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As filed with the Securities and Exchange Commission on August 31, 1999
Registration No. 333-80137
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
YESMAIL.COM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 7319 36-4020286
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
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565 LAKEVIEW PARKWAY, SUITE 135
VERNON HILLS, ILLINOIS 60061
(847) 918-9292
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
DAVID M. TOLMIE
CHIEF EXECUTIVE OFFICER
YESMAIL.COM, INC.
565 LAKEVIEW PARKWAY, SUITE 135
VERNON HILLS, ILLINOIS 60061
(847) 918-9292
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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JEFFREY D. SAPER, ESQ. MICHAEL J. HALLORAN, ESQ.
J. ROBERT SUFFOLETTA, ESQ. KAREN A. DEMPSEY, ESQ.
H. JACK HELFAND, ESQ. WILLIAM A. HINES, ESQ.
WILSON SONSINI GOODRICH & ROSATI PILLSBURY MADISON & SUTRO LLP
PROFESSIONAL CORPORATION 235 MONTGOMERY STREET
650 PAGE MILL ROAD SAN FRANCISCO, CA 94104
PALO ALTO, CALIFORNIA 94304-1050 (415) 983-1000
(650) 493-9300
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement is declared effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is to register additional securities for an offering pursuant
to rule 462(b) 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(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 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. [ ]
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 SECTION 8(a), MAY
DETERMINE.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED AUGUST 30, 1999
[LOGO]
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3,400,000 SHARES
COMMON STOCK
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This is the initial public offering of yesmail.com, inc. and we are offering
3,400,000 shares of our common stock. We anticipate the initial public offering
price will be between $10.00 and $12.00 per share.
We have been approved to list our common stock on the Nasdaq National Market
under the symbol "YESM."
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE RISK FACTORS BEGINNING ON
PAGE 6.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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UNDERWRITING
PUBLIC OFFERING DISCOUNTS AND PROCEEDS TO
PRICE COMMISSIONS YESMAIL.COM
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<S> <C> <C> <C>
Per Share $ $ $
Total $ $ $
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We have granted the underwriters the right to purchase up to 510,000 additional
shares to cover any over-allotments.
DEUTSCHE BANC ALEX. BROWN
THOMAS WEISEL PARTNERS LLC
VOLPE BROWN WHELAN & COMPANY
The date of this prospectus is , 1999
<PAGE> 3
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information, financial statements and notes to financial statements appearing
elsewhere in this prospectus.
YESMAIL.COM
We believe we are a leading provider of comprehensive permission email
direct marketing solutions. We deliver direct email marketing messages to
targeted individuals, our members, who have given us or our network partners
prior permission to send them promotional email messages. Through our network,
we can direct promotional campaigns to a targeted audience of over five million
self-selected members. In the quarter ended June 30, 1999, we delivered over 8.9
million permission email messages for over 120 clients.
We work with direct marketers to reach a targeted audience to promote their
products or services. Our direct marketer clients have included eToys,
Fingerhut, Hewlett Packard, MotherNature.com, Office Max, Value America and
Verio. Once a direct marketing campaign is created, we deliver promotional email
messages to the appropriate members of our network. We use our proprietary
targeting and tracking technology and our direct marketing expertise to help our
direct marketer clients achieve response rates of up to 15% and maximize the
return on the resources they spend on advertising, commonly known as return on
investment.
Our network partners include Web sites that are developing their own
permission email lists. Other network partners have already developed their own
permission lists. We provide our network partners with resale and tracking
services by selling direct marketers access to their lists and tracking the
responses of members on their lists. Our network partners and third party list
managers provide us with their lists for a percentage of our revenues or a fixed
fee. We enable our network partners to generate additional revenues from their
Web site visitors and customers by utilizing our expertise and software tools to
provide direct marketers access to these lists. By working with us, our network
partners avoid the costs and challenges associated with building and maintaining
their own direct marketing sales forces and email direct marketing technologies.
Our network partners may also benefit from our proprietary technology that
tracks the responses of their list members, thereby enhancing the value of their
lists to direct marketers. Network partners also benefit from the scale and
reach of our network and the organization of all network members into categories
of interest and response rate histories.
We believe that our members will benefit from the ability to control the
flow of email marketing messages they receive. Our proprietary consumer product,
My.YesMail, is designed to give members the tools necessary to organize their
email subscriptions and permission lists, filter undesired promotional messages
and control message frequency. We intend to create a trusted brand name which
facilitates positive interactions between direct marketers and members.
INTERNET MARKETING
The growth of the Internet has spurred traditional businesses and
e-commerce companies to devote larger portions of their marketing budgets to the
Internet. The Internet is particularly well suited as a direct marketing medium
because of the ability to target consumers, receive immediate response, direct
consumers to a precise point of sale and provide a measurable return on
investment. However, to date, Internet direct marketing has been primarily
confined to mass-mailing of unsolicited email messages, known as 'spam,' which
has met with negative consumer reaction and low response rates. In addition, the
placement of advertisements on Web sites, commonly known as banner advertising,
has proven to be less effective as a direct marketing medium than as a vehicle
for establishing brand identity, with response rates averaging 0.7% according to
Forrester Research.
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Permission email direct marketing response rates, according to Jupiter
Communications, are three to ten times higher than traditional direct mail or
banner advertising. In addition, the cost to deliver permission email messages
can be 75% to 90% lower than direct mail, according to the Gartner Group. We
believe that the combination of substantially higher response rates and lower
costs will result in an increasing portion of the $160 billion spent in the
United States on direct marketing shifting to permission email. The Direct
Marketing Association projects that spending on Internet direct marketing will
increase from $600 million in 1998 to $5.3 billion in 2003.
We believe that permission email direct marketing represents an opportunity
to more fully realize the Internet's viability as an effective direct marketing
medium due to its substantially higher response rates and lower delivery costs,
and that we are well positioned to take advantage of this opportunity.
Our objective is to be the leading provider of permission email direct
marketing. We intend to achieve this objective by:
- Providing effective email direct marketing programs to enable direct
marketers to maximize their return on investment.
- Increasing our targeted reach through a permission based network that
currently exceeds five million self-selected members.
- Expanding our sales, marketing and client services to grow our business
while providing a high level of customer support.
- Leveraging our proprietary technology and current and planned products
for direct marketers, network partners and members, including eTrack,
eTarget, ePredict, eCampaign, eManage and My.YesMail.
- Building a leading brand that establishes YesMail as the trusted leader
in quality permission email programs.
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Superhighway Consulting, Inc. was incorporated in Illinois in April 1995,
and we were incorporated in Delaware in October 1998. We merged with
Superhighway in March 1999. Our principal executive offices are located at 565
Lakeview Parkway, Suite 135, Vernon Hills, Illinois 60061. Our telephone number
at that location is (847) 918-9292. We also maintain a Web site which is located
at www.yesmail.com. Information contained in our Web site does not constitute a
part of this prospectus. WebPromote is our registered trademark. This prospectus
also contains other trademarks of ours including, yesmail, eCampaign, eConnect,
eManage, ePredict, eTarget, eTrack, yesmail.com and YesMail Network. All other
trademarks or trade names used in this prospectus are the property of their
respective owners.
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Unless otherwise noted, the information in this prospectus assumes:
- the effectiveness of a three-for-eight reverse split of the outstanding
shares of common stock prior to the closing of this offering;
- the conversion of each outstanding share of preferred stock into one
share of common stock, which will occur upon the closing of this
offering; and
- no exercise of the underwriters' over-allotment option.
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THE OFFERING
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Common stock offered by yesmail.com................... 3,400,000 shares
Common stock to be outstanding after the offering..... 20,324,094 shares
Use of proceeds....................................... For general corporate purposes, including
working capital
Nasdaq National Market symbol......................... YESM
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The number of shares of common stock to be outstanding after the offering
above is based on the number of shares of common stock outstanding as of June
30, 1999 and does not include shares of common stock reserved for issuance under
our stock option and stock purchase plans, of which 875,625 shares were issuable
upon exercise of outstanding options as of June 30, 1999.
SUMMARY CONSOLIDATED FINANCIAL DATA
See Note 3 of Notes to Consolidated Financial Statements for a description
of the method that we used to compute our net loss per share and an explanation
of the determination of the number of shares used in computing per share data.
The as adjusted financial data below reflects the sale of the shares of common
stock that we are offering in this prospectus at an assumed public offering
price of $11.00 per share and after deducting the estimated underwriting
discounts and commissions and our estimated offering expenses.
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SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
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1996 1997 1998 1998 1999
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(IN THOUSANDS EXCEPT PER SHARE DATA)
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CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues................................................. $ 935 $2,468 $ 4,583 $2,046 $ 3,642
Gross profit............................................. 642 1,378 1,880 904 1,165
Loss from operations..................................... (85) (405) (1,401) (433) (5,354)
Net loss................................................. $ (80) $ (414) $(1,706) $ (460) $(5,475)
====== ====== ======= ====== =======
Basic and diluted net loss per share..................... $(0.01) $(0.05) $ (0.22) $(0.06) $ (0.60)
====== ====== ======= ====== =======
Weighted-average shares outstanding
used in computing basic and diluted net loss per
share.................................................. 7,723 7,649 7,636 7,776 9,178
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JUNE 30, 1999
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ACTUAL AS ADJUSTED
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(IN THOUSANDS)
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CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................. $3,508 $37,190
Working capital........................................... 476 34,158
Total assets.............................................. 6,676 40,358
Capital lease obligations less current portion............ 330 330
Stockholders' equity...................................... 1,853 35,535
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RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks described below and the other information in this prospectus before
deciding to purchase shares of our common stock.
WE RECENTLY REDIRECTED OUR STRATEGIC FOCUS SO OUR RECENT OPERATING RESULTS ARE
NOT COMPARABLE TO OUR RESULTS FOR PRIOR PERIODS.
We were founded in 1995 as a supplier of a broad range of Internet
marketing services and in late 1998 redirected our strategic focus to permission
email. Through June 30, 1999, permission email marketing services represented
less than half of our revenue. Accordingly, our operating results since the end
of 1998 are not comparable to our results for prior periods. We cannot be
certain that our business strategy will be successful or that we will adequately
address these risks.
WE HAVE A HISTORY OF LOSSES AND WE EXPECT FUTURE LOSSES.
We incurred net losses of $2.2 million from our inception through December
31, 1998 and $5.5 million for the six months ended June 30, 1999. As of June 30,
1999, we had an accumulated deficit of $7.7 million. We expect to continue to
incur net losses for the foreseeable future and negative cash flow from
operations through at least the year 2000.
We expect to significantly increase our operating expenses as a result of
expanding our sales and marketing, product development and administrative
operations and developing new strategic relationships to promote our future
growth. As a result, we will need to generate significant revenues to meet these
increased expenses and to achieve profitability. If we do achieve profitability,
we cannot be certain that we can sustain or increase profitability in the
future.
OUR FUTURE OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY AND REMAIN UNCERTAIN,
WHICH COULD NEGATIVELY AFFECT THE VALUE OF YOUR INVESTMENT.
Our operating results are difficult to predict. Our future quarterly
operating results may fluctuate significantly and may not meet the expectations
of securities analysts or investors. If this occurs, the price of our common
stock would likely decline, perhaps substantially. Factors that may cause
fluctuations of our operating results include the following:
- the level of market acceptance of our products and services;
- delays we may encounter in introducing new products and services;
- competitive developments;
- demand for advertising on the Internet; and
- changes in pricing policies and resulting margins.
We expect that an increasing portion of our future revenues will be derived
from permission email marketing products and services. The volume and timing of
orders are difficult to predict because the market for our products is in its
infancy and the sales cycle may vary substantially from customer to customer.
Currently, our customer contracts are only for a limited period of time,
typically lasting only days or weeks, which makes revenues in any quarter
substantially dependent upon contracts entered into in that quarter. Our
customers can terminate their contracts with us on short notice without penalty.
Moreover, our sales are expected to fluctuate due to seasonal or cyclical
marketing campaigns. We expect that revenue growth in the first and third
quarters of each year may be lower than revenue growth in the second and fourth
quarters of that and the preceding year. We believe this trend may occur as a
result of our customers' annual budgetary, purchasing and sales cycles. In
addition, our sales cycle has varied from
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customer to customer and several customers have taken many months to evaluate
our products before making their purchase decisions. To the extent significant
revenues occur earlier than expected, our operating results for later quarters
may not compare favorably with operating results from earlier quarters.
OUR SUCCESS DEPENDS UPON BROAD MARKET ACCEPTANCE OF PERMISSION EMAIL MARKETING
SERVICES AND WE ARE UNCERTAIN IF OR WHEN SUCH MARKET ACCEPTANCE WILL OCCUR.
We do not know if our products and services will be successful. The growth
of the Internet remains fairly recent and advertising on the Internet even more
so. The Internet may not be accepted as a viable long-term commercial
marketplace and medium of commerce for a number of reasons, including
potentially inadequate development of necessary Internet infrastructure,
government regulation or delayed development of enabling technologies and
performance improvements. The market for permission email marketing services is
in its infancy, and we are not certain whether our target customers will widely
adopt and deploy this technology. Even if they do so, they may not choose our
products for technical, cost, support or other reasons. Adoption of permission
email marketing services, particularly by those entities that have historically
relied upon traditional means of direct marketing, such as telemarketing and
direct mail, requires the broad acceptance of a new and substantially different
approach to direct marketing. We believe that the promotion of the concept of
permission email marketing will require us to engage in an intensive marketing
and sales effort to educate prospective customers regarding the uses and
benefits of our products and services. Enterprises that have already invested
substantial resources in other advertising methods may be reluctant or slow to
adopt our new approach.
Our future growth also depends on the commercial success of our YesMail
Network and the products that comprise our network. These products include
eTrack, eCampaign and eTarget, and the products we plan to introduce by the end
of the third quarter of 1999, such as ePredict and eManage. If our customers do
not widely adopt and purchase our products, our business will suffer.
Furthermore, the Internet advertising and permission email services market is
characterized by rapid technological change, frequent new product introductions,
changes in customer requirements and evolving industry standards. If we are
unable to develop and introduce products or enhancements in a timely manner, we
may not be able to successfully compete and our products may become obsolete.
SEVERAL KEY MEMBERS OF OUR MANAGEMENT TEAM HAVE ONLY RECENTLY JOINED US AND IF
THEY ARE UNABLE TO EFFECTIVELY INTEGRATE THEMSELVES INTO OUR BUSINESS OR WORK
TOGETHER AS A MANAGEMENT TEAM, OUR BUSINESS WILL SUFFER.
Several key members of our management team have joined us since January 1,
1999, including David M. Tolmie, our Chief Executive Officer and President,
David B. Menzel, our Chief Financial Officer and Vice President, Finance and
Administration, Peder Jungck, our Chief Technology Officer, Michael R.
Mooradian, our Vice President, Sales and Anthony Priore, our Vice President,
Marketing. If these key employees cannot effectively integrate themselves into
our business or work together as a management team to enable us to carry out our
permission email strategy, our business will suffer.
COMPETITION IN THE MARKET FOR INTERNET ADVERTISING AND DIRECT MARKETING IS
INTENSE AND COULD ADVERSELY AFFECT OUR BUSINESS.
The market for Internet advertising and direct marketing is intensely
competitive, rapidly changing and highly fragmented. We expect that competition
will increase significantly in the near-term because of the attention the
Internet has received as a means of advertising and direct marketing and because
there are no significant barriers to entry. Our primary long-term competitors
may not have entered the market yet because our market is new. Competition could
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result in price reductions, changes in the way services are priced, reduced
gross margin and loss of market share, any of which could cause our business to
suffer.
Many of our current and potential competitors have greater name
recognition, longer operating histories, larger customer bases and significantly
greater financial, technical, marketing, public relations, sales, distribution
and other resources than we do. Some of our potential competitors are among the
largest and most well-capitalized companies in the world. In addition, some of
our competitors may include Web site owners who own permission email lists. We
expect to face competition from these and other competitors, including Internet
portals, traditional list brokers, banner advertising managers, independent list
managers, incentive-based subscriber lists and customer management and retention
service companies. For a more detailed discussion of our competition, please see
"Business -- Competition."
OUR FAILURE TO DEVELOP AND MAINTAIN OUR SALES, MARKETING AND SUPPORT
ORGANIZATION AND RELATIONSHIPS WITH OUR NETWORK PARTNERS AND THIRD PARTY LIST
MANAGERS WOULD LIMIT OUR GROWTH.
If we fail to substantially develop our direct and indirect sales and
marketing operations and our relationships with our network partners, our growth
will be limited. Our products and services require a sales effort targeted at
several people within our prospective customers. We have recently expanded our
direct sales force and plan to hire additional sales personnel. We might not be
able to hire, train or retain the kind and number of sales and marketing
personnel we are targeting because competition for qualified sales and marketing
personnel is intense. In addition, we will increasingly rely on advertising
agencies and direct marketers to resell our products and services. If we do not
effectively manage or grow our sales and marketing channel, our business could
suffer.
We must continue to maintain and expand relationships with network partners
who provide us with access to permission email lists. We began to enter into
contractual management agreements with our network partners in the first quarter
of 1999 and cannot be assured that the growth of our business as a result of our
entering into these agreements will be sufficient to meet our expectations for
sales growth and profitability. A majority of our reach is currently comprised
of reseller arrangements with third party list managers, under which we pay a
fixed fee for the nonexclusive use of their list for a specific campaign. These
third party list managers are not contractually obligated to provide us with
access to their lists. If we fail to maintain or grow our relationships with our
network partners and third party list managers, our business could suffer.
IF WE ARE UNABLE TO MANAGE OUR EXPECTED GROWTH, OUR BUSINESS WILL SUFFER.
Our ability to successfully offer our products and services and implement
our business plan in the rapidly evolving market for permission email marketing
services requires an effective planning and management process. We continue to
increase the scope of our operations and have grown our headcount substantially.
These factors have placed, and our anticipated future operations will continue
to place, a significant strain on our management systems and resources. We
expect that we will need to continue to improve our operational and financial
and managerial controls and reporting systems and procedures, and will need to
continue to expand, train and manage our work force.
WE RUN THE RISK OF SYSTEM FAILURE THAT COULD ADVERSELY AFFECT OUR BUSINESS.
The continuing and uninterrupted performance of our network is critical to
our success. Direct marketers may become dissatisfied by any system failure that
interrupts our ability to provide our services to them, including failures
affecting the ability to deliver marketing messages quickly and accurately to
the targeted audience. Sustained or repeated system failures would reduce
significantly the attractiveness of our solutions to our customers. Our business
would suffer by any damage or failure that interrupts or delays our operations.
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Our operations depend on our ability to protect our computer systems
against damage from a variety of sources, including telecommunications failures,
malicious human acts and natural disasters. Substantially all of our operations
and computer systems are located at a single facility leased by us in Vernon
Hills, Illinois. The occurrence of any of the above factors affecting our
ability to maintain uninterrupted system performance would harm our business.
Despite network security measures, our servers are vulnerable to computer
viruses and disruptions from unauthorized tampering with our computer systems.
We do not carry business interruption insurance to compensate for losses that
may occur as a result of any of these events. Despite precautions, unanticipated
problems affecting our systems could cause interruptions in the delivery of our
solutions in the future. Our data storage centers incorporate redundant systems,
consisting of additional servers, but the primary system does not switch over to
the backup system automatically.
In addition, if our products and services or our customers are affected by
problems associated with inaccurate calculations with respect to the Year 2000,
or if we experience reduced sales as potential customers divert resources to
effect their own Year 2000 compliance, our business will suffer. For a further
discussion of Year 2000 issues, please see "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Year 2000 Readiness
Disclosure."
IF WE ARE UNABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY, OUR BUSINESS
WILL SUFFER.
Our ability to successfully compete is substantially dependent upon our
internally developed technology, which we protect through a combination of
copyright, trade secret and trademark law. We have no issued patents or patent
applications pending. However, we may not be able to adequately protect our
proprietary rights which may harm our business. Unauthorized parties may attempt
to copy or otherwise obtain and use our products or technology. Policing
unauthorized use of our products is difficult, and we cannot be certain that the
steps we have taken will prevent misappropriation of our technology,
particularly in foreign countries where the laws may not protect our proprietary
rights as fully as in the United States. For a more detailed description of the
protection of our intellectual property, please see "Business -- Intellectual
Property Rights."
OUR PROPRIETARY TECHNOLOGY MAY BE SUBJECT TO INFRINGEMENT CLAIMS WHICH COULD
HARM OUR BUSINESS.
There is a substantial risk of litigation regarding intellectual property
rights in our industry. A successful claim of product infringement against us
and our failure or inability to license the infringed or similar technology
could harm our business. From time to time, third parties have asserted and may
assert exclusive patent, copyright, trademark and other intellectual property
rights to technologies and related standards that are important to us. We expect
that our products may be increasingly subject to third-party infringement claims
as the number of our competitors grows. We cannot be certain that third parties
will not make future claims of infringement against us with respect to our
products and technology. Any claims, with or without merit, could:
- be time-consuming to defend;
- result in costly litigation;
- divert management's attention and resources;
- cause delays in delivering products and services;
- require the payment of monetary damages which may be tripled if the
infringement is found to be willful;
- result in an injunction which would prohibit us from offering a
particular product or service; or
- require us to enter into royalty or licensing agreements.
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Royalty or licensing agreements, if required, may not be available on
acceptable terms, if at all. For additional information, please see
"Business -- Intellectual Property Rights."
OUR BUSINESS WOULD SUFFER IF WE ARE UNABLE TO SUCCESSFULLY INTEGRATE
ACQUISITIONS OF OTHER COMPANIES OR SUBSCRIBER LISTS.
From time to time, we expect to evaluate opportunities to grow through
acquisitions of or investments in complementary companies, products or
technologies. If we acquire a company, we could have difficulty in assimilating
that company's personnel, operations, products or technology. In addition, the
key personnel of the acquired company may decide not to work for us. If we make
acquisitions of products or technology, we could have difficulty in assimilating
the acquired technology or products into our operations. These difficulties
could disrupt our ongoing business, distract our management and employees and
increase our expenses. Moreover, our profitability may suffer because of
acquisition-related costs or amortization costs for acquired goodwill and other
intangible assets. Furthermore, we may have to incur debt or issue equity
securities to pay for any future acquisitions, the issuance of which could be
dilutive to us or our existing stockholders. If we are unable to successfully
address any of these risks, our business could be harmed.
THE LOSS OF ANY OF OUR EXECUTIVE OFFICERS OR KEY PERSONNEL WOULD LIKELY HAVE AN
ADVERSE EFFECT ON OUR BUSINESS.
We need to hire a significant number of additional sales, support,
marketing and product development personnel to expand our business. If we fail
to attract qualified personnel or retain current employees, our revenues may not
increase and could decline. Competition for these individuals is intense, and we
may not be able to attract, assimilate or retain additional highly qualified
personnel in the future. Our future success also depends upon the continued
service of our executive officers and other key sales, marketing and support
personnel. In addition, our products and technologies are complex and we are
substantially dependent upon the continued service of our existing engineering
personnel. Not all of our officers or key employees are bound by an employment
agreement. Our relationships with these officers and key employees are at will.
Moreover, we do not have "key person" life insurance policies covering any of
our employees.
THE FAILURE OF THIRD PARTIES TO ADEQUATELY PROVIDE REQUIRED SERVICES AND
SOFTWARE COULD HARM OUR BUSINESS.
Our business is dependent on third parties for:
- providing access to the Internet;
- supporting our operations;
- computer programming;
- product development; and
- subscriber list management.
In the event our arrangements with these parties are terminated or these
third parties do not adequately provide required services according to our
schedule, cost and capability expectations, our business could suffer.
In addition, we license technology that is incorporated into our products
from third parties. Any interruption in the supply or support of any licensed
software could disrupt our operations and delay our sales, unless and until we
can replace the functionality provided by this licensed software. Because our
products incorporate software developed and maintained by third parties, we
depend on these third parties to deliver and support reliable products, enhance
their current
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products, develop new products on a timely and cost-effective basis and respond
to emerging industry standards and other technological changes.
PRIVACY CONCERNS WITH RESPECT TO OUR PRODUCTS AND SERVICES COULD NEGATIVELY
AFFECT OUR BUSINESS.
Our technology collects and utilizes data derived from user activity in the
YesMail Network. Our network enables the use of personal profiles, in addition
to other mechanisms, to deliver targeted marketing materials, to help compile
demographic information and to limit the frequency with which an advertisement
is shown to the user. The effectiveness of our technology and the success of our
business could be limited by any reduction or limitation in the use of personal
profiles. These personal profiles contain bits of information keyed to a
specific server, file pathway or directory location that are stored in the
user's hard drive. Personal profiles are placed on the user's hard drive without
the user's knowledge or consent, but can be removed by the user at any time
through the modification of the user's browser settings. In addition, currently
available applications can be configured to prevent personal profiles from being
stored on their hard drive. Some commentators, privacy advocates and
governmental bodies have suggested limiting or eliminating the use of personal
profiles. In the event this occurs, our business would likely suffer.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES OF DOING BUSINESS ON THE INTERNET
COULD NEGATIVELY IMPACT OUR BUSINESS.
Laws and regulations that apply to Internet communications, commerce and
advertising are becoming more prevalent. These regulations could affect the cost
of communicating on the Internet and negatively affect the demand for our direct
marketing solutions or otherwise harm our business. Recently, the United States
Congress enacted Internet legislation regarding children's privacy, copyright
and taxation. A number of other laws and regulations may be adopted covering
issues such as user privacy, pricing, acceptable content, taxation and quality
of products and services. This legislation could hinder growth in the use of the
Internet generally and decrease the acceptance of the Internet as a
communications, commercial and direct marketing medium. In addition, the growing
use of the Internet has burdened the existing telecommunications infrastructure
and has caused interruptions in telephone service. Telephone carriers have
petitioned the government to regulate and impose fees on Internet service
providers and online service providers in a manner similar to long distance
carriers. The European Union recently adopted a directive addressing data
privacy that may result in limits on the collection and use of user information.
The laws governing the Internet remain largely unsettled, even in areas
where there has been some legislative action. It may take years to determine
whether and how existing laws including those governing intellectual property,
privacy, libel and taxation apply to the Internet and Internet advertising. In
addition, the growth and development of the market for Internet commerce may
prompt calls for more stringent consumer protection laws, both in the United
States and abroad, that may impose additional burdens on companies conducting
business over the Internet. Our business could suffer with the adoption or
modification of laws or regulations relating to the Internet, or the application
of existing laws to the Internet. For additional discussion of potential
governmental intervention, please see "Business -- Government Regulation."
WE MAY FACE CLAIMS FOR ACTIVITIES OF OUR CUSTOMERS WHICH COULD HARM OUR
BUSINESS.
Our customers' promotion of their products and services may not comply with
federal, state and local laws. A wide variety of laws and regulations govern the
content of advertisements and regulate the sale of products and services. There
is also uncertainty as to the application of these laws to the emerging world of
advertising on the Internet. We cannot predict whether our role in facilitating
these marketing activities would expose us to liability under these laws. We may
face
11
<PAGE> 12
civil or criminal liability for unlawful advertising or other activities of our
customers. If we are exposed to this kind of liability, we could be required to
pay substantial fines or penalties, redesign our business methods, discontinue
some of our services or otherwise expend resources to avoid liability. Any costs
incurred as a result of that liability or asserted liability could harm our
business.
THIS OFFERING IS THE INITIAL PUBLIC OFFERING OF OUR STOCK AND WE CANNOT ASSURE
YOU THAT OUR STOCK PRICE WILL NOT DECLINE AFTER THE OFFERING.
You may not be able to resell your shares at or above the initial public
offering price due to a number of factors, including:
- actual or anticipated quarterly variations in our operating results;
- changes in expectations of future financial performance or changes in
estimates of securities analysts;
- announcements of technological innovations by us or our competitors;
- departures of key personnel;
- future sales of our common stock;
- announcement of significant claims or legal proceedings; and
- conditions affecting the Internet industry.
The trading price of our common stock may be volatile. The market for
technology and Internet-related companies has experienced extreme volatility
that often has been unrelated to the operating performance of particular
companies. These fluctuations may negatively affect the trading price of our
common stock, regardless of our actual operating performance.
OUR OFFICERS, DIRECTORS AND AFFILIATED ENTITIES WILL HAVE SIGNIFICANT CONTROL OF
US AND MAY MAKE DECISIONS THAT ARE NOT IN THE BEST INTEREST OF ALL STOCKHOLDERS.
We anticipate that our executive officers, directors and entities
affiliated with them will, in the aggregate, beneficially own approximately
37.9% of our outstanding common stock following the completion of this offering.
These stockholders, if acting together, would be able to significantly influence
all matters requiring approval by our stockholders, including the election of
directors and the approval of mergers or other business combination
transactions.
WE HAVE ANTI-TAKEOVER DEFENSES THAT COULD PREVENT US FROM BEING ACQUIRED.
Provisions of our Certificate of Incorporation, our Bylaws, and Delaware
law could make it more difficult for a third party to acquire us, even if doing
so would be beneficial to our stockholders. For additional information on these
anti-takeover provisions, please see "Description of Capital Stock."
FUTURE SALES OF COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
After this offering, a substantial percentage of our common stock will be
eligible for resale. If our stockholders sell substantial amounts of our common
stock, including common stock issued upon the exercise of outstanding options,
in the public market following this offering, the market price of our common
stock could fall dramatically. Such 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.
The number of shares of common stock available for sale in the public
market is limited by restrictions under federal securities law and by certain
"lock-up" agreements that our
12
<PAGE> 13
stockholders have entered into with the underwriters. For additional information
on these restrictions and on future sales of our common stock, please see
"Shares Eligible for Future Sale" and "Underwriting."
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS AND INDUSTRY DATA
We have made forward looking statements in this prospectus that are subject
to risks and uncertainties. Forward looking statements include information
concerning our possible or assumed results of operations. In addition, when we
use such words as "believes," "expects," "plans," "future," "intends,"
"anticipates" or similar expressions, we are making forward looking statements.
You should note that an investment in our securities involves risks and
uncertainties that could affect future financial results. You should not place
undue reliance on these forward looking statements, which apply only as of the
date of this prospectus. Our actual results could differ materially from those
anticipated in these forward looking statements as a result of factors,
including those set forth in "Risk Factors" and elsewhere in this prospectus.
This prospectus contains statistical data regarding Internet usage and the
advertising and marketing industry that we obtained from industry publications,
including reports generated by the Direct Marketing Association, Forrester
Research, the Gartner Group and Jupiter Communications. These industry
publications generally indicate that they have obtained their information from
sources believed to be reliable, but do not guarantee the accuracy and
completeness of their information. While we believe that these publications are
reliable, we have not independently verified their data.
13
<PAGE> 14
USE OF PROCEEDS
Our net proceeds from the sale of the 3,400,000 shares of common stock we
are offering in this prospectus at an assumed public offering price of $11.00
per share, are estimated to be $33,682,000, or $38,899,300 if the underwriters'
over-allotment option is exercised in full and after deducting the underwriting
discounts and commissions and estimated offering expenses. Our principal
purposes for engaging in this offering are to:
- increase our equity capital;
- create a public market for our common stock; and
- facilitate future access by us to public equity markets.
We expect to use the net proceeds from this offering for general corporate
purposes, including working capital. Pending use of the net proceeds of this
offering, we intend to invest the net proceeds in short-term, interest-bearing,
investment-grade securities. Otherwise, we have no current specific plan for the
proceeds from this offering.
DIVIDEND POLICY
We have never declared or paid cash dividends to our stockholders. We
currently intend to retain all available funds and any future earnings for use
in the operation of our business and we do not anticipate declaring or paying
cash dividends for the foreseeable future.
14
<PAGE> 15
CAPITALIZATION
The actual column in the following table sets forth our actual
capitalization as of June 30, 1999. The pro forma column in the following table
reflects the conversion of each outstanding share of preferred stock into one
share of common stock, which will occur upon the closing of this offering.
The pro forma as adjusted column in the following table gives effect to the
receipt of the net proceeds from the sale of the shares of common stock that we
are offering in this prospectus at an assumed initial public offering price of
$11.00 per share and after deducting estimated underwriting discounts and
estimated offering expenses. Please see "Use of Proceeds."
The following table does not include shares of common stock reserved for
issuance under our stock option and stock purchase plans, of which 875,625
shares were issuable upon exercise of outstanding options as of June 30, 1999.
See "Management -- Compensation Plans" and Note 11 of Notes to Consolidated
Financial Statements.
<TABLE>
<CAPTION>
JUNE 30, 1999
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Capital lease obligations, less current portion...... $ 330 $ 330 $ 330
Stockholders' equity:
Series A convertible preferred stock, $0.0001 par
value, 15,000,000 shares authorized, 5,154,548
shares issued and outstanding actual; 15,000,000
shares authorized, no shares issued and
outstanding pro forma; 5,000,000 shares
authorized, no shares issued and outstanding pro
forma as adjusted............................... 1 -- --
Common stock, $0.0001 par value, 22,500,000 shares
authorized, 11,769,546 shares issued and
outstanding actual; 22,500,000 shares
authorized, 16,924,094 shares issued and
outstanding pro forma; 60,000,000 shares
authorized, 20,324,094 shares issued and
outstanding pro forma as adjusted............... 1 2 2
Notes receivable from stockholders................... (3,831) (3,831) (3,831)
Additional paid-in capital........................... 13,782 13,782 47,464
------- ------- -------
Deferred compensation................................ (411) (411) (411)
Accumulated deficit.................................. (7,689) (7,689) (7,689)
Total stockholders' equity........................... 1,853 1,853 35,535
------- ------- -------
Total capitalization................................. $ 2,183 $ 2,183 $35,865
======= ======= =======
</TABLE>
15
<PAGE> 16
DILUTION
Our pro forma net tangible book value as of June 30, 1999 was $1.4 million
or approximately $0.08 per share of common stock. "Net tangible book value" per
share represents the amount of our total tangible assets reduced by the amount
of our total liabilities and divided by the total number of shares of common
stock outstanding. After giving effect to the sale of the 3,400,000 shares of
common stock that we are offering in this prospectus at an assumed initial
public offering price of $11.00 per share and after deducting the underwriting
discounts and commissions and estimated offering expenses payable, our pro forma
net tangible book value as of June 30, 1999 would have been $35.1 million or
approximately $1.72 per share of common stock. This represents an immediate
increase in net tangible book value of $1.64 per share to existing stockholders
and an immediate dilution in net tangible book value of $9.28 per share to new
investors in this offering. The following table illustrates this dilution on a
per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $11.00
Pro forma net tangible book value per share as of June 30,
1999................................................... $0.08
Increase per share attributable to new investors.......... 1.64
-----
Net tangible book value per share after the offering........ 1.72
------
Dilution in net tangible book value per share to new
investors................................................. $ 9.28
======
</TABLE>
The following table summarizes on a pro forma basis, as of June 30, 1999,
the differences between the existing stockholders and new investors with respect
to number of shares of common stock purchased from us, the total consideration
paid to us and the average price per share paid.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- ------------------------ PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
---------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........ 16,924,094 83.3% $12,832,573 25.5% $ 0.76
New investors................ 3,400,000 16.7 37,400,000 74.5 $11.00
---------- ---- ----------- ---- ------
Total................... 20,324,094 100% $50,232,573 100%
========== ==== =========== ====
</TABLE>
The foregoing discussion and tables are based upon the number of shares
actually outstanding as of June 30, 1999 and exclude shares of common stock
reserved for issuance under our stock option and stock purchase plans, of which
875,625 shares of common stock were issuable upon exercise of outstanding
options as of June 30, 1999. Please see "Capitalization,"
"Management -- Compensation Plans" and "Description of Capital Stock."
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<PAGE> 17
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated statement of operations data for the period from
April 7, 1995 through December 31, 1995 and the selected consolidated balance
sheet data as of December 31, 1995 have been derived from our unaudited
financial statements. The selected consolidated statement of operations data set
forth below for the periods from January 1, 1996 to December 31, 1998 and the
selected consolidated balance sheet data as of December 31, 1998 have been
derived from our audited financial statements included elsewhere in this
prospectus. The selected consolidated results of operations data for the three
months ended June 30, 1998 and 1999 and the selected consolidated balance sheet
data as of June 30, 1998 and 1999 are derived from unaudited consolidated
financial statements included elsewhere in this prospectus that have been
prepared on the same basis as the audited consolidated financial statements and,
in the opinion of management, contain all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of our consolidated
operating results for such periods and its financial condition as of such date.
The historical results are not necessarily indicative of results to be expected
for any future period. The data has been derived from financial statements that
have been prepared in accordance with generally accepted accounting principles
and should be read in conjunction with the Consolidated Financial Statements and
the Notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(APRIL 7, SIX MONTHS ENDED
1995) THROUGH YEAR ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, --------------------------- -----------------
1995 1996 1997 1998 1998 1999
------------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................................... $ 13 $ 935 $ 2,468 $ 4,583 $ 2,046 $ 3,642
Cost of revenues.............................. -- 293 1,090 2,703 1,142 2,477
------- ------- ------- ------- ------- -------
Gross profit.................................. 13 642 1,378 1,880 904 1,165
Operating expenses:
Sales and marketing expenses................ -- 292 960 1,751 677 3,101
General and administrative expenses......... 26 237 466 929 384 1,996
Research and development costs.............. -- 198 357 601 276 1,423
------- ------- ------- ------- ------- -------
Total operating expenses................ 26 727 1,783 3,281 1,337 6,520
------- ------- ------- ------- ------- -------
Loss from operations.......................... (13) (85) (405) (1,401) (433) (5,355)
Interest expense.............................. -- (4) (18) (45) (18) (106)
Other income (expense)........................ -- -- -- (250) -- 20
Minority interest............................. -- 9 9 (10) (9) (34)
------- ------- ------- ------- ------- -------
Net loss...................................... $ (13) $ (80) $ (414) $(1,706) $ (460) $(5,475)
======= ======= ======= ======= ======= =======
Basic and diluted net loss per share(1)....... $ 0.00 $ (0.01) $ (0.05) $ (0.22) $ (0.06) $ (0.60)
======= ======= ======= ======= ======= =======
Shares used in computing basic and diluted net
loss per share(1)........................... 4,630 7,723 7,649 7,636 7,776 9,178
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------------- -----------------
1995 1996 1997 1998 1998 1999
------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......................... $ 10 $ 9 $ 2 $ 26 $ 9 $ 3,508
Working capital (deficit).......................... 4 (52) (448) (2,262) (907) 476
Total assets....................................... 27 200 284 643 337 6,676
Capital lease obligations, less current portion.... -- 12 18 153 19 330
Stockholders' equity (deficit)..................... (13) (38) (347) (2,053) (811) 1,853
</TABLE>
- ---------------
(1) Computed by dividing loss attributable to common stockholders by shares used
in basic and diluted net loss per share. See Note 3 of Notes to Consolidated
Financial Statements for an explanation of the determination of the number
of shares used in computing basic and diluted net loss per share.
17
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for historical information, the discussion in this prospectus
contains forward-looking statements that involve risks and uncertainties. These
forward-looking statements include, among others, those statements including the
words, "expects," "anticipates," "intends," "believes" and similar language. Our
actual results could differ materially from those discussed herein. Factors that
could cause or contribute to such differences include, but are not limited to
the risks discussed in the section titled "Risk Factors" in this prospectus.
OVERVIEW
We were organized as a Delaware corporation in October 1998 and had no
operations prior to March 25, 1999. Superhighway Consulting, Inc. was founded in
1995 and was merged with us on March 29, 1999, in a stock for stock transaction,
with the former Superhighway shareholders receiving 7,500,000 shares of our
common stock, or 80% of our outstanding shares. The parties determined that in
exchange for assisting us in raising capital and hiring a new management team,
our founding stockholders should be entitled to 20% of the combined company. In
connection with this merger, we entered into a founders' agreement with our
stockholders, which, among other things, gave the former shareholders of
Superhighway Consulting the right to retain the first $16 million of our value
upon our subsequent sale or merger or our founding stockholders' interest in the
first $16 million of our value upon our initial public offering. In the case of
our initial public offering, the payment to the former Superhighway Consulting
shareholders shall be made with a transfer of shares from our founding
stockholders. For additional information on this option among our stockholders,
please see "Related Party Transactions -- Option Among Stockholders," "Principal
Stockholders" and Note 1 to Notes to Consolidated Financial Statements. In June
1999, we purchased the 30% minority interest in our Starting Point, L.L.C.,
subsidiary for approximately $300,000 in cash and notes and an option to acquire
18,750 shares of our common stock at an exercise price of $1.79 per share. This
transaction was effected so that we would have full ownership of Starting
Point's web site and permission email list. We had distributed the 30% interest
in Starting Point in September 1996 for $16,000. For additional information on
the acquisition, please see Note 11 to Notes to Consolidated Financial
Statements.
We provide permission email direct marketing services. In 1995, as
Superhighway, we were originally focused on providing a wide array of Internet
marketing services. From 1995 through 1997, the majority of our revenue was
derived from directory submission Internet services and business advertising on
the Internet.
After identifying the opportunity for permission email direct marketing, we
began to refocus our strategy towards permission email in 1998. To implement our
permission email strategy, we engaged a new executive management team in late
1998 and early 1999. As a result of our new focus, we have built a network and
developed reseller relationships which collectively provide us with reach to
over 5 million self-selected individuals, who have given express permission to
receive promotional messages via email on specific categories of interest. Our
current strategy is to focus our resources on our permission email business by
continuing to build our network of subscribers and our customer base. Our change
in business focus has resulted in permission email growing from approximately 9%
of revenue in the first quarter of 1998 to approximately 40% of revenue in the
first quarter of 1999 and approximately 72% of revenue in the second
18
<PAGE> 19
quarter of 1999. The following table sets forth the amount of revenue received
from permission email, advertising and marketing services for the periods
indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------------------
PERCENT PERCENT PERCENT PERCENT PERCENT
OF OF OF OF OF
1996 TOTAL 1997 TOTAL 1998 TOTAL 1998 TOTAL 1999 TOTAL
---- -------- ------ -------- ------ -------- ------ -------- ------ --------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Permission email................ $ -- 0% $ 95 4% $ 968 21% $ 176 9% $2,175 60%
Advertising services............ 480 51 1,111 45 1,706 37 739 36 1,096 30
Marketing services.............. 455 49 1,262 51 1,909 42 1,131 55 371 10
---- ---- ------ ---- ------ ---- ------ ---- ------ ----
$935 100 $2,468 100 $4,583 100 $2,046 100 $3,642 100
</TABLE>
Since 1998, permission email has represented an increasing portion of our
revenue as we have implemented our strategy of changing our business focus
towards permission email. We expect this trend to continue and expect that
revenue from advertising and marketing services will decline as a percentage of
revenue in future periods.
We derive revenue by providing Internet marketing services including
charging fees for sending permission email, placing advertising on Web sites and
providing services to Web site owners. Revenue is recognized when emails are
sent to subscribers, when advertisements are placed on Web sites and when
services are performed. Our customers are primarily companies developing
Internet marketing strategies and their interactive advertising agencies.
We deliver email messages to members of our YesMail Network, consisting of
our own permission email list and those of our network partners, and permission
email lists from third party list managers. We pay our network partners or third
party list managers either a percentage of revenue derived from the delivery of
email messages to members on the lists they provide or a fixed fee.
Substantially all of our direct marketing customers purchase our permission
email services under short-term contracts. Customers can therefore terminate
these contracts on short notice without penalty. Our revenues would suffer if we
are unable to secure new contracts from existing direct marketing customers or
obtain new direct marketing customers. We expect to continue to derive a
substantial majority of our revenues from short-term contracts.
Gross margins from permission email are lower than gross margins from the
other Internet marketing services we provide due to the higher costs associated
with acquiring and managing permission email lists. As a result of our change in
focus to permission email, our gross margin declined significantly in the first
quarter of 1999 compared to 1998. For the next several quarters, we expect our
gross margins to continue to decline as permission email becomes a higher
percentage of total revenue.
We have incurred significant losses since inception and as of June 30,
1999, we had an accumulated deficit of $7.7 million. We expect to increase
spending on sales and marketing as we expand our sales force, increase our
subscriber base and promote awareness of our brand. We also expect substantially
higher general and administrative and research and development expenses as we
expand our infrastructure to support our expected growth and as we continue to
develop new products and enhancements to our existing products. As a result of
these increases, we expect to incur significant losses for the foreseeable
future.
In view of the rapidly evolving nature of our business, our limited
operating history and our recent focus on permission email, we believe that
period-to-period comparisons of our revenue and operating results, including our
gross margin and operating expenses as a percentage of total revenues, are not
meaningful and should not be relied upon as an indication of future performance.
We do not believe that our historical growth rates are indicative of future
results.
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<PAGE> 20
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 AND 1999
Revenues. Our revenues consist of fees from providing Internet marketing
services, including the delivery of permission email direct marketing messages
to members in our network, as well as banner advertising and other Internet
marketing services. Total revenues were $2.0 million and $3.6 million for the
six months ended June 30, 1998 and 1999, respectively. Permission email revenues
were $176,000 and $2.2 million for the six months ended June 30, 1998 and 1999,
respectively, representing 9% and 60% of total revenue in the respective
periods. The increase in revenues was primarily due to the increased number of
permission email messages we sent in addition to an increase in the number of
direct marketer clients to whom we provided permission email services.
Cost of Revenues. Cost of revenues consists of expenses related to
providing Internet marketing services and includes payments made to our network
partners and third party list managers, fees for the placement of advertisements
on third party Web sites on behalf of others and personnel costs associated with
our Internet marketing services. Cost of revenues were $1.1 million and $2.5
million for the six months ended June 30, 1998 and 1999, respectively. The
increase in cost of revenues was primarily due to the increase in sales volume.
Gross margins decreased from 44% for the six months ended June 30, 1998 to 32%
for the six months ended June 30, 1999. This decrease was primarily the result
of increased revenues associated with our permission email strategy because
payments we make to network partners are greater as a percentage of revenues
than other costs of revenues. We expect our cost of revenues to increase in both
absolute dollars and as a percentage of revenue as we continue to focus on
permission email.
Sales and Marketing. Sales and marketing expenses consist of personnel and
related costs for our direct sales force and marketing staff and marketing
programs, including trade shows, advertising and public relations. Sales and
marketing expenses were $677,000 and $3.1 million for the six months ended June
30, 1998 and 1999, respectively. The increase was primarily due to increases in
the number of direct sales personnel and increased marketing expenditures
targeted at building our permission email strategy. We expect sales and
marketing expenses will increase substantially in absolute dollars over the next
year as we hire additional sales and marketing personnel and initiate additional
marketing programs.
General and Administrative. General and administrative expenses consist
primarily of personnel and related costs for general corporate functions,
including finance, accounting, human resources, facilities and legal. General
and administrative expenses were $384,000 and $2.0 million for the six months
ended June 30, 1998 and 1999, respectively. The increase was due primarily to an
increase in the number of general and administrative personnel and increased
legal and accounting costs associated with our growth. We expect general and
administrative expenses to increase in absolute dollars in future periods as we
hire additional personnel and incur additional costs related to the growth of
our business and our operations as a public company.
Research and Development. Research and development expenses consist
primarily of personnel and related costs for our development and technical
support efforts. To date, all research and development costs have been expensed
as incurred. Research and development expenses were $276,000 and $1.4 million
for the six months ended June 30, 1998 and 1999, respectively. The increase was
primarily due to increased research and development personnel and consulting
costs associated with the development of our Web site and our products which
enable the execution of our permission email strategy. We believe significant
investment in research and development is essential to our future success and
expect that research and development expenses will increase in absolute dollars
in future periods.
Interest Expense. Interest expense consists of interest paid on capital
lease and debt obligations. Interest expense was $18,000 and $106,000 for the
six months ended June 30, 1998
20
<PAGE> 21
and 1999, respectively. The increase was the result of increased borrowings,
primarily from a $1.0 million bridge loan issued in January 1999.
Minority Interest. Minority interest consists of the third party ownership
interest through June 9, 1999, in our 70% owned subsidiary, Starting Point, LLC.
In June 1999, we purchased the 30% ownership interest of Starting Point, LLC
from the minority interest shareholder.
Income Taxes. No provision for federal and state income taxes was recorded
as we incurred net operating losses from inception through June 30, 1999. As of
December 31, 1998, we had approximately $1.4 million of federal and state net
operating loss carryforwards which expire in varying amounts beginning in 2010.
As a result of various equity transactions during 1999, we believe that we may
have undergone an "ownership change" as defined in section 382 of the Internal
Revenue Code. Accordingly, the utilization of a portion of the net operating
loss carryforwards may be limited. Due to the uncertainty regarding the ultimate
utilization of the net operating loss carryforwards, we have not recorded any
benefit for losses and a valuation allowance has been recorded for the entire
amount of the net deferred tax asset. In addition, sales of our stock, including
shares sold in this offering, may further restrict our ability to utilize our
net operating loss carryforwards.
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
Revenues. Total revenues were $935,000, $2.5 million and $4.6 million for
the years ended December 31, 1996, 1997 and 1998, respectively. Permission email
revenues were $0, $95,000 and $968,000 for the respective periods. The increase
in revenues in 1998 compared to 1997 was primarily due to increases in the
number of advertising clients and the increased number of permission email
messages we sent. The increase in revenues in 1997 compared to 1996 was
primarily attributable to increases in the number of direct marketing customers
partially offset by decreases in the number of Web development projects.
Cost of Revenues. Cost of revenues were $293,000, $1.1 million, and $2.7
million for the years ended December 31, 1996, 1997 and 1998, respectively. The
increase in 1998 compared to 1997 primarily resulted from increased sales
volumes, including payments to our network partners and third party list
managers. The increase in cost of revenues in 1997 compared to 1996 was
primarily due to the increase in personnel costs.
Sales and Marketing. Sales and marketing expenses were $292,000, $960,000
and $1.8 million in 1996, 1997 and 1998, respectively. These increases were
primarily due to increases in the number of direct sales personnel and increased
marketing expenditures targeted at building our permission email strategy.
General and Administrative. General and administrative expenses were
$237,000, $466,000 and $929,000 in 1996, 1997 and 1998, respectively. These
increases were due primarily to an increase in the number of general and
administrative personnel and increased legal and accounting costs.
Research and Development. Research and development expenses were $199,000,
$357,000 and $601,000 in 1996, 1997 and 1998, respectively. The increase in
research and development expenses from 1997 to 1998 was primarily due to
increased personnel and consulting costs associated with the development of our
Web site and the building of our permission email strategy. The increase in
research and development expenses from 1996 to 1997 was primarily due to
increased personnel and consulting costs associated with our banner advertising
services.
Interest Expense. Interest expense was approximately $4,000, $18,000 and
$45,000 in 1996, 1997 and 1998, respectively. These increases were the result of
increased borrowings to fund our working capital needs.
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<PAGE> 22
Other Expense. Other expense of $250,000 for the year ended December 31,
1998 consists of the accrual of the costs related to a claim by a former
employee. In May 1999, this claim was settled for approximately $250,000.
Income Taxes. No provision for federal and state income taxes was recorded
as we incurred net operating losses from inception through December 31, 1998. As
of December 31, 1998, we had approximately $1.4 million of federal and state net
operating loss carryforwards which expire in varying amounts beginning in 2010.
As a result of various equity transactions during 1999, we believe that we may
have undergone an "ownership change" as defined in section 382 of the Internal
Revenue Code. Accordingly, the utilization of a portion of the net operating
loss carryforwards may be limited. Due to the uncertainty regarding the ultimate
utilization of the net operating loss carryforwards, we have not recorded any
benefit for losses and a valuation allowance has been recorded for the entire
amount of the net deferred tax asset. In addition, sales of our stock, including
shares sold in this offering, may further restrict our ability to utilize our
net operating loss carryforwards.
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<PAGE> 23
QUARTERLY OPERATING RESULTS
The following table presents our historical unaudited quarterly results of
operations for our most recent six quarters. This data is unaudited and derived
from our audited annual Consolidated Financial Statements and Notes thereto
appearing elsewhere in this prospectus. In the opinion of management, such
quarterly financial information has been prepared on the same basis as our
annual financial statements and includes all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial results
set forth therein. Such statement of operations data should be read in
conjunction with the Consolidated Financial Statements and related Notes thereto
in this prospectus. Our results of operations have fluctuated and are likely to
continue to fluctuate significantly from quarter to quarter. Results of
operations for any previous periods are not necessarily comparable to future
periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------
MAR. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31, JUN. 30,
1998 1998 1998 1998 1999 1999
-------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................... $ 873 $ 1,173 $ 1,126 $ 1,411 $ 1,389 $ 2,253
Cost of revenues............................ 376 766 782 779 657 1,820
------- ------- ------- ------- ------- -------
Gross profit................................ 497 407 344 632 732 433
Operating expenses:
Sales and marketing expenses.............. 387 291 342 732 902 2,199
General and administrative expenses....... 143 240 195 351 669 1,327
Research and development costs............ 150 126 122 202 234 1,189
------- ------- ------- ------- ------- -------
Total operating expenses.................... 680 657 659 1,285 1,805 4,715
------- ------- ------- ------- ------- -------
Loss from operations........................ (183) (250) (315) (653) (1,073) (4,282)
Interest expense............................ (8) (10) (8) (19) (55) (51)
Other income (expense)...................... -- -- -- (250) -- 20
------- ------- ------- ------- ------- -------
Net loss before minority interest........... (191) (260) (323) (922) (1,128) (4,313)
Minority interest........................... (2) (7) (11) 10 (23) (11)
------- ------- ------- ------- ------- -------
Net loss.................................... $ (193) $ (267) $ (334) $ (912) $(1,151) $(4,324)
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------
MAR. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31, JUN. 30,
1998 1998 1998 1998 1999 1999
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF REVENUES:
Revenues.................................... 100% 100% 100% 100% 100% 100%
Cost of revenues............................ 43 65 70 55 47 81
------- ------- ------- ------- ------- -------
Gross profit................................ 57 35 30 45 53 19
Operating expenses:
Sales and marketing expenses.............. 44 25 30 52 65 98
General and administrative expenses....... 17 20 17 25 48 59
Research and development costs............ 17 11 11 14 17 53
------- ------- ------- ------- ------- -------
Total operating expenses.................... 78 56 58 91 130 210
------- ------- ------- ------- ------- -------
Loss from operations........................ (21) (21) (28) (46) (77) (191)
Interest expense............................ (1) (1) (1) (1) (4) (2)
Other income (expense)...................... -- -- -- (18) -- 1
------- ------- ------- ------- ------- -------
Net loss before minority interest........... (22) (22) (29) (65) (81) (192)
Minority interest........................... -- (1) (1) 1 (2) (1)
------- ------- ------- ------- ------- -------
Net loss.................................... (22)% (23)% (30)% (64)% (83)% (193)%
======= ======= ======= ======= ======= =======
</TABLE>
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<PAGE> 24
Our operating results are expected to fluctuate significantly in the future
as a result of a variety of factors, many of which are outside of our control.
These factors may include:
- seasonality of direct marketing expenditures which are typically higher
in the second and fourth quarters and lower in the first and third
quarters;
- the level of market acceptance of our products and services;
- delays we may encounter in introducing new products and services;
- competitive developments;
- demand for advertising on the Internet;
- changes in pricing policies and resulting margins;
- changes in the growth rate of Internet usage;
- the growth rate of our network affiliates;
- changes in the mix of products and services sold;
- changes in the mix of sales channels through which products and services
are sold;
- costs related to acquisitions of technology or businesses; and
- economic conditions generally as well as those specific to the Internet
and related industries.
As a strategic response to a changing competitive environment, we may from
time to time make pricing, service, marketing or acquisition decisions that
could harm our business.
In addition, we expect that our revenue will be subject to seasonal
fluctuations because direct marketers typically run fewer campaigns during the
first and third calendar quarters of each year. In addition, expenditures by
marketers tend to be cyclical, reflecting overall economic conditions as well as
budgeting and buying patterns.
LIQUIDITY AND CAPITAL RESOURCES
From inception to January 1999, we have primarily funded our growth through
short-term borrowings and capital leases. In January 1999, we completed a $1.0
million bridge financing, which was convertible into series A preferred stock at
the lender's option. In March 1999, we received $600,000 in advances from three
of our stockholders. In May 1999, we completed a financing and issued
approximately 5.2 million shares of series A preferred stock, including shares
issuable upon conversion of the bridge loan and shares issued in exchange for
the cancellation of the $600,000 in advances from our stockholders, for gross
proceeds of $9.0 million. As of June 30, 1999, we had $3.5 million in cash and
cash equivalents and had borrowed $320,000 under credit lines.
Net cash used in operating activities was $21,000 and $65,000 for the years
ended December 31, 1996 and 1997, respectively, primarily the result of net
losses of $80,000 and $414,000, which were partially offset by increases in
accounts payable and accrued expenses. Net cash provided by operating activities
was $935 for the year ended December 31, 1998, the result of a net loss of $1.7
million, which was offset by increases in accounts payable and accrued expenses.
Net cash used in operating activities was $4.4 million for the six months ended
June 30, 1999 primarily the result of the net loss of $5.5 million and the
increase in accounts receivable and prepaid expenses. The increase in account
receivable was partially due to the Company's extension of normal credit terms
in the ordinary course of business, and generally requiring fewer customers to
pay for services in advance. This net loss and the increases in accounts
receivable and prepaid expenses were partially offset by increases in accounts
payable and accrued expenses.
Net cash used in investing activities was $45,000, $70,000 and $102,000 for
the years ended December 31, 1996, 1997 and 1998 respectively and $982,000 for
the six months ended June 30,
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<PAGE> 25
1999. Cash used in investing activities was primarily related to purchases of
property and equipment.
Net cash provided by financing activities was, $65,000, $127,000 and
$126,000 for the years ended December 31, 1996, 1997 and 1998, respectively, and
$8.9 million for the six months ended June 30, 1999. Cash provided by financing
activities in 1997 and 1998 resulted from borrowings of short-term debt, and was
partially offset by payments of capital leases. Cash provided from financing
activities for the six months ended June 30, 1999 resulted from the proceeds
received upon issuance of preferred stock.
We do not have any material commitments for capital expenditures. We
currently plan to incur approximately $2.0 million in capital expenditures
during 1999.
We believe that the net proceeds from this offering, together with our cash
resources and available credit facilities, will be sufficient to meet our
anticipated cash needs for working capital, repayment of debt and capital
expenditures for at least the next twelve months. After that time, we may need
additional capital. However, we may need to raise additional funds sooner to
fund our planned expansion, to develop new or enhanced products or services, to
respond to competitive pressures or to make acquisitions. We cannot be certain
that additional financing will be available to us on favorable terms. If
adequate funds are not available on acceptable terms, we may not be able to
continue or expand our business.
YEAR 2000 READINESS DISCLOSURE
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. This could result in
system failures or miscalculations causing disruption of operations for any
company using such computer programs or hardware, including, among other things,
a temporary inability to process transactions, send or receive email messages,
send invoices or engage in normal business activities. As a result, many
companies' computer systems may need to be upgraded or replaced in order to
avoid "Year 2000" issues.
We are a comparatively new enterprise, and, accordingly, the majority of
software and hardware we use to manage our business has all been purchased or
developed by us within the last 24 months. While this does not uniformly protect
us against Year 2000 exposure, we believe our exposure is limited because the
information technology, or IT, we use to mange our business is not based upon
legacy hardware and software systems. Generally, hardware and software design
within the current decade and the past several years in particular has given
greater consideration to Year 2000 issues. All of the software code we have
internally developed to manage our network and infrastructure, is written with
four digits to define the applicable year.
We are in the process of testing our internal IT and non-IT systems. The
testing we have completed has primarily been performed internally and, to date,
we have not retained any outside service or consultants to test or review our
systems for Year 2000 compliance. Based on the testing we have performed, we
believe that our software is Year 2000 compliant. We are testing our systems for
Year 2000 compliance and will continue to test these systems as development of
these systems progress.
In addition, we rely on software and hardware developed by third parties
both for our network and internal information systems and third party network
infrastructure providers to gain access to the Internet. To date, we have not
done any testing of third-party software or hardware to determine Year 2000
compliance. We have, however, reviewed certifications from our key suppliers of
hardware and networking equipment for our data centers that this hardware and
networking equipment are Year 2000 compliant. Additionally, we have reviewed
certifications from the providers of key software applications for our internal
operations that their software is
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<PAGE> 26
Year 2000 compliant. Based upon an initial evaluation of our broader list of
software and hardware providers, we believe that all of these providers are in
the process of reviewing and implementing their own Year 2000 compliance
programs. We intend to work with these providers to address the Year 2000 issue
and continue to seek assurances from them that their products are Year 2000
compliant.
As of June 30, 1999, we had incurred approximately $30,000 in expenses
related to the Year 2000 problem, and we anticipate that future costs associated
with our Year 2000 remediation efforts will not exceed $150,000. However, if we,
third party providers of hardware and software or our third party network
providers fail to remedy any Year 2000 issues, the result could be lost
revenues, increased operating costs, the loss of customers and other business
interruptions, any of which could harm our business. Moreover, the failure to
adequately address Year 2000 compliance issues in our products and systems could
result in claims of mismanagement, misrepresentation or breach of contract and
related litigation, which could be costly and time consuming to defend.
We have engaged in an ongoing Year 2000 assessment, but have not yet
developed any contingency plans. The results of our testing and the responses
received from third party vendors and service providers will be taken into
account in determining the nature and extent of any contingency plans.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 3 of Notes to Consolidated Financial Statements for recently
adopted and recently issued accounting standards.
26
<PAGE> 27
BUSINESS
INDUSTRY BACKGROUND
EMERGENCE OF THE INTERNET AND E-COMMERCE
The Internet has emerged as an important tool for commerce and
communications. Jupiter Communications estimates that at the end of 1998 there
were over 77 million online users in the United States and that by the end of
2002 this number will increase to over 131 million. Email is one of the most
popular Internet applications and has broadened from a simple personal messaging
device to a powerful and cost-effective business tool. Jupiter Communications
projects that approximately 90 billion email messages were sent in the United
States in 1998.
The growing use of the Internet has led businesses to develop e-commerce
strategies to drive traffic to their Web sites, attract customers and facilitate
transactions. The Internet provides businesses with the ability to reach a
global audience, realize economies of scale, reduce overhead and operate with
minimal infrastructure, while providing consumers with increased buying power,
broad selections of goods and services and convenience. Forrester Research
projects that purchases of goods and services in the United States over the
Internet will increase from $51 billion in 1998 to $919 billion in 2002.
BRAND ADVERTISING VERSUS DIRECT MARKETING
Within the advertising industry, there are two widely-recognized types of
advertising, brand advertising and direct marketing. Brand advertising is
intended to generate brand awareness and create a specific image for a
particular brand. Direct marketing is intended to generate a specific consumer
response or action, generally the trial of a product or service. The direct
marketer attempts to maximize the number of desired responses per marketing
dollar invested, thereby achieving a high return on investment. According to the
Direct Marketing Association, or the DMA, of the projected $285 billion spent on
total advertising in the United States in 1998, 57% was invested in direct
marketing compared to 43% spent on brand advertising.
BRAND ADVERTISING ON THE INTERNET
The Internet is evolving into an important medium for advertisers due to
its interactive nature, global reach, rapidly growing audience and the
significant increases in e-commerce. Current methods of Internet advertising,
principally banner advertising, provide advertisers with the ability to reach
broad audiences and help advertisers establish brand awareness. Jupiter
Communications estimates that spending on Internet advertising will grow from
$1.9 billion in 1998 to $7.7 billion in 2002. However, response rates, or
click-throughs, to banner advertisements averaged approximately 0.7% as reported
by Forrester Research in March 1999, which indicates to us that this form of
Internet marketing is generally ineffective for purposes of direct marketing,
which requires a high rate of consumer response and trial.
DIRECT MARKETING ON THE INTERNET
Direct marketing has traditionally been conducted through a variety of
media, including direct mail. The Internet is particularly well suited as a
direct marketing medium because of its ability to target consumers, receive
immediate response, direct consumers to a precise point of sale and provide
measurable response information and return on investment per marketing dollar.
The Internet has the potential to enable direct marketers to increase consumer
response rates and decrease costs-per-transaction by targeting and delivering
direct marketing campaigns to particular consumers based on their profile,
self-selected interests and online behavioral characteristics. Jupiter
Communications reports that response rates for direct email campaigns targeted
to permission-based audiences are three to ten times greater than the response
rates of traditional direct mail methods and 5 to 7.5 times greater than the
response rates to banner
27
<PAGE> 28
advertising. The following chart illustrates the average response rates for
banner advertisements, traditional direct mail and permission email:
LOGO
Sending promotional messages electronically can be 75% to 90% less
expensive than traditional direct mail through the U.S. Post Office, according
to the Gartner Group. By providing a more cost-effective method to reach target
customers, email direct marketing can improve the direct marketer's return on
investment.
Because direct marketers can achieve higher response rates and lower costs
through direct email marketing, a significant portion of the amount spent on
direct response marketing is expected to shift to the Internet. In 1998, the DMA
projected that over $160 billion was spent on direct response marketing in the
United States and that by 2003, $5.3 billion will be spent on Internet direct
marketing in the United States.
To date, Internet direct marketing practices have primarily focused on mass
mailing of promotional email messages. Although this method has been a low cost
direct marketing vehicle, the unsolicited and untargeted nature of the mailings,
commonly known as "spam," has resulted in negative consumer reaction, the recent
introduction of regulatory legislation and very low response rates.
OPPORTUNITIES FOR PERMISSION EMAIL DIRECT MARKETING
The limitations of traditional direct mail and the negative issues
associated with mass unsolicited emailing or "spam" has created a need for a
cost-effective solution that enables Internet marketers to use the Internet as
an efficient and effective means of direct marketing. This need is beginning to
be satisfied by an email direct marketing method that involves transmitting
email messages that are targeted to consumers who have expressed a prior
interest in receiving email messages on specific topics. This approach is being
referred to as permission email direct marketing. Permission email direct
marketing:
- provides direct marketers with a targeted means of reaching a highly
responsive audience at a lower cost and higher response rate than
traditional direct mail or banner advertising;
- permits reliable and real-time tracking of the effectiveness of campaigns
and return on investment feedback for direct marketers; and
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<PAGE> 29
- enables the consumer to control the marketing messages they receive by
sending promotional email messages only after receiving the consumer's
permission.
THE YESMAIL SOLUTION
We provide a comprehensive solution for permission email direct marketing
through our YesMail Network. Through our network of direct marketers, network
partners and third party list managers, and members, we can direct a campaign to
a targeted audience currently consisting of over 5 million self-selected
individuals. We link each of the three constituencies within our network with
proprietary technology to target, track and manage direct marketing campaigns
over the Internet.
Benefits to Direct Marketers. We provide direct marketers with access to a
broad reach of Internet users who have given their permission to receive
promotional information in specific categories of interest. We enable direct
marketers to optimize the performance of their direct marketing campaigns by
reaching targeted audiences based on specific profiles and response behaviors.
In addition, we provide direct marketers with comprehensive real-time tracking
and reporting services to monitor the effectiveness of their campaign. Our
proprietary products and services enable direct marketers to deliver the right
information to the right people at the right time, resulting in a direct
marketing campaign with a high return on investment for the direct marketer.
Benefits to Network Partners. Our network partners are primarily Web sites
that have developed or are in the process of developing permission-based email
lists. We enable our network partners to generate additional revenues from their
Web site visitors and customers by providing access to direct marketers, without
the costs and challenges associated with building and maintaining their own
direct marketing sales forces and email direct marketing technologies. Our
network partners benefit from our proprietary technology that tracks the
responses of their list members, thereby enhancing the value of their lists to
direct marketers. Network partners also benefit from the scale and reach of our
network and the organization of all network members into categories of interest
and response rate histories.
Benefits to Members. Membership in My.YesMail enables members to control
the flow of subscription information they receive via email. Our members benefit
by receiving messages from merchandisers that are targeted to their specific
interests. These messages inform our members about matters such as new product
offerings and special pricing promotions. We also provide these members with the
tools necessary to organize their email subscriptions and permission lists,
filter undesired promotional materials and control message frequency. We believe
that our ability to create a trusted brand name for permission email messages
will enable our members to have greater confidence in the messages they receive.
YESMAIL STRATEGY
Our objective is to be the leading provider of permission email direct
marketing. The key elements of our strategy are as follows:
Provide Effective Email Direct Marketing Programs. By combining proprietary
technology with our YesMail Network, we strive to enable direct marketers to
maximize the return on their investment. We intend to continue to improve our
ability to provide effective direct email campaigns to highly targeted and
responsive audiences. We provide a comprehensive permission email direct
marketing solution that enables marketers to cost-effectively target an audience
that has expressed a prior interest in receiving promotional email messages on
specific topics.
Maximize Targeted Reach Through a Permission-Based Network. We plan to
continue to expand our network of members who are permission-based, direct email
recipients because we believe that major marketers value broad reach through a
single provider. We intend to expand
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<PAGE> 30
our YesMail Network through a variety of relationships with our network partners
for whom we provide services, including permission list building, management and
reselling, and through an increase in the number of members in our own
proprietary list. We also intend to improve the depth and breadth of the
information we manage with respect to these members, principally in the area of
compiling response histories.
Expand Sales, Marketing and Client Services. We believe that effective
selling, marketing and client service are essential to expanding our business.
We plan to significantly increase the size of our direct sales force, broaden
our network partner development efforts and expand our advertising to direct
marketer clients and their advertising agencies. We intend to continue to build
on our expertise to provide permission email direct marketing services to our
direct marketer clients by leveraging our experienced direct marketing staff. We
also plan to continue to enhance our Web site as a tool for marketing, customer
service and campaign reporting.
Leverage Proprietary Technology. We intend to continue to develop, acquire
or license proprietary products and technology in such areas as message
targeting, response tracking, advanced messaging techniques, predictive buying
behavior and permission network development. We also plan to continue using
technology to deliver innovative products and services to our network partners
and to our members.
Build a Leading Brand. We believe that individuals will increasingly seek
to obtain more control over the marketing messages they receive. We plan on
leveraging our leadership position by closely associating the YesMail brand with
member-authorized messaging. We intend to implement our strategy through a
program that includes maintaining strict standards for permission and privacy,
supporting relevant industry initiatives and offering member-oriented products
for filtering and controlling their messages. We believe that by providing
individual members with products and services that help them control and manage
the messages they receive, we will build a positive relationship with our
members and a leading brand.
PRODUCTS AND SERVICES
THE YESMAIL NETWORK
The YesMail Network is a comprehensive permission email marketing program,
comprised of three constituencies: direct marketers, network partners and third
party list managers, and members. We provide proprietary products, technology,
direct marketing expertise and a direct sales force to meet the needs of these
constituencies to effectively deliver permission email marketing campaigns to a
targeted audience. In the quarter ended June 30, 1999, we sent over 8.9 million
permission email messages for over 120 direct marketers.
Direct Marketers. Our customers include direct marketers whose objective is
to generate product sales from marketing campaigns that result in a high return
on investment. For the first six months of 1999, our largest direct marketing
customers have included the following:
<TABLE>
<S> <C>
- - Allaire Corporation - Fingerhut
- - Amazon.com - Flycast
- - AT&T Interactive Communication - Get Smart
- - BeFree - GoTo.com
- - Brainplay - LifeMinders
- - Buy.com - MotherNature.com
- - Casinos Australasia - Multitude
- - Dell Computer - Office Max.com
- - Earthweb - Omaha Steaks
- - eShare - Refer-It.com
- - Fatbrain.com - WW Grainger
</TABLE>
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<PAGE> 31
For the first six months of 1999, revenues from Fingerhut represented 13%
of our revenues. In 1997 and 1998, no customer accounted for more than 10% of
our revenues.
We initiate relationships with direct marketers principally through our
direct sales force and often work in conjunction with the direct marketers'
advertising or promotional agencies. We assign a marketing account executive to
assist our direct marketer clients in executing permission email campaigns and
use our proprietary products to provide targeting, tracking and reporting
services. Our pricing is currently based on a cost per thousand emails for each
direct marketing message delivered. In the future, our pricing practices may
include performance-based measures such as cost per response or revenue sharing.
Our permission email campaigns are developed and executed quickly, often
within one week. Permission email direct marketing response time is very rapid
compared to traditional direct marketing. Our direct marketer clients frequently
receive 75% of their responses within 48 to 72 hours of delivery. We provide our
direct marketers with relevant information required to measure the results of
their campaigns, including consumer response, consumer activity on their Web
sites, conversion to purchase and campaign return on investment. Our current
proprietary products as well as products under development for direct marketers
include:
- eTrack is a proprietary email response tracking, reporting and analysis
program which direct marketers can readily and transparently incorporate
into their Web pages to track individual responses from click through to
as many as ten levels of response, including product purchase. Response
rates and return on investment calculations are reported real time to our
direct marketer clients through secure access to our Web site. Historical
responses to all campaigns are recorded in order to build individual
response data files for each permission list member.
- eCampaign is used to design and execute multi-tier direct marketing
campaigns with targeted promotional messages based on member responses to
prior messages.
- eTarget is designed to provide selection and sampling technology to match
our direct marketer client's message with the best targeted audience from
the YesMail Network. eTarget will also schedule the delivery of email
messages, collect payment information and automatically generate notices
of messaging status.
- ePredict is being designed to utilize the database of member response
histories developed in eTrack to enable improved targeting and modeling
of predictive selling. Direct marketers will benefit from the ability to
target the most frequent responders within specific interest categories.
Our eTrack and eCampaign products were launched in April 1999 and our
eTarget product was launched in July 1999. We expect to introduce ePredict by
the end of the third quarter of 1999.
YesMail Network. The YesMail Network provides access to over 5 million
individuals who have given their permission to receive direct marketing messages
in specific categories of interest to them. We provide direct marketers access
to these individuals through our own proprietary list, lists from our network
partners, primarily Web sites that have developed or are in the process of
developing their own permission email lists, and third party list managers. Our
relationships with our network partners include our exclusive management of our
network partners' lists for which we pay our network partners a percentage of
revenues derived from the sale of these lists. Our network reach also includes
re-seller arrangements under which we pay third party list managers a fixed fee
for the nonexclusive use of their list for a specific campaign. All network
partners and third party list managers must meet our YesMail consumer permission
policy requirements, which mandate that each list member has given their prior
permission to receive promotional messages and has the ongoing opportunity to
retract their permission. Our objective is to increase the mix
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<PAGE> 32
of our network partners from lower margin reseller relationships to higher
margin contractual managed arrangements and our proprietary member base.
Our network partners use our products and services to generate additional
revenue from their existing customer relationships, but only with respect to the
members of their permission email lists who have given their prior permission to
receive emails. Our ePredict product is being designed to enable our network
partners to receive further revenues for those list members who have a
demonstrated history of responsiveness. Our network partners either share the
revenues we receive when we send promotional email messages to persons on their
permission lists or receive a fixed fee for the use of their permission lists.
In the first quarter of 1999, we began to enter into contracts to
exclusively build and manage permission email lists for network partners. For
these exclusive managed network partners, we provide the following services:
build and manage their permission members, convert general lists to permission
email lists, track historical responses, build databases on each permission list
member, and report and analyze network usage. As of August 14, 1999, the list of
exclusive managed network partners includes the following:
<TABLE>
<S> <C>
- - Alloy Online, Inc. - Infophil, Inc.
- - BroadcastMusic.com - Internet Marketing Group, Ltd.
- - Colleges.com, Inc. - Interactive Toaster Company, Inc.
- - Cybergold, Inc. - MapQuest.com, Inc.
- - Did-It.com, Inc. - Mpath Interactive, Inc.
- - Doog Web Site Promotions - Quantum Computer Services
- - Earthweb, Inc. - PeaPod, Inc.
- - eFax.com - PlanetOut Corporation
- - Financial Services Online, Inc. - SodaMail, LLC
- - Free Drive, Inc. - Soupserver.com
</TABLE>
Participation in the YesMail Network provides our network partners and
third party list managers with the reach and visibility that are important to
direct marketers. By combining their permission email lists with those of other
network partners in our YesMail Network, network partners can benefit from
increased reach, targeting and segmentation.
YesMail Members. The individuals, or YesMail members, who receive emails
from our direct marketers also benefit from the YesMail Network because we
enable them to control the email messages they receive. We believe that by
giving these members more control over their email boxes we can establish a
beneficial relationship for all of the YesMail Network constituents. In May
1999, we introduced two applications, My.Interests and My.Profile, as part of
the My.YesMail suite of online applications, and in the third quarter of 1999,
we plan to introduce two more applications, My.Subscriptions and My.Events.
These applications will provide our YesMail members with tools, to control the
emails they receive, such as:
- My.Interests allows members to select from over 20 categories and over
250 subcategories. The My.Interests profile quickly and easily helps
members define what messages they do and do not want to receive.
- My.Profile is an application that enables our members to select and edit
the information categories and subcategories that suit their particular
interests. Members can control where information relating to each
category is sent, allowing them to receive emails related to their jobs
at their office email address and emails related to their hobbies at
home.
- My.Subscriptions is being designed to assist members in managing the
lists, newsletters and sites to which they subscribe. My.Subscriptions
software also is being designed to help members process subscription
cancellations.
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- My.Events is being designed to remind members of birthdays,
anniversaries, holidays, business meetings or other events. Additionally,
after the member has set up their My.Events profile, our software is
being designed to automatically send them an email reminder of the event
and include some suggestions that might compliment their event. For
example, a birthday reminder might include a link to an online flower or
greeting card merchant.
SALES AND MARKETING
We sell our services to direct marketers principally through our direct
sales force. As of June 30, 1999, we had 20 direct sales professionals in
Chicago, Atlanta, Cincinnati, Los Angeles and San Francisco. We plan to
significantly increase the size of our sales force and open additional offices
over the next 12 months.
Our direct sales force consists of internal representatives and field sales
account executives. Our sales and marketing teams work together to target
prospective clients, focusing initially on industry sectors, individuals and
advertising agencies that are active users of Internet advertising and/or direct
marketing programs. A sales representative, in conjunction with a marketing
account executive, typically works with the key decision-makers and advertising
agencies for the prospective client. Our sales and marketing personnel receive
special training in direct marketing, interactive advertising, direct response
marketing and Internet advertising techniques.
Our marketing program is designed to build and promote our brand and to
generate qualified leads for our sales team. We do this through an integrated
business to business marketing program that includes print advertising in
marketing and Internet trade publications, permission direct email, direct mail
and banner advertising. We also promote our business through trade show
participation, speaking engagements, our weekly newsletter, WebPromote Weekly
and other public relations programs.
We have implemented a program to build our brand name with individual
consumers. Our goal is to establish our brand as the recognized and trusted
provider of permission-based information direct to consumers' email boxes. We
are building our brand and our relationships with consumers through special
products, including My.YesMail, which is distributed for free through our
yesmail.com Web site and our network affiliate partners. We reinforce our brand
name by having our name appear in the "from" line in most of the permission
direct email messages we send for our direct marketer clients. We plan
additional consumer marketing programs later this year.
Recently, we embarked on an anti-spam awareness campaign. We have
participated in a number of conferences and pursued a marketing strategy in
pursuit of this campaign. At the request of the Direct Marketing Association and
the Association of Interactive Media, we are developing a curriculum to provide
the members of these organizations, direct marketers, with information on
developing effective and responsible email marketing programs. In addition, we
are members of TrustE and BBBOnline, consumer privacy associations focused on
safeguarding the privacy and security of Internet consumers. Further, we devote
resources to the continuing development of My.YesMail, a set of shopping tools
designed to help our members select and control the kinds of information they
wish to receive.
TECHNOLOGY
In offering permission email delivery services, we employ advanced custom
software and hardware, combining internal expertise with industry-standard
technology to create a proprietary infrastructure.
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EMAIL TECHNOLOGY
We have developed a scalable proprietary email solution that can create and
deliver personalized emails to targeted members in multiple email formats such
as plain text, HTML and AOL-specific. We can also personalize the content of the
message specifically to each member. In addition to supporting high levels of
email output, we also employ sophisticated automatic routing of email we
receive. Inbound traffic could include reports of undeliverable email and
confirmations of customer requests to be included or excluded from an
information service. Our solution allows for monitoring of all stages of an
email campaign as well as the recording of key statistics regarding the
campaign.
TRACKING
Tracking is the mechanism by which we record a history of events that a
member performs in response to our permission email campaign and subsequent
visits to the advertiser's Web site. Because the email we send can be
personalized, we are able to embed unique elements in an email message that
allows our tracking technology to identify members even before they click-
through to the advertiser. We can record each action that the member performs on
an advertiser's Web site and are able to use this information to help predict
the behavior of those members with regard to new advertising campaigns.
SNIFFING
Sniffing is the mechanism by which we gather additional data on a member
through recording freely available user information, from sources such as their
browser, during viewing sessions of an advertiser's Web site. With this
technology, we are able to gain additional information to help target members,
as well as improve the success rates of our campaigns. We use sniffing to learn
what email client is being used, for identifying email format capabilities such
as plain text or HTML and identifying a member's location. This is accomplished
by looking up the Internet address assigned when they connected to the Internet.
We may also take this information and cross-reference it with other databases,
including third-party Internet resources, and record the additional information
in our databases for future targeting.
SECURITY
Information recorded about members is not released to external parties.
Internally, the security and privacy of this information is guarded in several
ways. Our employees are on a network that is physically separate from the
network that sends the emails. Access to our databases and security control
points is limited to select members of our information technology group. Each
action by the member to request to be included or excluded from an information
service, to change list memberships, or to request pricing or other key data
points is tracked and maintained to provide an audit trail for members, network
partners and marketers in order to protect privacy and choice. Our Web-based
products utilize industry-standard secure user authentication, and each function
that is performed re-verifies security rights each time it is employed. We
employ a proprietary user account security system to provide an additional level
of security.
DATA CENTERS AND NETWORK ACCESS
Our computer servers are grouped into three task areas: emailing, tracking
and Web serving, and corporate email and connectivity. Each area is
independently connected to the Internet through separate CheckPoint Firewall-1
servers. This architecture ensures that our corporate functions remain separate
from mission-critical applications and Web server traffic, while still providing
backup options in case of system failure.
Our data centers use Compaq Proliant servers running Windows NT and Sun
servers running the Solaris operating system. We use Microsoft SQL Server 7.0
for our transaction databases and
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Oracle for our financial databases. Our products are built on three tiers of
functionality: user interface, execution of program code and access to stored
database functions and data. By separating these tiers, each element becomes
reusable and scalable to support growth.
Our Internet connectivity solution allows us to deliver emails to several
of the top members at a fraction of the normal delay of traditional Internet
connections without having to ever go through the backbone of the Internet. We
accomplish this through multiple T-1 Internet connections provided by Qwest
Communications Corporation and Advanced Information Systems, Inc. We employ
sophisticated monitoring technology to tract the status of our network,
connectivity and throughput of our own network in addition to those through
which we connect.
All of our systems are backed up on a regular schedule with onsite copies
in fireproof storage. Backups are regularly rotated to offsite secure storage.
We seek to ensure the maximum uptime of our network through backup electrical
power systems, continuously updated and available backup hard drive systems,
computer parts that can be replaced without shutdown and separate physical sites
that can take over in the case of catastrophic failure.
LICENSED TECHNOLOGY
We license technology from third parties that is incorporated into our
products. Specifically, we have entered into a nonexclusive software license
agreement with Revnet Systems, Inc. relating to email delivery technology. Under
this agreement, we are obligated to pay Revnet a fee of $325,000 per year in
addition to any service fees incurred during the term of the agreement. The
service fees under this license represent fees for implementation and training
services provided by Revnet. These fees are paid monthly as incurred. As of June
30, 1999, we have not incurred any of these service fees and do not anticipate
incurring any material service fees under this license. This agreement is for an
initial term of two years which expires in March 2001.
COMPETITION
We compete in the market for Internet advertising and email direct
marketing, which is intensely competitive and rapidly changing. This market is
highly fragmented with the largest companies accounting for only a small portion
of the market in 1998. We expect that competition will increase significantly in
the near-term because of the attention the Internet has received as a means of
advertising and direct marketing and because there are no significant barriers
of entry into the market. Our primary long-term competitors may not have entered
the market yet because our market is new. Competition could result in price
reductions, changes in the way services are priced, reduced gross margin and
loss of market share, any of which could materially adversely affect our
business.
Many of our current and potential competitors have greater name
recognition, longer operating histories, larger customer bases and significantly
greater financial, technical, marketing, public relations, sales, distribution
and other resources. Some of our potential competitors are among the largest and
most well-capitalized companies in the world. In addition, some of our
competitors may include Web site owners who choose to manage their own
permission email lists. We expect to face competition from these and other
competitors, including:
- Internet portals who offer direct email services to their email lists
such as Excite and Yahoo!;
- traditional list brokers such as American List Counsel and Venture
Communications;
- banner advertising managers such as DoubleClick, 24/7 Media and Flycast
Communications;
- independent list managers;
- incentive-based subscriber lists such as MyPoints and Netcentives; and
- customer management and retention service companies such as Digital
Impact and Post Communications.
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If one or more of our current or future competitors were to achieve leading
positions in the industry or if they were to expand relationships with
significantly larger companies through mergers, acquisitions or otherwise, our
business could be seriously harmed. In addition, potential competitors may
bundle or incorporate the functionality of our products into their products in a
manner that eliminates the need for our products or discourages users from
purchasing our products.
INTELLECTUAL PROPERTY RIGHTS
Our success and ability to compete are substantially dependent upon our
technology and intellectual property. While we rely on copyright, trade secret
and trademark law to protect our technology and intellectual property, we
believe that factors such as the technological and creative skills of our
personnel, new product and service developments, frequent product and service
enhancements and reliable product and service maintenance are more essential to
establishing and maintaining an intellectual property leadership position. We
have no patents or patent applications pending. Others may develop products and
services that are similar or superior to ours.
We generally enter into confidentiality or license agreements with our
employees, consultants and corporate partners and generally control access to
and distribution of our products, documentation and other proprietary
information. Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy or otherwise obtain and use our products, services
or technology. Policing unauthorized use of our proprietary information is
difficult, and the steps we have taken might not prevent misappropriation of our
technology, particularly in foreign countries where the laws may not protect our
proprietary rights as fully as do the laws of the United States.
Our products and services operate in part by collecting and utilizing data
derived from user activity on the YesMail Network. This information is used to
target marketing materials and to predict the performance of these materials.
This creates the potential for claims to be made against us, either directly or
through contractual indemnification provisions with customers, including
negligence, copyright or trademark infringement, personal injury, invasion of
privacy or other legal theories. In addition, others may claim rights to this
information. It is also possible that if any such information contains errors,
third parties could make claims against us for losses incurred in reliance on
such information. Although we carry general liability insurance, our insurance
may not cover potential claims of this type or may not be adequate to indemnify
us for all liability that may be imposed.
Substantial litigation regarding intellectual property rights exists in the
technology industry. From time to time, third parties have asserted and may
assert exclusive patent, copyright, trademark and other intellectual property
rights to technologies and related standards that are important to us. We expect
that we may increasingly be subject to infringement claims as the number of
competitors in our industry segments grows and the functionality of products in
different industry segments overlaps. In addition, we believe that many of our
competitors have filed or intend to file patent applications covering aspects of
their technology that they may claim our intellectual property infringes.
Although we have not been party to any litigation asserting claims that allege
infringement of intellectual property rights, we cannot assure you that we will
not be a party to litigation in the future. Any third party claims, with or
without merit, could be time-consuming to defend, result in costly litigation,
divert management's attention and resources, cause product shipment delays or
require us to enter into royalty or licensing agreements. Such royalty or
licensing agreements, if required, may not be available on terms acceptable to
us, if at all. A successful claim of product infringement against us could harm
our business.
GOVERNMENT REGULATION
There is a growing body of laws and regulations applicable to access to or
commerce on the Internet. Due to the increasing popularity and use of the
Internet, it is likely that a growing
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number of laws and regulations will be adopted at the international, federal,
state and local level with respect to the Internet or email direct marketing
services covering issues such as user privacy, pricing, content, copyrights,
distribution, antitrust and characteristics and quality of products and
services. Further, the growth and development of the market for email direct
marketing may prompt calls for more stringent consumer protection laws that may
impose additional burdens on those companies conducting business online. The
adoption of any additional laws or regulations may impair the growth of the
Internet or email direct marketing, which could, in turn, decrease the demand
for our products and services and increase our cost of doing business, or
otherwise harm our business. Moreover, the applicability to the Internet of
existing laws in various jurisdictions governing issues such as property
ownership, sales and other taxes, libel and personal privacy is uncertain and
may take years to resolve. Any such new legislation or regulation, the
application of laws and regulations from jurisdictions whose laws do not
currently apply to our business or the application of existing laws and
regulations to the Internet could harm our business.
Legislation has recently been enacted in several states relating to the
sending of unsolicited emails, a practice commonly referred to as "spamming."
The federal government and several states, including New York, are considering,
or have considered, similar legislation. Although the provisions of these
current and contemplated laws vary, they generally limit or prohibit both the
transmission of unsolicited emails and the use of familiar spamming techniques
such as the use of forged or fraudulent routing and header information. Some
states, including California, require that unsolicited emails include opt-out
instructions and that senders of such emails honor any opt-out requests, a
requirement that is consistent with our own permission email policies. We
believe that our permission email system will not be affected by such
legislation because we do not send unsolicited messages and because our current
practices are intended to comply with current and proposed legislation. However,
there can be no assurance that such legislation or similar legislation will not
also affect permission email marketing in a way that could force us to change
our business practices, particularly in light of the rapidly evolving state of
the law in this area. In such event, our business could suffer.
EMPLOYEES
As of June 30, 1999, we had 71 employees, including 32 in sales and
marketing, 14 in general and administrative functions, 13 in operations and 12
in research and development. We are not subject to any collective bargaining
agreements and believe that our employee relations are good. Competition for
employees in our industry is intense and our future success depends on our
ability to attract, retain and motivate highly-skilled employees.
FACILITIES
Our principal executive offices are located in Vernon Hills, Illinois,
where we lease approximately 8,700 square feet under the terms of a lease that
expires in October 2003. We intend to open a business and sales office in the
San Francisco, California and New York areas in the third quarter of 1999. We
are currently seeking additional space in the Chicago area to meet our needs and
believe it will be available on commercially reasonable terms.
LEGAL PROCEEDINGS
We are not aware of any pending legal proceedings against us that,
individually or in the aggregate, would have a material adverse effect on our
business, results of operations or financial conditions. We may in the future be
party to litigation arising in the course of our business, including claims that
we allegedly infringe third-party trademarks and other intellectual property
rights. These claims, even if not meritorious, could result in the expenditure
of significant financial and managerial resources.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors and their ages as of June 30, 1999,
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
David M. Tolmie...................... 44 Chief Executive Officer, President and Director
David B. Menzel...................... 37 Chief Financial Officer and Vice President, Finance
and Administration
Mark D. Boyce........................ 41 Vice President, Product Management and Operations
Peder J. Jungck...................... 32 Chief Technology Officer
D. Todd Love......................... 36 Vice President, Network Development
Michael R. Mooradian................. 41 Vice President, Sales
Anthony Priore....................... 41 Vice President, Marketing
John G. Vandegrift................... 32 List Partner Program Advisor and Director
Kenneth D. Wruk...................... 31 Vice President, Strategic Alliances and Chairman
of the Board of Directors
Gian M. Fulgoni(1)(2)................ 51 Director
Alexander F. Hern(1)................. 35 Director
Michael A. Santer(1)(2).............. 33 Director
Robert W. Shaw(2).................... 51 Director
</TABLE>
- ---------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
David M. Tolmie has served as Chief Executive Officer and President since
joining yesmail.com on January 1, 1999 and has been a member of the Board of
Directors since May 1999. From September 1997 until January 1999, Mr. Tolmie was
with Platinum Venture Partners, where he served as Chief Executive Officer in
Residence of their e-commerce and Internet services group. From December 1993
until September 1997, Mr. Tolmie was Senior Vice President of Operations at
Bally Total Fitness, Inc., a nationwide health and fitness company. From
September 1990 until December 1993, Mr. Tolmie was President of Foundation
Properties, a real estate development, sales and marketing company. From
December 1985 until September 1990, Mr. Tolmie was a Corporate Vice President at
Bally Total Fitness, Inc. From December 1983 until November 1985, Mr. Tolmie was
a consultant at McKinsey & Co., an international management consulting firm.
From August 1980 to December 1983, Mr. Tolmie was a Marketing Manager with
General Mills, Inc., a consumer products company. Mr. Tolmie holds a B.A. with
distinction in economics from the University of Virginia and an M.B.A. from
Harvard University.
David B. Menzel has served as Chief Financial Officer and Vice President,
Finance and Administration since joining us in April 1999. From August 1994
until April 1999, Mr. Menzel was the Chief Financial Officer of Campbell
Software, a computer software company. From January 1984 until July 1994, Mr.
Menzel was in the Audit and Financial Consulting division of Arthur Andersen.
Mr. Menzel holds a B.S. in accounting and a Masters in accountancy, both from
Florida State University.
Mark D. Boyce joined us in December 1998 as Vice President, Product
Management and Operations. From September 1996 until October 1998, Mr. Boyce was
head of the Internet division for the Aberdeen Group, an information services
company. From January 1993 until August 1996, Mr. Boyce was President of
Synthesis, an Internet services company. From 1987 until January 1993, Mr. Boyce
was a Vice President of Marketing for Anixter, Inc., an international
distributor of networking products. Mr. Boyce holds a B.A. in economics from
Colgate University and an M.B.A. from Dartmouth College.
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Peder J. Jungck has served as Chief Technology Officer since joining us in
February 1999. From March 1997 until February 1999, Mr. Jungck was Chief
Information Officer of Remington Associates, Ltd., an Internet consulting firm.
From June 1994 until March 1997, Mr. Jungck was Vice President of Production and
Engineering at TerraGlyph Interactive Studios, L.P., a multimedia entertainment
company. Mr. Jungck holds a B.A. in mathematics and computer science from Beloit
College.
D. Todd Love joined us in August 1999 as Vice President, Network
Development. From November 1998 until August 1999, Mr. Love was Vice President
for American List Counsel, an interactive database marketing and management
group. From November 1987 through November 1998, Mr. Love was employed by Direct
Media, Inc., a direct marketing agency, as Group Director and Vice President
from January 1993 through November 1998. Mr. Love holds a B.A. in communications
from the University of New Hampshire.
Michael R. Mooradian has served as Vice President, Sales since joining us
in May 1999. From August 1996 until May 1999, Mr. Mooradian was Vice President
of Worldwide Sales for the Giga Information Group, an information technology
research company. From January 1996 until July 1996, Mr. Mooradian was Vice
President of Sales for Timeline, Inc., a financial reporting software company.
From July 1991 until January 1996, Mr. Mooradian was a Regional Director at
Comshare, Inc., an enterprise software company. Mr. Mooradian holds a B.S. in
business administration from DePaul University.
Anthony Priore joined us in March 1999 as Vice President, Marketing. From
May 1998 to December 1998, Mr. Priore was Executive Vice President and Managing
Director at Chicago Creative Partnership, an advertising agency. From September
1995 until May 1998, Mr. Priore was Vice President of Marketing at Peapod, Inc.,
an e-commerce grocery delivery company. From September 1991 to September 1994,
Mr. Priore was Vice President at Leo Burnett, an international advertising
agency. Mr. Priore holds a B.S. in journalism and an M.S.A., from Northwestern
University.
John G. Vandegrift has served as List Partner Program Advisor since April
1999 and as a member of our Board of Directors since July 1997. As our List
Partner Program Advisor, Mr. Vandegrift develops relationships with our network
partners. From January 1999 until March 1999, Mr. Vandegrift was the Interim
Chief Executive Officer of Frictionless Commerce, Inc., an Internet software
company. From December 1997 until December 1998, Mr. Vandegrift was Marketing
Senior Executive with Compaq Computer Corp. From May 1993 to July 1998, Mr.
Vandegrift was Executive Vice President of Marketing and Business Development
and then President of TAC Systems, a communications company. Mr. Vandegrift
holds a B.S. from Texas A&M University and a M.S. from the University of
Alabama.
Kenneth D. Wruk is one of our co-founders and has served as Chairman of the
Board of Directors since our inception in November 1995. From December 1992
until November 1995, Mr. Wruk was a lead software engineer at Safeco
Corporation, a cellular communication company. Mr. Wruk holds a B.S. in
electrical engineering and an M.B.A., from Northern Illinois University.
Gian M. Fulgoni has served as a member of our Board of Directors since
March 1999. Since November 1998, Mr. Fulgoni has been Chief Executive Officer of
Lancaster Enterprises, LLC, an investment firm. From 1986 until November 1998,
Mr. Fulgoni was Chief Executive Officer of Information Resources, Inc., a market
research company. Mr. Fulgoni continues to serve as a member of the board of
directors of Information Resources, Inc., a position that he has held since
1981. Mr. Fulgoni has also served as a member of the board of directors of
Platinum Technology, Inc., a software company, since 1990. Mr. Fulgoni holds a
B.S. with honors, in physics from Manchester University and a M.A. in marketing
from Lancaster University.
Alexander F. Hern has been a member of our Board of Directors since
February 1999. Mr. Hern is the founder and general partner of Strategic
Acquisition Ventures, Ltd., a venture
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capital firm. Mr. Hern was a co-founder of Inktomi Corporation, a publicly
traded Internet services company. From 1996 until January 1998, Mr. Hern served
as Chairman of the Board and Chief Executive Officer of Military Commercial
Technologies, Inc., a military technology company. From 1994 until 1996, Mr.
Hern served as an investor in and advisor to a broad range of technology
companies.
Michael A. Santer has been a member of our Board of Directors since
February 1999. Mr. Santer is a co-founder and has been a general partner of
Platinum Venture Partners, a venture capital firm, since its inception in
February 1992. At Platinum Venture Partners, Mr. Santer has sponsored
investments in over a dozen companies that have completed public offerings or
successful mergers, five of which were Internet-focused companies. Mr. Santer
holds a B.S. in management information systems from the University of Dayton and
a Masters of Management from the J.L. Kellogg School of Management at
Northwestern University.
Robert W. Shaw served as a member of our Board of Directors since April
1999. Since November 1998, Mr. Shaw has been a member of the board of directors
and Chief Executive Officer of USWeb/ CKS, an internet marketing services
company. From May 1992 until August 1998, Mr. Shaw was Executive Vice President
at Oracle Corporation, a software company. From 1989 until 1992, Mr. Shaw was a
partner at Booz Allen & Hamilton, a global management and consulting firm. From
1985 until 1989, Mr. Shaw was the Managing Partner of the information technology
practice at Coopers & Lybrand (currently PricewaterhouseCoopers LLP), an
international accounting firm. Mr. Shaw holds a B.A. in business administration
from the University of Texas.
We believe the foregoing information includes all of the business
experience of each of our directors and officers during the past five years.
BOARD COMPOSITION
We currently have authorized seven directors. Each director is elected at
the annual general meeting of our stockholders, by a vote of the holders of a
plurality of the voting power represented at such meeting. Each director holds
office until the annual general meeting of our stockholders and until his or her
successor has been elected. The executive officers serve at the discretion of
the Board. There are no family relationships among any of our directors or
executive officers.
BOARD COMMITTEES
Our Audit Committee reviews, acts on and reports to our Board of Directors
with respect to various auditing and accounting matters, including the selection
of our independent accountants, the scope of our annual audits, fees to be paid
to the independent accountants, the performance of our independent accountants
and our accounting practices. Messrs. Fulgoni, Hern and Santer are the members
of our Audit Committee.
Our Compensation Committee establishes salaries, incentives and other forms
of compensation for officers and other employees. This Committee also
administers our incentive compensation and benefit plans. Messrs. Fulgoni,
Santer and Shaw are the members of the Compensation Committee.
DIRECTOR COMPENSATION
Except for reimbursement of reasonable expenses incurred in connection with
serving as a director and the grant of stock options, directors are not
compensated for their service as directors. In May 1999, we granted each of
Messrs. Fulgoni and Shaw, non-employee directors of ours, an option to purchase
75,000 shares of common stock at an exercise price of $1.60 per share. These
options vest quarterly over a period of two years. At the discretion of our
Board of Directors, we may issue additional options to our directors at 100% of
the fair market value of our common stock, as reported on the Nasdaq National
Market, at the close of trading on the date of the grant.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of our Compensation Committee is an officer or employee
of yesmail.com. No interlocking relationship exists between our Board of
Directors or Compensation Committee and the board of directors or compensation
committee of any other company, nor has such an interlocking relationship
existed in the past.
EMPLOYMENT CONTRACTS
Mr. Tolmie is party to an employment agreement dated March 12, 1999,
effective as of January 1, 1999. Under the agreement, we agreed to pay Mr.
Tolmie an annual salary of $150,000 and a performance bonus of up to $50,000.
Mr. Tolmie also purchased 337,500 shares and 900,000 shares of our common stock
under two restricted stock purchase agreements. These shares may be repurchased
by us and may not be transferred until vested, except to family members or
trusts that agree to be bound by the restrictions in the purchase agreement. Mr.
Tolmie retains voting power with respect to these shares. The 337,500 purchased
shares shall vest, pro rata, semi-annually over four years, commencing May 18,
1999. The 900,000 purchased shares shall vest as to 337,500 shares on January 1,
2000, and 112,500 of the shares shall vest at the end of each six month period
thereafter, provided, however, all 900,000 shares shall vest seven months from
the day our stock begins trading on the Nasdaq National Market. In the event Mr.
Tolmie is terminated without cause he will be entitled to receive a severance
payment of $100,000.
Mr. Menzel is party to an employment agreement with us, dated April 2,
1999. Under the agreement, we agreed to pay Mr. Menzel an annual salary of
$140,000, a performance bonus of $50,000 and a discretionary bonus of up to
$50,000, and Mr. Menzel purchased 243,750 shares of our common stock under a
restricted stock purchase agreement. The purchased shares shall vest, pro rata,
semi-annually over four years, commencing April 26, 1999. These shares may be
repurchased by us and may not be transferred until vested, except to family
members or trusts that agree to be bound by the restrictions in the purchase
agreement. Mr. Menzel retains voting power with respect to these shares. We have
also agreed to pay Mr. Menzel a special bonus of $150,000 in three equal
installments on the six month, twelve month, and eighteenth month anniversary of
his date of hire; provided, however, Mr. Menzel may be required to repay all or
a part of this special bonus in some circumstances. In the event Mr. Menzel is
terminated without cause, he will be entitled to receive severance equal to six
months of his base salary and any unpaid amounts pursuant to the special bonus.
Mr. Boyce is party to an employment agreement, dated May 27, 1999. Under
the agreement, we agreed to pay Mr. Boyce an annual salary of $150,000 and a
performance bonus of up to $37,500, and Mr. Boyce purchased 243,750 shares of
our common stock under a restricted stock purchase agreement. The purchased
shares shall vest, pro rata, semi-annually over four years, commencing January
1, 1999. The shares may be repurchased by us and may not be transferred until
vested, except to family members or trusts that agree to be bound by the
restrictions in the purchase agreement. Mr. Boyce retains voting power with
respect to these shares. In the event that Mr. Boyce is terminated without
cause, he will be entitled to receive severance equal to six months of his base
salary.
Mr. Jungck is party to an employment agreement, dated February 15, 1999.
Under the agreement, we agreed to pay Mr. Jungck an annual salary of $140,000
and a performance bonus of up to $30,000, and Mr. Jungck purchased 243,750
shares of our common stock under a restricted stock purchase agreement. The
purchased shares shall vest, pro rata, semi-annually over four years, commencing
February 15, 1999. These shares may be repurchased by us and may not be
transferred until vested, except to family members or trusts that agree to be
bound by the restrictions in the purchase agreement. Mr. Jungck retains voting
power with respect to these
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shares. In the event that Mr. Jungck is terminated without cause, he will be
entitled to receive severance equal to six months of his base salary.
Mr. Love is a party to an employment agreement, dated August 10, 1999.
Under the agreement, we agreed to pay Mr. Love an annual salary of $175,000 and
a performance bonus of up to $100,000, and Mr. Love was granted an option to
purchase 168,750 shares of our common stock, at an exercise price of $9.87 per
share, under our stock option plan. The option shall vest, pro rata,
semi-annually over four years. In the event that Mr. Love is terminated without
cause, he will be entitled to receive severance equal to six months of his base
salary.
Mr. Mooradian is party to an employment agreement, dated April 17, 1999.
Under the agreement, we agreed to pay Mr. Mooradian an annual salary of $150,000
and a performance bonus of up to $150,000, and Mr. Mooradian was granted an
option to purchase 243,750 shares of our common stock, at an exercise price of
$1.60 per share, under our stock option plan. The option shall vest, pro rata,
semi-annually over four years. In the event that Mr. Mooradian is terminated
without cause, he will be entitled to receive severance equal to six months of
his base salary.
Mr. Priore is party to an employment agreement, dated March 3, 1999. Under
the agreement, we agreed to pay Mr. Priore an annual salary of $150,000 and a
performance bonus of $30,000, and Mr. Priore purchased 243,750 shares of our
common stock under a restricted stock purchase agreement. The purchased shares
shall vest, pro rata, semi-annually over four years, commencing March 8, 1999.
The shares may be repurchased by us and may not be transferred until vested,
except to family members or trusts that agree to be bound by the restrictions in
the purchase agreement. Mr. Priore retains voting power with respect to these
shares. In the event that Mr. Priore is terminated without cause, he will be
entitled to receive severance equal to six months of his base salary.
Mr. Vandegrift is party to an employment agreement, dated March 31, 1999.
Under the agreement, we agreed to pay Mr. Vandegrift an annual salary of
$144,000 and a quarterly performance bonus of up to $36,000, and Mr. Vandegrift
purchased 112,868 shares and 69,177 shares of our common stock under two
restricted stock purchase agreements. The 112,868 purchased shares vested on
March 25, 1999. As to the 69,177 purchased shares, 4,324 shares shall vest
monthly, commencing April 30, 1999 and 11,529 shall vest at the end of each
three months if Mr. Vandegrift meets pre-defined incentive goals. These 69,177
shares may be repurchased by us and may not be transferred until vested, except
to family members or trusts that agree to be bound by the restrictions in the
purchase agreement. Mr. Vandegrift retains voting power with respect to these
shares. Mr. Vandegrift is also entitled to receive up to $1,000 per month for
nine months as reimbursement for relocation and temporary living expenses. In
the event Mr. Vandegrift is terminated without cause, he will be entitled to
receive severance equal to one month salary and two months expense
reimbursement.
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<PAGE> 43
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned for services
rendered to us in all capacities for fiscal 1998, by our former Chief Executive
Officer and President.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
------------
NAME AND PRINCIPAL POSITIONS YEAR SALARY BONUS
---------------------------- ---- ------------ -------
<S> <C> <C> <C>
Kenneth D. Wruk(1).......................................... 1998 $34,382 $46,470
Former Chief Executive Officer
and President
</TABLE>
- ---------------
(1) Mr. Wruk resigned from his position as Chief Executive Officer and President
in January 1999.
Messrs. Tolmie, Menzel, Boyce, Jungck, Love, Mooradian, Priore and
Vandegrift were hired as executive officers subsequent to December 1, 1998 and
are compensated at annual rates of $150,000, $140,000, $150,000, $140,000,
$175,000, $150,000, $150,000 and $144,000, respectively. Please see
"-- Employment Contracts."
OPTION GRANTS IN LAST FISCAL YEAR
We did not grant options to any of our executive officers in fiscal 1998.
However, in May 1999 we issued shares of our common stock to six of our
executive officers pursuant to restricted stock purchase agreements, and we
granted Mr. Mooradian an option to purchase our common stock pursuant to our
stock option plan. Please see "Related Party Transactions" and "-- Employment
Contracts."
COMPENSATION PLANS
1999 STOCK OPTION PLAN.
Our 1999 Stock Option Plan provides for the grant of incentive stock
options to employees and nonstatutory stock options and share purchase rights to
employees, directors and consultants. A total of 4,425,000 shares of common
stock have been reserved for issuance under our 1999 Stock Option Plan, of which
options to purchase 875,625 shares of common stock were outstanding as of June
30, 1999. The number of shares of common stock reserved for issuance under this
plan will be subject to an annual increase on each anniversary beginning January
1, 2000 equal to the lesser of:
- 1,500,000 shares;
- 4% of the outstanding shares on such date; or
- an amount determined by the Board.
The 1999 Stock Option Plan is currently administered by the Board of
Directors, although the Board may designate certain committees to administer the
1999 Stock Option Plan with respect to different groups of service providers.
Options and shares purchase rights granted under the 1999 Stock Option Plan
will vest as determined by the relevant administrator, and if not assumed or
substituted by a successor corporation will accelerate and become fully vested
in the event we are acquired. The exercise price of options and share purchase
rights granted under the 1999 Stock Option Plan will be as determined by the
relevant administrator, although the exercise price of incentive stock options
must be at least equal to the fair market value of our common stock on the date
of grant. Options granted under the 1999 Stock Option Plan generally vest over a
four-year period. The Board of
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<PAGE> 44
Directors may amend, modify or terminate the 1999 Stock Option Plan at any time
as long as such amendment, modification or termination does not impair vesting
rights of plan participants. The 1999 Stock Option Plan will terminate in 2009,
unless terminated earlier by the Board of Directors.
1999 EMPLOYEE STOCK PURCHASE PLAN.
Our 1999 Employee Stock Purchase Plan, or the Purchase Plan, provides our
employees with an opportunity to purchase our common stock through accumulated
payroll deductions. This plan will become effective upon the closing of this
offering. A total of 200,000 shares of common stock have been reserved for
issuance under the Purchase Plan, none of which have been issued. The number of
shares reserved for issuance under the Purchase Plan will be subject to an
annual increase on each anniversary beginning January 1, 2000 equal to the
lesser of:
- the number of shares issued under the Purchase Plan in the prior year; or
- an amount determined by the Board.
The Purchase Plan will be administered by the Board of Directors or by a
committee appointed by the Board. The Purchase Plan permits eligible employees
to purchase common stock through payroll deductions up to a maximum of $25,000
for all purchases ending within the same calendar year and up to a maximum of
2,000 shares for the first purchase period and 1,000 shares for each purchase
period thereafter. Employees are eligible to participate if they are employed by
us for at least 20 hours per week and more than five months in any calendar
year. Unless the Board of Directors or its committee determines otherwise, each
offering period will run for six months. The first offering period will commence
on the date of this prospectus and end on or about August 15, 2000, and new
offering periods will commence February 15, 2000 and every six months
thereafter. In the event we are acquired, each outstanding option shall be
assumed or an equivalent option substituted by the successor corporation. In the
event that the successor corporation refuses to assume or substitute for the
option, the offering period then in progress will be shortened by setting a new
exercise date. The price at which common stock will be purchased under the
Purchase Plan is equal to 85% of the fair market value of the common stock on
the first or last day of the applicable offering period, whichever is lower.
Employees may end their participation in the offering period at any time, and
participation automatically ends on termination of employment. Generally, the
Board of Directors may amend, modify or terminate the Purchase Plan at any time
as long as such amendment, modification or termination does not impair the
rights of plan participants. The Purchase Plan will terminate at 2009, unless
terminated earlier in accordance with its provisions.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Certificate of Incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemption; or
- any transaction from which the director derived an improper personal
benefit.
Such limitation of liability does not apply to liabilities arising under
the federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
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<PAGE> 45
Our Certificate of Incorporation and Bylaws provide that we shall indemnify
our directors and executive officers and may indemnify other officers and
employees and our agents to the fullest extent permitted by law. We believe that
indemnification under our Bylaws covers at least negligence and gross negligence
on the part of indemnified parties. Our Bylaws also permit us to secure
insurance on behalf of any officer, director, employee or other agent for any
liability arising out of his or her actions in such capacity, regardless of
whether the Bylaws would permit indemnification.
We have entered into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our Bylaws. These
agreements, among other things, provide for indemnification of our directors and
executive officers for expenses (including attorneys' fees), judgments, fines
and settlement amounts incurred by any such person in any action or proceeding,
including any action by or in the right of yesmail.com, arising out of such
person's services as a director or executive officer of ours, any subsidiary of
ours or any other company or enterprise to which the person provides services at
our request. We believe that these provisions and agreements are necessary to
attract and retain qualified persons as directors and executive officers.
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<PAGE> 46
RELATED PARTY TRANSACTIONS
GUARANTIES BY STOCKHOLDERS
In August 1998, we borrowed $320,000 from a third party lender, which loan
was guaranteed in full by each of Messrs. Kenneth D. Wruk, Kevin Manley, Keith
Speer and John Weiss.
We also have equipment lease obligations which are guaranteed, in varying
amounts, by Messrs. Wruk, Manley, Speer and Weiss. As of June 30, 1999, these
lease obligations had an aggregate outstanding balance of approximately
$449,000.
LOAN FROM DIRECTOR
In December 1998, we borrowed $1.0 million from Alexander F. Hern under a
promissory note. In connection with this transaction, we issued Mr. Hern a
warrant to purchase shares of our common stock in the event we did not comply
with the terms of the transaction. On May 18, 1999, Mr. Hern terminated the
promissory note and the warrant in exchange for shares of our series A preferred
stock which shares are convertible into 572,727 shares of our common stock.
ACQUISITION OF SUPERHIGHWAY CONSULTING
Under an Agreement and Plan of Merger, dated March 29, 1999, Superhighway
Consulting, Inc. was merged with and into us. Upon consummation of the merger,
we issued an aggregate of 7,500,000 shares of our common stock to the former
shareholders of Superhighway Consulting, Inc. These former shareholders of
Superhighway included the following officers and directors:
<TABLE>
<CAPTION>
NAME SHARES ISSUED
---- -------------
<S> <C>
Kenneth D. Wruk............................................. 2,152,778
Kevin Manley................................................ 2,152,778
Keith Speer................................................. 1,458,333
John Weiss.................................................. 1,458,333
</TABLE>
In connection with the merger, some of our stockholders were granted
registration rights. Please see "Description of Capital Stock -- Registration
Rights."
OPTION AMONG STOCKHOLDERS
Under an agreement among our founding stockholders in March 1999, Messrs.
Tolmie, Hern, Santer, Bryan Kennedy and Riverson Leonard are obligated to
transfer shares of our common stock to former Superhighway shareholders,
including Messrs. Wruk, Manley, Speer and Weiss who are officers and directors
and Jack Goldberg, Harvey Morris and Barbra Fischer who are employees, for an
aggregate consideration of $1.00. The purpose of this option was to provide the
former shareholders of Superhighway with an additional portion of our
outstanding shares in the event of an initial public offering of our securities
or the sale of our business in the event we did not undertake an initial public
offering of our securities. This option may be exercised by written notice when
we commence offering our capital stock to the public under a registration
statement filed with the Securities and Exchange Commission. Upon the initial
public offering of our common stock, assuming the closing price per share of our
common stock on the first day our common stock is publicly traded is $11.00, the
aggregate number of shares subject to this option would be 134,189 shares, or
approximately $1.5 million in value, based on shares
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<PAGE> 47
outstanding on June 30, 1999. However, the number of shares that can be acquired
by the former Superhighway shareholders depends on:
- the percentage of common stock held by Messrs. Tolmie, Hern, Santer,
Kennedy and Leonard, excluding stock options, restricted stock and common
stock issued upon conversion of series A preferred stock;
- the percentage of common stock held by the former Superhighway
shareholders, excluding stock options, restricted stock and common stock
issued upon conversion of series A preferred stock; and
- the closing price per share of our common stock on the first day our
common stock is publicly traded.
The above percentages may be diluted through any subsequent issuance of
shares, including this offering, but the ratio of stock ownership between the
former shareholders of Superhighway and our original founders will remain
four-to-one.
The purpose of this option was to provide former Superhighway shareholders
with additional consideration in order that they enter into the merger with us.
For additional information regarding this option among stockholders, please
see "Principal Stockholders" and Note 1 to Notes to Consolidated Financial
Statements.
ADVANCES FROM RELATED PARTIES
In March 1999, we borrowed an aggregate of $600,000 from three individuals,
including $300,000 from David M. Tolmie and $200,000 from Alexander F. Hern. On
May 18, 1999, the advances were exchanged for shares of our series A preferred
stock which shares are convertible into 343,637 shares of our common stock.
RESTRICTED STOCK ISSUANCES
In May 1999, we sold an aggregate of 2,394,546 shares of our common stock
to 6 employees at a price of $1.60 per share pursuant to restricted stock
purchase agreements. The price of our common stock was determined by our Board
of Directors which placed significant weight on the price of our series A
preferred stock. In determining this price, our Board believed that a slight
discount to the series A preferred stock was warranted in light of the
liquidation and other preferences of the preferred stock. Our employees
purchased these shares in exchange for notes issued to us, which are secured by
the shares purchased. The notes also provide for full recourse against the
borrower as to 75% of the amount of the note. The notes bear interest at 5.22%
per annum and are due and payable on the earlier of the sale of the underlying
common stock, May 2008 or termination of employment. These shares of common
stock are subject to repurchase options granted to us by the holders of the
shares. For additional information regarding the repurchase options, please see
"Management -- Employment Contracts." The purchasers of these shares are listed
in the following table:
<TABLE>
<CAPTION>
NAME SHARES PURCHASED
---- ----------------
<S> <C>
David M. Tolmie............................................. 1,237,500
David B. Menzel............................................. 243,750
Mark D. Boyce............................................... 243,750
Peder J. Jungck............................................. 243,750
Anthony Priore.............................................. 243,750
John G. Vandegrift.......................................... 182,046
</TABLE>
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<PAGE> 48
SERIES A PREFERRED STOCK FINANCING
On May 18, 1999, we issued and sold shares of our series A preferred stock,
which shares are convertible into 5,154,548 shares of our common stock, to
investors at a per share price of approximately $1.75 per common equivalent
share. The price of our series A preferred stock was determined through arms
length negotiations among us and investors not affiliated with us at the time of
this financing. Upon the closing of this offering, each share of series A
preferred stock will automatically convert into one share of common stock. The
investors in the financing included the following officers, directors and
principal stockholders and their immediate family members and related entities:
<TABLE>
<CAPTION>
EQUIVALENT
COMMON STOCK
NAME PURCHASED
---- ------------
<S> <C>
Platinum Venture Partners II, L.P. (Michael A. Santer is a
general partner).......................................... 1,145,455
Alexander F. Hern........................................... 200,455
David M. Tolmie............................................. 143,182
Gian Fulgoni................................................ 143,182
Webco & Co. (an investment vehicle controlled by Michael A.
Santer)................................................... 114,546
Donald Boyce (Mark D. Boyce's father)....................... 57,375
John G. Vandegrift.......................................... 57,273
John Tolmie (David M. Tolmie's brother)..................... 57,273
Robert W. Shaw.............................................. 57,273
Paul Tolmie (David M. Tolmie's brother)..................... 28,637
Joann Tolmie (David M. Tolmie's mother)..................... 28,637
Anthony Priore.............................................. 28,637
Michael R. Mooradian........................................ 14,318
David B. Menzel............................................. 10,473
</TABLE>
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<PAGE> 49
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership
of our common stock as of June 30, 1999, by
- each person known by us to be the beneficial owner of more than 5% of the
outstanding common stock;
- our former Chief Executive Officer;
- each of our directors; and
- all of our executive officers and directors as a group.
Except as otherwise noted, the address of each person listed in the table
is c/o yesmail.com, Inc., 565 Lakeview Parkway, Suite 135, Vernon Hills,
Illinois 60061. The table includes all shares of common stock issuable within 60
days of June 30, 1999 upon the exercise of options and other rights beneficially
owned by the indicated stockholders on that date. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and includes voting and investment power with respect to the shares.
To our knowledge, except under applicable community property laws or as
otherwise indicated, the person named in the table have sole voting and sole
investment control with respect to all shares beneficially owned. The applicable
percentage of ownership for each stockholder is based on 16,924,094 shares of
common stock outstanding as of June 30, 1999, together with applicable options
for that stockholder. Shares of common stock issuable upon exercise of options
and other rights beneficially owned are deemed outstanding for the purpose of
computing the percentage ownership of the person holding those options and other
rights, but are not deemed outstanding for computing the percentage ownership of
any other person.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY PERCENTAGE
OWNED BENEFICIALLY OWNED
------------------- --------------------
PRIOR TO AFTER
OWNER NUMBER OFFERING OFFERING
----- ------------------- -------- --------
<S> <C> <C> <C>
Kenneth D. Wruk(1)(2)................................ 2,191,296 12.9 10.8
Kevin Manley(1)(3)................................... 2,191,296 12.9 10.8
Michael A. Santer(4)(5)(6)........................... 1,811,251 10.7 8.9
Keith Speer(1)(7).................................... 1,484,425 8.8 7.3
John Weiss(1)(8)..................................... 1,484,425 8.8 7.3
David M. Tolmie(2)(9)................................ 1,455,682 8.6 7.2
Platinum Venture Partners II, L.P.(10)............... 1,145,555 6.8 5.6
David Brewer(11)(12)................................. 1,016,592 6.0 5.0
Aragon Ventures, LLC(13)............................. 844,773 5.0 4.2
John G. Vandegrift(14)............................... 239,319 1.4 1.2
Gian Fulgoni(15)(16)................................. 152,557 * *
Alexander F. Hern(4)(17)............................. 751,705 4.4 3.7
Robert W. Shaw(18)(19)............................... 66,647 * *
All executive officers and directors as a group (12
persons)(20)....................................... 7,699,569 45.5 37.9
</TABLE>
- ---------------
* Less than 1% of the outstanding shares of common stock.
(1) Messrs. Wruk, Manley, Speer and Weiss are our founders. Includes the
following shares which the stockholder has the right to purchase from other
stockholders at the time of the public offering under a founders' agreement
dated March 29, 1999, assuming a $11.00 price per share at the close of the
first day our shares of common stock are publicly traded. See "Related
Party Transactions" and Note 1 to Notes to Consolidated Financial
Statements.
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<PAGE> 50
<TABLE>
<CAPTION>
NAME SHARES SUBJECT TO OPTION
---- -------------------------
<S> <C>
Kenneth D. Wruk...................................... 38,518
Kevin Manley......................................... 38,518
Keith Speer.......................................... 26,092
John Weiss........................................... 26,092
</TABLE>
(2) Includes 688,889 shares held by Wruk Partners, L.P., a limited partnership
in which Mr. Wruk is the general partner.
(3) Includes 618,169 shares held by Manley Partners, L.P., a limited
partnership in which Mr. Manley is the general partner.
(4) Includes the following shares which the stockholder is obligated to
transfer to other stockholders at the time of the public offering under a
founders agreement dated March 29, 1999 assuming a $11.00 price per share
at the close of the first day our shares of common stock are publicly
traded. See "Related Party Transactions" and Note 1 to Notes to
Consolidated Financial Statements.
<TABLE>
<CAPTION>
NAME SHARES SUBJECT TO OPTION
---- -------------------------
<S> <C>
Michael A. Santer.................................... 39,452
David M. Tolmie...................................... 5,367
Alexander F. Hern.................................... 39,452
</TABLE>
(5) Mr. Santer's address is c/o Platinum Venture Partners, 555 Twin Dolphin
Drive, Suite 400, Redwood City, California 94065.
(6) Includes 1,145,455 shares held by Platinum Venture Partners II, L.P. and
114,546 shares held by Webco & Co. Mr. Santer is a general partner of
Platinum Venture Partners II, L.P. and maintains control over Webco & Co.
and disclaims beneficial ownership of the shares held by these entities
except with respect to his pecuniary interest.
(7) Includes 346,875 shares held by Speer Partners, L.P., a limited partnership
in which Mr. Speer is the general partner. Also includes 18,750 shares held
by Bartly J. Loethen, as trustee for the Linda Blue Dynasty Trust, an
irrevocable trust created by Mr. Speer. Mr. Speer disclaims beneficial
ownership of the shares held by the Linda Blue Dynasty Trust except with
respect to his pecuniary interest.
(8) Includes 356,250 shares held by JN Weiss Partners, L.P., a limited
partnership in which Mr. Weiss is the general partner.
(9) Includes 1,237,500 shares subject to yesmail.com's right of repurchase
during a vesting period of four years and accelerated vesting in some
circumstances. Also includes 18,750 shares held by David M. Tolmie Dynasty
Trust, an irrevocable trust created by Mr. Tolmie for the benefit of his
minor children. Mr. Tolmie disclaims beneficial ownership of the shares
held by the David M. Tolmie Dynasty Trust except with respect to his
pecuniary interest.
(10) Platinum Ventures Partners II, L.P.'s address is 555 Twin Dolphin Drive,
Suite 400, Redwood City, California 94065.
(11) Mr. Brewer's address is c/o Aragon Ventures, LLC, 301 University Avenue,
Suite 440, Palo Alto, California 94301.
(12) Includes 844,773 shares held by Aragon Ventures, LLC. Mr. Brewer is a
general partner of Aragon Ventures, LLC and disclaims beneficial ownership
of the shares held by this entity except with respect to his pecuniary
interest.
(13) Aragon Ventures, LLC's address is 301 University Avenue, Suite 440, Palo
Alto, California 94301.
(14) Includes 182,046 shares subject to yesmail.com's right of repurchase during
a vesting period of four years and accelerated vesting in some
circumstances.
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<PAGE> 51
(15) Mr. Fulgoni's address is c/o Lancaster Enterprises, 65 E. Bellevue,
Chicago, Illinois 60611.
(16) Includes 9,375 shares subject to options which are exercisable within 60
days of June 30, 1999.
(17) Mr. Hern's address is 4350 W. Cypress, Suite 440, Tampa, Florida 33607.
(18) Mr. Shaw's address is c/o US Web Corporation, #2 Harrison Street, Top
Floor, San Francisco, California 94105.
(19) Includes 9,375 shares subject to options which are exercisable within 60
days of June 30, 1999.
(20) Includes 2,394,546 shares subject to yesmail.com's right of repurchase
during a vesting period of four years and accelerated vesting in some
circumstances. Also includes 18,750 shares subject to options which are
exercisable within 60 days of June 30, 1999.
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<PAGE> 52
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon the completion of this offering, we will be authorized to issue
60,000,000 shares of common stock, $0.0001 par value, and 5,000,000 shares of
undesignated preferred stock, $0.0001 par value. The following description of
our capital stock does not purport to be complete and is subject to and
qualified in its entirety by our Certificate of Incorporation and Bylaws, which
are included as exhibits to the Registration Statement of which this Prospectus
forms a part, and by the provisions of applicable Delaware law.
COMMON STOCK
As of June 30, 1999, there were 16,924,094 shares of common stock
outstanding which were held of record by 88 stockholders.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the Board of Directors out of funds legally available for that
purpose. See "Dividend Policy." In the event of a liquidation, dissolution or
winding up of yesmail.com, the holders of common stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to prior
distribution rights of preferred stock, if any, then outstanding. The holders of
common stock have no preemptive or conversion rights or other subscription
rights. There are no redemption or sinking fund provisions applicable to the
common stock. All outstanding shares of common stock are fully paid and
nonassessable, and the shares of common stock to be issued upon the closing of
this offering will be fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series and
to designate the rights, preferences and privileges of each series, any or all
of which may be greater than the rights of the common stock. It is not possible
to state the actual effect of the issuance of any shares of preferred stock upon
the rights of holders of the common stock until the Board of Directors
determines the specific rights of the holders of such preferred stock. However,
the effects might include, among other things, restricting dividends on the
common stock, diluting the voting power of the common stock, impairing the
liquidation rights of the common stock and delaying or preventing a change in
control without further action by the stockholders. Immediately prior to the
closing no shares of preferred stock will be outstanding, and we have no present
plans to issue any shares of preferred stock.
REGISTRATION RIGHTS
As of June 30, 1999, the holders of 14,529,548 shares of our common stock
or their transferees are entitled to have us register their shares under the
Securities Act. These rights are provided under the terms of agreements between
us and the holders of these securities. Subject to limitations in agreements, if
we register any of our common stock either for our own account or for the
account of other security holders, these holders are entitled to include their
shares of common stock in that registration, subject to the ability of the
underwriters to limit the number of shares included in the offering. We will be
responsible for paying all registration expenses, and the holders selling their
shares will be responsible for paying all selling expenses.
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<PAGE> 53
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
Provisions of Delaware law and our Certificate of Incorporation and Bylaws
summarized below could make more difficult our acquisition by means of a tender
offer, a proxy contest or otherwise and the removal of incumbent officers and
directors. These provisions are expected to discourage certain types of coercive
takeover practices and inadequate takeover bids and to encourage persons seeking
to acquire control to first negotiate with us. We believe that the benefits of
increased protection of our potential ability to negotiate with the proponent of
an unfriendly or unsolicited proposal to acquire or restructure us outweighs the
disadvantages of discouraging such proposals because, among other things,
negotiation of such proposals could result in an improvement of their terms.
STOCKHOLDER MEETINGS.
Under our Restated Certificate of Incorporation and Restated Bylaws, the
Board of Directors, the Chairman of the Board and the President may call special
meetings of stockholders but the stockholders may not call a special meeting.
REQUIREMENTS FOR ADVANCE NOTIFICATION OF STOCKHOLDER NOMINATIONS AND
PROPOSALS.
Our Restated Bylaws establish advance notice procedures with respect to
stockholder proposals and the nomination of candidates for election as
directors, other than nominations made by or at the direction of the Board of
Directors or a committee thereof.
DELAWARE ANTI-TAKEOVER LAW.
We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years following the date the person became an
interested stockholder, unless (with some exceptions) the "business combination"
or the transaction in which the person became an interested stockholder is
approved in a prescribed manner. Generally, a "business combination" includes a
merger, asset or stock sale, or other transaction resulting in a financial
benefit to the interested stockholder. Generally, an "interested stockholder" is
a person who, together with affiliates and associates, owns (or within three
years prior to the determination of interested stockholder status, did own) 15%
or more of a corporation's voting stock. The existence of this provision would
be expected to have an anti-takeover effect with respect to transactions not
approved in advance by the Board of Directors, including discouraging attempts
that might result in a premium over the market price for the shares of common
stock held by stockholders.
UNDESIGNATED PREFERRED STOCK.
The authorization of undesignated preferred stock makes it possible for the
Board of Directors to issue preferred stock with voting or other rights or
preferences that could impede the success of any attempt to change control of
yesmail.com. These and other provisions may have the effect of deferring hostile
takeovers or delaying changes in control or management.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is LaSalle National
Bank.
NASDAQ NATIONAL MARKET LISTING
We have been approved to list our common stock on The Nasdaq National
Market under the symbol "YESM."
53
<PAGE> 54
SHARES ELIGIBLE FOR FUTURE SALE
If our stockholders sell substantial amounts of our 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
dramatically. 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.
The number of shares of common stock available for sale in the public
market is limited by restrictions under federal securities law and by "lock-up"
agreements that our stockholders have entered into with the underwriters. For a
description of these "lock-up" agreements, please see "Underwriting."
Upon completion of this offering, we will have outstanding 20,324,094
shares of common stock (based upon shares outstanding as of June 30, 1999),
assuming no exercise of the underwriters' over-allotment option and no exercise
of outstanding options after June 30, 1999. Taking into account the lock-up
agreements and assuming Deutsche Bank Securities Inc. does not release
stockholders from these agreements, the following shares will be eligible for
sale in the public market at the following times:
- beginning on the date of this prospectus, only the shares sold in the
offering will be immediately available for sale in the public market;
- beginning 180 days after the date of this prospectus, approximately
2,394,546 shares will be eligible for sale pursuant to Rules 144 and 701
of the Securities Act;
- an additional 9,375,000 shares will become eligible for sale pursuant to
Rule 144 beginning in March 2000;
- an additional 5,154,548 shares will become eligible for sale pursuant to
Rule 144 beginning in May 2000.
Any common stock that has been purchased or may be purchased in this
offering by our "affiliates," as defined in Rule 144 of the Securities Act, will
be subject to the volume and other selling limitations under Rule 144 of the
Securities Act. All of the shares eligible for sale at the 180th day after the
date of this prospectus or afterward will be subject initially to volume and
other limitations under Rule 144 of the Securities Act.
On or prior to the 180th day following the date of this prospectus, we
intend to register for resale an additional 4,625,000 shares of common stock
reserved for issuance under our employee stock plans based upon the number of
shares reserved for issuance as of June 30, 1999. In addition, the holders of
approximately 14,529,548 shares of common stock have the right to require us to
register their shares for sale to the public. If these holders cause a large
number of shares to be registered and sold in the public market, our stock price
could fall materially.
54
<PAGE> 55
UNDERWRITING
Under the underwriting agreement dated the date of this prospectus, the
underwriters named below, through their representatives Deutsche Bank Securities
Inc., Thomas Weisel Partners LLC and Volpe Brown Whelan & Company, LLC have
severally agreed to purchase from yesmail.com the following respective numbers
of shares of common stock at the public offering price less the underwriting
discounts and commissions set forth on the cover page of this prospectus.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Deutsche Bank Securities Inc................................
Thomas Weisel Partners LLC..................................
Volpe Brown Whelan & Company, LLC...........................
---------
Total
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares of common stock offered hereby are subject
to conditions. The underwriters are obligated to purchase all of the shares of
common stock offered hereby, other than those covered by the over-allotment
option described below, if any of these shares are purchased.
The underwriters propose to offer the shares of common stock to the public
at the public offering price set forth on the cover page of this prospectus and
to dealers at a price that represents a concession not in excess of $ per
share under the public offering price. The underwriters may allow, and these
dealers may re-allow, a concession not in excess of $ per share to other
dealers. After the initial public offering, the offering price and other selling
terms may be changed by the representatives of the underwriters.
We have granted to the underwriters an option, exercisable not later than
30 days after the date of this prospectus, to purchase up to 510,000 additional
shares of common stock at the public offering price less the underwriting
discounts and commissions set forth on the cover page of this prospectus. The
underwriters may exercise this option only to cover over-allotments made in
connection with the sale of the common stock that we are offering in this
prospectus. To the extent that the underwriters exercise the option, each of the
underwriters will become obligated, subject to conditions, to purchase
approximately the same percentage of additional shares of common stock as the
number of shares of common stock to be purchased by it in the above table bears
to 3,400,000. We will be obligated, under the option, to sell these shares to
the underwriters to the extent the option is exercised. If any additional shares
of common stock are purchased, the underwriters will offer additional shares on
the same terms as those on which the 3,400,000 shares are being offered.
We have agreed to indemnify the underwriters against some specified types
of liabilities, including liabilities under the Securities Act.
Each of our officers and directors and most of our stockholders has agreed
not to offer, sell, contract to sell or otherwise dispose of, or enter into any
transaction that is designed to, or could be expected to, result in the
disposition of any portion of, any common stock for a period of 180 days after
the effective date of the registration statement of which this prospectus is a
part without the prior written consent of Deutsche Bank Securities Inc. This
consent may be given at any time without public notice. We have entered into a
similar agreement. When determining whether to consent to the release of shares
from these lock-up agreements, Deutsche Bank Securities Inc. will consider the
reason for requesting the release, the number of shares for which the release is
being requested and the market conditions prevailing at the time.
55
<PAGE> 56
The representatives of the underwriters have advised us that the
underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
market price of the common stock. Specifically, the underwriters may over-allot
shares of the common stock in connection with this offering, thus creating a
short position in the common stock for their own account. Additionally, to cover
these over-allotments or to stabilize the market price of the common stock, the
underwriters may bid for, and purchase, shares of the common stock in the open
market. Finally, the representatives, on behalf of the underwriters, also may
reclaim selling concessions allowed to an underwriter or dealer if the
underwriting syndicate repurchases shares distributed by that underwriter or
dealer. Any of these activities may maintain the market price of the common
stock at a level above that which might otherwise prevail in the open market.
The underwriters are not required to engage in these activities and, if
commenced, may end any of these activities at any time.
Eight individuals affiliated with Deutsche Bank Securities Inc. are the
beneficial owners of 78,198 shares of our common stock and Volpe Brown Whelan &
Company, LLC and one individual affiliated with Volpe Brown Whelan & Company,
LLC are the beneficial owners of 28,637 shares of our common stock. Under the
rules of the National Association of Securities Dealers, Inc., their interest in
these shares is presumed to be underwriting compensation. Accordingly these
shares cannot be sold, transferred, assigned, pledged or hypothecated by any
person for a period of one year after the effective date of this offering,
except to officers or partners of the underwriters.
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 60
filed public offerings of equity securities, of which 33 have been completed,
and has acted as a syndicate member in an additional 32 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.
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 300,000 shares for our vendors, employees, family
members of employees and other third parties. The number of shares of common
stock available for sale to the general public will be reduced to the extent
these reserved shares are purchased. Any reserved shares that are not purchased
will be offered by the underwriters to the general public on the same basis as
the other shares offered by this prospectus.
We estimate that our share of the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $1,100,000.
PRICING OF THIS OFFERING
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our common stock will
be determined by negotiation among yesmail.com and the representatives of the
underwriters. Among the factors to be considered in determining the public
offering price will be:
- prevailing market conditions;
- our results of operations in recent periods;
- the present stage of our development;
56
<PAGE> 57
- the market capitalizations and stages of development of other companies
that yesmail.com and the representatives of the underwriters believe to
be comparable to yesmail.com; and
- estimates of yesmail.com's business potential.
LEGAL MATTERS
The validity of our common stock we are offering in this prospectus will be
passed upon by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California. Pillsbury Madison & Sutro LLP, San Francisco, California, is
acting as counsel for the underwriters in connection with legal matters relating
to the shares of common stock offered hereby. Jeffrey D. Saper, a member of
Wilson Sonsini Goodrich & Rosati, Professional Corporation, is Secretary of the
Company. As of the date of this prospectus, members of Wilson Sonsini Goodrich &
Rosati, Professional Corporation, own 114,545 shares of our common stock, and an
investment partnership associated with Wilson Sonsini Goodrich & Rosati,
Professional Corporation owns 57,273 shares of our common stock.
EXPERTS
Arthur Andersen LLP, independent auditors, have audited our consolidated
financial statements at December 31, 1997 and 1998, and for each of the years in
the three-year period ended December 31, 1998 as set forth in their report. We
have included our financial statements in the prospectus and elsewhere in the
registration statement in reliance on Arthur Andersen LLP's report, given upon
the authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have has filed with the Securities and Exchange Commission a
registration statement on Form S-1 under the Securities Act with respect to the
common stock we are offering in this prospectus. This prospectus, which
constitutes a part of the registration statement, does not contain all of the
information set forth in the registration statement and the exhibits filed as a
part thereof, some parts of which are omitted in accordance with the rules and
regulations of the SEC. For further information with respect to us and the
common stock we are offering in this prospectus, reference is made to the
registration statement and to the exhibits filed as a part of that registration
statement. The registration statement, including the exhibits and schedules to
that registration statement, may be inspected without charge at the principal
office of the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549,
or at the Regional Offices of the SEC at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, Suite
1300, New York, New York 10048. Our SEC filings are also available to the public
from the SEC's Web site at www.sec.gov. In addition, such material will be
available for inspection at the offices of The Nasdaq Stock Market, Inc., at
1735 K Street, N.W., Washington D.C. 20006. Copies of such material may be
obtained by mail from the Public Reference Branch of the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.
57
<PAGE> 58
YESMAIL.COM, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Financial Statements:
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1997 and 1998, and for the six
months ended June 30, 1998 and 1999 (unaudited)........ F-3
Consolidated Balance Sheets as of December 31, 1997 and
1998, and as of June 30, 1999 (unaudited).............. F-4
Consolidated Statements of Stockholders' Equity (Deficit)
for the Years Ended December 31, 1996, 1997 and 1998,
and for the six months ended June 30, 1999
(unaudited)............................................ F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1997 and 1998, and for the six
months ended June 30, 1998 and 1999 (unaudited)........ F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 59
Upon the 3:8 reverse stock split becoming effective as discussed in Note 11
to yesmail.com, inc. Consolidated Financial Statements, we expect to be in a
position to render the following audit report.
Arthur Andersen LLP
August 13, 1999
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
yesmail.com, inc.:
We have audited the accompanying consolidated balance sheets of
yesmail.com, inc. (a Delaware corporation) as of December 31, 1997 and 1998, and
the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of yesmail.com,
inc. as of December 31, 1997 and 1998, and the results of their operations and
their cash flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles.
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of yesmail.com, inc. included in this Form
S-1 and issued our report thereon dated June 4, 1999. Our audits were made for
the purpose of forming an opinion on the basic financial statements taken as a
whole. The Rule 12-09 Valuation Reserve schedule is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not a part
of the basic financial statements. This schedule has been subject to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois
June 4, 1999
(except with respect to the matters discussed
in Note 11, as to which the date is
, 1999)
F-2
<PAGE> 60
YESMAIL.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------- ------------------------
1996 1997 1998 1998 1999
---------- ---------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues..................... $ 934,856 $2,468,022 $ 4,583,354 $2,046,489 $ 3,642,424
Cost of revenues............. 292,776 1,089,585 2,702,872 1,142,194 2,477,369
---------- ---------- ----------- ---------- -----------
Gross profit....... 642,080 1,378,437 1,880,482 904,295 1,165,055
---------- ---------- ----------- ---------- -----------
Operating expenses:
Sales and marketing
expenses................ 291,999 959,813 1,751,208 677,471 3,100,856
General and administrative
expenses................ 236,761 466,208 929,209 383,672 1,995,470
Research and development
costs................... 198,548 357,068 600,848 276,443 1,423,169
---------- ---------- ----------- ---------- -----------
Total operating
expenses......... 727,308 1,783,089 3,281,265 1,337,586 6,519,495
---------- ---------- ----------- ---------- -----------
Operating loss............... (85,228) (404,652) (1,400,783) (433,291) (5,354,440)
Other expense:
Interest expense........... (3,590) (18,098) (45,075) (17,834) (105,600)
Other...................... -- -- (250,000) -- 19,594
---------- ---------- ----------- ---------- -----------
Total other
expense.......... (3,590) (18,098) (295,075) (17,834) (86,006)
---------- ---------- ----------- ---------- -----------
Net loss before
minority
interest......... (88,818) (422,750) (1,695,858) (451,125) (5,440,446)
Minority interest............ 8,821 8,716 (10,547) (9,061) (34,356)
---------- ---------- ----------- ---------- -----------
Net loss........... $ (79,997) $ (414,034) $(1,706,405) $ (460,186) $(5,474,802)
========== ========== =========== ========== ===========
Net loss per share:
Basic and diluted.......... $ (0.01) $ (0.05) $ (0.22) $ (0.06) $ (0.60)
Weighted average shares --
basic and diluted....... 7,723,237 7,649,480 7,636,098 7,775,977 9,178,455
========== ========== =========== ========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these statements.
F-3
<PAGE> 61
YESMAIL.COM, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1997 1998 1999
--------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash............................................... $ 1,841 $ 26,212 $ 3,508,104
Accounts receivable, net of allowance of $26,000,
$56,000 and $166,000............................ 176,259 242,757 863,591
Deposits and prepaid expenses...................... 3,786 19,348 597,946
--------- ----------- -----------
Total current assets....................... 181,886 288,317 4,969,641
--------- ----------- -----------
Property and equipment, net.......................... 101,640 353,871 1,241,099
--------- ----------- -----------
Intangible and other assets.......................... 750 750 465,672
--------- ----------- -----------
Total assets............................... $ 284,276 $ 642,938 $ 6,676,412
========= =========== ===========
Current liabilities:
Accounts payable................................... $ 185,353 $ 1,391,509 $ 1,758,943
Short-term debt.................................... 149,241 342,870 364,448
Note payable....................................... -- -- 150,000
Due to related parties............................. 76,721 56,788 --
Obligations under capital leases, current
portion......................................... 17,647 87,165 181,991
Accrued payroll and payroll related expenses....... 74,043 213,291 462,313
Deferred revenue................................... 119,021 114,301 295,013
Accrued legal settlement........................... -- 250,000 --
Accrued marketing.................................. -- -- 880,889
Other current liabilities.......................... 8,216 94,602 399,950
--------- ----------- -----------
Total current liabilities.................. 630,242 2,550,526 4,493,547
--------- ----------- -----------
Obligations under capital leases, less current
portion............................................ 18,079 152,743 330,242
--------- ----------- -----------
Minority interest.................................... (17,537) (6,990) --
Stockholders' equity (deficit):
Series A convertible preferred stock, $.0001 par
value; 15,000,000 shares authorized; 5,154,548
shares issued and outstanding................... -- -- 515
Common stock, $.0001 par value; 22,500,000 shares
authorized; 8,333,333, 8,333,333 and 11,769,546
shares issued................................... 833 833 1,177
Common stock in treasury, 497,685, 833,333, and no
shares at cost.................................. (602) (1,030) --
Notes receivable from stockholders................. -- -- (3,831,274)
Additional paid-in capital......................... 160,649 160,649 13,782,200
Deferred compensation.............................. -- -- (411,400)
Accumulated deficit................................ (507,388) (2,213,793) (7,688,595)
--------- ----------- -----------
Total stockholders' equity (deficit)....... (346,508) (2,053,341) 1,852,623
--------- ----------- -----------
Total liabilities and stockholders' equity
(deficit)................................ $ 284,276 $ 642,938 $ 6,676,412
========= =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these statements.
F-4
<PAGE> 62
YESMAIL.COM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK TREASURY STOCK ADDITIONAL
------------------- ------------------- ------------------- NOTES PAID IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT RECEIVABLE CAPITAL
---------- ------ ---------- ------ ---------- ------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995....................... -- -- 4,629,629 $ 463 -- -- -- $ 537
Stock awarded to employees
for services............. -- -- 694,445 69 -- -- -- 38,931
Stock split treated as a
dividend to
shareholders............. -- -- 3,009,259 301 -- -- -- (301)
Treasury stock purchase.... -- -- -- -- (925,926) (1,120) --
Distribution of minority
interest in subsidiary to
a third party............ -- -- -- -- -- -- -- 16,000
Net loss................... -- -- -- -- -- -- -- --
---------- ----- ---------- ------ ---------- ------ ---------- -----------
Balance at December 31,
1996....................... -- -- 8,333,333 833 (925,926) (1,120) -- 55,167
Stock awarded to employees
by principal
stockholders............. -- -- -- -- -- -- -- 39,000
Treasury stock awarded to
employees for services... -- -- -- -- 428,241 518 -- 66,482
Net loss................... -- -- -- -- -- -- -- --
---------- ----- ---------- ------ ---------- ------ ---------- -----------
Balance at December 31,
1997....................... -- -- 8,333,333 833 (497,685) (602) -- 160,649
Treasury stock purchase.... -- -- -- -- (335,648) (428) -- --
Net loss................... -- -- -- -- -- -- -- --
---------- ----- ---------- ------ ---------- ------ ---------- -----------
Balance at December 31,
1998....................... -- -- 8,333,333 833 (833,333) (1,030) -- 160,649
Treasury stock retired
(unaudited).............. -- -- (833,333) (83) 833,333 1,030 -- (947)
Issuance of common stock
for cash (unaudited)..... -- -- 1,875,000 188 -- -- -- 312
Issuance of options for
services and acquisition
(unaudited).............. -- -- -- -- -- -- -- 421,778
Issuance of common stock to
officers for notes
receivable (unaudited)... -- -- 2,394,546 239 -- -- (3,831,274) 3,831,035
Issuance of preferred stock
for cash (unaudited)..... 5,154,548 515 -- -- -- -- -- 8,949,485
Deferred compensation...... -- -- -- -- -- -- -- 419,888
Amortization of deferred
compensation............. -- -- -- -- -- -- -- --
Net loss (unaudited)....... -- -- -- -- -- -- -- --
---------- ----- ---------- ------ ---------- ------ ---------- -----------
Balance at June 30, 1999
(unaudited)................ 5,154,548 515 11,769,546 1,177 -- -- (3,831,274) 13,782,200
========== ===== ========== ====== ========== ====== ========== ===========
<CAPTION>
DEFERRED ACCUMULATED
COMPENSATION DEFICIT TOTAL
------------ ----------- -----------
<S> <C> <C> <C>
Balance at December 31,
1995....................... -- $ (13,357) $ (12,357)
Stock awarded to employees
for services............. -- -- 39,000
Stock split treated as a
dividend to
shareholders............. -- -- --
Treasury stock purchase.... -- -- (1,120)
Distribution of minority
interest in subsidiary to
a third party............ -- -- 16,000
Net loss................... -- (79,997) (79,997)
-------- ----------- -----------
Balance at December 31,
1996....................... -- (93,354) (38,474)
Stock awarded to employees
by principal
stockholders............. -- -- 39,000
Treasury stock awarded to
employees for services... -- -- 67,000
Net loss................... -- (414,034) (414,034)
-------- ----------- -----------
Balance at December 31,
1997....................... -- (507,388) (346,508)
Treasury stock purchase.... -- -- (428)
Net loss................... -- (1,706,405) (1,706,405)
-------- ----------- -----------
Balance at December 31,
1998....................... -- (2,213,793) (2,053,341)
Treasury stock retired
(unaudited).............. -- -- --
Issuance of common stock
for cash (unaudited)..... -- -- 500
Issuance of options for
services and acquisition
(unaudited).............. -- -- 421,778
Issuance of common stock to
officers for notes
receivable (unaudited)... -- -- --
Issuance of preferred stock
for cash (unaudited)..... -- -- 8,950,000
Deferred compensation...... (419,888) -- --
Amortization of deferred
compensation............. 8,488 -- 8,488
Net loss (unaudited)....... -- (5,474,802) (5,474,802)
-------- ----------- -----------
Balance at June 30, 1999
(unaudited)................ (411,400) (7,688,595) 1,852,623
======== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these statements.
F-5
<PAGE> 63
YESMAIL.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------- -----------------------
1996 1997 1998 1998 1999
--------- --------- ----------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss.................................... $ (79,997) $(414,034) $(1,706,405) $(460,186) $(5,474,802)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities --
Depreciation.............................. 16,015 49,443 101,783 42,664 280,560
Stock issuance for compensation........... 55,000 106,000 -- -- 253,266
Minority interest......................... (8,821) (8,716) 10,547 7,354 34,356
Changes in operating assets and
liabilities --
Accounts receivable.................... (119,176) (48,142) (66,498) (41,777) (620,834)
Deposits and prepaid expenses.......... (4,469) 668 (15,562) (1,049) (593,886)
Accounts payable and accrued
expenses............................. 108,125 143,123 1,681,790 512,411 1,552,693
Deferred revenue....................... 12,517 106,504 (4,720) (64,507) 180,712
--------- --------- ----------- --------- -----------
Net cash provided by (used in)
operating activities............... (20,806) (65,154) 935 (5,090) (4,387,935)
--------- --------- ----------- --------- -----------
Cash Flows from Investing Activities:
Purchases of property and equipment......... (45,040) (69,639) (102,232) (8,939) (832,294)
Purchase of minority interest............... -- -- -- -- (150,000)
--------- --------- ----------- --------- -----------
Net cash used in investing
activities......................... (45,040) (69,639) (102,232) (8,939) (982,294)
--------- --------- ----------- --------- -----------
Cash Flows from Financing Activities:
Borrowings from related parties............. 66,110 -- -- -- --
Payment to related parties.................. -- (12,878) (19,933) (10,900) (56,788)
Borrowings of short term debt............... -- 263,561 312,259 137,259 50,000
Repayments of short term debt............... -- (114,320) (118,630) (88,999) (28,422)
Repurchase of stock......................... (1,120) -- (428) (428) --
Proceeds from issuance of common stock...... -- -- -- -- 500
Proceeds from issuance of preferred stock... -- -- -- -- 8,950,000
Principal payments under capital lease
obligations............................... (403) (8,935) (47,600) (15,363) (63,169)
--------- --------- ----------- --------- -----------
Net cash provided by financing
activities......................... 64,587 127,428 125,668 21,569 8,852,121
--------- --------- ----------- --------- -----------
Net Increase (Decrease) in Cash............... (1,259) (7,365) 24,371 7,540 3,481,892
Cash, beginning of year....................... 10,465 9,206 1,841 1,841 26,212
--------- --------- ----------- --------- -----------
Cash, end of year............................. $ 9,206 $ 1,841 $ 26,212 $ 9,381 $ 3,508,104
========= ========= =========== ========= ===========
Supplemental Disclosure of Cash Flow
Information:
Cash paid during the period for interest.... $ 3,590 $ 18,098 $ 45,075 $ 16,491 $ 41,585
========= ========= =========== ========= ===========
Noncash Transactions:
Equipment acquired under capital leases..... $ 12,237 $ 32,827 $ 251,782 $ 36,064 $ 335,494
Issuance of note payable for purchase of
minority interest......................... -- -- -- -- $ 150,000
Issuance of common stock options for
purchase of minority interest............. -- -- -- -- $ 177,000
Note receivable from issuance of restricted
common stock.............................. -- -- -- -- $ 3,831,274
========= ========= =========== ========= ===========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these statements.
F-6
<PAGE> 64
YESMAIL.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION RELATING TO JUNE 30, 1998 AND 1999 IS UNAUDITED)
1. THE COMPANY AND DESCRIPTION OF BUSINESS
yesmail.com, inc. (the "Company") provides Internet marketing services to
companies that conduct part or all of their business through e-commerce. The
Company's services include targeted direct email campaigns to specific members
in the YesMail Network who have given express permission to receive direct
marketing messages in specific categories of interest. The Company also offers a
variety of services focused on delivering Internet users to a particular Web
site.
Superhighway Consulting, Inc. ("SCI", doing business as WebPromote) was
founded in 1995 and was merged with WP Holding, Inc. ("WP Holding") on March 29,
1999, in a stock for stock transaction (the "Merger"), with the SCI stockholders
receiving 80% of the outstanding shares of WP Holding. WP Holding was organized
as a Delaware corporation in October 1998 and five investors purchased 5 million
shares of common stock at par value on March 25, 1999. As the SCI stockholders
retained a controlling interest in the surviving entity and WP Holding had no
prior operations, the Company accounted for this merger as a recapitalization.
The shares of SCI have been retroactively adjusted as if there had been an 11.57
for one stock-split.
In connection with the Merger, SCI and the stockholders of WP Holding
entered into a Founders' Agreement, which, among other things, gives the former
SCI stockholders the right to retain the first $16 million in value of the
Company upon subsequent sale or merger or the WP Holding stockholders' interest
in the first $16 million in value of the Company upon the Company's initial
public offering. In the case of an initial public offering, such payment shall
be made with a transfer of shares among the stockholders. The $16 million
represented the negotiated value of SCI as of the date of the Merger.
The financial statements reflect the historical accounts of SCI, with the
number of SCI shares retroactively adjusted to reflect the stock split referred
to above. On May 10, 1999, WP Holding changed its name to yesmail.com, inc.
Starting Point, L.L.C. ("Starting Point"), was incorporated by the Company
as a wholly-owned subsidiary in February 1996. Starting Point manages and
operates an Internet directory and search resource. Starting Point owns a list
of permission e-mail addresses and sells Web site banner advertisements for its
Web site. In September 1996, the Company distributed a 30% interest to and
entered into an operating agreement with a third party retained to manage
Starting Point. This 30% ownership distribution resulted in a $16,000
compensation charge based on the fair market value of the 30% interest as
determined by the Board of Directors. In June 1999, the Company purchased the
30% minority ownership as further described in Note 11.
2. LIQUIDITY AND FINANCING CONSIDERATIONS
The Company has sustained net losses since its inception. The Company's
ability to meet its obligations in the ordinary course of business is dependent
upon its ability to establish profitable operations or to obtain additional
funding through public or private equity financing, collaborative or other
arrangements with corporate sources, and, ultimately, to establish profitable
operations.
The Company's operating plan is to rapidly expand its sales and marketing,
product development and administrative operations and to develop new strategic
relationships to promote the Company's future growth. This will likely result in
negative cash flow from operations at least through the year 2000. The Company
raised $9 million of equity capital in May 1999 (see Note 11), but will likely
need to raise additional capital prior to the end of 1999. As discussed in Note
11, the Company is preparing for an initial public offering of stock. In the
opinion of
F-7
<PAGE> 65
YESMAIL.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION RELATING TO JUNE 30, 1998 AND 1999 IS UNAUDITED)
management, alternative financing from new or existing investors will be
available to the Company if the initial public offering is delayed or canceled.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiary. All significant intercompany balances and transactions have
been eliminated in the consolidation process.
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
In the opinion of the Company's management, the June 30, 1998 and 1999
unaudited interim consolidated financial statements include all adjustments,
consisting of normal recurring adjustments necessary for a fair presentation of
such financial statements. The results of operations for the six months ended
June 30, 1999 are not necessarily indicative of the results to be expected for
the entire year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of expenses during the reporting period.
Actual results could differ from those estimates.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets or, for
leasehold improvements, the shorter of the lease term or the estimated useful
life of the asset, as follows:
<TABLE>
<S> <C>
Computer equipment................................. 1 - 2 years
Computer software.................................. 1 - 2 years
Telephone equipment................................ 2 - 5 years
Furniture and fixtures............................. 5 - 7 years
Leasehold improvements............................. 1 - 5 years
</TABLE>
Maintenance and repairs are charged to expense as incurred and improvements
and betterments are capitalized. When assets are retired or otherwise disposed
of, the cost and accumulated depreciation are removed from the accounts and any
resulting gain or loss is reflected in the consolidated statement of operations
for the period in which it is realized.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
Under SFAS No. 109, deferred tax assets and liabilities are determined based on
temporary differences between the financial statement and tax bases of assets
and liabilities and net operating loss and credit carryforwards using enacted
tax rates in effect for the year in which the differences are expected to
reverse. Valuation allowances are established when necessary to reduce deferred
tax assets to
F-8
<PAGE> 66
YESMAIL.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION RELATING TO JUNE 30, 1998 AND 1999 IS UNAUDITED)
the amounts expected to be realized. A provision for income tax expense is
recognized for income taxes payable for the current period, plus the net changes
in deferred tax amounts.
REVENUE RECOGNITION
The Company earns revenues from its customers by (i) charging fees for
sending targeted email to its owned and represented subscribers, (ii) placing
advertisements on Web sites and (iii) providing services to Web site owners.
Revenue is recognized when emails are transmitted to subscribers, as
advertisements are placed on Web sites, and when services are performed.
Deferred revenue represents liabilities for services not yet rendered or for
advertisements not yet placed.
The Company becomes obligated to make payments to third-party Web sites,
which have contracted with the Company to be part of the YesMail Network, in the
period the email messages are delivered. Such expenses are classified as cost of
revenues in the consolidated statements of operations.
RESEARCH AND DEVELOPMENT COSTS
Costs incurred in the development of its Web site, products, and related
applications to be used in connection with the Company's services have been
expensed to operations as incurred through the year ended December 31, 1998. In
March 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") No. 98-1, "Software for Internal Use," which
provides guidance on accounting for the cost of computer software developed or
obtained for internal use. The Company adopted SOP No. 98-1 on January 1, 1999.
As a result, the Company has continued to expense its development costs as
incurred as the rapid pace of technological change results in an estimated
useful life of such software of one year or less.
ADVERTISING COSTS
Costs of developing the advertisements are expensed as incurred. Costs of
placing the media are expensed as the advertisements are run. Such costs are
included in sales and marketing on the consolidated statement of operations and
totaled approximately $199,000, $571,000, $699,000, $234,000, and $1,350,000 for
the years ended December 31, 1996, 1997 and 1998 and for the six months ended
June 30, 1998 and 1999, respectively.
DEFERRED OFFERING COSTS
As of June 30, 1999, the Company had incurred approximately $183,000 in
costs related to the Company's proposed initial public offering. These costs
have been capitalized and are included in deposits and prepaid expenses in the
accompanying consolidated balance sheet at June 30, 1999. Upon completion of the
Company's proposed initial public offering, the deferred offering costs will be
reclassified to common stock as a reduction of the proceeds from the offering.
GOODWILL AND OTHER INTANGIBLES
Goodwill and other intangible assets are stated at cost and amortized using
the straight-line method over the estimated economic useful life. The Company
continually evaluates whether subsequent events and circumstances have occurred
that indicate the remaining estimated useful life of goodwill or an intangible
asset may warrant revision, or that the remaining balance of
F-9
<PAGE> 67
YESMAIL.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION RELATING TO JUNE 30, 1998 AND 1999 IS UNAUDITED)
goodwill or an intangible asset may not be recoverable. The Company evaluates
the recoverability of goodwill and intangible assets by measuring the carrying
amount of the assets against the estimated undiscounted future cash flows
associated with them. At the time such evaluations indicate that the future
undiscounted cash flows of such assets are not sufficient to recover the
carrying value of such assets, the assets are adjusted to their fair values.
Based on these evaluations, there were no adjustments to the carrying value of
goodwill or intangible assets in 1999.
FINANCIAL INSTRUMENTS AND CONCENTRATION OF RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash, accounts receivable,
accounts payable, short-term debt, obligations under capital leases and accrued
liabilities. At December 31, 1997 and 1998, the fair market value of these
instruments approximated their financial statement carrying amount because of
the short term maturity of these instruments. The Company does not require
collateral for accounts receivable, but does evaluate customer creditworthiness
and establish allowances as necessary based on management estimates of
collectibility. For the six months ended June 30, 1999, one customer accounted
for approximately 13% of revenues.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation arrangements with
employees in accordance with provisions of Accounting Principles Board ("APB"),
Opinion No. 25, "Accounting for Stock Issued to Employees," and complies with
the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." Under APB No. 25, compensation expense is based on the
difference, if any, on the measurement date, between the estimated fair value of
the Company's stock and the exercise price of options to purchase that stock or
price paid for shares of stock. For directors and consultants receiving
stock-based compensation, the Company complies with the provisions of SFAS No.
123.
NET LOSS PER SHARE
The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings per Share." Under the provisions of SFAS No. 128, basic net loss per
share is computed by dividing the net loss for the period by the weighted
average number of common shares outstanding during the period. Diluted net loss
per share is computed by dividing the net loss for the period by the weighted
average number of common and common equivalent shares outstanding during the
period. However, the Company had securities outstanding which could potentially
dilute basic earnings per share in the future, but were excluded in the
computation of diluted net loss per share in the periods presented, as their
effect would have been antidilutive. Such outstanding securities consist of the
following at June 30, 1999: 5,154,548 shares of convertible preferred stock and
options to purchase 708,623 shares of common stock.
F-10
<PAGE> 68
YESMAIL.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION RELATING TO JUNE 30, 1998 AND 1999 IS UNAUDITED)
OTHER COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements. Other
comprehensive income, as defined, includes all changes in equity (net assets)
during a period from nonowner sources. To date, the Company has not had any
transactions that are required to be reported in comprehensive income.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standard Board ("FASB") issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
SFAS No. 131 establishes standards for the way companies report information
about operating segments in annual financial statements. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. The disclosures prescribed in SFAS No. 131 are effective
for the year ended December 31, 1998. The Company has determined that it does
not have any separately reportable business segments.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which defines derivatives, requires that
all derivatives be carried at fair value, and provides for hedge accounting when
certain conditions are met. SFAS No. 133 is effective for the Company in 2001.
Although the Company has not fully assessed the implications of SFAS No. 133,
the Company does not believe that the adoption of this statement will have a
material impact on the Company's financial position or results of operations.
4. RELATED-PARTY TRANSACTIONS
The Company had amounts payable to certain stockholders for expenses
incurred on behalf of the Company in the amounts of $76,721 and $56,788 as of
December 31, 1997 and 1998, respectively. These amounts were fully paid by
January 1999.
Subsequent to December 31, 1998, the Company obtained advances from certain
stockholders totaling $600,000. These advances have been classified as due to
related parties in the accompanying consolidated balance sheet. All advances
were converted to series A preferred stock on May 18, 1999 as described further
in Note 11.
Starting Point paid a management fee to its minority member for services
related to operating and managing the business. Management fees paid to the
minority member were $5,000, $22,500, $81,000, $48,000 and $115,000 for the
years ended December 31, 1996, 1997 and 1998 and for the six months ended June
30, 1998 and 1999, respectively.
Certain stockholders personally guarantee a portion of the Company's short
term debt and certain equipment leases as further described in Notes 6 and 8.
As further described in Note 11, the Company entered into certain
transactions with employees and/or directors subsequent to December 31, 1998.
F-11
<PAGE> 69
YESMAIL.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION RELATING TO JUNE 30, 1998 AND 1999 IS UNAUDITED)
5. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1997 1998 1999
-------- --------- ----------
<S> <C> <C> <C>
Computer equipment.................................... $117,029 $ 268,384 $ 862,606
Computer software..................................... 24,793 126,147 566,120
Telephone equipment................................... 16,851 57,528 57,578
Furniture and fixtures................................ 10,878 10,878 96,430
Leasehold improvements................................ -- 60,628 108,619
-------- --------- ----------
169,551 523,565 1,691,353
Accumulated depreciation.............................. (67,911) (169,694) (450,254)
-------- --------- ----------
$101,640 $ 353,871 $1,241,099
======== ========= ==========
</TABLE>
6. SHORT-TERM DEBT
The Company has lines of credit with two banks, providing for maximum
borrowings of $370,000 as of both December 31, 1998 and June 30, 1999. Interest
rates ranged from 9.25% to 14.75%, with a weighted average rate of 9.37% as of
December 31,1998. One line of credit matures on July 15, 1999 and the other line
of credit has no expiration date. Outstanding borrowings under the lines of
credit were $149,241, $298,955 and $322,972, as of December 31, 1997 and 1998
and June 30, 1999. Borrowings are personally guaranteed by certain stockholders.
On March 12, 1998 the Company borrowed $50,000 from a bank at an interest
rate of 10.0% that matures on July 15, 1999. The balance of the note was $43,915
and $41,476 as of December 31, 1998 and June 30, 1999. The loan is
collateralized by all of the assets and property of the Company.
7. 401(k) SAVINGS PLAN
In September 1997, the Company established a 401(k) Savings Plan (the
"Plan") that covers substantially all employees. Under the Plan, employees are
permitted to contribute a portion of gross compensation not to exceed standard
limitations provided by the Internal Revenue Service. The Company maintains the
right to match employee contributions, but for the years ended December 31, 1997
and 1998 and for the six months ended June 30, 1999, no Company matching
contributions were made.
8. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases office space and equipment under noncancelable operating
and capital leases with various expiration dates through the year 2003. Rent
expense amounted to approximately, $19,000, $51,000, $86,000, $35,000 and
$101,000 for the years ended December 31, 1996, 1997 and 1998 and for the six
months ended June 30, 1998 and 1999, respectively. Certain equipment leases,
with an aggregate outstanding balance of approximately $449,000 at June 30,
1999, are personally guaranteed by certain stockholders.
F-12
<PAGE> 70
YESMAIL.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION RELATING TO JUNE 30, 1998 AND 1999 IS UNAUDITED)
Future minimum lease payments under noncancelable capital leases and
operating leases as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
<S> <C> <C>
1999........................................................ $112,683 $102,850
2000........................................................ 74,916 105,935
2001........................................................ 42,440 109,113
2002........................................................ 39,601 103,091
2003........................................................ 24,295 86,172
-------- --------
Total minimum lease payments................................ $293,935 $507,161
========
Less -- Amount representing interest........................ (54,027)
--------
Present value of capital lease obligations.................. 239,908
Less -- Current portion..................................... (87,165)
--------
Long-term portion........................................... $152,743
========
</TABLE>
LITIGATION
In connection with the termination of employment of a stockholder, the
Company exercised its right to repurchase the stockholder's shares in accordance
with the Shareholders' Agreement described in Note 9. The former stockholder has
filed a lawsuit contesting the repurchase amount. During 1998, the Company
recorded a reserve of $250,000 in other expense in the accompanying financial
statements. Subsequent to year end, the case was settled for approximately
$250,000.
Additionally, the Company is, at times, subject to pending and threatened
legal actions and proceedings. After reviewing pending and threatened actions
and proceedings with counsel, management believes that the outcome of such
actions or proceedings is not expected to have a material adverse effect on the
financial position or results of operations of the Company.
9. COMMON STOCK
During 1996, a stock split, treated as a dividend of 3,009,259 shares, was
declared and distributed to the shareholders. Additionally, the Company issued
694,445 shares of common stock to employees for services. This issuance resulted
in a compensation charge of $39,000 based on the estimated fair market value of
the stock at the time of issuance.
In June 1997, the Company's Board of Directors authorized a four for one
stock split. In January 1998, the Board of Directors authorized a five hundred
for one stock split. In connection with the Merger, the financial statements
reflect an 11.57 for one stock split on March 29, 1999. The consolidated
financial statements have been restated to reflect these stock splits.
During June 1997, two principal stockholders awarded 231,482 shares from
their holdings of common stock of the Company to employees. Additionally, the
Company granted stock awards from treasury stock to several employees in lieu of
cash compensation. In both instances, compensation expense was recorded for the
entire amount of the awards based upon the estimated fair value of the stock at
the time of the issuance.
In February 1999, the Company retired all treasury shares outstanding.
F-13
<PAGE> 71
YESMAIL.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION RELATING TO JUNE 30, 1998 AND 1999 IS UNAUDITED)
The stock of SCI, prior to the Merger, was subject to a Shareholders'
Agreement which gave SCI the right to repurchase the stock, at a formula price,
from stockholders who terminated employment with SCI. The Shareholders'
Agreement also gave SCI the right of first refusal to repurchase shares offered
to a third party. The Shareholders' Agreement was terminated in connection with
the Merger with WP Holding.
In 1996 and 1998, the Company repurchased 925,926 and 335,648 shares,
respectively, of common stock for the amounts of $1,120 and $428 from terminated
employees in accordance with a formula contained in the then existing
shareholders' agreement.
10. INCOME TAXES
As of December 31, 1998, the Company had net operating loss carryforwards
of approximately $1,423,000, which begin to expire in the year 2010.
As a result of various equity transactions during 1999, the Company
believes that it may have undergone an "ownership change" as defined in section
382 of the Internal Revenue Code. Accordingly, the utilization of a portion of
the net operating loss carryforwards may be limited. Due to the uncertainty
regarding the ultimate utilization of the net operating carryforwards, the
Company has not recorded any benefit for losses and a valuation allowance has
been recorded for the entire amount of the net deferred tax asset. In addition,
sales of the Company's stock, including shares sold in the Company's initial
public offering, may further restrict its ability to utilize its net operating
loss carryforwards.
The difference between the income tax benefit at the federal statutory rate
of 34% and the Company's effective tax rate is due primarily to recognition of a
full valuation allowance to offset the deferred tax assets.
The estimated tax effects of significant temporary difference and
carryforwards that give rise to deferred income tax assets as of December 31,
1998, are as follows:
<TABLE>
<S> <C>
Deferred income tax assets --
Net operating loss carryforwards.......................... $ 554,787
Accrued liabilities and other............................. 453,448
----------
Gross deferred income tax assets.................. 1,008,235
Less: valuation allowance................................... (839,316)
----------
Deferred income tax liabilities --
Deferred revenue.......................................... (156,629)
Depreciation on property and equipment.................... (12,290)
----------
Gross deferred income tax liabilities............. (168,919)
----------
Net deferred tax assets........................... $ --
==========
</TABLE>
The Company has recorded a valuation allowance against gross deferred tax
assets due to uncertainties surrounding their realization. The amount of net
deferred tax assets considered realizable, however, could be increased in the
future if estimates of future taxable income are increased.
F-14
<PAGE> 72
YESMAIL.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION RELATING TO JUNE 30, 1998 AND 1999 IS UNAUDITED)
11. SUBSEQUENT EVENTS
BRIDGE LOAN/WARRANT
On December 28, 1998, the Company agreed to issue a warrant to a
shareholder in connection with a loan of $1.0 million ("Bridge Loan"), which was
to be converted into series A convertible preferred stock at the option of the
holder. The warrant was only exercisable upon an event of default. The bridge
loan which accrues interest at the prime rate (7.5%) matures upon the closing of
the private equity placement or upon event of default. No value was ascribed to
the warrant. The proceeds from the loan were received and the warrant was issued
in January 1999. On May 18, 1999, the loan was converted into 572,727 shares of
series A convertible preferred stock in connection with the Company's private
equity placement (see Note 11) and the warrant was canceled.
RESTRICTED COMMON STOCK
In May, 1999, the Company issued an aggregate of 2,394,546 shares of
restricted common stock to officers for $1.60 per share. In the event of a
change of control (as defined in the Restricted Stock Purchase Agreement), 25%
of the shares purchased vest (in addition to any shares vested at such time). In
connection with such issuance, the officers paid for the stock by issuing notes
payable to the Company that are secured by the shares of the Company's common
stock purchased. The secured notes receivable bear interest at 5.22% per annum
with the entire principal balance of the note, together with all accrued and
unpaid interest, due and payable on the earlier of (a) the sale of the
underlying common stock, (b) May 10, 2008 or (c) termination of employment. The
Company has recourse against the signers of the notes for 75% of the principal
and all accrued interest. The notes receivable from the stockholders has been
classified as a reduction of equity. The shares generally vest over a four-year
period; however, 900,000 shares vest seven months from the occurrence of an
initial public offering. The stock is restricted in that any unvested shares are
subject to repurchase rights by the Company upon the occurrence of certain
events or conditions, such as employment termination, at the original purchase
price.
STOCK OPTION PLAN
On April 1, 1999, the Company adopted the 1999 Stock Plan (the "Stock
Plan") which provides for the grant of up to 3,225,000 incentive or
non-statutory stock options or shares of restricted stock to employees,
directors and consultants ("Optionee") of the Company. On May 17, 1999, the
Board of Directors increased the number of authorized options to 3,675,000 and
on July 13, 1999, the Board of Directors increased the number of authorized
options to 4,425,000. Options granted under the Stock Plan generally vest
ratably over a period of four years and expire ten years from the date of grant.
If an Optionee ceases employment with or service to the Company ("Termination"),
the Optionee may exercise any vested option at the time of Termination within
such period of time specified in the option agreement. In the absence of a
specified time in the option agreement, the option remains exercisable for three
months following the Optionee's Termination. Unvested options revert to the
Stock Plan at the date of the Termination. If, after Termination, the Optionee
does not exercise the options within the time specified, the Option shall
terminate and the shares revert to the Stock Plan.
F-15
<PAGE> 73
YESMAIL.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION RELATING TO JUNE 30, 1998 AND 1999 IS UNAUDITED)
STOCK OPTION ACTIVITY
During 1999, the Company issued 243,750 incentive stock options and 663,750
non-qualified stock options. The Company believes the exercise price of these
stock options approximated or exceeded the fair value of its common stock. The
stock options vest over a two to four year period. Of these options issued,
30,000 options were issued to consultants in consideration for services rendered
and 18,750 options were issued as consideration for the purchase of the minority
interest in Starting Point, as discussed later in this Note. These options vest
on the date of grant. In addition, the Company issued stock to an employee which
is subject to performance and is forfeited if certain performance measures are
not met. The Company recorded an expense of approximately $245,000 for the
issuance of the performance options to the employee and the issuance of options
to the consultants. The performance options were valued using the intrinsic
value method at June 30, 1999. The options issued to consultants and options
issued as consideration for the purchase of minority interest were valued using
the Black-Scholes option pricing model at the date of grant as is described in
the additional stock plan information below.
DEFERRED STOCK COMPENSATION
During June 1999, employees were granted options to purchase an aggregate
of 93,750 shares of common stock. Giving effect to the Company's proposed
initial public offering, the deemed fair market value of the Company's common
stock exceeded the exercise price of the options granted. Total non-cash
compensation of approximately $420,000 related to these grants will be charged
to operations over the four-year vesting period. Non cash compensation expense
totaling approximately $9,000 has been recorded for the six months ended June
30, 1999 as a general and administrative expense.
A summary of the Company's stock option activity follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
----------- --------------
<S> <C> <C>
Balance, January 1, 1999.................................... -- --
Granted................................................... 907,500 $2.02
Forfeited................................................. (31,875) 1.60
--------- -----
Balance, June 30, 1999...................................... 875,625 $2.04
=========
Available for grant at June 30, 1999........................ 1,154,829
</TABLE>
The following table summarizes information about currently outstanding and
vested stock options at June 30, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS VESTED
--------------------------------------------- -----------------------------
WEIGHTED
AVERAGE
REMAINING WEIGHTED VESTED AT WEIGHTED
RANGE OF OUTSTANDING AT CONTRACTUAL AVERAGE JUNE 30, AVERAGE
EXERCISE PRICE JUNE 30, 1999 LIFE EXERCISE PRICE 1999 EXERCISE PRICE
- -------------- -------------- ----------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
$1.60 729,375 10 $1.60 33,750 $1.60
1.79 -- -- -- 18,750 1.79
3.20 60,000 10 3.20 -- --
9.87 33,750 10 9.87 -- --
------- ----- ------ -----
823,125 $2.06 52,500 $1.67
======= ===== ====== =====
</TABLE>
F-16
<PAGE> 74
YESMAIL.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION RELATING TO JUNE 30, 1998 AND 1999 IS UNAUDITED)
ADDITIONAL STOCK PLAN INFORMATION
As discussed in Note 3, the Company accounts for its stock-based awards to
employees using the intrinsic value method in accordance with APB Opinion No.
25, "Accounting for Stock Issued to Employees" and its related interpretations.
SFAS No. 123 "Accounting for Stock-Based Compensation," requires the
disclosure of pro forma net loss and loss per share had the Company adopted the
fair value method since the Company's inception. Under SFAS No. 123, the fair
value of stock-based awards to employees is calculated through the use of option
pricing models, even though such models were developed to estimate the fair
value of freely tradeable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock option awards.
The Company's calculations for employee grants were made using the
Black-Scholes option pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1999
-------------
<S> <C>
Dividend yield.............................................. None
Expected volatility......................................... 90%
Risk free interest rate..................................... 5.0%
Expected term, in years..................................... 10
</TABLE>
The weighted average fair value per option as of the date of grant for
options granted during 1999 was $2.24.
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the Company's net income
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1999
-------------
<S> <C>
Loss attributable to common stockholders (in thousands):
As reported............................................... $(5,475)
Pro forma................................................. $(5,627)
Basic and diluted net loss per share:
As reported............................................... $ (0.60)
Pro forma................................................. $ (0.61)
</TABLE>
CONVERTIBLE PREFERRED STOCK
On May 18, 1999, the Company issued 5,154,548 shares of $.0001 par value
series A convertible preferred stock at $1.75 per share ("Subscription Price")
for gross proceeds of $9.0 million, including the $1 million Bridge Loan and the
$600,000 of stockholder advances previously received. The Bridge Loan and
stockholder advances were converted to 916,364 shares of preferred stock.
F-17
<PAGE> 75
YESMAIL.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION RELATING TO JUNE 30, 1998 AND 1999 IS UNAUDITED)
Each share of preferred stock is non-voting and convertible to one share of
common stock at any time, at the option of the holder and mandatorily upon an
initial public offering that exceeds a threshold, or sale of the business.
Dividends on the preferred stock are earned at a rate of $0.05 per share per
annum (approximating an 8% yield), and are only payable upon certain dividend
accrual events, such as a sale. Holders of the preferred stock are entitled to a
liquidation preference in the event of any liquidation and such holders have the
right to approve certain transactions.
ACQUISITION OF MINORITY INTEREST
In June 1999, the Company purchased the 30% ownership interest of Starting
Point from the minority interest shareholder for $477,000. The purchase price
included an initial cash payment of $150,000, an issuance of an $150,000 note
which accrues interest at a rate of 10% and is to be repaid one year from the
anniversary of the acquisition date and a grant of 18,750 options at an exercise
price of $1.79 which are fully vested on the date of grant. In addition, the
Company is required to make a contingency payment of a maximum of $200,000 in
the event that the options do not have a value of an amount specified per the
LLC Interest Purchase Agreement, no later than 180 days from the acquisition
date or upon sale of the Company. The Company recorded goodwill of approximately
$450,000 for the acquisition based on the difference between the purchase price
and the value of the 30% interest in the net assets acquired at the time of the
acquisition. The goodwill is being amortized over three years. If a contingency
payment becomes due, the Company intends to increase goodwill for this amount
and amortize it over the balance of the original amortization period.
INITIAL PUBLIC OFFERING
On June 4, 1999, the Company's Board of Directors authorized the Company to
file a registration statement with the Securities and Exchange Commission for
the purpose of an initial public offering of the Company's common stock. Upon
the completion of this offering, if requirements set forth in its Certificate of
Incorporation are met, the Company's preferred stock will be converted into
5,154,548 shares of common stock, and all outstanding shares of preferred stock
will be canceled and retired.
EMPLOYEE STOCK PURCHASE PLAN
In July 1999, the Company adopted an employee stock purchase plan (the
"Purchase Plan") which provides employees with an opportunity to purchase common
stock through accumulated payroll deductions up to a maximum of $25,000 for all
purchases within the same calendar year and up to a maximum of 2,000 shares for
the first purchase period and a maximum of 1,000 shares for each purchase period
thereafter. Under the Purchase Plan, employees may purchase the common stock at
a price equal to 85% of the fair market value of the common stock on the first
or last day of the offering period, whichever is lower. This Plan will become
effective upon the closing of the initial public offering. 200,000 shares of
common stock have been reserved for issuance under the Purchase Plan (subject to
an annual increase), none of which have been issued.
REVERSE STOCK SPLIT
On July 13, 1999, the Company's Board of Directors approved a 3:8 reverse
stock split of the Company's outstanding shares of common stock and convertible
preferred stock which will become effective prior to the closing of the initial
public offering. All share and per share information included in these financial
statements have been retroactively adjusted to reflect this reverse stock split.
F-18
<PAGE> 76
[ON INSIDE COVER
Photograph of peoples' hands raised to indicate that they are saying "yes" to
receiving permission email messages. A brief description of the YesMail Network
is provided. As an inset to the page is a chart which shows the comparative
response rates, documented by 3rd party sources, for permission email, direct
mail and banner advertising.]
[ON FOLD OUT FLAP INSIDE THE COVER
Chart which diagrams the flow of direct marketing messages from direct
marketers, through the YesMail Network, to consumers with arrows showing the
direction of messages and resulting responses. The YesMail Network, technology
and products are listed to illustrate their roles in enabling the process of
targeting, delivering and tracking permission email messages.]
[ON INSIDE BACK COVER
A case study of a real permission email campaign, with illustration/photo of
client Web site/logo. In summary form, the case study explains the campaign
objectives, implementation and results. On the right hand border of the page is
a panel with logos of some companies with whom yesmail.com works.]
<PAGE> 77
YOU MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED
IN THE PROSPECTUS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR SALE OF
COMMON STOCK MEANS THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS
CORRECT AFTER THE DATE OF THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER
TO SELL OR SOLICITATION OF AN OFFER TO BUY THESE SHARES IN ANY
CIRCUMSTANCES UNDER WHICH THE OFFER OR SOLICITATION IS UNLAWFUL.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 6
Special Note Regarding Forward-Looking
Statements and Industry Data......... 13
Use of Proceeds........................ 14
Dividend Policy........................ 14
Capitalization......................... 15
Dilution............................... 16
Selected Consolidated Financial Data... 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 18
Business............................... 27
Management............................. 38
Related Party Transactions............. 46
Principal Stockholders................. 49
Description of Capital Stock........... 52
Shares Eligible for Future Sale........ 54
Underwriting........................... 55
Legal Matters.......................... 57
Experts................................ 57
Where You Can Find More Information.... 57
Index to Consolidated Financial
Statements........................... F-1
</TABLE>
DEALER PROSPECTUS DELIVERY OBLIGATION:
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS THAT BUY, SELL OR TRADE IN THESE SHARES OF COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. DEALERS ARE ALSO OBLIGATED TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
[LOGO]
3,400,000 SHARES
COMMON STOCK
DEUTSCHE BANC ALEX. BROWN
THOMAS WEISEL PARTNERS LLC
VOLPE BROWN WHELAN
& COMPANY
Prospectus
, 1999
<PAGE> 78
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the securities being registered. All amounts shown are estimates except for
the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 12,800
NASD filing fee............................................. 5,100
NASDAQ National Market Fees................................. 95,000
Blue Sky qualification fees and expenses.................... 5,000
Printing and engraving expenses............................. 170,000
Accountant's fees and expenses.............................. 300,000
Legal fees and expenses..................................... 400,000
Miscellaneous............................................... 112,100
----------
Total............................................. $1,100,000
==========
</TABLE>
- -------------------------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law permits a corporation
to include in its charter documents, and in agreements between the corporation
and its directors and officers, provisions expanding the scope of
indemnification beyond that specifically provided by the current law.
Article 8 of the Registrant's Restated Certificate of Incorporation
provides for the indemnification of directors to the fullest extent permissible
under Delaware law.
Article 6 of the Registrant's Bylaws provides for the indemnification of
officers, directors and third parties acting on behalf of the Registrant if such
person acted in good faith and in a manner reasonably believed to be in and not
opposed to the best interest of the Registrant, and, with respect to any
criminal action or proceeding, the indemnified party had no reason to believe
his or her conduct was unlawful.
The Registrant has entered into indemnification agreements with its
directors and executive officers, in addition to indemnification provided for in
the Registrant's Bylaws, and intends to enter into indemnification agreements
with any new directors and executive officers in the future.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On August 24, 1999, the registrant issued a warrant to purchase 7,601
shares of its common stock to Great America Leasing Company, LLC, pursuant to
the terms of a lease agreement executed in connection with the Registrant's
financing of computer hardware and other office equipment.
In June 1999, the Registrant issued an option to purchase 18,750 shares of
its common stock to one person pursuant to the terms of a purchase agreement
executed in connection with the Registrant's acquisition of the remaining 30%
interest in its Starting Point subsidiary.
On May 18, 1999, the Registrant sold an aggregate of 5,154,548 shares of
its series A preferred stock to an aggregate of 72 persons in exchange for an
aggregate of $9.0 million, including $7.4 million in cash and $1.6 million of
conversion of indebtedness.
II-1
<PAGE> 79
On May 10, 1999, the Registrant sold an aggregate of 2,394,546 shares of
its common stock to 6 employees in exchange for cash and notes in an aggregate
amount of approximately $3.8 million pursuant to restricted stock purchase
agreements.
On March 29, 1999, the Registrant issued 7,500,000 shares of its common
stock to an aggregate of 7 persons pursuant to the terms of an agreement and
plan of merger.
On March 25, 1999, the Registrant issued 1,875,000 shares of its common
stock to an aggregate of 5 persons pursuant to the terms of a subscription
agreement for an aggregate of $500.
None of the foregoing transactions involved any underwriters, underwriting
discounts or commissions, or any public offering, and the Registrant believes
that each transaction was exempt from the registration requirements of the
Securities Act by virtue of Section 4(2) thereof, Regulation D promulgated
thereunder or Rule 701 pursuant to compensatory benefit plans and contracts
relating to compensation as provided under such Rule 701. The recipients in 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 adequate access,
through their relationships with the Registrant, to information about the
Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement
3.1+ Third Amended and Restated Certificate of Incorporation of
yesmail.com, inc., dated May 20, 1999
3.2 Form of Amended and Restated Certificate of Incorporation of
the Registrant to be filed upon the closing of the offering
3.3+ Restated Bylaws of the Registrant
4.1+ Specimen Common Stock Certificate
4.2+ Registration Rights Agreements dated May 18, 1999
4.3+ Registration Rights Agreement dated March 25, 1999
4.4+ WP Holding Founders' Agreement dated March 26, 1999
4.5+ First Addendum to Founders' Agreement dated May 28, 1999
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
10.1+ Form of Indemnification Agreement between the Registrant and
each of its directors and officers
10.2+ Form of Restricted Stock Purchase Agreement
10.3 1999 Stock Option Plan and form of agreements thereunder
10.4+ 1999 Employee Stock Purchase Plan
10.5+ Office/Service Center Lease dated May 12, 1998
10.6+ Software License Agreement between the Registrant and Revnet
Systems, Inc. dated June 4, 1999
10.7+ Employment Agreement dated March 12, 1999, for David M.
Tolmie
10.8+ Employment Agreement dated April 2, 1999, for David B.
Menzel
10.9+ Employment Agreement dated May 27, 1999, for Mark D. Boyce
10.10+ Employment Agreement dated February 15, 1999, for Peder J.
Jungck
10.11+ Employment Agreement dated April 17, 1999, for Michael R.
Mooradian
</TABLE>
II-2
<PAGE> 80
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.12+ Employment Agreement dated March 3, 1999, for Anthony Priore
10.13+ Employment Agreement dated March 31, 1999, for John G.
Vandegrift
10.14+ Agreement and Plan of Merger between Superhighway
Consulting, Inc. and WP Holding, Inc. dated March 3, 1999
10.15 Employment Agreement dated August 10, 1999, for D. Todd Love
23.1 Consent of Arthur Andersen LLP, Independent Public
Accountants
23.2 Consent of Counsel (see Exhibit 5.1)
24.1+ Power of Attorney
27.1+ Financial Data Schedule
</TABLE>
- -------------------------
+ Previously filed
(b) Financial Statement Schedules.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS.
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.
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 of
1933, 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
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
<PAGE> 81
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing this Amendment on Form S-1 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto,
duly authorized, in the City of Vernon Hills, Illinois, on August 30, 1999.
yesmail.com, inc.
By: /s/ DAVID B. MENZEL
------------------------------------
David B. Menzel
Chief Financial Officer
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 dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ DAVID M. TOLMIE* Chief Executive Officer August 30, 1999
- ----------------------------------------------------- and Director
David M. Tolmie (Principal Executive Officer)
/s/ DAVID B. MENZEL Chief Financial Officer August 30, 1999
- ----------------------------------------------------- (Principal Financial and
David B. Menzel Accounting Officer)
/s/ KENNETH D. WRUK* Chairman of the Board August 30, 1999
- ----------------------------------------------------- of Directors
Kenneth D. Wruk
/s/ GIAN FULGONI* Director August 30, 1999
- -----------------------------------------------------
Gian Fulgoni
/s/ ALEXANDER HERN* Director August 30, 1999
- -----------------------------------------------------
Alexander Hern
/s/ MICHAEL A. SANTER* Director August 30, 1999
- -----------------------------------------------------
Michael A. Santer
/s/ ROBERT W. SHAW* Director August 30, 1999
- -----------------------------------------------------
Robert W. Shaw
/s/ JOHN VANDEGRIFT* Director August 30, 1999
- -----------------------------------------------------
John Vandegrift
*By: /s/ DAVID B. MENZEL August 30, 1999
-------------------------------------------------
David B. Menzel
Attorney-in-fact
</TABLE>
II-4
<PAGE> 82
YESMAIL.COM INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999
ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Beginning Balance.................... 3,981 25,707 25,707 25,707 55,871
Provisions for allowance............. 44,845 87,513 60,076 107,969 113,762
Write offs against the allowance..... (23,119) (87,513) (29,912) (57,776) (3,574)
Ending Balance....................... 25,707 25,707 55,871 75,900 166,059
</TABLE>
S-1
<PAGE> 83
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ------- ----------------------- ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement..............................
3.1+ Third Amended and Restated Certificate of Incorporation of
yesmail.com, inc., dated May 20, 1999.......................
3.2 Form of Amended and Restated Certificate of Incorporation of
the Registrant to be filed upon the closing of the
offering....................................................
3.3+ Restated Bylaws of the Registrant...........................
4.1+ Specimen Common Stock Certificate...........................
4.2+ Registration Rights Agreements dated May 18, 1999...........
4.3+ Registration Rights Agreement dated March 25, 1999..........
4.4+ WP Holding Founders' Agreement dated March 26, 1999.........
4.5+ First Addendum to Founders' Agreement dated May 28, 1999....
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.................................................
10.1+ Form of Indemnification Agreement between the Registrant and
each of its directors and officers..........................
10.2+ Form of Restricted Stock Purchase Agreement
10.3 1999 Stock Option Plan and form of agreements thereunder....
10.4+ 1999 Employee Stock Purchase Plan...........................
10.5+ Office/Service Center Lease dated May 12, 1998..............
10.6+ Software License Agreement between the Registrant and Revnet
Systems, Inc. dated June 4, 1999............................
10.7+ Employment Agreement dated March 12, 1999, for David M.
Tolmie......................................................
10.8+ Employment Agreement dated April 2, 1999, for David B.
Menzel......................................................
10.9+ Employment Agreement dated May 27, 1999, for Mark D.
Boyce.......................................................
10.10+ Employment Agreement dated February 15, 1999, for Peder
Jungck
10.11+ Employment Agreement dated April 17, 1999, for Michael R.
Mooradian...................................................
10.12+ Employment Agreement dated March 3, 1999, for Anthony Priore
10.13+ Employment Agreement dated March 31, 1999, for John G.
Vandegrift..................................................
10.14+ Agreement and Plan of Merger between Superhighway
Consulting, Inc. and WP Holding, Inc. dated March 3, 1999...
10.15 Employment Agreement dated August 10, 1999, for D. Todd
Love........................................................
23.1 Consent of Arthur Andersen, LLP, Independent Public
Accountants.................................................
23.2 Consent of Counsel (see Exhibit 5.1)........................
24.1+ Power of Attorney...........................................
27.1+ Financial Data Schedules....................................
</TABLE>
- -------------------------
+ Previously filed
<PAGE> 1
EXHIBIT 1.1
_______________ Shares
YESMAIL.COM, INC.
Common Stock
($0.0001 Par Value)
EQUITY UNDERWRITING AGREEMENT
September __, 1999
Deutsche Bank Securities Inc.
Thomas Weisel Partners LLC
Volpe Brown Whelan & Company, LLC
As Representatives of the
Several Underwriters
c/o Deutsche Bank Securities Inc.
One South Street
Baltimore, Maryland 21202
Ladies and Gentlemen:
Yesmail.com, inc., a Delaware corporation (the "Company"), proposes to sell
to the several underwriters (the "Underwriters") named in Schedule I hereto for
whom you are acting as Representatives (the "Representatives") an aggregate of
__________ shares of the Company's Common Stock, $0.0001 par value (the "Firm
Shares"). The Company also proposes to sell at the Underwriters' option an
aggregate of up to __________ additional shares of the Company's Common Stock
(the "Option Shares") as set forth below.
As the Representatives, you have advised the Company (a) that you are
authorized to enter into this Agreement on behalf of the several Underwriters,
and (b) that the several Underwriters are willing, acting severally and not
jointly, to purchase the numbers of Firm Shares set forth opposite their
respective names in Schedule I, plus their pro rata portion of the Option Shares
if you elect to exercise the over-allotment option in whole or in part for the
accounts of the several Underwriters. The Firm Shares and the Option Shares (to
the extent the aforementioned option is exercised) are herein collectively
called the "Shares."
-1-
<PAGE> 2
Deutsche Bank Securities Inc. ("Deutsche Bank") has agreed to reserve a
portion of the Shares to be purchased by it under this Agreement for sale to the
Company's directors, officers, employees and business associates and other
parties related to the Company (collectively, "Participants"), as set forth in
the Prospectus under the heading "Underwriters" (the "Directed Share Program").
The Shares to be sold by Deutsche Bank pursuant to the Directed Share Program
are hereinafter referred to as the "Directed Shares." Any Directed Shares not
orally confirmed for purchase by any Participants by the end of the business day
on which this Agreement is executed will be offered to the public by the
Underwriters as set forth in the Prospectus.
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. Representations and Warranties of the Company.
(a) The Company represents and warrants to each of the Underwriters as
follows:
(i) A registration statement on Form S-1 (File No. 333-80137) with
respect to the Shares has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
Rules and Regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder and has been filed with the
Commission. Copies of such registration statement, including any amendments
thereto, the preliminary prospectuses (meeting the requirements of the Rules and
Regulations) contained therein and the exhibits, financial statements and
schedules, as finally amended and revised, have heretofore been delivered by the
Company to you. Such registration statement, together with any registration
statement filed by the Company pursuant to Rule 462 (b) of the Act, herein
referred to as the "Registration Statement," which shall be deemed to include
all information omitted therefrom in reliance upon Rule 430A and contained in
the Prospectus referred to below, has become effective under the Act and no
post-effective amendment to the Registration Statement has been filed as of the
date of this Agreement. "Prospectus" means the form of prospectus first filed
with the Commission pursuant to Rule 424(b). Each preliminary prospectus
included in the Registration Statement prior to the time it becomes effective is
herein referred to as a "Preliminary Prospectus." Any reference herein to the
Prospectus shall be deemed to include any supplements or amendments thereto,
filed with the Commission after the date of filing of the Prospectus under Rules
424(b) or 430A, and prior to the termination of the offering of the Shares by
the Underwriters.
(ii) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement. The Company has no
"significant subsidiaries" as defined in the Rules and Regulations. The Company
is duly qualified to transact business in all jurisdictions in which the conduct
of its business requires such qualification, except where the failure to be so
qualified would not have a material adverse effect on its business or financial
condition.
-2-
<PAGE> 3
(iii) The outstanding shares of Common Stock of the Company have been
duly authorized and validly issued and are fully paid and non-assessable; the
Shares to be issued and sold by the Company have been duly authorized and when
issued and paid for as contemplated herein will be validly issued, fully paid
and non-assessable; and no preemptive rights of stockholders exist with respect
to any of the Shares or the issue and sale thereof. Neither the filing of the
Registration Statement nor the offering or sale of the Shares as contemplated by
this Agreement gives rise to any rights, other than those which have been waived
or satisfied, for or relating to the registration of any shares of Common Stock.
(iv) The information set forth under the caption "Capitalization" in
the Prospectus is true and correct as of the date set forth therein and under
the stated assumptions set forth in the Prospectus. All of the Shares conform in
all material respects to the description thereof contained in the Registration
Statement. The form of certificates for the Shares conforms to the corporate law
of the jurisdiction of the Company's incorporation.
(v) The Commission has not issued an order preventing or suspending
the use of any Prospectus relating to the proposed offering of the Shares nor
instituted proceedings for that purpose. The Registration Statement contains,
and the Prospectus and any amendments or supplements thereto will contain, all
statements which are required to be stated therein by, and will conform in all
material respects to the requirements of the Act and the Rules and Regulations.
The Registration Statement and any amendment thereto do not contain, and will
not through the Closing Date contain, any untrue statement of a material fact
and do not omit, and will not through the Closing Date omit, to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading. The Prospectus and any amendments and supplements
thereto do not contain, and will not through the Closing Date contain, any
untrue statement of material fact; and do not omit, and will not through the
Closing Date omit, to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided, however, that the Company
makes no representations or warranties as to information contained in or omitted
from the Registration Statement or the Prospectus, or any such amendment or
supplement, in reliance upon, and in conformity with, written information
furnished to the Company by or on behalf of any Underwriter through the
Representatives, specifically for use in the preparation thereof.
(vi) The consolidated financial statements of the Company, together
with related notes and schedules as set forth in the Registration Statement,
present fairly the financial position and the results of operations and cash
flows of the Company, at the indicated dates and for the indicated periods. Such
financial statements and related schedules have been prepared in accordance with
generally accepted principles of accounting, consistently applied throughout the
periods involved, except as disclosed therein, and all adjustments necessary for
a fair presentation of results for such periods have been made. The summary
financial and statistical data included in the Registration Statement presents
fairly the information shown therein and such data has been compiled
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<PAGE> 4
on a basis consistent with the financial statements presented therein and the
books and records of the Company.
(vii) To the Company's knowledge, Arthur Andersen LLP, who have
certified certain of the financial statements filed with the Commission as part
of the Registration Statement, are independent public accountants as required by
the Act and the Rules and Regulations.
(viii) There is no action, suit, claim or proceeding pending or, to
the knowledge of the Company, threatened against the Company before any court or
administrative agency or otherwise which if determined adversely to the Company
would reasonably be expected to result in any material adverse change in the
earnings, business, management, properties, assets, rights, operations,
condition (financial or otherwise) of the Company or to prevent the consummation
of the transactions contemplated hereby, except as set forth in the Registration
Statement.
(ix) The Company has good and marketable title to all of the
properties and assets reflected in the financial statements (or as described in
the Registration Statement) hereinabove described, subject to no lien, mortgage,
pledge, charge or encumbrance of any kind except those reflected in such
financial statements (or as described in the Registration Statement) or which
are not material in amount. The Company occupies its leased properties under
valid and binding leases conforming in all material respects to the description
thereof set forth in the Registration Statement.
(x) The Company has filed all Federal, State, local and foreign tax
returns which have been required to be filed and have paid all taxes indicated
by said returns and all assessments received by them or any of them to the
extent that such taxes have become due and are not being contested in good faith
and for which an adequate reserve has been established in accordance with
generally accepted accounting principles. All tax liabilities have been
adequately provided for in the financial statements of the Company, and the
Company does not know of any actual or proposed additional material tax
assessments.
(xi) Since the respective dates as of which information is given in
the Registration Statement, as it may be amended or supplemented, (i) there has
not been any material adverse change or any development involving a prospective
material adverse change in or affecting the earnings, business, management,
properties, assets, rights, operations, condition (financial or otherwise), of
the Company, whether or not occurring in the ordinary course of business, and
(ii) there has not been any material transaction entered into other than
transactions in the ordinary course of business and changes and transactions
described in the Registration Statement, as it may be amended or supplemented.
The Company has no material contingent obligations which are not disclosed in
the Company's financial statements which are included in the Registration
Statement.
(xii) The Company is not, and with the giving of notice or lapse of
time or both, will not be, in violation of or in default under its Charter or
By-Laws or under any
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<PAGE> 5
agreement, lease, contract, indenture or other instrument or obligation to which
it is a party or by which it, or any of its properties, is bound and which
default is of material significance in respect of the condition, financial or
otherwise of the Company or the business, management, properties, assets,
rights, operations, condition (financial or otherwise) of the Company. The
execution, delivery and performance of this Agreement and the consummation of
the transactions herein contemplated and the fulfillment of the terms hereof do
not and will not conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed of
trust or other agreement or instrument to which the Company is a party, or of
the Charter or By-Laws of the Company or to the Company's knowledge any order,
rule or regulation applicable to the Company of any court or of any regulatory
body or administrative agency or other governmental body having jurisdiction
over the Company, except where such conflict, breach, violation or default would
not have a material adverse effect on the business or financial condition of the
Company.
(xiii) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Company of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required by the Commission,
the National Association of Securities Dealers, Inc. (the "NASD") or such
additional steps as may be necessary to qualify the Shares for public offering
by the Underwriters under state securities or Blue Sky laws) has been obtained
or made and is in full force and effect.
(xiv) Neither the Company, nor to the Company's knowledge, any of its
affiliates, has taken or may take, directly or indirectly, any action designed
to cause or result in, or which has constituted or which might reasonably be
expected to constitute, the stabilization or manipulation of the price of the
shares of Common Stock to facilitate the sale or resale of the Shares. The
Company acknowledges that the Underwriters may engage in passive market making
transactions in the Shares on The Nasdaq Stock Market in accordance with
Regulation M under the Exchange Act.
(xv) The Company is not an "investment company" as such term is
defined in the Investment Company Act of 1940 (as amended, the "1940 Act") and
the rules and regulations of the Commission thereunder.
(xvi) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
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<PAGE> 6
(xvii) The Company carries, or is covered by, insurance in such
amounts and covering such risks as is adequate for the conduct of its business
and the value of its respective properties and as is customary for companies
engaged in similar industries.
(xviii) The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security Act
of 1974, as amended, including the regulations and published interpretations
thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred
with respect to any "pension plan" (as defined in ERISA) for which the Company
would have any liability; the Company has not incurred and nor expects to incur
liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal
Revenue Code of 1986, as amended, including the regulations and published
interpretations thereunder (the "Code"); and each "pension plan" for which the
Company would have any liability that is intended to be qualified under Section
401(a) of the Code is so qualified in all material respects and nothing has
occurred, whether by action or by failure to act, which would cause the loss of
such qualification.
(xix) This Agreement has been duly authorized, executed and delivered
by the Company.
(xx) No relationship, direct or indirect, exists between or among the
Company on the one hand, and the directors, officers, stockholders, customers or
suppliers of the Company on the other hand, which is required by the Act to be
described in the Registration Statement or the Prospectus which is not so
described.
(xxi) There are no outstanding loans, advances (except normal advances
for business expenses in the ordinary course of business) or guarantees of
indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of them,
except as disclosed in the Registration Statement and the Prospectus.
(xxii) There are no issues related to the Company's preparedness for
the Year 2000 that (i) are of a character required to be described or referred
to in the Registration Statement or Prospectus by the Act which have not been
accurately described in the Registration Statement or Prospectus or (ii) might
reasonably be expected to result in any material adverse change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company or that might materially affect their properties, assets or
rights. All internal computer systems and each Constituent Component (as defined
below) of those systems and all computer-related products and each Constituent
Component of those products of the Company will, by December 31, 1999, comply in
all material respects with the Year 2000 Qualification Requirements. "Year 2000
Qualification Requirements" means that the internal computer systems and each
Constituent Component (as defined below) of those systems and all
computer-related products of each Constituent Component (as defined below) of
those products of the Company (i) have been reviewed to confirm that they store,
process (including sorting and performing mathematical operations, calculations
and computations), input and output data containing date and information
correctly regardless of whether the date
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<PAGE> 7
contains dates and times before, on or after January 1, 2000, (ii) have been
designated to ensure date and time entry recognition and calculations, and date
data interface values that reflect the century, (iii) accurately manage and
manipulate data involving dates and times, including single century formulas and
multi-century formulas, and will not cause an abnormal ending scenario within
the application or generate incorrect values or invalid results involving such
dates, (iv) accurately process any date rollover, and (v) accept and respond to
two-digit year date input in a manner that resolves any ambiguities as to the
century. "Constituent Component" means all software (including operating
systems, programs, packages and utilities), firmware, hardware, networking
components and peripherals provided as part of the configuration. The Company
has inquired of material vendors as to their preparedness for the Year 2000 and
has disclosed in the Registration Statement or Prospectus any issues that might
reasonably be expected to result in any material adverse change.
(xxiii) The Common Stock has been approved for quotation on The Nasdaq
National Market, subject to official notice of issuance
(xxiv) The Company has not distributed and will not distribute prior
to the later of (i) the Closing Date, or any date on which Option Shares are to
be purchased, as the case may be, and (ii) completion of the distribution of the
Shares, any offering material in connection with the offering and sale of the
Shares other than any preliminary prospectuses, the Prospectus, the Registration
Statement and other materials, if any, permitted by the Act.
2. Purchase, Sale and Delivery of the Firm Shares.
(a) On the basis of the representations, warranties and covenants herein
contained, and subject to the conditions herein set forth, the Company agrees to
sell to the Underwriters and each Underwriter agrees, severally and not jointly,
to purchase, at a price of $_____ per share, the number of Firm Shares set forth
opposite the name of each Underwriter in Schedule I hereof, subject to
adjustments in accordance with Section 9 hereof.
(b) Payment for the Firm Shares to be sold hereunder is to be made in New
York Clearing House funds by Federal (same day) funds against delivery of
certificates therefor to the Representatives for the several accounts of the
Underwriters. Such payment and delivery are to be made through the facilities of
the Depository Trust Company, New York, New York at 10:00 a.m., New York time,
on the third business day after the date of this Agreement or at such other time
and date not later than five business days thereafter as you and the Company
shall agree upon, such time and date being herein referred to as the "Closing
Date." (As used herein, "business day" means a day on which the New York Stock
Exchange is open for trading and on which banks in New York are open for
business and are not permitted by law or executive order to be closed.)
(c) In addition, on the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Company
hereby grants an option to the several Underwriters to purchase the Option
Shares at the price per share as set forth in the first paragraph of this
Section 2. The option granted hereby may be exercised in whole or in part but
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<PAGE> 8
only once by giving written notice within 30 days after the date of this
Agreement, by you, as Representatives of the several Underwriters, to the
Company setting forth the number of Option Shares as to which the several
Underwriters are exercising the option, the names and denominations in which the
Option Shares are to be registered and the time and date at which such
certificates are to be delivered. The time and date at which certificates for
Option Shares are to be delivered shall be determined by the Representatives but
shall not be earlier than three nor later than 10 full business days after the
exercise of such option, nor in any event prior to the Closing Date (such time
and date being herein referred to as the "Option Closing Date"). If the date of
exercise of the option is three or more days before the Closing Date, the notice
of exercise shall set the Closing Date as the Option Closing Date. The number of
Option Shares to be purchased by each Underwriter shall be in the same
proportion to the total number of Option Shares being purchased as the number of
Firm Shares being purchased by such Underwriter bears to __________, adjusted by
you in such manner as to avoid fractional shares. The option with respect to the
Option Shares granted hereunder may be exercised only to cover over-allotments
in the sale of the Firm Shares by the Underwriters. You, as Representatives of
the several Underwriters, may cancel such option at any time prior to its
expiration by giving written notice of such cancellation to the Company. To the
extent, if any, that the option is exercised, payment for the Option Shares
shall be made on the Option Closing Date in Federal (same day) funds through the
facilities of the Depository Trust Company in New York, New York drawn to the
order of the Company.
3. Offering by the Underwriters.
It is understood that the several Underwriters are to make a public
offering of the Firm Shares as soon as the Representatives deem it advisable to
do so. The Firm Shares are to be initially offered to the public at the initial
public offering price set forth in the Prospectus. The Representatives may from
time to time thereafter change the public offering price and other selling
terms. To the extent, if at all, that any Option Shares are purchased pursuant
to Section 2 hereof, the Underwriters will offer them to the public on the
foregoing terms.
It is further understood that you will act as the Representatives for the
Underwriters in the offering and sale of the Shares in accordance with a Master
Agreement Among Underwriters entered into by you and the several other
Underwriters.
4. Covenants of the COMPANY.
(a) The Company covenants and agrees with the several Underwriters that:
(i) The Company will (A) use its best efforts to cause the
Registration Statement to become effective if not effective at the time and date
that this Agreement is executed and delivered by the parties hereto, or, if the
procedure in Rule 430A of the Rules and Regulations is followed, to prepare and
timely file with the Commission under Rule 424(b) of the Rules and Regulations a
Prospectus in a form approved by the Representatives containing information
previously omitted at the time of effectiveness of the Registration Statement in
reliance on Rule 430A of the Rules and Regulations, (B) not file any amendment
to the Registration Statement or supplement to the Prospectus of which the
Representatives shall not previously have been advised and furnished with a
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<PAGE> 9
copy or to which the Representatives shall have reasonably objected in writing
or which is not in compliance with the Rules and Regulations in all material
respects and (C) file on a timely basis all reports and any definitive proxy or
information statements required to be filed by the Company with the Commission
subsequent to the date of the Prospectus and prior to the termination of the
offering of the Shares by the Underwriters.
(ii) The Company will advise the Representatives promptly (A) when the
Registration Statement or any post-effective amendment thereto shall have become
effective, (B) of receipt of any comments from the Commission, (C) of any
request of the Commission for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional information, and (D) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the use of the Prospectus or of the institution of any
proceedings for that purpose. The Company will use its reasonable best efforts
to prevent the issuance of any such stop order preventing or suspending the use
of the Prospectus and to obtain as soon as possible the lifting thereof, if
issued.
(iii) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of such
jurisdictions as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports, and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Shares.
(iv) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary Prospectus
as the Representatives may reasonably request. The Company will deliver to, or
upon the order of, the Representatives during the period when delivery of a
Prospectus is required under the Act, as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the Representatives may
reasonably request. The Company will deliver to the Representatives at or before
the Closing Date, four signed copies of the Registration Statement and all
amendments thereto including all exhibits filed therewith, and will deliver to
the Representatives such number of copies of the Registration Statement
(including such number of copies of the exhibits filed therewith that may
reasonably be requested), and of all amendments thereto, as the Representatives
may reasonably request.
(v) The Company will comply with the Act and the Rules and
Regulations, and the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the Commission thereunder, so as to
permit the completion of the distribution of the Shares as contemplated in this
Agreement and the Prospectus. If during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer, any event shall
occur as a result of which, in the judgment of the
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<PAGE> 10
Company or in the reasonable opinion of the Underwriters, it becomes necessary
to amend or supplement the Prospectus in order to make the statements therein,
in the light of the circumstances existing at the time the Prospectus is
delivered to a purchaser, not misleading, or, if it is necessary at any time to
amend or supplement the Prospectus to comply with any law, the Company promptly
will prepare and file with the Commission an appropriate amendment to the
Registration Statement or supplement to the Prospectus so that the Prospectus as
so amended or supplemented will not, in the light of the circumstances when it
is so delivered, be misleading, or so that the Prospectus will comply with the
law.
(vi) Unless this requirement is otherwise satisfied, the Company will
make generally available to its security holders, as soon as it is practicable
to do so, but in any event not later than 15 months after the effective date of
the Registration Statement, an earning statement (which need not be audited) in
reasonable detail, covering a period of at least 12 consecutive months beginning
after the effective date of the Registration Statement, which earning statement
shall satisfy the requirements of Section 11(a) of the Act and Rule 158 of the
Rules and Regulations and will advise you in writing when such statement has
been so made available.
(vii) No offering, sale, short sale or other disposition of any shares
of Common Stock of the Company or other securities convertible into or
exchangeable or exercisable for shares of Common Stock or derivative of Common
Stock (or agreement for such) will be made for a period of 180 days after the
date of this Agreement, directly or indirectly, by the Company otherwise than
(i) hereunder, (ii) with the prior written consent of Deutsche Bank, or (iii)
pursuant to the stock option or stock purchase plans of the Company which are
described in the Registration Statement and the Prospectus.
(viii) The Company has caused each officer, director and stockholder
holding more than 1% of the Company's capital stock to furnish to you, on or
prior to the date of this agreement, a lockup agreement in the form previously
provided by you.
(ix) The Company shall apply the net proceeds of its sale of the
Shares as set forth in the Prospectus and shall file such reports with the
Commission with respect to the sale of the Shares and the application of the
proceeds therefrom as may be required in accordance with Rule 463 under the Act.
(x) The Company shall not invest, or otherwise use the proceeds
received by the Company from its sale of the Shares in such a manner as would
require the Company to register as an investment company under the 1940 Act.
(xi) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar for the
Common Stock.
(xii) The Company will not take, directly or indirectly, any action
designed to cause or result in, or that has constituted or might reasonably be
expected to constitute, the stabilization or manipulation of the price of any
securities of the Company.
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<PAGE> 11
5. Costs and Expenses.
The Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Company under this Agreement, including,
without limiting the generality of the foregoing, the following: accounting fees
of the Company; the fees and disbursements of counsel for the Company; the cost
of printing and delivering to, or as requested by, the Underwriters copies of
the Registration Statement, Preliminary Prospectuses, the Prospectus, this
Agreement, the Underwriters' Invitation Letter, the Listing Application, the
Blue Sky Survey and any supplements or amendments thereto; the filing fees of
the Commission; the filing fees and expenses (including legal fees and
disbursements) incident to securing any required review by the National
Association of Securities Dealers, Inc. (the "NASD") of the terms of the sale of
the Shares; the Listing Fee of The Nasdaq Stock Market; and the expenses,
including the fees and disbursements of counsel for the Underwriters, incurred
in connection with the qualification of the Shares under State securities or
Blue Sky laws. The Company agrees to pay all costs and expenses of the
Underwriters, including the fees and disbursements of counsel for the
Underwriters, incident to the offer and sale of the Directed Shares. The Company
shall not, however, be required to pay for any of the Underwriters expenses
(other than those related to qualification under NASD regulation and State
securities or Blue Sky laws) except that, if this Agreement shall not be
consummated because the conditions in Section 6 (other than Section 6(d) and
6(e)) hereof are not satisfied, or because this Agreement is terminated by the
Representatives pursuant to Section 11 hereof, or by reason of any failure,
refusal or inability on the part of the Company to perform any undertaking or
satisfy any condition of this Agreement or to comply with any of the terms
hereof on its part to be performed, unless such failure to satisfy said
condition or to comply with said terms be due to the default or omission of any
Underwriter, then the Company shall reimburse the several Underwriters for
reasonable out-of-pocket expenses, including fees and disbursements of counsel,
reasonably incurred in connection with investigating, marketing and proposing to
market the Shares or in contemplation of performing their obligations hereunder;
but the Company shall not in any event be liable to any of the several
Underwriters for damages on account of loss of anticipated profits from the sale
by them of the Shares. Except as specifically identified in this Section 5, the
Company shall not be responsible for fees of counsel to the Underwriters in
connection with the transactions contemplated hereby.
6. Conditions of Obligations of the Underwriters.
The several obligations of the Underwriters to purchase the Firm Shares on
the Closing Date and the Option Shares, if any, on the Option Closing Date are
subject to the accuracy, in all material respects, as of the Closing Date or the
Option Closing Date, as the case may be, of the representations and warranties
of the Company contained herein, and to the performance by the Company of its
covenants and obligations hereunder and to the following additional conditions:
(a) The Registration Statement and all post-effective amendments thereto
shall have become effective and any and all filings required by Rule 424 and
Rule 430A of the Rules and Regulations shall have been made, and any request of
the Commission for additional information (to be included in the Registration
Statement or otherwise) shall have been disclosed to the Representatives and
complied with to their reasonable satisfaction. No stop order suspending the
effectiveness of the Registration Statement, as amended from time to time, shall
have been
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<PAGE> 12
issued and no proceedings for that purpose shall have been taken or, to the
knowledge of the Company, shall be contemplated by the Commission and no
injunction, restraining order, or order of any nature by a Federal or state
court of competent jurisdiction shall have been issued as of the Closing Date
which would prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of Wilson Sonsini Goodrich
& Rosati, Professional Corporation ("Wilson Sonsini"), counsel for the Company
dated the Closing Date or the Option Closing Date, as the case may be, addressed
to the Underwriters to the effect that:
(i) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement. The Company is duly
qualified to transact business in all jurisdictions in which the conduct of its
business requires such qualification, or in which the failure to qualify would
have a materially adverse effect upon the business of the Company.
(ii) The Company has authorized capital stock as set forth under the
caption "Capitalization" in the Prospectus and based upon the assumptions set
forth in the Prospectus; the authorized shares of the Company's Common Stock
have been duly authorized; the authorized capital stock of the Company and all
of the Shares conform in all material respects to the description thereof
contained in the Prospectus; the certificates for the Shares, assuming they are
in the form filed with the Commission, are in due and proper form; the shares of
Common Stock, including the Option Shares, if any, to be sold by the Company
pursuant to this Agreement have been duly authorized and will be validly issued,
fully paid and non-assessable when issued and paid for as contemplated by this
Agreement.
(iii) Based solely upon the oral advice of the staff of the
Commission, the Registration Statement has become effective under the Act and,
to the the knowledge of such counsel, no stop order proceedings with respect
thereto have been instituted or are pending or threatened under the Act.
(iv) The Registration Statement, the Prospectus and each amendment or
supplement thereto comply as to form in all material respects with the
requirements of the Act and the applicable rules and regulations thereunder
(except that such counsel need express no opinion as to the financial statements
and related notes, schedules and other financial and statistical information
therein or as to information supplied by the Underwriters expressly for use
therein).
(v) The statements under the captions "Description of Capital Stock"
in the Prospectus and Items 14 and 15 of Part II to the Registration Statement
insofar as such statements constitute a summary of documents referred to therein
or matters of law, fairly summarize in all material respects the information
called for with respect to such documents and matters.
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<PAGE> 13
(vi) Such counsel does not know of any contracts or documents required
to be filed as exhibits to the Registration Statement or described in the
Registration Statement or the Prospectus which are not so filed or described as
required, and such contracts and documents as are summarized in the Registration
Statement or the Prospectus are fairly summarized in all material respects.
(vii) Such counsel knows of no material legal or governmental
proceedings pending or threatened against the Company except as set forth in the
Prospectus, where such proceedings would be reasonably likely to have a material
adverse effect on the Company's financial condition and results of operations.
(viii) The execution, delivery and performance of this Agreement and
the consummation of the transactions herein contemplated and the fulfillment of
the terms hereof do not and will not conflict with or result in a breach of any
of the terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust or other agreement or instrument to which the Company is
a party and which is filed as an exhibit to the Registration Statement, or of
the Charter or By-Laws of the Company, except where such breach or default would
not have a material adverse effect on the business or financial condition of the
Company.
(ix) This Agreement has been duly authorized, executed and delivered
by the Company.
(x) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body is necessary in connection with the execution and delivery of
this Agreement and the consummation of the transactions herein contemplated
(other than as may be required by the NASD or as required by State securities
and Blue Sky laws as to which such counsel need express no opinion) except such
as have been obtained or made.
(xi) The Company is not, and will not become, as a result of the
consummation of the transactions contemplated by this Agreement and application
of the net proceeds therefrom as described in the Prospectus, required to
register as an investment company under the 1940 Act.
In rendering such opinion Wilson Sonsini may rely as to matters governed by
the laws of states other than the General Corporation Laws of the State of
Delaware, California or Federal laws on local counsel in such jurisdictions,
provided that in each case Wilson Sonsini shall state that they believe that
they and the Underwriters are justified in relying on such other counsel. In
addition to the matters set forth above, such opinion shall also include a
statement to the effect that nothing has come to the attention of such counsel
which leads them to believe that (i) the Registration Statement, at the time it
became effective under the Act (but after giving effect to any modifications
incorporated therein pursuant to Rule 430A under the Act) and as of the Closing
Date or the Option Closing Date, as the case may be, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
(ii) the Prospectus, or any supplement thereto, on the date it was filed
pursuant to the Rules and Regulations and as of the Closing Date or the Option
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<PAGE> 14
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact necessary in order to make the
statements, in the light of the circumstances under which they are made, not
misleading (except that such counsel need express no view as to financial
statements and related notes, schedules and other financial and statistical
information therein). With respect to such statement, such counsel may state
that their belief is based upon the procedures set forth therein, but is without
independent check and verification.
(c) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of Burke, Warren, MacKay
and Serritella, P.C. ("Burke Warren"), special counsel for the Company dated the
Closing Date or the Option Closing Date, as the case may be, addressed to the
Underwriters (and stating that it may be relied upon by counsel to the
Underwriters) to the effect that:
(i) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement. The Company is duly
qualified to transact business in all jurisdictions in which the conduct of its
business requires such qualification, or in which the failure to qualify would
have a materially adverse effect upon the business of the Company.
(ii) The Company has authorized and outstanding capital stock as set
forth under the caption "Capitalization" in the Prospectus; the authorized
shares of the Company's Common Stock have been duly authorized; the outstanding
shares of the Company's Common Stock have been duly authorized and validly
issued and are fully paid and non-assessable; the authorized capital stock of
the Company and all of the Shares conform to the description thereof contained
in the Prospectus; the certificates for the Shares, assuming they are in the
form filed with the Commission, are in due and proper form; the shares of Common
Stock, including the Option Shares, if any, to be sold by the Company pursuant
to this Agreement have been duly authorized and will be validly issued, fully
paid and non-assessable when issued and paid for as contemplated by this
Agreement; and no preemptive rights of stockholders exist with respect to any of
the Shares or the issue or sale thereof.
(iii) Except as described in or contemplated by the Prospectus, to the
knowledge of such counsel, there are no outstanding securities of the Company
convertible or exchangeable into or evidencing the right to purchase or
subscribe for any shares of capital stock of the Company and there are no
outstanding or authorized options, warrants or rights of any character
obligating the Company to issue any shares of its capital stock or any
securities convertible or exchangeable into or evidencing the right to purchase
or subscribe for any shares of such stock; and except as described in the
Prospectus, to the knowledge of such counsel, no holder of any securities of the
Company or any other person has the right, contractual or otherwise, which has
not been satisfied or effectively waived, to cause the Company to sell or
otherwise issue to them, or to permit them to underwrite the sale of, any of the
Shares or the right to have any Common Shares or other securities of the Company
included in the Registration Statement or the right, as
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<PAGE> 15
a result of the filing of the Registration Statement, to require registration
under the Act of any shares of Common Stock or other securities of the Company.
(iii) Such counsel knows of no material legal or governmental
proceedings pending or threatened against the Company except as set forth in the
Prospectus. In rendering such opinion Burke Warren may rely as to matters
governed by the laws of states other than the General Corporation Laws of the
State of Delaware, California or Federal laws on local counsel in such
jurisdictions, provided that in each case Burke Warren shall state that they
believe that they and the Underwriters are justified in relying on such other
counsel. In addition to the matters set forth above, such opinion shall also
include a statement to the effect that nothing has come to the attention of such
counsel which leads them to believe that (i) the Registration Statement, at the
time it became effective under the Act (but after giving effect to any
modifications incorporated therein pursuant to Rule 430A under the Act) and as
of the Closing Date or the Option Closing Date, as the case may be, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and (ii) the Prospectus, or any supplement thereto, on the date it was filed
pursuant to the Rules and Regulations and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact necessary in order to make the
statements, in the light of the circumstances under which they are made, not
misleading (except that such counsel need express no view as to financial
statements and related notes, schedules and other financial and statistical
information therein). With respect to such statement, such counsel may state
that their belief is based upon the procedures set forth therein, but is without
independent check and verification.
(d) The Representatives shall have received from Pillsbury Madison & Sutro
LLP ("PM&S"), counsel for the Underwriters, an opinion dated the Closing Date or
the Option Closing Date, as the case may be, with respect to the incorporation
of the Company, the validity of the Shares, the Registration Statement and the
Prospectus and such other related matters as it may reasonably request, and the
Company shall have furnished to such counsel such documents as they may
reasonably request for the purposes of enabling them to pass upon such matters.
In addition to the matters set forth above, such opinion shall also include a
statement to the effect that nothing has come to the attention of such counsel
which leads them to believe that (i) the Registration Statement, or any
amendment thereto, as of the time it became effective under the Act (but after
giving effect to any modifications incorporated therein pursuant to Rule 430A
under the Act) as of the Closing Date or the Option Closing Date, as the case
may be, contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and (ii) the Prospectus, or any supplement thereto, on
the date it was filed pursuant to the Rules and Regulations and as of the
Closing Date or the Option Closing Date, as the case may be, contained an untrue
statement of a material fact or omitted to state a material fact, necessary in
order to make the statements, in the light of the circumstances under which they
are made, not misleading (except that such counsel need express no view as to
financial statements, schedules and statistical information therein). With
respect to such statement, PM&S may state that their belief is based upon the
procedures set forth therein, but is without independent check and verification.
(e) The Representatives shall have received at or prior to the Closing
Date from PM&S a memorandum or summary, in form and substance satisfactory to
the Representatives, with
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<PAGE> 16
respect to the qualification for offering and sale by the Underwriters of the
Shares under the State securities or Blue Sky laws of such jurisdictions as the
Representatives may reasonably have designated to the Company.
(f) You shall have received, on each of the dates hereof, the Closing Date
and the Option Closing Date, as the case may be, a letter dated the date hereof,
the Closing Date or the Option Closing Date, as the case may be, in form and
substance satisfactory to you, of Arthur Andersen LLP confirming that they are
independent public accountants within the meaning of the Act and the applicable
published Rules and Regulations thereunder and stating that in their opinion the
financial statements and schedules examined by them and included in the
Registration Statement comply in form in all material respects with the
applicable accounting requirements of the Act and the related published Rules
and Regulations; and containing such other statements and information as is
ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial and statistical
information contained in the Registration Statement and Prospectus.
(g) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, a certificate or certificates of the
Chief Executive Officer and the Chief Financial Officer of the Company to the
effect that, as of the Closing Date or the Option Closing Date, as the case may
be, each of them severally represents on behalf of the Company as follows:
(i) The Registration Statement has become effective under the Act and
no stop order suspending the effectiveness of the Registrations Statement has
been issued, and no proceedings for such purpose have been taken or are, to his
knowledge, contemplated by the Commission;
(ii) The representations and warranties of the Company contained in
Section 1 hereof are true and correct as of the Closing Date or the Option
Closing Date, as the case may be;
(iii) He has carefully examined the Registration Statement and the
Prospectus and, in his or her opinion, as of the effective date of the
Registration Statement, the statements contained in the Registration Statement
were true and correct, and such Registration Statement and Prospectus did not
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, and since the effective
date of the Registration Statement, no event has occurred which should have been
set forth in a supplement to or an amendment of the Prospectus which has not
been so set forth in such supplement or amendment; and
(iv) Since the respective dates as of which information is given in
the Registration Statement and Prospectus, there has not been any material
adverse change or any development involving a prospective material adverse
change in or affecting the condition, financial or otherwise, of the Company or
the earnings, business, management, properties, assets, rights, operations,
condition (financial or otherwise) of the Company, whether or not arising in the
ordinary course of business.
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<PAGE> 17
(h) The Company shall have furnished to the Representatives such further
certificates and documents confirming the representations and warranties,
covenants and conditions contained herein and related matters as the
Representatives may reasonably have requested, it being understood that such
certificates and documents will generally be limited to customary good standing
and secretary's certificates and certificates and documents relating to the
statistical data set forth in the Prospectus not subject to the accountants'
"comfort letter" referenced in Section 6(c)(i) hereof.
(i) The Firm Shares and Option Shares, if any, have been approved for
designation upon notice of issuance on The Nasdaq National Market.
(j) The Lockup Agreements described in Section 4(a)(x) are in full force
and effect.
The opinions and certificates mentioned in this Agreement shall be deemed
to be in compliance with the provisions hereof only if they are in all material
respects satisfactory to the Representatives and to PM&S, counsel for the
Underwriters.
If any of the conditions hereinabove provided for in this Section 6 shall
not have been fulfilled when and as required by this Agreement to be fulfilled,
the obligations of the Underwriters hereunder may be terminated by the
Representatives by notifying the Company of such termination in writing or by
telegram at or prior to the Closing Date or the Option Closing Date, as the case
may be.
In such event, the Company and the Underwriters shall not be under any
obligation to each other (except to the extent provided in Sections 5 and 8
hereof).
7. Conditions of the Obligations of the Company.
The obligations of the Company to sell and deliver the Shares required to
be delivered as and when specified in this Agreement are subject to the
conditions that at the Closing Date or the Option Closing Date, as the case may
be, no stop order suspending the effectiveness of the Registration Statement
shall have been issued and in effect or proceedings therefor initiated or
threatened.
8. Indemnification.
(a) The Company agrees:
(1) to indemnify and hold harmless each Underwriter and each person,
if any, who controls any Underwriter within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act, against any losses, claims,
damages or liabilities to which such Underwriter or any such controlling
person may become subject under the Act , the Exchange Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any
untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement, any Preliminary Prospectus, the Prospectus
or any amendment or supplement thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading any act or
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<PAGE> 18
failure to act, or (iii) any alleged act or failure to act by any
Underwriter in connection with, or relating in any manner to, the Shares or
the offering contemplated hereby, and which is included as part of or
referred to in any loss, claim, damage, liability or action arising out of
or based upon matters covered by clause (i) or (ii) above (provided, that
the Company shall not be liable under this clause (iii) to the extent that
it is determined in a final judgment by a court of competent jurisdiction
that such loss, claim, damage, liability or action resulted directly from
any such acts or failures to act undertaken or omitted to be taken by such
Underwriter through its gross negligence or willful misconduct); provided,
however, that the Company will not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement, or omission or
alleged omission made in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or such amendment or supplement, in reliance
upon and in conformity with written information furnished to the Company by
or through the Representatives specifically for use in the preparation
thereof; and provided further that the foregoing indemnity agreement with
respect to any Preliminary Prospectus Shall not inure to the benefit of any
Underwriter or any person controlling such Underwriter from whom the person
asserting any loss, claim, damage or liability purchased the Shares, if a
copy of the Prospectus (as amended or supplemented by the Company shall
have furnished any amendments or supplements thereto) was not sent or given
by or on behalf of such Underwriter to such person at or prior to the
written confirmation of the sale of the Shares to such person, and the
Prospectus (as so amended or supplemented) would have cured the defect
giving rise to such loss, claim liability or damage.
(2) to reimburse each Underwriter and each such controlling person
upon demand for any legal or other out-of-pocket expenses reasonably
incurred by such Underwriter or such controlling person in connection with
investigating or defending any such loss, claim, damage or liability,
action or proceeding or in responding to a subpoena or governmental inquiry
related to the offering of the Shares, whether or not such Underwriter or
controlling person is a party to any action or proceeding. In the event
that it is finally judicially determined that the Underwriters were not
entitled to receive payments for legal and other expenses pursuant to this
subparagraph, the Underwriters will promptly return all sums that had been
advanced pursuant hereto.
(3) To indemnify and hold harmless Deutsche Bank and each person, if
any, who controls Deutsche Bank any Underwriter within the meaning of
Section 15 of the Act and Section 20 of the Exchange Act (the "Deutsche
Bank Entities"), against any losses, claims, damages or liabilities to
which such Underwriter or any such controlling person may become subject
under the Act or the Exchange Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect
thereof) arise out of or are based upon (i) any untrue statement or alleged
untrue statement of any material fact contained in any material prepared by
or with the consent of the Company for distribution to Participants in
connection with the Directed Share Program, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading any act or failure
to act, (iii) caused by the failure of an Participant to pay for and accept
delivery of Directed Shares that the Participant agreed to purchase or (iv)
any alleged act or failure to act by any
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<PAGE> 19
Deutsche Bank Entity in connection with, or relating in any manner to, the
Directed Share Program, other than any loss, claim, damage, liability or
action that are finally judicially determined to have resulted from the bad
faith or gross negligence of the Deutsche Bank Entities); provided,
however, that the Company will not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement, or omission or
alleged omission made in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or such amendment or supplement, in reliance
upon and in conformity with written information furnished to the Company by
or through the Representatives specifically for use in the preparation
thereof; and provided further that the foregoing indemnity agreement with
respect to any Preliminary Prospectus Shall not inure to the benefit of any
Underwriter or any person controlling such Underwriter from whom the person
asserting any loss, claim, damage or liability purchased the Shares, if a
copy of the Prospectus (as amended or supplemented by the Company shall
have furnished any amendments or supplements thereto) was not sent or given
by or on behalf of such Underwriter to such person at or prior to the
written confirmation of the sale of the Shares to such person, and the
Prospectus (as so amended or supplemented) would have cured the defect
giving rise to such loss, claim liability or damage.
(4) to reimburse each Deutsche Bank Entity upon demand for any legal
or other out-of-pocket expenses reasonably incurred by such Deutsche Bank
in connection with investigating or defending any such loss, claim, damage
or liability, action or proceeding or in responding to a subpoena or
governmental inquiry related to the offering of the Directed Shares,
whether or not such Deutsche Bank Entity is a party to any action or
proceeding. In the event that it is finally judicially determined that the
Deutsche Bank Entities were not entitled to receive payments for legal and
other expenses pursuant to this subparagraph, the Deutsche Bank Entities
will promptly return all sums that had been advanced pursuant hereto.
(b) Each Underwriter severally and not jointly will indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of the Act, against any losses, claims, damages or
liabilities to which the Company or any such director, officer, or controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
or (ii) the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made; and
will reimburse any legal or other expenses reasonably incurred by the Company or
any such director, officer, or controlling person in connection with
investigating or defending any such loss, claim, damage, liability, action or
proceeding; provided, however, that each Underwriter will be liable in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission has been made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in
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<PAGE> 20
the preparation thereof. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to this Section 8, such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing. No indemnification provided for in Section
8(a) or (b) shall be available to any party who shall fail to give notice as
provided in this Section 8(c) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
materially prejudiced by the failure to give such notice, but the failure to
give such notice shall not relieve the indemnifying party or parties from any
liability which it or they may have to the indemnified party for contribution or
otherwise than on account of the provisions of Section 8(a) or (b). In case any
such proceeding shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party and shall pay as incurred the reasonable fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel at its own expense.
Notwithstanding the foregoing, the indemnifying party shall pay as incurred (or
within 30 days of presentation) the fees and expenses of the counsel retained by
the indemnified party in the event (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such counsel,
or (ii) the named parties to any such proceeding (including any impleaded
parties) include both the indemnifying party and the indemnified party and
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interests between them or (iii) the indemnifying
party shall have failed to assume the defense and employ counsel reasonably
acceptable to the indemnified party within a reasonable period of time after
notice of commencement of the action. It is understood that the indemnifying
party shall not, in connection with any proceeding or related proceedings be
liable for the reasonable fees and expenses of more than one separate firm for
all such indemnified parties. Such firm shall be designated in writing by you in
the case of parties indemnified pursuant to Section 8(a) and by the Company in
the case of parties indemnified pursuant to Section 8(b). The indemnifying party
shall not be liable for any settlement of any proceeding effected without its
written consent but if settled with such consent or if there be a final judgment
for the plaintiff, the indemnifying party agrees to indemnify the indemnified
party from and against any loss or liability by reason of such settlement or
judgment. In addition, the indemnifying party will not, without the prior
written consent of the indemnified party, settle or compromise or consent to the
entry of any judgment in any pending or threatened claim, action or proceeding
of which indemnification may be sought hereunder (whether or not any indemnified
party is an actual or potential party to such claim, action or proceeding)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action
or proceeding.
(d) If the indemnification provided for in this Section 8 is unavailable
to or insufficient to hold harmless an indemnified party under Section 8(a)(1),
(a)(2) or (b) above in respect of any losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
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<PAGE> 21
indemnified party as a result of such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) in such proportion as is appropriate
to reflect the relative benefits received by the Company on the one hand and the
Underwriters on the other from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law then each indemnifying party shall contribute to such amount paid
or payable by such indemnified party in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of the
Company on the one hand and the Underwriters on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities, (or actions or proceedings in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other shall be deemed to be
in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or the Underwriters on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
(e) The Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 8(d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 8(d). The amount paid
or payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to above in
this Section 8(d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (d), (i) no Underwriter shall be required to contribute any amount in
excess of the underwriting discounts and commissions applicable to the Shares
purchased by such Underwriter, and (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this Section 8(d) to
contribute are several in proportion to their respective underwriting
obligations and not joint. If the indemnification provided for in this Section 8
is unavailable to or insufficient to hold harmless a Deutsche Bank Entity under
Section 8(a)(3) or (a)(4) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then the Company shall contribute to the amount paid or payable by such Deutsche
Bank Entity as a result of such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) in such proportion as is appropriate
to reflect the relative benefits received by the Company on the one hand and the
Deutsche Bank Entity on the other from the offering of the Directed Shares. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law then the Company shall contribute to such amount in
such proportion as is appropriate to reflect not only such relative benefits but
also the relative fault of the Company on the one hand and the Deutsche Bank
Entity on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities, (or actions or
proceedings in respect thereof), as well as any other relevant equitable
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<PAGE> 22
considerations. The relative benefits received by the Company on the one hand
and the Deutsche Bank Entities on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Directed Shares
(before deducting expenses) received by the Company bear to the total
underwriting discounts and commissions received by the Deutsche Bank Entity in
connection therewith. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company on the one hand or the Deutsche Bank Entity
on the other and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company and the Deutsche Bank Entities agree that it would not be just
and equitable if contributions pursuant to this Section 8(e) were determined by
pro rata allocation (even if the Deutsche Bank Entities were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this Section
8(e). The amount paid or payable by a Deutsche Bank Entity as a result of the
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) referred to above in this Section 8(e) shall be deemed to include any
legal or other expenses reasonably incurred by such Deutsche Bank Entity in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (e), (i) no Deutsche Bank
Entity shall be required to contribute any amount in excess of the underwriting
discounts and commissions applicable to the Directed Shares purchased by such
Deutsche Bank Entity, and (ii) no Deutsche Bank Entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
(f) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 8 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party.
(g) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any persons
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 8.
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<PAGE> 23
9. Default by Underwriters.
If on the Closing Date or the Option Closing Date, as the case may be, any
Underwriter shall fail to purchase and pay for the portion of the Shares which
such Underwriter has agreed to purchase and pay for on such date (otherwise than
by reason of any default on the part of the Company, you, as Representatives of
the Underwriters, shall use your reasonable efforts to procure within 36 hours
thereafter one or more of the other Underwriters, or any others, to purchase
from the Company such amounts as may be agreed upon and upon the terms set forth
herein, the Firm Shares or Option Shares, as the case may be, which the
defaulting Underwriter or Underwriters failed to purchase. If during such 36
hours you, as such Representatives, shall not have procured such other
Underwriters, or any others, to purchase the Firm Shares or Option Shares, as
the case may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (a) if the aggregate number of shares with respect to which
such default shall occur does not exceed 10% of the Firm Shares or Option
Shares, as the case may be, covered hereby, the other Underwriters shall be
obligated, severally, in proportion to the respective numbers of Firm Shares or
Option Shares, as the case may be, which they are obligated to purchase
hereunder, to purchase the Firm Shares or Option Shares, as the case may be,
which such defaulting Underwriter or Underwriters failed to purchase, or b) if
the aggregate number of shares of Firm Shares or Option Shares, as the case may
be, with respect to which such default shall occur exceeds 10% of the Firm
Shares or Option Shares, as the case may be, covered hereby, the Company or you
as the Representatives of the Underwriters will have the right, by written
notice given within the next 36-hour period to the parties to this Agreement, to
terminate this Agreement without liability on the part of the non-defaulting
Underwriters or of the Company except to the extent provided in Section 8
hereof. In the event of a default by any Underwriter or Underwriters, as set
forth in this Section 9, the Closing Date or Option Closing Date, as the case
may be, may be postponed for such period, not exceeding seven days, as you, as
Representatives, may determine in order that the required changes in the
Registration Statement or in the Prospectus or in any other documents or
arrangements may be effected. The term "Underwriter" includes any person
substituted for a defaulting Underwriter. Any action taken under this Section 9
shall not relieve any defaulting Underwriter from liability in respect of any
default of such Underwriter under this Agreement.
10. Notices.
All communications hereunder shall be in writing and, except as otherwise
provided herein, will be mailed, delivered, telecopied or telegraphed and
confirmed as follows: if to the Underwriters, to Deutsche Bank Securities Inc.,
One South Street, Baltimore, Maryland 21202, Attention: Daniel E. McIntyre,
Esq.; with copies to Deutsche Bank Securities Inc., One Bankers Trust Plaza, 130
Liberty Street, New York, New York 10006, Attention: General Counsel and to
Pillsbury Madison & Sutro LLP, 235 Montgomery Street, San Francisco, California
94104, Attention: Michael J. Halloran, Esq.; if to the Company, to yesmail.com,
inc., 565 Lakeview Parkway, Suite 135, Vernon Hills, Illinois 60061 Attn: Chief
Executive Officer, with a copy to Wilson Sonsini Goodrich & Rosati, Professional
Corporation, 650 Page Mill Road, Palo Alto, California 94304, Attention: Jeffrey
D. Saper, Esq.
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<PAGE> 24
11. Termination.
(a) This Agreement may be terminated by you by notice to the Company at
any time prior to the Closing Date if any of the following has occurred: (i)
since the respective dates as of which information is given in the Registration
Statement and the Prospectus, any material adverse change or any development
involving a prospective material adverse change in or affecting the condition,
financial or otherwise, of the or the earnings, business, management,
properties, assets, rights, operations, condition (financial or otherwise) of
the Company, whether or not arising in the ordinary course of business, (ii) any
outbreak or escalation of hostilities or declaration of war or national
emergency or other national or international calamity or crisis or change in
economic or political conditions if the effect of such outbreak, escalation,
declaration, emergency, calamity, crisis or change on the financial markets of
the United States would, in your reasonable judgment, make it impracticable or
inadvisable to market the Shares or to enforce contracts for the sale of the
Shares, or (iii) suspension of trading in securities generally on the New York
Stock Exchange or the American Stock Exchange or limitation on prices (other
than limitations on hours or numbers of days of trading) for securities on
either such Exchange, (iv) the enactment, publication, decree or other
promulgation of any statute, regulation, rule or order of any court or other
governmental authority which in your reasonable opinion materially and adversely
affects or may materially and adversely affect the business or operations of the
Company, (v) declaration of a banking moratorium by United States or New York
State authorities, (vi) any downgrading, or placement on any watch list for
possible downgrading, in the rating of the Company's debt securities by any
"nationally recognized statistical rating organization" (as defined for purposes
of Rule 436(g) under the Exchange Act); (vii) the suspension of trading of the
Company's common stock by The Nasdaq Stock Market, the Commission, or any other
governmental authority or (viii) the taking of any action by any governmental
body or agency in respect of its monetary or fiscal affairs which in your
reasonable opinion has a material adverse effect on the securities markets in
the United States; or
(b) as provided in Sections 6 and 9 of this Agreement.
12. Successors.
This Agreement has been and is made solely for the benefit of the
Underwriters and the Company and their respective successors, executors,
administrators, heirs and assigns, and the officers, directors and controlling
persons referred to herein, and no other person will have any right or
obligation hereunder. No purchaser of any of the Shares from any Underwriter
shall be deemed a successor or assign merely because of such purchase.
13. Information Provided by Underwriters.
The Company and the Underwriters acknowledge and agree that the only
information furnished or to be furnished by any Underwriter to the Company for
inclusion in any Prospectus or the Registration Statement consists of the
information set forth in the last paragraph on the front cover page (insofar as
such information relates to the Underwriters), legends required by Item 502(d)
of Regulation S-K under the Act and the information under the caption
"Underwriting" in the Prospectus.
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<PAGE> 25
14. Miscellaneous.
The reimbursement, indemnification and contribution agreements contained in
this Agreement and the representations, warranties and covenants in this
Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of the Company or
its directors or officers and (c) delivery of and payment for the Shares under
this Agreement.
This Agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Maryland.
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
YESMAIL.COM, INC.
By
--------------------------------------
Name
------------------------------------
Title
-----------------------------------
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<PAGE> 26
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
DEUTSCHE BANK SECURITIES INC.
THOMAS WEISEL PARTNERS LLC
VOLPE BROWN WHELAN & COMPANY, LLC
- ------------------------------------
As Representatives of the several
Underwriters listed on Schedule I
By: Deutsche Bank Securities Inc.
By:
---------------------------------
Authorized Officer
-26-
<PAGE> 27
SCHEDULE I
Schedule of Underwriters
<TABLE>
<CAPTION>
Number of Firm Shares to
Underwriter be Purchased
- ----------- ------------
<S> <C>
Deutsche Bank Securities Inc.
Thomas Weisel Partners LLC
Volpe Brown Whelan & Company
------------
Total
============
</TABLE>
-27-
<PAGE> 1
EXHIBIT 3.2
RESTATED CERTIFICATE OF INCORPORATION
OF
yesmail.com, inc.
a Delaware corporation
yesmail.com, inc., a corporation organized and existing under the laws of
the State of Delaware, does hereby certify:
1. The name of the corporation is yesmail.com, inc. (the "Corporation").
The original name of the Corporation was WP Holdings, Inc. The original
Certificate of Incorporation of the Corporation was filed with the Secretary of
State of the State of Delaware on October 26, 1998.
2. The amendment and restatement herein set forth has been duly approved
by the Board of Directors of the Corporation and by the stockholders of the
Corporation pursuant to Sections 141, 228 and 242 of the General Corporation Law
of the State of Delaware ("Delaware Law"). Approval of this amendment and
restatement was approved by a written consent signed by less than all of the
stockholders of the Corporation pursuant to Section 228 of the Delaware Law, and
notice has been given in accordance with Section 228(d) of the Delaware Law to
those stockholders not signing such written consent.
3. The restatement herein set forth has been duly adopted pursuant to
Section 245 of the Delaware Law. This Amended and Restated Certificate of
Incorporation restates and integrates and amends the provisions of the
Corporation's Certificate of Incorporation.
4. The text of the Certificate of Incorporation is hereby amended and
restated to read in its entirety as follows:
"ARTICLE I
The name of this corporation is yesmail.com, inc. (hereinafter, the
"Corporation").
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is 1013 Centre Road, Wilmington, County of New Castle, Delaware 19805. The name
of its registered agent at such address is The Corporation Service Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted by the
Corporation is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of the State of Delaware.
ARTICLE IV
This Corporation is authorized to issue two classes of shares to be
designated, respectively, Common Stock and Preferred Stock. Each share of Common
Stock shall have a par value of $0.0001 and each share of
-1-
<PAGE> 2
Preferred Stock shall have a par value of $0.0001. The total number of shares of
Common Stock this Corporation shall have authority to issue is 60,000,000, and
the total number of shares of Preferred Stock this Corporation shall have
authority to issue is 10,154,548, of which 5,154,548 shares have been previously
designated as Series A Preferred Stock and of which 5,000,000 shares are
initially undesignated as to series. Upon the filing of this Amended and
Restated Certificate of Incorporation, each (i) eight (8) shares of outstanding
Series A Preferred Stock shall be split into three (3) shares of Series A
Preferred Stock. Any fractioned share resulting from the foregoing stock split
shall be rounded to the nearest whole share. All share information contained in
this paragraph reflects the foregoing stock split.
Any Preferred Stock not previously designated as to series may be issued
from time to time in one or more series pursuant to a resolution or resolutions
providing for such issue duly adopted by the Board of Directors (authority to do
so being hereby expressly vested in the Board), and such resolution or
resolutions shall also set forth the voting powers, full or limited or none, of
each such series of Preferred Stock and shall fix the designations, preferences
and relative, participating, optional or other special rights of each such
series of Preferred Stock and the qualifications, limitations or restrictions of
such powers, designations, preferences or rights. The Board of Directors is
authorized to alter the powers, designation, preferences, rights,
qualifications, limitations and restrictions granted to or imposed upon any
wholly unissued series of Preferred Stock and, within the limits and
restrictions stated in any resolution or resolutions of the Board of Directors
originally fixing the number of shares constituting any series of Preferred
Stock, to increase or decrease (but not below the number of shares of any such
series then outstanding) the number of shares of any such series subsequent to
the issue of shares of that series.
Each share of Series A Preferred Stock issued by the Corporation, if
reacquired by the Corporation (whether by redemption, repurchase, conversion to
Common Stock or other means), shall upon such reacquisition be canceled and
shall not be available for designation and issuance by the Corporation.
The Corporation shall from time to time in accordance with the laws of the
State of Delaware increase the authorized amount of its Common Stock if at any
time the number of shares of Common Stock remaining unissued and available for
issuance shall not be sufficient to permit conversion, if applicable, of the
Preferred Stock.
ARTICLE V
The Corporation is to have perpetual existence.
ARTICLE VI
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter or repeal the
Bylaws of the Corporation.
ARTICLE VII
Section 1. The business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors.
Section 2. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to adopt, alter, amend
or repeal the Bylaws of the Corporation. The affirmative vote of at least a
majority of the Board of Directors then in office shall be required to adopt,
amend, alter or repeal the Corporation's Bylaws. The Corporation's Bylaws also
may be adopted, amended,
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<PAGE> 3
altered or repealed by the affirmative vote of the holders of at least a
majority of the voting power of the shares entitled to vote at an election of
directors. No Bylaw hereafter legally adopted, amended, altered or repealed by
the stockholders of the Corporation shall invalidate any prior act of the
directors or officers of the Corporation which would have been valid if such
Bylaw had not been adopted, amended, altered or repealed.
Section 3. Elections of directors need not be by written ballot unless the
Bylaws of the Corporation shall so provide.
Section 4. At the election of directors of the Corporation, each holder of
Common Stock shall be entitled to one vote for each share held. No stockholder
will be permitted to cumulate votes at any election of directors.
Section 5. The number of directors which constitute the whole Board of
Directors shall be fixed exclusively in the manner designated in the Bylaws of
the Corporation.
ARTICLE VIII
Section 1. To the fullest extent permitted by the Delaware General
Corporation Law as the same exists or as may hereafter be amended, a director of
the Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
Section 2. The Corporation shall indemnify to the fullest extent permitted
by law, as now or hereinafter in effect, any person made or threatened to be
made a party to an action or proceeding, whether criminal, civil, administrative
or investigative, by reason of the fact that he, his testator or intestate is or
was a director or officer of the Corporation or any predecessor of the
Corporation or serves or served at any other enterprise as a director, officer,
employee or agent at the request of the Corporation or any predecessor to the
Corporation and such right to indemnification shall continue as to a person who
has ceased to be a director or officer of the Corporation and shall inure to the
benefit of his or her heirs, executors and personal and legal representatives;
PROVIDED, HOWEVER, that, except for proceedings to enforce rights to
indemnification, the Corporation shall not be obligated to indemnify any
director or officer (or his or her heirs, executors or personal or legal
representatives) in connection with a proceeding (or part thereof) initiated by
such person unless such proceeding (or part thereof) was authorized or consented
to by the Board of Directors of the Corporation.. The right to indemnification
conferred by this Section 2 shall include the right to be paid by the
Corporation the expenses incurred in defending or otherwise participating in any
proceeding in advance of its final disposition. The Corporation may indemnify to
the fullest extent permitted by law, as now or hereinafter in effect, any person
made or threatened to be made a party to an action or proceeding, whether
criminal, civil, administrative or investigative, by reason of the fact that he,
his testator or intestate is or was an employee or agent of the Corporation or
any predecessor of the Corporation or serves or served at any other enterprise
as a director, officer, employee or agent at the request of the Corporation or
any predecessor to the Corporation. The rights to indemnification and to the
advancement of expenses conferred in this Section 2 shall not be exclusive of
any other right which any person may have or hereafter acquire under this
Restated Certificate Incorporation (as amended and restated from time to time,
the "Restated Certificate of Incorporation"), the Bylaws of the Corporation, any
statute, agreement, vote of the stockholders of the Corporation or disinterested
directors of the Corporation or otherwise.
Section 3. Neither any amendment nor repeal of any Section of this Article
VIII, nor the adoption of any provision of the Restated Certificate of
Incorporation inconsistent with this Article VIII, shall adversely affect any
right or protection of any director or officer established pursuant to this
Article VIII existing at the time of such amendment, repeal or adoption of an
inconsistent provision, including without limitation by eliminating or reducing
the effect of this Article VIII, for or in respect of any act,
-3-
<PAGE> 4
omission or other matter occurring, or any action or proceeding accruing or
arising (or that, but for this Article VIII, would accrue or arise) prior to
such amendment, repeal or adoption of an inconsistent provision.
ARTICLE IX
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside of the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
ARTICLE X
Section 1. Newly-created directorships resulting from any increase in the
number of directors, created in accordance with the Bylaws of the Corporation,
and any vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other cause shall be filled by the affirmative vote
of a majority of the remaining directors then in office, even though less than a
quorum of the Board of Directors, or by a sole remaining director.
Any director elected in accordance with the preceding sentence shall hold
office until such director's successor shall have been elected and qualified, or
until such director's earlier death, resignation or removal. No decrease in the
number of directors constituting the Board of Directors shall shorten the term
of any incumbent director.
Section 2. Any director or the entire Board of Directors may be removed
from office at any time, but only for cause, and only by the affirmative vote of
the holders of at least a majority of the voting power of the issued and
outstanding capital stock of the Corporation entitled to vote in the election of
directors.
ARTICLE XI
Advance notice of new business and stockholder nominations for the election
of directors shall be given in the manner and to the extent provided in the
Bylaws of the Corporation.
ARTICLE XII
Unless otherwise required by law, special meetings of the stockholders of
the Corporation, for any purpose or purposes, may be called only by either (i)
the Board of Directors of the Corporation, (ii) the Chairman of the Board of
Directors of the Corporation, if there be one, (iii) the Chief Executive Officer
of the Corporation or (iv) the President of the Corporation.
ARTICLE XIII
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation."
-4-
<PAGE> 5
IN WITNESS WHEREOF, yesmail.com, inc. has caused this Amended and Restated
Certificate of Incorporation to be signed by David M. Tolmie, its President and
Chief Executive Officer and attested to by David B. Menzel, its Secretary, on
September ____, 1999.
yesmail.com, inc.
a Delaware Corporation
By:
-------------------------------------
David M. Tolmie,
President and Chief Executive Officer
ATTEST:
By:
------------------------------------
David B. Menzel,
Secretary
-5-
<PAGE> 1
EXHIBIT 5.1
[WILSON SONSINI LETTERHEAD]
August 31, 1999
yesmail.com, inc.
565 Lakeview Parkway, Suite 135
Vernon Hills, Illinois 60061
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
We have examined the registration statement on Form S-1, as amended, filed
by yesmail.com, inc., a Delaware corporation (the "Company"), with the
Securities and Exchange Commission in connection with the registration under the
Securities Act of 1933, as amended, of up to 3,910,000 shares of the Company's
common stock (including an over-allotment of up to 510,000 shares of the
Company's common stock granted to the underwriters) (the "Shares"). The Shares
are to be sold to the underwriters for resale to the public as described in the
registration statement and pursuant to the underwriting agreement filed as an
exhibit thereto. As legal counsel to the Company, we have examined the
proceedings proposed to be taken in connection with said sale and issuance of
the Shares.
Based upon the foregoing, we are of the opinion that the Shares, when
issued in the manner described in the registration statement, will be duly
authorized, validly issued, fully paid and non-assessable.
We consent to the use of this opinion as an exhibit to the registration
statement, and further consent to the use of our name wherever appearing in the
registration statement, including the prospectus constituting a part thereof,
and any amendment thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ WILSON SONSINI GOODRICH & ROSATI, P.C.
<PAGE> 1
EXHIBIT 10.3
yesmail.com
AMENDED AND RESTATED
1999 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Amended and Restated 1999
Stock Option Plan are:
o to attract and retain the best available personnel for positions
of substantial responsibility,
o to provide additional incentive to Employees, Directors and
Consultants, and
o to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees as shall
be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a committee of Directors appointed by the Board
in accordance with Section 4 of the Plan.
(f) "Common Stock" means the common stock of the Company.
(g) "Company" means yesmail.com, a Delaware corporation.
(h) "Consultant" means any person, including an advisor, engaged by
the Company or a Parent or Subsidiary to render services to such entity.
<PAGE> 2
(i) "Director" means a member of the Board.
(j) "Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(m) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
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<PAGE> 3
(p) "Notice of Grant" means a written or electronic notice evidencing
certain terms and conditions of an individual Option or Stock Purchase Right
grant. The Notice of Grant is part of the Option Agreement.
(q) "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
(s) "Option Agreement" means an agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.
(t) "Option Exchange Program" means a program whereby outstanding
Options are surrendered in exchange for Options with a lower exercise price.
(u) "Optioned Stock" means the Common Stock subject to an Option or
Stock Purchase Right.
(v) "Optionee" means the holder of an outstanding Option or Stock
Purchase Right granted under the Plan.
(w) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this Amended and Restated 1999 Stock Option Plan.
(y) "Restricted Stock" means shares of Common Stock acquired pursuant
to a grant of Stock Purchase Rights under Section 11 of the Plan.
(z) "Restricted Stock Purchase Agreement" means a written agreement
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
(aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(bb) "Section 16(b) " means Section 16(b) of the Exchange Act.
(cc) "Service Provider" means an Employee, Director or Consultant.
(dd) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
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<PAGE> 4
(ee) "Stock Purchase Right" means the right to purchase Common Stock
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ff) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
the Plan, the maximum aggregate number of Shares that may be optioned and sold
under the Plan is 4,425,000 Shares post split, plus an annual increase to be
added on each anniversary date of the adoption of the Plan beginning January 1,
2000, equal to the lesser of (i) 1,500,000 Shares, (ii) 4% of the outstanding
Shares on such date, or (iii) an amount determined by the Board. The Shares may
be authorized, but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. The Plan may be
administered by different Committees with respect to different groups of Service
Providers.
(ii) Section 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify transactions
hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder
shall be structured to satisfy the requirements for exemption under Rule 16b-3.
(iv) Other Administration. Other than as provided above, the
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
-4-
<PAGE> 5
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option or Stock Purchase Right granted
hereunder. Such terms and conditions include, but are not limited to, the
exercise price, the time or times when Options or Stock Purchase Rights may be
exercised (which may be based on performance criteria), any vesting acceleration
or waiver of forfeiture restrictions, and any restriction or limitation
regarding any Option or Stock Purchase Right or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock Purchase Right that number of Shares having a
Fair Market Value equal to the amount required to be withheld. The Fair Market
Value of the Shares to be withheld shall be determined on the date that the
amount of tax to be withheld is to be determined. All elections by an Optionee
to have Shares withheld for this purpose shall be made in such form and under
such conditions as the Administrator may deem necessary or advisable;
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<PAGE> 6
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may
be granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
6. Limitations.
(a) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year of
the Company, Options to purchase more than 1,000,000 Shares.
(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 1,000,000 Shares
which shall not count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 13.
(iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 13), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For
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<PAGE> 7
this purpose, if the exercise price of an Option is reduced, the transaction
will be treated as a cancellation of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall become
effective upon its adoption by the Board. It shall continue in effect for a term
of ten (10) years unless terminated earlier under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Option
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price of less than 100% of the Fair Market Value per Share
on the date of grant pursuant to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions that must be satisfied before the
Option may be exercised.
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<PAGE> 8
(c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the
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<PAGE> 9
Optioned Stock, notwithstanding the exercise of the Option. The Company shall
issue (or cause to be issued) such Shares promptly after the Option is
exercised. No adjustment will be made for a dividend or other right for which
the record date is prior to the date the Shares are issued, except as provided
in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an Optionee
ceases to be a Service Provider, other than upon the Optionee's death or
Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider,
the Option may be exercised within such period of time as is specified in the
Option Agreement (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee's estate or by a
person who acquires the right to exercise the Option by bequest or inheritance,
but only to the extent that the Option is vested on the date of death. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan. The Option may be exercised by the executor or administrator
of the Optionee's estate or, if none, by the person(s) entitled to exercise the
Option under the Optionee's will or the laws of descent or distribution. If the
Option is not so exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
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<PAGE> 10
(e) Buyout Provisions. The Administrator may at any time offer to buy
out for a payment in cash or Shares an Option previously granted based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically, by means of a Notice of Grant, of the
terms, conditions and restrictions related to the offer, including the number of
Shares that the offeree shall be entitled to purchase, the price to be paid, and
the time within which the offeree must accept such offer. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines otherwise,
the Restricted Stock Purchase Agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. Unless
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and
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<PAGE> 11
Stock Purchase Right, and the number of shares of Common Stock which have been
authorized for issuance under the Plan but as to which no Options or Stock
Purchase Rights have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option or Stock Purchase Right, as well as
the price per share of Common Stock covered by each such outstanding Option or
Stock Purchase Right, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of issued
shares of Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option and Stock Purchase Right shall be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Optionee shall fully vest in and have the right to
exercise the Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable. If
an Option or Stock Purchase Right becomes fully vested and exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Option or
Stock Purchase Right shall terminate upon the expiration of such period. For the
purposes of this paragraph, the Option or Stock Purchase Right shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the
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<PAGE> 12
merger or sale of assets by holders of Common Stock for each Share held on the
effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares); provided, however, that if such consideration received
in the merger or sale of assets is not solely common stock of the successor
corporation or its Parent, the Administrator may, with the consent of the
successor corporation, provide for the consideration to be received upon the
exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right, to be solely common stock of the
successor corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
The successor corporation involuntarily terminates an Optionee
without Cause within one year of the date of a merger or asset sale as
described in the preceding paragraph, then (i) the assumed or substituted
options shall become fully vested and exercisable as to all of the shares
subject to such option and (ii) all of the successor company's rights to
repurchase unvested stock under all restricted stock purchase agreements with
the Optionee pursuant to the Plan shall lapse in their entirety.
If the Optionee ceases to be a Service Provider by reason of the
Optionee's voluntary resignation or if the Optionee is terminated for Cause,
then the Optionee shall not be entitled to receive additional vesting under this
Section.
For purposes of this Plan, "Cause" shall mean (i) any willful act
of personal dishonesty, fraud or misrepresentation taken by the Optionee in
connection with his or her responsibilities as an employee which was intended to
result in substantial gain or personal enrichment of the Optionee at the expense
of the Company and was materially and demonstrably injurious to the Company;
(ii) the Optionee's conviction of a felony on account of any act which was
materially and demonstrably injurious to the Company; or (iii) the Optionee's
willful and continued failure to substantially perform his or her principal
duties and obligations of employment (other than any such failure resulting from
incapacity due to physical or mental illness), which failure is not remedied in
a reasonable period of time after receipt of written notice from the Company.
For the purposes of this Section, no act or failure to act shall be considered
"willful" unless done or omitted to be done in bad faith and without reasonable
belief that the act or omission was in or not opposed to the best interests of
the Company.
14. Date of Grant. The date of grant of an Option or Stock Purchase Right
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall be
provided to each Optionee within a reasonable time after the date of such grant.
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or terminate the Plan.
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<PAGE> 13
(b) Shareholder Approval. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
16. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
17. Inability to Obtain Authority. The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
18. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Shareholder Approval. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
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<PAGE> 14
YESMAIL.COM
AMENDED AND RESTATED 1999 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number
Date of Grant
Vesting Commencement Date
Exercise Price per Share $
Total Number of Shares Granted
Total Exercise Price $
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date:
Vesting Schedule:
Subject to accelerated vesting as set forth below, this Option may be
exercised, in whole or in part, in accordance with the following schedule:
[25% OF THE SHARES SUBJECT TO THE OPTION SHALL VEST TWELVE MONTHS AFTER
THE VESTING COMMENCEMENT DATE, AND 1/48 OF THE SHARES SUBJECT TO THE OPTION
SHALL VEST EACH MONTH THEREAFTER, SUBJECT TO THE OPTIONEE CONTINUING TO BE A
SERVICE PROVIDER ON SUCH DATES].
Termination Period:
This Option may be exercised for [THREE MONTHS] after Optionee ceases to
be a Service Provider. Upon the death or Disability of the Optionee, this Option
may be exercised for [TWELVE
<PAGE> 15
MONTHS] after Optionee ceases to be a Service Provider. In no event shall this
Option be exercised later than the Term/Expiration Date as provided above.
II. AGREEMENT
A. Grant of Option.
The Plan Administrator of the Company hereby grants to the
Optionee named in the Notice of Grant attached as Part I of this Agreement (the
"Optionee") an option (the "Option") to purchase the number of Shares, as set
forth in the Notice of Grant, at the exercise price per share set forth in the
Notice of Grant (the "Exercise Price"), subject to the terms and conditions of
the Plan, which is incorporated herein by reference. Subject to Section 15(c) of
the Plan, in the event of a conflict between the terms and conditions of the
Plan and the terms and conditions of this Option Agreement, the terms and
conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock
Option ("ISO"), this Option is intended to qualify as an Incentive Stock Option
under Section 422 of the Code. However, if this Option is intended to be an
Incentive Stock Option, to the extent that it exceeds the $100,000 rule of Code
Section 422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
B. Exercise of Option.
(a) Right to Exercise. This Option is exercisable during its
term in accordance with the Vesting Schedule set out in the Notice of Grant and
the applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery
of an exercise notice, in the form attached as Exhibit A (the "Exercise
Notice"), which shall state the election to exercise the Option, the number of
Shares in respect of which the Option is being exercised (the "Exercised
Shares"), and such other representations and agreements as may be required by
the Company pursuant to the provisions of the Plan. The Exercise Notice shall be
completed by the Optionee and delivered to [Title] of the Company. The Exercise
Notice shall be accompanied by payment of the aggregate Exercise Price as to all
Exercised Shares. This Option shall be deemed to be exercised upon receipt by
the Company of such fully executed Exercise Notice accompanied by such aggregate
Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option unless
such issuance and exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Exercised Shares shall be considered
transferred to the Optionee on the date the Option is exercised with respect to
such Exercised Shares.
C. Method of Payment.
Payment of the aggregate Exercise Price shall be by any of the
following, or a combination thereof, at the election of the Optionee:
1. cash; or
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<PAGE> 16
2. check[; OR
3. CONSIDERATION RECEIVED BY THE COMPANY UNDER A CASHLESS
EXERCISE PROGRAM IMPLEMENTED BY THE COMPANY IN CONNECTION WITH THE PLAN][; OR
4. SURRENDER OF OTHER SHARES WHICH (I) IN THE CASE OF SHARES
ACQUIRED UPON EXERCISE OF AN OPTION, HAVE BEEN OWNED BY THE OPTIONEE FOR MORE
THAN SIX (6) MONTHS ON THE DATE OF SURRENDER, AND (II) HAVE A FAIR MARKET VALUE
ON THE DATE OF SURRENDER EQUAL TO THE AGGREGATE EXERCISE PRICE OF THE EXERCISED
SHARES[; OR
5. WITH THE ADMINISTRATOR'S CONSENT, DELIVERY OF OPTIONEE'S
PROMISSORY NOTE (THE "NOTE") IN THE FORM ATTACHED HERETO AS EXHIBIT C, IN THE
AMOUNT OF THE AGGREGATE EXERCISE PRICE OF THE EXERCISED SHARES TOGETHER WITH THE
EXECUTION AND DELIVERY BY THE OPTIONEE OF THE SECURITY AGREEMENT ATTACHED HERETO
AS EXHIBIT B. THE NOTE SHALL BEAR INTEREST AT THE "APPLICABLE FEDERAL RATE"
PRESCRIBED UNDER THE CODE AND ITS REGULATIONS AT TIME OF PURCHASE, AND SHALL BE
SECURED BY A PLEDGE OF THE SHARES PURCHASED BY THE NOTE PURSUANT TO THE SECURITY
AGREEMENT][; OR
6. TO THE EXTENT PERMITTED BY THE ADMINISTRATOR, DELIVERY OF A
PROPERLY EXECUTED EXERCISE NOTICE TOGETHER WITH SUCH OTHER DOCUMENTATION AS THE
ADMINISTRATOR AND THE BROKER, IF APPLICABLE, SHALL REQUIRE TO EFFECT AN EXERCISE
OF THE OPTION AND DELIVERY TO THE COMPANY OF THE SALE PROCEEDS REQUIRED TO PAY
THE EXERCISE PRICE.]
D. Non-Transferability of Option.
This Option may not be transferred in any manner otherwise than
by will or by the laws of descent or distribution and may be exercised during
the lifetime of Optionee only by the Optionee. The terms of the Plan and this
Option Agreement shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
E. Term of Option.
This Option may be exercised only within the term set out in the
Notice of Grant, and may be exercised during such term only in accordance with
the Plan and the terms of this Option Agreement.
F. Tax Consequences.
Some of the federal tax consequences relating to this Option, as
of the date of this Option, are set forth below. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE
SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE
SHARES.
G. Exercising the Option.
1. Nonstatutory Stock Option. The Optionee may incur regular
federal income tax liability upon exercise of a NSO. The Optionee will be
treated as having received
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<PAGE> 17
compensation income (taxable at ordinary income tax rates) equal to the excess,
if any, of the Fair Market Value of the Exercised Shares on the date of exercise
over their aggregate Exercise Price. If the Optionee is an Employee or a former
Employee, the Company will be required to withhold from his or her compensation
or collect from Optionee and pay to the applicable taxing authorities an amount
in cash equal to a percentage of this compensation income at the time of
exercise, and may refuse to honor the exercise and refuse to deliver Shares if
such withholding amounts are not delivered at the time of exercise.
2. Incentive Stock Option. If this Option qualifies as an ISO,
the Optionee will have no regular federal income tax liability upon its
exercise, although the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price will be
treated as an adjustment to alternative minimum taxable income for federal tax
purposes and may subject the Optionee to alternative minimum tax in the year of
exercise. In the event that the Optionee ceases to be an Employee but remains a
Service Provider, any Incentive Stock Option of the Optionee that remains
unexercised shall cease to qualify as an Incentive Stock Option and will be
treated for tax purposes as a Nonstatutory Stock Option on the date three (3)
months and one (1) day following such change of status.
3. Disposition of Shares.
(a) NSO. If the Optionee holds NSO Shares for at least
one year, any gain realized on disposition of the Shares will be treated as
long-term capital gain for federal income tax purposes.
(b) ISO. If the Optionee holds ISO Shares for at least
one year after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the lesser of (A) the difference
between the Fair Market Value of the Shares acquired on the date of exercise and
the aggregate Exercise Price, or (B) the difference between the sale price of
such Shares and the aggregate Exercise Price. Any additional gain will be taxed
as capital gain, short-term or long-term depending on the period that the ISO
Shares were held.
(c) Notice of Disqualifying Disposition of ISO Shares.
If the Optionee sells or otherwise disposes of any of the Shares acquired
pursuant to an ISO on or before the later of (i) two years after the grant date,
or (ii) one year after the exercise date, the Optionee shall immediately notify
the Company in writing of such disposition. The Optionee agrees that he or she
may be subject to income tax withholding by the Company on the compensation
income recognized from such early disposition of ISO Shares by payment in cash
or out of the current earnings paid to the Optionee.
H. Entire Agreement; Governing Law.
The Plan is incorporated herein by reference. The Plan and this
Option Agreement constitute the entire agreement of the parties with respect to
the subject matter hereof and supersede
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<PAGE> 18
in their entirety all prior undertakings and agreements of the Company and
Optionee with respect to the subject matter hereof, and may not be modified
adversely to the Optionee's interest except by means of a writing signed by the
Company and Optionee. This agreement is governed by the internal substantive
laws, but not the choice of law rules, of Illinois.
I. NO GUARANTEE OF CONTINUED SERVICE.
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES
PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A
SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING
HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER
ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED
HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS
OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING
PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT
OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE
PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.
By your signature and the signature of the Company's representative
below, you and the Company agree that this Option is granted under and governed
by the terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
OPTIONEE: yesmail.com
Signature By
Print Name Title
Residence Address
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<PAGE> 19
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the
terms and conditions of the Plan and this Option Agreement. In consideration of
the Company's granting his or her spouse the right to purchase Shares as set
forth in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
Spouse of Optionee
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<PAGE> 20
EXHIBIT A
YESMAIL.COM
AMENDED AND RESTATED 1999 STOCK OPTION PLAN
EXERCISE NOTICE
yesmail.com
565 Lakeview Parkway, Suite 135
Vernon Hills, Illinois 60061
Attention: [Title]
1. Exercise of Option. Effective as of today,___________ , ___________,
the undersigned ("Purchaser") hereby elects to purchase __ shares (the "Shares")
of the Common Stock of yesmail.com (the "Company") under and pursuant to the
Amended and Restated 1999 Stock Option Plan (the "Plan") and the Stock Option
Agreement dated, _______ (the "Option Agreement"). The purchase price for the
Shares shall be $______, as required by the Option Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company the
full purchase price for the Shares.
3. Representations of Purchaser. Purchaser acknowledges that Purchaser
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance, except as provided in Section 13 of the
Plan.
5. Tax Consultation. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
6. Entire Agreement; Governing Law. The Plan and Option Agreement are
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<PAGE> 21
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
hereof, and may not be modified adversely to the Purchaser's interest except by
means of a writing signed by the Company and Purchaser. This agreement is
governed by the internal substantive laws, but not the choice of law rules, of
Illinois.
Submitted by: Accepted by:
PURCHASER: yesmail.com
Signature By
Print Name Its
Address: Address:
yesmail.com
565 Lakeview Parkway, Suite 135
Vernon Hills, Illinois 60061
Date Received
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<PAGE> 22
EXHIBIT B
SECURITY AGREEMENT
This Security Agreement is made as of __________, ________ between
yesmail.com, a Delaware corporation ("Pledgee"), and _______________________
("Pledgor").
Recitals
Pursuant to Pledgor's election to purchase Shares under the Option
Agreement dated _______________ (the "Option"), between Pledgor and Pledgee
under Pledgee's Amended and Restated 1999 Stock Option Plan, and Pledgor's
election under the terms of the Option to pay for such shares with his
promissory note (the "Note"), Pledgor has purchased __________ shares of
Pledgee's Common Stock (the "Shares") at a price of $ __________ per share, for
a total purchase price of $ _______. The Note and the obligations thereunder are
as set forth in Exhibit C to the Option.
NOW, THEREFORE, it is agreed as follows:
1. Creation and Description of Security Interest. In consideration of
the transfer of the Shares to Pledgor under the Option Agreement, Pledgor,
pursuant to the Illinois Commercial Code, hereby pledges all of such Shares
(herein sometimes referred to as the "Collateral") represented by certificate
number _______, duly endorsed in blank or with executed stock powers, and
herewith delivers said certificate to the Secretary of Pledgee ("Pledgeholder"),
who shall hold said certificate subject to the terms and conditions of this
Security Agreement.
The pledged stock (together with an executed blank stock
assignment for use in transferring all or a portion of the Shares to Pledgee if,
as and when required pursuant to this Security Agreement) shall be held by the
Pledgeholder as security for the repayment of the Note, and any extensions or
renewals thereof, to be executed by Pledgor pursuant to the terms of the Option,
and the Pledgeholder shall not encumber or dispose of such Shares except in
accordance with the provisions of this Security Agreement.
2. Pledgor's Representations and Covenants. To induce Pledgee to enter
into this Security Agreement, Pledgor represents and covenants to Pledgee, its
successors and assigns, as follows:
(a) Payment of Indebtedness. Pledgor will pay the principal sum
of the Note secured hereby, together with interest thereon, at the time and in
the manner provided in the Note.
(b) Encumbrances. The Shares are free of all other encumbrances,
defenses and liens, and Pledgor will not further encumber the Shares without the
prior written
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<PAGE> 23
consent of Pledgee.
(c) Margin Regulations. In the event that Pledgee's Common Stock
is now or later becomes margin-listed by the Federal Reserve Board and Pledgee
is classified as a "lender" within the meaning of the regulations under Part 207
of Title 12 of the Code of Federal Regulations ("Regulation G"), Pledgor agrees
to cooperate with Pledgee in making any amendments to the Note or providing any
additional collateral as may be necessary to comply with such regulations.
3. Voting Rights. During the term of this pledge and so long as all
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged
hereunder.
4. Stock Adjustments. In the event that during the term of the pledge
any stock dividend, reclassification, readjustment or other changes are declared
or made in the capital structure of Pledgee, all new, substituted and additional
shares or other securities issued by reason of any such change shall be
delivered to and held by the Pledgee under the terms of this Security Agreement
in the same manner as the Shares originally pledged hereunder. In the event of
substitution of such securities, Pledgor, Pledgee and Pledgeholder shall
cooperate and execute such documents as are reasonable so as to provide for the
substitution of such Collateral and, upon such substitution, references to
"Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.
5. Options and Rights. In the event that, during the term of this
pledge, subscription Options or other rights or options shall be issued in
connection with the pledged Shares, such rights, Options and options shall be
the property of Pledgor and, if exercised by Pledgor, all new stock or other
securities so acquired by Pledgor as it relates to the pledged Shares then held
by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.
6. Default. Pledgor shall be deemed to be in default of the Note and of
this Security Agreement in the event:
(a) Payment of principal or interest on the Note shall be
delinquent for a period of 10 days or more; or
(b) Pledgor fails to perform any of the covenants set forth in
the Option or contained in this Security Agreement for a period of 10 days after
written notice thereof from Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall
have the right to accelerate payment of the Note upon notice to Pledgor, and
Pledgee shall thereafter be entitled to pursue its remedies under the Illinois
Commercial Code.
7. Release of Collateral. Subject to any applicable contrary rules under
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<PAGE> 24
Regulation G, there shall be released from this pledge a portion of the pledged
Shares held by Pledgeholder hereunder upon payments of the principal of the
Note. The number of the pledged Shares which shall be released shall be that
number of full Shares which bears the same proportion to the initial number of
Shares pledged hereunder as the payment of principal bears to the initial full
principal amount of the Note.
8. Withdrawal or Substitution of Collateral. Pledgor shall not sell,
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
9. Term. The within pledge of Shares shall continue until the payment of
all indebtedness secured hereby, at which time the remaining pledged stock shall
be promptly delivered to Pledgor, subject to the provisions for prior release of
a portion of the Collateral as provided in paragraph 7 above.
10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.
11. Pledgeholder Liability. In the absence of willful or gross
negligence, Pledgeholder shall not be liable to any party for any of his acts,
or omissions to act, as Pledgeholder.
12. Invalidity of Particular Provisions. Pledgor and Pledgee agree that
the enforceability or invalidity of any provision or provisions of this Security
Agreement shall not render any other provision or provisions herein contained
unenforceable or invalid.
13. Successors or Assigns. Pledgor and Pledgee agree that all of the
terms of this Security Agreement shall be binding on their respective successors
and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein
shall be deemed to include, for all purposes, the respective designees,
successors, assigns, heirs, executors and administrators.
14. Governing Law. This Security Agreement shall be interpreted and
governed under the internal substantive laws, but not the choice of law rules,
of Illinois.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
"PLEDGOR"
Signature
Print Name
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<PAGE> 25
Address:____________________________
____________________________
"PLEDGEE" yesmail.com,
a Delware corporation
Signature
Print Name
Title
"PLEDGEHOLDER"
Secretary of yesmail.com
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<PAGE> 26
EXHIBIT C
NOTE
$_________ [City, State]
_________________, _______
FOR VALUE RECEIVED, _________ promises to pay to yesmail.com, a Delaware
corporation (the "Company"), or order, the principal sum of _________________
($_______), together with interest on the unpaid principal hereof from the date
hereof at the rate of _______________ percent (_____%) per annum, compounded
semiannually.
Principal and interest shall be due and payable on _________,
__________. Payment of principal and interest shall be made in lawful money of
the United States of America.
The undersigned may at any time prepay all or any portion of the
principal or interest owing hereunder.
This Note is subject to the terms of the Option, dated as of
____________________. This Note is secured in part by a pledge of the Company's
Common Stock under the terms of a Security Agreement of even date herewith and
is subject to all the provisions thereof.
The holder of this Note shall have full recourse against the
undersigned, and shall not be required to proceed against the collateral
securing this Note in the event of default.
In the event the undersigned shall cease to be an employee, director or
consultant of the Company for any reason, this Note shall, at the option of the
Company, be accelerated, and the whole unpaid balance on this Note of principal
and accrued interest shall be immediately due and payable.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned.
__________________________________
__________________________________
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<PAGE> 27
YESMAIL.COM
AMENDED AND RESTATED 1999 STOCK OPTION PLAN
NOTICE OF GRANT OF STOCK PURCHASE RIGHT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Notice of Grant.
[Grantee's Name and Address]
You have been granted the right to purchase Common Stock of the Company,
subject to the Company's Repurchase Option and your ongoing status as a Service
Provider (as described in the Plan and the attached Restricted Stock Purchase
Agreement), as follows:
Grant Number ______________________
Date of Grant ______________________
Price Per Share $_____________________
Total Number of Shares Subject ______________________
to This Stock Purchase Right
Expiration Date: ______________________
YOU MUST EXERCISE THIS STOCK PURCHASE RIGHT BEFORE THE EXPIRATION DATE
OR IT WILL TERMINATE AND YOU WILL HAVE NO FURTHER RIGHT TO PURCHASE THE SHARES.
By your signature and the signature of the Company's representative below, you
and the Company agree that this Stock Purchase Right is granted under and
governed by the terms and conditions of the Amended and Restated 1999 Stock
Option Plan and the Restricted Stock Purchase Agreement, attached hereto as
Exhibit A-1, both of which are made a part of this document. You further agree
to execute the attached Restricted Stock Purchase Agreement as a condition to
purchasing any shares under this Stock Purchase Right.
GRANTEE: yesmail.com
________________________________ ______________________________________
Signature By
________________________________ ______________________________________
PRINT NAME TITLE
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<PAGE> 28
EXHIBIT A-1
YESMAIL.COM
AMENDED AND RESTATED 1999 STOCK OPTION PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Restricted Stock Purchase Agreement.
WHEREAS the Purchaser named in the Notice of Grant, (the "Purchaser") is
a Service Provider, and the Purchaser's continued participation is considered by
the Company to be important for the Company's continued growth; and
WHEREAS in order to give the Purchaser an opportunity to acquire an
equity interest in the Company as an incentive for the Purchaser to participate
in the affairs of the Company, the Administrator has granted to the Purchaser a
Stock Purchase Right subject to the terms and conditions of the Plan and the
Notice of Grant, which are incorporated herein by reference, and pursuant to
this Restricted Stock Purchase Agreement (the "Agreement").
NOW THEREFORE, the parties agree as follows:
1. Sale of Stock. The Company hereby agrees to sell to the Purchaser and
the Purchaser hereby agrees to purchase shares of the Company's Common Stock
(the "Shares"), at the per Share purchase price and as otherwise described in
the Notice of Grant.
2. Payment of Purchase Price. The purchase price for the Shares may be
paid by delivery to the Company at the time of execution of this Agreement of
cash, a check, or some combination thereof.
3. Repurchase Option.
(a) In the event the Purchaser ceases to be a Service Provider for any
or no reason (including death or disability) before all of the Shares are
released from the Company's Repurchase Option (see Section 4), the Company
shall, upon the date of such termination (as reasonably fixed and determined by
the Company) have an irrevocable, exclusive option (the "Repurchase Option") for
a period of sixty (60) days from such date to repurchase up to that number of
shares which constitute the Unreleased Shares (as defined in Section 4) at the
original purchase price per share (the "Repurchase Price"). The Repurchase
Option shall be exercised by the Company by delivering written notice to the
Purchaser or the Purchaser's executor (with a copy to the Escrow Holder) AND, at
the Company's option, (i) by delivering to the Purchaser or the Purchaser's
executor a check in the amount of the aggregate Repurchase Price, or (ii) by
canceling an amount of the Purchaser's indebtedness to the Company equal to the
aggregate Repurchase Price, or (iii) by a
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<PAGE> 29
combination of (i) and (ii) so that the combined payment and cancellation of
indebtedness equals the aggregate Repurchase Price. Upon delivery of such notice
and the payment of the aggregate Repurchase Price, the Company shall become the
legal and beneficial owner of the Shares being repurchased and all rights and
interests therein or relating thereto, and the Company shall have the right to
retain and transfer to its own name the number of Shares being repurchased by
the Company.
(b) Whenever the Company shall have the right to repurchase
Shares hereunder, the Company may designate and assign one or more employees,
officers, directors or shareholders of the Company or other persons or
organizations to exercise all or a part of the Company's purchase rights under
this Agreement and purchase all or a part of such Shares. If the Fair Market
Value of the Shares to be repurchased on the date of such designation or
assignment (the "Repurchase FMV") exceeds the aggregate Repurchase Price of such
Shares, then each such designee or assignee shall pay the Company cash equal to
the difference between the Repurchase FMV and the aggregate Repurchase Price of
such Shares.
4. Release of Shares From Repurchase Option.
(a) __________ percent (__%) of the Shares shall be released
from the Company's Repurchase Option [one year] after the Date of Grant and
_______ percent (__%) of the Shares [at the end of each month thereafter],
provided that the Purchaser does not cease to be a Service Provider prior to the
date of any such release.
(b) Any of the Shares that have not yet been released from the
Repurchase Option are referred to herein as "Unreleased Shares."
(c) The Shares that have been released from the Repurchase
Option shall be delivered to the Purchaser at the Purchaser's request (see
Section 6).
5. Restriction on Transfer. Except for the escrow described in Section 6
or the transfer of the Shares to the Company or its assignees contemplated by
this Agreement, none of the Shares or any beneficial interest therein shall be
transferred, encumbered or otherwise disposed of in any way until such Shares
are released from the Company's Repurchase Option in accordance with the
provisions of this Agreement, other than by will or the laws of descent and
distribution.
6. Escrow of Shares.
(a) To ensure the availability for delivery of the Purchaser's
Unreleased Shares upon repurchase by the Company pursuant to the Repurchase
Option, the Purchaser shall, upon execution of this Agreement, deliver and
deposit with an escrow holder designated by the Company (the "Escrow Holder")
the share certificates representing the Unreleased Shares, together with the
stock assignment duly endorsed in blank, attached hereto as Exhibit A-2. The
Unreleased Shares and stock assignment shall be held by the Escrow Holder,
pursuant to the Joint Escrow Instructions of the Company and Purchaser attached
hereto as Exhibit A-3, until such time as the Company's Repurchase Option
expires. As a further condition to the Company's
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<PAGE> 30
obligations under this Agreement, the Company may require the spouse of
Purchaser, if any, to execute and deliver to the Company the Consent of Spouse
attached hereto as Exhibit A-4.
(b) The Escrow Holder shall not be liable for any act it may do
or omit to do with respect to holding the Unreleased Shares in escrow while
acting in good faith and in the exercise of its judgment.
(c) If the Company or any assignee exercises the Repurchase
Option hereunder, the Escrow Holder, upon receipt of written notice of such
exercise from the proposed transferee, shall take all steps necessary to
accomplish such transfer.
(d) When the Repurchase Option has been exercised or expires
unexercised or a portion of the Shares has been released from the Repurchase
Option, upon request the Escrow Holder shall promptly cause a new certificate to
be issued for the released Shares and shall deliver the certificate to the
Company or the Purchaser, as the case may be.
(e) Subject to the terms hereof, the Purchaser shall have all
the rights of a shareholder with respect to the Shares while they are held in
escrow, including without limitation, the right to vote the Shares and to
receive any cash dividends declared thereon. If, from time to time during the
term of the Repurchase Option, there is (i) any stock dividend, stock split or
other change in the Shares, or (ii) any merger or sale of all or substantially
all of the assets or other acquisition of the Company, any and all new,
substituted or additional securities to which the Purchaser is entitled by
reason of the Purchaser's ownership of the Shares shall be immediately subject
to this escrow, deposited with the Escrow Holder and included thereafter as
"Shares" for purposes of this Agreement and the Repurchase Option.
7. Legends. The share certificate evidencing the Shares, if any, issued
hereunder shall be endorsed with the following legend (in addition to any legend
required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN
AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE
WITH THE SECRETARY OF THE COMPANY.
8. Adjustment for Stock Split. All references to the number of Shares
and the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares that may be made by the Company after the date of this Agreement.
9. Tax Consequences. The Purchaser has reviewed with the Purchaser's own
tax advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contemplated by this Agreement. The Purchaser is
relying solely on such advisors and not on any statements or representations of
the Company or any of its agents. The Purchaser understands that the Purchaser
(and not the Company) shall be responsible for the Purchaser's own tax liability
that
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<PAGE> 31
may arise as a result of the transactions contemplated by this Agreement. The
Purchaser understands that Section 83 of the Internal Revenue Code of 1986, as
amended (the "Code"), taxes as ordinary income the difference between the
purchase price for the Shares and the Fair Market Value of the Shares as of the
date any restrictions on the Shares lapse. In this context, "restriction"
includes the right of the Company to buy back the Shares pursuant to the
Repurchase Option. The Purchaser understands that the Purchaser may elect to be
taxed at the time the Shares are purchased rather than when and as the
Repurchase Option expires by filing an election under Section 83(b) of the Code
with the IRS within 30 days from the date of purchase. The form for making this
election is attached as Exhibit A-5 hereto.
THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE
RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION
83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE
THIS FILING ON THE PURCHASER'S BEHALF.
10. General Provisions.
(a) This Agreement shall be governed by the internal substantive
laws, but not the choice of law rules of Illinios. This Agreement, subject to
the terms and conditions of the Plan and the Notice of Grant, represents the
entire agreement between the parties with respect to the purchase of the Shares
by the Purchaser. Subject to Section 15(c) of the Plan, in the event of a
conflict between the terms and conditions of the Plan and the terms and
conditions of this Agreement, the terms and conditions of the Plan shall
prevail. Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Agreement.
(b) Any notice, demand or request required or permitted to be
given by either the Company or the Purchaser pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered
personally or deposited in the U.S. mail, First Class with postage prepaid, and
addressed to the parties at the addresses of the parties set forth at the end of
this Agreement or such other address as a party may request by notifying the
other in writing.
Any notice to the Escrow Holder shall be sent to the
Company's address with a copy to the other party hereto.
(c) The rights of the Company under this Agreement shall be
transferable to any one or more persons or entities, and all covenants and
agreements hereunder shall inure to the benefit of, and be enforceable by the
Company's successors and assigns. The rights and obligations of the Purchaser
under this Agreement may only be assigned with the prior written consent of the
Company.
(d) Either party's failure to enforce any provision of this
Agreement shall not in any way be construed as a waiver of any such provision,
nor prevent that party from thereafter enforcing any other provision of this
Agreement. The rights granted both parties hereunder are cumulative and shall
not constitute a waiver of either party's right to assert any other legal remedy
available to it.
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<PAGE> 32
(e) The Purchaser agrees upon request to execute any further
documents or instruments necessary or desirable to carry out the purposes or
intent of this Agreement.
(f) PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES
PURSUANT TO SECTION 4 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS A SERVICE
PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED OR
PURCHASING SHARES HEREUNDER). PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT
THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE
SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT
ALL, AND SHALL NOT INTERFERE WITH PURCHASER'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE PURCHASER'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE.
By Purchaser's signature below, Purchaser represents that he or she is
familiar with the terms and provisions of the Plan, and hereby accepts this
Agreement subject to all of the terms and provisions thereof. Purchaser has
reviewed the Plan and this Agreement in their entirety, has had an opportunity
to obtain the advice of counsel prior to executing this Agreement and fully
understands all provisions of this Agreement. Purchaser agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Agreement.
Purchaser further agrees to notify the Company upon any change in the residence
indicated in the Notice of Grant.
DATED:_____________________________
PURCHASER: yesmail.com
___________________________________ ____________________________________
Signature By
___________________________________ ____________________________________
Print Name Title
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<PAGE> 33
EXHIBIT A-2
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, ______________________, hereby sell, assign and
transfer unto (____________) shares of the Common Stock of yesmail.com, standing
in my name of the books of said corporation represented by Certificate No. ___
herewith and do hereby irrevocably constitute and appoint to transfer the said
stock on the books of the within named corporation with full power of
substitution in the premises.
This Stock Assignment may be used only in accordance with the Restricted
Stock Purchase Agreement (the "Agreement") between and the undersigned dated
_________, _____.
Dated: _______, ___
Signature:__________________________
INSTRUCTIONS: Please do not fill in any blanks other than the signature
line. The purpose of this assignment is to enable the Company to exercise the
Repurchase Option, as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.
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<PAGE> 34
EXHIBIT A-3
JOINT ESCROW INSTRUCTIONS
_____________,_____
Corporate Secretary
yesmail.com
565 Lakeview Parkway, Suite 135
Vernon Hills, Illinois 60061
Dear ______:
As Escrow Agent for both yesmail.com, a Delware corporation (the
"Company"), and the undersigned purchaser of stock of the Company (the
"Purchaser"), you are hereby authorized and directed to hold the documents
delivered to you pursuant to the terms of that certain Restricted Stock Purchase
Agreement ("Agreement") between the Company and the undersigned, in accordance
with the following instructions:
1. In the event the Company and/or any assignee of the Company (referred
to collectively as the "Company") exercises the Company's Repurchase Option set
forth in the Agreement, the Company shall give to Purchaser and you a written
notice specifying the number of shares of stock to be purchased, the purchase
price, and the time for a closing hereunder at the principal office of the
Company. Purchaser and the Company hereby irrevocably authorize and direct you
to close the transaction contemplated by such notice in accordance with the
terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's Repurchase Option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and privileges of a shareholder of the Company while the
stock is held by you.
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<PAGE> 35
4. Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's Repurchase Option has been exercised, you
shall deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's Repurchase Option.
Within 90 days after Purchaser ceases to be a Service Provider, you shall
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's Repurchase
Option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of the same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith,
and any act done or omitted by you pursuant to the advice of your own attorneys
shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law, and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case you obey or comply with any such order, judgment or decree, you shall not
be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other experts
as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be an officer or agent of the Company or if you shall resign
by written notice to each party. In the event of any such termination, the
Company shall appoint a successor Escrow Agent.
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<PAGE> 36
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such disputes shall have been settled either by mutual written agreement
of the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses or at such other addresses as a party may designate by ten
days' advance written notice to each of the other parties hereto.
COMPANY: yesmail.com
565 Lakeview Parkway, Suite 135
Vernon Hills, Illinois 60061
PURCHASER:
ESCROW AGENT: Corporate Secretary
yesmail.com
565 Lakeview Parkway, Suite 135
Vernon Hills, Illinois 60061
16. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns.
18. These Joint Escrow Instructions shall be governed by, and construed
and enforced in accordance with, the internal substantive laws, but not the
choice of law rules, of Illinois.
Very truly yours,
yesmail.com
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<PAGE> 37
__________________________________
By
__________________________________
Title
PURCHASER:
__________________________________
Signature
__________________________________
Print Name
ESCROW AGENT:
__________________________________
Corporate Secretary
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<PAGE> 38
EXHIBIT A-4
CONSENT OF SPOUSE
I, ___________________________, spouse of ___________________________,
have read and approve the foregoing Restricted Stock Purchase Agreement (the
"Agreement"). In consideration of the Company's grant to my spouse of the right
to purchase shares of yesmail.com, as set forth in the Agreement, I hereby
appoint my spouse as my attorney-in-fact in respect to the exercise of any
rights under the Agreement and agree to be bound by the provisions of the
Agreement insofar as I may have any rights in said Agreement or any shares
issued pursuant thereto under the community property laws or similar laws
relating to marital property in effect in the state of our residence as of the
date of the signing of the foregoing Agreement.
Dated: _______________, ___
__________________________________
Signature of Spouse
<PAGE> 39
EXHIBIT A-5
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income
for the current taxable year the amount of any compensation taxable to taxpayer
in connection with his or her receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of
the undersigned are as follows:
NAME: TAXPAYER: SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR:
2. The property with respect to which the election is made is described as
follows: shares (the "Shares") of the Common Stock of yesmail.com (the
"Company").
3. The date on which the property was transferred is: _______________, ____
4. The property is subject to the following restrictions:
The Shares may be repurchased by the Company, or its assignee, upon
certain events. This right lapses with regard to a portion of the Shares
based on the continued performance of services by the taxpayer over
time.
5. The fair market value at the time of transfer, determined without regard
to any restriction other than a restriction which by its terms will
never lapse, of such property is: $_______.
6. The amount (if any) paid for such property is: $________.
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
except with the consent of the Commissioner.
Dated: __________, ____ ____________________________________
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: __________, ____ ____________________________________
Spouse of Taxpayer
<PAGE> 1
EXHIBIT 10.15
yesmail.com, inc.
Employment Agreement
yesmail.com, inc., referred to as EMPLOYER, and D. Todd Love, referred to
herein as EMPLOYEE, do, on July 29, 1999, for and in consideration of the mutual
covenants contained herein, the adequacy and sufficiency of which is hereby
acknowledged, agree as follows:
1. Title. EMPLOYEE is engaged to act as Vice President, Network
Development for yesmail.com, inc. beginning on a commencement date on
or about 8/10/99.
2. Employee Manual. As to those items not specified herein, the
relationship between the parties shall be governed by the general
employment manual, dated December 1, 1998, and any additions and
replacements thereto.
3. Compensation. EMPLOYEE's compensation will be comprised of three (3)
parts:
a. SALARY. As compensation for EMPLOYEE's services herein, EMPLOYEE
shall receive a salaried rate of $175,000 per annum. Said
salaried rate shall be paid semi-monthly or in consistent
compliance with the yesmail.com, inc. salary compensation policy.
b. BONUS. As additional compensation, EMPLOYEE shall be eligible for
a bonus, based upon performance, of up to $100,000 annually. The
bonus shall be based on performance criteria which will be
established in conjunction with the Chief Executive Officer.
$25,000 of the annual bonus shall be guaranteed for the first
four years of employment and shall be paid monthly.
c. EQUITY. As further compensation, EMPLOYER will grant EMPLOYEE
options to purchase stock in yesmail.com, inc. in an amount of
450,000 shares (Number of shares shall be subject to a reverse
split which will affect all outstanding shares and options prior
to yesmail.com IPO). The options shall be issued pursuant to the
employee option plan of yesmail.com, inc. and pursuant to a
formal grant letter or option agreement under such plan, so long
as the other conditions pursuant to such stock option plan are
met by EMPLOYEE. As discussed with EMPLOYEE, certain provisions
of EMPLOYEE's option plan shall include:
- In the event of change of control, EMPLOYEE's vesting
schedule shall not be extended without express approval of
EMPLOYEE.
<PAGE> 2
- In the event of change of control, EMPLOYEE shall be
protected by the plan's relocation provision which shall
accelerate vesting in the event yesmail.com is relocated
more than 50 miles from its then current location,
regardless of EMPLOYEE's office location.
d. BENEFITS. As additional compensation, EMPLOYEE shall be permitted
to participate in the various group benefit plans as EMPLOYER may
from time to time adopt to the same extent other employee's of
EMPLOYER may participate, but subject to income limitations and
restrictions, and other any other limitations or restrictions
based upon EMPLOYEE's particular circumstances, imposed by state,
federal or local statute or regulation for participation in such
plans.
4. Severance. If EMPLOYEE is terminated for a reason other than cause,
EMPLOYEE shall receive six months compensation as severance pay upon
such termination.
5. Confidentiality. EMPLOYER may from time to time during the course of
EMPLOYEES service reveal certain confidential/trade secret or
proprietary information to EMPLOYEE. EMPLOYEE shall not, in any case,
reveal any confidential/trade secret or proprietary information to any
other parties.
6. Full Time Employment. EMPLOYEE agrees that the duties herein shall be
full time. EMPLOYEE shall not engage in other business ventures or
employment deemed direct competitors by the EMPLOYER without the prior
approval of EMPLOYER.
7. Intellectual Property of Employer. EMPLOYEE agrees to promptly
disclose to EMPLOYER any inventions or processes discovered by the
EMPLOYEE which are made at the behest or in connection with the duties
of EMPLOYEE, or which are reasonably related to the business of
EMPLOYER during the term of employment, and hereby assigns any and all
rights in said inventions or processes to EMPLOYER.
8. Execution of Documents. EMPLOYEE shall execute any documents
reasonably requested by EMPLOYER for patents or other legal steps
which EMPLOYER may desire to take to perfect its rights in any
inventions.
9. At-Will Employee. This agreement clarifies certain rights and duties
of EMPLOYER and EMPLOYEE. This agreement may be terminated at any time
by EMPLOYER, in EMPLOYER's sole discretion. EMPLOYEE recognizes he is
employed as an "at-will" employee and that this agreement may be
terminated at any time and at EMPLOYER's sole discretion.
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<PAGE> 3
10. Non-Competition Provision. EMPLOYEE agrees to refrain from accepting
employment, for a period of six months, after termination of this
agreement, from firms in direct competition with yesmail.com.
11. Return of Employer Property. Upon termination of this agreement,
EMPLOYEE shall return all materials belonging to EMPLOYER.
12. Arbitration. Any disputes under this agreement, including those
relating to non-competition shall be submitted to arbitration with a
single arbitrator under the rules of the American Arbitration
Association. Any ruling made by the arbitrators shall be final and may
be entered as a judgment in any court of competent jurisdiction.
13. Non-Solicitation of Customers. EMPLOYEE shall not solicit any customer
of the EMPLOYER, including any past customers of the EMPLOYER who have
done business with the EMPLOYER during the past three years, to
purchase any product or service which could be supplied by the
EMPLOYER.
14. Non-Solicitation of Employees. EMPLOYEE shall not solicit any
employees of the EMPLOYER to perform any act in contravention of this
Agreement or to terminate their employment with the EMPLOYER for (12)
months following separation.
15. Non-Interference. EMPLOYEE shall not take any action to harm the
EMPLOYER or its products and shall not take any action, at any time,
which is designed to hamper the productivity of the EMPLOYER.
16. Injunctive Relief for Employer. In the event of a breach or threatened
breach of this Agreement by EMPLOYEE, the EMPLOYER shall be entitled,
in addition to any other relief provided at law or equity, an
injunction restraining EMPLOYEE from disclosing confidential
information, or soliciting customers or employees.
Agreed to and accepted on this the 3rd day of August, 1999.
- -----------------------------------------------
NAME
- -----------------------------------------------
yesmail.com, inc.,
by David M. Tolmie, its Chief Executive Officer
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<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use
of our report dated June 4, 1999 (and to all references to our Firm) included in
or made part of the yesmail.com Registration Statement File No. 333-80137.
ARTHUR ANDERSEN LLP
Chicago, Illinois
August 27, 1999
