<PAGE>
As filed with the Securities and Exchange Commission on April 28, 2000
Registration No. 333-96271
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
ALLADVANTAGE.COM INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 7319 94-3327058
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
---------------
4010 Point Eden Way, Hayward, California 94545, (510) 888-3898
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------
James Jorgensen
President and Chief Executive Officer
4010 Point Eden Way, Hayward, California 94545, (510) 888-3898
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
<TABLE>
<S> <C>
Laird H. Simons III, Esq. Gregory C. Smith, Esq.
Mark A. Leahy, Esq. Thomas J. Ivey, Esq.
Andrew Y. Luh, Esq. Skadden, Arps, Slate, Meagher & Flom LLP
Fenwick & West LLP 525 University Ave.
Two Palo Alto Square Suite 220
Palo Alto, CA 94306 Palo Alto, CA 94301
(650) 494-0600 (650) 470-4500
</TABLE>
---------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration
Statement.
---------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, 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 of 1933, 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 of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
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 Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED APRIL 28, 2000.
15,000,000 Shares
[AllAdvantage.com Logo]
Common Stock
--------
Prior to this offering, there has been no public market for our common stock.
The initial public offering price is expected to be between $8.00 and $10.00
per share. We have applied to list our common stock on The Nasdaq Stock
Market's National Market under the symbol "AADV." We anticipate that our
executive officers, our directors and entities affiliated with them and our 5%
stockholders together will beneficially own approximately 63% of our
outstanding common stock following the completion of this offering. These
stockholders will be able to control matters requiring approval by our
stockholders.
The underwriters have an option to purchase a maximum of 2,250,000 additional
shares to cover over-allotments of shares.
Investing in the common stock involves risks. See "Risk Factors" on page 7.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions AllAdvantage
-------- ------------- ------------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total...................................... $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about ,
2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Joint Book-Running Managers
Credit Suisse First Boston Donaldson, Lufkin & Jenrette
Robertson Stephens
The date of this prospectus is , 2000.
<PAGE>
GRAPHICS AND TEXT ON THE OUTSIDE GATEFOLD INCLUDE:
The following words are centered across the top of the outside gatefold:
"The AllAdvantage Viewbar(TM)"
The following information is centered directly below the initial text:
A horizontal screen shot of the Viewbar.
Across the top of the Viewbar are depictions of buttons containing the
words "Home," "News," "Finance," "Shop," "Entertainment," "Travel," "Sports,"
and "Tech."
On top of the "Shop" button is an expanded pop-up menu, in the form of a
vertical column, containing the following words which read from the top down:
"Auctions" "Autos," "Baby Care," "Books," "Clothing & Accessories," "Computers
& Electronics" which are highlighted, "Department Stores," "Events/Tickets,"
"Flowers & Gifts," "Food and Beverages," "Health & Beauty," "Home & Garden,"
"Music & Video," "Office Supplies, Pets," "Software, Sports & Fitness," "Toys,
Games & Hobbies," "Travel," and "Miscellaneous". To the right and parallel to
the highlighted words "Computers & Electronics" is a drop-down menu, in the
form of a vertical column, containing the following words which read from the
top down: "PCs & Laptops," which are highlighted, "Software," "Audio & Video,"
"Phones & Handhelds" and "Cameras."
The following text connected by lines to functional areas of the Viewbar
surrounds the depiction of the Viewbar, starting above the depiction of the
Viewbar and to the left of the "Shop" button pop-up menu and following anti-
clockwise around the entire screen shot of the Viewbar:
"Check the weather, buy a car or book a vacation. Members select a category
and get direct access to popular sites."
"One click minimizes the Viewbar at any time for ultimate flexibility of
use."
"Use the menu bar to navigate quickly and easily."
"Members choose from six available search engines. Just enter search
criteria while using any program and launch directly to the search results."
"Banner and tile advertising spaces allow persistent messaging throughout
the user's Internet experience."
"One-to-one targeting makes marketing messages more relevant."
The body of the Viewbar is depicted in three adjoining sections, the
section on the left hand side of the Viewbar depicts a search engine with the
word "Search" presented and an expanded drop-down menu, in the form of a
vertical column, containing the following words, which read from the top down:
"Ask Jeeves," "Direct Hit," "Excite," "Go.com," "GoTo.com" and "LookSmart".
The center section of the Viewbar depicts the Viewbar's banner advertising
space with AllAdvantage.com's logo presented and the section on the right hand
side of the Viewbar depicts the Viewbar's tile advertising space and presents
the following text: "ALLPLAY(TM) Channel Advantage(TM)"
At the bottom right hand corner of the page is AllAdvantage.com's logo with
the following text directly below:
"Its time to take advantage of the Internet.(TM)"
<PAGE>
GRAPHICS AND TEXT ON THE INSIDE GATEFOLD INCLUDE:
The following words are centered across the top of the two page inside
gatefold:
"The Infomediary Position"
The AllAdvantage logo without the word AllAdvantage embedded in the logo is
centered in the middle of the page directly below the initial text.
The following text is centered directly below the logo: "Providing a
platform for e-commerce, and digital products distribution." and the following
text is centered directly above the logo between the logo and the initial
text: "Connecting businesses and members through a persistent, one to one
channel."
To the right of the logo in the middle of the page is the word "Businesses"
and to the left of the logo in the middle of the page is the word "Members."
Four arching arrows surround the logo with text presented in the center of
each arrow. Two arrows point inwards at the logo, one at the top right side of
the logo containing the words "Advertising & Promotional $" and the other at
the left hand side of the logo containing the words "Demographic & Behavioral
Data" and two arrows point away from the logo one from the bottom right hand
side of the logo containing the words "Targeting Capability & Increased ROI"
and one from the bottom left hand side of the logo containing the words
"Functionality, $ and Privacy."
At the bottom right hand corner of the page is AllAdvantage's logo with the
following text directly below:
"Its time to take advantage of the Internet.(TM)"
<PAGE>
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Special Note Regarding Forward-Looking Statements........................ 23
Use of Proceeds.......................................................... 24
Dividend Policy.......................................................... 24
Capitalization........................................................... 25
Dilution................................................................. 27
Selected Consolidated Financial Data..................................... 28
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 29
Business................................................................. 35
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management................................................................. 52
Related Party Transactions................................................. 64
Principal Stockholders..................................................... 69
Description of Capital Stock............................................... 71
Shares Eligible for Future Sale............................................ 75
Underwriting............................................................... 77
Notice to Canadian Residents............................................... 80
Legal Matters.............................................................. 81
Experts.................................................................... 81
Where You Can Find Additional Information.................................. 81
Index to Consolidated Financial Statements................................. F-1
</TABLE>
----------------
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
Dealer Prospectus Delivery Obligations
Until , 2000 (25 days after the commencement of this offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealers' obligation to deliver a prospectus when acting
as underwriters and with respect to unsold allotments or subscriptions.
2
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information and consolidated financial statements and notes thereto appearing
elsewhere in this prospectus. This prospectus contains forward-looking
statements. The outcome of the events described in these forward-looking
statements is subject to risks, and actual results could differ materially.
AllAdvantage.com Inc.
AllAdvantage has built a new Internet communications system that connects
our business customers and members through our proprietary infrastructure. This
infrastructure is comprised of our network of servers and databases coupled
with our Viewbar, an interactive user interface that resides on our members'
computer screens. The design of our communications system allows us to serve as
an Internet-based information intermediary, or infomediary, providing an e-
commerce platform and valuable data to our business customers while maintaining
the privacy of our members.
With our members' express permission, we continuously track and collect data
about their Internet behavior and demographics in order to develop highly
accurate and detailed personal profiles. We use these profiles to enable our
business customers to reach specific audiences through the Viewbar, allowing
them to deliver highly-targeted advertisements to and conduct electronic
commerce with our members. Online advertisements may be highly targeted to a
specific group of members based on variables such as profiled past behavior,
current Internet behavior, demographic data, specific Web sites visited,
keywords searched and specific time of day or week. Because we are committed to
preserving our members' autonomy, our members may close the Viewbar at any
time, even though our database does not capture their Internet behavior during
that time.
The Viewbar is the interface through which we collect member data and
deliver highly-targeted advertisements and marketing messages. The Viewbar also
simplifies Internet navigation and electronic commerce for our members' with
its pop-up category menus, search field, and direct links to over 400 Web
sites. We provide cash compensation to our members for the time, on a per hour
basis, that they and the members whom they have referred spend browsing the
Internet while their Viewbars are open. Our business customers pay us for their
advertising delivered on our Viewbar. We sell advertisements through our direct
sales force and under agreements with third-party advertising sales
organizations, to which we pay a commission upon their completion of
advertising sales.
From our inception in March 1999 through March 2000, over 6.7 million
persons registered to receive our service, of which 6.5 million continue to be
registered. We launched our Viewbar service in July 1999. Since our launch,
over 2.5 million members have downloaded and used the Viewbar software. During
the three months ended March 31, 2000, over 2 million of those members used the
Viewbar. To date, we have made the Viewbar available to our members in the
United States, Australia, Austria, Belgium, Canada, Denmark, Finland, France,
Germany, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal,
Spain, Sweden, Switzerland and the United Kingdom. During the three months
ended March 31, 2000, we delivered advertisements for over 1,500 businesses. In
the month of March 2000, we delivered over 7.7 billion advertising impressions
on our Viewbar. During 1999 and the first quarter of 2000, substantially all of
the advertisements we sold were not highly-targeted. From inception through
March 31, 2000, we incurred net losses of $102.7 million. We expect to incur
operating losses and negative operating cash flow for the foreseeable future.
Our objective is to expand our position in the Internet data market,
including the information-enabled fields of advertising, electronic commerce,
profiling, and data analysis, thereby becoming the leading Internet-
3
<PAGE>
based infomediary. Key elements of our strategy include utilizing our
proprietary communications infrastructure to generate new revenue
opportunities, expanding our database of profiled members, expanding our
business customer base and increasing the features and functionality of our
Viewbar.
We anticipate that our executive officers, our directors and entities
affiliated with them and our 5% stockholders together will beneficially own
approximately 63% of our outstanding common stock following the completion of
this offering. These stockholders will be able to control matters requiring
approval by our stockholders.
We were incorporated in California on March 24, 1999, and we intend to
reincorporate in Delaware prior to the completion of this offering. As of March
31, 2000, we had 587 full-time employees and contractors. Our address is 4010
Point Eden Way, Hayward, California 94545. Our telephone number is (510) 888-
3898. Our Web site is located at www.alladvantage.com. Information contained on
our Web site does not constitute part of this prospectus.
4
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered by AllAdvantage................ 15,000,000 shares
Common stock to be outstanding after this offering.. 117,339,010 shares
Use of proceeds..................................... For foreign expansion, capital expenditures,
brand maintenance and promotion, member
payments and other working capital purposes.
Proposed Nasdaq National Market symbol.............. AADV
</TABLE>
The number of shares of common stock to be outstanding after this offering
is based on shares outstanding as of March 31, 2000, including 16,453,926
shares of our Series D preferred stock issued in February 2000, which will
convert into 20,567,391 shares of common stock upon completion of this offering
at an assumed public offering price of $9.00 per share based upon the midpoint
of the filing range. The number of shares of common stock issuable upon
conversion of the Series D preferred stock increases from 16,453,926 shares as
the initial offering price decreases below $12.10 per share, with the maximum
number of shares equal to 20,567,391 shares, which number is reached at any
initial public offering price at or below $9.68 per share. This number of
shares set forth above excludes:
. 14,126,858 shares issuable upon the exercise of stock options
outstanding as of March 31, 2000, at a weighted-average exercise price
of $2.93 per share;
. 477,550 shares issuable upon the exercise of warrants for Series C
preferred stock outstanding at March 31, 2000 at an exercise price of
$0.03 per share, which will become exercisable for 477,550 shares of
common stock upon the completion of this offering;
. 75,000 shares issuable upon the exercise of a warrant for Series D
preferred stock outstanding at March 31, 2000, at an exercise price of
$6.05 per share, which will become exercisable for 93,750 shares of
common stock upon the completion of this offering at an assumed public
offering price of $9.00 per share; and
. 23,397,526 shares available for future issuance under the 1999 equity
incentive plan and 2000 equity incentive plan of our California
predecessor on March 31, 2000 and our 2000 equity incentive plan and
2000 employee stock purchase plan on March 31, 2000, subject to
automatic annual increases.
----------------
Except as otherwise indicated, all information in this prospectus assumes:
. the conversion of all outstanding shares of preferred stock into
72,702,077 shares of common stock upon the completion of this offering
at an assumed public offering price of $9.00 per share based upon the
midpoint of the filing range;
. the reincorporation of AllAdvantage in Delaware;
. the adoption of our 2000 equity incentive plan and 2000 employee stock
purchase plan; and
. no exercise of the underwriters' over-allotment option.
Titles and logos of our products and services appearing in this prospectus,
including AllAdvantage, AllAdvantage.com, It's time to take advantage of the
Internet, and Viewbar, are trademarks or service marks of AllAdvantage. Each
trademark or service mark of any other company appearing in this prospectus
belongs to its holder.
5
<PAGE>
Summary Consolidated Financial Data
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Period from Period from
Inception Three Months Inception Three Months
(March 24, 1999) Ended (March 24, 1999) Ended
to September 30, December 31, to December 31, March 31,
1999 1999 1999 2000
---------------- ------------ ---------------- ------------
<S> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenues................ $ 235 $ 5,016 $ 5,251 $ 9,100
Loss from operations.... (8,428) (28,214) (36,642) (66,061)
Net loss................ (8,988) (28,121) (37,109) (65,638)
Net loss per share(1):..
Basic and diluted net
loss per share ...... $ (1.27) $ (3.52) $ (5.04) $ (8.20)
Shares used in per
share calculation ... 7,050 8,000 7,367 8,000
Pro forma basic and
diluted net loss per
share (unaudited) ... $ (0.97) $ (0.95)
Shares used in pro
forma per share
calculation
(unaudited) ......... 38,287 69,444
</TABLE>
- --------
(1) See note 2 of notes to consolidated financial statements for the
determination of the number of shares used in computing net loss per share
and pro forma net loss per share amounts.
The actual column in the following table presents actual summary
consolidated balance sheet data as of March 31, 2000. The pro forma as adjusted
consolidated balance sheet data below reflects the receipt of the net proceeds
from the sale of the 15,000,000 shares of common stock offered by us at an
assumed initial public offering price of $9.00 per share and after deducting
the estimated underwriting discounts and commissions and estimated offering
expenses payable by us and the conversion of all outstanding shares of
preferred stock into 72,702,077 shares of common stock upon the completion of
the initial public offering at an assumed public offering price of $9.00 per
share.
<TABLE>
<CAPTION>
March 31, 2000
---------------------
Pro Forma
Actual As Adjusted
-------- -----------
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and restricted cash (1)............ $ 87,345 $211,795
Working capital .......................................... 25,971 150,421
Total assets.............................................. 104,497 228,947
Capital lease obligations, net of current portion......... 212 212
Deferred stock compensation............................... (23,934) (23,934)
Total stockholders' equity ............................... 33,125 157,575
</TABLE>
- --------
(1) Restricted cash was $2.0 million at March 31, 2000 and represented a
deposit with our bank for a letter of credit relating to an office lease
arrangement.
6
<PAGE>
RISK FACTORS
An investment in our common stock is very risky. You should carefully
consider the risks described below, together with the other information in this
prospectus, before buying shares in this offering.
We face risks related to our business.
We cannot predict that our business will be successful, because our business
model is unproven and we have operated our business for only a short period of
time.
We were incorporated in March 1999. We have allowed members to use our
Viewbar only since July 1999 and the current version of our Viewbar was first
released in April 2000. Our limited operating history makes it difficult for
members to evaluate the services we make available to them and for businesses
to evaluate our members' response to advertisements and sponsorships provided
on our Viewbar. Because our business model is unproven, it will be difficult
for you to evaluate our performance.
We just recently began recognizing revenues, have incurred substantial losses
to date and expect to continue to incur losses.
We first recognized revenues only in August 1999. We incurred net losses of
$37.1 million from inception, March 24, 1999, through December 31, 1999 and
$65.6 million for the three months ended March 31, 2000. We expect to continue
to incur operating losses for the foreseeable future. In the future, we expect
our direct member payment costs, sales and marketing expenses, general and
administrative expenses and product development expenses to increase
significantly. We will also incur substantial non-cash charges relating to the
amortization of deferred stock compensation for issuances of stock options,
which will increase our losses during the periods in which the charges are
incurred. The charges are incurred over the vesting periods of the related
options, which is generally four years. We recorded deferred stock compensation
of approximately $20.1 million in 1999. For the quarter ended March 31, 2000,
we recorded deferred stock compensation of approximately $8.2 million in
connection with stock option grants in February 2000 at an exercise price of
$6.05. Deferred stock compensation at March 31, 2000 was $23.9 million, which
will be amortized as follows: $10.4 million during the last nine months of
2000; $7.6 million during the year ending December 31, 2001; $4.1 million
during the year ending December 31, 2002; $1.7 million during the year ending
December 31, 2003; and $100,000 during the year ending December 31, 2004. Thus,
our revenues may never exceed our expenses, and we may never achieve
profitability.
A number of factors may affect our long-term viability, and cause our quarterly
operating results to fluctuate, which could negatively affect the market price
of your shares.
Our quarterly results of operations are likely to vary significantly from
quarter to quarter. A number of factors may affect our long-term viability and
are likely to cause variations in our results of operations. These factors
include:
. changes in our pricing policies;
. our rate of member acquisition;
. increases in direct member costs, member referral expenditures and other
sales and marketing costs that we incur to attract and retain members;
and
. the introduction of new products and services by us.
Additional factors, which are largely outside of our control, include:
. changes in our revenue levels due to the advertising and marketing
budget cycles of our business customers;
. the level of activity of new and existing members;
7
<PAGE>
. changes in the pricing policies of our direct competitors or the pricing
levels for Internet advertising and marketing generally;
. the introduction of new products and services by our competitors;
. unexpected costs and delays resulting from the expansion of our
operations; and
. the occurrence of technical difficulties or unscheduled system downtime.
Due to these and other factors, we believe that quarter-to-quarter
comparisons of our operating results may not be meaningful, and you should not
rely upon them as an indication of our future performance.
If we fail to generate sufficient advertising and other revenues, we may not
reach profitability.
Since inception, we have generated substantially all of our revenues from
the sale of online advertisements on our Viewbar. We also have generated
revenues from a variety of different arrangements including sponsorships,
performance-based arrangements and referrals to third-party Web sites.
Advertisers pay us for the number of impressions, or advertisements displayed,
for the number of times members click on advertisements, or based on other
criteria, such as the number of members who register for a service. Under
sponsorship arrangements, we may receive a fixed fee or a fee based on the
usage of the search field, a fee based upon the selection of the pop-up menu
item, a commission based on purchases by members or a combination of these
options. We also have arrangements with our business customers under which we
receive a fee for directing members to their Web sites. These fees are based
upon the number of times members are directed to our business customers' Web
sites via the Viewbar. We expect to generate revenues in the future from sales
of digital products and generalized market data and from referral payments and
revenue sharing payments made by businesses that offer to our member community
products and services which bear their brands as well as the AllAdvantage
brand.
During 1999 and the first quarter of 2000, substantially all of the
advertisements we sold were not highly-targeted. Our strategy includes
increasing highly-targeted advertising as a percentage of both the total number
of advertisements we sell and of revenues from all advertising. We have limited
experience marketing and pricing highly-targeted advertisements and these other
types of arrangements, and have limited experience with respect to the
performance of these arrangements. Thus, we cannot be sure that we are
appropriately pricing, marketing or structuring these arrangements, or whether
we will perform under these arrangements to the satisfaction of our business
customers. In addition, the success of some of these arrangements will depend
on our ability to target members effectively based on demographic and other
information. We may encounter technical and other limitations on this ability,
including problems associated with the serving of advertisements, some of which
are out of our control. Further, we believe that we need to increase the size
of our internal sales force in order to sell additional advertising,
particularly highly-targeted advertising. In light of these factors, we may be
unable to generate sufficient advertising or other revenues to reach
profitability.
If we are unable to continue to enhance the functionality of our Viewbar, our
business may be harmed.
If we are unable to continue to enhance the functionality of our Viewbar on
a timely and cost-effective basis, or if these enhancements do not achieve
widespread market acceptance, our membership growth may be reduced, we may miss
market opportunities and our business may be harmed. Implementing enhancements
to our Viewbar is costly and requires significant time of our management. Any
delays we experience in implementing enhancements to our Viewbar may result in
lost revenues and may harm our operating results. The life cycles of our
enhancements are difficult to predict because we operate in a new and emerging
market that is characterized by rapid technological change, changing customer
needs and evolving industry standards. The introduction of competing online
advertising delivery mechanisms that provide greater functionality or better
data collection could render our existing Viewbar obsolete and unmarketable.
8
<PAGE>
The current version of the Viewbar was released in April 2000. We may
experience technical and customer support issues associated with this
introduction or with introductions of future versions of our Viewbar. We may
also lose members who have used a prior version of our Viewbar and either
choose not to spend the time, or are unable, to upgrade their Viewbar. In
addition, we may lose existing members who do not like aspects of the current
or future versions of our Viewbar.
If we are unable to provide our members attractive benefits from their
aggregated purchasing power, our business may be harmed.
We have recently begun to work with selected vendors to obtain pricing
discounts, promotional rewards and other benefits for our members based upon
their aggregated purchasing power. However, members might not find any benefits
that we negotiate attractive or may be able to obtain similar benefits from
other sources at lower costs or otherwise on more favorable terms. Further, our
members may expect greater benefits than we are able to obtain for them. We may
lose existing members or be unable to attract new members if we are unable to
make available attractive benefits from their aggregated purchasing power.
If we fail to retain and grow our member base, we may not be able to generate
revenues.
Membership growth and retention is crucial to our ability to generate
revenues. To date, we have relied on member referral marketing to attract the
vast majority of our new members, and we plan to do so for the foreseeable
future. To date, approximately 84% of our new members have come from member
referrals. This type of marketing is outside of our direct control and may not
generate rates of growth in our member base comparable to those experienced to
date. A large percentage of our referrals come from members of our A-Plus
group, which consists of members with 20 or more referrals each. Changes in our
payment policy, or the failure of our payment policy to match that of a
competitor, could have a disproportionate impact on our A-Plus group, which
might result in a disproportionate decrease in future membership growth.
We may also be unable to retain and grow our member base if a significant
number of our current registered members stop using our service. Our members
are not required to use our service. There are a variety of reasons why members
might discontinue using our service, including:
. members might decide they do not like the presence of the Viewbar on
their computer screens or the amount of screen space it consumes;
. members might not like having their online activities tracked;
. members might become dissatisfied because of reliability issues, which
we have experienced in the past and might experience in the future;
. members might forget their passwords;
. the Viewbar software might not be compatible with members' computer
systems;
. our member support group might not respond adequately or in a timely
manner to our members;
. we might reduce the amount we pay our members, or our competitors might
pay more than we do;
. government bodies might impose local taxes on members in connection with
payments made by us; and
. we might not provide the level of aggregated purchasing power or the
functionality that members expect.
We may not be able to address these issues successfully and retain and grow
our existing member base. If we fail to retain and grow our member base, our
business, results of operations and financial condition may be harmed.
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If employers or universities prohibit or discourage our members from using the
Viewbar, our business could be seriously harmed.
Some employers and universities have policies prohibiting the use of their
equipment or networks for commercial purposes. For example, the United States
Army's ethics code forbids personnel from using government equipment for
personal gain, and therefore, it has blocked access of its personnel to more
than a dozen Internet sites and services, including our Viewbar technology.
George Mason University maintains a policy that forbids the use of university
resources for commercial activities not approved by its provost, and since
December 1999, it has blocked access to our Viewbar through the university
network. The number of employers and universities prohibiting the use of their
computers in this way may increase, particularly if they become concerned about
employee productivity as well as the use of corporate resources. Even if
employers do not block our members' access to the Viewbar, some legal
commentators believe that employers may assert that amounts paid by us to
members belong to the employer which would discourage our members from using
the Viewbar. If many employers and universities adopt policies that prohibit or
discourage our members from using the Viewbar, our ability to attract
advertisers to generate revenues may be hampered and our membership may decline
significantly, which may harm our business, results of operations and financial
condition.
We may not be able to resolve technological barriers that prevent new members
from downloading the Viewbar.
Members who desire to download our Viewbar may encounter technological
problems that prevent them from doing so. For example, our Viewbar technology
was initially compatible only with Windows and NT operating systems. Today, the
Viewbar available for members who utilize the Macintosh operating system still
does not have the full functionality of the Windows or NT Viewbar, including a
search field, pop-up category menus or direct links to other Web sites. We
expect to release in the summer of 2000 a new version of the Viewbar for use
with Macintosh operating systems, which will include a search field. Our
Viewbar software is still not compatible with PC users on Unix-based or Linux
operating systems. Additionally, if a member does utilize operating systems or
browser software that are compatible with our Viewbar software, old versions of
such operating systems or browser software still used by members may prevent
download of the Viewbar. For example, our current PC-compatible Viewbar
requires Windows 95, Windows 98, or Windows 4.0, and Microsoft Internet
Explorer 4.02 or higher. Our current Macintosh-compatible Viewbar requires a
PowerPC Processor based Macintosh, Mac OS 8.6 or higher, and Microsoft Internet
Explorer 3.0 or higher or Netscape 3.0 or higher. Further, even if these
compatibility problems are addressed, some firewalls, or network system
barriers can prevent members from downloading the Viewbar.
Our ability to operate our business could be seriously harmed if we lose, or
fail to assimilate, our senior managers and other key employees.
Many of our senior managers have only recently joined us. For example,
Michael A. Depatie, our Chief Financial Officer, joined us in October 1999,
Tobin W. Trevarthen, our Vice President Business Development, and David C.
Martin, our Vice President Business Intelligence, joined us in January 2000,
and Sara T. Peterson, our Vice President Product Management, joined us in April
2000. We may not successfully assimilate our recently hired officers or
successfully locate, hire, assimilate and retain other qualified key management
personnel. Our business is largely dependent on the personal efforts and
abilities of our senior management and other key personnel, especially James R.
Jorgensen, our President, Chief Executive Officer and Chairman of the Board.
Any of our officers or employees can terminate his or her employment
relationship at any time. The loss of these key employees or our inability to
attract or retain other qualified employees could seriously harm our business
and prospects. We do not carry key man life insurance on any of our employees.
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We may not be able to manage our growth, which could harm our ability to manage
our business.
We have grown our workforce substantially, from our four founders in March
1999 to 587 full-time employees and contractors on March 31, 2000, and we plan
to continue to expand significantly our sales, media strategy and technology
organizations. Our growth has placed, and the anticipated future growth in our
operations will continue to place, a significant strain on our management
systems and resources. Since we typically charge our business customers based
upon the number of advertising impressions delivered, if we increase our
membership then our advertising inventory increases. Due to our membership
growth, the increase in our advertising inventory has exceeded, and may in the
future exceed, our ability to sell advertising on our Viewbar at reasonable
rates. To manage our growth effectively, we must:
. train and manage our employee base;
. enhance our operational and financial systems;
. coordinate our global operations; and
. lease additional facilities.
We may not be able to grow our business if we are not able to hire additional
personnel.
Our future success depends on our ability to attract, retain and motivate
highly skilled technical, managerial, sales and marketing personnel. We plan to
hire substantial numbers of additional personnel in all areas of our business.
Competition for personnel is intense, particularly in our location in Silicon
Valley, California, due to a number of factors, including the high
concentration of established and emerging growth technology companies. As a
result, we may be unable to successfully attract, assimilate or retain
qualified personnel. We may also be unable to retain the employees whom we
currently employ. We have experienced, and may continue to experience,
difficulty in hiring candidates with appropriate qualifications. If we fail to
attract and retain the necessary personnel, we may not be able to operate and
grow our business. For example, we may not be able to sell additional
advertising on our Viewbar, particularly targeted advertising, if we do not
increase our internal sales force.
We may not be able to grow our base of members and business customers if we are
unsuccessful in establishing or maintaining the AllAdvantage brand.
If we are unsuccessful in establishing or maintaining the AllAdvantage
brand, we may not be able to grow our base of members and business customers.
Promotion of the AllAdvantage brand will depend on our success in providing
high-quality services to our members and business customers. We expect to spend
approximately $5,000,000 to $8,000,000 promoting and maintaining our brand with
business customers during the next 12 months. This success, however, depends in
part on the services and efforts of third parties, over which we have little or
no control. For instance, we currently rely on technology provided by
DoubleClick to deliver substantially all of the advertisements on our Viewbar.
If our members and business customers do not perceive our existing services as
high quality, or if we introduce new services or enter into new business
ventures that are not favorably received by our members and business customers,
then we might be unsuccessful in building brand loyalty in the marketplace. In
addition, we may also need to devote substantial resources to create and
maintain a distinct brand loyalty and to promote and maintain the AllAdvantage
brand in a very competitive market. If we incur significant expenses in
promoting and maintaining our brand, our financial results could be seriously
harmed.
Our revenues might significantly decrease if we were to lose key business
customers.
A significant portion of our revenues to date has been recognized from a
limited number of business customers. For example, 24/7 Media, a third-party
advertising sales organization, sold advertisements that accounted for
approximately 19% of our revenues for the period from our inception, March 24,
1999, to December 31, 1999. 24/7 Media sold advertisements that accounted for
approximately 12% of our revenues for
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the three months ended March 31, 2000. Additionally, our sales of
advertisements to a business customer, Overstock.com, accounted for
approximately 17% of our revenues for the three months ended March 31, 2000. We
do not have long-term contracts with most of our business customers and these
customers can generally terminate their relationships with us upon specified
notice and without penalties. Our results of operations would be harmed if key
business customers were to cease doing business with us.
Our advertising revenues will suffer if our members do not actively use our
Viewbar and respond to Viewbar advertisements.
If our members do not actively use our Viewbar and respond to Viewbar
advertisements at levels acceptable to our business customers, our advertising
revenues will suffer. Given our limited history, we are unable to predict
Viewbar use and advertising response rates.
We face significant competition for business customers and members. If we are
unable to compete successfully, our business may fail.
We compete for business customers and members. If we are unable to compete
successfully, our business may fail.
Competition for business customers
The market for online advertising and marketing is extremely competitive. We
may not compete successfully in this environment. Our ability to compete in
this market depends on many factors, some of which are beyond our control. We
believe that the principal competitive factors in the online advertising market
include:
. the ability to target users based on specific demographic and inferred
behavioral criteria;
. brand recognition;
. breadth and depth of reporting and other services;
. reliability and quality of data and technology infrastructure; and
. technical expertise.
Additional competitive factors in the online advertising market which are
largely beyond our control include:
. size and characteristics of membership base; and
. changes in the pricing policies of our direct competitors.
There is substantial competition for Internet-based advertising revenues
generally, and the amount of available advertising space on the Internet is
increasing at a significant rate. We expect competition for online advertising
space to increase due to the lack of significant barriers to entry for online
business generally. These factors are causing some Internet advertising rates
to decline, and it is possible that these rates will continue to decline in the
future, which may cause our advertising rates to decline. We believe our most
direct competitors for Internet advertising and sponsorship revenues will be
providers of targeted online advertisements. We also compete for revenues with
major Internet service providers, content providers, large Web publishers, Web
search engines and portal companies, Internet advertising providers, content
aggregation companies, and various other companies that facilitate Internet
advertising, electronic commerce, profiling services or data analysis services.
We may also face competition from traditional direct marketing companies that
may seek to offer online products or services. We face significant competition
for a share of advertisers' total advertising budgets from traditional media
such as television, radio, cable and print media. Businesses may be reluctant
to devote a significant portion of their advertising budget to Internet
advertising if they perceive the Internet to be a limited or ineffective
advertising medium.
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Many of our competitors have longer operating histories, greater name
recognition, larger user bases and significantly greater financial, technical,
sales and marketing resources than we do. This may allow them to respond more
quickly than we can to new or emerging technologies and changes in advertiser
requirements. It may also allow them to devote greater resources than we can to
the development, promotion and sale of their products and services. These
competitors may also engage in more extensive research and development,
undertake more far-reaching marketing campaigns, adopt more aggressive pricing
policies and make more attractive offers to existing and potential employees,
strategic partners and advertisers. In addition, current and potential
competitors have established or may establish cooperative relationships among
themselves or with third parties to increase the ability of their products or
services to address the needs of our prospective business customers. Increased
competition is likely to result in price reductions, reduced gross margins and
loss of market share.
Competition for members
Since space on a computer screen is limited, we believe our most direct
competitors for members are companies that offer Internet services or
compensation to consumers who allow a portion of their computer screen to be
dedicated to the applications or services of those companies. We believe that
over 50 other companies have announced that they offer or will offer users cash
compensation to browse the Internet if they dedicate a portion of their
computer screen. If our competitors were to offer more attractive benefits than
we do, such as higher compensation, better functionality or greater aggregated
purchasing power, then our membership could decline, possibly reducing our
revenues. In addition, current and potential competitors have established or
may establish cooperative relationships among themselves or with third parties
to increase the ability of their services to address the needs of our current
or prospective members.
We may not be able to retain current members or support increased numbers of
members if we experience delays or failures in our network infrastructure.
Our network infrastructure is composed of a complex system including several
servers that collect data about members' Internet browsing behavior, store
member data, determine which and when advertisements are shown, monitor the
time members spend browsing the Internet while the Viewbar is active and
support our Web site. Service interruptions within our network have occurred in
the past and may occur in the future, especially when usage exceeds capacity.
We have experienced degradation and down time in the servers which support our
Web site. Since October 1, 1999, unscheduled system down time for our Web site
occurred eight times for a total of approximately 25.5 hours. In ten other
instances, with an average duration of approximately five hours, we experienced
significant degradations in our network that limited access to our Web site and
information on our Web site and the speed to allow browsing on our Web site.
New members are not able to register for our Viewbar service and current
members are unable to access their account balances if our Web site, or the
applicable portion thereof, is down. In the future, we may encounter unexpected
costs and delays, technical difficulties and unscheduled system downtime if we
expand our network infrastructure. Failures of and significant service
degradations in our networks could result in a variety of additional adverse
consequences, including:
. loss of revenue;
. inaccurate delivery of advertisements or other content that results in
legal liability;
. injury to our brand;
. diversion of development resources; or
. loss of data or privacy of data.
We will need to invest in substantial financial, operational and management
resources to enhance our systems, particularly our database servers and storage
capabilities, to handle a large and growing number of members. We cannot be
certain that we will be able to accomplish this on a timely basis and at a
commercially reasonable cost, or at all. If we fail to do so, our business may
not grow.
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Our service could be disrupted, and demand for our service could be reduced, by
a security breach, virus or other problems caused by third parties.
The future success of our business will depend on the security of our
computer systems. An important feature of our service is our ability to develop
and maintain individual member profiles. We also maintain a database of our
members' account balances. Computer viruses or problems caused by third parties
could lead to interruptions, delays or cessation in service to our members or
in serving our advertisements. Third parties could also potentially jeopardize
the security of confidential information stored in our computer systems or our
members' computer systems by their inappropriate use of the Internet, including
breaking into our payment databases and other parts of our computer network.
This could cause losses to us or our members. Unauthorized access by current
and former employees or others could also potentially jeopardize the security
of confidential information stored in our computer systems or those of our
members. Any compromise of security or public perception that we engaged in
unauthorized release of member information would harm our ability to attract
and retain members. Unauthorized access to or use of confidential information
could result in potential liability and damages under privacy laws. Any of
these events could harm our business, results of operations and financial
condition.
Our revenues could be harmed if programs that inaccurately indicate that a
member is browsing the Internet at a given time or that disable the Viewbar
become prevalent.
We provide cash compensation to all members for time, on a per hour basis,
that they and the members whom they have referred spend browsing the Internet
while the Viewbar is active. Various software programs have been developed that
specifically target the Viewbar and that falsely indicate a member is browsing
the Internet at a given time. For instance, software is available that may
simulate a member browsing the Internet. These programs may result in members
accruing fees payable by us when they are not actively using the Internet.
Additionally, third parties have developed software programs that attempt to
blank out, or block, advertisements on the Viewbar or completely delete the
Viewbar from members' computer screens. These programs may result in members
accruing fees payable by us while their Viewbar is not active. This type of
software has become increasingly sophisticated, difficult to detect and, as a
result, effective. Widespread adoption of this type of software may seriously
damage our ability to operate our business and generate revenues.
Our business could be shut down or severely impacted if a natural disaster,
power loss or telecommunications failure occurs.
Our operations and services, particularly our ability to have advertisements
placed on Viewbars and collect membership data, depend on our computer
equipment being protected against damage from fire, earthquakes, power loss,
telecommunications failures and similar events. Despite precautions taken by
us, a natural disaster or other unanticipated problem could cause interruption
in the services that we provide. For example, if an earthquake damages
equipment at our network operations center, we might have no means of replacing
this equipment on a timely basis or at all and our service might be shut down.
Furthermore, we do not currently have any business disruption insurance. Any
prolonged disruption of our services due to system failure could result in
decreased revenues.
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Our operations will be harmed if services and products provided to us by third
parties do not perform satisfactorily or if we are unable to renew our licenses
to use those services or products.
We rely on third parties to provide us with services and products that are
integral to our ability to serve our members and business customers. Those
services and products include the following:
Advertisement Serving
We deliver substantially all of the advertisements on our Viewbar using
technology provided by DoubleClick. Other companies could provide the
technology needed for us to serve advertisements on our Viewbar, but it would
temporarily disrupt our business to switch to another provider. Our agreement
with DoubleClick expires in November 2002. Technology provided by third parties
for serving Internet advertising occasionally experiences errors in serving
advertisements. If DoubleClick's technology fails to allow us to serve
advertisements properly, or if we are not able to renew our agreement with
DoubleClick, reach agreement with others to provide technology to serve our
advertisements or internally develop advertising serving software in the
future, we may not be able to display advertisements effectively to our
members. In this event, our ability to generate advertising revenues would be
severely limited.
Centralized Software System
Virtually every aspect of our operations, including finance, billing,
accounting, storage and retrieval of member data, and advertisement tracking,
uses or connects to a centralized software system provided by Oracle. We have
only limited experience with the operation of this system. Difficulty with, or
errors, defects or malfunctions in, the operation of this system could result
in loss of data, erroneous overcharges or undercharges to advertising customers
or disruption of operations.
Our Web Site
Our Web site is hosted by GlobalCenter Inc. In the past, our Web site has
become temporarily unavailable due to unpredictable system malfunctions on our
host's system. Since October 1, 1999, unscheduled system downtime for our Web
site occurred eight times for a total of approximately 25.5 hours. New members
are not able to register for our Viewbar service and current members are unable
to access their account balances if our Web site is down. Further, members may
become frustrated with any further difficulties with our Web site and
discontinue using our service as a result.
Other Network Equipment
The equipment and applications that comprise various servers and networks
consist of commercially available computers provided primarily by Sun
Microsystems, Cisco Systems and third-party Intel processor-based
manufacturers. These complex computers may fail periodically, leading to the
possible interruption of service to our members.
Our member referral program could generate negative media attention and damage
our reputation.
We rely primarily on member referrals to add to our membership. This
referral program has in numerous instances previously motivated, and could
continue to motivate, people to send or post bulk unsolicited email messages,
or spam, seeking to encourage other computer users to register as members. We
make available on our Web site sample referral email messages, which we state
are to be sent only to friends, family, business associates and members of
personal opt-in mailing lists. However, those samples could be used to solicit
referrals from other categories of persons. Some commentators might suggest
that we are encouraging spam by making sample email messages available on our
Web site. It is difficult for us to monitor the use of email by our members to
solicit referrals. Spamming has caused unfavorable media attention and may
damage our reputation. Anti-spam groups or activists might generate further
negative media attention respecting member
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referral activities and damage our reputation. Further, anti-spam legislation,
in the United States or elsewhere, could restrict our ability or the ability of
our members to use email to solicit referrals.
Although members do not make any payment to us to participate in our member
referral program, some jurisdictions could assert a claim that the use of email
marketing to add to our membership violates laws restricting multi-level
marketing activities. In addition, our business model requires that we pay our
members cash for their Viewbar usage and that of their referrals. We believe
this program complies with applicable regulation. Any regulatory challenge or
limitation asserted or implied regarding these payments could significantly
harm our business. Any litigation could subject us to significant liability for
damages, attorneys fees and injunctions or other court orders that would
prevent us from using our primary method of membership marketing. These
lawsuits, regardless of their success, would likely be time-consuming and
expensive to resolve.
If we alter the current member payment structure, our business could be harmed.
In the future, we may modify the amount of money paid to members for their
and their referred members' use of the Viewbar. Our membership agreement
specifies that we may alter the member payment structure, and we have altered
the member payment structure three times in the past. These modifications could
include increasing or decreasing the amount paid to members for each hour that
they use the Viewbar, increasing or decreasing the amount paid for each hour
that referred members use the Viewbar, or increasing or decreasing the maximum
number of hours per month of Viewbar use for which a member may receive
payment. Any decreases in the member payment structure could harm our ability
to attract and retain members and expose us to other costs or negative
publicity. Any increases in the member payment structure to attract or retain
members could substantially increase our costs. We may be required to alter our
payment structure for a variety of reasons, including business, tax or
regulatory concerns, and this alteration could significantly harm our business.
Our results of operations may be harmed if our direct member or member referral
expenditures increase.
Our direct member expenditures may increase if the number of active members
increases or if we increase the direct member payment structure. Similarly, our
member referral expenditures may increase if the number of active members
referred by other active members increases or if we increase the member
referral payment structure. Both our direct member expenditures and our member
referral expenditures may increase if our members spend more time browsing the
Internet. The costs we incur from any increases in our direct member or member
referral expenditures will harm our results of operations.
We rely on our intellectual property rights. If we are unable to protect these
rights, we might face increased competition or greater difficulty in
successfully establishing the AllAdvantage brand.
Despite our efforts to protect our proprietary rights, unauthorized parties
have copied, and may attempt to copy in the future or otherwise obtain and use
our intellectual property. Monitoring unauthorized use of our intellectual
property is difficult, and we cannot be certain that the steps we have taken
will prevent unauthorized use of our intellectual property, particularly in
foreign countries where laws or law enforcement practices may not protect our
proprietary rights as fully as in the United States.
We have two U.S. copyright registrations. We have pending U.S. patent and
pending U.S. and foreign trademark applications. Our pending patent or
trademark applications may not be granted. Even if they are granted, our
patents, copyrights and trademarks may be successfully challenged by others or
invalidated. Despite our efforts to protect our proprietary rights from
unauthorized use or disclosure, unauthorized parties may attempt to obtain, use
or disclose our intellectual property. Our proprietary rights may not be viable
or of value since the validity, enforceability and scope of protection of
proprietary rights in Internet-related industries are uncertain and evolving.
If our trademark applications are not approved because third parties
successfully
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challenged our right to use these trademarks, our use of these trademarks would
be restricted unless we were to enter into arrangements with the third-party
owners, which might not be possible on reasonable terms.
If our proprietary rights are infringed, we learn of the infringement and we
take action to halt or prevent the infringement, those actions, even if
successful, could require that we incur substantial costs and divert
substantial management attention from operating matters, which could harm our
business.
We may incur substantial costs and diversion of management resources if we
infringe upon the proprietary rights of others.
Our business activities may infringe the proprietary rights of others. From
time to time, we have received, and may continue to receive, claims of
infringement against us. Third parties may assert claims against us for
infringement of their proprietary rights and these claims may be successful. As
with other providers of online services, third-parties could assert patent
claims against us based upon our services or technologies.
We have received notices from two third parties regarding their Internet
business model patents. Any litigation filed by these third parties could be
costly and could distract management's attention from operating matters, which
could harm our business. In addition, an adverse judgment in any litigation of
this type could also harm our business.
Any intellectual property litigation initiated against us could subject us
to significant liability for damages and attorneys' fees, invalidation of our
proprietary rights or injunctions or other court orders that would prevent us
from using specific technologies or engaging in specific business activities.
These lawsuits, regardless of their success, would likely be time-consuming and
expensive to resolve and would divert management's time and attention from our
business. Any potential intellectual property litigation could also force us to
do one or more of the following:
. cease using key aspects of our technology that incorporate the
challenged intellectual property;
. make significant changes to the structure and operation of our business;
. create new brands for our services and establish recognition of those
new brands;
. design around a third party's patent; or
. license technology from a third party.
Implementation of any of these alternatives could be costly and time-
consuming and might not be possible at all. Accordingly, an adverse
determination in any litigation to which we are a party would harm our
business, results of operations and financial condition.
We may be subject to banking-related laws.
We currently do not make payments to a member until the member's account has
accrued at least $20. In the future, we may offer members who have accrued over
$20 in their accounts the opportunity to keep those amounts in their accounts.
If we offer new programs, or if a court or governmental agency concluded that
our current or any future services are subject to laws and regulations relating
to banking and currency matters, the cost of compliance could harm our results
of operations. Litigation with members over these issues could require
significant management attention even if we were to succeed on the merits.
We are subject to foreign government regulation and taxation, currency issues,
difficulties in managing foreign operations and foreign political and economic
instability.
Our participation in international markets is subject to a number of risks,
including foreign government regulations, export license requirements, tariffs
and taxes, fluctuations in currency exchange rates, introduction of the
European Union common currency, difficulties in managing foreign operations and
political and
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economic instability. For instance, laws of foreign countries can be more
restrictive than U.S. laws respecting our collection and use of member data and
respecting advertisement content. To the extent our current or potential
international members are impacted by currency devaluations, general economic
crises or other macroeconomic events, the ability of our members to utilize our
services could be diminished. Electronic commerce may not develop successfully
in international markets. Any failure to develop our business internationally
may harm our competitive position and consequently our business.
Potential acquisitions may be difficult to assimilate into our operations, use
a significant amount of our available cash, result in dilution to our
stockholders and harm our reported results of operations.
We may acquire businesses, products, services or technologies to implement
our business strategy. We do not have any present understanding regarding, nor
are we engaged in any negotiations relating to, any acquisition. We have not
made a significant acquisition to date. If we acquire businesses, products,
services or technologies, we could have difficulty in assimilating them into
our operations. These difficulties could disrupt our ongoing business, distract
our management and employees and increase our expenses. In addition, effecting
acquisitions could require use of a significant amount of our available cash.
Furthermore, we might have to issue equity or equity-linked securities to pay
for future acquisitions, and these issuances could be dilutive to existing and
future stockholders. In addition, acquisitions might harm our reported results
of operations due to acquisition-related charges and amortization of acquired
technology and other intangibles. Any of these acquisition-related risks or
costs could harm our business, financial condition and operating results.
We face risks related to the Internet industry.
Failure to comply with laws governing our service or material changes in the
regulatory environment relating to the Internet could harm our business.
Because of uncertainties regarding the applicability of foreign, federal and
state laws and regulations to the Internet and, more specifically, to our
business, and considering our business has evolved and expanded in a relatively
short period of time, we may not in the future always be in compliance with
applicable foreign, federal and state laws and regulations. Failure to comply
with the laws and regulatory requirements of regulatory authorities may result
in, among other things, indemnification liability to business customers and
others doing business with us, administrative enforcement actions and fines,
class action lawsuits, cease and desist orders, and civil and criminal
liability. The occurrence of one or more of these events could materially harm
our business, results of operations and financial condition.
The parties conducting business with us, such as business customers,
similarly may be subject to foreign, federal and state regulation. These
parties act as independent contractors and not as our agents in their
solicitations and transactions with consumers. Consequently, these entities may
not comply with applicable laws and regulations at all times. Failure on the
part of a business customer to comply with these laws or regulations could
result in, among other things, claims of vicarious liability or negatively
impact our reputation. The occurrence of one or more of these events could
materially harm our business, results of operations and financial condition.
We may face risks if new laws or government regulations regarding the Internet
are enacted.
The laws relating to our business and operations are evolving and few clear
legal precedents have been established. Few laws governing Internet
transactions have been substantially revised or updated to fully accommodate
electronic commerce. Moreover, it may take years to determine the extent to or
manner in which existing laws relating to issues such as intellectual property
ownership and infringement, unfair competition, advertising and trade
regulation and personal privacy are applicable to the Internet. Many of these
laws were adopted prior to the advent of the Internet and related technologies
and, as a result, do not contemplate or address the unique issues of the
Internet and related technologies. Until these laws, rules and regulations are
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revised or interpreted by courts to clarify their applicability to
transactions conducted through electronic commerce, any company providing
services through the Internet or other means of electronic commerce will face
compliance uncertainty. Further, the adoption of new laws or the application
of existing laws may decrease the growth in Internet use. These results could
decrease the demand for our services or increase our cost of doing business,
each of which would cause our revenues to decline and harm our business. In
particular, the following risks could occur:
Regulation of content and access, and our marketing programs, could limit
our ability to generate revenues and expose us to liability.
Prohibition or restriction of Internet content and access could dampen the
growth of Internet use, decrease the acceptance of the Internet as a
communications and commercial medium and expose us to liability. A variety of
restrictions on content and access, such as those that relate to children and
federal and state consumer protection laws prohibiting unfair or deceptive
acts or practices, have been enacted or proposed. Because of these content
restrictions and potential liability to us for materials carried on or
misdirected or disseminated through our systems, we may be required to
implement measures to reduce our exposure to liability. These measures may
require the expenditure of substantial resources or the discontinuation of our
product or service offerings that subject us to this liability. In addition,
our business model requires that we pay our members cash for their Viewbar
usage and that of their referrals. Any regulatory challenge or limitation
asserted or implied regarding these payments could significantly harm our
business. Further, we could incur substantial costs in defending against any
of these claims and we might be required to pay large judgments or settlements
or alter our business practices. Proposed laws could make compliance more
difficult or expensive, restrict our ability to provide services or otherwise
harm our business or prospects.
Our ability to sell targeted advertising may be limited if new laws
relating to member privacy are enacted.
Our ability to sell targeted advertising depends on our ability to use
personal information collected from our members. The Federal Trade Commission
and government agencies in some states have been investigating Internet
companies regarding their use of personal information. The Federal Trade
Commission has recently started a proceeding with an Internet server regarding
the manner in which personal information is collected from users and provided
to third parties. The federal government recently enacted legislation
protecting the privacy of consumer nonpublic personal information collected by
financial institutions. Our current information collection procedures and
disclosure policies may be found to be in violation of existing or future laws
or regulations. Our failure to comply with existing laws, including those of
foreign countries, or the adoption of new laws or regulations that require us
to change the way we conduct our business, could make it cost-prohibitive to
operate our business and prevent us from pursuing our business strategies
including the sale of targeted advertising.
Our costs would be increased if our business or the Internet generally
becomes subject to taxation.
The tax treatment of activities on or relating to the Internet is currently
unsettled. A number of proposals have been made at the federal, state and
local levels and by foreign governments that could impose taxes on the online
purchase and sale of services and other Internet activities. The Internet Tax
Freedom Act of 1998 has generally imposed a U.S. moratorium through October
2001 on the imposition of some kinds of consumer-related taxes, other than
sales or use taxes, in connection with Internet access and Internet-related
sales. However, future laws imposing taxes or other regulations on commerce
over the Internet could substantially impair the growth of Internet commerce
and, as a result, decrease our revenues or make it cost-prohibitive to operate
our business.
Seasonal trends in Internet usage and advertising sales may harm our business.
Seasonal trends could affect the advertising revenues we generate from our
business. To the extent that our advertising revenues depend on the amount of
Internet usage by our members, seasonal fluctuations in Internet usage could
affect our advertising revenues during these periods of fluctuation. In
addition, the rate at which new
19
<PAGE>
members sign up for our services may be lower during some seasons and holiday
periods. Because our operating history is so limited, it is difficult for us to
predict these trends accurately and plan accordingly. Since our operating
expenses are based on our expectations of future revenues, it is possible that
seasonal fluctuations could materially harm our revenues and our operating
results.
If Internet usage does not continue to increase, we may not be able to grow our
business and increase our revenues.
If our assumption that use of the Internet will continue to increase turns
out to be incorrect, we will not be able to grow our business and increase our
revenues. All of our revenues and current business strategies for growth are
dependent on the continued use and current rates of expansion of the Internet.
Use of the Internet has increased dramatically, but that usage of the Internet
may not continue to increase. A decrease in the use of the Internet or a
reduction in the currently anticipated growth of Internet usage could cause our
member base and our advertising revenues to decrease.
The Internet infrastructure may not be able to accommodate rapid growth, which
could harm our ability to retain our existing customers and to attract new
customers.
The Internet infrastructure may fail to support the growth of the Internet.
If the Internet continues to experience an increase in users, an increase in
frequency of use or an increase in the capacity requirements of users, the
Internet infrastructure may be unable to support the demands placed on it. Any
actual or perceived failure of the Internet could undermine the benefits and
use of our services. In addition, the Internet could lose its viability as a
commercial medium due to delays in the development or adoption of new
technology required to accommodate increased levels of Internet activity or due
to increased government regulation. Changes in, or insufficient availability
of, telecommunications services to support the Internet could result in slower
response times and could hamper use of the Internet. Even if the Internet
infrastructure is able to accommodate rapid growth, we may be required to spend
heavily to adapt to new technologies.
We face risks related to the offering.
We had an accumulated deficit of approximately $102.7 million at March 31,
2000, and we anticipate increasing losses and negative cash flow for the
foreseeable future. These losses and negative cash flow could cause our stock
price to decrease.
At March 31, 2000, we had an accumulated deficit of approximately $102.7
million. We expect that our losses and negative cash flow from operations will
increase for the foreseeable future as we continue to expand our operations.
Our ability to achieve profitability or positive cash flow depends upon a
number of factors, including our ability to increase revenues. We may be unable
to increase revenues, achieve profitability or achieve positive cash flow. If
we do achieve profitability, we may be unable to sustain or increase
profitability on a quarterly or annual basis in the future. If we fail to do
so, the market price for our common stock would likely suffer.
Our common stock has not been publicly traded, and we expect that the price of
our stock may fluctuate substantially.
Recently, the stock prices of technology companies have been quite volatile.
Moreover, prior to this offering, there has been no public market for our
common stock. The initial public offering price has been determined through
negotiations between the underwriters and us. You may not be able to resell
your shares at or above the initial public offering price. The market price of
our common stock may fluctuate significantly in response to a number of
factors, including:
. changes in expectations about our future financial performance;
. the operating and stock price performance of other comparable companies;
and
. actual or anticipated changes in economic conditions generally.
20
<PAGE>
Due to these factors, the price of our stock may decline and the value of
your investment might be reduced. In addition, the stock market experiences
extreme volatility that often is unrelated or disproportionate to the
performance of particular companies. These market fluctuations may cause our
stock price to decline regardless of our performance.
Our business may be harmed by class action litigation due to stock price
volatility.
In the past, securities class action litigation often has been brought
against a company following periods of volatility in the market price of its
securities. Companies in the Internet industry and other technology industries
are particularly vulnerable to this kind of litigation due to the high
volatility of their stock prices. Accordingly, we may in the future be the
target of securities litigation. Securities litigation could result in
substantial costs and could divert our management's attention and resources.
We may be unable to obtain the additional capital required to grow our
business.
Our ability to grow depends significantly on our ability to grow our member
base, increase our revenues, hire additional personnel and expand our internal
network infrastructure. These expansion efforts will require significant cash
outlays and substantial capital equipment expenditures and commitments. If the
proceeds from this offering, together with our cash on hand, any cash generated
from operations and the amounts available under bank lines, are not sufficient
to meet our cash requirements, we will need to seek additional capital to fund
our growth. We may not be able to raise needed cash on terms acceptable to us
or at all. Equity financings may be on terms that are dilutive or potentially
dilutive to our stockholders. The holders of new equity securities may also be
granted rights, preferences or privileges senior to those of existing holders
of common stock. Debt financings, if available, may involve restrictive
covenants or security interests in our assets. If sources of financing are
required, but are insufficient or unavailable, we will be required to modify
our growth and operating plans to make them consistent with available funding.
This would harm our ability to grow our business.
Shares eligible for public sale after this offering could harm our stock price.
The market price of our common stock could decline as a result of sales by
our existing stockholders of shares of their common stock after this offering,
or the perception that these sales could occur. These sales also might make it
difficult for us to sell securities in the future at a time and at a price that
we deem appropriate. Based on shares outstanding as of March 31, 2000,
following this offering, we will have 117,339,010 shares of common stock
outstanding or 119,589,010 shares if the underwriters' over-allotment option is
exercised in full. Of these, approximately 70,777,054 shares will become
available for sale 181 days after the date of this prospectus upon the
expiration of lock-up agreements, 70,077,054 of which will be subject to the
restrictions imposed by Rule 144 and Rule 701. Credit Suisse First Boston
Corporation and Donaldson Lufkin & Jenrette Securities Corporation, however,
may waive the 180-day lock-up restrictions in their sole discretion without
notice. Credit Suisse First Boston Corporation and Donaldson Lufkin & Jenrette
Securities Corporation may choose to waive the lock-up restrictions based on
the market conditions, the then-current stock price and other factors the
selection of which are based on their sole discretion. In addition,
approximately 32,261,956 additional shares will be available for sale at
various times thereafter, subject to the restrictions imposed by Rule 144 and
Rule 701. Sales under Rule 144 are generally subject to volume limitation,
holding period, manner of sale and notice requirements, and the availability of
current public information about us. Sales under Rule 701 are generally subject
to manner of sale requirements only, unless they are made by our affiliates, in
which case they are subject to all of the Rule 144 restrictions other than the
holding period requirement.
The price per share of our stock in a private offering completed in February
2000 was significantly lower than the anticipated initial public offering price
in this offering.
In February 2000, we sold in a private placement 16,453,926 shares of Series
D preferred stock at a price of $6.05 per share. The 16,453,926 shares of
Series D preferred stock will convert into 20,567,391 shares of common stock
upon completion of this offering at an assumed initial public offering price of
$9.00 per share.
21
<PAGE>
Consequently, assuming an initial public offering price of $9.00 per share, the
effective price per share of common stock at which those shares of Series D
preferred stock were sold was $4.84. Investors who purchased these shares in
the private placement obtained our stock at a significantly lower price than
will be available in this offering.
Provisions in our charter documents, Delaware law and other documents could
prevent or delay a change in control of AllAdvantage and might reduce the
market price of our common stock.
Provisions of our certificate of incorporation and bylaws could discourage,
delay or prevent a merger or acquisition that a stockholder might consider
favorable. These provisions include:
. authorizing the issuance of preferred stock without stockholder
approval;
. providing for a classified board of directors with staggered, three-year
terms;
. prohibiting cumulative voting in the election of directors;
. requiring super-majority voting to amend some provisions in our
certificate of incorporation and bylaws;
. limiting the persons who may call special meetings of stockholders; and
. prohibiting stockholder actions by written consent.
Provisions of Delaware law also may discourage, delay or prevent someone
from acquiring or merging with us. Additionally, the vesting of common stock
owned by members of our management, including James R. Jorgensen, Michael A.
Depatie, Johannes A. Pohle, David W. Johnson and Carl T. Anderson, may
accelerate upon termination of employment following a change in control of
AllAdvantage. This vesting acceleration may discourage someone from acquiring
or merging with us.
You will experience an immediate and substantial dilution in the book value of
your investment.
The initial public offering price of our common stock is substantially
higher than what the net tangible book value per share of the common stock will
be immediately after this offering. If you purchase our common stock in this
offering, you will incur immediate dilution of approximately $7.66 in the net
tangible book value per share of our common stock from the price you pay for
our common stock based upon an assumed initial public offering price of $9.00
per share. The exercise of outstanding options and warrants may result in
further dilution.
Stockholders may not agree with management regarding the use of the net
proceeds of this offering.
Our management has broad discretion as to how to spend the net proceeds from
this offering and may spend those proceeds in ways with which our stockholders
may not agree. Our investments and use of the net proceeds of this offering may
not yield favorable returns or results.
Our officers and directors exert substantial influence over us, which could
limit your ability to influence us and which could delay or prevent a change of
control of us.
We anticipate that our executive officers, our directors and entities
affiliated with them and our 5% stockholders will beneficially own, in the
aggregate, approximately 63% of our outstanding common stock following the
completion of this offering. These stockholders may be able to exercise
substantial influence over all matters requiring approval by our stockholders,
including the election of directors and approval of significant corporate
transactions. This concentration of ownership may also have the effect of
delaying or preventing a change in control of us. We also plan to reserve up to
700,000 of the shares offered in this offering under a directed share program
in which our executive officers, directors, principal stockholders, employees,
business associates and related persons, which include our contractors and
business partners, may be able to purchase shares in this offering at the
initial public offering price. This program may further increase the amount of
stock held by persons whose interests are closely aligned with management's
interests.
22
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that relate to future
events or our future financial performance. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"intends," "potential" or "continue" or the negative of these terms or other
comparable terminology. These statements are only predictions. We cannot
guarantee future results, levels of activity, performance or achievements. Our
actual results could differ materially from those anticipated in these forward-
looking statements as a result of various factors, including new laws and
regulations affecting online content or privacy issues, advertising
expenditures over the Internet and the other risks outlined under
"Risk Factors" and elsewhere in this prospectus.
23
<PAGE>
USE OF PROCEEDS
The net proceeds to us from the sale of the 15,000,000 shares of common
stock offered by us will be approximately $124.5 million, or approximately
$143.3 million if the underwriters' over-allotment option is exercised in full,
at an assumed initial public offering price of $9.00 per share, based upon the
midpoint of the filing range, and after deducting estimated underwriting
discounts and commissions and estimated offering expenses payable by us.
We currently estimate that we will use the net proceeds from this offering
as follows:
. approximately $20-30 million to expand our services in foreign
countries;
. approximately $10-20 million in capital expenditures, including
enhancements to our server and network infrastructure, personal
computers for employees and software for general operations;
. approximately $5-8 million to promote and maintain our brand with
business customers; and
. the balance of the proceeds of this offering for member payments and
other working capital purposes.
We may use a portion of the net proceeds from this offering to acquire
businesses, technologies or services that are complementary to our business.
However, we have no present plans or commitments, and are not engaged in any
negotiations, relating to any acquisition.
The amounts that we use for working capital purposes will vary significantly
depending on a number of factors. We will retain broad discretion in the
allocation and use of the net proceeds of this offering. Pending their use, we
intend to invest the net proceeds in short-term, interest-bearing, investment-
grade securities.
The principal purposes of this offering are to increase our working capital,
create a public market for our stock, increase our visibility and facilitate
future access by us to public equity markets.
DIVIDEND POLICY
We have never declared or paid cash dividends on shares of our capital
stock. We intend to retain any future earnings to finance future growth and do
not anticipate paying cash dividends in the foreseeable future.
24
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization, and our cash, cash
equivalents and restricted cash, as of March 31, 2000:
. on an actual basis;
. on a pro forma basis to reflect the conversion of all outstanding shares
of preferred stock into 72,702,077 shares of common stock upon the
completion of this offering assuming an initial public offering price of
$9.00 per share, based upon the midpoint of the filing range; and
. on a pro forma as adjusted basis to reflect, in addition, the receipt of
the net proceeds from the sale of 15,000,000 shares of common stock
offered by us at an assumed initial public offering price of $9.00
per share, based upon the midpoint of the filing range, and after
deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by us.
<TABLE>
<CAPTION>
March 31, 2000
---------------------------------
Pro Forma
Actual Pro Forma As Adjusted
--------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Cash, cash equivalents and restricted cash
(1)......................................... $ 87,345 $ 87,345 $ 211,795
========= ========= =========
Capital lease obligations, net of current
portion..................................... $ 212 $ 212 $ 212
--------- --------- ---------
Stockholders' equity:
Convertible preferred stock, $0.001 par
value: 36,335,044 shares authorized,
36,021,269 shares issued and outstanding,
actual; 36,335,044 shares authorized, no
shares issued or outstanding, pro forma;
5,000,000 shares authorized, no shares
issued or outstanding, pro forma as
adjusted.................................. 36 -- --
Common stock, $0.001 par value: 116,000,000
shares authorized, 29,636,933 shares
issued and outstanding, actual;
150,000,000 shares authorized, 102,339,010
shares issued and outstanding, pro forma;
1,000,000,000 shares authorized,
117,339,010 shares issued and outstanding,
pro forma as adjusted..................... 29 102 117
Additional paid-in capital................. 159,741 159,704 284,139
Deferred stock compensation................ (23,934) (23,934) (23,934)
Accumulated deficit........................ (102,747) (102,747) (102,747)
--------- --------- ---------
Total stockholders' equity .............. 33,125 33,125 157,575
--------- --------- ---------
Total capitalization................... $ 33,337 $ 33,337 $ 157,787
========= ========= =========
</TABLE>
- --------
(1) Restricted cash was $2.0 million at March 31, 2000 and represented a
deposit with our bank for a letter of credit relating to an office lease
arrangement.
The number of shares of common stock shown as outstanding in the table above
excludes the following:
. 14,126,858 shares issuable upon the exercise of stock options
outstanding as of March 31, 2000, at a weighted average exercise price
of $2.93 per share;
. 477,550 shares issuable upon the exercise of warrants for Series C
preferred stock outstanding as of March 31, 2000, at an exercise price
of $0.03 per share, which will become exercisable for 477,550 shares of
common stock upon the completion of this offering;
. 75,000 shares issuable upon the exercise of a warrant for Series D
preferred stock outstanding on March 31, 2000, at an exercise price of
$6.05 per share, which will become exercisable for 93,750
25
<PAGE>
shares of common stock upon the completion of this offering assuming an
initial public offering price of $9.00 per share;
. 23,397,526 shares available for future issuance under the 1999 equity
incentive plan and 2000 equity incentive plan of our California
predecessor on March 31, 2000 and our 2000 equity incentive plan and
2000 employee stock purchase plan on March 31, 2000, subject to
automatic annual increases.
The number of shares of common stock shown as outstanding in the table
above assumes an offering price of $9.00 per share. The ratio at which the
Series D preferred stock will convert into common stock has been adjusted to a
ratio of 1.25 shares of common stock for each share of Series D preferred
stock. This represents the most dilutive potential ratio. If the offering
price is higher than $9.68 per share, the conversion ratio of the Series D
preferred stock will be reduced such that, at an offering price of $12.10 per
share or above, the conversion ratio will be 1 for 1.
26
<PAGE>
DILUTION
As of March 31, 2000, our pro forma net tangible book value was
approximately $33.1 million, or $0.32 per share of common stock. Pro forma net
tangible book value per share represents our pro forma stockholders' equity
less intangible assets divided by the pro forma number of shares of common
stock outstanding after giving effect to the conversion of all outstanding
shares of preferred stock into 72,702,077 shares of common stock. Dilution per
share represents the difference between the amount per share paid by purchasers
of shares of our common stock in this offering and the pro forma net tangible
book value per share of our common stock immediately following this offering.
After giving effect to the receipt of the net proceeds from the sale of the
15,000,000 shares of common stock offered by us at an assumed initial public
offering price of $9.00 per share and after deducting estimated underwriting
discounts and commissions and estimated offering expenses, our pro forma net
tangible book value as of March 31, 2000 would have been approximately $157.6
million, or $1.34 per share. This represents an immediate increase in pro forma
net tangible book value of $1.02 per share to existing stockholders and an
immediate dilution of $7.66 per share to new investors purchasing shares at the
initial public offering price. The following table illustrates the per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $9.00
Pro forma net tangible book value per share as of March 31, 2000
................................................................ $0.32
Increase per share attributable to new investors................. 1.02
-----
Pro forma net tangible book value per share after this offering.... 1.34
-----
Dilution per share to new investors................................ $7.66
=====
</TABLE>
The following table summarizes as of March 31, 2000, on the pro forma basis
described above, the number of shares of common stock purchased from us, the
total consideration paid to us and the average price per share paid by existing
stockholders and by new investors purchasing shares of common stock in this
offering, before deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by us:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------- -------------------- Average Price
Number Percent Amount Percent Per Share
----------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 102,339,010 87.2% $134,822,000 50.0% $1.32
New investors........... 15,000,000 12.8 135,000,000 50.0 9.00
----------- ----- ------------ -----
Total................. 117,339,010 100.0% $269,822,000 100.0%
=========== ===== ============ =====
</TABLE>
The above discussion and tables assume no exercise of any options or
warrants to purchase our capital stock outstanding as of March 31, 2000. As of
March 31, 2000, there were options outstanding to purchase a total of
14,126,858 shares of common stock at a weighted-average exercise price of $2.93
per share, warrants outstanding to purchase a total of 238,775 shares of Series
C preferred stock with an exercise price of $0.06 per share, which will become
exercisable for a total of 477,550 shares of common stock with an exercise
price of $0.03 per share upon completion of this offering and a warrant
outstanding to purchase 75,000 shares of Series D preferred stock at an
exercise price of $6.05 per share, which will become exercisable for
93,750 shares of common stock upon completion of this offering assuming an
initial public offering price of $9.00 per share. There were also 23,397,526
shares of common stock available for future issuance under our employee benefit
plans as of March 31, 2000. If any of these options or warrants are exercised,
there will be further dilution to new public investors.
27
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with, and are qualified by reference to, our consolidated financial
statements and notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this
prospectus. The consolidated statement of operations data for the period from
inception, March 24, 1999, to December 31, 1999, and the consolidated balance
sheet data as of December 31, 1999, are derived from our audited consolidated
financial statements that are included elsewhere in this prospectus. The
consolidated statement of operations data for the period from inception, March
24, 1999, to September 30, 1999, the three months ended December 31, 1999, and
the three months ended March 31, 2000 and the consolidated balance sheet data
as of March 31, 2000 are unaudited but in the opinion of management include all
adjustments, consisting only of normal recurring adjustments, that are
necessary for a fair presentation of our results of operations for these
periods. The historical results presented below are not necessarily indicative
of future results.
<TABLE>
<CAPTION>
Period from Inception Three Months Period from Inception Three Months
(March 24, 1999) Ended (March 24, 1999) Ended
To September 30, 1999 December 31, 1999 To December 31, 1999 March 31, 2000
--------------------- ----------------- --------------------- --------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenues................ $ 235 $ 5,016 $ 5,251 $ 9,100
Costs and expenses:
Direct member costs... 2,192 14,949 17,141 32,744
Sales and marketing... 1,580 10,022 11,602 26,927
General and
administrative....... 3,302 5,042 8,344 6,016
Product development... 1,267 1,644 2,911 6,106
Depreciation and
amortization......... 78 270 348 580
Stock-based
compensation......... 244 1,303 1,547 2,788
------- -------- -------- --------
Total costs and
expenses........... 8,663 33,230 41,893 75,161
------- -------- -------- --------
Loss from operations.... (8,428) (28,214) (36,642) (66,061)
Interest expense........ (570) (257) (827) (536)
Interest income......... 10 350 360 959
------- -------- -------- --------
Net loss................ $(8,988) $(28,121) $(37,109) $(65,638)
======= ======== ======== ========
Net loss per share(1):
Basic and diluted net
loss per share....... $ (1.27) $ (3.52) $ (5.04) $ (8.20)
Shares used in per
share calculation.... 7,050 8,000 7,367 8,000
Pro forma basic and
diluted net loss per
share (unaudited).... $ (0.97) $ (0.95)
Shares used in pro
forma per share
calculation
(unaudited).......... 38,287 69,444
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999 March 31, 2000
----------------- --------------
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and restricted
cash(2)..................................... $ 30,019 $ 87,345
Working capital (deficit).................... (4,476) 25,971
Total assets................................. 39,871 104,497
Capital lease obligations, net of current
portion..................................... 254 212
Deferred stock compensation.................. (18,572) (23,934)
Stockholders' equity (net capital
deficiency)................................. (25) 33,125
</TABLE>
- --------
(1) See note 2 of notes to consolidated financial statements for the
determination of the number of shares used in computing net loss per share
and pro forma net loss per share amounts.
(2) At December 31, 1999, restricted cash was $10.0 million and represented the
portion of a November 1999 $20.0 million customer advance not available for
our use on December 31, 1999. All of this cash is now unrestricted. At
March 31, 2000, restricted cash was $2.0 million and represented a deposit
with our bank for a letter of credit relating to an office lease
arrangement.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and the notes to the consolidated financial statements
included in this prospectus.
Overview
AllAdvantage is an Internet-based information intermediary, or infomediary,
that enables businesses to deliver highly-targeted advertisements to, and
conduct electronic commerce with, an aggregated community of profiled members.
With our members' express permission, we utilize our proprietary Viewbar
technology to continuously track and collect data about their Internet behavior
and demographics. We use this data to build accurate and detailed personal
profiles. While keeping each of our members' personal data private, we use
these profiles to provide businesses with an online advertising, direct
marketing and electronic commerce channel to reach their chosen audience more
effectively. The Viewbar persistently displays advertising, electronic commerce
links and other Internet navigational features, such as search capabilities,
pop-up menus and links.
We were incorporated in March 1999 and had no operating activities in that
month. We released the first version of our Viewbar in July 1999. The current
version of our Viewbar was released in April 2000. During 1999 and the first
quarter of 2000, substantially all of the advertisements we sold were not
highly-targeted.
Revenues
We first recognized revenues in August 1999. In 1999 and the first quarter
of 2000, we generated substantially all of our revenues from the sale of online
advertisements on our Viewbar. More recently, we have also generated revenues
from the sale of sponsorships on our Viewbar. Advertisers pay us for the number
of impressions, or advertisements displayed, for the number of times members
click on advertisements, or based on other criteria, such as the number of
members who register for a service. In January 2000, we released a
substantially upgraded version of our Viewbar, on which we sell non-exclusive
sponsorships of the Viewbar's pop-up menu buttons and search field. Under these
sponsorship arrangements, we may receive a fixed fee, a fee based on the usage
of the search field, a fee based upon selection of the pop-up menu item, a
commission based on purchases by members or a combination of these options. We
also have arrangements with our business customers under which we receive a fee
for directing members to their Web sites. These fees are based upon the number
of times members are directed to our business customers' Web sites via the
Viewbar.
Online advertising and sponsorship revenues are recognized ratably in the
periods in which the advertisement or sponsorship is displayed, based upon the
total number of impressions delivered, provided that no significant obligations
on our part remain and collection of the related receivable is probable. Our
obligations typically include the guarantee of a minimum number of impressions
or click-throughs. To the extent that minimum guaranteed impressions or click-
throughs are not met, recognition of the corresponding portion of the revenues
relating to this unfulfilled obligation is deferred until the remaining
guaranteed impression levels are achieved. The guaranteed minimum number of
impressions is generally required to be delivered over the term of the
commitment, which has typically ranged from several weeks to two months.
Revenues from advertising sold through third-party sales organizations are
recognized net of commissions. Revenues from performance-based arrangements are
recognized as the related performance criteria are met, provided that no
significant obligations on our part remain and collection of the related
receivable is probable. Revenues from commissions for referring electronic
commerce are recognized upon receipt of payment. Fees paid to us in advance of
satisfaction of revenue recognition criteria are recorded as deferred revenue.
Costs and Expenses
Costs and expenses consist of direct member costs, sales and marketing
expenses, general and administrative expenses, product development expenses,
depreciation and amortization and stock-based compensation expenses.
29
<PAGE>
Direct Member Costs. Direct member costs consist of costs incurred to
compensate each member for their own use of the Internet while our Viewbar is
activated. Members in the United States are currently compensated at a rate of
$0.50 per hour for up to 25 hours per month for using the Internet while our
Viewbar is activated. Members outside the United States are currently
compensated at a comparable rate in their local currency. Our membership
agreement specifies that we may alter the member payment structure at any time.
Currently, we pay members the amounts they have earned only after having
accrued a minimum cumulative account balance of at least $20 at the end of any
given month.
Sales and Marketing. Sales and marketing expenses include personnel and
related costs for our direct sales force and marketing staff, marketing and
promotional program expenses, member referral costs and costs related to the
delivery of advertisements to the Viewbar. Member referral costs consist of
payments to members when new users whom they have referred to us download the
Viewbar and use the Internet while our Viewbar is activated. We currently limit
payment for these referrals to direct referrals and a maximum of four tiers of
indirect referrals. We currently compensate members in the United States $0.10
per hour for direct referrals and $0.05 per hour for indirect referrals, for up
to 25 hours of active Internet use per month. The payment for each given
referral is further limited to the number of hours the original referring
member uses the Internet while our Viewbar is activated. Our membership
agreement specifies that we may alter the member payment structure at any time.
General and Administrative. General and administrative expenses include
personnel and related costs for corporate functions such as accounting and
finance, human resources, facilities, legal and information systems.
Product Development. Product development expenses include personnel and
related costs for the development of our Viewbar and related systems, technical
support and quality assurance.
Depreciation and Amortization. Depreciation and amortization expenses
represent depreciation and amortization of computer software and equipment,
leasehold improvements and furniture and fixtures.
Stock-Based Compensation. Deferred stock compensation represents the
aggregate difference, at the date of grant, between the respective exercise
prices of stock options and the deemed fair market values of the underlying
stock. This deferred stock compensation is amortized as stock-based
compensation expense using the graded amortization method over the vesting
period of the related options, which is generally four years. Stock-based
compensation expense relates to stock options awarded to individuals in all
cost and expense categories.
Results of Operations
Three Months Ended March 31, 2000 and the Period from Inception, March 24,
1999, to December 31, 1999
Revenues. Revenues for the three months ended March 31, 2000 were $9.1
million. Revenues for the period from inception, March 24, 1999, to December
31, 1999 were $5.3 million. We have historically sold a significant portion of
our advertisements through third-party sales organizations. Revenues from sales
of advertisements through third-party advertising sales organizations accounted
for 15% and 22% of our total revenues for the three months ended March 31, 2000
and for the period from inception, March 24, 1999, to December 31, 1999,
respectively. 24/7 Media, a third-party advertising sales organization, sold
advertisements that accounted for approximately 12% and 19% of revenues for the
three months ended March 31, 2000 and for the period from inception, March 24,
1999, to December 31, 1999, respectively. Another customer, Overstock.com,
accounted for approximately 17% of our revenues for the three months ended
March 31, 2000. Substantially all of these advertisements were not highly-
targeted. Our internal sales force generally sells targeted advertising. We
have received and we anticipate that we will continue to receive higher
advertising rates for targeted advertisements and sponsorships than for non-
targeted advertisements. As we grow our sales force, we believe that we will be
able to increase targeted advertising sales as a percentage of our total
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advertising sales. To date, substantially all of our revenues have been derived
from United States business customers. A substantial amount of our revenues in
1999 were recognized in November and December due to an increase in our sales
personnel, which resulted in an accounts receivable balance at December 31,
1999 equal to 86% of our revenues for 1999.
Direct Member Costs. Direct member costs for the three months ended March
31, 2000 were $32.7 million. Direct member costs for the period from inception,
March 24, 1999, to December 31, 1999 were $17.1 million. Although we anticipate
that our direct member costs will decrease as a percentage of our revenues, we
expect our direct member costs will increase substantially in absolute dollars
as our membership base continues to grow.
Sales and Marketing Expenses. Sales and marketing expenses for the three
months ended March 31, 2000 were $26.9 million. Sales and marketing expenses
for the period from inception, March 24, 1999, to December 31, 1999 were $11.6
million. Member referral costs were $8.6 million and $3.0 million and costs
related to the delivery of advertisements to the Viewbar were $5.1 million and
$2.9 million for the three months ended March 31, 2000 and the period from
inception to December 31, 1999, respectively. We expect our sales and marketing
expenses to continue to increase in absolute dollars as our membership base
continues to grow and as we hire additional sales personnel in the United
States and in other countries.
General and Administrative Expenses. General and administrative expenses for
the three months ended March 31, 2000 were $6.0 million. General and
administrative expenses for the period from inception, March 24, 1999, to
December 31, 1999 were $8.3 million. We expect that our general and
administrative expenses will continue to increase in absolute dollars as we
hire additional personnel and incur costs associated with being a public
company.
Product Development Expenses. Product development expenses for the three
months ended March 31, 2000 were $6.1 million. Product development expenses for
the period from inception, March 24, 1999, to December 31, 1999 were $2.9
million. We expect that product development expenses will increase in absolute
dollars as we continue to enhance our Viewbar and related systems.
Depreciation and Amortization Expenses. Depreciation and amortization
expenses for the three months ended March 31, 2000 were $580,000. Depreciation
and amortization expenses for the period from inception, March 24, 1999, to
December 31, 1999 were $348,000. We intend to increase our capital expenditures
in absolute dollars to continue to expand our systems infrastructure, which
will result in increased depreciation and amortization expenses associated with
these expenditures.
Stock-Based Compensation Expenses. Stock-based compensation expenses for the
three months ended March 31, 2000 were $2.8 million. Stock-based compensation
expenses for the period from inception, March 24, 1999, to December 31, 1999
were $1.5 million. Compensation for the three months ended March 31, 2000
related to the following captions: sales and marketing expenses of $1.6
million; general and administrative expenses of $512,000; and product
development expenses of $642,000. Compensation for 1999 related to the
following captions: sales and marketing expenses of $907,000; general and
administrative expenses of $280,000; and product development expenses of
$360,000. The remaining deferred stock compensation at March 31, 2000 was $23.9
million, which will be amortized as follows: $10.4 million for the last nine
months of 2000, $7.6 million for the year ending December 31, 2001,
$4.1 million for the year ending December 31, 2002, $1.7 million for the year
ending December 31, 2003 and $100,000 for the year ending December 31, 2004.
Terminations of option holders could cause stock-based compensation in future
years to be less than indicated.
Interest expense. Interest expense for the three months ended March 31, 2000
was $536,000. Interest expense for the period from inception, March 24, 1999,
to December 31, 1999 was $827,000. In connection with the issuance of
convertible notes payable in July 1999, we issued warrants to purchase Series C
preferred stock. We recorded a charge for the fair value of the warrants of
approximately $528,000 for the period from inception to December 31, 1999. We
also incurred interest expense from a $20.0 million customer advance received
in November 1999.
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Interest Income. Interest income for the three months ended March 31, 2000
was $959,000. Interest income for the period from inception, March 24, 1999, to
December 31, 1999 was $360,000. Interest income was generated from cash
balances resulting from our private equity financings and the cash advance
received from a customer.
Provision for Income Taxes. No provision for federal or state income taxes
was recorded for the three months ended March 31, 2000 or for the period from
inception, March 24, 1999, to December 31, 1999 because we incurred losses from
inception through those respective dates. As of December 31, 1999, we had
approximately $28.6 million of federal net operating loss carryforwards, which
expire on various dates beginning in 2019. 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 deferred tax asset. In addition, specific future
changes in our share ownership may restrict our ability to utilize our net
operating loss carryforwards.
Liquidity and Capital Resources
Since our incorporation in March 1999, we have financed our operations
primarily through private placements of preferred and common stock and
convertible notes payable, raising $33.9 million through December 31, 1999. In
February 2000, we raised an additional $94.6 million through the issuance of
Series D convertible preferred stock in a private placement.
Cash and cash equivalents, together with restricted cash, was $87.3 million
and $30.0 million at March 31, 2000 and December 31, 1999, respectively.
Restricted cash was $10.0 million at December 31, 1999, and represented a
portion of a $20.0 million customer advance that we received in November
1999.This customer advance was unrestricted at March 31, 2000. Restricted cash
of $2.0 million at March 31, 2000 represented a deposit with our bank for a
letter of credit for an office lease arrangement.
Net cash used in operating activities was $26.8 million and $9.9 million for
the three months ended March 31, 2000 and for the period from inception, March
24, 1999, to December 31, 1999, respectively. Net cash used in operating
activities consisted primarily of our net loss, substantially offset by
increases in the unrestricted portion of a customer advance, accrued members
payable and accounts payable and other accrued liabilities.
Net cash used in investing activities was $3.1 million and $4.3 million for
the three months ended March 31, 2000 and for the period from inception, March
24, 1999, to December 31, 1999, respectively. Net cash used in investing
activities consisted of capital expenditures for computer equipment, leasehold
improvements and furniture and fixtures.
Net cash provided by financing activities was $95.3 million and $34.2
million for the three months ended March 31, 2000 and for the period from
inception, March 24, 1999, to December 31, 1999, respectively. Net cash
provided by financing activities consisted primarily of the net proceeds from
the private sale of convertible preferred stock and common stock, proceeds from
the issuance of convertible notes payable and proceeds from the exercise of
options to purchase common stock.
As of March 31, 2000, our principal commitments consisted of operating and
capital leases. In January 2000, we entered into several non-cancelable
commitments for office leases, and are obligated to pay a total of $49.3
million through 2010 under these leases. As a condition of one of the leases,
we provided a letter of credit of $2.0 million, which may increase to as much
as $6.3 million, as a security deposit. In addition, we currently have
commitments during the year ended December 31, 2000 for capital expenditures of
approximately $1.1 million.
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Our working capital requirements depend on numerous factors, including
market acceptance of our products and services and the resources we allocate to
growing our member base, increasing our revenues, hiring additional personnel
and expanding our internal network infrastructure. We have experienced
substantial increases in our expenditures since our inception consistent with
the growth in our operations and personnel, and we anticipate that our
expenditures will continue to increase significantly for the foreseeable
future.
We believe that our available cash and cash equivalents and cash flows from
operations, combined with the net proceeds from this offering, will be
sufficient to meet our anticipated needs for working capital and capital
expenditures for at least the next 12 months. However, if this offering is not
completed, then we would need to raise additional funds from other sources in
order to meet our anticipated needs for working capital and capital
expenditures for the next 12 months. We cannot be certain that such additional
funds would be readily available or could be obtained, if at all, on favorable
terms. We do not currently have any plans for a follow-on public offering nor
do we have any predetermined future share price thresholds that would cause us,
based on share price alone, to initiate a follow-on public offering. We will
continue to evaluate our needs for funds based on our assessment of access to
public or private capital markets and the timing of our need for funds.
Although we have no present intention to conduct additional public equity
offerings in the near future, we may need to raise additional funds to fund
expansion, including significant increases in member costs, increases in our
sales personnel, other personnel and office facilities, to develop new or
enhance existing services or products, to respond to competitive pressures or
to acquire or invest in complementary businesses, technologies, services or
products. Additional funding may not be available on favorable terms, on a
timely basis or at all.
Year 2000 Compliance
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any computer
programs or hardware that have date-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. Prior to January 1,
2000, many people were concerned that this could result in system failures or
miscalculations, causing disruptions of operations for any company using these
computer programs or hardware, including, among other things, a temporary
inability to process transactions, send invoices or engage in normal business
activities. Most reports to date indicate that computer systems are functioning
normally and that compliance and remediation work accomplished before the end
of 1999 was effective to prevent any problems. Computer experts have warned,
however, that there still may be residual consequences. We cannot assure you
that Year 2000 problems will not disrupt our service and thereby result in a
decrease in revenue, an increase in allocation of resources to address Year
2000 problems or an increase in litigation costs.
We designed our Internet-based systems as well as our Web site and related
technology infrastructure to be Year 2000 compliant, and we believe, based on
our initial reports, that these systems are Year 2000 compliant. We have not
incurred any significant expenses, and we do not anticipate that the total
costs associated with Year 2000 remediation efforts, including both expenses
incurred and any to be incurred in the future, will be material. Furthermore,
we have not experienced any significant problems to date relating to the Year
2000 compliance of our major suppliers. It is impossible to determine with
complete certainty, however, that all Year 2000 problems that may affect us
have been identified or corrected. The number of devices that could be affected
and the interactions among these devices are simply too numerous. In addition,
no one can accurately predict how many Year 2000 problem-related failures will
occur or the severity, duration or financial consequences of these perhaps
inevitable failures. Should these failures occur, we might experience, among
other difficulties, operational inconveniences and inefficiencies that may
divert management's time and attention from ordinary business activities. Based
on our initial assessment of our Year 2000 readiness, we do not anticipate
being required to implement any material aspects of a contingency plan to
address Year 2000 readiness of our critical operations.
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Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," or SFAS 133, as amended by SFAS 137, which establishes
accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts, and for hedging activities.
We will be required to implement SFAS 133, as amended, for fiscal year 2001.
Because we do not currently hold any derivative instruments and do not
currently engage in hedging activities, we expect that the adoption of SFAS
133, as amended, will not have a material impact on our financial position or
results of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, or SAB 101. SAB 101 summarizes some of the Staff's
views in applying generally accepted accounting principles to revenue
recognition in financial statements. We believe that our current revenue
recognition principles comply with SAB 101.
Disclosures about Market Risk
Our exposure to market risk is limited to interest income sensitivity, which
is affected by changes in the general level of interest rates in the United
States, particularly since the majority of our investments are in cash
equivalent debt securities issued by corporations or divisions of the United
States government. We place our investments with high quality issuers and limit
the amount of credit exposure to any one issuer. Due to the nature of our
investments, we believe that we are not subject to any material market risk
exposure.
The functional currency of our United Kingdom subsidiary is the pound
sterling. Our United Kingdom subsidiary's accounts are translated from pounds
to U.S. dollars using the current exchange rate in effect at the balance sheet
date, for balance sheet accounts, and using the average exchange rate during
the period, for revenues and expenses. The effects of translation are recorded
as a separate component of stockholders' equity, and to date, have not been
material, as our subsidiary's activities during 1999 and for the first three
months of 2000 were not significant.
While we have members in various countries throughout the world, we
currently only support memberships, and pay members for their and their
referrals' Internet viewing time with the Viewbar, in 20 countries, including
the United States. Member payments to members in these countries are generally
made in local currency. Consequently, we are subject to foreign currency rate
fluctuations from the time the payments are earned to the time members are
paid. Amounts paid to members in countries outside of the United States during
1999 and the first three months of 2000 and accrued member payments in these
countries as of December 31, 1999 and March 31, 2000 were not significant. To
the extent we expand international membership to additional countries and our
foreign member base increases, we could be subject to significantly greater
foreign currency risk. We have not taken any action to reduce our exposure to
changes in foreign currency exchange rates, such as options or futures
contracts, with respect to transactions with our United Kingdom subsidiary or
transactions with our foreign member base.
Inflation
The impact of inflation on our business has not been material.
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BUSINESS
This prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ significantly from the results
discussed in these forward-looking statements. Factors that may cause such a
difference include, but are not limited to, those discussed in "Risk Factors."
Overview
AllAdvantage has built a new Internet communications system that connects
our business customers and members through our proprietary infrastructure. This
infrastructure is comprised of our network of servers and databases coupled
with our Viewbar, an interactive user interface that resides on our members'
computer screens. The design of our communications system allows us to serve as
an Internet-based information intermediary, or infomediary, providing an e-
commerce platform and valuable data to our business customers while maintaining
the privacy of our members.
With our members' express permission, we continuously track and collect data
about their Internet behavior and demographics to develop highly accurate and
detailed personal profiles. We use these profiles to enable our business
customers to reach specific audiences through the Viewbar, allowing them to
deliver highly-targeted advertisements to and conduct electronic commerce with
our members. Online advertisements may be highly targeted to a specific group
of members based on variables such as profiled past behavior, current Internet
behavior, demographic data, specific Web sites visited, keywords searched and
specific time of day or week. The Viewbar is the interface through which we
collect member data and deliver highly-targeted advertisements and marketing
messages. The Viewbar also simplifies Internet navigation and electronic
commerce for our members with its pop-up category menus, search field, and
direct links to over 400 Web sites. We provide cash compensation to our members
for the time, on a per hour basis, that they and the members whom they have
referred spend browsing the Internet while their Viewbars are open. Our members
who used our service in the first quarter of 2000 accrued an average of $6.49
per month through the use of our Viewbar. Our business customers pay us for
their advertising delivered on our Viewbar. We sell advertisements through our
direct sales force and under agreements with third-party advertising sales
organizations, to which we pay a commission upon their completion of
advertising sales.
We believe that, by increasing our membership, our value to businesses
increases because we can deliver highly-targeted advertising and marketing
messages based on increasingly refined criteria to a large community of
members. We also believe that, as more businesses use our services, we can
offer increasing benefits to members, thereby enhancing our ability to attract
new members. The combination of these benefits to businesses and members has
the potential to create a self-perpetuating cycle of increasing membership and
increasing value to businesses.
From our inception in March 1999 through March 2000, over 6.7 million
persons registered to receive our service, of which 6.5 million continue to be
registered. We believe, based on our historical member growth and retention
rates, that by December 31, 2000, over ten million persons will have registered
for our service and continue to be registered as of that date. We launched our
Viewbar service in July 1999. Since our launch, over 2.5 million members have
downloaded and used the Viewbar software. During the three months ended
March 31, 2000, over 2 million of those members used the Viewbar. To date, we
have made the Viewbar available to our members in the United States, Australia,
Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy,
Japan, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden,
Switzerland and the United Kingdom. We have opened sales offices in London,
Paris, Sydney and Tokyo. From the introduction of our Viewbar in July 1999
through March 2000, we have delivered advertisements for 360 advertisers
obtained by our direct sales force and 1,181 additional advertisers obtained
through third-party advertising sales organizations. In March 2000, we
delivered over 7.7 billion advertising impressions on our Viewbar.
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Industry Background
The Growth of the Internet
The Internet has dramatically changed the way that millions of people
worldwide share information, communicate and conduct business. International
Data Corporation, or IDC, an independent technology research organization,
estimates that the total number of Internet users worldwide will grow from
approximately 196 million at the end of 1999 to approximately 602 million by
the end of 2003. IDC further estimates that worldwide electronic commerce over
the Internet will increase from $111 billion in 1999 to $1.6 trillion in 2003.
The Growth of Online Advertising and Direct Marketing
As the Internet has grown, businesses have devoted increasing portions of
their budgets to online advertising and direct marketing. Forrester Research,
an independent technology research organization, projects that online
advertising expenditures worldwide will increase tenfold from $3.3 billion in
1999 to $33.1 billion in 2004. Currently, online advertising consists primarily
of banner advertisements and sponsorships on frequently visited portals and
other Web sites. Although these forms of online advertising have generally
allowed businesses to create an online awareness of their brands and products,
businesses are increasingly demanding the ability to target their desired
audience more effectively.
Limitations of Current Targeted Online Advertising Methods
Targeting online advertisements identifies a specific group of computer
users to whom the advertisements are delivered, which we believe increases the
likelihood that the computer users receiving the advertisements will find them
relevant and, as a result, will positively respond to the advertisements. While
targeted online advertising has a number of advantages over traditional
advertising, there remain significant challenges to realizing its full
potential. The effectiveness of targeted online advertising is currently
limited by the lack of precise demographic and Internet behavioral data about
consumers. To date, online targeting methods have generally used unverifiable
data from surveys and registrations or incomplete Internet behavioral data
derived from a single Web site or limited network of Web sites. Further, the
effectiveness of existing online delivery methods is limited because users
often scroll traditional banner advertisements off of their computer screens or
leave a Web site before an advertisement can be served to that site.
Consumer Online Privacy and Control of Personal Data
Many companies on the Internet are collecting valuable data about consumers
without their knowledge or permission. Online consumers are becoming
increasingly aware of Internet privacy issues and concerned with the need to
control their personal data. According to Forrester Technographics,
approximately 67% of Internet users are extremely or very concerned about
releasing their personal data. To date, online consumers have had limited ways
to control this flow of data or realize any of its value.
Market Opportunity
We believe that a significant market opportunity exists for an Internet-
based infomediary to serve as an effective communication channel between
businesses and online consumers. This infomediary would collect consumers'
demographic and Internet behavioral data, with their permission, and build
detailed profiles from that information. The infomediary would then use these
profiles to enable businesses to deliver highly-targeted, one-to-one marketing
messages and other products and services to specified consumers. The
infomediary, as the trusted custodian of their information, would also empower
consumers to realize value from their data while protecting their privacy.
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AllAdvantage
AllAdvantage is an Internet-based infomediary that enables businesses to
deliver highly-targeted advertisements to, and conduct electronic commerce
with, a large community of profiled members. We connect our business customers
with these members through our proprietary infrastructure. The Viewbar, an
interactive communications window that is persistently displayed on our
members' computer screens, displays advertising and also contains features such
as a search field, pop-up category menus and direct links that facilitate
electronic commerce by connecting our members directly to Web sites and
services of our business customers.
With our members' express permission, we collect their demographic
information upon registration and continuously capture data about their
Internet behavior. Using our proprietary database and profiling system, we then
create, and continuously update, an accurate and detailed profile for each of
our members. These profiles enable us to deliver highly-targeted advertisements
and marketing messages on behalf of our business customers. We compensate our
members for time that they, and the members whom they have referred, spend
browsing the Internet while using our Viewbar.
Benefits to Businesses
Accurate and Detailed Member Profiles. We enable businesses to deliver
highly-targeted advertising and marketing messages, based on accurate and
detailed member profiles, to our large community of members. With our members'
express permission, we collect extensive data on their actual browsing behavior
across the entire Internet. Because our members must provide us with accurate
names and addresses in order to receive payment, we are able to validate this
information. With our accurate and continuously updated database of profiles,
we enable businesses to continuously refine and optimize their online marketing
campaigns.
Higher Returns on Their Marketing Investment. Our highly-targeted
advertising and marketing messages are designed to generate higher consumer
response rates and advertising impact and, as a result, to provide businesses
with a higher return on their marketing investments. We offer businesses an
effective means of delivering highly-targeted online advertisements and
marketing messages based on combinations of the following variables:
. profiled behavior, including personal interests and spending habits;
. demographic data, including gender, age, street address and zip code;
. geography, including local, regional, national or international
placement;
. specific Web sites or Web site topics, such as sports or travel;
. current Internet behavior, such as researching or buying;
. keywords searched, such as stocks or golf; and
. specific time, including time of day or week.
Using combinations of these variables, an advertiser can target a very specific
audience. For example, a local car dealership can target its advertising to
males, age 25-40, who live in the zip codes near the dealership when they are
using the Internet to research sport utility vehicles or browsing related
automotive Web sites. Also, a national airline could run a campaign in specific
cities where it has excess capacity. With our detailed member profiles, the
airline could target members who have frequented travel Web sites within the
past month or visited the Web sites of its closest competitors in the same time
period.
Persistent and Rich Media Advertising. When activated, the Viewbar is always
visible on a member's computer screen, regardless of which Web site he or she
is viewing or which desktop application he or she is using. Accordingly,
businesses can have their advertisements viewed on a persistent basis, without
the possibility of their advertisements being scrolled off the screen. In
addition, we designed the Viewbar system to send advertisements to members
between downloads and uploads of data from the Internet, allowing us to
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efficiently send more complex and appealing graphics, or rich media, to our
members. The Viewbar remains visible throughout a computing session unless the
member chooses to minimize or close the Viewbar.
Ability to Target Members Viewing Any Web Site. We can deliver
advertisements on the Viewbar while our members are viewing any Web site,
including sites that are sold out of advertising inventory or do not feature
advertising. Rather than separately negotiating for and purchasing advertising
space on a number of Web sites, a business can instead purchase advertising on
the Viewbar that will be displayed when members view any of those selected Web
sites.
Media Strategy Expertise. We work with business customers to evaluate,
develop, execute, analyze and refine their online marketing campaigns. Because
we can collect data on our members' activity across the Internet, we are able
to offer customers information that might otherwise be unavailable. We can
accurately identify the demographic and behavioral characteristics of those
members who have, and those who have not, responded to our advertisers'
campaigns. Our media strategy group uses this information to assist our
business customers to target their future campaigns more effectively.
Platform for Electronic Commerce. Our Viewbar contains features that
facilitate electronic commerce between business customers and our members. For
example, the Viewbar contains a menu bar that provides links to over 400 sites
on which our members may engage in commerce. In addition, each of our active
members holds an AllAdvantage cash account. We have recently begun to allow
members to use their cash accounts for the direct purchase of goods and
services online.
Benefits to Members
Payments for Using the Internet and for Referrals. Our members are paid for
time they spend navigating the Internet while the Viewbar is active on their
computer screens. In this way, members are paid for activities they already
undertake and are able to share in the value that their personal information
has for Internet advertisers and marketers. Members are also paid when other
people they have directly or indirectly referred to us become members and use
the Internet while their Viewbars are active. Members who accrue a minimum
balance can receive the cash they earn in the form of a check we mail to them.
In addition, we have recently begun to enable our members to use the funds in
their accounts to make purchases online.
Simplified Internet Navigation. When the Viewbar is active on a member's
computer screen, it serves as a persistent and private portal that is always
accessible. The Viewbar simplifies navigation of the Internet by featuring a
search field and a menu bar that provides direct links to selected Web sites.
We believe that our members will find these features easier to use and more
convenient than other alternatives.
Increased Purchasing Power. We have recently begun to help our members
capitalize on the value of our large member base by working with selected
vendors to obtain pricing discounts, promotional rewards and other benefits for
our members. We provide a vehicle by which consumers receive the benefit of
their collective purchasing power, which encourages them to participate
actively in the AllAdvantage community and refer other consumers for
membership.
Relevant Advertising and Electronic Commerce Offers. Each of our members has
given us express permission to deliver advertising and marketing messages to
him or her through the Viewbar. Our profiling capabilities enable us to deliver
these messages in a highly targeted fashion, increasing the likelihood that the
member will view and respond to a given message. As we collect additional data
regarding the interests, activities and Internet usage patterns of our members
over time, we believe we can increase the level of personalization and hence
the direct relevance and value of these messages to members. We believe that
receiving these highly-targeted messages can be valuable to our members and
will be viewed by them as useful and informative.
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Privacy and Control. We believe we have built a trusted relationship with
our members by rigidly maintaining the privacy of their data. We expressly
state in our membership agreement that we will never sell or disclose to any
third parties our members' personally identifiable information, unless
permitted by our members or required by law. Additionally, members can control
our tracking of their Internet behavior by turning the Viewbar on and off at
any time.
Strategy
Our objective is to expand our position in the Internet data market,
including the information-enabled fields of advertising, electronic commerce,
profiling, and data analysis, thereby becoming the leading Internet-based
infomediary. Key elements of our strategy include:
Build a Premier and Trusted Brand. We believe that building strong brand
awareness is fundamental to establishing ourselves as the Internet-based
infomediary most trusted by consumers and as the most effective online
marketing channel for businesses. We intend to build a premier and trusted
brand by consistently delivering value to both businesses and consumers. We
also intend to maximize awareness of the AllAdvantage brand by businesses
through traditional marketing channels. In addition, we plan to utilize
multiple points of contact with consumers, including our Viewbar, Web site,
email and direct mail, to increase their brand awareness.
Expand our Community of Profiled Members. We believe that expanding our
membership increases our attractiveness to businesses. We plan to continue to
rely on word-of-mouth referral marketing and may augment this strategy with
other marketing campaigns. We also intend to attract additional members by
improving member benefits with enhancements to the Viewbar and expanded product
and service offerings.
If many employers or universities adopt policies that prohibit or discourage
our members from using the Viewbar, our membership may decline or our rate of
membership growth may slow. We conducted informal surveys in March 2000 of
randomly selected A-Plus members and non-A-Plus members in the United States.
Those A-Plus members and non-A-Plus members who responded indicated that
approximately 81% and approximately 88% of the time, respectively, they browse
the Internet with the Viewbar activated at home rather than at work. We cannot
assure you that this survey accurately represents the behavior of all of our
members or that in the future our members might not use the Internet with the
Viewbar relatively more frequently at work.
Expand our Business Customer Base. We intend to continue to increase our
sales force domestically and internationally in order to expand our worldwide
business customer base. We also intend to attract and retain business customers
by offering the services of our media strategy group, which assists these
customers in utilizing our extensive database to evaluate, develop, execute,
analyze and refine their marketing campaigns.
We also believe that we will be able to attract business customers located
in foreign countries by expanding our membership internationally. To date, we
have not incurred significant costs in order to expand our membership and
business customers into foreign countries since we have been able to use our
domestically located servers in order to provide the Viewbar service to members
located in foreign countries and have needed only to establish sales offices in
some of those countries. However, we might incur significant costs in the
future to expand our membership and business customers in foreign countries.
Increase Targeted Advertising Sales. Businesses generally pay higher rates
for targeted online advertising than for traditional online advertising. During
1999 and the first quarter of 2000, substantially all of the advertisements we
sold were not highly-targeted. As we grow our sales force and media strategy
group, we believe that we will be able to increase targeted advertising sales
as a percentage of our total advertising sales. We believe that our business
customers will experience higher response rates from our increasingly targeted
advertisements and that these higher response rates will in turn encourage them
to buy more targeted advertising from us.
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Pursue New Revenue Opportunities. We intend to aggressively pursue new
revenue opportunities which utilize our large membership base or the
functionality of the Viewbar, including:
. Digital Products. We intend to offer businesses the opportunity to sell
or rent digital products, such as software, music, games and video, that
can be electronically distributed to our members through the Viewbar,
and be paid for by debiting members' accounts;
. Data Products. We intend to offer businesses the opportunity to purchase
reports that will use our extensive, aggregated market data but that
will not personally identify members; and
. Branded and Co-Branded Products and Services. We intend to offer to our
member community, merchandise carrying the AllAdvantage brand including
branded apparel and sporting goods. We also intend to offer businesses
the opportunity to sell products and services bearing their brands and
the AllAdvantage brand to our member community. For example, we
anticipate offering our members co-branded debit and credit cards from
which we would derive revenues in the form of referral payments and
revenue sharing payments made by the card issuers.
We believe that, in the future, advertisements may be delivered through the
Internet to a number of digital devices in addition to computers, including
interactive television, Internet-enabled home appliances, hand-held computers,
cellular phones, pagers and automobile personal computers. Over time, we may
extend our technology to deliver targeted advertisements through some of these
emerging digital devices.
Enhance Viewbar Functionality and Member Experience. We intend to continue
to add functionality to the Viewbar in order to enhance our members'
experience. For instance, we recently added pop-up category menus, a search
field and direct links to over 400 Web sites to our Viewbar. These features
facilitate more convenient Internet navigation and electronic commerce. We
intend to develop and acquire additional technology and services that make our
members' online experience more relevant and personal. For instance, we intend
to allow members to customize their Viewbars to display requested information
and options.
Enhance our Profiling and Data Analysis Technology. We intend to continue to
enhance our proprietary profiling and data analysis technology to maximize the
use of our growing database. Our profiling and data analysis technology enables
collection of detailed member information from which we can extract aggregated
market data to create data products comprised of non-personally identifiable
information for sale to our business customers. We intend to continue building
increasingly detailed and personalized member profiles. We also intend to
continue to enhance our data analysis capabilities in order to plan and execute
more effective advertising and marketing campaigns and to provide data products
for our business customers.
The AllAdvantage Viewbar
At the core of our service is our Viewbar, an interactive communications
window that appears on each member's computer screen. The Viewbar is the
channel through which we gather valuable data about our members' Internet
activity and through which we deliver advertising and facilitate electronic
commerce. The Viewbar contains a search field and pop-up menus of links that
allow members to navigate directly to Web sites and services on the Internet.
The current version of our Viewbar, released in April 2000, is depicted below:
The following schematic illustrates the Viewbar:
Centered on the page is a horizontal screen shot of the Viewbar. Across the
top of the Viewbar are depictions of buttons containing the words "Home,"
"News," "Finance," "Shop," "Entertainment," "Travel," and "Tech."
On top of the "Finance" button is an expanded pop-up menu, in the form of a
vertical column, containing the following words which read from the top down:
"News," "Stocks & Investing" which are highlighted, "Banking," "Credit Cards,"
"Taxes," "Insurance," and "Loans & Mortgages." To the right and parallel to the
highlighted words "Stocks & Investing" is a drop-down menu, in the form of a
vertical column, containing the following words which read from the top down:
"On-Line Research" and "Research."
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The following text connected by lines to functional areas of the Viewbar
surrounds the depiction of the Viewbar, starting above the depiction of the
Viewbar and to the left of the "Finance" button pop-up menu and following anti-
clockwise around the entire screen shot of the Viewbar.
"Minimizer button for control of use."
"Home menu button takes members directly to individual account page,
referral center and other areas of our web site."
"Choice of six search engines."
"Direct link to our web site homepage www.AllAdvantage.com"
"Banner and tile advertising spaces."
"Menu Bar with eight channels of detailed link menus."
The body of the Viewbar is depicted in three adjoining sections, the section
on the left hand side of the Viewbar depicts a search engine with the word
"Search" presented and an expanded drop-down menu, in the form of a vertical
column, containing the following words, which read from the top down: "Ask
Jeeves," "Direct Hit," "Excite," "Go.com," "GoTo.com" and "LookSmart." The
center section of the Viewbar depicts the Viewbar's banner advertising space
with AllAdvantage.com's logo presented and the section on the right hand side
of the Viewbar depicts the Viewbar's tile advertising space and presents the
following text: "ALLPLAY-TM-Channel Advantage-TM-"
The Viewbar can be downloaded from our Web site in Windows 95, Windows 98,
Windows NT 4.x and Macintosh 8.6 and 9.0 formats. Once a member downloads,
installs and launches the Viewbar, it opens a two-way communications channel
between the member's computer and AllAdvantage. The Viewbar appears on the
user's screen automatically when the computer is turned on, and its default
position is at the bottom of the screen. A member can move the Viewbar to any
part of the computer screen, and it remains visible throughout a computing
session unless minimized or closed. We control the type of content and the
frequency with which that content is displayed through the Viewbar, based on a
member's unique profile and Internet browsing behavior.
The Viewbar has the following interactive features:
. The Menu Bar. Along the top of the Viewbar there is a menu bar currently
containing eight category menus. The menu bar may be opened or closed at
the option of the member. Each menu contains direct links to select Web
sites. The current Viewbar features more than 400 direct links that may
be sold to sponsors in the future. We intend to increase the number of
category menus and links on the menu bar.
. The Search Field. On the left side of the Viewbar is a text box that
members can use to search the Internet. An expandable menu button from
this search text box allows users to choose the search engine of their
choice. We currently offer six sponsored search engine options. Members
can type in their search criteria or a specific Web site address in the
search text box, even while using a non-Internet application. This
activates the member's Internet browser, which displays the search
results or takes the member to the Web site address entered. We have
non-exclusive contractual arrangements with Ask Jeeves, Direct Hit,
Excite, Go.com, GoTo.com and LookSmart, under which the search engines
of these companies are made available on the Viewbar. Under these
arrangements, each of which has a term of one year, we earn revenue
based on the number of click-throughs by our members to the applicable
search engine. Our arrangements with Ask Jeeves, Direct Hit, Excite,
GoTo.com and LookSmart provide for a guaranteed minimum number of click-
throughs.
. Advertising Windows. To the right of the search field are spaces to
which we deliver a standard-sized and a tile-sized advertisement, both
of which we change several times a minute.
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AllAdvantage Membership Services
Member Payments
Members earn money for time they spend navigating the Internet while the
Viewbar is active on their computer screens. Members are paid only after
reaching a minimum cumulative account balance of at least $20. Time for which a
member is eligible for payment is capped at a maximum number of hours per
month, currently 25 hours per month. In addition to earning money from their
own Internet use, members are paid, at a lesser rate, when other members they
have directly or indirectly referred to us use the Internet while their
Viewbars are active. We currently limit payment for referrals to five levels
removed from the original referring member. The amount paid to a member for his
or her referrals' usage is based on an hourly rate and is also limited by the
Internet usage of the original referring member. As an example, if member A
refers member B, who in turn refers member C, who in turn refers member D, who
in turn refers member E, who in turn refers member F, who refers in turn member
G, then member A will be eligible to accrue payment at the applicable referral
rate for Internet browsing done in a given month by members B through F, but
not member G. If member A actively browses the Internet with the Viewbar active
for five hours in a given month, then member A will accrue payment at the
direct member rate for those five hours. Additionally, if in that month members
B through F each actively browse the Internet with the Viewbar active for 25
hours, then member A will accrue only five hours worth of referral payments for
each such referral.
Our membership agreement specifies that we may alter the member payment
structure at any time. Users register without charge at our Web site by
providing their name, gender, street address, email address and age. Because we
verify name and address information through the payment process, we believe we
have highly accurate personal data.
Web Site
Our Web site, www.alladvantage.com, contains:
. information about AllAdvantage and our Viewbar;
. a download area for new Viewbar versions and digital products;
. password-protected access to member referral and account pages;
. information and tools to aid members in referring new members; and
. specialized community pages for A-Plus members, a designation for
members with 20 or more referrals, which presently allows these members
to communicate with each other using computer message boards, provides
information about members with a high number of referrals and provides
other information about AllAdvantage events.
The member account page, the most frequently visited page on our Web site, is
continuously updated to reflect member earnings and referrals. Many of our
members repeatedly visit their account pages over the course of a day. In each
month of the fourth quarter of 1999, PC Data ranked our Web site as one of the
20 most visited Web sites, measured by the number of unique users.
Specialized Member Offers
We have recently begun to provide our members with third-party product and
service offerings that are generally not available elsewhere. For example, we
currently offer our members the ability to rent anti-virus software on a
monthly basis over the Internet, payable through direct deductions from their
individual AllAdvantage accounts. We intend to further leverage the value of
our large membership base and digital distribution channel through the Viewbar
to obtain additional specialized third-party product and service offerings.
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Customer Service
We provide customer service to our members through our community and member
services departments. Our community department supports the member community,
communicating with members through email about new features and services. Our
member services department answers email queries from members about topics such
as Viewbar functionality, technology and usage and member accounts.
AllAdvantage Business Services
Advertising
We offer business customers the opportunity to purchase advertising on the
Viewbar. Customers may purchase standard-sized and also tile-sized
advertisements. Business customers may purchase either traditional online
advertisements or highly-targeted advertisements tailored to one or a
combination of the individual member's demographics or Internet behavior. These
variables may include profiled behavior, age, gender, address, geography,
current Web activity or site, keywords, or time of day. To date, traditional
advertising sold by third-party advertising sales organizations has generated a
significant portion of our total advertising revenues and accounted for a
significant portion of the advertising impressions delivered to our Viewbar. As
we increase our internal sales force, we intend to generate an increasing
proportion of our revenues from targeted advertising.
Media Strategy
We offer business customers extensive media strategy services, which include
evaluating, developing, executing and refining online marketing campaigns. We
provide detailed reports that include data valuable to customers for their
online and offline marketing campaigns. Because we collect data about our
members' behavior wherever they go on the Internet, we are able to offer
business customers information that might otherwise be unavailable or might
require time-intensive and inefficient marketing campaigns. Because the Viewbar
provides a persistent one-to-one marketing channel from advertisers to our
members, we provide true one-stop shopping for our business customers' online
media plans.
Digital Products
The Viewbar is designed to serve as a digital distribution channel that our
business customers may use to distribute software, music, games, video and
other digital products directly to our members. For example, we currently offer
our members the opportunity to download and rent anti-virus software from
Network Associates, for which we charge members a monthly fee that is deducted
automatically from their AllAdvantage member account.
Electronic Commerce
The current Viewbar contains over 400 direct links to specific Web sites
which we intend to sell. The menu bar containing these links is organized into
categories such as shopping, news, finance, travel and technology. Business
customers may pay to sponsor these links to their own Web sites and services.
For example, a finance-related Web site can sponsor a link in the finance menu,
so that their Web site is always one click away from our members. In addition,
businesses may sponsor the search field on the Viewbar. The tile portion of the
Viewbar and specific pages on the AllAdvantage Web site are also available for
sponsorship, thereby providing businesses with multiple channels through which
they may communicate with our members. We have entered into agreements with
businesses where we receive fees based on the number of members who sign up for
their services, purchase their products or satisfy other performance criteria.
We generally receive an exclusivity fee or other advance payment or fee in
these arrangements. An example is our agreement with NetCreations, whereby
NetCreations will deliver permission-based email services to our members. In
return for our agreement to grant NetCreations exclusive rights to provide
those services to our customers, NetCreations paid an exclusivity fee to us at
the outset of our contractual relationship. As members sign up for NetCreations
and receive permission-based emails, we also receive payments for each email
that is delivered to our members.
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AllAdvantage Business Customers
From the introduction of our Viewbar in July 1999 through March 2000, we
have delivered advertisements for 360 advertisers obtained by our direct sales
force and 1,181 additional advertisers obtained through third-party advertising
sales organizations. Our agreements with our business customers include
provisions which require us to deliver to the Viewbar specified levels of
advertising for a specified time period. In return, those business customers
pay us for advertising delivered. We have entered into agreements with
DoubleClick and 24/7 Media under which they sell Viewbar advertising on behalf
of AllAdvantage. Our agreement with DoubleClick is non-exclusive and requires
that we provide a minimum amount of monthly advertising to DoubleClick, that we
maintain our Web site at a level of quality no less than the level existing
when the agreement was entered into and that we pay a commission to DoubleClick
for completed sales. This agreement expires after two years or earlier if a
customer advance for future revenues provided by DoubleClick no longer remains
outstanding. This agreement may be terminated earlier by DoubleClick if the
average monthly click-through rate on our advertisements falls below a stated
minimum, if the time our advertisements are displayed on the Viewbar fall below
a stated minimum, if we terminate our agreement to use DoubleClick to serve our
advertisements, if we are acquired by a competitor of DoubleClick, if we breach
the agreement or if we are determined to be insolvent or bankrupt. Our
agreement with 24/7 Media is non-exclusive and requires that we provide
advertising to 24/7 Media at stipulated rates and that we pay a commission to
24/7 Media for their completed sales. This agreement expires after one year,
subject to renewal. This agreement may be terminated earlier by 24/7 Media if
the number of advertising impressions falls below a stated minimum, if the
average monthly click-through rate on our advertisements falls below a stated
minimum or if we breach the agreement. 24/7 Media sold advertisements that
accounted for 12% and 19% of our revenues for the three months ended March 31,
2000 and for the period from inception, March 24, 1999, to December 31, 1999,
respectively, and DoubleClick sold advertisements that accounted for 3% of our
revenues for both the three months ended March 31, 2000 and the period from
inception, March 24, 1999, to December 31, 1999. Additionally, our sales of
advertisements to Overstock.com accounted for approximately 17% of our revenues
for the three months ended March 31, 2000.
Sales and Marketing
Customer Acquisition
We acquire business customers through our direct sales force and through
third-party advertising sales organizations. As of March 31, 2000, our sales
and marketing organization included 233 employees and contractors located in
the following metropolitan areas: Atlanta, Austin, Baltimore, Boston, Boulder,
Charlotte, Chicago, Cincinnati, Cleveland, Dallas, Detroit, Houston, London,
Los Angeles, Louisville, Miami, Minneapolis, New York, Oklahoma City, Paris,
Philadelphia, San Diego, San Francisco, Seattle, St. Louis, Sydney, Tokyo and
Washington, D.C. Our sales organization develops and maintains relationships
with leading advertisers and advertising agencies globally. We also have
entered into relationships with third-party advertising sales organizations in
order to augment the efforts of our sales personnel and accelerate the
expansion of our business internationally.
We use a variety of methods to build awareness of the AllAdvantage brand and
our service offerings within our target market and to establish credibility and
leadership in the marketplace. These methods include marketing materials,
advertising, press coverage and other public relations efforts, direct
marketing, trade shows, seminars and conferences, relationships with recognized
industry analysts and the AllAdvantage Web site. We expect to increase our
business marketing activities in the future.
Member Acquisition
Since our inception, we have relied on word-of-mouth marketing to attract
the vast majority of our members. We employ a referral marketing system that
rewards members for referring other members to our service. Members derive
increased benefits from our service, such as referral payments and greater
purchasing power, as more members join, thereby motivating members to work to
further increase our membership base.
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Between the launch of our Web site in March 1999 and March 31, 2000, over 6.7
million users registered to receive our service, of which 6.5 million are
currently registered. In addition, as of March 31, 2000, over 1.4 million of
our members had successfully referred at least one new member to our service,
and our over 125,000 A-Plus members had each referred 20 or more members to our
service. We may supplement our word-of-mouth member marketing efforts in the
future with more traditional marketing campaigns.
Technology
As of March 31, 2000, our technology organization included 177 employees and
contractors. We have developed and continue to expand our proprietary software
architecture that enables us to detect and catalog our members' Internet-usage
behavior, create member profiles based on their browsing behavior, improve the
delivery of dynamic, targeted advertisements, and update and maintain members'
online accounts. This software architecture includes the following components:
Viewbar. The Viewbar, which is downloaded by each member from our Web site,
runs on the member's computer and displays advertisements supplied by the
advertising server. The Viewbar communicates continuously with our central
servers, keeping member earnings and profile information current and enabling
customization of advertising displayed on the Viewbar based on the most recent
profiles. The Viewbar is a client application programmed in C++ and designed to
be portable between operating systems. Different versions of our Viewbar
currently operate on the Windows 95, Windows 98, Windows NT 4.x and Macintosh
8.6 and 9.0 operating systems.
Profiling Server. The profiling server collects data about each member's
actual Internet browsing behavior. This server gathers data describing the
sites visited, and the frequency and duration of these visits. This server is
also used to infer additional Internet behavior data regarding each member.
This information is transmitted to the member profile server and subsequently
used to target advertising on the Viewbar.
Member Profile Server. The member profile server stores the member data we
use to target advertisements and marketing messages. The member data consists
of demographic and Internet behavioral information. The member profile server
enables members to authenticate themselves to our system and transmit their
data through the Viewbar. The member profile server also maintains the
information about each of our members' referrals.
Advertising Server. The advertising server determines which advertisements
are shown to a particular member at a particular moment. Advertisements can be
served based on targeting information provided to the advertising server by the
member's Viewbar and the member profile server, as well as the specific
targeting criteria associated with a particular marketing campaign. This server
maintains data regarding available advertising inventory and provides reports
on the delivery of advertisements. The server technology is licensed to us by
DoubleClick.
Payment Server. The payment server monitors the time members spend browsing
the Internet while the Viewbar is active. Based on this information, the
payment server computes each member's earnings, maintains an account for each
member, and computes the amount to be paid to each member based on the member's
browsing time and that of the members whom they have referred.
Web Server. The Web server supports the AllAdvantage Web site.
We have designed and constructed our software and related technology
infrastructure to comply with industry-standard security specifications, and we
utilize a broad range of monitoring and assessment tools to ensure the security
of our systems. We have designed our system to be reliable and to permit our
technology infrastructure to be expanded to meet increased usage demands, and
we believe the various components of our technology architecture have the
ability to scale well beyond their current configuration. We actively monitor
our systems to ensure that we have substantial available capacity. We house our
technology within the
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GlobalCenter facilities located in Sunnyvale, California, and by the end of the
second quarter of 2000 we intend to have a second hosting site operational at
GlobalCenter's facilities in Herndon, Virginia.
Our information technology infrastructure is built upon a number of hardware
and software components from well-known technology vendors, including:
. Intel-based servers for our Web site, running Microsoft's NT operating
system;
. Sun Microsystems servers for our other servers, running Sun's Solaris
operating system;
. high-availability storage equipment from EMC;
. firewalls and network routing equipment from Cisco; and
. Oracle database software to manage the large amounts of data we collect
about our members' Internet usage activities.
Product Development
We consider our product functionality and architecture to be one of our
competitive advantages. To this end, we expect to make during at least the next
12 months material expenditures on research and development to continue to make
our service more attractive to new and current members. We believe that, in
order to meet this goal, we will need to regularly improve and extend the
functionality of our Viewbar and related systems, which include a profiling
server, a payment server and a Web server. To this end, we currently have
software developers and engineers working in a number of areas, including:
. database and server systems development;
. Web development;
. client software development;
. software testing; and
. systems support.
Our software developers rely on state-of-the-art development tools and
development environments.
The January 2000 release of our Viewbar was enhanced to include search
capability, electronic commerce menus and an auto-update feature, which allows
the Viewbar to update itself automatically with new or upgraded components. The
auto-update capability enables us to update members' Viewbars transparently
without disrupting online activity. We believe that this capability, when
combined with the Viewbar's modular design and ability to support several
operating systems, enables us to deploy rapidly to our members new products and
software components that may be created by third-party developers. Our ability
to centrally update the Viewbar and the server-side Web and database systems
facilitates rapid adjustments to all product components based on consumer
demand and business needs.
Privacy Policy
We believe that concerns regarding online privacy raised by consumer
advocates, legislatures and the media will increase as commercial usage of the
Internet increases. Foreign, federal and state laws increasingly may regulate
our use of personal information regarding our members. We have a stringent
privacy policy concerning how we use information about our members and the
extent to which others may have access to this information. We have a chief
privacy officer who oversees the creation and implementation of and compliance
with our privacy policy. We use information about our members for internal
purposes, such as to target advertisements and other communications to our
members, to improve our marketing and promotional efforts and to improve our
service and Web site. We do not give, sell, rent, share or trade any
identifiable personal information regarding our members to any third party,
except as required by law or expressly permitted by a member. We do, however,
sell summaries of generalized market data to our advertisers and other
interested
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parties, but we do not disclose indentifiable personal information to these
parties. In contrast to other companies on the Web that collect personal data
without the knowledge or permission of the Internet user, we have a permission-
based relationship with every one of our members.
Competition
We compete for business customers and members.
Competition for business customers
The market for online advertising and marketing is extremely competitive. We
believe that the principal competitive factors in the online advertising market
are:
. the ability to target users based on specific demographic and inferred
behavioral criteria;
. brand recognition;
. size and characteristics of membership base;
. breadth and depth of reporting and other services;
. reliability and quality of data and technology infrastructure;
. pricing; and
. technical expertise.
There is substantial competition for Internet-based advertising revenues
generally, and the amount of available advertising space on the Internet is
increasing at a significant rate. We believe our most direct competitors for
Internet advertising and sponsorship revenues will be providers of targeted
online advertisements. We will also compete for those revenues with major
Internet service providers, content providers, large Web publishers, Web search
engines and portal companies, Internet advertising providers, content
aggregation companies, and various other companies that facilitate Internet
advertising. We may also face competition from traditional direct marketing
companies that may seek to offer online products or services. Many of these
companies have longer operating histories, greater name recognition, larger
user bases and significantly greater financial, technical, sales and marketing
resources than we do. This may allow them to respond more quickly than we can
to new or emerging technologies and changes in advertiser requirements. It may
also allow them to devote greater resources than we can to the development,
promotion and sale of their products and services. These competitors may also
engage in more extensive research and development, undertake more far-reaching
marketing campaigns, adopt more aggressive pricing policies and make more
attractive offers to existing and potential employees, strategic partners and
advertisers. In addition, current and potential competitors have established or
may establish cooperative relationships among themselves or with third parties
to increase the ability of their products or services to address the needs of
our prospective business customers. Increased competition is likely to result
in price reductions, reduced gross margins and loss of market share. We face
significant competition from traditional media, such as television, radio,
cable and print, for a share of advertisers' total advertising budgets.
Businesses may be reluctant to devote a significant portion of their
advertising budgets to Internet advertising if they perceive the Internet to be
a limited or ineffective advertising medium.
Competition for members
Since space on a computer screen is limited, we believe our most direct
competitors for members are companies that offer Internet services or
compensation to consumers who allow a portion of their computer screen to be
dedicated to the applications or services of those companies. We believe that
over 50 other companies have announced that they offer or will offer users cash
compensation to browse the Internet if they dedicate a portion of their
computer screen. If our competitors were to offer more attractive benefits than
we do, such as higher compensation, better functionality or greater aggregated
purchasing power, then our
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membership could decline, possibly reducing our revenues. In addition, current
and potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their services to address the needs of our current or prospective members. If
we are unable to compete successfully, our business may fail.
Intellectual Property
We rely on a combination of patent, copyright, trademark, trade secret and
contract law to protect our intellectual property rights. Despite our efforts
to protect our proprietary rights, unauthorized parties have copied, and may
attempt to copy in the future or otherwise obtain and use our intellectual
property. Monitoring unauthorized use of our intellectual property is
difficult, and we cannot be certain that the steps we have taken will prevent
unauthorized use of our intellectual property in the future.
We have two U.S. copyright registrations. We have pending U.S. patent and
pending U.S. and foreign trademark applications. We cannot assure you that our
pending patent or trademark applications will be granted. Even if they are
granted, our patents, copyrights and trademarks may be successfully challenged
by others or invalidated. We cannot assure you that any of our proprietary
rights will be viable or of value since the validity, enforceability and scope
of protection of proprietary rights in Internet-related industries are
uncertain and evolving. If our trademark applications are not approved because
third parties successfully challenge our right to use these trademarks, our use
of these trademarks would be restricted unless we were to enter into
arrangements with the third-party owners, which might not be possible on
reasonable terms.
We also seek to protect our proprietary rights through trade secret and
contract law. We generally enter into confidentiality or license agreements
with our employees and consultants, and control access to and distribution of
our technologies, documentation and other proprietary information. Despite our
efforts to protect our proprietary rights from unauthorized use or disclosure,
unauthorized parties may attempt to obtain, use or disclose our technologies.
We cannot assure you that the steps we have taken will prevent misappropriation
of our technologies, particularly in foreign countries where laws or law
enforcement practices may not protect our proprietary rights as fully as in the
United States.
Our business activities may infringe the proprietary rights of others, and,
from time to time, we have received, and may continue to receive, claims of
infringement against us. We have received notices from two third parties
regarding their Internet business model patents. Third parties may assert
claims against us for infringement of their proprietary rights and these claims
may be successful. In addition, a number of third-party owners of patents claim
to hold patents that cover various forms of online transactions or online
technology generally. As with other online service providers, third parties
could assert patent claims against us based upon our services or technologies.
Litigation may be necessary to determine the validity and scope of the
proprietary rights of others. Any litigation could subject us to significant
liability for damages and attorneys' fees, invalidation of our proprietary
rights, or injunctions or other court orders that would prevent us from using
specific technologies or engaging in specific business activities. These
lawsuits, regardless of their success, would likely be time-consuming and
expensive to resolve and would divert management's time and attention from our
business. Any potential intellectual property litigation could also force us to
do one or more of the following:
. cease using key aspects of our technology that incorporate the
challenged intellectual property;
. make significant changes to the structure and operation of our business;
. create new brands for our services and establish recognition of those
new brands;
. design around a third party's patent; or
. license technology from a third party.
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Implementation of any of these alternatives could be costly and time-
consuming and might not be possible at all. Accordingly, an adverse
determination in any litigation to which we are a party would harm our
business.
Governmental Regulation
Overview
The services we provide are subject to regulation by various federal, state
and foreign governmental authorities. Federal and state laws may, for example,
mandate protection of consumer privacy and regulate online content generally.
The laws relating to our business and operations are evolving. A number of
legislative and regulatory proposals under consideration by federal, state,
local and foreign governments may lead to additional laws or regulations
concerning online content, user privacy, taxation, parental consent for access
by their minor children, access charges, liability for third-party activities,
bulk e-mail, or spam, encryption standards, online sales of goods and services,
domain name registration and use, copyright infringement and other intellectual
property issues. The adoption of new laws or the application of existing laws
may decrease the growth in the use of the Internet. As Internet financial
services activities grow, new laws and regulations adopted to cover these
activities could affect our operations. These results could decrease the demand
for our services or increase our cost of doing business, either of which would
harm our business.
Foreign Laws and Jurisdiction.
It is not clear the extent to which we are, or may in the future be, subject
to regulatory activity of foreign jurisdictions. We could be held to be subject
to the laws or regulations of foreign jurisdictions because of the location of
our members, our presence on the Internet or the impact or effects of our
operations. We could also be held subject to foreign laws or regulations
because of possible future activities that specifically target or are based in
other countries. The possible application of foreign laws and regulations could
include a wide range of subjects. The application of foreign laws and
regulations to Internet and online activity has only limited precedents abroad
and is an evolving area of law. It is not clear how existing foreign laws and
regulations might be applied to our activities.
Regulation of Content and Access; Membership Program
Prohibition and restriction of Internet content and access could dampen the
growth of Internet use, decrease the acceptance of the Internet as a
communications and commercial medium or expose us to liability. A variety of
restrictions on content and access, primarily relating to children, have been
enacted or proposed. The Children's Online Protection Act of 1998, for example,
prohibits, and imposes criminal penalties and civil liability on anyone engaged
in the business of, selling or transferring, by means of the World Wide Web,
material that is harmful to minors, unless access to this material is blocked
to persons under 17 years of age. However, some courts have found portions of
this act to be unconstitutional. In addition, the Federal Telecommunications
Act of 1996 imposes fines on any entity that knowingly permits any
telecommunications facility under its control to be used to make obscene or
indecent material available to minors via an interactive computer service.
Numerous states have adopted or are currently considering similar types of
legislation. In addition, laws have been proposed that would require Internet
service providers to supply, at cost, filtering technologies to limit or block
the ability of minors to access unsuitable materials on the Internet. Federal
and state consumer protection laws, including the Federal Trade Commission Act,
generally prohibit unfair or deceptive acts or practices and impose civil and
criminal liability for violations.
Because of these content restrictions and potential liability to us for
materials carried on or disseminated through our systems, we may be required to
implement measures to reduce our exposure to liability. These measures might
require the expenditure of substantial resources or the discontinuation of our
product or service offerings that subject us to this liability. In addition,
our business model requires that we pay our members cash for their Viewbar
usage and that of their referrals. Any regulatory challenge or limitation
asserted or implied
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regarding these payments could significantly harm our business. Further, we
could incur substantial costs in defending against any of these claims and we
might be required to pay large judgments or settlements or alter our business
practices. In addition, our liability insurance might not cover potential
claims relating to the services we provide or might not be adequate to
indemnify us for all liabilities that could be imposed on us.
User Privacy Issues
Internet user privacy has become an issue both in the United States and
abroad. The Federal Trade Commission has recently started a proceeding against
an Internet server regarding the manner in which personal information is
collected from users and provided to third parties. Some commentators, privacy
advocates and government bodies have recommended limitations on, or taken
actions to limit, the use of personal information by those collecting this
information. For example, the Children's Online Privacy Protection Act of 1998
and the regulations published by the Federal Trade Commission require, among
other things, that online operators obtain verifiable parental consent for the
collection, use or disclosure of personal information from children. We cannot
predict how courts and the Federal Trade Commission will interpret and apply
these new rules or whether we may need to make changes to our operations to
comply with them.
Congress has recently enacted the Gramm-Leach-Bliley Act, which contains
provisions protecting the privacy of consumer non-public personal information
collected by financial institutions. We may be deemed a financial institution
under the Gramm-Leach-Bliley Act. If so, we may be required to amend our
privacy policy and consumer authorizations and disclosures to comply with this
or other laws or regulations. Federal regulations implementing the statute are
being developed.
Rights in Member Data
Our ability to sell targeted advertising depends on our ability to use
personal information collected from our members. We collect, with member
consent, various forms of data from and about our members, and market or
otherwise use that data. Although we attempt to protect, based on trade secret
law, copyright law and license agreements, among other means, the information
we collect, we cannot be certain that these means will be sufficient to
maintain the integrity or value of information collected. Also, some of the
data that we obtain and use may be derived in part from information contained
on Web sites operated by other parties. Although we endeavor not to violate
any of the proprietary rights of others in collecting or obtaining this
information, the law relating to ownership of information contained on Web
sites and in electronic and online databases is still developing, and third
parties may assert claims against us based on this data acquisition. New laws
relating to the protection of information contained in databases have been
proposed and are under consideration in the United States and in foreign
countries. A new law could impose obstacles to our rights to collect data or
give rise to claims by third-party owners of data. It is not possible to
predict whether legislation will pass, what provisions it might contain, or
the scope of its possible impact on our business activities. We cannot assure
you that our current information collection procedures and disclosure policies
will be found to be in compliance with existing or future laws or regulations.
Our failure to comply with existing laws, including those of foreign
countries, or the adoption of new laws or regulations that require us to
change the way we conduct our business, could make it cost-prohibitive to
operate our business, and prevent us from pursuing our business strategies
including the sale of targeted advertising.
Internet Taxation
The tax treatment of activities on or relating to the Internet is currently
unsettled. A number of proposals have been made at the federal, state and
local levels, and by foreign governments, that could impose taxes on the
online purchase and sale of services and other Internet activities. The
Internet Tax Freedom Act of 1998 has generally imposed a moratorium through
October 2001 on the imposition of some kinds of consumer-related taxes, other
than sales or use taxes, in connection with Internet access and Internet-
related sales in the United States. Future laws imposing taxes or other
regulations on commerce over the Internet could, however, substantially impair
the growth of Internet commerce and as a result make it cost-prohibitive to
operate our business.
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The Workforce Investment Act of 1998
Section 508 of the Workforce Investment Act of 1998 requires that all Web
sites operated by a federal agency, as well as those operated by anyone doing
business with the federal government, modify their Web sites to make them
accessible to those who are handicapped. There are proposals to extend this act
to all Web sites, which could increase our costs and make our service less
attractive to the non-handicapped.
Employees
As of March 31, 2000, we had 587 employees, contract-to-hire personnel and
independent contractors--233 in sales and marketing, 84 in member services and
community, 177 in product development and information systems and operations,
and 93 in finance and administration. We plan to hire substantial numbers of
additional personnel in all areas of our business, particularly in sales and
marketing. We have never had a work stoppage, and no employees are represented
under any collective bargaining agreement. Our business and future success
depend on the efforts and abilities of our senior management and other key
personnel and our ability to attract, retain and motivate highly skilled
technical, managerial, sales and marketing personnel. Competition for qualified
personnel is intense, particularly in our location in Silicon Valley,
California, due to a number of factors, including the high concentration of
established and emerging growth technology companies. As a result, we may be
unable to attract qualified personnel. We may also be unable to retain the
employees we currently employ.
Facilities
Our principal administrative, marketing and technology operations are
located in two facilities comprising 63,000 square feet in Hayward, California.
The lease for one of these spaces expires on December 31, 2000 and the lease
for the other space expires on December 31, 2001. As of March 31, 2000, we also
had leased facilities in Atlanta, Austin, Baltimore, Boston, Boulder, Chicago,
Cincinnati, Cleveland, Dallas, Detroit, Houston, London, Los Angeles,
Louisville, Miami, Minneapolis, New York, Oklahoma City, Paris, Philadelphia,
San Francisco, Seattle, St. Louis, Sydney, Tokyo and Washington D.C. We have
entered into a lease agreement for a 135,000 square foot facility in South San
Francisco, California, which will replace our current facilities in Hayward,
California. We expect to occupy the new facility in the first quarter of 2001.
We continually evaluate our facilities requirements, and believe that we must
lease additional facilities in the next 12 months to accommodate our plans to
expand our sales, marketing, media strategy and technology organizations. We
cannot assure you that these facilities will be available on reasonable terms
or at all.
Legal Proceedings
We are not a party to any material legal proceedings.
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MANAGEMENT
Executive Officers, Directors and Key Employees
Our executive officers, directors and key employees, and their ages and
positions as of March 31, 2000, were as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
James R. Jorgensen.......... 51 President, Chief Executive Officer and
Chairman
Michael A. Depatie.......... 43 Chief Financial Officer
Oliver Brock................ 30 Chief Technology Officer
Johannes A. Pohle........... 30 Vice President Corporate Strategy and
Director
David W. Johnson............ 41 General Counsel
Carl T. Anderson............ 27 Vice President Corporate Development
David Beckman-Robertson..... 44 Vice President Sales
Tobin W. Trevarthen......... 39 Vice President Business Development
Sara T. Peterson............ 51 Vice President Product Management
Mauro Calvi................. 44 Vice President International
Chad D. Balch............... 41 Vice President Product Development
Joseph M. Feliu............. 49 Chief Information Officer and Vice President
Operations
Raymond Everett-Church...... 31 Chief Privacy Officer and Vice President
Public Policy
Nicola C. Barrett........... 40 Vice President Media Strategy
David C. Martin............. 36 Vice President Business Intelligence
Nancy Myers Booth........... 48 Vice President Product Marketing
Bernie J. Murphy............ 34 Vice President Finance, Treasurer
David W. Pidwell............ 52 Director
John F. Shoch .............. 51 Director
Thomas Unterman............. 55 Director
Richard A. LeFurgy.......... 43 Director
William L. Burnham.......... 29 Director
Leslie G. Denend............ 59 Director
</TABLE>
James R. Jorgensen is a co-founder of AllAdvantage and has served as our
Chief Executive Officer and director of AllAdvantage since March 1999. From
August 1997 to September 1998, Mr. Jorgensen co-founded and served as Chief
Executive Officer and Chairman of the Board of Challenger Sports Corporation, a
children's sports training company where he continues to serve as Chairman of
the Board. From February 1995 to May 1996, Mr. Jorgensen co-founded and served
as Chairman of Qualtos Computer Corporation, a provider of 24/7 telephone
helpdesk services for individual and small business personal computer users.
From 1989 to 1992, Mr. Jorgensen co-founded and served as Chairman and CEO of
Discovery Zone, Inc., an indoor play center for children, until it merged
operations with Blockbuster Entertainment. Since its founding in 1978, Mr.
Jorgensen has served as Chief Executive Officer of Nottingham Financial
Corporation, a management consulting company instrumental in the creation and
management of start-ups in direct mail, advertising agencies, magazine
publishing, accounting, insurance and personal computer software, sales and
service. Mr. Jorgensen is a certified public accountant and holds a B.B.A. in
accounting and finance from the University of Wisconsin and an M.B.A. from
Stanford University.
Michael A. Depatie has served as our Chief Financial Officer since October
1999. From November 1996 to January 1999, he served as Executive Vice President
and Chief Financial Officer of Sunterra Corporation, a resort hotel developer
and operator and from October 1997 to December 1999 he served on the company's
Board of Directors. From July 1992 to August 1996, Mr. Depatie was Senior Vice
President of Finance and Chief Financing Officer of La Quinta Inns, Inc., a
hotel development and operating company. From 1989 to 1992, Mr. Depatie was co-
founder and Senior Vice President of Finance of Summerfield Hotel Corporation,
a hotel development and operating company. From 1988 to 1989, Mr. Depatie was
founder and Managing General
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Partner of Pacwest Capital Partners, a venture capital partnership. From 1984
to 1988, Mr. Depatie served as Senior Vice President of Finance and Development
of The Residence Inn Company, a division of Marriott International, Inc., which
is a hotel operating and development company. Mr. Depatie holds a B.A. in
business from Michigan State University and an M.B.A. from Harvard Business
School.
Oliver Brock is a co-founder of AllAdvantage, served as our Chief Technology
Officer since March 1999 and served as a director of AllAdvantage from March
1999 to June 1999. From September 1993 to November 1999, Dr. Brock continuously
was engaged in post-graduate and doctoral work in the computer science
department at Stanford University, where he was involved in the development of
robotic motion technologies as well as algorithmic robotics and geometric
problems related to motion. From 1988 to 1993, Dr. Brock attended the Technical
University of Berlin. From 1984 to 1989, Dr. Brock served as general manager at
a billing management firm and at Rasta's Delight, a snowboard manufacturing
company. Dr. Brock holds a Diploma in computer science from the Technical
University of Berlin, an M.S. in computer science from Stanford University and
a Ph.D. in computer science from Stanford University.
Johannes A. Pohle is a co-founder of AllAdvantage and has served as our Vice
President Corporate Strategy since April 2000 and as a director since March
1999. From March 1999 to March 2000, Mr. Pohle served as our Vice President
Product Management. From September 1996 to June 1998, Mr. Pohle attended the
Graduate School of Business at Stanford University. From December 1995 to
September 1996, Pohle served as Deputy CEO and Vice Chairman of the Board for
Grupo Frio, a frozen foods distributor in Mexico. From August 1994 to December
1995, Mr. Pohle served as lead consultant for Booz, Allen & Hamilton, a
management consulting company. Mr. Pohle holds a B.S. in mechanical engineering
from Northwestern University, an M.S. in mechanical engineering from Stanford
University and an M.B.A. from Stanford University.
David W. Johnson has served as our General Counsel since September 1999.
From November 1996 to August 1999, Mr. Johnson was of counsel to Fenwick & West
LLP, a technology law firm. From September 1991 to October 1996, Mr. Johnson
did post doctoral work at Stanford Law School. Mr. Johnson holds an A.B. in
political science from Carleton College, a J.D. from the University of Miami,
and is a J.S.D. candidate at Stanford Law School.
Carl T. Anderson is a co-founder of AllAdvantage and has served as our Vice
President Corporate Development since December 1999, as Vice President Business
Development from March 1999 to December 1999, and served as a director of
AllAdvantage from March 1999 to June 1999. From September 1997 to June 1999,
Mr. Anderson attended the Graduate School of Business at Stanford University.
From July 1995 to February 1997, Mr. Anderson worked as an Analyst in the
Mergers and Acquisitions Department for Gleacher & Co., an investment banking
firm. Mr. Anderson holds an A.B. in economics from Princeton University and an
M.B.A. from Stanford University.
David Beckman-Robertson has served as our Vice President Sales since August
1999. From August 1998 to August 1999, Mr. Beckman-Robertson served as Vice
President of CNN Interactive Sales for Time Warner, an entertainment,
communications and media company. From January 1992 to July 1998, Mr. Beckman-
Robertson served as sales manager for Turner Broadcasting, an entertainment,
communications and media company. From 1990 to 1992, Mr. Beckman-Robertson
worked in promotions for Valassis Inserts, a marketing and promotional company.
From 1984 to 1990, Mr. Beckman-Robertson worked on network and cable sports
sales for Capital Cities/ABC, an entertainment, communications and media
company. From 1979 to 1984, Mr. Beckman-Robertson worked in sales for Cox
Broadcasting, an entertainment, communications and media company. Mr. Beckman-
Robertson holds a B.A. in television and film from Northwestern University.
Tobin W. Trevarthen has served as our Vice President Business Development
since January 2000. From June 1993 to December 1999, Mr. Trevarthen served as
Corporate Sales Director for the Time Inc. division of Time Warner. From 1991
to 1993, Mr. Trevarthen served as Senior Marketing Manager for Meredith
Corporation, a publishing company. From 1987 to 1991, Mr. Trevarthen served as
Midwest Sales Manager for
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USA Weekend, a division of Gannet Corporation, a media company. In May 1994,
Mr. Trevarthen co-founded The Paradigm Network, a technology, media and
entertainment convergence group in Los Angeles. Mr. Trevarthen holds a B.A. in
advertising from Michigan State University.
Sara T. Peterson has served as our Vice President Product Management since
April 2000. From June 1998 to April 2000, Ms. Peterson served as Vice
President, Product Management and Development of Charles Schwab & Co., Inc., a
brokerage firm. From 1992 to April 1997, Ms. Peterson was Senior Vice
President, Product Management, for Bridge Information Systems, a global
financial information company. Ms. Peterson holds a B.A. degree in mathematics
from Webster University, and an M.A. in mathematics and an M.B.A. from
Washington University.
Mauro Calvi has served as our Vice President International since December
1999. From 1998 to 1999, Mr. Calvi served as President of Telecom Italia
Ventures, a foreign branch office of Telecom Italia, a telecommuncations
company, and served on the boards of Stream SpA, Italy's second largest pay
television network, Protozoa Inc., a developer of live character animation
software for Web publishers, and Cygent Inc., a developer of electronic
commerce applications for the telecommunications industry. From 1991 to 1997,
Mr. Calvi worked at Microsoft Corporation, a computer software company. During
his tenure there, Mr. Calvi served from 1993 to 1997 as Lead Product Manager
where he was responsible for the international strategy, product planning and
marketing of The Microsoft Network from its inception and, from 1991 to 1993,
as Program Manager for the Product Support Services Division. From 1990 to
1991, Mr. Calvi served as International Product Manager for Ashton-Tate, a
developer of database language compilers. Mr. Calvi holds an M.S. in electrical
engineering from the Politecnico di Milano, Italy.
Chad D. Balch has served as our Vice President Product Development since May
1999. From December 1997 to April 1999, Dr. Balch was a self-employed technical
consultant in software development, working with start-up companies. From
February 1996 to October 1996, Dr. Balch worked as Manager of Motion Technology
for Parametric Technology Corporation, a developer of software products, where
he was in charge of core development for mechanism simulation software. From
September 1992 to February 1996, Dr. Balch served as Manager, Product
Development for Rasna Corporation, a producer of design and analysis software
for engineers. From July 1980 to February 1983, Dr. Balch worked as a research
associate at the GWU/NASA Joint Institute for the Advancement of Flight
Sciences at NASA-Langley Research Center, an aerospace technology government
facility. Dr. Balch holds a B.A. in physics from Harvard University, an M.S. in
mechanical engineering from George Washington University, and a Ph.D. in
aeronautical sciences from Stanford University.
Joseph M. Feliu has served as our Chief Information Officer and Vice
President Operations since May 1999. From August 1997 to August 1999, Mr. Feliu
served as Director of Information Technology at Integrated Device Technology, a
semiconductor manufacturer. From March 1996 to August 1997, Mr. Feliu served as
Senior Director of Information Technology at Applied Materials, Inc., a
semiconductor equipment manufacturer. In these positions, Mr. Feliu was
responsible for the operations of these companies' global information
technology infrastructure. From May 1981 to February 1996, Mr. Feliu held
several director-level positions in operations and information technology for
the United States Postal Service. In January 1994, Mr. Feliu was elected as
Chairman of the Northern California Chapter of the Society for Information
Management an association of senior information technology executives. Mr.
Feliu holds a B.S. in mathematics from Manhattan College and an M.S. in
operations research from George Washington University.
Raymond B. Everett-Church has served as our Chief Privacy Officer and Vice
President Public Policy since August 1999. From November 1998 to August 1999,
Mr. Everett-Church served as an Associate with Haley Bader & Potts, a
technology law firm. Since 1996, Mr. Everett-Church has served as a technology
policy advocate and lobbyist on issues of privacy and anti-spam. Mr. Everett-
Church serves as an ad hoc advisor to the Internet Service Provider Security
Consortium of the International Computer Security Association, a computer
security research organization, as a member of the Congressional Internet
Caucus' Advisory Committee for the 106th U.S. Congress, and as a Fellow with
the Internet Telecommunications Project, an association advocating greater
involvement by Internet service providers in the political process. In April
1999,
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Mr. Everett-Church was a founding board member of Whitehat.com, a permission-
based email marketing service bureau. In March 1997, Mr. Everett-Church was a
founding board member of the Coalition Against Unsolicited Commercial Email, a
coalition of businesses advocating laws against unsolicited email. From August
1994 to November 1998, Mr. Everett-Church was a self-employed technology
management and Internet consultant and attended George Washington School of Law
from August 1994 to May 1997. From November 1992 to June 1994, Mr. Everett-
Church served as an Information Specialist with the American Immigration
Lawyers Association, a society for immigration lawyers. Mr. Everett-Church
holds a B.A. from George Mason University and a J.D. from George Washington
University School of Law.
Nicola C. Barrett has served as our Vice President Media Strategy since
November 1999. From July 1995 to November 1999, Ms. Barrett worked at Ernst &
Young LLP, an accounting firm. During her tenure there, Ms. Barrett served from
October 1997 to November 1999 as Senior Manager, Strategic Services
Development, where she focused on developing new service and business
opportunities. From July 1995 to October 1997, Ms. Barrett served as Manager,
National Planning where she advised executive management on strategic business
issues. From 1994 to 1995, Ms. Barrett was a management consultant at Bankers
Trust, a bank, and from 1981 to 1992 worked at IBM Australia, a computer
technology company, where she held a number of sales, marketing and management
positions. Ms. Barrett holds a B.Ru.Sci. honors degree from the University of
New England, Australia and a M.M. from the Kellogg Graduate School of
Management at Northwestern University.
David C. Martin has served as our Vice President Business Intelligence since
January 2000. From April 1995 to December 1999, Mr. Martin worked for
International Business Machines Corporation, a computer technology company,
where he most recently served as development executive for global business
intelligence solutions. During his tenure at International Business Machines
Corporation, Mr. Martin also served as a senior development manager for
net.Mining Solutions and as an information technology specialist. From
September 1992 to April 1995, Mr. Martin worked as assistant director for
innovative software systems for University of California at San Francisco
Library and Center for Knowledge Management. From 1991 to 1992, Mr. Martin
worked as senior systems scientist for Molecular Simulations, Inc., a
computational science company. Mr. Martin holds a B.A. in interdisciplinary
science from the University of California at Berkeley and an M.S. in computer
science from the University of Wisconsin at Madison.
Nancy Myers Booth has served as our Vice President Product Marketing since
July 1999. From September 1996 to July 1999, Ms. Booth served as a marketing
and advertising consultant with Kensington Technology Group, a computer
accessories company, specializing in product positioning and new product
development. From January 1996 to August 1996, Ms. Booth was self-employed as a
consultant. From January 1992 to December 1995, Ms. Booth lived outside the
United States and was not employed. From 1990 to 1991, Ms. Booth served as Vice
President at Young & Rubicam, an advertising agency. From 1983 to 1989, Ms.
Booth worked at Foote Cone & Belding, an advertising agency where she served as
Vice President, Management Supervisor from 1987 to 1989, as Account Supervisor
from 1985 to 1987 and as Account Executive from 1983 to 1985. In addition, Ms.
Booth has held marketing positions at General Mills. Ms. Booth holds a B.S. in
Consumer Food Science from the University of California at Davis and an M.B.A.
from the University of California at Berkeley.
Bernie J. Murphy has served as our Vice President Finance, Treasurer since
December 1999. From June 1996 to December 1999, Mr. Murphy held various
positions at QuadraMed Corporation, a health care information systems company.
From February 1998 to December 1999, he served as QuadraMed's Vice President,
Finance and Chief Accounting Officer and, from June 1996 to February 1998, as
Corporate Controller. From July 1988 to June 1996, Mr. Murphy worked at Arthur
Andersen LLP, an accounting firm, where he served in various positions from
July 1988 to August 1993 and as manager in the business advisory practice from
September 1993 until June 1996. Mr. Murphy holds a B.S. in Business
Administration from the University of San Francisco and is a certified public
accountant.
David W. Pidwell has served as a director of AllAdvantage since June 1999.
Since January 1996, Mr. Pidwell has served as a venture partner with Alloy
Ventures, a venture capital firm. Mr. Pidwell serves on the boards of directors
of Informatica Corporation and several private companies, including eTranslate,
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RAINfinity and Made To Order.com. From January 1987 to January 1996, Mr.
Pidwell served as Chief Executive Officer and President of Rasna Corp, a
mechanical design automation software company that he founded. Mr. Pidwell
holds a B.S. in electrical engineering and a M.S.I.S.E. in computer systems
engineering from Ohio University.
John F. Shoch has served as a director of AllAdvantage since June 1999. Dr.
Shoch serves as a general partner with Alloy Ventures, a venture capital firm.
From October 1985 until December 1995, Dr. Shoch was a general partner with
Asset Management Company, a venture capital firm. From 1971 until 1985, Dr.
Shoch held various positions with Xerox Corporation, a document production
company, initially at the Palo Alto Research Center and ultimately as President
of Xerox's Office Systems Division. Dr. Shoch is a director of Remedy,
Conductus and several private companies, including BoldFish, InterSurvey,
Kasenna, MontaVista, Network Elements, PostX, UpShot and Zing. Dr. Shoch holds
a B.A. in political science from Stanford University, an M.S. in computer
science from Stanford University, and a Ph.D. in computer science from Stanford
University. Dr. Shoch is the designated representative of entities associated
with Alloy Ventures 1998, LLC, which have a contractual right to nominate one
member of the board of directors under a voting agreement with holders of a
majority of our capital stock. This voting agreement will terminate upon the
closing of this offering.
Thomas Unterman has served as a director of AllAvantage since September
1999. Mr. Unterman serves as the Managing Partner of the Rustic Canyon Group,
which is the general partner and the Manager of TMCT Ventures, a venture
capital investment firm. Previously Mr. Unterman held various managing
positions at Times Mirror, a media and publications company, including Vice
President and General Counsel from 1992 to 1994, Senior Vice President and
General Counsel in 1995, then Senior Vice President and Chief Financial Officer
in 1995, and Executive Vice President and Chief Financial Officer from January
1998 through December 1999. Prior to Times Mirror, Mr. Unterman was a partner
at two law firms, Morrison & Foerster and earlier Orrick Herrington and
Sutcliffe. Mr. Unterman is a member of the board of directors of Ticketmaster
Online-City Search, Hollywood, Inc. and several privately-held companies.
Mr. Unterman holds a A.B. in public affairs from Princeton University and a
J.D. from the University of Chicago. Mr. Unterman is the designated
representative of TMCT Ventures, which has a contractual right to nominate one
member of the board of directors under a voting agreement with holders of a
majority of our capital stock. This voting agreement will terminate upon the
closing of this offering.
Richard A. LeFurgy has served as a director of AllAdvantage since September
1999. Mr. LeFurgy is a Partner with WaldenVC, a venture capital firm. From June
1995 to August 1998, Mr. LeFurgy was a Senior Vice President of Sales at
Starwave, an online media company that was acquired by Disney in 1998. From
June 1978 to May 1995, Mr. LeFurgy was a director and an Executive Vice
President and Senior Partner of NW Ayer & Partners, an advertising agency. Mr.
LeFurgy was a Founder of the Internet Advertising Bureau, a non-profit
association, and is its Chairman. Mr. LeFurgy also serves on the board of the
Advertising Research Foundation and the Advertising Educational Foundation. Mr.
LeFurgy is a director of Snowball.com, an Internet media company, and Lot 21,
an online advertising agency. He received his B.S. in advertising from Syracuse
University. Mr. LeFurgy is the designated representative of Walden Media and
Information Technology Fund L.P., which has a contractual right to nominate one
member of the board of directors under a voting agreement with holders of a
majority of our capital stock. This voting agreement will terminate upon the
closing of this offering.
William L. Burnham has served as a director of AllAdvantage since February
2000. Since August 1999, Mr. Burnham has been managing director of SOFTBANK
Capital Partners L.P., a venture capital investment partnership. From July 1998
to August 1999, Mr. Burnham was a Vice President of Credit Suisse First Boston
Corporation, an investment bank. From May 1998 to July 1998, Mr. Burnham served
as a Vice President at Deutsche Morgan Grenfell, an investment bank, and from
April 1997 to May 1998, he served as a Vice President at US Bancorp Piper
Jaffray, an investment bank. From August 1993 to March 1997, Mr. Burnham served
as a Senior Associate at Booz Allen & Hamilton, a management consulting
company. Mr. Burnham is a director of Buy.com Inc., an Internet retailer. Mr.
Burnham holds an A.B. in political science from Washington
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<PAGE>
University. Mr. Burnham is the designated representative of SOFTBANK Capital
Partners L.P., which has a contractual right to nominate one member of the
board of directors under a voting agreement with holders of a majority of our
capital stock. This voting agreement will terminate upon the closing of this
offering.
Leslie G. Denend has served as a director of AllAdvantage since March 2000.
Mr. Denend also serves as a Director of Rational Software Corporation, Proxim
Corporation, Network Associates Corporation, Informix Corporation, United
States Automobile Association (USAA) and Adaptive Broadband Corporation. From
December 1997 to May 1998, Mr. Denend served as President of Network
Associates Corporation, a software company created upon the merger of Network
General Corporation and McAfee Associates, Inc. From June 1993 to December
1997, Mr. Denend served as President and Chief Executive Officer of Network
General Corporation, a network software company. Mr. Denend holds a B.S. in
engineering from the U.S. Air Force Academy, an M.B.A from Stanford University
and a Ph.D. in Economics from Stanford University.
Board Composition
Our bylaws currently provide for a board of directors consisting of eight
members. The term of each of our current directors will expire at the next
annual meeting of stockholders. Commencing at the first annual meeting of
stockholders following the date on which we first have at least 800
stockholders, the board of directors will be divided into three classes,
serving staggered three-year terms: Class I, whose term will expire at the
first annual meeting of stockholders following the annual meeting of
stockholders when we first have at least 800 stockholders; Class II, whose
term will expire at the second annual meeting of stockholders following the
annual meeting of stockholders when we first have at least 800 stockholders;
and Class III, whose term will expire at the third annual meeting of
stockholders following the annual meeting of stockholders when we first have
at least 800 stockholders. As a result, only one class of directors will be
elected at each annual meeting of stockholders, with the other classes
continuing for the remainder of their respective terms. Messrs. Shoch and
Unterman have been designated as Class I directors; Messrs. Burnham, Denend
and Pohle have been designated as Class II directors; and Messrs. Jorgensen,
Pidwell and LeFurgy have been designated as Class III directors. We do not
expect to have 800 or more stockholders immediately after this offering.
Board Committees
The audit committee consists of Messrs. Denend, Pidwell and Unterman. The
audit committee:
. reviews our financial statements and accounting practices;
. makes recommendations to the board of directors regarding the selection
of independent auditors; and
. reviews the results and scope of the audit and other services provided
by our independent auditors.
The compensation committee consists of Messrs. Burnham, LeFurgy and Shoch.
The compensation committee:
. reviews and recommends to the board of directors the compensation and
benefits of all officers, directors and consultants of AllAdvantage; and
. reviews general policy relating to compensation and benefits.
The board of directors currently administers the issuance of stock options
and other awards under the 1999 equity incentive plan and 2000 equity
incentive plan of our California predecessor and our 2000 equity incentive
plan and our 2000 employee stock purchase plan.
Compensation Committee Interlocks and Insider Participation
None of the members of our compensation committee has at any time been an
officer or employee of AllAdvantage. None of our executive officers serves as
a member of the board of directors or compensation committee of any entity
that has one or more executive officers serving as a member of our board of
directors or compensation committee.
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<PAGE>
Change of Control Arrangements
Mr. Jorgensen and Messrs. Depatie, Johnson, Pohle and Anderson, whom we
anticipate will be executive officers named in our summary compensation table
in future years, have each purchased shares of common stock or received options
to purchase common stock subject to agreements providing for accelerated
vesting under specified circumstances following a change in control of
AllAdvantage. With respect to Mr. Jorgensen, upon a change in control
transaction followed within nine months by a termination of employment meeting
specified conditions, vesting will accelerate as to any unvested portion of the
7,333,336 shares of common stock that he holds. With respect to Mr. Pohle, upon
a change in control transaction followed within nine months by a termination of
employment meeting specified conditions, vesting will accelerate as to any
unvested portion of the 7,333,332 shares of common stock that he holds. With
respect to Mr. Anderson, upon a change in control transaction followed within
nine months by a termination of employment meeting specified conditions,
vesting will accelerate as to any unvested portion of the 6,435,017 shares of
common stock that he holds. With respect to Mr. Depatie, upon a change in
control transaction followed within 12 months by a termination of employment
meeting specified conditions, vesting will accelerate as to an additional
175,000 shares subject to the stock option granted to him. With respect to Mr.
Johnson, upon a change in control transaction followed within 12 months by a
termination of employment meeting specified conditions, vesting will accelerate
as to an additional 50,000 shares subject to the stock option granted to him.
However, this acceleration in vesting for Mr. Johnson will not occur, subject
to limited exceptions, if AllAdvantage undergoes, or agrees to undergo, a
change in control transaction on or before May 15, 2000.
Director Compensation
Directors of AllAdvantage do not receive cash compensation for their
services as directors, but are reimbursed for their reasonable and necessary
expenses for attending board and board committee meetings. All board members
are eligible to receive stock options pursuant to the discretionary option
grant program in effect under the 1999 equity incentive plan and 2000 equity
incentive plan of our California predecessor and under our 2000 equity
incentive plan.
In July 1999, David W. Pidwell was granted an option to purchase 200,000
shares of common stock under the 1999 equity incentive plan of our California
predecessor. This option was exercised in full in November 1999, but the shares
purchased are subject to our right of repurchase, which lapses with respect to
25% of the shares in July 2000 and 2.083% of the shares each month thereafter.
In February 2000, Richard LeFurgy was granted an option to purchase 15,000
shares of common stock at an exercise price per share of $6.05 under the 2000
Equity Incentive plan of our California predecessor. This option becomes
exercisable with respect to 25% of the shares in February 2001 and with respect
to 2.083% of the shares each month thereafter. In March 2000, Leslie G. Denend
was granted an option to purchase 15,000 shares of common stock at an exercise
price per share of $9.00 under the 2000 equity incentive plan of our California
predecessor. This option becomes exercisable with respect to 25% of the shares
in March 2001 and with respect to 2.083% of the shares each month thereafter.
Each eligible director who is not our employee and who is or becomes a
member of our board will be automatically granted an option to purchase 10,000
shares of common stock under our 2000 equity incentive plan, unless that
director has previously received an option grant. Immediately following each
annual meeting of stockholders, each eligible director will automatically be
granted an option to purchase 10,000 shares of common stock under our 2000
equity incentive plan, provided that the director is a member of the board on
that date and has served continuously as a member of the board for a period of
at least one year since the date of the director's initial grant. All options
will have an exercise price equal to the fair market value of our common stock
on the date of grant. The options will have ten-year terms and will terminate
three months after the date the director ceases to be one of our directors or
consultants or 12 months after any termination due to death or disability.
Options granted under the plan will generally vest over four years. Any
unvested shares subject to these options will become fully vested and
exercisable upon a transaction that results in a change in our control.
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<PAGE>
Executive Compensation
The following table shows all compensation awarded to, earned by or paid for
services rendered to AllAdvantage by our chief executive officer in 1999. None
of our executive officers or former executive officers earned compensation in
excess of $100,000 in 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Name and Principal Position Annual Compensation
- --------------------------- -------------------
Salary
------
<S> <C>
James R. Jorgensen......................................... $65,000(1)
Chief Executive Officer, President and Chairman
</TABLE>
- --------
(1) Represents salary from the formation of AllAdvantage in March 1999 through
December 1999. Mr. Jorgensen's salary for 2000 is $175,000.
We currently employ the following executive officers who we anticipate will
be named in the summary compensation table in future years. Those executives
are Michael A. Depatie, with an annual salary of $175,000 in 2000, David W.
Johnson, with an annual salary of $150,000 in 2000, Johannes A. Pohle, with an
annual salary of $120,000 in 2000 and Carl T. Anderson, with an annual salary
of $120,000 in 2000.
Option Grants
The following table shows information about each stock option granted from
our inception in March 1999 through March 2000 to our chief executive officer
and the executive officers who we anticipate will be named in the summary
compensation table in future years.
<TABLE>
<CAPTION>
Potential Realizable
Value of Assumed
Number of Annual Rates of Stock
Securities Percentage Exercise Price Appreciation for
Underlying of Total Price Option Term(2)
Options Options Per Expiration ----------------------
Name Granted Granted(1) Share Date 5% 10%
---- ---------- ---------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
James R. Jorgensen...... -- -- -- -- -- --
Michael A. Depatie...... 700,000(3) 3.4% $0.75 Nov. 2009 $9,737,036 $15,815,578
David W. Johnson........ 170,000(3) 0.8 0.18 Sep. 2009 2,461,609 3,937,826
David W. Johnson........ 30,000(4) 0.1 6.05 Feb. 2010 258,302 518,810
Johannes A. Pohle....... -- -- -- -- -- --
Carl T. Anderson........ -- -- -- -- -- --
</TABLE>
- --------
(1) Represents percentage of the 20,337,791 options granted from inception in
March 1999 through March 2000.
(2) Potential realizable values are computed by (a) multiplying the number of
shares of common stock subject to a given option by an assumed initial
public offering price of $9.00 per share, (b) assuming that the aggregate
stock value derived from that calculation compounds at the annual 5% or 10%
rates shown in the table for the entire ten year term of the option, and
(c) subtracting from that result the aggregate option exercise price. The
5% and 10% assumed annual rates of compounded stock price appreciation in
the table above are required by the rules of the Securities and Exchange
Commission and do not represent our estimates or projections of our future
stock prices.
(3) This option is immediately exercisable, but the shares issued upon exercise
are subject to our right of repurchase, which lapses with respect to 25% of
the shares after one year and 2.083% of the shares each month thereafter.
(4) This option becomes exercisable with respect to 25% of the shares after one
year and 2.083% of the shares each month thereafter.
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<PAGE>
Option Exercises in Last Fiscal Year
The following table presents the number of shares acquired and the value
realized upon exercise of stock options during the fiscal year ended December
31, 1999 and the number of shares of our common stock subject to "exercisable"
and "unexercisable" stock options held as of December 31, 1999 by our chief
executive officer and each of our other executive officers who we anticipate
will be named in the summary compensation table in future years. Also presented
are values of "in-the-money" options, which represent the positive difference
between the exercise price of each outstanding stock option and an assumed
initial public offering price of $9.00 per share. Each of the options granted
to Messrs. Depatie and Johnson in the fiscal year ended December 31, 1999 and
discussed below was immediately exercisable, but the shares issued upon
exercise are subject to our right of repurchase, which lapses with respect to
25% of the shares after one year and 2.083% of the shares each month
thereafter.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised In-
Number of Underlying Unexercised the-Money Options at
Shares Options at December 31, 1999 December 31, 1999
Acquired on Value ---------------------------- -------------------------
Name Exercise(1) Realized(2) Exercisable(3) Unexercisable Exercisable Unexercisable
- ---- ----------- ----------- -------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James R. Jorgensen...... -- $ -- -- -- $ -- $ --
Michael A. Depatie...... 133,333 1,099,997 566,667 -- 4,675,003 --
David W. Johnson........ 170,000 1,499,400 -- -- -- --
Johannes A. Pohle....... -- -- -- -- -- --
Carl T. Anderson........ -- -- -- -- -- --
</TABLE>
- --------
(1) Of these shares the following numbers were vested as of December 31, 1999:
Michael A. Depatie -- no shares; David W. Johnson -- no shares.
(2) The amount set forth represents the difference between the fair market
value of the underlying common stock at December 31, 1999, using an assumed
initial public offering price of $9.00 per share as the fair market value,
and the exercise price of the option.
(3) Of the shares issuable upon exercise of these options, the following
numbers were vested as of December 31, 1999: Michael A. Depatie -- no
shares.
Employee Benefit Plans
1999 Equity Incentive Plan of our California Predecessor
The 1999 equity incentive plan of our California predecessor was adopted by
its board of directors in April 1999. As of March 31, 2000, 5,636,933 shares of
common stock had been purchased pursuant to the exercise of options granted
under this plan, options to purchase a total of 9,370,608 shares of common
stock with a weighted-average exercise price of $0.71 were outstanding under
this plan, and 192,459 shares remained available for future grants of options
under this plan. No further options will be granted under this plan following
this offering. All outstanding options granted under this plan will remain
outstanding and subject to the terms of this plan and relevant stock option
agreements until they are exercised, or until they terminate or expire by their
terms. Under this plan, upon a change in control of AllAdvantage though a
merger or sale of assets, if stock options and restricted stock awards are not
assumed or substituted with similar consideration by the successor or acquiring
corporation, then the stock options and restricted stock awards will terminate.
2000 Equity Incentive Plan of our California Predecessor
The 2000 equity incentive plan of our California predecessor was adopted by
its board of directors in January 2000. As of March 31, 2000, no shares of
common stock had been purchased pursuant to the exercise of options granted
under this plan, options to purchase a total of 4,756,250 shares of common
stock with a weighted-average exercise price of $7.31 were outstanding under
this plan, and 2,605,067 shares remained available for future grants under this
plan. No further options will be granted under this plan following this
offering. All outstanding options granted under this plan will remain
outstanding and subject to the terms of
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<PAGE>
this plan and relevant stock option agreements until they are exercised, or
until they terminate or expire by their terms. Under this plan, upon a change
in control of AllAdvantage though a merger or sale of assets, if stock options
and restricted stock awards are not assumed or substituted with similar
consideration by the successor or acquiring corporation, then the stock options
and restricted stock awards will terminate.
2000 Equity Incentive Plan
Our 2000 equity incentive plan will become effective on the date of this
prospectus and will serve as the successor to the 1999 equity incentive plan
and 2000 equity incentive plan of our California predecessor. We have reserved
20,000,000 shares of common stock for issuance under this plan. Our 2000 equity
incentive plan authorizes the award of options, restricted stock awards and
stock bonuses. The number of shares reserved for issuance under this plan will
be increased to include:
. any shares reserved under the 1999 equity incentive plan or 2000 equity
incentive plan of our California predecessor not issued or subject to
outstanding grants on the date of this prospectus;
. any shares issued under the 1999 equity incentive plan or 2000 equity
incentive plan of our California predecessor that are repurchased by us
at the original purchase price; and
. any shares issuable upon exercise of options granted under the 1999
equity incentive plan or 2000 equity incentive plan of our California
predecessor that expire or become unexercisable without having been
exercised in full.
The number of shares reserved under this plan will be increased
automatically on January 1 of each year by an amount equal to 5% of our total
outstanding shares on the day before.
The following shares will again become available for grant and issuance
under our 2000 equity incentive plan:
. shares issuable upon exercise of an option granted under this plan that
is terminated or cancelled before it is exercised;
. shares issued upon exercise of an option granted under this plan that
are subsequently repurchased by us at the original purchase price;
. shares subject to awards granted under this plan that are subsequently
forfeited or repurchased by us at the original issue price; and
. shares subject to stock bonuses granted under this plan that otherwise
terminate without shares being issued.
No person will be eligible to receive more than 10,000,000 shares in any
calendar year under this plan. This plan is administered by the compensation
committee of our board of directors, all members of which are "outside
directors" as defined under applicable federal tax laws. The committee has the
authority to interpret this plan and any agreement made under the plan, grant
options, awards and stock bonuses and make all other determinations for the
administration of this plan. Also, our non-employee directors are entitled to
receive automatic annual grants of options to purchase shares of our common
stock under this plan.
Our 2000 equity incentive plan provides for the grant of both incentive
stock options that qualify under Section 422 of the Internal Revenue Code and
nonqualified stock options. Incentive stock options may be granted only to
employees. Nonqualified stock options, and all other awards other than
incentive stock options, may be granted to employees, officers, directors,
consultants, independent contractors and advisors of AllAdvantage or a parent
or subsidiary of AllAdvantage. However, consultants, independent contractors
and advisors are only eligible to receive awards if they render bona fide
services not in connection with the offer and sale of securities in a capital-
raising transaction.
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The exercise price of incentive stock options must be at least equal to the
fair market value of the underlying common stock on the date of grant. The
exercise price of incentive stock options granted to 10% stockholders must be
at least equal to 110% of that value, and the exercise price of nonqualified
stock options must be at least equal to 85% of that value. Options may be
granted that are exercisable only as they vest or may be immediately
exercisable with the shares issued subject to our right of repurchase that
lapses as the shares vest. In general, options will vest over a four-year
period. The maximum term of options granted under our 2000 equity incentive
plan is ten years. Awards granted under this plan may not be transferred in any
manner other than by will or by the laws of descent and distribution and may be
exercised during the lifetime of the optionee only by the optionee. The
compensation committee may allow exceptions to this restriction with respect to
awards that are not incentive stock options. Options granted under our 2000
equity incentive plan generally expire three months after the termination of
the optionee's service to AllAdvantage or a parent or subsidiary of
AllAdvantage. In the event of a dissolution, liquidation or change in control
of AllAdvantage, if the successor does not assume the options, they will expire
upon conditions determined by the compensation committee. Alternatively, the
compensation committee may accelerate the vesting of awards upon a change in
control of AllAdvantage. This plan will terminate in 2010, unless it is
terminated earlier pursuant to its terms.
2000 Employee Stock Purchase Plan
Our 2000 employee stock purchase plan will become effective on the first day
on which price quotations are available for our common stock on the Nasdaq
National Market. We have initially reserved 600,000 shares of common stock for
issuance under this plan. The number of shares reserved for issuance under our
2000 employee stock purchase plan will be increased automatically on January 1
of each year by an amount equal to 1% of our total outstanding shares on the
day before. Our board of directors or compensation committee may reduce the
amount of the increase in any particular year.
Our compensation committee will administer our 2000 employee stock purchase
plan. Employees generally will be eligible to participate in our 2000 employee
stock purchase plan if they are employed by AllAdvantage, or any subsidiaries
that AllAdvantage designates, for more than 20 hours per week and more than
five months in a calendar year. Employees are not eligible to participate in
our 2000 employee stock purchase plan if they are 5% stockholders, or would
become 5% stockholders as a result of their participation in this plan. Under
our 2000 employee stock purchase plan, eligible employees may acquire shares of
our common stock through payroll deductions. Eligible employees may select a
rate of payroll deduction between 1% and 15% of their cash compensation and are
subject to maximum purchase limitations. Participation in this plan will end
automatically upon termination of employment for any reason. A participant will
not be able to purchase shares having a fair market value of more than $25,000,
determined as of the first day of the applicable offering period, for each
calendar year in which the employee participates in this plan.
Each offering period under this plan will be for two years and will consist
of four six-month purchase periods. The first offering period is expected to
begin on the first business day on which price quotations for our common stock
are available on the Nasdaq National Market. The first purchase period may be
more or less than six months long. Offering periods thereafter will begin on
February 1 and August 1. The purchase price for common stock purchased under
this plan will be 85% of the lesser of the fair market value of our common
stock on the first day of the applicable offering period or the last day of
each purchase period. The compensation committee will have the power to change
the offering dates, the purchase dates and the duration of offering periods.
Our 2000 employee stock purchase plan is intended to qualify as an employee
stock purchase plan under Section 423 of the Internal Revenue Code. This plan
will terminate in 2010, unless it is terminated earlier pursuant to its terms.
401(k) Plan
We sponsor a defined contribution plan intended to qualify under Section 401
of the Internal Revenue Code. Participants may make pre-tax contributions to
the plan of up to 25% of their eligible earnings, subject to a statutorily
prescribed annual limit, which is $10,500 in 2000. Contributions by the
participants to the 401(k)
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<PAGE>
plan, and the earnings on these contributions, are generally not taxable to the
participants until withdrawn. Participants are fully vested in their
contributions and the earnings on these contributions. Contributions are held
in trust as required by law. Individual participants may direct the trustee to
invest their accounts in authorized investment alternatives.
Limitation of Liability and Indemnification of Directors and Executive Officers
Our certificate of incorporation includes a provision that eliminates the
personal liability of a director for monetary damages resulting from breach of
his fiduciary duty as a director, except for liability:
. for any breach of the director's duty of loyalty to AllAdvantage or its
stockholders;
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. under section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; or
. for any transaction from which the director derived an improper personal
benefit.
Our bylaws provide that:
. we are required to indemnify our directors and officers to the fullest
extent permitted by the Delaware General Corporation Law, subject to
limited exceptions where indemnification is not permitted by applicable
law;
. we are required to advance expenses, as incurred, to our directors and
executive officers in connection with a legal proceeding to the fullest
extent permitted by the Delaware General Corporation Law, subject to
limited exceptions; and
. the rights conferred in the bylaws are not exclusive.
In addition to the indemnification required in our certificate of
incorporation and bylaws, before the completion of this offering, we intend to
enter into indemnity agreements with each of our current directors and
officers. These agreements will provide for the indemnification of our officers
and directors for all expenses and liabilities incurred in connection with any
action or proceeding brought against them by reason of the fact that they are
or were agents of AllAdvantage. We also intend to obtain directors' and
officers' insurance to cover our directors, officers and some of our employees
for liabilities, including liabilities under securities laws. We believe that
these indemnification provisions and agreements and this insurance are
necessary to attract and retain qualified directors and officers.
The limitation of liability and indemnification provisions in our
certificate of incorporation and bylaws may discourage stockholders from
bringing a lawsuit against directors for breach of their fiduciary duty. They
may also reduce the likelihood of derivative litigation against directors and
officers, even though an action, if successful, might benefit us and other
stockholders. Furthermore, a stockholder's investment may be adversely affected
to the extent we pay the costs of settlement and damage awards against
directors and officers as required by these indemnification provisions. At
present, there is no pending litigation or proceeding involving any of our
directors, officers or employees regarding which indemnification by
AllAdvantage is sought, nor are we aware of any threatened litigation that may
result in claims for indemnification.
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RELATED PARTY TRANSACTIONS
Since we incorporated in March 1999, there has not been, nor is there
currently proposed, any transaction or series of similar transactions to which
we were or are to be a party in which the amount involved exceeds $60,000 and
in which any director, executive officer or holder of more than 5% of our
common stock or any member of their immediate family had or will have a direct
or indirect interest, other than compensation arrangements which are described
where required under "Management" and the transactions described below. Share
numbers and per share prices for the transactions described below are presented
on an as-converted to common stock basis and reflect the two-for-one common
stock splits effected on July 1, 1999 and October 13, 1999.
Issuances of Common Stock and Preferred Stock
The following table summarizes the shares of common stock and preferred
stock purchased in private placement transactions by directors, executive
officers, 5% stockholders and other stockholders of AllAdvantage since its
incorporation in March 1999. All references to outstanding shares of our
preferred stock and outstanding warrants to purchase our preferred stock are
made on an as-converted to common stock basis since all shares of preferred
stock and warrants to purchase preferred stock will convert into shares of our
common stock and warrants to purchase our common stock, respectively, upon
completion of this offering.
Issuance of Founders Stock and Series A Preferred Stock
In April 1999, we also sold a total of 24,000,000 shares of common stock at
a price per share of $0.00104175, for a total purchase price of $25,002, to
James R. Jorgensen, Johannes A. Pohle, Carl T. Anderson and Oliver Brock, the
founders of AllAdvantage, pursuant to restricted stock purchase agreements. In
April 1999, we also sold a total of 16,000,000 shares of Series A preferred
stock at a price per share of $0.0125, for a total purchase price of $200,000,
to Messrs. Jorgensen, Pohle, Anderson and Brock. The consideration paid was the
cancellation of indebtedness of AllAdvantage to the purchasers.
<TABLE>
<CAPTION>
Aggregate Shares of Aggregate
Common Purchase Value of Series A Purchase Value of
Stock(1) Price(2) Shares(3) Preferred Price Shares(3)
Stockholder --------- --------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
James Jorgensen......... 7,333,336 $7,640 $66,000,024 8,000,000 $100,000 $72,000,000
Johannes Pohle.......... 7,333,332 7,639 65,999,988 2,000,000 25,000 18,000,000
Carl Anderson........... 6,533,332 6,806 58,699,988 4,000,000 50,000 36,000,000
Oliver Brock............ 2,800,000 2,917 25,200,000 2,000,000 25,000 18,000,000
</TABLE>
- ----------------
(1) At the time of issuance, 4,933,332 of the shares held by Mr. Jorgensen,
4,933,332 of the shares held by Mr. Pohle, 4,933,332 of the shares held by
Mr. Anderson and 1,200,000 of the shares held by Mr. Brock were unvested
and subject to our right of repurchase upon termination of employment. This
right of repurchase will expire as to 25% of the shares one year after the
date of issuance and 2.083% of the shares each month thereafter. Upon a
change in control transaction followed within nine months by a termination
of employment meeting specified conditions, vesting will accelerate as to
all of the then unvested shares.
(2) The per share consideration paid represented $0.00104167 in cash and
$0.00000008 for the assignment to AllAdvantage of technology for the
Viewbar and related systems developed by the founders. Messrs. Jorgensen,
Pohle, Anderson and Brock collectively made the valuation of this
technology.
(3) Based on an assumed initial public offering price per share of $9.00.
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Issuance of Series B Preferred Stock
In June 1999, we sold a total of 10,000,000 shares of Series B preferred
stock at a price per share of $0.18 to several investors pursuant to a
preferred stock purchase agreement, including to the following directors,
executive officers, 5% stockholders and entities associated with them:
<TABLE>
<CAPTION>
Shares of Aggregate
Series B Purchase Value of
Preferred Price Shares(1)
Stockholder --------- ---------- -----------
<S> <C> <C> <C>
Entities affiliated with Alloy Ventures 1998,
LLC (2)..................................... 8,333,336 $1,500,000 $75,000,024
Pidwell Investments LLC (3).................. 555,556 100,000 5,000,004
</TABLE>
- ----------------
(1) Based on an assumed initial public offering price per share of $9.00.
(2) John F. Shoch is a managing member of Alloy Ventures 1998, LLC, which is
the general partner of the purchasers of these shares--each of AMA98
Corporate, L.P., AMA98 Investors, L.P., AMA98 Partners, L.P. and AMA98
Ventures, L.P. Alloy Ventures 1998, LLC is therefore deemed to exercise
voting and investment power over all of the shares held by AMA98 Corporate,
L.P., AMA98 Investors, L.P., AMA98 Partners, L.P. and AMA98 Ventures, L.P.
(3) David W. Pidwell is a managing member of Pidwell Investments LLC and is
therefore deemed to exercise voting and investment power over all of the
shares held by Pidwell Investments LLC. Shares of Series B preferred stock
were purchased by a trust of which Mr. Pidwell is the trustee and
subsequently transferred to Pidwell Investments LLC.
Issuance of Series C Preferred Stock
In September, October and December 1999, we sold a total of 26,122,442
shares of Series C preferred stock at a price per share of $1.225 to several
investors pursuant to a preferred stock purchase agreement, including to the
following directors, executive officers, 5% stockholders and entities
associated with them:
<TABLE>
<CAPTION>
Shares of Aggregate
Series C Purchase Value of
Preferred Price Shares(1)
Stockholder --------- ---------- -----------
<S> <C> <C> <C>
Entities affiliated with
Alloy Ventures 1998, LLC(2)................. 4,081,632 $4,999,999 $36,734,688
Pidwell Investments LLC(3)................... 122,448 149,999 1,102,032
John Anderson Trust u/d/d July 16, 1999(4)... 81,632 99,999 734,688
Entities affiliated with
J. & W. Seligman & Co. Incorporated(5)...... 4,081,634 5,000,002 36,734,706
Entities affiliated with
Partech International(6).................... 4,081,632 4,999,999 36,734,688
Technology Partners Fund, L.P................ 4,081,632 4,999,999 36,734,688
TMCT Ventures, L.P.(7)....................... 4,081,632 4,999,999 36,734,688
Walden Media and Information Technology Fund
L.P......................................... 4,081,632 4,999,999 36,734,688
Michael A. Depatie Trust U/A DTD 7/18/91(8).. 816,326 999,999 7,346,934
</TABLE>
- ----------------
(1) Based on an assumed initial public offering price per share of $9.00.
(2) John F. Shoch is a managing member of Alloy Ventures 1998, LLC, which is
the general partner of the purchasers of these shares--each of AMA98
Corporate, L.P., AMA98 Investors, L.P., AMA98 Partners, L.P. and AMA98
Ventures, L.P. Alloy Ventures 1998, LLC is therefore deemed to exercise
voting and investment power over all of the shares held by AMA98 Corporate,
L.P., AMA98 Investors, L.P., AMA98 Partners, L.P. and AMA98 Ventures, L.P.
(3) David W. Pidwell is a managing member of Pidwell Investments LLC and is
therefore deemed to exercise voting and investment power over all of the
shares held by Pidwell Investments LLC. Shares of Series C preferred stock
were purchased by a trust of which Mr. Pidwell is the trustee and
subsequently transferred to Pidwell Investments LLC.
65
<PAGE>
(4) John Anderson, the trustee of The John M. Anderson Trust u/d/d July 16,
1999, as amended, is the father of Carl T. Anderson, the Vice President
Corporate Development and a stockholder of AllAdvantage.
(5) J. & W. Seligman & Co. Incorporated is the investment advisor to Seligman
New Technologies Fund, Inc., Seligman Communications and Information Fund,
Inc. and Seligman Investment Opportunities (Master) Fund--NTV Portfolio,
and is therefore deemed to exercise voting and investment power over all of
the shares held by these entities.
(6) Vincent Worms is the managing member of Axa U.S. Growth Fund, LLC, Parallel
I, LLC, Parallel II, LLC, Double Black Diamond II, LLC, 45th Parallel, LLC,
and Multinvest, LLC, the investment general partner of Partech U.S.
Partners III C.V., and the attorney-in-fact for Almanori Limited, and is
therefore deemed to exercise voting and investment power over all of the
shares held by these entities.
(7) Thomas Unterman is managing partner of Rustic Canyon Partners, LLC, which
is the general partner of TMCT Ventures, L.P. Rustic Canyon Partners, LLC
is therefore deemed to exercise voting and investment power over all of the
shares held by TMCT Ventures, L.P.
(8) In October 1999, Michael Depatie was granted an option for 700,000 shares
of common stock, which was exercised with respect to 133,333 shares in
November 1999.
Issuance of Series C Warrants
In September 1999, in connection with a bridge financing of convertible
notes, we issued warrants to purchase shares of our Series C preferred stock
with an exercise price of $0.03 per share to the following directors, executive
officers, 5% stockholders and entities associated with them. Unless exercised,
these warrants will remain outstanding after the completion of this offering at
which time they will each become exercisable for common stock. They will expire
in September 2009.
<TABLE>
<CAPTION>
Warrants
for
Series C Value of
Warrantholder Preferred Shares (1)
------------- --------- ----------
<S> <C> <C>
Entities affiliated with Alloy Ventures 1998, LLC (2) .... 232,654 $2,086,906
Pidwell Investments LLC (3) .............................. 12,244 109,829
TMCT Ventures, L.P. (4) .................................. 122,448 1,098,359
Walden Media and Information Technology Fund L.P. ........ 122,448 1,098,359
</TABLE>
- --------
(1) Based on an assumed initial public offering price per share of $9.00 net of
the warrant exercise price.
(2) John F. Shoch is a managing member of Alloy Ventures 1998, which is the
general partner of the purchasers of these shares--each of AMA98 Corporate
L.P., AMA98 Investors, L.P., AMA98 Partners, L.P. and AMA98 Ventures, L.P.
Alloy Ventures 1998, LLC is therefore deemed to exercise voting and
investment power over all of the shares held by AMA98 Corporate, L.P.,
AMA98 Investors, L.P., AMA98 Partners, L.P. and AMA98 Ventures, L.P.
(3) David W. Pidwell is a managing member of Pidwell Investments LLC and is
therefore deemed to exercise voting and investment power over all of the
shares held by Pidwell Investments LLC. Mr. Pidwell exercised his warrant
in full in November 1999.
(4) Thomas Unterman is managing partner of Rustic Canyon Partners, LLC, which
is the general partner of TMCT Ventures, L.P. Rustic Canyon Partners, LLC
is therefore deemed to exercise voting and investment power over all of the
shares held by TMCT Ventures, L.P.
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<PAGE>
Issuance of Series D Preferred Stock
In February 2000, we sold a total of 16,453,926 shares of Series D preferred
stock at price per share of $6.05, which shares are convertible into 20,567,391
shares of common stock assuming an initial public offering price per share of
$9.00, to several investors pursuant to a preferred stock purchase agreement,
including to the following directors, executive officers, 5% stockholders and
entities associated with them:
<TABLE>
<CAPTION>
Shares of Aggregate
Series D Purchase Value of
Preferred Price Shares(1)
Stockholder ---------- ---------- -----------
<S> <C> <C> <C>
Entities affiliated with
Alloy Ventures 1998, LLC(2)................ 206,609 $ 999,998 $ 1,859,481
Pidwell Investments LLC(3).................. 20,661 100,000 185,949
Entities affiliated with
J. & W. Seligman & Co. Incorporated(4)..... 206,610 999,998 1,859,490
Entities affiliated with
Partech International(5)................... 206,609 999,998 1,859,481
Technology Partners Fund, L.P............... 206,611 999,998 1,859,499
TMCT Ventures, L.P.(6)...................... 206,611 999,998 1,859,499
Walden Media and Information Technology Fund
L.P........................................ 206,611 999,998 1,859,499
Entities affiliated with SOFTBANK Capital
Partners L.P.(7)........................... 14,462,809 70,000,000 130,165,281
Putnam OTC & Emerging Growth Fund........... 1,239,670 6,000,002 11,157,030
Putnam Emerging Information Sciences Trust.. 309,917 1,500,001 2,789,253
T. Rowe Price............................... 1,549,587 7,500,003 13,946,283
</TABLE>
- ----------------
(1) Based on an assumed initial public offering price per share of $9.00.
(2) John F. Shoch is a managing member of Alloy Ventures 1998, LLC, which is
the general partner of the purchasers of these shares--each of AMA98
Corporate, L.P., AMA98 Investors, L.P., AMA98 Partners, L.P. and AMA98
Ventures, L.P. Alloy Ventures 1998, LLC is therefore deemed to exercise
voting and investment power over all of the shares held by AMA98 Corporate,
L.P., AMA98 Investors, L.P., AMA98 Partners, L.P. and AMA98 Ventures, L.P.
(3) David W. Pidwell is a managing member of Pidwell Investments LLC and is
therefore deemed to exercise voting and investment power over all of the
shares held by Pidwell Investments LLC.
(4) J. & W. Seligman & Co. Incorporated is the investment advisor to Seligman
New Technologies Fund, Inc., Seligman Communications and Information Fund,
Inc. and Seligman Investment Opportunities (Master) Fund--NTV Portfolio,
and is therefore deemed to exercise voting and investment power over all of
the shares held by these entities.
(5) Vincent Worms is the managing member of Axa U.S. Growth Fund, LLC, Parallel
I, LLC, Parallel II, LLC, Double Black Diamond II, LLC, 45th Parallel, LLC,
and Multinvest, LLC, the investment general partner of Partech U.S.
Partners III C.V., and the attorney-in-fact for Almanori Limited, and is
therefore deemed to exercise voting and investment power over all of the
shares held by these entities.
(6) Thomas Unterman is managing partner of Rustic Canyon Partners, LLC, which
is the general partner of TMCT Ventures, L.P. Rustic Canyon Partners, LLC
is therefore deemed to exercise voting and investment power over all of the
shares held by TMCT Ventures, L.P.
(7) William L. Burnham is a managing director of the general partner of
SOFTBANK Capital Partners L.P. and SOFTBANK Capital Advisors Fund L.P. The
general partner is therefore deemed to exercise voting and investment power
over all of the shares held by SOFTBANK Capital Partners L.P. and SOFTBANK
Capital Advisors Fund L.P.
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<PAGE>
Investors Rights Agreement
In connection with our issuances of Series B preferred stock, Series C
preferred stock and Series D preferred stock, we have entered into an investors
rights agreement granting the holders of the preferred stock registration
rights with respect to the common stock issuable upon conversion of their
preferred stock.
Contract with Summit Group Consulting
During 1999 and the first quarter of 2000, Summit Group Consulting supplied
recruiting and contract labor services to us. During 1999 and the first quarter
of 2000, Summit Group Consulting recruited 38 employees for us and was paid by
us a total of $353,807 for those services. Summit Group Consulting is owned by
Bridget Jorgensen, the wife of James R. Jorgensen, our President, Chief
Executive Officer and Chairman.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table presents information with respect to beneficial
ownership of our common stock as of March 31, 2000 by:
. each stockholder known by us to be the beneficial owner of more than 5%
of our common stock;
. other significant stockholders;
. each of our directors;
. the executive officer listed in the summary compensation table; and
. all current executive officers and directors as a group.
The percentage of beneficial ownership for the following table is based on
102,339,010 shares of common stock outstanding as of March 31, 2000, assuming
conversion of all outstanding shares of preferred stock into common stock and
an assumed initial public offering price per share of $9.00.
Unless otherwise indicated, the address for each listed 5% stockholder is:
c/o AllAdvantage.com Inc., 4010 Point Eden Way, Hayward, California 94545. To
our knowledge, except as indicated in the footnotes to this table and under
applicable community property laws, the persons named in the table have sole
voting and investment power with respect to all shares of common stock.
<TABLE>
<CAPTION>
Percentage of
Outstanding
Shares
Beneficially
Owned
-----------------
Number of Shares Before After
Name of Beneficial Owner Beneficially Owned Offering Offering
------------------------ ------------------ -------- --------
<S> <C> <C> <C>
James R. Jorgensen (1)................... 15,333,336 15.0% 13.1%
William L. Burnham
Entities affiliated with SOFTBANK
Capital Partners L.P. (2)............... 14,462,809 14.1 12.3
John F. Shoch
Entities affiliated with Alloy Ventures
1998, LLC (3)........................... 12,854,231 12.5 10.9
Carl T. Anderson (4)..................... 10,435,017 10.2 8.9
Johannes A. Pohle (5).................... 9,333,332 9.1 8.0
Oliver Brock (6)......................... 4,800,000 4.7 4.1
Thomas Unterman
TMCT Ventures, L.P. (7)................. 4,410,691 4.3 3.8
Richard A. LeFurgy
Walden Media and Information Technology
Fund L.P. (8)........................... 4,410,691 4.3 3.8
Entities affiliated with J. & W. Seligman
& Co. Incorporated (9).................. 4,288,244 4.2 3.7
Entities affiliated with Partech
International (10)...................... 4,288,241 4.2 3.7
Technology Partners Fund, L.P. .......... 4,288,241 4.2 3.7
T. Rowe Price ........................... 1,549,587 1.5 1.3
Putnam OTC & Emerging Growth Fund ....... 1,239,670 1.2 1.1
David W. Pidwell
Pidwell Investments LLC (11)............ 910,909 * *
Putnam Emerging Information Sciences
Trust................................... 309,917 * *
Leslie G. Denend......................... -- -- --
All directors and executive officers as a
group (12 persons)(12).................. 74,226,651 71.9 62.8
</TABLE>
- --------
*Less than 1%.
(1) Includes 4,933,332 shares subject to a right of repurchase held by us as of
March 31, 2000, which right of repurchase expires as to 25% of the shares
in April 2000 and 2.083% of the shares each month thereafter.
(2) Includes 14,255,991 shares held by SOFTBANK Capital Partners L.P. and
206,818 shares held by SOFTBANK Capital Advisors Fund L.P. William Burnham
is a managing director of the general partner
69
<PAGE>
of SOFTBANK Capital Partners L.P. and SOFTBANK Capital Advisors Fund L.P.
The address of Mr. Burnham and these entities is 10 Langley Road, Suite
403, Newton Center, MA 02159.
(3) Includes 9,485,150 shares held by AMA98 Ventures, L.P., 1,424,148 shares
held by AMA98 Investors, L.P., 1,138,220 shares held by AMA98 Corporate,
L.P., and 574,059 shares held by AMA98 Partners, L.P. Includes 232,654
shares subject to warrants held by these entities that are immediately
exercisable John F. Shoch is a managing member of Alloy Ventures 1998,
LLC, which is the general partner of each of AMA98 Corporate, L.P., AMA98
Investors, L.P., AMA98 Partners, L.P. and AMA98 Ventures, L.P. The address
of Mr. Shoch and Alloy Ventures 1998, LLC is 480 Cowper Street, Palo Alto,
CA 94301.
(4) Includes 4,933,332 shares subject to a right of repurchase held by us as
of March 31, 2000, which right of repurchase expires as to 25% of the
shares in April 2000 and 2.083% of the shares each month thereafter.
(5) Includes 4,933,332 shares subject to a right of repurchase held by us as
of March 31, 2000, which right of repurchase expires as to 25% of the
shares in April 2000 and 2.083% of the shares each month thereafter.
(6) Includes 1,200,000 shares subject to a right of repurchase held by us as
of March 31, 2000, which right of repurchase expires as to 25% of the
shares in April 2000 and 2.083% of the shares each month thereafter.
(7) Includes 122,448 shares subject to a warrant held by TMCT Ventures, L.P.
that is immediately exercisable. Mr. Unterman is managing partner of
Rustic Canyon Partners, LLC, which is the general partner of TMCT
Ventures, L.P.
(8) Includes 122,448 shares subject to a warrant that is immediately
exercisable. Richard A. LeFurgy, a representative of WaldenVC is one of
our directors, although he does not have voting power or investment power
with respect to the shares held by Walden Media and Information Technology
Fund L.P.
(9) Represents 2,813,914 shares held by Seligman New Technologies Fund, Inc.,
857,648 shares held by Seligman Communications and Information Fund, Inc.
and 616,682 shares held by Seligman Investment Opportunities (Master) Fund
NTV Portfolio. J. & W. Seligman & Co. Incorporated is the investment
advisor to Seligman New Technologies Fund, Inc., Seligman Communications
and Information Fund, Inc. and Seligman Investment Opportunities (Master)
Fund-NTV Portfolio.
(10) Represents 1,972,593 shares held by Partech U.S. Partners III C.V.,
870,513 shares held by Parallel Capital II, LLC, 726,428 shares held by
Parallel Capital I, LLC, 461,413 shares held by Axa U.S. Growth Fund, LLC,
128,648 shares held by Double Black Diamond II, LLC, 42,882 shares held by
45th Parallel, LLC, 42,882 shares held by Almanori Limited and 42,882
shares held by Multinvest, LLC. Vincent Worms is the investment general
partner of Partech U.S. Partners III C.V., the managing member of Parallel
Capital II, LLC, Parallel Capital I, LLC, Axa U.S. Growth Fund, LLC,
Double Black Diamond II, 45th Parallel, LLC and Multinvest, LLC, and the
attorney-in-fact for Almanori Limited.
(11) Represents 710,909 shares held by Pidwell Investments LLC and 200,000
shares held by David Pidwell. The 200,000 shares held by Mr. Pidwell are
subject to our right of repurchase as of March 31, 2000, which right of
repurchase expires as to 25% of the shares in July 2000 and 2.083% of the
shares each month thereafter. David Pidwell is a managing member of
Pidwell Investments LLC.
(12) Includes 16,503,329 shares subject to our right of repurchase as of March
31, 2000. Includes 566,667 shares subject to an immediately exercisable
option and 355,102 shares subject to immediately exercisable warrants.
Does not include shares or warrants held by Walden Media and Information
Technology Fund L.P.
The shares included in the preceding table as beneficially owned by some of
our executive officers and directors include outstanding shares that we have
the right to repurchase upon termination of their employment or status as a
director or consultant. This repurchase right entitles us to repurchase the
shares at a price equal to the initial purchase price paid by the stockholder
for the shares. Our repurchase right generally lapses over a four-year period.
In addition, the shares included in the preceding table as beneficially
owned by some of our executive officers, directors and 5% stockholders include
shares that are issuable under stock options or warrants that are exercisable
on or before May 30, 2000. These shares are deemed outstanding for purposes of
computing the percentage held by the person holding the options or warrants but
are not deemed outstanding for purposes of computing the percentage of any
other person.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Immediately following the closing of this offering, our authorized capital
stock will consist of 1,000,000,000 shares of common stock, $0.001 par value
per share, and 5,000,000 shares of preferred stock, $0.001 par value per share.
As of March 31, 2000, and assuming the conversion of all outstanding preferred
stock into 72,702,077 shares of common stock at the assumed initial public
offering price of $9.00 per share and conversion of all warrants for preferred
stock into warrants for common stock, there were 102,339,010 shares of common
stock outstanding, options to purchase 14,126,858 shares of common stock and
warrants to purchase 552,550 shares of common stock.
Common Stock
Dividend Rights. Subject to preferences that may apply to shares of
preferred stock outstanding at the time, the holders of outstanding shares of
common stock are entitled to receive dividends out of assets legally available
at the times and in the amounts that the board of directors may determine from
time to time.
Voting Rights. Each holder of common stock is entitled to one vote for each
share of common stock held on all matters submitted to a vote of stockholders.
We have not provided for cumulative voting for the election of directors in our
certificate of incorporation. This means that, commencing at the first annual
meeting of stockholders following the date on which we first have at least 800
stockholders, the holders of a majority of the shares voted can elect all of
the directors then standing for election. Prior to that time, however,
cumulative voting in the election of directors will be in effect, meaning that
each share of voting stock will be entitled to a number of votes equal to the
number of votes to which that share would normally be entitled multiplied by
the number of directors to be elected. A stockholder may then cast all of these
votes for a single candidate or may allocate them among as many candidates as
the stockholder may choose. In addition, our certificate of incorporation and
bylaws require the approval of two-thirds, rather than a majority, of the
shares entitled to vote for some matters.
No Preemptive or Similar Rights. Our common stock is not entitled to
preemptive rights and is not subject to conversion or redemption.
Right to Receive Liquidation Distributions. Upon a liquidation, dissolution
or winding-up of AllAdvantage, the holders of common stock are entitled to
share ratably with holders of any participating preferred stock in all assets
remaining after payment of all liabilities and the liquidation preferences of
any outstanding preferred stock. Each outstanding share of common stock is, and
all shares of common stock to be outstanding upon completion of this offering
will be, fully paid and nonassessable.
Preferred Stock
Upon the closing of this offering, each outstanding share of preferred stock
will be converted into shares of common stock. Upon the closing of this
offering, each outstanding share of Series D preferred stock will automatically
convert into as many as 1.25 shares or as little as one share of common stock.
This conversion ratio is determined by the initial public offering price of the
shares in this offering. If the initial public offering price per share is
equal to or greater than $12.10, then each outstanding share of Series D
preferred stock will automatically convert into one share of common stock.
However, if the initial public offering price per share is less than $12.10,
then each outstanding share of Series D preferred stock will automatically
convert into that number of shares of common stock equal to the result obtained
by dividing $12.10 by the greater of the offering price or $9.68.
Following the offering, we will be authorized, subject to limitations
imposed by Delaware law, to issue preferred stock in one or more series, to
establish from time to time the number of shares to be included in each series,
and to fix the rights, preferences and privileges of the shares of each wholly
unissued series and
71
<PAGE>
any of its qualifications, limitations or restrictions. The board of directors
can also increase or decrease the number of shares of any series, but not below
the number of shares of that series then outstanding, without any further vote
or action by the stockholders.
The board may authorize the issuance of preferred stock with voting or
conversion rights that could harm the voting power or other rights of the
holders of the common stock. The issuance of preferred stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes, could, among other things, have the effect of delaying, deferring or
preventing a change in control of AllAdvantage and might harm the market price
of our common stock and the voting and other rights of the holders of common
stock. We have no current plans to issue any shares of preferred stock.
Warrants
As of March 31, 2000, we had outstanding the following warrants to purchase
our stock.
<TABLE>
<CAPTION>
Total Number of Shares Exercise Price
Type of Stock Subject to Warrants Per Share Expiration Date
------------- ---------------------- -------------- ---------------
<S> <C> <C> <C>
Series C Preferred
Stock.................. 238,775(1) $0.06(1) 9/22/09
Series D Preferred
Stock.................. 75,000(2) 6.05(2) 12/31/09
</TABLE>
- --------
(1) Unless exercised, these warrants will remain outstanding after the
completion of this offering, at which time they will become exercisable for
a total of 477,550 shares of common stock at an exercise price per share of
$0.03.
(2) Unless exercised, this warrant will remain outstanding after the completion
of this offering, at which time it will become exercisable for a total of
93,750 shares of common stock at an exercise price per share of $4.84.
Registration Rights
The holders of approximately 56,702,077 shares of common stock issuable upon
conversion of Series B, Series C and Series D preferred stock have the right to
require us to register their shares with the Securities and Exchange Commission
so that those shares may be publicly resold or to include their shares in any
registration statement we file.
Demand Registration Rights
At any time six months after the closing of this offering, the holders of at
least 40% of the shares having registration rights have the right to demand
that we register all or a portion of their shares. We are only obligated to
file three registration statements in response to these demand registration
rights. If neither the first nor the second demand registration right exercised
covers the sale of securities with a total public offering price of at least
$25 million, then the third demand registration right exercised must cover a
sale of at least $25 million of securities. We may postpone the filing of a
registration statement for up to 90 days once in a 12-month period if we
determine that the filing would be seriously detrimental to AllAdvantage and
its stockholders. The underwriters of any underwritten offering will have the
right to limit the number of shares to be included in a registration statement
filed in response to the exercise of these demand registration rights due to
marketing reasons.
Form S-3 Registration Rights
If we are eligible to file a registration statement on Form S-3, any holder
of shares having registration rights has the right to demand that we file a
registration statement on Form S-3, as long as the amount of securities to be
sold under the registration statement exceeds $1 million. We may postpone the
filing of a registration statement for up to 90 days once in a 12 month period
if we determine that the filing would be seriously detrimental to AllAdvantage
and its stockholders.
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<PAGE>
Piggyback Registration Rights
If we register any securities for public sale, holders of shares with
registration rights will have the right to include their shares in the
registration statement. However, this right does not apply to a registration
statement filed pursuant to the exercise of demand registration rights or Form
S-3 registration rights. The underwriters of any underwritten offering will
have the right to limit the number of shares registered by these holders to 30%
of the total shares covered by the registration statement due to marketing
reasons.
Expenses of Registration
We will pay all expenses relating to any demand registration and the first
four piggyback registrations. However, we will not pay for the expenses of any
demand registration if the request is subsequently withdrawn by the holders of
a majority of the shares having registration rights, subject to very limited
exceptions.
Expiration of Registration Rights
The registration rights described above will expire five years after this
offering is completed.
Anti-Takeover Provisions
The provisions of Delaware law, our certificate of incorporation and our
bylaws may have the effect of delaying, deferring or discouraging another
person from acquiring control of us.
Delaware Law
We will be subject to the provisions of Section 203 of the Delaware General
Corporation Law regulating corporate takeovers. This section prevents some
Delaware corporations from engaging, under some circumstances, in a business
combination, which includes a merger or sale of more than 10% of the
corporation's assets with any interested stockholder, which is a stockholder
who owns 15% or more of the corporation's outstanding voting stock, as well as
affiliates and associates of the stockholder, for three years following the
date that the stockholder became an "interested stockholder" unless:
. the transaction is approved by the board of directors prior to the date
the interested stockholder attained that status;
. upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced; or
. on or subsequent to that date the business combination is approved by
the board and authorized at an annual or special meeting of stockholders
by at least two-thirds of the outstanding voting stock that is not owned
by the interested stockholder.
A Delaware corporation may opt out of this provision with an express
provision in its original certificate of incorporation or an express provision
in its certificate or incorporation or bylaws resulting from a stockholders'
amendment approved by at least a majority of the outstanding voting shares.
However, we have not opted out of this provision. The statute could prohibit or
delay mergers or other takeover or change-in-control attempts and, accordingly,
may discourage attempts to acquire us.
Charter and Bylaws
Our certificate of incorporation and bylaws provide that:
. following the completion of this offering, no action can be taken by
stockholders except at an annual or special meeting of the stockholders
called in accordance with our bylaws and that stockholders may not act
by written consent;
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<PAGE>
. following the completion of this offering, the approval of holders of
two-thirds of the shares entitled to vote at an election of directors
will be required to adopt, amend or repeal our bylaws or amend or repeal
the provisions of our certificate of incorporation regarding the
election and removal of directors and ability of stockholders to take
action;
. stockholders may not call special meetings of the stockholders or fill
vacancies on the board;
. commencing at the first annual meeting of stockholders following the
date on which we first have at least 800 stockholders, our board of
directors will be divided into three classes, each serving staggered
three-year terms. This means that only one class of directors will be
elected at each annual meeting of stockholders, with the other classes
continuing for the remainder of their respective terms. Directors may
only be removed for cause by the holders of two-thirds of the shares
entitled to vote at an election of directors (we do not expect to have
800 stockholders as a result of this offering, and we may not have this
many stockholders for some time, if at all); and
. we will indemnify officers and directors against losses that they may
incur in investigations and legal proceedings resulting from their
services to us, which may include services in connection with takeover
defense measures.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services.
Listing
We have applied to list our common stock on The Nasdaq Stock Market's
National Market under the trading symbol "AADV."
74
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock, including shares issued
upon exercise of outstanding warrants or options, in the public market after
this offering could adversely affect market prices prevailing from time to time
and could impair our ability to raise capital through the sale of our equity
securities. Furthermore, as described below, no shares currently outstanding
will be available for sale immediately after this offering due to contractual
restrictions on resale. Sales of substantial amounts of our common stock in the
public market after these restrictions lapse could adversely affect the
prevailing market price and our ability to raise equity capital in the future.
Upon completion of this offering, based on shares outstanding at March 31,
2000, we will have outstanding 117,339,010 shares of common stock, assuming no
exercise of the underwriters' over-allotment option and no exercise of
outstanding options and warrants. Shares held by our affiliates, which are
persons that directly or indirectly control, or are controlled by, or are under
common control with us, may generally only be sold in compliance with the
limitations of Rule 144 of the Securities Act. Of the outstanding shares, the
15,000,000 shares sold in this offering, 17,250,000 shares of the underwriters'
over-allotment option is exercised in full, will be freely tradable without
restriction under the Securities Act, other than the 700,000 shares reserved
for our employees, officers, directors and other persons associated with us,
which will be subject to a 180-day lock-up period. The remaining shares will be
restricted securities as defined in Rule 144. We issued and sold these
restricted securities in private transactions in reliance on exemptions from
registration under the Securities Act. Restricted securities may be sold in the
public market only if they are registered or if they qualify for an exemption
from registration under Rule 144 or Rule 701 under the Securities Act, as
summarized below. The shares will become eligible for public sale as follows:
<TABLE>
<CAPTION>
Approximate
Number of
Shares
Eligible
for Future
Date Sale Comment
---- ----------- -------
<C> <C> <S>
181 days after the date of 70,777,054 Underwriters' lock-up released.
this prospectus 700,000 of these shares will be freely
tradable, and the remainder may be
sold under Rule 144 or Rule 701
At various times thereafter 32,261,956 These shares may be sold under Rule
144, Rule 144(k) or Rule 701
</TABLE>
Lock-Up Agreements
All of our officers and directors and substantially all of our stockholders
have signed lock-up agreements under which they agreed not to sell, dispose of,
loan, pledge or grant any rights with respect to any shares of common stock or
any securities convertible into or exercisable or exchangeable for shares of
common stock without the prior written consent of Credit Suisse First Boston
Corporation and Donaldson, Lufkin & Jenrette Securities Corporation for a
period of 180 days after the date of this prospectus, subject to limited
exceptions.
Credit Suisse First Boston Corporation and Donaldson, Lufkin & Jenrette
Securities Corporation may in their sole discretion, at any time without
notice, choose to release some or all of these shares from these restrictions
prior to the expiration of this 180-day period based on market conditions, the
then-current stock price and other factors, the selection of which are based on
their sole discretion.
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell within any three-
month period a number of shares that does not exceed the greater of:
. 1% of the number of shares of common stock then outstanding, which will
equal approximately 1,173,390 shares immediately after this offering; or
. the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale.
75
<PAGE>
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us. Shares otherwise eligible for sale under Rule 144 are still subject to
lock-up agreements and will only become eligible for sale when the 180-day
lock-up agreements expire.
Rule 144 (k)
Under Rule 144(k), a person who has not been one of our affiliates at any
time during the 90 days preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, is entitled to sell those
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
Rule 701
Any of our employees, officers, directors or consultants who purchased his
or her shares under a written compensatory plan or contract may be entitled to
sell his or her shares in reliance on Rule 701. Rule 701 permits affiliates to
sell their Rule 701 shares under Rule 144 without complying with the holding
period requirements of Rule 144. Rule 701 further provides that non-affiliates
may sell these shares in reliance on Rule 144 without having to comply with the
holding period, public information, volume limitation or notice provisions of
Rule 144. All holders of Rule 701 shares are required to wait until 90 days
after the date of this prospectus before selling those shares. However, all
shares issued under Rule 701 are subject to lock-up agreements and will only
become eligible for sale when the 180-day lock-up agreements expire.
Registration Rights
Upon completion of this offering, the holders of 56,702,077 shares of common
stock, or their transferees, will be entitled to rights with respect to the
registration of those shares under the Securities Act. After these shares are
registered, they will be freely tradable without restriction under the
Securities Act.
Stock Options
Immediately after this offering, we intend to file a registration statement
under the Securities Act covering approximately 37,524,384 shares of common
stock subject to outstanding options and reserved for issuance under our stock
option and employee stock purchase plans. As of March 31, 2000, options to
purchase 14,126,858 shares of common stock were issued and outstanding. Upon
the expiration of the lock-up agreements described above, approximately
1,516,135 shares of common stock will be subject to vested options, based on
options outstanding as of March 31, 2000.
This registration statement is expected to be filed and become effective as
soon as practicable after the effective date of this offering. Accordingly,
shares registered under this registration statement will, subject to vesting
provisions and Rule 144 volume limitations applicable to our affiliates, be
freely tradeable immediately after the 180-day lock-up agreements expire.
Warrants
As of March 31, 2000, we had outstanding warrants to purchase 238,775 shares
of Series C preferred stock and 75,000 shares of Series D preferred stock,
which will become exercisable for 477,550 and 93,750 shares, respectively, of
common stock upon the completion of this offering. When these warrants are
exercised and the exercise price is paid in cash, the shares must be held for
one year before they can be sold under Rule 144. Upon the completion of this
offering, these warrants to purchase up to 571,300 shares of common stock will
contain net exercise provisions. These provisions allow a holder to exercise
the warrant for a lesser number of shares of common stock in lieu of paying
cash. The number of shares that would be issued in this case would be based
upon the market price of the common stock at the time of the net exercise. If
the warrant had been held for at least one year, the shares of commons stock
could be publicly sold under Rule 144. After the lock-up agreements described
above expire, warrants to purchase 477,550 shares of our common stock, which
also contain net exercise provisions, will have been outstanding for at least
one year.
76
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, Donaldson, Lufkin &
Jenrette Securities Corporation and FleetBoston Robertson Stephens Inc. are
acting as representatives the following respective numbers of shares of common
stock:
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation.............................
Donaldson, Lufkin & Jenrette Securities Corporation................
FleetBoston Robertson Stephens Inc. ...............................
-----
Total............................................................
=====
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to 2,250,000 additional shares at the initial public offering
price less the underwriting discounts and commissions. The option may be
exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
will pay. The underwriting fee will be determined based on our negotiations
with the underwriters at the time the initial public offering price of our
common stock is determined. We do not expect the underwriting discounts and
commissions paid by us to exceed 7% of the initial public offering price per
share of common stock.
<TABLE>
<CAPTION>
Per Share Total
----------------------------- -----------------------------
Without With Without With
Over-allotment Over-allotment Over-allotment Over-allotment
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting Discounts
and Commissions paid by
us..................... $ $ $ $
Expenses payable by us.. $ $ $ $
Other deemed
Underwriting Discounts
and Commissions paid by
us..................... $ $ $ $
</TABLE>
DLJ ESC II LP, DLJ Fund Investment Partners II, L.P., DLJ Private Equity
Employees Fund, L.P. and DLJ Private Equity Partners Fund, L.P. (who are
affiliates of Donaldson, Lufkin & Jenrette Securities Corporation) have
purchased 49,587, 54,187, 4,959 and 139,201 shares of Series D preferred stock,
respectively, at $6.05 per share. Employees of Fleet Boston Robertson Stephens
have purchased 8,264 shares of
77
<PAGE>
Series D preferred stock at $6.05 per share. Credit Suisse First Boston Venture
Fund I L.P. has purchased 330,578 shares of Series D preferred stock at a price
of $6.05 per share. Under NASD Rules of Fair Practice, the difference between
the initial offering price of our common stock and the purchase price could be
deemed underwriting compensation.
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act of 1933,
as amended, relating to, any shares of our common stock or securities
convertible into or exchangeable or exercisable for any shares of our common
stock, in each case acquired prior to the date of this prospectus, or publicly
disclose the intention to make any such offer, sale, pledge, disposition or
filing, without the prior written consent of Credit Suisse First Boston
Corporation and Donaldson, Lufkin & Jenrette Securities Corporation for a
period of 180 days after the date of this prospectus, except in our case
issuances pursuant to the exercise of stock options outstanding on the date
hereof, grants of employee stock options or the issuance of other common stock
pursuant to the 1999 equity incentive plan and 2000 equity incentive plan of
our California predecessor, 2000 equity incentive plan or 2000 employee stock
purchase plan in effect on the date hereof, and issuances of common stock
pursuant to the exercise of those options.
Our executive officers and directors, and stockholders and holders of
options to purchase our common stock have agreed that they will not offer,
sell, contract to sell, pledge or otherwise dispose of, directly or indirectly,
any shares of our common stock, other than shares purchased in the open market,
including in this offering, or securities convertible into or exchangeable or
exercisable for any shares of our common stock, enter into a transaction which
would have the same effect, or enter into any swap, hedge or other arrangement
that transfers, in whole or in part, any of the economic consequences of
ownership of our common stock, whether any such aforementioned transaction is
to be settled by delivery of our common stock or such other securities, in cash
or otherwise, or publicly disclose the intention to make any such offer, sale,
pledge or disposition, or to enter into any such transaction, swap, hedge or
other arrangement, without, in each case, the prior written consent of Credit
Suisse First Boston Corporation and Donaldson, Lufkin & Jenrette Securities
Corporation for a period of 180 days after the date of this prospectus.
The underwriters have reserved for sale, at the initial offering price, up
to 700,000 shares of common stock for employees, officers, directors and other
persons associated with us, including contractors and business partners, who
have expressed an interest in purchasing common stock in the offering and up to
800,000 shares of common stock for our members. The shares reserved for our
employees, officers and directors and other persons associated with us will be
subject to a 180-day lock-up period, which lock-up restriction may be waived
with our prior written consent. The number of shares available for sale to the
general public in this offering will be reduced to the extent those persons
purchase the reserved shares. Any reserved shares not so purchased will be
offered by the underwriters to the general public on the same terms as the
other shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments that the underwriters may be required
to make in that respect.
Credit Suisse First Boston Corporation acted as placement agent in
connection with the sale of the Series D preferred stock for which it received
customary compensation.
We have made application to list the shares of common stock on The Nasdaq
Stock Market's National Market under the symbol "AADV."
Prior to the offering, there has been no public market for the common stock.
The initial public offering price for the common stock will be determined by
negotiation between us and the representatives, and may not reflect the market
price for the common stock following this offering. Among the principal factors
to be considered in determining the initial public offering price of our common
stock will be:
. the information in this prospectus or otherwise available to the
representatives;
78
<PAGE>
. market conditions for initial public offerings;
. the history of and prospects for the industry in which we compete;
. the ability of our management;
. our prospects for future earnings, the present state of our development
and our current financial condition;
. the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies; and
. the general condition of the securities markets at the time of this
offering.
We can offer no assurances that the initial public offering price will
correspond to the price at which our common stock will trade in the public
market following this offering or that an active trading market for the common
stock will develop and continue after this offering.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Securities Exchange Act of 1934.
. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
. Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
. Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by that
syndicate member is purchased in a stabilizing transaction or a
syndicate covering transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
79
<PAGE>
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common
stock in Canada must be made in accordance with applicable securities laws,
which will vary depending on the relevant jurisdiction and which may require
resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the common stock.
Representations of Purchasers
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from which that
purchase confirmation is received that (i) the purchaser is entitled under
applicable provincial securities laws to purchase the common stock without the
benefit of a prospectus qualified under those securities laws, (ii) where
required by law, the purchaser is purchasing as principal and not as agent, and
(iii) the purchaser has reviewed the text above under "Resale Restrictions."
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer, and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named in
this prospectus may be located outside of Canada and, as a result, it may not
be possible for Canadian purchasers to effect service of process within Canada
upon the issuer or those persons. All or a substantial portion of the assets of
the issuer and those persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or those
persons in Canada or to enforce a judgment obtained in Canadian courts against
the issuer or persons outside of Canada.
Notice to British Columbia Residents
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that he or she is required to file with the British Columbia
Securities Commission a report within ten days of the sale of any common stock
acquired by him or her in this offering. That report must be in the form
attached to British Columbia Securities Commission Blanket Order BOR #95/17, a
copy of which may be obtained from us. Only one report must be filed in respect
of common stock acquired on the same date and under the same prospectus
exemption.
Taxation and Eligibility for Investment
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
80
<PAGE>
LEGAL MATTERS
Fenwick & West LLP, Palo Alto, California, will pass upon the validity of
the issuance of the shares of common stock offered by this prospectus for
AllAdvantage. Skadden, Arps, Slate, Meagher & Flom LLP, Palo Alto, California,
will pass upon legal matters in connection with this offering for the
underwriters. Entities affiliated with Fenwick & West LLP hold 223,365 shares
of our common stock. In addition, Fenwick & West LLP or an affiliated entity
may purchase up to 51,500 of the shares reserved by the underwriters for sale
to our employees and directors and other persons associated with us.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at December 31, 1999 and for the period from inception,
March 24, 1999, to December 31, 1999, as set forth in their report. We have
included our financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on
their authority as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, a registration
statement on Form S-1 under the Securities Act with respect to the common stock
offered by this prospectus. This prospectus does not contain all of the
information contained in the registration statement and the exhibits to the
registration statement. For further information with respect to AllAdvantage
and our common stock, we refer you to the registration statement and the
exhibits filed as a part of the registration statement. Statements contained in
this prospectus concerning the contents of any contract or any other document
to which reference is made are not necessarily complete; we refer you to the
copy of each contract or document filed as an exhibit to the registration
statement. Each statement is qualified in all respects by reference to that
exhibit. The registration statement, including exhibits, may be inspected
without charge at the public reference facilities maintained by the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the
SEC located at Seven World Trade Center, 13th Floor, New York, New York 10048,
and the Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies may be obtained from the SEC upon payment of
fees prescribed by the SEC. Information on the operation of the public
reference room may be obtained by calling the SEC at 1-800-SEC-0330. These
reports and other information may also be inspected without charge at a Web
site maintained by the SEC at http://www.sec.gov.
81
<PAGE>
AllAdvantage.com Inc.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors...................... F-2
Consolidated Balance Sheets............................................ F-3
Consolidated Statements of Operations.................................. F-4
Consolidated Statement of Stockholders' Equity (Net Capital
Deficiency)........................................................... F-5
Consolidated Statements of Cash Flows.................................. F-6
Notes to Consolidated Financial Statements............................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
AllAdvantage.com Inc.
We have audited the accompanying consolidated balance sheet of
AllAdvantage.com Inc. as of December 31, 1999, and the related consolidated
statements of operations, net capital deficiency, and cash flows for the period
from inception (March 24, 1999) to December 31, 1999. 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 audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. 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 audit provides 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
AllAdvantage.com Inc. at December 31, 1999, and the results of its operations
and its cash flows for the period from inception (March 24, 1999) to December
31, 1999, in conformity with accounting principles generally accepted in the
United States.
Ernst & Young LLP
Palo Alto, California
February 3, 2000 except for Note 10, as to which the date is April , 2000
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon the completion
of the reincorporation and other matters described in Note 10 to the
consolidated financial statements.
/s/ Ernst & Young LLP
Palo Alto, California
April 27, 2000
F-2
<PAGE>
AllAdvantage.com Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
Equity
December 31, March 31, at March 31,
1999 2000 2000
------------ --------- -------------
(Unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents.............. $ 20,019 85,345
Restricted cash........................ 10,000 2,000
Accounts receivable, net of allowance
of $235 and $672 at December 31, 1999
and March 31, 2000, respectively...... 4,523 7,641
Prepaid expenses and other assets...... 624 1,470
Deferred offering costs................ -- 675
-------- ---------
Total current assets................. 35,166 97,131
Property and equipment, net.............. 4,705 7,366
-------- ---------
Total assets......................... $ 39,871 $ 104,497
======== =========
Liabilities and stockholders' equity (net
capital deficiency)
Current liabilities:
Accounts payable....................... $ 1,753 $ 5,456
Accrued member payables................ 12,239 30,759
Other accrued liabilities.............. 5,362 12,626
Customer advance....................... 19,830 19,601
Deferred revenue....................... 75 2,278
Current portion of capital lease
obligations........................... 383 440
-------- ---------
Total current liabilities............ 39,642 71,160
Capital lease obligations, net of current
portion................................. 254 212
Commitments
Stockholders equity (net capital
deficiency):
Convertible preferred stock, $0.001 par
value, issuable in series: 36,335,044
shares authorized; 19,567,343 and
36,021,269 shares issued and
outstanding at December 31, 1999 and
March 31, 2000, respectively,
aggregate liquidation preference of
$133,561,242; pro forma--36,335,044
shares authorized, no shares issued
and outstanding....................... 20 36 $ --
Common stock, $0.001 par value:
116,000,000 shares authorized,
28,498,133 and 29,636,933 shares
issued and outstanding at December 31,
1999 and March 31, 2000, respectively;
pro forma --150,000,000 shares
authorized, 102,339,010 shares issued
and outstanding....................... 28 29 102
Additional paid-in capital............. 55,608 159,741 159,704
Deferred stock compensation............ (18,572) (23,934) (23,934)
Accumulated deficit.................... (37,109) (102,747) (102,747)
-------- --------- ---------
Total stockholders' equity (net
capital deficiency)................. (25) 33,125 $ 33,125
-------- --------- =========
Total liabilities and stockholders'
equity (net capital deficiency)..... $ 39,871 $ 104,497
======== =========
</TABLE>
See accompanying notes.
F-3
<PAGE>
AllAdvantage.com Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Period from Three Months
Inception Ended
(March 24, 1999) to March 31,
December 31, 1999 1999
------------------- ------------
(Unaudited)
<S> <C> <C>
Revenues..................................... $ 5,251 $ 9,100
Costs and expenses:
Direct member costs........................ 17,141 32,744
Sales and marketing........................ 11,602 26,927
General and administrative................. 8,344 6,016
Product development........................ 2,911 6,106
Depreciation and amortization.............. 348 580
Stock-based compensation(1)................ 1,547 2,788
-------- ---------
Total costs and expenses................. 41,893 75,161
-------- ---------
Loss from operations......................... (36,642) (66,061)
Interest expense............................. (827) (536)
Interest income.............................. 360 959
-------- ---------
Net loss..................................... $(37,109) $ (65,638)
======== =========
Basic and diluted net loss per share......... $ (5.04) $ (8.20)
======== =========
Shares used in per share calculation......... 7,367 8,000
======== =========
Pro forma basic and diluted net loss per
share (unaudited)........................... $ (0.97) $ (0.95)
======== =========
Shares used in pro forma per share
calculation (unaudited)..................... 38,287 69,444
======== =========
- --------
(1) Stock-based compensation related to the following in 1999 and for the
three months ended March 31, 2000:
Sales and marketing.......................... $ 907 $ 1,634
General and administrative................... 280 512
Product development.......................... 360 642
-------- ---------
$ 1,547 $ 2,788
======== =========
</TABLE>
See accompanying notes.
F-4
<PAGE>
AllAdvantage.com Inc.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Total
Convertible Stockholders'
Preferred Stock Common Stock Additional Deferred Equity (Net
----------------- ----------------- Paid-in Stock Accumulated Capital
Shares Amount Shares Amount Capital Compensation Deficit Deficiency)
---------- ------ ---------- ------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at inception
(March 24, 1999) ...... -- $-- -- $-- $ -- $ -- $ -- $ --
Issuance of common stock
to founders............ -- -- 24,000,000 24 1 -- -- 25
Issuance of Series A
preferred stock at
$0.05 per share
to founders, net of
issuance costs of $1... 4,000,000 4 -- -- 195 -- -- 199
Issuance of Series B
preferred stock at
$0.72 per share for
cash and exchange of
convertible notes
payable, net of
issuance costs of $34.. 2,500,000 3 -- -- 1,763 -- -- 1,766
Issuance of Series C
preferred stock at
$2.45 per share for
cash and exchange of
convertible notes
payable, net of
issuance costs of $88.. 13,067,343 13 -- -- 31,899 -- 31,912
Issuance of common stock
to employees upon
exercise of
stock options.......... -- -- 4,498,133 4 443 -- -- 447
Issuance of options to
purchase common stock
to non-employees....... -- -- -- -- 660 -- -- 660
Issuance of warrants to
purchase Series C
preferred stock in
connection with
issuance of notes
payable................ -- -- -- -- 528 -- -- 528
Deferred stock
compensation from the
issuance of stock
options................ -- -- -- -- 20,119 (20,119) -- --
Amortization of deferred
stock compensation..... -- -- -- -- -- 1,547 -- 1,547
Net loss................ -- -- -- -- -- -- (37,109) (37,109)
---------- --- ---------- --- -------- -------- --------- --------
Balance at December 31,
1999................... 19,567,343 20 28,498,133 28 55,608 (18,572) (37,109) (25)
---------- --- ---------- --- -------- -------- --------- --------
Issuance of Series D
preferred stock at
$6.05 per share, net of
issuance costs of
$4,973 (unaudited)..... 16,453,926 16 -- -- 94,557 -- -- 94,573
Issuance of common stock
to employees upon
exercise of stock
options (unaudited).... -- -- 1,138,800 1 824 -- -- 825
Issuance of warrant to
purchase Series D
preferred stock
(unaudited)............ -- -- -- -- 542 -- -- 542
Issuance of options to
purchase common stock
to non-employees
(unaudited)............ -- -- -- -- 60 -- -- 60
Deferred stock
compensation from the
issuance of stock
options (unaudited).... -- -- -- -- 8,150 (8,150) -- --
Amortization of deferred
stock compensation
(unaudited)............ -- -- -- -- -- 2,788 -- 2,788
Net loss (unaudited).... -- -- -- -- -- -- (65,638) (65,638)
---------- --- ---------- --- -------- -------- --------- --------
Balance at March 31,
2000 (Unaudited)....... 36,021,269 $36 29,636,933 $29 $159,741 $(23,934) $(102,747) $ 33,125
========== === ========== === ======== ======== ========= ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
AllAdvantage.com Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Period from Three months
Inception Ended
(March 24, 1999) to March 31,
December 31, 1999 2000
------------------- ------------
(Unaudited)
<S> <C> <C>
Operating activities:
Net loss..................................... $(37,109) $(65,638)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.............. 348 582
Amortization of deferred stock
compensation.............................. 1,547 2,788
Interest expense from issuance of
warrants.................................. 528 --
Other non-cash expense..................... 660 60
Changes in assets and liabilities:
Restricted cash.......................... (10,000) 8,000
Accounts receivable...................... (4,523) (3,118)
Prepaid expenses and other assets........ (624) (979)
Accounts payable and other accrued
liabilities............................. 7,115 10,967
Accrued member payables.................. 12,239 18,520
Customer advance......................... 19,830 (229)
Deferred revenue......................... 75 2,203
-------- --------
Net cash used in operating activities........ (9,914) (26,844)
-------- --------
Investing activities:
Purchase of equipment........................ (4,290) (3,124)
-------- --------
Net cash used in investing activities........ (4,290) (3,124)
-------- --------
Financing activities:
Proceeds from issuance of common and
preferred stock, net........................ 30,352 94,573
Proceeds from issuance of convertible notes
payable..................................... 3,550 --
Proceeds from exercise of common stock
options..................................... 447 825
Payments under capital lease obligations..... (126) (104)
-------- --------
Net cash provided by financing activities.... 34,223 95,294
-------- --------
Net increase in cash and cash equivalents.... 20,019 65,326
Cash and cash equivalents at beginning of
period...................................... -- 20,019
-------- --------
Cash and cash equivalents at end of period... $ 20,019 $ 85,345
======== ========
Schedule of noncash investing and financing
activities:
Conversion of notes payable to Series B
Preferred Stock............................. $ 1,550 $ --
======== ========
Conversion of notes payable to Series C
Preferred Stock............................. $ 2,000 $ --
======== ========
Equipment acquired under capital lease
obligations................................. $ 763 $ --
======== ========
Issuance of warrant to purchase Series D
preferred stock in connection with a certain
office lease arrangement..................... $ -- $ 542
======== ========
</TABLE>
See accompanying notes.
F-6
<PAGE>
AllAdvantage.com Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of and for the three months ended March 31, 2000 is unaudited)
1. BUSINESS
AllAdvantage.com Inc. (AllAdvantage or the Company) was incorporated on
March 24, 1999 and launched its service in July 1999. AllAdvantage provides
businesses with an online advertising, direct marketing and electronic commerce
tool to target and reach AllAdvantage's community of members through
AllAdvantage's proprietary Viewbar targeting technology. In turn, AllAdvantage
provides its members with cash compensation, as well as Internet navigation and
electronic commerce links, for actively using the Viewbar.
AllAdvantage has incurred net losses and negative cash flows from operations
since inception. AllAdvantage's ability to meet obligations in the ordinary
course of business is dependent on its ability to establish profitable
operations and raise additional funds through public or private equity
financings, collaborative or other arrangements with corporate sources, or
other sources of financing. In the period from inception (March 24, 1999) to
December 31, 1999, AllAdvantage has received financing of approximately
$33,900,000 through the issuance of common stock, Series A, B and C convertible
preferred stock and convertible notes payable (see Note 4). AllAdvantage also
raised approximately $94,600,000 through the issuance of Series D convertible
preferred stock in February 2000. Management believes that additional funding
will be needed to finance planned operations in the year ending December 31,
2000. If such additional funding is not available, management believes that
available resources will provide sufficient funding to enable the Company to
meet its obligations through at least December 31, 2000. However, management
has the intent and believes it has the ability to delay or reduce expenditures
so as not to require additional financial resources if such resources were not
available.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of AllAdvantage
and its wholly-owned subsidiaries. All significant inter-company balances and
transactions have been eliminated.
Interim Financial Information
The financial information at March 31, 2000, and for the three months ended
March 31, 2000, is unaudited but includes all adjustments (consisting only of
normal recurring adjustments) which the Company considers necessary for a fair
presentation of the financial position at such date and of the operating
results and cash flows for that period. Results of the 2000 period are not
necessarily indicative of results expected for the entire year.
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses and disclosures of contingent liabilities. Actual results could
differ from those estimates.
Cash Equivalents
AllAdvantage considers all highly liquid investments with a maturity of
three months or less from the date of purchase to be cash equivalents. Cash
equivalents consist of money market funds, commercial paper and government
agency instruments.
AllAdvantage accounts for marketable investments under Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," (SFAS No. 115). Under SFAS No. 115, management
determines the appropriate classification of debt securities at the time of
purchase and re-evaluates such designation as of each balance sheet date. To
date, all marketable securities have been classified
F-7
<PAGE>
AllAdvantage.com Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of and for the three months ended March 31, 2000 is unaudited)
as available-for-sale and are carried at fair value at quoted market prices.
Unrealized gains and losses are reported as a separate component of accumulated
comprehensive income. The amortized cost of debt securities in this category is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization or accretion is included in interest income or interest
expense respectively. The cost of securities sold is based on the specific
identification method. Interest earned on securities classified as available-
for-sale is included in interest income.
At December 31, 1999, AllAdvantage had U.S. Government securities and
commercial paper available for sale at fair market values of $249,000 and
$19,482,000, respectively, with fair values approximating amortized cost. As of
December 31, 1999, all available-for-sale securities were recorded as cash
equivalents since the maturities of the instruments at the date of purchase
were less than 90 days. By policy, the Company limits similar types of
investments and diversifies investing activities utilizing multiple investment
agencies.
Certain Risks and Concentrations
AllAdvantage has a limited operating history and its prospects are subject
to the risks, expenses and difficulties frequently encountered by companies in
their early stages of development, particularly companies in new and rapidly
evolving markets such as Internet services. These risks include the failure to
develop and extend online service brands, the rejection of services by
AllAdvantage's members, vendors and/or advertisers and the inability of
AllAdvantage to maintain and increase its member base, as well as other risks
and uncertainties.
AllAdvantage's revenue is principally derived from the sale of
advertisements, the market for which is highly competitive and rapidly
changing. Significant changes in the industry or changes in customer buying
behavior could adversely affect operating results.
Financial instruments that potentially subject AllAdvantage to
concentrations of credit risk consist principally of investments in debt
securities and trade receivables. AllAdvantage is exposed to credit risks in
the event of default by the financial institutions or issuers of investments to
the extent those investments are recorded on the balance sheet. AllAdvantage
generally does not require collateral. From inception (March 24, 1999) to
December 31, 1999, one customer represented 19% of AllAdvantage's revenues. The
same customer represented 12% of AllAdvantage's revenues for the three months
ended March 31, 2000. For the three months ended March 31, 2000, another
customer accounted for 17% of AllAdvantage's revenues. AllAdvantage had no
credit losses in the period from inception (March 24, 1999) to December 31,
1999 or for the three months ended March 31, 2000.
Fair Value of Financial Instruments
The Company's financial instruments, including cash and cash equivalents,
accounts receivable, accrued member payables and accounts payable, are carried
at historical cost, which approximates their fair value because of the short-
term maturities of these instruments. The fair value of capital lease
obligations is estimated based on current interest rates available to
AllAdvantage for debt instruments with similar terms, degrees of risk, and
remaining maturities. The carrying value of these obligations approximate their
fair values as of December 31, 1999 and March 31, 2000, respectively.
Property and Equipment
Property and equipment are recorded at historical cost. Depreciation and
amortization are computed using the straight-line method over the estimated
useful lives of the assets, generally three to five years. Leasehold
improvements are amortized using the straight-line method over the estimated
useful life of the asset or term of the lease, whichever is shorter.
F-8
<PAGE>
AllAdvantage.com Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of and for the three months ended March 31, 2000 is unaudited)
Revenue Recognition
AllAdvantage's revenues were substantially derived from the sale of
advertisements, which includes arrangements for the delivery of impressions or
click-throughs and sponsorships. The foregoing may include additional
performance-based revenues based on arrangements with individual sponsors or
advertisers. Advertising and sponsorship revenues are recognized ratably in the
period in which the advertisement or sponsorship placement is displayed, based
upon the total number of impressions delivered, provided that no significant
obligations remain and collection of the related receivable is probable.
AllAdvantage's obligations typically include the guarantee of a minimum number
of impressions or click-throughs, and to the extent that minimum guaranteed
impressions or click-throughs are not met, recognition of the corresponding
portion of the revenues relating to this unfulfilled obligation is deferred
until the remaining guaranteed impression levels are achieved.
The guaranteed minimum number of impressions is generally required to be
delivered over the term of the commitment, which has generally ranged from
several weeks to two months. Revenues from performance-based arrangements,
including click-throughs, are recognized as the related performance criteria
are met. Click-through arrangements require members to click on the
advertisement as it is displayed. AllAdvantage earns revenue based on the
number of click-throughs occurring during the period. Revenues from advertising
sold through third-party sales organizations are recognized net of commissions.
Revenues from commissions for referring electronic commerce are recognized upon
receipt of payment. Fees paid to us in advance of satisfaction of revenue
recognition criteria are recorded as deferred revenues.
To date, AllAdvantage has not entered into any transactions related to the
nonmonetary exchange of advertising for advertising or other services.
Direct Member Costs
Direct member costs consist of costs incurred to compensate members for
using the Internet while the Viewbar is activated. These costs are expensed as
incurred.
Sales and Marketing
Sales and marketing expenses include personnel and related costs for the
direct sales force and marketing staff, marketing and promotional programs
fees, member referral costs and costs related to the delivery of advertisements
to the Viewbar. These costs are expensed as incurred. Member referral costs
included in sales and marketing expenses totaled $2,981,000 and $8,639,000, for
the period from inception to December 31, 1999 and for the three months ended
March 31, 2000, respectively. Costs related to the delivery of advertisements
to the Viewbar included in sales and marketing expenses totaled $2,913,000 and
$5,095,000 for the period from inception to December 31, 1999 and for the three
months ended March 31, 2000, respectively. Advertising expenses, which consist
primarily of advertising to business customers, were $1,074,000 and $3,982,000
for the period from inception to December 31, 1999 and for the three months
ended March 31, 2000, respectively. Advertising costs are expensed as incurred
in accordance with Statement of Position No. 93-7, "Reporting on Advertising
Costs."
Research and Development
Research and development expenditures are generally charged to operations as
incurred. Statement of Financial Accounting Standards (SFAS) No. 86,
"Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise
Marketed," requires the capitalization of certain software development costs
subsequent to the establishment of technological feasibility. Based on
AllAdvantage's product development process, technological feasibility is
established upon the completion of a working model. Through December 31, 1999,
F-9
<PAGE>
AllAdvantage.com Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of and for the three months ended March 31, 2000 is unaudited)
capitalizable costs incurred after achieving technological feasibility have not
been significant for any development project. Accordingly, AllAdvantage has
charged all costs to research and development expense in the periods they were
incurred.
AllAdvantage adopted SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" during 1999, which requires
capitalization of certain costs incurred during the development of internal use
software. Through December 31, 1999 capitalizable costs incurred have not been
significant for any development project. Accordingly, AllAdvantage has charged
all costs to research and development expense in the periods they were
incurred.
Segment Reporting
Effective March 24, 1999, AllAdvantage adopted the provisions of 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. AllAdvantage has determined that it did not have any
separately reportable business segments as of December 31, 1999 and March 31,
2000, respectively.
Stock-Based Compensation
AllAdvantage accounts for its stock options and equity awards in accordance
with the provisions of Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and has elected to follow the "disclosure only"
alternative prescribed by Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123). AllAdvantage accounts for stock options issued to
non-employees in accordance with the provisions of SFAS No. 123 and Emerging
Issues Task Force 96-18.
Comprehensive Loss
AllAdvantage has adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income," which establishes standards for
reporting comprehensive loss and its components in the financial statements. To
date, AllAdvantage's comprehensive loss has equaled its net loss.
Unaudited Pro Forma Balance Sheet
If the initial public offering discussed in Note 10 is consummated, all of
the convertible preferred stock outstanding will automatically be converted
into common stock upon the closing of the offering. The conversion of the
convertible preferred stock that was outstanding as of March 31, 2000, has been
reflected in the accompanying unaudited pro forma balance sheet.
Net Loss Per Share
Basic net loss per share and diluted net loss per share are presented in
conformity with Statement of Financial Accounting Standards No. 128, "Earnings
Per Share" (SFAS No. 128), for the period presented. Pursuant to the Securities
and Exchange Commission Staff Accounting Bulletin No. 98, common stock and
convertible preferred stock issued or granted for nominal consideration prior
to the anticipated effective date of the initial public offering must be
included in the calculation of basic and diluted net loss per share as if they
had been outstanding for all periods presented. Through March 31, 2000,
AllAdvantage had not had any issuances or grants for nominal consideration.
In accordance with SFAS No. 128, basic and diluted net loss per share have
been computed using the weighted-average number of shares outstanding during
the period, less the weighted-average number of shares
F-10
<PAGE>
AllAdvantage.com Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of and for the three months ended March 31, 2000 is unaudited)
of common stock issued to founders, investors and employees that are subject to
repurchase. Basic and diluted pro forma net loss per share, as presented in the
statement of operations, has been computed as described above and also gives
effect, under Securities and Exchange Commission ("SEC") guidance, to the
conversion of the convertible preferred stock (using the if-converted method)
as though it had happened on the original date of issuance. The following table
presents the calculations of basic and diluted and pro forma basic and diluted
net loss per share:
<TABLE>
<CAPTION>
Three Months
Period from Inception ended
(March 24, 1999) to March 31,
December 31, 1999 2000
--------------------- ------------
(Unaudited)
<S> <C> <C>
Net loss................................... $ 37,109,000 $ 65,638,000
============ ============
Basic and diluted:
Weighted-average shares of common stock
outstanding............................. 23,344,138 29,248,990
Less: weighted-average shares subject to
repurchase.............................. (15,977,627) (21,248,986)
------------ ------------
Weighted-average shares used in computing
basic and diluted net loss per share...... 7,366,511 8,000,004
============ ============
Basic and diluted net loss per share....... $ (5.04) $ (8.20)
============ ============
Pro forma:
Shares used above........................ 7,366,511 8,000,004
Pro forma adjustment to reflect weighted
effect of assumed conversion of
convertible preferred stock............. 31,006,461 62,260,179
Less: weighted-average shares of
convertible preferred stock subject to
repurchase.............................. (85,773) (816,326)
------------ ------------
Shares used in computing pro forma
basic and diluted net loss per share
(unaudited)........................... 38,287,199 69,443,857
============ ============
Pro forma basic and diluted net loss
per share (unaudited)................. $ (0.97) $ (0.95)
============ ============
</TABLE>
F-11
<PAGE>
AllAdvantage.com Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of and for the three months ended March 31, 2000 is unaudited)
AllAdvantage has excluded all convertible preferred stock, warrants for
convertible preferred stock, outstanding stock options and shares subject to
repurchase from the calculation of diluted net loss per share because all these
securities are antidilutive for the period presented. If the offering
contemplated by this prospectus is consummated, all of the convertible
preferred stock outstanding will automatically be converted into common stock.
Unaudited pro forma stockholders' equity at March 31, 2000, as adjusted for the
assumed conversion of convertible preferred stock based on the shares of
convertible preferred stock outstanding at March 31, 2000, is disclosed on the
accompanying consolidated balance sheet. In February 2000, AllAdvantage
completed a private placement of 16,453,926 shares of Series D convertible
preferred stock (See Note 10). Had this transaction occurred prior to December
31, 1999, the pro forma weighted average shares calculated above would have
been higher. The total number of shares excluded from the calculations of
diluted net loss per share were as follows:
<TABLE>
<CAPTION>
Total Shares
------------
<S> <C>
Common stock, subject to repurchase........................... 20,498,129
Preferred stock (prior to conversion to common stock)......... 19,567,343
Common stock options outstanding.............................. 10,484,233
Warrants to purchase preferred stock (prior to conversion to
common stock)................................................ 238,775
----------
50,788,480
==========
</TABLE>
Income Taxes
Since incorporation, AllAdvantage has recognized income taxes under the
liability method. Deferred income taxes are recognized for differences between
the financial statement and tax basis of assets and liabilities at enacted
statutory tax rates in effect for the years in which the differences are
expected to reverse. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date. In
addition, valuation allowances are established when necessary to reduce
deferred tax assets to the amounts expected to be realized.
Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 requires AllAdvantage to
recognize all derivatives on the balance sheet at fair value. Derivatives that
are not hedges must be adjusted to fair value through net income. If the
derivative is a hedge, depending on the nature of the hedge, changes in the
fair value of the derivative are either offset against the change in fair value
of assets, liabilities, or firm commitments through earnings or recognized in
other comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of the derivative's change in fair value will be
immediately recognized in earnings. SFAS No. 133 is effective for years
beginning after June 15, 2000. AllAdvantage does not currently hold any
derivatives and does not expect this pronouncement to materially impact the
results of its operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"). SAB 101 summarizes certain areas of
the Staff's views in applying generally accepted accounting principles to
revenue recognition in financial statements. AllAdvantage believes that its
current revenue recognition principles comply with SAB 101.
F-12
<PAGE>
AllAdvantage.com Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of and for the three months ended March 31, 2000 is unaudited)
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
------------ -----------
(Unaudited)
<S> <C> <C>
Computer software and
equipment................ $4,660 $7,019
Leasehold improvements.... 241 717
Furniture and fixtures.... 152 560
------ ------
Total................... 5,053 8,296
Less: accumulated
depreciation and
amortization............. (348) (930)
------ ------
$4,705 $7,366
====== ======
</TABLE>
4. STOCKHOLDERS' EQUITY
Convertible Preferred Stock:
<TABLE>
<CAPTION>
Shares
Issued and
Shares Outstanding at Liquidation
Authorized March 31, 2000 Preference
---------- -------------- ------------
<S> <C> <C> <C>
Series A.......................... 4,000,000 4,000,000 $ 200,000
Series B.......................... 2,500,000 2,500,000 1,800,000
Series C.......................... 13,306,118 13,067,343 32,014,990
Series D.......................... 16,528,926 16,453,926 99,546,252
---------- ---------- ------------
Total convertible preferred
stock.......................... 36,335,044 36,021,269 $133,561,242
========== ========== ============
</TABLE>
Holders of AllAdvantage's Series A, B, C and D preferred stock are entitled
to one vote for each share of common stock into which the preferred stock is
convertible. Holders of AllAdvantage's preferred stock are also entitled to
vote separately as a class with regard to customary protective provisions.
The holders of Series A, B, C and D preferred stock are entitled to annual
noncumulative dividends per share of $0.005, $0.072, $0.245 and $0.605,
respectively, when and if declared by the board of directors. In the event of
any voluntary or involuntary liquidation of AllAdvantage, Series A, B, C and D
stockholders are entitled to a liquidation preference of $0.05, $0.72, $2.45
and $6.05 per share, respectively, all in preference to the holders of the
common stock. After payment to the Series A, B, C and D stockholders of all
preferential amounts in the event of liquidation, the holders of the common
stock will receive any and all remaining assets of AllAdvantage.
The holders of Series A, B, C and D preferred stock have the right at any
time to convert their shares into common stock. Series A and B preferred stock
will convert into four shares of common stock, while Series C and D preferred
stock will convert into two shares of common stock and one share of common
stock, respectively. Each share of preferred stock will be automatically
converted into common stock upon the closing of a firm commitment of a public
offering of AllAdvantage common stock with aggregate proceeds in excess of
$10,000,000. The conversion ratio for Series D preferred stock is impacted by
the initial public offering price of the shares in this offering. If the
initial public offering price is equal to or greater than $12.10, then each
outstanding share of Series D preferred stock will automatically convert into
one share of common stock. However, if the initial public offering price is
less than $12.10, then each outstanding share of Series D
F-13
<PAGE>
AllAdvantage.com Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of and for the three months ended March 31, 2000 is unaudited)
preferred stock will automatically convert into that number of shares of
common stock equal to the result obtained by dividing $12.10 by the greater of
the offering price or $9.68.
In May and June 1999, AllAdvantage issued $1,550,000 of convertible notes
payable. In June 1999, the convertible notes payable were converted into
2,152,777 shares of Series B preferred stock.
In July 1999, AllAdvantage issued $2,000,000 of convertible notes payable.
In September 1999, the convertible notes payable were converted into 816,327
shares of Series C preferred stock.
Warrants
In connection with the issuance of convertible notes payable of $2,000,000
in July 1999, AllAdvantage issued warrants to purchase 244,897 shares of
Series C Preferred Stock at $0.06 per share, of which warrants to purchase
6,122 shares were exercised in 1999. AllAdvantage valued the warrants using
the Black-Scholes option model. The following assumptions were used in the
option pricing model: stock price of $2.45, exercise price of $0.06, warrant
term of 10 years, risk-free rate of interest of 6.1%, 100% volatility, and a
dividend yield of 0%. The value of the warrants (approximately $528,000) was
expensed as additional interest expense during the period for which the notes
remained outstanding.
Common Stock
On April 26, 1999, AllAdvantage issued 24,000,000 shares of common stock to
its founders. The shares issued were sold pursuant to restricted stock
purchase agreements. According to the agreements, AllAdvantage has the right
to repurchase 15,999,996 shares of common stock. This repurchase right expires
at the rate of 25% after one year and 2.08% each month thereafter, provided
the founders remain employees of AllAdvantage. At December 31, 1999,
15,999,996 shares of common stock remained subject to repurchase. None of the
shares subject to repurchase are subject to forfeiture for any reason other
than termination of employment.
As of December 31, 1999, shares of common stock reserved for future
issuance consisted of the following:
<TABLE>
<S> <C>
Stock options..................................................... 10,701,867
Series A, B and C convertible preferred stock..................... 52,134,686
Series C warrants................................................. 477,550
----------
63,314,103
==========
</TABLE>
Stock Splits
AllAdvantage effected a two-for-one stock split of common stock in both
July and October 1999. The common share information and preferred stock
conversion ratios in the accompanying financial statements have been
retroactively restated to reflect the effect of the stock splits.
5. EQUITY INCENTIVE PLAN
In April 1999, the board of directors approved the 1999 Equity Incentive
Plan (the "Plan"). Under the Plan, AllAdvantage has reserved 15,200,000 shares
for issuance to eligible participants. The Plan provides for option grants at
an option price no less than 85% of the fair market value of the stock subject
to the option on the date the option is granted. The options vest at a rate of
25% after one year of service and ratably over 36
F-14
<PAGE>
AllAdvantage.com Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of and for the three months ended March 31, 2000 is unaudited)
months thereafter, and are immediately exercisable in full, with the unvested
portion of the shares remaining subject to repurchase by AllAdvantage at the
exercise price until the shares become vested.
AllAdvantage had 4,498,133 unvested shares of common stock issued and
outstanding under the Plan at December 31, 1999, which were subject to
repurchase by the Company at the original exercise price. All options under the
Plan expire ten years after their grant.
The Plan also provides for restricted stock awards. The purchase price of
restricted stock under these awards must not be less than 85% of the fair
market value of the stock on the date the award is made or the purchase is
consummated. No restricted stock had been awarded at December 31, 1999.
Aggregate activity under the Plan is summarized as follows:
<TABLE>
<CAPTION>
Options Outstanding
-----------------------
Shares Weighted-
Available Number of Price per Average
for Grant Shares Share Exercise Price
----------- ---------- ------------- --------------
<S> <C> <C> <C> <C>
Authorized.............. 15,200,000 -- -- --
Options granted......... (15,543,366) 15,543,366 $0.03 - $1.25 $0.50
Options canceled........ 561,000 (561,000) $0.03 - $0.18 $0.04
Options exercised....... -- (4,498,133) $0.03 - $0.75 $0.10
----------- ----------
Balance at December 31,
1999................... 217,634 10,484,233 $0.03 - $1.25 $0.69
=========== ==========
</TABLE>
The following table summarizes information regarding options outstanding and
exercisable at December 31, 1999:
<TABLE>
<CAPTION>
Weighted-
Number Weighted- Average
Outstanding Average Remaining
Exercise and Exercise Contractual
Prices Exercisable Price Age (Years)
-------- ----------- --------- -----------
<S> <C> <C> <C>
$0.03.................................... 2,250,000 $0.03 9.56
0.18.................................... 2,017,000 0.18 9.68
0.75.................................... 1,843,367 0.75 9.78
1.25.................................... 4,373,866 1.25 9.97
----------
10,484,233 $0.69 9.79
==========
</TABLE>
In the period from inception (March 24, 1999) to December 31, 1999,
AllAdvantage recorded deferred stock compensation of approximately $20,119,000,
representing the aggregate difference between the exercise prices and the
deemed fair values of the AllAdvantage common stock on the dates these stock
options were granted. This amount is included as a reduction in stockholders'
equity and is being amortized by charges to operations on a graded vesting
method. AllAdvantage recorded amortization of deferred stock compensation of
approximately $1,547,000 for the period from inception (March 24, 1999) to
December 31, 1999. At December 31, 1999, AllAdvantage had a total of
$18,572,000 remaining to be amortized over the corresponding vesting periods of
the options, generally four years. The remaining deferred stock compensation at
December 31, 1999, will be amortized as follows: $9.7 million for the year
ending December 31, 2000, $5.1 million for the year ending December 31, 2001,
$2.7 million for the year ending December 31, 2002 and $1.1 million for the
year ending December 31, 2003. Stock-based compensation expense relates to
stock options awarded to individuals in all cost and expense categories.
F-15
<PAGE>
AllAdvantage.com Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of and for the three months ended March 31, 2000 is unaudited)
In 1999, AllAdvantage issued options to purchase 159,323 shares of common
stock to several third party consultants in exchange for services rendered. In
connection with these options to purchase common stock, AllAdvantage recorded a
non-cash charge of $660,000 in its statement of operations for the period from
inception (March 24, 1999) to December 31, 1999.
Stock-Based Compensation
AllAdvantage has elected to follow APB 25 and related interpretations in
accounting for its employee stock-based compensation plans. Because the
exercise price of the employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is generally
recognized. Pro forma information regarding net loss has been determined as if
AllAdvantage accounted for its employee stock options under the fair value
method prescribed by SFAS 123. The resulting effect on pro forma net loss
disclosed is not likely to be representative of the effects on net loss on a
pro forma basis in future years, due to additional grants and years of vesting
in subsequent years. The fair value of each option granted through December 31,
1999 was estimated on the date of grant using the minimum value method, with
the following weighted-average assumptions:
<TABLE>
<CAPTION>
Period from Inception
(March 24, 1999) to
December 31, 1999
---------------------
<S> <C>
Dividend yield....................................... 0
Risk-free interest rate.............................. 6%
Expected life........................................ 4 years
Weighted-average fair value of options granted....... $ 1.46
</TABLE>
For the purposes of pro forma disclosures, the estimated fair value of the
options is amortized to pro forma expense over the options' vesting period, and
results in a pro forma net loss of approximately $37,237,000 for the period
from inception (March 24, 1999) to December 31, 1999 and pro forma basic and
diluted net loss per share of $5.05 ($0.97 assuming conversion of the
convertible preferred stock that was outstanding at December 31, 1999).
6. PROVISION FOR INCOME TAXES
Due to operating losses and the inability to recognize the benefits
therefrom, there is no provision for income taxes for the period from inception
(March 24, 1999) to December 31, 1999.
As of December 31, 1999, AllAdvantage had federal net operating loss
carryforwards of approximately $28,600,000. The net operating loss
carryforwards will expire beginning in 2019, if not utilized.
Utilization of the net operating losses and credits may be subject to a
substantial limitation due to the "change in ownership" provisions of the
Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.
F-16
<PAGE>
AllAdvantage.com Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of and for the three months ended March 31, 2000 is unaudited)
Deferred tax assets and liabilities reflect the net tax effects of net
operating loss and credit carryforwards and of temporary differences between
the carrying amounts of assets and liabilities for financial reporting and the
amounts used for income tax purposes. Significant components of AllAdvantage's
deferred tax assets are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
1999
------------
<S> <C>
Deferred tax assets:
Net operating loss carryforwards............................ $ 11,700
Accrued member payouts...................................... 2,700
Other individually immaterial items......................... 300
--------
Total deferred tax assets................................. 14,700
Valuation allowance for deferred tax assets................... (14,700)
--------
Net deferred tax assets....................................... $ --
========
</TABLE>
FASB No. 109 provides for the recognition of deferred tax assets if
realization of these assets is more likely than not. Based upon the weight of
available evidence, which includes AllAdvantage's historical operating
performance, the Company has provided a full valuation allowance against its
total deferred tax assets.
7. CUSTOMER ADVANCE
In November 1999, AllAdvantage entered into an arrangement with a company,
whereby AllAdvantage is required to provide the other company with a certain
amount of advertising impressions on a monthly basis. In return, AllAdvantage
received an advance of $20,000,000. The advance accrues interest at 10% and is
secured by the advance itself. Under the terms of the arrangement, AllAdvantage
may use $5,000,000 per month for general corporate uses, with all restrictions
expiring on February 12, 2000. AllAdvantage has classified $10,000,000 as
restricted cash at December 31, 1999. Revenue earned by Alladvantage for
providing monthly advertising impressions is reduced from the cash advance on a
monthly basis. In addition, in November 1999, AllAdvantage entered into a
three-year arrangement with this company for that company to provide ad serving
services. AllAdvantage pays the company based on the number of impressions
served during each month, with a guaranteed minimum monthly fee.
F-17
<PAGE>
AllAdvantage.com Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of and for the three months ended March 31, 2000 is unaudited)
8. COMMITMENTS
At December 31, 1999, AllAdvantage's aggregate commitments under
noncancelable lease arrangements for office space and computer equipment were
as follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
<S> <C> <C>
Year ending December 31,
2000..................................................... $ 444 $1,085
2001..................................................... 255 894
2002..................................................... -- 927
2003..................................................... -- 183
2004..................................................... -- 189
Thereafter............................................... -- 344
----- ------
Total minimum payments required.......................... 699 $3,622
======
Less amount representing interest........................ (62)
-----
Present value of future payments......................... 637
Less current portion..................................... (383)
-----
$ 254
=====
</TABLE>
Rent expense, principally for leased office space under operating lease
commitments, was approximately $365,000 for the period from inception (March
24, 1999) to December 31, 1999. AllAdvantage acquired $763,000 of equipment
under capital lease obligations for the period from inception (March 24, 1999)
to December 31, 1999. Accumulated depreciation for this equipment was $56,000
at December 31, 1999.
9. RELATED PARTY TRANSACTIONS
During 1999, one of the founders' spouses, through their placement firm
supplied recruiting and contract labor services to AllAdvantage. AllAdvantage
paid the placement firm $206,000 for such services rendered during 1999.
Management believes such services were rendered at fair value.
10. SUBSEQUENT EVENTS (Unaudited)
Initial Public Offering
In January 2000, the board of directors authorized AllAdvantage to file a
registration statement with the SEC for an initial public offering of
AllAdvantage's common stock.
Amended Articles of Incorporation
In January 2000, the board of directors approved the reincorporation of
AllAdvantage in the State of Delaware, and an increase in the number of
authorized shares, which will be effected prior to the closing of the initial
public offering.
Lease Commitment
In January 1999, AllAdvantage entered into a ten-year lease arrangement for
its yet to be constructed headquarters. Under the terms and conditions of the
lease arrangement, AllAdvantage will commence making
F-18
<PAGE>
AllAdvantage.com Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of and for the three months ended March 31, 2000 is unaudited)
lease payments in December 2000, the approximate completion date of
construction. Aggregate lease payments under the term of the lease will be
approximately $46,428,000 over the 10 year term of the lease. As a condition of
the lease agreement, AllAdvantage provided a letter of credit of $2 million
(which may increase to as much as $6.3 million) as a security deposit. In
connection with the lease arrangement, AllAdvantage issued a warrant to the
lessor to purchase 75,000 shares of Series D Preferred Stock at $6.05 per
share. The value of the warrant will be capitalized as deferred rental expense
and expensed over the period of the lease arrangement, commencing with
occupation of the building.
2000 Equity Incentive Plans
The 2000 equity incentive plan of our California predecessor was adopted by
AllAdvantage's board of directors in January, 2000. As of December 31, 1999, no
options had been granted under this plan.
In February 2000, AllAdvantage's board of directors approved the adoption of
the 2000 Equity Incentive Plan. A total of 20,000,000 shares of common stock
have been reserved for issuance under this plan. The number of shares reserved
under this plan will be increased automatically on January 1, of each year by
an amount equal to 5% of AllAdvantage's total outstanding shares on the
previous day. This plan will serve as the successor to the 1999 equity
incentive plan and 2000 equity incentive plan of our California predecessor.
2000 Employee Stock Purchase Plan
In February, 2000, the board of directors approved the adoption of the 2000
Employee Stock Purchase Plan. A total of 600,000 shares of common stock has
been reserved for issuance under this plan, plus, commencing on January 1,
2001, annual increases equal to 1% of the outstanding common shares on the
previous day or a lesser amount determined by the board of directors. The plan
enables eligible employees to acquire shares of AllAdvantage common stock
through periodic payroll deductions of up to 15% of their cash compensation,
subject to maximum purchase limitations. The purchase plan will be implemented
in a series of offering periods, each approximately two years in duration,
consisting of four six-month purchase periods. The price at which the common
stock may be purchased is 85% of the lesser of the fair market value of
AllAdvantage's common stock on the first day of the applicable offering period
or on the last day of the respective purchase period. The initial offering
period will commence on the effectiveness of the initial public offering.
Deferred Stock Compensation
From January through February 2000, AllAdvantage granted options to purchase
approximately 2.7 million shares of common stock to its employees at an
exercise price of $6.05 per share. AllAdvantage recorded additional deferred
stock compensation of approximately $8,151,000 related to these grants during
the three months ended March 31, 2000. At March 31, 2000, AllAdvantage had a
total of $23,935,000 remaining to be amortized over the corresponding vesting
periods of stock options, granted from inception (March 24, 1999) to March 31,
2000 generally four years. The remaining deferred stock compensation at March
31, 2000 will be amortized as follows: $10.4 million for the year ending
December 31, 2000, $7.6 million for the year ending December 31, 2001, $4.1
million for the year ending December 31, 2002 and $1.7 million for the year
ending December 31, 2003 and $100,000 for the year ended December 31, 2004.
Stock-based compensation expense relates to stock options awarded to
individuals in all cost and expense categories.
F-19
<PAGE>
GRAPHICS AND TEXT ON THE INSIDE BACK COVER INCLUDE:
The following words are centered across the top of the inside back cover:
"Self-Perpetuating Cycle"
The AllAdvantage.com logo without the word AllAdvantage.com embedded in the
logo is centered in the middle of the page directly below the initial text.
Surrounding the logo is a circle comprised of four curved arrows each arrow
constituting a quadrant of the circumference of the circle. The following text
is presented in the center of each arrow, starting with the arrow above the
logo and following clockwise around the circle: "More Advertisers, More Value
to Members," "More Value to Members, More Incentive to Refer Members," "More
Members, Larger Profiled Audience,""More Attractive Advertising Channel Growth
to Advertiser Base."
At the bottom right hand corner of the page is Alladvantage.com's logo.
<PAGE>
[AllAdvantage Logo]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses to be paid by
AllAdvantage in connection with the sale of the shares of common stock being
registered hereby. All amounts are estimates except for the SEC registration
fee, the NASD filing fee and the Nasdaq National Market filing fee.
<TABLE>
<S> <C>
SEC registration fee............................................. $ 45,540
NASD filing fee.................................................. 15,750
Nasdaq National Market filing fee................................ 95,000
Printing and engraving........................................... 150,000
Legal fees and expenses of the Registrant........................ 350,000
Accounting fees and expenses..................................... 350,000
Road show costs.................................................. 50,000
Blue sky fees and expenses....................................... 600
Transfer agent and registrar fees and expenses................... 1,000
Miscellaneous.................................................... 42,110
----------
Total.......................................................... $1,100,000
==========
</TABLE>
ITEM 14. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers under certain circumstances and subject to certain limitations.
The terms of Section 145 of the Delaware General Corporation Law are
sufficiently broad to permit indemnification under certain circumstances for
liabilities, including reimbursement of expenses incurred, arising under the
Securities Act of 1933 (the "Securities Act").
As permitted by the Delaware General Corporation Law, the Registrant's
certificate of incorporation includes a provision that eliminates the personal
liability of a director for monetary damages resulting from breach of his
fiduciary duty as a director, except for liability:
. for any breach of the director's duty of loyalty to the Registrant or
its stockholders;
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. under section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; or
. for any transaction from which the director derived an improper personal
benefit.
As permitted by the Delaware General Corporation Law, the Registrant's
bylaws provide that:
. the Registrant is required to indemnify its directors and officers to
the fullest extent permitted by the Delaware General Corporation Law,
subject to certain very limited exceptions;
. the Registrant is required to advance expenses, as incurred, to its
directors and officers in connection with a legal proceeding to the
fullest extent permitted by the Delaware General Corporation Law,
subject to certain very limited exceptions; and
. the rights conferred in the Bylaws are not exclusive.
II-1
<PAGE>
In addition, the Registrant intends to enter into indemnity agreements with
each of its current directors and officers. These agreements will provide for
the indemnification of officers and directors for all expenses and liabilities
incurred in connection with any action or proceeding brought against them by
reason of the fact that they are or were agents of the Registrant.
The Registrant intends to obtain directors' and officers' insurance to cover
its directors, officers and some of its employees for certain liabilities,
including public securities matters.
The Underwriting Agreement filed as Exhibit 1.01 to this Registration
Statement provides for indemnification by the underwriters of the Registrant
and its directors and officers for certain liabilities under the Securities Act
of 1933, or otherwise.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
Exhibit Document Number
---------------- ------
<S> <C>
Form of Underwriting Agreement...................................... 1.01
Form of Second Amended and Restated Certificate of Incorporation of
the Registrant..................................................... 3.03
Restated Bylaws of the Registrant................................... 3.05
Form of Indemnity Agreement......................................... 10.01
</TABLE>
ITEM 15. Recent Sales of Unregistered Securities.
Since our inception in March 1999, we have issued and sold the following
unregistered securities:
1. In April 1999, 24,000,000 shares of common stock were issued to our
founders pursuant to restricted stock purchase agreements. The sale of this
common stock was made in reliance on Section 4(2) of the Securities Act.
2. In April 1999, we issued and sold a total of 4,000,000 shares of
Series A preferred stock to James Jorgensen, Johannes Pohle, Carl Anderson
and Oliver Brock for a total purchase price of $200,000 paid through
cancellation of indebtedness. The sale of preferred stock was made in
reliance on Section 4(2) and/or Rule 506 of Regulation D under the
Securities Act.
3. In June 1999, we issued and sold a total of 2,500,000 shares of
Series B preferred stock for a total purchase price of $1,800,000,
$1,550,000 of which was paid through conversion of promissory notes and the
remainder of which was paid in cash. The shares of Series B preferred stock
were sold to four venture capital funds and Millennia Vision Corp., Pidwell
Family Living Trust dated 6/25/87, F&W Investments 1999, Angel Investors,
L.P., John M. Anderson and Jacques Clay. The sale of preferred stock was
made in reliance on Section 4(2) and/or Rule 506 of Regulation D under the
Securities Act.
4. In September, October and December 1999, we issued and sold a total
of 13,061,221 shares of Series C preferred stock for a total purchase price
of $31,999,991, $2,000,000 of which was paid through conversion of
promissory notes and the remainder of which was paid in cash. The shares of
Series C preferred stock were sold to 18 venture capital funds and F&W
Investments 1999, Pidwell Family Living Trust dated 6/25/87, Imperial
Ventures, Inc., Millennia Vision Corp., Angel Investors, L.P., Angel (Q)
Investors, L.P., Value Capital, L.P., Mullally Limited, John M. Anderson
Trust, Daniel I Rubin, Gil Penchina, Faramarz Mahdavi and Michael A.
Depatie Trust U/A DTD 7/18/91. The sale of preferred stock was made in
reliance on Section 4(2) and/or Rule 506 of Regulation D under the
Securities Act.
5. In September 1999, we issued warrants to purchase a total of 244,897
shares of Series C preferred stock with an exercise price of $0.06 per
share to David Pidwell and six venture capital funds. In November 1999, a
warrant to purchase 6,122 shares of Series C preferred stock was exercised.
II-2
<PAGE>
As of December 31, 1999, warrants to purchase a total of 238,775 shares of
Series C preferred stock remained outstanding. The issuance and exercise of
these warrants was made in reliance on Section 4(2) and/or 506 of
Regulation D under the Securities Act.
6. In February 2000, we issued and sold a total of 16,453,926 shares of
Series D preferred stock a total purchase price of $99,546,252 in cash. The
shares of Series D preferred stock were sold to 29 venture capital funds
and Jeffrey C. Hines, James C. Bute, Jr., Douglas Holte, Colin P. Shepherd,
James A. Morrison, Payday Investments LLC, 52nd Street Associates, Inc.,
Winther Ventures LLC, Mark Sherman, Lowell J. Singer, F&W Investments 2000,
Pidwell Investments LLC, David Beckman-Robertson, Dana H. Aber, Mauro Calvi
& Dianne E. Calvi, Michael A. Daniel & Jan Doyle-Daniel, Pamela J. Day,
Joseph M. Feliu & Patricia E. Feliu, Michael D. Floyd, Louis A. Johnston &
Marissa R. Johnston, Richard W. Jones, Firooz Khodadady & Farimah
Khodadady, Faramarz Mahdavi, Bernie & Jackie Murphy Revocable Trust, Kurt
D. Runke & Linda C. Runke, William P. Trento, Kent Woloson and Derick Yee.
This sale of preferred stock was made in reliance on Section 4(2) and/or
Rule 506 of Regulation D under the Securities Act.
7. In February 2000, we issued a warrant to purchase a total of 75,000
shares of our Series D preferred stock with an exercise price of $6.05 per
share for a purchase price of $750 to HMS Gateway Office, L.P. The issuance
of this warrant was made in reliance on Section 4(2) and/or Rule 506 of
Regulation D under the Securities Act.
8. Since March 1999, 5,636,933 shares of common stock have been issued
to our employees, consultants and other service providers upon exercise of
options, and as of March 31, 2000, 14,126,858 shares of common stock were
subject to outstanding options. All sales of common stock made pursuant to
the exercise of stock options were made in reliance on Rule 701 under the
Securities Act.
The 4,000,000 shares of Series A preferred stock will automatically convert
on a four-for-one basis into 16,000,000 shares of common stock upon the
consummation of this offering as a result of two-for-one common stock splits
effected on July 1, 1999 and October 13, 1999. The 2,500,000 shares of Series B
preferred stock will automatically convert on a four-for-one basis into
10,000,000 shares of common stock upon the consummation of this offering as a
result of two-for-one common stock splits effected on July 1, 1999 and October
13, 1999. The 13,067,343 shares of Series C preferred stock will automatically
convert on a two-for-one basis into 26,134,686 shares of common stock upon the
consummation of this offering as a result of a two-for-one common stock split
effected on October 13, 1999.
The 16,453,926 shares of Series D preferred stock will automatically convert
on a 1.25-for-one basis into 20,567,407 shares of common stock upon the
consummation of this offering assuming an initial public offering price of
$9.00 per share. The ratio at which the Series D preferred stock will convert
into common stock has been adjusted to a ratio of 1.25 shares of common for
each share of Series D preferred stock. This represents the most dilutive
potential ratio. If the offering price is higher than $9.68 per share, the
conversion ratio will be reduced such that, at an offering price of $12.10 per
share or above, the conversion ratio will be 1 for 1.
The sales of the above securities were made without general solicitation or
advertising. The recipients of securities in each transaction listed above
represented their intentions to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution and
appropriate legends were affixed to the share certificates issued in these
transactions. All recipients had adequate access, through their relationship
with us, to information about us.
II-3
<PAGE>
ITEM 16. Exhibits and Financial Statement Schedules.
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
1.01+ Form of Underwriting Agreement.
2.01+ Form of Agreement and Plan of Merger between the Registrant and the
Registrant's California predecessor.
3.01+ Certificate of Incorporation of the Registrant, filed with the
Delaware Secretary of State on January 4, 2000.
3.02+ Form of First Amended and Restated Certificate of Incorporation of
the Registrant to be filed and effective prior to completion of this
offering.
3.03+ Form of Second Amended and Restated Certificate of Incorporation of
the Registrant to be filed and effective upon the completion of this
offering.
3.04+ Bylaws of the Registrant.
3.05+ Restated Bylaws of the Registrant to be effective prior to completion
of this offering.
4.01+ Form of Specimen Certificate for Registrant's common stock.
4.02+ Second Amended and Restated Investors' Rights Agreement.
5.01 Form of Opinion of Fenwick & West LLP regarding legality of the
securities being registered.
10.01+ Form of Indemnity Agreement entered into between the Registrant and
its directors and executive officers.
10.02+ 1999 equity incentive plan of Registrant's California predecessor and
related forms of stock option agreements and stock option exercise
agreements.
10.03+ 2000 equity incentive plan of Registrant's California predecessor and
related forms of stock option agreements and stock option exercise
agreements.
10.04 2000 equity incentive plan and related forms of stock option
agreements and stock option exercise agreements.
10.05 2000 employee stock purchase plan and related enrollment form,
subscription agreement, notice of suspension and notice of
withdrawal.
Form of Restricted Stock Purchase Agreement entered into between
10.06+ Registrant and its founders.
Network Affiliate Agreement entered into between Registrant and
10.07**+ DoubleClick Inc.
DART Services Agreement for Publishers entered into between
10.08**+ Registrant and DoubleClick Inc.
Network Affiliation Agreement entered into between Registrant and
10.09**+ 24/7 Media Inc.
Lease Agreement entered into between Registrant and Hayward Point
10.10+ Eden I Limited Partnership.
Office Building Lease entered into between Registrant and HMS Gateway
10.11+ Office, L.P.
10.12+ Series D Preferred Stock Purchase Agreement.
10.13+ Viewbar Agreement.
21.01 List of subsidiaries.
23.01 Form of Consent of Fenwick & West LLP (included in Exhibit 5.01).
23.02 Consent of Ernst & Young LLP, Independent Auditors.
24.01+ Power of Attorney.
27.01+ Financial Data Schedule.
</TABLE>
- --------
+ Previously filed.
** Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
(b) Financial statement schedules are omitted because the information called
for is not required or is shown either in the financial statements or the notes
thereto.
II-4
<PAGE>
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
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 3 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Hayward, State of California, on the 28th day of April, 2000.
AllAdvantage.com Inc.
/s/ James Jorgensen
By: _________________________________
James Jorgensen
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 3 to the Registration Statement has been signed by the following
persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ James Jorgensen President, Chief Executive April 28, 2000
_______________________________ Officer and Chairman of the
James R. Jorgensen Board of Directors (Principal
Executive Officer)
/s/ Michael Depatie Chief Financial Officer April 28, 2000
_______________________________ (Principal Financial Officer)
Michael A. Depatie
/s/ Bernie Murphy Vice President Finance, April 28, 2000
_______________________________ Treasurer (Principal
Bernie Murphy Accounting Officer)
* Director April 28, 2000
_______________________________
William L. Burnham
* Director April 28, 2000
_______________________________
Richard LeFurgy
* Director April 28, 2000
_______________________________
David Pidwell
* Director April 28, 2000
_______________________________
Johannes Pohle
* Director April 28, 2000
_______________________________
John Shoch
* Director April 28, 2000
_______________________________
Thomas Unterman
* Director April 28, 2000
_______________________________
Leslie G. Denend
</TABLE>
/s/ James Jorgensen Attorney-in-fact
*By: ______________________ April 28, 2000
James Jorgensen
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
1.01+ Form of Underwriting Agreement.
2.01+ Form of Agreement and Plan of Merger between the Registrant and the
Registrant's California predecessor.
3.01+ Certificate of Incorporation of the Registrant, filed with the
Delaware Secretary of State on January 4, 2000.
3.02+ Form of First Amended and Restated Certificate of Incorporation of
the Registrant to be filed and effective prior to completion of this
offering.
3.03+ Form of Second Amended and Restated Certificate of Incorporation of
the Registrant to be filed and effective upon the completion of this
offering.
3.04+ Bylaws of the Registrant.
3.05+ Restated Bylaws of the Registrant to be effective prior to completion
of this offering.
4.01+ Form of Specimen Certificate for Registrant's common stock.
4.02+ Second Amended and Restated Investors' Rights Agreement.
5.01 Form of Opinion of Fenwick & West LLP regarding legality of the
securities being registered.
10.01+ Form of Indemnity Agreement entered into between the Registrant and
its directors and executive officers.
10.02+ 1999 equity incentive plan of Registrant's California predecessor and
related forms of stock option agreements and stock option exercise
agreements.
10.03+ 2000 equity incentive plan of Registrant's California predecessor and
related forms of stock option agreements and stock option exercise
agreements.
10.04 2000 equity incentive plan and related forms of stock option
agreements and stock option exercise agreements.
10.05 2000 employee stock purchase plan and related enrollment form,
subscription agreement, notice of suspension and notice of
withdrawal.
10.06+ Form of Restricted Stock Purchase Agreement entered into between
Registrant and its founders.
10.07**+ Network Affiliate Agreement entered into between Registrant and
DoubleClick Inc.
10.08**+ DART Services Agreement for Publishers entered into between
Registrant and DoubleClick Inc.
10.09**+ Network Affiliation Agreement entered into between Registrant and
24/7 Media Inc.
10.10+ Lease Agreement entered into between Registrant and Hayward Point
Eden I Limited Partnership.
10.11+ Office Building Lease entered into between Registrant and HMS Gateway
Office, L.P.
10.12+ Series D Preferred Stock Purchase Agreement.
10.13+ Viewbar Agreement.
21.01 List of subsidiaries.
23.01 Form of Consent of Fenwick & West LLP (included in Exhibit 5.01).
23.02 Consent of Ernst & Young LLP, Independent Auditors.
24.01+ Power of Attorney.
27.01+ Financial Data Schedule.
</TABLE>
- --------
+ Previously filed.
** Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE>
EXHIBIT 5.01
------------
________ __, 2000
AllAdvantage.com Inc.
4010 Point Eden Way
Hayward, CA 94545
Gentlemen/Ladies:
At your request, we have examined the Registration Statement on Form S-1
(File Number 333-96271) (the "Registration Statement") filed by AllAdvantage.
com Inc., a Delaware corporation (the "Company"), with the Securities and
Exchange Commission (the "Commission") on February 7, 2000, as subsequently
amended, in connection with the registration under the Securities Act of 1933,
as amended, of an aggregate of ______________ shares of the Company's Common
Stock (the "Stock").
In rendering this opinion, we have examined the following:
(1) the Company's registration statement on Form 8-A filed with the
Commission on March 23, 2000;
(2) the Registration Statement, together with the Exhibits filed as a part
thereof;
(3) the Prospectus prepared in connection with the Registration Statement;
(4) the minutes of meetings and actions by written consent of the
stockholders and Board of Directors that are contained in the
Company's minute books and the minute books of your predecessor,
AllAdvantage.com, a California corporation ("AllAdvantage.com
California"), that are in our possession;
(5) the stock records for both the Company and AllAdvantage.com
California that we have maintained in the course of our representation
of you (consisting of a list of stockholders and a list of option and
warrant holders respecting the Company's capital and of any rights to
purchase capital stock that the Company has verified in connection
with the preparation of its Management Certificate described in the
following paragraph); and
(6) a Management Certificate addressed to us and dated of even date
herewith executed by the Company containing certain factual and other
representations.
In our examination of documents for purposes of this opinion, we have
assumed, and express no opinion as to, the genuineness of all signatures on
original documents, the authenticity and completeness of all documents submitted
to us as originals, the conformity to originals and completeness of all
documents submitted to us as copies, the legal capacity of all persons (other
that the Company) executing the same, the lack of any undisclosed termination,
modification, waiver or
<PAGE>
_________ __, 2000
Page 2
amendment to any document reviewed by us and the due authorization (other than
the due authorization of the Company), execution and delivery of all documents
where due authorization, execution and delivery are prerequisites to the
effectiveness thereof. We have also assumed that the certificates representing
the Stock have been, or will be when issued, properly signed by authorized
officers of the Company or their agents.
As to matters of fact relevant to this opinion, we have relied solely upon
our examination of the documents referred to above and have assumed the current
accuracy and completeness of the information obtained from records and documents
referred to above. We have made no independent investigation or other attempt to
verify the accuracy of any of such information or to determine the existence or
non-existence of any other factual matters; however, we are not aware of any
-------
facts that would cause us to believe that the opinion expressed herein is not
accurate.
We are admitted to practice law in the State of California, and we render
this opinion only with respect to, and express no opinion herein with respect to
the application or effect of the laws of any jurisdiction other than, the
existing laws of the United States of America and the States of California and
Delaware.
In connection with our opinion expressed below, we have assumed that, at or
prior to the time of the delivery of any shares of Stock, the Registration
Statement will have been declared effective under the Securities Act of 1933, as
amended, that the Registration Statement will not have been modified or
rescinded and that there will not have occurred any change in law or the facts
affecting the validity or enforceability of such shares of Stock.
Based upon the foregoing, it is our opinion that the up to ______________
shares of Stock to be issued and sold by the Company, when issued, sold and
delivered in the manner and for the consideration stated in the Registration
Statement and the Prospectus, will be validly issued, fully paid and
nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us, if any, in the
Registration Statement, the Prospectus constituting a part thereof and any
amendments thereto. This opinion speaks only as of its date and (assuming no
changes in the law or the facts) as of the effective date of the Registration
Statement and we assume no obligation to update this opinion should
circumstances change thereafter. This opinion is intended for use in connection
with issuance and sale of shares subject to the Registration Statement and is
not to be relied upon for any other purpose.
Very truly yours,
FENWICK & WEST LLP
By: _______________________
<PAGE>
EXHIBIT 10.04
ALLADVANTAGE.COM INC.
2000 EQUITY INCENTIVE PLAN
As Adopted February 23, 2000
1. PURPOSE. The purpose of this Plan is to provide incentives to
-------
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company, its Parent and
Subsidiaries, by offering them an opportunity to participate in the Company's
future performance through awards of Options, Restricted Stock and Stock
Bonuses. Capitalized terms not defined in the text are defined in Section 23.
2. SHARES SUBJECT TO THE PLAN.
--------------------------
2.1 Number of Shares Available. Subject to Sections 2.2 and 18, the
--------------------------
total number of Shares reserved and available for grant and issuance pursuant to
this Plan will be 20,000,000 Shares plus Shares that are subject to: (a)
issuance upon exercise of an Option but cease to be subject to such Option for
any reason other than exercise of such Option; (b) an Award granted hereunder
but are forfeited or are repurchased by the Company at the original issue price;
and (c) an Award that otherwise terminates without Shares being issued. In
addition, any authorized shares not issued or subject to outstanding grants
under the Company's 1999 Equity Incentive Plan and 2000 Equity Incentive Plan
(the "Prior Plans") on the Effective Date (as defined below) and any shares
issued under the Prior Plans that are forfeited or repurchased by the Company or
that are issuable upon exercise of options granted pursuant to the Prior Plans
that expire or become unexercisable for any reason without having been exercised
in full, will no longer be available for grant and issuance under the Prior
Plans, but will be available for grant and issuance under this Plan. In
addition, on each January 1, the aggregate number of Shares reserved and
available for grant and issuance pursuant to this Plan will be increased
automatically by a number of Shares equal to 5% of the total outstanding shares
of the Company as of the immediately preceding December 31, provided that no
more than 100,000,000 shares shall be issued as ISOs (as defined in Section 5
below). At all times the Company shall reserve and keep available a sufficient
number of Shares as shall be required to satisfy the requirements of all
outstanding Options granted under this Plan and all other outstanding but
unvested Awards granted under this Plan.
2.2 Adjustment of Shares. In the event that the number of
--------------------
outstanding shares is changed by a stock dividend, recapitalization, stock
split, reverse stock split, subdivision, combination, reclassification or
similar change in the capital structure of the Company without consideration,
then (a) the number of Shares reserved for issuance under this Plan, (b) the
number of Shares that may be granted pursuant to Sections 3 and 9 below, (c) the
Exercise Prices of and number of Shares subject to outstanding Options, and (d)
the number of Shares subject to other outstanding Awards will be proportionately
adjusted, subject to any required action by the Board or the stockholders of the
Company and compliance with applicable securities laws; provided, however, that
-------- -------
fractions of a Share will not be issued but will either be replaced by a cash
payment equal to the Fair Market Value of such fraction of a Share or will be
rounded up to the nearest whole Share, as determined by the Committee.
3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted only
-----------
to employees (including officers and directors who are also employees) of the
Company or of a Parent or Subsidiary of the Company. All other Awards may be
granted to employees, officers, directors, consultants, independent contractors
and advisors of the Company or any Parent or Subsidiary of the Company; provided
--------
such consultants, contractors and advisors render bona fide services not in
connection with the offer and sale of securities in a capital-raising
transaction. No person will be eligible to receive more than 3,000,000 Shares
in any calendar year under this Plan pursuant to the grant of Awards hereunder,
other than new employees of the Company or of a Parent or Subsidiary of the
Company (including new employees who are also officers and directors of the
Company or any Parent or Subsidiary of the Company), who are eligible to receive
up to a maximum of 3,500,000 Shares in the calendar year in which they commence
their employment. A person may be granted more than one Award under this Plan.
4. ADMINISTRATION.
--------------
<PAGE>
AllAdvantage.com Inc.
2000 Equity Incentive Plan
4.1 Committee Authority. This Plan will be administered by the
-------------------
Committee or by the Board acting as the Committee. Except for automatic grants
to Outside Directors pursuant to Section 9 hereof, and subject to the general
purposes, terms and conditions of this Plan, and to the direction of the Board,
the Committee will have full power to implement and carry out this Plan. Except
for automatic grants to Outside Directors pursuant to Section 9 hereof, the
Committee will have the authority to:
(a) construe and interpret this Plan, any Award Agreement and any
other agreement or document executed pursuant to this Plan;
(b) prescribe, amend and rescind rules and regulations relating to
this Plan or any Award;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration subject to
Awards;
(f) determine whether Awards will be granted singly, in combination
with, in tandem with, in replacement of, or as alternatives to,
other Awards under this Plan or any other incentive or
compensation plan of the Company or any Parent or Subsidiary of
the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of Awards;
(i) correct any defect, supply any omission or reconcile any
inconsistency in this Plan, any Award or any Award Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or advisable for the
administration of this Plan.
4.2 Committee Discretion. Except for automatic grants to Outside
--------------------
Directors pursuant to Section 9 hereof, any determination made by the Committee
with respect to any Award will be made in its sole discretion at the time of
grant of the Award or, unless in contravention of any express term of this Plan
or Award, at any later time, and such determination will be final and binding on
the Company and on all persons having an interest in any Award under this Plan.
The Committee may delegate to one or more officers of the Company the authority
to grant an Award under this Plan to Participants who are not Insiders of the
Company.
5. OPTIONS. The Committee may grant Options to eligible persons and will
-------
determine whether such Options will be Incentive Stock Options within the
meaning of the Code ("ISO") or Nonqualified Stock Options ("NQSOs"), the number
of Shares subject to the Option, the Exercise Price of the Option, the period
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted under this Plan will
--------------------
be evidenced by an Award Agreement which will expressly identify the Option as
an ISO or an NQSO ("Stock Option Agreement"), and, except as otherwise required
by the terms of Section 9 hereof, will be in such form and contain such
provisions (which need not be the same for each Participant) as the Committee
may from time to time approve, and which will comply with and be subject to the
terms and conditions of this Plan.
5.2 Date of Grant. The date of grant of an Option will be the date
-------------
on which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Stock Option
2
<PAGE>
AllAdvantage.com Inc.
2000 Equity Incentive Plan
Agreement and a copy of this Plan will be delivered to the Participant within a
reasonable time after the granting of the Option.
5.3 Exercise Period. Options may be exercisable within the times or
---------------
upon the events determined by the Committee as set forth in the Stock Option
Agreement governing such Option; provided, however, that no Option will be
-------- -------
exercisable after the expiration of ten (10) years from the date the Option is
granted; and provided further that no ISO granted to a person who directly or by
----------------
attribution owns more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or of any Parent or Subsidiary of the
Company ("Ten Percent Stockholder") will be exercisable after the expiration of
five (5) years from the date the ISO is granted. The Committee also may provide
for Options to become exercisable at one time or from time to time, periodically
or otherwise, in such number of Shares or percentage of Shares as the Committee
determines.
5.4 Exercise Price. The Exercise Price of an Option will be
--------------
determined by the Committee when the Option is granted and may be not less than
85% of the Fair Market Value of the Shares on the date of grant; provided that:
(i) the Exercise Price of an ISO will be not less than 100% of the Fair Market
Value of the Shares on the date of grant; and (ii) the Exercise Price of any ISO
granted to a Ten Percent Stockholder will not be less than 110% of the Fair
Market Value of the Shares on the date of grant. Payment for the Shares
purchased may be made in accordance with Section 8 of this Plan.
5.5 Method of Exercise. Options may be exercised only by delivery to
------------------
the Company of a written stock option exercise agreement (the "Exercise
Agreement") in a form approved by the Committee (which need not be the same for
each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and such representations and agreements regarding Participant's investment
intent and access to information and other matters, if any, as may be required
or desirable by the Company to comply with applicable securities laws, together
with payment in full of the Exercise Price for the number of Shares being
purchased.
5.6 Termination. Notwithstanding the exercise periods set forth in
-----------
the Stock Option Agreement, exercise of an Option will always be subject to the
following:
(a) If the Participant is Terminated for any reason except death or
Disability, then the Participant may exercise such Participant's
Options only to the extent that such Options would have been
exercisable upon the Termination Date no later than three (3)
months after the Termination Date (or such shorter or longer time
period not exceeding five (5) years as may be determined by the
Committee, with any exercise beyond three (3) months after the
Termination Date deemed to be an NQSO), but in any event, no
later than the expiration date of the Options.
(b) If the Participant is Terminated because of Participant's death
or Disability (or the Participant dies within three (3) months
after a Termination other than for Cause or because of
Participant's Disability), then Participant's Options may be
exercised only to the extent that such Options would have been
exercisable by Participant on the Termination Date and must be
exercised by Participant (or Participant's legal representative
or authorized assignee) no later than twelve (12) months after
the Termination Date (or such shorter or longer time period not
exceeding five (5) years as may be determined by the Committee,
with any such exercise beyond (a) three (3) months after the
Termination Date when the Termination is for any reason other
than the Participant's death or Disability, or (b) twelve (12)
months after the Termination Date when the Termination is for
Participant's death or Disability, deemed to be an NQSO), but in
any event no later than the expiration date of the Options.
3
<PAGE>
AllAdvantage.com Inc.
2000 Equity Incentive Plan
(c) Notwithstanding the provisions in paragraph 5.6(a) above, if a
Participant is terminated for Cause, neither the Participant, the
Participant's estate nor such other person who may then hold the
Option shall be entitled to exercise any Option with respect to
any Shares whatsoever, after termination of service, whether or
not after termination of service the Participant may receive
payment from the Company or Subsidiary for vacation pay, for
services rendered prior to termination, for services rendered for
the day on which termination occurs, for salary in lieu of
notice, or for any other benefits. In making such determination,
the Board shall give the Participant an opportunity to present to
the Board evidence on his behalf. For the purpose of this
paragraph, termination of service shall be deemed to occur on the
date when the Company dispatches notice or advice to the
Participant that his service is terminated.
5.7 Limitations on Exercise. The Committee may specify a reasonable
-----------------------
minimum number of Shares that may be purchased on any exercise of an Option,
provided that such minimum number will not prevent Participant from exercising
the Option for the full number of Shares for which it is then exercisable.
5.8 Limitations on ISO. The aggregate Fair Market Value (determined
------------------
as of the date of grant) of Shares with respect to which ISO are exercisable for
the first time by a Participant during any calendar year (under this Plan or
under any other incentive stock option plan of the Company, Parent or Subsidiary
of the Company) will not exceed $100,000. If the Fair Market Value of Shares on
the date of grant with respect to which ISO are exercisable for the first time
by a Participant during any calendar year exceeds $100,000, then the Options for
the first $100,000 worth of Shares to become exercisable in such calendar year
will be ISO and the Options for the amount in excess of $100,000 that become
exercisable in that calendar year will be NQSOs. In the event that the Code or
the regulations promulgated thereunder are amended after the Effective Date of
this Plan to provide for a different limit on the Fair Market Value of Shares
permitted to be subject to ISO, such different limit will be automatically
incorporated herein and will apply to any Options granted after the effective
date of such amendment.
5.9 Modification, Extension or Renewal. The Committee may modify,
----------------------------------
extend or renew outstanding Options and authorize the grant of new Options in
substitution therefor, provided that any such action may not, without the
written consent of a Participant, impair any of such Participant's rights under
any Option previously granted. Any outstanding ISO that is modified, extended,
renewed or otherwise altered will be treated in accordance with Section 424(h)
of the Code. The Committee may reduce the Exercise Price of outstanding Options
without the consent of Participants affected by a written notice to them;
provided, however, that the Exercise Price may not be reduced below the minimum
- -------- -------
Exercise Price that would be permitted under Section 5.4 of this Plan for
Options granted on the date the action is taken to reduce the Exercise Price.
5.10 No Disqualification. Notwithstanding any other provision in this
-------------------
Plan, no term of this Plan relating to ISO will be interpreted, amended or
altered, nor will any discretion or authority granted under this Plan be
exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the Company
----------------
to sell to an eligible person Shares that are subject to restrictions. The
Committee will determine to whom an offer will be made, the number of Shares the
person may purchase, the price to be paid (the "Purchase Price"), the
restrictions to which the Shares will be subject, and all other terms and
conditions of the Restricted Stock Award, subject to the following:
6.1 Form of Restricted Stock Award. All purchases under a Restricted
------------------------------
Stock Award made pursuant to this Plan will be evidenced by an Award Agreement
("Restricted Stock Purchase Agreement") that will be in such form (which need
not be the same for each Participant) as the Committee will from time to time
approve, and will comply with and be subject to the terms and conditions of this
Plan. The offer of Restricted Stock will be accepted by the Participant's
execution and delivery of the Restricted Stock Purchase Agreement and full
payment for the Shares to the Company within thirty (30) days from the date the
Restricted Stock Purchase Agreement is
4
<PAGE>
AllAdvantage.com Inc.
2000 Equity Incentive Plan
delivered to the person. If such person does not execute and deliver the
Restricted Stock Purchase Agreement along with full payment for the Shares to
the Company within thirty (30) days, then the offer will terminate, unless
otherwise determined by the Committee.
6.2 Purchase Price. The Purchase Price of Shares sold pursuant to a
--------------
Restricted Stock Award will be determined by the Committee on the date the
Restricted Stock Award is granted, except in the case of a sale to a Ten Percent
Stockholder, in which case the Purchase Price will be 100% of the Fair Market
Value. Payment of the Purchase Price may be made in accordance with Section 8
of this Plan.
6.3 Terms of Restricted Stock Awards. Restricted Stock Awards shall
--------------------------------
be subject to such restrictions as the Committee may impose. These restrictions
may be based upon completion of a specified number of years of service with the
Company or upon completion of the performance goals as set out in advance in the
Participant's individual Restricted Stock Purchase Agreement. Restricted Stock
Awards may vary from Participant to Participant and between groups of
Participants. Prior to the grant of a Restricted Stock Award, the Committee
shall: (a) determine the nature, length and starting date of any Performance
Period for the Restricted Stock Award; (b) select from among the Performance
Factors to be used to measure performance goals, if any; and (c) determine the
number of Shares that may be awarded to the Participant. Prior to the payment
of any Restricted Stock Award, the Committee shall determine the extent to which
such Restricted Stock Award has been earned. Performance Periods may overlap
and Participants may participate simultaneously with respect to Restricted Stock
Awards that are subject to different Performance Periods and having different
performance goals and other criteria.
6.4 Termination During Performance Period. If a Participant is
-------------------------------------
Terminated during a Performance Period for any reason, then such Participant
will be entitled to payment (whether in Shares, cash or otherwise) with respect
to the Restricted Stock Award only to the extent earned as of the date of
Termination in accordance with the Restricted Stock Purchase Agreement, unless
the Committee will determine otherwise.
7. STOCK BONUSES.
-------------
7.1 Awards of Stock Bonuses. A Stock Bonus is an award of Shares
-----------------------
(which may consist of Restricted Stock) for services rendered to the Company or
any Parent or Subsidiary of the Company. A Stock Bonus may be awarded for past
services already rendered to the Company, or any Parent or Subsidiary of the
Company pursuant to an Award Agreement (the "Stock Bonus Agreement") that will
be in such form (which need not be the same for each Participant) as the
Committee will from time to time approve, and will comply with and be subject to
the terms and conditions of this Plan. A Stock Bonus may be awarded upon
satisfaction of such performance goals as are set out in advance in the
Participant's individual Award Agreement (the "Performance Stock Bonus
Agreement") that will be in such form (which need not be the same for each
Participant) as the Committee will from time to time approve, and will comply
with and be subject to the terms and conditions of this Plan. Stock Bonuses may
vary from Participant to Participant and between groups of Participants, and may
be based upon the achievement of the Company, Parent or Subsidiary and/or
individual performance factors or upon such other criteria as the Committee may
determine.
7.2 Terms of Stock Bonuses. The Committee will determine the number
----------------------
of Shares to be awarded to the Participant. If the Stock Bonus is being earned
upon the satisfaction of performance goals pursuant to a Performance Stock Bonus
Agreement, then the Committee will: (a) determine the nature, length and
starting date of any Performance Period for each Stock Bonus; (b) select from
among the Performance Factors to be used to measure the performance, if any; and
(c) determine the number of Shares that may be awarded to the Participant.
Prior to the payment of any Stock Bonus, the Committee shall determine the
extent to which such Stock Bonuses have been earned. Performance Periods may
overlap and Participants may participate simultaneously with respect to Stock
Bonuses that are subject to different Performance Periods and different
performance goals and other criteria. The number of Shares may be fixed or may
vary in accordance with such performance goals and criteria as may be determined
by the Committee. The Committee may adjust the performance goals applicable to
the Stock Bonuses to take into account changes in law and accounting or tax
rules and to make such adjustments as the
5
<PAGE>
AllAdvantage.com Inc.
2000 Equity Incentive Plan
Committee deems necessary or appropriate to reflect the impact of extraordinary
or unusual items, events or circumstances to avoid windfalls or hardships.
7.3 Form of Payment. The earned portion of a Stock Bonus may be paid
---------------
currently or on a deferred basis with such interest or dividend equivalent, if
any, as the Committee may determine. Payment may be made in the form of cash or
whole Shares or a combination thereof, either in a lump sum payment or in
installments, all as the Committee will determine.
8. PAYMENT FOR SHARE PURCHASES.
---------------------------
8.1 Payment. Payment for Shares purchased pursuant to this Plan may
-------
be made in cash (by check) or, where expressly approved for the Participant by
the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the
Participant;
(b) by surrender of shares that either: (1) have been owned by
Participant for more than six (6) months and have been paid for
within the meaning of SEC Rule 144 (and, if such shares were
purchased from the Company by use of a promissory note, such note
has been fully paid with respect to such shares); or (2) were
obtained by Participant in the public market;
(c) by tender of a full recourse promissory note having such terms as
may be approved by the Committee and bearing interest at a rate
sufficient to avoid imputation of income under Sections 483 and
1274 of the Code; provided, however, that Participants who are
-------- -------
not employees or directors of the Company will not be entitled to
purchase Shares with a promissory note unless the note is
adequately secured by collateral other than the Shares;
(d) by waiver of compensation due or accrued to the Participant for
services rendered;
(e) with respect only to purchases upon exercise of an Option, and
provided that a public market for the Company's stock exists:
(1) through a "same day sale" commitment from the Participant
and a broker-dealer that is a member of the National
Association of Securities Dealers (an "NASD Dealer") whereby
the Participant irrevocably elects to exercise the Option
and to sell a portion of the Shares so purchased to pay for
the Exercise Price, and whereby the NASD Dealer irrevocably
commits upon receipt of such Shares to forward the Exercise
Price directly to the Company; or
(2) through a "margin" commitment from the Participant and a
NASD Dealer whereby the Participant irrevocably elects to
exercise the Option and to pledge the Shares so purchased to
the NASD Dealer in a margin account as security for a loan
from the NASD Dealer in the amount of the Exercise Price,
and whereby the NASD Dealer irrevocably commits upon receipt
of such Shares to forward the Exercise Price directly to the
Company; or
(f) by any combination of the foregoing.
8.2 Loan Guarantees. The Committee may help the Participant pay for
---------------
Shares purchased under this Plan by authorizing a guarantee by the Company of a
third-party loan to the Participant.
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AllAdvantage.com Inc.
2000 Equity Incentive Plan
9. AUTOMATIC GRANTS TO OUTSIDE DIRECTORS.
--------------------------------------
9.1 Types of Options and Shares. Options granted under this Plan and
----------------------------
subject to this Section 9 shall be NQSOs.
9.2 Eligibility. Options subject to this Section 9 shall be granted
-----------
only to Outside Directors.
9.3 Initial Grant. Each Outside Director who first becomes a member
-------------
of the Board on or after the Effective Date will automatically be granted an
Option for 10,000 Shares (an "Initial Grant") on the date such Outside Director
first becomes a member of the Board, unless such Outside Director received a
grant of Options before the Effective Date. Each Outside Director who became a
member of the Board prior to the Effective Date and who did not receive a prior
Option grant will receive an Initial Grant immediately following the Effective
Date.
9.4 Succeeding Grant. Immediately following each Annual Meeting of
----------------
stockholders, each Outside Director will automatically be granted an Option for
10,000 Shares (a "Succeeding Grant"), provided the Outside Director is a member
of the Board on such date and has served continuously as a member of the Board
for a period of at least one year since the date of such Outside Director's
Initial Grant. Notwithstanding anything in this Section 9.4 to the contrary,
the Board may make discretionary supplemental grants to an Outside Director who
has served for less than one year from the date of such Outside Director's
Initial Grant, provided that no Outside Director may receive more than 20,000
--------
Shares in any calendar year pursuant to this Section 9.
9.5 Vesting. The date an Outside Director receives an Initial Grant
-------
or a Succeeding Grant is referred to in this Plan as the "Start Date" for such
Option.
(a) Initial Grants. Each Initial Grant will vest as to 25% of the
--------------
Shares on the one (1) year anniversary of the Start Date for such
Initial Grant, and as to 2.08333% of the Shares on each
subsequent monthly anniversary thereafter, so long as the Outside
Director continuously remains a director or consultant of the
Company.
(b) Succeeding Grants. Each Succeeding Grant will vest as to percent
-----------------
25% of the Shares on the one (1) year anniversary of the Start
Date for such Succeeding Grant, and as to 2.08333% of the Shares
on each subsequent monthly anniversary thereafter, so long as the
Outside Director continuously remains a director or consultant of
the Company.
Notwithstanding any provision to the contrary, in the event of a Corporate
Transaction described in Section 18.1, the vesting of all options granted to
Outside Directors pursuant to this Section 9 will accelerate and such options
will become exercisable in full prior to the consummation of such event at such
times and on such conditions as the Committee determines, and must be exercised,
if at all, within three months of the consummation of said event. Any options
not exercised within such three-month period shall expire.
9.6 Exercise Price. The exercise price of an Option pursuant to an
--------------
Initial Grant and Succeeding Grant shall be the Fair Market Value of the Shares,
at the time that the Option is granted.
10. WITHHOLDING TAXES.
-----------------
10.1 Withholding Generally. Whenever Shares are to be issued in
---------------------
satisfaction of Awards granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under this Plan,
payments in satisfaction of Awards are to be made in cash, such payment will be
net of an amount sufficient to satisfy federal, state, and local withholding tax
requirements.
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AllAdvantage.com Inc.
2000 Equity Incentive Plan
10.2 Stock Withholding. When, under applicable tax laws, a
-----------------
Participant incurs tax liability in connection with the exercise or vesting of
any Award that is subject to tax withholding and the Participant is obligated to
pay the Company the amount required to be withheld, the Committee may in its
sole discretion allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Shares to be issued
that number of Shares having a Fair Market Value equal to the minimum amount
required to be withheld, determined on the date that the amount of tax to be
withheld is to be determined. All elections by a Participant to have Shares
withheld for this purpose will be made in accordance with the requirements
established by the Committee and be in writing in a form acceptable to the
Committee.
11. TRANSFERABILITY.
---------------
11.1 Except as otherwise provided in this Section 11, Awards granted
under this Plan, and any interest therein, will not be transferable or
assignable by Participant, and may not be made subject to execution, attachment
or similar process, otherwise than by will or by the laws of descent and
distribution or as determined by the Committee and set forth in the Award
Agreement with respect to Awards that are not ISOs.
11.2 All Awards other than NQSO's. All Awards other than NQSO's shall
----------------------------
be exercisable: (i) during the Participant's lifetime, only by (A) the
Participant, or (B) the Participant's guardian or legal representative; and (ii)
after Participant's death, by the legal representative of the Participant's
heirs or legatees.
11.3 NQSOs. Unless otherwise restricted by the Committee, an NQSO
-----
shall be exercisable: (i) during the Participant's lifetime only by (A) the
Participant, (B) the Participant's guardian or legal representative, (C) a
Family Member of the Participant who has acquired the NQSO by "permitted
transfer;" and (ii) after Participant's death, by the legal representative of
the Participant's heirs or legatees. "Permitted transfer" means, as authorized
by this Plan and the Committee in an NQSO, any transfer effected by the
Participant during the Participant's lifetime of an interest in such NQSO but
only such transfers which are by gift or domestic relations order. A permitted
transfer does not include any transfer for value and neither of the following
are transfers for value: (a) a transfer of under a domestic relations order in
settlement of marital property rights or (b) a transfer to an entity in which
more than fifty percent of the voting interests are owned by Family Members or
the Participant in exchange for an interest in that entity.
12. PRIVILEGES OF STOCK OWNERSHIP; RESTRICTIONS ON SHARES.
-----------------------------------------------------
12.1 Voting and Dividends. No Participant will have any of the rights
--------------------
of a stockholder with respect to any Shares until the Shares are issued to the
Participant. After Shares are issued to the Participant, the Participant will
be a stockholder and have all the rights of a stockholder with respect to such
Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that if such
--------
Shares are Restricted Stock, then any new, additional or different securities
the Participant may become entitled to receive with respect to such Shares by
virtue of a stock dividend, stock split or any other change in the corporate or
capital structure of the Company will be subject to the same restrictions as the
Restricted Stock; provided, further, that the Participant will have no right to
-------- -------
retain such stock dividends or stock distributions with respect to Shares that
are repurchased at the Participant's Purchase Price or Exercise Price pursuant
to Section 12.
12.2 Financial Statements. The Company will provide financial
--------------------
statements to each Participant prior to such Participant's purchase of Shares
under this Plan, and to each Participant annually during the period such
Participant has Awards outstanding; provided, however, the Company will not be
-------- -------
required to provide such financial statements to Participants whose services in
connection with the Company assure them access to equivalent information.
12.3 Restrictions on Shares. At the discretion of the Committee, the
-----------------------
Company may reserve to itself and/or its assignee(s) in the Award Agreement a
right to repurchase a portion of or all Unvested Shares held by a Participant
following such Participant's Termination at any time within ninety (90) days
after the later of Participant's Termination Date and the date Participant
purchases Shares under this Plan, for cash and/or
8
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AllAdvantage.com Inc.
2000 Equity Incentive Plan
cancellation of purchase money indebtedness, at the Participant's Exercise Price
or Purchase Price, as the case may be.
13. CERTIFICATES. All certificates for Shares or other securities
------------
delivered under this Plan will be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed or
quoted.
14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
------------------------
Participant's Shares, the Committee may require the Participant to deposit all
certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause a
legend or legends referencing such restrictions to be placed on the
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under this Plan will be
required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Participant's obligation to the
Company under the promissory note; provided, however, that the Committee may
-------- -------
require or accept other or additional forms of collateral to secure the payment
of such obligation and, in any event, the Company will have full recourse
against the Participant under the promissory note notwithstanding any pledge of
the Participant's Shares or other collateral. In connection with any pledge of
the Shares, Participant will be required to execute and deliver a written pledge
agreement in such form as the Committee will from time to time approve. The
Shares purchased with the promissory note may be released from the pledge on a
pro rata basis as the promissory note is paid.
15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or from
-----------------------------
time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time buy from a
Participant an Award previously granted with payment in cash, Shares (including
Restricted Stock) or other consideration, based on such terms and conditions as
the Committee and the Participant may agree.
16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will not be
----------------------------------------------
effective unless such Award is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed or quoted, as they are in effect on the date of grant
of the Award and also on the date of exercise or other issuance.
Notwithstanding any other provision in this Plan, the Company will have no
obligation to issue or deliver certificates for Shares under this Plan prior to:
(a) obtaining any approvals from governmental agencies that the Company
determines are necessary or advisable; and/or (b) completion of any registration
or other qualification of such Shares under any state or federal law or ruling
of any governmental body that the Company determines to be necessary or
advisable. The Company will be under no obligation to register the Shares with
the SEC or to effect compliance with the registration, qualification or listing
requirements of any state securities laws, stock exchange or automated quotation
system, and the Company will have no liability for any inability or failure to
do so.
17. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award granted
-----------------------
under this Plan will confer or be deemed to confer on any Participant any right
to continue in the employ of, or to continue any other relationship with, the
Company or any Parent or Subsidiary of the Company or limit in any way the right
of the Company or any Parent or Subsidiary of the Company to terminate
Participant's employment or other relationship at any time, with or without
cause.
18. CORPORATE TRANSACTIONS.
----------------------
18.1 Assumption or Replacement of Awards by Successor. Except for
------------------------------------------------
automatic grants to Outside Directors pursuant to Section 9 hereof, in the event
of (a) a dissolution or liquidation of the Company, (b) a
9
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AllAdvantage.com Inc.
2000 Equity Incentive Plan
merger or consolidation in which the Company is not the surviving corporation
(other than a merger or consolidation with a wholly-owned subsidiary, a
reincorporation of the Company in a different jurisdiction, or other transaction
in which there is no substantial change in the stockholders of the Company or
their relative stock holdings and the Awards granted under this Plan are
assumed, converted or replaced by the successor corporation, which assumption
will be binding on all Participants), (c) a merger in which the Company is the
surviving corporation but after which the stockholders of the Company
immediately prior to such merger (other than any stockholder that merges, or
which owns or controls another corporation that merges, with the Company in such
merger) cease to own their shares or other equity interest in the Company, (d)
the sale of substantially all of the assets of the Company, or (e) the
acquisition, sale, or transfer of more than 50% of the outstanding shares of the
Company by tender offer or similar transaction (each, a "Corporate
Transaction"), any or all outstanding Awards may be assumed, converted or
replaced by the successor corporation (if any), which assumption, conversion or
replacement will be binding on all Participants. In the alternative, the
successor corporation may substitute equivalent Awards or provide substantially
similar consideration to Participants as was provided to stockholders (after
taking into account the existing provisions of the Awards). The successor
corporation may also issue, in place of outstanding Shares of the Company held
by the Participants, substantially similar shares or other property subject to
repurchase restrictions no less favorable to the Participant. In the event such
successor corporation (if any) refuses to assume or substitute Awards, as
provided above, pursuant to a transaction described in this Subsection 18.1,
such Awards will expire on such transaction at such time and on such conditions
as the Committee will determine. Notwithstanding anything in this Plan to the
contrary, the Committee may, in its sole discretion, provide that the vesting of
any or all Awards granted pursuant to this Plan will accelerate upon a
transaction described in this Section 18. If the Committee exercises such
discretion with respect to Options, such Options will become exercisable in full
prior to the consummation of such event at such time and on such conditions as
the Committee determines, and if such Options are not exercised prior to the
consummation of the corporate transaction, they shall terminate at such time as
determined by the Committee.
18.2 Other Treatment of Awards. Subject to any greater rights granted
-------------------------
to Participants under the foregoing provisions of this Section 18, in the event
of the occurrence of any Corporate Transaction described in Section 18.1, any
outstanding Awards will be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation, or sale of assets.
18.3 Assumption of Awards by the Company. The Company, from time to
-----------------------------------
time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either; (a) granting an Award under this Plan in substitution of
such other company's award; or (b) assuming such award as if it had been granted
under this Plan if the terms of such assumed award could be applied to an Award
granted under this Plan. Such substitution or assumption will be permissible if
the holder of the substituted or assumed award would have been eligible to be
granted an Award under this Plan if the other company had applied the rules of
this Plan to such grant. In the event the Company assumes an award granted by
another company, the terms and conditions of such award will remain unchanged
(except that the exercise price and the number and nature of Shares issuable
- -------
upon exercise of any such option will be adjusted appropriately pursuant to
Section 424(a) of the Code). In the event the Company elects to grant a new
Option rather than assuming an existing option, such new Option may be granted
with a similarly adjusted Exercise Price.
19. ADOPTION AND STOCKHOLDER APPROVAL. This Plan will become effective on
---------------------------------
the date on which the registration statement filed by the Company with the SEC
under the Securities Act registering the initial public offering of the
Company's Common Stock is declared effective by the SEC (the "Effective Date").
This Plan shall be approved by the stockholders of the Company (excluding Shares
issued pursuant to this Plan), consistent with applicable laws, within twelve
(12) months before or after the date this Plan is adopted by the Board. Upon
the Effective Date, the Committee may grant Awards pursuant to this Plan;
provided, however, that: (a) no Option may be exercised prior to initial
- -------- -------
stockholder approval of this Plan; (b) no Option granted pursuant to an increase
in the number of Shares subject to this Plan approved by the Board will be
exercised prior to the time such increase has been approved by the stockholders
of the Company; (c) in the event that initial stockholder approval is not
obtained within the time period provided herein, all Awards granted hereunder
shall be cancelled, any Shares issued pursuant to any Awards shall be cancelled
and any purchase of Shares issued hereunder shall be rescinded;
10
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AllAdvantage.com Inc.
2000 Equity Incentive Plan
and (d) in the event that stockholder approval of such increase is not obtained
within the time period provided herein, all Awards granted pursuant to such
increase will be cancelled, any Shares issued pursuant to any Award granted
pursuant to such increase will be cancelled, and any purchase of Shares pursuant
to such increase will be rescinded.
20. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided
--------------------------
herein, this Plan will terminate ten (10) years from the date this Plan is
adopted by the Board or, if earlier, the date of stockholder approval. This
Plan and all agreements thereunder shall be governed by and construed in
accordance with the laws of the State of California.
21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time terminate
--------------------------------
or amend this Plan in any respect, including without limitation amendment of any
form of Award Agreement or instrument to be executed pursuant to this Plan;
provided, however, that the Board will not, without the approval of the
- -------- -------
stockholders of the Company, amend this Plan in any manner that requires such
stockholder approval.
22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the
--------------------------
Board, the submission of this Plan to the stockholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and bonuses otherwise than under this Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases.
23. DEFINITIONS. As used in this Plan, the following terms will have the
-----------
following meanings:
"Award" means any award under this Plan, including any Option,
Restricted Stock or Stock Bonus.
"Award Agreement" means, with respect to each Award, the signed
written agreement between the Company and the Participant setting forth the
terms and conditions of the Award.
"Board" means the Board of Directors of the Company.
"Cause" means the commission of an act of theft, embezzlement, fraud,
dishonesty or a breach of fiduciary duty to the Company or a Parent or
Subsidiary of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the Compensation Committee of the Board.
"Company" means AllAdvantage.com Inc. or any successor corporation.
"Disability" means a disability, whether temporary or permanent,
partial or total, as determined by the Committee.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exercise Price" means the price at which a holder of an Option may
purchase the Shares issuable upon exercise of the Option.
"Fair Market Value" means, as of any date, the value of a share of the
Company's Common Stock determined as follows:
11
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AllAdvantage.com Inc.
2000 Equity Incentive Plan
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on the
date of determination as reported in The Wall Street Journal;
-----------------------
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, its closing price on the date of
determination on the principal national securities exchange on
which the Common Stock is listed or admitted to trading as
reported in The Wall Street Journal;
-----------------------
(c) if such Common Stock is publicly traded but is not quoted on the
Nasdaq National Market nor listed or admitted to trading on a
national securities exchange, the average of the closing bid and
asked prices on the date of determination as reported in The Wall
--------
Street Journal;
--------------
(d) in the case of an Award made on the Effective Date, the price per
share at which shares of the Company's Common Stock are initially
offered for sale to the public by the Company's underwriters in
the initial public offering of the Company's Common Stock
pursuant to a registration statement filed with the SEC under the
Securities Act; or
(e) if none of the foregoing is applicable, by the Committee in good
faith.
"Family Member" includes any of the following:
(a) child, stepchild, grandchild, parent, stepparent, grandparent,
spouse, former spouse, sibling, niece, nephew, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law of the Participant, including any such person with
such relationship to the Participant by adoption;
(b) any person (other than a tenant or employee) sharing the
Participant's household;
(c) a trust in which the persons in (a) and (b) have more than fifty
percent of the beneficial interest;
(d) a foundation in which the persons in (a) and (b) or the
Participant control the management of assets; or
(e) any other entity in which the persons in (a) and (b) or the
Participant own more than fifty percent of the voting interest.
"Insider" means an officer or director of the Company or any other
person whose transactions in the Company's Common Stock are subject to Section
16 of the Exchange Act.
"Option" means an award of an option to purchase Shares pursuant to
Section 5.
"Outside Director" means a member of the Board who is not an employee
of the Company or any Parent, Subsidiary or Affiliate of the Company.
"Parent" means any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company if each of such corporations other
than the Company owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain.
"Participant" means a person who receives an Award under this Plan.
12
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AllAdvantage.com Inc.
2000 Equity Incentive Plan
"Performance Factors" means the factors selected by the Committee from
among the following measures to determine whether the performance goals
established by the Committee and applicable to Awards have been satisfied:
(a) Net revenue and/or net revenue growth;
(b) Earnings before income taxes and amortization and/or earnings
before income taxes and amortization growth;
(c) Operating income and/or operating income growth;
(d) Net income and/or net income growth;
(e) Earnings per share and/or earnings per share growth;
(f) Total stockholder return and/or total stockholder return growth;
(g) Return on equity;
(h) Operating cash flow return on income;
(i) Adjusted operating cash flow return on income;
(j) Economic value added; and
(k) Individual confidential business objectives.
"Performance Period" means the period of service determined by the
Committee, not to exceed five years, during which years of service or
performance is to be measured for Restricted Stock Awards or Stock Bonuses.
"Plan" means this AllAdvantage.com Inc. 2000 Equity Incentive Plan, as
amended from time to time.
"Restricted Stock Award" means an award of Shares pursuant to Section
6.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" means shares of the Company's Common Stock reserved for
issuance under this Plan, as adjusted pursuant to Sections 2 and 18, and any
successor security.
"Stock Bonus" means an award of Shares, or cash in lieu of Shares,
pursuant to Section 7.
"Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
"Termination" or "Terminated" means, for purposes of this Plan with
respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, officer, director, consultant, independent
contractor, or advisor to the Company or a Parent or Subsidiary of the Company.
An employee will
13
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AllAdvantage.com Inc.
2000 Equity Incentive Plan
not be deemed to have ceased to provide services in the case of (i) sick leave,
(ii) military leave, or (iii) any other leave of absence approved by the
Committee, provided, that such leave is for a period of not more than 90 days,
unless reemployment upon the expiration of such leave is guaranteed by contract
or statute or unless provided otherwise pursuant to formal policy adopted from
time to time by the Company and issued and promulgated to employees in writing.
In the case of any employee on an approved leave of absence, the Committee may
make such provisions respecting suspension of vesting of the Award while on
leave from the employ of the Company or a Subsidiary as it may deem appropriate,
except that in no event may an Option be exercised after the expiration of the
term set forth in the Option agreement. The Committee will have sole discretion
to determine whether a Participant has ceased to provide services and the
effective date on which the Participant ceased to provide services (the
"Termination Date").
"Unvested Shares" means "Unvested Shares" as defined in the Award
Agreement.
"Vested Shares" means "Vested Shares" as defined in the Award
Agreement.
14
<PAGE>
No. ______
ALLADVANTAGE.COM INC.
2000 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
----------------------
(For Non-Employee Directors)
This Stock Option Agreement (this "Agreement") is made and entered
into as of the Date of Grant set forth below (the "Date of Grant") by and
between AllAdvantage.com Inc., a Delaware corporation (the "Company"), and the
Optionee named below ("Optionee"). Capitalized terms not defined herein shall
have the meanings ascribed to them in the Company's 2000 Equity Incentive Plan
(the "Plan").
Optionee:
-------------------------------------------------
Social Security Number:
-------------------------------------------------
Optionee's Address:
-------------------------------------------------
-------------------------------------------------
Total Option Shares:
-------------------------------------------------
Exercise Price Per Share:
-------------------------------------------------
Date of Grant:
-------------------------------------------------
Expiration Date:
-------------------------------------------------
(unless earlier terminated under Section 3 hereof)
Type of Stock Option Nonqualified Stock Option
-------------------------------------------------
1. Grant of Option. The Company hereby grants to Optionee an option
---------------
(this "Option") to purchase up to the total number of shares of Common Stock of
the Company set forth above as Total Option Shares (collectively, the "Shares")
at the Exercise Price Per Share set forth above (the "Exercise Price"), subject
to all of the terms and conditions of this Agreement and the Plan.
2. Vesting; Exercise Period.
------------------------
2.1 Vesting of Shares. Subject to the terms and conditions of
-----------------
the Plan and this Agreement, this Option shall be exercisable as it vests.
Subject to the terms and conditions of the Plan and this Agreement, this Option
shall vest as to 25% of the Shares on the first anniversary of the Date of
Grant, and as to 2.08333% of the Shares monthly thereafter until all of the
Shares are fully vested, so long as the Optionee continuously remains a director
of the Company.
2.2 Expiration. This Option shall expire on the Expiration
----------
Date set forth above and must be exercised, if at all, on or before the earlier
of the Expiration Date or the date on which this Option is earlier terminated in
accordance with the provisions of Section 3 hereof.
<PAGE>
AllAdvantage.com Inc.
Stock Option Agreement
For Non-Employee Directors
3. Termination. Except as provided below in this Section, this
-----------
Option shall terminate and may not be exercised if Optionee ceases to be a
member of the Board of Directors of the Company ("Board Member"). The date on
which Optionee ceases to be a Board Member shall be referred to as the
"Termination Date."
3.1 Termination for Any Reason Except Death, Disability or
------------------------------------------------------
Cause. If Optionee ceases to be a Board Member for any reason except death,
- -----
Disability or Cause, then this Option may be exercised by Optionee no later than
three (3) months after the Termination Date, but in any event no later than the
Expiration Date.
3.2 Termination Because of Death or Disability. If Optionee
------------------------------------------
ceases to be a Board Member due to Optionee's death or Disability (or dies
within 3 months after Termination other than for Cause or because of
Disability), then this Option may be exercised by Optionee (or Optionee's legal
representative or authorized assignee) no later than twelve (12) months after
the Termination Date, but in any event no later than the Expiration Date.
3.3 Termination for Cause. If Optionee is Terminated for
---------------------
Cause, this Option will expire on the Optionee's date of Termination.
4. Manner of Exercise.
------------------
4.1 Stock Option Exercise Agreement. To exercise this Option,
-------------------------------
Optionee (or in the case of exercise after Optionee's death, Optionee's
executor, administrator, heir or legatee, as the case may be) must deliver to
the Company an executed stock option exercise agreement in the form attached
hereto as Exhibit A, or in such other form as may be approved by the Company
---------
from time to time (the "Exercise Agreement"), which shall set forth, inter alia,
----- ----
Optionee's election to exercise this Option, the number of shares being
purchased, any restrictions imposed on the Shares and any representations,
warranties and agreements regarding Optionee's investment intent and access to
information as may be required by the Company to comply with applicable
securities laws. If someone other than Optionee exercises this Option, then
such person must submit documentation reasonably acceptable to the Company that
such person has the right to exercise this Option.
4.2 Limitations on Exercise. This Option may not be exercised
-----------------------
unless such exercise is in compliance with all applicable federal and state
securities laws, as they are in effect on the date of exercise. This Option may
not be exercised as to fewer than 100 Shares unless it is exercised as to all
Shares as to which this Option is then exercisable.
4.3 Payment. The Exercise Agreement shall be accompanied by
-------
full payment of the Exercise Price for the Shares being purchased in cash (by
check), or where permitted by law:
(a) by cancellation of indebtedness of the Company to the Optionee;
2
<PAGE>
AllAdvantage.com Inc.
Stock Option Agreement
For Non-Employee Directors
(b) by surrender of shares of the Company's Common Stock that either: (1)
have been owned by Optionee for more than six (6) months and have been
paid for within the meaning of SEC Rule 144 (and, if such shares were
purchased from the Company by use of a promissory note, such note has
been fully paid with respect to such shares); or (2) were obtained by
Optionee in the open public market; and (3) are clear of all liens,
---
claims, encumbrances or security interests;
(c) by waiver of compensation due or accrued to Optionee for services
rendered;
(d) provided that a public market for the Company's stock exists: (1)
through a "same day sale" commitment from Optionee and a broker-dealer
that is a member of the National Association of Securities Dealers (an
"NASD Dealer") whereby Optionee irrevocably elects to exercise this
Option and to sell a portion of the Shares so purchased to pay for the
Exercise Price and whereby the NASD Dealer irrevocably commits upon
receipt of such Shares to forward the exercise price directly to the
Company; or (2) through a "margin" commitment from Optionee and an NASD
--
Dealer whereby Optionee irrevocably elects to exercise this Option and
to pledge the Shares so purchased to the NASD Dealer in a margin
account as security for a loan from the NASD Dealer in the amount of
the Exercise Price, and whereby the NASD Dealer irrevocably commits
upon receipt of such Shares to forward the Exercise Price directly to
the Company; or
(e) by any combination of the foregoing.
4.4 Tax Withholding. Prior to the issuance of the Shares upon
---------------
exercise of this Option, Optionee must pay or provide for any applicable federal
or state withholding obligations of the Company. If the Committee permits,
Optionee may provide for payment of withholding taxes upon exercise of this
Option by requesting that the Company retain Shares with a Fair Market Value
equal to the minimum amount of taxes required to be withheld. In such case, the
Company shall issue the net number of Shares to the Optionee by deducting the
Shares retained from the Shares issuable upon exercise.
4.5 Issuance of Shares. Provided that the Exercise Agreement
------------------
and payment are in form and substance satisfactory to counsel for the Company,
the Company shall issue the Shares registered in the name of Optionee,
Optionee's authorized assignee, or Optionee's legal representative, and shall
deliver certificates representing the Shares with the appropriate legends
affixed thereto.
5. Compliance with Laws and Regulations. The exercise of this Option
------------------------------------
and the issuance and transfer of Shares shall be subject to compliance by the
Company and Optionee with all applicable requirements of federal and state
securities laws and with all applicable requirements of any stock exchange on
which the Company's Common Stock may be listed at the
3
<PAGE>
AllAdvantage.com Inc.
Stock Option Agreement
For Non-Employee Directors
time of such issuance or transfer. Optionee understands that the Company is
under no obligation to register or qualify the Shares with the SEC, any state
securities commission or any stock exchange to effect such compliance.
6. Nontransferability of Option. This Option may not be transferred
----------------------------
in any manner other than under the terms and conditions of the Plan or by will
or by the laws of descent and distribution and may be exercised during the
lifetime of Optionee only by Optionee. The terms of this Option shall be
binding upon the executors, administrators, successors and assigns of Optionee.
7. Tax Consequences. Set forth below is a brief summary as of the
----------------
date the Board adopted the Plan of some of the federal tax consequences of
exercise of this Option and disposition of the Shares. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
OPTIONEE SHOULD CONSULT A TAX ADVISOR BEFORE EXERCISING THIS OPTION OR DISPOSING
OF THE SHARES.
7.1 Exercise of Nonqualified Stock Option. There may be a
-------------------------------------
regular federal income tax liability upon the exercise of this Option. Optionee
will be treated as having received compensation income (taxable at ordinary
income tax rates) equal to the excess, if any, of the fair market value of the
Shares on the date of exercise over the Exercise Price. The Company may be
required to withhold from Optionee's compensation or collect from Optionee and
pay to the applicable taxing authorities an amount equal to a percentage of this
compensation income at the time of exercise.
7.2 Disposition of Shares. If the Shares are held for more
---------------------
than twelve (12) months after the date of the transfer of the Shares pursuant to
the exercise of an NQSO, any gain realized on disposition of the Shares will be
treated as long-term capital gain.
8. Privileges of Stock Ownership. Optionee shall not have any of the
-----------------------------
rights of a stockholder with respect to any Shares until the Shares are issued
to Optionee.
9. Interpretation. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Optionee or the Company to the Committee for
review. The resolution of such a dispute by the Committee shall be final and
binding on the Company and Optionee.
10. Entire Agreement. The Plan is incorporated herein by reference.
----------------
This Agreement and the Plan and the Exercise Agreement constitute the entire
agreement and understanding of the parties hereto with respect to the subject
matter hereof and supersede all prior understandings and agreements with respect
to such subject matter.
11. Notices. Any notice required to be given or delivered to the
-------
Company under the terms of this Agreement shall be in writing and addressed to
the Corporate Secretary of the Company at its principal corporate offices. Any
notice required to be given or delivered to Optionee shall be in writing and
addressed to Optionee at the address indicated above or to such
4
<PAGE>
AllAdvantage.com Inc.
Stock Option Agreement
For Non-Employee Directors
other address as such party may designate in writing from time to time to the
Company. All notices shall be deemed to have been given or delivered upon:
personal delivery; three (3) days after deposit in the United States mail by
certified or registered mail (return receipt requested); one (1) business day
after deposit with any return receipt express courier (prepaid); or one (1)
business day after transmission by facsimile.
12. Successors and Assigns. The Company may assign any of its rights
----------------------
under this Agreement. This Agreement shall be binding upon and inure to the
benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer set forth herein, this Agreement shall be binding upon
Optionee and Optionee's heirs, executors, administrators, legal representatives,
successors and assigns.
13. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the internal laws of the State of California, without regard
to that body of law pertaining to choice of law or conflict of law.
14. Acceptance. Optionee hereby acknowledges receipt of a copy of the
----------
Plan and this Agreement. Optionee has read and understands the terms and
provisions thereof, and accepts this Option subject to all the terms and
conditions of the Plan and this Agreement. Optionee acknowledges that there may
be adverse tax consequences upon exercise of this Option or disposition of the
Shares and that the Company has advised Optionee to consult a tax advisor prior
to such exercise or disposition.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed in duplicate by its duly authorized representative and Optionee has
executed this Agreement in duplicate as of the Date of Grant.
ALLADVANTAGE.COM INC. OPTIONEE
By:
------------------------------ ----------------------------------------
(Signature)
- ---------------------------------- ----------------------------------------
(Please print name) (Please print name)
- ----------------------------------
(Please print title)
5
<PAGE>
EXHIBIT A
---------
STOCK OPTION EXERCISE AGREEMENT
<PAGE>
Exhibit A
---------
ALLADVANTAGE.COM INC.
2000 EQUITY INCENTIVE PLAN (the "Plan")
STOCK OPTION EXERCISE AGREEMENT
-------------------------------
(For Non-Employee Directors)
I hereby elect to purchase the number of shares of Common Stock of
AllAdvantage.com Inc. (the "Company") as set forth below:
<TABLE>
<CAPTION>
<S> <C>
Optionee Number of Shares Purchased:
-------------------------------------------------- -------------------------------------
Social Security Number: Purchase Price per Share:
----------------------------------- --------------------------------------
Address: Aggregate Purchase Price:
-------------------------------------------------- --------------------------------------
Date of Option Agreement:
-------------------------------------------------- --------------------------------------
-------------------------------------------------- Exact Name of Title to Shares:
--------------------------------
Type of Option: Nonqualified Stock Option
----------------------------------------------------------------
</TABLE>
1. Delivery of Purchase Price. Optionee hereby delivers to the Company the
Aggregate Purchase Price, to the extent permitted in the Stock Option Agreement
(the "Option Agreement") as follows (check as applicable and complete):
[ ] in cash (by check) in the amount of $_____________________, receipt of
which is acknowledged by the Company;
[ ] by cancellation of indebtedness of the Company to Optionee in the amount
of $___________________________________;
[ ] by delivery of ______________________________ fully-paid, nonassessable
and vested shares of the Common Stock of the Company owned by Optionee for
at least six (6) months prior to the date hereof (and which have been paid
for within the meaning of SEC Rule 144), or obtained by Optionee in the
open public market, and owned free and clear of all liens, claims,
encumbrances or security interests, valued at the current Fair Market Value
of $____________________ per share;
[ ] by the waiver hereby of compensation due or accrued to Optionee for
services rendered in the amount of $____________________________________;
[ ] through a "same-day-sale" commitment, delivered herewith, from Optionee
and the NASD Dealer named therein, in the amount of
$_______________________________; or
[ ] through a "margin" commitment, delivered herewith from Optionee and the
NASD Dealer named therein, in the amount of
$_________________________________________.
2. Market Standoff Agreement. Optionee, if requested by the Company and an
underwriter of Common Stock (or other securities) of the Company, agrees not to
sell or otherwise transfer or dispose of any Common Stock (or other securities)
of the Company held by Optionee during the period requested by the managing
underwriter following the effective date of a registration statement of the
Company filed under the Securities Act, provided that all officers and directors
of the Company are required to enter into similar agreements. Such agreement
shall be in writing in a form satisfactory to the Company and such underwriter.
The Company may impose stop-transfer instructions with respect to the shares (or
other securities) subject to the foregoing restriction until the end of such
period.
3. Tax Consequences. OPTIONEE UNDERSTANDS THAT OPTIONEE MAY SUFFER ADVERSE
TAX CONSEQUENCES AS A RESULT OF OPTIONEE'S PURCHASE OR DISPOSITION OF THE
SHARES. OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED WITH ANY TAX
CONSULTANT(S) OPTIONEE DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR
DISPOSITION OF THE SHARES AND THAT OPTIONEE IS NOT RELYING ON THE COMPANY FOR
ANY TAX ADVICE.
4. Entire Agreement. The Plan and Option Agreement are incorporated herein by
reference. This Exercise Agreement, the Plan and the Option Agreement
constitute the entire agreement and understanding of the parties and supersede
in their entirety all prior understandings and agreements of the Company and
Optionee with respect to the subject matter hereof, and are governed by
California law except for that body of law pertaining to choice of law or
conflict of law.
Date:
--------------------- ------------------------------------------
Signature of Optionee
<PAGE>
Spousal Consent
I acknowledge that I have read the foregoing Stock Option Exercise
Agreement (the "Agreement") and that I know its contents. I hereby consent to
and approve all of the provisions of the Agreement, and agree that the shares of
the Common Stock of AllAdvantage.com Inc. purchased thereunder (the "Shares")
and any interest I may have in such Shares are subject to all the provisions of
the Agreement. I will take no action at any time to hinder operation of the
Agreement on these Shares or any interest I may have in or to them.
Date:
- ---------------------------------------- ----------------------------
Signature of Optionee's Spouse
- ----------------------------------------
Spouse's Name - Typed or Printed
- ----------------------------------------
Optionee's Name - Typed or Printed
<PAGE>
No. ______
ALLADVANTAGE.COM INC.
2000 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
----------------------
This Stock Option Agreement (this "Agreement") is made and entered
into as of the Date of Grant set forth below (the "Date of Grant") by and
between AllAdvantage.com Inc., a Delaware corporation (the "Company"), and the
Optionee named below ("Optionee"). Capitalized terms not defined herein shall
have the meanings ascribed to them in the Company's 2000 Equity Incentive Plan
(the "Plan").
Optionee:
-------------------------------------------------
Social Security Number:
-------------------------------------------------
Optionee's Address:
-------------------------------------------------
-------------------------------------------------
Total Option Shares:
-------------------------------------------------
Exercise Price Per Share:
-------------------------------------------------
Date of Grant:
-------------------------------------------------
Expiration Date:
-------------------------------------------------
(unless earlier terminated under Section 3 hereof)
Type of Stock Option
(Check one): [_] Incentive Stock Option
[_] Nonqualified Stock Option
1. Grant of Option. The Company hereby grants to Optionee an option
---------------
(this "Option") to purchase up to the total number of shares of Common Stock of
the Company set forth above as Total Option Shares (collectively, the "Shares")
at the Exercise Price Per Share set forth above (the "Exercise Price"), subject
to all of the terms and conditions of this Agreement and the Plan. If
designated as an Incentive Stock Option above, this Option is intended to
qualify as an "incentive stock option" ("ISO") within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), to the extent
permitted under Code Section 422.
2. Vesting; Exercise Period.
------------------------
2.1 Vesting of Shares. This Option shall be exercisable as it
-----------------
vests. Subject to the terms and conditions of the Plan and this Agreement, this
Option shall vest and become exercisable as to portions of the Shares as
follows: (a) this Option shall not be exercisable with respect to any of the
Shares until _________________, 200__ (the "First Vesting Date"); (b) if
Optionee has continuously provided services to the Company, or any
<PAGE>
AllAdvantage.com Inc.
Stock Option Agreement
2000 Equity Incentive Plan
Parent or Subsidiary of the Company, then on the First Vesting Date, this Option
shall become exercisable as to _______________% of the Shares; and (c)
thereafter this Option shall become exercisable as to an additional
_____________% of the Shares on each monthly anniversary of the First Vesting
Date, provided that Optionee has continuously provided services to the Company,
or any Parent or Subsidiary of the Company, at all times during the relevant
month. This Option shall cease to vest upon Optionee's Termination and Optionee
shall in no event be entitled under this Option to purchase a number of shares
of the Company's Common Stock greater than the "Total Option Shares."
2.2 Vesting of Options. Shares that are vested pursuant to the
------------------
schedule set forth in Section 2.1 hereof are "Vested Shares." Shares that are
not vested pursuant to the schedule set forth in Section 2.1 hereof are
"Unvested Shares."
2.3 Expiration. This Option shall expire on the Expiration
----------
Date set forth above and must be exercised, if at all, on or before the earlier
of the Expiration Date or the date on which this Option is earlier terminated in
accordance with the provisions of Section 3 hereof.
3. Termination.
-----------
3.1 Termination for Any Reason Except Death, Disability or
------------------------------------------------------
Cause. If Optionee is Terminated for any reason except Optionee's death,
- -----
Disability or Cause, then this Option, to the extent (and only to the extent)
that it is vested in accordance with the schedule set forth in Section 2.1
hereof on the Termination Date, may be exercised by Optionee no later than three
(3) months after the Termination Date, but in any event no later than the
Expiration Date.
3.2 Termination Because of Death or Disability. If Optionee is
------------------------------------------
Terminated because of death or Disability of Optionee (or the Optionee dies
within three (3) months after Termination other than for Cause or because of
Disability), then this Option, to the extent that it is vested in accordance
with the schedule set forth in Section 2.1 hereof on the Termination Date, may
be exercised by Optionee (or Optionee's legal representative or authorized
assignee) no later than twelve (12) months after the Termination Date, but in
any event no later than the Expiration Date. Any exercise after three months
after the Termination Date when the Termination is for any reason other than
Optionee's death or disability, within the meaning of Code Section 22(e)(3),
shall be deemed to be the exercise of a nonqualified stock option.
3.3 Termination for Cause. If Optionee is Terminated for
---------------------
Cause, this Option will expire on the Optionee's date of Termination.
3.4 No Obligation to Employ. Nothing in the Plan or this
-----------------------
Agreement shall confer on Optionee any right to continue in the employ of, or
other relationship with, the Company or any Parent or Subsidiary of the Company,
or limit in any way the right of the Company or any Parent or Subsidiary of the
Company to terminate Optionee's employment or other relationship at any time,
with or without Cause.
2
<PAGE>
AllAdvantage.com Inc.
Stock Option Agreement
2000 Equity Incentive Plan
4. Manner of Exercise.
------------------
4.1 Stock Option Exercise Agreement. To exercise this Option,
-------------------------------
Optionee (or in the case of exercise after Optionee's death, Optionee's
executor, administrator, heir or legatee, as the case may be) must deliver to
the Company an executed stock option exercise agreement in the form attached
hereto as Exhibit A, or in such other form as may be approved by the Company
---------
from time to time (the "Exercise Agreement"), which shall set forth, inter alia,
----- ----
Optionee's election to exercise this Option, the number of shares being
purchased, any restrictions imposed on the Shares and any representations,
warranties and agreements regarding Optionee's investment intent and access to
information as may be required by the Company to comply with applicable
securities laws. If someone other than Optionee exercises this Option, then
such person must submit documentation reasonably acceptable to the Company that
such person has the right to exercise this Option.
4.2 Limitations on Exercise. This Option may not be exercised
-----------------------
unless such exercise is in compliance with all applicable federal and state
securities laws, as they are in effect on the date of exercise. This Option may
not be exercised as to fewer than 100 Shares unless it is exercised as to all
Shares as to which this Option is then exercisable.
4.3 Payment. The Exercise Agreement shall be accompanied by
-------
full payment of the Exercise Price for the Shares being purchased in cash (by
check), or where permitted by law:
(a) by cancellation of indebtedness of the Company to the Optionee;
(b) by surrender of shares of the Company's Common Stock that either: (1)
have been owned by Optionee for more than six (6) months and have been
paid for within the meaning of SEC Rule 144 (and, if such shares were
purchased from the Company by use of a promissory note, such note has
been fully paid with respect to such shares); or (2) were obtained by
Optionee in the open public market; and (3) are clear of all liens,
---
claims, encumbrances or security interests;
(c) by waiver of compensation due or accrued to Optionee for services
rendered;
(d) provided that a public market for the Company's stock exists: (1)
through a "same day sale" commitment from Optionee and a broker-dealer
that is a member of the National Association of Securities Dealers (an
"NASD Dealer") whereby Optionee irrevocably elects to exercise this
Option and to sell a portion of the Shares so purchased to pay for the
Exercise Price and whereby the NASD Dealer irrevocably commits upon
receipt of such Shares to forward the exercise price directly to the
Company; or (2) through a "margin" commitment from Optionee and an NASD
--
Dealer whereby Optionee irrevocably elects to exercise this Option and
to pledge the Shares
3
<PAGE>
AllAdvantage.com Inc.
Stock Option Agreement
2000 Equity Incentive Plan
so purchased to the NASD Dealer in a margin account as security for a
loan from the NASD Dealer in the amount of the Exercise Price, and
whereby the NASD Dealer irrevocably commits upon receipt of such Shares
to forward the Exercise Price directly to the Company; or
(e) by any combination of the foregoing.
4.4 Tax Withholding. Prior to the issuance of the Shares upon
---------------
exercise of this Option, Optionee must pay or provide for any applicable federal
or state withholding obligations of the Company. If the Committee permits,
Optionee may provide for payment of withholding taxes upon exercise of this
Option by requesting that the Company retain Shares with a Fair Market Value
equal to the minimum amount of taxes required to be withheld. In such case, the
Company shall issue the net number of Shares to the Optionee by deducting the
Shares retained from the Shares issuable upon exercise.
4.5 Issuance of Shares. Provided that the Exercise Agreement
------------------
and payment are in form and substance satisfactory to counsel for the Company,
the Company shall issue the Shares registered in the name of Optionee,
Optionee's authorized assignee, or Optionee's legal representative, and shall
deliver certificates representing the Shares with the appropriate legends
affixed thereto.
5. Notice of Disqualifying Disposition of ISO Shares. To the extent
-------------------------------------------------
this Option is an ISO, if Optionee sells or otherwise disposes of any of the
Shares acquired pursuant to the ISO on or before the later of (a) the date two
(2) years after the Date of Grant, and (b) the date one (1) year after transfer
of such Shares to Optionee upon exercise of this Option, then Optionee shall
immediately notify the Company in writing of such disposition.
6. Compliance with Laws and Regulations. The exercise of this Option
------------------------------------
and the issuance and transfer of Shares shall be subject to compliance by the
Company and Optionee with all applicable requirements of federal and state
securities laws and with all applicable requirements of any stock exchange on
which the Company's Common Stock may be listed at the time of such issuance or
transfer. Optionee understands that the Company is under no obligation to
register or qualify the Shares with the SEC, any state securities commission or
any stock exchange to effect such compliance.
7. Nontransferability of Option. This Option may not be transferred
----------------------------
in any manner other than under the terms and conditions of the Plan or by will
or by the laws of descent and distribution and may be exercised during the
lifetime of Optionee only by Optionee. The terms of this Option shall be
binding upon the executors, administrators, successors and assigns of Optionee.
8. Tax Consequences. Set forth below is a brief summary as of the
----------------
date the Board adopted the Plan of some of the federal tax consequences of
exercise of this Option and disposition of the Shares. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
OPTIONEE SHOULD
4
<PAGE>
AllAdvantage.com Inc.
Stock Option Agreement
2000 Equity Incentive Plan
CONSULT A TAX ADVISOR BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
8.1 Exercise of Incentive Stock Option. To the extent this
----------------------------------
Option qualifies as an ISO, there will be no regular federal income tax
liability upon the exercise of this Option, although the excess, if any, of the
fair market value of the Shares on the date of exercise over the Exercise Price
will be treated as a tax preference item for federal income tax purposes and may
subject the Optionee to the alternative minimum tax in the year of exercise.
8.2 Exercise of Nonqualified Stock Option. To the extent this
-------------------------------------
Option does not qualify as an ISO, there may be a regular federal income tax
liability upon the exercise of this Option. Optionee will be treated as having
received compensation income (taxable at ordinary income tax rates) equal to the
excess, if any, of the fair market value of the Shares on the date of exercise
over the Exercise Price. The Company may be required to withhold from
Optionee's compensation or collect from Optionee and pay to the applicable
taxing authorities an amount equal to a percentage of this compensation income
at the time of exercise.
8.3 Disposition of Shares. The following tax consequences may
---------------------
apply upon disposition of the Shares.
a. Incentive Stock Options. If the Shares are held
-----------------------
for twelve (12) months or more after the date of the transfer of the Shares
pursuant to the exercise of an ISO and are disposed of two (2) years or more
after the Date of Grant, any gain realized on disposition of the Shares will be
treated as capital gain for federal income tax purposes. If Shares purchased
under an ISO are disposed of within the applicable one (1) year or two (2) year
period, any gain realized on such disposition will be treated as compensation
income (taxable at ordinary income rates) to the extent of the excess, if any,
of the fair market value of the Shares on the date of exercise over the Exercise
Price.
b. Nonqualified Stock Options. If the Shares are
--------------------------
held for more than twelve (12) months after the date of the transfer of the
Shares pursuant to the exercise of an NQSO, any gain realized on disposition of
the Shares will be treated as long-term capital gain.
c. Withholding. The Company may be required to
-----------
withhold from Optionee's compensation or collect from the Optionee and pay to
the applicable taxing authorities an amount equal to a percentage of this
compensation income.
9. Privileges of Stock Ownership. Optionee shall not have any of the
-----------------------------
rights of a stockholder with respect to any Shares until the Shares are issued
to Optionee.
10. Interpretation. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Optionee or the Company to the Committee for
review. The resolution of such a dispute by the Committee shall be final and
binding on the Company and Optionee.
5
<PAGE>
AllAdvantage.com Inc.
Stock Option Agreement
2000 Equity Incentive Plan
11. Entire Agreement. The Plan is incorporated herein by reference.
----------------
This Agreement and the Plan and the Exercise Agreement constitute the entire
agreement and understanding of the parties hereto with respect to the subject
matter hereof and supersede all prior understandings and agreements with respect
to such subject matter.
12. Notices. Any notice required to be given or delivered to the
-------
Company under the terms of this Agreement shall be in writing and addressed to
the Corporate Secretary of the Company at its principal corporate offices. Any
notice required to be given or delivered to Optionee shall be in writing and
addressed to Optionee at the address indicated above or to such other address as
such party may designate in writing from time to time to the Company. All
notices shall be deemed to have been given or delivered upon: personal
delivery; three (3) days after deposit in the United States mail by certified or
registered mail (return receipt requested); one (1) business day after deposit
with any return receipt express courier (prepaid); or one (1) business day after
transmission by facsimile.
13. Successors and Assigns. The Company may assign any of its rights
----------------------
under this Agreement. This Agreement shall be binding upon and inure to the
benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer set forth herein, this Agreement shall be binding upon
Optionee and Optionee's heirs, executors, administrators, legal representatives,
successors and assigns.
14. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the internal laws of the State of California, without regard
to that body of law pertaining to choice of law or conflict of law.
15. Acceptance. Optionee hereby acknowledges receipt of a copy of the
----------
Plan and this Agreement. Optionee has read and understands the terms and
provisions thereof, and accepts this Option subject to all the terms and
conditions of the Plan and this Agreement. Optionee acknowledges that there may
be adverse tax consequences upon exercise of this Option or disposition of the
Shares and that the Company has advised Optionee to consult a tax advisor prior
to such exercise or disposition.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed in duplicate by its duly authorized representative and Optionee has
executed this Agreement in duplicate as of the Date of Grant.
ALLADVANTAGE.COM INC. OPTIONEE
By:
------------------------------ ---------------------------------------
(Signature)
------------------------------ ---------------------------------------
(Please print name) (Please print name)
------------------------------
(Please print title)
6
<PAGE>
EXHIBIT A
---------
STOCK OPTION EXERCISE AGREEMENT
<PAGE>
Exhibit A
---------
ALLADVANTAGE.COM INC.
2000 EQUITY INCENTIVE PLAN (the "Plan")
STOCK OPTION EXERCISE AGREEMENT
-------------------------------
I hereby elect to purchase the number of shares of Common Stock of
AllAdvantage.com Inc. (the "Company") as set forth below:
<TABLE>
<CAPTION>
<S> <C>
Optionee Number of Shares Purchased:
-------------------------------------------------- -------------------------------------
Social Security Number: Purchase Price per Share:
----------------------------------- --------------------------------------
Address: Aggregate Purchase Price:
-------------------------------------------------- --------------------------------------
Date of Option Agreement:
-------------------------------------------------- --------------------------------------
Type of Option: [ ] Incentive Stock Option Exact Name of Title to Shares:
[ ] Nonqualified Stock Option --------------------------------
</TABLE>
1. Delivery of Purchase Price. Optionee hereby delivers to the Company the
Aggregate Purchase Price, to the extent permitted in the Stock Option Agreement
(the "Option Agreement") as follows (check as applicable and complete):
[ ] in cash (by check) in the amount of $_____________________, receipt of
which is acknowledged by the Company;
[ ] by cancellation of indebtedness of the Company to Optionee in the amount
of $___________________________________;
[ ] by delivery of ______________________________ fully-paid, nonassessable
and vested shares of the Common Stock of the Company owned by Optionee for
at least six (6) months prior to the date hereof (and which have been paid
for within the meaning of SEC Rule 144), or obtained by Optionee in the
open public market, and owned free and clear of all liens, claims,
encumbrances or security interests, valued at the current Fair Market Value
of $____________________ per share;
[ ] by the waiver hereby of compensation due or accrued to Optionee for
services rendered in the amount of $____________________________________;
[ ] through a "same-day-sale" commitment, delivered herewith, from Optionee
and the NASD Dealer named therein, in the amount of
$_______________________________; or
[ ] through a "margin" commitment, delivered herewith from Optionee and the
NASD Dealer named therein, in the amount of
$_________________________________________.
2. Market Standoff Agreement. Optionee, if requested by the Company and an
underwriter of Common Stock (or other securities) of the Company, agrees not to
sell or otherwise transfer or dispose of any Common Stock (or other securities)
of the Company held by Optionee during the period requested by the managing
underwriter following the effective date of a registration statement of the
Company filed under the Securities Act, provided that all officers and directors
of the Company are required to enter into similar agreements. Such agreement
shall be in writing in a form satisfactory to the Company and such underwriter.
The Company may impose stop-transfer instructions with respect to the shares (or
other securities) subject to the foregoing restriction until the end of such
period.
3. Tax Consequences. OPTIONEE UNDERSTANDS THAT OPTIONEE MAY SUFFER ADVERSE
TAX CONSEQUENCES AS A RESULT OF OPTIONEE'S PURCHASE OR DISPOSITION OF THE
SHARES. OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED WITH ANY TAX
CONSULTANT(S) OPTIONEE DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR
DISPOSITION OF THE SHARES AND THAT OPTIONEE IS NOT RELYING ON THE COMPANY FOR
ANY TAX ADVICE.
4. Entire Agreement. The Plan and Option Agreement are incorporated herein by
reference. This Exercise Agreement, the Plan and the Option Agreement
constitute the entire agreement and understanding of the parties and supersede
in their entirety all prior understandings and agreements of the Company and
Optionee with respect to the subject matter hereof, and are governed by
California law except for that body of law pertaining to choice of law or
conflict of law.
Date:
--------------------- ------------------------------------------
Signature of Optionee
<PAGE>
Spousal Consent
I acknowledge that I have read the foregoing Stock Option Exercise
Agreement (the "Agreement") and that I know its contents. I hereby consent to
and approve all of the provisions of the Agreement, and agree that the shares of
the Common Stock of AllAdvantage.com Inc. purchased thereunder (the "Shares")
and any interest I may have in such Shares are subject to all the provisions of
the Agreement. I will take no action at any time to hinder operation of the
Agreement on these Shares or any interest I may have in or to them.
Date:
- ---------------------------------------- ----------------------------
Signature of Optionee's Spouse
- ----------------------------------------
Spouse's Name - Typed or Printed
- ----------------------------------------
Optionee's Name - Typed or Printed
<PAGE>
EXHIBIT 10.05
ALLADVANTAGE.COM INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
As Adopted February 23, 2000
1. Establishment of Plan. AllAdvantage.com Inc. (the "Company") proposes
to grant options for purchase of the Company's Common Stock to eligible
employees of the Company and its Participating Subsidiaries (as hereinafter
defined) pursuant to this Employee Stock Purchase Plan (this "Plan"). For
purposes of this Plan, "Parent Corporation" and "Subsidiary" shall have the same
meanings as "parent corporation" and "subsidiary corporation" in Sections 424(e)
and 424(f), respectively, of the Internal Revenue Code of 1986, as amended (the
"Code"). "Participating Subsidiaries" are Parent Corporations or Subsidiaries
that the Board of Directors of the Company (the "Board") designates from time to
time as corporations that shall participate in this Plan. The Company intends
this Plan to qualify as an "employee stock purchase plan" under Section 423 of
the Code (including any amendments to or replacements of such Section), and this
Plan shall be so construed. Any term not expressly defined in this Plan but
defined for purposes of Section 423 of the Code shall have the same definition
herein. A total of 600,000 shares of the Company's Common Stock is reserved for
issuance under this Plan. In addition, on each January 1, the aggregate number
of shares of the Company's Common Stock reserved for issuance under the Plan
shall be increased automatically by a number of shares equal to 1% of the total
number of outstanding shares of the Company Common Stock on the immediately
preceding December 31; provided, that the Board or the Committee may in its sole
--------
discretion reduce the amount of the increase in any particular year; and,
provided further, that the aggregate number of shares issued over the term of
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this Plan shall not exceed 6,000,000 shares. Such number shall be subject to
adjustments effected in accordance with Section 14 of this Plan.
2. Purpose. The purpose of this Plan is to provide eligible employees of
the Company and Participating Subsidiaries with a convenient means of acquiring
an equity interest in the Company through payroll deductions, to enhance such
employees' sense of participation in the affairs of the Company and
Participating Subsidiaries, and to provide an incentive for continued
employment.
3. Administration. This Plan shall be administered by the Compensation
Committee of the Board (the "Committee"). Subject to the provisions of this
Plan and the limitations of Section 423 of the Code or any successor provision
in the Code, all questions of interpretation or application of this Plan shall
be determined by the Committee and its decisions shall be final and binding upon
all participants. Members of the Committee shall receive no compensation for
their services in connection with the administration of this Plan, other than
standard fees as established from time to time by the Board for services
rendered by Board members serving on Board committees. All expenses incurred in
connection with the administration of this Plan shall be paid by the Company.
4. Eligibility. Any employee of the Company or the Participating
Subsidiaries is eligible to participate in an Offering Period (as hereinafter
defined) under this Plan except the following:
(a) employees who are not employed by the Company or a Participating
Subsidiary prior to the beginning of such Offering Period or prior to such other
time period as specified by the Committee, except that employees who are
employed on the Effective Date of the Registration Statement filed by the
Company with the Securities and Exchange Commission ("SEC") under the Securities
Act of 1933, as amended (the "Securities Act") registering the initial public
offering of the Company's Common Stock shall be eligible to participate in the
first Offering Period under the Plan;
(b) employees who are customarily employed for twenty (20) hours or
less per week;
(c) employees who are customarily employed for five (5) months or
less in a calendar year;
(d) employees who, together with any other person whose stock would be
attributed to such employee pursuant to Section 424(d) of the Code, own stock or
hold options to purchase stock possessing five
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All Advantage.com Inc.
2000 Employee Stock Purchase Plan
percent (5%) or more of the total combined voting power or value of all classes
of stock of the Company or any of its Participating Subsidiaries or who, as a
result of being granted an option under this Plan with respect to such Offering
Period, would own stock or hold options to purchase stock possessing five
percent (5%) or more of the total combined voting power or value of all classes
of stock of the Company or any of its Participating Subsidiaries; and
(e) individuals who provide services to the Company or any of its
Participating Subsidiaries as independent contractors who are reclassified as
common law employees for any reason except for federal income and employment tax
------ ---
purposes.
5. Offering Dates. The offering periods of this Plan (each, an "Offering
Period") shall be of twenty-four (24) months duration commencing on February 1
and August 1 of each year and ending on January 31 and July 31 of each year;
provided, however, that the first such Offering Period shall commence on the
- -----------------
first business day on which price quotations for the Company's Common Stock are
available on the Nasdaq National Market (the "First Offering Date") and shall
end on January 31, 2002. Except for the first Offering Period, each Offering
Period shall consist of four (4) six month purchase periods (individually, a
"Purchase Period") during which payroll deductions of the participants are
accumulated under this Plan. The first Offering Period shall consist of no more
than five and no fewer than three Purchase Periods, any of which may be greater
or less than six months as determined by the Committee. The first business day
of each Offering Period is referred to as the "Offering Date". The last
business day of each Purchase Period is referred to as the "Purchase Date". The
Committee shall have the power to change the Offering Dates, the Purchase Dates
and the duration of Offering Periods or Purchase Periods without stockholder
approval if such change is announced prior to the relevant Offering Period or
prior to such other time period as specified by the Committee.
6. Participation in this Plan. Eligible employees may become
participants in an Offering Period under this Plan on the first Offering Date
after satisfying the eligibility requirements by delivering a subscription
agreement to the Company prior to such Offering Date, or such other time period
as specified by the Committee. Notwithstanding the foregoing, the Committee may
set a later time for filing the subscription agreement authorizing payroll
deductions for all eligible employees with respect to a given Offering Period.
An eligible employee who does not deliver a subscription agreement to the
Company by such date after becoming eligible to participate in such Offering
Period shall not participate in that Offering Period or any subsequent Offering
Period unless such employee enrolls in this Plan by filing a subscription
agreement with the Company prior to such Offering Date, or such other time
period as specified by the Committee. Once an employee becomes a participant in
an Offering Period, such employee will automatically participate in the Offering
Period commencing immediately following the last day of the prior Offering
Period unless the employee withdraws or is deemed to withdraw from this Plan or
terminates further participation in the Offering Period as set forth in Section
11 below. Such participant is not required to file any additional subscription
agreement in order to continue participation in this Plan.
7. Grant of Option on Enrollment. Enrollment by an eligible employee in
this Plan with respect to an Offering Period will constitute the grant (as of
the Offering Date) by the Company to such employee of an option to purchase on
the Purchase Date up to that number of shares of Common Stock of the Company
determined by dividing (a) the amount accumulated in such employee's payroll
deduction account during such Purchase Period by (b) the lower of (i) eighty-
five percent (85%) of the fair market value of a share of the Company's Common
Stock on the Offering Date (but in no event less than the par value of a share
of the Company's Common Stock), or (ii) eighty-five percent (85%) of the fair
market value of a share of the Company's Common Stock on the Purchase Date (but
in no event less than the par value of a share of the Company's Common Stock),
provided, however, that the number of shares of the Company's Common Stock
- -----------------
subject to any option granted pursuant to this Plan shall not exceed the lesser
of (x) the maximum number of shares set by the Committee pursuant to Section
10(c) below with respect to the applicable Purchase Date, or (y) the maximum
number of shares which may be purchased pursuant to Section 10(b) below with
respect to the applicable Purchase Date. The fair market value of a share of
the Company's Common Stock shall be determined as provided in Section 8 below.
8. Purchase Price. The purchase price per share at which a share of
Common Stock will be sold in any Offering Period shall be eighty-five percent
(85%) of the lesser of:
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All Advantage.com Inc.
2000 Employee Stock Purchase Plan
(a) The fair market value on the Offering Date; or
(b) The fair market value on the Purchase Date.
For purposes of this Plan, the term "Fair Market Value" means, as of
any date, the value of a share of the Company's Common Stock determined as
follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on the date of
determination as reported in The Wall Street Journal;
-----------------------
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, its closing price on the date of determination on
the principal national securities exchange on which the Common Stock is listed
or admitted to trading as reported in The Wall Street Journal;
-----------------------
(c) if such Common Stock is publicly traded but is not quoted on the
Nasdaq National Market nor listed or admitted to trading on a national
securities exchange, the average of the closing bid and asked prices on the date
of determination as reported in The Wall Street Journal; or
-----------------------
(d) if none of the foregoing is applicable, by the Board in good
faith, which in the case of the First Offering Date will be the price per share
at which shares of the Company's Common Stock are initially offered for sale to
the public by the Company's underwriters in the initial public offering of the
Company's Common Stock pursuant to a registration statement filed with the SEC
under the Securities Act.
9. Payment Of Purchase Price; Changes In Payroll Deductions; Issuance Of
Shares.
(a) The purchase price of the shares is accumulated by regular
payroll deductions made during each Offering Period. The deductions are made as
a percentage of the participant's compensation in one percent (1%) increments
not less than one percent (1%), nor greater than fifteen percent (15%) or such
lower limit set by the Committee. Compensation shall mean all W-2 cash
compensation, including, but not limited to, base salary, wages, commissions,
overtime and shift premiums, plus draws against commissions, provided, however,
-------- -------
that for purposes of determining a participant's compensation, any election by
such participant to reduce his or her regular cash remuneration under Sections
125 or 401(k) of the Code shall be treated as if the participant did not make
such election. Payroll deductions shall commence on the first payday of the
Offering Period and shall continue to the end of the Offering Period unless
sooner altered or terminated as provided in this Plan.
(b) A participant may increase or decrease the rate of payroll
deductions during an Offering Period by filing with the Company a new
authorization for payroll deductions, in which case the new rate shall become
effective for the next payroll period commencing after the Company's receipt of
the authorization and shall continue for the remainder of the Offering Period
unless changed as described below. Such change in the rate of payroll
deductions may be made at any time during an Offering Period, but not more than
one (1) change may be made effective during any Purchase Period. A participant
may increase or decrease the rate of payroll deductions for any subsequent
Offering Period by filing with the Company a new authorization for payroll
deductions prior to the beginning of such Offering Period, or such other time
period as specified by the Committee.
(c) A participant may reduce his or her payroll deduction percentage
to zero during an Offering Period by filing with the Company a request for
cessation of payroll deductions. Such reduction shall be effective beginning
with the next payroll period after the Company's receipt of the request and no
further payroll deductions will be made for the duration of the Offering Period.
Payroll deductions credited to the participant's account prior to the effective
date of the request shall be used to purchase shares of Common Stock of the
Company in accordance with Section (e) below. A participant may not resume
making payroll deductions during the Offering Period in which he or she reduced
his or her payroll deductions to zero.
(d) All payroll deductions made for a participant are credited to his
or her account under this Plan and are deposited with the general funds of the
Company. No interest accrues on the payroll deductions. All
3
<PAGE>
All Advantage.com Inc.
2000 Employee Stock Purchase Plan
payroll deductions received or held by the Company may be used by the Company
for any corporate purpose, and the Company shall not be obligated to segregate
such payroll deductions.
(e) On each Purchase Date, so long as this Plan remains in effect and
provided that the participant has not submitted a signed and completed
withdrawal form before that date which notifies the Company that the participant
wishes to withdraw from that Offering Period under this Plan and have all
payroll deductions accumulated in the account maintained on behalf of the
participant as of that date returned to the participant, the Company shall apply
the funds then in the participant's account to the purchase of whole shares of
Common Stock reserved under the option granted to such participant with respect
to the Offering Period to the extent that such option is exercisable on the
Purchase Date. The purchase price per share shall be as specified in Section 8
of this Plan. Any cash remaining in a participant's account after such purchase
of shares shall be refunded to such participant in cash, without interest;
provided, however that any amount remaining in such participant's account on a
Purchase Date which is less than the amount necessary to purchase a full share
of Common Stock of the Company shall be carried forward, without interest, into
the next Purchase Period or Offering Period, as the case may be. In the event
that this Plan has been oversubscribed, all funds not used to purchase shares on
the Purchase Date shall be returned to the participant, without interest. No
Common Stock shall be purchased on a Purchase Date on behalf of any employee
whose participation in this Plan has terminated prior to such Purchase Date.
(f) As promptly as practicable after the Purchase Date, the Company
shall issue shares for the participant's benefit representing the shares
purchased upon exercise of his or her option.
(g) During a participant's lifetime, his or her option to purchase
shares hereunder is exercisable only by him or her. The participant will have
no interest or voting right in shares covered by his or her option until such
option has been exercised.
10. Limitations on Shares to be Purchased.
(a) No participant shall be entitled to purchase stock under this
Plan at a rate which, when aggregated with his or her rights to purchase stock
under all other employee stock purchase plans of the Company or any Subsidiary,
exceeds $25,000 in fair market value, determined as of the Offering Date (or
such other limit as may be imposed by the Code) for each calendar year in which
the employee participates in this Plan. The Company shall automatically suspend
the payroll deductions of any participant as necessary to enforce such limit
provided that when the Company automatically resumes such payroll deductions,
the Company must apply the rate in effect immediately prior to such suspension.
(b) No more than two hundred percent (200%) of the number of shares
determined by using eighty-five percent (85%) of the fair market value of a
share of the Company's Common Stock on the Offering Date as the denominator may
be purchased by a participant on any single Purchase Date.
(c) No participant shall be entitled to purchase more than the
Maximum Share Amount (as defined below) on any single Purchase Date. Prior to
the commencement of any Offering Period or prior to such time period as
specified by the Committee, the Committee may, in its sole discretion, set a
maximum number of shares which may be purchased by any employee at any single
Purchase Date (hereinafter the "Maximum Share Amount"). Until otherwise
determined by the Committee, there shall be no Maximum Share Amount. In no
event shall the Maximum Share Amount exceed the amounts permitted under Section
10(b) above. If a new Maximum Share Amount is set, then all participants must
be notified of such Maximum Share Amount prior to the commencement of the next
Offering Period. The Maximum Share Amount shall continue to apply with respect
to all succeeding Purchase Dates and Offering Periods unless revised by the
Committee as set forth above.
(d) If the number of shares to be purchased on a Purchase Date by all
employees participating in this Plan exceeds the number of shares then available
for issuance under this Plan, then the Company will make a pro rata allocation
of the remaining shares in as uniform a manner as shall be reasonably
practicable and as the Committee shall determine to be equitable. In such
event, the Company shall give written notice of such reduction of the number of
shares to be purchased under a participant's option to each participant
affected.
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All Advantage.com Inc.
2000 Employee Stock Purchase Plan
(e) Any payroll deductions accumulated in a participant's account
which are not used to purchase stock due to the limitations in this Section 10
shall be returned to the participant as soon as practicable after the end of the
applicable Purchase Period, without interest.
11. Withdrawal.
(a) Each participant may withdraw from an Offering Period under this
Plan by signing and delivering to the Company a written notice to that effect on
a form provided for such purpose. Such withdrawal may be elected at any time
prior to the end of an Offering Period, or such other time period as specified
by the Committee.
(b) Upon withdrawal from this Plan, the accumulated payroll
deductions shall be returned to the withdrawn participant, without interest, and
his or her interest in this Plan shall terminate. In the event a participant
voluntarily elects to withdraw from this Plan, he or she may not resume his or
her participation in this Plan during the same Offering Period, but he or she
may participate in any Offering Period under this Plan which commences on a date
subsequent to such withdrawal by filing a new authorization for payroll
deductions in the same manner as set forth in Section 6 above for initial
participation in this Plan.
(c) If the Fair Market Value on the first day of the current Offering
Period in which a participant is enrolled is higher than the Fair Market Value
on the first day of any subsequent Offering Period, the Company will
automatically enroll such participant in the subsequent Offering Period. Any
funds accumulated in a participant's account prior to the first day of such
subsequent Offering Period will be applied to the purchase of shares on the
Purchase Date immediately prior to the first day of such subsequent Offering
Period, if any.
12. Termination of Employment. Termination of a participant's
employment for any reason, including retirement, death or the failure of a
participant to remain an eligible employee of the Company or of a Participating
Subsidiary, immediately terminates his or her participation in this Plan. In
such event, the payroll deductions credited to the participant's account will be
returned to him or her or, in the case of his or her death, to his or her legal
representative, without interest. For purposes of this Section 12, an employee
will not be deemed to have terminated employment or failed to remain in the
continuous employ of the Company or of a Participating Subsidiary in the case of
sick leave, military leave, or any other leave of absence approved by the Board;
provided that such leave is for a period of not more than ninety (90) days or
- --------
reemployment upon the expiration of such leave is guaranteed by contract or
statute.
13. Return of Payroll Deductions. In the event a participant's interest
in this Plan is terminated by withdrawal, termination of employment or
otherwise, or in the event this Plan is terminated by the Board, the Company
shall deliver to the participant all payroll deductions credited to such
participant's account. No interest shall accrue on the payroll deductions of a
participant in this Plan.
14. Capital Changes. Subject to any required action by the stockholders
of the Company, the number of shares of Common Stock covered by each option
under this Plan which has not yet been exercised and the number of shares of
Common Stock which have been authorized for issuance under this Plan but have
not yet been placed under option (collectively, the "Reserves"), as well as the
price per share of Common Stock covered by each option under this Plan which has
not yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued and outstanding shares of Common Stock of the
Company resulting from a stock split or the payment of a stock dividend (but
only on the Common Stock) or any other increase or decrease in the number of
issued and outstanding shares of Common Stock effected without receipt of any
consideration by the Company; provided, however, that conversion of any
-----------------
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the
Committee, whose determination shall be final, binding and conclusive. Except
as expressly provided herein, no issue by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to an option.
5
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All Advantage.com Inc.
2000 Employee Stock Purchase Plan
In the event of the proposed dissolution or liquidation of the
Company, the Offering Period will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the
Committee. The Committee may, in the exercise of its sole discretion in such
instances, declare that this Plan shall terminate as of a date fixed by the
Committee and give each participant the right to purchase shares under this Plan
prior to such termination. In the event of (i) a merger or consolidation in
which the Company is not the surviving corporation (other than a merger or
consolidation with a wholly-owned subsidiary, a reincorporation of the Company
in a different jurisdiction, or other transaction in which there is no
substantial change in the stockholders of the Company or their relative stock
holdings and the options under this Plan are assumed, converted or replaced by
the successor corporation, which assumption will be binding on all
participants), (ii) a merger in which the Company is the surviving corporation
but after which the stockholders of the Company immediately prior to such merger
(other than any stockholder that merges, or which owns or controls another
corporation that merges, with the Company in such merger) cease to own their
shares or other equity interest in the Company, (iii) the sale of all or
substantially all of the assets of the Company or (iv) the acquisition, sale, or
transfer of more than 50% of the outstanding shares of the Company by tender
offer or similar transaction, the Plan will continue with regard to Offering
Periods that commenced prior to the closing of the proposed transaction and
shares will be purchased based on the Fair Market Value of the surviving
corporation's stock on each Purchase Date, unless otherwise provided by the
Committee consistent with pooling of interests accounting treatment.
The Committee may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per share of Common Stock covered by each outstanding option, in the event that
the Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of shares of its outstanding Common
Stock, or in the event of the Company being consolidated with or merged into any
other corporation.
15. Nonassignability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under this Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 22 below) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be void and
without effect.
16. Reports. Individual accounts will be maintained for each participant
in this Plan. Each participant shall receive promptly after the end of each
Purchase Period a report of his or her account setting forth the total payroll
deductions accumulated, the number of shares purchased, the per share price
thereof and the remaining cash balance, if any, carried forward to the next
Purchase Period or Offering Period, as the case may be.
17. Notice of Disposition. Each participant shall notify the Company in
writing if the participant disposes of any of the shares purchased in any
Offering Period pursuant to this Plan if such disposition occurs within two (2)
years from the Offering Date or within one (1) year from the Purchase Date on
which such shares were purchased (the "Notice Period"). The Company may, at any
time during the Notice Period, place a legend or legends on any certificate
representing shares acquired pursuant to this Plan requesting the Company's
transfer agent to notify the Company of any transfer of the shares. The
obligation of the participant to provide such notice shall continue
notwithstanding the placement of any such legend on the certificates.
18. No Rights to Continued Employment. Neither this Plan nor the grant
of any option hereunder shall confer any right on any employee to remain in the
employ of the Company or any Participating Subsidiary, or restrict the right of
the Company or any Participating Subsidiary to terminate such employee's
employment.
19. Equal Rights And Privileges. All eligible employees shall have
equal rights and privileges with respect to this Plan so that this Plan
qualifies as an "employee stock purchase plan" within the meaning of Section 423
or any successor provision of the Code and the related regulations. Any
provision of this Plan which is inconsistent with Section 423 or any successor
provision of the Code shall, without further act or amendment by the Company,
the Committee or the Board, be reformed to comply with the requirements of
Section 423. This Section 19 shall take precedence over all other provisions in
this Plan.
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All Advantage.com Inc.
2000 Employee Stock Purchase Plan
20. Notices. All notices or other communications by a participant to
the Company under or in connection with this Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
21. Term; Stockholder Approval. After this Plan is adopted by the
Board, this Plan will become effective on the First Offering Date (as defined
above). This Plan shall be approved by the stockholders of the Company, in any
manner permitted by applicable corporate law, within twelve (12) months before
or after the date this Plan is adopted by the Board. No purchase of shares
pursuant to this Plan shall occur prior to such stockholder approval. This Plan
shall continue until the earlier to occur of (a) termination of this Plan by the
Board (which termination may be effected by the Board at any time), (b) issuance
of all of the shares of Common Stock reserved for issuance under this Plan, or
(c) ten (10) years from the adoption of this Plan by the Board.
22. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
this Plan in the event of such participant's death subsequent to the end of an
Purchase Period but prior to delivery to him of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under this Plan in the event
of such participant's death prior to a Purchase Date.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and
in the absence of a beneficiary validly designated under this Plan who is living
at the time of such participant's death, the Company shall deliver such shares
or cash to the executor or administrator of the estate of the participant, or if
no such executor or administrator has been appointed (to the knowledge of the
Company), the Company, in its discretion, may deliver such shares or cash to the
spouse or to any one or more dependents or relatives of the participant, or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.
23. Conditions Upon Issuance of Shares; Limitation on Sale of Shares.
Shares shall not be issued with respect to an option unless the exercise of such
option and the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange or automated quotation system upon which the shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
24. Applicable Law. The Plan shall be governed by the substantive laws
(excluding the conflict of laws rules) of the State of California.
25. Amendment or Termination of this Plan. The Board may at any time
amend, terminate or extend the term of this Plan, except that any such
termination cannot affect options previously granted under this Plan, nor may
any amendment make any change in an option previously granted which would
adversely affect the right of any participant, nor may any amendment be made
without approval of the stockholders of the Company obtained in accordance with
Section 21 above within twelve (12) months of the adoption of such amendment (or
earlier if required by Section 21) if such amendment would:
(a) increase the number of shares that may be issued under this Plan;
or
(b) change the designation of the employees (or class of employees)
eligible for participation in this Plan.
Notwithstanding the foregoing, the Board may make such amendments to
the Plan as the Board determines to be advisable, if the continuation of the
Plan or any Offering Period would result in financial accounting treatment for
the Plan that is different from the financial accounting treatment in effect on
the date this Plan is adopted by the Board.
7
<PAGE>
AllAdvantage.com INC. 2000 EMPLOYEE STOCK PURCHASE PLAN
ENROLLMENT FORM
<TABLE>
<CAPTION>
<S> <C>
Check One: Complete:
[ ] New Enrollment or Re-enrollment Social Security No.____________________________________
[ ] Change Employee No. __________________________________________
[ ] Change in How Shares Are to Be Held in Account
[ ] Increase in Payroll Deduction Level [ ] this Purchase Period [ ] next Offering Period
[ ] Decrease in Payroll Deduction Level [ ] this Purchase Period [ ] next Offering Period
[ ] Suspension of Payroll Deductions for Open Offering Period (Attach Completed Suspension Form)
[ ] Withdrawal (Attach Completed Withdrawal Form)
[ ] Beneficiary Change
</TABLE>
1. Name of Participant ______________________________________________________
2. Shares purchased under the Plan should be held in account with the Plan
Broker in my name or in my name together with the name(s) indicated below:
Name ___________________________ Social Security No. __________________
Name ___________________________ Social Security No. __________________
There may be tax consequences for naming individuals other than your spouse
on the account in which Shares purchased under the Plan are held. If spouse
(circle one): Joint Tenants/Community Property.
Please notify the Plan Broker directly to transfer or sell your stock.
3. Payroll Deduction Level (from 1% to 15% in whole percentages):____________
(the percentage deduction will be made from your W-2 compensation including
base salary, commissions, overtime, shift premiums, bonuses and draws
against commissions)
4. I confirm my spouse's interest (if married) in the community property
herein, and I hereby designate the following person(s) as my
beneficiary(ies) to receive all payments and/or stock attributable to my
interest under the Plan:
<TABLE>
<CAPTION>
<S> <C>
NAME *To be divided ADDRESS
as follows:
- ------------------------------------------ ------------------- ------------------------------------------------------
Last First M.I. Number Street
- ------------------------------------------ ------------------------------------------------------
Social Security No. Relationship City State Zip
- ------------------------------------------ ------------------- ------------------------------------------------------
Last First M.I. Number Street
- ------------------------------------------ ------------------------------------------------------
Social Security No. Relationship City State Zip
</TABLE>
* If more than one beneficiary: (1) insert "in equal shares", or (2) insert
percentage to be paid to each beneficiary.
5. The information provided on this Enrollment Form will remain in effect
unless and until I complete and submit to AllAdvantage.com Inc. a new
enrollment form.
ALLADVANTAGE.COM INC. OFFICE USE:
Signature: Date received by the
------------------------ ---------------------
Name: Date entered into system:
----------------------------- ----------------
Date: Please return this completed form to
----------------------------- AllAdvantage.com Inc.
<PAGE>
ALLADVANTAGE.COM INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
1. I elect to participate in the AllAdvantage.com Inc. (the "Company") 2000
Employee Stock Purchase Plan (the "Plan") and to subscribe to purchase
shares of the Company's Common Stock (the "Shares") in accordance with this
Subscription Agreement and the Plan.
2. I authorize payroll deductions from each of my paychecks in that percentage
of my base salary, commissions, overtime, shift premiums, bonuses and draws
against commissions as shown on my Enrollment Form, in accordance with the
Plan.
3. I understand that such payroll deductions shall be accumulated for the
purchase of Shares under the Plan at the applicable purchase price
determined in accordance with the Plan. I further understand that except as
otherwise set forth in the Plan, Shares will be purchased for me
automatically at the end of each Purchase Period unless I withdraw from the
Plan or otherwise become ineligible to participate in the Plan.
4. I understand that this Subscription Agreement will automatically re-enroll
me in all subsequent Offering Periods unless I withdraw from the Plan or I
become ineligible to participate in the Plan.
5. I acknowledge that I have a copy of and am familiar with the Company's most
recent Prospectus which describes the Plan. A copy of the complete Plan and
the Prospectus is on file with the Company. (In the case of the initial
Plan Purchase Period, the Prospectus will be on file on the first day of
the Offering Period.)
6. I understand that Shares purchased for me under the Plan will be held in a
personal account with the Plan Broker unless I request otherwise.
7. I hereby agree to be bound by the terms of the Plan. The effectiveness of
this Subscription Agreement is dependent upon my eligibility to participate
in the Plan.
8. I have read and understood this Subscription Agreement.
Signature:
--------------------------------
Name:
-------------------------------------
Date:
-------------------------------------
Please return this completed form to the Company.
<PAGE>
ALLADVANTAGE.COM INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF SUSPENSION
I, ________________________, the undersigned participant in the Offering
Period of the AllAdvantage.com Inc. 2000 Employee Stock Purchase Plan (the
"Plan") which began on _______________, hereby notify AllAdvantage.com Inc. (the
"Company") that I wish to suspend my payroll deductions to the Plan for the
remainder of the Offering Period. I understand and agree that my request will
be effective beginning with the next payroll period after the Company receives
this Notice of Suspension. I understand and agree that payroll deductions
credited to my account prior to the date this Notice of Suspension is effective
will be used to purchase shares on the next Purchase Date. I further understand
that no additional payroll deductions will be made for the purchase of shares in
the current Offering Period, and I will be eligible to participate in succeeding
Offering Periods only by timely delivering to the Company a new Subscription
Agreement and Enrollment Form.
Name and address of Participant (please print):
Name:
----------------------------------------------------------------------
Street Address or P.O. Box:
------------------------------------------------
City, State ZIP:
-----------------------------------------------------------
- ------------------------------------- ------------------------------
Signature Date
Please return this form to the Company.
10
<PAGE>
ALLADVANTAGE.COM INC.
2000 Employee Stock Purchase Plan
Notice of Withdrawal
I, , the undersigned participant in the Offering
------------------------
Period of the AllAdvantage.com Inc. 2000 Employee Stock Purchase Plan (the
"Plan") which began on , hereby notify AllAdvantage.com Inc. (the
---------------
"Company") that I wish to withdraw from the Offering Period. I direct the
Company to pay to me as promptly as practicable all payroll deductions credited
to my account with respect to such Offering Period. I understand and agree that
my participation in the Plan will terminate and no shares will be purchased for
me at the end of the Purchase Period so long as I submit this Notice of
Withdrawal to the Company within a reasonable time period prior to the end of
the Purchase Period, or such other time period as specified by the Company. I
understand and agree that if I do not submit this Notice of Withdrawal to the
Company within a reasonable time period for the Company to withdraw my account
prior to the end of the Purchase Period or within such time period as specified
by the Company, shares will be purchased for me at the end of the Purchase
Period, and my participation in the Plan will end at the beginning of the next
Purchase Period or Offering Period, as the case may be. I further understand
that no additional payroll deductions will be made for the purchase of shares in
the current Offering Period, and I shall be eligible to participate in
succeeding Offering Periods only by timely delivering to the Company a new
Subscription Agreement and Enrollment Form.
Name and address of Participant (please print):
Name:
----------------------------------------------------------------------
Street Address or P.O. Box:
------------------------------------------------
City, State ZIP:
-----------------------------------------------------------
- ------------------------------------- ------------------------------
Signature Date
Please return this form to the Company.
<PAGE>
Exhibit 21.01
List of Subsidiaries
--------------------
. AllAdvantage.com Limited, an English company.
. AllAdvantage.com International Inc., a Delaware corporation.
. AllAdvantage.com France S.A.R.L., a French company.
. AllAdvantage.com Germany GmbH, a German company.
. AllAdvantage.com Australia Pty. Ltd., an Australian company.
. AllAdvantage.com New Zealand Limited, a New Zealand company.
. AllAdvantage.com Denmark Aps, a Danish company.
. AllAdvantage.com Italy s.r.l., an Italian company.
. AllAdvantage.com Japan, Ltd., a Japanese company.
. AllAdvantage.com Canada Inc., a Canadian corporation.
<PAGE>
Exhibit 23.02
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 3, 2000 (except for Note 10, as to which
the date is April , 2000), in Amendment No. 3 to the Registration Statement
(Form S-1) and related Prospectus of AllAdvantage.com Inc.
Ernst & Young LLP
Palo Alto, California
April , 2000
- --------------------------------------------------------------------------------
The foregoing consent is in the form that will be signed upon the completion
of the reincorporation and other matters described in Note 10 to the
consolidated financial statements.
/s/ Ernst & Young LLP
Palo Alto, California
April 27, 2000
