<PAGE> 1
As filed with the Securities and Exchange Commission on July 14, 1999
Registration No. 333-80137
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
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)
</TABLE>
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.
JEREMY D. ROSSEN, 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
</TABLE>
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. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS AMOUNT OFFERING AGGREGATE AMOUNT OF
OF SECURITIES TO BE PRICE OFFERING REGISTRATION
TO BE REGISTERED(1) REGISTERED PER SHARE PRICE FEE(2)
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Common Stock $0.0001 par value....... 3,910,000 $13.00 $50,830,000 $14,131
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(1) Includes 510,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) The Registrant previously paid $12,800 of such fee pursuant to Rule 457(o).
Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o) under the Securities Act of 1933.
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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<PAGE> 2
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION , 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 $11.00 and $13.00 per share.
We have applied 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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Per Share $ $ $
Total $ $ $
</TABLE>
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 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 March 31, 1999, we delivered over 1.3
million permission email messages for over 90 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 those members of our network who have given their prior permission
by saying 'yes' to us or our network partners. 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 their 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 to which we provide resale and tracking services. Our network
partners provide us with their lists for a fixed fee or a percentage of our
revenues. We enable our network partners to generate additional revenues from
their Web site visitors and customers by providing 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.
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
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to deliver permission email messages is 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 estimates 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.
-------------------------
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 0.375
shares 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(1)
Use of proceeds....................................... For general corporate purposes, including
working capital
Proposed Nasdaq National Market symbol................ YESM
</TABLE>
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 858,750 shares were issuable
upon exercise of outstanding options as of June 7, 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 pro forma financial data below assumes that the following transactions had
occurred on January 1, 1998:
- the issuance of 2,394,546 shares of common stock in May 1999;
- the issuance of 12,218,187 shares of series A preferred stock in May
1999;
- the conversion of a $1.0 million promissory note into 1,527,273 shares of
series A preferred stock in May 1999;
- the effectiveness of a three-for-eight reverse split of the outstanding
shares of common stock prior to the closing of this offering; and
- the conversion of each outstanding share of preferred stock into 0.375
shares of common stock, which will occur upon the closing of this
offering.
The pro forma 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 $12.00 per share and after deducting the estimated
underwriting discounts and commissions and our estimated offering expenses.
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THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
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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 $ 873 $ 1,389
Gross profit............................................. 642 1,378 1,880 497 731
Loss from operations..................................... (85) (405) (1,401) (183) (1,074)
Net loss................................................. $ (80) $ (414) $(1,706) $ (192) $(1,151)
====== ====== ======= ====== =======
Basic and diluted net loss per share..................... $(0.01) $(0.05) $ (0.22) $(0.02) $ (0.15)
====== ====== ======= ====== =======
Weighted-average shares outstanding
used in computing basic and diluted net loss per
share.................................................. 5,761 7,649 7,636 7,836 7,625
====== ====== ======= ====== =======
Pro forma basic and diluted net loss per share
(unaudited)............................................ $ (0.11)
=======
Shares used in computing pro forma basic and diluted net
loss per share (unaudited)............................. 10,593
=======
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MARCH 31, 1999
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PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
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(IN THOUSANDS)
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CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 84 $ 7,444 $ 44,288
Working capital (deficit)................................. (3,489) 5,471 42,315
Total assets.............................................. 980 8,340 45,184
Capital lease obligations less current portion............ 324 324 324
Stockholders' equity (deficit)............................ (3,204) 5,796 42,640
</TABLE>
5
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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.
OUR LIMITED OPERATING HISTORY MAY PREVENT US FROM ACHIEVING SUCCESS IN OUR
BUSINESS.
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 March 31, 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. Therefore, an
investor must consider the risks and difficulties frequently encountered by
early-stage companies in new, unestablished and rapidly evolving markets. 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 $1.2 million for the three months ended March 31, 1999. As of March
31, 1999, we had an accumulated deficit of $3.4 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 OUR SALES, MARKETING AND SUPPORT ORGANIZATION AND
RELATIONSHIPS WITH OUR NETWORK PARTNERS 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. Moreover, our success in penetrating our target markets and increasing
our revenues depends on our ability to develop and maintain relationships with
our network partners who are important to facilitate market acceptance of our
products and enhance our sales, marketing and distribution capabilities. If we
fail to increase the number of network partners our growth and profitability
will be limited.
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.
In addition, we have only recently engaged several key members of our executive
management team. 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.
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
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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. 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 a claim 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.
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."
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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 products, develop new products on a timely and cost-effective
basis and respond to emerging industry standards and other technological
changes.
10
<PAGE> 11
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 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
11
<PAGE> 12
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 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."
12
<PAGE> 13
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 $12.00
per share, are estimated to be $36,844,000, or $42,535,600 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.
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.
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<PAGE> 15
CAPITALIZATION
The actual column in the following table sets forth our actual
capitalization as of March 31, 1999. The pro forma column in the following table
reflects:
- the issuance of 2,394,546 shares of common stock in May 1999;
- the issuance of 12,218,187 shares of series A preferred stock in May
1999;
- the conversion of a $1.0 million promissory note into 1,527,273 shares of
series A preferred stock in May 1999;
- the effectiveness of a three-for-eight reverse split of the outstanding
shares of common stock prior to the closing of this offering; and
- the conversion of each outstanding share of preferred stock into 0.375
shares 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
$12.00 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 858,750
shares were issuable upon exercise of outstanding options as of June 7, 1999.
See "Management -- Compensation Plans" and Note 11 of Notes to Consolidated
Financial Statements.
<TABLE>
<CAPTION>
MARCH 31, 1999
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Capital lease obligations, less current portion...... $ 324 $ 324 $ 324
------- -------
Stockholders' equity (deficit):
Preferred Stock, $0.0001 par value, 15,000,000
shares authorized, no shares issued and
outstanding actual and pro forma; 5,000,000
shares authorized, no shares issued and
outstanding pro forma as adjusted............... -- -- --
Common stock, $.0001 par value, 22,500,000 shares
authorized, 9,375,000 shares issued and
outstanding actual; 22,500,000 shares
authorized, 16,924,093 shares issued and
outstanding pro forma; 60,000,000 shares
authorized, 20,324,093 shares issued and
outstanding pro forma as adjusted............... 3 5 6
Notes receivable from stockholders................... -- (3,831) (3,831)
Additional paid-in capital........................... 158 12,987 49,830
------- -------
Accumulated deficit.................................. (3,365) (3,365) (3,365)
Total stockholders' equity (deficit)................. (3,204) 5,796 42,640
------- ------- -------
Total capitalization................................. $(2,880) $ 6,120 $42,964
======= ======= =======
</TABLE>
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<PAGE> 16
DILUTION
Our pro forma net tangible book value as of March 31, 1999 was $5.8 million
or approximately $0.34 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 $12.00 per share and after deducting the underwriting
discounts and commissions and estimated offering expenses payable, our pro forma
net tangible book value as of March 31, 1999 would have been $42.7 million or
approximately $2.10 per share of common stock. This represents an immediate
increase in net tangible book value of $1.76 per share to existing stockholders
and an immediate dilution in net tangible book value of $9.90 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............. $12.00
Pro forma net tangible book value per share as of March
31, 1999............................................... $0.34
Increase per share attributable to new investors.......... 1.76
-----
Net tangible book value per share after the offering........ 2.10
------
Dilution in net tangible book value per share to new
investors................................................. $ 9.90
======
</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 82.9% $12,832,573 23.9% $ 0.76
New investors................ 3,400,000 17.1 40,800,000 76.1 $12.00
---------- ---- ----------- ---- ------
Total................... 20,324,094 100% $53,632,573 100%
========== ==== =========== ====
</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
858,750 shares of common stock were issuable upon exercise of outstanding
options as of June 7, 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 March 31, 1998 and 1999 and the selected consolidated balance sheet
data as of March 31, 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 THREE MONTHS
(APRIL 7, ENDED
1995) THROUGH YEAR ENDED DECEMBER 31, MARCH 31,
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 $ 873 $ 1,389
Cost of revenues.............................. -- 293 1,090 2,703 376 657
------- ------- ------- ------- ------- -------
Gross profit.................................. 13 642 1,378 1,880 497 732
Operating expenses:
Sales and marketing......................... -- 292 960 1,751 386 902
General and administrative.................. 26 237 466 929 143 669
Research and development.................... -- 198 357 601 150 234
------- ------- ------- ------- ------- -------
Total operating expenses................ 26 727 1,783 3,281 679 1,805
------- ------- ------- ------- ------- -------
Loss from operations.......................... (13) (85) (405) (1,401) (182) (1,073)
Interest expense.............................. -- (4) (18) (45) (8) (55)
Other expense................................. -- -- -- (250) -- --
Minority interest............................. -- 9 9 (10) (2) (23)
------- ------- ------- ------- ------- -------
Net loss...................................... $ (13) $ (80) $ (414) $(1,706) $ (192) $(1,151)
======= ======= ======= ======= ======= =======
Basic and diluted net loss per share(1)....... $ 0.00 $ (0.01) $ (0.05) $ (0.22) $ (0.02) $ (0.15)
======= ======= ======= ======= ======= =======
Shares used in computing basic and diluted net
loss per share(1)........................... 4,630 5,761 7,649 7,636 7,836 7,625
======= ======= ======= ======= ======= =======
Pro forma basic and diluted net loss per share
(unaudited)(1)(2)........................... $ (0.11)
=======
Shares used in computing pro forma basic and
diluted net loss per share
(unaudited)(1)(2)........................... 10,593
=======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------------- -----------------
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 $ 89 $ 84
Working capital (deficit).......................... 4 (52) (448) (2,263) (635) (3,489)
Total assets....................................... 27 200 284 643 351 980
Capital lease obligations, less current portion.... -- 12 18 153 16 324
Stockholders' deficit.............................. (13) (38) (347) (2,053) (539) (3,204)
</TABLE>
- ---------------
(1) Computed by dividing loss attributable to common stockholders by shares used
in basic and diluted net loss per share. Net loss per share has been reduced
by the amount of interest expense relating the $1.0 million promissory note
converted into preferred shares. 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.
(2) Pro forma basic and diluted net loss per share gives effect to the assumed
conversion of the $1.0 million promissory note into shares of preferred
stock and the issuance of common stock subject to repurchase as if the
conversion and issuance had occurred on January 1, 1998 or, if later, the
date of original issuance.
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<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
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 80% of our outstanding shares. We were organized as a
Delaware corporation in October 1998 and had no operations prior to March 25,
1999. In connection with this merger, we entered into a founders' agreement.
Under this agreement, the former Superhighway shareholders were granted an
option to purchase shares of our common stock currently held by other
stockholders. This option becomes exercisable on the effective date of this
offering. 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.
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 of
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 5%
of revenue in the first quarter of 1998 to approximately 40% of revenue in the
first quarter of 1999 and approximately % of revenue in the second quarter of
1999. We expect permission email to represent an increasing portion of our
revenue in future periods. In June 1999, we acquired the remaining 30% interest
in our Starting Point, L.L.C., subsidiary for approximately $300,000 and an
option to acquire 18,750 shares of our common stock at an exercise price of
$1.79 per share.
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, which consists
of our own permission email list and those of our network partners. We pay our
network partners either a fixed fee for or a percentage of revenue derived from
the delivery of email messages to members on the lists they provide.
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
18
<PAGE> 19
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 March 31,
1999, we had an accumulated deficit of $3.4 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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 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 $873,000 and $1.4 million for the three
months ended March 31, 1998 and 1999, respectively. 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, 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 $376,000 and $657,000 for the three months ended
March 31, 1998 and 1999, respectively. The increase in cost of revenues was
primarily due to the increase in sales volume. Gross margins decreased from 57%
for the three months ended March 31, 1998 to 53% for the three months ended
March 31, 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 $386,000 and $902,000 for the three months ended March
31, 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 list. 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.
19
<PAGE> 20
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 $150,000 and $234,000 for
the three months ended March 31, 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 the building 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.
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 $143,000 and $669,000 for the three months
ended March 31, 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.
Interest Expense. Interest expense consists of interest paid on capital
lease and debt obligations. Interest expense was $8,000 and $55,000 for the
three months ended March 31, 1998 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 in our 70% owned subsidiary, Starting Point, LLC.
Income Taxes. No provision for federal and state income taxes was recorded
as we incurred net operating losses from inception through March 31, 1999. As of
March 31, 1999, 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. 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. 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
20
<PAGE> 21
increases in the number of direct sales personnel and increased marketing
expenditures targeted at building our permission email strategy.
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.
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.
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.
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> 22
QUARTERLY OPERATING RESULTS
The following table presents our historical unaudited quarterly results of
operations for our most recent five 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,
1998 1998 1998 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................. $ 873 $ 1,173 $ 1,126 $ 1,411 $ 1,389
Cost of revenues..................................... 376 766 782 779 657
------- ------- ------- ------- -------
Gross profit......................................... 497 407 344 632 732
Operating expenses
Sales and marketing................................ 387 291 342 732 902
General and administrative......................... 143 240 195 351 669
Research and development........................... 150 126 122 202 234
------- ------- ------- ------- -------
Total operating expenses............................. 680 657 659 1,285 1,805
------- ------- ------- ------- -------
Loss from operations................................. (183) (250) (315) (653) (1,073)
Interest expense..................................... (8) (10) (8) (19) (55)
Other expense........................................ -- -- -- (250) --
------- ------- ------- ------- -------
Net loss before taxes................................ (191) (260) (323) (922) (1,128)
Minority interest.................................... (2) (7) (11) 10 (23)
------- ------- ------- ------- -------
Net loss............................................. $ (193) $ (267) $ (334) $ (912) $(1,151)
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------
MAR. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31,
1998 1998 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF NET SALES:
Revenues............................................. 100% 100% 100% 100% 100%
Cost of revenues..................................... 43 65 70 55 47
------- ------- ------- ------- -------
Gross profit......................................... 57 35 30 45 53
Operating expenses
Sales and marketing................................ 44 25 30 52 65
General and administrative......................... 17 20 17 25 48
Research and development........................... 17 11 11 14 17
------- ------- ------- ------- -------
Total operating expenses............................. 78 56 58 91 130
------- ------- ------- ------- -------
Loss from operations................................. (21) (21) (28) (46) (77)
Interest expense..................................... (1) (1) (1) (1) (4)
Other expense........................................ -- -- -- (18) --
------- ------- ------- ------- -------
Net loss before taxes................................ (22) (22) (29) (65) (81)
Minority interest.................................... -- (1) (1) 1 (2)
------- ------- ------- ------- -------
Net loss............................................. (22)% (23)% (30)% (64)% (83)%
======= ======= ======= ======= =======
</TABLE>
22
<PAGE> 23
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 13.7 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 May 31, 1999, we had $6.2 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 $1.4 million for the three months
ended March 31, 1999 primarily the result of the net loss of $1.2 million.
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 $49,000 for
the three months ended March 31, 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
$1.5 million for the three months ended March 31, 1999. Cash provided by
financing activities in 1997 and 1998 resulted from
23
<PAGE> 24
borrowings of short-term debt, and was partially offset by payments of capital
leases. Cash provided from financing activities for the three months ended March
31, 1999 resulted from borrowings under the $1.0 million bridge loan and
advances of $600,000 from related parties.
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 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.
24
<PAGE> 25
To date, we have 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.
25
<PAGE> 26
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. According to Jupiter
Communications, 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
estimates 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 estimated $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, indicating 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 at least five times greater than
the response rates to banner
26
<PAGE> 27
advertising. The following chart illustrates the average response rates for
banner advertisements, traditional direct mail and permission email:
[Bar graph depicting average response rates of banner advertisements,
traditional direct mail and permission email.]
Sending promotional messages electronically is 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
estimates 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
- 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 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
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<PAGE> 28
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 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 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.
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<PAGE> 29
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
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 March 31, 1999, we sent over 1.3 million permission email
messages for over 90 direct marketers.
The following diagram illustrates the components of our YesMail Network:
[Graphic depicting direct marketers, network affiliates and consumers with
a description of the direction of flow of messages and responses, with a list of
our enabling products and technology.]
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. Since January 1, 1999, our largest direct marketing customers
have included the following:
<TABLE>
<S> <C>
- - Allaire Corporation - MinderSoft
- - AT&T Interactive Communication - MotherNature.com
- - BeFree - NewHomeNetwork
- - eShare - Office Max.com
- - eToys - Refer-It.com
- - Fatbrain.com - Shopguide.com
- - Fingerhut - SomaMarketNet
- - GoTo.com - Swiss Colony
- - Hewlett Packard - The Thomas Publishing Co.
- - Infointeractive - Value America
- - McDonald's - Verio
</TABLE>
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
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<PAGE> 30
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.
Network Partners. 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 and those of our network
partners, primarily Web sites that have developed their own permission email
lists. Our relationships with our network partners include the exclusive
management of lists in exchange for a percentage of revenues. These
relationships also include re-seller arrangements under which we pay our network
partners a fixed fee for the nonexclusive use of their list for a specific
campaign. All network partners 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.
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<PAGE> 31
As of May 15, 1999, our YesMail Network provided access to the following
number of individuals by interest category. The major interest categories below
are further divided into over 250 subcategories. The information in the table
reflects the fact that each individual may be included in multiple interest
categories and may have more than one email address.
<TABLE>
<CAPTION>
INTEREST CATEGORY NUMBER OF INDIVIDUALS
----------------- ---------------------
<S> <C>
Arts and Humanities.................................... 1,106,000
Automotive............................................. 192,000
Business............................................... 1,364,000
Careers................................................ 165,000
Computers.............................................. 4,292,000
Cooking, Food and Wine................................. 414,000
Education.............................................. 1,312,000
Electronics............................................ 293,000
Entertainment and Games................................ 1,175,000
Health................................................. 1,032,000
Home and Family........................................ 1,335,000
Internet............................................... 3,330,000
Investing and Finance.................................. 830,000
Kids................................................... 216,000
Music.................................................. 1,139,000
News................................................... 439,000
Real Estate............................................ 32,000
Reference.............................................. 315,000
Science and Technology................................. 442,000
Shopping............................................... 2,912,000
Society and Culture.................................... 1,232,000
Sports and Recreation.................................. 2,512,000
Travel................................................. 391,000
</TABLE>
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 contractual management
agreements under which we manage the permission email lists of our network
partners. We are developing our eManage product to provide subscriber
acquisition and tracking capabilities with analysis of cost per member acquired.
Our network partners can also use eManage to email messages to their current
customer base using our eTarget and eTrack products.
We provide our network partners with proprietary products and services that
enable them to:
- build and manage their permission members;
- maintain permission lists;
- convert general lists to permission email lists;
- track historical responses;
- build databases on each permission list member; and
- report and analyze network usage.
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<PAGE> 32
Participation in the YesMail Network provides our network partners 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.
- 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 March 31, 1999, we had 15 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.
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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 for
permission email marketing. In addition, we are members of TrustE and BBBOnline,
consumer privacy associations. 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.
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.
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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 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. 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
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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.
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,
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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 and we expect that our products and services may be
increasingly subject to third-party 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. 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 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.
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EMPLOYEES
As of March 31, 1999, we had 53 employees, including 23 in sales and
marketing, 13 in general and administrative functions, 11 in operations and 6 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.
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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...................... 43 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
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.
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 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
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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.
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.
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
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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 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. 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,
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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.
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, 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, $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."
42
<PAGE> 43
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 858,750 shares of common stock were outstanding as of June
7, 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 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
1,000 shares for each purchase period. 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 January
31, 2000, and new offering periods will commence 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
43
<PAGE> 44
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.
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.
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
$430,000.
44
<PAGE> 45
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 an aggregate of 572,728 shares
of our series A preferred 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
Pursuant to 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 for an aggregate consideration
of $1.00. 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. Assuming the closing price per
share of our common stock on the first day our common stock is publicly traded
is $12.00, the aggregate number of shares subject to this option would be
123,007 shares based on shares 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 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.
45
<PAGE> 46
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 an aggregate of 916,364 shares of
our series A preferred 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. 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>
SERIES A PREFERRED STOCK FINANCING
On May 18, 1999, we issued and sold an aggregate of 13,745,460 shares of
our series A preferred stock to investors at a per share price of approximately
$0.65. Upon the closing of this offering, each share of series A preferred stock
will automatically convert into 0.375 shares 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>
NAME SHARES PURCHASED
---- ----------------
<S> <C>
Platinum Venture Partners II, L.P. (Michael A. Santer is a
general partner).......................................... 3,054,546
Alexander F. Hern........................................... 534,546
David M. Tolmie............................................. 381,818
Gian Fulgoni................................................ 381,818
Webco & Co. (an investment vehicle controlled by Michael A.
Santer)................................................... 305,455
Donald Boyce (Mark D. Boyce's father)....................... 153,000
John G. Vandegrift.......................................... 152,727
John Tolmie (David M. Tolmie's brother)..................... 152,727
Robert W. Shaw.............................................. 152,727
Paul Tolmie (David M. Tolmie's brother)..................... 76,364
Joann Tolmie (David M. Tolmie's mother)..................... 76,364
Anthony Priore.............................................. 76,364
Michael R. Mooradian........................................ 38,182
David B. Menzel............................................. 27,927
</TABLE>
46
<PAGE> 47
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 16,924,093 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)................................... 2,188,086 12.9 10.8
Kevin Manley(1)...................................... 2,188,086 12.9 10.8
Michael A. Santer(2)(3)(4)........................... 1,811,251 10.7 8.9
Keith Speer(1)....................................... 1,482,251 8.8 7.3
John Weiss(1)........................................ 1,482,251 8.8 7.3
David M. Tolmie(2)(5)................................ 1,455,682 8.6 7.2
Platinum Venture Partners II, L.P.(6)................ 1,145,555 6.8 5.6
David Brewer(7)(8)................................... 1,016,592 6.0 5.0
Aragon Ventures, LLC(9).............................. 844,773 5.0 4.2
John G. Vandegrift(10)............................... 239,319 1.4 1.2
Gian Fulgoni(11)(12)................................. 152,557 * *
Alexander F. Hern(2)(13)............................. 751,705 4.4 3.7
Robert W. Shaw(14)(15)............................... 66,647 * *
All executive officers and directors as a group (12
persons)(16)....................................... 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 $12.00 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.
47
<PAGE> 48
<TABLE>
<CAPTION>
NAME SHARES SUBJECT TO OPTIONS
---- -------------------------
<S> <C>
Kenneth D. Wruk...................................... 35,308
Kevin Manley......................................... 35,308
Keith Speer.......................................... 23,918
John Weiss........................................... 23,918
</TABLE>
(2) 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 $12.00 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 OPTIONS
---- -------------------------
<S> <C>
Michael A. Santer.................................... 36,164
David M. Tolmie...................................... 4,920
Alexander F. Hern.................................... 36,164
</TABLE>
(3) Mr. Santer's address is c/o Platinum Venture Partners, 555 Twin Dolphin
Drive, Suite 400, Redwood City, California 94065.
(4) 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.
(5) 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.
(6) Platinum Ventures Partners II, L.P.'s address is 555 Twin Dolphin Drive,
Suite 400, Redwood City, California 94065.
(7) Mr. Brewer's address is c/o Aragon Ventures, LLC, 301 University Avenue,
Suite 440, Palo Alto, California 94301.
(8) 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.
(9) Aragon Ventures, LLC's address is 301 University Avenue, Suite 440, Palo
Alto, California 94301.
(10) 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.
(11) Mr. Fulgoni's address is c/o Lancaster Enterprises, 65 E. Bellevue,
Chicago, Illinois 60611.
(12) Includes 9,375 shares subject to options which are exercisable within 60
days of June 30, 1999.
(13) Mr. Hern's address is 4350 W. Cypress, Suite 440, Tampa, Florida 33607.
(14) Mr. Shaw's address is c/o US Web Corporation, #2 Harrison Street, Top
Floor, San Francisco, California 94105.
(15) Includes 9,375 shares subject to options which are exercisable within 60
days of June 30, 1999.
(16) 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.
48
<PAGE> 49
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.
49
<PAGE> 50
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 .
NASDAQ NATIONAL MARKET LISTING
We have applied to list our common stock on The Nasdaq National Market
under the symbol "YESM."
50
<PAGE> 51
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.
51
<PAGE> 52
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.
52
<PAGE> 53
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 37
filed public offerings of equity securities, of which 16 have been completed,
and has acted as a syndicate member in an additional 14 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 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;
53
<PAGE> 54
- 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.
54
<PAGE> 55
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 three
months ended March 31, 1998 and 1999 (unaudited)....... F-3
Consolidated Balance Sheets as of December 31, 1997 and
1998, and as of March 31, 1999 (unaudited)............. F-4
Consolidated Statements of Stockholders' Deficit for the
Years Ended December 31, 1995 1996, 1997 and 1998, and
for the three months ended March 31, 1999
(unaudited)............................................ F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1997 and 1998, and for the three
months ended March 31, 1998 and 1999 (unaudited)....... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 56
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' 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.
ARTHUR ANDERSEN LLP
Chicago, Illinois
June 4, 1999
F-2
<PAGE> 57
YESMAIL.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------- ------------------------
1996 1997 1998 1998 1999
---------- ---------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues..................... $ 934,856 $2,468,022 $ 4,583,354 $ 873,069 $ 1,388,842
Cost of revenues............. 292,776 1,089,585 2,702,872 375,998 657,398
---------- ---------- ----------- ---------- -----------
Gross margin....... 642,080 1,378,437 1,880,482 497,071 731,444
---------- ---------- ----------- ---------- -----------
Operating expenses:
Sales and marketing
expenses................ 291,999 959,813 1,751,208 386,361 901,559
General and administrative
expenses................ 236,761 466,208 929,209 143,360 669,148
Research and development
costs................... 198,548 357,068 600,848 150,112 234,479
---------- ---------- ----------- ---------- -----------
Total operating
expenses......... 727,308 1,783,089 3,281,265 679,833 1,805,186
---------- ---------- ----------- ---------- -----------
Operating loss............... (85,228) (404,652) (1,400,783) (182,762) (1,073,742)
Other expense:
Interest expense........... (3,590) (18,098) (45,075) (8,025) (54,616)
Other...................... -- -- (250,000) -- --
---------- ---------- ----------- ---------- -----------
Total other
expense.......... (3,590) (18,098) (295,075) (8,025) (54,616)
---------- ---------- ----------- ---------- -----------
Net loss before
minority
interest......... (88,818) (422,750) (1,695,858) (190,787) (1,128,358)
Minority interest............ 8,821 8,716 (10,547) (1,707) (22,818)
---------- ---------- ----------- ---------- -----------
Net loss........... $ (79,997) $ (414,034) $(1,706,405) $ (192,494) $(1,151,176)
========== ========== =========== ========== ===========
Net loss per share:
Basic and diluted.......... $ (0.01) $ (0.05) $ (0.22) $ (0.02) $ (0.15)
Weighted average shares --
basic and diluted....... 5,761,035 7,649,480 7,636,098 7,835,648 7,625,000
========== ========== =========== ========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these statements.
F-3
<PAGE> 58
YESMAIL.COM, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1997 1998 1999
--------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash............................................... $ 1,841 $ 26,212 $ 83,765
Accounts receivable, net of allowance of $26,000,
$56,000 and $106,000............................ 176,259 242,757 260,453
Deposits and prepaid expenses...................... 3,786 19,348 11,182
--------- ----------- -----------
Total current assets....................... 181,886 288,317 355,400
--------- ----------- -----------
Property and equipment, net.......................... 101,640 353,871 607,435
--------- ----------- -----------
Other assets......................................... 750 750 16,788
--------- ----------- -----------
Total assets............................... $ 284,276 $ 642,938 $ 979,623
========= =========== ===========
Current liabilities:
Accounts payable................................... $ 185,353 $ 1,391,509 $ 1,047,777
Short-term debt.................................... 149,241 342,870 365,505
Note payable to shareholder........................ -- -- 1,000,000
Due to related parties............................. 76,721 56,788 600,000
Obligations under capital leases, current
portion......................................... 17,647 87,165 145,245
Accrued payroll and payroll related expenses....... 74,043 213,291 226,984
Deferred revenue................................... 119,021 114,301 51,187
Accrued legal settlement........................... -- 250,000 250,000
Other current liabilities.......................... 8,216 94,602 156,810
--------- ----------- -----------
Total current liabilities.................. 630,242 2,550,526 3,843,508
--------- ----------- -----------
Obligations under capital leases, less current
portion............................................ 18,079 152,743 324,304
--------- ----------- -----------
Minority interest.................................... (17,537) (6,990) 15,828
Stockholders' deficit:
Series A convertible preferred stock, $.0001 par
value; 15,000,000 shares authorized; no shares
issued and outstanding.......................... -- -- --
Common stock, $.0001 par value; 22,500,000 shares
authorized; 8,333,333, 8,333,333 and 9,375,000
shares issued................................... 833 833 938
Common stock in treasury, 497,685, 833,333, and no
shares at cost.................................. (602) (1,030) --
Additional paid-in capital......................... 160,649 160,649 160,014
Accumulated deficit................................ (507,388) (2,213,793) (3,364,969)
--------- ----------- -----------
Total stockholders' deficit................ (346,508) (2,053,341) (3,204,017)
--------- ----------- -----------
Total liabilities and stockholders'
deficit.................................. $ 284,276 $ 642,938 $ 979,623
========= =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these statements.
F-4
<PAGE> 59
YESMAIL.COM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK TREASURY STOCK ADDITIONAL
--------------- ------------------- ------------------- PAID IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ---------- ------ ---------- ------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995...................... -- -- 4,629,629 $ 463 -- -- $ 537 $ (13,357) $ (12,357)
Stock awarded to employees
for services............ -- -- 3,703,704 370 -- -- 54,630 -- 55,000
Treasury stock purchase... -- -- -- -- (925,926) (1,120) -- -- (1,120)
Net loss.................. -- -- -- -- -- -- -- (79,997) (79,997)
-- -- ---------- ------ ---------- ------ -------- ----------- -----------
Balance at December 31,
1996...................... -- -- 8,333,333 833 (925,926) (1,120) 55,167 (93,354) (38,474)
Stock awarded to employees
by principal
stockholders............ -- -- -- -- -- -- 39,000 -- 39,000
Treasury stock awarded to
employees for
services................ -- -- -- -- 428,241 518 66,482 -- 67,000
Net loss.................. -- -- -- -- -- -- -- (414,034) (414,034)
-- -- ---------- ------ ---------- ------ -------- ----------- -----------
Balance at December 31,
1997...................... -- -- 8,333,333 833 (497,685) (602) 160,649 (507,388) (346,508)
Treasury stock purchase... -- -- -- -- (335,648) (428) -- -- (428)
Net loss.................. -- -- -- -- -- -- -- (1,706,405) (1,706,405)
-- -- ---------- ------ ---------- ------ -------- ----------- -----------
Balance at December 31,
1998...................... -- -- 8,333,333 833 (833,333) (1,030) 160,649 (2,213,793) (2,053,341)
Treasury stock retired
(unaudited)............. -- -- (833,333) (83) 833,333 1,030 (947) -- --
Issuance of common stock
for cash (unaudited).... -- -- 1,875,000 188 -- -- 312 -- 500
Net loss
(unaudited)............. -- -- -- -- -- -- -- (1,151,176) (1,151,176)
-- -- ---------- ------ ---------- ------ -------- ----------- -----------
Balance at March 31, 1999
(unaudited)............... -- -- 9,375,000 $ 938 -- -- $160,014 $(3,364,969) $(3,204,017)
== == ========== ====== ========== ====== ======== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these statements.
F-5
<PAGE> 60
YESMAIL.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------- -----------------------
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) $(192,494) $(1,151,176)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities --
Depreciation....................... 16,015 49,443 101,783 16,632 57,329
Stock issuance for compensation.... 55,000 106,000 -- -- --
Minority interest.................. (8,821) (8,716) 10,547 1,707 22,818
Changes in operating assets and
liabilities --
Accounts receivable.............. (119,176) (48,142) (66,498) 14,141 (17,696)
Deposits and prepaid expenses.... (4,469) 668 (15,562) 416 (7,872)
Accounts payable and accrued
expenses...................... 108,125 143,123 1,681,790 238,867 (267,831)
Deferred revenue................. 12,517 106,504 (4,720) (2,296) (63,114)
--------- --------- ----------- --------- -----------
Net cash provided by (used in)
operating activities........ (20,806) (65,154) 935 76,973 (1,427,542)
--------- --------- ----------- --------- -----------
Cash Flows from Investing Activities:
Purchases of property and equipment... (45,040) (69,639) (102,232) -- (49,348)
--------- --------- ----------- --------- -----------
Net cash used in investing
activities.................. (45,040) (69,639) (102,232) -- (49,348)
--------- --------- ----------- --------- -----------
Cash Flows from Financing Activities:
Borrowings from related parties....... 66,110 -- -- -- 543,212
Payment to related parties............ -- (12,878) (19,933) (10,900) --
Proceeds from issuance of note to
shareholder........................ -- -- -- -- 1,000,000
Borrowings of short term debt......... -- 263,561 312,259 62,259 50,000
Repayments of short term debt......... -- (114,320) (118,630) (36,192) (27,365)
Repurchase of stock................... (1,120) -- (428) -- --
Proceeds from issuance of common
stock.............................. -- -- -- -- 500
Principal payments under capital lease
obligations........................ (403) (8,935) (47,600) (5,179) (31,904)
--------- --------- ----------- --------- -----------
Net cash provided by (used in)
financing activities........ 64,587 127,428 125,668 9,988 1,534,443
--------- --------- ----------- --------- -----------
Net Increase (Decrease) in Cash......... (1,259) (7,365) 24,371 86,961 57,553
Cash, beginning of year................. 10,465 9,206 1,841 1,841 26,212
--------- --------- ----------- --------- -----------
Cash, end of year....................... $ 9,206 $ 1,841 $ 26,212 $ 88,802 $ 83,765
========= ========= =========== ========= ===========
Supplemental Disclosure of Cash Flow
Information:
Cash paid during the period for
interest........................... $ 3,590 $ 18,098 $ 45,075 $ 8,025 $ 30,258
========= ========= =========== ========= ===========
Noncash Transactions:
Equipment acquired under capital
leases............................. $ 12,237 $ 32,827 $ 251,782 $ 10,760 $ 261,545
========= ========= =========== ========= ===========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these statements.
F-6
<PAGE> 61
YESMAIL.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION RELATING TO MARCH 31, 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, merger or initial public offering. The $16 million
represented the negotiated value of SCI as of the date of the Merger. The
Founders Agreement provides for the payment of the WP Holding stockholders
interest in the first $16 million in value to the stockholders of SCI upon sale,
merger, or initial public offering. In the case of an initial public offering,
such payment shall be made with a transfer of shares.
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. This 30% ownership
distribution was treated as compensatory.
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> 62
YESMAIL.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION RELATING TO MARCH 31, 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 March 31, 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 three months ended
March 31, 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> 63
YESMAIL.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION RELATING TO MARCH 31, 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, $163,000, and $259,000 for
the years ended December 31, 1996, 1997 and 1998 and for the three months ended
March 31, 1998 and 1999, respectively.
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.
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
F-9
<PAGE> 64
YESMAIL.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION RELATING TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
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, as the Company generated net losses in all periods presented,
common equivalents shares, composed of incremental common shares issuable upon
the exercise of warrants and stock options, convertible preferred stock and
restricted common stock are not reflected in diluted net loss per share because
such shares are anti-dilutive.
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.
F-10
<PAGE> 65
YESMAIL.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION RELATING TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
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 pays 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, $23,000 and $18,000 for the years
ended December 31, 1996, 1997 and 1998 and for the three months ended March 31,
1998 and 1999, respectively.
5. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1997 1998 1999
-------- --------- ---------
<S> <C> <C> <C>
Computer equipment.................................... $117,029 $ 268,384 $ 537,911
Computer software..................................... 24,793 126,147 153,666
Telephone equipment................................... 16,851 57,528 57,528
Furniture and fixtures................................ 10,878 10,878 10,878
Leasehold improvements................................ -- 60,628 74,475
-------- --------- ---------
169,551 523,565 834,458
Accumulated depreciation.............................. (67,911) (169,694) (227,023)
-------- --------- ---------
$101,640 $ 353,871 $ 607,435
======== ========= =========
</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 March 31, 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 March 31, 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 $42,533 as of December 31, 1998 and March 31, 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.
F-11
<PAGE> 66
YESMAIL.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION RELATING TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
The Company maintains the right to match employee contributions, but for the
years ended December 31, 1997 and 1998 and for the three months ended March 31,
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, $17,000 and
$43,000 for the years ended December 31, 1996, 1997 and 1998 and for the three
months ended March 31, 1998 and 1999, respectively.
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
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.
F-12
<PAGE> 67
YESMAIL.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION RELATING TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
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.
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.
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-13
<PAGE> 68
YESMAIL.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION RELATING TO MARCH 31, 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 1,527,273 shares
of series A convertible preferred stock in connection with the Company's private
equity placement (see Note 11) and the warrant was canceled.
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.
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 will be
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.
During April and May 1999, the Company issued 243,750 incentive stock
options and 566,250 non-qualified stock options with an exercise price of $1.60
per share, which vest over two to four years.
F-14
<PAGE> 69
YESMAIL.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION RELATING TO MARCH 31, 1998 AND 1999 IS UNAUDITED)
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 1,000 shares for
each purchase period. 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.
CONVERTIBLE PREFERRED STOCK
On May 18, 1999, the Company issued 13,745,460 shares of $.0001 par value
series A convertible preferred stock at $.6548 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 2,443,637 shares of preferred stock.
Each share of preferred stock is non-voting and convertible to 0.375 shares
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.
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.
F-15
<PAGE> 70
[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> 71
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............................... 26
Management............................. 38
Related Party Transactions............. 44
Principal Stockholders................. 47
Description of Capital Stock........... 49
Shares Eligible for Future Sale........ 51
Underwriting........................... 52
Legal Matters.......................... 54
Experts................................ 54
Where You Can Find More Information.... 54
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> 72
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 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 May 18, 1999, the Registrant sold an aggregate of 13,745,460 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.
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.
II-1
<PAGE> 73
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
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
23.1 Consent of Arthur Andersen LLP, Independent Public
Accountants
23.2* Consent of Counsel (see Exhibit 5.1)
</TABLE>
II-2
<PAGE> 74
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
24.1+ Power of Attorney
27.1+ Financial Data Schedule
</TABLE>
- -------------------------
* To be filed by amendment
+ 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> 75
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 July 14, 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 July 14, 1999
- ----------------------------------------------------- and Director
David M. Tolmie (Principal Executive Officer)
/s/ DAVID B. MENZEL Chief Financial Officer July 14, 1999
- ----------------------------------------------------- (Principal Financial and
David B. Menzel Accounting Officer)
/s/ KENNETH D. WRUK* Chairman of the Board July 14, 1999
- ----------------------------------------------------- of Directors
Kenneth D. Wruk
/s/ GIAN FULGONI* Director July 14, 1999
- -----------------------------------------------------
Gian Fulgoni
/s/ ALEXANDER HERN* Director July 14, 1999
- -----------------------------------------------------
Alexander Hern
/s/ MICHAEL A. SANTER* Director July 14, 1999
- -----------------------------------------------------
Michael A. Santer
/s/ ROBERT W. SHAW* Director July 14, 1999
- -----------------------------------------------------
Robert W. Shaw
/s/ JOHN VANDEGRIFT* Director July 14, 1999
- -----------------------------------------------------
John Vandegrift
*By: /s/ DAVID B. MENZEL July 14, 1999
-------------------------------------------------
David B. Menzel
Attorney-in-fact
</TABLE>
II-4
<PAGE> 76
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
yesmail.com, inc.:
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
July 14, 1999
S-1
<PAGE> 77
YESMAIL.COM INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
AND FOR THE QUARTERS ENDED MARCH 31, 1998 AND 1999
ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------- ------------------
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 29,292 49,999
Write offs against the allowance..... (23,119) (87,513) (29,912) (14,384) --
Ending Balance....................... 25,707 25,707 55,871 40,615 105,870
</TABLE>
S-2
<PAGE> 78
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...
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>
- -------------------------
* To be filed by amendment
+ Previously filed
<PAGE> 1
EXHIBIT 4.3
REGISTRATION RIGHTS AGREEMENT
THIS AGREEMENT is entered into this 25th day of March, 1999, by and
among WP HOLDING, INC., a Delaware corporation (the "Company") and the owners of
the Company's Common Stock, par value $.0001 per share that are signatories
hereto (the "Stockholders");
WHEREAS, pursuant to that certain Founders' Agreement dated on an even
date herewith by and between the Company and the Stockholders, the Stockholders
collectively hold 25,000,000 shares of the Company's Common Stock, par value
$.0001 per share (the "Shares").
WHEREAS, as a condition to the Founders' Agreement, the Stockholders
desire that the Company grant to them certain registration rights with respect
to the Shares.
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein contained, the Stockholders and the Company hereby agree as follows:
1. Definitions. As used herein:
(a) The term "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(b) The term "Holder" means the holder or holders of Registrable
Securities.
(c) The terms "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
(d) The term "Person" shall have the meaning set forth in Section 2(2)
of the Securities Act.
(e) The term "Prospectus" shall have the meaning set forth in Section
2(10) of the Securities Act.
(f) The term "Registrable Percentage" shall have the meaning set forth
in Section 2.
(g) The term "Registrable Securities" means all of the Company's Common
Stock held by the Stockholders as of the date hereof and any other shares of
Common Stock issued as a dividend or other distribution with respect to, in
exchange for, or as a replacement for the Common Stock.
(h) The term "Registration Expenses" shall mean any and all expenses
incident to the performance of or compliance by the Company with this Agreement,
including without limitation: (i) all SEC or National Association of Securities
Dealers, Inc. (the "NASD") registration and filing fees, including, if
applicable, the fees and expenses of any "qualified independent underwriter"
(and
<PAGE> 2
its counsel) that is required to be retained by any Holder of Registrable
Securities in accordance with the rules and regulations of the NASD, (ii) all
fees and expenses incurred in connection with compliance with state securities
or blue sky laws (including reasonable fees and disbursements of one counsel for
any underwriters or Holder in connection with blue sky qualification of any of
the Registrable Securities) and compliance with the rules of the NASD, (iii) all
expenses of any Persons in preparing or assisting in preparing, word processing,
printing and distributing any Registration Statement, any Prospectus and any
amendments or supplements thereto, and in preparing or assisting in preparing,
printing and distributing any underwriting agreements, securities sales
agreements and other documents relating to the performance of and compliance
with this Agreement, (iv) all rating agency fees, (v) the fees and disbursements
of counsel for the Company and of the independent certified public accountants
of the Company, including the expenses of any "cold comfort" letters required by
or incident to such performance and compliance, (vi) the fees and expenses of
any exchange agent or custodian, (vii) all fees and expenses incurred in
connection with the listing, if any, of any of the Registrable Securities on any
securities exchange or exchanges, and (viii) the reasonable fees and expenses of
any special experts retained by the Company in connection with any Registration
Statement.
(i) The term "Registration Statement" shall mean any registration
statement of the Company that covers any of the Registrable Securities pursuant
to the provisions of this Agreement, and all amendments and supplements to any
such Registration Statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
(j) The term "Securities Act" means the Securities Act of 1933, as
amended.
(k) The term "SEC" means the Securities and Exchange Commission.
(l) The term "Subscription Price" means the purchase price of $0.6547618
per share.
2. Company Registration. If at any time or from time to time, the Company shall
determine to register any of its Common Stock under the Securities Act, the
Company will: (a) promptly give to the Holder written notice thereof (which
shall include a list of the jurisdictions in which the Company intends to
attempt to qualify its Common Stock under the applicable blue sky or other state
securities laws); and (b) include in such registration (and any related
qualification under blue sky laws or other compliance) and in any underwriting
involved therein, all the Registrable Securities specified in a written request
made within thirty days after receipt of such written notice from the Company by
the Holders; except that if, in connection with any offering involving an
underwriting of Common Stock to be issued by the Company, the managing
underwriter shall impose a limitation on the number of shares of Common Stock
which may be included in the Registration Statement because, in its judgment,
such limitation is necessary to effect an orderly public distribution, then the
Company shall be only obligated to include in such Registration Statement the
Registrable Percentage of Founders' Shares (as defined below) of the Registrable
Securities. Notwithstanding the foregoing, the Stockholders shall have no
securities allocated to
2
<PAGE> 3
them pursuant to this Section 2 until each other person holding registration
rights for stock of the Company has been allocated the full number of securities
such person requested to be included in any such offering. "Registrable
Percentage of Founders' Shares" shall be a percentage equal to the following:
(i) the total maximum number of shares of Common Stock outstanding prior to the
filing of the Registration Statement held by the Stockholders and other holders
of Company securities that the managing underwriter determines may be included
in the Registration Statement less the number of shares of Common Stock
converted from Series A Preferred Stock which Series A investors have chosen to
have registered, (ii) divided by the sum of the total number of shares of Common
Stock to be registered for sale in such offering. The Stockholders shall be
entitled to include their pro-rata share of Registrable Securities in such
registration determined by multiplying (x) the Registrable Percentage of
Founders' Shares by (y) their percentage of ownership of such Registrable
Securities.
3. Effectiveness. A Registration Statement pursuant to which any Registrable
Securities are being offered will not be deemed to have become effective unless
it has been declared effective by the SEC; provided, however, that if, after it
has been declared effective, the offering of the Registrable Securities pursuant
to such registration statement is interfered with by any stop order, injunction
or other order or requirement of the SEC or any other governmental agency or
court, such registration statement will be deemed not to have been effective
during the period of such interference, until the offering of Registrable
Securities pursuant to such registration statement may legally resume. The
Company will be deemed not to have used best efforts to cause the Registration
Statement to become, or to remain, effective during the requisite period if it
voluntarily takes any action that would result in any such registration
statement not being declared effective or that would result in the Holder not
being able to offer and sell the Registrable Securities during that period
unless such action is required by applicable laws and regulations or currently
prevailing interpretations of the staff of the SEC. The Company shall use best
efforts to maintain the effectiveness for up to one hundred twenty (120) days
(or such shorter period of time as the underwriters need to complete the
distribution of the registered offering) of any Registration Statement pursuant
to which any of the Registrable Securities are being offered, and from time to
time will amend or supplement such Registration Statement and the Prospectus
contained therein to the extent necessary to comply with the Securities Act and
any applicable state securities laws or regulations. The Company shall also
provide the Holder with as many copies of the Prospectus contained in any such
Registration Statement as the Holder may reasonably request.
4. Expenses of Registration. All Registration Expenses incurred in connection
with any registration, qualification or compliance pursuant to this Agreement
shall be borne by the Company. Except as provided herein, the Holder shall pay
all fees and expenses of its legal counsel, underwriters' fees, discounts or
commissions or transfer taxes, if any, relating to the sale or disposition of
the Holder's Registrable Securities.
5. Registration Procedures. In the case of each registration, qualification, or
compliance effected by the Company pursuant to this Agreement, the Company will
keep the Holder advised in writing as to the initiation of each registration,
qualification and compliance and as to the completion thereof. At its expense,
the Company will:
3
<PAGE> 4
(a) Prepare and file with the SEC a Registration Statement with respect
to such Registrable Securities as described in Section 2 and use its best
efforts to cause such Registration Statement to become effective and to remain
effective in accordance with Section 3 (provided that before filing a
Registration Statement or Prospectus or any amendments or supplements thereto,
the Company will furnish to the counsel selected by the Holder copies of all
such documents proposed to be filed, which documents will be subject to the
review of such counsel);
(b) Prepare and file with the SEC such amendments and supplements to
such Registration Statement and the Prospectus used in connection therewith as
may be necessary to keep such Registration Statement effective and current for a
period of not less than one hundred twenty (120) days and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement during such period in
accordance with the intended methods of disposition by the sellers thereof as
set forth in such Registration Statement;
(c) (i) Furnish to the Holder, and to each underwriter, if any, without
charge, such number of copies of such Registration Statement, each amendment and
supplement thereto, the Prospectus included in such Registration Statement
(including each preliminary Prospectus), and such other documents as the Holder
or underwriters may reasonably request in order to facilitate the disposition of
the Registrable Securities owned by the Holder; and (ii) consent to the use of
the Prospectus or any amendment or supplement thereto by the Holder of
Registrable Securities included in the Registration Statement in connection with
the offering and sale of the Registrable Securities covered by the Prospectus or
any amendment or supplement thereto;
(d) Use its best efforts to register or qualify such Registrable
Securities under all applicable securities or blue sky laws of such
jurisdictions of the United States by the time the applicable Registration
Statement is declared effective by the SEC as the Holder and any underwriters
reasonably request in writing and do any other related acts which may be
reasonably necessary or advisable to enable the Holder and underwriters to
consummate the disposition in such jurisdictions of the Registrable Securities;
provided, however, that the Company shall not be required to (i) qualify as a
foreign corporation or as a dealer in securities in any jurisdiction where it
would not otherwise be required to qualify but for this Section 5(d), (ii) file
any general consent to service of process in any jurisdiction where it would not
otherwise be subject to such service of process or (iii) subject itself to
taxation in any such jurisdiction if it is not then so subject;
(e) Notify the Holder, its counsel, and the managing underwriters, if
any, promptly, and promptly confirm such notice in writing, (i) at any time when
a Prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event as a result of which, or the fact that, the
Prospectus included in such Registration Statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the reasonable request of a majority of the Holders, the
Company will prepare a supplement or amendment to such Prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
Prospectus will not contain any untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not misleading; (ii)
when a Registration Statement
4
<PAGE> 5
has become effective and when any post-effective amendments and supplements
thereto become effective, (iii) of any request by the SEC or any state
securities authority for amendments and supplements to a Registration Statement
or Prospectus or for additional information after the Registration Statement has
become effective, (iv) of the issuance by the SEC or any state securities
authority of any stop order suspending the effectiveness of a Registration
Statement or the qualification of the Registrable Securities or the initiation
of any proceedings for that purpose, (v) if, between the effective date of a
Registration Statement and the closing of any sale of Registrable Securities
covered thereby, the representations and warranties of the Company contained in
any purchase agreement, securities sales agreement or other similar agreement,
if any, cease to be true and correct in all material respects, and (vi) the
Company's reasonable determination that a post-effective amendment to the
Registration Statement would be appropriate;
(f) If applicable, use its best efforts to cause all such Registrable
Securities to be listed or quoted on each securities exchange or interdealer
quotation system on which similar securities issued by the Company are then
listed or quoted;
(g) Provide a transfer agent for all such Registrable Securities not
later than the effective date of such Registration Statement;
(h) Enter into such customary agreements (including underwriting
agreements on customary terms) and take all such other actions as the
underwriters, if any, reasonably requests in order to expedite or facilitate the
disposition of such Registrable Securities;
(i) Obtain for delivery to the Company and the managing underwriters, if
any, with copies to the Holders of the Registrable Securities being registered,
a comfort letter from the Company's independent public accountants in customary
form and covering such matters of the type customarily covered by comfort
letters as the Holders shall reasonably request, dated the effective date of the
Registration Statement and brought down to the closing;
(j) If necessary, obtain a CUSIP number for the Registrable Securities
not later than the effective date of the Registration Statement; and
(k) Make available for inspection by the Holder, any underwriter
participating in any disposition pursuant to such Registration Statement and any
attorney, accountant or any other agent retained by the Investor or any such
underwriter, all financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by the Holder, any such
underwriter, attorney, accountant or agent in connection with such Registration
Statement.
(l) Cooperate with the Holder to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and not
bearing any restrictive legends and registered in such names as the Holder or
the underwriters may reasonably request at least two Business Days prior to the
closing of any sale of Registrable Securities pursuant to such Registration
5
<PAGE> 6
Statement;
(m) Cooperate with the Holder to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and not
bearing any restrictive legends and registered in such names as the Holder or
the underwriters may reasonably request at least two Business Days prior to the
closing of any sale of Registrable Securities pursuant to such Registration
Statement;
(n) upon the occurrence of any circumstance contemplated by Section
5(e)(iii), 5(e)(iv), or 5(e)(v) hereof, use best efforts to prepare a supplement
or post-effective amendment to such Registration Statement or the related
Prospectus or any document incorporated therein by reference or file any other
required document so that, as thereafter delivered to the purchasers of the
Registrable Securities, such Prospectus will not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; and to notify the Holder to suspend use of the Prospectus
as promptly as practicable after the occurrence of such an event, and the Holder
hereby agrees to suspend use of the Prospectus until the Company has amended or
supplemented the Prospectus to correct such misstatement or omission;
(o) cooperate with each seller of Registrable Securities covered by any
Registration Statement and each underwriter, if any, participating in the
disposition of such Registrable Securities and their respective counsel in
connection with any filings required to be made with the NASD; and
(p) use best efforts to take all other steps necessary to effect the
registration of the Registrable Securities covered by a Registration Statement
contemplated hereby.
6. Indemnification and Contribution.
(a) In connection with any Registration Statement, the Company shall
indemnify and hold harmless the Holder and each underwriter who participates in
an offering of the Registrable Securities, each Person, if any, who controls any
of such parties within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act and each of their respective directors, officers,
employees and agents, as follows:
(i) from and against any and all loss, liability, claim, damage
and expense whatsoever, joint or several, as incurred, arising out of
any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement (or any amendment thereto)
covering Registrable Securities, including all documents incorporated
therein by reference, or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the
statements therein not misleading or arising out of any untrue statement
or alleged untrue statement of a material fact contained in any
Prospectus (or any amendment or supplement thereto) or the omission or
alleged omission
6
<PAGE> 7
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading;
(ii) from and against any and all loss, liability, claim, damage
and expense whatsoever, joint or several, as incurred, to the extent of
the aggregate amount paid in settlement of any litigation, or any
investigation or proceeding by any court or governmental agency or body,
commenced or threatened, or of any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or
omission, if such settlement is effected with the prior written consent
of the Company; and
(iii) from and against any and all expenses whatsoever, as
incurred (including reasonable fees and disbursements of counsel chosen
by Holder or any underwriter (except to the extent otherwise expressly
provided in Section 6(c) hereof)), incurred in investigating, preparing
or defending against any litigation, or any investigation or proceeding
by any court or governmental agency or body, commenced or threatened, or
any claim whatsoever based upon any such untrue statement or omission,
or any such alleged untrue statement or omission, to the extent that any
such expense is not paid under subparagraph (i) or (ii) of this Section
6(a);
provided, however, that (i) this indemnity does not apply to any loss,
liability, claim, damage or expense to the extent arising out of an untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished in writing to the
Company by the Holder, or any underwriter with respect to the Holder, or any
underwriter, as the case may be, expressly for use in a Registration Statement
(or any amendment thereto) or any Prospectus (or any amendment or supplement
thereto) and (ii) the Company shall not be liable to the Holder, any underwriter
or controlling Person, with respect to any untrue statement or alleged untrue
statement or omission or alleged omission in any preliminary Prospectus to the
extent that any such loss, liability, claim, damage or expense of the Holder,
any underwriter or controlling Person results from the fact that the Holder or
any underwriter, sold Registrable Securities to a Person to whom there was not
sent or given, at or prior to the written confirmation of such sale, a copy of
the final Prospectus as then amended or supplemented if the Company had
previously furnished copies thereof to the Holder or any underwriter or
controlling Person and the loss, liability, claim, damage or expense of the
Holder or underwriter, or controlling Person results from an untrue statement or
omission of a material fact contained in the preliminary Prospectus which was
corrected in the final Prospectus. Any amounts advanced by the Company to an
indemnified party pursuant to this Section 6 as a result of such losses shall be
returned to the Company if it shall be finally determined by such a court in a
judgment not subject to appeal or final review that such indemnified party was
not entitled to indemnification by the Company.
(b) A selling Holder agrees to indemnify and hold harmless the Company,
any underwriter and each of their respective directors, officers (including each
officer of the Company who signed the Registration Statement), employees and
agents, any underwriter or any other selling
7
<PAGE> 8
Holder within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act, from and against any and all loss, liability, claim, damage
and expense whatsoever described in the indemnity contained in Section 6(a)
hereof, as incurred, but only with respect to untrue statements or omissions, or
alleged untrue statements or omissions, made in a Registration Statement or any
Prospectus in reliance upon and in conformity with written information furnished
to the Company by such selling Holder with respect to such Holder expressly for
use in such Registration Statement, or any such Prospectus;
(c) Each indemnified party shall give prompt notice to each indemnifying
party of any action commenced against it in respect of which indemnity may be
sought hereunder, enclosing a copy of all papers properly served on such
indemnified party, but failure to so notify an indemnifying party shall not
relieve such indemnifying party from any liability which it may have under this
Section 6, except to the extent that it is materially prejudiced by such
failure. An indemnifying party may participate at its own expense in the defense
of such action, or, if it so elects within a reasonable time after receipt of
such notice, assume the defense of any suit brought to enforce any such claim;
but if it so elects to assume the defense, such defense shall be conducted by
counsel chosen by it and approved by the indemnified party or parties, which
approval shall not be unreasonably withheld. In the event that an indemnifying
party elects to assume the defense of any such suit and retain such counsel, the
indemnified party or parties shall bear the fees and expenses of any additional
counsel thereafter retained by such indemnified party or parties; provided,
however, that the indemnified party or parties shall have the right to employ
counsel (in addition to local counsel) to represent the indemnified party or
parties who may be subject to liability arising out of any action in respect of
which indemnity may be sought against the indemnifying party if, in the
reasonable judgment of counsel for the indemnified party or parties, there may
be legal defenses available to such indemnified party or parties which are
different from or in addition to those available to the indemnifying party, in
which event the fees and expenses of appropriate separate counsel shall be borne
by the indemnifying party. In no event shall the indemnifying parties be liable
for the fees and expenses of more than one counsel (in addition to local
counsel), separate from its own counsel, for all indemnified parties in
connection with any one action or separate but similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances.
No indemnifying party shall, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section 6 (whether or not the indemnified parties are actual or
potential parties thereto), unless such settlement, compromise or consent (i)
includes an unconditional release in form and substance satisfactory to the
indemnified parties of each indemnified party from ail liability arising out of
such litigation, investigation, proceeding or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act by or
on behalf of any indemnified party.
(d) In order to provide for just and equitable contribution in
circumstances under which any of the indemnity provisions set forth in this
Section 6 is for any reason held to be unavailable to the indemnified parties
although applicable in accordance with its terms, the Company and the
8
<PAGE> 9
Holder shall contribute to the aggregate losses, liabilities, claims, damages
and expenses of the nature contemplated by such indemnity agreement incurred by
the Company and the Holder, as incurred; provided that no Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person that was not
guilty of such fraudulent misrepresentation. As between the Company and the
Holder, such parties shall contribute to such aggregate losses, liabilities,
claims, damages and expenses of the nature contemplated by such indemnity
agreement in such proportion as shall be appropriate to reflect the relative
fault of the Company, on the one hand, and the Holder, on the other hand, with
respect to the statements or omissions which resulted in such loss, liability,
claim, damage or expense, or action in respect thereof, as well as any other
relevant equitable considerations. The relative fault of the Company, on the one
hand, and of the Holder, on the other hand, 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 by or on behalf of the
Holder, 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 Holder agree that it would not be just and equitable if
contribution pursuant to this Section 6 were to be determined by pro rata
allocation or by any other method of allocation that does not take into account
the relevant equitable considerations. For purposes of this Section 6, each
affiliate of the Holder, and each director, officer, employee, agent and Person,
if any, who controls a Holder or such affiliate within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act shall have the same
rights to contribution as the Holder, and each director of the Company, each
officer of the Company who signed the Registration Statement, and each Person,
if any, who controls the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act shall have the same rights to
contribution as the Company.
7. Information by Holder. The Holder or Holders of Registrable Securities
included in any registration shall furnish to the Company such written
information regarding such Holder or Holders and the distribution proposed by
such Holder or Holders as the Company may reasonably request in writing and as
shall be required in connection with any registration, qualification, or
compliance referred to in this paragraph.
8. Transfer of Registration Rights. The rights to cause the Company to register
the Registrable Securities granted to the Holder by the Company under Section 2
may be assigned by a Holder to a transferee or assignee, who, subsequent to such
assignment holds at least five hundred thousand (500,000) shares of Registrable
Securities of any of such Holder's Registrable Securities, provided, that the
Company is given written notice by such Holder at the time of, or within a
reasonable time after, said transfer, stating the name and address of said
transferee or assignee and identifying the securities with respect to which such
registration rights are being assigned.
9. Assignability. This Agreement shall be binding upon and inure to the benefit
of the respective heirs, successors and assigns of the parties hereto.
10. Governing Law. This Agreement shall be governed by and construed in
accordance with
9
<PAGE> 10
the laws of Delaware, without regard to the conflict of laws provisions thereof.
11. Severability. In the event that any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable, the validity, legality and enforceability of any such
provision in every other respect and of the remaining provisions contained
herein shall not be affected or impaired thereby.
12. Successors and Assigns. This Agreement shall inure to the benefit of and be
binding upon the successors, assigns and transferees of the Investor, including,
without limitation and without the need for an express assignment, subsequent
Holders. If any transferee of the Investor shall acquire Registrable Securities
or Preferred Stock, in any manner, whether by operation of law or otherwise,
such Registrable Securities or Preferred Stock shall be held subject to all of
the terms of this Agreement, and by taking and holding such Registrable
Securities or Preferred Stock, such Person shall be conclusively deemed to have
agreed to be bound by and to perform all of the terms and provisions of this
Agreement and such Person shall be entitled to receive the benefits hereof.
13. Entire Agreement. This Agreement and the other writings referred to herein
contain the entire understandings among the parties with respect to its subject
matter. This Agreement supersedes all prior agreements and understandings among
the parties with respect to its subject matter.
14. Headings. The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
15. Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be an original, but all of which together shall constitute
one instrument.
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<PAGE> 11
IN WITNESS WHEREOF, the undersigned holder of securities and the Company
have executed this Agreement on the day and year first above written.
COMPANY: WP HOLDING, INC.
By: ________________________________
Name:
Title:
Address for Notices:
STOCKHOLDER:
____________________________________
Name:
Address for Notices:
11
<PAGE> 1
EXHIBIT 4.4
WP HOLDING, INC.
FOUNDERS' AGREEMENT
This FOUNDERS' AGREEMENT (the "Agreement") is made as of this 26th day
of March, 1999, and is effective on the Effective Date of the Merger (as such
terms are defined below) by and among the stockholders set forth on Schedule A
annexed hereto (sometimes referred to herein as "Stockholder" or, collectively,
as "Stockholders"), and WP HOLDING, INC., a Delaware corporation (hereinafter
referred as to as the "Company").
RECITALS
WHEREAS, Superhighway Consulting, Inc., an Illinois corporation ("SCI")
and the Company have executed simultaneously herewith that certain Plan of
Merger (the "Plan"), whereby SCI will merge with and into the Company, with the
Company as the surviving entity (the "Merger"); and
WHEREAS, as a condition to the obligation of the AV Stockholders
(defined below), the SCI Stockholders (defined below), SCI and the Company to
consummate the transactions contemplated by the Plan, this Agreement shall have
been executed and effective simultaneous with the effective date of such Merger
as set forth in the Certificate of Merger to be filed with the Secretary of
State of the State of Delaware (the "Effective Date"); and
WHEREAS, the Stockholders set forth on Schedule A as the AV Group (the
"AV Stockholders") and the Stockholders set forth on Schedule A as the SCI
Group, each of whom prior to the Merger was a shareholder and full-time employee
of SCI, and as of the Closing of the Merger shall be a stockholder and full-time
employee of the Company (the "SCI Stockholders"), upon the Closing of the Merger
shall be the holders of record of substantially all of the issued and
outstanding shares of the common stock, par value $.0001 per share (the "Common
Stock") of the Company, in the respective amounts and percentages set forth
opposite their names on Schedule A (the "Percentage Interests"); and
WHEREAS, the Stockholders hereto believe that it is in the best
interests of the Company and the Stockholders to make provision for the future
disposition of the Common Stock of the Company owned by such Stockholders as of
the date hereof (the "Shares"), and to impose certain restrictions on the
transfer of such Shares for so long as this Agreement is in full force and
effect.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties hereto do hereby agree as follows:
1. RECITALS. The Recitals set forth above are true and accurate and are
incorporated herein by this reference.
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2. DISTRIBUTION UPON SALE OF THE COMPANY. In the event of a merger or
consolidation of the Company or the sale of all or substantially all of the
outstanding Shares of capital stock or assets of the Company (hereinafter, a
"Sale Transaction"), as a result of which the stockholders of the Company
receive (or are to receive) either cash, stock or other consideration, the
parties hereto agree that:
(a) with respect to the first Twenty Million and No/100 Dollars
($20,000,000.00) of aggregate consideration, determined as of the closing date
of any Sale Transaction, received by the Stockholders, collectively, from such
Sale Transaction ("Minimum Sale Proceeds"), notwithstanding the Stockholders'
respective ownership of the capital stock of the Company as of the date of such
Sale Transaction, such Minimum Sale Proceeds shall be allocated among the SCI
Stockholders, and the AV Stockholders (as defined in Section 3) shall deliver or
cause to be delivered to the SCI Stockholders such Minimum Sale Proceeds
(collectively, the "SCI Allocation"), such that each of the SCI Stockholders (as
defined in Section 3) shall receive in pro rata proportion to his then existing
ownership of the outstanding Common Stock of the Company (and for purposes of
such calculation not giving effect to the Common Stock held by any AV
Stockholders) the respective percentage of the SCI Allocation that would
otherwise be payable in the aggregate to the all of AV Stockholders (as defined
in Section 3); and
(b) with respect to the next One Million and No/100 Dollars
($1,000,000) of aggregate consideration from such Sale Transaction over and in
addition to the SCI Allocation (the "AV Allocation", and collectively with the
SCI Allocation, the "Initial Allocations"), such AV Allocation shall be
allocated among the AV Stockholders, and the SCI Stockholders (as defined in
Section 3) shall deliver or cause to be delivered to the AV Stockholders such AV
Allocation, such that each of the AV Stockholders shall receive in pro rata
proportion to his then existing ownership of the outstanding Common Stock of the
Company (and for purposes of such calculation not giving effect to any of the
Common Stock (and for purposes of such calculation not giving effect to any of
the Common Stock held by the SCI Stockholders) the respective percentage of the
AV Allocation;
(c) with respect to any consideration received by the Company or
the Stockholders, collectively, from such Sale Transaction, over and in addition
to the Initial Allocations ("Additional Sale Proceeds"), each of the
Stockholders shall receive, and the Additional Sale Proceeds shall be allocated,
in accordance with each of such Stockholders' respective ownership of the
capital stock of the Company as of the date of such Sale Transaction.
(d) Notwithstanding anything else to the contrary herein, the
provisions of this Section 2 shall not apply to any Sale Proceeds that any
Stockholder receives pursuant to any shares of capital stock that such
Stockholder may hereafter acquire pursuant to (i) any subsequent stock offering
of the Company or (ii) his exercise or conversion of any options or warrants
issued by the Company (whether now existing or hereafter issued) including,
without limitation that certain Warrant of the Company dated December 28, 1999
issued to Alexander F. Hern, or otherwise ("Investment Shares"), and the Sale
Proceeds received by such Stockholder in respect of such Investment Shares shall
not be included in the Initial Allocations, but shall be separate and apart and
not subject to such Initial Allocations; and
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<PAGE> 3
3. SCI STOCKHOLDERS' OPTION RIGHT UPON OCCURRENCE OF AN INITIAL PUBLIC
OFFERING. In the event the Company offers any of its capital stock to the public
(the "Offering Shares") pursuant to a registration statement (the "Registration
Statement") on any form promulgated by the Securities and Exchange Commission
(the "SEC") for effectuating such registration (and "IPO"), and subject to
compliance with (i) any lock-up agreement or similar restrictions on transfer of
such Offering Shares required by, any underwriter(s) ("Underwriters'
Restrictions"), and (ii) federal and state securities laws, the AV Stockholders
shall offer to sell to the SCI Stockholders such number of shares of Common
Stock of the Company (the "Option Shares"), for an aggregate purchase price of
$1.00 ("SCI Stockholders' Option Right"), determined by dividing
(a) the number which is the (i) the total percentage of
outstanding shares of Common Stock of the Company owned in the aggregate
by the AV Stockholders as of the date the Registration Statement is
declared effective by the SEC multiplied by twenty million (20,000,000);
(ii) reduced by the total percentage of outstanding shares of Common
Stock owned in the aggregate by all of the SCI Stockholders as of the
date the Registration Statement is declared effective by the SEC
multiplied by one million (1,000,000); by
(b) the closing price per share of the Option Shares determined
as of the close of trading on the first day the Option Shares are
publicly traded.
Upon receipt of written notice of such offer from the AV Stockholders
(which should be delivered in writing by the AV Stockholders within a reasonable
time before or after the consummation of the IPO), the SCI Stockholders shall
deliver written notice of acceptance to each of the AV Stockholders of such
offer within ten (10) days thereafter. Delivery of the Option Shares to the SCI
Stockholders by the AV Stockholders shall be subject to compliance with (i)
Underwriters' Restrictions and (ii) federal and state securities laws. Further,
as a condition to the closing of the sale and delivery of the Option Shares by
the AV Stockholders to the SCI Stockholders, each of the SCI Stockholders
receiving any such Option Shares, jointly and severally, hereby agrees to
indemnify and hold each of the AV Stockholders harmless, on an after-tax basis,
against and in respect of any and all federal and state income, gift and
withholding taxes and any associated penalties, additions to tax, additional
amounts and interest thereon assessed against any of the AV Stockholders
together with any other liability, costs, expenses or losses incurred by any of
such AV Stockholders (such amounts hereinafter collectively referred to as
"Taxes") in connection with the sale and transfer of such Option Shares.
Incident to the Taxes, the AV Stockholders agree they will file any and all
documents related to the Taxes in a timely manner and report the transactions in
the manner most favorable to the Stockholders as a whole, in the reasonable
judgment of the SCI Stockholders; provided, however, that such manner of
reporting the transaction does not increase the tax liability of any one AV
Stockholder beyond that of his proportionate investment in the Company. If the
AV Stockholders do not timely file said documents or treat the transaction in
accordance with the above provision (except pursuant to their rights set forth
in the proviso immediately above), any and all liability of the SCI Stockholders
to the AV Stockholders failing to so file in a timely manner or report the
transaction consistent herewith shall be reduced in an amount equal to the Taxes
which arise as a result of such failure to file in a timely manner or the
failure to report the transaction consistent herewith. Notwithstanding anything
else to the contrary in this Section 3, any
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<PAGE> 4
Investment Shares then held by a Stockholder shall be excluded, shall not be
counted and shall not be subject to the SCI Stockholders' Option Right described
herein.
4. LIMITATION ON ENCUMBRANCE; RIGHT OF FIRST REFUSAL; AND TRANSFER OF
SHARES.
(a) Limitation. Unless a Stockholder a party hereto shall first
obtain the written consent of all other Stockholders of the Company a party
hereto (provided each such Stockholder then holds Shares of the Company) or as
otherwise provided herein, no Stockholder a party hereto shall sell, assign,
transfer, donate, bequeath, devise, convey or otherwise dispose of, during any
three-month period, an amount of Shares (voluntarily, involuntarily or by
operation of law) (hereinafter "Transfer") equal to more than one (1) percent of
the outstanding shares of the Company's Common Stock, without first giving to
the other Stockholders a party hereto and the Company notice of an intent to
make any such Transfer (setting forth therein the name of the person to whom
such Shares are to be transferred and the price and other terms of Transfer) and
sixty (60) days from the date of receipt of said notice within which to purchase
all Shares owned by Stockholder at the price provided in Section 4(c)
hereinbelow and in accordance with the priorities described immediately below
(the "Right of First Refusal");
(i) Such Shares first shall be offered for sale to the
Stockholders of the same group (each a "Group Stockholder") in amounts
proportionate to their Percen tage Interests (e.g. a selling SCI
Stockholder first offers to other SCI Stockholders); provided, however,
that if any Group Stockholder declines so to purchase the portion of the
Shares to which he is entitled, such portion shall be subject to the
similarly proportionate option of the other Group Stockholders;
(ii) If the Group Stockholders of the same group decline to
purchase such all or any of such Shares, then such Shares shall be
offered for sale to or for redemption by the Company;
(iii) If the Company declines to purchase such Shares, such
Shares shall next be offered for sale to all of the Stockholders of the
other group in amounts proportionate to their Percentage Interests (e.g.
a selling SCI Stockholder first offers the Shares to other SCI
Stockholders; if all or some decline and there are remaining Shares that
the SCI Stockholders do not wish to purchase, then the selling SCI
Stockholder offers such Shares to the Company; if the Company declines,
then the SCI Stockholder must offer the Shares to the AV Stockholders);
provided, however, that if any Stockholder declines so to purchase the
portion of the Shares to which he is entitled, such portion shall be
subject to the similarly proportionate option of the other Stockholders.
The Company and/or the other Stockholders may exercise their
rights so as to purchase such Shares only with respect to the Shares offered for
Transfer. Any Shares transferred by any Stockholder pursuant to the provisions
of this Section 4(a) shall be subject to the restrictions and other provisions
of this Agreement.
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Notwithstanding the above, beginning on the date hereof and
ending on the Board Rights Termination Date (as defined in Section 9 hereof),
each of the AV Stockholders agrees that notwithstanding his right to Transfer
the limited number of Shares during any three-month period without such Shares
being subject to the Right of First Refusal of the other Stockholders and the
Company, as set forth above, he will not Transfer any Shares owned by him and
subject to this Agree ment without abiding by the Right of First Refusal
provisions set forth in this Section 4 in the event that at the time of such
proposed Transfer he no longer holds of record in the aggregate at least
one-third (1/3) of the Shares of the Company that he owns as of the date hereof
(giving effect to any stock dividend or distribution, or a subdivision,
combination, reclassification or other purely capital restructuring change in
the Shares).
(b) Suspension of Limitation. If the Shares being offered for
Transfer are not purchased or redeemed by the Company and/or the other
Stockholders in accordance with the provisions of Section 4(a), then the
Stockholder offering such Shares shall be permitted to Transfer such Shares to
the person named in the notice of Transfer provided for in Section 4(a) hereof,
at the price and in accordance with the other terms set forth in such notice of
Transfer, provided that such Transfer is consummated within forty (40) days from
the last day of the aforesaid 60-day period, and provided the Transfer is made
in compliance with federal and state securities laws. Prior to any such
Transfer, the selling Stockholder shall cause the intended purchaser to deliver
an instrument acceptable to the Company, in substantially the form attached
hereto as Exhibit B and made a part hereof, whereby such purchase agrees to the
restrictions and other terms and conditions of this Agreement. Any attempted
Transfer of Shares of the Company other than in accordance with the terms and
provisions hereof shall be void and of no force or effect.
(c) Price of Shares. Any Shares transferred between Stockholders
pursuant to Section 4(a) of this Agreement shall be transferred either: (i) at
the price mutually agreed between such Stockholders, or (ii) if no such
agreement can be reached, upon the terms and conditions offered to the third
party and at a price equal to the GREATER of: (y) the price offered by or to any
third party, or (z) if requested by any Stockholder who is a party to the
Transfer, the price established for such Shares pursuant to the following
appraisal process:
(A) The value of such Shares shall be determined by multiplying
the Percentage Interest which is represented by such Shares by the fair
market value of the Company as determined by an appraisal prepared by an
MAI-qualified appraisal service chosen by the nonpurchasing Stockholder,
taking into account all appropriate discounts for illiquidity and
minority interest ("Appraisal 1"). In the event the purchasing Stock
holder disagrees with the value of such Shares as determined by
Appraisal 1, then at the option of such purchasing Stockholder, a second
appraisal will be conducted, taking into account appropriate discount,
as above, and provided by another MAI-qualified appraisal service chosen
by the purchasing Stockholder ("Appraisal 2"); whereupon, the value of
such Shares subject to the sale shall be based upon the average of
Appraisal 1 and Appraisal 2.
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(B) In the event either the nonpurchasing Stockholder or the
purchasing Stockholder disagrees with the value of such Shares resulting
from the average of Appraisal 1 and Appraisal 2, then at the option of
either Stockholder, a third appraisal will be prepared by a firm
mutually agreeable to, and chosen by each of the two MAI-qualified
appraisal services chosen by the nonpurchasing Stockholder and the
purchasing Stockholder ("Appraisal 3"), whereupon the value of such
Shares shall be based upon the average of Appraisal 1, Appraisal 2 and
Appraisal 3.
(C) The cost of Appraisal 1 shall be paid by the Company. The
cost of any additional appraisal shall be paid by the Stockholder
requesting such appraisal. Any MAI-qualified appraiser chosen by any
Stockholder shall have at least ten (10) years experience in the
appraisal of corporations.
(d) Transfer by Decedent. Notwithstanding anything else
contained herein to the contrary, Shares of any individual Stockholder which are
devised, bequeathed or otherwise transferred as a result of the death of such
Stockholder shall not be subject to the limitations and restrictions contained
within Section 4 of this Agreement if and only if all of the Shares of such
decedent Stockholder are devised, bequeathed or otherwise Transferred to that
individual who is the legal spouse of such Stockholder at the time of such
Stockholder's death. Any Shares devised, bequeathed or otherwise Transferred
pursuant to the exception provided in this Section 4(d) shall remain subject to
all of the restrictions and provisions of this Agreement.
(e) Restriction on Sale. Subject to each Stockholder's right to
sell his Shares as provided in Section 4(a) hereof, neither the Company nor the
Stockholders shall sell, encumber or pledge all or substantially al of the
capital stock or assets of the Company without the prior written consent of all
of the other Stockholders who are parties hereto. In the event that this Section
4(e) shall conflict with any provision of the Company's Certificate of
Incorporation or By-laws, the provisions of this Subsection (e) shall govern and
control.
5. ENDORSEMENT ON SHARE CERTIFICATES. Upon the execution of this
Agreement, each of the certificates evidencing the Shares of Common Stock
subject hereto, including certificates evidencing Common Stock as are hereafter
acquired by a Stockholder, shall be endorsed on the bottom of the face of each
such certificate with the following statement:
"RESTRICTIONS ON THE RIGHT TO OWN OR TRANSFER THE SHARES OF
STOCK REPRESENTED BY THIS CERTIFICATE HAVE BEEN IMPOSED PURSUANT TO A
FOUNDERS' AGREEMENT DATED AS OF MARCH __, 1999 BETWEEN THE COMPANY AND
CERTAIN OF ITS FOUNDING STOCKHOLDERS, A COPY OF WHICH IS ON FILE WITH
THE OFFICE OF, AND AVAILABLE UPON WRITTEN REQUEST TO, THE SECRETARY OF
THE COMPANY."
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In the event of any Transfer pursuant to any provision of Section 4, the
legend set forth in this Section 5 shall be endorsed on any certificate
representing Common Stock so transferred. In addition, the Company may also
cause to be imposed upon such certificates such other legends as counsel to the
Company shall determine to be required under the provisions of any federal or
state securities laws.
6. ACTION TO ENFORCE. Each Stockholder agrees for himself and his
successors in interest that if any amendment to the By-laws of the Company, or
any other action requiring the vote or approval of the Stockholders of the
Company, is required in order to make permissible or lawful any of the
provisions or sales required to be made under this Agreement, then the Shares
presently owned by every Stockholder or his successors will be voted in favor of
such amendment or action.
7. PREEMPTIVE RIGHTS. Except in the event of an IPO or a Sales
Transaction duly approved by the Company and its stockholders, the Company and
the Stockholders agree that each of the Stockholders shall have the preemptive
right to subscribe for and purchase their proportionate share of additional
Common Stock upon its issuance and sale for cash or otherwise by the Company.
Accord ingly, no amendment to the Certificate of Incorporation shall be made
with respect thereto unless or until such time as such preemptive rights are
modified, waived or altered by: (a) the Company, and (b) all of the Stockholder
signatories to this Agreement (or their successors, transferees or assigns). Any
Stockholder which declines to subscribe for and purchase additional Common Stock
upon its issuance and sale for cash or otherwise by the Company may, upon formal
written request of such non-subscribing Stockholder to the Company, require that
any additional Common Stock issued and sold for cash or otherwise by the Company
be transferred and sold, if at all, at the price established for such Common
Stock pursuant to the appraisal process described in Section 4(c)(A)-(C).
8. REGISTRATION RIGHTS. The Company shall grant the Stockholders certain
piggyback registration rights as described in the Registration Rights Agreement
attached hereto as Exhibit C and made a part hereof.
9. BOARD OF DIRECTORS; OFFICERS.
(a) Beginning the date hereof and ending on the earlier of (x)
the date that the AV Stockholders no longer hold of record in the aggregate at
least one-half (1/2) of the Shares of the Company that they own collectively as
of the date hereof (giving effect to any stock dividend or distribution, or a
subdivision, combination, reclassification or other purely capital restructuring
change in the Shares, the "Minimum Ownership"), (y) the date that the Company is
required to file reports pursuant to Sections 13 or 15(d) of the Securities and
Exchange Act of 1934, as amended, and (z) thirty months from the date hereof
(the "Board Rights Termination Date"), all of the Stockholders, and any other
persons who may become parties hereto, agree, and such Stockholders shall vote
all of their Shares and take all such other action to cause and ensure, that the
Board of Directors of the Company shall contain a minimum of: two (2)
individuals designed exclusively by the SCI Stockholders, which the parties
agree shall initially be Kenneth Wruk and Kevin Manley (the "SCI Board
Members"), two (2) individuals exclusively designed by the AV Stockholders,
which the parties agree shall initially be Alexander Hern and Michael Santer
(the "AV Board members"); provided, however, that notwith standing the
occurrence of the Board Rights Termination Date due to the expiration of the
thirty-month
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period described in clause (z) above, so long as the AV Stockholders retain the
Minimum Ownership of Shares in the Company, all of the Stockholders, and any
other persons who may become parties hereto, agree, and such Stockholders shall
vote all of their Shares and take all such other action to cause and ensure,
that the Board of Directors of the Company shall contain a minimum of one (1)
individual designated exclusively by the AV Stockholders.
(b) Beginning upon the date thirty (30) days after the date
hereof, or earlier upon the approval of the majority of the SCI Board Members
and the AV Board Members voting as a group, and ending on the Board Rights
Termination Date, all of the Stockholders, and any other persons who may become
parties hereto, agree, and such Stockholders shall vote all of their Shares and
take all such other action to cause and ensure, that the Board of Directors of
the Company shall contain, in addition to the SCI Board members and the AV Board
members described in Section 9(a) above, three (3) outside directors selected as
follows:
(i) one "outside" director nominated by the vote of a
majority of the SCI Board Members, and approved by the majority
of the AV Board Members;
(ii) one "outside" director nominated by the vote of a
majority of the AV Board Members, and approved by the majority
of the SCI Board Members; and
(iii) one "outside" director nominated by the vote of
the majority of the entire Board of Directors.
(c) During the term of this Agreement, the Board of Directors
may be expanded, subject to conformance with the Company's By-laws and
applicable Delaware law, to a nine (9) member Board upon the vote of the
majority of the entire Board of Directors, but inclusive of the unanimous vote
and approval of all of the SCI Board Members and the AV Board members.
(d) The parties hereby agree that Ken Wruk shall serve as the
Chairman of the initial Board of Directors until the next annual meeting of the
stockholders, unless earlier removed in accordance with the By-laws. In
addition, in the event that David Tolmie is appointed as the permanent Chief
Executive Officer of the Company by approval of a resolution by the Board of
Directors, then, upon such appointment, the parties hereto agree that David
Tolmie will replace Kevin Manley as one of SCI Stockholders' two exclusive Board
appointees.
(e) The parties further hereby agree that during the term of
this Agreement and subject to the terms of any employment agreements that may
currently exist or hereafter be executed between the Company and the following
individuals, the Company will not terminate from employment Ken Wruk, Kevin
Manley, Keith Speer or John Weiss (collectively the "SCI Founders") without
cause, except upon the agreement of any three SCI Founders. For the purposes of
this sentence only, "cause" shall be defined as a breach of the employee's
fiduciary responsibility to the Company as a whole.
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(f) The Stockholders hereby agree, to the extent required by
applicable Delaware law, to cause the Company's By-laws to reflect at all times
during the term of this Agreement, the terms and agreements set forth in this
Section 9, and to take any and all such further actions necessary to make the
terms and agreements set forth in this Section 9 legal and enforceable.
10. SCI STOCKHOLDERS' RIGHT OF PURCHASE.
(a) Right of Purchase. If a Purchase Event (as defined below)
shall occur, then the SCI Stockholders, voting as a group, shall have the right
to purchase all, but not less than all, of the Shares (except any Investment
Shares, as described below) then held by the AV Stockholders in the aggregate
for a purchase price of One and 00/100 Dollar ($1.00) in the aggregate (the
"Right of Purchase"); provided, however, that the Right of Purchase shall not
apply to any Investment Shares held by any of the AV Stockholders, such
Investment Shares not being subject to this Agreement. For purposes of this
Section 10, the following event shall constitute a "Purchase Event": except for
a delay caused in whole or in part by the SCI Stockholders, Superhighway
Consulting, Inc. or their representatives or agents (and, in such case, then
only to the extent of such delay) and as otherwise provided in the Note
Agreement, the Company shall not have closed on a minimum of Six Million Dollars
and No/100 ($6,000,000.00) in aggregate gross proceeds through a private
placement of equity securities or otherwise (the "Offering"), at a price
determined based upon a valuation of the Company of at least Twenty Million
Dollars ($20,000,000) on or before April 15, 1999 or as such date shall
otherwise be extended by the AV Group (the "Closing Date"), but in no event
later than April 30, 1999; provided, however, that (A) the Company shall have
acted in good faith and used its best efforts to close such Offering on or prior
to the scheduled Closing Date and in the event that the Company has not
proceeded in good faith or used its best efforts or has otherwise caused the
delay of the Offering, the SCI Stockholders' Right of Purchase shall not apply;
(B) the $1,000,000 bridge loan made by Alexander Hern ("Hern") to Superhighway
Consulting, Inc. and evidenced by that certain Note Agreement of Superhighway
Consulting, Inc. dated as of December 28, 1998, may be converted by Hern into
such number of shares of Series A Preferred Stock issued pursuant to the
Offering and, therefore, counted towards the $6,000,000 minimum contemplated
above, but Hern may not acquire additional amounts in excess of $1,000,000
through the Offering; and (C) the AV Group shall separately pay the "necessary
expenses" to operate the Company until such Closing Date, which amount shall be
repaid from the proceeds of the Offering. For the purposes of this paragraph,
"necessary expenses" shall be defined as expenses related to payroll and other
expenses which, if remaining unpaid until the Closing Date, would have a
material adverse impact on the Company.
(b) Terms of Offer. Upon the occurrence of the Purchase Event
set forth in subsection (a) of this Section 10, the SCI Stockholders, together
or individually (collectively, the "Offeror SCI Stockholder") may notify each of
the AV Stockholders (the "Offeree AV Stockholders") of any of the Offeror SCI
Stockholders' desire to Purchase all, but not less than all, of the Shares then
held by the AV Stockholders (but not including any Investment Shares then held
by any of such AV Stockholders) (the "Purchase Shares"). The notice, delivered
in accordance with requirements for notice set out in this Agreement, shall
contain such commercially reasonable terms as the Offeror SCI Stockholder(s)
shall desire (the "Notice"). Upon receipt of the Notice, the Offeree AV
Stockholders shall have a reasonable period of time in which to tender the
Purchase Shares held by such Offeree AV
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<PAGE> 10
Stockholders and upon such tender, the Offeree SCI Stockholder(s) shall
immediately deliver the purchase price.
11. TAKE ALONG. Except for a Sales Transaction contemplated under the
provisions of Section 2 hereof which shall be exclusively governed by such
Section 2 and not this Section 11, if at any time any or all of the SCI
Stockholders (for purposes of this Section 11, the "Take-Along Holder(s)")
decide (and are permitted pursuant to Section 4 hereof) to sell any or all of
their Shares in a Sale Transaction or Transfer (as such terms are defined
herein), or in a series of related Sales Transactions or Transfers, to a third
party, the AV Stockholders shall have the right to sell the same proportionate
amount of their Shares on the same terms and conditions, including, but not
limited to, the purchase price and payment terms, as those on which the
Take-Along Holder(s) are selling their Shares to such third party.
12. GENERAL PROVISIONS.
(a) Notices. Whenever notice is provided for in this Agreement,
it shall be given in writing and hand delivered or mailed by registered or
certified mail, return receipt requested, to the party or parties to whom
addressed at the addresses set forth on the signature page of this Agreement.
Any party may change the address to which notice shall be delivered or mailed by
giving written notice to the Company of such other address.
(b) Governing Law and Amendments. This Agreement shall be
construed in accordance with the laws of the State of Delaware, without giving
effect to the principles of conflicts of law. This Agreement may only be
modified by a writing signed by all parties hereto.
(c) Benefits. This Agreement shall insure to the benefit of, and
be binding upon, the parties hereto and respective heirs, beneficiaries, legal
representatives, successors and assigns (including successive as well as
immediate successors to and assigns of said parties).
(d) Definitions. For the purposes of this Agreement, transfers
in connection with a merger, reorganization, stock split or reverse stock split,
which affect an exchange or conversion of the Company's capital stock, are not
barred by this Agreement. Further, the Shares of the Company presently owned by
each Stockholder shall be deemed to include such Shares of stock (common or
preferred) of the Company as are hereafter acquired by him, whether such
acquisition is by way of purchase, stock dividend, exchange or any other manner
whatsoever. Further, for the purposes of this agreement, the term "the Company"
shall mean the Delaware corporation presently known as "WP Holding, Inc.,"
whether or not such name be changed in the future, and wherever appropriate in
this Agreement, shall mean any past, present or future subsidiary corporation
which is a party to a merger or a consolidation with the Company, and/or
acquires all of the Shares of capital stock of the Company, and/or all or any
part of the assets of said Company other than in the ordinary course of business
of said Company.
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<PAGE> 11
(e) Separate Counsel. The parties acknowledge that Alexander
Hern and Riverson Leonard of the AV Stockholders group have been represented in
this transaction by Greenberg Traurig, P.A., and that each of the other
Stockholders hereto and the Company has not been represented by Greenberg
Traurig, and that each of the other Stockholders and the Company has been
advised that it is important for each of them to seek separate legal advice and
representation in this matter.
13. TERM. This Agreement shall terminate upon the earliest to occur of
(i) the voluntary written agreement by all of the Stockholders of the Company
who are, at that time, bound by the terms of this Agreement; (ii) the
dissolution, bankruptcy or receivership of the Company; (iii) a Sales Trans
action that is duly approved by the Company and in accordance with the terms
hereof; or (iv) there is a public offering of the capital stock of the Company
as set forth in Section 3 hereof or a private placement under Section 4(2) of
the Securities Act of 1933, either of which generates trading in the Shares on
an established securities market or permits the Shares to be readily tradable on
a secondary market. Upon termination of this Agreement, the Stockholders shall
surrender to the Company their stock certificates and the Company shall issue to
them an equal number of Shares without the legend set forth in this Agreement.
14. ENTIRE AGREEMENT. This Agreement contains the entire understanding
between and among the parties and supersedes any prior understandings and
agreements among them respecting the subject matter of this Agreement, including
without limitation, that certain term sheet concerning a Founders' Agreement
with Acquisition Ventures Group and Superhighway Consulting, Inc. dated December
28, 1998 attached as Exhibit B to the Note Agreement.
15. ARBITRATION. If at any time during the term of this Agreement any
dispute, difference or disagreement shall arise upon or in respect of the
Agreement, and the meaning and construction hereof, every such dispute,
difference and disagreement shall be referred to a single arbiter agreed upon by
the parties, or if no single arbiter can be agreed upon, an arbiter or arbiters
shall be selected in accordance with the rules of the American Arbitration
Association and such dispute, difference or disagreement shall be settled by
arbitration in accordance with the prevailing rules of the American Arbitration
Association, and judgment upon the award rendered by the arbiter may be entered
in any court having jurisdiction thereof.
16. PARAGRAPH HEADINGS. The paragraph headings in this Agreement are for
convenience only; they form no part of this Agreement and shall not affect its
interpretation.
17. GENDER. Words used herein, regardless of the number and gender
specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine or neuter, as the
context indicates, is appropriate.
18. PRESUMPTION. This Agreement or any section thereof shall not be
construed against any party due to the fact that said Agreement or any section
thereof was drafted by said party.
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<PAGE> 12
19. FURTHER ACTION. The parties hereto shall execute and deliver all
documents, provide all information and take or forbear from all such action as
may be necessary or appropriate to achieve the purposes of the Agreement.
20. PARTIES IN INTEREST. Nothing herein shall be construed to be to the
benefit of any third party, nor is it intended that any provision shall be for
the benefit of any third party.
21. ATTORNEYS' FEES. In the event of suit or other legal proceeding,
including mediation or arbitration, to enforce the terms of this Agreement, the
substantially prevailing party shall be entitled to collect from the
substantially nonprevailing party its reasonable attorneys' fees, reasonable
expenses and court costs, which shall include any appellate proceeding.
22. SEVERABILITY. In the event that any of the provisions of this
Agreement, or portions thereof, are held to be unenforceable or invalid by any
court of competent jurisdiction, the validity and enforceability of the
remaining provisions, or portions thereof, shall not be affected thereby.
23. EXECUTION IN COUNTERPARTS. This Agreement may be simultaneously
executed in several counterparts, each of which shall be an original and all of
which shall constitute but one and the same instrument.
24. SUBSEQUENT STOCKHOLDERS TO BECOME BOUND. Any person or entity not an
original signatory hereto who purchases or otherwise receives Shares from a
Stockholder party hereto shall be bound by all of the terms and provisions of,
and shall be entitled to all of the benefits and privileges of, this Agreement.
Before any person or entity not a party to this Agreement, including any person
or entity to whom transfers of Shares may be made hereunder, may be entitled to
be a Stockholder of the Company, such person or entity shall be required first
to execute and deliver to the Company an agreement, in substantially the form of
Exhibit B, pursuant to which such person or entity agrees to be bound by all of
the terms and conditions of this Agreement (as it may have then been amended)
thereby becoming a Stockholder and failure of any such person or entity so to do
shall preclude such person or entity from becoming a Stockholder of the company.
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<PAGE> 13
IN WITNESS WHEREOF, the Stockholders and the Company have caused this
Founders' Agreement to be executed on and as of the above-noted date.
COMPANY:
WP HOLDING, INC,
A DELAWARE CORPORATION
By:_________________________________
Name:_______________________________
Title:______________________________
Signatures, Continued:
STOCKHOLDERS:
SCI STOCKHOLDERS:
____________________________________
(Witness) KENNETH WRUK, Individually
Address:
____________________________________
(Witness) KEVIN MANLEY, Individually
Address:
____________________________________
(Witness) KEITH SPEER, Individually
Address:
____________________________________
(Witness) JOHN WEISS, Individually
Address:
____________________________________
(Witness) JACK GOLDBERG, Individually
Address:
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<PAGE> 14
SIGNATURES (CONTINUED):
____________________________________
(Witness) HARVEY MORRIS, Individually
Address:
____________________________________
(Witness) BARBARA FISHER, Individually
Address:
Signatures, Continued:
AV STOCKHOLDERS:
____________________________________
(Witness) ALEXANDER F. HERN, Individually
Address:
____________________________________
(Witness) RIVERSON LEONARD, Individually
Address:
____________________________________
(Witness) DAVID TOLMIE, Individually
Address:
____________________________________
(Witness) BRYAN KENNEDY, Individually
Address:
____________________________________
(Witness) MIKE SANTER, Individually
Address:
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<PAGE> 15
SCHEDULE A
STOCKHOLDERS OF WP HOLDING, INC.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
NAME OF STOCKHOLDER SHARES OWNED INTEREST
<S> <C> <C>
1. SCI GROUP:
a. Kenneth Wruk 5,494,832 Shares 21.98%
b. Kevin Manley 5,494,832 Shares 21.98%
c. Keith Speer 3,722,306 Shares 14.89%
d. John Weiss 3,722,306 Shares 14.89%
e. Jack Goldberg 236,336 Shares 0.95%
f. Harvey Morris 236,336 Shares 0.95%
g. Barbara Fisher 236,336 Shares 0.95%
2. AV GROUP:
a. Alexander F. Hern 1,470,000 Shares 5.88%
b. Riverson Leonard 390,000 Shares 1.56%
c. David Tolmie 200,000 Shares 0.80%
d. Bryan Kennedy 1,470,000 Shares 5.88%
e. Mike Santer 1,470,000 Shares 5.88%
</TABLE>
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<PAGE> 16
EXHIBIT A
RETURNS ANALYSIS SCHEDULE
(ATTACHED SEPARATELY HERETO)
-16-
<PAGE> 17
EXHIBIT B
FORM OF BINDING AGREEMENT
I,___________________________, the undersigned, do hereby agree to all of the
restrictions, terms and conditions of, and intend to be legally bound by, that
certain WP HOLDING, INC. FOUNDERS' AGREEMENT, dated as of March __, 1999 (the
"Founders' Agreement") and hereby authorize and direct the WP Holding, Inc., or
any successor or assign (collectively, the "Company") thereby, to place a
corresponding legend to that effect on all shares of Capital Stock of the
Company owned by me, directly or indirectly, and covered by the Founders'
Agreement.
Dated:______________
________________________________
________________________________
[Print Name]
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<PAGE> 18
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
(ATTACHED SEPARATELY HERETO)
-18-
<PAGE> 1
EXHIBIT 4.5
FIRST ADDENDUM
TO
FOUNDERS' AGREEMENT
THIS FIRST ADDENDUM TO FOUNDERS' AGREEMENT ("Addendum") is made as of
the 28th day of May, 1999, by and among YESMAIL.COM, INC., a Delaware
corporation, and formerly known as WP Holding, Inc. (the "Company"), and the
stockholders of the Company executing this Addendum (the "Stockholders").
WITNESSETH:
WHEREAS, the parties have entered into that certain Founders' Agreement
dated as of the 26th day of March, 1999 (as amended hereby and from time to
time, the "Founders' Agreement"), pursuant to which the Stockholders and the
Company agreed to certain rights, restrictions and obligations among such
Stockholders, including, among others, a right of certain Stockholders referred
to in the Founders' Agreement as the "SCI Group" to purchase from certain
Stockholders referred to in the Founders' Agreement as the "AV Group" all of the
AV Group's Common Stock of the Company, under the terms and conditions and as
further described in Section 10(a) thereof (the "Rights of Purchase") (other
capitalized terms used herein having the meanings ascribed to such terms in the
Founders' Agreement, unless otherwise defined herein); and
WHEREAS, under the terms of the Founders' Agreement, the SCI Group's
said Right of Purchase was to terminate and be of no further force or effect
upon the occurrence of certain events further described therein, which events as
of the date hereof have occurred; and
WHEREAS, the parties desire to execute this Addendum to the Founders'
Agreement to: (a) modify, amend, terminate and void the Right of Purchase in
light of the occurrence of the events described in the Founders' Agreement; (b)
enable the Stockholders to transfer their Shares to a family trust or limited
partnership of which such Stockholder retains sole and exclusive control over
the voting and disposition of the said Shares until the termination of the
Founders' Agreement; and (c) make such other clarifications as are necessary and
appropriate.
NOW, THEREFORE, in consideration of the premises, and for other good and
valuable consideration, receipt and sufficiency of which is hereby acknowledged,
the parties hereto agree to amend the Founders' Agreement as follows:
1. Recitals. The Recitals set forth above are true and correct and are
incorporated herein by reference.
2. Termination of Right to Purchase. The parties hereto acknowledge and
agree that as of the date hereof no "Purchase Event" (as defined in Section
10(a) of the Founders' Agreement) has occurred or after the date hereof no
Purchase Event can occur, and accordingly the SCI Group's Right of Purchase as
set forth in Section 10 shall hereby be terminated without further action by any
of the
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<PAGE> 2
parties hereto and without further rights or obligations on the part of the AV
Group or any of its successors, transferees or assigns and said Right of
Purchase shall be void and no further force or effect.
3. Transfer for Estate Planning Purposes. Section 4 of the Founders'
Agreement is hereby amended by inserting a new paragraph at the end of such
Section as follows:
Notwithstanding the above, a Stockholder may, without complying
with the provisions of this Section 4 and for estate planning
purposes only, transfer all or any of his Shares to, or for the
benefit of, any family trust or limited partnership so long as
with respect to (i) the trust, the trust instrument governing
said trust shall provide, or (ii) the limited partnership, the
limited partnership agreement shall provide that such
Stockholder, as trustee, general partner or otherwise, as the
case may be, shall retain sole and exclusive control over the
voting and disposition of such Shares until the termination of
the Founders' Agreement; and any such transfers made on or prior
to the date of this Addendum are specifically authorized and
permitted.
4. Additional Permitted Transfer. Keith E. Speer is specifically
authorized and permitted to transfer 50,000 shares of common stock in the
Company to the Lisa Blue Dynasty Trust, Bartly J. Loethen, Trustee.
5. Clarification of Transfer Upon Initial Public Offering or Sale.
Notwithstanding any provision contained in Section 2 or 3 of the Founders'
Agreement which may be to the contrary, the total percentage of outstanding
shares of Common Stock of the Company owned in the aggregate by the AV Group and
the SCI Group referenced in Section 2(a) or (b) or Section 3(a) or (b) of the
Founders' Agreement for the purpose of computing the Minimum Sale Proceeds
transfer amount pursuant to Section 2 or the share transfer amount pursuant to
Section 3 shall be the respective percentage of Common Stock held by the AV
Group and the SCI Group as of the date of the merger between SCI and WP Holding,
Inc. and shall not include any stock options, restricted stock or series A
preferred stock which may be acquired such parties, but such respective
percentages may be diluted through any subsequent issuance of shares.
Furthermore, while each group's total percentage may be diluted through any
subsequent issuance of shares, the ratio of stock ownership between the SCI
Group and the AV Group shall remain 4:1.
6. Survival of Founders' Agreement Provisions upon Initial Public
Offering. Section 13 of the Founders' Agreement shall be restated in its
entirety to rad as follows:
"13. TERM.
(a) This Agreement shall terminate upon the earliest to
occur of: (i) the voluntary written agreement by all of
the Stockholders of the Company who are, at that time,
bound by the terms of this Agreement; (ii) the
dissolution, bankruptcy or receivership of the
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<PAGE> 3
Company; (iii) a Sale Transaction that is duly approved
by the Company and in accordance with the terms hereof;
or (iv) there is a public offering of the capital stock
of the Company pursuant to an effective registration
statement filed on any form promulga ted by the SEC
under the Securities Act of 1933, as amended, which
generates trading in the Shares on an established
securities market or permits the Shares to be readily
tradable on a secondary market. Upon termination of this
Agreement, the Stockholders shall surrender to the
Company their stock certificates and the Company shall
issue to them an equal number of Shares without the
legend set forth in this Agreement.
(b) Notwithstanding the provisions of this Agreement
referenced above, the following provisions shall survive
any termination of this Agreement by reason of an
Initial Public Offering, pursuant to Section 13(a)(iv):
(i) The Registration Rights Agreement dates as
referenced in Section __ of this Agreement shall
survive the registration of an initial public
offering;
(ii) The provisions of Section 3 of this Agreement
shall survive the registration of an initial
public offering until such time as the transfer
of shares pursuant to said Section 3 takes
place, or until such right expires according to
its terms; and
(c) Notwithstanding the provisions of this Agreement
referenced above, the following provisions shall survive
any termination of this Agreement by reason of a sale of
the Company, pursuant to section 13(a)(iii):
(i) The provisions of Section 2 of the Founders'
Agreement shall survive the sale of the Company
only until such time as the transfer of funds
pursuant to said Section 2 takes place.
provided, however, Section 2 shall terminate in the
event that an IPO occurs as referenced in Section
13(a)(iv), above prior to any Sale transaction
referenced in Section 13(a)(iii), above."
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<PAGE> 4
7. Confirmation of Share Ownership. Each of the Stockholders and the
Company hereby confirms the stock ownership of the Stockholders is as set forth
on the attached Exhibit A and each Stockholder represents and warrants to the
Company and the other Stockholders that said Stockholder's ownership is
correctly set forth on Exhibit A.
8. Survival of Founders' Agreement. This Addendum modifies and amends
only that portion of the Founders' Agreement stated herein. In all other
respects, the Founders' Agreement as so modified is ratified and affirmed by the
parties and all other provisions and obligations of the Founders' Agreement
remain unaltered and in full force and effect and shall apply to this Addendum
with full force and effect as if this Addendum were a part thereof. To the
extent that any term or provision of this Addendum is or may be deemed expressly
inconsistent with any term or provision in the Founders' Agreement or any other
document executed in connection with the transactions contemplated thereby, the
terms and provisions hereof shall control.
This Addendum may be executed in one or more counterparts, each of which
shall constitute an original, but all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have signed, sealed and delivered
this Addendum in the presence of:
COMPANY:
YESMAIL.COM, INC. (formerly WP
Holding, Inc.), a Delaware
corporation
By:_________________________________
Name:_______________________________
Title:______________________________
STOCKHOLDERS:
SCI GROUP:
____________________________________
KENNETH WRUK, Individually
____________________________________
KEVIN MANLEY, Individually
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<PAGE> 5
____________________________________
KEITH SPEER, Individually
____________________________________
JOHN WEISS, Individually
____________________________________
JACK GOLDBERG, Individually
____________________________________
HARVEY MORRIS, Individually
____________________________________
BARBARA FISHER, Individually
AV GROUP:
____________________________________
ALEXANDER F. HERN, Individually
____________________________________
RIVERSON LEONARD, Individually
____________________________________
DAVID TOLMIE, Individually
____________________________________
BRYAN KENNEDY, Individually
____________________________________
MIKE SANTER, Individually
-5-
<PAGE> 1
EXHIBIT 10.14
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger is made effective as of this 3rd day
of March, 1999, by and between SUPERHIGHWAY CONSULTING, INC., an Illinois
corporation ("Illinois Corporation"), and WP HOLDING, INC., a Delaware
corporation ("Delaware Corporation" or the "Surviving Corporation" and
collectively with the Illinois Corporation, the "Corporations"), with the
Illinois Corporation merging with and into the Delaware Corporation, such that
the separate existence of the Illinois Corporation shall cease and the Delaware
Corporation shall continue as the surviving corporation (the "Merger").
WHEREAS, the Board of Directors and Shareholders of the Illinois
Corporation and the Board of Directors and Stockholders of the Delaware
Corporation deem it advisable and in the best interests of the Corporations and
shareholders or stockholders, as the case may be, to merge the Corporations; and
WHEREAS, it is the intention of the parties hereto that the Merger shall
constitute a tax-free reorganization, as defined in Section 368(a)(1)(A) of the
Internal Revenue Code of 1986, as amended, and that this Agreement and Plan of
Merger shall also constitute a Plan of Reorganization.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for the purpose of the Merger and prescribing certain
terms and conditions of the Merger and the mode of carrying same into effect,
the parties hereto agree as follows:
ARTICLE I
1.1 The Merger. Upon the terms and subject to the conditions hereof, and
in accordance with the relevant provisions of the Illinois Business Corporation
Act of 1983, as amended ("IBCA"), and the General Corporation Law of the State
of Delaware ("DGCL"), the Illinois Corporation shall be merged with and into the
Delaware Corporation. Following the Merger, the Delaware Corporation shall
continue as the surviving corporation and shall continue its existence under the
laws of the State of Delaware, and the separate corporate existence of the
Illinois Corporation shall cease.
1.2 Effective Date and Effective Time. The Merger shall be consummated
by filing with the Secretary of State of the State of Delaware a Certificate of
Merger in accordance with the provisions of the DGCL and Articles of Merger with
the Secretary of State of the State of Illinois in accordance with the
provisions of the IBCA and the conversion of the shares of common stock of the
Illinois Corporation into shares of common stock of the Surviving Corporation as
contemplated by Section 5.1. The Merger shall have the effects set forth in the
IBCA and DGCL. The Merger shall be effective immediately upon filing the
Certificate of Merger with the Secretary of State (the date and time of filing
being referenced to herein as the "Effective Date" and the "Effective Time,"
respectively).
ARTICLE II
2.1 Rights and Duties of the Delaware Corporation as the Surviving
Corporation. At the Effective Time, the Surviving Corporation shall thereupon
and thereafter possess all the rights,
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<PAGE> 2
privileges, powers and franchises of a public as well as of a private nature, of
each of the Corporations, and be subject to all the restrictions, disabilities
and duties of each of the Corporations so merged; and all of the rights,
privileges, powers and franchises of each of the Corporations, and all property,
real, personal and mixed, and all debts due to either of the Corporations on
whatever account, as well for stock subscriptions and all option or warrants for
stock of either Corporation, and specifically, without limitation, that certain
warrant Number 1 of the Illinois Corporation issued as security to Alexander F.
Hern and dated as of December 28, 1998, shall be vested in the Surviving
Corporation; and all property, rights, privileges, powers and franchises and all
and every other interest shall be thereafter the property of the Surviving
Corporation as they were of the Corporations; and the title to any real estate,
vested by deed or otherwise, under the laws of the State of Illinois or the
State of Delaware or otherwise, in either of the Corporations, shall not revert
or in any way be impaired by reason of the Merger; provided, that all debts,
liabilities and duties of the Corporations, and all rights of creditors and all
liens upon any property of either of the Corporations shall thenceforth attach
to the Surviving Corporation, and may be enforced against it to the same extent
as if said debts, liabilities and duties had been incurred or contracted by it.
ARTICLE III
3.1 Articles of Incorporation; Bylaws. The Certificate of Incorporation
and By-Laws of the Delaware Corporation, as in effect immediately prior to the
Effective Time, shall be the Certificate of Incorporation and By-Laws of the
Surviving Corporation until thereafter amended as provided by law.
ARTICLE IV
4.1 Directors. The directors of the Delaware Corporation immediately
prior to the Effective Time shall be the directors of the Surviving Corporation
and will hold office from the Effective Time until their respective successors
are duly elected and qualified in the manner provided in the Certificate of
Incorporation and By-Laws of the Surviving Corporation, or as otherwise provided
by law.
4.2 Officers. The officers of the Delaware Corporation immediately prior
to the Effective Time shall be the officers of the Surviving Corporation and
will hold office from the Effective Time until their respective successors are
duly elected or appointed in the manner provided in the By-Laws of the Surviving
Corporation or as otherwise provided by law.
ARTICLE V
5.1 Conversion or Cancellation of Shares. At the Effective Time, each
share of common stock of the Illinois Corporation issued and outstanding
immediately prior to the Merger shall be converted into 29.542097 shares of the
Surviving Corporation. After the Effective Time, each holder of an outstanding
certificate or certificates representing shares of common stock of the Illinois
Corporation immediately prior to the Effective Time shall surrender same to the
Surviving Corporation and shall receive, in exchange therefor, a certificate or
certificates representing the appropriate number of shares in the Surviving
Corporation common stock. Until so surrendered, each stock certificate shall, by
virtue of the Merger, be deemed for all purposes to evidence ownership of the
appropriate number
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<PAGE> 3
of shares of the Surviving Corporation. Shareholders and stockholders who vote
against the Merger shall have all the rights, if any, accorded such parties
under the IBCA and DGCL, respectively.
5.2 Dissenter's Rights. Only shareholders and stockholders who properly
exercise dissenter's rights, if any, in accordance with the provisions of the
IBCA or DGCL, respectively, shall be entitled to exercise such dissenter's
rights in connection with the Merger.
ARTICLE VI
6.1 Book Value of Assets. The assets and liabilities of the Illinois
Corporation shall be recorded upon the books of the Surviving Corporation at the
amounts at which said assets and liabilities are recorded upon the books of the
Illinois Corporation immediately prior to the Effective Time.
ARTICLE VII
7.1 Termination. This Agreement may be terminated and abandoned by the
mutual consent of the Boards of Directors of the Corporations at any time before
the Effective Date, whether before or after approval of this Plan by the
shareholders of the Corporations.
ARTICLE VIII
8.1 Timing. For accounting purposes only, the Effective Date shall be
deemed to be at 12:01 a.m., March 29, 1999. The officers of the Surviving
Corporation are hereby authorized to specify an alternative Effective Date for
accounting purposes at their discretion.
ARTICLE IX
9.1 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to the
conflicts of law rules thereof.
9.2 Headings. The headings in this Agreement are inserted for
convenience only and shall not constitute a part hereof.
9.3 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all of which taken
together shall constitute one single agreement between the parties.
9.4 Severability. If any provision of this Agreement is held by a court
of competent jurisdiction to be contrary to law, then the remaining provisions
of this Agreement, as applicable, if capable of substantial performance, shall
remain in full force and effect.
9.5 Entire Agreement. This Agreement supersedes all prior discussions
and agreements between the parties with respect to the subject matter hereof,
and is the entire agreement between the parties with respect to the subject
matter hereof.
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<PAGE> 4
9.6 Amendments. No amendment to, or change, waiver or discharge of, any
provision of this Agreement shall be valid unless in writing and signed by an
authorized representative of each party.
9.7 Third Party Beneficiaries. This Agreement is not intended to confer
upon any person or entity, other than the parties hereto, any rights or
remedies.
9.8 Covenant of Further Assurances. The parties covenant and agree that,
subsequent to the execution and delivery of this Agreement and without any
additional consideration, each of them shall execute and deliver any further
legal instruments and perform any reasonable acts which are or may become
necessary to effectuate the purposes of this Agreement.
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<PAGE> 5
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed on its behalf and attested by its officers thereunto duly
authorized, all as of the date first above written.
ATTEST: WP HOLDING, INC.
By:
- ---------------------------------- ---------------------------------
Authorized Representative
Its: Director
---------------------------------
ATTEST: SUPERHIGHWAY CONSULTING, INC.
By:
- ---------------------------------- ---------------------------------
Secretary
Its: President
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EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use
of our report (and to all references to our Firm) included in or made part of
this registration statement.
ARTHUR ANDERSEN LLP
Chicago, Illinois
June 4, 1999
