduce
additional services and new features on our web site. For example, we plan to
offer advertisers the ability to deliver promotional
6
<PAGE>
incentives to small businesses, in addition to individual consumers. These new
features and services will require us to spend significant funds on product
development and on educating our advertisers and consumers about our new
service offerings. New services and features may contain errors or defects that
are discovered only after introduction. Correcting these defects may result in
significant costs, service interruptions, loss of advertisers' and members'
goodwill and damage to our reputation. In addition, our successful introduction
of new technologies will depend on our advertisers' ability to adapt to use
these technologies, over which we have no control. If we introduce a service or
feature that is not favorably received, our current members may use our web
site and other services less frequently, our existing advertisers may not renew
their contracts and we may be unable to attract new members and advertisers.
We must be able to establish and maintain relationships with operators of other
web sites to attract new members
We advertise on third-party web sites using banner advertisements and
sponsorships to attract potential new members. Historically, approximately 70%
of our members were referred to our web site through third-party web sites.
Competition for banner and sponsorship placements on the highest traffic web
sites is intense, and we may not be able to enter into these relationships on
commercially reasonable terms, or at all. Moreover, we may have to pay
significant fees to establish these relationships. Even if we enter into or
maintain our current relationships with other web site operators, those sites
may not attract significant numbers of users or increase traffic to our web
site. Some operators of other web sites may also offer competing services,
alone or through an arrangement with one of our competitors. These operators
may be reluctant to enter into relationships with us. Our business could be
harmed if we do not establish and maintain relationships with other web site
operators on commercially reasonable terms or if our relationships do not
result in additional member registrations on our web site. In addition, to
attract new members, we may enter into agreements with organizations that have
established subscription bases. These agreements may contain exclusivity
provisions that restrict our ability to enter into similar agreements with
other organizations in the same business category. For example, our agreement
with The Parenting Group prohibits us from establishing promotional programs
similar to the one we operate with The Parenting Group. These types of
exclusive arrangements may limit or eliminate sources of members and revenues
that otherwise may be available to us.
Intellectual property litigation against us can be costly and could result in
the loss of significant rights
We expect that, as the number of services and competitors in Internet
advertising and direct marketing grows, we will be increasingly subject to
intellectual property infringement, unfair competition and related claims
against us. Third parties may also seek to invalidate our United States Patent,
No. 5,761,648, entitled "Interactive Marketing Network and Process Using
Electronic Certificates." Currently, we are a defendant in four lawsuits filed
by competitors, each of which alleges that our technology or business methods
infringe on the competitor's patent. The lawsuits seek, among other things, to
prevent us from using methods that allegedly violate the competitors' patents.
In addition, some of these competitors have in the past, and may in the future,
name our customers as defendants in these suits, which may cause these
customers to terminate their relationships with us which, in turn, could harm
our business. While we intend to defend these actions vigorously, our efforts
may not be successful. Our failure to prevail in this litigation could result
in:
. our paying monetary damages, which could be tripled if the infringement
is found to have been willful;
. an injunction requiring us to stop offering our services in their current
form;
. our having to redesign our technology and business methods, which could
be costly and time-consuming even where a redesign is feasible; or
7
<PAGE>
. our having to pay fees to license intellectual property rights, which may
result in unanticipated or higher costs.
Because of the ongoing technical efforts of others in our market and the
relatively recent introduction of our technology, we may be involved with one
or more of our competitors in legal proceedings to determine the parties'
rights to various intellectual property, including the right to our continued
ownership of our existing patent. Our failure to prevail in these proceedings
could harm our business.
We cannot predict whether other third parties will assert claims of
infringement or similar charges against us, or whether any past or future
claims will harm our business. For example, we were recently notified of two
patents believed to be relevant to our business, which we are currently
evaluating. We are engaged in negotiations to license one of these patents. If
we do not successfully license this intellectual property, we have been
notified that a lawsuit will be filed against us. We are currently evaluating
the other patent for any potential infringement issues and for any usefulness
to our business. We expect that other potentially relevant patents may come to
our attention from time to time in the future. We believe that participants in
our market are increasingly attempting to obtain patent protection for their
business methods, and some competitors such as Catalina Marketing and e-
centives have announced that they have applied for additional patents. We
cannot predict when or if patents will result from these efforts, or whether
any of these third parties' patents will cover aspects of our business. The
details of currently pending United States patent applications are not publicly
disclosed until the patent is issued. Any third-party claim, with or without
merit, could be time-consuming, result in costly litigation, cause us to reduce
or alter our services, delay or prevent service enhancements or require us to
enter into royalty or licensing agreements.
In addition, legal standards regarding the validity, enforceability and
scope of intellectual property in Internet-related businesses are unproven and
continue to evolve. In this legal environment, we may be required to license
other parties' proprietary rights in an effort to clarify our ability to
conduct business or develop new services. For example, we have entered into two
license agreements with the owner of patents covering aspects of the issuance
of printed coupons and the conduct of interactive games and contests. Further
royalty or licensing agreements, if required, might not be available on terms
acceptable to us, or at all. If there is a successful claim of infringement
against us and we are unable to develop non-infringing technology or license
the infringed or similar technology on a timely basis, our business could be
substantially harmed. Please see "Business--Legal Proceedings."
Protecting our patents, trademarks and proprietary rights may be costly and may
distract our management
We regard the protection of our patent rights, copyrights, service marks,
trademarks, trade dress and trade secrets as critical to our future success.
However, the steps we take to protect these and other proprietary rights will
be costly, may require significant management resources and may be inadequate.
For example, we incurred approximately $1.0 million in legal fees and expenses
in 1999 to protect our proprietary rights. If we are unsuccessful in protecting
our proprietary rights, our business will be seriously harmed.
Patents
We have one issued United States patent and three pending United States and
17 foreign patent applications directed to different aspects of our technology
and business processes. Nevertheless, it is possible that:
. our U.S. patent and any other patent we may obtain could be successfully
challenged by third parties, which could deprive us of the right to
prevent others from exploiting the electronic certificate issuing and
processing method or other inventions claimed in our current or future
patents;
8
<PAGE>
. current and future competitors could devise new methods of competing with
our business that are not covered by our issued patent or any patents we
may obtain, or against which our patent and any other patent we may
obtain may be ineffective;
. our pending patent applications may not result in the issuance of
patents; and
. a third party may have or obtain one or more patents that cause specific
aspects of our business to be restricted or that require us to pay
license fees.
In addition, we cannot predict how recently enacted United States laws may
impact our proprietary rights. For example, the American Inventor's Protection
Act, which became law in October 1999, may grant partial or full immunity to
certain qualified methods of doing business from the full exclusionary rights
otherwise afforded to validly issued patents. There currently is no substantial
judicial precedent addressing this new law. We are also uncertain as to whether
countries other than the United States will grant patents for inventions
pertaining to Internet-related businesses, or as to the extent of protection
those foreign patents would afford if issued. As in the United States, the
legal standards applied abroad for intellectual property in Internet-related
businesses are evolving and unproven. Any ruling or legislation that reduces
the validity or enforceability of our patents will seriously harm our business.
We presently have six lawsuits pending against companies we believe have
infringed on our patent. This litigation has been and will continue to be
costly, and is likely to continue over the course of several years. These
lawsuits are at an early stage, and the outcome of these lawsuits may not be
favorable to us. We may not prevail and prevent others from infringing on our
patents and using our proprietary rights. Furthermore, some of the companies we
have sued have filed counterclaims or separate lawsuits against us seeking
damages or to prevent us from using features of our system or business, and one
company has advised us that it is taking steps in the United States Patent and
Trademark Office to contest our patent rights. Other defendants may take
similar actions. Please see "Business--Legal Proceedings."
Trademarks, Copyrights and Trade Secrets
We rely on a combination of laws and contractual restrictions to establish
and protect our proprietary rights. We generally have entered into
confidentiality and invention assignment agreements with our employees and
contractors, and into non-disclosure agreements with parties with which we
conduct business, in order to limit access to and disclosure of our proprietary
information. These contractual arrangements and other steps we have taken to
protect our intellectual property may not prevent misappropriation of our
proprietary rights or deter independent third-party development or use of
similar intellectual property. In addition, we have registered and have applied
for registration of trademarks and service marks in the United States and in
other countries. However, our pending registrations might not be issued and our
registered marks may not prevent others from using similar marks.
Domain Names
We currently hold the Internet domain name coolsavings.com, as well as
various other related names. The requirements for holding domain names could
change. As a result, we may not acquire or maintain the "coolsavings.com"
domain name in all of the countries in which we conduct business or in which we
wish to conduct business in the future. This could impair our efforts to build
brand recognition and to increase traffic to our web site. We also could be
subject to disputes over our ownership of our domain names, which could be
costly and disruptive.
Licenses
In the future, we may license portions of our intellectual property,
including our issued patent, to third parties. To date, we have granted one
competitor immunity from suit under our patent, on the condition that the
competitor restrict its coupon distribution in ways acceptable to us.
Similarly, we have also licensed
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two other competitors under our patent on the condition that they restrict
their coupon distribution in ways acceptable to us. If the nature or scope of
the immunity or licenses were disputed, we would need to institute proceedings
to enforce our rights under these agreements or under our patent.
We may lose business or incur liabilities to our advertisers due to
uncertainties or inaccuracies in our database information
It is important to our advertisers that we accurately track our members'
demographics, our delivery of offers and advertisements and, in some instances,
redemptions of incentives offered through CoolSavings. We have developed
systems designed to record information about our members' demographic profiles,
usage of our web site and other member information. If these systems do not
perform as intended, we may not be able to evaluate accurately our members'
household characteristics or the success of an advertiser's promotional
campaign. Advertisers' willingness to use our services depends in part on the
size of our membership base. In addition, in some cases our advertising rates
increase as our registered membership increases and some of our advertising
contracts require us to maintain or attain specified membership or usage
levels. It is difficult to report our membership numbers accurately because
some individuals may register more than once under different e-mail addresses,
and members of households already registered with us may subsequently register
themselves individually. Many of our members were registered on our web site by
other members of their households and tend to use our web site less frequently
than the members who registered them, if at all. Furthermore, we rely on the
accuracy of the demographic, income and other information provided by our
registering members. If advertisers perceive our tracking and evaluations to be
unreliable or if our members' self-reported information proves to be
inaccurate, we may lose current and potential advertisers, suffer erosion in
our advertising rates or face disputes over proper advertising charges.
Failure to promote and protect our brand will harm our business
We believe that strengthening our brand will be increasingly important
because our market is competitive and has low barriers to entry. Our ability to
promote and position our brand depends on the success of our marketing efforts
and whether we can provide high quality services that motivate our members to
use CoolSavings. To promote our brand, we will need to invest heavily in
marketing to create and maintain brand loyalty among members. We intend to
continue to expand our offline marketing efforts in such media as broadcast and
print, where we have limited experience. These initiatives have involved and
will continue to involve significant expenses. For instance, during the last
six months of 1999, we spent approximately $9.4 million to promote our brand.
The outcome of our marketing efforts is difficult to predict. If our brand
enhancement strategy is unsuccessful, our business will be harmed. In addition,
we rely on co-branding relationships as sources for new members. These co-
branded programs function together with our advertisers' established
promotional vehicles to direct consumers to a special CoolSavings web address.
To the extent anyone we co-brand with is subject to negative publicity, the
goodwill associated with our brand may be harmed.
We may not be able to compete successfully against current and future
competitors
The market for e-marketing services is new, rapidly evolving and intensely
competitive. Barriers to entry for companies in our market are low, and current
and potential competitors can launch new web sites and e-marketing services at
relatively low cost.
Currently, we compete directly with online marketing companies in several
fields:
. direct marketers, such as FreeShop, LifeMinders and YesMail;
. incentive services, such as Cybergold, MyPoints and Netcentives;
. coupon providers, such as the online division of Catalina Marketing, e-
centives and planet U; and
. sweepstakes providers, such as Promotions.com.
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We also face competition from traditional direct marketers, including
leading distributors of traditional coupons by mail or newspaper inserts and
from companies offering affinity rewards tied to responses to advertisements.
We expect that some of the leading distributors of traditional newspaper-insert
coupons, which have significant existing relationships with advertisers such as
consumer packaged goods companies, will compete against us directly by
delivering their promotions over the Internet. For example, Valassis
Communications, a leading distributor of newspaper-insert coupons, recently
began to offer online services. We also compete with other web sites, portals
and advertising networks, as well as traditional offline media such as
television, radio and print, for a share of advertisers' total advertising
budgets and for consumers' attention.
Many of our current and potential competitors have longer operating
histories, greater brand recognition, larger customer or user bases, and
significantly greater financial, marketing, technical and other resources than
we do. In addition, our competitors may be acquired by, receive investments
from or enter into other commercial relationships with larger, well-established
and well-financed companies. Therefore, some of our competitors may be able to
devote greater resources to marketing and promotional campaigns, adopt more
aggressive pricing policies and devote substantially more resources to web site
and systems development. They may also try to attract advertisers by offering
free services. Increased competition may cause us to lose brand recognition and
market share and could otherwise harm our business.
In 1999, approximately 21.6% of our revenues were derived from our five largest
advertisers and our revenues may be concentrated among a limited number of
advertisers in the future
During 1999, although no advertiser accounted for more than 6.8% of our
revenues, approximately 21.6% of our revenues were derived from our five
largest advertisers. We believe that a relatively small number of advertisers
may account for a substantial portion of our revenues in future periods. If any
of our major advertisers were to reduce their advertising purchases
substantially or to stop using our services, our business would be seriously
harmed.
Many of our customers are emerging Internet companies that represent credit
risks
A significant portion of our revenues is derived from sales of advertising
to online retailers and service providers. For instance, in 1999, approximately
51% of our revenues were generated from promotional services used predominantly
by online retailers and service providers and approximately 22% of our revenues
were generated from promotional services used by companies with both an online
and offline presence. Many of these companies have limited operating histories,
are incurring substantial losses and have limited access to capital. Many of
these companies represent credit risks and could fail. If these advertisers
experience financial difficulties or fail to achieve commercial success, our
business will suffer.
If we do not manage our growth, our business will be seriously harmed
During 1999, we experienced rapid growth in our operations and we anticipate
that further expansion will be required to address potential growth in our
member and advertiser base and market opportunities. During that year, we
expanded from 53 to 121 employees and, during the fourth quarter of 1999, we
expanded from 100 employees to 121 employees. Our new employees include a
number of managerial, marketing, planning, technical and operations personnel
who have not yet been fully integrated into our business, and we expect to add
additional personnel in the near future. This expansion has placed a
significant strain on our management, operational and financial resources, and
we expect that strain to continue.
To manage the expected growth of our operations, we will need to improve our
existing and implement new operational and financial systems, procedures and
controls. We will also need to expand our finance,
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administrative, client services and operations staff and train and manage our
growing employee base effectively. Our current and planned personnel, systems,
procedures and controls may not be adequate to support our future operations.
Additionally, we plan to relocate our headquarters to downtown Chicago during
mid-2000, which could be costly and disruptive. We anticipate that this
relocation will cost approximately $400,000. If our new office space proves to
be inadequate for our growth, we may have to spend additional resources to
accommodate our operations.
We may also pursue acquisition or investment opportunities that would
complement our current business. If we are unable to make these acquisitions or
investments, or have difficulty integrating any new entities or technologies,
our business could be harmed. Our business, results of operations and financial
condition will suffer if we do not effectively manage our growth.
Our failure to attract, assimilate and retain highly skilled personnel would
seriously harm our business
Our future success depends on the continued services of our senior
management and other key sales and technical personnel, particularly Steven M.
Golden, our Chairman, Chief Executive Officer and President, David H. Jacobson,
our Executive Vice President, Finance and Chief Financial Officer, Matthew
Moog, our Executive Vice President, Sales and Marketing, John J. Adams, our
Executive Vice President, Operations and Technology, and Jonathan J. Smith, our
Executive Vice President, Strategic Business Development. We do not have long-
term employment agreements with any of our key personnel and maintain no "key
person" life insurance policies. The loss of the services of any of our
executive officers or other key employees would likely have a negative effect
on our business, results of operations and financial condition.
Our future success also depends on our ability to identify, attract, retain
and motivate highly skilled employees, particularly additional technical, sales
and marketing personnel. Competition for employees in our industry is intense.
We have occasionally encountered and expect to continue to encounter
difficulties in hiring and retaining highly skilled employees, particularly
qualified software developers for our web site and database systems. We may be
unable to retain our key employees or identify, attract, assimilate or retain
other highly qualified employees in the future, which may in turn harm our
business.
Our reputation and business could be damaged if we encounter system
interruptions or capacity limitations
We seek to generate a high volume of traffic and transactions on our web
site. Our database must also handle a large volume of member data and
information about members' usage of our web site. The satisfactory performance,
reliability and availability of our web site, database systems and network
infrastructure are critical to our reputation and our ability to attract and
retain large numbers of members. Our revenues depend on promotional offers
being readily available for members and our ability to process their coupon
downloads, e-mail responses or other transactions on our web site. Any system
interruptions that result in the unavailability of our service or reduced
member activity would impair the effectiveness of our service for advertisers.
Interruptions of service may also inhibit our ability to attract and retain
members, which in turn will hinder our sales and marketing efforts. We have
experienced periodic system interruptions, which may occur from time to time in
the future. For instance, for two weeks during the summer of 1998, we
experienced network access interruptions that lasted minutes at a time because
of a problem with the access routers in the local access network of our primary
Internet service provider.
Additionally, recent acts of sabotage, known as denial of service attacks,
on prominent, high traffic web sites have caused extended interruption of
services on those web sites. Like other operators of web sites, we could also
face system interruption or shutdown as a result of a denial of service attack.
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A substantial increase in rate of traffic on our web site will require us to
expand and upgrade our technology, processing systems and network
infrastructure. Any unexpected upgrades could be disruptive and costly. In
addition, our existing systems may encounter unexpected problems as our member
base expands. Our failure to handle the growth of our databases could lead to
system failures, inadequate response times or corruption of our data, and could
negatively affect our business, results of operations and financial condition.
We may be unable to expand and upgrade our systems and infrastructure to
accommodate this growth in a timely manner. Any failure to expand or upgrade
our systems could damage our reputation and our business.
Furthermore, the increased use of the Internet has caused frequent
interruptions and delays in accessing and transmitting data over the Internet.
If the use of the Internet continues to grow rapidly, the Internet's
infrastructure may not continue to support the demands placed on it and its
performance and reliability may decline. Interruptions or delays in Internet
transmissions will disrupt our members' ability to access advertisers' offers
on our web site and our ability to send targeted e-mail, which may in turn
seriously harm our business and financial results. We also rely on web browser
technology to create and target promotional offers. If access to these web-
based systems is interrupted, our ability to disseminate new offers will be
impaired, which could cause lost revenues or disputes with our advertisers.
We rely on third-party service providers, and any disruption or failure in the
services they provide will harm our business
We rely on three third-party service providers to provide access to our web
site and support its operation. One of these third parties provides a co-
location facility that houses our web servers and our database, another is an
Internet service provider and the third provides telecommunication services.
Any interruption or failure in these services or a deterioration in their
performance could disrupt our business. Our support arrangements with these
providers are for a term of one year and may be canceled on 30 days notice in
certain circumstances. In the event these arrangements are terminated, we may
not be able to find alternative service providers on a timely basis or on terms
acceptable to us, or at all, which in turn would harm our business. In
addition, we rely on software licenses from third parties, such as two software
packages from L-Soft International, Inc. that we use to transmit e-mail to our
members. If these licenses are terminated, we may not be able to find and
install satisfactory alternate software on a timely basis or on terms
acceptable to us, or at all, which will harm our business.
Our business could be damaged by natural disasters and other unexpected
problems
Our success and our ability to attract new members and motivate our members
to respond to our advertisers' offers depend on the efficient and uninterrupted
operation of our computer and communications hardware systems. Our web servers
and the database behind our system are currently located at our Chicago
headquarters. In addition, the servers we use to perform data analysis are
housed at an Exodus Communications data center in Oak Brook, Illinois. Although
we have also contracted with Exodus to host a redundant system, we have not yet
directed substantial traffic to this Exodus system. The computer systems at
each of our two hosting sites are vulnerable to damage or interruption from
floods, fires, power loss, telecommunication failures, and other natural
disasters. In addition, our Chicago facility has only two hours of emergency
back-up power. The occurrence of a natural disaster or other unanticipated
problems at our facility or at the Exodus facility could result in
interruptions in or degradation of our services. Our business interruption
insurance may not adequately compensate us for resulting losses.
Furthermore, the computer servers running our system are vulnerable to
general mechanical breakdown or component failure, computer viruses, physical
or electronic break-ins, sabotage, vandalism and similar disruptions, which
could lead to loss or corruption of data or prevent us from posting offers on
our web site, sending e-mail notifications of new offers or delivering coupons
or other certificates to our members. System failure or degradation resulting
from under-capacity or from any of these risks could harm our business.
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We may be subject to claims as a result of our data analysis activities, which
could result in loss of members
The information in our database is an integral part of our business. We have
designed our technology infrastructure and services to allow us to aggregate
data regarding specific member behavior. We have a strict privacy policy that
governs how we use information about our members. We currently do not sell
member-identifying information to third parties without the consent of the
member and have no plans to do so in the future. Furthermore, our e-mail
notices are only sent to members who have elected to receive them. However,
some people who receive promotions from us may still be unhappy that we
contacted them. In addition, while we strictly protect the identity of
individual members, we do provide advertisers with aggregate information
regarding member demographics, shopping preferences and past behavior. Our use
of this aggregated information may cause dissatisfaction among our members or
otherwise lead to negative publicity. There has been substantial publicity,
governmental investigations and litigation regarding privacy issues involving
the Internet and Internet-based advertising. To the extent that our data mining
activities conflict with any privacy protection initiatives or if any private
information is inadvertently made public, we may be subject to legal claims. If
our members become unhappy with our use of the information in our database, or
if we are subject to legal proceedings or governmental investigations regarding
our use of our database, our business will be harmed.
Our business will be harmed if our online security measures fail
Because our efforts to attract and retain members depend on potential
members' expectations of privacy in using our services, our business could be
damaged by any security breach of our database or web site. We may be required
to spend significant capital and other resources to protect against security
breaches or to alleviate problems caused by these breaches. Someone
circumventing our security measures could misappropriate proprietary
information, corrupt our database or otherwise interrupt our operations. We
could also be subject to liability as a result of any security breach or
misappropriation of our members' personal data. This could include claims for
unauthorized purchases with credit card information, impersonation or other
similar fraud claims, as well as claims based upon other misuses of personal
information, such as unauthorized marketing. These claims could result in
costly litigation and could limit our ability to attract and retain advertisers
and members. Our security measures may fail to prevent security breaches. Any
failure to prevent security breaches will damage our reputation and harm our
business.
We may be liable for supplying inaccurate promotional information to consumers
We may face liability if the promotional information in the offers available
to our members is inaccurate. Our employees may make errors in posting our
advertisers' promotions. In addition, our advertisers may make errors entering
promotional offers directly into CoolSavings using our SavingsCenter software,
and we do not proofread or otherwise verify all of these offers. Any
liabilities which we may incur because of inaccurate information in the offers
we deliver could harm our business, results of operations and financial
condition. Additionally, any negative publicity generated as a result of
inaccurate information in the offers we deliver could damage our reputation and
diminish the value of our brand name.
We may be harmed if our advertisers fail to honor their promotions on our web
site or to comply with applicable laws
Our success depends largely upon retailers honoring our printed coupons and
upon advertisers reliably delivering and accurately representing the listed
goods and services. We have occasionally received, and expect to continue to
receive, complaints from our members about retailers' failure to honor our
coupons or about the quality of the goods and services featured in our
promotions. These complaints may be accompanied by requests for reimbursement
or threats of legal action against us. Any resulting reimbursements or related
litigation could be costly for us, divert management attention, increase our
costs
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of doing business or otherwise harm our business, financial condition or
results of operations. In addition, our advertisers' promotion of their goods
and services may not comply with federal, state and local laws. Our role in
facilitating advertisers' sales activities may expose us to liability under
these laws. If we are exposed to this kind of liability, we could be required
to pay substantial fines or penalties, redesign our web site or business
processes, discontinue some of our services or otherwise spend resources to
avoid liability.
Expanding internationally could be costly and disruptive
We intend to expand our business internationally, which will require
significant management attention and financial resources. Our international
expansion efforts will focus initially on Canada, Australia and the United
Kingdom, and we expect to expand into other countries in the long term. We have
no experience in operating internationally, and we may be unable to compete
effectively in international markets. We believe that our expansion efforts
into Canada, Australia, the United Kingdom or any other country will be subject
to a number of risks and uncertainties, including:
. potentially more stringent regulation and liability standards;
. unexpected changes in regulatory requirements;
. difficulties and costs of staffing and managing international operations;
. differing technological standards;
. varying and evolving legal standards for intellectual property covering
Internet-related inventions;
. inadequate protection of intellectual property in some countries;
. difficulties and costs involved in tailoring our services to local
advertising practices and customer preferences;
. difficulties in collecting accounts receivable through foreign legal
systems;
. fluctuations in the value of the U.S. dollar relative to other
currencies; and
. potentially adverse tax consequences.
Any of these factors could impair our ability to expand into international
markets, or could significantly increase our expenses in future periods. In
addition, we may pursue our international expansion strategy by entering into
joint ventures or licensing our intellectual property to third parties. We may
be unable to control these parties' activities, which could hinder our
expansion efforts and could damage our brand.
We are a defendant in a securities-related lawsuit
We have been named as a co-defendant in a lawsuit filed in 1999 against our
Chief Executive Officer by his ex-wife. This lawsuit is based upon the
plaintiff's sale of shares of our common stock to our Chief Executive Officer
in March 1998 and makes various allegations including fraud. The suit seeks
damages in excess of $6.5 million. While we believe that this lawsuit lacks
merit, a negative outcome in this litigation could subject us to substantial
damages and negative publicity. Our defense of this litigation, even if
successful, could be costly and time-consuming.
Risks Related To Our Industry
We depend on widespread acceptance of online direct marketing and promotions
and the continued growth of online commerce
Our success depends on the continued growth and acceptance by both consumers
and advertisers of online direct marketing and other promotional services
available through the Internet. Although incentive promotions and direct
marketing have been provided for many years through newspaper inserts, direct
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mailing and other conventional marketing and sales channels, they have only
recently been offered on the Internet. Many of our current or potential
advertising customers, particularly traditional offline businesses, have little
or no experience using the Internet for advertising purposes, and may be
reluctant to spend money on our services. As a result, we face a longer sales
cycle when dealing with traditional offline businesses. At times, these sales
cycles can last more than a year. In addition, some traditional retailers may
not readily accept our computer-generated certificates as valid, in part
because of their cashiers' lack of familiarity with them and the perceived risk
that these coupons can be counterfeited. The other services we offer, including
the use of targeted e-mails to alert consumers to savings opportunities, also
represent new marketing methods whose acceptance by consumers and advertisers
is less certain than traditional marketing methods. Although we do not send
unsolicited e-mail, known as "spam," negative public perception associated with
"spam" could reduce the demand for our services.
In addition, we are dependent upon the continued growth of the Internet as a
medium for commerce. Demand for services and products sold over the Internet is
uncertain for a number of reasons, including concerns related to the security
of transactions, network reliability and poor performance. Changes in or
insufficient availability of telecommunications services to support the
Internet also could result in slower response times and reduce usage of the
Internet. If use of the Internet does not continue to grow, grows more slowly
than expected or does not become a viable commercial marketplace, our business,
results of operations and financial condition will suffer.
Changes in consumer and advertiser trends could harm our business
We derive substantially all of our revenues from fees charged to advertisers
for our promotional services. Therefore, we will be affected by changing trends
in retail advertising, such as the trend away from periodic promotions and
toward "everyday low prices." In addition, many of our advertisers are national
retailers and suppliers of consumer products and services. These businesses are
affected by the general economy as well as consumer confidence, which has at
times diminished despite otherwise strong financial conditions. Consumer
spending also can be affected by trends related to lifestyle, such as changing
tastes in fashion or entertainment. Any decline in demand for our services as a
result of changes in consumer or advertiser trends could harm our business,
results of operations and financial condition.
We may not be able to keep up with rapid technological developments and
evolving industry standards
The Internet is characterized by rapidly changing technology, evolving
industry standards, frequent new service and product announcements,
introductions and enhancements and changing consumer and advertiser demands.
Our future success will depend on our ability to adapt our services to rapidly
changing technologies and evolving industry standards and to continually
improve the performance, features and reliability of our services. For example,
we may be required to adapt our services to be compatible with Internet-
connected devices other than traditional personal computers, such as handheld
and wireless devices. We may also need to adapt to evolving standards resulting
from the convergence of the Internet, television and other media. The
widespread adoption of new Internet, networking or telecommunications
technologies or other technological changes could require us to incur
substantial expenditures to modify or adapt our services or infrastructure.
Federal, state and local governments may further regulate the Internet and
Internet advertising, which could substantially harm our business
The adoption or modification of laws or regulations relating to the Internet
and Internet-based advertising could harm our business. In particular, our
business could be severely damaged by any regulatory restrictions on our
collection or use of information about our members.
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Laws and regulations that apply to Internet advertising and communications
and Internet users' privacy are becoming more prevalent. For example, the
United States Congress and Federal Trade Commission recently adopted laws and
regulations regarding the online collection and use of information from
children and the content of Internet communications, and various states
regulate e-mail marketing. However, even in areas where there has been some
legislative action, the laws governing the Internet remain largely unsettled.
There is no single government body overseeing our industry, and some existing
state laws have different and sometimes inconsistent application to our
business. It may take years to determine whether and how existing laws, such as
those governing intellectual property, privacy, libel, taxation and the need to
qualify to do business in a particular state, apply to the Internet and
Internet advertising. Also, we conduct trivia quizzes and other contests and
sweepstakes on our web site, which may be subject to gaming and sweepstakes
laws. Our attempts to comply with these laws may be inadequate, in part because
the effect of these laws on our activities is often unclear.
We expect that regulation of the Internet and Internet advertising will
intensify. New laws could slow the growth in Internet use and decrease the
acceptance of the Internet as a commercial medium, which would harm our
business. For example, a number of proposals to restrict the collection of
information about Internet users and to tax Internet-based transactions are
under consideration by federal, state, local and foreign governmental
organizations. A three-year federal moratorium on new state Internet sales tax
legislation is currently in effect, but it is scheduled to expire in 2001 and
does not preempt existing state tax laws. An increase in the taxation of online
transactions or other new regulations could increase our costs of doing
business or otherwise harm us by making the Internet less attractive for
consumers and businesses. In addition, existing laws such as those governing
intellectual property and privacy may be interpreted to apply to the Internet
and Internet advertising. Our strategy to expand into international markets
will likely subject us to additional regulation. Foreign countries, for example
those in the European Union, often regulate areas such as Internet user privacy
more strictly than the United States.
Any application of existing laws and regulations to the Internet, new
legislation or regulation that imposes stricter restrictions on privacy,
consumer protection or advertising practices, any government investigation of
our privacy practices or other business methods, or the application of laws
from jurisdictions whose laws do not currently apply to us could:
. create uncertainty in the marketplace that could reduce demand for our
services;
. limit our ability to collect and to use data from our members, which
could prevent us from attracting and retaining advertisers;
. result in expensive litigation, costly and disruptive efforts to respond
to governmental investigations and burdensome fines or penalties;
. require us to redesign our web site, registration process, database or
targeting methods, any of which could be expensive and disruptive to our
business;
. increase the cost of delivering our services to advertisers;
. require us to qualify to do business in additional jurisdictions, or
subject us to liability for having failed to qualify to do business
wherever our members reside;
. reduce the efficacy of our targeted promotional services; or
. in some other manner harm our business, results of operations and
financial condition.
Our business may suffer if the security of Internet commerce is compromised
Concerns about the security of transactions conducted on the Internet and
consumer privacy may inhibit the growth of the Internet generally, and online
commerce in particular. Any compromise of security involving Internet-based
transactions could result in negative publicity and deter people from using the
Internet or from using it to conduct transactions that involve transmitting
confidential information, such as
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registering for membership or purchasing goods and services. This could harm
our business because most of our advertisers use our services to encourage
people to purchase goods or services on the Internet.
We may be adversely affected by problems relating to the Year 2000 issue
Problems associated with software and computer systems' use of two digits to
define the year, referred to as "Year 2000" issues, could harm our business.
Although to date we are not aware of any significant Year 2000 issues relating
to our principal internally developed programs and systems, or systems provided
to us by others, these systems could experience Year 2000 problems at any time
during 2000 and beyond. These problems could disrupt our business and require
us to incur significant, unanticipated expenses to remedy them. They could also
result in claims and litigation against us, which could subject us to
significant costs and could require substantial attention from our management.
Similarly, our business could be severely harmed if our Internet service
providers and other third parties on which our services depend encounter Year
2000 issues, or if Year 2000 problems cause malfunctions at our facilities or
at Exodus Communications' facilities. In addition, Year 2000 problems may
arise, limiting our members' ability to access the Internet, "click-through" to
our advertisers' web sites or otherwise respond to offers we deliver, which
would harm our operating results.
Risks Related To This Offering
We may be unable to meet our future capital requirements
We currently anticipate that the net proceeds of this offering, together
with our available funds, will be sufficient to satisfy our anticipated needs
for working capital, capital expenditures and business expansion for at least
the next 12 months. After that time, we may need additional capital. However,
if our growth rate exceeds our expectations, we may need to raise additional
funds sooner in order to fund expansion, to develop new or enhanced products or
services, to make strategic acquisitions or to respond to competitive
pressures.
We have a $6.5 million bank line of credit. We currently do not have any
other commitments for additional financing. Additional financing may not be
available to us on favorable terms or at all. If adequate funds are not
available on acceptable terms, we may not be able to continue or expand our
business operations. This in turn could harm our business, results of
operations and financial condition. If we raise additional funds through the
issuance of equity or convertible debt securities, the percentage ownership of
our existing stockholders will be diluted. Furthermore, any new securities
could have rights, preferences and privileges senior to those of our common
stock.
Our principal stockholders, executive officers and directors will beneficially
own approximately 59.6% of our outstanding common stock after this offering
and, therefore, will exercise significant control over us, and third parties
may be deterred from acquiring us
Our executive officers, directors and entities affiliated with them will, in
the aggregate, beneficially own approximately 59.6% of our outstanding common
stock immediately after this offering. As a result, these stockholders, if
acting together, will have the ability to control all matters requiring
approval by our stockholders, including the election and removal of directors
and the approval of any merger, consolidation or sale of all or substantially
all of our assets. This could discourage others from initiating potential
merger, takeover or other change of control transactions, which could cause our
stock price to decline.
In addition, provisions of our articles of incorporation, our bylaws and
Michigan law could make it difficult for a third party to acquire us or change
our management, even if doing so would be beneficial to our stockholders. These
provisions include:
. authorizing the board to issue one or more series of preferred stock;
. limiting the persons who may call special meetings of stockholders;
18
<PAGE>
. prohibiting stockholder action by written consent;
. prohibiting stockholders to fill any vacancy on the board; and
. establishing advance notice requirements for nominations for election of
directors or for proposing matters that can be acted on by stockholders
at stockholder meetings.
Please see "Description of Capital Stock."
Our stock price is likely to be highly volatile, and you may not be able to
sell your shares at a profit
The market price of our common stock is likely to be highly volatile and
could be subject to wide fluctuations in response to factors such as the
following, many of which are beyond our control:
. quarterly variations in our operating results;
. operating results that vary from the expectations of securities analysts
and investors;
. changes in expectations as to our future financial performance, including
financial estimates by securities analysts and investors;
. changes in market valuations of other Internet companies;
. governmental regulation of the Internet or Internet advertising,
including any governmental inquiry of another Internet company;
. loss of a major advertiser;
. resolution of our pending or future patent litigation or other changes in
the status of our intellectual property rights;
. announcements of significant claims or legal proceedings against us;
. announcements of technological innovations or new services by us or our
competitors;
. announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
. departures of key personnel; and
. future sales of our common stock.
Domestic and international stock markets often experience extreme price and
volume fluctuations. The market prices of the securities of Internet-related
and technology companies, particularly following an initial public offering,
are often highly volatile and subject to wide fluctuations that bear little
relation to actual operating performance of these companies. As a result,
investors may be unable to sell shares of our common stock at or above the
price they paid for the stock.
In the past, some companies that have experienced volatility in the market
price of their stock have been the object of securities class action
litigation. Securities class action litigation involving CoolSavings would
result in substantial costs and a diversion of management's attention and
resources, and would harm our stock price.
Substantial sales of our common stock could cause our stock price to fall
After this offering, we will have approximately 38,905,374 shares of common
stock outstanding, or 39,535,374 shares if the underwriters' over-allotment
option is exercised in full. The 4,200,000 shares sold in this offering, or
4,830,000 shares if the underwriters' over-allotment option is exercised in
full, will be freely tradable without restriction or further registration under
the federal securities laws unless purchased by our
19
<PAGE>
affiliates. The remaining 34,705,374 shares of common stock outstanding after
this offering will be available for sale in the public market as follows:
<TABLE>
<CAPTION>
Number of Shares Date of Availability for Sale
---------------- -----------------------------
<S> <C>
323,035 Immediately after the date of this prospectus
120,120 At various times after the date of this prospectus and prior to
180 days after the effective date of the registration statement
containing this prospectus
31,411,184 180 days after the effective date of the registration statement
containing this prospectus (subject in some cases to volume
limitations)
2,851,035 At various times after 180 days following the effective date
of the registration statement containing this prospectus
</TABLE>
The above table assumes the effectiveness of lock-up arrangements with the
underwriters under which substantially all of our stockholders have agreed not
to sell or otherwise dispose of their shares of common stock. Most of the
shares that will be available for sale after the expiration of the lock-up
period will be subject to volume limitations because they are held by our
affiliates. In addition, Chase Securities Inc. may remove these lock-up
restrictions prior to the expiration of the lock-up period without prior
notice.
If our stockholders sell substantial amounts of common stock in the public
market, the market price of our common stock could fall. These sales also might
make it more difficult for us to sell equity or equity-related securities in
the future at a time and price that we deem appropriate. Please see "Shares
Eligible for Future Sale."
Our management has broad discretion over the use of the offering proceeds and
might not use them in a manner which yields a favorable return
The net proceeds from this offering are estimated to be approximately $45.8
million after deducting the estimated underwriting discounts and estimated
offering expenses. Our management will retain broad discretion over how to use
the proceeds of this offering. Our investments of these proceeds may not yield
a favorable return, and purchasers of common stock in this offering may
disagree with the manner in which our management elects to use these proceeds.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. These statements relate to our future plans, objectives,
expectations and intentions, and the assumptions underlying or relating to any
of these statements. In some cases, you can identify forward-looking statements
by terminology such as "may," "will," "should," "could," "anticipates,"
"expects," "plans," "estimates," "intends," "believes," "predicts" and similar
expressions. Our actual results could differ materially from those discussed in
these statements. Factors that could contribute to these differences include,
but are not limited to, those discussed above under "Risk Factors" and
elsewhere in this prospectus. We do not undertake to update any of the forward-
looking statements after the date of this prospectus to conform these
statements to actual results, unless required by applicable securities laws.
20
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the 4,200,000 shares of
common stock offered by us will be approximately $45.8 million, or $52.8
million if the underwriters' overallotment option is exercised in full,
assuming an initial public offering price of $12.00 per share, and after
deducting estimated underwriting discounts and commissions and other estimated
offering expenses.
The principal purposes of this offering are to increase our working capital,
create a public market for our common stock, facilitate our future access to
the public capital markets and increase our visibility in our marketplace. We
intend to use the net proceeds of this offering for general corporate purposes,
including operational expenses, such as personnel and sales and marketing, and
capital expenditures. We cannot at this time assign any particular amount to a
specific use. The amounts and timing of our actual expenditures will depend on
numerous factors, including the status of our marketing and branding
activities, the need to hire new employees and the amount of cash generated or
used by our operations. We may also use a portion of the net proceeds,
currently intended for general corporate purposes, to acquire or invest in
complementary businesses, technologies, products or services. We have no
present plans or commitments and we are not currently engaged in negotiations
for any such transactions. Our management will retain broad discretion in the
allocation of the net proceeds of this offering.
Pending these uses, we intend to invest the net proceeds in short-term,
investment grade, interest-bearing securities.
DIVIDEND POLICY
We have never declared nor paid any cash dividends on our common stock. We
currently anticipate that we will retain any future earnings for the
development and operation of our business. In addition, our credit facility
currently prohibits the payment of cash dividends on our capital stock.
Accordingly, we do not anticipate paying cash dividends on our capital stock in
the foreseeable future.
21
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
. on an actual basis;
. on a pro forma basis after giving effect to the conversion of all
outstanding convertible subordinated notes into 462,627 shares of common
stock assuming an initial public offering price of $12.00 per share and
the conversion of all outstanding Series A convertible preferred stock
into 2,527,298 shares of common stock, both of which will occur
automatically upon completion of this offering, and the inclusion of a
beneficial conversion feature of $555,000 related to the conversion of
the convertible subordinated notes which has been reflected as additional
paid-in capital; and
. on the same pro forma basis as adjusted to reflect the receipt of the
estimated net proceeds from our sale of 4,200,000 shares of common stock
in this offering at an assumed initial public offering price of $12.00
per share.
You should read the following table with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
December 31, 1999
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Convertible subordinated and long-term debt,
including current portion..................... $ 5,874 $ 878 $ 878
Stockholders' equity:
Series A convertible preferred stock, no par
value, 5,000 shares authorized; 2,197.650
issued and outstanding actual; no shares
issued and outstanding pro forma; no shares
issued and outstanding pro forma, as
adjusted.................................... -- -- --
Common stock, no par value, 69,000,000 shares
authorized and 31,715,449 shares issued and
outstanding actual; 69,000,000 shares
authorized and 34,705,374 shares outstanding
pro forma; 100,000,000 shares authorized and
38,905,374 shares outstanding pro forma, as
adjusted.................................... 27,845 32,841 78,613
Additional paid-in capital................... 15,204 15,704 15,704
Notes receivable from related parties........ (2,817) (2,817) (2,817)
Accumulated deficit.......................... (21,112) (21,612) (21,612)
-------- -------- -------
Total stockholders' equity................. 19,120 24,116 69,888
-------- -------- -------
Total capitalization..................... $ 24,994 $ 24,994 $70,766
======== ======== =======
</TABLE>
Share information is based on our shares outstanding as of December 31,
1999, and excludes:
. 4,757,317 shares of common stock reserved for issuance under our 1997
Stock Option Plan, of which 3,864,230 shares were subject to outstanding
options as of December 31, 1999 at a weighted average exercise price of
$3.76 per share;
. 324,737 shares of common stock subject to options granted outside of our
1997 Stock Option Plan and outstanding as of December 31, 1999 at an
exercise price of $0.28 per share; and
. 634,309 shares of common stock reserved for issuance under our 1999 Non-
Employee Director Stock Option Plan, of which 63,250 shares were subject
to outstanding options as of December 31, 1999 at a weighted average
exercise price of $4.69 per share.
22
<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1999 was
approximately $24.3 million, or $0.70 per share of common stock. Pro forma net
tangible book value per share is equal to our net tangible assets less total
liabilities, divided by the pro forma number of shares of common stock
outstanding as of December 31, 1999. At an assumed initial public offering
price of $12.00 per share, after giving effect to the conversion of outstanding
convertible subordinated notes into 462,627 shares of common stock, the
conversion of 2,197.650 shares of outstanding Series A convertible preferred
stock into 2,527,298 shares of common stock and the sale of shares of common
stock in this offering, our pro forma as adjusted net tangible book value at
December 31, 1999 would have been approximately $70.1 million, or $1.80 per
share of common stock. This amount represents an immediate increase in pro
forma net tangible book value of $1.10 per share to existing stockholders and
an immediate dilution in net tangible book value of $10.20 per share to new
investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $12.00
Pro forma net tangible book value per share at December 31,
1999......................................................... $0.70
Increase per share attributable to new investors.............. 1.10
-----
Pro forma net tangible book value per share after the offering.. 1.80
------
Dilution per share to new investors............................. $10.20
======
</TABLE>
The following table summarizes, as of December 31, 1999 on the pro forma
basis described above, the total number of shares of common stock purchased
from us, the total consideration paid to us, and the average price per share
paid by our existing stockholders and by new investors purchasing shares from
us in the offering, at an assumed initial public offering price of $12.00 per
share, before deducting estimated underwriting 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... 34,705,374 89.2% $32,841,027 39.4% $ 0.95
New investors........... 4,200,000 10.8 50,400,000 60.6 12.00
---------- ----- ----------- -----
Total............... 38,905,374 100.0% $83,241,027 100.0%
========== ===== =========== =====
</TABLE>
If the underwriters exercise their over-allotment option in full, the number
of shares of common stock held by new investors will be increased to 4,830,000
or 12.2% of the total number of shares of common stock to be outstanding
immediately after this offering.
Share information is based on our shares outstanding as of December 31,
1999, and excludes:
. 4,757,317 shares of common stock reserved for issuance under our 1997
Stock Option Plan, of which 3,864,230 shares were subject to outstanding
options as of December 31, 1999 at a weighted average exercise price of
$3.76 per share;
. 324,737 shares of common stock subject to options granted outside of our
1997 Stock Option Plan and outstanding as of December 31, 1999 at an
exercise price of $0.28 per share; and
. 634,309 shares of common stock reserved for issuance under our 1999 Non-
Employee Director Stock Option Plan, of which 63,250 shares were subject
to outstanding options as of December 31, 1999 at a weighted average
exercise price of $4.69 per share.
23
<PAGE>
SELECTED FINANCIAL DATA
The statement of operations data set forth below for the years ended
December 31, 1997, 1998 and 1999 and the balance sheet data as of December 31,
1997 and 1998 have been derived from our financial statements, which have been
audited by PricewaterhouseCoopers LLP, independent accountants, whose report
thereon is included elsewhere in this prospectus. The statement of operations
data for the period ended December 31, 1996 and the balance sheet data as of
December 31, 1996 and 1997 are derived from audited financial statements that
do not appear in this prospectus. The statement of operations data for the
period from inception through December 31, 1995 are derived from unaudited
financial statements that do not appear in this prospectus.
You should read the selected financial data set forth below with the
financial statements and related notes and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," which are included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
Inception
through Year Ended December 31,
December 31, ----------------------------------------------
1995 1996 1997 1998 1999
------------ ---------- ---------- ---------- ----------
(unaudited)
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net revenues........... $ -- $ -- $ 110 $ 1,143 $ 12,916
Cost of revenues....... -- -- 148 428 1,818
---------- ---------- ---------- ---------- ----------
Gross profit (loss).... -- -- (38) 715 11,098
Operating expenses:
Sales and
marketing.......... -- 253 1,202 2,494 17,838
Product
development........ -- 131 719 1,217 4,503
General and
administrative..... 16 499 766 2,350 5,890
---------- ---------- ---------- ---------- ----------
Total operating
expenses............. 16 883 2,687 6,061 28,231
---------- ---------- ---------- ---------- ----------
Loss from operations.. (16) (883) (2,725) (5,346) (17,133)
Interest income
(expense), net..... -- 9 (3) 40 265
Amortization of debt
discount........... -- -- (4) (435) --
---------- ---------- ---------- ---------- ----------
Net loss.............. $ (16) $ (874) $ (2,732) $ (5,741) $ (16,868)
========== ========== ========== ========== ==========
Historical loss per
common share, basic
and diluted.......... $ (0.00) $ (0.06) $ (0.15) $ (0.27) $ (0.57)
========== ========== ========== ========== ==========
Weighted average
shares used to
compute historical
basic and diluted
loss per common
share................ 10,962,809 13,697,334 18,266,572 21,547,177 29,804,681
Pro forma loss per
common share, basic
and diluted
(unaudited).......... $ (0.58)
==========
Shares used to compute
pro forma basic and
diluted loss per
common share
(unaudited).......... 30,113,208
</TABLE>
<TABLE>
<CAPTION>
December 31,
---------------------------------
1996 1997 1998 1999
------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.................. $ 449 $ 64 $ 4,895 $17,489
Working capital (deficit).................. 283 (886) 3,788 15,703
Total assets............................... 466 353 6,371 29,590
Long-term debt, including current portion.. 300 241 300 878
Total stockholders' equity (deficit)....... (4) (775) 4,594 19,120
</TABLE>
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You should read the following discussion of our financial condition and
results of operations with the financial statements and the related notes
included elsewhere in this prospectus. This discussion contains forward-looking
statements based on our current expectations, assumptions, estimates and
projections. These forward-looking statements involve risks and uncertainties.
Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of numerous factors, many of which are
described in the "Risk Factors" section and elsewhere in this prospectus. We
are under no duty to update any of the forward-looking statements after the
date of this prospectus to conform these statements to actual results, unless
required by applicable securities laws.
Overview
We provide a comprehensive set of e-marketing solutions used by online and
offline advertisers to build one-to-one customer relationships. Under our
established brand, advertisers can deliver, target and track a wide array of
incentives, including printed and electronic coupons, personalized e-mails,
rebates, samples, sales notices, gift certificates, contests and banner
advertisements to promote sales of products or services in stores or online. We
were incorporated in December 1994 as Interactive Coupon Marketing Group, Inc.
and changed our corporate name to coolsavings.com inc. in November 1998. From
inception through February 1997, our primary activities consisted of initiating
sales and marketing efforts, developing our business model, building our
software and hardware infrastructure, developing and protecting our
intellectual property, raising capital and recruiting employees. We launched
our web site in February 1997 and thereafter began generating revenues.
We generate substantially all of our revenues by providing online marketing,
or e-marketing, services to our advertisers. Approximately 1% of our revenues
are generated from royalty and license fees and other miscellaneous sources. We
charge our advertisers on a variety of bases, the most common of which include:
. the number of offers delivered to members, commonly sold on a cost per
thousand, or CPM, basis;
. the number of times members click on an incentive linking the member to
the advertiser's web site (known as a click-through response);
. the number of purchases made or qualified leads generated; and
. the number of registered members in our database.
Our pricing depends upon a variety of factors, including, without
limitation, the degree of targeting, the duration of the advertising contract
and the number of offers delivered. The degree of targeting refers to the
number of identified household or member attributes, such as gender, age or
product or service preferences, used to select the audience for an offer. Our
advertising rates often are negotiated on a case-by-case basis. Generally, the
rates we charge our advertisers increase as the degree of targeting and
customization increases. Revenues subject to time-based contracts are
recognized ratably over the duration of the contract. For contracts based on
certain performance or delivery criteria, revenues are recognized in the month
performance is delivered to the customer. Most of our advertising contracts
have stated terms of less than one year and include earlier termination
provisions. In 1999, our largest advertiser accounted for approximately 6.8% of
our revenues and our top five advertisers together accounted for approximately
21.6% of our revenues.
Our revenues for each period depend on a number of factors, including the
number of advertisers sending promotional offers to our members, the size of
our membership base and the responsiveness of our members to each promotion. We
believe that our revenues will be subject to seasonal fluctuations in
accordance with general patterns of retail advertising spending, which is
typically highest during the fourth quarter. In addition, expenditures by
advertisers tend to be cyclical, reflecting overall general economic conditions
and consumer buying patterns.
25
<PAGE>
Our cost of revenues consists primarily of Internet connection charges, web
site equipment depreciation, salaries of operations personnel and other related
operations costs. Although our cost of revenues as a percentage of revenues
declined significantly for the year ended December 31, 1999, we have recently
expanded, and expect to continue to expand significantly, our web server
capacity and our investment in data mining tools and personnel. This will
require us to commit relatively large fixed expenses in advance of potential
future revenues. As a result, we expect to incur substantially higher cost of
revenues during future periods. We have added, and anticipate that we will
continue to add, new advertisers, necessitating this investment in
infrastructure. Due to these anticipated increases in our web server capacity
and other infrastructure expenditures, our fixed costs to operate our business
will rise and our gross profit will suffer in the near term until increased
revenues are realized. The demand for our services is subject to seasonal
variations. We will likely experience declines in our gross margin from quarter
to quarter.
We have incurred significant losses since our inception. As of December 31,
1999, our accumulated deficit was approximately $21.1 million. We expect to
continue to incur significant operating losses and capital expenditures. In
particular, we expect to invest heavily in sales and marketing activities,
hiring new personnel, enhancing services and technology, expanding and
relocating facilities and defending intellectual property rights. In addition,
we presently have six lawsuits pending against companies we believe have
infringed our patent, and are defending against counterclaims in these lawsuits
and against four lawsuits filed against us. This litigation has been, and will
continue to be, costly and is likely to continue over the course of several
years. For instance, during 1999, we spent approximately $1.0 million in legal
fees and expenses on this litigation. Because litigation is unpredictable,
future expenses may exceed that amount and any amounts we budget for litigation
costs in the future.
Results of Operations
From our inception until December 31, 1996, we were engaged in start-up
activities and incurred approximately $899,000 of operating expenses. These
operating expenses primarily consisted of investments in technology and
personnel. We earned no revenues during this period. As a result, we believe
comparisons between the period ended December 31, 1996 and the year ended
December 31, 1997 are not meaningful.
The following is a table of our results of operations in 1997, 1998 and 1999
expressed as a percentage of net revenues represented by each line item.
Figures below are rounded to the nearest whole percentage, and thus line items
representing subtotal and total percentages may differ, due to rounding, from
the sum of the percentages for each line item.
<TABLE>
<CAPTION>
Year Ended December
31,
--------------------------
1997 1998 1999
-------- ------ ------
<S> <C> <C> <C>
Net revenues....................................... 100.0% 100.0% 100.0%
Cost of revenues................................... 134.4 37.4 14.1
-------- ------ ------
Gross profit (loss)................................ (34.4) 62.6 85.9
Operating expenses:
Sales and marketing.............................. 1,097.2 218.3 138.1
Product development.............................. 657.1 106.5 34.9
General and administrative....................... 699.7 205.6 45.6
-------- ------ ------
Total operating expenses......................... 2,454.0 530.4 218.6
-------- ------ ------
Loss from operations............................... (2,488.4) (467.8) (132.7)
Other income:
Interest income (expense), net................... (2.1) 3.5 2.1
Amortization of debt discount.................... (3.8) (38.1) --
-------- ------ ------
Net loss........................................... (2,494.3)% (502.4)% (130.6)%
======== ====== ======
</TABLE>
26
<PAGE>
Years Ended December 31, 1999 and 1998
Net Revenues
Net revenues increased 1,030% to $12.9 million in 1999, from $1.1 million in
1998. The increase in net revenues was primarily due to an increase in the
number of advertisers from 38 at December 31, 1998 to 124 at December 31, 1999,
increases in our advertising rates due to expanded service offerings, and
application of those rates to an expanded membership base. Our member base grew
from approximately 1.9 million registered members on December 31, 1998 to over
5.0 million on December 31, 1999.
Cost of Revenues
Cost of revenues increased to $1.8 million in 1999, from $428,000 in 1998.
Gross profit increased as a percentage of net revenues to 85.9% in 1999, from
62.6% in 1998. The absolute dollar increase in cost of revenues was primarily
due to building our server and networking infrastructure in response to the
growth in activity by our members and the hiring of 18 additional operations
personnel to service our increased advertiser base. The increased costs were
approximately $660,000 for infrastructure and $830,000 for operations personnel
costs. However, our gross profit percentage increased because cost of revenues
increased more slowly than net revenues.
Operating Expenses
Sales and Marketing. Sales and marketing expenses consist primarily of
advertising, salaries of sales and marketing personnel, commissions paid to our
sales personnel and other marketing related expenses. Sales and marketing
expenses increased to $17.8 million, or 138% of net revenues, in 1999, from
$2.5 million, or 218% of net revenues, in 1998. The $15.3 million increase in
sales and marketing expenses was primarily due to increased expenses associated
with promotional and marketing efforts, the hiring of 22 additional sales and
marketing personnel and increased sales commissions. Our promotional and
marketing efforts included online advertising, such as banner advertisements on
high-traffic web sites, used to acquire member registrations. These banner
advertisements are placed with our network affiliates who generally receive a
fee for each member registration we receive and with operators of high traffic
web sites on a fee per impression basis. Fees are expensed in the periods
incurred. Our promotional and marketing efforts also included offline
advertising, such as television and radio advertisements and billboards. Sales
and marketing expenses as a percentage of net revenues decreased due to the
growth in net revenues. We expect that sales and marketing expenses will grow
significantly in absolute dollars for the foreseeable future as we pursue an
aggressive customer acquisition strategy and hire additional sales and
marketing personnel.
Product Development. Product development expenses consist primarily of
salaries of software development personnel and expenditures related to third-
party technical consultants. Product development expenses increased to $4.5
million, or 34.9% of net revenues, in 1999, from $1.2 million, or 106% of net
revenues, in 1998. The absolute dollar increase in product development expenses
was primarily due to the hiring of 14 additional personnel and associated
software costs related to enhancing the features and functionality of our web
site and costs incurred in our Year 2000 readiness effort. Product development
expenses decreased as a percentage of net revenues due to the growth in net
revenues. To date, all product development expenditures have been expensed as
incurred. We believe that significant investments in product development will
be necessary to remain competitive, and as a result we expect our product
development expenses will increase in absolute dollars for the foreseeable
future.
General and Administrative. General and administrative expenses consist
primarily of salaries and related expenses for executive and administrative
personnel, facilities, professional services, including legal expenses relating
to protection of our patent rights, travel and other general corporate
expenses. General and administrative expenses increased to $5.9 million, or
45.6% of net revenues, in 1999, from $2.3 million, or 206% of net revenues, in
1998. The absolute dollar increase in general and administrative expenses was
27
<PAGE>
primarily due to the hiring of 14 additional personnel to support the growth of
our business, recruiting costs related to filling key management positions and
legal fees. General and administrative expenses decreased as a percentage of
net revenues due to the growth in net revenues. We expect that general and
administrative expenses will grow significantly in absolute dollars for the
foreseeable future as a result of a higher occupancy expense associated with
our move to larger office space planned for mid-2000 and as we continue to
expand our administrative systems to support our planned growth and operations
as a public company.
Interest Income, Net
Interest income, net, includes income from our cash and investments and
expenses related to our financing obligations. Interest income, net, increased
to $264,000 in 1999, from $40,000 in 1998. The increase in interest income was
primarily due to a higher average cash balance during 1999 as a result of the
receipt of $8.5 million from the sale of shares of our common stock, $5.0
million from the sale of our convertible subordinated notes and $20.0 million
from the sale of shares of our Series A convertible preferred stock.
Income Taxes
As of December 31, 1999, we had approximately $23.5 million of federal and
state net operating loss carryforwards, which may be available to offset future
taxable income. Our federal and state net operating loss carryforwards expire
beginning in 2018. From our formation through June 1, 1998, we elected, under
Section 1362(a) of the Internal Revenue Code, to be treated as an S-corporation
for income tax purposes. Accordingly, we were not liable for federal income
taxes during that period and any taxable income was included in the tax returns
of our stockholders.
Years Ended December 31, 1998 and 1997
Net Revenues
Net revenues increased 944% to $1.1 million in 1998, from $110,000 in 1997.
The increase in net revenues was primarily due to an increase in the number of
advertisers, from six at December 31, 1997 to 38 at December 31, 1998, and an
increase in our advertising rates and application of those rates to our
expanded membership base.
Cost of Revenues
Cost of revenues increased to $428,000 in 1998, from $147,000, in 1997.
Gross profit increased as a percentage of net revenues to 62.6% in 1998. We do
not believe gross profit comparisons with 1997 are meaningful. In 1997, we
incurred fixed costs associated with the development of our technology
infrastructure and services prior to the realization of meaningful revenues. We
were able to use this investment in 1998 to generate revenues which accounted
for our increased gross profit.
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased to $2.5 million,
or 218% of net revenues, in 1998, from $1.2 million, or 1,097% of net revenues,
in 1997. The absolute dollar increase in sales and marketing expenses was
primarily due to the addition of a direct sales force which we began building
in the second half of 1998 and increases in customer acquisition and marketing
expenses. Sales and marketing expenses as a percentage of net revenues
decreased due to the growth in net revenues.
Product Development. Product development expenses increased to $1.2 million,
or 106% of net revenues, in 1998, from $720,000, or 657% of net revenues, in
1997. The absolute dollar increase in product development expenses was
primarily due to the hiring of eight additional personnel and related costs to
support enhancement of our web site features and functionality. Product
development expenses as a percentage of net revenues decreased due to the
growth in net revenues.
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General and Administrative. General and administrative expenses increased to
$2.3 million, or 206% of net revenues, in 1998, from $766,000, or 700% of net
revenues, in 1997. The absolute dollar increase in general and administrative
expenses was primarily due to the hiring of four additional general and
administrative personnel and increases in professional services and facility
expenses to support the growth of our operations. General and administrative
expenses as a percentage of net revenues decreased due to the growth in net
revenues.
Interest Income (Expense), Net
Interest income, net, increased to $40,000 in 1998, from an interest
expense, net, of $2,000 in 1997. This increase was primarily due to a higher
average cash balance as a result of the receipt of $10.7 million from the sale
of shares of our common stock in 1998.
Amortization of Debt Discount
Amortization of debt discount increased to $435,000, or 38.1% of net
revenues, in 1998, from $4,000, or 3.8% of net revenues, in 1997. In December
1997 and during the period between January and April 1998, we entered into loan
agreements with detachable warrants. Amortization of debt discount is a non-
cash charge representing the difference between the stated value and the fair
market value of the loan.
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Quarterly Results of Operations
The following table presents unaudited quarterly statement of operations
data for each of the four quarters ended December 31, 1999, as well as the
percentage of net revenues represented by each item. This information is
unaudited and in our opinion has been prepared substantially on the same basis
as our audited financial statements, which are included elsewhere in this
prospectus. All necessary adjustments, consisting only of normal recurring
adjustments, have been included in these amounts to present fairly the
unaudited quarterly results of operations. You should read these quarterly data
together with our audited financial statements and the related notes. Our
future operating results are difficult to predict and may vary significantly.
Accordingly, you should not view our results of operations for any period as an
indication of our results of operations for any future period.
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------
March 31, June 30, Sept. 30, Dec. 31,
1999 1999 1999 1999
--------- -------- --------- --------
(in thousands)
<S> <C> <C> <C> <C>
Net revenues........................ $ 890 $ 2,075 $ 3,276 $ 6,675
Cost of revenues.................... 256 343 416 803
------- ------- ------- -------
Gross profit........................ 634 1,732 2,860 5,872
Operating expenses:
Sales and marketing............... 1,325 1,819 4,887 9,807
Product development............... 998 1,129 1,136 1,240
General and administrative........ 1,005 1,281 1,636 1,968
------- ------- ------- -------
Total operating expenses............ 3,328 4,229 7,659 13,015
------- ------- ------- -------
Loss from operations................ (2,694) (2,497) (4,799) (7,143)
Interest income, net.............. 70 105 74 16
------- ------- ------- -------
Net loss............................ $(2,624) $(2,392) $(4,725) $(7,127)
======= ======= ======= =======
<CAPTION>
As a Percentage of Net Revenues
-----------------------------------------
<S> <C> <C> <C> <C>
Net revenues........................ 100.0% 100.0% 100.0% 100.0%
Cost of revenue..................... 28.8 16.5 12.7 12.0
------- ------- ------- -------
Gross profit........................ 71.2 83.5 87.3 88.0
Operating expenses:
Sales and marketing............... 148.9 87.7 149.2 146.9
Product development............... 112.1 54.4 34.7 18.6
General and administrative........ 112.9 61.7 49.9 29.5
------- ------- ------- -------
Total operating expenses............ 373.9 203.8 233.8 195.0
------- ------- ------- -------
Loss from operations................ (302.7) (120.3) (146.5) (107.0)
Interest income, net.............. 7.9 5.0 2.3 0.2
------- ------- ------- -------
Net loss............................ (294.8)% (115.3)% (144.2)% (106.8)%
======= ======= ======= =======
</TABLE>
Our quarterly results are subject to fluctuations. For example, for the
quarter ended September 30, 1999, we initiated an offline advertising campaign
in which we spent $2.6 million. This resulted in a significant increase, in
absolute dollars as well as a percentage of net revenues, in our sales and
marketing expenses.
Our future operating results may vary significantly due to a variety of
factors, many of which are beyond our control. In addition, we believe that
quarter-to-quarter comparisons of our operating results may not be meaningful.
Factors affecting our operating results may include:
. advertisers' demand for and use of our services;
. seasonality of our advertisers' offers and their budgeting cycles;
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. performance-based contracts, under which our revenues depend on members'
responsiveness to advertisers' offers;
. loss of advertisers, many of which are under short-term contracts with
us;
. changes in our pricing policies or those of our competitors;
. the mix of advertisements and services we sell;
. our members' demand for our services and response to the offers we make
available to them;
. litigation costs;
. the timing and amount of costs related to the expansion of our
operations; and
. changes in and the timing of the costs we incur to attract members.
As a result, our revenues are difficult to forecast. In addition, we plan to
significantly increase our sales and marketing, product development and other
operating expenses. We may be unable to reduce spending quickly enough to
offset any unexpected revenue shortfall, which could cause our business and
operating results to suffer. Our limited operating history and rapid growth
also make it difficult for us to assess the impact of seasonal factors on our
business. Advertising sales in traditional media, such as television and radio,
generally are lower in the first and third calendar quarters of each year. Our
revenues may be affected by these seasonal factors and by any seasonal and
cyclical patterns in Internet advertising spending which may develop. Please
see "Risk Factors--Our quarterly financial results may fluctuate, making our
future financial results difficult to forecast."
Liquidity and Capital Resources
Since our inception, we have financed our operations primarily through the
private placement of our capital stock and convertible subordinated notes. As
of December 31, 1999, we had approximately $17.5 million in cash and cash
equivalents.
Net cash used in operating activities was $17.4 million, $4.8 million and
$2.4 million in 1999, 1998 and 1997, respectively. In each period, net cash
used in operating activities resulted primarily from our net losses and
increases in accounts receivable, partially offset by increases in accounts
payable and accrued expenses.
Net cash used in investing activities was $3.7 million in 1999, $1.1 million
in 1998, and $225,000 in 1997. In each period, net cash used in investing
activities resulted from purchases of property and equipment and amounts used
in developing our database.
Net cash provided by financing activities was $33.6 million in 1999, $10.7
million in 1998 and $2.2 million in 1997. Net cash provided by financing
activities resulted primarily from the cash proceeds received from our issuance
of shares of common stock. We invested these proceeds in money market funds
with maturities not exceeding 90 days. We intend to continue investing our
excess cash in similar securities.
As of December 31, 1999, we had a bank line of credit of $1.0 million.
Borrowings under this line of credit were $878,000. This credit facility
provides for a $1.0 million revolving facility for capital equipment purchases,
and bears interest at the bank's prime rate plus 1.0% which, as of December 31,
1999, was 9.5%. Borrowings under this line of credit are collateralized by the
specific equipment purchased. Principal balances under these borrowings are
repaid over 36 or 48 months.
In October 1999, Lend Lease International Pty. Limited purchased
approximately $3.5 million of our convertible subordinated notes, under its
commitment entered into in April 1999. In December 1999, we completed a private
placement of 2,197.650 shares of Series A convertible preferred stock for an
aggregate purchase price of $20.0 million.
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Our future liquidity and capital requirements depend on numerous factors,
including market acceptance of our services, the resources we devote to
marketing and selling our services and our investment in developing and
promoting our brand. We have experienced a substantial increase in capital
expenditures since our inception consistent with the growth in our operations
and staffing, and we anticipate that this will continue for the foreseeable
future. We plan to relocate our headquarters to downtown Chicago in mid-2000
and we anticipate that this relocation will cost approximately $400,000.
Additionally, we will continue to evaluate possible investments in businesses,
products and technologies, and plan to expand our sales and marketing programs
and conduct more aggressive brand promotions. We currently anticipate that the
net proceeds of this offering, together with our existing line of credit and
available funds, will be sufficient to meet our anticipated needs for working
capital and capital expenditures for at least the next 12 months. If this
offering is not completed, we have the ability to revise our business plan to
reduce our operating costs, including deferring new hiring and reducing
discretionary advertising expenditures, so that cash on hand coupled with cash
flow from operations will be sufficient to satisfy our anticipated capital
needs for at least the next twelve months. Based on our current expectations,
we believe we will not require additional funds beyond the twelve months
following the offering. However, if our growth rate exceeds our expectations,
if we make strategic acquisitions, if we expend significant funds to develop
new or enhanced products or services, or if this offering is not completed, we
may require additional equity or debt financing. Additional financing may not
be available to us on favorable terms, or at all. If adequate funds are not
available on acceptable terms, we may not be able to continue or expand our
business operations which could harm our business, results of operations and
financial condition.
Year 2000 Compliance
Problems associated with software and computer systems' use of two digits to
define the year and the inability of computer systems to process dates
occurring in the year 2000 or beyond are referred to as "Year 2000" issues.
Although to date we have not experienced any significant Year 2000 issues
relating to our principal internally developed programs and systems, or systems
provided to us by others, these systems could experience Year 2000 problems at
any time during 2000 and beyond. These problems could disrupt our business and
require us to incur significant, unanticipated expenses to remedy them. We
cannot guarantee that our Internet service providers and other third parties on
which our services depend will not encounter Year 2000 issues.
In 1998, we engaged an independent consultant to assess the Year 2000
readiness of our systems and software. The consultant concluded its work in
1999. The items we examined for Year 2000 issues include: our web site and its
supporting software and hardware; our telecommunications systems and networking
infrastructure; the systems supporting our office facilities; and the hardware
and software used by our employees, vendors and partners. We also sought
assurances on Year 2000 compliance from our telecommunications providers,
material hardware and software vendors, the management company for our office
facilities and other key third-party vendors.
As of December 31, 1999, we had incurred approximately $266,000 in
connection with identifying and evaluating Year 2000 compliance issues and
mitigating identified deficiencies. However, if future expenses relating to
Year 2000 compliance are higher than anticipated, it could have a material
adverse effect on our business, results of operations and financial condition.
Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments and hedging activities and
requires recognition of all derivatives as assets or liabilities in the
statement of financial position and measurement of those instruments at fair
value. The statement, as amended, is effective for fiscal years beginning after
June 15, 2000. As we do not have any derivative instruments or hedging
activities, SFAS No. 133 is not expected to have a material effect on our
financial results.
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BUSINESS
CoolSavings provides a comprehensive set of e-marketing services used by
online and offline advertisers to build one-to-one customer relationships.
Under our established brand, advertisers can deliver, target and track a wide
array of incentives, including printed and electronic coupons, personalized e-
mail, rebates, samples, sales notices, gift certificates, contests and banner
advertisements, to promote their products or services. We deliver these
incentives to targeted segments of our large audience of consumers through our
web site, coolsavings.com, or direct e-mails. These incentives can be redeemed
by our members either online or offline depending on the particular promotion.
Our members have registered their demographic profiles with us on our web site
and have given us permission to deliver personalized savings opportunities to
them. As of March 1, 2000, we had over 6.0 million registered members,
representing nearly 4.8 million households. Although we keep our members'
identities private, we analyze our database of member registration and shopping
preference data with sophisticated data analysis, targeting and tracking
technology to help our advertisers execute effective promotional campaigns. As
our members use the incentives we offer, we gather extensive shopping behavior
and preference information. This information further enriches our member
database allowing us to provide our advertisers with a higher degree of
targeting. The top ten advertisers from which we generated the most revenues in
1999 were Bigstar, eNutrition.com, First USA, InsWeb, Kids "R" Us, MCI
WorldCom, overstock.com, petopia.com, petsmart.com and SmarterKids.com.
Industry Background
The Growth of the Internet as an Advertising and Direct Marketing Medium
The Internet has emerged as a unique global communications medium, enabling
millions of people to interact and conduct business electronically.
International Data Corporation, commonly referred to as IDC, estimates that the
number of Internet users worldwide will grow to approximately 502 million by
the end of 2003 from approximately 196 million in 1999. The rapid expansion of
the Internet combined with its business efficiencies have led to significant
growth in electronic commerce and attracted a broad group of buyers and
sellers. IDC estimates that the total value of commerce over the Internet will
increase to $1.3 trillion in 2003 from $111 billion in 1999. IDC further
estimates that the percentage of Internet users buying goods and services on
the Internet will increase to approximately 36% in 2003 from approximately 24%
at the end of 1999.
The growth of Internet use has prompted e-commerce companies to increase
their spending on advertising and direct marketing on the Internet. It has also
spurred traditional businesses to devote larger portions of their marketing
budgets to advertising and direct marketing online. During the early stages of
the development of online advertising, most businesses used the Internet to
build general brand awareness and for customer acquisition. Consequently, the
rapidly growing market for Internet marketing was dominated by banner
advertising and unsolicited e-mails sent to lists of consumers. While these
advertisements may be targeted to a limited extent by the content on the web
page or by demographic information, they generally have not permitted the
advertiser to re-contact the consumer unless the consumer makes a purchase or
voluntarily provides personal information.
The Emergence of E-Marketing Services
Advertisers use direct marketing in order to generate a specific response or
action from a targeted group of consumers. Traditionally, advertisers have used
direct mail, telemarketing and direct response television, or infomercials, in
their direct marketing campaigns. These campaigns typically provide consumers
with access to coupons, rebates, sweepstakes and loyalty programs. These types
of promotions have been recognized in offline marketing as a means to develop
and foster long-term customer relationships. According to the Direct Marketing
Association, expenditures on direct marketing, including both online direct
marketing and traditional direct marketing, are expected to grow to $240.7
billion in 2004 from $176.5 billion in 1999.
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Effective and efficient means of marketing have become more important as
advertisers seek to lower the costs of customer acquisition and retention. As
pressures from competitors raise these acquisition and retention costs,
businesses seek sophisticated and cost-effective direct marketing methods to
increase the loyalty and lifetime value of a customer through repeat visits and
purchases. At the same time, advertisers are sensitive to the growing concerns
of consumers and the government regarding the privacy of personal data and the
intrusion of unwanted advertising messages. Online and offline advertisers are
increasingly using the Internet for direct marketing to exploit its unique
interactivity and cost advantages relative to traditional methods. The Direct
Marketing Association projects that online direct marketing expenditures will
increase from approximately $1.3 billion in 1999 to approximately $8.6 billion
in 2004.
The compelling advantages of the Internet as a direct marketing medium have
led to the development of e-marketing services that are designed to enable
businesses to acquire and retain customers and build customer loyalty.
E-marketing services can take advantage of Internet technology to:
. deliver personalized promotions to those consumers most likely to
respond;
. deliver multiple forms of targeted and controlled promotions at a
household or individual level (for instance, many online advertisers seek
to reach a target audience of women, who are the principal shoppers in
approximately 72% of U.S. households, according to Mediamark Research
Inc.);
. allow businesses to take advantage of consumer-specific data, such as
registration and transaction information;
. provide marketing messages with promotions that motivate immediate
consumer response;
. enable tracking of campaign performance and shopper behavior allowing an
advertiser to learn and adjust campaigns in near real time; and
. enable data mining to target consumers based on demographic data and
shopping preference information learned from past activity.
In our experience, while online companies are the most frequent users of our
e-marketing services, traditional offline businesses such as national retailers
and consumer packaged goods manufacturers are increasingly seeking to use our
e-marketing services to drive offline sales and build customer relationships.
In addition, through e-marketing services, offline businesses that also sell
online can potentially integrate their offline and online marketing campaigns
and provide their customers the choice of shopping in stores or online.
Market Opportunity for a Comprehensive E-Marketing Solution
To date, advertisers wishing to employ e-marketing services have had to rely
on several different service providers in order to deliver a range of specific
promotional or advertising services. In addition, many e-marketing services
have been focused only on online promotional activities and have not provided
an integrated online and offline solution.
We believe there is a substantial market opportunity for a comprehensive e-
marketing solution that provides the following:
. a single source of both online and offline promotional services for
advertisers that extends over the different stages of a customer
relationship, from first-time purchase to repeat usage;
. access to a large audience of consumers who are actively seeking savings
and who are willing to share demographic data that can be used to better
target and personalize their shopping experiences;
. one-stop shopping for consumers with access to a wide range of both
online and offline promotional offers from high-quality advertisers;
. an established and consistent brand that consumers find credible; and
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. the ability to track consumer demographics and shopping preferences on an
individual and household level and to leverage that information across a
large consumer base to make promotions increasingly targeted and cost-
effective.
The CoolSavings Solution
CoolSavings provides a comprehensive set of e-marketing services used by
online and offline advertisers to build one-to-one customer relationships.
Under our established brand, advertisers can deliver, target and track a wide
array of incentives, including printed and electronic coupons, personalized e-
mails, rebates, samples, sales notices, gift certificates, contests and banner
advertisements, to promote products or services. We deliver these incentives to
targeted segments of our large audience of consumers, who have registered their
demographic profiles with us on our web site and have given us permission to
deliver personalized savings opportunities redeemable in stores or online. With
our members' permission, we store detailed member demographic information,
track shopping preferences and behavior, and with advertiser cooperation can
track redemption of these incentives back to the member households. In doing
so, we have developed an extensive database of information that we use for the
benefit of our advertisers. Although we keep our members' identities private,
we analyze our database information with sophisticated data analysis, targeting
and tracking technology to help our advertisers execute effective promotional
campaigns. The diversity of the incentives we offer and the variety of places
where our members can redeem them further enrich our member profiles for future
data analysis, known as data mining, and targeting.
Our web site, which is designed to be a leading destination for consumer
savings, offers convenient and personalized incentives for goods and services
from a broad range of advertisers, including online retailers, national brick-
and-mortar chains, consumer packaged goods manufacturers, large consumer
service providers and neighborhood businesses. Our member base grew from
approximately 1.9 million registered members as of December 31, 1998 to over
6.0 million as of March 1, 2000, representing nearly 4.8 million households. In
a recent national survey by NPD Online Research, an independent market research
firm, 51% of online coupon users reported that they had used our site. Of those
who have registered their households with us, 62% are women, the target
consumers preferred by many of our advertisers. According to Media Metrix, for
January 2000, CoolSavings was the ninth most frequently visited shopping web
site.
The benefits to advertisers of using CoolSavings include:
. Single source e-marketing solution. We offer advertisers a single source
for a full range of promotions that can be redeemed online or in stores
and targeted to any stage in the customer relationship. These tools
include printable coupons and gift certificates for brick-and-mortar
stores, electronic certificates for online purchases, mail-in rebates,
lead generation for trial subscriptions and samples, notices of ongoing
sales where no certificate is necessary, promotional contests and banner
advertisements. Advertisers can also use combinations of incentives for
customized promotions.
. Access to a large audience of qualified, receptive shoppers. Advertisers
are able to access our large audience of consumers, who visit our web
site looking for shopping values and are willing to provide demographic
data about themselves and others in their households. Of those who have
registered their households with us, 62% are women, the target consumers
for many of our advertisers. Approximately 79% of our registered
households have requested e-mail bulletins about offers available on our
web site.
. Cost-effective performance. We believe we provide advertisers with a
cost-effective solution for customer acquisition and retention. Unlike
most other direct marketing providers, we can immediately learn from each
campaign, regardless of the promotions used, to make future campaigns
more effective, to re-target responding members with more focused offers
and to convert new customers into loyal customers. We continually update
our members' profiles by tracking their page views of and responses to
promotions and, upon the request of an advertiser, the redemption of
incentives. Our tracking capabilities allow our advertisers to target
information about ongoing sales
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promotions and events to the appropriate customers at the appropriate
times. For example, an advertiser can retarget our members who have
previously responded to its offers with follow-on promotions.
. Insight into shopping behavior. Most advertisers have only limited means
of tracking their customers' preferences and behavior. With our member's
permission, we acquire information from the initial member registration,
as well as from each time a member uses our web site or e-mail to respond
to offers. As a result, we have much richer data to analyze for insight
into the interests and preferences of an advertiser's customers.
Advertisers can use our consolidated database to find predictive
correlations that can lead to more effective targeting regardless of the
types of promotions used. This information can be used by our advertisers
to acquire new customers with appropriate incentives, refine follow-on
promotions and identify co-promotion opportunities.
. Ability to coordinate online and offline promotions. For advertisers that
have both an online and offline presence, we can identify prospective
customers and then track their activities whether shopping in stores or
online. We enable these businesses to provide incentives, such as coupons
and gift certificates, redeemable in their offline stores. If the
advertiser returns the redeemed coupons to us, we can track the
redemption of in-store coupons by scanning their unique bar codes and
adding the shopping preference information to our database. For
advertisers with only an online presence, we enable them to provide
offline incentives, such as coupons and gift certificates, redeemable in
the stores of their promotional partners. We also help offline companies
without a web presence identify and reward customers with online
incentives that their customers can bring into a store or use on another
web site.
. Lower total cost of ownership and improved time to market. Our
investments in infrastructure, technology and technical personnel allow
our advertisers to deploy their promotional campaigns without the need to
lease, buy or continually upgrade the required hardware and software
systems, providing significant cost savings over an in-house solution. In
addition, using both our infrastructure and our e-marketing processes and
expertise, we enable our advertisers to deploy their e-marketing
campaigns rapidly and reliably. As a result, our advertisers can remain
focused on their core businesses while still providing compelling offers
to consumers.
Strategy
Our objective is to be the leading provider of comprehensive e-marketing
services for advertisers. Key elements of our strategy to achieve this
objective are to:
. Extend brand awareness and expand member and advertiser base. We believe
strong brand recognition is a powerful tool to attract new advertisers
and members. We plan to increase brand recognition with offline
advertising campaigns that include television, print and outdoor media.
We also intend to continue to promote our brand online, with advertising
campaigns on high-traffic web sites and cooperative campaigns with
advertisers and affiliate networks. We believe our marketing efforts will
expand our member base while preserving its current demographic
characteristics, which will strengthen the services we provide to
advertisers. As we expand our membership, we expect that our service will
be attractive to additional advertisers, which will in turn make our site
more attractive to additional consumers by providing a broader array of
available incentives.
. Enhance member profiles. As we make available additional promotional
offers and services on our web site and through e-mail, we believe the
shopping activities of our members will increase. As our members use our
site and respond to advertiser promotions, we continually enrich our
database and develop deeper data for predictive modeling and targeting
purposes. We plan to continue upgrading our tracking and data mining
tools to provide additional insight into member interests and shopping
preferences.
. Broaden promotional service offerings. In order to provide a complete e-
marketing solution for advertisers, we plan to expand the promotional
services we offer, covering all phases of the customer
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relationship. For example, we intend to provide loyalty programs, for
single advertisers and affinity groups, that incorporate popular
promotions such as mileage incentives and rewards points. For offline
promotions, we plan to connect coupon discounts and points to credit cards
and frequent shopper cards. In addition, we plan to offer our promotional
services and expertise to advertisers to target within their own customer
databases.
. Provide business-to-business promotions. We believe that advertisers seek
a cost-effective and targeted medium to reach small businesses and
independent professionals. Through minor modifications to our
registration page and database template, we intend to develop a business-
to-business service offering in which small businesses can register with
us to receive incentives appropriate for their needs and interests. We
plan to offer our advertisers the ability to deliver targeted business-
to-business product and service promotions using database information
such as type of business, size, geography and past purchasing behavior.
. Pursue third-party relationships. We intend to pursue relationships to
further build our brand, expand our reach to consumers and advertisers
and enhance our services. Our current relationships include Super Coups,
a subsidiary of ADVO, which uses its franchise sales force to sell
CoolSavings services to neighborhood merchants, First USA Bank, which
issues co-branded CoolSavings credit cards and provides us with
cardholder demographic and purchasing data, and The Parenting Group,
which will promote our CoolParenting program targeting special
promotional programs to expectant or new parents.
. Pursue international expansion. As Internet use becomes more prevalent in
other nations, we see market opportunities to extend our services to
advertisers and consumers in those countries. Our international expansion
efforts will focus initially on Canada, Australia and the United Kingdom.
These international initiatives could take the form of licensing
agreements, joint ventures or other arrangements. As a result of
international expansion, we plan to expand our database to include
consumers in other countries, which we expect will be attractive to
international advertisers and online advertisers seeking to reach an
international audience.
Services
We provide a comprehensive e-marketing solution to our advertisers. We
deliver a broad array of incentives through placement on our web site or by
targeted e-mail, to enable our advertisers to motivate consumers to purchase
products and services. Our advertisers also use our incentive programs to build
the loyalty of their existing customers. Using our tracking, targeting and data
mining capabilities, advertisers can coordinate and enhance their online and
offline promotional campaigns for customer acquisition, retention and loyalty.
Delivery of Incentives
We deliver a variety of promotional incentives to targeted segments of our
member database on behalf of our advertisers. Our advertisers generally pay for
our services based on a cost-per-thousand offers delivered. The cost of our
promotional services generally rises with the degree of targeting or
customization we provide because, in our experience, these efforts generally
result in higher response rates for the advertisers. In addition, we charge
some of our advertisers based upon the performance of the promotional offers
that we deliver for them. Approximately 80% of our current advertising
contracts have stated terms of less than three months.
The coolsavings.com web site, which is branded as a leading destination site
for consumer savings, offers convenient and personalized incentives for a broad
array of products and services. To use our service, consumers register with us,
provide demographic data about their households and shopping interests and
choose whether to receive our direct e-mails. As members, consumers can obtain
relevant incentives redeemable online or in stores from a broad range of
advertisers, including online retailers, national brick-
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and-mortar chains, consumer packaged goods manufacturers, large consumer
service providers and neighborhood businesses. We track our members' page views
of and responses to promotions in our member database. Upon an advertiser's
request and with the advertiser's cooperation, we can also track the redemption
of incentives.
The promotional services that we provide our advertisers include:
. CoolOffers. Online and offline businesses can deliver incentive offers,
including printed and electronic coupons, rebates, sales notices and gift
certificates, to targeted segments of our membership via our web site and
our targeted e-mail. Targeting is performed by demographic profile and
shopping preferences. CoolSavings members are presented a version of our
web site tailored to their personal interests, where they can "save, then
shop." Specialized sections of our web site are dedicated to specific
categories such as grocery items, regional mall stores and neighborhood
businesses. Our members can also use a search feature to find offers by
product or service category.
. CustomerDirect e-mail. Approximately 79% of our registered households as
of December 31, 1999 had elected to receive periodic e-mails notifying
them of offers that may be of personal interest. This allows us to send
targeted e-mails to these members at the request of our advertisers on
the basis of these members' demographic profiles and shopping
preferences. We can deliver e-mails either with a single promotion by a
specific advertiser or in shared messages, and appear either in full-
graphic HTML format or as plain text with web links, depending on
members' preferences and the capabilities of their computers. The e-mails
are targeted either through pre-selected criteria or using customized
models we develop for particular campaigns.
. FreeStuff. We provide advertisers a method of generating leads by
providing free samples of their products or services to our members.
These offers, such as trial magazine subscriptions, free product samples
and free Internet services, appear in the "FreeStuff" section of our web
site and are targeted by demographic profile and shopping preferences. To
receive free samples, members voluntarily provide the advertiser with
contact information such as name, e-mail and mailing address, as well as
other data about their households. Advertisers may also request secure
credit card information from members as necessary. We can tailor the
submission form to advertisers to ask additional questions of
participating members, to further qualify the leads we generate.
. CoolGames. We provide advertisers with a highly targeted method for
generating brand awareness combined with games that are also engaging for
our members. We help advertisers create trivia contests and branded
sweepstakes specific to their marketing strategies and tailored for their
targeted profiles. We can also deliver targeted e-mails announcing a
contest to generate immediate traffic and consumer response. At the
conclusion of a member's interaction with a contest page, the
advertiser's brand is reinforced by an automatic e-mail.
. CoolBanners. We provide advertisers the opportunity to promote their
brands or offers throughout the web site with banner advertisements,
buttons, text links and prominently sponsored content areas. These can be
targeted based on the demographics and preferences of the viewing
members.
Customer Retention
We offer customer acquisition and reward programs that can be customized for
any product or service. We deliver initial sign-up incentives, such as gift
certificates, tailored to the target consumers, and then administer ongoing
benefits such as loyalty coupons. We also provide co-branded programs that
function together with advertisers' own established promotional vehicles, such
as their web sites, printed circulars, in-package flyers and in-store signs.
These vehicles direct consumers to a special CoolSavings web address. Consumers
entering our web site for the first time through a co-branded address will
experience our entire web site as co-branded each time they return. These
members can also receive customer-only offers targeted specifically to the
customers of the party co-branding with us, either on the co-branded web site
or in promotional e-mails. Our co-branding advertisers can use our
infrastructure to build loyalty with their own customers. We benefit by adding
those advertisers' customers to our database as CoolSavings members.
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Data Mining and Research Services
By analyzing individual, demographic and correlative information in our
database, we provide advertisers several methods to gain insight into customer
preferences and profiles. We can also apply our data mining infrastructure to
analyze the databases of our advertisers upon their request. We use
sophisticated data mining tools to analyze member data to help our advertisers
execute effective promotional campaigns. We use data-mining information to
create predictive models to make future targeting even more effective. Using e-
mail, we can also contact and survey members who have responded to a specific
offer. In addition, we are working with NFO Research, a leading provider of
consumer research to manufacturers of consumer packaged goods, to create member
panels that will provide major brands with quick feedback on new products and
services.
Sales and Marketing
We have built a sales organization dedicated to developing and maintaining
close relationships with advertisers and advertising agencies. Our sales force,
which included 22 full-time employees as of December 31, 1999, is organized
regionally and by specific industry and advertiser segments. We plan to open
sales offices in New York and San Francisco during 2000. To support our sales
efforts, we advertise regularly in trade publications, send regular mailings to
key marketing executives and exhibit at major trade shows. We intend to form
relationships with companies with existing local sales forces in order to
further penetrate local advertising markets. The first of these relationships
is our alliance with Super Coups, in which Super Coups salespersons are selling
our co-branded services to local advertisers.
Our marketing department, which included nine employees as of December 31,
1999, is dedicated to promoting the CoolSavings brand, developing our member
content and acquiring members for our service. To attract members, we rely on a
variety of advertising methods, including a national offline branding campaign
that makes use of television, print, outdoor media and radio, as well as online
advertising that includes online banner advertisements on high-traffic web
sites such as portals and search engines. Our advertising features our
identifiable piggy-bank logo character as our "CEO." We also have developed
network affiliate programs, in which other companies send consumers to the
CoolSavings web site and receive a fee per each resulting member registration.
Many of our advertisers provide links from their own web sites that click
through to offers on CoolSavings.
We also have used our advertising relationships to gain additional exposure
for the CoolSavings name and piggy-bank character in retail chains and shopping
malls and on the Internet. In some cases, we have the opportunity to feature
CoolSavings on store signs and materials, such as bags and receipts.
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Representative Advertisers
The following is a list of advertisers from which we derived at least
$40,000 of revenue in 1999, by general industry category:
Specialty and Mass Health and Grocery Entertainment and Media
Retail Allherb.com Barnesandnoble.com
Art.com eNutrition.com Bigstar
Birthday Express Healthshop.com CDNow
Bolt More.com Chuck E. Cheese's
Cooking.com MotherNature.com Doubleday Interactive
Furniture.com NetGrocer EveryCD
Hewlett Packard YourPharmacy.com The Parenting Group
Internet Shopping
Network
Reel.com
Manufacturers Uproar.com
JC Penney Coty US News & World Report
Kmart DaimlerChrysler AG
Marshall's / TJ Maxx Johnson & Johnson Children's Products
overstock.com Kodak BabyCenter.com
Paper Studio Mattel eToys
PayLess Shoes
KBKids.com
PC Flowers & Gifts Financial and Kids "R" Us
petopia.com Communications SmarterKids.com
petsmart.com E-homeCredit Corp. Toys "R" Us
Petstore.com First USA
Radio Shack H&R Block Internet Content and
REI.com InsWeb Services
Rhodes MCI WorldCom Cybergold
Sara Lee / One Hanes Telebank eGreetings.com
Place
eNews
Service Merchandise Travel Services FamilyWonder
Shop the globe.com Cruise Lines iprint
Silkies.com International LifeMinders
Holiday Inn Netcentives
Local Advertising Northwest Airlines Vstore
Super Coups priceline.com
Strategic Alliances
We have developed the following relationships with companies that we believe
will assist us in providing more comprehensive services, building our brand and
attracting more advertisers and members:
. First Data. In February 2000, we entered into an agreement with First
Data Merchant Services Corporation to work with First Data and its
affiliated financial institutions to offer electronic coupon redemption
capability. We plan to provide the ability for purchase incentives
offered by online and offline merchants to be posted directly to members'
credit card accounts. Under this agreement, First Data will be our
exclusive provider of payment processing services for Visa and MasterCard
transactions for a period of one year. The term of the agreement with
First Data is three years, but under certain circumstances, including our
material breach of the agreement or our continuing failure to meet
specified performance standards, First Data may terminate the agreement
prior to its expiration.
. First USA. In April 1999, we entered into an agreement with First USA
Bank, N.A., a leading national credit card issuer, to create a co-branded
CoolSavings credit card that is promoted extensively on our web site.
Under this agreement, First USA promotes CoolSavings and the co-branded
credit card on its own web site, in account statements and in other
promotional pieces. We will receive fees for marketing the co-branded
credit card.
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The initial term of the agreement with First USA is five years, but First
USA may terminate the agreement prior to its expiration under some
circumstances, including a substantial reduction in our membership or a
failure to meet promotional goals.
. NBC. In May 1999, we entered into an agreement with National Broadcasting
Company, Inc., under which NBC is broadcasting $3.0 million of 30-second
advertisements for CoolSavings during the 12-month period that began
October 1, 1999. In exchange for this advertising, NBC received 686,766
shares of our common stock.
. NFO Research. In November 1999, we entered into an agreement with NFO
Research, a leading provider of custom research for the consumer packaged
goods industry. Under this agreement, we will design a co-branded web
site and market it to our members to help NFO recruit panelists for their
market research efforts. Under this agreement we will receive a portion
of NFO's revenue from completed surveys. CoolSavings and NFO will provide
integrated marketing services to their advertisers, offering an
innovative opportunity to link shopper-level consumer attitude and usage
data with CoolSavings' extensive member profiles. The term of the
agreement with NFO Research is one year, but NFO may terminate the
agreement if our web site ceases to operate for a period of five
consecutive days.
. Super Coups. In January 2000, we formed an alliance with Super Coups, a
subsidiary of ADVO, a leading targeted direct mail company. Super Coups
delivers targeted local merchant coupons, such as automobile service
centers, restaurants and dry cleaners, by direct mail, local cable
television and the Internet. Through this alliance, we have agreed to
design and operate a co-branded version of the CoolSavings web site that
contains a total of more than 3,000 incentive offers, submitted by Super
Coups franchisees. Super Coups will pay us a fee based on the revenue
earned by the co-branded web site. Based on member demographics, distinct
local offers are targeted to our members in Super Coups markets across
the United States. Super Coups salespersons are also selling our co-
branded services to local advertisers. The initial term of the agreement
with Super Coups expires September 30, 2002, but under certain
circumstances, including our material breach of the agreement and our
failure to be ranked among the top five Internet coupon sites by Media
Metrix, Super Coups may terminate the agreement prior to its expiration.
. The Parenting Group. In February 2000, we entered into an agreement with
The Parenting Group, a subsidiary of Time Inc. The Parenting Group is a
leading magazine publisher and provider of advertising and marketing
services to expectant and new parents and young families. Under this
agreement, we are establishing a CoolParenting program by developing and
hosting a co-branded web site that allows advertisers to target special
offers to our members who enroll in the program by providing the age or
anticipated birthdate of their children. We will receive a fee for each
member that joins the program plus a portion of the advertising revenue
generated from the web site. The Parenting Group will promote the program
in its Healthy Pregnancy, Baby Talk, Parenting and Family Life print
magazines, and inside over one million "First Moments" sample and
discount kits distributed annually to expectant or new parents. This
agreement includes exclusivity provisions restricting both us and The
Parenting Group from entering into agreements for similar programs with
competitors. The initial term of the agreement with The Parenting Group
is fourteen months from the launch of the program, but under certain
circumstances, including our material breach of the agreement, The
Parenting Group may terminate the agreement prior to its expiration.
Operations and Technology
We have developed a proprietary system to target and personalize promotional
offers from our advertisers to our members. There are five main components of
our system:
. our web server technology, which allows us to display offers of interest
for each member;
. our database, which processes the offers and stores the information about
our members and their activity on our site;
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. our data mining and targeting modules, which we use to determine the
members to whom we will deliver offers and the most appropriate offers
for each member;
. CoolSavings Coupon Manager, our free software program that produces high-
quality coupons and rebate certificates on a member's personal computer
printer for in-store or mail-in use; and
. SavingsCenter software, which we and our advertisers use to create,
target and control new offers.
Our system has been designed around industry-standard architecture and is
designed to provide availability 24 hours-a-day, seven days-a-week.
Occasionally in the past, we have disconnected our servers to make upgrades or
maintenance checks on our system, leading to "down time" averaging
approximately two hours per month. Currently, our site architecture, including
multiple servers and co-hosting capabilities, usually allows us to introduce
upgrades and perform maintenance without taking our site offline. For our
database, we use servers running Microsoft Windows NT and Microsoft SQL Server
database server software. Our web service is balanced among several servers
running Microsoft Internet Information Server on the Windows NT operating
system. These servers provide VeriSign Inc. digital certificates for secure
transactions involving personal data, as well as VeriSign Authenticode
certificates for downloading our Coupon Manager software to our members'
computers. Our electronic certificates, such as printable coupons, are
transmitted in a format that requires our proprietary Coupon Manager software
to print a coupon. Information that members provide during registration is
protected by a password they can create themselves. Members can also select
Secure Socket Layer protection during the registration process.
Our web servers and the database behind our system are currently located at
our Chicago headquarters. In addition, our data mining servers as well as a
fully redundant version of our entire system are located at the Exodus
Communications data center in Oak Brook, Illinois. To date, we have directed
all site traffic to our Chicago system, but we believe our system at Exodus is
fully operational and we plan to direct a portion of site traffic to the Exodus
system during the first quarter of 2000, in order to balance the traffic load
on each system and to reduce the risk of system failure. Please see "Risk
Factors--Our business could be damaged by natural disasters and other
unexpected problems."
In 1997, 1998 and 1999, we spent $720,000, $1.2 million and $4.5 million,
respectively, on product development, which includes salaries of software
development personnel, expenditures related to third-party technical
consultants and software costs related to enhancing our web site. We expect to
devote significant resources to product development in the future as we add new
features and functionality to our service. Please see "Risk Factors--We may not
be able to keep up with rapid technological development and evolving industry
standards."
Intellectual Property
We currently hold one United States patent, No. 5,761,648, entitled
"Interactive Marketing Network and Process Using Electronic Certificates."
We are currently pursuing legal action against six companies that we believe
to be infringing our patent. This litigation is expensive, and the outcome of
this litigation may not be favorable to us. In addition, some of these
companies have filed counterclaims or separate lawsuits or other proceedings
against us seeking to prevent us from using our patented system, and others may
do so in the future. We have also settled three prior lawsuits we brought
against companies that we believed were infringing our patent.
Currently, we are a defendant in four pending lawsuits involving an
allegation that our systems or methods infringe on competitors' patents. While
we believe the actions are without merit and intend to defend them vigorously,
our efforts may not be successful. We expect that, like other participants in
our market, we will increasingly be subject to infringement claims as the
number of services and competitors in our industry segment grows. Any
infringement claim, regardless of its merit, could be time-consuming, result in
costly litigation, cause service modifications or delays or require us to enter
into royalty or licensing
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agreements. These agreements might not be available on terms that are
acceptable to us or at all. As a result, any claim of infringement could harm
our business, results of operations and financial condition.
In addition to our patent, we have registered service marks and copyrights
in the United States and other countries. Our U.S. registered service marks
include COOLSAVINGS, COOLTRAVEL, COOLMALLS, COOLCATALOGS and COOLSAMPLES. We
also own common law rights in several other marks, and have applied for United
States service mark registration for a number of marks such as our stylized
piggy-bank logo, SAVE. THEN SHOP., SQUEALS OF THE DAY, COOLSAVINGS COUPON
MANAGER and SAVINGSCENTER. We have also obtained a trademark registration in
Australia for COOLSAVINGS and have registration applications pending in the
United Kingdom and Canada.
We regard the protection of our intellectual property, including our patent,
copyrights, service marks, trademarks, trade dress and trade secrets, as
critical to our future success. We rely on a combination of these intellectual
property rights and contracts to protect the services we have created and our
competitive position in the marketplace. We have generally entered into
confidentiality and invention assignment agreements with our employees and
contractors. Where we have considered it necessary, we have required
nondisclosure agreements with our suppliers and strategic partners in order to
protect confidential information about our business plans and technology.
Despite these precautions, these arrangements or the other steps which we have
taken may not protect our trade secrets or prevent another company from copying
important parts of our service. While we have registered our trademarks and
service marks in the U.S. and other countries, protection of these marks may
not be available in every country where we may do business in the future.
We also rely on software programs that we license from other companies for
key database technology, operating system and software, and specific hardware
components for the computers in our system. These licenses may not continue to
be available to us on commercially reasonable terms in the future. As a result,
we may be required to obtain substitute technology of lower quality or at
greater cost, and may incur significant costs in converting to new
technologies, which would materially affect our business, results of operations
and financial condition. Please see "Risk Factors--Intellectual property
litigation against us can be costly and could result in the loss of significant
rights," "Risk Factors--Protecting our patents, trademarks and proprietary
rights may be costly and may distract our management" and "Business--Legal
Proceedings."
Competition
The market for e-marketing services is new, rapidly evolving and intensely
competitive, and we expect competition to intensify. Barriers to entry for
companies in our market are low, and current and potential competitors can
launch new web sites and services at a relatively low cost.
Our ability to compete depends on many factors, both within and beyond our
control. These factors include:
. advertiser identification and retention;
. brand recognition and credibility;
. pricing of our services;
. breadth of our service offerings for advertisers and consumers;
. reliability of service and quality of advertiser support;
. advertiser and member acquisition costs;
. membership size and demographics;
. frequency of use and consumer response rates; and
. technological expertise.
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We believe we are well-positioned to compete in our market as a result of
the breadth and sophistication of our services, the size and demographics of
our member audience, our experienced management and staff, our proprietary
technology and our established brand recognition.
Currently, we compete directly with online marketing companies in several
fields:
. direct marketers, such as FreeShop, LifeMinders and YesMail;
. incentive services, such as Cybergold, MyPoints and Netcentives;
. coupon providers, such as the online division of Catalina Marketing, e-
centives and planet U; and
. sweepstakes providers, such as Promotions.com.
We also face indirect competition from leading distributors of traditional
coupons by mail or newspaper inserts and from companies offering frequent flyer
points or other affinity rewards tied to responses to advertisements. We expect
that some of the leading distributors of traditional newspaper-insert coupons
will soon begin to compete against us directly by delivering their promotions
over the Internet. For example, Valassis Communications, a leading distributor
of newspaper-insert coupons, recently began to offer some online services. We
also compete with other web sites, portals and advertising networks, as well as
traditional offline media such as television, radio and print, for a share of
advertisers' total advertising budgets and for consumers' attention.
Many of our current and potential competitors have longer operating
histories, greater brand recognition, larger customer or user bases, and
significantly greater financial, marketing, technical and other resources than
we do. In addition, our competitors may be acquired by, receive investments
from or enter into other commercial relationships with larger, well-established
and well-financed companies as use of the Internet and other online services
increases. Therefore, some of our competitors may be able to devote greater
resources to marketing and promotional campaigns, adopt more aggressive pricing
policies and devote substantially more resources to web site and systems
development. They may also try to attract advertisers by offering free
services. Increased competition may cause us to lose brand recognition and
market share and could otherwise harm our business.
Employees
As of December 31, 1999, we had 121 full-time employees, 43 of whom were
engaged in technology and product development, 31 in sales and marketing, 25 in
client and member services and 22 in finance, administration and operations. We
have never had a work stoppage and our employees are not covered by any
collective bargaining agreement. We consider our relations with our employees
to be good.
Facilities
Our executive and operating offices are currently located in Chicago,
Illinois, in a 13,700 square foot facility under two separate leases, one
expiring on March 16, 2002 and the other expiring on July 31, 2002. In
addition, we lease approximately 10,000 square feet of additional office space
in the same building as our other offices on a month-to-month basis. In January
2000, we entered into a lease for an approximately 44,000 square foot facility
in which we plan to consolidate our Chicago executive and operating offices in
mid-2000. This lease expires in 2010 although we have options to expand the
leased space and to extend the term of this lease.
Legal Proceedings
On August 10, 1998, we instituted a lawsuit in the Northern District of
Illinois against e-centives, Inc. (f/k/a emaginet, Inc.) for infringement of
our United States Patent No. 5,761,648, entitled "Interactive Marketing Network
and Process Using Electronic Certificates," seeking damages and a permanent
injunction against e-centives for further infringement. We have also added
Ziff-Davis, Inc. as a defendant in
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our suit against e-centives, Inc. e-centives has filed counterclaims alleging
invalidity of our patent and interference with their prospective economic
advantage and is seeking damages and injunctive relief. As noted below, e-
centives also recently initiated a separate lawsuit against us alleging
infringement of a patent that has been assigned to it.
On April 27, 1999, e-centives, Inc. filed a lawsuit against us in the United
States District Court for the District of Maryland. The complaint alleges that
our systems or methods infringe on e-centives' United States Patent No.
5,710,886, and seeks to enjoin us from further infringing its patent. While the
litigation is in the early stage and its outcome cannot be predicted, we
believe that our technology does not infringe e-centives' patent and that this
litigation is therefore without merit. We intend to defend the action
vigorously.
On October 21, 1998, we instituted a lawsuit in the Northern District of
Illinois against Catalina Marketing International, Inc., and its affiliate
Supermarkets Online, Inc. for infringement of our United States Patent No.
5,761,648, seeking damages and a permanent injunction against further
infringement. The defendants have filed counterclaims alleging invalidity of
our patent and are seeking damages and injunctive relief. As noted below,
Catalina Marketing and Supermarkets Online also recently initiated separate
lawsuits against us alleging infringement of patents assigned to them.
On October 21, 1998, we instituted a lawsuit in the United States District
Court for the Northern District of Illinois against planet U, Inc. and Brodbeck
Enterprises, Inc., d/b/a Dick's Supermarkets, for infringement of our United
States Patent No. 5,761,648, seeking damages and a permanent injunction against
further infringement. The defendants have filed counterclaims alleging
invalidity of our patent and violation of United States antitrust laws and are
seeking damages and injunctive relief.
On November 15, 1999, Catalina Marketing filed a separate lawsuit against us
in the United States District Court for the Middle District of Florida. The
complaint alleges that our systems and methods infringe Catalina Marketing's
United States Patent No. 4,674,041, and seeks to enjoin us from further
infringing its patent. While the litigation against us is in the early stage
and its outcome cannot be predicted, we believe that our technology does not
infringe Catalina's patent and that the litigation is therefore without merit.
We intend to defend the action vigorously.
On February 12, 2000, Supermarkets Online, an affiliate of Catalina
Marketing, filed a lawsuit against us in the United States District Court for
the Central District of California. The complaint alleges that our systems and
methods infringe its United States Patent No. 6,014,634, and seeks damages and
injunctive relief. Because this patent was recently issued on January 11, 2000,
we are currently evaluating this patent and claim. In addition, on February 18,
2000, Catalina Marketing filed a request for reexamination of our United States
Patent No. 5,761,648 with the United States Patent and Trademark Office. We are
currently evaluating this reexamination request. If the request is granted, our
United States Patent No. 5,761,648 will be reexamined, which may result in the
patent being narrowed in scope or found invalid.
On February 16, 2000, planet U filed a lawsuit against us and one of our
customers, Pep Boys Manny Moe & Jack, Inc., d/b/a Pep Boys, in the United
States District Court for the Northern District of California. The complaint
alleges that our systems and methods infringe planet U's recently purchased
United States Patent No. 5,907,830 and seeks damages and injunctive relief. We
are currently evaluating this patent and claim. As a result of this lawsuit,
Pep Boys terminated its relationship with us.
We have instituted three other patent infringement lawsuits currently
pending in the United States District Court for the Northern District of
Illinois against IQ.commerce Corporation (filed on December 3, 1998), H.O.T.
Coupons, Inc. (filed on November 18, 1998) and Bright Street.com, Inc. (filed
on August 23, 1999). We are seeking damages and permanent injunctive relief for
each case. All of the defendants are claiming that they are not infringing on
our patent and some of the defendants are claiming that our patent is invalid
and unenforceable.
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Bright Street.com recently advised us that it is taking steps in the United
States Patent and Trademark Office to contest our rights in our United States
Patent No. 5,761,648. If Bright Street is successful, we may lose some or all
of our rights in our United States Patent No. 5,761,648.
We have been advised of potential claims by Coupco regarding its recently
acquired United States Patent No. Re. 34,915, which we are currently
evaluating. Coupco has indicated that it will file a lawsuit against us for
infringement of its patent if its claims are not resolved to its satisfaction.
All of the foregoing lawsuits and allegations are at an early stage and may
not be resolved favorably to us. For example, we may not prevail and prevent
others from using our proprietary rights. We may be required to pay costs and
legal fees in connection with these cases or other damages arising from the
various counterclaims that have been asserted against us. Our patent or future
patents may be found invalid or unenforceable. Furthermore, additional
counterclaims, separate lawsuits or other proceedings may be brought against us
to invalidate our patent or force us to change our services or business
methods.
In addition, on September 21, 1999, Kathryn L. Meklir, the ex-wife of Steven
M. Golden, our Chairman, Chief Executive Officer and President, filed suit
against both Mr. Golden and CoolSavings in Oakland County, Michigan, alleging
several claims, including fraud, arising out of her March 1998 sale of 2,000
shares of our common stock to Mr. Golden, and seeking damages in excess of $6.5
million. Although the transaction was a private sale between the parties, the
plaintiff has named us as a defendant in the lawsuit. While the outcome of any
litigation is uncertain, we believe that this suit and the claims asserted
against us have no merit, and we intend to defend it vigorously. A negative
outcome in this suit could subject us to substantial damages and negative
publicity. Our defense of this litigation may be costly and time-consuming even
if we are successful.
We may be involved in additional litigation, investigations or other
proceedings in the future. Any litigation, investigation or proceeding, with or
without merit, could be costly and time-consuming and could divert our
management's attention and resources, which in turn could harm our business and
financial results.
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MANAGEMENT
Executive Officers and Directors
The executive officers and directors of CoolSavings, and their ages and
positions as of January 1, 2000, are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Chairman of the Board, Chief Executive Officer
Steven M. Golden........... 46 and President
David H. Jacobson.......... 39 Executive Vice President, Finance, Chief
Financial Officer, Treasurer
and Secretary
Executive Vice President, Operations and
John J. Adams.............. 28 Technology
Matthew Moog............... 29 Executive Vice President, Sales and Marketing
Executive Vice President, Strategic Business
Jonathan J. Smith.......... 33 Development
Albert Aiello.............. 57 Director
Robert J. Kamerschen....... 63 Director
Hugh R. Lamle(1)(2)(3)..... 54 Director
Lynette H. Mayne(1)(2)(3).. 48 Director
Richard H. Rogel(1)(2)(3).. 50 Director
David E. Simon............. 38 Director
</TABLE>
- ---------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Nominating Committee.
Steven M. Golden founded CoolSavings in December 1994. He has served as a
director, our Chairman of the Board and Chief Executive Officer since June
1996. Mr. Golden also assumed the title of President in January 2000. Prior to
founding CoolSavings, Mr. Golden was a financial consultant with Smith Barney
from May 1993 to May 1996. From January 1989 to April 1993, Mr. Golden served
as President of Land Data Network, which was founded by Mr. Golden and was one
of the nation's first online property information systems, providing tax roll
and assessment information for various counties in the State of Michigan. Mr.
Golden holds a B.B.A. from Michigan State University.
David H. Jacobson has served as our Chief Financial Officer and Treasurer
since October 1998, as our Secretary since May 1999 and as our Executive Vice
President, Finance since October 1999. From January 1996 to October 1998, Mr.
Jacobson was the Chief Financial Officer and Treasurer of SMS Technology, Inc.,
a value added packager and distributor of specialty chemical products. From
August 1990 to January 1996, Mr. Jacobson served as Chief Financial Officer for
Sterling Capital Ltd., a private equity group. Mr. Jacobson also worked for six
years for Coopers & Lybrand in its audit and business assurance practice. Mr.
Jacobson is a Certified Public Accountant and holds a B.S. with high honors in
Business Administration and Accounting from Indiana University.
John J. Adams has served as our Executive Vice President, Operations and
Technology since October 1999. From January 1999 to October 1999, Mr. Adams
served as our Executive Vice President, Engineering and Chief Technology
Officer. Prior to joining CoolSavings, Mr. Adams worked in several capacities
for Arthur Andersen Business Consulting from July 1993 to January 1999,
including Manager--Architecture and Methodology, Manager of Client Server and
Internet Development and Senior Systems Consultant. Mr. Adams holds a B.S. from
Florida State University.
Matthew Moog has served as our Executive Vice President, Sales and Marketing
since August 1998. From October 1996 to July 1998, Mr. Moog served as our Vice
President, Sales. Prior to joining CoolSavings, Mr. Moog worked for Microsoft
Corporation in various capacities from June 1992 to September 1996, including
Strategic Integrator Account Executive, MSN Business Development Executive and
Internet Business Development Manager. Mr. Moog holds a B.A. from The George
Washington University.
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Jonathan J. Smith has served as our Executive Vice President, Strategic
Business Development since October 1999 and, from June 1998 to October 1999,
Mr. Smith served as our Vice President, Strategic Business Development. Prior
to joining CoolSavings, Mr. Smith worked in several capacities for Lend Lease
Corporation, which is an Australian-based global financial and property
services company. From July 1989 to June 1997, Mr. Smith was principally
involved in the acquisition, disposition, financing and asset management of
institutional grade commercial properties for ERE Yarmouth, a U.S. based
subsidiary of Lend Lease Corporation. Mr. Smith served as Vice President of ERE
Yarmouth from April 1994 to June 1997 and as Asset Manager for the IT+T
Investments division of Lend Lease Corporation from July 1997 to June 1998. Mr.
Smith holds a B.A. from Northwestern University.
Albert Aiello has served as a director of CoolSavings since June 1998. Since
January 1998, Mr. Aiello has served as Chief Information Officer of Lend Lease
Corporation, an Australian based global financial and property services
company. Mr. Aiello also currently serves as a director of Lend Lease
Corporation. From 1990 to January 1998, Mr. Aiello served as President of
Fidelity Systems Company, the technology division of Fidelity Investments and
also as Chief Information Officer and Managing Director of Fidelity
Investments. Mr. Aiello currently serves as a director of Advantra, an
Australian telecommunications supplier, and the Software Productivity
Corporation, a consortium of major United States defense contractors. He is
also a member of the U.S. Government Accounting Office Executive Committee with
oversight for information technology expenditures. Mr. Aiello holds a B.S.E.
from Polytechnic Institute of New York, an M.S., M.I.E. and Ph.D. from New York
University. Mr. Aiello, Mr. Kamerschen and Ms. Mayne were designated by Lend
Lease to our board of directors pursuant to the Investment Agreement described
in "Certain Transactions and Relationships--Transactions with Management and
Others."
Robert J. Kamerschen has served as a director of CoolSavings since May 1999.
Since July 1999, Mr. Kamerschen has served as Chairman and Chief Executive
Officer of DIMAC Holdings, Inc., a direct-response marketing services firm.
From November 1988 to July 1999, he served as Chairman of ADVO, Inc., a leading
direct-mail marketing company. From November 1988 to January 1999, he also
served as Chief Executive Officer of ADVO, Inc. From 1987 to 1988, Mr.
Kamerschen served as President and Chief Executive Officer of RKO/Six Flags
Entertainment, Inc. From 1984 to 1987, Mr. Kamerschen served as President and
Chief Executive Officer of Marketing Corporation of America, a leading
marketing services corporation. Mr. Kamerschen also serves as a director of IMS
Health Incorporated, R.H. Donnelley Corporation, Micrografx, Inc, Tandy
Corporation and TravelCLICK, Inc. Mr. Kamerschen holds a B.S. and an M.B.A.
from Miami University.
Hugh R. Lamle has served as a director of CoolSavings since June 1998. Since
April 1974, Mr. Lamle has served as Executive Vice President and a principal of
M.D. Sass Investors Services Inc. a registered investment advisory firm. Since
June 1995, Mr. Lamle has also served as President and Chief Investment Officer
of Chase & M.D. Sass Partners, a joint venture between Chase Manhattan Bank and
M.D. Sass Investors Services which manages portfolios for corporate and
institutional investors. Mr. Lamle also serves as President of Resurgence Asset
Management and on the advisory board of Real Estate Capital Partners, both
affiliates of M.D. Sass, as Executive Vice President and a director of
Corporate Renaissance Group, Inc., a closed-end business development company,
and as a public director of the Finex division of the New York Cotton Exchange.
Mr. Lamle holds a B.A. from Queens College and an M.B.A. from Baruch College at
the City University of New York.
Lynette H. Mayne has served as a director of CoolSavings since June 1998.
Ms. Mayne has over 20 years of international business experience having worked
for such companies as Manufacturers Hanover Trust, Pan Am and NBC. Since 1991,
Ms. Mayne has served with Lend Lease Corporation, an Australian-based global
financial and property services company, as Chief Executive Officer of various
divisions including IT+T Investments, Corporate Financial Services and
Corporate Services. Ms. Mayne is a full time non-executive director of Lend
Lease Corporation and currently a director of Advantra, an Australian
telecommunications supplier, IBM Global Services Australia and Centius, an
Internet intellectual property
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company. She has also served as Chair of an Australian state health industry
council, as a member of APEC and is a Trustee of the ACTU--Lend Lease
Foundation. Ms. Mayne holds an M.B.A. from New York University and has authored
two books on information technology.
Richard H. Rogel has served as a director of CoolSavings since May 1996. In
1982, Mr. Rogel founded Preferred Provider Organization of Michigan, Inc., a
preferred provider organization, and served as its Chairman from its inception
until it was sold in 1997. Mr. Rogel is the President of the University of
Michigan Alumni Association and chairs the University of Michigan's Business
School Development Advisory Board, as well as serving on other boards of the
University. Mr. Rogel holds a B.B.A. from the University of Michigan.
David E. Simon has served as a director of CoolSavings since November 1999.
Since 1998, Mr. Simon has been the Chief Executive Officer of Simon Property
Group, Inc., a publicly traded real estate company engaged primarily in the
ownership, development, management, leasing, acquisition and expansion of
income-producing retail properties. From 1995 until 1998, Mr. Simon was the
Chief Executive Officer of Simon DeBartolo Group, Inc., a predecessor-in-
interest to Simon Property Group, Inc. In addition to serving as a director of
Simon Property Group, Inc., Mr. Simon also serves as a director of First Health
Group Corporation, a publicly-traded full service national health benefits
company. He currently serves as Second Vice Chairman of the National
Association of Real Estate Investment Trusts, Inc. and is trustee of the
International Council of Shopping Centers. Mr. Simon holds a B.S. from Indiana
University and an M.B.A. from Columbia University Graduate School of Business.
Board of Directors
Our board of directors currently consists of seven members. Each director is
elected for a one-year term at our annual meeting of stockholders and serves
until the next annual meeting of stockholders or until his or her successor is
duly elected and qualified. Richard H. Rogel and Steven M. Golden have agreed
to vote the shares of common stock held by their revocable trusts or over which
they exercise voting control in favor of election of Albert Aiello, an
affiliate of Lend Lease International Pty. Limited (Lend Lease), to our board
of directors at the annual meetings of stockholders to be held in 2000 and
2001. This is conditional upon Lend Lease properly nominating its candidate and
continuing to own at least 10% of our common stock at that time. Lend Lease may
nominate a different person as director instead of Mr. Aiello, only upon the
written consent of Mr. Rogel and Mr. Golden, which they may not unreasonably
withhold.
Board Committees
Our board of directors has a compensation committee, an audit committee and
a nominating committee.
. Compensation Committee. The compensation committee makes recommendations
to the board of directors concerning salaries and incentive compensation
for our officers and employees and administers our 1997 Stock Option
Plan. The current members of our compensation committee are Hugh R.
Lamle, Lynette H. Mayne and Richard H. Rogel.
. Audit Committee. The audit committee, among other things, reviews our
financial statements and accounting practices, makes recommendations to
the board of directors regarding the selection of independent auditors
and reviews the results and scope of the audit and other services
provided by our independent auditors. The current members of our audit
committee are Hugh R. Lamle, Lynette H. Mayne and Richard H. Rogel.
Pursuant to the rules of Nasdaq, our audit committee consists of three
independent directors with financial skills and experience.
. Nominating Committee. The nominating committee screens and nominates
candidates for election to our board of directors. The current members of
our nominating committee are Hugh R. Lamle, Lynette H. Mayne and Richard
H. Rogel.
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Director Compensation
Directors who are also employees of CoolSavings receive no compensation for
serving on the board of directors. Directors who are not employees of
CoolSavings do not currently receive any cash compensation from us for their
service as members of the board of directors, although they are reimbursed for
all travel and other expenses incurred in connection with attending board and
committee meetings. Under our 1999 Non-Employee Director Stock Option Plan,
non-employee directors are also eligible to receive automatic stock option
grants upon their initial appointment to the board of directors and at each of
our annual stockholder meetings.
Under the 1999 Non-Employee Director Stock Option Plan, the following
directors received options in 1999: Albert Aiello, Robert J. Kamerschen, Hugh
R. Lamle, Lynette H. Mayne, Richard H. Rogel and David E. Simon. Each of these
directors other than David E. Simon received an option in July 1999 to purchase
11,500 shares of common stock at an exercise price of $4.37 per share while
David E. Simon received an option in November 1999 to purchase 5,750 shares of
common stock at an exercise price of $7.91 per share. The exercise prices of
these options were fair market value on the date of grant and each of these
options vests in full on the first anniversary of the date of grant and must be
exercised within ten years after the date of grant.
Compensation Committee Interlocks and Insider Participation
None of the members of our compensation committee is an officer or employee
of CoolSavings. No executive officer of CoolSavings serves as a member of the
board of directors or compensation committee of any entity that has one or more
executive officers serving on our board of directors or compensation committee.
All of the members of the compensation committee have entered into loan
transactions with us. Please see "Certain Transactions and Relationships."
Until the formation of the compensation committee in December 1997, matters
concerning executive compensation were addressed by the entire board of
directors.
Executive Compensation
The following table sets forth compensation earned by or paid for services
rendered to CoolSavings in 1999 by our Chief Executive Officer and each of our
other executive officers whose total annual salary and bonus exceeded $100,000
(collectively, the "Named Executive Officers") during 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
------------------ ------------
Shares
Underlying
Name and Principal Position Salary($) Bonus($) Options(#)
- --------------------------- -------- -------- ------------
<S> <C> <C> <C>
Steven M. Golden,
Chairman of the Board, Chief
Executive Officer and President............... $245,000 $75,000 460,000
David H. Jacobson,
Executive Vice President, Finance
and Chief Financial Officer................... 138,000 20,000 287,500
John J. Adams,
Executive Vice President, Operations
and Technology................................ 125,000 20,000 310,500
Matthew Moog,
Executive Vice President,
Sales and Marketing........................... 137,000 130,000 258,750
</TABLE>
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<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
------------------ ------------
Shares
Underlying
Name and Principal Position Salary($) Bonus($) Options(#)
- --------------------------- -------- -------- ------------
<S> <C> <C> <C>
Jonathan J. Smith,
Executive Vice President, Strategic
Business Development.......................... 119,000 30,000 287,500
Hillel Levin,
Former President and Chief Operating
Officer (1)................................... 198,000 20,000 143,750
</TABLE>
- ---------------------
(1) Mr. Levin resigned as an officer effective December 31, 1999. However, he
will continue to serve as a consultant to us through December 31, 2000.
Stock Options
The following table sets forth summary information concerning individual
grants of stock options made during 1999 to each of the Named Executive
Officers:
Option Grants in 1999
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Number of % of Total Stock Price
Shares Options Exercise Appreciation for
Underlying Granted to Price Option Term(2)
Options Employees Per Expiration ---------------------
Name Granted in 1999(1) Share Date 5% ($) 10% ($)
- ---- ---------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Steven M. Golden........ 230,000 9.7% $2.17 3/3/09 $ 314,447 $ 796,871
230,000 9.7 7.91 11/22/09 1,144,667 2,900,812
David H. Jacobson....... 172,500 7.3 2.17 3/3/09 235,835 597,653
115,000 4.9 7.91 11/22/09 572,334 1,450,406
John J. Adams........... 23,000 1.0 2.17 1/18/09 31,445 79,687
172,500 7.3 2.17 3/3/09 235,835 597,653
115,000 4.9 7.91 11/22/09 572,334 1,450,406
Matthew Moog............ 143,750 6.1 2.17 3/3/09 196,530 498,045
115,000 4.9 7.91 11/22/09 572,334 1,450,406
Jonathan J. Smith....... 172,500 7.3 2.17 3/3/09 235,835 597,653
115,000 4.9 7.91 11/22/09 572,334 1,450,406
Hillel Levin............ 143,750 6.1 2.17 3/3/09 196,530 498,045
</TABLE>
- ---------------------
(1) Based on a total of 2,359,800 option shares granted to our employees under
our 1997 Stock Option Plan during 1999.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock appreciation of 5% and 10% compounded
annually from the date the respective options were granted to their
expiration date. The gains shown are net of the option exercise price but
do not include deductions for taxes or other expenses associated with the
exercise of the options or the sale of the underlying shares of common
stock. The 5% and 10% assumed rates of appreciation are mandated by rules
of the Securities and Exchange Commission and do not represent our estimate
or projection of the future price of our common stock. There can be no
assurance that any of the values reflected in this table will be achieved.
The actual gains, if any, will depend on the future performance of the
common stock, the optionee's continued employment through applicable
vesting periods and the date on which the options are exercised.
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The following table sets forth the number of shares of common stock acquired
upon the exercise of stock options by each Named Executive Officer during 1999
and the number and value of securities underlying unexercised options held by
each Named Executive Officer as of December 31, 1999:
Aggregated Option Exercises in 1999 and Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options at In-The-Money Options at
Acquired December 31, 1999 December 31, 1999(1)
on Value ------------------------- -------------------------
Name Exercise Received Exercisable Unexercisable Exercisable Unexercisable
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Steven M. Golden........ -- -- 322,000 713,000 $3,164,000 $5,685,874
David H. Jacobson....... 9,200 $20,188 -- 301,300 -- 2,300,537
John J. Adams........... -- -- 4,600 305,900 45,200 2,345,737
Matthew Moog............ -- -- 338,537 273,700 3,942,444 2,029,337
Jonathan J. Smith....... -- -- 9,200 301,300 90,400 2,300,537
Hillel Levin............ -- -- 299,000 362,250 2,938,000 3,559,500
</TABLE>
- ---------------------
(1) The dollar values have been calculated by determining the difference
between the fair market value of the securities underlying the options at
December 31, 1999 and the exercise prices of the options. Solely for
purposes of determining the value of options at December 31, 1999, we have
assumed that the fair market value of shares of common stock issuable upon
exercise of options was $12.00 per share, the assumed initial public
offering price, because the common stock was not traded in an established
market prior to this offering.
Employee Benefit Plans
1997 Stock Option Plan
We adopted our 1997 Stock Option Plan to enable officers, key employees and
consultants of CoolSavings or any subsidiary to participate in our possible
growth and profitability, and to encourage their continuation as officers,
employees or consultants for the benefit of CoolSavings and our stockholders.
Under our 1997 Stock Option Plan, we may award incentive and non-qualified
stock options, stock appreciation rights, restricted stock, performance stock
units and other stock units which are valued by reference to our common stock.
Our officers, employees and consultants are eligible to participate in our 1997
Stock Option Plan. Our 1997 Stock Option Plan is administered by either the
board of directors or the Compensation Committee (the "Administrator") which
determines, subject to the provisions of our 1997 Stock Option Plan, who shall
receive awards, the types of awards to be made, and the terms and conditions of
each award.
The exercise price of non-qualified options may not be less than the fair
market value of the common stock at the time the option is granted, except that
non-qualified options may have an exercise price of no less than 90% of the
fair market value at the time the option is granted if that discount is
expressly granted in lieu of a reasonable amount of salary or bonus. Options
that are intended to qualify as incentive stock options under our 1997 Stock
Option Plan may not be exercisable for more than ten years after the date the
option is granted and may not be granted at an exercise price of less than the
fair market value of the common stock at the time the option is granted. In the
case of incentive stock options granted to holders of more than 10% of our
common stock, the options may not be granted at an exercise price less than
110% of the fair market value of the common stock at the time the options are
granted.
Awards granted under our 1997 Stock Option Plan generally expire three
months after the termination of the recipient's service to CoolSavings or any
subsidiary, except in the case of death, in which case awards
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generally may be exercised up to 12 months following the date of death. Awards
generally expire immediately upon termination of employment for cause.
The number of shares of common stock which may be issued under our 1997
Stock Option Plan is currently limited to 15% of the total number of shares of
common stock issued and outstanding from time to time and the number of shares
of common stock underlying incentive stock options issued under our 1997 Stock
Option Plan is limited to 5,750,000 shares of common stock. Our board of
directors has recently approved increasing the number of shares issuable under
our 1997 Stock Option Plan to 20% of the total number of shares of common stock
issued and outstanding from time to time, subject to stockholder approval. As
of December 31, 1999, there were 3,864,230 shares subject to options
outstanding under our 1997 Stock Option Plan.
The Administrator shall make appropriate adjustments in the number of shares
of common stock subject to each award and the exercise price per share of each
award if there is any change in the common stock as a result of a stock
dividend, stock split, recapitalization or otherwise. The Administrator also
has the authority to accelerate award exercise rights or make other adjustments
if CoolSavings is merged or consolidated, the property or stock of CoolSavings
is acquired by another corporation or CoolSavings is reorganized, liquidated or
impacted by an extraordinary transaction.
Our 1997 Stock Option Plan will terminate when no further shares of common
stock are available for issuance upon the exercise of awards and all
outstanding awards have expired or have been exercised. The board of directors
may at any time terminate our 1997 Stock Option Plan, but termination will not
affect awards previously granted. Any awards which were granted prior to
termination would remain exercisable by the holder in accordance with the terms
of the applicable award agreement. In addition, the board of directors may at
any time amend our 1997 Stock Option Plan without stockholder approval, except
where required by applicable law.
1999 Non-Employee Director Stock Option Plan
We adopted the 1999 Non-Employee Director Stock Option Plan to attract and
retain the services of experienced and knowledgeable independent directors, and
to provide an additional incentive for those directors to work for the best
interests of CoolSavings and its stockholders.
The 1999 Non-Employee Director Stock Option Plan was approved by our
stockholders on November 17, 1999 and, unless terminated earlier, it expires in
May 2009. The 1999 Non-Employee Director Stock Option Plan is designed to work
automatically without administration. To the extent administration is
necessary, however, it will be performed by the board of directors. To the
extent that conflicts of interest arise, we expect interested directors will
abstain from both deliberations and voting regarding matters in which they have
personal interests.
The 1999 Non-Employee Director Stock Option Plan provides that each person
who is a non-employee director on the date that the 1999 Non-Employee Director
Stock Option Plan became effective and each person who becomes a non-employee
director after the date of the plan will be granted, on the later of the date
on which the optionee first becomes a non-employee director or the effective
date of the plan, a non-qualified stock option to purchase a number of shares
of common stock that have a fair market value of $50,000 on the date of
issuance. In addition, on the date of each of our annual stockholder meetings,
each non-employee director will automatically be granted an additional non-
qualified option to purchase a number of shares of common stock with a fair
market value of $50,000 if, on that date, he or she has served on our board of
directors for at least six months. All options granted under the 1999 Non-
Employee Director Stock Option Plan shall have an exercise price equal to 100%
of the fair market value of the common stock on the date of grant and will vest
in full on the first anniversary of the date of grant.
Awards granted under the 1999 Non-Employee Director Stock Option Plan
generally expire three months after the non-employee director ceases to serve
as a director, except in the case of death, in which
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case awards generally may be exercised up to 12 months following the date of
death. Options granted under the 1999 Plan generally have a term of ten years.
The number of shares of common stock which may be issued under the 1999 Plan
is limited to 2% of the total number of shares of common stock issued and
outstanding from time to time. As of December 31, 1999, options to purchase
63,250 shares of common stock have been issued under the 1999 Non-Employee
Director Stock Option Plan.
Appropriate adjustments will be made in the number of shares of common stock
subject to each award and the exercise price per share of each award if there
is any change in the common stock as a result of a stock dividend, stock split,
recapitalization or otherwise. If CoolSavings is merged or consolidated, the
property or stock of CoolSavings is acquired by another corporation or
CoolSavings is reorganized, liquidated or impacted by an extraordinary
transaction, the outstanding options will become fully exercisable.
The 1999 Non-Employee Director Stock Option Plan will terminate when no
further shares of common stock are available for issuance upon the exercise of
awards and all outstanding awards have expired or have been exercised. The
board of directors may at any time terminate the 1999 Non-Employee Director
Stock Option Plan, but termination will not affect awards previously granted.
Any awards which were granted prior to termination would remain exercisable by
the holder under the terms of the applicable award agreement. In addition, the
board of directors may at any time amend the 1999 Non-Employee Director Stock
Option Plan without stockholder approval, except as required by applicable law.
401(k) Plan
We have a tax-qualified employee savings plan which covers all of our full-
time employees who are at least 21 years of age. Eligible employees may defer
up to 25% of their pre-tax earnings, subject to the Internal Revenue Service's
annual contribution limit. Our 401(k) plan permits us to make additional
discretionary matching contributions on behalf of all participants in our
401(k) plan in an amount determined by us. Our 401(k) plan is intended to
qualify under Section 401 of the Internal Revenue Code of 1986 so that
contributions by employees or by us to our 401(k) plan, and income earned on
plan contributions, are not taxable to employees until withdrawn from the plan,
and so that contributions by us, if any, will be deductible by us when made.
Employment Agreements and Severance Arrangements
Each of our executive officers has signed our standard terms of employment
detailing, among other things, his confidentiality obligations and his at-will
employment status. Currently, none of our executive officers has a formal
employment agreement with us. All of our executive officers are employees at-
will and may be terminated at any time at the discretion of our board of
directors.
In January 2000, we entered into a termination agreement with Hillel Levin,
our former President and Chief Operating Officer. Under the terms of this
agreement, (a) Mr. Levin confirmed that he voluntarily resigned from
CoolSavings effective as of December 31, 1999, (b) we agreed to pay Mr. Levin a
$20,000 bonus on or before January 15, 2000, (c) CoolSavings and Mr. Levin
agreed to enter into a one-year consulting agreement, and (d) Mr. Levin agreed
not to compete with us for a period of two years after the termination of the
consulting agreement. Under the terms of the consulting agreement, Mr. Levin
will spend up to 25 hours per week performing consulting services for us for a
period of one year and we will pay Mr. Levin a consulting fee of $120,000.
Limitation of Liability and Indemnification
As permitted by the Michigan Business Corporation Act ("MBCA"), our articles
of incorporation include a provision that limits the liability of our directors
to the maximum extent permitted by the MBCA.
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The MBCA limits the liability of directors for monetary damages for breach of
fiduciary duty as a director, except for liability for (a) a breach of the
director's duty of loyalty to the corporation or its stockholders, (b) acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law, (c) illegal loans, distributions of dividends or assets, or
stock purchases as described in Section 551(1) of the MBCA, and (d)
transactions from which the director derived an improper personal benefit.
In addition, our bylaws generally provide that we will indemnify our
directors and officers to the fullest extent authorized or permitted under the
MBCA and that we will advance expenses at the request of a director or officer.
Prior to the completion of this offering, we intend to enter into indemnity
agreements with each of our current officers and directors to give them
additional contractual assurances regarding the scope of the indemnification
set forth in our articles of incorporation and bylaws.
We believe that these indemnification and limitation of liability provisions
will assist us in attracting and retaining talented directors and officers in
light of the risk of litigation directed against directors and officers of
publicly held corporations.
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CERTAIN TRANSACTIONS AND RELATIONSHIPS
Transactions with Management and Others
Lend Lease
In May 1998, we borrowed $1.0 million from Lend Lease International Pty.
Limited (Lend Lease), an Australian company, under a promissory note providing
for repayment of the indebtedness in six months or upon Lend Lease making a
contemplated $5.0 million investment in CoolSavings, whichever occurred first.
We repaid the promissory note on June 1, 1998, when Lend Lease made its first
equity investment in CoolSavings.
In June 1998, we entered into an Investment Agreement with Lend Lease
pursuant to which Lend Lease committed to invest up to $18.5 million in
CoolSavings upon the occurrence of specified events. Under the Investment
Agreement, Lend Lease purchased: 2,496,443 shares of common stock for $5.0
million on June 1, 1998; 2,269,491 shares of common stock for $5.0 million on
November 4, 1998; 2,723,384 shares of common stock for $5.0 million on March
11, 1999; and 2,139,805 shares of common stock for $3.5 million on April 27,
1999.
In connection with the Investment Agreement, on June 1, 1998, CoolSavings,
Lend Lease and certain of our stockholders entered into a shareholders
agreement under which, among other things, Lend Lease designated three persons
to serve on our board of directors. Albert Aiello, Robert J. Kamerschen and
Lynette H. Mayne are currently the directors designated by Lend Lease. The
provisions in the shareholders agreement addressing the composition of our
board of directors will terminate upon the completion of this offering. Two of
our shareholders have also agreed to vote in favor of the election of a
director nominated by Lend Lease. Please see "Management--Board of Directors."
In April 1999, Lend Lease agreed to loan us up to $3.5 million, which we
could borrow in our discretion by December 31, 1999. In October 1999, we
borrowed nearly $3.5 million under convertible subordinated notes issued to
Lend Lease. These notes bear interest at a rate of 10% per annum. The principal
and interest on these notes automatically convert into shares of our common
stock upon completion of this offering at a conversion price equal to 90% of
the initial public offering price. Assuming an initial public offering price of
$12.00 per share, these notes will automatically convert into 323,737 shares of
common stock upon completion of this offering. The notes mature on June 30,
2000 if this offering is not completed before that date and, if not repaid
within 15 days after their due date, the notes will automatically convert into
800,400 shares of our common stock.
On December 31, 1999, Lend Lease purchased 549.413 shares of our Series A
convertible preferred stock, which will automatically convert into 631,825
shares of our common stock upon completion of this offering. Please see "--
Series A Convertible Preferred Stock." As of December 31, 1999, Lend Lease
owned approximately 30.0% of our capital stock and, assuming conversion of the
convertible subordinated notes into 323,739 shares at an assumed initial public
offering price of $12.00 per share, would have owned 30.5% of our capital stock
on a pro forma basis as of that date.
Loan from Director
Under a credit agreement dated December 18, 1997 between CoolSavings and the
Richard H. Rogel Revocable Living Trust u/a/d March 21, 1990, the grantor,
trustee and beneficiary of which is Richard H. Rogel, a director of CoolSavings
(the Rogel Trust), the Rogel Trust loaned us $1.05 million. In connection with
this credit agreement, we issued the Rogel Trust warrants to purchase 805,000
shares of our common stock at $1.30 per share and warrants to purchase 57,500
shares of our common stock at $2.17 per share. We have repaid the loan to the
Rogel Trust and the Rogel Trust has exercised the warrants. Please see "--Loans
to Directors."
56
<PAGE>
Loans to Directors
On February 4, 1999, our board of directors authorized the payment of the
exercise prices of outstanding options and warrants held by our directors and
other warrant holders by delivery of promissory notes to CoolSavings with the
following terms: (a) all principal and accrued and unpaid interest is due on
the fourth anniversary of the issuance of the note; (b) the note bears interest
at the rate of 4.83% per annum (the then applicable federal rate); (c) accrued
interest is payable annually; (d) the note is secured by the shares of common
stock issued upon exercise of such option or warrant; and (e) the maker is
personally liable on the note to the extent of all accrued interest on the note
plus 20% of the total principal amount of the note.
Prior to the date of this prospectus, the following directors of CoolSavings
exercised their outstanding options and warrants in exchange for the delivery
of a promissory note with the terms described above:
<TABLE>
<CAPTION>
Shares Issued
Name Upon Exercise Principal Amount of Note
- ---- ------------- ------------------------
<S> <C> <C>
Richard H. Rogel, Trustee................ 862,500 $1,181,250(a)
Albert Aiello............................ 57,500 120,922
Hugh R. Lamle............................ 57,500 120,922
Lynette Mayne............................ 57,500 120,922
</TABLE>
- ---------------------
(a) Mr. Rogel delivered 13 notes in the aggregate principal amount of
$1,050,000 upon the exercise of warrants to purchase 805,000 shares of
common stock and delivered an additional note in the principal amount of
$131,250 upon the exercise of an option to purchase 57,500 shares of common
stock. All of these notes have identical terms and conditions as described
above.
Prior to the date of this prospectus, the following former directors of
CoolSavings exercised their outstanding options in exchange for the delivery of
a promissory note with the terms as described above:
<TABLE>
<CAPTION>
Shares Issued
Name Upon Exercise Principal Amount of Note
- ---- ------------- ------------------------
<S> <C> <C>
Eve Bosak................................ 57,500 $131,250
Douglas J. Golden........................ 57,500 131,250
Elwyn Jenkins............................ 57,500 120,922
Peter Sugar.............................. 57,500 131,250
Arthur A. Weiss.......................... 57,500 131,250
</TABLE>
As of the date of this prospectus all of these promissory notes were still
outstanding.
Options to Director
On July 13, 1999, we granted to Richard H. Rogel, one of our directors, an
option to purchase 115,000 shares of our common stock at a price of $4.37 per
share. This grant is in addition to the options granted to all directors
automatically upon adoption of the 1999 Non-Employee Director Stock Option
Plan. Mr. Rogel exercised this option by delivering to CoolSavings a full
recourse promissory note in the original principal amount of $502,354. This
note bears interest at the rate of 5.86% per annum (the then applicable federal
rate), provides for annual payments of accrued interest and is due in full on
the fourth anniversary of the note.
Convertible Subordinated Notes
One of our directors, Hugh R. Lamle, controls a limited partnership, HLBL
Family Partners, LP, which purchased one of our convertible subordinated notes
in the original principal amount of $65,000. This note will be converted into
6,019 shares of our common stock upon completion of this offering, based upon
an assumed initial public offering price of $12.00 per share.
57
<PAGE>
Series A Convertible Preferred Stock
The following table summarizes the shares of our Series A convertible
preferred stock purchased by our executive officers, directors and significant
stockholders in December 1999:
<TABLE>
<CAPTION>
Number of Shares of
Series A Convertible
Name Preferred Stock Purchase Price
- ---- -------------------- --------------
<S> <C> <C>
Lend Lease International Pty. Limited...... 549.413 $5,000,000
Hugh R. Lamle(a)........................... 109.883 1,000,000
David E. Simon(b).......................... 109.880 999,977
Robert Kamerschen.......................... 30.000 273,019
David H. Jacobson.......................... 8.000 72,805
</TABLE>
- ---------------------
(a)Owned by HLBL Family Partners, LP, an entity controlled by Hugh R. Lamle.
(b)Owned by Cool Savings Investors, LLC, an entity in which David E. Simon is a
member.
Each share of Series A convertible preferred stock will automatically
convert into 1,150 shares of common stock upon completion of this offering.
Relationships with Legal Counsel
Our outside corporate counsel is Golden & Gorman, P.C. Douglas J. Golden, a
shareholder of Golden & Gorman, P.C., is the brother of Steven M. Golden, our
Chairman of the Board and Chief Executive Officer. Douglas J. Golden is also a
former director of CoolSavings and was our Secretary until May 1999. Please see
"--Loans to Directors."
Our outside securities counsel is Jaffe, Raitt, Heuer & Weiss, Professional
Corporation. Peter Sugar and Arthur A. Weiss, shareholders of Jaffe, Raitt,
Heuer & Weiss, Professional Corporation, are former directors of CoolSavings.
Please see "--Loans to Directors" and "Legal Matters."
58
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of December 31, 1999, by:
. each person known by us to beneficially own more than 5% of our common
stock;
. each Named Executive Officer;
. each of our directors; and
. all executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock subject to options
that are currently exercisable or exercisable within 60 days after December 31,
1999, are deemed to be outstanding and to be beneficially owned by the person
holding the options for the purpose of computing the percentage ownership of
that person, but are not treated as outstanding for the purpose of computing
the percentage ownership of any other person. Unless otherwise noted, each
person or group identified possesses sole voting and investment power with
respect to the shares indicated, subject to applicable community property laws.
Beneficial ownership percentage is based on 34,705,374 shares of common stock
outstanding as of December 31, 1999, on an as converted basis, and 38,905,374
shares of common stock outstanding after completion of this offering.
Unless indicated otherwise, the address of the beneficial owners is: c/o
coolsavings.com inc., 8755 West Higgins Road, Suite 100, Chicago, Illinois
60631.
<TABLE>
<CAPTION>
Percentage of
Shares Beneficially
Owned
Shares ----------------------
Beneficially Before After
Name and Address of Beneficial Owner Owned Offering Offering
- ------------------------------------ ------------ -------- ---------
<S> <C> <C> <C>
Lend Lease International Pty. Limited..... 10,584,687 30.5% 27.2%
Level 44, Australia Square
Sydney, Australia 2000
Richard H. Rogel(1)....................... 6,873,113 19.8 17.7
56 Rose Crown
Avon, Colorado 81620
Steven M. Golden(2)....................... 4,873,815 13.9 12.4
Hillel Levin(3)........................... 951,207 2.7 2.4
Matthew Moog(4)........................... 586,006 1.7 1.5
David H. Jacobson......................... 18,400 * *
John J. Adams(5).......................... 9,200 * *
Jonathan J. Smith(5)...................... 9,200 * *
Hugh R. Lamle(6).......................... 351,483 1.0 *
c/o M.D. Sass
1185 Avenue of the Americas
New York, New York 10036
Albert Aiello............................. 57,500 * *
81 Carisbrooke Rd.
Wellesley, Massachusetts 02481
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shares Beneficially
Owned
Shares -----------------------
Beneficially Before After
Name and Address of Beneficial Owner Owned Offering Offering
- ------------------------------------ ------------ -------- ----------
<S> <C> <C> <C>
Lynette H. Mayne......................... 57,500 * *
Level 44, Australia Square
Sydney, Australia 2000
David E. Simon(7)........................ 126,362 * *
c/o Simon Property Group, Inc.
115 West Washington Street
Indianapolis, Indiana 46204
Robert J. Kamerschen..................... 34,500 * *
200 Day Hill Rd.
Windsor, Connecticut 06095
All directors and executive officers as a
group
(11 persons)(8)......................... 12,997,079 36.7% 32.9%
</TABLE>
- ---------------------
* Less than 1%.
(1) All of these shares of common stock are held by a revocable trust, of which
Mr. Rogel is the trustee.
(2) Includes 4,379,315 shares of common stock held by a revocable trust, of
which Mr. Golden is the trustee, 172,500 shares of common stock held by
Steven M. Golden LLC, which is controlled by Mr. Golden, and 322,000 shares
of common stock subject to options exercisable within 60 days after
December 31, 1999.
(3) Includes 115,000 shares of common stock held by Shore Bridge, L.P., which
is controlled by Mr. Levin, and 299,000 shares of common stock subject to
options exercisable within 60 days after December 31, 1999.
(4) Includes 338,537 shares of common stock subject to options exercisable
within 60 days after December 31, 1999.
(5) Represents 9,200 shares of common stock subject to options exercisable
within 60 days after December 31, 1999.
(6) Includes 287,964 shares of common stock held in the name of HLBL Family
Partners, LP, which is controlled by Mr. Lamle.
(7) All of these shares are held in the name of Cool Savings Investors, LLC.
Mr. Simon, a member of Cool Savings Investors, LLC, disclaims beneficial
ownership of the shares held by that entity except to the extent of his
proportionate pecuniary interest therein.
(8) Includes 678,937 shares of common stock subject to options exercisable
within 60 days after December 31, 1999.
60
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, after giving effect to the filing of our
restated articles of incorporation, our authorized capital stock will consist
of 100,000,000 shares of common stock, without par value, and 10,000,000 shares
of preferred stock, without par value.
The following summary of our capital stock and restated articles of
incorporation and bylaws are qualified by reference to the restated articles of
incorporation and bylaws filed with the Securities and Exchange Commission as
exhibits to the registration statement of which this prospectus forms a part.
Common Stock
As of December 31, 1999, there were 31,715,449 shares of common stock
outstanding, held by approximately 125 stockholders of record. The holders of
outstanding shares of common stock are entitled to receive dividends out of
legally available assets at such times and in such amounts as the board of
directors may from time to time determine. Each holder is entitled to one vote
for each share of common stock held on all matters submitted to a vote of
stockholders. Cumulative voting for the election of directors is not provided
for in our articles of incorporation, which means that the holders of a
majority of the shares of common stock voted can elect all of the directors
nominated for election. Subject to preferences that may be applicable to any
then outstanding preferred stock, holders of common stock are entitled to
receive ratably the dividends, if any, that may be declared by our board of
directors out of legally available funds. Upon a liquidation, dissolution or
winding up of CoolSavings, the holders of common stock will be entitled to
share ratably in the net assets legally available for distribution to
stockholders after the payment of all debts and other liabilities of
CoolSavings, subject to the prior rights of any preferred stock then
outstanding. Holders of common stock have no preemptive or conversion rights or
other subscription rights and there are no redemption or sinking fund
provisions applicable to the common stock. All outstanding shares of common
stock are, and the common stock to be outstanding upon completion of this
offering will be, fully paid and nonassessable.
Preferred Stock
As of December 31, 1999, there were 2,197.650 shares of Series A convertible
preferred stock outstanding, held by 69 stockholders of record. Upon the
completion of this offering, each share of Series A convertible preferred stock
will automatically convert into 1,150 shares of common stock. Our board of
directors has the authority, within the limitations and restrictions contained
in the articles of incorporation, to issue shares of preferred stock, in one or
more classes or series, and to fix the rights, preferences, privileges, and
restrictions thereof, including dividend rights, conversion rights, voting
rights, terms of redemption, liquidation preferences and the number of shares
constituting any series or the designation of such series. The board of
directors, without stockholder approval, could issue shares of preferred stock
with voting and conversion rights which could adversely affect the voting power
or other rights of the holders of shares of common stock. The issuance of
shares of preferred stock, while providing flexibility in connection with
possible acquisitions and other corporate purposes, could, among other things,
have the effect of delaying, deferring or preventing a change in control of
CoolSavings and may negatively affect the market price of the common stock and
the voting and other rights of the holders of common stock. We have no current
plans to issue any shares of preferred stock.
Convertible Subordinated Notes
As of December 31, 1999, approximately $5.0 million of coolsavings.com inc.
1999 unsecured, convertible subordinated notes were outstanding. These notes
will automatically convert into shares of our common stock upon the completion
of this offering at a conversion price equal to 90% of the initial public
offering price, and mature on June 30, 2000 if this offering is not completed
before that date. If the notes are not paid within 15 days after their due
date, they will automatically convert into 1,143,783 shares of our common
stock.
61
<PAGE>
Registration Rights
Shareholders Agreement
Under an agreement between us and some of our stockholders, stockholders
holding an aggregate of 29,336,892 shares of common stock, referred to as
registrable securities, have registration rights with respect to the
registrable securities. The holders of substantially all of the registrable
securities have signed lock-up agreements in connection with this offering. See
"Shares Eligible for Future Sale--Lock-up Agreements."
When we become eligible to use a registration statement on Form S-3 to
register an offering of our securities, holders of the registrable securities
may request that we file a registration statement on Form S-3 covering all or a
portion of the registrable securities held by them, provided that the proceeds
from that offering are at least $1.0 million. We are only obligated to effect
two of these demand registrations and we have the right to delay the filing of
a registration statement on Form S-3 for up to 90 days.
In addition, the holders of registrable securities have piggyback
registration rights. If we propose to register any common stock under the
Securities Act, other than under the Form S-3 registration rights noted above
or an employee benefit plan, the holders of the registrable securities may
require us to include all or a portion of their securities in such
registration. However, the underwriters, if any, of that offering have the
right to limit the number of registrable securities proposed to be included in
that registration.
We will bear all of the costs and expenses incurred in connection with these
registrations, except that the holders of registrable securities participating
in any registration would pay their own underwriting discounts, selling
commissions and stock transfer taxes applicable to the sale of their
securities.
These registration rights terminate five years after the completion of this
offering.
Agreement with Holders of Unsecured, Convertible Subordinated Notes
Under an agreement with us, the holders of our 1999 unsecured, convertible
subordinated notes have registration rights with respect to the 462,627 shares
of common stock issuable upon conversion of the notes. The holders of
substantially all of the notes have signed lock-up agreements in connection
with this offering. See "Shares Eligible for Future Sale--Lock-Up Agreements."
The holders of the notes have piggyback registration rights. If, after the
completion of this offering, we propose to register any common stock under the
Securities Act, other than on Form S-4 (or any successor form) or under an
employee benefit plan, the holders of the notes may require us to include all
or a portion of their securities in such registration. However, the
underwriters, if any, of that offering have the right to limit the number of
registrable securities proposed to be included in that registration.
We will bear all of the costs and expenses incurred in connection with these
registrations, except that the holders of the notes participating in any
registration would pay their own underwriting discounts, selling commissions
and stock transfer taxes applicable to the sale of their securities.
These registration rights terminate two years after the completion of this
offering.
NBC Agreement
Under our stock purchase and advertising agreement with National
Broadcasting Company, Inc., NBC has registration rights with respect to its
686,766 shares of our common stock. NBC has signed a lock-up agreement in
connection with this offering. See "Shares Eligible for Future Sale--Lock-Up
Agreements."
At any time beginning six months after this offering, NBC may request that
we register at least 50% of its shares of our common stock or any lesser
percentage of its shares if the aggregate public offering price is
62
<PAGE>
greater than $5,000,000. We are only obligated to effect one of these demand
registrations and we have the right to delay the filing of a registration
statement for up to 90 days.
In addition, NBC has piggyback registration rights with respect to its
shares of our common stock. If, after the completion of this offering, we
propose to register any common stock under the Securities Act, other than in a
Rule 145 transaction or under an employee benefit plan, NBC may require us to
include all or a portion of its shares of our common stock in such
registration. However, the underwriters, if any, of that offering have the
right to limit the number of NBC shares proposed to be included in that
registration.
We will bear all of the costs and expenses incurred in connection with these
registrations except that NBC would pay its own underwriting discounts, selling
commissions and stock transfer taxes applicable to the sale of its securities.
These registration rights terminate three years after the completion of this
offering.
Agreement with Holders of Series A Convertible Preferred Stock
Under an agreement with us, the holders of our Series A convertible
preferred stock have piggyback registration rights with respect to the shares
of common stock issuable upon conversion of the Series A convertible preferred
stock. If, after the completion of this offering, we propose to register any
common stock under the Securities Act, other than on Form S-4 (or any successor
form) or under an employee benefit plan, the holders of the Series A
convertible preferred stock may require us to include all or a portion of their
securities in such registration. However, the underwriters, if any, of that
offering have the right to limit the number of registrable securities proposed
to be included in that registration. The holders of substantially all of the
Series A convertible preferred stock have signed lock-up agreements in
connection with this offering. See "Shares Eligible for Future Sale--Lock-Up
Agreements."
We will bear all of the costs and expenses incurred in connection with these
registrations, except that the holders of the Series A convertible preferred
stock participating in any registration would pay their own underwriting
discounts, selling commissions and stock transfer taxes applicable to the sale
of their securities.
These registration rights terminate two years after the completion of this
offering.
Anti-Takeover Effects of Certain Provisions of Michigan Law and Our Articles of
Incorporation and Bylaws
Michigan Anti-Takeover Statutes
Chapters 7A and 7B of the MBCA may affect attempts to acquire control of
CoolSavings. In general, unless the corporation's charter specifies otherwise,
under Chapter 7A, "business combinations" between a covered Michigan
corporation or its subsidiaries and an "interested shareholder" can be
consummated only if approved by at least 90% of the votes of each class of
shares entitled to vote and by at least two-thirds of the voting shares held by
disinterested shareholders. The MBCA defines a "business combination" to
include, among other transactions, certain mergers, dispositions of assets or
shares and recapitalizations. An "interested shareholder" is defined as the
direct or indirect beneficial owner of at least 10% of the voting power of a
covered corporation's outstanding shares. The MBCA provides an exemption to
this supermajority voting requirement if five years have elapsed after the
person involved became an "interested shareholder" and if certain price and
other conditions are satisfied. Our articles of incorporation include a
provision expressly "opting out" of Chapter 7A. Our board of directors may "opt
in" to Chapter 7A at any time by action of a majority of the directors then in
office.
In general, under Chapter 7B of the MBCA, an entity that acquires "control
shares" of a covered corporation may vote the control shares in favor of or
against any matter only if a majority of all shares, and
63
<PAGE>
of all non-"interested shares," of each class of shares entitled to vote as a
class approve the voting rights of that acquirer of "control shares." The MBCA
defines "interested shares" as shares owned by officers or employee-directors
of the corporation, or of the entity making the control share acquisition.
"Control shares" are defined as shares that, when added to shares already owned
by an entity, would give the entity voting power in the election of directors
over any of three thresholds: one-fifth, one-third and a majority. The effect
of this statute is to condition the acquisition of voting control of a
corporation on the approval of a majority of the pre-existing disinterested
shareholders. Our board of directors may amend the bylaws before a control
share acquisition occurs to provide that Chapter 7B does not apply to
CoolSavings.
In addition, some provisions of our restated articles of incorporation and
restated bylaws which will take effect upon the consummation of this offering
may have an anti-takeover effect. They may delay, defer or prevent a tender
offer or takeover attempt that a stockholder might consider in its best
interests, including those attempts that might result in a premium over the
market price for the shares held by our stockholders. The following summarizes
these provisions.
Advance Notice Requirements for Stockholder Proposals and Director Nominations
Our restated bylaws will provide that stockholders must provide timely
written notice before bringing business before an annual meeting of
stockholders or nominating candidates for election as directors. Our restated
bylaws also specify requirements as to the form and content of a stockholder's
notice. These provisions may prevent stockholders from bringing matters before
an annual meeting of stockholders or from making nominations for directors at
an annual meeting of stockholders.
Filling Vacancies
Our restated bylaws will authorize the board of directors to fill vacant
directorships or increase the size of the board of directors, which may deter a
stockholder from removing incumbent directors and simultaneously gaining
control of the board of directors.
Supermajority Voting Provisions
Our restated articles of incorporation will require the affirmative vote of
the holders of at least two-thirds of our outstanding voting stock for the
alteration, amendment or repeal of, or the adoption of any provision
inconsistent with, our restated articles of incorporation or bylaws, unless the
alteration, amendment or repeal is recommended by the board of directors. In
that case, the affirmative vote of the holders of a majority of the voting
stock of CoolSavings is required.
Stockholder Action; Special Meeting of Stockholders
Our restated articles of incorporation will provide that stockholders may
not take action by written consent. Our restated bylaws will further provide
that special meetings of stockholders may be called only by the Chairman of the
board of directors, the Chief Executive Officer, a majority of the board of
directors or the holders of at least a majority of the shares entitled to vote
in the election of directors.
Authorized but Unissued Shares
The authorized but unissued shares of common stock and preferred stock are
available for future issuance without stockholder approval. We may use these
shares for a variety of corporate purposes, including future public offerings
to raise additional capital, corporate acquisitions and employee benefit plans.
This could make it more difficult or discourage an attempt to obtain control of
CoolSavings by means of a proxy contest, tender offer, merger or otherwise.
64
<PAGE>
Limitation of Liability and Indemnification Matters
Our restated articles of incorporation and our restated bylaws will provide
that we will indemnify officers and directors against losses that they may
incur in investigations and legal proceedings resulting from their services to
us, which may include services in connection with takeover defense measures.
These provisions may have the effect of preventing changes in our management.
Nasdaq Symbol
We have applied for quotation of our common stock on the Nasdaq National
Market under the symbol CSAV.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is EquiServe Trust
Company.
65
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock and a
significant public market for our common stock may not develop or be sustained
after this offering.
If our stockholders sell substantial amounts of common stock, including
shares issued upon the exercise of outstanding options, in the public market
following this offering, the market price of our common stock could fall. These
sales also might make it more difficult for us to sell equity or equity-related
securities in the future and at a time and price that we deem appropriate.
Upon completion of this offering, we will have outstanding an aggregate of
38,905,374 shares of common stock. All of the shares of common stock sold in
this offering will be freely tradable without restriction or further
registration under the Securities Act, unless these shares are purchased by
"affiliates" as that term is defined in Rule 144 under the Securities Act. This
leaves 34,705,374 shares eligible for sale into the public market as follows:
<TABLE>
<CAPTION>
Number of Shares Date
---------------- ----
<S> <C>
323,035 Immediately after the date of this prospectus
120,120 At various times after the date of this prospectus and prior to
180 days after the effective date of the registration statement
containing this prospectus
31,411,184 180 days after the effective date of the registration statement
containing this prospectus (subject in some cases to volume
limitations)
2,851,035 At various times after 180 days following the effective date
of the registration statement containing this prospectus
</TABLE>
Lock-Up Agreements
All of our executive officers and directors and the holders of approximately
99% of our common stock have agreed, for a period of 180 days from the
effective date of the registration statement containing this prospectus,
without the prior written consent of Chase Securities Inc., not to sell, offer,
contract to sell, transfer the economic risk of ownership in, make any short
sale, pledge or otherwise dispose of any shares of our common stock or any
securities convertible into or exchangeable or exercisable for or any other
rights to purchase or acquire our common stock, with the exception of specific
family and estate planning transfers. In addition, Chase Securities Inc. may
remove these lock-up restrictions prior to the expiration of the lock-up period
without prior public notice.
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year, including the holding period of any prior
owner other than an affiliate, would be entitled to sell within any three-month
period a number of shares that does not exceed the greater of:
. 1% of the number of shares of our common stock then outstanding, which
will equal approximately 389,054 shares immediately after this offering;
or
. the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to that sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
CoolSavings.
66
<PAGE>
Rule 144(k)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an affiliate, is
entitled to sell those shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Therefore,
unless otherwise restricted, Rule 144(k) shares may be sold immediately upon
the completion of this offering.
Rule 701
In general, under Rule 701 of the Securities Act as currently in effect, any
of our employees, consultants or advisors who purchase shares of our common
stock in connection with a compensatory stock or option plan or other written
agreement is eligible to resell those shares 90 days after the effective date
of this offering in reliance on Rule 144, but without compliance with some of
the restrictions, including the holding period, contained in Rule 144.
Registration Rights
After this offering, the holders of 33,006,974 shares of our common stock,
or their transferees, will be entitled to registration rights under the
Securities Act. Please see "Description of Capital Stock--Registration Rights."
After registration, these shares will generally be freely tradable without
restriction under the Securities Act. These sales could cause the trading price
of our common stock to decline, perhaps substantially.
Stock Options
As of December 31, 1999, options to purchase 4,252,217 shares of our common
stock were issued and outstanding. Within 12 months after this offering, we
intend to file a registration statement under the Securities Act covering
6,613,914 shares of our common stock subject to outstanding options or reserved
for issuance under our 1997 Stock Option Plan and 1999 Non-Employee Director
Stock Option Plan. Shares of our common stock registered under that
registration statement will, subject to vesting provisions and Rule 144 volume
limitations applicable to our affiliates, be available for sale in the open
market immediately after any applicable 180-day lock-up agreements expire or
are terminated.
67
<PAGE>
UNDERWRITING
We have entered into an underwriting agreement with the underwriters named
below. Chase Securities Inc., Lehman Brothers Inc. and Thomas Weisel Partners
LLC are acting as representatives of the underwriters. Chase H&Q is the
business name Chase Securities Inc. uses to describe its equity underwriting
business. Subject to the terms and conditions of the underwriting agreement,
each underwriter has severally agreed to purchase the number of shares of
common stock set forth opposite its name below.
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ -----------
<S> <C>
Chase Securities Inc...........................................
Lehman Brothers Inc. ..........................................
Thomas Weisel Partners LLC.....................................
-----------
Total.......................................................... 4,200,000
===========
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters are subject to specified conditions, including the absence of any
material adverse change in our business and the receipt of certificates,
opinions and letters from us, our counsel and our independent auditors. The
underwriters are committed to purchase all the shares of common stock offered
by us, other than those shares covered by the over-allotment option described
below, if they purchase any of the shares.
The underwriters propose to offer the shares directly to the public at the
initial public offering price shown on the cover page of this prospectus and
to dealers at that price less a concession not in excess of $ per share.
The underwriters may allow, and those dealers may re-allow, a concession not
in excess of $ per share to other dealers. After the initial offering of
shares, the underwriters may change the public offering price and other
selling terms. The representatives have advised us that the underwriters do
not intend to confirm discretionary sales in excess of 5% of the shares of
common stock offered hereby.
We have granted to the underwriters an option, exercisable no later than 30
days after the date of this prospectus, to purchase up to 630,000 additional
shares of common stock at the initial public offering price, less the
underwriting discounts shown on the cover page of this prospectus. To the
extent that the underwriters exercise this option, each of the underwriters
will have a firm commitment to purchase approximately the same percentage of
those additional shares which the number of shares of common stock to be
purchased by it shown in the above table bears to the total number of shares
of common stock offered by us. We will be obligated pursuant to this option to
sell shares to the underwriters to the extent the option is exercised. The
underwriters may exercise this option only to cover over-allotments made in
connection with the sale of shares of common stock offered by us.
The offering of the shares is made for delivery when, as and if accepted by
the underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The underwriters reserve the
right to reject an order for the purchase of shares in whole or in part.
The following table provides information regarding the amount of the
discount to be paid to the underwriters by us in connection with this
offering. The underwriting discount was determined through negotiations with
the underwriters, and equals the public offering price per share of common
stock, less the amount paid by the underwriters to us per share of common
stock. These amounts are shown assuming both no exercise and full exercise of
the underwriters' option to purchase additional shares of our common stock.
<TABLE>
<CAPTION>
Paid to the
Underwriters
-----------------
No Full
Exercise Exercise
-------- --------
<S> <C> <C>
Per share................................................
Total....................................................
</TABLE>
We will pay the offering expenses, estimated to be $1.1 million, excluding
the underwriting discount.
68
<PAGE>
We have agreed to indemnify the underwriters against certain civil
liabilities, including liabilities under the Securities Act, or to contribute
to payments that the underwriters may be required to make in respect of any of
those liabilities.
We, our executive officers and directors and the holders of substantially
all of our common stock have agreed for a period of 180 days from the effective
date of the registration statement containing this prospectus, without the
prior written consent of Chase Securities Inc., not to sell, offer, contract to
sell, transfer the economic risk of ownership in, make any short sale, pledge
or otherwise dispose of any shares of our common stock or any securities
convertible into or exchangeable or exercisable for or any other rights to
purchase or acquire our common stock, with certain exceptions, including
specific family and estate planning transfers. In addition, during this period,
we have agreed not to file any registration statement with respect to, and each
of our executive officers and directors and the holders of substantially all of
our common stock have agreed not to make any demand for, or exercise any right
with respect to, the registration of any shares of common stock or other
securities issued by us, without the prior written consent of Chase Securities
Inc., other than this offering.
The underwriters, at our request, have reserved for sale at the initial
public offering price up to 210,000 shares of common stock to be sold in this
offering for sale to our employees, directors and parties related to them, and
to service providers and other third parties with whom we have business
relationships. These reserved shares will be sold at the public offering price
that appears on the cover page of this prospectus. The number of shares
available for sale to the general public will be reduced to the extent that any
reserved shares are purchased by these persons. Any reserved shares not so
purchased will be offered by the underwriters to the general public on the same
basis as the other shares offered by this prospectus.
Prior to this offering, there has been no public market for our common
stock. The initial public offering price for the common stock in this offering
will be determined by negotiation between us and the representatives of the
underwriters. The factors to be considered in determining the initial public
offering price include prevailing market conditions, the history of and the
prospects for the industry in which we compete, an assessment of our
management, our prospects, our capital structure, our results of operations in
recent periods and other factors deemed relevant.
Some of the persons participating in this offering may over-allot or effect
transactions that stabilize, maintain or otherwise affect the market price of
the common stock at levels above those that might otherwise prevail in the open
market, including by entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid or effecting of any purchase for the purpose of pegging, fixing or
maintaining the price of the common stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
the offering. Penalty bids permit the underwriters to reclaim a selling
concession from a syndicate member in connection with the offering when shares
of common stock sold by the syndicate member are purchased in a syndicate
covering transaction. Stabilizing transactions may be effected on the Nasdaq
National Market, in the over-the-counter market, or otherwise. Stabilizing
transactions, if commenced, may be discontinued at any time.
E*OFFERING Corp., one of the underwriters, will allocate for distribution by
E*TRADE Securities, Inc. a portion of the shares that E*OFFERING is
underwriting in this offering. Copies of the prospectus in electronic format
will be made available on Internet websites maintained by E*OFFERING Corp. and
E*TRADE Securities, Inc. Customers of E*TRADE Securities, Inc. who complete and
pass an online eligibility profile may place conditional offers to purchase
shares in this offering through E*TRADE's Internet website.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since
December 1998, Thomas Weisel Partners LLC has been named as a lead or co-
manager on 148 filed public offerings of equity securities, of which 106 have
69
<PAGE>
been completed, and has acted as a syndicate member in an additional 77 public
offerings of equity securities. Thomas Weisel Partners LLC does not have any
material relationship with us or any of our officers, directors or other
controlling persons, except with respect to its contractual relationship with
us under the underwriting agreement entered into in connection with this
offering.
In December 1999, Hambrecht & Quist California (the predecessor in interest
to Chase Securities Inc.) purchased 15.000 shares of our Series A convertible
preferred stock, which will automatically convert into 17,250 shares of common
stock upon completion of this offering, the H&Q Employee Venture Fund 2000,
L.P. purchased 6.000 shares of our Series A convertible preferred stock, which
will automatically convert into 6,900 shares of common stock upon completion of
this offering, and Access Technology Partners Brokers Fund, L.P., purchased
1.000 share of our Series A convertible preferred stock, which will
automatically convert into 1,150 shares of common stock upon completion of this
offering, for an aggregate purchase price of $200,213.86, or $9,100.63 per
share. The foregoing shares have been deemed to be underwriting compensation by
the NASD. As a result, the holders of these shares have agreed for a period of
one year from the date of this prospectus not to sell, transfer, assign, pledge
or hypothecate these shares.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered hereby
will be passed upon for CoolSavings by Jaffe, Raitt, Heuer & Weiss,
Professional Corporation, Detroit, Michigan. Pillsbury Madison & Sutro LLP, San
Francisco, California, is acting as counsel for the underwriters in connection
with selected legal matters relating to the shares of common stock offered by
this prospectus. Shareholders of Jaffe, Raitt, Heuer & Weiss, Professional
Corporation beneficially own 961,897 shares of our common stock in the
aggregate. Assuming that the fair market value of a share of our common stock
is $12.00, these shares have a fair market value of approximately $11.5
million.
The statements in this prospectus relating to patents, patent licenses,
trademarks and service marks and related litigation under "Table of Contents"
and under the captions "Risk Factors--Intellectual property litigation against
us can be costly and could result in the loss of significant rights," "Risk
Factors--Protecting our patents, trademarks and proprietary rights may be
costly and may distract our management," "Business--Intellectual Property" and
the statements in this prospectus relating to intellectual property and related
litigation under the caption "Business--Legal Proceedings" have been reviewed
and approved by Niro, Scavone, Haller & Niro, Chicago, Illinois, our
intellectual property counsel, and are included in this prospectus in reliance
upon that review and approval. Shareholders of Niro, Scavone, Haller & Niro
beneficially own 234,600 shares of our common stock in the aggregate. Assuming
that the fair market value of a share of our common stock is $12.00, these
shares have a fair market value of approximately $2.8 million.
EXPERTS
The financial statements as of December 31, 1998 and 1999 and for each of
the three years in the period ended December 31, 1999 included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
70
<PAGE>
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 with respect to the common stock being sold in this
offering. This prospectus, which constitutes a part of that registration
statement, does not contain all of the information set forth in the
registration statement and the exhibits and schedules to the registration
statement. For further information with respect to CoolSavings and the common
stock offered hereby, please refer to the registration statement and the
exhibits and schedules filed as a part of the registration statement.
Statements contained in this prospectus as to the contents of any contract,
agreement or any other document referred to are not necessarily complete;
reference is made in each case to the copy of the contract or document filed as
an exhibit to the registration statement. Each statement is qualified in all
respects by reference to the exhibit. You may read and copy any document we
file at the Commission's public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the Commission at 1-800-SEC-0330 for
further information on the public reference room. Our Commission filings are
also available at the Commission's web site at http://www.sec.gov.
After this offering, we will become subject to the information and periodic
reporting requirements of the Securities Exchange Act and, accordingly, we will
file periodic reports, proxy statements and other information with the
Commission. Such periodic reports, proxy statements and other information will
be available for inspection and copying at the Commission's public reference
room and the web site of the Commission referred to above.
71
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants.......................................... F-2
Financial Statements:
Balance Sheets........................................................... F-3
Statements of Operations................................................. F-4
Statements of Stockholders' (Deficit) Equity............................. F-5
Statements of Cash Flows................................................. F-6
Notes to Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of coolsavings.com inc.:
The stock split described in Note 10c to the financial statements has not been
consummated at February 18, 2000. When it has been consummated, we will be in a
position to furnish the following report:
"In our opinion, the accompanying balance sheets and the related
statements of operations, of stockholders' (deficit) equity and of cash
flows present fairly, in all material respects, the financial position of
coolsavings.com inc. at December 31, 1998 and 1999, and the results of its
operations and its cash flows for each of the three years in the period
ended December 31, 1999 in conformity with accounting principles generally
accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing
standards generally accepted in the United States, which require that we
plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above."
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
February 18, 2000, except as to Note 10c which is as of March , 2000
F-2
<PAGE>
COOLSAVINGS.COM INC.
Balance Sheets
<TABLE>
<CAPTION>
December 31, Pro Forma
------------------------- December 31,
1998 1999 1999
----------- ------------ ------------
(unaudited)
(Note 1q)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............ $ 4,895,139 $ 17,488,788 $ 17,488,788
Restricted cash...................... 67,352 95,352 95,352
Accounts receivable, net of allowance
of $13,500 and $118,154 at
December 31, 1998 and 1999.......... 281,800 4,381,463 4,381,463
Prepaid advertising.................. -- 2,787,327 2,787,327
Prepaid assets....................... 74,311 290,103 290,103
Other assets......................... 10,940 498,137 498,137
----------- ------------ ------------
Total current assets............. 5,329,542 25,541,170 25,541,170
----------- ------------ ------------
Property and equipment:
Office furniture and equipment....... 298,280 453,725 453,725
Computer equipment................... 698,684 2,709,057 2,709,057
Leasehold improvements............... 282,805 332,002 332,002
Capitalized software................. 45,901 1,489,913 1,489,913
----------- ------------ ------------
1,325,670 4,984,697 4,984,697
Less accumulated depreciation and
amortization........................ (284,568) (935,862) (935,862)
----------- ------------ ------------
1,041,102 4,048,835 4,048,835
----------- ------------ ------------
Total assets......................... $ 6,370,644 $ 29,590,005 $ 29,590,005
=========== ============ ============
<CAPTION>
LIABILITIES
Current liabilities:
<S> <C> <C> <C>
Accounts payable:
Trade.............................. $ 729,573 $ 2,319,897 $ 2,319,897
Related parties.................... 4,051 24,944 24,944
Accrued liabilities.................. 522,366 1,832,874 1,832,874
Deferred revenue..................... 221,312 417,974 417,974
Current maturities of long-term
debt................................ 64,098 246,601 246,601
Convertible subordinated notes
payable, including $3,561,569 due
related parties..................... -- 4,996,369 --
----------- ------------ ------------
Total current liabilities........ 1,541,400 9,838,659 4,842,290
----------- ------------ ------------
Long-term debt, less current
maturities.......................... 235,574 631,831 631,831
----------- ------------ ------------
Commitments and contingencies (Note
5)..................................
<CAPTION>
STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
Series A convertible preferred stock,
no par value, 5,000 shares
authorized 2,197.650 shares issued
and outstanding at December 31, 1999
(actual) and zero shares issued and
outstanding at December 31, 1999
(pro forma) (liquidation preference
of $9,100.63 per share)............. -- -- --
Common stock, no par value,
69,000,000 shares authorized,
24,614,899 and 31,715,449 shares
issued and outstanding at December
31, 1998 and 1999 (actual) and
34,705,374 shares issued and
outstanding at December 31, 1999
(pro forma)......................... 13,500,865 27,844,658 32,841,027
Additional paid-in capital........... (4,663,650) 15,204,073 15,703,710
Accumulated deficit.................. (4,243,545) (21,111,924) (21,611,561)
Notes receivable from related
parties............................. -- (2,817,292) (2,817,292)
----------- ------------ ------------
Total stockholders' equity........... 4,593,670 19,119,515 24,115,884
----------- ------------ ------------
Total liabilities and stockholders'
equity.............................. $ 6,370,644 $ 29,590,005 $ 29,590,005
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
COOLSAVINGS.COM INC.
Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Net revenues........................... $ 109,510 $ 1,142,819 $ 12,915,732
Cost of revenues....................... 147,144 427,769 1,817,444
----------- ----------- ------------
Gross profit (loss).................... (37,634) 715,050 11,098,288
Operating expenses:
Sales and marketing.................. 1,201,564 2,494,395 17,837,722
Product development.................. 719,547 1,217,101 4,503,223
General and administrative........... 766,313 2,349,725 5,890,193
----------- ----------- ------------
Total operating expenses............... 2,687,424 6,061,221 28,231,138
----------- ----------- ------------
Loss from operations................... (2,725,058) (5,346,171) (17,132,850)
Other income (expense):
Interest and other income............ 8,911 88,322 492,971
Interest expense..................... (11,170) (48,517) (228,500)
Amortization of debt discount........ (4,204) (434,894) --
----------- ----------- ------------
Loss before income taxes............... (2,731,521) (5,741,260) (16,868,379)
Income taxes........................... -- -- --
----------- ----------- ------------
Net loss............................... $(2,731,521) $(5,741,260) $(16,868,379)
=========== =========== ============
Basic and diluted net loss per share... $ (0.15) $ (0.27) $ (0.57)
=========== =========== ============
Weighted average shares used in
calculation of basic and diluted net
loss per share........................ 18,266,572 21,547,177 29,804,681
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
COOLSAVINGS.COM INC.
Statements of Stockholders' (Deficit) Equity
Years Ended December 31, 1997, 1998 and 1999
<TABLE>
<CAPTION>
Notes Total
Preferred Stock Common Stock Additional Receivable Stockholders'
---------------- ---------------------- Paid-In Accumulated From Related Equity
Shares Amount Shares Amount Capital Losses Parties (Deficit)
--------- ------ ---------- ----------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31,
1996................... -- -- 16,074,792 $ 885,999 $ -- $ (889,825) $ -- $ (3,826)
Issuance of common
stock.................. 3,444,124 1,897,366 1,897,366
Issuance of warrants.... 62,730 62,730
Net loss................ (2,731,521) (2,731,521)
--------- --- ---------- ----------- ----------- ------------ ----------- ------------
Balances, December 31,
1997................... -- -- 19,518,916 2,783,365 62,730 (3,621,346) -- (775,251)
Issue of common stock... 5,095,983 10,717,500 10,717,500
Issuance of warrants.... 376,369 376,369
Stock option
compensation........... 16,312 16,312
Conversion from S-Corp
to C-Corp.............. (5,119,061) 5,119,061 --
Net loss................ (5,741,260) (5,741,260)
--------- --- ---------- ----------- ----------- ------------ ----------- ------------
Balances, December 31,
1998................... -- -- 24,614,899 13,500,865 (4,663,650) (4,243,545) -- 4,593,670
Issuance of preferred
stock, net of issuance
costs.................. 2,197.650 19,867,723 19,867,723
Issuance of common
stock.................. 4,906,594 8,500,000 8,500,000
Exercise of options and
warrants............... 1,507,190 2,843,793 (2,817,292) 26,501
Issuance of common stock
for advertising........ 686,766 3,000,000 3,000,000
Net loss................ (16,868,379) (16,868,379)
--------- --- ---------- ----------- ----------- ------------ ----------- ------------
Balances, December 31,
1999................... 2,197.650 -- 31,715,449 $27,844,658 $15,204,073 $(21,111,924) $(2,817,292) $ 19,119,515
========= === ========== =========== =========== ============ =========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
COOLSAVINGS.COM INC.
Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows used in operating
activities:
Net loss............................... $(2,731,521) $(5,741,260) $(16,868,379)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization........ 44,995 236,557 651,294
Amortization of debt discount........ 4,204 434,894 --
Stock option compensation............ -- 16,312 --
Provision for doubtful accounts...... -- 13,500 104,654
Changes in assets and liabilities:
Increase in restricted cash.......... -- (67,352) (28,000)
Increase in accounts receivable...... (71,997) (223,303) (4,204,317)
Increase in prepaid and other current
assets.............................. (21,877) (59,656) (135,693)
Increase in accounts payable......... 520,693 45,523 1,611,217
Increase in deferred revenue......... -- 221,312 196,662
Increase (decrease) in accrued and
other liabilities................... (100,972) 323,338 1,310,508
----------- ----------- ------------
Net cash used in operating activities.. (2,356,475) (4,800,135) (17,362,054)
----------- ----------- ------------
Cash flows used in investing
activities:
Purchases of property and equipment.... (224,835) (1,040,575) (2,215,015)
Capitalized software costs............. -- (45,901) (1,444,012)
----------- ----------- ------------
Net cash used in investing activities.. (224,835) (1,086,476) (3,659,027)
----------- ----------- ------------
Cash flows from financing activities:
Proceeds from short-term debt.......... 150,000 900,000 --
Repayment of short-term debt........... -- (1,050,000) --
Advances on notes payable.............. 149,812 149,861 578,760
Proceeds from convertible notes payable
...................................... -- -- 4,996,369
Proceeds from issuance of preferred
stock ................................ -- -- 20,000,000
Proceeds from issuance of common
stock................................. 1,897,366 10,717,500 8,526,500
Cash paid for issuance costs........... -- -- (486,899)
----------- ----------- ------------
Net cash provided by financing
activities............................ 2,197,178 10,717,361 33,614,730
----------- ----------- ------------
Net increase (decrease) in cash........ (384,132) 4,830,750 12,593,649
Cash and cash equivalents, beginning of
period................................ 448,521 64,389 4,895,139
----------- ----------- ------------
Cash and cash equivalents, end of
period................................ $ 64,389 $ 4,895,139 $ 17,488,788
=========== =========== ============
Supplemental schedule of cash flow
information, interest paid............ $ 11,170 $ 48,517 $ 225,819
Non-cash financing activity:
Issuance of common stock in exchange
for stockholder notes upon exercise
of stock options and warrants....... -- -- $ 2,817,292
Issuance of common stock for
advertising......................... -- -- $ 3,000,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
COOLSAVINGS.COM INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
a. The Company: coolsavings.com inc. (the "Company") provides a
comprehensive set of e-marketing services used by online and offline
advertisers to build one-to-one customer relationships. Under its
established brand, advertisers can deliver, target and track a wide
array of incentives, including printed and electronic coupons,
personalized e-mails, rebates, samples, sales notices, gift
certificates, contests, and banner advertisements to promote products or
services in any online or offline environment.
In November 1998, the Company changed its corporate name from
Interactive Coupon Marketing Group, Inc. to coolsavings.com inc.
The Company has sustained significant net losses and negative cash
flows from operations since its inception. The Company's ability to
meet its obligations in the ordinary course of business is dependent
upon its ability to establish profitable operations or raise additional
financing through public or private equity financing, bank financing,
or other sources of capital. During 1999, the Company raised
approximately $20.0 million from the sale of preferred stock, $5.0
million from the sale of convertible notes and $8.5 million from the
sale of common stock. In January 2000, the Company obtained a $6.5
million line of credit. Management believes current working capital and
other funding sources are sufficient to continue operations through
2000.
b. Cash and Cash Equivalents: The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents. Cash equivalents consist primarily of deposits in money
market funds and certificates of deposit.
c. Concentration of Credit Risk: Financial instruments that potentially
subject the Company to a concentration of credit risk consists of cash
and cash equivalents and accounts receivable. Cash and cash equivalents
are deposited with high credit quality financial institutions. The
Company's accounts receivable are derived from revenue earned from
customers located primarily in the U.S. and are denominated in the U.S.
dollars. During each of the periods presented, no one customer accounted
for more than 10% of net accounts receivable. During 1997, the Company
had three customers that each accounted for approximately 22% of total
net revenues. No other customer accounted for 10% or more of net
revenues for any other period presented.
d. Fair Value of Financial Instruments: The Company's financial
instruments, including cash and cash equivalents, accounts receivable
and accounts payable are carried at cost, which approximates their fair
value because of the short-term maturity of these instruments. The
carrying value for all long-term debt outstanding at the end of all
periods presented approximates fair value.
e. Property and Equipment: Property and equipment are recorded at cost.
Depreciation and amortization are computed using primarily the straight-
line method over the estimated useful lives of the assets. Useful lives
are 3 to 5 years for computer equipment and 5 to 7 years for furniture
and fixtures. Leasehold improvements are amortized over the term or the
estimated useful life, whichever is shorter. Upon sale or retirement of
property and equipment, the cost and related accumulated depreciation or
amortization are eliminated from the respective accounts, and the
resulting gain or loss is included in the determination of net income.
Maintenance and repair costs are expensed as incurred.
f. Long-Lived Assets: The Company assesses the recoverability of long-lived
assets at the entity level, whenever adverse events or changes in
circumstances or business climate indicate that an impairment may have
occurred. If the future cash flows (undiscounted and without interest)
expected to result from the use of the related assets are less than the
carrying value of such assets, an impairment has been incurred and a
loss is recognized to reduce the carrying value of the long-lived assets
to fair value, which is determined by discounting estimated future cash
flows. The Company has not recognized an impairment loss in any of the
periods presented.
F-7
<PAGE>
COOLSAVINGS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
g. Revenue Recognition: Revenue subject to time-based contracts is
recognized ratably over the duration of the contract. Deferred revenue
represents the portion of revenue that has not been recognized related
to time based contracts. For contracts based on certain performance or
delivery criteria, revenue is recognized in the month performance is
delivered to the customer.
h. Advertising: Advertising costs are expensed as incurred. Advertising
expense was $815,950, $1,426,452 and $14,136,270 during 1997, 1998 and
1999, respectively.
i. Income Taxes: Until June 1, 1998, the Company had elected, under Section
1362(a) of the Internal Revenue Code, to be treated as an S-corporation
for income tax purposes. As such, the Company was not liable for federal
income taxes and any taxable income of the Company was included in the
tax returns of the Company's stockholders. Income taxes are accounted
for using an asset and liability approach, which requires the
recognition of taxes payable or refundable for the current year and
deferred tax liabilities and assets for the future tax consequences of
events that have been recognized in the Company's financial statements
or tax returns. The measurement of current and deferred tax liabilities
and assets are based on provisions of the enacted tax law; the effects
of future changes in tax laws or rates are not anticipated. The
measurement of deferred tax assets is reduced, if necessary, by the
amount of any tax benefits that, based on available evidence, are not
expected to be realized.
j. Use of Estimates: The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
k. Capitalized Software Costs: The Company accounts for software
development costs in accordance with the American Institute of Certified
Public Accountants Statement of Position 98-1, "Accounting for the Cost
of Computer Software Developed or Obtained for Internal Use" which
requires capitalization of certain costs including the cost of outside
consultants. These costs are amortized using the straight-line method
over three years, beginning when individual modules are placed into
service. The Company recognized $111,659 in amortization expense for the
year ended December 31, 1999. The Company typically does not capitalize
internal costs as it is not reasonably cost-effective for the Company to
separate these internal costs between maintenance and relatively minor
upgrades and enhancements.
l. Stock-Based Compensation: Financial Accounting Standards Board ("FASB")
Statement of Accounting Standards (SFAS) No. 123, "Accounting for Stock-
Based Compensation" encourages, but does not require, companies to
record compensation cost for stock-based compensation at fair value. The
Company has chosen to continue to account for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" and its
related Interpretations. Accordingly, compensation cost for stock
options is measured as the excess, if any, of the fair market value of a
share of the Company's stock at the date of the grant over the amount
that must be paid to acquire the stock. Total compensation expense
recognized in connection with nonemployee stock option grants was
$16,312 during the year ended December 31, 1998. Due to the vesting
terms of non-employee options, no future compensation expense will be
recognized in connection with these grants. No compensation expense has
been recognized in connection with stock option grants during any other
period presented. See Note 7d for the required pro forma net income and
earnings per share disclosures required by SFAS Statement No. 123.
F-8
<PAGE>
COOLSAVINGS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
m. Basic and Diluted Net Loss Per Share: The Company computes net loss per
share in accordance with the provisions of SFAS 128 "Earnings per Share"
("SFAS 128") and SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under
the provisions of SFAS 128 and SAB 98, basic and diluted net loss per
share applicable to common stockholders is computed by dividing the net
loss applicable to common stockholders for the period by the weighted
average number of common shares outstanding for the period. The
calculation of diluted net loss per share excludes shares of common
stock issuable upon the conversion of unsecured convertible subordinated
notes (see Note 4), exercise of employee stock options and warrants (see
Note 7d), and the conversion of preferred stock (see Note 7a) as the
effect of such exercises would be antidilutive. Refer to Note 8--
Earnings Per Share for the reconciliation of the numerator and
denominator of the basic and diluted EPS calculation. Basic and diluted
net loss per share have been restated to reflect the stock split (see
Note 10c).
n. Comprehensive Earnings: The Company reports comprehensive earnings in
accordance with SFAS Statement No. 130, "Reporting Comprehensive
Income," which establishes standards for the reporting and display of
comprehensive earnings and its components in general-purpose financial
statements. There were no components of other comprehensive income
during any of the periods presented.
o. Segment Information: SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," requires that management identify
operating segments based on the way that management desegregates the
entity for making internal operating decisions. The Company currently
operates under the definition of one segment. Therefore, SFAS No. 131
is not applicable to the Company.
p. Recent Pronouncements:
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments and
hedging activities and requires recognition of all derivatives as
assets or liabilities in the statement of financial position and
measurement of those instruments at fair value. The statement as
amended is effective for fiscal years beginning after June 15, 2000. As
the Company does not have any derivative instruments or hedging
activities, SFAS No. 133 is not expected to have a material effect on
its financial results.
q. Pro Forma Information:
The pro forma balance sheet as of December 31, 1999 presents the
estimated effects of certain transactions that will occur
simultaneously with the closing of the initial public offering,
including (i) the conversion of Series A convertible preferred stock
and (ii) the conversion of all convertible subordinated notes payable
and accrued interest into common stock. Additionally, in connection
with the conversion of the convertible subordinated notes payable, a
beneficial conversion feature of $555,000 has been reflected as
additional paid-in capital and interest expense. Because the preferred
stock offering closed on December 31, 1999, no accretion of the deemed
dividend associated with the beneficial conversion feature of the
preferred stock has been reflected.
2.Related Party Transactions:
a. Legal Services: The Company engages the services of certain attorneys
who were members of the Company's Board of Directors during 1997 and
1998, and are holders of the Company's stock. Total fees for services
were $71,572, $388,243 and $954,839 during 1997, 1998 and 1999,
respectively. These fees are included in general and administrative
expenses in the Company's statements of operations. Total fees payable
were $4,051 and $116,236 at December 31, 1998 and 1999, respectively.
F-9
<PAGE>
COOLSAVINGS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
b. Notes Receivable: In March, April, and July 1999, shareholders provided
a total of $2,817,292 notes receivable upon exercise of stock options
and warrants. These notes are due in 2003, with interest at the rates
ranging from 4.83% to 5.86% due annually. These notes are collateralized
by the shares of common stock issued upon exercise of the related
options and warrants and the makers of each note are personally liable
for up to 20% of the face value of the note, plus accrued interest.
c. Short-Term Borrowings: In December 1997, the Company entered into an
unsecured Line of Credit Loan (the "Loan") with a major shareholder.
Under the Loan, the Company could borrow funds as needed at a rate of
prime plus 2.0% (10.5% at December 31, 1997). The Loan became due and
was repaid during 1998. The total amount outstanding at December 31,
1997 was $150,000. Total amounts borrowed and repaid during 1998 were
$900,000.
In connection with the Loan, the lender received 115,000 and 747,500
common stock warrants during 1997 and 1998, respectively. The warrants
were immediately exercisable and had a term of five years. Of the
warrants, 805,000 were exercisable at $1.30 and 57,500 were exercisable
at $2.17 as of December 31, 1998. During the year ended December 31,
1999, all of warrants were exercised in exchange for notes receivable
(see Notes Receivable above). The proportional fair value of warrants
issued during 1997 and 1998 was $62,730 and $376,368, respectively.
Such value represents a discount from the fair value of the Loan and
the relative fair value of the warrants has been recorded in the
financial statements as stipulated by APB 14 and was amortized over the
period that the Loan was outstanding.
d. Unsecured Convertible Subordinated Notes: On May 28, 1999, the Company
issued $1.5 million of unsecured convertible subordinated notes (see
Note 4b). One note worth $65,000 is held by a member of the Board of
Directors. There was no unpaid interest as of December 31, 1999. In
October 1999, the Company borrowed approximately $3.5 million from a
major stockholder under an unsecured convertible subordinated note (see
Note 4b). There was no unpaid interest as of December 31, 1999.
3.Accrued Liabilities:
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------
1998 1999
-------- ----------
<S> <C> <C>
Accrued payroll....................................... $139,952 $ --
Accrued marketing expense............................. 68,476 1,057,149
Other................................................. 313,938 775,725
-------- ----------
$522,366 $1,832,874
======== ==========
</TABLE>
4.Long and Short Term Debt:
a. Bank Line of Credit: The Company has a revolving line of credit
arrangement with a bank in the amount of $500,000 for the purchase of
new equipment. On May 21, 1999, the maximum amount of borrowings allowed
under this line was increased to $1.0 million. Borrowings under this
line are collateralized by the specific equipment purchased and are
repayable in 36 or 48 equal installments with interest at a rate of
prime plus 1% per annum. Amounts outstanding under this line were
$299,672 and $878,432 at December 31, 1998 and 1999, respectively. The
weighted average interest rate of these borrowings was 9.3% and 9.0% at
December 31, 1998 and 1999, respectively.
F-10
<PAGE>
COOLSAVINGS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Under this line of credit the Company is required to comply with certain
financial covenants, including maintenance of a minimum tangible net worth.
Additionally, the Company may not purchase or retire any outstanding shares
or alter or amend its capital structure without the prior consent of the
bank. The Company was not in compliance with certain nonfinancial covenants
during 1999. Waivers of the respective covenants have been received from
the lender.
The aggregate principal payments over the next five years are:
<TABLE>
<S> <C>
2000........................................................... $ 246,601
2001........................................................... 275,437
2002........................................................... 251,380
2003........................................................... 105,014
2004........................................................... --
---------
$ 878,432
=========
</TABLE>
b. Convertible Subordinated Notes Payable: On May 28, 1999, the Company
entered into $1.5 million of unsecured convertible subordinated notes.
These notes are repayable by the Company on June 30, 2000 with interest
at a rate of 10.0% per annum. Upon the closing of an initial public
offering of equity securities prior to the due date, the notes and
accrued interest will automatically convert to common stock shares based
on the principal (plus any accrued but unpaid interest) divided by 90%
of the public offering price. In the event that an initial public
offering does not occur and the notes are not repaid by the Company
within 15 days of the due date, the notes will automatically convert
into 343,383 shares of the Company's common stock.
On April 9, 1999, the Company received a commitment from a major
stockholder to advance the Company up to $3.5 million by December 31,
1999 at the Company's discretion. On October 18, 1999 the Company
borrowed $3,496,384 under the commitment through an unsecured
convertible subordinated note. Borrowings under this agreement bear
interest at an annual rate of 10.0% and the principal amount of the
convertible subordinated note will be due on June 30, 2000. Upon the
closing of an initial public offering of equity securities prior to the
due date, the notes and accrued interest will automatically convert
into shares of common stock based on the principal (plus any accrued
but unpaid interest) divided by 90% of the public offering price. In
the event that an initial public offering does not occur and the notes
are not repaid by the Company within 15 days of the due date, the notes
and accrued interest will automatically convert into 800,400 shares of
the Company's common stock.
Based on the conversion ratio of the convertible subordinated notes
payable in the event on an initial public offering, management has
determined that the discount received by the note holders constitutes a
beneficial conversion feature under the Emerging Issues Task Force
("EITF") Issue 98-5. The value of the beneficial conversion feature has
been computed at $555,000 and will be recorded by the Company as
additional paid in capital and interest expense upon the completion of
the proposed initial public offering. In the event that an initial
public offering does not occur, management has determined that a
beneficial conversion feature does not exist based upon the conversion
terms of the note.
5.Commitments and Contingencies:
a. Letters of Credit: At December 31, 1998 and 1999, the Company maintained
a $67,352 letter of credit to collateralize a lease deposit on its
office facility. The letter of credit expires after the termination of
the lease. A certificate of deposit for this amount has been established
by the Company in the event that the letter of credit is executed. At
December 31, 1999 the Company maintained a $28,000 certificate of
deposit to secure a line of credit.
F-11
<PAGE>
COOLSAVINGS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
b. Leases: The Company leases equipment and its office premises under
operating lease agreements. Rental expense under these agreements was
$78,395, $196,894 and $439,196 during 1997, 1998 and 1999, respectively.
At December 31, 1999, future minimum payments under noncancelable
operating leases were as follows:
For the years ended December 31:
<TABLE>
<S> <C>
2000........................................................... $ 410,406
2001........................................................... 378,416
2002........................................................... 167,722
2003........................................................... --
2004 and thereafter............................................ --
---------
$ 956,544
=========
</TABLE>
c. Litigation: The Company is a defendant in business-related litigation.
Management does not believe the outcome of such litigation will have a
material adverse effect on the Company's financial position, results of
operations or cash flows.
6.Income Taxes:
Under Statement of Financial Accounting Standards ("SFAS") No. 109,
deferred tax assets and liabilities are recognized for the future tax
consequences of differences between the carrying amounts of assets and
liabilities and their respective tax bases and for tax carryforward items
using enacted tax rates in effect for the year in which the differences are
expected to reverse. Deferred tax assets consist of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1999
------------ ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward............... $ 1,345,000 $ 7,989,000
Amounts to adjust from accrual method to the
cash method of accounting used for tax
purposes..................................... 385,000 (499,000)
Property and equipment........................ 41,000 76,000
Other......................................... 6,000 6,000
Valuation allowances.......................... (1,777,000) (7,572,000)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
The difference between the amount of income tax benefit recorded and the
amount of income tax benefit calculated using the U.S. federal statutory
rate of 34% is due to net operating losses not being benefited. For
financial reporting purposes, the entire amount of deferred tax assets
related principally to the net operating loss carryforwards has been offset
by a valuation allowance due to uncertainty regarding realization of the
asset. Accordingly, there is no provision for income taxes for the years
ended December 31, 1998 and 1999.
The Company has net operating loss carryforwards of approximately
$3,956,000 and $23,496,000 at December 31, 1998 and 1999, that expire
beginning in 2018 for federal purposes.
7.Stockholders' Equity:
a. Preferred Stock: In December 1999, the Company issued 2,197.650 shares
of no par value Series A convertible preferred stock ("Convertible
Preferred") at a price of $9,100.63 per share and received proceeds of
$20,000,000. The Company incurred $132,000 of issuance costs. The
holders of Convertible Preferred have various rights and preferences as
follows:
Voting: Each share of Convertible Preferred has the same voting rights
as a share of common stock and votes together as one class with the
common stock.
F-12
<PAGE>
COOLSAVINGS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Conversion: Each share of Convertible Preferred converts at the earlier
of December 31, 2000 or the occurrence of any of the following
Liquidity Events: an initial public offering, a change in control of
the Company as a result of a merger; consolidation or reorganization;
or a sale of substantially all of the assets of the Company. Each share
of preferred converts into 1,150 shares of common stock, subject to
adjustment.
If the conversion is the result of a Liquidity Event, then each share
will be converted into shares of common stock using a conversion ratio
based upon projected market capitalization thresholds and structured so
that the amount of the aggregate shares of common stock issued upon
conversion would constitute between 7.407% and 10.0% of the currently
issued and outstanding shares of common stock as measured on a pro
forma, as converted basis.
Such shares are not required to be registered as part of the proposed
initial public offering.
In the absence of a Liquidity Event on or before December 31, 2000,
then as of January 1, 2001, each share will be converted into a number
of shares of common stock using the respective conversion ratio that
yields the fewest shares of common stock based on either: (a) the
number of registered households on the coolsavings.com web site or (b)
the total revenue of coolsavings.com for the year 2000 with the
potential aggregate number of shares of common stock issued upon
conversion ranging between 7.407% and 10.0% of the currently issued and
outstanding shares of common stock as measured on a pro forma, as
converted basis.
The EITF Issue 98-5 requires that beneficial conversion features
present in the terms of the convertible securities should be recognized
and measured by allocating a portion of the proceeds equal to the value
of that feature to additional paid-in capital. The value of the
beneficial conversion feature related to the preferred stock offering
is in excess of the $19.9 million net proceeds. Accordingly, the
Company has allocated the full amount of net proceeds to the beneficial
conversion feature and recorded $19.9 million as additional paid in
capital as of December 31, 1999. The beneficial conversion feature will
be recognized through accretion using the interest method as a deemed
dividend during 2000 unless there is a conversion resulting from a
liquidity event such as the planned initial public offering. The
preferred stock requires mandatory conversion to common stock on
December 31, 2000.
b. Advertising Agreement: On May 28, 1999, the Company entered into an
agreement with a major television network under which the Company
purchased television advertising valued at $3.0 million in exchange for
686,766 shares of its common stock. The advertisements stipulated in the
agreement are required to be aired during the twelve-month period
beginning on October 1, 1999.
In accordance with Emerging Issue Task Force Abstract No. 96-18,
"Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or
Services," the Company has recorded the value of spots to be received
based on the fair value of the spots, as it was more reliably measured
than the fair value of the stock issued at the time that the
performance commitment by the network was reached. Amounts recorded
prior to the running of the advertising spots are classified on the
balance sheet as deferred advertising. As the advertising spots are
run, the Company recognizes advertising expense.
c. Share Warrants: During 1998 and 1997, the Company issued 747,500 and
115,000 warrants, respectively, to a stockholder in connection with
providing short-term loans to the Company. See Note 2-Related Parties,
for a description of the loans and warrants.
d. Common Stock Options: The Company has two stock-based compensation
plans, the 1997 Stock Option Plan (the "Employee Plan") and the 1999
Non-Employee Director Stock Option Plan (the "Non-Employee Plan"). The
Employee Plan and the Company's former 1997 Non-Employee Director Stock
Option Plan were established by action of the Company's Board of
Directors on December 4, 1997. In April 1999, the Company's 1997 Non-
Employee Director Stock Option Plan was terminated by the Board of
Directors. In July 1999, the Board of Directors
F-13
<PAGE>
COOLSAVINGS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
approved the establishment of the Non-Employee Plan. Vesting under the
Employee Plan is determined by the Board of Directors on an individual
grant basis and is typically incremental vesting over a period of
approximately four years. Options granted under the Non-Employee Plan
become fully vested one year from the date of the grant. The term of the
grants made under each plan is established by the Board of Directors and
may not exceed ten years. The Company is authorized to issue options
under the Employee and Non-Employee Plans for up to 15% for the Employee
Plan and 2% for the Non-Employee Plan of the total number of common
shares outstanding, including those reserved for issuance upon exercise
of stock options and warrants.
In addition to the above plans, the Company has granted options to a
certain employee in conjunction with the execution of a Board-approved
employment contract. These options are included in the disclosures that
follow.
The following information relates to stock options whose exercise price
equals the fair value of the underlying stock on the date of grant:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1997 1998 1999
------------------ ------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. 324,737 $0.28 1,526,487 $1.77 1,852,627 $1.84
Granted................. 1,201,750 2.17 343,850 2.17 2,538,050 4.76
Exercised............... -- -- -- -- (127,190) 4.16
Forfeited/expired....... -- -- (17,710) 2.17 (11,270) 2.85
--------- --------- ---------
Outstanding at end of
period................. 1,526,487 $1.77 1,852,627 $1.84 4,252,217 $3.51
========= ========= =========
Exercisable at end of
period................. 402,719 $1.41 784,283 $1.58 1,175,047 $1.65
========= ========= =========
Weighted average fair
value of options
granted during the
period................. $0.68 $0.68 $1.45
</TABLE>
The following information relates to stock options whose exercise price
exceeds the fair value of the underlying stock on the date of grant:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1997 1998 1999
--------------- ---------------- ------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. -- $ -- -- $ -- 287,500 $2.29
Granted................. -- -- 287,500 2.29 -- --
Exercised............... -- -- -- -- (287,500) 2.29
Forfeited/expired....... -- -- -- -- -- --
---- ------- --------
Outstanding at end of
period................. -- $ -- 287,500 $2.29 -- $ --
==== ======= ========
Weighted average fair
value of options
granted during the
period................. $ -- $0.12 $ --
</TABLE>
F-14
<PAGE>
COOLSAVINGS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following information relates to stock options whose exercise price is
less than the fair value of the underlying stock on the date of grant:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1997 1998 1999
--------------- ---------------- ------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. -- $ -- -- $ -- 230,000 $2.10
Granted................. -- -- 230,000 2.10 -- --
Exercised............... -- -- -- -- (230,000) 2.10
Forfeited/expired....... -- -- -- -- -- --
---- ------- --------
Outstanding at end of
period................. -- $ -- 230,000 $2.10 -- --
==== ======= ========
Weighted average fair
value of options
granted during the
period................. $ -- $0.29 $ --
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
December 31, 1999
------------------------------------
Weighted
Average
Remaining
Exercise Options Options Contractual
Price Outstanding Exercisable Life (Years)
-------- ----------- ----------- ------------
<S> <C> <C> <C>
$0.28............ 324,737 324,737 6.80
$2.17............ 2,711,930 850,310 8.60
$4.37............ 189,750 -- 9.53
$7.91............ 1,025,800 -- 9.90
--------- ---------
Totals........... 4,252,217 1,175,047 8.81
========= =========
</TABLE>
The Company adopted the disclosure requirements of Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock Based
Compensation," upon establishing the Employee Plan and the Non-Employee
Plan. As permitted by SFAS 123, the Company continues to apply the
accounting provisions of APB Opinion Number 25, "Accounting for Stock
Issued to Employees" with regard to the measurement of compensation cost
for options granted. The Company recognized $16,312 of compensation expense
during 1998 in conjunction with grants made under its fixed stock option
plans. Had expense been recognized using the fair value method described in
SFAS 123, the Company would have reported the following results of
operations using the Black-Scholes option pricing model:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Pro forma net
loss........... $(2,913,300) $(6,005,992) $(17,608,725)
Pro forma net
loss per
diluted share.. $ (0.16) $ (0.28) $ (0.59)
</TABLE>
These costs may not be representative of the total effects on pro forma
reported income for future years. Factors that may also impact disclosures
in future years include the attribution of the awards to the service
period, the vesting period of stock options, timing of additional grants of
stock option awards and number of shares granted for future awards.
F-15
<PAGE>
COOLSAVINGS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The assumptions used for valuations of option grants calculated in
accordance with SFAS 123 are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Annualized dividend yield.............. 0.0% 0.0% 0.0%
Risk free rate of return............... 5.5% 5.5% 5.6%
Expected option term (in years)........ 7.00 3.95 6.66
Expected volatility.................... 0.0% 0.0% 0.0%
</TABLE>
8. Earnings Per Share:
SFAS 128 requires companies to provide a reconciliation of the numerator and
denominator of the basic and diluted EPS computations. The calculation below
provides net loss, weighted average common shares outstanding and the
resultant net loss per share for both basic and diluted EPS for the years
ended December 31, 1997, 1998, and 1999.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Numerator:
Net loss........ $(2,731,521) $(5,741,260) $(16,868,379)
=========== =========== ============
Denominator:
Weighted average
common shares.. 18,266,572 21,547,177 29,804,681
=========== =========== ============
Earnings per
share:
Basic and
diluted........ $ (0.15) $ (0.27) $ (0.57)
=========== =========== ============
</TABLE>
9. 401(k) Plan: On February 11, 1997, the Company adopted a 401(k) plan for
employees. All employees who meet certain age requirements are eligible to
participate. Matching contributions are made at the discretion of the
Company. The Company made no matching contributions during 1997, 1998 and
1999.
10.Subsequent Events:
a. Lease: On January 3, 2000, the Company signed a lease agreement for an
office premise beginning May 1, 2000. The lease agreement has escalating
rents over the ten-year term of the lease.
b. Notes Payable: On January 31, 2000, the Company obtained a $6.5 million
line of credit. Borrowings under this line of credit are collateralized
by trade accounts receivable and fixed assets. $3.5 million of the line
is payable in installments at an interest rate of prime plus 1.25%. The
final installment payment is due on June 30, 2003. $3.0 million of the
line is a promissory note due on November 30, 2000 at an interest rate
of prime plus 1%. The line of credit requires certain minimum tangible
capital funds and other financial ratios to be maintained.
c Stock Split: On March , 2000 the Board of Directors approved a 1,150
for 1 common stock split. All share and per share amounts have been
retroactively restated to reflect the split.
F-16
<PAGE>
Inside Back Cover
Co-branded Programs
screenshot of screenshot of reward page
co-branded home page
[logo]
powered by coolsavings.com
Program Benefits to:
Co-Branding Associates CoolSavings
. customer acquisition and . new members
retention tools
. purchase and membership . enhanced data
incentives
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,200,000 Shares
[LOGO OF COOLSAVINGS.COM APPEARS HERE]
Common Stock
--------------
PROSPECTUS
--------------
CHASE H&Q
LEHMAN BROTHERS
THOMAS WEISEL PARTNERS LLC
------------
, 2000
------------
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
No action is being taken in any jurisdiction outside the United States to
permit a public offering of the common stock or possession or distribution of
this prospectus in that jurisdiction. Persons who come into possession of this
prospectus in jurisdictions outside the United States are required to inform
themselves about and to observe any restrictions as to this offering and the
distribution of this prospectus applicable to that jurisdiction.
Until , 2000, all dealers that buy, sell or trade in 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>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of the common stock being registered hereby. All the amounts
shown are estimated, except the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee.......... $ 15,302
NASD filing fee............... 6,300
Nasdaq National Market listing
fee.......................... 100,000
Printing and engraving
expenses..................... 150,000
Legal fees and expenses....... 450,000
Accounting fees and expenses.. 250,000
Blue Sky fees and expenses.... 7,500
Transfer Agent and Registrar
Fees......................... 10,000
Miscellaneous Expenses........ 110,898
----------
Total....................... $1,100,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 561 of the Michigan Business Corporation Act (the "MBCA") provides
that a Michigan corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation), by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise,
against expenses (including attorneys' fees), judgments, penalties, fines and
amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no cause to believe his conduct was unlawful.
Section 562 of the MBCA provides that a Michigan corporation may indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he
acted in any of the capacities set forth above, against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted under similar
standards, except that no indemnification may be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable
to the corporation unless and only to the extent that the court in which such
action or suit was brought shall determine that despite adjudication of
liability, such person is fairly and reasonably entitled to be indemnified for
such expenses which the court shall deem proper.
Article V of CoolSavings' bylaws provides for the indemnification of its
officers and directors in the manner, and to the fullest extent, authorized by
the MBCA. Reference is made to Exhibit 3.3 of this Registration Statement for
the complete text of the amended and restated bylaws.
As permitted by the MBCA, CoolSavings' articles of incorporation include a
provision that limits the personal liability of its directors to the maximum
extent permitted by the MBCA. Reference is made to Exhibit 3.2 of this
Registration Statement for the complete text of the restated articles of
incorporation to be filed prior to the closing of this offering.
II-1
<PAGE>
CoolSavings intends to enter into indemnification agreements with its
current directors and executive officers. CoolSavings intends to insure its
directors and officers against losses arising from any claim against them as
such for wrongful acts or omissions, subject to certain limitations.
Under Section 7 of the Underwriting Agreement, the underwriters are
obligated, under certain circumstances, to indemnify officers, directors and
controlling persons of CoolSavings against certain liabilities, including
liabilities under the Securities Act of 1933. Reference is made to the form of
Underwriting Agreement filed as Exhibit 1.1 hereto.
Item 15. Recent Sales of Unregistered Securities
Within the past three years, the registrant has issued and sold unregistered
securities in the amounts, at the times and for the aggregate amounts of
consideration listed as follows:
1. On February 11, 1997, we issued 735.7 shares of common stock to
Robert Ball and Stanley G. Feldman for an aggregate purchase price of
$300,000.00.
2. On April 1, 1997, we issued 1,029 shares of common stock to Antonio
F. Schmizzi, Bruce R. Feldman, Deneal Feldman, Leonard P. Ballas, Norman G.
Hubert, James B. Hochman, Elaine F. Wolf and Nancy and Ted Schwartzenfeld
for an aggregate purchase price of $420,000.00.
3. On August 5, 1997, we issued 688 shares of common stock to 16
investors for an aggregate purchase price of $530,865.63.
4. On October 10, 1997, we issued 401 shares of common stock to 21
investors for an aggregate purchase price of $601,500.00.
5. From December 18, 1997 through April 24, 1998, we issued warrants to
purchase an aggregate of 750 shares of common stock to the Richard H. Rogel
Revocable Living Trust in connection with a financing arrangement.
6. On May 5, 1998, we issued 287 shares of common stock to HLBL Family
Partners, L.P., Martin D. Sass, Walter Schram, Steven R. Trinborn, Steve
Schwartz, Hal Schwartz, Roger Winkelman, Kenton Hopkins, Robert D. Gorman
and Jeffrey Levitt for an aggregate purchase price of $717,500.00.
7. On June 1, 1998, we issued 2,170.82 shares of common stock to Lend
Lease International Pty. Limited for a purchase price of $5 million.
8. On November 4, 1998, we issued 1,973.47 shares of common stock to
Lend Lease International Pty. Limited for a purchase price of $5 million.
9. On March 11, 1999, we issued 2,368.16 shares of common stock to Lend
Lease International Pty. Limited for a purchase price of $5 million.
10. On April 27, 1999, we issued 1,860.70 shares of common stock to Lend
Lease International Pty. Limited for a purchase price of $3.5 million.
11. On April 27, 1999, we issued an additional 37.74 shares of common
stock to the ten investors who purchased shares on May 5, 1998, pursuant to
an agreement to render the per-share price of their investment equal to
that of Lend Lease International Pty. Limited.
12. On May 28, 1999, we issued promissory notes in the aggregate
principal amount of $1.5 million to one director and 17 other investors.
Upon completion of this offering, these promissory notes will automatically
convert into shares of common stock.
13. On May 28, 1999, we issued 597.188 shares of common stock to
National Broadcasting Company, Inc. in exchange for $3,000,000 of broadcast
advertising.
14. On October 18, 1999, we issued a promissory note in the principal
amount of approximately $3.5 million to Lend Lease International Pty.
Limited. Upon completion of this offering, this promissory note will
automatically convert into shares of common stock.
15. On December 31, 1999, we issued 2,197.650 shares of Series A
convertible preferred stock for an aggregate purchase price of $20.0
million to three directors, one officer, Lend Lease International Pty.
Limited and 64 other investors. Upon completion of this offering, the
Series A convertible preferred stock will automatically convert into shares
of common stock.
II-2
<PAGE>
16. Since inception, we have issued options to purchase an aggregate of
4,925,887 shares of common stock to our employees and directors.
No underwriters were engaged in connection with the foregoing sales of
securities. The sales of common stock, preferred stock, warrants and promissory
notes referenced in items 1, 2 and 5-15 above were made in reliance upon the
exemption from registration set forth in Section 4(2) of the Securities Act of
1933 and also in Rule 506 of Regulation D promulgated thereunder for
transactions not involving a public offering. The sales of common stock
referenced in items 3 and 4 above were made in reliance upon the exemption from
registration set forth in Section 4(2) of the Securities Act of 1933 for
transactions not involving a public offering. Issuances of options to the
Registrant's employees and directors were made under Rule 701 promulgated under
the Securities Act of 1933. The recipients of the above securities in each such
transaction represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates and instruments issued in such transactions. All recipients had
access, through their relationship with the Registrant, to information about
the Registrant.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibit Index
See exhibits listed on the Exhibit Index following the signature pages
of the Form S-1, which is incorporated herein by reference.
(b) Financial Statement Schedules:
Report of Independent Accountants
Schedule II--Valuation and Qualifying Accounts
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, 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, 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 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 undersigned 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.
The undersigned 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.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chicago, State of
Illinois, on March 16, 2000.
coolsavings.com inc.
/s/ Steven M. Golden
By: _________________________________
Steven M. Golden
Chairman of the Board, Chief
Executive Officer and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Steven M. Golden Chairman of the Board, Chief March 16, 2000
____________________________________ Executive Officer and
Steven M. Golden President (Principal
Executive Officer)
* Chief Financial Officer, March 16, 2000
____________________________________ Treasurer Secretary
David H. Jacobson (Principal Financial and
Accounting Officer)
* Director March 16, 2000
____________________________________
Richard H. Rogel
* Director March 16, 2000
____________________________________
Hugh R. Lamle
* Director March 16, 2000
____________________________________
Albert Aiello
* Director March 16, 2000
____________________________________
Lynette H. Mayne
* Director March 16, 2000
____________________________________
David E. Simon
* Director March 16, 2000
____________________________________
Robert J. Kamerschen
</TABLE>
/s/ Steven M. Golden
*By: ________________________________
(Steven M. Golden,
Attorney-in-Fact)
II-4
<PAGE>
Report of Independent Accountants on Financial Statement Schedule
To the Board of Directors
of coolsavings.com
Our audits of the financial statements referred to in our report dated
February 18, 2000 appearing in this Registration Statement on Form S-1 also
included an audit of the financial statement schedule. In our opinion, such
financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
PricewaterhouseCoopers LLP
Chicago, Illinois
February 18, 2000
<PAGE>
coolsavings.com inc.
Schedule II--Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Additions (Reductions)
---------------------------
Balance Charged Balance
at to Costs Charged at End
Beginning and to Other Deductions of
Classification of Period Expenses Accounts (1) Period
- -------------- --------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999:
Allowance for doubtful
receivables.................. $13,500 $122,566 $0 $17,912 $118,154
Year ended December 31, 1998:
Allowance for doubtful
receivables.................. $ 0 $13,500 $0 $ 0 $13,500
Year ended December 31, 1997:
Allowance for doubtful
receivables.................. $ 0 $ 0 $0 $ 0 $ 0
</TABLE>
- ---------------------
(1) Uncollectible accounts written off.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement*
3.1 Articles of Incorporation+
3.2 Form of Restated Articles of Incorporation to be filed prior to the
closing of this offering
3.3 Amended and Restated Bylaws
4.1 Form of Common Stock Certificate*
4.2 Shareholders Agreement, dated as of June 1, 1998, among CoolSavings
and certain of its Stockholders+
4.3 Form of 1999 Unsecured, Convertible Subordinated Promissory Note of
CoolSavings+
4.4 Registration Rights Agreement among CoolSavings and the holders of
the 1999 Unsecured, Convertible Subordinated Promissory Notes+
4.5 Registration Rights Agreement among CoolSavings and the holders of
the Series A Convertible Preferred Stock+
5.1 Opinion letter of Jaffe, Raitt, Heuer & Weiss, Professional
Corporation, regarding the validity of securities being registered+
10.1 Investment Agreement, dated June 1, 1998, by and between CoolSavings
and Lend Lease International Pty. Limited+
10.2 Form of Indemnification Agreement
10.3 1997 Stock Option Plan+
10.4 1999 Director Option Plan+
10.5 Credit Agreement, dated December 18, 1997, between CoolSavings and
the Richard H. Rogel Revocable Living Trust u/a/d March 21, 1990+
10.6 Form of Promissory Note from current and former directors of
CoolSavings payable to CoolSavings in consideration for exercise of
stock options and/or warrants+
10.7 Termination Agreement, dated December 30, 1999, between CoolSavings
and Hillel Levin+
10.8 Consulting Agreement, dated as of January 1, 2000, between
CoolSavings and Hillel Levin+
10.9 Lease Agreement, dated February 24, 1997, between Prentiss
Properties Acquisition Partners, L.P. and CoolSavings+
10.10 Agreement of Sublease, dated June 30, 1998, between Insurance
Company of North America and CoolSavings+
10.11 Lease Agreement, dated January 3, 2000, between 360 North Michigan
Trust and CoolSavings+
10.12 Market Survey Panelist Agreement, dated as of October 25, 1999,
between CoolSavings and NFO Research, Inc.+
10.13 Bankcard Marketing Agreement, dated April 2, 1999, between
CoolSavings and First USA Bank+
10.14 Stock Purchase and Advertising Agreement, dated May 28, 1999,
between CoolSavings and National Broadcasting Company, Inc.**+
10.15 Agreement, dated February 8, 2000, between CoolSavings and The
Parenting Group, Inc.+
10.16 Agreement, dated January 18, 2000, between CoolSavings and Mail
Coups Inc.+
10.17 Program Agreement, dated February 17, 2000, between CoolSavings and
First Data Merchant Services Corporation
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.18 Loan and Security Agreement, dated January 19, 2000, between
CoolSavings and American National Bank and Trust Company of Chicago
23.1 Consent of Jaffe, Raitt, Heuer & Weiss, Professional Corporation
(included as part of Exhibit 5.1)
23.2 Consent of PricewaterhouseCoopers LLP
23.3 Consent of Niro, Scavone, Haller & Niro
24.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule
</TABLE>
- ---------------------
+ Previously filed.
* To be filed by amendment.
** Certain information in Exhibit 10.14 has been omitted and filed separately
with the Commission. Confidential treatment has been requested with respect
to the omitted portion.
2
<PAGE>
Exhibit 3.2
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
coolsavings.com inc.
Pursuant to the provisions of Act 284, Public Acts of 1972, the undersigned
corporation executes the following Articles:
- --------------------------------------------------------------------------------
1. The present name of the corporation is: coolsavings.com inc.
2. The corporation identification number (CID) assigned by the Bureau is:
196-828
3. All former names of the corporation are: Interactive Coupon Marketing
Group, Inc.
4. The date of filing the original Articles of Incorporation was: December
21, 1994
- --------------------------------------------------------------------------------
The following Restated Articles of Incorporation supersede the Articles of
Incorporation as amended and shall be the Articles of Incorporation for the
corporation:
Article I
The name of the corporation is: coolsavings.com inc.
Article II
The purpose or purposes for which the corporation is formed is to engage in
any activity within the purposes for which corporations may be formed under the
Michigan Business Corporation Act (the "Act").
Article III
The total authorized shares of the corporation shall be 100,000,000 Common
Shares and 10,000,000 Preferred Shares.
A statement of all or any of the relative rights, preferences and
limitations of the shares of each class is as follows:
The holder of each outstanding Common Share shall have one vote per share
with respect to all matters submitted to a vote of shareholders.
The board of directors may cause the corporation to issue Preferred Shares
in one or more series, each series to bear a distinctive designation and to have
such relative rights and preferences as shall be prescribed by resolution of the
corporation's board of directors. Each resolution, when filed in accordance with
the Act, shall constitute an amendment to these Articles of Incorporation.
Notwithstanding anything to the contrary herein, the Certificate of Designation
filed with the Michigan Department of Consumer and Industry Services on December
29, 1999, a copy of which is attached hereto, shall remain in full force and
effect consistent with its terms.
<PAGE>
Article IV
The address of the current registered office is: 255 E. Brown St., Ste. 110
Birmingham, MI 48009
The mailing address of the current registered office if different from the
registered office address: N/A
The name of the current resident agent at the registered office is: Robert
D. Gorman.
Article V
To the full extent permitted by the Act or any other applicable laws
presently or hereinafter in effect, no director of this corporation shall be
personally liable to the corporation or its shareholders for monetary damages
for or with respect to any acts or omissions in the performance of his or her
duties as a director of the corporation. If the Act is hereafter amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the corporation
shall be eliminated or limited to the fullest extent permitted by the Act, as so
amended. Any repeal, modification or adoption of any provision in these Articles
of Incorporation inconsistent with this Article V shall not adversely affect any
right or protection of a director of the corporation existing immediately prior
to, or for, or with respect to, any acts or omissions occurring before such
repeal or modification.
Article VI
Pursuant to Section 784(1)(b) of the Act, the corporation expressly elects
not to be governed by Chapter 7A of the Act, being sections 775 through 784 of
the Act; provided that the corporation's board of directors may terminate this
election in whole or in part by action of the majority of directors then in
office.
Article VII
Notwithstanding any other provision of these Articles of Incorporation, no
amendment to these Articles of Incorporation shall amend or repeal any or all of
the provisions of these Articles of Incorporation, and the stockholders of the
corporation shall not have the right to amend or repeal any or all provisions of
the Bylaws of the corporation, unless so adopted by the affirmative vote of the
holders of not less than two-thirds (2/3) of the outstanding shares of stock of
the corporation generally entitled to vote in the election of directors,
considered for purposes of this Article VII as a class; provided, however, that
in the event that the board of directors of the corporation recommends to the
stockholders the adoption of any such amendment of a nature described in this
Article VII, the stockholders of record holding a majority of the outstanding
shares of stock of the corporation entitled to vote in the election of
directors, considered for the purposes of this Article VII as a class, may
amend, modify or repeal any or all of such provisions.
-2-
<PAGE>
These Restated Articles of Incorporation were duly adopted on the ___ day
of February, 2000, in accordance with the provisions of Section 642 of the Act
and were duly adopted by the written consent of the shareholders having not less
than the minimum number of votes required by statute in accordance with Section
407(1) of the Act. Written notice to shareholders who have not consented in
writing has been given. (Note: Written consent by less than all of the
shareholders is permitted only if such provision appears in the Articles of
Incorporation.)
Signed this ____ day of March, 2000
coolsavings.com inc.
By:
---------------------------------------------------------
Steven M. Golden, Chief Executive Officer and President
================================================================================
Name of person or organization Preparer's name and business
remitting fees: telephone number:
coolsavings.com inc. Jill H. Collins, Esq.
- -------------------- ----------------------------
313-961-8380
================================================================================
-3-
<PAGE>
Exhibit 3.3
AS AMENDED AND RESTATED
-----------------------
ON MARCH , 2000
------------------
BYLAWS
OF
coolsavings.com inc.
(hereinafter referred to as the "Corporation")
ARTICLE I.
Offices
-------
Section 1. Location. The registered office of the Corporation shall be
located in Oakland County, the State of Michigan and shall be located at 255 E.
Brown Street, Suite 110, Birmingham, Michigan 48009.
Section 2. Change. The Board of Directors (hereinafter referred to as the
"Board") may change the registered office of the Corporation from time to time
and may establish other offices, either within or without the State of Michigan,
as the business of the Corporation may require.
ARTICLE II.
Shareholders and Shareholders' Meetings
---------------------------------------
Section 1. Annual Meeting. The annual shareholders' meeting shall be held
at such time on such day as the Board shall annually determine, for the purposes
of electing directors, hearing reports of the affairs of the Corporation and
transacting any other business within the power of the shareholders. If the
election of directors shall not be held on the day designated herein for an
annual meeting, or at any adjournment thereof, the Board may cause the election
to be held at a special shareholders' meeting as soon thereafter as one may be
conveniently called and noticed for that purpose.
Section 2. Special Meetings. Special meetings of the shareholders (a) may
be called at any time by the Chairman of the Board, the Chief Executive Officer,
the President or, in case of such officers' death or disability, any Vice
President who is authorized in such circumstances to exercise the authority of
the Chief Executive Officer or the President, or by the Board of Directors by
action at a meeting or a majority of the directors acting without a meeting, and
(b) shall be called by the Secretary upon written request (stating the purpose
for which the meeting is to be called) of the holders of a majority of all the
shares entitled to vote in an election of directors. Such meetings may be held
within or without the State of Michigan at such time and place as may be
specified in the notice thereof. The request shall state the purpose or
purposes
<PAGE>
for which the meeting is to be called, and the business transacted at any such
meeting shall be limited to the purpose or purposes stated in the notice
thereof.
Section 3. Place of Meeting. The Board may specifically designate any
place either within or without the State of Michigan as the place of meeting for
any annual or special shareholders' meeting. If no such designation is made or
if a special meeting is called other than at the request of the Board, the place
of meeting shall be the registered office of the Corporation in the State of
Michigan.
Section 4. Written Notice. Notice of any annual shareholders' meeting
shall specify in writing the place, day and hour thereof and shall be given by
the Secretary to each such shareholder entitled to vote thereat not less than
ten (10) days nor more than sixty (60) days before each such meeting. Such
written notice shall constitute due, legal, and personal notice to each such
shareholder if it is given by:
(a) delivering it to such shareholder personally; or
(b) sending it to him by mail, telegraph, or other means of written
communication, charges prepaid, addressed to him at:
(i) his address as it appears on the stock transfer books of the
Corporation; or
(ii) such other address or addresses as he may have requested in
writing that the Corporation use for the purpose of giving such
notice; or
(iii) at the registered office of the Corporation and by
publishing it at least once in some newspaper of general circulation
in the county in which that office is located if his address does not
appear on the stock transfer books of the Corporation and he has not
requested in writing that the Corporation use any address for such
notice.
If mailed, such notice shall be deemed given when deposited in the United
States mail postage prepaid and addressed to the shareholder at any such
address. Except in extraordinary circumstances where express provision is made
allowable by statute, notice of any special shareholders' meeting shall be given
in the same manner as for annual shareholders' meetings.
Attendance of a person at a meeting of shareholders, in person or by proxy,
constitutes (i) a waiver of notice of the meeting, except when the shareholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened; and (ii) a waiver of objection to consideration of a
particular matter at the meeting that is not within the purpose or purposes
described in the meeting notice, unless the shareholder objects to considering
the matter when it is presented.
Section 5. Adjourned Meetings and Notice Thereof. Any annual or special
shareholders' meeting, whether or not a quorum is present, may be adjourned from
time to time
2
<PAGE>
by the vote of a majority of the shares, the holders of which are either present
in person or represented by proxy thereat; in the absence of a quorum no other
business may be transacted at such meeting.
A meeting may be adjourned to another time or place without giving notice
of the adjourned meeting if the time and place to which the meeting is adjourned
are announced at the meeting at which the adjournment is taken and at the
adjourned meeting only such business is transacted as might have been transacted
at the original meeting. However, after the adjournment the Board may fix a new
record date for the adjourned meeting and a notice of the adjourned meeting
shall be given to each shareholder of record on the new record date entitled to
notice.
Section 6. Voting. Unless a record date for voting purposes is fixed as
provided in Section l of Article V of these Bylaws, only those persons in whose
names shares entitled to vote stand and are registered on the stock transfer
books of the Corporation on the day three (3) days prior to any meeting of
shareholders shall be entitled to vote at such meeting. Such vote may be by
voice or by ballot; provided however, all elections for directors must be by
ballot upon demand made by a shareholder at any election and before the voting
begins.
Each shareholder of the Corporation shall, at every shareholders' meeting,
be entitled to one (1) vote in person or by proxy for each share of each class
of capital stock of the Corporation outstanding and entitled to vote and
registered in his name on the record date or the date set forth herein. Except
as otherwise provided in the Corporation's Articles of Incorporation, directors
shall be elected by a plurality of the votes cast at an election.
Except as otherwise provided by law, the Corporation's Articles of
Incorporation, or these Bylaws, every act or decision done or made by vote of
the shareholders entitled to exercise a majority of the voting power present in
person or by proxy at any shareholders' meeting shall be regarded as an act or
decision done or made with the approval of the shareholders.
Section 7. Quorum. Unless otherwise provided in this Corporation's
Articles of Incorporation, the presence in person or by proxy of persons
entitled to vote a majority of the voting shares of the capital stock of the
Corporation that are outstanding and entitled to vote shall constitute a quorum
for the transaction of business at any meeting. The shareholders present at a
duly called or held meeting at which a quorum is present may continue to do
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
Section 8. Consent of Absentees. The transactions of any annual or
special shareholders' meeting, however called and noticed, shall be as valid as
though had at a meeting duly held after regular call and notice if a quorum is
present either in person or by proxy and if, either before or after the meeting,
each of the shareholders who was entitled to vote but was not present in person
or by proxy, signs a written waiver of notice and written consent to the holding
of such meeting or a written approval of the minutes thereof. All such waivers
and consents or approvals shall be filed with the corporate records or made a
part of the minutes of the meeting.
3
<PAGE>
Section 9. Action Without Meeting. Any action required or permitted
under any provision of the Michigan Business Corporation Act to be taken at an
annual or special meeting of shareholders may not be taken without such meeting.
Section 10. Proxies. Every person entitled to vote or execute consents or
dissents shall have the right to do so either in person or by one or more agents
authorized by a written proxy executed by such person or his duly authorized
agent and filed at or before the meeting at which they are intended to be used
with the Secretary of the Corporation. Proxies shall be valid for the length of
time which the person executing it specifies, which in no case shall exceed
three (3) years from the date of its execution. Any proxy duly executed shall
be deemed not to have been revoked and to be in full force and effect and, in
the absence of any limitation to the contrary contained in the proxy, it shall
extend to all shareholders' meetings, unless and until an instrument revoking
said proxy or a duly executed proxy bearing a later date is filed with the
Secretary of the Corporation. A proxy shall be deemed sufficient if it appears
on its face to confer the requisite authority and is signed by the owner of the
stock to be voted; no witnesses to the execution of any proxy shall be required.
Notwithstanding that a valid proxy may be outstanding, except in the case of an
irrevocable proxy coupled with an interest which shall state that it is
irrevocable on its face, the powers of the proxy holder or holders shall be
suspended if the person or persons executing such proxy shall be present at the
meeting and elect to vote in person.
Section 11. Order of Business at Annual Meeting. The Chairman of the
Board or such other member of the Board as is designated by the Board of
Directors, shall preside over meetings of the shareholders. The Secretary of the
Corporation shall act as Secretary of the shareholders' meeting and shall record
all of the proceedings of such shareholders' meeting; provided, that in the
absence of such officer, the presiding officer shall appoint another officer of
the Corporation to act as Secretary of the meeting.
At an annual or special meeting of shareholders, only such business shall
be conducted, and only such proposals shall be acted upon, as shall have been
properly brought before such meeting. To be properly brought before a meeting
of shareholders, business must be (i) in the case of a special meeting,
specified in the notice of the special meeting (or any supplement thereto) given
by or at the direction of the Board of Directors, (ii) properly brought before
the meeting by or at the direction of the Board of Directors, or (iii) otherwise
properly brought before the meeting by a shareholder. Shareholders seeking to
bring business before an annual meeting of shareholders, or to nominate
candidates for election as directors at an annual meeting of shareholders, must
provide timely notice thereof in writing. To be timely, a shareholder's notice
must be delivered to or mailed and received at the Corporation's principal
executive offices not less than 120 days nor more than 150 days prior to the
first anniversary of the date of the Corporation's notice of annual meeting
furnished with respect to the previous year's annual meeting of shareholders.
If no annual meeting of shareholders was held in the previous year or the date
of the annual meeting of shareholders has been changed to be more than 30
calendar days earlier than or 60 calendar days after such anniversary, notice by
the shareholders, to be timely, must be received a reasonable time before the
solicitation is made. Within ten (10) days of the Corporation's receipt of a
shareholder's notice which complies with this Section 11, the
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Corporation shall send a copy of such notice to all shareholders in the manner
set forth in Article II, Section 4.
A shareholder's notice to the Secretary shall set forth as to each matter
the shareholder proposes to bring before a meeting of shareholders, (i) a brief
description of the business desired to be brought before the meeting and the
reasons for conducting such business at the meeting, (ii) the name and address,
as they appear on the Corporation's books, of the shareholder proposing such
business and any shareholders known by such shareholder to be supporting such
proposal, (iii) the class and number of shares of the Corporation which are
beneficially owned by the shareholder on the date of such shareholder's to be
supporting such proposal on the date of such shareholder's notice, and (iv) any
material interest of the shareholder in such proposal.
Notwithstanding anything in these Bylaws to the contrary, no business
shall be conducted at a meeting of shareholders except in accordance with the
procedures set forth in this Section. The presiding officer of the shareholder
meeting shall, if the facts warrant, determine and declare to the meeting that
the business was not properly brought before the meeting in accordance with the
procedures prescribed by these Bylaws, and if he should so determine, he shall
so declare to the meeting and any such business not properly brought before the
meeting shall not be transacted.
Section 12. Voting of Shares by Certain Holders. Any other corporation
that owns shares of stock of this Corporation outstanding and entitled to vote
may vote the same by the President of the shareholder corporation or proxy
appointed by him, unless some other person is appointed to vote such shares by
resolution of the Board of the shareholder corporation.
Shares held by an administrator, executor, guardian, conservator, receiver,
trustee, or other fiduciary may be voted by him, either in person or by proxy,
without a transfer of such shares into his name, provided the Corporation is
furnished satisfactory proof of the authority of such person to vote those
shares.
A shareholder whose shares are pledged shall be entitled to vote such
shares unless in the transfer the pledgor has expressly empowered the pledgee to
vote such shares and had the same indicated on the books of the Corporation, in
which case only the pledgee or his proxy may represent and vote such shares.
Shares of this Corporation's own stock held by it in a fiduciary capacity
shall not be voted, directly or indirectly, at any meeting or for any purpose
and shall not be counted in determining the total number of shares present for
quorum purposes.
Section 13. Inspectors of Election. Whenever any person entitled to vote
at any shareholders' meeting shall request the appointment of persons to inspect
any election, the Board, prior to the meeting, or the person presiding at such
meeting shall appoint not more than three (3) inspectors, who need not be
shareholders. If the right of any person to vote at such meeting shall be
challenged, the inspectors shall determine such right. The inspectors shall
receive and count the votes for any election or for the decision of any
questions and shall determine the result. Their certificate of any vote shall
be prima facie evidence of the results of such vote.
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Section 14. Shareholder Meeting by Conference Telephone or Similar
Equipment. A shareholder may participate in a meeting of shareholders by a
conference telephone or similar communications equipment by which all persons
participating in the meeting may hear each other if all participants are advised
of the communications equipment and the names of the participants in the
conference are divulged to all participants. Participation in a meeting
pursuant to this section constitutes presence in person at the meeting.
ARTICLE III.
Directors and Meetings of the Board of Directors
------------------------------------------------
Section 1. Number and Residence. The business and affairs of the
Corporation shall be managed by or under the direction of a Board of Directors
then in office. The authorized number of directors of the Corporation shall be
no less than five nor more than fifteen, as determined by a resolution of a
majority of the Board of Directors. Directors need not be Michigan residents or
shareholders of the Corporation.
Section 2. Election and Term of Office. Except as provided in Section 6 of
this Article III below, the directors shall be elected at each annual
shareholders' meeting or otherwise as provided in Article II, Section 1, above.
Each director shall hold office until he resigns, dies, is removed from office,
or his successor is duly elected and qualified, whichever first occurs.
Section 3. Resignation. A director may resign by written notice to the
Corporation. A director's resignation is effective upon its receipt by the
Corporation or a later time set forth in the notice of resignation.
Section 4. Removal. A director or the entire Board of Directors may be
removed, with or without cause, by vote of the holders of a majority of the
shares entitled to vote at an election of directors.
Section 5. Nominations for Director. Except as provided in Article III,
Section 6, only persons who are nominated in accordance with the procedures set
forth in this Section 5 shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors of the Corporation
may be made at a meeting of shareholders by or at the direction of the Board of
Directors or by any shareholder of the Corporation entitled to vote for the
election of directors at the meeting who complies with the notice procedures set
forth in this Section 5. Such nominations, other than those made by or at the
direction of the Board of Directors, shall be made pursuant to timely notice
from a shareholder in writing to the Secretary of the Corporation, made in
accordance with the terms of Article II, Section 11. Such shareholder's notice
shall set forth (a) as to each person whom the shareholder proposes to nominate
for election or re-election as a director, (1) the name, age, business address
and residence address of such person, (2) the principal occupation or employment
of such person, (3) the class and number of shares of the Corporation which are
beneficially owned by such person and (4) any other information relating to such
person that is required to be disclosed in solicitations of proxies for
election of directors,
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or is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (including each such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected); and (b) as to the shareholder giving the
notice (1) the name and address, as they appear on the Corporation's books, of
such shareholder and (2) the class and number of shares of the Corporation which
are beneficially owned by such shareholder. At the request of the Board of
Directors, any person nominated by the Board of Directors for election as a
director shall furnish to the Secretary that information required to be set
forth in a shareholder's notice of nomination which pertains to the nominee. The
presiding officer of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by these Bylaws, and if the presiding officer should so
determine, the presiding officer shall so declare to the meeting and the
defective nominations shall be disregarded.
Section 6. Vacancies. Vacancies in the Board occurring by reason of
death, resignation, removal, increase in the number of directors or otherwise
shall be filled by the affirmative vote of a majority of the directors then in
office. Each person so elected shall serve as a director for a term of office
continuing until the next election of the class of directors for which such new
director was elected. A vacancy that will occur at a specified date, by reason
of a resignation effective at a later date or otherwise, may be filled before
the vacancy occurs, but the newly elected director may not take office until the
vacancy occurs. Vacancies that do not cause the Board to be comprised of less
than five (5) directors, may, at the discretion of the Board, remain vacant
until such time as the Board or the shareholders elect to fill such vacancies.
Section 7. Place of Meeting/Attendance by Telephone.
(a) Regular Board meetings shall be held at any place within or without
the State of Michigan which has been designated from time to time by resolution
of a majority of the Board or by written consent of a majority of the members of
the Board given either before or after the meeting and filed with the Secretary
of the Corporation. In the absence of such designation, regular meetings shall
be held at the registered office of the Corporation. Any special Board meeting
may be held at any place designated with the written consent of a majority of
the directors; otherwise special Board meetings shall be held at the registered
office of the Corporation in the State of Michigan.
(b) Any Board meeting may be held by telephone, and any director may
attend a Board meeting by telephone. Upon the request of any director, the
Corporation or the person(s) calling the meeting shall make arrangements that
will enable all attendees, whether present in person or by telephone, to
participate concurrently in the meeting in a manner that all directors in
attendance (in person or by telephone) may hear the speaking by any director at
all times during the meeting.
Section 8. Organization Meeting. Immediately following each annual
shareholders' meeting and each adjourned annual and special shareholders'
meeting held for the purpose of electing a new Board, the newly elected Board
may hold a regular meeting for the purpose of organization, election of
officers, and the transaction of other business. Notice of each such meeting
need not be given and is hereby dispensed with.
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Section 9. Other Regular Meetings. Board meetings may be regularly
scheduled for dates, times and places as determined by the Board, and in such
case notice of such meetings need not be given and is hereby dispensed with.
Section 10. Special Meetings and Notice Thereof. Special Board meetings
for any purpose or purposes (a) may be called at any time by the Chief Executive
Officer or the President or, if they are absent or unable to act, by any Vice
President and (b) shall be called by the Secretary upon the written request of
at least two directors. The business transacted at any such meeting shall be
limited to the purpose or purposes stated in the notice thereof.
Written notice of the place, day, and hour of special Board meetings shall
be given to each director and constitute due, legal, and personal notice to him
if that notice is delivered in the same manner as provided for notice to
Shareholders in Article II, Section 4 except (i) the time periods for giving
such notices and deeming such notices given shall be as provided in this Section
10, and (ii) any notice sent by mail (other than Federal Express or another
internationally recognized courier service) shall be sent express, registered or
certified mail, postage prepaid. Notices delivered personally or by facsimile,
shall be so delivered at least three (3) business days prior to the day of the
meeting. Notices sent by mail (United States Mail, overnight service, courier
service, or otherwise), shall be deposited in the mail not less than three (3)
business days prior to the day of the meeting, and all such notices shall be
deemed given upon the first to occur of (x) actual receipt or (y) three (3)
business days after so deposited in the mail.
Section 11. Notice of Adjournment. Notice of the time and place of
holding an adjourned Board meeting need not be given to absent directors if the
time and place be fixed at the meeting adjourned provided that the meeting is
not adjourned for more than five (5) days.
Section 12. Waiver of Notice. The attendance of a director at any Board
meeting shall constitute a waiver of notice of such meeting, except where a
director attends for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called, noticed, or convened.
The transactions of whatever kind or nature held at any Board meeting,
however called and noticed or wherever held, shall be as valid as though had at
a meeting duly held after regular call and notice if a quorum is present and if,
either before or after the meeting, each of the directors not present signs a
written waiver of notice of the meeting and a written consent to holding such
meeting, or a written approval of the minutes thereof. All such waivers and
consents or approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
In addition, any action required or permitted to be taken by the Board
under the Michigan Business Corporation Act may be taken without a meeting, if
all members of the Board shall individually and collectively consent in writing
to such action. Such written consents shall be filed with the minutes of the
proceedings of the Board. Such action by written consent shall have the same
force and effect as a unanimous vote of such directors at a duly called,
noticed, and held Board meeting. Any certificate or other document filed under
any provision of the Michigan
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Business Corporation Act which relates to action so taken shall state that the
action was taken by unanimous written consent of the Board without a meeting and
that these Bylaws authorized the directors so to act, and such statement shall
be prima facie evidence of such authority.
Section 13. Quorum. Except to adjourn the meeting as hereinafter
provided, a majority of the Board without regard to the authorized number of
directors shall be necessary to constitute a quorum for the transaction of
business. Every act or decision done or made by a majority of the directors
present at a meeting duly held at which a quorum is present shall be regarded as
the act of the Board unless a greater number be required by law, the Articles of
Incorporation, or these Bylaws.
Section 14. Adjournment. A quorum may adjourn any Board meeting to meet
again at a stated place, date, and hour; however, in the absence of a quorum, a
majority of the directors present at any regular or special Board meeting may
adjourn from time to time until the time fixed for the next regular Board
meeting.
Section 15. Fees and Compensation. By resolution of the Board, the
directors may be paid their expenses, if any, of attendance at each Board
meeting and a fixed sum for attendance at each Board meeting or a stated salary
as director. Nothing herein contained shall be construed to preclude any
director from serving the Corporation in any other capacity as an officer,
agent, employee or otherwise and receiving a separate compensation therefor.
Section 16. Presumption of Assent. A director who is present at any Board
meeting at which action on any corporate matter is taken shall be presumed to
have assented to any action taken by the Board at that meeting unless his
dissent shall be entered in the minutes of the meeting or he shall file his
written dissent to such action with the person acting as the Secretary of the
meeting before the adjournment thereof or he shall forward such dissent by
registered mail to the Secretary of the Corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a director
who voted in favor of such action. A director who is absent from a meeting of
the board, or a committee thereof of which he is a member, at which any such
action is taken is presumed to have assented to the action unless he files his
written dissent with the Secretary of the Corporation within a reasonable time
after he has knowledge of the action.
Section 17. Executive Committees. The Board, by resolution passed by a
majority of the whole Board, may provide for an Executive Committee by
appointing two (2) or more members thereto, each of whom shall be a director and
who shall serve during the pleasure of the Board. Unless one of the members
shall have been designated as Chairman of the Board, the Executive Committee
shall elect a Chairman from its own members. Except as provided herein by
resolution of the Board or by applicable law, the Executive Committee during the
intervals between Board meetings shall possess and may exercise all of the
powers of the Board in the management of the business and affairs of the
Corporation; provided, however, that neither the Executive Committee nor any
other committee established below shall have the power or authority to: (a)
approve or adopt, or recommend to the shareholders, any action or matter
requiring the approval of the shareholders; or (b) adopt, alter, amend or repeal
these Bylaws. The Executive Committee shall keep full and fair records and
accounts of its proceedings and
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transactions. All actions taken by the Executive Committee shall be reported to
the Board at its meeting next succeeding such action and shall be subject to
revision and alteration by the Board, except that no rights of third persons
created in reliance thereon shall be affected by any such revision or
alteration. Vacancies in the Executive Committee shall be filled by the Board.
Subject to provisions of these Bylaws and applicable law, the Executive
Committee shall fix its own rules of procedure and shall meet as provided by
such rules, by resolution of the Board, or at the call of the Chief Executive
Officer or President of the Corporation or of any two (2) members of the
committee. Unless otherwise provided by such rules, the provisions of the
Bylaws relating to the notice required to be given to directors shall apply to
all meetings of the Executive Committee. A majority of the Executive Committee
shall be necessary to constitute a quorum.
Section 18. Other Committees. The Board may by resolution provide for
such other standing or special committees as it deems desirable and discontinue
the same at its pleasure. Each such committee shall have such powers and perform
such duties not inconsistent with law, as may be assigned to it by the Board. If
provision is made for any such committee, the members thereof shall be appointed
by the Board, shall consist of one or more members of the Board and shall serve
during the pleasure of the Board. Vacancies in such committees shall be filled
by the Board.
ARTICLE IV.
Officers
--------
Section 1. Officers. The officers of the Corporation shall include a
chairman of the board, a president, a secretary and a treasurer and may include
a chief executive officer, a chief financial officer, a chief operating officer,
vice chairman of the board, one or more vice presidents, one or more assistant
secretaries and one or more assistant treasurers. In addition, the Board of
Directors may from time to time appoint such other officers with such powers and
duties as they shall deem necessary or desirable. The officers of the
Corporation shall be elected annually by the Board of Directors at the first
meeting of the Board of Directors held after each annual meeting of
shareholders, except that the chief executive officer may appoint one or more
vice presidents, assistant secretaries and assistant treasurers; provided,
however, that the chief executive officer shall not appoint any executive
officer. If the election of officers shall not be held at such meeting, such
election shall be held as soon thereafter as may be convenient. Each officer
shall hold office until his successor is elected and qualifies or until his
death, resignation or removal in the manner hereinafter provided. Any two or
more offices except president and vice president may be held by the same person.
In its discretion, the Board of Directors may leave unfilled any office except
that of president, treasurer and secretary. Election of an officer or agent
shall not of itself create contract rights between the Corporation and such
officer or agent.
Section 2. Election. The officers of the Corporation, except such
officers as may be appointed in accordance with the provisions of Sections 3 or
5 of this Article IV, shall be chosen by the Board, and each shall hold his
office until he resigns, dies, is removed or otherwise
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disqualified to serve, or until his successor is elected and qualified,
whichever occurs first.
Section 3. Other Officers and Agents. The Board may appoint such other
officers (including, without limitation, a Chief Executive Office, a Chief
Operating Officer, a Chief Financial Officer, a Chief Accounting Officer and any
other executive officer) and agents as the business of the Corporation may
require, each of whom shall hold office for such period, have such authority,
and perform such duties as may be provided in these Bylaws or as the Board may
from time to time determine.
Section 4. Removal and Resignation. Any officer or agent may be removed
by a majority of the whole Board at the time in office at any regular or special
Board meeting.
Any officer may resign at any time by giving written notice to the Board,
the Chief Executive Officer, the President or the Secretary. Any such
resignation shall take effect at the date of the receipt of such notice or at
any later time specified therein; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Section 5. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or any other cause shall be filled in
the manner prescribed in these Bylaws for regular appointments to such office.
Section 6. Chairman of the Board. The Chairman of the Board, if there
shall be such an officer, shall, if present, preside at all meetings of the
Shareholders or the Board and shall exercise and perform such other powers and
duties as may from time to time be assigned to him by the Board or prescribed by
these Bylaws.
Section 7. Chief Executive Officer. The Board of Directors shall
designate a chief executive officer. In the absence of such designation, the
chairman of the board (or, if more than one, the co-chairmen of the board in the
order designated at the time of their election or, in the absence of any
designation, then in the order of their election) shall be the chief executive
officer of the Corporation. The chief executive officer shall have general
responsibility for implementation of the policies of the Corporation, as
determined by the Board of Directors, and for the management of the business and
affairs of the Corporation.
Section 8. President. Subject to such powers and duties, if any, as may
be given to the Chairman of the Board by the Board or prescribed by these
Bylaws, the President shall, subject to the control of the Board, have general
supervision, direction and control of the business and affairs of the
Corporation. In the absence of the Chairman of the Board or if there be no such
Chairman, he shall preside at all shareholders' meetings and at all Board
meetings. He shall be ex officio a member of all the standing committees,
including the Executive Committee, if any; shall have the general powers and
duties of management usually vested in the office of President of a corporation;
shall see that all orders and resolutions of the Board are carried into effect;
and shall have such other powers and duties as may be prescribed by the Board or
these Bylaws.
Section 9. Chief Operating Officer. The Board of Directors may designate
a chief
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operating officer. The chief operating officer shall have the responsibilities
and duties as set forth by the Board of Directors or the chief executive
officer.
Section 10. Chief Financial Officer. The Board of Directors may designate
a chief financial officer. The chief financial officer shall have the
responsibilities and duties as set forth by the Board of Directors or the chief
executive officer.
Section 11. Vice Presidents. In the event of the President's absence or
disability, the Vice Presidents, if more than one, in order of their rank as
fixed by the Board or, if not ranked, the Vice President designated by the Board
shall perform all the duties of and shall be subject to all the restrictions
upon the President. The Vice Presidents shall have such other powers and
authority and shall perform such other duties as from time to time may be
prescribed for them respectively by the Board or these Bylaws.
Section 12. Secretary. The Secretary shall attend all shareholders'
meetings and all Board meetings and shall keep or cause to be kept, in his
custody at the principal or registered office of the Corporation in the State of
Michigan or such other place as the Board may order, a book recording the
minutes of all Board and shareholders' meetings setting forth: the place, date,
and hour of holding; whether regular or special, and, if special, how
authorized; the notice thereof given; the names of those present at Board
meetings; the number of shares present or represented at shareholders' meetings;
and the proceedings thereof.
The Secretary shall keep or cause to be kept at the registered office of
the Corporation in the State of Michigan or at the office of the Corporation's
transfer agent, a share register or a duplicate share register or a list showing
the names of the shareholders and their addresses; the number and classes of
shares held by each; the number and date of certificates issued for the same;
and the number and date of cancellation of every certificate surrendered for
cancellation.
The Secretary shall keep in safe custody the seal of the Corporation and,
when authorized by the Board, affix the same or cause the same to be affixed to
any instrument requiring it; when so affixed, the seal shall be attested by his
signature or by the signature of the Treasurer or the Assistant Secretary. The
Secretary shall perform such other duties and have such other authorities as are
delegated to him by the Board.
The Secretary shall give or cause to be given notice of all Board and
shareholders' meetings required by these Bylaws or by law.
Section 13. Assistant Secretaries. In the event of the Secretary's
absence or disability, any Assistant Secretary shall act as Secretary in all
respects. The Assistant Secretaries shall exercise such other powers and perform
such other duties as from time to time may be prescribed for them respectively
by the Board, the President, the Secretary, or these Bylaws.
Section 14. Treasurer. The Treasurer shall, subject to the direction of
the Board, have the custody of the corporate funds and securities and shall keep
full and accurate accounts of receipts and disbursements in books belonging to
the Corporation.
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The Treasurer shall deposit all monies and other valuables in the name and
to the credit of the Corporation with such depositaries as may be designated by
the Board; shall disburse the funds of the Corporation as may be ordered by the
Board; shall render to the President and the Board, whenever either requests it,
an account of all of his transactions as Treasurer and of the financial
condition of the Corporation; and shall have such other powers and authority
incident to the office of Treasurer and shall perform such other duties as may
be prescribed by the Board or these Bylaws.
Section 15. Assistant Treasurers. In the event of the Treasurer's absence
or disability, the Assistant Treasurer shall act as Treasurer in all respects.
The Assistant Treasurer shall exercise such other powers and perform such other
duties as from time to time may be prescribed for him by the Board, the
President, the Treasurer, or these Bylaws.
Section 16. Salaries. The salaries of the officers shall be fixed from
time to time by the Board.
ARTICLE V.
Miscellaneous
-------------
Section 1. Fixing of Record Date. The Board of Directors may fix, in
advance, a date as the record date for determining shareholders for any purpose,
including determining shareholders entitled to (a) notice of, and to vote at,
any shareholders' meeting or any adjournment of such meeting; (b) express
consent to, or dissent from, a proposal without a meeting; or (c) receive
payment of a share dividend or distribution or allotment of a right. The record
date shall not be more than 60 nor less than 10 days before the date of the
meeting, nor more than 10 days after the Board resolution fixing a record date
for determining shareholders entitled to express consent to, or dissent from, a
proposal without a meeting, nor more than 60 days before any other action.
If a record date is not fixed:
(a) the record date for determining the shareholders entitled to
notice of, or to vote at, a shareholders' meeting shall be the close of
business on the day next preceding the day on which notice of the meeting
is given, or, if no notice is given, the close of business on the day next
preceding the day on which the meeting is held; and
(b) if prior action by the Board of Directors is not required with
respect to the corporate action to be taken without a meeting, the record
date for determining shareholders entitled to express consent to, or
dissent from, a proposal without a meeting, shall be the first date on
which a signed written consent is properly delivered to the Corporation;
and
(c) the record date for determining shareholders for any other
purpose shall be the close of business on the day on which the resolution
of the Board of Directors relating
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to the action is adopted.
A determination of shareholders of record entitled to notice of, or to vote
at, a shareholders' meeting shall apply to any adjournment of the meeting,
unless the Board of Directors fixes a new record date for the adjourned meeting.
Only shareholders of record on the record date shall be entitled to notice
of, or participation in, the action to which the record date relates,
notwithstanding the transfer of shares on the Corporation's books after the
record date. This Section 1 shall not affect the rights of a shareholder and the
shareholder's transferor or transferee between themselves.
The Corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of a share for all purposes,
including notices, voting, consents, dividends and distributions, and shall not
be bound to recognize any other person's equitable or other claim to interest in
such share, regardless of whether it has actual or constructive notice of such
claim or interest.
Section 2. Annual Report. The Corporation shall cause a financial report
of the Corporation for the preceding fiscal year to be made and distributed to
each shareholder thereof within four (4) months after the end of the fiscal
year. The report shall include the Corporation's statement of income, its year-
end balance sheet and, if prepared by the Corporation, its statement of source
and application of funds.
Section 3. Loans. No loans shall be contracted on behalf of the
Corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the Board. Such authority may be general or
confined to specific instances. No loan or advance to or overdraft or withdrawal
by an officer, director, or shareholder of the Corporation other than in the
ordinary and usual course of the business of the Corporation shall be made or
permitted unless each such transaction shall be approved by a vote of the
majority of the members of the whole Board after excluding from any
deliberations about such transaction any director involved in it. A full and
detailed statement of all such transactions and any payments shall be submitted
at the next annual shareholders' meeting, and the aggregate amount of such
transaction less any repayments shall be stated in the next annual report to
shareholders.
Section 4. Representation of Shares of Other Corporations. Subject to
prior approval by the Board: the President or by a proxy appointed by him; or,
in the absence of the President and his proxy, the Treasurer or by a proxy
appointed by him; or, in the absence of both the President and the Treasurer and
their proxies, the Secretary or by a proxy appointed by him; are authorized in
that order to vote, represent, and exercise on behalf of this Corporation all
rights incident to any and all shares of other Corporations standing in the name
of this Corporation. The Board, however, may by resolution appoint some other
person to vote such shares.
Section 5. Indemnification. The Corporation shall, to the fullest extent
authorized or permitted by the Michigan Business Corporation Act (as amended
from time to time), (a) indemnify, protect, defend and hold harmless any person,
and his or her heirs, executors,
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<PAGE>
administrators and legal representatives, who was, is, or is threatened to be
made, a party to any threatened, pending or completed action, suit or proceeding
(whether civil, criminal, administrative or investigative) by reason of the fact
that such person is or was a director, officer, partner, trustee, employee or
agent of the Corporation or is or was serving at the request of the Corporation
as a director, officer, partner, trustee, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise
(collectively, "Covered Matters"); and (b) pay or reimburse the reasonable
expenses incurred by such person and his or her heirs, executors, administrators
and legal representatives in connection with any Covered Matter in advance of
final disposition of such Covered Matter. The Corporation may provide such other
indemnification to directors, officers, employees and agents by insurance,
contract or otherwise as is permitted by law and authorized by the Board.
ARTICLE VI.
Execution of Instruments
------------------------
Section 1. Bank Accounts. Each bank account of the Corporation shall be
established and continued only by order of the Board.
Section 2. Checks, Etc. All checks, drafts, and orders for the payment of
money shall be signed in the name of the Corporation in such manner and by such
officers or agents as the Board shall from time to time designate for that
purpose. No check or other instrument for the payment of money to the
Corporation shall be endorsed otherwise than for deposit to the credit of the
Corporation. All checks of the Corporation shall be drawn to the order of the
payee.
Section 3. Contracts, Conveyances, Etc. When the execution of any
contract, conveyance or other instrument has been authorized without
specification of the executing officers, the Chief Executive Officer, the Chief
Financial Officer, the President, any Executive Vice President and any other
officer designated in writing by the President may execute the same in the name
and on behalf of this Corporation and may affix the corporate seal thereto. The
Board shall have power to designate the officers and agents who shall have
authority to execute any instrument on behalf of the Corporation in more than
one capacity.
Notwithstanding anything contained herein to the contrary, no officer,
agent or employee of this Corporation shall have the authority to disburse
monies or other property to other persons, to obligate the Corporation to do or
perform any act, to make any payments of money or property, or to execute any of
the instruments described herein on behalf of this Corporation other than in the
ordinary course of business unless he shall have previously obtained the
approval of the Board and unless such approval or ratification shall appear in
the minutes of this Corporation.
ARTICLE VII.
Right of Inspection
-------------------
15
<PAGE>
Section 1. Inspection of Bylaws. The Corporation shall keep in its
registered or principal office the original or a copy of these Bylaws and the
Articles of Incorporation as amended or otherwise altered to date, certified by
the Secretary, which shall be open to inspection by all shareholders during
regular business hours.
Section 2. Inspection of Records. A person who is a shareholder of record
of the Corporation, upon at least ten (10) days' written demand may examine for
any proper purpose in person or by agent or attorney, during usual business
hours, its minutes of shareholders' meetings and record of shareholders' and
make extracts therefrom, at the places where the said records are kept.
ARTICLE VIII.
Dividends
---------
Section 1. Dividends of Cash or Other Property. The Board may, from
time to time, declare dividends on its outstanding shares to be paid in cash or
other property, other than the Corporation's shares; provided, however, that
such dividends may not be declared if, after giving effect to the dividend, the
Corporation would not be able to pay its debts as they become due in the usual
course of business, or the Corporation's total assets would be less than the sum
of the total liabilities.
Section 2. Dividends of Stock. The Board may, from time to time, declare
dividends on its outstanding shares to be paid in the Corporation's stock;
provided, however, that shares of one class or series may not be issued as a
share dividend in respect of shares of another class or series unless a majority
of the votes entitled to be cast by the class or series to be issued approve the
issue, or there are no outstanding shares of the class or series to be issued.
ARTICLE IX.
Capital Stock
-------------
Section 1. Issuance of Shares. The shares of capital stock of the
Corporation shall be issued by the Board in such amounts, at such times, for
such consideration, and on such terms and conditions as the Board shall deem
advisable, subject to the provisions of the Articles of Incorporation and these
Bylaws.
Section 2. Certificates for Shares. The shares of the Corporation shall
be represented by certificates and every shareholder of this Corporation shall
be entitled to have a certificate. The certificate shall be signed by the
Chairman of the Board, President or a Vice President and may also be signed by
another officer of the Corporation; shall certify the number and class of shares
represented by such certificate; shall state, if such shares are not fully paid,
the amount paid; and may be sealed with the seal of the Corporation or a
facsimile thereof. The signatures of the officers of the Corporation upon a
certificate may be facsimiles if the certificate
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<PAGE>
is countersigned by a transfer agent or registered by a registrar other than the
Corporation itself or an employee of the Corporation. If an officer who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be an officer before the certificate is issued, it may be issued
by the Corporation with the same effect as if he were the officer at the date of
its issue.
Certificates of stock shall in all other respects be in such form as shall
be determined by the Board and shall be consecutively numbered or otherwise
identified.
If the Corporation is authorized to issue shares of more than one class,
every certificate of stock shall set forth on its face or back, or state on its
face or back that the Corporation will furnish to a shareholder upon request and
without charge, a full statement of the designation, relative rights,
preferences and limitations of the shares of each class authorized to be issued,
and if the Corporation is authorized to issue any class of shares in series, the
designation, relative rights, preferences, and limitations of each series so far
as the same have been prescribed and the authority of the Board to designate and
prescribe the relative rights, preferences, and limitations of other series.
Section 3. Transfer of Shares. Transfer of shares of the Corporation
shall be made only on the stock transfer books of the Corporation by the holder
of record thereof or by his legal representative who shall furnish satisfactory
evidence of his authority, file it with the Secretary of the Corporation, and
surrender for cancellation the certificate for such shares. All certificates
surrendered to the Corporation for transfer shall be canceled and no new
certificate shall be issued until the former certificate for a like number of
shares shall have been surrendered and canceled, except as otherwise provided in
Section 6 of this Article IX of these Bylaws. The Secretary of the Corporation
shall record each such transfer on the stock transfer books and shall record the
fact that a transfer is made for collateral security and not absolutely when
such is stated in the instrument of transfer.
Section 4. Record Owner. The Corporation shall be entitled to treat the
person in whose name any share of stock is registered as the owner thereof for
the following purposes: recapitalization, consolidation, merger, reorganization,
sale of assets, liquidation or otherwise; for votes, approvals, and consents by
shareholders; for notices to shareholders; and for all other purposes whatever.
The Corporation shall not be bound to recognize any equitable or other claim to
or interest in such shares on the part of any other person, whether or not the
Corporation shall have notice thereof, except as expressly required by law or
these Bylaws.
Section 5. Lien by Corporation. The Corporation shall have a lien upon
the capital stock of the Corporation for debts due to the Corporation from the
owners thereof pursuant to such owner's subscription agreement for such capital
stock.
Section 6. Lost, Mutilated, or Destroyed Stock Certificates. Upon the
presentation to the Corporation of a proper affidavit attesting the loss,
destruction or mutilation of any certificate for shares of stock of the
Corporation, the Board may direct the issuance of a new certificate in lieu of
and to replace the certificate so alleged to be lost, destroyed or mutilated.
The Board may require as a condition precedent to the issuance of a new
certificate any or all of
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<PAGE>
the following:
(a) Additional evidence of the loss, destruction or mutilation
claimed;
(b) Advertisement of the loss in such manner as the Board may direct
or approve;
(c) A bond or agreement of indemnity in such form and amount, with
or without such sureties as the Board may approve; or
(d) The order or approval of a court.
The Corporation may recognize the person in whose name the new certificate, or
any certificate thereafter issued as owner of the shares described therein for
all purposes until the owner of the original certificate or a transferee thereof
without notice and for value shall enjoin the Corporation and the holder of any
new certificate, or any certificate issued in exchange or substitution therefor,
from so acting.
Section 7. Transfer Agent and Registrar. The Board may appoint a transfer
agent and/or a registrar of transfers and may require all certificates of shares
to bear the signature of such transfer agent and of such registrar of transfers,
or as the Board may otherwise direct.
Section 8. Regulations. The Board shall have power and authority to make
all such rules and regulations as the Board shall deem expedient regulating the
issue, transfer, and registration of certificates for shares in this
Corporation.
Section 9. Canceled Certificates. All certificates for shares exchanged
or surrendered to the Corporation for transfer or cancellation shall be marked
with the date of cancellation by the Secretary and shall be immediately fastened
to the stubs in the certificate books from which they were detached when issued.
Section 10. Payment. Where stock is issued in exchange for a promissory
note, draft, obligation or promise of future services of the purchaser,
certificates therefor shall be delivered to the purchaser and the stock shall be
deemed to be fully paid and non-assessable, unless the Board, upon authorization
of the issuance of such stock, declares that such stock will not be deemed to be
fully paid and non-assessable until such time as the promissory note or draft is
paid, or obligation or promise performed.
ARTICLE X.
Control Share Acquisitions
--------------------------
Section 1. Power to Redeem if no Acquiring Person Statement is Filed.
Control shares acquired in a control share acquisition, with respect to which no
acquiring person statement has been filed with the Corporation, may, at any time
during the period ending 60 days
18
<PAGE>
after the last acquisition of control shares or the power to direct the exercise
of voting power of control shares by the acquiring person, be redeemed by the
Corporation at the fair value of the shares.
Section 2. Power to Redeem After Shareholder Vote. After an acquiring
person statement has been filed and after the meeting at which the voting rights
of the control shares acquired in a control share acquisition are submitted to
the shareholders, the shares are subject to redemption by the Corporation at the
fair value of the shares unless the shares are accorded full voting rights by
the shareholders pursuant to Section 798 of the Michigan Business Corporation
Act.
Section 3. Procedure for Redemption. A redemption of shares by the
Corporation pursuant to Article X, Sections 1 or 2, shall be made upon election
to redeem by the Board of Directors. Written notice of the election shall be
sent to the acquiring person within seven days after the election is made.
Subject to the Michigan Business Corporation Act, the determination of the Board
of Directors as to fair value shall be conclusive. Payment shall be made for
the control shares subject to redemption within 30 days.
ARTICLE XI.
Fiscal Year
-----------
Unless otherwise set by the Board of Directors, the fiscal year of the
Corporation shall end on December 31.
ARTICLE XII.
Seal
----
The Corporation may have a seal which shall have inscribed thereon the name
of the Corporation, the state of incorporation, and the words "Corporate Seal."
The seal may be used by causing it or a facsimile to be imprinted, affixed,
reproduced, or otherwise.
ARTICLE XIII.
Amendments
----------
These Bylaws may be added to, altered, amended, or repealed:
(1) By the vote of not less than a majority of the members of the
Board then in office at any regular or special meeting, if written notice
of the proposed addition, alteration, amendment, or repeal shall have been
given to each director in the manner set forth in subsection (3) below or
waived in writing; or
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<PAGE>
(2) By the affirmative vote of the holders of at least two-thirds
(2/3) of the outstanding shares of stock of the Corporation generally
entitled to vote in the election of directors at any annual or special
meeting if notice of the proposed addition, alteration, amendment, or
repeal shall have been included in the notice of such meeting or waived in
writing.
(3) The written notices required under this Article XIII shall be
given, and deemed given, to the shareholders and/or the directors as the
case may be, in the same time periods and in the same manners provided in
Articles II and III for notices to shareholders and directors respectively.
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<PAGE>
Exhibit 10.2
INDEMNIFICATION AGREEMENT
-------------------------
THIS INDEMNIFICATION AGREEMENT (the "Agreement") is made and entered into
as of _________________, 2000 by and between coolsavings.com inc., a Michigan
corporation (the "Company"), whose address is 8755 West Higgins Road, Suite 100,
Chicago, Illinois 60631, and _________________________ (the "Indemnitee"),
whose address is __________________.
RECITALS:
A. The Company and Indemnitee recognize the increasing difficulty in
obtaining liability insurance for directors, officers and key employees ("D&O
Insurance"), the significant increases in the cost of such insurance and the
general reductions in the coverage of such insurance.
B. The Company and Indemnitee further recognize the substantial increase
in corporate litigation in general, subjecting directors, officers and key
employees to expensive litigation risks at the same time as the availability and
coverage of liability insurance has been severely limited.
C. Indemnitee does not regard the current protection available as adequate
under the present circumstances, and Indemnitee and agents of the Company may
not be willing to continue to serve as agents of the Company without additional
protection.
D. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, and to indemnify its directors,
officers and key employees so as to provide them with the maximum protection
permitted by law.
NOW, THEREFORE, in consideration of Indemnitee's continued service with the
Company after the date hereof, the parties agree as follows:
1. D&O Insurance. The Company shall evaluate whether to procure D&O
Insurance, and if it, in its sole and absolute discretion, procures such
insurance, it shall maintain D&O Insurance so long as, in the reasonable
business judgment of the then directors of the Company, both (i) the premium
cost for such insurance is reasonably related to the amount of coverage
provided, and (ii) the coverage provided by such insurance is not so limited by
exclusions that insufficient benefit may be derived therefrom.
2. Indemnification.
(a) Third Party Proceedings. Subject only to the exclusions set
forth in Section 2(d) below, the Company shall indemnify Indemnitee if
Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company) by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, or is or was serving or at any time serves at the request of the
Company as a director, officer, partner, trustee, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, whether for
profit or not, against any and all expenses (including, without limitation,
attorneys' fees), judgments, penalties, fines and amounts paid in settlement
actually and reasonably incurred by Indemnitee in connection with such action,
suit or proceeding if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe Indemnitee's conduct was unlawful. The termination
of any action, suit or proceeding by
<PAGE>
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that Indemnitee did
not act in good faith and in a manner which Indemnitee reasonably believed to be
in or not opposed to the best interests of the Company, or, with respect to any
criminal action or proceeding, that Indemnitee had reasonable cause to believe
that Indemnitee's conduct was unlawful.
(b) Proceedings By or in the Right of the Company. The Company shall
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made
a party to any threatened, pending or completed action or proceeding by or in
the right of the Company or any subsidiary of the Company to procure a judgment
in its favor by reason of the fact that Indemnitee is or was a director,
officer, employee or agent of the Company, or any subsidiary of the Company, or
is or was serving at the request of the Company as a director, officer, partner,
trustee, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, whether for profit or not, against expenses
(including attorneys' fees) and, to the fullest extent permitted by law, amounts
paid in settlement (if such settlement is approved in advance by the Company,
which approval shall not be unreasonably withheld), in each case to the extent
actually and reasonably incurred by Indemnitee in connection with the defense or
settlement of such action or suit if Indemnitee acted in good faith and in a
manner Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company and its stockholders, except that no indemnification
shall be made in respect of any claim, issue or matter as to which Indemnitee
shall have been finally adjudicated by court order or judgment to be liable to
the Company in the performance of Indemnitee's duty to the Company and its
stockholders unless and only to the extent that the court in which such action
or proceeding is or was pending shall determine upon application that, in view
of all the circumstances of the case, Indemnitee is fairly and reasonably
entitled to indemnity for such expenses which such court shall deem proper.
(c) Mandatory Payment of Expenses. To the extent that Indemnitee has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 2(a) or Section 2(b) or the defense of any
claim, issue or matter therein, Indemnitee shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by Indemnitee in
connection therewith.
(d) Limitations on Indemnity. Notwithstanding anything to the
contrary herein, the Company shall not be obligated pursuant to the terms of
this Agreement: (i) except to the extent the aggregate of losses to be
indemnified hereunder exceeds the amount of losses for which Indemnitee is
indemnified pursuant to any D&O Insurance purchased and maintained by the
Company; (ii) to indemnify Indemnitee for expenses or the payment of profits
arising from the purchase and sale by Indemnitee of securities in violation of
Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar
successor statute; (iii) to indemnify Indemnitee if a final decision by a court
of competent jurisdiction shall determine that Indemnitee's act or omission
involved an act or omission undertaken with deliberate intent to cause injury to
the Company or undertaken with reckless disregard for the best interests of the
Company; (iv) to indemnify Indemnitee if a final decision by a court of
competent jurisdiction shall determine that such indemnification is unlawful; or
(v) to indemnify Indemnitee if otherwise prohibited by the Michigan Business
Corporation Act.
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<PAGE>
3. Expenses; Indemnification Procedure.
(a) Advancement of Expenses. The Company shall advance all expenses
incurred by Indemnitee in connection with the investigation, defense, settlement
or appeal of any civil or criminal action, suit or proceeding referred to in
Section 2(a) or Section 2(b) hereof (including amounts actually paid in
settlement of any such action, suit or proceeding). Indemnitee hereby undertakes
to repay such amounts advanced only if, and to the extent that, it shall
ultimately be determined that Indemnitee is not entitled to be indemnified by
the Company as authorized hereby.
(b) Notice; Cooperation by Indemnitee. Indemnitee shall, as a
condition precedent to his or her right to be indemnified under this Agreement,
give the Company notice in writing as soon as practicable of any claim made
against Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the Chief Executive
Officer of the Company and shall be given in accordance with the provisions of
Section 10 below. In addition, Indemnitee shall give the Company such
information and cooperation as it may reasonably require and as shall be within
Indemnitee's power.
(c) Procedure. Any indemnification and advances provided for in
Section 2 and this Section 3 shall be made no later than twenty (20) days after
receipt of the written request of Indemnitee. If a claim under this Agreement,
under any statute, or under any provision of the Company's Articles of
Incorporation or Bylaws providing for indemnification, is not paid in full by
the Company within twenty (20) days after a written request for payment thereof
has first been received by the Company, Indemnitee may, but need not, at any
time thereafter bring an action against the Company to recover the unpaid amount
of the claim. In the event that any action is instituted by Indemnitee under
this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall
be entitled to be paid all court costs and expenses, including reasonable
attorneys' fees, incurred by Indemnitee with respect to such action, unless as
part of such action, the court of competent jurisdiction determines that each of
the material assertions made by Indemnitee as a basis for such action were not
made in good faith or were frivolous.
(d) Assumption of Defense; Selection of Counsel. In the event the
Company shall be obligated under Section 3(a) hereof to pay the expenses of any
proceeding against Indemnitee, the Company, if appropriate, shall be entitled to
assume the defense of such proceeding, with counsel reasonably acceptable to
Indemnitee, upon the delivery to Indemnitee of written notice of its election so
to do. After delivery of such notice, approval of such counsel by Indemnitee and
the retention of such counsel by the Company, the Company shall not be liable to
Indemnitee under this Agreement for any fees of counsel subsequently incurred by
Indemnitee with respect to the same proceeding, provided that (i) Indemnitee
shall have the right to employ counsel in any such proceeding at Indemnitee's
expense; and (ii) if (A) the employment of counsel by Indemnitee has been
previously authorized by the Company, (B) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Company and
Indemnitee in the conduct of any such defense or (C) the Company shall not, in
fact, have employed counsel to assume the defense of such proceeding, then the
fees and expenses of Indemnitee's counsel shall be at the expense of the
Company. If Indemnitee fails to provide written notice of his or her objection
to the counsel selected by the Company and the basis therefor within five days
after delivery of such notice, Indemnitee shall be deemed to have consented to
the counsel selected by the Company. The Company shall not be liable to
indemnify Indemnitee under this Agreement for any amounts paid in settlement of
any action or claim effected without its prior written consent, which shall not
be unreasonably withheld. The Company shall not settle any action or claim in
any manner which would impose any penalty or
-3-
<PAGE>
limitation on Indemnitee without Indemnitee's prior written consent, which shall
not be unreasonably withheld.
4. Additional Indemnification Rights; Non-Exclusivity.
(a) Scope. Notwithstanding anything to the contrary herein, the
Company hereby agrees to indemnify the Indemnitee to the fullest extent
permitted by law, notwithstanding that such indemnification is not specifically
authorized by the other provisions of this Agreement, the Company's Articles of
Incorporation, the Company's Bylaws or by statute. In the event of any change,
after the date of this Agreement, in any applicable law, statute, or rule which
expands the right of a Michigan corporation to indemnify a member of its board
of directors or an officer, such changes shall be deemed to be within the
purview of Indemnitee's rights and the Company's obligations under this
Agreement. In the event of any change in any applicable law, statute or rule
which narrows the right of a Michigan corporation to indemnify a member of its
board of directors or an officer, such changes, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement, shall
have no effect on this Agreement or the parties' rights and obligations
hereunder.
(b) Non-Exclusivity. The indemnification provided by this Agreement
shall not be deemed exclusive of any rights to which Indemnitee may be entitled
under the Company's Articles of Incorporation, its Bylaws, any agreement, any
vote of stockholders or disinterested members of the Company's Board of
Directors, the Michigan Business Corporation Act, or otherwise, both as to
action in Indemnitee's official capacity and as to action in another capacity
while holding such office. The indemnification provided under this Agreement
shall continue as to Indemnitee for any action taken or not taken while serving
in an indemnified capacity even though he or she may have ceased to serve in any
such capacity at the time of any action, suit or other covered proceeding.
5. Mutual Acknowledgement. Both the Company and Indemnitee acknowledge
that, in certain instances, federal law or public policy may override applicable
state law and prohibit the Company from indemnifying its directors and officers
under this Agreement or otherwise. For example, the Company and Indemnitee
acknowledge that the Securities and Exchange Commission (the "SEC") has taken
the position that indemnification is not permissible for liabilities arising
under certain federal securities laws, and federal legislation prohibits
indemnification for certain ERISA violations. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the SEC to submit the question of indemnification to a court in
certain circumstances for a determination of the Company's right under public
policy to indemnify Indemnitee.
6. No Employment Rights. Nothing contained in this Agreement is intended
to create in Indemnitee any right to continued employment or service to the
Company.
7. Severability. Nothing in this Agreement is intended to require or
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach of
this Agreement. If this Agreement or any portion hereof shall be invalidated on
any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the fullest extent permitted by any
applicable portion of this Agreement that shall not have been invalidated, and
the balance of this Agreement not so invalidated shall be enforceable in
accordance with its terms.
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<PAGE>
8. Governing Law. This Agreement shall be governed, construed and
interpreted in accordance with the laws of the State of Michigan, without giving
effect to principles of conflict of law.
9. Entire Agreement. This Agreement sets forth the entire agreement and
understanding of the parties relating to the subject matter herein. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement.
10. Notices. Any notice, demand or request required or permitted to be
given under this Agreement shall be in writing and shall be deemed sufficient
when delivered personally or sent by telegram or forty eight (48) hours after
being deposited in the U.S. mail, as certified or registered mail, with postage
prepaid, and addressed to the party to be notified at such party's address as
set forth above or as subsequently modified by written notice.
11. Successors and Assigns. This Agreement shall be binding upon the
Company and its successors and assigns, and inure to the benefit of Indemnitee
and Indemnitee's heirs, legal representatives and assigns.
IN WITNESS WHEREOF, the parties have executed this Agreement on and as of
the day and year first above written.
coolsavings.com inc., a Michigan corporation
By:____________________________________________
Steven M. Golden, Chief Executive Officer
_______________________________________________
[INDEMNITEE]
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<PAGE>
Exhibit 10.17
PROGRAM AGREEMENT
-----------------
THIS PROGRAM AGREEMENT by and between First Data Merchant Services
Corporation, a Florida corporation ("FDMS"), and coolsavings.com inc., a
Michigan corporation ("CSI"), is made this 17th day of February, 2000 (the
"Effective Date").
R E C I T A L S:
WHEREAS, FDMS has entered into certain processing services agreements with
its Channels, as defined below, pursuant to which such Channels acquire merchant
credit card transactions through merchant processing agreements between the
respective Channel and merchants;
WHEREAS, CSI operates a savings destination site on the Internet at
www.coolsavings.com (the "CSI Web Site") wherein consumers who are enrolled with
CSI ("CSI Members") may obtain many varied savings, including but not limited
to, coupons and other discounts (the "CSI Member Programs");
WHEREAS, FDMS has informed CSI that it has developed and owns a proprietary
system (the "FDMS System") through which FDMS provides Fulfillment Services;
WHEREAS, CSI and FDMS desire to cooperate to develop and launch various
Joint Programs as defined in Section 1 herein;
WHEREAS, the parties have already developed one Joint Program that will
initially only be offered to FDMS Merchants in the restaurant industry (the
"CoolDining Program"); and
WHEREAS, the parties desire to document the terms under which the parties
will provide the CoolDining Program and other Joint Programs, all as set forth
herein.
NOW, THEREFORE, in consideration of the foregoing, the parties hereto agree
as follows:
1. Definitions. The following terms shall have the following meanings when
capitalized in this Agreement:
a. "Affiliate" shall mean: (i) any entity which, directly or indirectly,
owns or controls, is owned or is controlled by or is under common
ownership or control with FDMS; and (ii) Alliances.
b. "Alliance" shall mean any venture (in any form, including in
corporate, partnership or limited liability company form) or
contractual alliance now or hereafter entered into between FDMS (or
any of its Affiliates) and one or more third parties for the provision
of Payment Processing Services pursuant to an arrangement whereby FDMS
or its Affiliate shares the economic benefit of ownership of merchant
contracts through profit sharing, revenue sharing, a royalty interest,
or otherwise.
1
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c. "Auditor" shall mean any of the "Big Five" public accounting firms.
d. "Channel" shall mean: (i) an Alliance; (ii) a FDMS Bank; and (iii)
such other third parties as FDMS and CSI may agree to in writing.
e. "Channel Participation Agreement" shall mean an agreement between FDMS
and a Channel pursuant to which such Channel agrees to market and sell
a Joint Program or Programs to FDMS Merchants pursuant to a Merchant
Participation Agreement. The parties acknowledge and agree that a
Channel Participation Agreement may be in the form of an addendum to
the extent FDMS or its Affiliate already has a master services or
alliance agreement with such Channel.
f. "CSI Member Information" shall mean: (i) Program Member Registration
Data and Program Member Offer Selection Data as described in Exhibit
6(h); and (ii) CSI Member profile data obtained from "cookies";
provided by CSI to FDMS, a Channel, or their agents, but specifically
excluding any information that FDMS can prove was obtained
independently from CSI.
g. "CSI Web Site Interface" shall mean the software and related systems
that allow the CSI Web Site and related CSI systems and servers to
interface with FDMS or its agents to enable the transmission of
Transmitted Data.
h. "Exclusivity Exception" shall mean the following exception to the
specific exclusivity rights of FDMS set forth in this Agreement to
provide Fulfillment Services for Joint Programs (including the
CoolDining Program): the right of CSI to enter into an agreement with
American Express, Discover, a private label card for which FDMS
provides less than 50% of all settlement services, and/or Alliance
Data Systems, Inc. pursuant to which such party will provide
Fulfillment Services for a Joint Program or for another program that
provides for the issuance of a discount directly to a CSI Member's
American Express, Discover, or private label card, upon such CSI
Member "clicking" or otherwise enabling a coupon or other similar
offer and redeeming such coupon or offer at a merchant's web site,
business premises, or through a catalogue, provided that CSI may only
enter into an arrangement with Discover so long as FDMS provides less
than 50% of all settlement services for Discover.
i. "FDMS Bank" shall mean a bank with whom FDMS and/or an Affiliate have
entered into an agreement to provide certain Payment Processing
Services.
j. "FDMS Merchant" shall mean a merchant that has entered into an
agreement with FDMS and/or a Channel under which FDMS or such Channel
provides the Payment Processing Services or other services to such
merchant.
k. "Fulfillment Services" shall mean the provision of all of the
following services: (i) the matching of a Merchant Offer against the
redemption of that Merchant Offer by a CSI Member; (ii) the
performance of all processing services necessary to prepare the
appropriate credit arising out of such redemption for submission to
the entity responsible for the posting said credit to the CSI Member's
card account (e.g. the Visa or MasterCard Association), for posting to
the CSI Member's card account; (iii) the submission of the appropriate
credit arising out of such
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redemption to the entity responsible for the posting said credit to
the CSI Member's card account ; and (iv) the performance of reasonable
services to resolve problems with the entity responsible for posting
the appropriate credit to the CSI Member's card account to effectuate
the posting of the appropriate credit to the CSI Member's card
account.
l. "Joint Programs" shall mean: (i) CoolDining Program; and (ii) other
CSI Member Programs that satisfy all of the following requirements:
(1) the program requires Fulfillment Services; (2) FDMS agrees to
provide the Fulfillment Services; (3) CSI agrees to provide access to
such program to CSI Members; and (4) the terms and conditions of the
program (including but not limited to, revenue and expense splits)
have been agreed upon by the parties in a written addendum to this
Agreement.
m. "Marks" shall mean the logos, trademarks, trade names, domain names
and/or service marks owned or licensed by a party and used in carrying
out the services and obligations contemplated under this Agreement.
n. "Merchant Offer" shall mean the Joint Program offer that a merchant
makes to CSI Members through the CSI Web Site or a Joint Program web
site from time to time.
o. "Merchant Participation Agreement" shall mean an agreement between
FDMS, an Affiliate, or CSI, as applicable, and an FDMS Merchant
pursuant to which such FDMS Merchant agrees to participate in a Joint
Program.
p. "Payment Processing Services" shall mean the services FDMS and/or its
Affiliates provide to FDMS Merchants, including but not limited to
authorization, data capture, processing, settlement and reconciliation
of credit and debit card transactions.
q. "Program Terms" shall mean those certain on-line terms and conditions
located on the CSI Web Site that a CSI Member must access and agree to
prior to participating in a Joint Program. CSI shall be a party to all
Program Terms.
r. "Termination Date" shall mean (a) the date on which this Agreement
expires by its terms; or (b) the date on which a party gives written
notice to the other of termination under this Agreement.
s. "Transaction Data" shall mean the data that: (i) FDMS or a Channel
captures in the ordinary course of business as a result of providing
the Payment Processing Services when a consumer pays by credit card,
(by way of example but not limitation, the credit card number, amount
of purchase, date of purchase, and other information related to a
specific transaction); and (ii) FDMS or a Channel provides to CSI as
Transmitted Data, but specifically excluding any information which CSI
can prove was obtained independently from FDMS or its Affiliates.
t. "Transmitted Data" shall mean, as to each party, the data fields that
such party maintains, captures and transmits to the other in order to
effect the CoolDining Program, as set forth in Exhibit 6(h).
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u. "Yclip" shall mean Yclip, Inc., a party with whom FDMS has entered
into a separate agreement under which Yclip and FDMS have (i)
established interfaces between Yclip and FDMS that allow for the
transmission of Transmitted Data between the parties for purposes of
allowing FDMS to provide the Fulfillment Services; and (ii) authorize
Yclip, on behalf of FDMS, to establish interfaces between Yclip and
third parties that allow Yclip to facilitate the transmission of
Transmitted Data between FDMS and such third parties.
2. Term. The term of this Agreement shall be three (3) years commencing on
the Effective Date, unless earlier terminated as provided herein.
3. Joint Programs. The parties will use commercially reasonable efforts to
implement and launch Joint Programs. In addition to the CoolDining Program
(which the parties shall launch and operate as described in Section 6), the
parties currently contemplate the following programs will become Joint
Programs under this Agreement, as follows:
a. Other Targeted Programs. The parties will use good faith, diligent
efforts to roll out other Targeted Programs for non-restaurant
merchants, in accordance with the terms of the executed Addendum
covering each such program, within one year of the Effective Date so
long as the CoolDining Program is reasonably successful at such time.
For purposes of clarification only, a Targeted Program is a Joint
Program requiring payment of a membership fee by CSI Members for
Merchant Offers in a specific industry. The CoolDining Program is a
Targeted Program.
b. CSI Web Site Program. The parties will use good faith, diligent
efforts to roll out a program, in accordance with the terms of the
executed Addendum covering such program, under which FDMS will provide
Fulfillment Services for Merchant Offers presented at the CSI Web Site
(the "CSI Web Site Program"), no later than September 30, 2000.
c. Other Programs. The parties will use good faith, diligent efforts to
roll out other programs requiring Fulfillment Services, in accordance
with the terms of the executed Addendum covering each such program,
within the time frame set forth in said Addendum.
Subject to the Exclusivity Exception, FDMS shall be the exclusive provider
of Fulfillment Services for (x) each program offered by CSI that requires
Fulfillment Services (a "New Program"), and (y) the Joint Programs, for one
(1) year from the date of launch of such New Program or Joint Program,
except for New Programs for which CSI requires technology or capabilities
that FDMS does not possess. FDMS shall have sixty (60) days from the date
it receives written notice from CSI setting forth the technology and
capabilities that CSI requires for the New Program that CSI seeks to
launch, to obtain such technology and capabilities and to so inform CSI in
writing that it possesses the same. In the event FDMS fails to so obtain
the required technology and capabilities and so inform CSI in writing that
it possesses the same within said 60 day period, then CSI shall be entitled
to enter into an agreement with a third party to provide the Fulfillment
Services for that New Program, as long as such third party agrees to
provide the technology and capabilities that CSI required of FDMS for such
New Program.
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Merchants who enroll to participate in any Joint Program shall be referred
to as "Participating Merchants".
4. Channel Participation. As soon as practicable after the Effective Date,
FDMS shall solicit Channels to participate in the Joint Programs. CSI shall
provide reasonable assistance to FDMS in its effort to sign up Channels.
Each Channel electing to participate in Joint Programs (the "Participating
Channels") shall be required to enter into a Channel Participation
Agreement, which shall, at a minimum, provide express authorization from
such Channel allowing FDMS and CSI to use Transaction Data for the purposes
of providing the Joint Programs and charging FDMS Merchants applicable fees
on behalf of the Participating Channel.
5. Merchant Processing Agreement. Within thirty (30) days of the Effective
Date CSI shall enter into FDMS' standard Merchant Processing Agreement with
FDMS and its designated sponsoring bank pursuant to which FDMS will process
CSI's bankcard transactions for the Joint Programs, including but not
limited to the processing of Program Member Fees for the Joint Programs
(the "MPA")
6. The CoolDining Program.
a. CoolDining Program Web Site. CSI shall establish a separate URL
address(es) known as www.CoolDining.com dedicated to the CoolDining
Program ("CoolDining Program Web Site") that may be accessed through a
link on the CSI Web Site, which shall be prominently displayed "above
the fold" for no less than one hundred twenty (120) days after the
CoolDining Launch (as defined below). Within ninety (90) days of the
Effective Date: CSI will complete development of the CoolDining
Program Web Site to the reasonable satisfaction of FDMS; and FDMS will
incorporate the CoolDining Program into its proprietary online
incentive management site (the "yourwebvalues Site") to the reasonable
satisfaction of CSI.
i. The CoolDining Program Web Site shall display Merchant Offers
that may be selected by CoolDining Program Members (as defined in
Section 6(c) below). In addition, the CoolDining Program Web Site
shall allow CSI Members to enroll in the CoolDining Program, as
set forth in Section 6(c).
ii. FDMS shall prominently display "above the fold" on the
yourwebvalues Site a linking image (to be supplied by CSI)
linking to the CoolDining Program Web Site. The Channels may, at
their option, also include the same linking image on their
respective web sites linking to the CoolDining Program Web Site.
b. Implementation Plan. Within thirty (30) days of the Effective Date
the parties will use their best efforts to develop and agree upon an
implementation plan setting forth the process through which the
CoolDining Program will be launched. Each party will identify one
representative to act as such party's contact for day-to-day
implementation of the CoolDining Program. Each party will provide such
cooperation and assistance to the other as may be reasonably required
or requested in order to develop the implementation plan and to
implement the CoolDining
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Program. The parties shall launch the CoolDining Program by July 15,
2000 (the "CoolDining Launch") in accordance with the implementation
plan. In the event the CoolDining Launch is not achieved by July 15,
2000 due solely to FDMS' acts and/or omissions, then FDMS shall pay to
CSI a late fee in the amount of $25,000. In the event the CoolDining
Launch is not achieved by September 1, 2000 due solely to FDMS' acts
and/or omissions, then all exclusivity rights to provide Fulfillment
Services granted FDMS under this Agreement shall be immediately and
automatically terminated.
c. CSI Member Enrollment. In order to enroll in the CoolDining Program,
CSI Members will be required to go to the CoolDining Program Web Site
and: (i) provide the number(s) and expiration date(s) of a valid VISA
and/or MasterCard credit card (or other credit cards covered under the
Exclusivity Exception), and such other information as CSI and FDMS may
otherwise agree upon in writing for said VISA and MasterCard credit
cards; (ii) agree to pay an annual fee for participation in the
CoolDining Program in an amount to be determined by CSI after
consultation with FDMS (the "CoolDining Program Fee"); and (iii) agree
to other terms and conditions of the CoolDining Program as FDMS and
CSI mutually agree upon and which will be attached hereto as Exhibit
6(c) within ninety days of the Effective Date, including but not
limited to the items currently set forth in Exhibit 6(c). CSI Members
who satisfy (i), (ii) and (iii) above shall be known as CoolDining
Program Members. FDMS shall process the CoolDining Program Fees
pursuant to the MPA, as set forth in Section 5.
i. From time to time during the term of this Agreement, CSI shall
design and conduct CoolDining Program Member satisfaction surveys
and share the results of the same promptly with FDMS.
ii. CSI shall promptly respond to e-mail questions about the
CoolDining Program received from CoolDining Program Members. Such
response shall be by e-mail and may include directing CoolDining
Program Members to FDMS for handling of credit card related
issues. CSI shall copy a designated FDMS representative on all
responses referencing FDMS.
iii.
d. FDMS Merchant Enrollment. FDMS Merchants may be enrolled to
participate in the CoolDining Program by either CSI or a Participating
Channel. FDMS Merchants that enroll through CSI shall be considered
CSI-Sourced Merchants and FDMS Merchants that enroll through a
Participating Channel shall be considered FDMS-Sourced Merchants.
i. FDMS Merchants who desire to participate in the CoolDining
Program will be required to enter into a Merchant Participation
Agreement, which will set forth the terms of the CoolDining
Program (to be determined jointly by CSI and FDMS within thirty
(30) days of the Effective Date) (the "FDMS Merchant
Participation Agreement"). All FDMS Merchants (both CSI-Sourced
Merchants and FDMS-Sourced Merchants) with Internet access who
desire to participate in the CoolDining Program shall be directed
to an Internet site(s) to be agreed upon by the parties within
thirty (30) days of the Effective Date, to enroll. All web pages
accessible by said
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FDMS Merchants at such Internet Site shall display the CSI name
and logo in a prominent place. Furthermore, in recognition of the
fact that certain FDMS Merchants who desire to participate in the
CoolDining Program may not have access to the Internet, CSI and
FDMS shall develop within 30 days of the Effective Date an off-
line enrollment process for such FDMS Merchants. The applicable
Participating Channel shall be party to the FDMS Merchant
Participation Agreement for all FDMS-Sourced Merchants, and CSI
shall be party to the FDMS Merchant Participation Agreement for
all CSI-Sourced Merchants.
ii. Each party shall provide reasonable information to the other upon
request regarding what FDMS Merchants it (or in the case of the
FDMS, the Channels) has signed up.
iii. CSI will provide in-store promotional materials reasonably
requested by FDMS for Participating Merchants to post on their
premises during the term of the Agreement.
e. CSI Restriction. CSI shall not solicit or sell the CoolDining
Program to a Channel without the prior approval of FDMS.
f. CoolDining Program Participation. The Channel Participation Agreement
will require Participating Channels to use commercially reasonable
efforts to target the CoolDining Program to FDMS Merchants. Likewise,
CSI shall target the CoolDining Program to FDMS Merchants located in
cities wherein a reasonable number of FDMS Merchants have contracted
to participate in the Program.
g. Merchant Offers. CSI-Sourced Merchants will be directed to a CSI
branded web site for creating Merchant Offers. Yclip will build and
host this site. FDMS-Sourced Merchants will be directed to the
yourwebvalues Site or a Channel-branded web site for creating Merchant
Offers, provided that such Channel-branded web site will include
reference to the CoolDining Program specifically, and such reference
shall prominently display CSI's name and logo.
i. Each site used to create Merchant Offers will be embedded with
the Yclip Offer Making Tool, which will be enhanced prior to the
CoolDining Launch if necessary in order to deliver Merchant
Offers to CSI in a mutually agreed upon format that satisfies the
criteria mutually agreed upon between the parties as soon as
practicable (but no later than thirty (30) days after the
Effective Date) to be attached to this Agreement as Exhibit
6(g)(i), and as mutually amended thereafter (the "Offer
Standards"). All Merchant Offers submitted to CSI shall comply
with the Offer Standards. FDMS shall proof and edit all Merchant
Offers prior to the submission of each such Merchant Offer to CSI
(and the cost of such service shall be a Deduction as more fully
set forth on Exhibit 6l). From time to time, CSI may conduct
quality assurance testing on samples of proposed Merchant Offers
submitted for posting to ensure such proposed Merchant Offers
comply with the Offer Standards then in effect. The first time
more than ten percent (10%) offers in a particular month, fail to
pass such testing, CSI shall notify FDMS in writing, and FDMS
shall take reasonable efforts to ensure that proposed Merchant
Offers submitted to CSI thereafter comply with the Offer
Standards then in effect. The second time more than ten percent
(10%) offers fail to pass such testing in a particular month, OR
the first time more than
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twenty-five percent (25%) offers fail to pass such testing in a
particular month, then: (i) CSI may elect to perform all proofing
and editing of all Merchant Offers in place of FDMS and the cost
of such of such service shall be a Deduction under Exhibit 6l; or
(ii) CSI shall be entitled to immediately terminate this
Agreement pursuant to Section 14f. FDMS, at its sole cost and
expense, shall obtain a license enabling CSI to use Yclip's Offer
Making Tool during the term of this Agreement, and for that
period thereafter necessary to wrap up the parties obligations
under this Agreement under Section 17, provided that CSI's use
may be subject to standard terms and conditions.
ii. Notwithstanding anything contained in this Agreement to the
contrary, all Merchant Offers are at all times subject to CSI's
reasonable approval. CSI reserves the right at all times to
refuse, reject, censor, or withdraw, without notice, any Merchant
Offer that CSI deems to be improper for any reason. CSI will
immediately notify FDMS of any rejected Merchant Offer and will
cooperate with FDMS and the applicable FDMS Merchant in order to
educate such FDMS Merchant on the Offer Standards and ways to
resubmit a Merchant Offer that will not result in rejection.
iii. Merchant Offers for the CoolDining Program may be posted on web
sites other than the CoolDining Program Site.
h. Data Transmission. Each party shall capture and maintain its
respective Transmitted Data, as set forth in Exhibit 6(h), and
transmit the Transmitted Data to the other party through the Program
Interface (as defined in Section 7 below).
i. Fulfillment Services. FDMS shall provide Fulfillment Services for the
CoolDining Program in accordance with the performance standards set
forth on Exhibit 11, except with respect to those credit cards covered
under the Exclusivity Exception. For each credit card registered in
the CoolDining Program for which FDMS is required to provide
Fulfillment Services, each fulfilled Merchant Offer shall appear on
the applicable CoolDining Program Member's credit card statement as a
separate transaction item clearly denoted as a "CoolDining" credit,
pursuant to the terms of the MPA.
j. Customer Service. FDMS will provide customer service to the
Participating Merchants through toll free lines or e-mail. Program
Members seeking customer service will first be directed to e-mail CSI
for assistance. CSI shall provide such assistance via e-mail to the
extent it can reasonably do so. In the event CSI is unable to
reasonably provide the necessary assistance, then CSI shall refer the
Program Member to FDMS for assistance, and FDMS shall provide such
assistance to the extent it can reasonably do so. FDMS shall provide
such assistance through e-mail. Provided however, upon the first to
occur of: (i) FDMS receiving more than 5000 e-mails in any one month
during the first six (6) months after the CoolDining Launch; or (ii)
six (6) months after the CoolDining Launch; (the "Trigger Date") FDMS
and CSI will review the costs incurred by FDMS in providing such
Program Member customer service. In the event FDMS is unwilling to
continue providing such services without any reimbursement for doing
so, and the parties are unable to agree in writing upon such a
mutually acceptable level of reimbursement within thirty (30) days
after the Trigger Date,
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then for a period ending on the sixty-first (61st) day after the
Trigger Date, FDMS shall be entitled to terminate this Agreement
effective upon written notice to CSI. Upon any such termination
hereunder, the terms of Section 17 shall apply.
k. CoolDining Fees. FDMS shall collect all CoolDining program fees from
CSI-Sourced Merchants and FDMS-Sourced Merchants and shall remit to
CSI the amounts set forth in Exhibit 6(k) within forty-five (45) days
of the end of each month. Provided however, in the event that fees
collected from Participating Merchants in any 90 day period is less
than fifty percent (50%) of the amount owing, then either CSI or FDMS
may terminate this Agreement pursuant to Section 14f. CSI shall
collect CoolDining Program Fees from CoolDining Program Members and
remit to FDMS the amounts set forth in Exhibit 6(l) within forty-five
(45) days of the end of each month. FDMS may charge a Participating
Channel any fees FDMS deems appropriate for participation in the
CoolDining Program. Likewise, the Participating Channels and CSI, as
applicable, may charge the FDMS Merchants any fees such party deems
appropriate for participation in the CoolDining Program.
Notwithstanding the foregoing, the parties may elect to market the
CoolDining Program to the Channels with a suggested retail price.
i. FDMS shall use commercially reasonable efforts to collect all
fees from FDMS Merchants related to the CoolDining Program.
l. Revenue Sharing. The parties shall share revenue from CoolDining
Program Fees pursuant to the calculation set forth in Exhibit 6(l).
m. Exclusivity. Subject to the Exclusivity Exception, FDMS shall be the
exclusive provider of Fulfillment Services with respect to the
CoolDining Program.
n. Termination of CoolDining Program. Either party may terminate the
CoolDining Program at any time after six (6) months after the
CoolDining Launch in the event either party is dissatisfied with the
results of the CoolDining Program. In the event a party elects to
terminate the CoolDining Program under this Section, such party shall
provide the other party with not less than sixty (60) days prior
written notice. In the event of termination of the CoolDining Program,
the parties shall comply with the terms of Section 17 (Effect of
Termination) as it relates to their obligations with respect to the
CoolDining Program only. Termination of the CoolDining Program shall
not relieve either party of other obligations under this Agreement not
related to the CoolDining Program.
7. Interface Development. Yclip will develop an interface and/or a web site
between CSI's server and Yclip by June 1, 2000 that will allow: (i) each
party to transmit the Transmitted Data to one another (through Yclip); and
(ii) FDMS to provide the Fulfillment Services (the "Program Interface").
The parties will provide reasonable cooperation, information and assistance
in order to achieve development of the Program Interface. FDMS and/or Yclip
shall own all rights in or to the Program Interface, subject to CSI's
rights under Section 23 (Ownership). If Yclip fails to "develop" the
Program Interface by June 1, 2000, then FDMS shall pay to CSI a late fee in
the amount of $25,000. As used herein, "develop" shall mean having the
Program Interface in a state of
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operation wherein it is capable of being reasonably tested but not
necessarily of being able to function in a production mode.
8. Authorization to Place Cookies. CSI hereby authorizes and will provide
access to Yclip to place a cookie on the browser of each Joint Program
Member solely for the purpose of providing any Joint Program or any
component of such Joint Program hereunder. All information obtained
therefrom shall be CSI Member Information and shall be owned exclusively by
CSI.
9. CSI Nonsolicitation Obligation. CSI shall not (i) knowingly solicit any
FDMS Merchants for services similar to or competitive with the Payment
Processing Services; or (ii) engage or retain a third party to solicit the
FDMS Merchants for services similar to or competitive with the Payment
Processing Services (the "Non-Solicitation Obligation").
10. FDMS Nonsolicitation Obligation. FDMS shall not use CSI Member Information
under this Agreement to knowingly solicit, or engage or retain any third
party to solicit, such CSI Members for any reason other than with respect
to the Joint Programs unless otherwise agreed to in writing by CSI. Nothing
in this Section shall preclude FDMS or its Affiliates (or third parties on
their behalf) that solicit consumers for various products and services in
the ordinary course of business from continuing to do so, provided that
they obtain the names of the consumers from a source other than the CSI
Member Information (also, the "Non-Solicitation Obligation").
11. Performance Standards. For all Joint Programs, including the CoolDining
Program, each party shall meet the respective performance standards set
forth in Exhibit 11 (the "Performance Standards"). In the event a party
fails to meet any Performance Standard, the other party shall provide
written notice of the specific failure and the failing party shall promptly
initiate a cure of such failure and complete such cure as soon as
practicable. Three (3) failures of a party to meet all applicable
Performance Standards in any consecutive three (3) month period shall be
considered a material breach of this Agreement (an "Ongoing Performance
Standard Breach") and subject to the other party's right to terminate this
Agreement under Section 14(b) (Termination for Ongoing Performance Standard
Breach).
12. Hyperlink. CSI will prominently post a linking image provided by FDMS at
the CSI and/or CoolDining Web Site that will promote FDMS as a provider of
Payment Processing Services. CSI shall refer any merchants requesting or
seeking Payment Processing Services to FDMS, and CSI shall not make any
referral to or otherwise promote any provider of Payment Processing
Services other than FDMS during the term of this Agreement, except for any
provider of Payment Processing Services covered under the Exclusivity
Exception.
13. License. Each party hereby grants to the other party a nonexclusive,
limited, revocable, nontransferable, nonassignable license to use the Marks
of such party for the sole purposes expressly set forth herein. A party's
use of the other's Mark(s) requires the prior approval of the other party,
which shall not be unreasonably withheld. Furthermore, each party retains
the right to ensure the other party maintains the quality of the Marks of
the other party and to revoke this license in the event such quality is not
upheld. Each party accepts such grant from the other, acknowledges and
admits that it has no right, title or interest in the other's Marks other
than the right to use the Marks as set forth herein,
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and agrees to knowingly do nothing inconsistent with the other party's
ownership rights which would in any material way cause dilution of any of
the other party's Marks.
14. Termination. Either party may at its option immediately terminate this
Agreement by giving written notice thereof to the other party in the event
of the occurrence of any of the following:
a. Failure of the other party to correct or cure any material breach of
this Agreement by such other party within thirty (30) calendar days
after receipt of a written notice from the non-breaching party
specifying such breach, provided that the breaching party promptly
commences and diligently pursues a cure as soon as practicable after
receiving notice thereof.
b. An Ongoing Performance Standard Breach;
c. A material breach by the other party of Section 20 (Use of Data),
Section 21 (Privacy Policy), or Section 22 (Proprietary Information);
d. Failure by a party to pay monies required to be paid under this
Agreement, when due (an "Economic Default"), within twenty (20) days
after written notice to the other party identifying the Economic
Default, provided however, in the event that a party commits more than
two (2) Economic Defaults in any six (6) month period under this
Agreement, then upon the occurrence of the next Economic Default by
such party within that six month period, the non-defaulting party
shall be entitled to immediately terminate this Agreement upon written
notice to the defaulting party and no cure period or right to cure
shall be available to the defaulting party;
e. The other party becomes insolvent, or a petition in bankruptcy is
filed, or any similar relief is filed by or against the other party,
or a receiver is appointed with respect to any of the assets of the
other party, or a liquidation proceeding is commenced by or against
the other party; or
f. As otherwise specifically provided in another Section of this
Agreement.
15. Termination by FDMS in the Event of Change of Control. In the event that
all or a controlling interest in CSI is acquired by an unrelated third
party by merger, acquisition or private or public purchase of securities or
assets, and such third party is a competitor of FDMS as a provider of
Payment Processing Services, then FDMS shall have the right, at its sole
option and discretion, to immediately terminate this Agreement upon written
notice to CSI. CSI shall provide FDMS written notice of such transaction as
soon as such transaction has been consummated.
16. Termination by CSI for FDMS Shortfall. CSI may terminate this Agreement
immediately upon written notice to FDMS in the event an Auditor identifies
a shortfall in payment due CSI of more than 10% two times in any twenty-
four month period pursuant to an audit conducted under Section 19.
17. Effect of Termination. In the event of the expiration of this Agreement
under Section 2 or the termination of this Agreement as specifically
provided in this Agreement, the parties shall perform as follows:
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a. As of the Termination Date, each party shall cease marketing or
promoting all applicable Joint Programs and shall remove all
references to the other party on their respective web sites (except as
may be required to comply with the next sentence). Each party shall
only continue to perform their respective obligations hereunder as may
be necessary to wind down all Joint Programs for up to forty-five (45)
days after the Termination Date.
b. Each party shall post within five (5) business days of the Termination
Date at any and all Joint Program-related web sites a notice of the
termination of the applicable Joint Program(s). Such notice may only
inform Program Members of the end of the Joint Program, the effective
date of the end of the Joint Program, and other essential facts
necessary to wind up the Joint Program. The notice shall not give any
statement regarding the reason for the end of the Program or assess
any blame or fault on the other party. The parties shall consult with
each other as to the contents of such notice.
c. Upon completion of the wind down of all Joint Programs under
subsection a, above: (i) FDMS (or Yclip on behalf of FDMS) shall take
down the applicable Program Interfaces; (ii) CSI shall cease all use
of Transaction Data and shall certify to FDMS in writing within five
(5) business days of the Termination Date that it has destroyed copies
of all files or other media containing Transaction Data and that it no
longer uses or will use the Transaction Data; and (iii) FDMS, the
Channels, the Affiliates and their agents (as applicable) shall cease
all use of CSI Member Information and FDMS shall certify to CSI in
writing within five (5) business days of termination that it, the
applicable Channels, Affiliates, and their agents have destroyed
copies of all files or other media containing CSI Member Information
and that they no longer use or will use the CSI Member Information.
d. Within thirty (30) days after the Termination Date, FDMS shall notify
the FDMS-Sourced Merchants, and CSI shall notify the CSI-Sourced
Merchants and the applicable Program Members (in writing), of the
cancellation of the applicable Joint Program(s). Said notices shall
only state that the Joint Program(s) has been terminated without
stating the reason for such termination and without any disparaging
remarks about the other party. Each party shall provide the other
party with a copy of the communication it intends to send under this
Section at least two (2) weeks prior to sending such communication;
e. As soon as practicable after the Termination Date but in no event
later than sixty (60) days after the Termination Date, CSI shall
initiate a refund to each applicable Program Member via its registered
credit card of a pro rata portion of any Program Fees collected from
such Program Member for its respective membership year, and FDMS shall
process such refund pursuant to the terms of the MPA. In addition,
FDMS shall refund to each Participating Merchant who enrolled during
the calendar year in which the expiration occurs, a prorated portion
of any "set-up" fees collected from such Participating Merchant. The
parties shall be liable for their respective percentage share as set
forth on Exhibit 6(l) of (i) any fees so refunded, and (ii) any
Deductions on Exhibit 6(l) incurred for such feeds refunded, and shall
promptly reconcile and pay any amounts owing.
f. Each party shall promptly pay to the other any amounts then due and
owing
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pursuant to the terms of this Agreement. FDMS shall provide applicable
billing and accounting services as described in this Agreement until
all monies owing under the Joint Programs are collected and allocated
pursuant to the applicable revenue share, and CSI's share is paid to
CSI.
g. Each party shall promptly return to the other any Proprietary
Information (as defined in Section 21 herein) belonging to the other
party and shall cease all use of the other's Marks (except, and only
to the extent, as may otherwise be necessary to wind down all Joint
Programs under subsection a. above).
h. Each party shall continue to comply with its respective
Nonsolicitation Obligation for one (1) year after the Termination
Date.
18. No Limitation of Remedies. Nothing contained in this Agreement shall
be construed to limit or deny either party's rights or remedies provided
under this Agreement or at law or equity. By way of example but not
limitation, a party's election to terminate this Agreement because of the
other party's breach, shall not in any way limit the non-breaching party's
right to pursue damages suffered as a result of such breach (subject to the
terms of Sections 31 and 32).
19. Audit Rights. No more than two (2) times in any twelve month period either
party shall have the right, at its expense, upon five (5) business days
advance written notice to the other party, to retain an Auditor to audit
copies of all relevant books and records of the other party necessary to
confirm any calculations made hereunder. In the event any such audit
reveals a shortfall or overpayment in any payment made to CSI or FDMS, then
the party owing monies to the other shall pay the amount owing within two
weeks of the date the amount of such shortfall or overpayment is finally
determined and notice of the same is provided to the other party. Further,
should any such shortfall or overpayment exceed ten percent (10%) of the
actual amount due for the period audited, then in addition to paying the
amount of the shortfall or overpayment, the party obligated to pay shall
promptly (i) pay the other party interest on the amount of the shortfall or
overpayment at the rate of Two Percent over the Prime Rate of Bank One (as
announced by Bank One) from the date of the underlying shortfall or
overpayment until the amount is paid; and (ii) reimburse the other party
for all reasonable, direct costs of the audit, in the event the other party
initiated the audit. Should any audit hereunder reveal a party's second
underpayment of the amount properly owing to the other party exceeding ten
percent (10%) of the actual amount due for the period audited, then in
addition to the remedies provided herein, the other party may immediately
terminate this Agreement.
20. Use of Data. Notwithstanding anything to the contrary herein:
a. Transaction Data. As between the parties, FDMS and/or the applicable
Channel own all Transaction Data. CSI may only have access to and use
of the Transaction Data for the purposes of fulfilling its obligations
hereunder with respect to the Joint Programs (including the CoolDining
Program). Except as expressly provided herein, CSI will not use,
disclose or sell any Transaction Data without FDMS' prior written
consent, which consent FDMS may elect not to give in its sole
discretion. As between the parties, Transaction Data shall be
considered Proprietary Information of FDMS. CSI's use, sale or
disclosure of the Transaction Data for any program or purpose other
than those expressly set forth
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herein, or for other than any Joint Program, shall be considered a
material breach of this Agreement. CSI expressly represents that it
will not merge the Transaction Data with any other data or database
used by CSI except for data or databases relative to other Joint
Programs, and any such merger shall be solely for purposes of carrying
out the Joint Programs.
b. CSI Member Information. CSI owns all CSI Member Information. FDMS,
the Channels, the Affiliates, and their agents may only have access to
and use of the CSI Member Information for the purposes of carrying out
the Joint Programs (including the CoolDining Program). Except as
expressly provided herein, FDMS, the Channels, the Affiliates, and
their agents will not use, disclose or sell any CSI Member Information
without CSI's prior written consent, which consent CSI may elect not
to give in its sole discretion. As between the parties, CSI Member
Information shall be considered Proprietary Information of CSI. The
use, sale or disclosure of the CSI Member Information by FDMS, the
Channels, the Affiliates, or their agents for any program or purpose
other than those expressly set forth herein, or for other than any
Joint Program, shall be considered a material breach of this
Agreement. FDMS expressly represents that it, the Channels, the
Affiliates and their agents will not merge the CSI Member Information
with any other data or database except for data or databases relative
to other Joint Programs, and any such merger shall be solely for
purposes of carrying out the Joint Programs.
21. Privacy Policy. Within forty-five (45) days of the Effective Date the
parties shall cooperate to draft a privacy policy related to the Joint
Programs and the use of CSI Member Information (the "Program Privacy
Policy"), which shall be posted prominently at the applicable Joint Program
and/or CSI Web Site(s). The Program Terms shall include clear, prominent
authorization by the Program Member allowing the applicable Joint Program
provider the right to use and/or disclose CSI Member Information for the
purposes of providing the Joint Program to such Program Member, targeting
more specific Merchant Offers to such Program Member, and providing the
Fulfillment Services. The Program Member terms and conditions shall also
include a means by which a Program Member may cease participation in each
applicable Joint Program and remove its information from the CSI and/or
FDMS systems. The parties acknowledge and agree that each Joint Program,
including but not limited to the CoolDining Program, shall be expressly
designed to comply with all applicable laws and regulations related to
privacy and each party shall take all steps necessary to comply with such
laws and abide by the terms of the Program Privacy Policy. In no event
shall either party violate the Program Privacy Policy, and such breach
shall be considered a material breach of this Agreement. Each party agrees
that any violation of the Program Privacy Policy by a party (the
"Defaulting Party") may cause the other party (the "Non-Defaulting party")
immediate and irreparable harm for which money damages may not constitute
an adequate remedy. In such event, each party agrees that injunctive relief
may be warranted in addition to any other remedies the Non-Defaulting Party
may have.
22. Proprietary Information. The terms of that certain Information Exchange
and Non-Disclosure Agreement between the parties dated August 5, 1999 shall
apply to any "Proprietary Information" (as defined therein) accessed or
disclosed during the term of this Agreement. Each party agrees that any
unauthorized use or disclosure by a party (the "Defaulting Party") of the
Proprietary Information of the other (the "Non-Defaulting
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<PAGE>
party") may cause immediate and irreparable harm to the Non-Defaulting
Party for which money damages may not constitute an adequate remedy. In
such event, each party agrees that injunctive relief may be warranted in
addition to any other remedies the Non-Defaulting Party may have. In
addition, the Defaulting Party agrees promptly to advise the Non-Defaulting
Party in writing of any unauthorized misappropriation, disclosure or use by
any person of such party's Proprietary Information which may come to its
attention and to take all steps at its own expense reasonably requested by
the Non-Defaulting Party to limit, stop or otherwise remedy any
misappropriation, disclosure or use by its own representatives, agents or
employees. The obligations of this Section shall survive the termination of
this Agreement for the longest period of time permitted by law.
23. Ownership. FDMS hereby acknowledges and agrees that CSI owns all right,
title and interest in and to: (i) the CSI Web Site, the CoolDining Program
Web Site, and all other Joint Program web sites unless specifically
otherwise agreed to in writing by the parties; (ii) the CSI Member
Information; (iii) the CSI Marks; and (iv) all other technology, systems,
software or development to the extent provided by CSI (collectively, the
"CSI Property"). CSI hereby acknowledges and agrees that FDMS owns and or
licenses all right, title and interest in and to (a) the FDMS System; (b)
the FDMS Marks; (c) the Program Interface (except as provided in subsection
(iv) above); (d) all Transaction Data; and (e) all other technology,
systems, software or development to the extent provided by FDMS
(collectively, the "FDMS Property").
24. Compliance with Laws. Each party shall comply with all applicable laws and
regulations, including but not limited to, all laws related to consumers
and consumer privacy ("Laws").
25. Representations and Warranties.
a. By CSI. CSI hereby represents and warrants that:
i. it has all requisite corporate power and authority to enter into
this Agreement and carry out the transactions contemplated
hereby;
ii. the execution, delivery and performance of this Agreement and
consummation of the transactions contemplated hereby have been
duly authorized by all requisite corporate action and does not
violate any agreement which CSI is bound by or any law, rule or
regulation to which CSI is subject;
b. By FDMS. FDMS hereby represents and warrants that:
i. it has all requisite corporate power and authority to enter into
this Agreement and carry out the transactions contemplated
hereby; and
ii. the execution, delivery and performance of this Agreement and
consummation of the transactions contemplated hereby have been
duly authorized by all requisite corporate action and does not
violate any agreement which FDMS is bound by or any law, rule or
regulation to which FDMS is subject.
c. Disclaimer. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT: (i),
NEITHER PARTY WARRANTS THAT THE COOLDINING PROGRAM
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WEB SITE, THE CSI WEB SITE, ANY OTHER JOINT PROGRAM WEB SITE, THE
PROGRAM INTERFACE, OR THE FDMS SYSTEM, AS APPLICABLE, WILL PERFORM IN
THE MANNER EXPECTED OR WITHOUT INTERRUPTION, ERROR OR DEFECT; AND (ii)
NEITHER PARTY MAKES ANY WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED,
INCLUDING WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OR WARRANTIES AGAINST INFRINGEMENT OF ANY INTELLECTUAL
PROPERTY RIGHTS NOT SPECIFICALLY ENUMERATED.
26. Agents. Neither party may use an agent to perform any of its obligations
hereunder without the prior written consent of the other. In the event an
agent is used to perform hereunder, such agent: (i) may in no event access
or use the Transaction Data for any reason unless FDMS provides its prior
written consent and such use is allowed by applicable law or regulation;
(ii) may in no event access or use the CSI Member Information for any
reason unless CSI provides its prior written consent and such use is
allowed by applicable law or regulation; and (iii) shall be required to
enter into a written agreement under which such agent shall be subject to
obligations of confidentiality no less restrictive than those set forth in
this Agreement and the terms of Section 20. In addition, the party using an
agent shall at all times remain fully and primarily liable and responsible
for the performance of its obligations under this Agreement, as well as the
manner in which any delegated obligations are performed. FDMS hereby
notifies CSI that Yclip shall be considered an agent of FDMS under this
Agreement, and upon receipt of a written agreement satisfying subsection
(iii) herein, CSI hereby agrees to consent to such agency.
27. Stored Value Cards. For a period of one (1) year from and after the
CoolDining Launch, CSI shall not enter into an agreement with any third
party for processing of transactions from a CSI branded stored value card
(i.e. bearing the "Coolsavings" name) without providing FDMS with the
opportunity to bid on providing such processing services.
28. Disclaimer/Force Majeure. Neither party shall be liable for any loss or
damage whatsoever suffered by the other party, any Participating Channel,
any Participating Merchant, any CSI Member, or any other third party as a
result of, or arising from, the failure of any Merchant Offers, at any
time, to appear on the applicable Joint Program Web Site unless caused by
the gross negligence or intentional wrongful act of such party. The parties
acknowledge that in the event that any Merchant Offer fails for any reason
to appear on the applicable Joint Program Web Site or is in any way
incorrectly posted, the sole and exclusive remedy shall be the placement
of, or the corrected posting of, such Merchant Offer on the applicable
Joint Program Web Site for an additional period equal to the period in
which it fails to appear or appeared incorrectly. Each FDMS Merchant
Agreement shall contain substantially the same disclaimer. Furthermore,
neither party shall be liable for any delay or failure in performance of
any part of this Agreement, other than for any delay or failure to pay
money owed hereunder, by reason of acts of God, fire, strikes, shortages of
labor or materials, or any change in law that makes performance hereunder
impossible.
29. General Indemnifications.
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a. By CSI. CSI shall indemnify FDMS, its Affiliates and Channels, and its
and their directors, officers and employees (the "FDMS Group"), for
any claim, loss, damage, expenses, penalty or liability the FDMS Group
member sustains or incurs, including reasonable attorneys fees and
litigation costs (together, "Loss") as a result of a claim by a third
party (i) that CSI or its agent has breached the Program Privacy
Policy; (ii) arising out of any products and services provided by CSI
or its agents; (iii) related to the CSI Property; and (iv) arising out
of a breach of this Agreement by CSI or its agents. CSI's obligation
to indemnify the FDMS Group pursuant to the foregoing shall not apply
to the extent such claim is due to the breach of this Agreement by any
member of the FDMS Group or its agents, or the gross negligence or
willful misconduct of any member of the FDMS Group, or its agents. In
addition to the foregoing, CSI shall indemnify the FDMS Group for any
Loss arising out of CSI's or its agents' use or disclosure of the
Transaction Data in any manner not permitted under this Agreement,
wherein the information in issue was obtained by the party who
wrongfully used or disclosed it, pursuant to, or as a result of, this
Agreement.
b. By FDMS. FDMS shall indemnify CSI, its affiliates, directors,
officers and employees (the "CSI Group") for any Loss as a result of a
claim by a third party (i) that FDMS, its Affiliates, the Channels, or
their agents has breached the Program Privacy Policy; (ii) related to
the FDMS Property; (iii) arising out of any products and services
provided by FDMS, its Affiliates, the Channels, or their agents; and
(iv) arising out of a breach of this Agreement by FDMS or its agents.
FDMS' obligation to indemnify the CSI Group pursuant to this Section
shall not apply to the extent such claim is due to the breach of this
Agreement by a member of the CSI Group or its agents or the gross
negligence or willful misconduct of any member of the CSI Group, CSI
or its agents. In addition to the foregoing, FDMS shall indemnify the
CSI Group for any Loss arising out of the use or disclosure of the CSI
Member Information in any manner not permitted under this Agreement by
any member of the FDMS Group (as defined in subsection 29a above) or
its agents, wherein the information in issue was obtained by the party
who wrongfully used or disclosed it, pursuant to, or as a result of,
this Agreement.
30. Intellectual Property Indemnification.
a. By CSI. CSI shall indemnify the FDMS Group for any Loss that may
result by reason of any infringement or claim of infringement of any
copyright, patent, trademark, trade secret or other proprietary right
of any third party related to the CSI Property, and all software,
services and systems provided by CSI and its agents in connection with
any Joint Program hereunder.
b. By FDMS. FDMS shall indemnify the CSI Group for any Loss that may
result by reason of any infringement or claim of infringement of any
copyright, patent, trademark, trade secret or other proprietary right
of any third party related to the FDMS Property, and all software,
services and systems provided by FDMS, its Affiliates, the Channels,
and their agents in connection with any Joint Program hereunder.
31. No Consequential or Punitive Damages. NEITHER PARTY WILL BE LIABLE TO THE
OTHER PARTY (NOR TO ANY PERSON CLAIMING RIGHTS DERIVED FROM
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THE OTHER PARTY'S RIGHTS) FOR INCIDENTAL, INDIRECT, CONSEQUENTIAL, SPECIAL,
PUNITIVE OR EXEMPLARY DAMAGES OF ANY KIND - INCLUDING LOST REVENUES OR
PROFITS, LOSS OF BUSINESS OR LOSS OF DATA - ARISING OUT OF THIS AGREEMENT
(INCLUDING WITHOUT LIMITATION AS A RESULT OF ANY BREACH OF ANY WARRANTY OR
OTHER TERM OF THIS AGREEMENT), REGARDLESS OF WHETHER THE PARTY LIABLE OR
ALLEGEDLY LIABLE WAS ADVISED, HAD OTHER REASON TO KNOW, OR IN FACT KNEW OF
THE POSSIBILITY THEREOF. PROVIDED HOWEVER, NOTHING CONTAINED HEREIN SHALL
BE CONSTRUED TO DENY OR LIMIT A PARTY'S RIGHT TO BE MADE WHOLE PURSUANT TO
ANY INDEMNIFICATION OBLIGATION SET FORTH IN SECTION 29 OR 30, EVEN IF THE
DAMAGE AMOUNT AWARDED TO THE THIRD PARTY (AND ASSESSED AGAINST THE
INDEMNIFIED PARTY) IN THE CLAIM FOR WHICH INDEMNIFICATION IS REQUIRED UNDER
THIS AGREEMENT INCLUDES INCIDENTAL, INDIRECT, CONSEQUENTIAL, SPECIAL,
PUNITIVE OR EXEMPLARY DAMAGES OF ANY KIND - INCLUDING LOST REVENUES OR
PROFITS, LOSS OF BUSINESS OR LOSS OF DATA.
32. Limitation of Liability. Except for a party's liability under Section 22
(Proprietary Information), Section 20 (Use of Data), Section 21 (Privacy
Policy), Sections 29 and 30 (Indemnification), and a party's obligation to
pay fees or other monies required to be paid to the other party under this
Agreement, each party's cumulative liability under this Agreement for
damages suffered by the other party from a breach of this Agreement shall
be limited to $1,000,000.
33. Mutual Nonassert. Neither party shall make a claim against the other for
infringement of such party's intellectual property rights to the extent
such claim relates to a party's performance of its obligations or exercise
of its rights hereunder.
34. Arbitration. In the event of a dispute between the parties with regard to
any of the matters set forth in this Agreement, the parties will first make
reasonable efforts to resolve such dispute among themselves. If the parties
are unable to resolve the dispute within thirty (30) calendar days of the
initiation of such procedure, the dispute will be settled by arbitration as
provided for below, which will be the sole and exclusive procedure for the
resolution of any such dispute except for disputes wherein a party seeks
injunctive relief. The arbitration will be governed by the then existing
rules of the American Arbitration Association. One arbitrator shall be
chosen pursuant to the rules of the American Arbitration Association,
provided however, that the arbitrator so chosen shall not be employee,
consultant, officer or director of any party or of any affiliate of either
party and who has not received any compensation, directly or indirectly,
from any party or any affiliate of any party. The determination of the
arbitrator as to the resolution of any dispute will be binding and
conclusive upon the parties. The fees and expenses of the arbitrator will
be paid 50% by each party. The arbitrator may award the prevailing party
its costs and expenses (including attorneys fees) of the arbitration, as
he/she deems appropriate and just. Any arbitration award may be entered in
and enforced by any court having jurisdiction thereof.
35. Publicity and Marketing. No release shall be made to the news media or to
the general public relating to this Agreement without the prior written
approval of the other party. The parties will use their best efforts to
agree upon and issue a press release announcing
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the existence of this Agreement on or after the Effective Date. Any
marketing, web site or other media referencing the other party's
participation in a Joint Program shall be subject to the other party's
prior review and written approval. Notwithstanding the foregoing, either
party may disclose this Agreement as required by law or Securities Exchange
Commission rule or regulation.
36. Relationship of the Parties. CSI, FDMS, and the Participating Channels
shall not have any authority to bind any party to this Agreement by
contract or otherwise to make representations as to the policies and
procedures of the other, other than as specifically authorized by this
Agreement. FDMS and CSI acknowledge and agree that the relationship arising
from this Agreement does not constitute or create a general agency, joint
venture, partnership, employee relationship or franchise between them and
that each is an independent contractor with respect to the services
provided by it under this Agreement.
37. Governing Law. This Agreement shall be construed in accordance with and
governed by the laws of the state of Illinois except as to its principles
of conflicts of laws.
38. Entire Agreement. This Agreement together with the Information Exchange
and Non-Disclosure Agreement constitute the entire agreement between the
parties hereto and contains all of the agreements between said parties with
respect to the subject matter hereof. There is no statement, promise,
agreement, or obligation in existence which may conflict with the terms of
this Agreement or may modify, enlarge, or invalidate this Agreement or any
provision hereof. None of the prior and/or contemporaneous negotiations,
preliminary drafts, or prior versions of this Agreement leading up to its
execution and not set forth herein shall be used by any of the parties to
construe or affect the validity of this Agreement. Each party acknowledges
that no representation, inducement or condition not set forth herein has
been made or relied upon by either party. Further, this Agreement
supersedes any and all other agreements, either oral or in writing, between
the parties hereto with respect to the subject matter hereof.
39. Nonexclusive. Nothing in this Agreement shall prohibit or prevent FDMS
from entering into an arrangement with a third party under which FDMS may
provide similar products and services.
40. Modification/Waiver. No provision of this Agreement may be altered,
amended and/or waived, except by a written document signed by an executive
officer of both parties hereto setting forth such alteration, amendment,
and/or waiver. The parties hereto agree that the failure to enforce any
provision or obligation under this Agreement shall not constitute a waiver
thereof or serve as a bar to the subsequent enforcement of such provision
or obligation or any other provisions or obligation under this Agreement.
41. Joint Drafting. Each of the parties hereto has joined in and contributed
to drafting this Agreement; there shall be no presumption favoring or
burdening any one or more parties hereto based upon draftsmanship.
42. Notices. All notices and other communications required or permitted to be
given under this Agreement shall be in writing and shall be deemed
sufficiently given, served, and received for all purposes upon the first to
occur of actual receipt, or delivery by generally recognized overnight
courier service, or by facsimile transmission (with the original
subsequently
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delivered by other means permitted by this Agreement, although the
effective date of such notice shall be the date of such facsimile
transmission provided the original is subsequently delivered as provided
herein), or three (3) days after deposit in the United States Mail,
certified or registered, return receipt requested, with postage prepaid,
addressed as follows:
To FDMS: John Duncan
------- First Data Merchant Services Corporation
Internet Commerce Group
265 Broad Hollow Rd.
Melville, NY 11747
Fax: (631) 843-6736
With a copy to: General Counsel
-------------- First Data Merchant Services Corporation
Internet Commerce Group
6200 S. Quebec, Ste. 330 AN
Englewood, CO 80111
Fax: (303) 967-7877
To CSI: President
------ coolsavings.com inc.
8755 West Higgins Road, Ste. 100
Chicago, IL 60631
Fax: (773) 693-1311____
With a copy to: General Counsel
-------------- coolsavings.com inc.
8755 West Higgins Road, Ste. 100
Chicago, IL 60631
Fax: (773) 693-1311____
Or at such other address(es) set forth in any written notice delivered to the
other party.
43. Survival. The following provisions shall survive termination of this
Agreement: Sections 7, 8, 17, 18, 19 (for a period of 9 months after the
Termination Date), 20, 21, 22, 23, 26, 27, 28, 29, 30, 31, 32, 33, 34.
43. Future Performance. Notwithstanding anything contained in this Agreement
that can be construed to the contrary, wherein any Section of this Agreement
contemplates the parties agreeing upon something within a specific time period
after the Effective Date (e.g. within 30 days after the Effective Date), should
the parties fails to so agree within the specified time period, then the
specified period shall be extended for thirty (30) days. Should the parties
fail to so agree within the extension period, then either party shall be
entitled to terminate this Agreement during the ensuing thirty (30) day period,
effective upon written notice to the other party, provided that each party shall
use good faith efforts to meet all time periods specified herein.
44. Execution. This Agreement may be executed in counterparts, each of which
shall be deemed to be an original, and all of which together shall be deemed to
be one and the same instrument. Facsimile signatures shall have the same force
and effect as original signatures.
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IN WITNESS WHEREOF, the parties have executed this Agreement under seal on
the date first written above.
FIRST DATA MERCHANT SERVICES coolsavings.com inc.
CORPORATION
/s/ John Duncan /s/ Steven M. Golden
By:_____________________________ By:_______________________________
EVP, Business Development CEO/President
Title:__________________________ Title:____________________________
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Exhibit 10.18
American National Bank
and Trust Company of Chicago
- --------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
(All Assets With Advance Rate)
- --------------------------------------------------------------------------------
THIS LOAN AGREEMENT (this "Agreement"), dated as of the 19th day of
January, 2000, by and between American National Bank and Trust Company of
Chicago ("Bank"), a national banking association with its principal place of
business at 120 South LaSalle Street, Chicago, Illinois 60603, and
COOLSAVINGS.COM INC., a Michigan corporation ("Borrower"), a corporation with
its principal place of business at 8755 West Higgins, Suite 100, Chicago,
Illinois 60631, has reference to the following facts and circumstances:
A. Pursuant to Borrower's request, Bank heretofore, now and from time to time
hereafter, has and/or may loan or advance monies, extend credit, and/or extend
other financial accommodations to or for the benefit of Borrower.
B. To secure repayment of the same and all of "Borrower's Liabilities" (as
hereinafter defined), Borrower wishes to provide Bank with a security interest
in and/or collateral assignment of Borrower's assets.
NOW, THEREFORE, in consideration of terms and conditions set forth herein
and of any loans or extensions of credit heretofore, now or hereafter made to or
for the benefit of Borrower by Bank, the parties hereto agree as follows:
1. DEFINITIONS AND TERMS
1.1 When used herein, the words, terms and/or phrases set forth below
shall have the following meanings:
A. "Accounts": all present and future rights of Borrower to payment
for goods sold or leased or for services rendered, which are not
evidenced by instruments or chattel paper, and whether or not they
have been earned by performance.
B. "Borrower's Liabilities": all obligations and liabilities of
Borrower to Bank (including without limitation all debts, claims,
indebtedness and attorneys' fees and expenses as provided for in
Paragraph 8.13) whether primary, secondary, direct, contingent, fixed
or otherwise, including Rate Hedging Obligations (as defined in
subparagraph L herein), heretofore, now and/or from time to time
hereafter owing, due or payable, however evidenced, created,
incurred, acquired or owing and however arising, whether under this
Agreement or the "Other Agreements" (hereinafter defined) or by
operation of law or otherwise.
C. "Charges": all national, federal, state, county, city, municipal
and/or other governmental (or any instrumentality, division, agency,
body or department thereof, including without limitation the Pension
Benefit Guaranty Corporation) taxes, levies, assessments, charges,
liens, claims or encumbrances upon and/or relating to the "Collateral"
(as hereinafter defined), Borrower's Liabilities, Borrower's business,
Borrower's ownership and/or use of any of its assets, and/or
Borrower's income and/or gross receipts.
D. "Collateral": shall have the meaning set forth in Paragraph 3.2.
E. "Indebtedness": (i) indebtedness for borrowed money or for the
deferred purchase price of property or services; (ii) obligations as
lessee under leases which shall have been or should be, in accordance
with generally accepted accounting principles, recorded as capital
leases; (iii) obligations under direct or indirect guaranties in
respect of, and obligations (contingent or otherwise) to purchase or
otherwise acquire, or otherwise to assure a creditor against loss in
respect of, indebtedness or obligations of others of the kinds
referred to in clauses (i) or (ii) above; and (iv) liabilities with
respect to unfunded vested benefits under plans covered by Title IV of
the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and in effect from time to time.
F. "Letter of Credit Obligations": shall mean any and all existing
and future indebtedness, obligations and liabilities of every kind,
nature and character, direct or indirect, absolute or contingent, of
the Borrower to Bank, arising under, pursuant to or in connection
with any letter of credit issued under the Maximum Revolving Facility.
G. "Loans": shall mean collectively any Revolving Loans as defined
in Paragraph 2.5 and Term Loans as defined in Paragraph 2.6.
H. "Maximum Revolving Facility": shall mean the maximum amount of
the Revolving Loans as evidenced by a revolving note(s) which amount
Bank has agreed to consider as a ceiling on the outstanding principal
balance of Revolving Loans (other than Term Loans) to be made by Bank
pursuant to this Agreement.
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I. "Obligor": any Person who is and/or may become obligated to
Borrower under or on account of "Accounts."
J. "Other Agreements": all agreements, instruments and documents,
including without limitation, guaranties, mortgages, deeds of trust,
notes, pledges, powers of attorney, consents, assignments, contracts,
notices, security agreements, leases, subordination agreements,
financing statements and all other written matter heretofore, now
and/or from time to time hereafter executed by and/or on behalf of
Borrower and delivered to Bank.
K. "Persons": any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association,
corporation, limited liability company, institution, entity, party or
government (whether national, federal, state, county, city, municipal
or otherwise, including without limitation, any instrumentality,
division, agency, body or department thereof).
L. "Rate Hedging Obligations": shall mean any and all obligations of
the Borrower, whether absolute or contingent and howsoever and
whenever created, arising, evidenced or acquired (including all
renewals, extensions and modifications thereof and substitutions
therefor), under (i) any and all agreements designed to protect the
Borrower from the fluctuations of interest rates, exchange rates or
forward rates applicable to such party's assets, liabilities or
exchange transactions, including, but not limited to: interest rate
swap agreements, dollar-denominated or cross-currency interest rate
exchange agreements, forward currency exchange agreements, interest
rate cap, floor or collar agreements, forward rate currency agreements
or agreements relating to interest rate options, puts and warrants,
and (ii) any and all agreements relating to cancellations, buy backs,
reversals, terminations or assignments of any of the foregoing.
M. "Year 2000 Issues": shall mean anticipated costs, problems and
uncertainties associated with the inability of certain computer
applications to effectively handle data including data on and after
January 1, 2000, as such inability affects the business, operations,
and financial condition of the Borrower and of the Borrower's
material customers, suppliers and vendors.
1.2 Except as otherwise defined in this Agreement or the Other Agreements,
all words, terms and/or phrases used herein and therein shall be defined by the
applicable definition therefor (if any) in the Illinois Uniform Commercial Code.
2. LOANS
2.1 Loans made by Bank to Borrower pursuant to this Agreement shall be
evidenced by notes or other instruments issued or made by Borrower to Bank.
Except as otherwise provided in this Agreement or in any notes executed and
delivered by Borrower to Bank in connection herewith, the principal portion of
Borrower's Liabilities shall be payable by Borrower to Bank on the maturity
date(s) described in any such note(s) or other instruments evidencing Borrower's
Liabilities (as the same may be amended, renewed or replaced) and all costs,
fees and expenses payable hereunder or under the Other Agreements, shall be
payable by Borrower to the Bank on demand, in either case at Bank's principal
place of business or such other place as Bank shall specify in writing to
Borrower.
2.2 All of Borrower's Liabilities shall constitute one obligation secured
by Bank's security interest in the Collateral and by all other security
interests, liens, claims and encumbrances heretofore, now and/or from time to
time hereafter granted by Borrower to Bank.
2.3 Each loan made by Bank to Borrower pursuant to this Agreement or the
Other Agreements shall constitute an automatic warranty and representation by
Borrower to Bank that there does not then exist an "Event of Default" (as
hereinafter defined) or any event or condition, which with notice, lapse of time
and/or the making of such loan would constitute an Event of Default.
2.4 This Agreement shall be in effect until all of Borrower's Liabilities
have been paid in full and any and all commitments of Bank to make loans have
terminated.
2.5 Provided that an Event of Default does not then exist or would not
then be created or any event which with notice or lapse of time or both would
constitute an Event of Default does not then exist, Bank shall advance to
Borrower on a revolving credit basis (the "Revolving Loans") up to the lesser
of: (i) the Maximum Revolving Facility minus any Letter of Credit Obligations,
or (ii) the "Borrowing Base" minus any Letter of Credit Obligations. As used
herein, "Borrowing Base" shall mean up to 80% ("Advance Rate") of the face
amount (less maximum discounts, credits or allowances which may be taken by or
granted to Obligors in connection therewith) of all then existing "Eligible
Accounts" (as hereinafter defined) that are scheduled on the most recent
schedule of accounts delivered to Bank. Notwithstanding any contrary provision
contained herein, Bank may elect at its option to at any time and upon fourteen
(14) days prior written notice to Borrower change the foregoing method of
calculating the Borrowing Base by reducing the advances against Eligible
Accounts, or to deduct reserves from the Borrowing Base.
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2.6 Bank may from time to time advance to Borrower term loans ("Term
Loans") in such amounts and on such terms and conditions as the Bank and
Borrower from time to time may agree in writing.
2.7 Notwithstanding anything contained in this Agreement or the Other
Agreements to the contrary, the principal portion of Borrower's outstanding
liabilities due at any one time under the Revolving Loans shall not exceed the
lesser of: (i) the Maximum Revolving Facility minus the amount of all Letter of
Credit Obligations, or (ii) the Borrowing Base minus the amount of all Letter of
Credit Obligations.
2.8 Bank's commitment to loan shall expire on the earlier of: (i) the date
on which Borrower's Liabilities mature under the terms of any note given by
Borrower to Bank, or (ii) the occurrence of an Event of Default pursuant to
Section 7 hereof.
3. COLLATERAL: GENERAL TERMS
3.1 To secure the prompt payment to Bank of borrower's Liabilities and the
prompt, full and faithful performance by Borrower of all of the provisions to be
kept, observed or performed by Borrower under this Agreement and/or the Other
Agreements, Borrower grants to Bank a security interest in and to, and
collaterally assigns to Bank, all of Borrower's property, wherever located,
whether now or hereafter existing, owned, licensed, leased (to the extent of
Borrower's leasehold interest therein), consigned (to the extent of Borrower's
ownership therein), arising and/or acquired, including without limitation all of
Borrower's: (a) Accounts, chattel paper, tax refunds, contract rights, leases,
leasehold interests, letters of credit, instruments, documents, documents of
title, and beneficial interests; (b) all goods whose sale, lease or other
disposition by Borrower have given rise to Accounts and have been returned to or
repossessed or stopped in transit by Borrower; (c) certificated and
uncertificated securities; (d) goods, including without limitation all its
consumer goods, machinery, equipment, farm products, fixtures and inventory; (e)
liens; guaranties and other rights and privileges pertaining to any of the
Collateral; (f) monies, reserves, deposits, deposit accounts and interest or
dividends thereon, cash or cash equivalents; (g) all property now or at any time
or times hereafter in the possession, or under the control of Bank or its
bailee; (h) all accessions to the foregoing, all litigation proceeds pertaining
to the foregoing and all substitutions, renewals, improvements and replacements
of and additions to the foregoing; and (i) all books, records and computer
records in any way relating to the Collateral herein described.
3.2 All of the aforesaid property and products and proceeds of the
foregoing in Paragraph 3.1 above, including without limitation, proceeds of
insurance policies insuring the foregoing are herein individually and
collectively called the "Collateral". The terms used herein to identify the
Collateral shall have the same meaning as are assigned to such terms as of the
date hereof in the Illinois Uniform Commercial Code.
3.3 Borrower shall make appropriate entries upon its financial statements
and its books and records disclosing Bank's security interest in the Collateral.
3.4 Borrower shall execute and deliver to Bank, at the request of Bank,
all agreements, instruments and documents ("Supplemental Documentation") that
Bank reasonably may request, in form and substance acceptable to Bank, to
perfect and maintain perfected Bank's security interest in the Collateral and to
consummate the transactions contemplated in or by this Agreement and the Other
Agreements. Borrower agrees that a carbon, photographic or photostatic copy, or
other reproduction of this Agreement or of any financing statement, shall be
sufficient to evidence Bank's security interest.
3.5 Bank shall have the right, at any time during Borrower's usual
business hours, to inspect the Collateral and all related records (and the
premises upon which it is located) and to verify the amount and condition of or
any other matter relating to the Collateral.
3.6 Borrower warrants and represents to and covenants with Bank that: (a)
Bank's security interest in the Collateral is now and at all times hereafter
shall be perfected and have a first priority except as expressly agreed to in
writing by the Bank; (b) the offices and/or locations where Borrower keeps the
Collateral are specified at the end of this Paragraph and Borrower shall not
remove such Collateral therefrom except as may occur in the ordinary course of
business, and shall not keep any of such Collateral at any other offices or
locations unless Borrower gives Bank written notice thereof at least thirty (30)
days prior thereto and the same is within the United States of America; and (c)
the addresses specified at the end of this Paragraph include and designate
Borrower's principal executive office, principal place of business and other
offices and places of business and are Borrower's sole offices and places of
business. Borrower, by written notice delivered to Bank at least (30) days prior
thereto, shall advise Bank of Borrower's opening of any new office or place of
business or its closing of any existing office or place of business and any new
office or place of business shall be within the United States of America.
Borrower has places of business at the address shown at the beginning of this
Agreement and at the locations listed below:
1)____________________________________________________
2)____________________________________________________
3)____________________________________________________
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All of the Collateral currently owned by Borrower and all of the Collateral
hereafter acquired is, or will be held or stored at the locations listed below:
1) The address of the Borrower shown at the beginning of this Agreement:
2) ______________________________________________________________________
3) ______________________________________________________________________
3.7 At the request of Bank, Borrower shall receive, as the sole and
exclusive property of Bank and as trustee for Bank, all monies, checks, notes,
drafts and all other payments for and/or proceeds of Collateral which come into
the possession or under the control of Borrower and immediately upon receipt
thereof, Borrower shall remit the same (or cause the same to be remitted), in
kind, to Bank or at Bank's direction.
3.8 Upon demand or upon an Event of Default, Bank may take control of, in
any manner, and may endorse Borrower's name to any of the items of payment or
proceeds described in Paragraph 3.7 above and, pursuant to the provisions of
this Agreement, Bank shall apply the same to and on account of Borrower's
Liabilities.
3.9 Bank may, at its option, at any time or times hereafter, but shall be
under no obligation to pay, acquire and/or accept an assignment of any security
interest, lien, encumbrance or claim asserted by any Person against the
Collateral.
3.10 Immediately upon Borrower's receipt of that portion of the Collateral
evidenced by an agreement, instrument and/or document ("Special Collateral"),
Borrower shall mark the same to show that such Special Collateral is subject to
a security interest in favor of Bank and shall deliver the original thereof to
Bank, together with appropriate endorsement and/or specific evidence of
assignment (in form and substance acceptable to Bank) thereof to Bank.
3.11 Regardless of the adequacy of any Collateral securing Borrower's
Liabilities hereunder, any deposits or other sums at any time credited by or
payable or due from Bank to Borrower, or any monies, cash, cash equivalents,
securities, instruments, documents or other assets of Borrower in possession or
control of Bank or its bailee for any purpose may, upon demand or an Event of
Default or event or condition which with notice or lapse of time would
constitute an Event of Default, be reduced to cash and applied by Bank to or
setoff by Bank against Borrower's Liabilities hereunder.
3.12 At the request of Bank, Borrower shall instruct the Obligors of its
Accounts to make payments directly to a lockbox or cash collateral account
maintained by Bank in Borrower's name. All such collections shall be Bank's
property to be applied against Borrower's Liabilities, and not Borrower's
property. Bank may endorse Borrower's name to any of the items of payment or
proceeds described herein.
4. COLLATERAL: ACCOUNTS
4.1 An "Eligible Account" is an Account of Borrower which meets each of
the following requirements: (a) it arises from the sale or lease of goods, such
goods having been shipped or delivered to the Obligor thereof, or from services
rendered to the Obligor; (b) it is a valid, legally enforceable obligation of
the Obligor thereunder, and is not subject to any offset, counterclaim or other
defense on the part of such Obligor denying liability thereunder in whole or in
part; (c) it is subject to a perfected security interest in favor of Bank and is
not subject to any other lien or security interest whatsoever, except those of
Bank; (d) it is evidenced by an invoice (dated not later than the date of
shipment to the Obligor or performance and having a due date not more than
thirty (30) days after the date of invoice) rendered to such Obligor, and is not
evidenced by any instrument or chattel paper; (e) it is payable in United States
dollars; (f) it is not owing by any Obligor residing, located or having its
principal activities or place of business outside the United States of America
or who is not subject to service of process in the United States of America; (g)
it is not owing by any Obligor involved in any bankruptcy or insolvency
proceeding; (h) it is not owing by any affiliate of Borrower; (i) it is not
unpaid more than ninety (90) days after the date of such invoice; (j) it is not
owing by an Obligor which shall have failed to pay in full any invoice
evidencing any account within ninety (90) days after the date of such invoice,
unless the total invoice amounts of such Obligor which have not been paid within
ninety (90) days of the date represents less than 25% of the total invoice
amounts then outstanding of such Obligor; and (k) it is not an Account as to
which Bank, at any time or times hereafter, determines, in good faith, that the
prospect of payment or performance by the Obligor thereof is or will be
impaired. Notwithstanding the foregoing, Accounts with respect to which the
Account Debtor is the United States of America or any department, agency or
instrumentality thereof, shall not be included as an Eligible Account unless,
with respect to any such Account, Borrower has complied to Bank's satisfaction
with the provisions of the Federal Assignment of Claims Act of 1940, including,
without limitation, executing and delivering to Bank all statements of
assignment and/or notification which are in form and substance acceptable to
Bank and which are deemed necessary by Bank to effectuate the assignment to Bank
of such Accounts. An Account which is at any time an Eligible Account, but which
subsequently fails to meet any of the foregoing requirements, shall forthwith
cease to be an Eligible Account. Bank may in its sole discretion at any time
reduce the percentage set forth in clause (j) above upon seven (7) days prior
notice to Borrower. Borrower, immediately upon demand from Bank, shall pay to
Bank an amount of money equal to the monies advanced by Bank to Borrower upon an
Account that is no longer an Eligible Account.
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Borrower warrants and represents to and covenants with Bank that the principal
portion of Borrower's Liabilities represented by Revolving Loans made by Bank to
Borrower, pursuant to Paragraph 2.5 above, shall not exceed the total of the
then outstanding amounts (less maximum discounts, credits and allowances which
may be taken by or granted to Obligors in connection therewith) of all then
existing Eligible Accounts multiplied by the Advance Rate.
4.2 With respect to Accounts, except as otherwise disclosed by Borrower
to Bank in writing, Borrower warrants and represents to Bank that: (a) they are
genuine, are in all respects what they purport to be and are not evidenced by a
judgement; (b) they represent undisputed, bona fide transactions completed in
accordance with the terms and provisions contained in the invoices and other
documents delivered to Bank with respect thereto; (c) the amounts shown on any
Schedule of Accounts and/or all invoices and statements delivered to Bank with
respect thereto are actually and absolutely owing to Borrower and are not in any
way contingent: (d) no payments have been made or shall be made thereon except
payments immediately delivered to Bank pursuant to this Agreement; (e) there are
no setoffs, counterclaims or disputes existing or asserted with respect thereto
and Borrower has not made any agreement with any Obligor thereof for any
deduction therefrom except a regular discount allowed by Borrower in the
ordinary course of its business for prompt payment; (f) there are no facts,
events or occurrences which in any way impair the validity or enforcement
thereof or tend to reduce the amount payable thereunder, which may be shown on
any schedule of accounts and on all invoices, and statements delivered to Bank
with respect thereto; (g) to the best of Borrower's knowledge, all Obligors have
the capacity to contract and are solvent; (h) the services furnished and/or
goods sold or leased giving rise thereto are not subject to any lien, claim,
encumbrance or security interest except that of Bank; (i) Borrower has no
knowledge of any fact or circumstance which would impair the validity or
collectibility thereof; (j) to the best of Borrower's knowledge, there are no
proceedings or actions which are threatened or pending against any Obligor which
might result in any material adverse change in its financial condition; and (k)
Borrower has filed a Notice of Business Activities Report or a Certificate of
Authority or similar report with the appropriate office or department in states
where Account Obligors are located and where such reports are required as a
condition to commencing or maintaining an action in the courts of such states,
or Borrower has demonstrated to Bank's satisfaction that it is exempt from any
such requirements under such state's law.
4.3 Any of Bank's officers, employees or agents shall have the right, at
any time or times hereafter, in Bank's name or in the name of a nominee of Bank,
to verify the validity, amount or any other matter relating to any Accounts by
mail, telephone, facsimile or otherwise and to sign Borrower's name on any
verification of Accounts and notices thereof to Obligors. All costs, fees and
expenses relating thereto incurred by Bank (or for which Bank becomes obligated)
shall be part of Borrower's Liabilities, payable by Borrower to Bank on demand.
4.4 Unless Bank notifies Borrowers in writing that Bank suspends any one
or more of the following requirements, Borrower shall: (a) promptly upon
Borrower's learning thereof, inform Bank, in writing, of any material delay in
Borrower's performance of any of its obligations to any Obligor and of any
assertion of any claims, offsets or counterclaims by any Obligor and of any
allowances, credits and/or other monies granted by Borrower to any Obligor; (b)
not permit or agree to any extension, compromise or settlement with respect to
Accounts which constitute, in the aggregate, more than 5% of all Accounts then
owing to Borrower; and (c) keep all goods returned by an Obligor and all goods
repossessed or stopped in transit by Borrower from any Obligor segregated from
other property of Borrower, immediately notify Bank of Borrower's possession of
such goods, and hold the same as trustee for Bank until otherwise directed in
writing by Bank.
4.5 Bank shall have the right, now and at any time or times hereafter, at
its option, without notice thereof to Borrower: (a) to notify any or all
Obligors that the Accounts and Special Collateral have been assigned to Bank and
the Bank has a security interest therein; (b) to direct such Obligors to make
all payments due from them to Borrower upon the Accounts and Special Collateral
directly to Bank; and (c) to enforce payment of and collect, by legal
proceedings or otherwise, the Accounts and Special Collateral in the name of
Bank and Borrower.
4.6 Borrower, irrevocably, hereby designates, makes, constitutes and
appoints Bank (and all Persons designated by Bank) as Borrower's true and lawful
attorney (and agent-in-fact), with power, upon an Event of Default, or an event
or condition which with notice or lapse of time would constitute an Event of
Default, without notice to Borrower and in Borrower's or Bank's name: (a) to
demand payment of Accounts; (b) to enforce payment of the Accounts by legal
proceedings or otherwise; (c) to exercise all of Borrower's rights and remedies
with respect to the collection of the Accounts; (d) to settle, adjust,
compromise, discharge, release, extend or renew the Accounts; (e) to settle,
adjust or compromise any legal proceedings brought to collect the Accounts; (f)
to sell or assign the Accounts upon such terms, for such amounts and at such
time or times as Bank deems advisable; (g) to prepare, file and sign Borrower's
name on any Notice of Lien, Assignment or Satisfaction of Lien or similar
document in connection with the Accounts and Special Collateral; or (h) to
prepare, file and sign Borrower's name on any Proof of Claim in Bankruptcy or
similar document against any Obligor.
5. WARRANTIES, REPRESENTATIONS AND COVENANTS
INSURANCE AND TAXES
5.1 Borrower, at its sole cost and expense, shall keep and maintain: (a)
the Collateral insured for the full insurable value against all hazards and
risks ordinarily insured against by other owners or users of such properties in
similar businesses; and (b) business interruption insurance and public liability
and property damage insurance relating to Borrower's ownership and use of
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in assets. All such policies of insurance shall be in a form which insurers and
in such amounts as may satisfactory to Bank. Borrower shall deliver to Bank the
original (or certified) copy of each policy of insurance, or a certificate of
insurance, and evidence of payment of all premiums for each such policy. Such
policies of insurance (except those of public liability) shall contain a
standard form lender's loss payable clause, in form and substance acceptable to
Bank, showing loss payable to Bank, and shall provide that: (i) the insurance
companies will give Bank at least thirty (30) days written notice before any
such policy or policies of insurance shall be altered or canceled; and (ii) no
act or default of Borrower or any other Person shall effect the right of Bank to
recover under such policy or policies of insurance in case of loss or damage.
Borrower hereby directs all insurers under such policies of insurance (except
those of public liability) to pay all proceeds payable thereunder directly to
Bank and hereby authorizes Bank to make, settle, and adjust claims under such
policies of insurance and endorse the name of Borrower on any check, draft,
instrument or other item of payment for the proceeds of such policies of
insurance.
Unless Borrower provides Bank with evidence of the insurance coverage
required by this Agreement, Bank may purchase insurance at Borrower's expense to
protect Bank's interests in the Collateral. This insurance may, but need not,
protect Borrower's interests. The coverage that Bank purchases may not pay any
claim that Borrower makes or any claim that is made against Borrower in
connection with the Collateral. Borrower may later cancel any insurance
purchased by Bank, but only after providing Bank with evidence that Borrower has
obtained insurance as required by this Agreement. If Bank purchases insurance
for the Collateral, Borrower will be responsible for the costs of that
insurance, including interest and other charges Bank may impose in connection
with the placement of the insurance, until the effective date of the
cancellation or expiration of the insurance. The costs of the insurance may be
added to Borrower's total outstanding balance or obligation. The costs of the
insurance may be more than the cost of the insurance Borrower is able to obtain
on its own.
5.2 Borrower shall pay promptly, when due, all Charges, and shall not
permit any Charges to arise, or to remain and will promptly discharge the same.
6. WARRANTIES, REPRESENTATIONS AND COVENANTS:
GENERAL
6.1 Borrower warrants and represents to and covenants with Bank that: (a)
Borrower has the right, power and capacity and is duly authorized and empowered
to enter into, execute, deliver and perform this Agreement and Other Agreements;
(b) the execution, delivery and/or performance by Borrower of this Agreement and
Other Agreements shall not, by the lapse of time, the giving of notice or
otherwise, constitute a violation of any applicable law or a breach of any
provision contained in Borrower's Articles of Incorporation, By-Laws, Articles
of Partnership, Articles of Organization, Operating Agreement or similar
document, or contained in any agreement, instrument or document to which
Borrower is now or hereafter a party or by which it is or may be bound; (c)
Borrower has and at all times hereafter shall have good, indefeasible and
merchantable title to and ownership of the Collateral, free and clear of all
liens, claims, security interests and encumbrances except those of Bank; (d)
Borrower is now and at all times hereafter, shall be solvent and generally
paying its debts as they mature and Borrower now owns and shall at all times
hereafter own property which, at a fair valuation, is greater than the sum of
its debts; (e) Borrower is not and will not be during the term hereof in
violation of any applicable federal, state or local statue, regulation or
ordinance that, in any respect materially and adversely affects its business,
property, assets, operations or condition, financial or otherwise; and (f)
Borrower is not in default with respect to any indenture, loan agreement,
mortgage, deed or other similar agreement relating to the borrowing of monies to
which it is a party or by which it is bound.
6.2 Borrower warrants and represents to and covenants with Bank that
Borrower shall not, without Bank's prior written consent thereto: (a) grant a
security interest in or assign any of the Collateral to any Person or permit,
grant, or suffer a lien, claim or encumbrance upon any of the Collateral; (b)
sell or transfer any of the Collateral not in the ordinary course of business;
(c) enter into any transaction not in the ordinary course of business which
materially and adversely affects the Collateral or Borrower's ability to repay
Borrower's Liabilities or Indebtedness; (d) other than as specifically permitted
in or contemplated by this Agreement, encumber, pledge, mortgage, sell, lease or
otherwise dispose of or transfer, whether by sale, merger, consolidation or
otherwise, any of Borrower's assets; and (e) incur Indebtedness except: (i)
unsecured trade debt in the ordinary course of business; (ii) renewals or
extensions of existing Indebtedness and interest thereon; and (iii) Indebtedness
that is unsecured and is to Persons who execute and deliver to Bank in form and
substance acceptable to Bank and its counsel subordination agreements
subordinating their claims against Borrower therefor to the payment of
Borrower's Liabilities.
6.3 Borrower warrants and represents to and covenants with Bank that
Borrower shall furnish to Bank: (a) as soon as available but not later than 90
days after the close of each fiscal year of Borrower, financial statements,
which shall include, but not be limited to, balance sheets, income statements
and statements of cash flow of Borrower prepared in accordance with generally
accepted accounting principles, consistently applied, audited by a firm of
independent certified public accountants selected by Borrower and acceptable to
Bank; (b) as soon as available but not later than 45 days after the end of each
quarter hereafter, financial statements of Borrower certified by Borrower to be
prepared in accordance with generally accepted accounting principles which
fairly present the financial position and results of operations of Borrower for
such period; (c) a schedule of
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accounts receivable by the 15th day of every month, or otherwise as Bank may
direct; (d) a borrowing base certificate during such time or times as borrowings
are outstanding by the 15th day of every month, or otherwise as Bank may direct;
and (e) such other data and information (financial and otherwise) as Bank, from
time to time, may request, including information satisfactory to Bank regarding
the Borrower's plan for addressing Year 2000 Issues.
6.4 Borrower will maintain its primary depositary relationship with Bank
and will establish such accounts and maintain balances therein with Bank
sufficient to cover the cost of all Bank services provided; provided however,
that nothing herein shall require Borrower to keep and maintain a specific
minimum balance in such account.
6.5 Borrower warrants and represents to and covenants with Bank that
Borrower will take all actions reasonably necessary to assure that the Year 2000
Issues will not have a material adverse effect on the business, operations or
financial condition of the Borrower. Upon the Bank's request, the Borrower will
provide the Bank with a description of its plan to address Year 2000 Issues,
including updates and progress reports. The Borrower will advise the Bank of any
reasonably anticipated material adverse effect on the business, operations or
financial condition of the Borrower as a result of Year 2000 Issues.
6.6 Borrower warrants and represents to and covenants with Bank that
Borrower shall not permit its Tangible Capital Funds to be at any time less than
$10,000,000.00. "Tangible Capital Funds" shall mean the value of the total
assets plus Subordinated Debt of Borrower as determined in accordance with the
generally accepted accounting principles after subtracting therefrom the
aggregate amount of any intangible assets of Borrower as determined in
accordance with generally accepted accounting principles, including without
limitation, prepaid expenses, other accounts receivable, goodwill, franchises,
licenses, patents, trademarks, tradenames, copyrights and brand names, minus the
aggregate of all contingent and non-contingent liabilities of Borrower.
"Subordinated Debt" shall mean indebtedness which has been subordinated to the
Borrower's Liabilities and all other indebtedness of the Borrower to the Bank in
accordance with a subordination agreement satisfactory to the Bank.
6.7 Borrower shall maintain a ratio of senior Indebtedness to Tangible
Capital Funds of not more than 0.5 to 1.0 at all times.
6.8 Borrower warrants and represents to and covenants with Bank that
Borrower shall maintain a ratio of Current Assets to Current Liabilities of not
less than 1.5 to 1.0 at all times. "Current Liabilities" means the current
liabilities of Borrower determined in accordance with generally accepted
accounting principals and "Current Assets" means the current assets of Borrower
determined in accordance with generally accepted accounting principals.
7. DEFAULT
7.1 The occurrence of any one of the following events shall constitute a
default by the Borrower ("Event of Default") under this Agreement: (a) if
Borrower fails to pay any of Borrower's Liabilities when due and payable or
declared due and payable (whether by scheduled maturity, required payment,
acceleration, demand or otherwise); (b) if Borrower fails or neglects to
perform, keep or observe any term, provision, condition, covenant, warranty or
representation contained in this Agreement or any of the Other Agreements; (c)
occurrence of a default or Event of Default under any of the Other Agreements
heretofore, now or at any time hereafter delivered by or on behalf of Borrower
to Bank; (d) occurrence of a default or an Event of Default under any agreement,
instrument or document heretofore, now or at any time hereafter delivered to
Bank by any guarantor of Borrower's Liabilities or by any Person which has
granted to Bank a security interest or lien in such Person's real or personal
property to secure the payment of Borrower's Liabilities: (e) if the Collateral
or any other of Borrower's assets are attached, seized, subjected to writ, or
are levied upon or become subject to any lien or come within the possession of
any receiver, trustee, custodian or assignee for the benefit of creditors; (f)
if a notice of lien, levy or assessment is filed of record or given to Borrower
with respect to all or any of Borrower's assets by any federal, state, local
department or agency; (g) if Borrower or any guarantor of Borrower's Liabilities
becomes insolvent or generally fails to pay or admits in writing its inability
to pay debts as they become due, if a petition under Title 11 of the United
States Code or any similar law or regulation is filed by or against Borrower or
any such guarantor, if Borrower or any such guarantor shall make an assignment
for the benefit of creditors, if any case or proceeding is filed by or against
Borrower or any such guarantor for its dissolution or liquidation, if Borrower
or any such guarantor is enjoined, restrained or in any way prevented by court
order from conducting all or any material part of its business affairs; (h) the
death or incompetency of Borrower or any guarantor of Borrower's Liabilities, or
the appointment of a conservator for all or any portion of Borrower's assets or
the Collateral; (i) the revocation, termination, or cancellation of any guaranty
of Borrower's Liabilities without written consent of Bank; (j) if a contribution
failure occurs with respect to any pension plan maintained by Borrower or any
corporation, trade or business that is, along with Borrower, a member of a
controlled group of corporations or controlled group of trades or businesses (as
described in Sections 414(b) and (c) of the Internal Revenue Code of 1986 or
Section 4001 of ERISA) sufficient to give rise to a lien under Section 302(f) of
ERISA; (k) if Borrower or any guarantor of Borrower's Liabilities is in default
in the payment of any obligations, indebtedness or other liabilities to any
third party and such default is declared and is not cured within the time, if
any, specified therefor in any agreement governing the same; (l) if any material
statement, report or certificate made or delivered by Borrower, any of
Borrower's partners, officers, employees or agents or any guarantor of
Borrower's Liabilities is not true and correct;
7
<PAGE>
7.2 All of Bank's rights and remedies under this Agreement and the Other
Agreements are cumulative and non-exclusive.
7.3 Upon an Event of Default or the occurrence of any one of the events
described in Paragraph 7.1, without notice by Bank to or demand by Bank of
Borrower, Bank shall have no further obligation to and may then forthwith cease
advancing monies or extending credit to or for the benefit of Borrower under
this Agreement and the Other Agreements. Upon an Event of Default, without
notice by Bank to or demand by Bank of Borrower, Borrower's Liabilities shall be
immediately due and payable.
7.4 Upon an Event of Default, Bank, in its sole and absolute discretion,
may exercise any one or more of the rights and remedies accruing to a secured
party under the Uniform Commercial Code of the relevant state and any other
applicable law upon default by a debtor.
7.5 Upon an Event of Default, Borrower, immediately upon demand by Bank,
shall assemble the Collateral and make it available to Bank at a place or places
to be designated by Bank which is reasonably convenient to Bank and Borrower.
Borrower recognizes that in the event Borrower fails to perform, observe or
discharge any of its obligations or liabilities under this Agreement or the
Other Agreements, no remedy of law will provide adequate relief to Bank, and
agrees that Bank shall be entitled to temporary and permanent injunctive relief
in any such case without the necessity of proving actual damages.
7.6 Upon an Event of Default, without notice, demand or legal process of
any kind, Bank may take possession of any or all of the Collateral (in addition
to Collateral of which it already has possession), wherever it may be found, and
for that purpose may pursue the same wherever it may be found, and may enter
into any of Borrower's premises where any of the Collateral may be or is
supposed to be, and search for, take possession of, remove, keep and store any
of the Collateral until the same shall be sold or otherwise disposed of, and
Bank shall have the right to store the same in any of Borrower's premises
without cost to Bank.
7.7 Any notice required to be given by Bank of a sale, lease, or other
disposition of the Collateral or any other intended action by Bank, (i)
deposited in the United States mail, postage prepaid and duly addressed to
Borrower at the address specified at the beginning of this Agreement, or (ii)
sent via certified mail, return receipt requested, or (iii) sent via facsimile,
or (iv) delivered personally, not less than ten (10) days prior to such proposed
action, shall constitute commercially reasonable and fair notice to Borrower.
7.8 Upon an Event of Default, Borrower agrees that Bank may, if Bank
deems it reasonable, postpone or adjourn any such sale of the Collateral from
time to time by an announcement at the time and place of sale or by announcement
at the time and place of such postponed or adjourned sale, without being
required to give a new notice of sale. Borrower agrees that Bank has no
obligation to preserve rights against prior parties to the Collateral. Further,
to the extent permitted by law, Borrower waives and releases any cause of action
and claim against Bank as a result of Bank's possession, collection or sale of
the Collateral, any liability or penalty for failure of Bank to comply with any
requirement imposed on Bank relating to notice of sale, holding of sale or
reporting of sale of the Collateral, and any right of redemption from such sale.
8. GENERAL
8.1 Borrower waives the right to direct the application of any and all
payments at any time or times hereafter received by Bank on account of
Borrower's Liabilities and Borrower agrees that Bank shall have the continuing
exclusive right to apply and re-apply any and all such payments in such manner
as Bank may deem advisable, notwithstanding any entry by Bank upon any of its
books and records.
8.2 Borrower covenants, warrants and represents to Bank that all
representations and warranties of Borrower contained in this Agreement and the
Other Agreements shall be true from the time of Borrower's execution of this
Agreement to the end of the original term and each renewal term hereof. All of
Borrower's warranties, representations, undertakings, and covenants contained in
this Agreement or the Other Agreements shall survive the termination or
cancellation of the same.
8.3 The terms and provisions of this Agreement and the Other Agreements
shall supersede any prior agreement or understanding of the parties hereto, and
contain the entire agreement of the parties hereto with respect to the matters
covered herein. This Agreement and the Other Agreements may not be modified,
altered or amended except by an agreement in writing signed by Borrower and
Bank. Except for the provisions of Section 2 hereof which shall terminate as
provided in paragraph 2.8, this Agreement shall continue in full force and
effect so long as any portion or component of Borrower's Liabilities shall be
outstanding. Should a claim ("Recovery Claim") be made upon the Bank at any time
for recovery of any amount received by the Bank in payment of Borrower's
Liabilities (whether received from Borrower or otherwise) and should the Bank
repay all or part of said amount by reason of (1) any judgment, decree or order
of any court or administrative body having jurisdiction over Bank or any of its
property; or (2) any settlement or compromise of any such Recovery Claim
effected by the Bank with the claimant (including Borrower), this Agreement and
the security interests granted Bank hereunder shall continue in effect with
respect to the amount so repaid to the same extent as if such amount had never
originally been received by the Bank, notwithstanding any prior
8
<PAGE>
termination of this Agreement, the return of this Agreement to Borrower, or the
cancellation of any note or other instrument evidencing Borrower's Liabilities.
Borrower may not sell, assign or transfer this Agreement, or the Other
Agreements or any portion thereof.
8.4 Bank's failure to require strict performance by Borrower of any
provision of this Agreement shall not waive, affect or diminish any right of
Bank thereafter to demand strict compliance and performance therewith. Any
suspension or waiver by Bank of an Event of Default by Borrower under this
Agreement or the Other Agreements shall not suspend, waive or affect any other
Event of Default by Borrower under this Agreement or the Other Agreements,
whether the same is prior or subsequent thereto and whether of the same or of a
different type. None of the undertakings, agreements, warranties, covenants and
representations of Borrower contained in this Agreement or the Other Agreements
and no Event of Default by Borrower under this Agreement or the Other Agreements
shall be deemed to have been suspended or waived by Bank unless such suspension
or waiver is by an instrument in writing signed by an officer of Bank and
directed to Borrower specifying such suspension or waiver.
8.5 If any provision of this Agreement or the Other Agreements or the
application thereof to any Person or circumstance is held invalid or
unenforceable, the remainder of this Agreement and the Other Agreements and the
application of such provision to other Persons or circumstances will not be
affected thereby and the provisions of this Agreement and the Other Agreements
shall be severable in any such instance.
8.6 This Agreement and the Other Agreements shall be binding upon and
inure to the benefit of the successors and assigns of Borrower and Bank. This
provision, however, shall not be deemed to modify Paragraph 8.3 hereof.
8.7 Borrower hereby appoints Bank as Borrower's agent and attorney-in-
fact for the purpose of carrying out the provisions of this Agreement and taking
any action and executing any agreement, instrument or document which Bank may
reasonably deem necessary or advisable to accomplish the purposes hereof which
appointment is irrevocable and coupled with an interest. All monies paid for the
purposes herein, and all costs, fees and expenses paid or incurred in connection
therewith, shall be part of Borrower's Liabilities, payable by Borrower to Bank
on demand.
8.8 This Agreement, or a carbon, photographic or other reproduction of
this Agreement or of any Uniform Commercial Code financing statement covering
the Collateral or any portion thereof, shall be sufficient as a Uniform
Commercial Code financing statement and may be filed as such.
8.9 Except as otherwise provided in the Other Agreements, if any
provision contained in this Agreement is in conflict with, or inconsistent with,
any provision in the Other Agreements, the provision contained in this Agreement
shall govern and control.
8.10 Except as otherwise specifically provided in this Agreement, Borrower
waives any and all notice or demand which Borrower might be entitled to receive
by virtue of any applicable statute or law, and waives presentment, demand and
protest and notice of presentment, protest, default, dishonor, non-payment,
maturity, release, compromise, settlement, extension or renewal of any and all
agreements, instruments or documents at any time held by Bank on which Borrower
may in any way be liable.
8.11 Until Bank is notified by Borrower to the contrary in writing by
registered or certified mail directed to Bank's principal place of business, the
signature upon this Agreement or upon any of the Other Agreements of any
partner, manager, employee or agent of the Borrower, or of any other Person
designated in writing to Bank by any of the foregoing, shall bind Borrower and
be deemed to be the duly authorized act of Borrower.
8.12 This Agreement and the Other Agreements shall be governed and
controlled by the internal laws of the State of Illinois; and not the law of
conflicts.
8.13 If at anytime or times hereafter, whether or not Borrower's
Liabilities are outstanding at such time, Bank; (a) employs counsel for advice
or other representation, (i) with respect to the Collateral, this Agreement, the
Other Agreements or the administration of Borrower's Liabilities, (ii) to
represent Bank in any litigation, arbitration, contest, dispute, suit or
proceeding or to commence, defend or intervene or to take any other action in or
with respect to any litigation, arbitration, contest, dispute, suit or
proceeding (whether instituted by Bank, Borrower or any other Person) in any way
or respect relating to the Collateral, this Agreement, the Other Agreements, or
Borrower's affairs, or (iii) to enforce any rights of Bank against Borrower or
any other Person which may be obligated to Bank by virtue of this Agreement or
the Other Agreements, including, without limitation, any Obligor; (b) takes any
action with respect to administration of Borrower's Liabilities or to protect,
collect, sell, liquidate or otherwise dispose of the Collateral; and/or (c)
attempts to or enforces any of Bank's rights or remedies under this Agreement or
the Other Agreements, including, without limitation, Bank's rights or remedies
with respect to the Collateral, the reasonable costs and expenses incurred by
Bank in any manner or way with respect to the foregoing, shall be part of
Borrower's Liabilities, payable by Borrower to Bank on demand.
9
<PAGE>
8.14 BORROWER IRREVOCABLY AGREES THAT, SUBJECT TO BANK'S SOLE AND
ABSOLUTE ELECTION, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT,
ARISING OUT OF OR FROM OR RELATED TO THIS AGREEMENT, THE OTHER AGREEMENTS OR THE
COLLATERAL SHALL BE LITIGATED ONLY IN COURTS HAVING SUITS WITHIN THE CITY OF
CHICAGO, STATE OF ILLINOIS. BORROWER HEREBY CONSENTS AND SUBMITS TO THE
JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN SAID CITY AND
STATE. BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE
VENUE OF ANY LITIGATION BROUGHT AGAINST BORROWER BY BANK IN ACCORDANCE WITH THIS
PARAGRAPH.
8.15 BORROWER HEREBY IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY IN
ANY ACTION, SUIT, COUNTERCLAIM OR PROCEEDING (I) TO ENFORCE OR DEFEND ANY RIGHTS
UNDER OR IN CONNECTION WITH THIS AGREEMENT, THE OTHER AGREEMENTS, OR ANY
AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE
FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH, OR (II) ARISING FROM
ANY DISPUTE OR CONTROVERSY ARISING IN CONNECTION WITH OR RELATED TO THIS
AGREEMENT, THE OTHER AGREEMENTS, OR ANY SUCH AMENDMENT, INSTRUMENT, DOCUMENT OR
AGREEMENT, AND AGREES THAT ANY SUCH ACTION, SUIT, COUNTERCLAIM OR PROCEEDING
SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the
day and year specified at the beginning hereof.
BORROWER:
COOLSAVINGS.COM INC.
a Michigan corporation
By: /s/ David H. Jacobson
-------------------------------------
David H. Jacobson CFO/Treasurer
-------------------------------------
Printed Name Title
Accepted this 19th day of January, 2000, at Bank's principal place of
business in the City of Chicago, State of Illinois.
BANK
American National Bank and Trust Company of Chicago
By: /s/ James G. Cvgan
------------------------------------
James G. Cvgan Vice President
------------------------------------
Printed Name Title
10
<PAGE>
Exhibit 23.2
Consent of Independent Accountants
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated February 18, 2000 relating to the financial statements and
financial statement schedule of coolsavings.com inc., which appears in such
Registration Statement. We also consent to the reference to us under the
headings "Experts" and "Selected Financial Data" in such Registration Statement.
PricewaterhouseCoopers LLP
Chicago, IL
March 15, 2000
<PAGE>
Exhibit 23.3
Consent of Niro, Scavone, Haller & Niro
---------------------------------------
We hereby consent to the use of our name wherever it appears in this
Registration Statement.
Dated: March 15, 2000
/s/ Niro, Scavone, Haller & Niro
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 17,488,788 4,895,139
<SECURITIES> 0 0
<RECEIVABLES> 4,381,463 281,800
<ALLOWANCES> 118,154 13,500
<INVENTORY> 0 0
<CURRENT-ASSETS> 25,541,170 5,329,542
<PP&E> 4,048,835 1,041,102
<DEPRECIATION> (935,862) (284,568)
<TOTAL-ASSETS> 29,590,005 6,370,644
<CURRENT-LIABILITIES> 9,838,659 1,541,400
<BONDS> 0 0
0 0
0 0
<COMMON> 27,844,658 13,500,865
<OTHER-SE> (8,725,143) (8,907,195)
<TOTAL-LIABILITY-AND-EQUITY> 29,590,005 6,370,644
<SALES> 0 0
<TOTAL-REVENUES> 12,915,732 1,142,819
<CGS> 1,817,444 427,769
<TOTAL-COSTS> 28,231,138 6,061,221
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 228,500 483,411
<INCOME-PRETAX> (16,868,379) (5,741,260)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (16,868,379) (5,741,260)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (16,868,379) (5,741,260)
<EPS-BASIC> (0.57) (0.27)
<EPS-DILUTED> (0.57) (0.27)
</TABLE>
