<PAGE>
As filed with the Securities and Exchange Commission on February 29, 2000
Registration No. 333-96271
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 1
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 FEBRUARY 29, 2000.
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 $ and $ per
share. We have applied to list our common stock on The Nasdaq Stock Market's
National Market under the symbol "AADV."
The underwriters have an option to purchase a maximum of additional
shares to cover over-allotments of shares.
Investing in the common stock involves risks. See "Risk Factors" on page 6.
<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 seven 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: "About.com," "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-"
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.com logo without the word AllAdvantage.com 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 consumers through a persistent, one to one marketing
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 "Consumers."
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 left side of the
logo containing the words "Advertising & Promotional $" and the other at the
right hand side of the logo containing the words "Demographic & Behavioral Data"
and two arrows point away from the logo one from the bottom left hand side of
the logo containing the words "Targeting Capability & Increased ROI" and one
from the bottom right hand side of the logo containing the words "Functionality,
$ and Privacy."
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>
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Special Note Regarding Forward-Looking Statements........................ 18
Use of Proceeds.......................................................... 19
Dividend Policy.......................................................... 19
Capitalization........................................................... 20
Dilution................................................................. 22
Selected Consolidated Financial Data..................................... 23
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 24
Business................................................................. 30
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management................................................................. 45
Related Party Transactions................................................. 55
Principal Stockholders..................................................... 59
Description of Capital Stock............................................... 61
Shares Eligible for Future Sale............................................ 65
Underwriting............................................................... 67
Notice to Canadian Residents............................................... 70
Legal Matters.............................................................. 71
Experts.................................................................... 71
Where You Can Find Additional Information.................................. 71
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.
Please see "Special Note Regarding Forward-Looking Statements" on page 18 for
information on how those results may differ.
AllAdvantage.com Inc.
AllAdvantage has built a new Internet communications platform that connects
businesses and consumers using our proprietary Web interface and extensive
database of member profiles. We provide businesses with a powerful online
advertising, direct marketing and electronic commerce tool to target and reach
our large community of members. We provide our members cash compensation, as
well as simplified Internet navigation and electronic commerce links that
enhance their Internet experience.
Through our Web interface, and with our members' express permission, we
continuously track and collect data about their Internet behavior and
demographic information in order to develop highly accurate and detailed
personal profiles. While keeping each of our member's personal data private, we
use these profiles to enable businesses to reach their desired audience more
effectively by delivering highly-targeted advertisements to, and conducting
electronic commerce with, our members. In this way, we have become a leading
Internet-based information intermediary, or infomediary, acting as the
gatekeeper to our members while maintaining their privacy.
At the core of our service is the AllAdvantage Viewbar, an interactive
communications window that is persistently displayed on our members' computer
screens. The Viewbar is the channel through which we deliver highly-targeted
advertisements and direct marketing messages to, and collect data from, our
members. The Viewbar also facilitates Internet navigation and electronic
commerce and contains our advertising windows, a search field and pop-up menus
that contain direct links to over 400 Web sites.
From our inception in March 1999 to January 31, 2000, over 5.3 million users
registered to receive our service. We launched our Viewbar service in July 1999
and have activated the Viewbar for members in the United States, Australia,
Canada, France, Germany, New Zealand and the United Kingdom. We intend to
introduce our Viewbar service in additional countries during the first quarter
of 2000. During the three months ended January 31, 2000, over 1.7 million
members actively used our service, and we delivered advertisements for over
1,100 businesses. In the month of January 2000, we delivered over 6 billion
advertising impressions on our Viewbar.
Our objective is to become the leading Internet-based infomediary,
redefining the way businesses and consumers interact on the Internet. Key
elements of our strategy include expanding our database of profiled members,
expanding our business customer base, increasing the features and functionality
of our Viewbar and utilizing our communications platform to generate new
revenue opportunities. Also, we believe that, by increasing the number of our
members and the number of business customers using our communications channel,
we can offer increasingly compelling benefits to both businesses and members.
We were incorporated in California on March 24, 1999, and we intend to
reincorporate in Delaware prior to the closing of this offering. As of January
31, 2000, we had 390 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.
3
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered by AllAdvantage................ shares
Common stock to be outstanding after this offering.. shares
Use of proceeds..................................... For general corporate purposes, including
working capital and capital expenditures. See
"Use of Proceeds."
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 December 31, 1999, adjusted for the
issuance of 16,453,926 shares of our Series D preferred stock in February 2000.
This number of shares excludes:
. additional shares of common stock which will be issued upon conversion
of the Series D preferred stock in the event that the initial public
offering price is less than $12.10 per share; the number of additional
shares issuable increases as the initial public offering price
decreases, with the maximum number of additional shares equal to
approximately 4,132,231 shares;
. 10,484,233 shares issuable upon the exercise of stock options
outstanding as of December 31, 1999, at a weighted-average exercise
price of $0.69 per share;
. 477,550 shares issuable upon the exercise of warrants for Series C
preferred stock outstanding as of December 31, 1999 at an exercise price
of $0.03 per share, which will become exercisable for common stock upon
the completion of this offering;
. shares issuable upon the exercise of stock options granted after
December 31, 1999 and outstanding on , 2000, at a weighted-average
exercise price of $ per share;
. 75,000 shares issuable upon the exercise of a warrant for Series D
preferred stock issued after December 31, 1999 and outstanding on
February 4, 2000, at an exercise price of $6.05 per share, which will
become exercisable for common stock upon the completion of this
offering; and
. shares available for future issuance under the 1999 Equity
Incentive Plan and 2000 Equity Incentive Plan of our California
predecessor on , 2000 and our 2000 Equity Incentive Plan and 2000
Employee Stock Purchase Plan on , 2000, subject to automatic annual
increases each January 1 as described under "Management--Employee
Benefit Plans."
----------------
Except as otherwise indicated, all information in this prospectus assumes:
. the conversion of all outstanding shares of preferred stock into
shares of common stock upon the consummation of this offering at the
assumed public offering price of $ per share;
. 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.com Inc.
and may be registered in other jurisdictions. Each trademark or service mark of
any other company appearing in this prospectus belongs to its holder.
4
<PAGE>
Summary Consolidated Financial Data
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Period from Period from
Inception Three Months Inception
(March 24, 1999) Ended (March 24, 1999)
To September 30, December 31, To December 31,
1999 1999 1999
---------------- ------------ ----------------
(unaudited)
<S> <C> <C> <C>
Consolidated Statement of
Operations Data:
Revenues........................ $ 235 $ 5,016 $ 5,251
Loss from operations............ (8,428) (28,214) (36,642)
Net loss........................ (8,988) (28,121) (37,109)
Net loss per share(1):..........
Basic and diluted net loss per
share ....................... $ (1.27) $ (3.52) $ (5.04)
Shares used in per share
calculation ................. 7,050 8,000 7,367
Pro forma basic and diluted
net loss per share
(unaudited) ................. $ (0.97)
Shares used in pro forma per
share calculation
(unaudited) ................. 38,287
</TABLE>
The actual column in the following table presents actual summary
consolidated balance sheet data as of December 31, 1999. The pro forma
consolidated balance sheet data below reflects the sale of 16,453,926 shares of
our Series D preferred stock in February 2000 for net proceeds of approximately
$94.5 million, the conversion of all outstanding shares of preferred stock into
68,588,612 shares of common stock and the filing of our amended and restated
certificate of incorporation upon completion of this offering. The pro forma as
adjusted consolidated balance sheet data below also reflects the receipt of the
net proceeds from the sale of the shares of common stock offered by us at
an assumed initial public offering price of $ per share and after
deducting the estimated underwriting discounts and commissions and estimated
offering expenses payable by us.
<TABLE>
<CAPTION>
December 31, 1999
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(unaudited)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and restricted cash
(2)......................................... $ 30,019 $124,563 $
Working capital (deficit).................... (4,476) 90,068
Total assets................................. 39,871 134,415
Capital lease obligations, net of current
portion..................................... 254 254 254
Deferred stock compensation.................. (18,572) (18,572) (18,572)
Total stockholders' equity (net capital
deficiency)................................. (25) 94,519
</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) Restricted cash was $10.0 million at December 31, 1999 and represented the
portion of the November 1999 $20 million customer advance not then
available for our use. Five million dollars of this restricted cash became
unrestricted on January 12, 2000, and the remaining $5.0 million will
become unrestricted on February 12, 2000.
5
<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 since July 1999 and the current version of our Viewbar was released in
January 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 in August 1999. As a result, you should not
consider our recent revenue growth as an indication of our future rate of
revenue growth. We had incurred net losses of $37.1 million as of December 31,
1999, and we expect to continue to incur operating losses for at least the next
two years. 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 compensation for issuances of
stock options. Our revenues may never exceed our expenses, so we may never
achieve profitability.
Our quarterly operating results may 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 are likely to cause these variations,
many of which are outside of our control. These factors include:
. changes in our revenue levels due to the advertising and marketing
budget cycles of our business customers;
. changes in our pricing policies, the pricing policies of our direct
competitors or the pricing policies for Internet advertising and
marketing generally;
. our rate of member acquisition and the level of activity of new and
existing members;
. changes in direct member expenditures, member referral expenditures and
other sales and marketing costs that we incur to attract and retain
members;
. the introduction of new products and services by us or by our
competitors;
. unexpected costs and delays resulting from the expansion of our
operations; and
. the occurrence of technical difficulties or unscheduled system downtime.
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 be
able to support our operations.
We currently depend primarily on our ability to generate advertising
revenues in order to support our operations. We generate, or intend to
generate, revenues from a variety of different arrangements including
6
<PAGE>
sales of traditional and highly-targeted advertising, sponsorships,
performance-based arrangements, referrals to third-party Web-sites, branded
product arrangements and sales of digital products and generalized market data.
During the fourth quarter of 1999, 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 targeted
advertising. In light of these factors, we cannot assure you that we will be
able to generate sufficient advertising or other revenues to support our
operations.
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.
We expect that the current version of the Viewbar, released in January 2000,
will be downloaded by existing members over the next several months and will be
available for download by new members starting in February 2000. We may
experience technical and customer support issues associated with this
introduction. We may also lose members who have used the prior version of our
Viewbar and either choose not to spend the time, or are unable, to upgrade
their Viewbar. We may also lose existing members who do not like aspects of the
current version of our Viewbar.
If we fail to grow or retain 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. 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 grow or retain our member base if a significant
number of our current registered members stopped using our service. Our members
are not required to use our service for a minimum period of time under our
membership agreement. 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;
7
<PAGE>
. reliability issues, which we have experienced in the past and might
experience in the future, might cause member dissatisfaction;
. our members might forget their passwords;
. the Viewbar software might not be compatible with our members' Internet
service providers, Internet browsers or other 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;
. the imposition of 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 cannot assure you that we will be able to address these issues
successfully and retain our existing member base.
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 Depatie, our Chief Financial Officer, joined us in October 1999, Tobin
Trevarthen, our Vice President Business Development, joined us in January 2000
and David Martin, our Vice President Business Intelligence, joined us in
January 2000. There can be no assurance that we will successfully assimilate
our recently hired officers or that we can 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 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.
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 403 employees and contractors on January 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. Our membership growth 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 operational and financial systems;
. coordinate 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
8
<PAGE>
personnel. We may also be unable to retain the employees 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 and 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. 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 may significantly decrease if we were to lose key business
customers.
A significant portion of our revenues to date have 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 through
December 31, 1999. We do not have long-term contracts with most of our business
customers, and 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.
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. If
we are unable to compete successfully our business may fail.
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
9
<PAGE>
for Internet advertising and sponsorship revenues will be providers of targeted
online advertisements. We 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. 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.
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. 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. If
we are unable to compete successfully, our business may fail.
We will not be able to support increased numbers of members if we are unable to
enhance our network infrastructure.
Our network infrastructure is composed of a complex system of profiling,
member profile, advertising, payment and web servers. Service interruptions
within our network have occurred in the past and may occur in the future,
especially when usage exceeds capacity. Failures of our server networks would
prevent us from generating advertising revenues and could harm our reputation.
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.
If the software or hardware we use contains errors, our business could be
seriously harmed.
The software and hardware we use to operate and provide our products and
services is complex and, accordingly, may contain undetected errors or
failures. We have in the past, and may in the future, encounter errors in the
software or hardware used to operate and provide our products and services. In
the past, these errors have resulted in occasional interruptions of, or
degradation in, our service for several hours at a time. Future hardware or
software errors could result in a variety of adverse consequences, including:
. members being disconnected from our service or being unable to access
our service;
. 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.
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
10
<PAGE>
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. Third
parties may also potentially expose us to liability by posing as an
AllAdvantage employee. 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 conditions.
Our revenues could be harmed if programs that indicate an inactive member is
using the Internet or that disable the Viewbar become prevalent.
Various software programs have been developed that specifically target the
Viewbar and that falsely indicate a member is using the Internet. These
programs may result in members being paid by us when those members are not
actively using the Internet. Additionally, software programs have been
developed that attempt to blank out, or block, advertisements on the Viewbar or
completely delete the Viewbar from members' computer screens. While we believe
we have been able to limit the effectiveness of these attempts and that to date
they have not interrupted our operations, we cannot assure you that these
attempts will not disrupt our operations in the future. 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 may have no means of replacing
this equipment on a timely basis or at all and our service may 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.
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 businesses. 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 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.
11
<PAGE>
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 and has experienced degraded performance due to
unpredictable system malfunctions on our host's system. In the fourth quarter
of 1999, the longest period during which our Web site was unavailable was less
than two hours. Members may become frustrated with any further difficulties
with our Web site and discontinue using our service as a result.
Servers
The applications that run our various servers and networks run on
commercially available computers provided primarily by Sun Microsystems, Cisco
Systems and third party Intel processor-based manufacturers. These complex
computers can be expected to fail periodically, leading to the possible
interruption of service to our members. Although steps have been taken to
provide redundancy in order to minimize dependency on individual computer and
network connections, from time to time our members will experience outages
resulting from failures of these system components.
Our member referral program could generate negative media attention.
We rely primarily on member referrals to add to our membership. Although we
maintain an anti-spam policy regarding email solicitations for membership
growth, it is difficult for us to monitor the use of email by our members to
solicit referrals. Anti-spam groups or activists might generate negative media
attention respecting member referral activities. 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 for each hour the Viewbar is
used, increasing or decreasing the amount paid for each hour the Viewbar is
used by referred members, 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, any of which could significantly harm our business.
12
<PAGE>
We rely on our intellectual property rights, and 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
may attempt to copy or otherwise obtain and use our technology. Monitoring
unauthorized use of our technology is difficult, and we cannot be certain that
the steps we have taken will prevent unauthorized use of our technology,
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 one U.S. registered copyright. We have pending U.S. patent and
copyright applications and pending U.S. and foreign trademark applications. We
cannot assure you that our pending patent or trademark applications will be
approved, or that any of our applications for registration of our copyrights
will be granted. Even if they are approved or 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 registrations are not approved because third parties own these
trademarks, our use of these trademarks would be restricted unless we entered
into arrangements with the third-party owners, which might not be possible on
reasonable terms.
We may incur substantial costs and diversion of management resources if we
infringe upon the proprietary rights of others.
Our business activities may infringe upon the proprietary rights of others.
From time to time, we have received and may continue to receive, claims of
infringement against us. We have a license from each developer of the software
that we use in our software. Although we do not believe that the intellectual
property we use, or any of the other elements of our business, infringe on the
proprietary rights of any third parties, 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, patent claims could be
asserted against us based upon our services or technologies.
We have received notices from two third parties regarding their Internet
business model patents. We have reviewed these patents with outside counsel and
believe that we do not infringe these patents. However, any litigation filed by
these third parties could be costly and could distract managements' attention
from operating matters, which could harm our business. In addition, an adverse
judgment in any such litigation 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 certain technologies or engaging in certain 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 away 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 incorporates the
challenged intellectual property;
. make significant changes to the structure and operation of our business;
. 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, or may not be possible at all. Accordingly, an adverse determination
in any litigation that we are a party to would harm our business, results of
operations and financial condition.
13
<PAGE>
We may be subject to currency regulation.
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 any governmental agency deemed that our current
or any future services are subject to currency regulation, the cost of
compliance could harm our results of operations.
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 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 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. We cannot assure you that electronic commerce
will 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 or make investments in businesses, products, services or
technologies to implement our business strategy. We do not have any present
understanding regarding, nor are we having any discussions relating to, any
acquisition or investment. We have not made a significant acquisition or
investment to date. If we acquire businesses, products, services or
technologies, we could have difficulty in assimilating them into our
operations. These difficulties could disrupt our ongoing business, distract our
management and employees and increase our expenses. In addition, effecting
acquisitions could require use of a significant amount of our available cash.
Furthermore, we 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 and investments 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 as to 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, we cannot ensure
that these entities will comply
14
<PAGE>
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. Most of the laws governing Internet
transactions have not been substantially revised or updated to fully
accommodate electronic commerce. Moreover, it may take years to determine the
extent to which existing laws relating to issues such as intellectual property
ownership and infringement 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 revised 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 the use of the Internet. 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 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,
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. We believe this program complies with
applicable regulation. 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 may 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. In addition, our liability insurance may not cover
potential claims relating to the services we provide or may not be adequate to
indemnify us for all liabilities that may be imposed on us.
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 certain states have been investigating Internet
companies regarding their use of personal information. The federal government
recently enacted legislation protecting the privacy of consumer nonpublic
personal information collected by financial institutions. 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.
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
15
<PAGE>
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 members sign up for our services may be lower
during certain 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 we cannot assure you that
usage of the Internet will 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, we
cannot assure you that the Internet infrastructure will be able 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.
Our stock price could fall as a result of continued losses and negative cash
flow.
As of December 31, 1999, we had an accumulated deficit of approximately
$37.1 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 revenue. 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 could suffer.
16
<PAGE>
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;
. changes in financial estimates of securities analysts;
. the failure of securities analysts to follow our stock;
. the operating and stock price performance of other comparable companies;
and
. actual or anticipated changes in economic conditions generally.
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, 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. 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. 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. Please see "Shares Eligible For Future Sale" beginning on
page 65 for a more detailed discussion of when and how many additional shares
of our stock may be sold after this offering.
Provisions in our charter documents and Delaware law could prevent or delay a
change in control of AllAdvantage and may 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;
17
<PAGE>
. 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. Please see "Description of Capital Stock--
Anti-Takeover Provisions" beginning on page 63 for detailed information on
these protective provisions.
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 $ in the net
tangible book value per share of our common stock from the price you pay for
our common stock. Please see "Dilution" beginning on page 22 for detailed
information on the dilution you will incur. 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. We cannot assure you that our investments and use of the net
proceeds of this offering will 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 % 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
% 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 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.
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. We
undertake no obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including new law 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.
18
<PAGE>
USE OF PROCEEDS
The net proceeds to us from the sale of the shares of common stock
offered by us will be approximately $ million, or approximately $
million if the underwriters' over-allotment option is exercised in full, at an
assumed initial public offering price of $ per share and after deducting
estimated underwriting discounts and commissions and the estimated offering
expenses payable by us.
We intend to use the net proceeds from this offering primarily for general
corporate purposes, such as working capital and capital expenditures. We may
use a portion of the net proceeds from this offering to acquire or invest in
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, with respect to any transactions of this type.
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.
19
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization and our cash, cash
equivalents and restricted cash, as of December 31, 1999:
. on an actual basis;
. on a pro forma basis to reflect the sale of 16,453,926 shares of our
Series D preferred stock in February 2000 for net proceeds of
approximately $94.5 million, and the conversion of all outstanding
shares of preferred stock into 68,588,612 shares of common stock prior
to the closing of this offering; and
. on a pro forma as adjusted basis to reflect in addition, the receipt of
the net proceeds from sale of shares of common stock offered by us
at an assumed initial public offering price of $ per share and
after deducting estimated underwriting discounts and commissions and the
estimated offering expenses payable by us and the filing of our amended
and restated certificate of incorporation upon completion of this
offering.
<TABLE>
<CAPTION>
December 31, 1999
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands except share
data)
<S> <C> <C> <C>
Cash, cash equivalents and restricted cash
(1)........................................... $ 30,019 $124,563 $
======== ======== ========
Capital lease obligations, net of current
portion....................................... $ 254 $ 254 $ 254
-------- -------- --------
Stockholders' equity (net capital deficiency):
Convertible preferred stock, $0.001 par
value: 22,663,266 shares authorized,
19,567,343 shares issued and outstanding,
actual; 36,335,044 shares authorized, none
issued or outstanding, pro forma; 5,000,000
shares authorized, none issued and
outstanding pro forma as adjusted........... 20 -- --
Common stock, $0.001 par value: 116,000,000
shares authorized, 28,498,133 shares issued
and outstanding, actual; 150,000,000 shares
authorized, 97,086,745 shares issued and
outstanding, pro forma; shares
authorized, shares issued and
outstanding, pro forma as adjusted.......... 28 97
Additional paid-in capital................... 55,608 150,103
Deferred stock compensation.................. (18,572) (18,572) (18,572)
Accumulated deficit.......................... (37,109) (37,109) (37,109)
-------- -------- --------
Total stockholders' equity (net capital
deficiency)............................... (25) 94,519
-------- -------- --------
Total capitalization..................... $ 229 $ 94,773 $
======== ======== ========
</TABLE>
- --------
(1) Restricted cash was $10.0 million as of December 31, 1999 and represented
the portion of a November 1999 $20 million customer advance not then
available for our use. Five million dollars of this restricted cash became
unrestricted on January 12, 2000, and the remaining $5.0 million will
become unrestricted on February 12, 2000.
The number of shares of common stock shown as outstanding in the table above
excludes the following:
. additional shares of common stock which will be issued upon conversion
of the Series D preferred stock in the event that the initial public
offering price is less than $12.10 per share; the number of additional
shares issuable increases as the initial public offering price
decreases, with the maximum number of additional shares equal to
approximately 4,132,231;
20
<PAGE>
. 10,484,233 shares issuable upon the exercise of stock options
outstanding as of December 31, 1999, at a weighted average exercise
price of $0.69 per share;
. 477,550 shares issuable upon the exercise of warrants for Series C
preferred stock outstanding as of December 31, 1999, at an exercise
price of $0.03 per share, which will become exercisable for common stock
upon the completion of this offering;
. shares issuable upon the exercise of stock options granted after
December 31, 1999 and outstanding on , 2000, at a weighted average
exercise price of $ per share;
. 75,000 shares issuable upon the exercise of a warrant for Series D
preferred stock issued after December 31, 1999 and outstanding on
February 4, 2000, at an exercise price of $6.05 per share, which will
become exercisable for common stock upon the completion of this
offering;
. shares available for future issuance under the 1999 equity
incentive plan and 2000 equity incentive plan of our California
predecessor on 2000 and our 2000 equity incentive plan and 2000
employee stock purchase plan on 2000, subject to automatic annual
increases each January 1 as described under "Management--Employee
Benefit Plans."
The number of shares of common stock shown as outstanding in the table above
assumes that no adjustment will be made to the ratio at which our Series D
preferred stock will convert into common stock in connection with this
offering. If the initial public offering price of the shares in this offering
is less than $12.10 then the conversion ratio for the Series D preferred stock
will be adjusted such that each share of Series D preferred stock will convert
into that number of shares of common stock equal to the result obtained by
dividing $6.05 by the greater of one-half of the offering price or $4.84.
21
<PAGE>
DILUTION
As of December 31, 1999, our pro forma net tangible book value was
approximately $94.5 million, or $0.97 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 sale of 16,453,926 shares of our
Series D preferred stock in February 2000 for net proceeds of approximately
$94.5 million and the conversion of all outstanding shares of preferred stock
into 68,588,612 shares of common stock upon completion of this offering at an
assumed initial offering price of $ per share. 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 net pro forma 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
shares of our common stock at an assumed initial public offering price
of $ per share and after deducting estimated underwriting discounts and
commissions and the estimated offering expenses, our pro forma net tangible
book value as of December 31, 1999 would have been approximately $
million, or $ per share. This represents an immediate increase in pro
forma net tangible book value of $ per share to existing stockholders and
an immediate dilution of $ 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.......... $
Pro forma net tangible book value per share as of
December 31, 1999..................................... $ 0.97
Increase per share attributable to new investors.......
------
Pro forma net tangible book value per share after this
offering................................................
--------
Dilution per share to new investors...................... $
========
</TABLE>
The following table summarizes as of December 31, 1999, 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 underwriting discounts and commissions and the
estimated offering expenses:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ -------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 97,086,745 % $128,985,000 % $1.33
New investors...........
---------- ----- ------------ ----- -----
Total................. 100.0% $ 100.0% $
========== ===== ============ ===== =====
</TABLE>
The above discussion and tables assume no exercise of any stock options or
warrants for common stock outstanding as of December 31, 1999. As of December
31, 1999, there were options outstanding to purchase a total of 10,484,233
shares of common stock at a weighted-average exercise price of $0.69 per share
and 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. In addition, between
December 31, 1999 and 2000, we issued options to purchase a total of
shares of common stock at a weighted-average exercise price of $ per
share, and a warrant to purchase 75,000 shares of Series D preferred stock at
an exercise price of $6.05 per share, which will become exercisable for 75,000
shares of common stock at an exercise price of $6.05 per share upon completion
of this offering. There are also shares of common stock available for
future issuance under our employee benefit plans as of , 2000. If any of
these options or warrants are exercised, there will be further dilution to new
public investors. Please see "Capitalization," "Management--Employee Benefit
Plans," and notes 4, 5, 10 and 11 of notes to consolidated financial
statements.
22
<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 and the three months ended December 31, 1999
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
(March 24, 1999) Ended (March 24, 1999)
To September 30, 1999 December 31, 1999 To December 31, 1999
--------------------- ----------------- ---------------------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenues................ $ 235 $ 5,016 $ 5,251
Costs and expenses:
Direct member costs... 2,192 14,949 17,141
Sales and marketing... 1,580 10,022 11,602
General and
administrative....... 3,302 5,042 8,344
Product development... 1,267 1,644 2,911
Depreciation and
amortization......... 78 270 348
Stock-based
compensation......... 244 1,303 1,547
------- -------- --------
Total costs and
expenses........... 8,663 33,230 41,893
------- -------- --------
Loss from operations.... (8,428) (28,214) (36,642)
Interest expense........ (570) (257) (827)
Interest income......... 10 350 360
------- -------- --------
Net loss................ $(8,988) $(28,121) $(37,109)
======= ======== ========
Net loss per share(1):
Basic and diluted net
loss per share....... $ (1.27) $ (3.52) $ (5.04)
Shares used in per
share calculation.... 7,050 8,000 7,367
Pro forma basic and
diluted net loss per
share (unaudited) ... $ (0.97)
Shares used in pro
forma per share
calculation
(unaudited) ......... 38,287
</TABLE>
<TABLE>
<CAPTION>
As of
December 31, 1999
-----------------
<S> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and restricted cash(2)................. $ 30,019
Working capital (deficit)..................................... (4,476)
Total assets.................................................. 39,871
Capital lease obligations, net of current portion............. 254
Deferred stock compensation................................... (18,572)
Net capital deficiency........................................ (25)
</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 per share amounts .
(2) Restricted cash was $10.0 million at December 31, 1999 and represented the
portion of the November 1999 $20.0 million customer advance not then
available for our use. Five million dollars of this restricted cash became
unrestricted on January 12, 2000, and the remaining $5.0 million will
become unrestricted on February 12, 2000.
23
<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. This prospectus contains forward-looking
statements that involve risks and uncertainties. Our actual results could
differ significantly from those projected in the forward-looking statements as
a result of many factors, including those discussed in "Risk Factors,"
"Business" and elsewhere in this prospectus. We assume no obligation to update
the forward-looking statements or these factors.
Overview
AllAdvantage is a leading Internet 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 activity
and demographics. We use this data to build accurate and detailed member
profiles. While keeping each of our members' personal data private, we use
these profiles to provide businesses with a powerful online advertising, direct
marketing and electronic commerce channel to more effectively reach the desired
audience. 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 released the first version of our
Viewbar in July 1999. We released the current version of our Viewbar to
selected members in January 2000, and plan a full release to current and new
members during the first quarter of 2000.
Revenues
We first recognized revenue in August 1999. In 1999, we generated
substantially all of our revenues from the sale of online advertisements on our
Viewbar. More recently, we have also generated revenue from commissions for
referring electronic commerce, fees for directing members to our business
customers' Web sites and the sale of sponsorships on the 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 arrangements, we may receive a fixed fee or a fee based on the
usage of the respective pop-up menu or search field. 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 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 the satisfaction of other performance criteria. 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 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.
24
<PAGE>
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.
Direct Member Costs. Direct member costs consist of costs incurred to
compensate each member for using 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, members
are paid only after having accrued a minimum account balance of $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 programs, 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 $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. These referral payments are 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
Period from Inception (March 24, 1999) to December 31, 1999
Revenues. 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. 24/7
Media, a third-party advertising sales organization, sold advertisements that
accounted for approximately 19% of our revenues. These advertisements were
typically not 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 advertising sales. To date, substantially all of our revenues have
been derived from United States business customers.
25
<PAGE>
Direct Member Costs. 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 period
from inception (March 24, 1999) to December 31, 1999 were $11.6 million. During
that period, member referral costs were $3.0 million and costs related to the
delivery of advertisements to the Viewbar were $2.9 million. 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 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 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 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
period from inception (March 24, 1999) to December 31, 1999 were $1.5 million.
The remaining deferred stock compensation at December 31, 1999 was $18.6
million, which 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. Terminations of option holders could cause
stock-based compensation in future years to be less than indicated.
Interest expense. 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.
Interest Income. 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 period from inception (March 24, 1999) to December 31,
1999 because we incurred losses from inception through that date. 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, certain future changes in our share ownership may restrict our
ability to utilize our net operating loss carryforwards.
26
<PAGE>
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 $94.5 million through the issuance of
Series D convertible preferred stock in a private placement.
Cash and cash equivalents, including restricted cash, were $30.0 million at
December 31, 1999. 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. Five million dollars of this restricted cash became unrestricted
on January 12, 2000, and the remaining $5.0 million will become unrestricted on
February 12, 2000.
Net cash used in operating activities was $9.9 million for the period from
inception (March 24, 1999) to December 31, 1999. Net cash used in operating
activities consisted primarily of our net loss, substantially offset by
increases in accounts payable and other accrued liabilities, accrued member
payables and the unrestricted portion of a customer advance.
Net cash used in investing activities was $4.3 million for the period from
inception (March 24, 1999) to December 31, 1999. 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 $34.2 million for the period
from inception (March 24, 1999) to December 31, 1999. Net cash provided by
financing activities consisted primarily of the net proceeds from the private
sale of convertible preferred stock, proceeds from the issuance of convertible
notes payable and proceeds from the exercise of options to purchase common
stock.
As of December 31, 1999, our principal commitments consisted of operating
and capital leases. Future minimum cash payments under these non-cancelable
commitments are $1.5 million through the year 2000. In addition, in January
2000, we entered into several non-cancelable commitments for office leases for
the year beginning in January 2000, 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 are required to provide a letter of credit of $2 million, which may increase
to as much as $6.3 million, as a security deposit. In addition, we currently
have commitments for capital expenditures of approximately $1.1 million.
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. Thereafter, however, we may need
to raise additional funds to fund expansion, including significant increases in
member costs, 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. In addition, to meet our long-term liquidity needs, we may need to
raise additional funds, establish credit facilities or seek other financing
arrangements. Additional funding may not be available on favorable terms, on a
timely basis or at all.
Year 2000 Compliance
The "Year 2000 Issue" refers generally to the problems that some software
may have in determining the correct century for the year. For example, software
with date-sensitive functions that is not Year 2000 compliant may not be able
to distinguish whether "00" means 1900 or 2000, which may result in failures or
the creation of erroneous results.
27
<PAGE>
Some commentators have predicted significant litigation regarding Year 2000
compliance issues, and we are aware of lawsuits against software vendors.
Because of the unprecedented nature of this litigation, it is uncertain whether
or to what extent we may be affected by it.
We designed our Internet-based programs as well as our Web site and related
technology infrastructure to be Year 2000 compliant, provided that the
underlying operating systems of our vendors', suppliers' and members' computers
and any other software and hardware used on their computers are Year 2000
compliant.
We have defined Year 2000 compliant as the ability to:
. correctly handle date information needed for the December 31, 1999 to
January 1, 2000 date change;
. function according to the product documentation provided for this date
change, without changes in operation resulting from the advent of a new
century, assuming correct configuration;
. respond to two-digit date input in a way that resolves the ambiguity as
to century in a disclosed, defined and predetermined manner;
. store and provide output of date information in ways that are
unambiguous as to century if that date elements in interfaces and data
specify the century; and
. recognize Year 2000 as a leap year;
provided that all other products, such as hardware, software and firmware, used
with our products properly exchange and recognize date data.
However, we rely on third-party hardware and software in the operation of
our business. We believe we have identified all of the major information
systems used in our internal operations, including operating systems, databases
and the software residing between databases and the user interface, and have
substantially completed all modifications, upgrades or replacements to minimize
the possibility of a material disruption of our business. These remediation
activities include updating these systems to the newest versions, which are
claimed to be Year 2000 compliant, and applying patches to current versions.
The expenditures that we have incurred to date and the expenditures we expect
to incur in this regard have not been and are not expected to be material to
our business, results of operations and financial condition.
We have also contacted the vendors of third-party hardware and software we
use in order to gauge their Year 2000 compliance. Based on these vendors'
representations and the activities we have conducted, we believe that the
third-party hardware and software we use are Year 2000 compliant. We cannot
assure you, however, that we will not experience unanticipated negative
consequences, including material costs caused by undetected errors or defects
in the technology used in our internal systems. If, in the future, it comes to
our attention that the software underlying our e-mail or Internet-based
programs requires modification, or that any of our third-party hardware and
software is not Year 2000 compliant, then we will seek to make modifications to
our systems. In this case, we expect these modifications will not have a
material effect on our results of operations. There can be no assurance,
however, that we will be able to modify our systems in a timely and successful
manner to comply with the Year 2000 requirements. Any failure to do so could
have a material adverse effect on our business, results of operations and
financial conditions. The worst case scenario for Year 2000 problems for us if
the third-party hardware and software we use in our service were to prove not
to be Year 2000 compliant would be the need to cease normal operations for an
indefinite period of time if our Web site were to become inoperative and the
need to fix transactions that were incorrectly processed or recorded.
We do not currently have complete information concerning the Year 2000
compliance status of our business customers. We have contacted business
customers to remind them of the Year 2000 problem and its potential effects on
their systems and to gauge their Year 2000 compliance. To the extent that our
business customers are no longer able to process transactions, process them
incorrectly, or transmit incorrect data to our systems, our business could be
harmed. If our current or future business customers fail to achieve Year 2000
28
<PAGE>
compliance or if they divert expenditures, especially technology expenditures
that were reserved for promotional products, to address Year 2000 compliance
problems, our business, results of operations or financial condition could be
materially harmed.
If Year 2000 issues prevent our members from accessing the Internet, our
business and operations will suffer. Any failure of our systems and our
communications infrastructure with respect to the Year 2000 problem could
result in:
. an extended interruption of our ability to provide services to our
members and to fulfill commitments to our business customers;
. our members and business customers seeking alternate providers or
advertising space; or
. an unmanageable burden on member service and technical support.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivatives 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. 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.
We will be required to implement SFAS 133, as amended, for fiscal year 2001.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, or SAB 101. SAB 101 summarizes certain areas 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.
We did not have any foreign currency hedging or other derivative financial
instruments as of December 31, 1999.
Inflation
The impact of inflation on our business has not been material.
29
<PAGE>
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 is a leading Internet-based intermediary, or infomediary, that
enables businesses to deliver highly-targeted advertisements to, and conduct
electronic commerce with, a large community of profiled members. We have built
an Internet communications platform that connects businesses and consumers
through our proprietary Web interface, the AllAdvantage Viewbar. The Viewbar is
an interactive communications window that is persistently displayed on each
member's computer screen. The Viewbar is also the channel through which we
deliver highly-targeted advertising, direct marketing messages, electronic
commerce opportunities and digital products. The Viewbar also facilitates
Internet navigation and electronic commerce with our business customers, and
includes search capabilities and pop-up menus that contain direct links to over
400 Web sites.
With our members' express permission, we continuously track and collect data
about their Internet behavior and demographics with our proprietary Viewbar
technology. We use our proprietary database and profiling technology to develop
detailed personal profiles of our members. We use these profiles to provide
businesses with a powerful online advertising, direct marketing and electronic
commerce channel to more effectively reach their desired audience while keeping
each of our member's personal data private. To our members, we provide cash
compensation, as well as simplified Internet navigation and electronic commerce
links that enhance their Internet experience.
We believe that, by increasing our membership, our value to business
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 increasingly compelling benefits to consumers, thereby enhancing our
ability to attract new members. The combination of these benefits to businesses
and consumers has the potential to create a self-perpetuating cycle of
increasing membership and increasing value to businesses.
Between our inception in March 1999 and January 31, 2000, over 5.3 million
users registered to receive our Viewbar service. We launched our Viewbar
service in July 1999 and, have made the Viewbar available for our members in
the United States, Australia, Canada, France, Germany, New Zealand and the
United Kingdom. Similarly, we intend to introduce our Viewbar service to our
members in additional countries during the first quarter of 2000. During the
three months ended January 31, 2000, over 1.7 million members actively used our
service. Since the introduction of our Viewbar in July 1999, we have delivered
advertisements for over 148 advertisers obtained by our direct sales force and
973 additional advertisers obtained through third party sales organizations. In
January 2000, we delivered over 6 billion advertising impressions on our
Viewbar.
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 502 million by
the end of 2003. IDC further estimates that worldwide electronic commerce over
the Internet will increase from $111 billion in 1999 to $1.3 trillion in 2003.
30
<PAGE>
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
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 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 empower
consumers to realize value from their data while protecting their privacy.
The AllAdvantage Solution
AllAdvantage is a leading 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 businesses with these
members through our Viewbar, an interactive communications window that is
persistently displayed on our members' computer screens. The Viewbar displays
advertising and also contains features such as a search field and menus of
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 activity. Using our proprietary database and profiling system, we then
create, and continuously update, accurate and detailed profiles 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 the Viewbar.
31
<PAGE>
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, 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. This highly targeted advertising is designed to generate higher
consumer response rates and advertising impact and, as a result, provide
businesses with a higher return on their marketing investments.
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
efficiently send more complex and appealing graphics, or rich media, to our
members.
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 data to assist our business
customers to more effectively target their future campaigns.
32
<PAGE>
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 who accrue a minimum
balance can receive the cash they earn in the form of a check we mail to them.
We have recently begun to enable our members to use the funds in their accounts
to make purchases online. Members can also be paid when other people they have
directly or indirectly referred to us become members and use the Internet while
their Viewbars are active.
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.
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
It is our objective to be 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 to businesses
through traditional marketing channels. We will also utilize multiple points of
contact with consumers, including our Viewbar, Web site, email and direct mail,
to increase brand awareness.
33
<PAGE>
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. Further, we intend to continue to grow our community
internationally by introducing the Viewbar in additional countries.
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 better evaluate, develop,
execute, analyze and refine their marketing campaigns.
Increase Targeted Advertising Sales. Businesses generally pay higher rates
for targeted online advertising than for traditional online advertising. 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.
Pursue New Revenue Opportunities. We intend to leverage the purchasing power
of our large membership base and the functionality of the Viewbar to
aggressively pursue new revenue opportunities, 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 using our extensive, aggregated market data, that will not
personally identify members; and
. Co-branded Products and Services. We intend to offer business the
opportunity to sell co-branded products and services, such as
permission-based email, financial services and telecommunication
services, to our large membership community.
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 a menu bar and search field 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.
Enhance our Profiling and Data Analysis Technology. We intend to continue to
enhance our proprietary profiling and data analysis technology. We intend to
maximize the effectiveness of our targeted advertising capabilities by 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 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
34
<PAGE>
members' Internet activity and through which we deliver highly-targeted
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 January 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."
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 seven 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:
"About.com," "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
and 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 seven 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.
. Advertising Windows. To the right of the search field, there are spaces
for standard-sized and tile-sized advertisements, both of which are
updated several times a minute.
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 account balance. Time for which a member is eligible for
payment is capped at a maximum number of 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 referred to us directly or indirectly 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 their referrals' usage is based on an hourly rate
and is also limited by the Internet usage of the original referring member.
Our membership agreement specifies that we may alter the member payment
structure at any time. Users sign up free of 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;
35
<PAGE>
. 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.
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, the Viewbar, to
obtain additional specialized third party product and service offerings.
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 more
combinations 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 have generated
a significant portion of our total advertising sales 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 revenue from targeted advertising.
Media Strategy
We offer business customers comprehensive 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 customer's online
media plan.
Digital Products
The Viewbar is designed to serve as a digital distribution channel that our
business customers may use to distribute software, music, video and other
digital products directly to our members. For example, we currently
36
<PAGE>
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 the certain 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 may also receive an up-front payment or fee in these arrangements.
AllAdvantage Business Customers
From the introduction of our Viewbar in July 1999 through December 1999, we
have delivered advertisements for 148 advertisers obtained by our direct sales
force and 973 additional advertisers obtained through third party advertising
sales organizations. During that period, we entered into agreements with
DoubleClick and 24/7 Media under which they sell Viewbar advertising on behalf
of AllAdvantage.
Sales and Marketing
Customer Acquisition
We acquire business customers through our direct sales force and third-party
advertising sales organizations. As of January 31, 2000, our sales and
marketing organization included 156 employees located in the following
metropolitan areas: Atlanta, Boston, Charlotte, Chicago, Dallas, Detroit,
London, Los Angeles, Louisville, New York, San Francisco, Seattle, Sydney 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 brand awareness of AllAdvantage 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 the membership base. Between the launch of our Web site in
March 1999 and January 31, 2000, over 5.3 million users registered to receive
our service. In addition, as of January 31, 2000, over 1,000,000 of our members
had successfully referred at least one new member to our service, and our over
100,000 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.
37
<PAGE>
Technology
As of January 31, 2000, our technology organization included 124 employees
and contractors. We have developed and continue to expand our proprietary
software architecture that enables us to detect and catalogue our members'
computer-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
advertisement 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. The Viewbar currently operates on the
Windows 95, Windows 98, and 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 data 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 are
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 data, 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 highly scaleable and
reliable, 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 GlobalCenter facilities located in Sunnyvale,
California, and by the second quarter of 2000 we intend to have a second
hosting site located 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;
38
<PAGE>
. 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. An integral part of our strategy is to continually make
our service 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 profiling servers, 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 automatically update itself 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 rapidly deploy new products and software
components that may be created by third-party developers to our members. 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,
offer summaries of generalized market data to our advertisers and other
interested parties, but we do not disclose personally indentifiable 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.
39
<PAGE>
Competition for businesses 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. 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 budget 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. 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. 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 may attempt to copy or
otherwise obtain and use our technology. Monitoring unauthorized use of our
technology is difficult, and we cannot be certain that the steps we have taken
will prevent unauthorized use of our technology.
We have one U.S. registered copyright. We have pending U.S. patent and
copyright applications and pending U.S. and foreign trademark applications. We
cannot assure you that our pending patent or trademark applications will be
approved, or that any of our applications for registration of our copyrights
will be granted. Even if they are approved or 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
40
<PAGE>
uncertain and evolving. If our trademark registrations are not approved because
third parties own these trademarks, our use of these trademarks would be
restricted unless we entered into arrangements with the third-party owners,
which might not be possible on reasonable terms.
We generally enter into confidentiality or license agreements with our
employees and consultants, and control access to and distribution of our
technologies, documentation and other proprietary information. Despite our
efforts to protect our proprietary rights from unauthorized use or disclosure,
unauthorized parties may attempt to 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 upon 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 permission and, in some cases, licenses from
each developer of the software that we use in our software. Although we do not
believe that the software or the trademarks we use or any of the other elements
of our business infringe on the proprietary rights of any third parties, 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 have claimed to hold patents that cover various forms of
online transactions or online technology generally. As with other online
service providers, patent claims could be asserted 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
certain technologies or engaging in certain 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 away 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;
. 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, or may 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. These results could
decrease the demand for our services or increase our cost of doing business,
each of which would harm our business.
41
<PAGE>
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 as they relate to children, have
been enacted or proposed. The Children's Online Privacy 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. 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. We believe this program complies with
applicable regulation. 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. 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. Some commentators, privacy advocates and government bodies have
recommended limitations on, or taken actions to limit, the use of personal
information by those collecting such information. For example, the Children's
Online Privacy Protection Act of 1998 requires, among other things, that online
operators obtain verifiable parental consent for the collection, use or
disclosure of personal information from children. The act further mandates that
the Federal Trade Commission publish regulations for the collection of data
from children by commercial Web site operators. We cannot predict the exact
form of the regulations that the FTC may finally adopt.
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.
42
<PAGE>
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.
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 January 31, 2000, we had 403 employees, contract-to-hire personnel and
independent contractors--156 in sales and marketing, 59 in member services and
community, 124 in product development and information systems and operations,
and 64 in finance and administration. We have never had a work stoppage, and no
employees are represented under any collective bargaining agreement. Our
business and future success depends 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.
43
<PAGE>
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 January 31, 2000, we
also had leased facilities in Atlanta, Boston, Chicago, Dallas, Detroit,
London, Los Angeles, New York, Paris, San Francisco, Seattle 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 such leases will be
available on reasonable terms or at all.
Legal Proceedings
We are not a party to any material legal proceedings.
44
<PAGE>
MANAGEMENT
Executive Officers, Directors and Key Employees
Our executive officers, directors and key employees, and their ages and
positions as of January 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.......... 42 Chief Financial Officer
Oliver Brock................ 30 Chief Technology Officer
Johannes A. Pohle........... 30 Vice President Product Management 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
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...... 30 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 .............. 50 Director
Thomas Unterman............. 55 Director
Richard A. LeFurgy.......... 43 Director
William L. Burnham.......... 28 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. 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 Partner of Pacwest Capital Partners. 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.
Mr. Depatie holds a B.A. in business from Michigan State University and an
M.B.A. from Harvard Business School.
45
<PAGE>
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 1994 to November 1999, Dr. Brock did 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 1984 to
1989, Dr. Brock served as general manager at a billing management firm and 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 Product Management and as a director since March 1999. 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 and taught 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. From January 1992 to July
1998, Mr. Beckman-Robertson served as sales manager for Turner Broadcasting.
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. From
1979 to 1984, Mr. Beckman-Robertson worked in sales for Cox Broadcasting. 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 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.
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 and served on the boards of Stream SpA, Italy's second largest pay
television network, Protozoa Inc. and Cygent Inc. From 1991 to 1997, Mr. Calvi
worked at Microsoft Corporation. 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
46
<PAGE>
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. 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 served as a 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, 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. 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. 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, 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. In
April 1999, 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. From August 1994 to November 1998, Mr. Everett-Church served
as a technology management and Internet consultant. From November 1992 to June
1994, Mr. Everett-Church served as an Information Specialist with the American
Immigration Lawyers Association. 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 and from 1981
to 1992 worked at IBM Australia 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, where he most recently served as
development executive for global business intelligence solutions. During his
tenure at IBM, Mr. Martin also served as a senior development manager for
net.Mining Solutions and as an information
47
<PAGE>
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 specializing in
product positioning and new product development. 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, 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,
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, 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.
Thomas Unterman has served as a director of AllAvantage since September
1999. Mr. Unterman serves as the Chief Executive Officer and a Partner of the
Rustic Canyon Group and the Manager of TMCT Ventures, a venture capital
investment firm, both of which are affiliated with Times Mirror. Mr. Unterman
held various other positions at Times Mirror 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 to
December 1999. Prior to Times Mirror, Mr. Unterman was a partner at two law
firms, Morrison & Foerester and Orrick, Herrington and Sutcliffe. Mr. Unterman
is a member of the board of directors of Ticketmaster Online-City Search, Big
Entertainment 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.
48
<PAGE>
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 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.
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. From July 1998 to August 1999, Mr. Burnham was a Vice
President of Credit Suisse First Boston Corporation. From May 1998 to July
1998, Mr. Burnham served as a Vice President at Deutsche Morgan Grenfell, and
from April 1997 to May 1998, he served as a Vice President at US Bancorp Piper
Jaffray. 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 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 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. Shoch, Unterman and Burnham. 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. LeFurgy and Pidwell. 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.
49
<PAGE>
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. For a description of transactions between
AllAdvantage and members of the compensation committee or entities affiliated
with them, see "Related-Party Transactions." 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.
Change of Control Arrangements
Mr. Jorgensen and Messrs. Depatie, Johnson and Pohle, 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 certain 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. 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 42,500 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.
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.
50
<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.
Option Grants and Exercises in Last Fiscal Year
During 1999, we granted no options to Messrs. Anderson, Jorgensen or Pohle.
In October 1999, we granted an option to purchase 700,000 shares of our common
stock at an exercise price per share of $0.75 to Mr. Depatie and, in November
1999, Mr. Depatie exercised this option with respect to 133,333 shares. In
September 1999, we granted an option to purchase 170,000 shares of our common
stock at an exercise price per share of $0.18 to Mr. Johnson, and in September
1999, Mr. Johnson exercised this option in full. Each of these options 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.
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 December 31, 1999, 4,498,133 shares
of common stock had been purchased pursuant to the exercise of options granted
under this plan, options to purchase a total of 10,484,233 shares of common
stock with a weighted-average exercise price of $0.69 were outstanding under
this plan, and 217,634 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 , 2000, shares of
common stock had been purchased pursuant to the exercise of options granted
under this plan, options to purchase a total of shares of common
51
<PAGE>
stock with a weighted-average exercise price of $ were outstanding under
this plan, and 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 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, as described under "Management--Director Compensation."
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
52
<PAGE>
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.
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.
53
<PAGE>
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) 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.
54
<PAGE>
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.
<TABLE>
<CAPTION>
Preferred Stock Warrants for
Common ---------------------------------------- Series C
Stockholder Stock Series A Series B Series C Series D Preferred Stock
----------- --------- --------- --------- --------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
James R. Jorgensen...... 7,333,336 8,000,000 -- -- -- --
Johannes A. Pohle....... 7,333,332 2,000,000 -- -- -- --
Carl T. Anderson........ 6,533,332 4,000,000 -- -- -- --
Oliver Brock............ 2,800,000 2,000,000 -- -- -- --
Entities affiliated with
Alloy Ventures
1998, LLC (1).......... -- -- 8,333,336 4,460,652 165,289 232,654
Pidwell Investments LLC
(2).................... -- -- 555,556 122,448 16,529 12,244
Entities affiliated with
J. & W. Seligman & Co.
Incorporated (3)....... -- -- -- 4,081,634 165,289 --
Entities affiliated with
Partech
International (4)...... -- -- -- 4,081,632 165,289 --
Technology Partners
Fund, L.P.............. -- -- -- 4,081,632 165,289 --
TMCT Ventures, L.P.
(5).................... -- -- -- 4,081,632 165,289 122,448
Walden Media and
Information Technology
Fund L.P............... -- -- -- 4,081,632 165,289 122,448
Michael A. Depatie Trust
U/A DTD 7/18/91 (6).... -- -- -- 816,326 -- --
Entities affiliated with
SOFTBANK Capital
Partners L.P. (7)...... -- -- -- -- 11,570,248 --
Putnam OTC & Emerging
Growth Fund............ -- -- -- -- 991,736 --
Putnam Emerging
Information Sciences
Trust.................. -- -- -- -- 247,934 --
T. Rowe Price........... -- -- -- -- 1,239,670 --
</TABLE>
- --------
(1) 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.
(2) 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. In July 1998 David Pidwell was
granted an option for 200,000 shares of common stock, which was exercised
in full in November 1999, as described under "Management--Director
Compensation."
(3) 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.
(4) 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.
(5) 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.
(6) 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, as described under "Management--Option Grants and Exercises
in Last Fiscal Year."
(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.
55
<PAGE>
Issuance of Founders Stock and Series A Preferred Stock
In April 1999, we 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. 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. 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.
In April 1999, we 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.
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:
. entities affiliated with Alloy Ventures 1998, LLC, which purchased a
total of 8,333,336 shares of Series B preferred stock for a total
purchase price of $1,500,000; and
. Pidwell Investments LLC, which purchased a total of 555,556 shares of
Series B preferred stock for a total purchase price of $100,000.
Issuance of Series C Preferred Stock
In September 1999, we sold a total of 24,995,912 shares of Series C
preferred stock at price per share of $1.225 to several investors pursuant to a
preferred stock purchase agreement, including:
. entities affiliated with Alloy Ventures 1998, LLC, which purchased a
total of 4,460,652 shares of Series C preferred stock for a total
purchase price of $5,464,298;
. Pidwell Investments LLC, which purchased a total of 122,448 shares of
Series C preferred stock for a total purchase price of $149,999;
. the John M. Anderson Trust u/d/d July 16, 1999, as amended, whose
trustee is John Anderson, the father of Carl T. Anderson, which
purchased a total of 81,632 shares of Series C preferred stock for a
total purchase price of $99,999;
. entities affiliated with J. & W. Seligman & Co. Incorporated, which
purchased a total of 4,081,634 shares of Series C preferred stock for a
total purchase price of $5,000,002;
. entities affiliated with Partech International, which purchased a total
of 4,081,632 shares of Series C preferred stock for a total purchase
price of $4,999,999;
. Technology Partners Fund, L.P., which purchased a total of 4,081,632
shares of Series C preferred stock for a total purchase price of
$4,999,999;
. TMCT Ventures, L.P., which purchased a total of 4,081,632 shares of
Series C preferred stock for a total purchase price of $4,999,999; and
. Walden Media and Information Technology Fund L.P., which purchased a
total of 4,081,632 shares of Series C preferred stock for a total
purchase price of $4,999,999.
56
<PAGE>
In October 1999, we committed to sell an additional 816,326 shares of Series
C preferred stock at a price per share of $1.225 to the Michael A. Deptatie
Trust U/A DTD 7/18/91 pursuant to the preferred stock purchase agreement. These
shares were later sold to the trust.
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.
. entities affiliated with Alloy Ventures 1998, LLC received a warrant for
232,654 shares of Series C preferred stock;
. TMCT Ventures, L.P. received a warrant for 122,448 shares of Series C
preferred stock;
. Walden Media and Information Technology Fund L.P. received a warrant for
122,448 shares of Series C preferred stock; and
. David Pidwell received a warrant for 12,244 shares of Series C preferred
stock, which was exercised in full in November 1999.
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 to several investors pursuant to a preferred
stock purchase agreement, including:
. entities affiliated with Alloy Ventures 1998, LLC, which purchased a
total of 165,289 shares of Series D preferred stock for a total purchase
price of $999,998;
. Pidwell Investments LLC, which purchased a total of 16,529 shares of
Series D preferred stock for a total purchase price of $100,000;
. entities affiliated with Partech International, which purchased a total
of 165,289 shares of Series D preferred stock for a total purchase price
of $999,998;
. entities affiliated with J & W. Seligman & Co. Incorporated, which
purchased a total of 165,289 shares of Series D preferred stock for a
total purchase price of $999,998;
. Technology Partners Fund, L.P., which purchased a total of 165,289
shares of Series D preferred stock for a total purchase price of
$999,998;
. TMCT Ventures, L.P., which purchased a total of 165,289 shares of Series
D preferred stock for a total purchase price of $999,998;
. Walden Media and Information Technology Fund L.P., which purchased a
total of 165,289 shares of Series D preferred stock for a total purchase
price of $999,998;
. Entities affiliated with SOFTBANK Capital Partners L.P., which together
purchased a total of 11,570,248 shares of Series D preferred stock for a
total purchase price of $70,000,000;
. Putnam Emerging Information Sciences Trust and Putman OTC & Emerging
Growth Fund, which together purchased a total of 1,239,670 shares of
Series D preferred stock for a total purchase price of $7,500,003; and
. T. Rowe Price, which purchased a total of 1,239,670 shares of Series D
preferred stock for a total purchase price of $7,500,003.
57
<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. Their registration rights are described in more detail under
"Description of Capital Stock--Registration Rights."
Contract with Summit Consulting Group
During 1999, Summit Group Consulting supplied recruiting and contract labor
services to us. During 1999, Summit Group Consulting recruited 30 employees for
us and was paid by us a total of $206,000 for those services. Summit Group
Consulting is owned by Bridget Jorgensen, the wife of James R. Jorgensen, our
President, Chief Executive Officer and Chairman.
58
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table presents information with respect to beneficial
ownership of our common stock as of February 4, 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
97,888,095 shares of common stock outstanding as of February 4, 2000, assuming
conversion of all outstanding shares of preferred stock into common stock.
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 15.7
John F. Shoch
Entities affiliated with Alloy Ventures
1998, LLC (2)........................... 13,191,931 13.4
William L. Burnham
Entities affiliated with SOFTBANK
Capital Partners LP (3)................. 11,570,248 11.8
Carl T. Anderson (4)..................... 10,533,332 10.8
Johannes A. Pohle (5).................... 9,333,332 9.5
Oliver Brock (6)......................... 4,800,000 4.9
Thomas Unterman
TMCT Ventures, L.P. (7)................. 4,369,369 4.5
Richard A. LeFurgy
Walden Media and Information Technology
Fund L.P. (8)........................... 4,369,369 4.5
Entities affiliated with J. & W. Seligman
& Co. Incorporated (9).................. 4,246,923 4.3
Entities affiliated with Partech
International (10)...................... 4,246,921 4.3
Technology Partners Fund, L.P. .......... 4,246,921 4.3
T. Rowe Price ........................... 1,239,670 1.3
Putnam OTC & Emerging Growth Fund ....... 991,736 1.0
David W. Pidwell
Pidwell Investments LLC (11)............ 906,777 *
Putnam Emerging Information Sciences
Trust................................... 247,934 * *
All directors and executive officers as a
group (11 persons)(12).................. 71,724,651 72.6%
</TABLE>
- --------
*Less than 1%.
(1) Includes 4,933,332 shares subject to a right of repurchase held by us as of
February 4, 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 9,454,097 shares held by AMA98 Ventures, L.P., 1,419,486 shares
held by AMA98 Investors, L.P., 1,134,494 shares held by AMA98 Corporate,
L.P., and 951,200 shares held by AMA98 Partners, L.P. Includes 232,654
shares subject to warrants held by these entities that are immediately
exercisable
59
<PAGE>
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.
(3) Includes 11,404,793 shares held by SOFTBANK Capital Partners L.P. and
165,455 shares held by SOFTBANK Capital Advisors Fund L.P. William Burnham
is a managing director of the general partner 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.
(4) Includes 4,933,332 shares subject to a right of repurchase held by us as of
February 4, 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
February 4, 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
February 4, 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 2,786,642 shares held by Seligman New Technologies Fund, Inc.,
849,384 shares held by Seligman Communications and Information Fund, Inc.
and 610,897 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 1,953,585 shares held by Partech U.S. Partners III C.V.,
862,125 shares held by Parallel Capital II, LLC, 719,428 shares held by
Parallel Capital I, LLC, 456,967 shares held by Axa U.S. Growth Fund, LLC,
127,409 shares held by Double Black Diamond II, LLC, 42,469 shares held by
45th Parallel, LLC, 42,469 shares held by Almanori Limited and 42,469
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 690,248 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 February 4, 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 16,199,996 shares subject to our right of repurchase as of
February 4, 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 March 31, 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.
60
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Immediately following the closing of this offering, our authorized capital
stock will consist of 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
February 4, 2000, and assuming the conversion of all outstanding preferred
stock into shares of common stock at the assumed initial public offering
price to $ per share and conversion of all warrants for preferred stock into
warrants for common stock, there were 97,888,095 shares of common stock
outstanding, of which 16,199,996 shares were subject to our right of
repurchase, options to purchase 9,682,883 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. For a description of these matters,
see "Description of Capital Stock--Anti-Takeover Provisions."
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. See note 4 to the notes our
consolidated financial statements for a description of our preferred stock. If
the initial public offering price of the shares in this offering is less than
$12.10, then the conversion ratio for the Series D preferred stock will be
adjusted, so that each share of Series D preferred stock will convert into that
number of shares of common stock equal to the result obtained by dividing $6.05
by the greater of one-half of the offering price or $4.84.
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 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.
61
<PAGE>
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 February 4, 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
75,000 shares of common stock at an exercise price per share of $6.05.
Registration Rights
The holders of approximately 52,588,612 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.
62
<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;
63
<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."
64
<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 February 4,
2000, we will have outstanding 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
shares sold in this offering, shares of the underwriters' over-
allotment option is exercised in full, will be freely tradable without
restriction under the Securities Act unless purchased by our affiliates. 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 remaining shares will become eligible
for public sale as follows:
<TABLE>
<CAPTION>
Approximate
Number of
Shares
Eligible
for Future
Date Sale Comment
---- ----------- -------
<C> <C> <S>
Date of this prospectus 0 Freely tradable shares
Underwriters' lock-up released. These
181 days after the date of shares may be sold under Rules 144 or
this prospectus 701
At various times thereafter These shares may be sold under Rules
144, 144(k) or 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.
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 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.
65
<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 52,588,612 shares of common
stock, or their transferees, will be entitled to rights with respect to the
registration of those shares under the Securities Act. For a discussion of
these rights please see "Description of Capital Stock--Registration Rights."
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 shares of common stock
subject to outstanding options and reserved for issuance under our stock option
and employee stock purchase plans. As of December 31, 1999, options to purchase
10,484,233 shares of common stock were issued and outstanding. Between December
31, 1999 and the date hereof, we granted options to purchase approximately
shares of common stock. Upon the expiration of the lock-up agreements
described above, shares of common stock will be subject to vested
options, based on options outstanding as of , 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 January 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 75,000 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 552,550 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.
66
<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 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.
<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.. $ $ $ $
</TABLE>
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
67
<PAGE>
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 shares of common stock for employees, directors and other persons
associated with us who have expressed an interest in purchasing common stock in
the offering and up to shares of common stock for our members. 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.
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 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.
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;
. 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.
68
<PAGE>
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.
69
<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.
70
<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 214,633 shares
of our common stock. In addition, Fenwick & West LLP or an affiliated entity
may purchase up to of the shares reserved by the underwriters for sale to
our employees and directors and other persons associated with us, as described
under "Underwriting."
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.
71
<PAGE>
AllAdvantage.com Inc.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........................ F-2
Consolidated Balance Sheet............................................... F-3
Consolidated Statement of Operations..................................... F-4
Consolidated Statement of Net Capital Deficiency......................... F-5
Consolidated Statement 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 11, as to which the date is March , 2000
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon the completion
of the reincorporation and other matters described in Note 11 to the
consolidated financial statements.
/s/ Ernst & Young LLP
Palo Alto, California
February 3, 2000
F-2
<PAGE>
AllAdvantage.com Inc.
CONSOLIDATED BALANCE SHEET
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Pro Forma Net
December 31, Capital Deficiency
1999 at December 31, 1999
------------ --------------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents.................. $ 20,019
Restricted cash............................ 10,000
Accounts receivable, net of allowance of
$235...................................... 4,523
Prepaid expenses and other assets.......... 624
--------
Total current assets..................... 35,166
Property and equipment, net.................. 4,705
--------
Total assets............................. $ 39,871
========
Liabilities and net capital deficiency
Current liabilities:
Accounts payable........................... $ 1,753
Accrued member payables.................... 12,239
Other accrued liabilities.................. 5,362
Customer advance........................... 19,830
Deferred revenue........................... 75
Current portion of capital lease
obligations............................... 383
--------
Total current liabilities................ 39,642
Capital lease obligations, net of current
portion..................................... 254
Commitments
Net capital deficiency:
Convertible preferred stock, $0.001 par
value, issuable in series: 22,663,266
shares authorized; 19,567,343 shares
issued and outstanding at December 31,
1999, aggregate liquidation preference of
$34,014,990, pro forma--36,335,044 shares
authorized, no shares issued and
outstanding............................... 20 $ --
Common stock, $0.001 par value: 116,000,000
shares authorized, 28,498,133 shares
issued and outstanding at December 31,
1999, pro forma--150,000,000 shares
authorized, 80,632,819 shares issued and
outstanding............................... 28 81
Additional paid-in capital................. 55,608 55,575
Deferred stock compensation................ (18,572) (18,572)
Accumulated deficit........................ (37,109) (37,109)
-------- --------
Total net capital deficiency............. (25) $ (25)
-------- ========
Total liabilities and net capital
deficiency.............................. $ 39,871
========
</TABLE>
See accompanying notes.
F-3
<PAGE>
AllAdvantage.com Inc.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Period from
Inception
(March 24, 1999) to
December 31, 1999
-------------------
<S> <C>
Revenues.................................................. $ 5,251
Costs and expenses:
Direct member costs..................................... 17,141
Sales and marketing..................................... 11,602
General and administrative.............................. 8,344
Product development..................................... 2,911
Depreciation and amortization........................... 348
Stock-based compensation................................ 1,547
--------
Total costs and expenses.............................. 41,893
--------
Loss from operations...................................... (36,642)
Interest expense.......................................... (827)
Interest income........................................... 360
--------
Net loss.................................................. $(37,109)
========
Basic and diluted net loss per share...................... $ (5.04)
========
Shares used in per share calculation...................... 7,367
========
Pro forma basic and diluted net loss per share
(unaudited).............................................. $ (0.97)
========
Shares used in pro forma per share calculation
(unaudited).............................................. 38,287
========
</TABLE>
See accompanying notes.
F-4
<PAGE>
AllAdvantage.com Inc.
CONSOLIDATED STATEMENT OF NET CAPITAL DEFICIENCY
Period from Inception (March 24, 1999) to December 31, 1999
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock Additional Deferred Total 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)
========== === ========== === ======= ======== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
AllAdvantage.com Inc.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Period from
Inception
(March 24, 1999) to
December 31, 1999
-------------------
<S> <C>
Operating activities:
Net loss.................................................. $(37,109)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 348
Amortization of deferred stock compensation............. 1,547
Interest expense from issuance of warrants.............. 528
Other non-cash expense.................................. 660
Changes in assets and liabilities:
Restricted cash....................................... (10,000)
Accounts receivable................................... (4,523)
Prepaid expenses and other assets..................... (624)
Accounts payable and other accrued liabilities........ 7,115
Accrued member payables............................... 12,239
Customer advance...................................... 19,830
Deferred revenue...................................... 75
--------
Net cash used in operating activities..................... (9,914)
--------
Investing activities:
Purchase of equipment..................................... (4,290)
--------
Net cash used in investing activities..................... (4,290)
--------
Financing activities:
Proceeds from issuance of common and preferred stock,
net...................................................... 30,352
Proceeds from issuance of convertible notes payable....... 3,550
Proceeds from exercise of common stock options............ 447
Payments under capital lease obligations.................. (126)
--------
Net cash provided by financing activities................. 34,223
--------
Net increase in cash and cash equivalents................. 20,019
Cash and cash equivalents at beginning of period.......... --
--------
Cash and cash equivalents at end of period................ $ 20,019
========
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
========
</TABLE>
See accompanying notes.
F-6
<PAGE>
AllAdvantage.com Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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). Management believes
that these funds, together with the Series D convertible preferred stock
financing, that closed in February 2000 (see Note 10), will be sufficient to
enable AllAdvantage to meet its planned expenditures through December 31, 2000.
If anticipated operating results are not achieved, management has the ability
and intends to delay or reduce expenditures so as not to require additional
financial resources, if those resources are not available on terms acceptable
to AllAdvantage.
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.
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 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.
F-7
<PAGE>
AllAdvantage.com Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
AllAdvantage had no credit losses in the period from inception (March 24, 1999)
to December 31, 1999.
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.
Property and Equipment
Property and equipment are stated 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 lives of the assets or terms of the leases, whichever are shorter.
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 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 the satisfaction of other performance criteria.
F-8
<PAGE>
AllAdvantage.com Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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. 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 recognized any revenue related to the
nonmonetary exchange of advertising for advertising or other services as such
exchanges were not objectively determinable based on criteria set forth in
Accounting Principles Board Opinion No. 29, "Accounting for Nonmonetary
Transactions."
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 and
costs related to the delivery of advertisements to the Viewbar included in
sales and marketing expenses totaled $2,981,000 and $2,913,000 respectively,
for the period from inception to December 31, 1999. Advertising expenses, which
consist primarily of advertising to business customers, were $1,074,000 for the
period from inception to December 31, 1999. 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,
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.
F-9
<PAGE>
AllAdvantage.com Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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 December 31, 1999,
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 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>
Period from Inception
(March 24, 1999) to
December 31, 1999
---------------------
<S> <C>
Net loss................................................. $ 37,109,000
============
Basic and diluted:
Weighted-average shares of common stock outstanding.... 23,344,138
Less: weighted-average shares subject to repurchase.... (15,977,627)
------------
Weighted-average shares used in computing basic and
diluted net loss per share.............................. 7,366,511
============
Basic and diluted net loss per share..................... $ (5.04)
============
Pro forma:
Shares used above...................................... 7,366,511
Pro forma adjustment to reflect weighted effect of
assumed conversion of convertible preferred stock..... 31,006,461
Less: weighted-average shares of convertible preferred
stock subject to repurchase........................... (85,773)
------------
Shares used in computing pro forma basic and diluted
net loss per share (unaudited)...................... 38,287,199
============
Pro forma basic and diluted net loss per share
(unaudited)......................................... $ (0.97)
============
</TABLE>
F-10
<PAGE>
AllAdvantage.com Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 December 31, 1999, as adjusted for
the assumed conversion of convertible preferred stock based on the shares of
convertible preferred stock outstanding at December 31, 1999, 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-11
<PAGE>
AllAdvantage.com Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
1999
------------
<S> <C>
Computer software and equipment............................... $4,660
Leasehold improvements........................................ 241
Furniture and fixtures........................................ 152
------
Total....................................................... 5,053
Less: accumulated depreciation and amortization............... (348)
------
$4,705
======
</TABLE>
4. STOCKHOLDERS' EQUITY
Convertible Preferred Stock:
<TABLE>
<CAPTION>
Shares Issued and
Shares Outstanding at Liquidation
Authorized December 31, 1999 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........................ 16,163,266 13,067,343 32,014,990
---------- ---------- -----------
Total convertible preferred
stock........................ 22,663,266 19,567,343 $34,014,990
========== ========== ===========
</TABLE>
Holders of AllAdvantage's Series A, B and C 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 and C preferred stock are entitled to annual
noncumulative dividends per share of $0.005, $0.072 and $0.245, respectively,
when and if declared by the board of directors. In the event of any voluntary
or involuntary liquidation of AllAdvantage, Series A, B and C stockholders are
entitled to a liquidation preference of $0.05, $0.72 and $2.45 per share,
respectively, all in preference to the holders of the common stock. After
payment to the Series A, B and C 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 and C 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 preferred stock will
convert into two shares of common stock. 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.
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.
F-12
<PAGE>
AllAdvantage.com Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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
AllAdvantage issued 24,000,000 shares of common stock to its founders. The
shares issued to founders were sold pursuant to restricted stock purchase
agreements containing lapsing repurchase provisions established by the board
of directors. These provisions give AllAdvantage the right to repurchase
shares at the original sales price. This right expires at the rate of 25%
after one year and 2.08% each month thereafter. At December 31, 1999,
15,999,996 of the shares issued outside of the 1999 Equity Incentive Plan,
remained subject to repurchase.
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 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.
F-13
<PAGE>
AllAdvantage.com Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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.
F-14
<PAGE>
AllAdvantage.com Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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>
As of
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>
F-15
<PAGE>
AllAdvantage.com Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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.
F-16
<PAGE>
AllAdvantage.com Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. PRIVATE PLACEMENT EQUITY OFFERING OF SERIES D CONVERTIBLE PREFERRED STOCK
In February 2000, AllAdvantage completed a private placement of 16,453,926
shares of Series D convertible preferred stock at $6.05 per share, resulting in
net cash proceeds of $94,544,000. Holders of Series D preferred stock are
entitled to annual noncumulative dividends of $0.605 per share when and if
declared by the board of directors. In the event of voluntary or involuntary
liquidation of AllAdvantage, holders of Series D Convertible Preferred Stock
are entitled to a liquidation preference of $6.05 per share plus all declared
and unpaid dividends. Holders of Series D preferred stock are entitled to one
vote for each share of common stock into which the preferred stock is
convertible. Each share of preferred stock will be automatically converted into
one share of 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. If the initial public offering price of the shares in this
offering is less than $12.05, then the conversion ratio for the Series D
preferred stock will be adjusted such that each share of Series D preferred
stock will convert into the number of shares of common stock equal to the
result obtained by dividing $6.05 by the greater of one-half of the offering
price or $4.84.
11. 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 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 is
required to provide 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
F-17
<PAGE>
AllAdvantage.com Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
F-18
<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............................................... $ 39,600
NASD filing fee.................................................... 15,500
Nasdaq National Market filing fee.................................. 95,000
Printing and engraving............................................. *
Legal fees and expenses of the Registrant.......................... *
Accounting fees and expenses....................................... *
Directors and officers liability insurance......................... *
Blue sky fees and expenses......................................... *
Transfer agent and registrar fees and expenses..................... *
Miscellaneous...................................................... *
--------
Total............................................................ $
========
</TABLE>
- --------
*To be filed by amendment
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.
2. In April 1999, we issued and sold a total of 4,000,000 shares of
Series A preferred stock to our founders for a total purchase price of
$200,000 paid through cancellation of indebtedness.
3. In June 1999, we issued and sold a total of 2,500,000 shares of
Series B preferred stock to private investors 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.
4. In September 1999, we issued and sold a total of 12,497,956 shares of
Series C preferred stock to private investors for a total purchase price of
$30,619,992, $2,000,000 of which was paid through conversion of promissory
notes and the remainder of which was paid in cash. In October 1999, we
issued and sold an additional 155,102 shares of Series C preferred stock to
private investors for a total purchase price of $380,000 in cash. In
October 1999, we committed to issue, and in December 1999, we issued and
sold an additional 408,163 shares of Series C preferred stock to the
Michael A. Depatie Trust U/A DTD 7/18/91 for a purchase price of $999,999
in cash.
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 private investors. In November 1999, a warrant to purchase 6,122
shares of Series C preferred stock was exercised. As of December 31, 1999,
warrants to purchase a total of 238,775 shares of Series C preferred stock
remained outstanding.
6. In February 2000, we issued and sold a total of 16,453,926 shares of
Series D preferred stock to private investors for a total purchase price of
$99,546,252 in cash.
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 a landlord.
8. Since March 1999, shares of common stock have been issued to
our employees, consultants and other service providers upon exercise of
options, and as of December 31, 1999, 10,484,233 shares of common stock
were issuable upon exercise of outstanding options.
II-2
<PAGE>
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 one-for-one basis into 16,453,926 shares of common stock upon the
consummation of this offering. However, if the shares in this offering are
offered at a price of less than $12.10, then the conversion ratio for the
Series D preferred stock will be adjusted, such that each share of Series D
preferred stock will convert into that number of shares of common stock equal
to the quotient obtained by dividing $6.05 by the greater of one-half of the
offering price or $4.84.
The sale of the above securities was deemed to be exempt from registration
under the Securities Act in reliance upon Section 4(2) of the Securities Act
and/or Regulation D promulgated thereunder or Rule 701 promulgated under
Section 3(b) of the Securities Act as transactions by an issuer not involving
any public offering or transactions pursuant to compensation benefit plans and
contracts relating to compensation as provided under Rule 701. These sales were
made without general solicitation or advertising. The recipients of securities
in each such transaction represented their intentions to acquire the securities
for investment only and not with a view to or for sale in connection with any
distribution thereof. Each purchaser was a sophisticated investor with access
to all relevant information necessary to evaluate the investment.
ITEM 16. Exhibits and Financial Statement Schedules.
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S> <C>
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* 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.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.05 2000 employee stock purchase plan and related enrollment form,
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.
Network Affiliation Agreement entered into between Registrant and
10.09**+ 24/7 Media Inc.
10.10+ Lease Agreement entered into between Registrant and Hayward Point
Eden I Limited Partnership.
Office Building Lease entered into between Registrant and HMS
10.11+ Gateway Office, L.P.
10.12 Series D Preferred Stock Purchase Agreement.
10.13+ Viewbar Agreement.
21.01+ List of subsidiaries.
23.01* 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.
*To be supplied by amendment.
**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.
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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 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 29th day of February, 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. 1 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 February 29, 2000
_______________________________ Officer and Chairman of
James R. Jorgensen the Board of Directors
(Principal Executive Officer)
* Chief Financial Officer February 29, 2000
_______________________________ (Principal Financial
Michael A. Depatie Officer)
* Vice President Finance, February 29, 2000
_______________________________ Treasurer (Principal
Bernie Murphy Accounting Officer)
* Director February 29, 2000
_______________________________
William L. Burnham
* Director February 29, 2000
_______________________________
Richard LeFurgy
* Director February 29, 2000
_______________________________
David Pidwell
* Director February 29, 2000
_______________________________
Johannes Pohle
* Director February 29, 2000
_______________________________
John Shoch
* Director February 29, 2000
_______________________________
Thomas Unterman
</TABLE>
<TABLE>
<S> <C> <C>
*By: /s/ James Jorgensen Attorney-in-fact February 29, 2000
___________________________
James Jorgensen
</TABLE>
II-5
<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* 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, 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* 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.
*To be supplied by amendment.
** 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 2.01
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Merger Agreement") is entered into
as of March 1, 2000, by and between AllAdvantage.com, a California corporation
("AllAdvantage California"), and AllAdvantage.com Inc., a Delaware corporation
("AllAdvantage Delaware"). AllAdvantage California and AllAdvantage Delaware
are hereinafter sometimes collectively referred to as the "Constituent
Corporations".
RECITALS
--------
A. AllAdvantage California was incorporated on March 24, 1999. Its
current authorized capital stock consists of: (i) 150,000,000 shares of Common
Stock, no par value ("AllAdvantage California Common Stock"), of which
29,326,983 shares are issued and outstanding; and (ii) 36,335,044 shares of
Preferred Stock, no par value ("AllAdvantage California Preferred Stock"), of
which 36,021,269 shares are issued and outstanding (consisting of 4,000,000
shares of Series A Preferred Stock, 2,500,000 shares of Series B Preferred
Stock, 13,067,343 shares of Series C Preferred Stock and 16,453,926 shares of
Series D Preferred Stock).
B. AllAdvantage Delaware was incorporated on January 4, 2000. Its
authorized capital stock consists of 1,000 shares of Common Stock, with a par
value of $0.001 per share ("AllAdvantage Delaware Common Stock"), of which 1,000
shares are issued and outstanding.
C. The respective Boards of Directors of AllAdvantage California and
AllAdvantage Delaware deem it advisable and to the advantage of each of the
Constituent Corporations that AllAdvantage California merge with and into
AllAdvantage Delaware upon the terms and subject to the conditions set forth in
this Merger Agreement for the purpose of effecting a change of the state of
incorporation of AllAdvantage California from California to Delaware.
D. The Boards of Directors of each of the Constituent Corporations have
approved this Merger Agreement.
NOW, THEREFORE, the parties do hereby adopt the plan of reorganization set
forth in this Merger Agreement and do hereby agree that AllAdvantage California
shall merge with and into AllAdvantage Delaware on the following terms,
conditions and other provisions:
1. Merger and Effective Time. At the Effective Time (as defined below),
-------------------------
AllAdvantage California shall be merged with and into AllAdvantage Delaware (the
"Merger"), and AllAdvantage Delaware shall be the surviving corporation of the
Merger (the "Surviving Corporation"). The Merger shall become effective upon
the close of business on the date when a duly executed copy of this Merger
Agreement, along with all required officers' certificates, is filed with the
Secretary of State of the State of Delaware (the "Effective Time").
2. Effect of Merger. At the Effective Time, the separate corporate
----------------
existence of AllAdvantage California shall cease; the corporate identity,
existence, powers, rights and immunities of AllAdvantage Delaware as the
Surviving Corporation shall continue unimpaired by the Merger; and AllAdvantage
Delaware shall succeed to and shall possess all the assets, properties, rights,
privileges, powers, franchises, immunities and purposes, and be subject to all
1
<PAGE>
the debts, liabilities, obligations, restrictions and duties of AllAdvantage
California, all without further act or deed.
3. Governing Documents. At the Effective Time, (i) the Certificate of
-------------------
Incorporation of AllAdvantage Delaware in effect immediately prior to the
Effective Time shall be amended and restated by virtue of the Merger to read as
set forth in full in Exhibit "A" hereto (the "First Restated Certificate") and
-----------
(ii) the Bylaws of AllAdvantage Delaware in effect immediately prior to the
Effective Time shall be amended and restated by virtue of the Merger as approved
by the Board of Directors of AllAdvantage Delaware.
4. Directors and Officers. At the Effective Time, the directors of
----------------------
AllAdvantage Delaware shall be and become the directors of the Surviving
Corporation, and the officers of AllAdvantage Delaware shall be and become the
officers (holding the same offices) of the Surviving Corporation, and after the
Effective Time shall serve in accordance with the First Restated Certificate and
restated Bylaws of the Surviving Corporation.
5. Conversion of Shares of AllAdvantage California. At the Effective
-----------------------------------------------
Time, by virtue of the Merger and without any further action on the part of the
Constituent Corporations or their shareholders, (i) each share of AllAdvantage
California Common Stock issued and outstanding immediately prior thereto shall
be converted into one fully paid and nonassessable share of AllAdvantage
Delaware Common Stock, (ii) each share of AllAdvantage California Series A
Preferred Stock outstanding immediately prior thereto shall be automatically
changed and converted into one fully paid and nonassessable, issued and
outstanding share of AllAdvantage Delaware Series A Preferred Stock, (iii) each
share of AllAdvantage California Series B Preferred Stock outstanding
immediately prior thereto shall be automatically changed and converted into one
fully paid and nonassessable, issued and outstanding share of AllAdvantage
Delaware Series B Preferred Stock, (iv) each share of AllAdvantage California
Series C Preferred Stock outstanding immediately prior thereto shall be
automatically changed and converted into one fully paid and nonassessable,
issued and outstanding share of AllAdvantage Delaware Series C Preferred Stock
and (v) each share of AllAdvantage California Series D Preferred Stock
outstanding immediately prior thereto shall be automatically changed and
converted into one fully paid and nonassessable, issued and outstanding share of
AllAdvantage Delaware Series D Preferred Stock. Shares of AllAdvantage Delaware
Common Stock and Preferred Stock issued in the Merger upon conversion of shares
of AllAdvantage California Common Stock and Preferred Stock, respectively,
shall, by virtue of the Merger, continue to be subject to the same contractual
restrictions on transfer, rights of repurchase, vesting and other provisions, if
any, to the same extent as were applicable immediately prior to the Effective
Time to the shares of AllAdvantage California Common Stock and Preferred Stock
so converted. Continuous employment with AllAdvantage California will be
credited to holders of AllAdvantage Delaware Common Stock for purposes of
determining the vesting of shares of AllAdvantage Delaware Stock subject to
vesting provisions at the Effective Time.
6. Cancellation of Shares of AllAdvantage Delaware. At the Effective
-----------------------------------------------
Time, by virtue of the Merger and without any further action on the part of the
Constituent Corporations or their shareholders, all of the previously issued and
outstanding shares of AllAdvantage Delaware Common Stock that were issued and
outstanding immediately prior to the Effective Time shall be automatically
canceled and returned to the status of authorized but unissued shares.
2
<PAGE>
7. Stock Certificates. At and after the Effective Time, all of the
------------------
outstanding certificates that, prior to that date, represented shares of
AllAdvantage California Common Stock shall be deemed for all purposes to
evidence ownership of and to represent the number of shares of AllAdvantage
Delaware Common Stock into which such shares of AllAdvantage California Common
Stock are converted as provided herein. At and after the Effective Time, all of
the outstanding certificates that, prior to that date, represented shares of a
series of AllAdvantage California Preferred Stock shall be deemed for all
purposes to evidence ownership of and to represent the number of shares of the
series of AllAdvantage Delaware Preferred Stock into which such shares of
AllAdvantage California Preferred Stock are converted as provided herein. The
registered owner on the books and records of AllAdvantage California of any such
outstanding stock certificate for AllAdvantage California Common Stock or
AllAdvantage California Preferred Stock shall, until such certificate is
surrendered for transfer or otherwise accounted for to AllAdvantage Delaware or
its transfer agent, be entitled to exercise any voting and other rights with
respect to, and to receive any dividend and other distributions upon, the shares
of AllAdvantage Delaware Common Stock or AllAdvantage Delaware Preferred Stock
evidenced by such outstanding certificate as provided above.
8. Assumption of Options and Warrants. At the Effective Time, all
----------------------------------
outstanding and unexercised portions of all options to purchase AllAdvantage
California Common Stock under the AllAdvantage California 1999 Equity Incentive
Plan and 2000 Equity Incentive Plan (the "Existing Plans"), and all other
outstanding options to purchase AllAdvantage California Common Stock, shall be
assumed by AllAdvantage Delaware and become options to purchase the same number
of shares of AllAdvantage Delaware Common Stock at the same exercise price per
share but otherwise shall, to the extent permitted by law and otherwise
reasonably practicable, have the same term, exercisability, vesting schedule,
status as an "incentive stock option" under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), if applicable, and all other material
terms and conditions (including but not limited to the terms and conditions
applicable to such options by virtue of the Existing Plans). Continuous
employment with AllAdvantage California will be credited to an optionee for
purposes of determining the vesting of the number of shares of AllAdvantage
Delaware Common Stock subject to exercise under an assumed AllAdvantage
California option at the Effective Time. At the Effective Time, AllAdvantage
Delaware shall adopt and assume the Existing Plans. Additionally, at the
Effective Time, all outstanding and unexercised portions of all warrants to
purchase or acquire AllAdvantage California Common Stock or any series of
AllAdvantage California Preferred Stock shall be assumed by AllAdvantage
Delaware and become warrants to purchase or acquire the same number of shares of
AllAdvantage Delaware Common Stock or the corresponding series of AllAdvantage
Delaware Preferred Stock, as the case may be, at the same exercise price per
share but otherwise with the same term, exercisability, and all other material
terms and conditions.
9. Fractional Shares. No fractional shares of AllAdvantage Delaware
-----------------
Common Stock or AllAdvantage Delaware Preferred Stock will be issued in
connection with the Merger.
10. Employee Benefit Plans. At the Effective Time, the obligations of
----------------------
AllAdvantage California under or with respect to every plan, trust, program and
benefit then in effect or administered by AllAdvantage California for the
benefit of the directors, officers and employees of AllAdvantage California or
any of its subsidiaries shall become the lawful obligations of AllAdvantage
Delaware and shall be implemented and administered in the same manner and
3
<PAGE>
without interruption until the same are amended or otherwise lawfully altered or
terminated. Effective at the Effective Time, AllAdvantage Delaware hereby
expressly adopts and assumes all obligations of AllAdvantage California under
such employee benefit plans.
11. Further Assurances. From time to time, as and when required by the
------------------
Surviving Corporation or by its successors or assigns, there shall be executed
and delivered on behalf of AllAdvantage California such deeds, assignments and
other instruments, and there shall be taken or caused to be taken by it all such
further action, as shall be appropriate, advisable or necessary in order to
vest, perfect or confirm, of record or otherwise, in the Surviving Corporation
the title to and possession of all property, interests, assets, rights,
privileges, immunities, powers, franchises and authority of AllAdvantage
California, and otherwise to carry out the purposes of this Merger Agreement.
The officers and directors of the Surviving Corporation are fully authorized in
the name of and on behalf of AllAdvantage California, or otherwise, to take any
and all such actions and to execute and deliver any and all such deeds and other
instruments as may be necessary or appropriate to accomplish the foregoing.
12. Condition. The consummation of the Merger is subject to the approval
---------
of this Merger Agreement and the Merger contemplated hereby by the shareholders
of AllAdvantage California and by the sole stockholder of AllAdvantage Delaware,
prior to or at the Effective Time.
13. Abandonment. At any time before the Effective Time, this Merger
-----------
Agreement may be terminated and the Merger abandoned by the Board of Directors
of AllAdvantage California or AllAdvantage Delaware, notwithstanding approval of
this Merger Agreement by the shareholders of AllAdvantage California and the
sole stockholder of AllAdvantage Delaware.
14. Amendment. At any time before the Effective Time, this Merger
---------
Agreement may be amended, modified or supplemented by the Boards of Directors of
the Constituent Corporations, notwithstanding approval of this Merger Agreement
by the shareholders of AllAdvantage California and the sole stockholder of
AllAdvantage Delaware; provided, however, that any amendment made subsequent to
the adoption of this Merger Agreement by the shareholders of AllAdvantage
California or the sole stockholder of AllAdvantage Delaware shall not: (i) alter
or change the amount or kind of shares, securities, cash, property and/or rights
to be received in exchange for or upon conversion of any shares of any class or
series of AllAdvantage California; (ii) alter or change of any of the terms of
the Certificate of Incorporation of the Surviving Corporation to be effected by
the Merger; or (iii) alter or change any of the terms or conditions of this
Merger Agreement if such alteration or change would adversely affect the holders
of any shares of any class or series of AllAdvantage California or AllAdvantage
Delaware.
15. Tax-Free Reorganization. The Merger is intended to be a tax-free plan
-----------------------
of reorganization within the meaning of Section 368(a)(1)(F) of the Code.
16. Governing Law. This Merger Agreement shall be governed by and
-------------
construed under the internal laws of the State of California as applied to
agreements among California residents entered into and to be performed entirely
within California, without reference to the principles of conflicts of law or
choice of laws, except to the extent that the laws of the State of Delaware
would apply in matters relating to the internal affairs of AllAdvantage Delaware
and the Merger.
4
<PAGE>
17. Counterparts. In order to facilitate the filing and recording of this
------------
Merger Agreement, it may be executed in any number of counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
[Remainder of Page Intentionally Left Blank]
5
<PAGE>
IN WITNESS WHEREOF, this the parties hereto have caused this Merger
Agreement to be duly executed on the date and year first above written.
AllAdvantage.com AllAdvantage.com Inc.
(a California corporation) (a Delaware corporation)
By:________________________________ By:_______________________________
James Jorgensen, President James Jorgensen, President
By:_______________________________ By:_______________________________
Carl Anderson, Secretary David Johnson, Secretary
[Signature Page to Agreement and Plan of Merger]
6
<PAGE>
EXHIBIT "A"
FIRST AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
7
<PAGE>
EXHIBIT 3.02
FIRST AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ALLADVANTAGE.COM INC.
ARTICLE I
The name of the corporation is AllAdvantage.com Inc.
ARTICLE II
The address of the registered office of the corporation in the State of
Delaware is 15 East North Street, City of Dover, County of Kent. The name of
its registered agent at that address is Incorporating Services, Ltd.
ARTICLE III
The purpose of the corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware.
ARTICLE IV
The total number of shares of all classes of stock which the corporation
has authority to issue is 1,036,335,044 shares, consisting of two classes:
1,000,000,000 shares of Common Stock, $0.001 par value per share, and 36,335,044
shares of Preferred Stock, $0.001 par value per share. Of the 36,335,044 shares
of Preferred Stock, par value $0.001, authorized to be issued by the
corporation, 4,000,000 shares are hereby designated "Series A Preferred Stock,"
2,500,000 shares are hereby designated "Series B Preferred Stock," 13,306,118
shares are hereby designated "Series C Preferred Stock" and 16,528,926 shares
are hereby designated "Series D Preferred Stock."
The Board of Directors is authorized, subject to any limitations prescribed
by this Article IV or the law of the State of Delaware, to provide for the
issuance of the shares of Preferred Stock in one or more series, and, by filing
a Certificate of Designation pursuant to the applicable law of the State of
Delaware, to establish from time to time the number of shares to be included in
each such series, to fix the designation, powers, preferences and rights of the
shares of each such series and any qualifications, limitations or restrictions
thereof, and to increase or decrease the number of shares of any such series
(but not below the number of shares of such series then outstanding). The
number of authorized shares of Preferred Stock may also be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the corporation
entitled to vote, unless a vote of any other holders is required pursuant to
this Article IV or to a Certificate or Certificates of Designation establishing
a series of Preferred Stock.
Except as otherwise expressly provided in this Article IV or in any
Certificate of Designation designating any series of Preferred Stock pursuant to
the foregoing provisions of this Article IV, any new series of Preferred Stock
may be designated, fixed and determined as
1
<PAGE>
provided herein by the Board of Directors without approval of the holders of
Common Stock or the holders of Preferred Stock, or any series thereof, and any
such new series may have powers, preferences and rights, including, without
limitation, voting rights, dividend rights, liquidation rights, redemption
rights and conversion rights, senior to, junior to or pari passu with the rights
of the Common Stock, the Preferred Stock, or any future class or series of
Preferred Stock or Common Stock.
The rights, preferences, privileges and restrictions granted to and imposed
upon the respective classes and series of the corporation's capital stock are
set forth below:
1. Definitions. For purposes of this Article IV, the following
-----------
definitions apply:
1.1 "Board" shall mean the Board of Directors of the Company.
1.2 "Company" shall mean this corporation.
1.3 "Common Stock" shall mean the Common Stock, no par value, of the
Company.
1.4 "Common Stock Dividend" shall mean a stock dividend declared and
paid on the Common Stock that is payable in shares of Common Stock.
1.5 "Dividend Rate" shall mean $0.072 per share per annum for the
Series B Preferred Stock, as adjusted for any stock dividends, combinations,
splits, recapitalizations, and the like of the Series B Preferred Stock; $0.245
per share per annum for the Series C Preferred Stock, as adjusted for any stock
dividends, combinations, splits, recapitalizations, and the like of the Series C
Preferred Stock; and $0.605 per share per annum for the Series D Preferred
Stock, as adjusted for any stock dividends, combinations, splits,
recapitalizations, and the like of the Series D Preferred Stock.
1.6 "Original Issue Date" shall mean the date on which the first
share of the applicable series of Preferred Stock is issued by the Company.
1.7 "Original Issue Price" shall mean $0.05 per share for the Series
A Preferred Stock, $0.72 per share for the Series B Preferred Stock, $2.45 per
share for the Series C Preferred Stock, and $6.05 per share for the Series D
Preferred Stock.
1.8 "Preferred Stock" shall mean the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock, and the Series D
Preferred Stock, collectively.
1.9 "Series A Preferred Stock" shall mean the Series A Preferred
Stock, no par value, of the Company.
1.10 "Series B Preferred Stock" shall mean the Series B Preferred
Stock, no par value, of the Company.
1.11 "Series C Preferred Stock" shall mean the Series C Preferred
Stock, no par value, of the Company.
2
<PAGE>
1.12 "Series D Preferred Stock" shall mean the Series D Preferred
Stock, no par value, of the Company.
1.13 "Subsidiary" shall mean any corporation of which at least fifty
percent (50%) of the outstanding voting stock is at the time owned directly or
indirectly by the Company or by one or more of such subsidiary corporations.
2. Dividend Rights.
---------------
2.1 Dividend Preference. In each calendar year, the holders of the
-------------------
then outstanding Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock shall be entitled to receive, when, as and if declared by the
Board, out of any funds and assets of the Company legally available therefor,
noncumulative dividends at the annual Dividend Rate for each such series of
Preferred Stock, prior and in preference to the payment of any dividends on the
Series A Preferred Stock or the Common Stock in such calendar year (other than a
Common Stock Dividend). No dividends (other than a Common Stock Dividend) shall
be paid, with respect to the Series A Preferred Stock or the Common Stock during
any calendar year unless dividends in the total amount of the annual Dividend
Rate for the Series B Preferred Stock shall have first been paid or declared and
set apart for payment to the holders of the Series B Preferred Stock, dividends
in the total amount of the annual Dividend Rate for the Series C Preferred Stock
shall have first been paid or declared and set apart for payment to the holders
of the Series C Preferred Stock, and dividends in the total amount of the annual
Dividend Rate for the Series D Preferred Stock shall have first been paid or
declared and set apart for payment to the holders of the Series D Preferred
Stock, respectively, during that calendar year. Payments of any dividends to
the holders of Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock shall be paid pro rata, on an equal priority, pari passu basis
according to their respective dividend preferences as set forth herein.
Dividends on the Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock shall not be mandatory or cumulative, and no rights or interest
shall accrue to the holders of the Series B Preferred Stock, Series C Preferred
Stock or Series D Preferred Stock by reason of the fact that the Company shall
fail to declare or pay dividends on the Series B Preferred Stock, Series C
Preferred Stock or Series D Preferred Stock in the amount of the respective
annual Dividend Rate for each such series or in any other amount in any calendar
year or any fiscal year of the Company, whether or not the earnings of the
Company in any calendar year or fiscal year were sufficient to pay such
dividends in whole or in part.
2.2 Participation Rights. If, after dividends in the full
--------------------
preferential amounts specified in this Section 2 for the Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock have been paid or
declared and set apart in any calendar year of the Company, the Board shall
declare additional dividends out of funds legally available therefor in that
calendar year, then such additional dividends shall be declared pro rata on the
Common Stock, the Series A Preferred Stock, the Series B Preferred Stock, the
Series C Preferred Stock and the Series D Preferred Stock on a pari passu basis
according to the number of shares of Common Stock held by such holders, where
each holder of shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and/or Series D Preferred Stock is to be treated for
this purpose as holding the greatest whole number of shares of Common Stock then
issuable upon conversion of
3
<PAGE>
all shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and/or Series D Preferred Stock held by such holder pursuant to
Section 5.
2.3 Non-Cash Dividends. Whenever a dividend provided for in this
------------------
Section 2 shall be payable in property other than cash, the value of such
dividend shall be deemed to be the fair market value of such property as
determined in good faith by the Board.
3. Liquidation Rights. In the event of any liquidation, dissolution or
------------------
winding up of the Company, whether voluntary or involuntary, the funds and
assets that may be legally distributed to the Company's stockholders (the
"Available Funds and Assets") shall be distributed to stockholders in the
following manner:
3.1 Liquidation Preferences. The holders of each share of Series A
-----------------------
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock then outstanding shall be entitled to be paid, out of the
Available Funds and Assets, and prior and in preference to any payment or
distribution (or any setting apart of any payment or distribution) of any
Available Funds and Assets on any shares of Common Stock, an amount per share
equal to the Original Issue Price for each such series of Preferred Stock (as
adjusted for any stock dividends, combinations, splits, recapitalizations, and
the like of such series of Preferred Stock), respectively, plus all declared but
unpaid dividends thereon. If upon any liquidation, dissolution or winding up of
the Company the Available Funds and Assets shall be insufficient to permit the
payment to holders of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock of their full preferential
amounts described in this subsection, then all the remaining Available Funds and
Assets shall be distributed among the holders of the then outstanding Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock pro rata, on an equal priority, pari passu basis, according to
their respective liquidation preferences as set forth herein.
3.2 Participation Rights. If there are any Available Funds and
--------------------
Assets remaining after the payment or distribution (or the setting aside for
payment or distribution) to the holders of the Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock of
their full preferential amounts described above in this Section 3, then all such
remaining Available Funds and Assets shall be distributed among the holders of
the then outstanding Common Stock, Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock pro rata according
to the number of shares of Common Stock held by such holders, where, for this
purpose, holders of shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock will be deemed to
hold (in lieu of their Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock) the greatest whole number
of shares of Common Stock then issuable upon conversion in full of such shares
of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
and Series D Preferred Stock pursuant to Section 5 until such time as (i) each
holder of then outstanding Series A Preferred Stock shall have received, in
distributions made under this Section 3, an aggregate amount equal to $0.20 per
share, as adjusted for any stock dividends, combinations, splits,
recapitalizations, and the like of the Series A Preferred Stock (such aggregate
dollar amount to include all amounts previously paid to such holder pursuant to
subsection 3.1); (ii) each holder of then outstanding Series B Preferred Stock
shall have received, in distributions made under this Section 3, an aggregate
4
<PAGE>
amount equal to $2.88 per share, as adjusted for any stock dividends,
combinations, splits, recapitalizations, and the like of the Series B Preferred
Stock (such aggregate dollar amount to include all amounts previously paid to
such holder pursuant to subsection 3.1); (iii) each holder of then outstanding
Series C Preferred Stock shall have received, in distributions made under this
Section 3, an aggregate amount equal to $9.80 per share, as adjusted for any
stock dividends, combinations, splits, recapitalizations, and the like of the
Series C Preferred Stock (such aggregate dollar amount to include all amounts
previously paid to such holder pursuant to subsection 3.1); and (iv) each holder
of the then outstanding Series D Preferred Stock shall have received, in
distributions made under this Section 3, an aggregate amount equal to $24.20 per
share, as adjusted for any stock dividends, combinations, splits,
recapitalizations, and the like of the Series D Preferred Stock (such aggregate
dollar amount to include all amounts previously paid to such holder pursuant to
subsection 3.1). After such distribution has been paid to all holders of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock, then the holders of then outstanding Common Stock
shall be entitled to receive all the remaining Available Funds and Assets (if
any) pro rata according to the number of outstanding shares of Common Stock then
held by each of them.
3.3 Merger or Sale of Assets. A (i) consolidation or merger of the
------------------------
Company with or into any other corporation or corporations in which the holders
of the Company's outstanding shares immediately before such consolidation or
merger do not, immediately after such consolidation or merger, retain stock
representing a majority of the voting power of the surviving corporation of such
consolidation or merger, or any transaction or series of related transactions to
which the Company is a party in which in excess of 50% of the Company's voting
power is transferred, excluding any consolidation or merger effected exclusively
to change the domicile of the Company; or (ii) a sale of all or substantially
all of the assets of the Company, shall each be deemed to be a liquidation,
dissolution or winding up of the Company as those terms are used in this Section
3.
3.4 Non-Cash Consideration. If any assets of the Company distributed
----------------------
to stockholders in connection with any liquidation, dissolution, or winding up
of the Company are other than cash, then the value of such assets shall be their
fair market value as determined by the Board, except that any securities to be
------ ----
distributed to stockholders in a liquidation, dissolution, or winding up of the
Company shall be valued as follows:
(a) The method of valuation of securities not subject to
investment letter or other similar restrictions on free marketability shall be
as follows:
(i) if the securities are then traded on a national
securities exchange or the Nasdaq National Market (or a similar national
quotation system), then the value shall be deemed to be the average of the
closing prices of the securities on such exchange or system over the 30-day
period ending three (3) days prior to the distribution; and
(ii) if actively traded over-the-counter, then the value
shall be deemed to be the average of the closing bid prices over the 30-day
period ending three (3) days prior to the distribution; and
5
<PAGE>
(iii) if there is no active public market, then the value
shall be the fair market value thereof, as determined in good faith by the
Board of Directors of the Company.
(b) The method of valuation of securities subject to investment
letter or other restrictions on free marketability shall be to make an
appropriate discount from the market value determined as above in subparagraphs
(a)(i), (ii) or (iii) of this subsection to reflect the approximate fair market
value thereof, as determined in good faith by the Board.
4. Voting Rights.
-------------
4.1 Common Stock. Each holder of shares of Common Stock shall be
------------
entitled to one (1) vote for each share thereof held.
4.2 Preferred Stock. Each holder of shares of Preferred Stock shall
---------------
be entitled to the number of votes equal to the number of whole shares of Common
Stock into which such shares of Preferred Stock could be converted pursuant to
the provisions of Section 5 below at the record date for the determination of
the stockholders entitled to vote on such matters or, if no such record date is
established, the date such vote is taken or any written consent of stockholders
is solicited.
4.3 General. Subject to the foregoing provisions of this Section 4,
-------
each holder of Preferred Stock shall have full voting rights and powers equal to
the voting rights and powers of the holders of Common Stock, and shall be
entitled to notice of any stockholders' meeting in accordance with the bylaws of
the Company (as in effect at the time in question) and applicable law, and shall
be entitled to vote, together with the holders of Common Stock, with respect to
any question upon which holders of Common Stock have the right to vote, except
as may be otherwise provided by applicable law. Except as otherwise expressly
provided herein or as required by law, the holders of Preferred Stock and the
holders of Common Stock shall vote together and not as separate classes.
4.4 Board Size. So long as at least 625,000 shares of Series B
----------
Preferred Stock are outstanding or at least 3,200,000 shares of Series C
Preferred Stock are outstanding or at least 4,132,231 shares of Series D
Preferred Stock are outstanding, (i) the authorized number of directors of the
Company's Board shall be eight (8) and (ii) the Company shall not alter the
authorized number of directors in its Certificate of Incorporation, Bylaws or
otherwise, without first obtaining the written consent, or affirmative vote at a
meeting, of holders of Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock representing at least a majority of the voting power of
all the then-outstanding shares of Series B Preferred Stock, Series C Preferred
Stock and Series D Preferred Stock voting together as a class.
4.5 Board of Directors Election and Removal.
---------------------------------------
(a) Election. (i) So long as at least 625,000 shares of Series B
--------
Preferred Stock are outstanding (such number of shares being subject to
proportional adjustment to reflect combination or subdivisions of such Series B
Preferred Stock or dividends declared in shares of such stock), the holders of
the Series B Preferred Stock, voting as a separate series (with cumulative
voting rights as among themselves), shall be entitled to elect one (1) director
of
6
<PAGE>
the Company; (ii) so long as at least 3,200,000 shares of Series C Preferred
Stock are outstanding (such number of shares being subject to proportional
adjustment to reflect combination or subdivisions of such Series C Preferred
Stock or dividends declared in shares of such stock), the holders of the Series
C Preferred Stock, voting as a separate series (with cumulative voting rights as
among themselves), shall be entitled to elect two (2) directors of the Company;
(iii) so long as at least 4,132,231 shares of Series D Preferred Stock are
outstanding (such number of shares being subject to proportional adjustment to
reflect combination or subdivisions of such Series D Preferred Stock or
dividends declared in shares of such stock), the holders of the Series D
Preferred Stock, voting as a separate series (with cumulative voting rights as
among themselves), shall be entitled to elect one (1) director of the Company;
(iv) so long as at least 625,000 shares of Series B Preferred Stock or 3,200,000
shares of Series C Preferred Stock or 4,132,231 shares of Series D Preferred
Stock are outstanding (such number of shares being subject to proportional
adjustment to reflect combination or subdivisions of such Series B Preferred
Stock, Series C Preferred Stock or Series D Preferred Stock, respectively, or
dividends declared in shares of such stock), the holders of the Common Stock and
the Series A Preferred Stock, voting together as a single class (with cumulative
voting rights as among themselves), shall be entitled to elect two (2) directors
of the Company; and (v) the holders of the Common Stock and the Preferred Stock,
voting together as a single class (with cumulative voting rights as among
themselves), shall be entitled to elect the remaining directors of the Company.
(b) Quorum; Required Vote.
---------------------
(i) Quorum. At any meeting held for the purpose of electing
------
directors, the presence in person or by proxy of (A) the holders of a majority
of the then-outstanding shares of the Series B Preferred Stock shall constitute
a quorum of the Series B Preferred Stock for the election of the directors to be
elected solely by the holders of the Series B Preferred Stock, (B) the holders
of a majority of the then-outstanding shares of the Series C Preferred Stock
shall constitute a quorum of the Series C Preferred Stock for the election of
the directors to be elected solely by the holders of the Series C Preferred
Stock, (C) the holders of a majority of the then-outstanding shares of the
Series D Preferred Stock shall constitute a quorum of the Series D Preferred
Stock for the election of the directors to be elected solely by the holders of
the Series D Preferred Stock, (D) the holders of Series A Preferred Stock and
Common Stock representing a majority of the voting power of all the then-
outstanding shares of Series A Preferred Stock and Common Stock shall constitute
a quorum of the Series A Preferred Stock and Common Stock for the election of
the directors to be elected jointly by the holders of the Series A Preferred
Stock and Common Stock, and (E) the holders of Common Stock and Preferred Stock
representing a majority of the voting power of all the then-outstanding shares
of Common Stock and Preferred Stock shall constitute a quorum of the Common
Stock and Preferred Stock for the election of the directors to be elected
jointly by the holders of the Common Stock and Preferred Stock.
(ii) Required Vote. With respect to the election of any
-------------
director or directors by the holders of the outstanding shares of a specified
series, series', class or classes of stock given the right to elect such
director or directors pursuant to subsection 4.5(a) above (the "Specified
Stock"), that candidate or those candidates (as applicable) shall be elected who
either: (A) in the case of any such vote conducted at a meeting of the holders
of such Specified Stock, receive the highest number of affirmative votes of the
outstanding shares of such Specified
7
<PAGE>
Stock, up to the number of directors to be elected by such Specified Stock; or
(B) in the case of any such vote taken by written consent without a meeting, are
elected by the unanimous written consent of the holders of shares of such
Specified Stock, except that, if such vote is to fill a vacancy on the Board
other than a vacancy created by removal of a director, such vacancy may be
filled by election by the written consent of the holders of a majority of the
outstanding shares of such Specified Stock.
(c) Vacancy. If there shall be any vacancy in the office of a
-------
director elected by the holders of any Specified Stock pursuant to subsection
4.5(a), then a successor to hold office for the unexpired term of such director
may be elected by either: (i) the remaining director or directors (if any) in
office that were so elected by the holders of such Specified Stock, by the
affirmative vote of a majority of such directors (or by the sole remaining
director elected by the holders of such Specified Stock if there be but one), or
(ii) the required vote of holders of the shares of such Specified Stock
specified in subsection 4.5(b)(ii) above that are entitled to elect such
director under subsection 4.5(a).
(d) Removal. Subject to Section 303 of the California Corporations
-------
Code (to the extent applicable), any director who shall have been elected to the
Board by the holders of any Specified Stock pursuant to subsection 4.5(a) or by
any director or directors elected by holders of any Specified Stock as provided
in subsection 4.5(c), may be removed during his or her term of office, either
with or without cause, by, and only by, the affirmative vote of shares
representing a majority of the voting power of all the outstanding shares of
such Specified Stock entitled to vote, given either at a meeting of such
stockholders duly called for that purpose or pursuant to a written consent of
stockholders without a meeting, and any vacancy created by such removal may be
filled only in the manner provided in subsection 4.5(c).
(e) Procedures. Any meeting of the holders of any Specified Stock,
----------
and any action taken by the holders of any Specified Stock by written consent
without a meeting, in order to elect or remove a director under this subsection
4.5, shall be held in accordance with the procedures and provisions of the
Company's Bylaws and applicable law regarding stockholder meetings and
stockholder actions by written consent, as such are then in effect (including
but not limited to procedures and provisions for determining the record date for
shares entitled to vote).
(f) Termination. Notwithstanding anything in this subsection 4.5 to
-----------
the contrary, the provisions of this subsection 4.5 shall cease to be of any
further force or effect upon the earlier to occur of: (i) the first date on
which the total number of outstanding shares of Series B Preferred Stock is less
than 625,000 shares and the total number of outstanding shares of Series C
Preferred Stock is less than 3,200,000 shares and the total number of
outstanding shares of Series D Preferred Stock is less than 4,132,231 shares
(such numbers of shares being subject to proportional adjustment to reflect
combination or subdivisions of such Series B Preferred Stock or Series C
Preferred Stock or Series D Preferred Stock, respectively, or dividends declared
in shares of such stock); or (ii) upon the consolidation or merger of the
Company with or into any other corporation or corporations in which the holders
of the Company's outstanding shares immediately before such consolidation or
merger do not, immediately after such consolidation or merger, retain stock
representing a majority of the voting power of the surviving corporation of such
consolidation or merger.
8
<PAGE>
5. Conversion Rights. The outstanding shares of Preferred Stock shall be
-----------------
convertible into Common Stock as follows:
5.1 Optional Conversion.
-------------------
(a) At the option of the holder thereof, each share of Preferred
Stock shall be convertible, at any time or from time to time, into fully paid
and nonassessable shares of Common Stock as provided herein.
(b) Each holder of Preferred Stock who elects to convert the same
into shares of Common Stock shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Company or any transfer agent for
the Preferred Stock or Common Stock, and shall give written notice to the
Company at such office that such holder elects to convert the same and shall
state therein the number of shares of Preferred Stock being converted. Thereupon
the Company shall promptly issue and deliver at such office to such holder a
certificate or certificates for the number of shares of Common Stock to which
such holder is entitled upon such conversion. Such conversion shall be deemed to
have been made immediately prior to the close of business on the date of such
surrender of the certificate or certificates representing the shares of
Preferred Stock to be converted, and the person entitled to receive the shares
of Common Stock issuable upon such conversion shall be treated for all purposes
as the record holder of such shares of Common Stock on such date.
5.2 Automatic Conversion.
--------------------
(a) Series A Preferred Stock. Each and every share of Series A
------------------------
Preferred Stock shall automatically be converted into fully paid and
nonassessable shares of Common Stock, as provided herein:
(i) immediately prior to the closing of a firm commitment
underwritten public offering pursuant to an effective registration statement
filed under the Securities Act of 1933, as amended, covering the offer and sale
of Common Stock for the account of the Company in which the aggregate public
offering price (before deduction of underwriters' discounts and commissions)
equals or exceeds $1,000,000 and the public offering price per share of which
equals or exceeds $0.54 per share before deduction of underwriters' discounts
and commissions (such price per share of Common Stock to be appropriately
adjusted to reflect a stock dividend, stock split, reverse stock split,
subdivision, combination, reclassification or similar change in the Common Stock
without consideration effected following the date of the filing of this First
Amended and Restated Certificate of Incorporation); or
(ii) on the first date on which the total number of
outstanding shares of Series A Preferred Stock is less than 1,000,000 shares
(such number of shares being subject to proportional adjustment to reflect
combination or subdivisions of such Series A Preferred Stock or dividends
declared in shares of such stock); or
(iii) upon the Company's receipt of the written consent of
holders of Series A Preferred Stock representing at least a majority of the
voting power of all the then-outstanding shares of Series A Preferred Stock to
the conversion of all then outstanding Series A Preferred Stock under this
Section 5.
9
<PAGE>
(b) Series B Preferred Stock. Each and every share of Series B
------------------------
Preferred Stock shall automatically be converted into fully paid and
nonassessable shares of Common Stock, as provided herein:
(i) immediately prior to the closing of a firm commitment
underwritten public offering pursuant to an effective registration statement
filed under the Securities Act of 1933, as amended, covering the offer and sale
of Common Stock for the account of the Company in which the aggregate public
offering price (before deduction of underwriters' discounts and commissions)
equals or exceeds $10,000,000 and the public offering price per share of which
equals or exceeds $0.54 per share before deduction of underwriters' discounts
and commissions (such price per share of Common Stock to be appropriately
adjusted to reflect a stock dividend, stock split, reverse stock split,
subdivision, combination, reclassification or similar change in the Common Stock
without consideration effected following the date of the filing of this First
Amended and Restated Certificate of Incorporation); or
(ii) on the first date on which the total number of
outstanding shares of Series B Preferred Stock is less than 625,000 shares (such
number of shares being subject to proportional adjustment to reflect combination
or subdivisions of such Series B Preferred Stock or dividends declared in shares
of such stock); or
(iii) upon the Company's receipt of the written consent of
holders of Series B Preferred Stock representing at least a majority of the
voting power of all the then-outstanding shares of Series B Preferred Stock to
the conversion of all then outstanding Series B Preferred Stock under this
Section 5.
(c) Series C Preferred Stock. Each and every share of Series C
------------------------
Preferred Stock shall automatically be converted into fully paid and
nonassessable shares of Common Stock, as provided herein:
(i) immediately prior to the closing of a firm commitment
underwritten public offering pursuant to an effective registration statement
filed under the Securities Act of 1933, as amended, covering the offer and sale
of Common Stock for the account of the Company in which the aggregate public
offering price (before deduction of underwriters' discounts and commissions)
equals or exceeds $10,000,000 and the public offering price per share of which
equals or exceeds $1.8375 per share before deduction of underwriters' discounts
and commissions (such price per share of Common Stock to be appropriately
adjusted to reflect a stock dividend, stock split, reverse stock split,
subdivision, combination, reclassification or similar change in the Common Stock
without consideration effected following the date of the filing of this First
Amended and Restated Certificate of Incorporation); or
(ii) on the first date on which the total number of
outstanding shares of Series C Preferred Stock is less than 3,305,785 shares
(such number of shares being subject to proportional adjustment to reflect
combination or subdivisions of such Series C Preferred Stock or dividends
declared in shares of such stock); or
(iii) upon the Company's receipt of the written consent of
holders of Series C Preferred Stock representing at least a majority of the
voting power of all the
10
<PAGE>
then-outstanding shares of Series C Preferred Stock to the conversion of
all then outstanding Series C Preferred Stock under this Section 5.
(d) Series D Preferred Stock. Each and every share of Series D
------------------------
Preferred Stock shall automatically be converted into fully paid and
nonassessable shares of Common Stock, as provided herein:
(i) immediately prior to the closing of a firm commitment
underwritten public offering pursuant to an effective registration statement
filed under the Securities Act of 1933, as amended, covering the offer and sale
of Common Stock for the account of the Company in which the aggregate public
offering price (before deduction of underwriters' discounts and commissions)
equals or exceeds $10,000,000 and the public offering price per share of which
equals or exceeds $8.0465 per share before deduction of underwriters' discounts
and commissions (such price per share of Common Stock to be appropriately
adjusted to reflect a stock dividend, stock split, reverse stock split,
subdivision, combination, reclassification or similar change in the Common Stock
without consideration effected following the date of the filing of this First
Amended and Restated Certificate of Incorporation); or
(ii) on the first date on which the total number of outstanding
shares of Series D Preferred Stock is less than 3,305,785 shares (such number of
shares being subject to proportional adjustment to reflect combination or
subdivisions of such Series D Preferred Stock or dividends declared in shares of
such stock); or
(iii) upon the Company's receipt of the written consent of
holders of Series D Preferred Stock representing at least a majority of the
voting power of all the then-outstanding shares of Series D Preferred Stock to
the conversion of all then outstanding Series D Preferred Stock under this
Section 5.
(e) Upon the occurrence of any event specified in subparagraph
5.2(a), 5.2(b), 5.2(c) or 5.2(d) above, the outstanding shares of such series of
Preferred Stock shall be converted into Common Stock automatically without the
need for any further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the Company or its
transfer agent; provided, however, that the Company shall not be obligated to
-------- -------
issue certificates evidencing the shares of Common Stock issuable upon such
conversion unless the certificates evidencing such shares of Preferred Stock are
either delivered to the Company or its transfer agent as provided below, or the
holder notifies the Company or its transfer agent that such certificates have
been lost, stolen or destroyed and executes an agreement satisfactory to the
Company to indemnify the Company from any loss incurred by it in connection with
such certificates. Upon the occurrence of such automatic conversion of a series
of Preferred Stock, the holders of such series of Preferred Stock shall
surrender the certificates representing such shares at the office of the Company
or any transfer agent for such series of Preferred Stock or Common Stock.
Thereupon, there shall be issued and delivered to such holder promptly at such
office and in its name as shown on such surrendered certificate or certificates,
a certificate or certificates for the number of shares of Common Stock into
which such shares of Preferred Stock surrendered were convertible on the date on
which such automatic conversion occurred.
11
<PAGE>
5.3 Conversion Price. Each share of Preferred Stock shall be
----------------
convertible in accordance with subsection 5.1 or subsection 5.2 above into the
number of shares of Common Stock which results from dividing the Original Issue
Price for such series of Preferred Stock by the conversion price for such series
of Preferred Stock that is in effect at the time of conversion (the "Conversion
Price"). The initial Conversion Price for the Series A Preferred Stock shall be
$0.0125, the initial Conversion Price for the Series B Preferred Stock shall be
$0.18, the initial Conversion Price for the Series C Preferred Stock shall be
$1.225 and the initial Conversion Price for the Series D Preferred Stock shall
be the Original Issue Price for the Series D Preferred Stock. The Conversion
Price of each series of Preferred Stock shall be subject to further adjustment
from time to time as provided below.
5.4 Adjustment Upon Common Stock Event. Upon the happening of a
----------------------------------
Common Stock Event (as hereinafter defined) after the date of the filing of this
First Amended and Restated Certificate of Incorporation, the Conversion Price of
the Series A Preferred Stock, the Conversion Price of the Series B Preferred
Stock, the Conversion Price of the Series C Preferred Stock and the Conversion
Price of the Series D Preferred Stock shall, simultaneously with the happening
of such Common Stock Event, be adjusted by multiplying the Conversion Price of
such series of Preferred Stock in effect immediately prior to such Common Stock
Event by a fraction, (i) the numerator of which shall be the number of shares of
Common Stock issued and outstanding immediately prior to such Common Stock
Event, and (ii) the denominator of which shall be the number of shares of Common
Stock issued and outstanding immediately after such Common Stock Event, and the
product so obtained shall thereafter be the Conversion Price for such series of
Preferred Stock. The Conversion Price for a series of Preferred Stock shall be
readjusted in the same manner upon the happening of each subsequent Common Stock
Event. As used herein, the term "Common Stock Event" shall mean (i) the issue
by the Company of additional shares of Common Stock as a dividend or other
distribution on outstanding Common Stock, (ii) a subdivision of the outstanding
shares of Common Stock into a greater number of shares of Common Stock, or (iii)
a combination of the outstanding shares of Common Stock into a smaller number of
shares of Common Stock.
5.5 Adjustments for Other Dividends and Distributions. If at any
-------------------------------------------------
time or from time to time after the Original Issue Date the Company pays a
dividend or makes another distribution to the holders of the Common Stock
payable in securities of the Company other than shares of Common Stock, then in
each such event provision shall be made so that the holders of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock shall receive upon conversion thereof, in addition to the number
of shares of Common Stock receivable upon conversion thereof, the amount of
securities of the Company which they would have received had their Preferred
Stock been converted into Common Stock on the date of such event (or such record
date, as applicable) and had they thereafter, during the period from the date of
such event (or such record date, as applicable) to and including the conversion
date, retained such securities receivable by them as aforesaid during such
period, subject to all other adjustments called for during such period under
this Section 5 with respect to the rights of the holders of the Preferred Stock
or with respect to such other securities by their terms.
5.6 Adjustment for the IPO Price. With respect to the Series D
----------------------------
Preferred Stock only, if the public offering price per share (before deduction
of underwriters' discounts and
12
<PAGE>
commissions) of the Common Stock (the "IPO Price") in the first firm commitment
underwritten public offering pursuant to an effective registration statement
filed under the Securities Act of 1933, as amended, covering the offer and sale
of Common Stock for the account of the Company actually closed (the "IPO") is
less than $12.10 (such price per share of Common Stock to be appropriately
adjusted to reflect a stock dividend, stock split, reverse stock split,
subdivision, combination, reclassification, or similar change in the Common
Stock effected following the date of the filing of this First Amended and
Restated Certificate of Incorporation), then the Conversion Price for the Series
D Preferred Stock (the "Series D Conversion Price") in effect immediately prior
to the closing of the IPO (the "Pre-IPO Series D Conversion Price") shall be
adjusted, effective immediately prior to the closing of the IPO, to be equal to
the greater of: (a) one-half (1/2) of the IPO Price, or (b) $4.84 (such figure
to be appropriately adjusted to reflect a stock dividend, stock split, reverse
stock split, subdivision, combination, reclassification, or similar change in
the Common Stock effected following the date of the filing of this First Amended
and Restated Certificate of Incorporation); provided, however, that if the Pre-
IPO Series D Conversion Price is less than the Series D Conversion Price as
adjusted pursuant to the preceding provisions of this sentence, then the Series
D Conversion Price shall not be adjusted by reason of the IPO and shall remain
equal to the Pre-IPO Series D Conversion Price.
5.7 Adjustment for Reclassification, Exchange and Substitution. If
----------------------------------------------------------
at any time or from time to time after the Original Issue Date the Common Stock
issuable upon the conversion of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock is changed into the
same or a different number of shares of any class or classes of stock, whether
by recapitalization, reclassification or otherwise (other than by a Common Stock
----- ----
Event or a stock dividend, reorganization, merger, consolidation or sale of
assets provided for elsewhere in this Section 5), then in any such event each
holder of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and Series D Preferred Stock shall have the right thereafter to convert
such stock into the kind and amount of stock and other securities and property
receivable upon such recapitalization, reclassification or other change by
holders of the number of shares of Common Stock into which such shares of Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series
D Preferred Stock could have been converted immediately prior to such
recapitalization, reclassification or change, all subject to further adjustment
as provided herein or with respect to such other securities or property by the
terms thereof.
5.8 Sale of Shares Below Conversion Price.
-------------------------------------
(a) Adjustment Formula. With respect to the Series C Preferred
------------------
Stock or the Series D Preferred Stock only, if at any time or from time to time
after the Original Issue Date for such series of Preferred Stock, the Company
issues or sells, or is deemed by the provisions of this subsection 5.8 to have
issued or sold, Additional Shares of Common Stock (as hereinafter defined),
otherwise than in connection with a Common Stock Event as provided in subsection
5.4, a dividend or distribution as provided in subsection 5.5, or a
recapitalization, reclassification or other change as provided in subsection
5.7, for an Effective Price (as hereinafter defined) that is less than the
Conversion Price for such series of Preferred Stock in effect immediately prior
to such issue or sale, then, and in each such case, the Conversion Price for
such series of Preferred Stock shall be reduced, as of the close of business on
the date of such issue or sale, to the price obtained by multiplying such
Conversion Price by a fraction:
13
<PAGE>
(i) The numerator of which shall be the sum of (A) the
number of Common Stock Equivalents Outstanding (as hereinafter defined)
immediately prior to such issue or sale of Additional Shares of Common Stock
plus (B) the quotient obtained by dividing the Aggregate Consideration Received
(as hereinafter defined) by the Company for the total number of Additional
Shares of Common Stock so issued or sold (or deemed so issued and sold) by the
Conversion Price for such series of Preferred Stock in effect immediately prior
to such issue or sale; and
(ii) The denominator of which shall be the sum of (A) the
number of Common Stock Equivalents Outstanding immediately prior to such issue
or sale plus (B) the number of Additional Shares of Common Stock so issued or
sold (or deemed so issued and sold).
(b) Certain Definitions. For the purpose of making any
-------------------
adjustment required under this subsection 5.8:
(i) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued by the Company, whether or not subsequently
reacquired or retired by the Company, other than:
(a) shares of Common Stock issued or issuable upon
conversion of the outstanding shares of the Preferred Stock;
(b) up to 22,561,317 shares of Common Stock (or
options, warrants or rights therefor) granted or issued after September 22, 1999
to employees, officers, directors, contractors, consultants or advisers to, the
Company or any Subsidiary pursuant to incentive agreements, stock purchase or
stock option plans, stock bonuses or awards, warrants, contracts or other
arrangements that are approved by the Board of Directors (such number of shares
to be calculated net of any repurchase of such shares by the Company and net of
any such expired or terminated options, warrants or rights and to be
proportionally adjusted to reflect any subsequent Common Stock Event);
(c) any shares of the Company's Common Stock or
Preferred Stock (and/or options or warrants therefor) issued or issuable to
parties providing the Company with debt financing from a bank or similar
institution, equipment leases or real property leases, under arrangements
approved by the Board of Directors; and
(d) shares of Common Stock or Preferred Stock issued
pursuant to the acquisition of another corporation or entity by the Company
approved by the Board of Directors, by consolidation, merger, purchase of all or
substantially all of the assets, or other reorganization, in which the Company
acquires, in a single transaction or series of related transactions, all or
substantially all of the assets of such other corporation or entity or fifty
percent (50%) or more of the voting power of such other corporation or entity or
fifty percent (50%) or more of the equity ownership of such other entity.
(ii) The "Aggregate Consideration Received" by the Company
for any issue or sale (or deemed issue or sale) of securities shall (A) to the
extent it consists of cash, be computed at the gross amount of cash received by
the Company before deduction of any
14
<PAGE>
underwriting or similar commissions, compensation or concessions paid or allowed
by the Company in connection with such issue or sale and without deduction of
any expenses payable by the Company; (B) to the extent it consists of property
other than cash, be computed at the fair value of that property as determined in
good faith by the Board; and (C) if Additional Shares of Common Stock,
Convertible Securities or Rights or Options to purchase either Additional Shares
of Common Stock or Convertible Securities are issued or sold together with other
stock or securities or other assets of the Company for a consideration which
covers both, be computed as the portion of the consideration so received that
may be reasonably determined in good faith by the Board to be allocable to such
Additional Shares of Common Stock, Convertible Securities or Rights or Options.
(iii) "Common Stock Equivalents Outstanding" shall mean the
number of shares of Common Stock that is equal to the sum of (A) all shares of
Common Stock of the Company that are outstanding at the time in question, plus
(B) all shares of Common Stock of the Company issuable upon conversion of all
shares of Preferred Stock or other Convertible Securities that are outstanding
at the time in question, plus (C) all shares of Common Stock of the Company that
are issuable upon the exercise of Rights or Options that are outstanding at the
time in question assuming the full conversion or exchange into Common Stock of
all such Rights or Options that are Rights or Options to purchase or acquire
Convertible Securities into or for Common Stock.
(iv) "Convertible Securities" shall mean stock or other
securities convertible into or exchangeable for shares of Common Stock.
(v) The "Effective Price" of Additional Shares of Common
Stock shall mean the quotient determined by dividing the total number of
Additional Shares of Common Stock issued or sold, or deemed to have been issued
or sold, by the Company under this subsection 5.8, into the Aggregate
Consideration Received, or deemed to have been received, by the Company under
this subsection 5.8, for the issue of such Additional Shares of Common Stock.
(vi) "Rights or Options" shall mean warrants, options or
other rights to purchase or acquire shares of Common Stock or Convertible
Securities.
(c) Deemed Issuances. For the purpose of making any adjustment
----------------
to the Conversion Price of the Series C Preferred Stock or Series D Preferred
Stock required under this subsection 5.8, if the Company issues or sells any
Rights or Options or Convertible Securities and if the Effective Price of the
shares of Common Stock issuable upon exercise of such Rights or Options and/or
the conversion or exchange of Convertible Securities (computed without reference
to any additional or similar protective or antidilution clauses) is less than
the Conversion Price then in effect for such series of Preferred Stock, then the
Company shall be deemed to have issued, at the time of the issuance of such
Rights, Options or Convertible Securities, that number of Additional Shares of
Common Stock that is equal to the maximum number of shares of Common Stock
issuable upon exercise or conversion of such Rights, Options or Convertible
Securities upon their issuance and to have received, as the Aggregate
Consideration Received for the issuance of such shares, an amount equal to the
total amount of the consideration, if any, received by the Company for the
issuance of such Rights or Options or
15
<PAGE>
Convertible Securities, plus, in the case of such Rights or Options, the minimum
amounts of consideration, if any, payable to the Company upon the exercise in
full of such Rights or Options, plus, in the case of Convertible Securities, the
minimum amounts of consideration, if any, payable to the Company (other than by
cancellation of liabilities or obligations evidenced by such Convertible
Securities) upon the conversion or exchange thereof; provided that:
-------- ----
(i) if the minimum amounts of such consideration cannot be
ascertained, but are a function of antidilution or similar protective clauses,
then the Company shall be deemed to have received the minimum amounts of
consideration without reference to such clauses;
(ii) if the minimum amount of consideration payable to the
Company upon the exercise of Rights or Options or the conversion or exchange of
Convertible Securities is reduced over time or upon the occurrence or non-
occurrence of specified events other than by reason of antidilution or similar
protective adjustments, then the Effective Price shall be recalculated using the
figure to which such minimum amount of consideration is reduced; and
(iii) if the minimum amount of consideration payable to the
Company upon the exercise of such Rights or Options or the conversion or
exchange of Convertible Securities is subsequently increased, then the Effective
Price shall again be recalculated using the increased minimum amount of
consideration payable to the Company upon the exercise of such Rights or Options
or the conversion or exchange of such Convertible Securities.
No further adjustment of the Conversion Price, adjusted upon the issuance of
such Rights or Options or Convertible Securities, shall be made as a result of
the actual issuance of shares of Common Stock on the exercise of any such Rights
or Options or the conversion or exchange of any such Convertible Securities. If
any such Rights or Options or the conversion rights represented by any such
Convertible Securities shall expire without having been fully exercised, then
the Conversion Price for such series of Preferred Stock, as adjusted upon the
issuance of such Rights or Options or Convertible Securities, shall be
readjusted to the Conversion Price for such series of Preferred Stock which
would have been in effect had an adjustment been made on the basis that the only
shares of Common Stock so issued were the shares of Common Stock, if any, that
were actually issued or sold on the exercise of such Rights or Options or rights
of conversion or exchange of such Convertible Securities, and such shares of
Common Stock, if any, were issued or sold for the consideration actually
received by the Company upon such exercise, plus the consideration, if any,
actually received by the Company for the granting of all such Rights or Options,
whether or not exercised, plus the consideration received for issuing or selling
all such Convertible Securities actually converted or exchanged, plus the
consideration, if any, actually received by the Company (other than by
cancellation of liabilities or obligations evidenced by such Convertible
Securities) on the conversion or exchange of such Convertible Securities,
provided that such readjustment shall not apply to prior conversions of such
series of Preferred Stock.
5.9 Certificate of Adjustment. In each case of an adjustment or
-------------------------
readjustment of the Conversion Price for a series of Preferred Stock, the
Company, at its expense, shall cause
16
<PAGE>
its Chief Financial Officer to compute such adjustment or readjustment in
accordance with the provisions hereof and prepare a certificate showing such
adjustment or readjustment, and shall mail such certificate, by first class
mail, postage prepaid, to each registered holder of the Preferred Stock at the
holder's address as shown in the Company's books.
5.10 Fractional Shares. No fractional shares of Common Stock shall
-----------------
be issued upon any conversion of Preferred Stock. In lieu of any fractional
share to which the holder would otherwise be entitled, the Company shall pay the
holder cash equal to the product of such fraction multiplied by the Common
Stock's fair market value as determined in good faith by the Board as of the
date of conversion.
5.11 Reservation of Stock Issuable Upon Conversion. The Company
---------------------------------------------
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Preferred Stock, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Preferred Stock, the
Company will take such corporate action as may, in the opinion of its counsel,
be necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purpose.
5.12 Notices. Any notice required by the provisions of this Section
-------
5 to be given to the holders of shares of the Preferred Stock shall be deemed
given upon the earlier of actual receipt or deposit in the United States mail,
by certified or registered mail, return receipt requested, postage prepaid,
addressed to each holder of record at the address of such holder appearing on
the books of the Company.
5.13 Payment of Taxes. The Company will pay all taxes (other than
----------------
taxes based upon income) and other governmental charges that may be imposed with
respect to the issue or delivery of shares of Common Stock upon conversion of
shares of Preferred Stock, excluding any tax or other charge imposed in
connection with any transfer involved in the issue and delivery of shares of
Common Stock in a name other than that in which the shares of Preferred Stock so
converted were registered.
5.14 No Impairment. The Company shall not avoid or seek to avoid the
-------------
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but shall at all times in good faith assist in
carrying out all such action as may be reasonably necessary or appropriate in
order to protect the conversion rights of the holders of the Preferred Stock
against impairment.
6. Restrictions and Limitations.
----------------------------
6.1 Protective Provisions. So long as at least a total of 9,083,761
---------------------
shares of Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock (such number of shares to be appropriately adjusted to reflect a
stock dividend, stock split, reverse stock split, subdivision, combination,
reclassification or similar change in the Series B Preferred Stock, Series C
Preferred Stock or Series D Preferred Stock, respectively, without
consideration) remain outstanding, the Company shall not, without the approval,
by vote or written consent, of holders
17
<PAGE>
of Series B Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock representing at least a majority of the voting power of all the then-
outstanding shares of Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock, voting together as a class:
(1) amend, alter or repeal any provision of its Certificate of
Incorporation in any manner that would alter or change any of the rights,
preferences, privileges or restrictions of the Series B Preferred Stock, Series
C Preferred Stock and/or Series D Preferred Stock;
(2) amend, alter or repeal any provision of its Certificate of
Incorporation in any other manner that would adversely affect the rights,
preferences and privileges of the Series B Preferred Stock, the Series C
Preferred Stock and/or the Series D Preferred Stock;
(3) reclassify any outstanding shares of securities of the
Company into shares having rights, preferences or privileges senior to or on a
parity with the Series B Preferred Stock, the Series C Preferred Stock and/or
the Series D Preferred Stock;
(4) authorize, designate or issue any other stock, or any other
securities convertible into stock of the Company, having rights or preferences
senior to or on a parity with the Series B Preferred Stock, the Series C
Preferred Stock and/or the Series D Preferred Stock as to dividend rights or
liquidation preferences or voting rights or conversion rights;
(5) merge or consolidate with or into any corporation if such
merger or consolidation would result in the stockholders of the Company
immediately prior to such merger or consolidation holding less than a majority
of the voting power of the stock of the surviving corporation immediately after
such merger or consolidation;
(6) sell all or substantially all the Company's assets in a
single transaction or series of related transactions; or
(7) liquidate or dissolve.
6.2 Series D Protective Provision. So long as any shares of Series D
-----------------------------
Preferred Stock remain outstanding, the Company shall not, without the approval,
by vote or written consent, of holders of Series D Preferred Stock representing
at least a majority of the voting power of all the then-outstanding shares of
Series D Preferred Stock, voting as a class, amend, alter or repeal any
provision of its Certificate of Incorporation in any manner that would affect
the rights, preferences and privileges of the Series D Preferred Stock.
7. Miscellaneous
-------------
7.1 No Reissuance of Preferred Stock. No share or shares of
--------------------------------
Preferred Stock acquired by the Company by reason of redemption, purchase,
conversion or otherwise shall be reissued, and all such shares shall be
cancelled, retired and eliminated from the shares which the Company shall be
authorized to issue.
18
<PAGE>
7.2 Consent to Certain Transactions. Each holder of shares of
-------------------------------
Preferred Stock shall, by virtue of its acceptance of a stock certificate
evidencing Preferred Stock, be deemed to have consented, for purposes of
Sections 502, 503 and 506 of the California Corporations Code (to the extent
applicable), to all repurchases by the Company of shares of Common Stock held by
employees, officers, directors, consultants, independent contractors, advisors,
or other persons performing services for the Company or a subsidiary that are
subject to restricted stock purchase agreements or stock option exercise
agreements under which the Company has the option to repurchase such shares:
(i) at cost, upon the occurrence of certain events, such as the termination of
employment or services; or (ii) at any price pursuant to the Company's exercise
of a right of first refusal to repurchase such shares.
ARTICLE V
In furtherance of and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to adopt, amend or repeal the
Bylaws of this corporation, subject to the right of the stockholders entitled to
vote with respect thereto, in accordance with the provisions of such Bylaws, to
alter and repeal the Bylaws adopted or amended by the Board of Directors.
Notwithstanding any other provisions of law, this Certificate of Incorporation
or the Bylaws, each as amended, and notwithstanding the fact that a lesser
percentage may be specified by law, this Certificate of Incorporation or the
Bylaws, the affirmative vote of the holders of at least sixty six and two-thirds
percent (66 2/3%) of the outstanding voting stock then entitled to vote at an
election of directors, voting together as a single class, shall be required to
alter, change, amend, repeal or adopt any provision inconsistent with this
Article V.
ARTICLE VI
For the management of the business and for the conduct of the affairs of
the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
(A) The conduct of the affairs of the corporation shall be managed under
the direction of the Board of Directors. The number of directors shall be fixed
from time to time exclusively by resolution of the Board of Directors.
(B) Notwithstanding the foregoing provision of this Article VI, each
director shall hold office until such director's successor is elected and
qualified, or until such director's earlier death, resignation or removal. No
decrease in the authorized number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
(C) Subject to the rights of the holders of any series of Preferred Stock,
any vacancy occurring in the Board of Directors for any cause, and any newly
created directorship resulting from any increase in the authorized number of
directors, shall, unless (i) the Board of Directors determines by resolution
that any such vacancies or newly created directorships shall be filled by the
stockholders, or (ii) as otherwise provided by law, be filled only by the
affirmative vote of a majority of the directors then in office, although less
than a quorum, or by a sole remaining director, and not by the stockholders.
Any director elected in accordance with the preceding
19
<PAGE>
sentence shall hold office for the remainder of the full term of the director
for which the vacancy was created or occurred.
(D) Subject to the rights of the holders of any series of Preferred Stock,
any director or the entire Board of Directors may be removed by the holders of
at least sixty six and two-thirds percent (66 2/3%) of the shares then entitled
to vote at an election of directors.
(E) Classification of Board of Directors:
(1) The provisions of this Article VI, Section (E) are subject to the
rights of the holders of any series of Preferred Stock to elect additional
directors under specified circumstances. As used in this Article VI, Section
(E), the term "Initial Public Offering" shall mean the initial public offering
of the corporation pursuant to an effective registration statement under the
Securities Act of 1933, as amended, covering the offer and sale of Common Stock
to the public.
(2) Prior to the closing of the Initial Public Offering, or in the
event that the corporation is prohibited from dividing its board of directors
into three classes in accordance with subsection (3) below through the operation
of Section 2115 of the California General Corporation Law, at each annual
meeting of stockholders, each director shall be elected for a term of office to
expire at the first succeeding annual meeting of stockholders after his or her
election, or until such director's earlier death, resignation or removal.
(3) Following the closing of the Initial Public Offering, unless
otherwise provided pursuant to subsection (2) above, the directors shall be
divided, with respect to the time for which they severally hold office, into
three classes designated as Class I, Class II and Class III, respectively.
Directors shall be assigned to each class in accordance with a resolution or
resolutions adopted by the Board of Directors (the "Board Classification
Resolutions"), with the number of directors in each class to be divided as
equally as reasonably possible. No one class shall have more than one director
more than any other class. The term of office of the Class I directors shall
expire at the corporation's first annual meeting of stockholders following the
closing of the Initial Public Offering, the term of office of the Class II
directors shall expire at the corporation's second annual meeting of
stockholders following the closing of the Initial Public Offering, and the term
of office of the Class III directors shall expire at the corporation's third
annual meeting of stockholders following the closing of the Initial Public
Offering. At each annual meeting of stockholders commencing with the first
annual meeting of stockholders following the closing of the Initial Public
Offering, each director elected to succeed a director of the class whose term
then expires shall be elected for a term of office to expire at the third
succeeding annual meeting of stockholders after his or her election, or until
such director's earlier death, resignation or removal.
(4) In the event that (i) at any annual meeting of stockholders
following the closing of the Initial Public Offering, the directors are elected,
pursuant to subsection (2) above, for a term of office to expire at the first
succeeding annual meeting of stockholders after their election, and (ii) prior
to the first succeeding annual meeting of stockholders (the "Succeeding
Meeting"), the corporation is no longer prohibited through the operation of
Section 2115 of the California General Corporation Law from dividing its board
of directors into three classes, then
20
<PAGE>
the directors shall again be divided, with respect to the time for which they
severally hold office, into three classes designated as Class I, Class II and
Class III, respectively, and shall be assigned to each class in accordance with
the Board Classification Resolutions previously adopted, and as the same may be
subsequently modified. The term of office of the Class I directors shall expire
at the Succeeding Meeting, the term of office of the Class II directors shall
expire at the corporation's first annual meeting of stockholders following the
Succeeding Meeting, and the term of office of the Class III directors shall
expire at the corporation's second annual meeting of stockholders following the
Succeeding Meeting. At each annual meeting of stockholders commencing with the
Succeeding Meeting, each director elected to succeed a director of the class
whose term then expires shall be elected for a term of office to expire at the
third succeeding annual meeting of stockholders after his or her election, or
until such director's earlier death, resignation or removal.
(5) In the event of any increase or decrease in the authorized number
of directors, (i) each director then serving as such shall nevertheless continue
as a director of the class of which he is a member and (ii) the newly created or
eliminated directorships resulting from such increase or decrease shall be
apportioned by the Board of Directors among the three classes of directors so as
to ensure that no one class has more than one director more than any other
class. To the extent possible, consistent with the foregoing rule, any newly
created directorships shall be added to those classes whose terms of office are
to expire at the latest dates following such allocation, and any newly
eliminated directorships shall be subtracted from those classes whose terms of
office are to expire at the earliest dates following such allocation, unless
otherwise provided from time to time by resolution adopted by the Board of
Directors.
(F) Election of directors need not be by written ballot unless the Bylaws
of the corporation shall so provide.
(G) Following the closing of the Initial Public Offering, no action shall
be taken by the stockholders of the corporation except at an annual or special
meeting of stockholders called in accordance with the Bylaws of the corporation,
and no action shall be taken by the stockholders by written consent.
(H) Advance notice of stockholder nominations for the election of
directors of the corporation and of business to be brought by stockholders
before any meeting of stockholders of the corporation shall be given in the
manner provided in the Bylaws of the corporation. Business transacted at
special meetings of stockholders shall be confined to the purpose or purposes
stated in the notice of meeting.
(I) Notwithstanding any other provisions of law, this Certificate of
Incorporation or the Bylaws, each as amended, and notwithstanding the fact that
a lesser percentage may be specified by applicable law, this Certificate of
Incorporation or the Bylaws, the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66-2/3%) of the corporation's outstanding
voting stock then entitled to vote at an election of directors, voting together
as a single class, shall be required to alter, change, amend, repeal or adopt
any provision inconsistent with this Article VI.
21
<PAGE>
ARTICLE VII
To the fullest extent permitted by law, no director of the corporation
shall be personally liable for monetary damages for breach of fiduciary duty as
a director. Without limiting the effect of the preceding sentence, if the
Delaware General Corporation Law is hereafter amended to authorize the further
elimination or limitation of the liability of a director, then the liability of
a director of the corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law, as so amended.
Neither any amendment nor repeal of this Article VII, nor the adoption of any
provision of this Certificate of Incorporation inconsistent with this Article
VII, shall eliminate, reduce or otherwise adversely affect any limitation on the
personal liability of a director of the corporation existing at the time of such
amendment, repeal or adoption of such an inconsistent provision.
22
<PAGE>
EXHIBIT 3.03
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ALLADVANTAGE.COM INC.
ARTICLE I
The name of the corporation is AllAdvantage.com Inc.
ARTICLE II
The address of the registered office of the corporation in the State of
Delaware is 15 East North Street, City of Dover, County of Kent. The name of
its registered agent at that address is Incorporating Services, Ltd.
ARTICLE III
The purpose of the corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware.
ARTICLE IV
The total number of shares of all classes of stock which the corporation
has authority to issue is 1,005,000,000 shares, consisting of two classes:
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.
The Board of Directors is authorized, subject to any limitations prescribed
by the law of the State of Delaware, to provide for the issuance of the shares
of Preferred Stock in one or more series, and, by filing a Certificate of
Designation pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, to fix the designation, powers, preferences and rights of the shares of
each such series and any qualifications, limitations or restrictions thereof,
and to increase or decrease the number of shares of any such series (but not
below the number of shares of such series then outstanding). The number of
authorized shares of Preferred Stock may also be increased or decreased (but not
below the number of shares thereof then outstanding) by the affirmative vote of
the holders of a majority of the stock of the corporation entitled to vote,
unless a vote of any other holders is required pursuant to a Certificate or
Certificates of Designation establishing a series of Preferred Stock.
Except as otherwise expressly provided in any Certificate of Designation
designating any series of Preferred Stock pursuant to the foregoing provisions
of this Article IV, any new series of Preferred Stock may be designated, fixed
and determined as provided herein by the Board of Directors without approval of
the holders of Common Stock or the holders of Preferred Stock, or any series
thereof, and any such new series may have powers, preferences and rights,
including, without limitation, voting rights, dividend rights, liquidation
rights, redemption rights and
1
<PAGE>
conversion rights, senior to, junior to or pari passu with the rights of the
Common Stock, the Preferred Stock, or any future class or series of Preferred
Stock or Common Stock.
ARTICLE V
In furtherance of and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to adopt, amend or repeal the
Bylaws of this corporation, subject to the right of the stockholders entitled to
vote with respect thereto, in accordance with the provisions of such Bylaws, to
alter and repeal the Bylaws adopted or amended by the Board of Directors.
Notwithstanding any other provisions of law, this Certificate of Incorporation
or the Bylaws, each as amended, and notwithstanding the fact that a lesser
percentage may be specified by law, this Certificate of Incorporation or the
Bylaws, the affirmative vote of the holders of at least sixty six and two-thirds
percent (66 2/3%) of the outstanding voting stock then entitled to vote at an
election of directors, voting together as a single class, shall be required to
alter, change, amend, repeal or adopt any provision inconsistent with this
Article V.
ARTICLE VI
For the management of the business and for the conduct of the affairs of
the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
(A) The conduct of the affairs of the corporation shall be managed under
the direction of the Board of Directors. The number of directors shall be fixed
from time to time exclusively by resolution of the Board of Directors.
(B) Notwithstanding the foregoing provision of this Article VI, each
director shall hold office until such director's successor is elected and
qualified, or until such director's earlier death, resignation or removal. No
decrease in the authorized number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
(C) Subject to the rights of the holders of any series of Preferred Stock,
any vacancy occurring in the Board of Directors for any cause, and any newly
created directorship resulting from any increase in the authorized number of
directors, shall, unless (i) the Board of Directors determines by resolution
that any such vacancies or newly created directorships shall be filled by the
stockholders, or (ii) as otherwise provided by law, be filled only by the
affirmative vote of a majority of the directors then in office, although less
than a quorum, or by a sole remaining director, and not by the stockholders.
Any director elected in accordance with the preceding sentence shall hold office
for the remainder of the full term of the director for which the vacancy was
created or occurred.
(D) Subject to the rights of the holders of any series of Preferred Stock,
any director or the entire Board of Directors may be removed by the holders of
at least sixty-six and two-thirds percent (66-2/3%) of the shares then entitled
to vote at an election of directors.
(E) Classification of Board of Directors:
2
<PAGE>
(1) The provisions of this Article VI, Section (E) are subject to the
rights of the holders of any series of Preferred Stock to elect additional
directors under specified circumstances. As used in this Article VI, Section
(E), the term "Initial Public Offering" shall mean the initial public offering
of the corporation pursuant to an effective registration statement under the
Securities Act of 1933, as amended, covering the offer and sale of Common Stock
to the public.
(2) In the event that the corporation is prohibited from dividing its
board of directors into three classes in accordance with subsection (3) below
through the operation of Section 2115 of the California General Corporation Law,
at each annual meeting of stockholders, each director shall be elected for a
term of office to expire at the first succeeding annual meeting of stockholders
after his or her election, or until such director's earlier death, resignation
or removal.
(3) Unless otherwise provided pursuant to subsection (2) above, the
directors shall be divided, with respect to the time for which they severally
hold office, into three classes designated as Class I, Class II and Class III,
respectively. Directors shall be assigned to each class in accordance with a
resolution or resolutions adopted by the Board of Directors (the "Board
Classification Resolutions"), with the number of directors in each class to be
divided as equally as reasonably possible. No one class shall have more than
one director more than any other class. The term of office of the Class I
directors shall expire at the corporation's first annual meeting of stockholders
following the closing of the Initial Public Offering, the term of office of the
Class II directors shall expire at the corporation's second annual meeting of
stockholders following the closing of the Initial Public Offering, and the term
of office of the Class III directors shall expire at the corporation's third
annual meeting of stockholders following the closing of the Initial Public
Offering. At each annual meeting of stockholders commencing with the first
annual meeting of stockholders following the closing of the Initial Public
Offering, each director elected to succeed a director of the class whose term
then expires shall be elected for a term of office to expire at the third
succeeding annual meeting of stockholders after his or her election, or until
such director's earlier death, resignation or removal.
(4) In the event that (i) at any annual meeting of stockholders
following the closing of the Initial Public Offering, the directors are elected,
pursuant to subsection (2) above, for a term of office to expire at the first
succeeding annual meeting of stockholders after their election, and (ii) prior
to the first succeeding annual meeting of stockholders (the "Succeeding
Meeting"), the corporation is no longer prohibited through the operation of
Section 2115 of the California General Corporation Law from dividing its board
of directors into three classes, then the directors shall again be divided, with
respect to the time for which they severally hold office, into three classes
designated as Class I, Class II and Class III, respectively, and shall be
assigned to each class in accordance with the Board Classification Resolutions
previously adopted, and as the same may be subsequently modified. The term of
office of the Class I directors shall expire at the Succeeding Meeting, the term
of office of the Class II directors shall expire at the corporation's first
annual meeting of stockholders following the Succeeding Meeting, and the term of
office of the Class III directors shall expire at the corporation's second
annual meeting of stockholders following the Succeeding Meeting. At each annual
meeting of stockholders commencing with the Succeeding Meeting, each director
elected to succeed a director of the class whose term then expires shall be
elected for a term of office to expire at the third
3
<PAGE>
succeeding annual meeting of stockholders after his or her election, or until
such director's earlier death, resignation or removal.
(5) In the event of any increase or decrease in the authorized number
of directors, (i) each director then serving as such shall nevertheless continue
as a director of the class of which he is a member and (ii) the newly created or
eliminated directorships resulting from such increase or decrease shall be
apportioned by the Board of Directors among the three classes of directors so as
to ensure that no one class has more than one director more than any other
class. To the extent possible, consistent with the foregoing rule, any newly
created directorships shall be added to those classes whose terms of office are
to expire at the latest dates following such allocation, and any newly
eliminated directorships shall be subtracted from those classes whose terms of
office are to expire at the earliest dates following such allocation, unless
otherwise provided from time to time by resolution adopted by the Board of
Directors.
(F) Election of directors need not be by written ballot unless the Bylaws
of the corporation shall so provide.
(G) No action shall be taken by the stockholders of the corporation except
at an annual or special meeting of stockholders called in accordance with the
Bylaws of the corporation, and no action shall be taken by the stockholders by
written consent.
(H) Advance notice of stockholder nominations for the election of directors
of the corporation and of business to be brought by stockholders before any
meeting of stockholders of the corporation shall be given in the manner provided
in the Bylaws of the corporation. Business transacted at special meetings of
stockholders shall be confined to the purpose or purposes stated in the notice
of meeting.
(I) Notwithstanding any other provisions of law, this Certificate of
Incorporation or the Bylaws, each as amended, and notwithstanding the fact that
a lesser percentage may be specified by applicable law, this Certificate of
Incorporation or the Bylaws, the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66-2/3%) of the corporation's outstanding
voting stock then entitled to vote at an election of directors, voting together
as a single class, shall be required to alter, change, amend, repeal or adopt
any provision inconsistent with this Article VI.
ARTICLE VII
To the fullest extent permitted by law, no director of the corporation
shall be personally liable for monetary damages for breach of fiduciary duty as
a director. Without limiting the effect of the preceding sentence, if the
Delaware General Corporation Law is hereafter amended to authorize the further
elimination or limitation of the liability of a director, then the liability of
a director of the corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law, as so amended.
Neither any amendment nor repeal of this Article VII, nor the adoption of any
provision of this Certificate of Incorporation inconsistent with this Article
VII, shall eliminate, reduce or otherwise adversely affect any limitation on the
personal liability of a director of the corporation existing at the time of such
amendment, repeal or adoption of such an inconsistent provision.
4
<PAGE>
Exhibit 3.05
RESTATED BYLAWS
OF
ALLADVANTAGE.COM INC.
(a Delaware corporation)
As Adopted March ___, 2000
Effective March ___, 2000
<PAGE>
RESTATED BYLAWS
OF
ALLADVANTAGE.COM INC.
a Delaware corporation
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Article I - STOCKHOLDERS
Section 1.1: Annual Meetings....................................................... 1
Section 1.2: Special Meetings...................................................... 1
Section 1.3: Notice of Meetings.................................................... 1
Section 1.4: Adjournments.......................................................... 1
Section 1.5: Quorum................................................................ 2
Section 1.6: Organization.......................................................... 2
Section 1.7: Voting; Proxies....................................................... 2
Section 1.8: Fixing Date for Determination of Stockholders of Record............... 2
Section 1.9: List of Stockholders Entitled to Vote................................. 3
Section 1.10: Inspectors of Elections............................................... 3
Section 1.11: Notice of Stockholder Business; Nominations........................... 4
Article II - BOARD OF DIRECTORS
Section 2.1: Number; Qualifications................................................ 6
Section 2.2: Election; Resignation; Removal; Vacancies............................. 6
Section 2.3: Regular Meetings...................................................... 7
Section 2.4: Special Meetings...................................................... 7
Section 2.5: Telephonic Meetings Permitted......................................... 7
Section 2.6: Quorum; Vote Required for Action...................................... 8
</TABLE>
i
<PAGE>
RESTATED BYLAWS
OF
ALLADVANTAGE.COM INC.
a Delaware corporation
TABLE OF CONTENTS (cont'd)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 2.7: Organization.................................................... 8
Section 2.8: Written Action by Directors..................................... 8
Section 2.9: Powers.......................................................... 8
Section 2.10: Compensation of Directors....................................... 8
Article III - COMMITTEES
Section 3.1: Committees...................................................... 8
Section 3.2: Committee Rules................................................. 9
Article IV - OFFICERS
Section 4.1: Generally....................................................... 9
Section 4.2: Chief Executive Officer......................................... 9
Section 4.3: Chairperson of the Board........................................ 10
Section 4.4: President....................................................... 10
Section 4.5: Vice President.................................................. 10
Section 4.6: Chief Financial Officer......................................... 10
Section 4.7: Treasurer....................................................... 10
Section 4.8: Secretary....................................................... 10
Section 4.9: Delegation of Authority......................................... 10
Section 4.10: Removal......................................................... 11
</TABLE>
ii
<PAGE>
RESTATED BYLAWS
OF
ALLADVANTAGE.COM INC.
a Delaware corporation
TABLE OF CONTENTS (cont'd)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Article V - STOCK
Section 5.1: Certificates................................................... 11
Section 5.2: Lost, Stolen or Destroyed Stock Certificates;
Issuance of New Certificate.................................... 11
Section 5.3: Other Regulations.............................................. 11
Article VI - INDEMNIFICATION
Section 6.1: Indemnification of Officers and Directors...................... 11
Section 6.2: Advance of Expenses............................................ 12
Section 6.3: Non-Exclusivity of Rights...................................... 12
Section 6.4: Indemnification Contracts...................................... 12
Section 6.5: Effect of Amendment............................................ 12
Article VII - NOTICES
Section 7.l: Notice......................................................... 13
Section 7.2: Waiver of Notice............................................... 13
Article VIII - INTERESTED DIRECTORS
Section 8.1: Interested Directors; Quorum................................... 13
Article IX - MISCELLANEOUS
Section 9.1: Fiscal Year.................................................... 14
Section 9.2: Seal........................................................... 14
Section 9.3: Form of Records................................................ 14
</TABLE>
iii
<PAGE>
RESTATED BYLAWS
OF
ALLADVANTAGE.COM INC.
a Delaware corporation
TABLE OF CONTENTS (cont'd)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 9.4: Reliance Upon Books and Records...................... 14
Section 9.5: Certificate of Incorporation Governs................. 14
Section 9.6: Severability......................................... 14
Article X - AMENDMENT
Section 10.1: Amendments........................................... 14
</TABLE>
iv
<PAGE>
RESTATED BYLAWS
OF
ALLADVANTAGE.COM INC.
(a Delaware corporation)
As Adopted March ___, 2000
Effective March ___, 2000
ARTICLE I
STOCKHOLDERS
Section 1.1: Annual Meetings. An annual meeting of stockholders shall be
----------- ---------------
held for the election of directors at such date, time and place, either within
or without the State of Delaware, as the Board of Directors shall each year fix.
Any other proper business may be transacted at the annual meeting.
Section 1.2: Special Meetings. Special meetings of stockholders for any
----------- ----------------
purpose or purposes may be called at any time by the Board of Directors, and
shall be called upon the request of the Chairperson of the Board of Directors,
the Chief Executive Officer, the President, or by a majority of the members of
the Board of Directors. Special meetings may not be called by any other person
or persons. If a special meeting of stockholders is called at the request of
any person or persons other than by a majority of the members of the Board of
----------
Directors, then such person or persons shall request such meeting by delivering
a written request to call such meeting to each member of the Board of Directors,
and the Board of Directors shall then determine the time, date and place of such
special meeting, which shall be held not more than one hundred twenty (120) nor
less than thirty-five (35) days after the written request to call such special
meeting was delivered to each member of the Board of Directors.
Section 1.3: Notice of Meetings. Written notice of all meetings of
----------- ------------------
stockholders shall be given stating the place, date and time of the meeting and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called. Unless otherwise required by applicable law or the Certificate of
Incorporation of the Corporation, such notice shall be given not less than ten
(10) nor more than sixty (60) days before the date of the meeting to each
stockholder of record entitled to vote at such meeting.
Section 1.4: Adjournments. Any meeting of stockholders may adjourn from
----------- ------------
time to time to reconvene at the same or another place, and notice need not be
given of any such adjourned meeting if the time, date and place thereof are
announced at the meeting at which the adjournment is taken; provided, however,
-------- -------
that if the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, then a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting. At the adjourned meeting the Corporation may transact
any business that might have been transacted at the original meeting.
<PAGE>
Section 1.5: Quorum. At each meeting of stockholders the holders of a
----------- ------
majority of the shares of stock entitled to vote at the meeting, present in
person or represented by proxy, shall constitute a quorum for the transaction of
business, except if otherwise required by applicable law. If a quorum shall
fail to attend any meeting, the chairperson of the meeting or the holders of a
majority of the shares entitled to vote who are present, in person or by proxy,
at the meeting may adjourn the meeting. Shares of the Corporation's stock
belonging to the Corporation (or to another corporation, if a majority of the
shares entitled to vote in the election of directors of such other corporation
are held, directly or indirectly, by the Corporation), shall neither be entitled
to vote nor be counted for quorum purposes; provided, however, that the
-------- -------
foregoing shall not limit the right of the Corporation or any other corporation
to vote any shares of the Corporation's stock held by it in a fiduciary
capacity.
Section 1.6: Organization. Meetings of stockholders shall be presided
----------- ------------
over by such person as the Board of Directors may designate, or, in the absence
of such a person, the Chairperson of the Board of Directors, or, in the absence
of such person, the President of the Corporation, or, in the absence of such
person, such person as may be chosen by the holders of a majority of the shares
entitled to vote who are present, in person or by proxy, at the meeting. Such
person shall be chairperson of the meeting and, subject to Section 1.10 hereof,
shall determine the order of business and the procedure at the meeting,
including such regulation of the manner of voting and the conduct of discussion
as seems to him or her to be in order. The Secretary of the Corporation shall
act as secretary of the meeting, but in such person's absence the chairperson of
the meeting may appoint any person to act as secretary of the meeting.
Section 1.7: Voting; Proxies. Unless otherwise provided by law or the
----------- ---------------
Certificate of Incorporation, and subject to the provisions of Section 1.8 of
these Bylaws, each stockholder shall be entitled to one (1) vote for each share
of stock held by such stockholder. Each stockholder entitled to vote at a
meeting of stockholders, or to express consent or dissent to corporate action in
writing without a meeting, may authorize another person or persons to act for
such stockholder by proxy. Such a proxy may be prepared, transmitted and
delivered in any manner permitted by applicable law. Voting at meetings of
stockholders need not be by written ballot unless such is demanded at the
meeting before voting begins by a stockholder or stockholders holding shares
representing at least one percent (1%) of the votes entitled to vote at such
meeting, or by such stockholder's or stockholders' proxy; provided, however,
-------- -------
that an election of directors shall be by written ballot if demand is so made by
any stockholder at the meeting before voting begins. If a vote is to be taken
by written ballot, then each such ballot shall state the name of the stockholder
or proxy voting and such other information as the chairperson of the meeting
deems appropriate. Directors shall be elected by a plurality of the votes of
the shares present in person or represented by proxy at the meeting and entitled
to vote on the election of directors. Unless otherwise provided by applicable
law, the Certificate of Incorporation or these Bylaws, every matter other than
the election of directors shall be decided by the affirmative vote of the
holders of a majority of the shares of stock entitled to vote thereon that are
present in person or represented by proxy at the meeting and are voted for or
against the matter.
Section 1.8: Fixing Date for Determination of Stockholders of Record. In
----------- -------------------------------------------------------
order that the Corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, or
entitled to receive payment of any dividend or other
2
<PAGE>
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not precede the date upon which the resolution fixing the record
date is adopted by the Board of Directors and which shall not be more than sixty
(60) nor less than ten (10) days before the date of such meeting, nor more than
sixty (60) days prior to any other action. If no record date is fixed by the
Board of Directors, then the record date shall be as provided by applicable law.
A determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
--------
however, that the Board of Directors may fix a new record date for the adjourned
- -------
meeting.
Section 1.9: List of Stockholders Entitled to Vote. A complete list of
----------- -------------------------------------
stockholders entitled to vote at any meeting of stockholders, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in the name of each stockholder, shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present at the meeting.
Section 1.10: Inspectors of Elections.
------------ -----------------------
(a) Applicability. Unless otherwise provided in the Corporation's
-------------
Certificate of Incorporation or required by the Delaware General Corporation
Law, the following provisions of this Section 1.10 shall apply only if and when
the Corporation has a class of voting stock that is: (i) listed on a national
securities exchange; (ii) authorized for quotation on an automated interdealer
quotation system of a registered national securities association; or (iii) held
of record by more than 2,000 stockholders; in all other cases, observance of the
provisions of this Section 1.10 shall be optional, and at the discretion of the
Corporation.
(b) Appointment. The Corporation shall, in advance of any meeting of
-----------
stockholders, appoint one or more inspectors of election to act at the meeting
and make a written report thereof. The Corporation may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. If
no inspector or alternate is able to act at a meeting of stockholders, the
person presiding at the meeting shall appoint one or more inspectors to act at
the meeting.
(c) Inspector's Oath. Each inspector of election, before entering upon the
----------------
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of such
inspector's ability.
(d) Duties of Inspectors. At a meeting of stockholders, the inspectors of
--------------------
election shall (i) ascertain the number of shares outstanding and the voting
power of each share, (ii) determine the shares represented at a meeting and the
validity of proxies and ballots, (iii) count all votes and ballots, (iv)
determine and retain for a reasonable period of time a record of the disposition
of any challenges made to any determination by the inspectors, and (v) certify
their determination of the number of shares represented at the meeting, and
their count of all votes and
3
<PAGE>
ballots. The inspectors may appoint or retain other persons or entities to
assist the inspectors in the performance of the duties of the inspectors.
(e) Opening and Closing of Polls. The date and time of the opening and the
----------------------------
closing of the polls for each matter upon which the stockholders will vote at a
meeting shall be announced by the chairperson of the meeting. No ballot,
proxies or votes, nor any revocations thereof or changes thereto, shall be
accepted by the inspectors after the closing of the polls unless the Court of
Chancery upon application by a stockholder shall determine otherwise.
(f) Determinations. In determining the validity and counting of proxies
--------------
and ballots, the inspectors shall be limited to an examination of the proxies,
any envelopes submitted with those proxies, any information provided in
connection with proxies in accordance with Section 212(c)(2) of the Delaware
General Corporation Law, ballots and the regular books and records of the
Corporation, except that the inspectors may consider other reliable information
for the limited purpose of reconciling proxies and ballots submitted by or on
behalf of banks, brokers, their nominees or similar persons which represent more
votes than the holder of a proxy is authorized by the record owner to cast or
more votes than the stockholder holds of record. If the inspectors consider
other reliable information for the limited purpose permitted herein, the
inspectors at the time they make their certification of their determinations
pursuant to this Section 1.10 shall specify the precise information considered
by them, including the person or persons from whom they obtained the
information, when the information was obtained, the means by which the
information was obtained and the basis for the inspectors' belief that such
information is accurate and reliable.
Section 1.11: Notice of Stockholder Business; Nominations.
------------- -------------------------------------------
(a) Annual Meeting of Stockholders.
------------------------------
(i) Nominations of persons for election to the Board of Directors and
the proposal of business to be considered by the stockholders shall be made at
an annual meeting of stockholders (A) pursuant to the Corporation's notice of
such meeting, (B) by or at the direction of the Board of Directors or (C) by any
stockholder of the Corporation who was a stockholder of record at the time of
giving of the notice provided for in this Section 1.11, who is entitled to vote
at such meeting and who complies with the notice procedures set forth in this
Section 1.11.
(ii) For nominations or other business to be properly brought before
an annual meeting by a stockholder pursuant to clause (C) of subparagraph (a)(i)
of this Section 1.11, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice must be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on the
sixtieth (60th) day nor earlier than the close of business on the ninetieth
(90th) day prior to the first anniversary of the preceding year's annual meeting
(except in the case of the 2001 annual meeting, for which such notice shall be
timely if delivered in the same time period as if such meeting were a special
meeting governed by subparagraph (b) of this Section 1.11); provided, however,
-------- -------
that in the event that the date of the annual meeting is more than thirty (30)
days before or more than sixty (60) days after such anniversary date, notice by
the stockholder to be timely must be so delivered not earlier than the close of
business on the ninetieth (90th) day prior to such annual meeting and not later
than the
4
<PAGE>
close of business on the later of the sixtieth (60th) day prior to such annual
meeting or the close of business on the tenth (10th) day following the day on
which public announcement of the date of such meeting is first made by the
Corporation. Such stockholder's notice shall set forth: (a) as to each person
whom the stockholder proposes to nominate for election or reelection as a
director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected; (b) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (c) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (1) the name and address of such
stockholder, as they appear on the Corporation's books, and of such beneficial
owner, and (2) the class and number of shares of the Corporation that are owned
beneficially and held of record by such stockholder and such beneficial owner.
(iii) Notwithstanding anything in the second sentence of subparagraph
(a)(ii) of this Section 1.11 to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the Corporation is
increased and there is no public announcement by the Corporation naming all of
the nominees for director or specifying the size of the increased board of
directors at least seventy (70) days prior to the first anniversary of the
preceding year's annual meeting (or, if the annual meeting is held more than
thirty (30) days before or sixty (60) days after such anniversary date, at least
seventy (70) days prior to such annual meeting), a stockholder's notice required
by this Section 1.11 shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it shall be
delivered to the Secretary of the Corporation at the principal executive office
of the Corporation not later than the close of business on the tenth (10th) day
following the day on which such public announcement is first made by the
Corporation.
(b) Special Meetings of Stockholders. Only such business shall be
--------------------------------
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of such meeting. Nominations
of persons for election to the Board of Directors may be made at a special
meeting of stockholders at which directors are to be elected pursuant to the
Corporation's notice of such meeting (i) by or at the direction of the Board of
Directors or (ii) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice of
the special meeting, who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section 1.11. In the
event the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the Corporation's notice of meeting, if the
stockholder's notice required by subparagraph (a)(ii) of this Section 1.11 shall
be delivered to the Secretary of the Corporation at the principal executive
offices of the Corporation not earlier than the ninetieth (90th) day prior to
such special meeting and not later than the close of business on the later of
the sixtieth (60th) day prior to such special meeting or the tenth (10th)
5
<PAGE>
day following the day on which public announcement is first made of the date of
the special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting.
(c) General.
-------
(i) Only such persons who are nominated in accordance with the
procedures set forth in this Section 1.11 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 1.11. Except as otherwise provided by law or these
Bylaws, the chairperson of the meeting shall have the power and duty to
determine whether a nomination or any business proposed to be brought before the
meeting was made or proposed, as the case may be, in accordance with the
procedures set forth in this Section 1.11 and, if any proposed nomination or
business is not in compliance herewith, to declare that such defective proposal
or nomination shall be disregarded.
(ii) For purposes of this Section 1.11, the term "public
announcement" shall mean disclosure in a press release reported by the Dow Jones
News Service, Associated Press or comparable national news service or in a
document publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to section 13, 14 or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this Section 1.11,
a stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth herein. Nothing in this Section 1.11 shall be deemed to affect any rights
of stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1: Number; Qualifications. The Board of Directors shall consist
----------- ----------------------
of one or more members. The initial number of directors shall be eight (8), and
thereafter shall be fixed from time to time by resolution of the Board of
Directors. No decrease in the authorized number of directors constituting the
Board of Directors shall shorten the term of any incumbent director. Directors
need not be stockholders of the Corporation.
Section 2.2: Election; Resignation; Removal; Vacancies. The Board of
----------- -----------------------------------------
Directors shall initially consist of the person or persons elected by the
incorporator or named in the Corporation's initial Certificate of Incorporation.
Subject to the rights of the holders of any series of Preferred Stock to elect
additional directors under specified circumstances, following the closing of the
corporation's initial public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer and
sale of Common Stock to the public (the "Initial Public Offering"), the
directors shall be divided, with respect to the time for which they severally
hold office, into three classes designated as Class I, Class II and Class III,
respectively. Directors shall be assigned to each class in accordance with a
resolution or resolutions adopted by the Board of Directors, with the number of
directors in each class to be divided as equally as reasonably possible. The
term of office of the Class I directors shall expire at the corporation's first
annual meeting of stockholders following the closing of the Initial Public
6
<PAGE>
Offering, the term of office of the Class II directors shall expire at the
corporation's second annual meeting of stockholders following the closing of the
Initial Public Offering, and the term of office of the Class III directors shall
expire at the corporation's third annual meeting of stockholders following the
closing of the Initial Public Offering. At each annual meeting of stockholders
commencing with the first annual meeting of stockholders following the closing
of the Initial Public Offering, directors elected to succeed those directors of
the class whose terms then expire shall be elected for a term of office to
expire at the third succeeding annual meeting of stockholders after their
election. Prior to the closing of the Initial Public Offering, or in the event
the corporation is prohibited from dividing its board of directors through the
operation of Section 2115 of the California General Corporation Law following
the record date of the corporation's first annual meeting of stockholders
following the closing of the Initial Public Offering, each director shall hold
office until the next annual meeting of stockholders and until such director's
successor is elected and qualified, or until such director's earlier death,
resignation or removal. Any director may resign at any time upon written notice
to the Corporation. Subject to the rights of the holders of any series of
Preferred Stock, any director or the entire Board of Directors may be removed by
the holders of at least sixty-six and two-thirds percent (66-2/3%) of the shares
then entitled to vote at an election of directors. Subject to the rights of the
holders of any series of Preferred Stock, any vacancy occurring in the Board of
Directors for any cause, and any newly created directorship resulting from any
increase in the authorized number of directors, shall, unless otherwise provided
by law, be filled only by the affirmative vote of a majority of the directors
then in office, although less than a quorum, or by a sole remaining director,
and not by the stockholders.
Section 2.3: Regular Meetings. Regular meetings of the Board of Directors
----------- ----------------
may be held at such places, within or without the State of Delaware, and at such
times as the Board of Directors may from time to time determine. Notice of
regular meetings need not be given if the date, times and places thereof are
fixed by resolution of the Board of Directors.
Section 2.4: Special Meetings. Special meetings of the Board of Directors
----------- ----------------
may be called by the Chairperson of the Board of Directors, the President or a
majority of the members of the Board of Directors then in office and may be held
at any time, date or place, within or without the State of Delaware, as the
person or persons calling the meeting shall fix. Notice of the time, date and
place of such meeting shall be given, orally or in writing, by the person or
persons calling the meeting to all directors at least four (4) days before the
meeting if the notice is mailed, or at least twenty-four (24) hours before the
meeting if such notice is given by telephone, hand delivery, telegram, telex,
mailgram, facsimile or similar communication method. Unless otherwise indicated
in the notice, any and all business may be transacted at a special meeting.
Section 2.5: Telephonic Meetings Permitted. Members of the Board of
----------- -----------------------------
Directors, or any committee of the Board, may participate in a meeting of the
Board or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to
conference telephone or similar communications equipment shall constitute
presence in person at such meeting.
7
<PAGE>
Section 2.6: Quorum; Vote Required for Action. At all meetings of the
----------- --------------------------------
Board of Directors a majority of the total number of authorized directors shall
constitute a quorum for the transaction of business. Except as otherwise
provided herein or in the Certificate of Incorporation, or required by law, the
vote of a majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors.
Section 2.7: Organization. Meetings of the Board of Directors shall be
----------- ------------
presided over by the Chairperson of the Board of Directors, or in such person's
absence by the President, or in such person's absence by a chairperson chosen at
the meeting. The Secretary shall act as secretary of the meeting, but in such
person's absence the chairperson of the meeting may appoint any person to act as
secretary of the meeting.
Section 2.8: Written Action by Directors. Any action required or
----------- ---------------------------
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board or
such committee, as the case may be, consent thereto in writing, and the writing
or writings are filed with the minutes of proceedings of the Board or committee,
respectively.
Section 2.9: Powers. The Board of Directors may, except as otherwise
------------ ------
required by law or the Certificate of Incorporation, exercise all such powers
and do all such acts and things as may be exercised or done by the Corporation.
Section 2.10: Compensation of Directors. Directors, as such, may receive,
------------ -------------------------
pursuant to a resolution of the Board of Directors, fees and other compensation
for their services as directors, including without limitation their services as
members of committees of the Board of Directors.
ARTICLE III
COMMITTEES
Section 3.1: Committees. The Board of Directors may designate one or more
----------- ----------
committees, each committee to consist of one or more of the directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of a
member of the committee, the member or members thereof present at any meeting of
such committee who are not disqualified from voting, whether or not such member
or members constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in place of any such absent or
disqualified member. Any such committee, to the extent provided in a resolution
of the Board of Directors, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation and may authorize the seal of the Corporation to be
affixed to all papers that may require it; but no such committee shall have the
power or authority in reference to the following matters: (i) approving or
adopting, or recommending to the stockholders, any action or matter expressly
required by the Delaware General Corporation Law to be submitted to stockholders
for approval or (ii) adopting, amending or repealing any bylaw of the
Corporation.
8
<PAGE>
Section 3.2: Committee Rules. Unless the Board of Directors otherwise
----------- ---------------
provides, each committee designated by the Board of Directors may make, alter
and repeal rules for the conduct of its business. In the absence of such rules
each committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article II of these Bylaws.
ARTICLE IV
OFFICERS
Section 4.1: Generally. The officers of the Corporation shall consist of
----------- ---------
a Chief Executive Officer and/or a President, a Secretary, a Treasurer and such
other officers as may from time to time be appointed by the Board of Directors.
All officers shall be elected by the Board of Directors; provided, however, that
-------- -------
the Board of Directors may empower the Chief Executive Officer of the
Corporation to appoint officers other than the Chairperson of the Board, the
Chief Executive Officer, the President, the Chief Financial Officer or the
Treasurer. Each officer shall hold office until such person's successor is
elected and qualified or until such person's earlier resignation or removal.
Any number of offices may be held by the same person. Any officer may resign at
any time upon written notice to the Corporation. Any vacancy occurring in any
office of the Corporation by death, resignation, removal or otherwise may be
filled by the Board of Directors.
Section 4.2: Chief Executive Officer. Subject to the control of the Board
----------- -----------------------
of Directors and such supervisory powers, if any, as may be given by the Board
of Directors, the powers and duties of the Chief Executive Officer of the
Corporation are:
(a) To act as the general manager and, subject to the control of the Board
of Directors, to have general supervision, direction and control of the business
and affairs of the Corporation;
(b) To preside at all meetings of the stockholders;
(c) To call meetings of the stockholders to be held at such times and,
subject to the limitations prescribed by law or by these Bylaws, at such places
as he or she shall deem proper; and
(d) To affix the signature of the Corporation to all deeds, conveyances,
mortgages, guarantees, leases, obligations, bonds, certificates and other papers
and instruments in writing which have been authorized by the Board of Directors
or which, in the judgment of the Chief Executive Officer, should be executed on
behalf of the Corporation; to sign certificates for shares of stock of the
Corporation; and, subject to the direction of the Board of Directors, to have
general charge of the property of the Corporation and to supervise and control
all officers, agents and employees of the Corporation.
The President shall be the Chief Executive Officer of the Corporation
unless the Board of Directors shall designate another officer to be the Chief
Executive Officer. If there is no President, and the Board of Directors has not
designated any other officer to be the Chief Executive Officer, then the
Chairperson of the Board of Directors shall be the Chief Executive Officer.
9
<PAGE>
Section 4.3: Chairperson of the Board. The Chairperson of the Board of
----------- ------------------------
Directors shall have the power to preside at all meetings of the Board of
Directors and shall have such other powers and duties as provided in these
Bylaws and as the Board of Directors may from time to time prescribe.
Section 4.4: President. The President shall be the Chief Executive
----------- ---------
Officer of the Corporation unless the Board of Directors shall have designated
another officer as the Chief Executive Officer of the Corporation. Subject to
the provisions of these Bylaws and to the direction of the Board of Directors,
and subject to the supervisory powers of the Chief Executive Officer (if the
Chief Executive Officer is an officer other than the President), and subject to
such supervisory powers and authority as may be given by the Board of Directors
to the Chairperson of the Board of Directors, and/or to any other officer, the
President shall have the responsibility for the general management the control
of the business and affairs of the Corporation and the general supervision and
direction of all of the officers, employees and agents of the Corporation (other
than the Chief Executive Officer, if the Chief Executive Officer is an officer
other than the President) and shall perform all duties and have all powers that
are commonly incident to the office of President or that are delegated to the
President by the Board of Directors.
Section 4.5: Vice President. Each Vice President shall have all such
----------- --------------
powers and duties as are commonly incident to the office of Vice President, or
that are delegated to him or her by the Board of Directors or the Chief
Executive Officer. A Vice President may be designated by the Board to perform
the duties and exercise the powers of the Chief Executive Officer in the event
of the Chief Executive Officer's absence or disability.
Section 4.6: Chief Financial Officer. The Chief Financial Officer shall
----------- -----------------------
be the Treasurer of the Corporation unless the Board of Directors shall have
designated another officer as the Treasurer of the Corporation. Subject to the
direction of the Board of Directors and the Chief Executive Officer, the Chief
Financial Officer shall perform all duties and have all powers that are commonly
incident to the office of Chief Financial Officer.
Section 4.7: Treasurer. The Treasurer shall have custody of all monies
----------- ---------
and securities of the Corporation. The Treasurer shall make such disbursements
of the funds of the Corporation as are authorized and shall render from time to
time an account of all such transactions. The Treasurer shall also perform such
other duties and have such other powers as are commonly incident to the office
of Treasurer, or as the Board of Directors or the Chief Executive Officer may
from time to time prescribe.
Section 4.8: Secretary. The Secretary shall issue or cause to be issued
----------- ---------
all authorized notices for, and shall keep, or cause to be kept, minutes of all
meetings of the stockholders and the Board of Directors. The Secretary shall
have charge of the corporate minute books and similar records and shall perform
such other duties and have such other powers as are commonly incident to the
office of Secretary, or as the Board of Directors or the Chief Executive Officer
may from time to time prescribe.
Section 4.9: Delegation of Authority. The Board of Directors may from
----------- -----------------------
time to time delegate the powers or duties of any officer to any other officers
or agents, notwithstanding any provision hereof.
10
<PAGE>
Section 4.10: Removal. Any officer of the Corporation shall serve at the
------------ -------
pleasure of the Board of Directors and may be removed at any time, with or
without cause, by the Board of Directors. Such removal shall be without
prejudice to the contractual rights of such officer, if any, with the
Corporation.
ARTICLE V
STOCK
Section 5.1: Certificates. Every holder of stock shall be entitled to
----------- ------------
have a certificate signed by or in the name of the Corporation by the
Chairperson or Vice-Chairperson of the Board of Directors, or the President or a
Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary, of the Corporation, certifying the number of shares
owned by such stockholder in the Corporation. Any or all of the signatures on
the certificate may be a facsimile.
Section 5.2: Lost, Stolen or Destroyed Stock Certificates; Issuance of New
----------- -------------------------------------------------------------
Certificates. The Corporation may issue a new certificate of stock in the place
- ------------
of any certificate previously issued by it, alleged to have been lost, stolen or
destroyed, and the Corporation may require the owner of the lost, stolen or
destroyed certificate, or such owner's legal representative, to agree to
indemnify the Corporation and/or to give the Corporation a bond sufficient to
indemnify it, against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
such new certificate.
Section 5.3: Other Regulations. The issue, transfer, conversion and
----------- -----------------
registration of stock certificates shall be governed by such other regulations
as the Board of Directors may establish.
ARTICLE VI
INDEMNIFICATION
Section 6.1 Indemnification of Officers and Directors. Each person who
----------- -----------------------------------------
was or is made a party to, or is threatened to be made a party to, or is
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "Proceeding"), by reason of the fact that
such person (or a person of whom such person is the legal representative), is or
was a director or officer of the Corporation or a Reincorporated Predecessor (as
defined below) or is or was serving at the request of the Corporation or a
Reincorporated Predecessor (as defined below) as a director or officer of
another corporation, or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, shall be
indemnified and held harmless by the Corporation to the fullest extent permitted
by the Delaware General Corporation Law, against all expenses, liability and
loss (including attorneys' fees, judgments, fines, ERISA excise taxes and
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith, provided such person acted in
good faith and in a manner which the person reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe the person's
conduct was unlawful. Such indemnification shall continue as to a person who
has ceased to be a director or officer and shall inure to the benefit of
11
<PAGE>
such person's heirs, executors and administrators. Notwithstanding the
foregoing, the Corporation shall indemnify any such person seeking indemnity in
connection with a Proceeding (or part thereof) initiated by such person only if
such Proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation. As used herein, the term "Reincorporated Predecessor" means a
corporation that is merged with and into the Corporation in a statutory merger
where (a) the Corporation is the surviving corporation of such merger; (b) the
primary purpose of such merger is to change the corporate domicile of the
Reincorporated Predecessor to Delaware.
Section 6.2: Advance of Expenses. The Corporation shall pay all expenses
----------- -------------------
(including attorneys' fees) incurred by such a director or officer in defending
any such Proceeding as they are incurred in advance of its final disposition;
provided, however, that if the Delaware General Corporation Law then so
- -------- -------
requires, the payment of such expenses incurred by such a director or officer in
advance of the final disposition of such Proceeding shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such director
or officer, to repay all amounts so advanced if it should be determined
ultimately that such director or officer is not entitled to be indemnified under
this Article VI or otherwise; and provided, further, that the Corporation shall
-------- -------
not be required to advance any expenses to a person against whom the Corporation
directly brings a claim, in a Proceeding, alleging that such person has breached
such person's duty of loyalty to the Corporation, committed an act or omission
not in good faith or that involves intentional misconduct or a knowing violation
of law, or derived an improper personal benefit from a transaction.
Section 6.3: Non-Exclusivity of Rights. The rights conferred on any
------------ -------------------------
person in this Article VI shall not be exclusive of any other right that such
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, Bylaw, agreement, vote or consent of stockholders
or disinterested directors, or otherwise. Additionally, nothing in this Article
VI shall limit the ability of the Corporation, in its discretion, to indemnify
or advance expenses to persons whom the Corporation is not obligated to
indemnify or advance expenses pursuant to this Article VI.
Section 6.4: Indemnification Contracts. The Board of Directors is
----------- -------------------------
authorized to cause the Corporation to enter into indemnification contracts with
any director, officer, employee or agent of the Corporation, or any person
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, including employee benefit plans, providing indemnification rights
to such person. Such rights may be greater than those provided in this Article
VI.
Section 6.5: Effect of Amendment. Any amendment, repeal or modification
----------- -------------------
of any provision of this Article VI shall be prospective only, and shall not
adversely affect any right or protection conferred on a person pursuant to this
Article VI and existing at the time of such amendment, repeal or modification.
12
<PAGE>
ARTICLE VII
NOTICES
Section 7.1: Notice. Except as otherwise specifically provided herein or
----------- ------
required by law, all notices required to be given pursuant to these Bylaws shall
be in writing and may in every instance be effectively given by hand delivery
(including use of a delivery service), by depositing such notice in the mail,
postage prepaid, or by sending such notice by prepaid telegram, telex, overnight
express courier, mailgram or facsimile. Any such notice shall be addressed to
the person to whom notice is to be given at such person's address as it appears
on the records of the Corporation. The notice shall be deemed given (i) in the
case of hand delivery, when received by the person to whom notice is to be given
or by any person accepting such notice on behalf of such person, (ii) in the
case of delivery by mail, upon deposit in the mail, (iii) in the case of
delivery by overnight express courier, when dispatched, and (iv) in the case of
delivery via telegram, telex, mailgram or facsimile, when dispatched.
Section 7.2: Waiver of Notice. Whenever notice is required to be given
----------- ----------------
under any provision of these Bylaws, a written waiver of notice, signed by the
person entitled to notice, whether before or after the time stated therein,
shall be deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting at the beginning of the meeting to
the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors or members of a
committee of directors need be specified in any written waiver of notice.
ARTICLE VIII
INTERESTED DIRECTORS
Section 8.1: Interested Directors; Quorum. No contract or transaction
----------- ----------------------------
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof that
authorizes the contract or transaction, or solely because his, her or their
votes are counted for such purpose, if: (i) the material facts as to his, her or
their relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the Board
of Directors or committee in good faith authorizes the contract or transaction
by the affirmative votes of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; (ii) the material
facts as to his, her or their relationship or interest and as to the contract or
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved in good faith
by vote of the stockholders; or (iii) the contract or transaction is fair as to
the Corporation as of the time it is authorized, approved or ratified by the
Board of Directors, a committee thereof, or the stockholders. Interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee which authorizes the contract or
transaction.
13
<PAGE>
ARTICLE IX
MISCELLANEOUS
Section 9.1: Fiscal Year. The fiscal year of the Corporation shall be
----------- -----------
determined by resolution of the Board of Directors.
Section 9.2: Seal. The Board of Directors may provide for a corporate
----------- ----
seal, which shall have the name of the Corporation inscribed thereon and shall
otherwise be in such form as may be approved from time to time by the Board of
Directors.
Section 9.3: Form of Records. Any records maintained by the Corporation
----------- ---------------
in the regular course of its business, including its stock ledger, books of
account and minute books, may be kept on, or be in the form of, magnetic tape,
diskettes, photographs, microphotographs or any other information storage
device, provided that the records so kept can be converted into clearly legible
form within a reasonable time. The Corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.
Section 9.4: Reliance Upon Books and Records. A member of the Board of
----------- -------------------------------
Directors, or a member of any committee designated by the Board of Directors
shall, in the performance of such person's duties, be fully protected in relying
in good faith upon records of the Corporation and upon such information,
opinions, reports or statements presented to the Corporation by any of the
Corporation's officers or employees, or committees of the Board of Directors, or
by any other person as to matters the member reasonably believes are within such
other person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
Section 9.5: Certificate of Incorporation Governs. In the event of any
----------- ------------------------------------
conflict between the provisions of the Corporation's Certificate of
Incorporation and Bylaws, the provisions of the Certificate of Incorporation
shall govern.
Section 9.6: Severability. If any provision of these Bylaws shall be held
----------- ------------
to be invalid, illegal, unenforceable or in conflict with the provisions of the
Corporation's Certificate of Incorporation, then such provision shall
nonetheless be enforced to the maximum extent possible consistent with such
holding and the remaining provisions of these Bylaws (including without
limitation, all portions of any section of these Bylaws containing any such
provision held to be invalid, illegal, unenforceable or in conflict with the
Certificate of Incorporation, that are not themselves invalid, illegal,
unenforceable or in conflict with the Certificate of Incorporation) shall remain
in full force and effect.
ARTICLE X
AMENDMENT
Section 10.1: Amendments. Following the closing of the initial public
------------ ----------
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended, covering the offer and sale of Common Stock to the
public (the "Initial Public Offering"), stockholders of the Corporation holding
at least sixty-six and two-thirds percent (66-2/3%) of the Corporation's
14
<PAGE>
outstanding voting stock then entitled to vote at an election of directors shall
have the power to adopt, amend or repeal Bylaws. Prior to the Initial Public
Offering, stockholders of the Corporation holding a majority of the
Corporation's outstanding voting stock then entitled to vote at an election of
directors shall have the power to adopt, amend or repeal Bylaws. To the extent
provided in the Corporation's Certificate of Incorporation, the Board of
Directors of the Corporation shall also have the power to adopt, amend or repeal
Bylaws of the Corporation.
15
<PAGE>
EXHIBIT 4.02
SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
-------------------------------------------------------
This Second Amended and Restated Investors' Rights Agreement (this
"Agreement") is made and entered into as of February 4, 2000 by and among
AllAdvantage.com., a California corporation (the "Company"), and the persons and
entities listed on Exhibit A attached hereto (the "Investors").
---------
A. Certain of the Investors (the "Prior Investors") are holders of the
Company's: (i) Series B Preferred Stock (the "Series B Stock") issued pursuant
to that certain Series B Preferred Stock Purchase Agreement (the "Series B
Agreement") by and among the Company and the investors listed therein; and/or
(ii) Series C Preferred Stock (the "Series C Stock") issued pursuant to that
certain Series C Preferred Stock Purchase Agreement (the "Series C Agreement")
by and among the Company and the investors listed therein; and/or (iii) Series C
Preferred Stock issued or issuable upon exercise of those certain warrants (the
"Convertible Note Warrants") to purchase up to an aggregate of 244,897 shares of
Series C Stock issued in connection with certain convertible promissory notes
issued by the Company.
B. The Prior Investors hold certain information and registration rights
under that certain Amended and Restated Investors' Rights Agreement by and among
the Company and the Prior Investors dated September 22, 1999 (the "Prior Rights
Agreement").
C. Certain Investors (the "Series D Investors") have agreed to purchase
shares of the Company's Series D Preferred Stock (the "Series D Stock") pursuant
to a certain Series D Preferred Stock Purchase Agreement by and among the
Company and such Series D Investors dated of even date herewith (the "Series D
Agreement"). The Series D Agreement provides that, as a condition to the Series
D Investors' purchase of the Series D Stock thereunder, the Company will enter
into this Agreement and the Series D Investors will be granted the rights set
forth herein.
D. HMS Gateway Office, L.P., which is an Investor, has been or is to be
issued a Warrant (the "Lease Warrant") to purchase up to 75,000 shares of Series
D Stock issued in connection with a certain real property lease of the Company.
E. The Company and the undersigned parties hereto desire to enter into
this Agreement in order to amend, restate and replace the rights and obligations
set forth in the Prior Rights Agreement with the rights and obligations set
forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
<PAGE>
1. INFORMATION RIGHTS.
------------------
1.1 Financial Information. The Company covenants and agrees that,
---------------------
commencing on the date of this Agreement, for so long as any Investor holds at
least 1,250,000 shares of Series B Stock issued under the Series B Agreement, or
at least 1,250,000 shares of Series C Stock issued under the Series C Agreement,
or at least 150,000 shares of Series D Stock issued under the Series D
Agreement, and/or the equivalent number (on an as-converted basis) of shares of
Common of the Company ("Common Stock") issued upon the conversion of such shares
of Series B Stock, Series C Stock, or Series D Stock, respectively ("Conversion
Stock") (as adjusted for applicable stock splits and combinations) the Company
will:
(a) Monthly Reports. Furnish to such Investor as soon as
---------------
practicable, and in any case within forty-five (45) days after the end of each
calendar month (except the last month of the Company's fiscal year), monthly
unaudited financial statements, including an unaudited Balance Sheet and an
unaudited Statement of Income together with a comparison to the Company's
operating plan and budget and statements of the Chief Financial Officer of the
Company explaining any significant differences in the statements from the
Company's operating plan and budget for the month covered and stating that such
statements fairly present the consolidated financial position and consolidated
financial results of the Company for the month covered; and
(b) Annual Budget. Furnish to such Investor as soon as
-------------
practicable and in any event no later than thirty (30) days after the close of
each fiscal year of the Company, an annual operating plan and budget, prepared
on a monthly basis, for the next immediate fiscal year. The Company shall also
furnish to such Investor, within a reasonable time of its preparation,
amendments to the annual budget, if any, and a capitalization summary of the
Company. Each Investor agrees to hold all information received pursuant to this
Section in confidence, and not to use or disclose any of such information to any
third party, except to the extent such information may be made publicly
available by the Company.
1.2 Annual Reports. The Company shall furnish to each Investor
--------------
holding any shares of Series B Stock, Series C Stock, Series D Stock or
Conversion Stock, as soon as practicable and in any event within 120 days after
the end of each fiscal year of the Company, a consolidated Balance Sheet as of
the end of such fiscal year, a consolidated Statement of Income and a
consolidated Statement of Cash Flows of the Company and its subsidiaries for
such year, setting forth in each case in comparative form the figures from the
Company's previous fiscal year (if any), all prepared in accordance with
generally accepted accounting principles and practices and audited by nationally
recognized independent certified public accountants;
1.3 Inspection Rights. The Company shall permit each Investor
-----------------
holding at least 1,250,000 shares of the Series B Stock, at least 1,250,000
shares of Series C Stock or at least 150,000 shares of Series D Stock, and/or
the equivalent number (on an as-converted basis) of shares of Conversion Stock,
or any combination thereof (as adjusted for applicable stock splits and
combinations), at such Investor's expense, to visit and inspect the Company's
properties, to examine its books of account and records and to discuss the
Company's affairs, finances and
2
<PAGE>
accounts with its officers, all at such reasonable times as may be requested by
such Investor. Each Investor agrees to hold all information received from such
inspections in confidence, and not to use or disclose any of such information to
any third party, except to the extent such information may be made publicly
available by the Company.
1.4 Termination of Certain Rights. The Company's obligations under
-----------------------------
Sections 1.1, 1.2 and 1.3 above will terminate upon the closing of the Company's
initial public offering of Common Stock pursuant to an effective registration
statement filed under the U.S. Securities Act of 1933, as amended (the
"Securities Act," and with such offering being referred to herein as the "IPO").
2. REGISTRATION RIGHTS.
-------------------
2.1 Definitions. For purposes of this Section 2:
-----------
(a) Registration. The terms "register," "registration" and
------------
"registered" refer to a registration effected by preparing and filing a
registration statement in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement.
(b) Registrable Securities. The term "Registrable Securities"
----------------------
means: (1) all the shares of Common Stock of the Company issued or issuable upon
the conversion of (i) any shares of Series B Stock issued under the Series B
Agreement, (ii) any shares of Series C Stock issued under the Series C
Agreement, as such agreement may hereafter be amended from time to time, (iii)
any shares of Series C Stock issued or issuable upon exercise of the Convertible
Note Warrants, (iv) any shares of Series D Stock issued under the Series D
Agreement; (v) any shares of Series D Stock issued upon exercise of the Lease
Warrant; and (2) any shares of Common Stock of the Company issued as (or
issuable upon the conversion or exercise of any warrant, right or other security
which is issued as) a dividend or other distribution with respect to, or in
exchange for or in replacement of, all such shares of Common Stock described in
clause (1) of this subsection (b); excluding in all cases, however, any
---------
Registrable Securities sold by a person in a transaction in which rights under
this Section 2 are not assigned in accordance with this Agreement or any
Registrable Securities sold to the public or sold pursuant to Rule 144
promulgated under the Securities Act.
(c) Registrable Securities Then Outstanding. The number of
---------------------------------------
shares of "Registrable Securities then outstanding" shall mean the number of
shares of Common Stock which are Registrable Securities and (1) are then issued
and outstanding or (2) are then issuable pursuant to the exercise or conversion
of then outstanding and then exercisable options, warrants or convertible
securities.
(d) Holder. For purposes of this Section 2 and Sections 3 and 4
------
hereof, the term "Holder" means any person owning of record Registrable
Securities provided, however, that for purposes of this Agreement, a record
-------- -------
holder of shares of Series B Stock, Series C Stock or Series D Stock convertible
into such Registrable Securities shall be deemed to be the Holder of such
Registrable Securities; and provided, further, that the Company shall in no
-------- -------
event be obligated to register shares of Series B Stock, Series C Stock or
Series D Stock, and that
3
<PAGE>
Holders of Registrable Securities will not be required to convert their shares
of Series B Stock, Series C Stock or Series D Stock into Common Stock in order
to exercise the registration rights granted hereunder, until immediately before
the closing of the offering to which the registration relates.
(e) Form S-3. The term "Form S-3" means such form under the
--------
Securities Act as is in effect on the date hereof or any successor registration
form under the Securities Act subsequently adopted by the SEC which permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
(f) SEC. The term "SEC" or "Commission" means the U.S.
---
Securities and Exchange Commission.
2.2 Demand Registration.
-------------------
(a) Request by Holders. If the Company shall receive at any time
------------------
after the earlier of January 1, 2004, or six (6) months after the effective date
of the Company's IPO, a written request from the Holders of at least 40% of the
Registrable Securities then outstanding that the Company file a registration
statement under the Securities Act covering the registration of Registrable
Securities pursuant to this Section 2.2, then the Company shall, within twenty
(20) days after the receipt of such written request, give written notice of such
request ("Request Notice") to all Holders, and effect, as soon as practicable,
the registration under the Securities Act of all Registrable Securities which
Holders request to be registered and included in such registration by written
notice given by such Holders to the Company within twenty (20) days after
receipt of the Request Notice, subject only to the limitations of this Section
2; provided that the Registrable Securities requested by all Holders to be
--------
registered pursuant to such request must have an anticipated aggregate public
offering price (before any underwriting discounts and commissions) of not less
than $5,000,000 if such requested registration is the initial public offering of
the Company's stock registered under the Securities Act.
(b) Underwriting. If the Holders initiating the registration
------------
request under this Section 2.2 ("Initiating Holders") intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
then they shall so advise the Company as a part of their request made pursuant
to this Section 2.2 and the Company shall include such information in the
written notice referred to in subsection 2.2(a). In such event, the right of any
Holder to include his Registrable Securities in such registration shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders
and such Holder) to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall enter into an
underwriting agreement in customary form with the managing underwriter or
underwriters selected for such underwriting by a majority of the Holders of
Registrable Securities and reasonably acceptable to the Company. Notwithstanding
any other provision of this Section 2.2, if the underwriter(s) advise(s) the
Company in writing that marketing factors require a limitation of the number of
securities to be underwritten then the Company shall so advise all Holders of
Registrable Securities that would
4
<PAGE>
otherwise be registered and underwritten pursuant hereto, and the number of
Registrable Securities that may be included in the underwriting shall be reduced
as required by the underwriter(s) and allocated among the Holders of Registrable
Securities on a pro rata basis according to the number of Registrable Securities
then outstanding held by each Holder requesting registration (including the
Initiating Holders); provided, however, that the number of shares of Registrable
-------- -------
Securities to be included in such underwriting and registration shall not be
reduced unless all other securities of the Company are first entirely excluded
from the underwriting and registration. Any Registrable Securities excluded and
withdrawn from such underwriting shall be withdrawn from the registration.
(c) Maximum Number of Demand Registrations. The Company is
--------------------------------------
obligated to effect only three (3) such registrations pursuant to this Section
2.2; provided, however, that if neither the first nor the second demand right
-------- -------
exercised covers the sale of Registrable Securities with an aggregate public
offering price of at least $25,000,000, then the third such demand right
exercised must cover such a sale for at least $25,000,000.
(d) Deferral. Notwithstanding the foregoing, if the Company
--------
shall furnish to Holders requesting the filing of a registration statement
pursuant to this Section 2.2, a certificate signed by the President or Chief
Executive Officer of the Company stating that in the good faith judgment of the
Board of Directors of the Company, it would be seriously detrimental to the
Company and its shareholders for such registration statement to be filed and it
is therefore essential to defer the filing of such registration statement, then
the Company shall have the right to defer such filing for a period of not more
than 90 days after receipt of the request of the Initiating Holders; provided,
--------
however, that the Company may not utilize this right more than once in any
- -------
twelve (12) month period.
(e) Expenses. All expenses incurred in connection with a
--------
registration pursuant to this Section 2.2, including without limitation all
registration and qualification fees, printers' and accounting fees, fees and
disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel for the selling Holders (but excluding
underwriters' discounts and commissions), shall be borne by the Company. Each
Holder participating in a registration pursuant to this Section 2.2 shall bear
such Holder's proportionate share (based on the total number of shares sold in
such registration other than for the account of the Company) of all discounts,
commissions or other amounts payable to underwriters or brokers in connection
with such offering. Notwithstanding the foregoing, the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to this Section 2.2 if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable Securities to be
registered, unless the Holders of a majority of the Registrable Securities then
outstanding agree to forfeit their right to one (1) demand registration pursuant
to this Section 2.2 (in which case such right shall be forfeited by all Holders
of Registrable Securities); provided, further, however, that if at the time of
-------- ------- -------
such withdrawal, the Holders have learned of a material adverse change in the
condition, business, or prospects of the Company not known to the Holders at the
time of their request for such registration and have withdrawn their request for
registration with reasonable promptness after learning of such
5
<PAGE>
material adverse change, then the Holders shall not be required to pay any of
such expenses and shall retain their rights pursuant to this Section 2.2.
2.3 Piggyback Registrations. The Company shall notify all Holders of
-----------------------
Registrable Securities in writing at least thirty (30) days prior to filing any
registration statement under the Securities Act for purposes of effecting a
public offering of equity securities of the Company (including, but not limited
to, registration statements relating to secondary offerings of securities of the
Company, but excluding registration statements relating to (1) the IPO, (2) any
---------
registration for which Holders are otherwise given notice and are eligible to
participate under Section 2.2 or Section 2.4 of this Agreement, or (3) any
employee benefit plan or a corporate reorganization or other transaction under
Rule 145 of the Securities Act) and will afford each such Holder an opportunity
to include in such registration statement all or any part of the Registrable
Securities then held by such Holder. Each Holder desiring to include in any
such registration statement all or any part of the Registrable Securities held
by such Holder shall, within twenty (20) days after receipt of the above-
described notice from the Company, so notify the Company in writing, and in such
notice shall inform the Company of the number of Registrable Securities such
Holder wishes to include in such registration statement. If a Holder decides
not to include all of its Registrable Securities in any registration statement
thereafter filed by the Company, such Holder shall nevertheless continue to have
the right to include any Registrable Securities in any subsequent registration
statement or registration statements as may be filed by the Company with respect
to offerings of its securities, all upon the terms and conditions set forth
herein.
(a) Underwriting. If a registration statement under which the
------------
Company gives notice under this Section 2.3 is for an underwritten offering,
then the Company shall so advise the Holders of Registrable Securities. In such
event, the right of any such Holder's Registrable Securities to be included in a
registration pursuant to this Section 2.3 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in customary form with
the managing underwriter or underwriter(s) selected for such underwriting.
Notwithstanding any other provision of this Agreement, if the managing
underwriter determine(s) in good faith that marketing factors require a
limitation of the number of shares to be underwritten, then the managing
underwriter(s) may exclude shares (including Registrable Securities) from the
registration and the underwriting, and the number of shares that may be included
in the registration and the underwriting shall be allocated, first, to
-----
shareholders exercising any demand registration rights, second to the Company,
------
for its own account, and third, to each of the Holders requesting inclusion of
-----
their Registrable Securities in such registration statement on a pro rata basis
based on the total number of Registrable Securities then held by each such
Holder; provided however, that the right of the underwriters to exclude shares
-------- -------
(including Registrable Securities) from the registration and underwriting as
described above shall be restricted so that the number of Registrable Securities
included in any such registration is not reduced below thirty percent (30%) of
the shares included in the registration. If any Holder disapproves of the terms
of any such underwriting, such Holder may elect to withdraw therefrom by written
notice to the Company and the underwriter, delivered at least
6
<PAGE>
twenty (20) days prior to the effective date of the registration statement. Any
Registrable Securities excluded or withdrawn from such underwriting shall be
excluded and withdrawn from the registration. For any Holder that is a
partnership or corporation, the partners, retired partners and shareholders of
such Holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons shall be
deemed to be a single "Holder," and any pro rata reduction with respect to such
"Holder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"Holder," as defined in this sentence. The Company shall have the right to
terminate or withdraw any registration initiated by it prior to the
effectiveness of such registration whether or not any Holder has elected to
include securities in such registration.
(b) Expenses. All expenses incurred in connection with a
--------
registration pursuant to this Section 2.3 (excluding underwriters' and brokers'
discounts and commissions), including, without limitation all federal and "blue
sky" registration and qualification fees, printers' and accounting fees, fees
and disbursements of counsel for the Company and reasonable fees and
disbursements of one counsel for the selling Holders shall be borne by the
Company.
2.4 Form S-3 Registration. In case the Company shall receive from
---------------------
any Holder or Holders of Registrable Securities a written request or requests
that the Company effect a registration on Form S-3 and any related qualification
or compliance with respect to all or a part of the Registrable Securities owned
by such Holder or Holders, then the Company will:
(a) Notice. Promptly give written notice of the proposed
------
registration and the Holder's or Holders' request therefor, and any related
qualification or compliance, to all other Holders of Registrable Securities; and
(b) Registration. As soon as practicable, effect such
------------
registration and all such qualifications and compliances as may be so requested
and as would permit or facilitate the sale and distribution of all or such
portion of such Holder's or Holders' Registrable Securities as are specified in
such request, together with all or such portion of the Registrable Securities of
any other Holder or Holders joining in such request as are specified in a
written request given within twenty (20) days after receipt of such written
notice from the Company; provided, however, that the Company shall not be
-------- -------
obligated to effect any such registration, qualification or compliance pursuant
to this Section 2.4:
(1) if Form S-3 is not available for such offering;
(2) if the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose to
sell Registrable Securities and such other securities (if any) at an aggregate
price to the public of less than $1,000,000;
(3) if the Company shall furnish to the Holders a
certificate signed by the President or Chief Executive Officer of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its shareholders
for such Form S-3 Registration to be effected at such time, in
7
<PAGE>
which event the Company shall have the right to defer the filing of the Form S-3
registration statement no more than once during any twelve month period for a
period of not more than 90 days after receipt of the request of the Holder or
Holders under this Section 2.4; or
(4) in any particular jurisdiction in which the Company
would be required to qualify to do business or to execute a general consent to
service of process in effecting such registration, qualification or compliance.
(c) Expenses. Subject to the foregoing, the Company shall file a
--------
Form S-3 registration statement covering the Registrable Securities and other
securities so requested to be registered pursuant to this Section 2.4 as soon as
practicable after receipt of the request or requests of the Holders for such
registration. The Company shall pay all expenses incurred in connection with the
first four registrations requested pursuant to this Section 2.4, (excluding
underwriters' or brokers' discounts and commissions), including without
limitation all filing, registration and qualification, printers' and accounting
fees and the reasonable fees and disbursements of one counsel for the selling
Holder or Holders and counsel for the Company. All expenses incurred in
connection with any subsequent registration requested pursuant to this Section
2.4 shall be borne by the Holders who participate in such registration on a pro
rata basis according to the number of Registrable Securities owned by the
Holders that are included in such registration at the time it goes effective.
(d) Not Demand Registration. Form S-3 registrations shall not be
-----------------------
deemed to be demand registrations as described in Section 2.2 above.
2.5 Obligations of the Company. Whenever required to effect the
--------------------------
registration of any Registrable Securities under this Agreement, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use reasonable, diligent efforts to
cause such registration statement to become effective, and, upon the request of
the Holders of a majority of the Registrable Securities registered thereunder,
keep such registration statement effective for up to ninety (90) days.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by them that are included in such registration.
(d) Use reasonable, diligent efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such
8
<PAGE>
jurisdictions as shall be reasonably requested by the Holders, provided that the
Company shall not be required in connection therewith or as a condition thereto
to qualify to do business or to file a general consent to service of process in
any such states or jurisdictions unless the Company is already subject to
service in such jurisdiction and except as may be required by the Securities
Act.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Cause all Registrable Securities registered pursuant
hereunder to be listed on each Securities Exchange on which similar securities
issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
(i) Furnish, at the request of any Holder requesting
registration of Registrable Securities, on the date that such Registrable
Securities are delivered to the underwriters for sale, if such securities are
being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration statement with respect
to such securities becomes effective, (1) an opinion, dated as of such date, of
the counsel representing the Company for the purposes of such registration, in
form and substance as is customarily given to underwriters in an underwritten
public offering and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities and (2) a
"comfort" letter dated as of such date, from the independent certified public
accountants of the Company, in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities.
2.6 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to Sections 2.2, 2.3 or
2.4 that the selling Holders shall furnish to the Company such information
regarding themselves, the Registrable Securities held by them, and the intended
method of disposition of such securities as shall be reasonably required and
requested in writing to timely effect the registration of their Registrable
Securities.
9
<PAGE>
2.7 Delay of Registration. No Holder shall have any right to obtain
---------------------
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 2.
2.8 Indemnification. In the event any Registrable Securities are
---------------
included in a registration statement under Sections 2.2, 2.3 or 2.4:
(a) By the Company. To the extent permitted by law, the Company
--------------
will indemnify and hold harmless each Holder, the partners, officers and
directors of each Holder, any underwriter (as defined in the Securities Act) for
such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Securities Act or the Securities Exchange Act of 1934,
as amended, (the "1934 Act"), against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the
Securities Act, the 1934 Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively, "Violations" and, individually, a "Violation"):
(1) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto;
(2) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or
(3) any violation or alleged violation by the Company of
the Securities Act, the 1934 Act, any federal or state securities law or any
rule or regulation promulgated under the Securities Act, the 1934 Act or any
federal or state securities law in connection with the offering covered by such
registration statement;
and the Company will reimburse each such Holder, partner, officer or director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them, as incurred, in connection with investigating or defending any
such loss, claim, damage, liability or action; provided however, that the
-------- -------
indemnity agreement contained in this subsection 2.8(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any such
case for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by such Holder, partner, officer, director, underwriter
or controlling person of such Holder.
(b) By Selling Holders. To the extent permitted by law, each
------------------
selling Holder will indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the registration statement, each
person, if any, who controls the Company within the meaning of the Securities
Act, any underwriter and any other Holder selling securities under such
registration statement or any of such other Holder's partners, directors or
officers or
10
<PAGE>
any person who controls such Holder within the meaning of the Securities Act or
the 1934 Act, against any losses, claims, damages or liabilities (joint or
several) to which the Company or any such director, officer, controlling person,
underwriter or other such Holder, partner or director, officer or controlling
person of such other Holder may become subject under the Securities Act, the
1934 Act or other federal or state law, insofar as such losses, claims, damages
or liabilities (or actions in respect thereto) arise out of or are based upon
any Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such registration;
and each such Holder will reimburse any legal or other expenses reasonably
incurred by the Company or any such director, officer, controlling person,
underwriter or other Holder, partner, officer, director or controlling person of
such other Holder in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the indemnity
-------- -------
agreement contained in this subsection 2.8(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; and provided further, that the total amounts
-------- -------
payable in indemnity by a Holder under this subsection 2.8(b) in respect of any
Violation shall not exceed the net proceeds received by such Holder in the
registered offering out of which such Violation arises.
(c) Notice. Promptly after receipt by an indemnified party
under this Section 2.8 of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 2.8,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
-------- -------
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential conflict of interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 2.8, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 2.8.
(d) Defect Eliminated in Final Prospectus. The foregoing
-------------------------------------
indemnity agreements of the Company and Holders are subject to the condition
that, insofar as they relate to any Violation made in a preliminary prospectus
prepared in connection with sales of Registrable Securities by a selling Holder
in an offering which is not underwritten, but eliminated or remedied in the
amended prospectus on file with the SEC at the time the registration statement
in question becomes effective or the amended prospectus filed with the SEC
pursuant to SEC Rule 424(b) (the "Final Prospectus"), such indemnity agreement
shall not inure to the benefit of any person if a copy of the Final Prospectus
was furnished to the indemnified party and was not
11
<PAGE>
furnished to the person asserting the loss, liability, claim or damage at or
prior to the time such action is required by the Securities Act.
(e) Contribution. In order to provide for just and equitable
------------
contribution to joint liability under the Securities Act in any case in which
either (1) any Holder exercising rights under this Agreement, or any controlling
person of any such Holder, makes a claim for indemnification pursuant to this
Section 2.8 but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 2.8 provides
for indemnification in such case, or (2) contribution under the Securities Act
may be required on the part of any such selling Holder or any such controlling
person in circumstances for which indemnification is provided under this Section
2.8; then, and in each such case, the Company and such Holder will contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion so that such Holder
is responsible for the portion represented by the percentage that the public
offering price of its Registrable Securities offered by and sold under the
registration statement bears to the public offering price of all securities
offered by and sold under such registration statement, and the Company and other
selling Holders are responsible for the remaining portion; provided, however,
-------- -------
that, in any such case, (A) no such Holder will be required to contribute any
amount in excess of the net proceeds of all such Registrable Securities offered
and sold by such Holder pursuant to such registration statement; and (B) no
person or entity guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) will be entitled to contribution from any
person or entity who was not guilty of such fraudulent misrepresentation.
(f) Survival. The obligations of the Company and Holders under
--------
this Section 2.8 shall survive the completion of any offering of Registrable
Securities in a registration statement, and otherwise.
2.9 "Market Stand-Off" Agreement. Each Holder hereby agrees that it
---------------------------
shall not, to the extent requested by the Company or an underwriter of
securities of the Company, sell or otherwise transfer or dispose of any
Registrable Securities or other shares of stock of the Company then owned by
such Holder (other than to donees or partners of the Holder who agree to be
similarly bound) for up to the period beginning upon the effective date of a
registration statement of the Company filed under the Securities Act and ending
up to one hundred eighty (180) days thereafter; provided, however, that:
-------- -------
(a) such agreement shall be applicable only to the first such
registration statement of the Company which covers securities to be sold on its
behalf to the public in an underwritten offering but not to Registrable
Securities sold pursuant to such registration statement; and
(b) all executive officers and directors of the Company then
holding Common Stock of the Company, and each shareholder of the Company holding
in the aggregate at least 1% of the total equity of the Company, enter into
similar agreements.
12
<PAGE>
In order to enforce the foregoing covenant, the Company shall have the right to
place restrictive legends on the certificates representing the shares subject to
this Section and to impose stop transfer instructions with respect to the
Registrable Securities and such other shares of stock of each Holder (and the
shares or securities of every other person subject to the foregoing restriction)
until the end of such period. The obligations described in this Section 2.9
shall not apply to a registration statement relating solely to employee benefit
plans on Form S-1 or Form S-8 or similar forms that may be promulgated in the
future, or a registration statement relating solely to a Commission Rule 145
transaction on Form S-4 or similar forms that may be promulgated in the future.
The term "Company", as used in this Section 2.9, includes any wholly-owned
subsidiary of the Company into or with which the Company merges or consolidates.
2.10 Rule 144 Reporting. With a view to making available the
------------------
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Registrable Securities to the public without
registration, after such time as a public market exists for the Common Stock of
the Company, the Company agrees to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after the effective date of the first registration under the Securities Act
filed by the Company for an offering of its securities to the general public;
(b) Use reasonable, diligent efforts to file with the Commission
in a timely manner all reports and other documents required of the Company under
the Securities Act and the 1934 Act (at any time after it has become subject to
such reporting requirements); and
(c) So long as a Holder owns any Registrable Securities, to
furnish to the Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144 (at any
time after 90 days after the effective date of the first registration statement
filed by the Company for an offering of its securities to the general public),
and of the Securities Act and the 1934 Act (at any time after it has become
subject to the reporting requirements of the 1934 Act), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents of the Company as a Holder may reasonably request in availing itself
of any rule or regulation of the Commission allowing a Holder to sell any such
securities without registration (at any time after the Company has become
subject to the reporting requirements of the 1934 Act).
(d) Take such action, including the voluntary registration of
its Common Stock under Section 12 of the Exchange Act, as is necessary to enable
the Holders to utilize Form S-3 for the sale of their Registrable Securities,
such action to be taken as soon as practicable after the fiscal year in which
the first registration statement filed by the Company for the offering of its
securities to the general public is declared effective.
2.11 Termination of the Company's Obligations. The Company shall
----------------------------------------
have no obligations pursuant to Sections 2.2 through 2.4 with respect to any
request or requests for
13
<PAGE>
registration made by any Holder on a date more than five (5) years after the
closing date of the IPO.
2.12 Limitation on Subsequent Registration Rights. After the date of
--------------------------------------------
this Agreement, the Company shall not, without the prior written consent of the
Holders of at least a majority of the Registrable Securities then outstanding,
enter into any agreement with any holder or prospective holder of any securities
of the Company that would grant such holder registration rights senior to those
granted to the Holders hereunder.
3. RIGHT OF FIRST REFUSAL.
----------------------
3.1 General. Each Holder (as defined in Section 2.1(d)) who holds
-------
at least 1,250,000 shares of the Series B Stock issued under the Series B
Agreement or at least 1,250,000 shares of Series C Stock issued under the Series
C Agreement or at least 150,000 shares of Series D Stock issued under the Series
D Agreement, and/or the equivalent number (on an as-converted basis) of
Conversion Stock (as adjusted for applicable stock splits and combinations), and
any party to whom such Holder's rights under this Section 3 have been duly
assigned in accordance with Section 4.1(b) (each such Holder or assignee being
----
hereinafter referred to as a "Rights Holder") has the right of first refusal to
purchase such Rights Holder's Pro Rata Share (as defined below), of all (or any
part) of any "New Securities" (as defined in Section 3.2) that the Company may
from time to time issue after the date of this Agreement. A Rights Holder's "Pro
Rata Share" for purposes of this right of first refusal is the ratio of (a) the
number of Registrable Securities as to which such Rights Holder is the Holder
(and/or is deemed to be the Holder under Section 2.1(d)), to (b) a number of
shares of Common Stock of the Company equal to the sum of (1) the total number
of shares of Common Stock of the Company then outstanding plus (2) the total
number of shares of Common Stock of the Company into which all then outstanding
shares of Preferred Stock of the Company are then convertible plus (3) the
number of shares of Common Stock of the Company reserved for issuance upon
conversion or exercise of outstanding options or warrants.
3.2 New Securities. "New Securities" shall mean any Common Stock or
--------------
Preferred Stock of the Company, whether now authorized or not, and rights,
options or warrants to purchase such Common Stock or Preferred Stock, and
securities of any type whatsoever that are, or may become, convertible or
exchangeable into such Common Stock or Preferred Stock; provided, however, that
-------- -------
the term "New Securities" does not include:
---- --- -------
(a) shares of Common Stock issued or issuable upon conversion of
the outstanding shares of the Preferred Stock;
(b) up to 22,561,317 shares of Common Stock (or options,
warrants or rights therefor) granted or issued hereafter to employees, officers,
directors, contractors, consultants or advisers to, the Company or any
Subsidiary pursuant to incentive agreements, stock purchase or stock option
plans, stock bonuses or awards, warrants, contracts or other arrangements that
are approved by the Board of Directors (such number of shares to be calculated
net of any repurchases of such shares by the Company and net of any such expired
or
14
<PAGE>
terminated options, warrants or rights and to be proportionally adjusted to
reflect any subsequent stock splits, stock dividends, recapitalizations,
combination of shares or the like);
(c) any shares of the Company's Common Stock or Preferred Stock
(and/or options or warrants therefor) issued or issuable to parties providing
the Company with debt financing from a bank or similar institution, equipment
leases or real property leases, under arrangements approved by the Board of
Directors;
(d) shares of Common Stock or Preferred Stock issued pursuant to
the acquisition of another corporation or entity by the Company approved by the
Board of Directors, by consolidation, merger, purchase of all or substantially
all of the assets, or other reorganization in which the Company acquires, in a
single transaction or series of related transactions, all or substantially all
of the assets of such other corporation or entity or fifty percent (50%) or more
of the voting power of such other corporation or entity or fifty percent (50%)
or more of the equity ownership of such other entity;
(e) any shares of Series B Preferred Stock issued under the
Series B Agreement or Series C Preferred Stock issued under the Series C
Agreement or shares of Series D Preferred Stock issued under the Series D
Agreement, as such agreements may be amended;
(f) the Convertible Note Warrants, any shares of Series C
Preferred Stock issued upon exercise of the Convertible Note Warrants, and any
shares of Common Stock issued upon conversion of such shares of Series C
Preferred Stock;
(g) the Lease Warrant, any shares of Series D Preferred stock
issued upon exercise of the Lease Warrant, and any shares of Common Stock issued
upon conversion of such Series D Stock;
(h) any securities issuable upon exercise of any options,
warrants or rights to purchase any securities of the Company outstanding on the
date of this Agreement ("Warrant Securities") and any securities issuable upon
the conversion of any Warrant Securities or upon the exercise or conversion of
any securities, if such securities were first offered to the Rights Holders
hereunder;
(i) shares of the Company's Common Stock or Preferred Stock
issued in connection with any stock split or stock dividend; and
(j) securities offered by the Company to the public pursuant to
a registration statement filed under the Securities Act.
3.3 Procedures. In the event that the Company proposes to undertake
----------
an issuance of New Securities, it shall give to each Rights Holder written
notice of its intention to issue New Securities (the "Notice"), describing the
type of New Securities and the price and the general terms upon which the
Company proposes to issue such New Securities. Each Rights
15
<PAGE>
Holder shall have ten (10) days from the date of mailing of any such Notice to
agree in writing to purchase such Rights Holder's Pro Rata Share of such New
Securities for the price and upon the general terms specified in the Notice by
giving written notice to the Company and stating therein the quantity of New
Securities to be purchased (not to exceed such Rights Holder's Pro Rata Share).
If any Rights Holder fails to so agree in writing within such ten (10) day
period to purchase such Rights Holder's full Pro Rata Share of an offering of
New Securities (a "Nonpurchasing Holder"), then such Nonpurchasing Holder shall
forfeit the right hereunder to purchase that part of his Pro Rata Share of such
New Securities that he did not so agree to purchase and the Company shall
promptly give each Rights Holder who has timely agreed to purchase his full Pro
Rata Share of such offering of New Securities (a "Purchasing Holder") written
notice of the failure of any Nonpurchasing Holder to purchase such Nonpurchasing
Rights Holder's full Pro Rata Share of such offering of New Securities (the
"Overallotment Notice"). Each Purchasing Holder shall have a right of
overallotment such that such Purchasing Holder may agree to purchase a portion
of the Nonpurchasing Holders' unpurchased Pro Rata Shares of such offering on a
pro rata basis according to the relative Pro Rata Shares of the Purchasing
Rights Holders, at any time within five (5) days after receiving the
Overallotment Notice.
3.4 Failure to Exercise. In the event that the Rights Holders fail
-------------------
to exercise in full the right of first refusal within such ten (10) plus five
(5) day period, then the Company shall have 90 days thereafter to sell the New
Securities with respect to which the Rights Holders' rights of first refusal
hereunder were not exercised, at a price and upon general terms not materially
more favorable to the purchasers thereof than specified in the Company's Notice
to the Rights Holders. In the event that the Company has not issued and sold
the New Securities within such 90 day period, then the Company shall not
thereafter issue or sell any New Securities without again first offering such
New Securities to the Rights Holders pursuant to this Section 3.
3.5 Termination. This right of first refusal shall terminate (a)
-----------
immediately before the closing of the IPO or (b) upon (1) the acquisition of all
or substantially all the assets of the Company or (2) an acquisition of the
Company by another corporation or entity by consolidation, merger or other
reorganization in which the holders of the Company's outstanding voting stock
immediately prior to such transaction own, immediately after such transaction,
securities representing less than fifty percent (50%) or more of the voting
power of the corporation or other entity surviving such transaction.
4. ASSIGNMENT AND AMENDMENT.
------------------------
4.1 Assignment. Notwithstanding anything herein to the contrary:
----------
(a) Information Rights. The rights of an Investor under Section
------------------
1.1 or 1.3 hereof may be assigned only to a party who acquires from an Investor
(or an Investor's permitted assigns) at least that number of shares of Series B
Stock, Series C Stock, Series D Stock and/or an equivalent number (on an as-
converted basis) of shares of Conversion Stock described in Section 1.1 or 1.3
hereof, respectively.
16
<PAGE>
(b) Registration Rights; Refusal Rights. The registration rights
-----------------------------------
of a Holder under Section 2 hereof and the rights of first refusal of a Rights
Holder under Section 3 hereof may be assigned only to a party who acquires at
least 1,250,000 shares of Series B Stock issued under the Series B Agreement, or
at least 1,250,000 shares of Series C Stock issued under the Series C Agreement,
or at least 150,000 shares of Series D Stock issued under the Series D
Agreement, or any shares of Series D Stock issued under the Series D Agreement
only if such Series D Stock is assigned to: (i) any limited partner of Softbank
Capital Partners LP, (ii) any Softbank sponsored investment fund, (iii) any
direct or indirect US subsidiary of Softbank Corp., or (iv) any employee of any
of the foregoing parties listed in (i) - (iii) above, or (v) any limited
partnership whose general partner is a wholly-owned subsidiary of Credit Suisse
First Boston and whose limited partners are employees of Credit Suisse First
Boston, and/or an equivalent number (on an as-converted basis) of Registrable
Securities issued upon conversion thereof (as adjusted for applicable stock
splits and combinations); provided, however that no party may be assigned any of
-------- -------
the foregoing rights unless the Company is given written notice by the assigning
party at the time of such assignment stating the name and address of the
assignee and identifying the securities of the Company as to which the rights in
question are being assigned; and provided further that any such assignee shall
-------- -------
receive such assigned rights subject to all the terms and conditions of this
Agreement, including without limitation the provisions of this Section 4.
4.2 Amendment of Rights. Subject to Section 4.3, any provision of
-------------------
this Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and Investors
(and/or any of their permitted successors or assigns) holding shares of Series B
Stock, Series C Stock, Series D Stock and/or Conversion Stock representing
and/or convertible into a majority of all the Investors' Shares (as defined
below). As used herein, the term "Investors' Shares" shall mean the shares of
Common Stock then issuable upon conversion of all then outstanding shares of
Series B Stock, Series C Stock and Series D Stock issued under the Series B
Agreement, Series C Agreement and Series D Agreement or upon exercise of the
Convertible Note Warrants or Lease Warrant plus all then outstanding shares of
Conversion Stock that were issued upon the conversion of any shares of Series B
Stock, Series C Stock and Series D Stock issued under the Series B Agreement,
Series C Agreement and Series D Agreement or upon exercise of the Convertible
Note Warrants or Lease Warrant. Any amendment or waiver effected in accordance
with this Section 4.2 shall be binding upon each Investor, each Holder, each
permitted successor or assignee of such Investor or Holder and the Company;
provided that the effect of any such amendment or waiver will be that all such
parties thereto will be treated equally.
4.3 New Investors. Notwithstanding anything herein to the contrary,
-------------
if pursuant to Section 2.2 of the Series D Agreement, additional parties may
purchase shares of Series D Stock as "New Investors" thereunder, then each such
New Investor shall become a party to this Agreement as an "Investor" hereunder,
without the need of any consent, approval or signature of any Investor when such
New Investor has both: (a) purchased shares of Series D Stock under the Series
D Agreement and paid the Company all consideration payable for such shares and
(b) executed one or more counterpart signature pages to this Agreement as an
"Investor", with the Company's consent.
17
<PAGE>
5. GENERAL PROVISIONS.
------------------
5.1 Notices. Any notice, request or other communication required or
-------
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if deposited in the U.S. mail by registered or
certified mail, return receipt requested, postage prepaid, as follows:
(a) if to an Investor, at such Investor's respective address as
set forth on Exhibit A attached hereto; or
(b) if to the Company, at 25954 Eden Landing Road, Hayward,
California 94545.
Any party hereto (and such party's permitted assigns) may by notice so given
change its address for future notices hereunder. Notice shall conclusively be
deemed to have been given when personally delivered or when deposited in the
mail in the manner set forth above.
5.2 Entire Agreement. This Agreement, together with all the Exhibits
----------------
hereto, constitutes and contains the entire agreement and understanding of the
parties with respect to the subject matter hereof and supersedes any and all
prior negotiations, correspondence, agreements, understandings, duties or
obligations between the parties respecting the subject matter hereof.
5.3 Governing Law. This Agreement shall be governed by and construed
-------------
exclusively in accordance with the internal laws of the State of California as
applied to agreements among California residents entered into and to be
performed entirely within California, excluding that body of law relating to
conflict of laws and choice of law.
5.4 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, then such provision(s) shall be
excluded from this Agreement and the balance of this Agreement shall be
interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its terms.
5.5 Third Parties. Nothing in this Agreement, express or implied, is
-------------
intended to confer upon any person, other than the parties hereto and their
successors and assigns, any rights or remedies under or by reason of this
Agreement.
5.6 Successors And Assigns. Subject to the provisions of Section
----------------------
4.1, the provisions of this Agreement shall inure to the benefit of, and shall
be binding upon, the successors and permitted assigns of the parties hereto.
5.7 Captions. The captions to sections of this Agreement have been
--------
inserted for identification and reference purposes only and shall not be used to
construe or interpret this Agreement.
18
<PAGE>
5.8 Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
5.9 Adjustments for Stock Splits, Etc. Wherever in this Agreement
---------------------------------
there is a reference to a specific number of shares of Common Stock or Preferred
Stock of the Company of any class or series, then, upon the occurrence of any
subdivision, combination or stock dividend of such class or series of stock, the
specific number of shares so referenced in this Agreement shall automatically be
proportionally adjusted to reflect the affect on the outstanding shares of such
class or series of stock by such subdivision, combination or stock dividend.
5.10 Aggregation of Stock. All shares held or acquired by affiliated
--------------------
entities or persons shall be aggregated together for the purpose of determining
the availability of any rights under this Agreement.
5.11 Prior Rights Agreement Superseded. Pursuant to Section 4.2 of
---------------------------------
the Prior Rights Agreement, the undersigned parties who are parties to such
Prior Rights Agreement hereby amend and restate the Prior Rights Agreement to
read in its entirety as set forth in this Agreement, all with the intent and
effect that the Prior Rights Agreement shall be hereby be terminated and
entirely replaced and superseded by this Agreement.
[remainder of page intentionally left blank]
19
<PAGE>
In Witness Whereof, the parties hereto have executed this Agreement as of
the date first written above.
THE COMPANY: THE INVESTORS:
- ----------- -------------
By: /S/ CARL T. ANDERSON SOFTBANK CAPITAL PARTNERS LP
(please print name here)
-----
Name: Carl T. Anderson
By: /S/ STEVEN J. MURRAY
Title: Secretary
Address: 2954 Eden Landing Road Name: Steven J. Murray
Hayward, CA 94545 Title: Admin. Member of G.P.
Address: 1188 Centre St.
Newton Center, MA 02459
SOFTBANK CAPITAL ADVISORS FUND LP
(please print name here)
-----
By: /S/ STEVEN J. MURRAY
Name: Steven J. Murray
Title: Admin Member of GP
Address: 1188 Centre St.
Newton, MA 02459
The Putnam Advisory Company, Inc. on behalf
of PUTNAM EMERGING INFORMATION SCIENCES TRUST
S.A.
(please print name here)
-----
By: /S/ JOHN R. VERANI
Name: John R. Verani
Title: Senior Vice President
Address: One Post Office Square
Boston, Massachusetts 02109
[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT]
<PAGE>
THE INVESTORS:
-------------
Putnam Investment Management, Inc. on behalf
of PUTNAM OTC & EMERGING GROWTH FUND
(please print name here)
-----
By: /S/ JOHN R. VERANI
Name: John R. Verani
Title: Senior Vice President
Address: One Post Office Square
Boston, Massachusetts 02109
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
(please print name here)
-----
By: /S/ CHARLES A. MORRIS
Name: Charles A. Morris
Title: President
Address: 100 East Pratt Street
Baltimore, MD 21202
CREDIT SUISSE FIRST BOSTON VENTURE FUND I, LP
(please print name here)
-----
By: /S/ FRANK QUATTRONE
Name: Frank Quattrone
Title: Member
Address: 2400 Hanover Street
Palo Alto, CA 94304
[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENTS]
<PAGE>
THE INVESTORS:
-------------
DLJ ESC II, L.P.
BY: DLJ LBO PLANS MANAGEMENT CORPORATION
(please print name here)
-----
By: /S/ IVY DODES
Name: Ivy Dodes
Title: Vice President
Address: 277 Park Avenue, 23/rd/ Flr.
New York, NY 10172
DLJ FUND INVESTMENT PARTNERS II, L.P.
BY: DLJ LBO PLANS MANAGEMENT CORPORATION
(please print name here)
-----
By: /S/ IVY DODES
Name: Ivy Dodes
Title: Vice President
Address: 277 Park Avenue, 23/rd/ Flr.
New York, NY 10172
DLJ PRIVATE EQUITY EMPLOYEES FUND, L.P.
BY: DLJ LBO PLANS MANAGEMENT CORPORATION
(please print name here)
-----
By: /S/ IVY DODES
Name: Ivy Dodes
Title: Vice President
Address: 277 Park Avenue, 23/rd/ Flr.
New York, NY 10172
[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT]
<PAGE>
THE INVESTORS:
-------------
DLJ PRIVATE EQUITY PARTNERS FUND, L.P.
BY: WSW CAPITAL, INC.
(please print name here)
-----
By: /S/ IVY DODES
Name: Ivy Dodes
Title: Vice President
Address: 277 Park Avenue, 23/rd/ Flr.
New York, NY 10172
JEFFREY C. HINES
(please print name here)
-----
By: /S/ JEFFREY C. HINES
Name: Jeffrey C. Hines
Title:
Address: 3415 Sleepy Hollow Court
Houston, Texas 77019
JAMES C. BUIE, JR.
(please print name here)
-----
By: /S/ JAMES C. BUIE, JR.
Name: James C. Buie, Jr.
Title:
Address:. 118 Winding Way, PO Box 1043
Ross, CA 94957-1043
[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT]
<PAGE>
THE INVESTORS:
-------------
DOUGLAS G. HOLTE
(please print name here)
------
By: /S/ DOUGLAS G. HOLTE
Name: Douglas G. Holte
Title:
Address: 910 Chautauqua Blvd.
LA, CA 90272
COLIN P. SHEPHERD
(please print name here)
-----
By: /S/ COLIN P. SHEPHERD
Name: Colin P. Shepherd
Title: Senior Vice President
Address: 601 S. Figueroa St., #3860
Los Angeles, CA 90017
JAMES A. MORRISON
(please print name here)
-----
By: /S/ JAMES A. MORRISON
Name: James A. Morrison
Title:
Address:. 501 Oak Avenue
San Anselmo, CA 94960
[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENTS]
<PAGE>
THE INVESTORS:
-------------
PAYDAY INVESTMENTS LLC
(please print name here)
-----
By: /S/ JOHN PETTWAY
Name: John Pettway
Title: Manager
Address: 700 Bitner Road
Park City, UT 84098
52/nd/ STREET ASSOCIATES, INC.
(please print name here)
-----
By: /S/ LETA APPLEGATE
Name: Leta Applegate
Title: Assistant Secretary
Address: 55 East 52/nd/ St. 27/th/ floor
New York, NY 10022
WINTHER VENTURES LLC
(please print name here)
-----
By: /S/ STEVE ABBOT
Name: Steve Abbot
Title: Managing Member
Address:. 72 Mercury Ave.
Tiburon, CA 94920
[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE>
THE INVESTORS:
-------------
MARK H. SHERMAN
(please print name here)
-----
By: /S/ MARK H. SHERMAN
Name: Mark H. Sherman
Title: Managing Director
Address: 2506 Union
SF 94123
LOWELL SINGER
(please print name here)
-----
By: /S/ LOWELL J. SINGER
Name: Lowell J. Singer
Title:
Address: 2600 Buchanan St.
San Francisco, CA 94115
EARLYBIRD PRESEED BETEINGUNGS-KGNR. 7
(please print name here)
-----
By: /S/ ROLF MATHES
Name: Rolf Mathes
Title: Managing Director
Address:. Maximilianstr. 14
80539 Munchen, Germany
[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE>
THE INVESTORS:
-------------
WALDEN MEDIA AND INFORMATION
TECHNOLOGY FUND, L.P.
(please print name here)
-----
By: /S/ STEVE ESKENAZI
Name: Steve Eskenazi
Title: Manager
Address: 750 Battery St. 7th Floor
San Francisco, CA 94111
TMCT VENTURES, LP
UNDER MANAGEMENT BY RUSTIC
CANYON PARTNERS, LLC
(please print name here)
-----
By: /S/ MICHAEL SONG
Name: Michael Song
Title: Partner
Address: 2425 Olympic Blvd., Suite 6050W
Santa Monica, CA 90404
(please print name here)
-----
By: /S/ JOHN F. SHOCH
Name: John F. Shoch
Title: Managing Member of Alloy Ventures
1999, LLC the general partner of AMA 98
Partners, L.P., AMA98 Ventures, LP, AMA98
Corporate, L.P., AMA98 Investors, L.P.
Address:
[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE>
THE INVESTORS:
-------------
TECHNOLOGY PARTNERS FUND VI, LP
TP MANAGEMENT VI, LLC
(please print name here)
-----
By: /S/ IRA EHRENPREIS
Name: Ira Ehrenpreis
Title: Managing Member
Address: 1550 Tiburon Blvd., Suite A
Belvedere, CA 94920
SELIGMAN COMMUNICATIONS AND
INFORMATION FUND, INC.
BY: J&W SELIGMAN CO.
INCORPORATED, ITS INVESTMENT
ADVISORY
(please print name here)
-----
By: /S/ RICHARD R. SCHMALTZ
Name: Richard R. Schmaltz
Title: Managing Director
Address: 100 Park Ave. 8th Floor
New York, NY 10017
Att: James M. Curtis
[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE>
THE INVESTORS:
-------------
SELIGMAN NEW TECHNOLOGIES FUND, INC.
BY: J&W SELIGMAN CO.
INCORPORATED, ITS INVESTMENT
ADVISORY
(please print name here)
-----
By: /S/ RICHARD R. SCHMALTZ
Name: Richard R. Schmaltz
Title: Managing Director
Address: 100 Park Ave. 8th Floor
New York, NY 10017
Att: James M. Curtis
SELIGMAN INVESTMENT
OPPORTUNITIES (MASTER) FUND-NTV
PORTFOLIO
BY: J&W SELIGMAN & CO.
INCORPORATED, ITS INVESTMENT
ADVISORY
(please print name here)
-----
By: /S/ RICHARD R. SCHMALTZ
Name: Richard R. Schmaltz
Title: Managing Director
Address: 100 Park Ave. 8th Floor
New York, NY 10017
Att: James M. Curtis
[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE>
THE INVESTORS:
--------------
PARTECH U.S. PARTNERS III C.V.
AXA. GROWTH FUND LLC
PARALLEL CAPITAL I LLC
PARALLEL CAPITAL II LLC
DOUBLE BLACK DIAMOND II LLC
45TH PARALLEL LLC
MULTINVEST LLC
ALMANORI LIMITED
(please print name here)
-----
By: /S/ VINCENT WORMS
Name: Vincent Worms
Title: General Partner/Managing
Member/Attorney-in-fact
Address: 50 California Street, Suite 3200
San Francisco, CA 94111
F&W INVESTMENTS 2000
(please print name here)
-----
By: /S/ LAIRD H. SIMONS III
Name: Laird H. Simons III
Title: Partner
Address: Two Palo Alto Square
Palo Alto CA 94306
[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE>
THE INVESTORS:
-------------
PIDWELL INVESTMENTS LLC
(please print name here)
-----
By: /S/ DAVID W. PIDWELL
Name: David W. Pidwell
Title: Manager
Address: 20628 Vickery Lane
Saratoga, CA 95070
DAVID BECKMAN -ROBERTSON
(please print name here)
-----
By: /S/ D.B. ROBERTSON
Name: David Beckman-Robertson
Title:
Address:
DANA H. ABER
(please print name here)
-----
By: /S/ DANA H. ABER
Name: Dana H. Aber
Title: Director of Sales - West Coast
Address: 2100 Mar East
Tiburon, CA 94920
[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE>
THE INVESTORS:
-------------
MAURO CALVI
(please print name here)
-----
By: /S/ MAURO CALVI
Name: Mauro Calvi
Title: VP International
Address: 35 Pear Court
Hillsborough, CA 94010
JAN DANIEL
(please print name here)
-----
By: /S/ JAN DANIEL
Name: Jan Daniel
Title: VP HR
Address: 2108 Blackwood Dr.
Walnut Creek, CA 94596
PAMELA DAY
(please print name here)
-----
By: /S/ PAMELA DAY
Name: Pamela Day
Title:
Address:
[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE>
THE INVESTORS:
-------------
JOSEPH M. FELIU, PATRICIA E. FELIU
(please print name here)
-----
By: /S/ JOSEPH M. FELIU
PATRICIA E. FELIU
Name: Joseph M. Feliu, Patricia E. Feliu
Title: VP Operations
Address: 544 Gabilan St.
Los Altos, CA 94022
MICHAEL D. FLOYD
(please print name here)
-----
By: /S/ MICHAEL D. FLOYD
Name: Michael D. Floyd
Title: Software Engineer
Address: 1436 Fourth St.
Alameda, CA 94501
LOUIS A. JOHNSTON
(please print name here)
-----
By: /S/ LOUIS A. JOHNSTON
Name: Louis A. Johnston
Title:
Address: 251 Staysail Court
Foster City, CA 94404
[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE>
THE INVESTORS:
-------------
MARISSA R. JOHNSTON
(please print name here)
-----
By: /S/ MARISSA R. JOHNSTON
Name: Marissa R. Johnston
Title:
Address: 251 Staysail Court
Foster City, CA 94404
RICHARD W. JONES
(please print name here)
-----
By: /S/ RICHARD W. JONES
Name: Richard W. Jones
Title:
Address: 3182 Campus Drive #204
San Mateo, CA 94403
FIROOZ KHODADDY
FARIMAH KHODADDY
(please print name here)
-----
By: /S/ FIROOZ KHODADDY
/S/ FARIMAH KHODADDY
Name: Firooz Khodaddy
Title:
Address: 43 Plymouth Ct.
San Ramon, CA 94583
[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE>
THE INVESTORS:
-------------
FARAMARZ MAHDAVI
(please print name here)
-----
By: /S/ FARAMARZ MAHDAVI
Name: Faramarz Mahdavi
Title:
Address: 2425 Alamo Glen Dr.
Alamo, CA 94507
BERNIE AND JACKIE MURPHY
REVOCABLE TRUST
(please print name here)
-----
By: /S/ BERNIE J. MURPHY, TRUSTEE
Name: Bernie J. Murphy, Trustee
Title: VP of Finance, Treasurer
Address: 10 Broadview Dr.
San Rafael, CA 94901
KURT D. RUNKE
(please print name here)
-----
By: /S/ KURT D. RUNKE
Name: Kurt D. Runke
Title:
Address: 1120 Runnymead Dr.
Los Altos, CA 94024
[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE>
THE INVESTORS:
-------------
WILLIAM P. TRENTO
(please print name here)
-----
By: /S/ WILLIAM P. TRENTO
Name: William P. Trento
Title: VP, Community
Address: 1456 10/th/ Ave.
San Francisco, CA 94122
KENT WOLOSON
(please print name here)
-----
By: /S/ KENT WOLOSON
Name: Kent Woloson
Title: Regional VP Sales
Address: 855 W. Erie #122
Chicago, IL 60622
DERICK YEE
(please print name here)
-----
By: /S/ DERICK YEE
Name: Derick Yee
Title:
Address: 4469 Winding River Cir.
Stockton, CA 95219
[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT]
<PAGE>
THE INVESTORS:
-------------
HMS GATEWAY OFFICE, L.P.
(please print name here)
-----
By: /S/ JAMES C. BUIE CF
Name: James C. Buie
Title: EVP
Address: c/o Hines
651 Gateway Blvd. #1140
South San Francisco, CA 94080
[SIGNATURE PAGE TO SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT]
<PAGE>
EXHIBIT A
List of Investors
-----------------
[Can be provided upon request]
<PAGE>
EXHIBIT 10.01
INDEMNITY AGREEMENT
This Indemnity Agreement (this "Agreement"), dated as of March ___, 2000,
is made by and between AllAdvantage.com Inc., a Delaware corporation (the
"Company"), and _________________________, a director and/or officer of the
Company (the "Indemnitee").
RECITALS
A. The Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors or officers of corporations unless
they are protected by comprehensive liability insurance and/or indemnification,
due to increased exposure to litigation costs and risks resulting from their
service to such corporations, and due to the fact that the exposure frequently
bears no reasonable relationship to the compensation of such directors and
officers;
B. Based on their experience as business managers, the Board of Directors
of the Company (the "Board") has concluded that, to retain and attract talented
and experienced individuals to serve as officers and directors of the Company,
and to encourage such individuals to take the business risks necessary for the
success of the Company, it is necessary for the Company contractually to
indemnify officers and directors and to assume for itself maximum liability for
expenses and damages in connection with claims against such officers and
directors in connection with their service to the Company;
C. Section 145 of the General Corporation Law of Delaware, under which the
Company is organized (the "Law"), empowers the Company to indemnify by agreement
its officers, directors, employees and agents, and persons who serve, at the
request of the Company, as directors, officers, employees or agents of other
corporations or enterprises, and expressly provides that the indemnification
provided by the Law is not exclusive; and
D. The Company desires and has requested the Indemnitee to serve or
continue to serve as a director or officer of the Company free from undue
concern for claims for damages arising out of or related to such services to the
Company.
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Definitions.
-----------
1.1 Agent. For the purposes of this Agreement, "agent" of the
-----
Company means any person who is or was a director or officer of the Company or a
subsidiary of the Company; or is or was serving at the request of, for the
convenience of, or to represent the interest of the Company or a subsidiary of
the Company as a director or officer of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise or an affiliate of the
Company; or was a director or officer of a foreign or domestic corporation which
was a predecessor corporation of the Company, including, without limitation,
AllAdvantage.com, a California corporation, or was a director or officer of
another enterprise or affiliate of the Company at the request of, for the
convenience of, or to represent the interests of such
1
<PAGE>
predecessor corporation. The term "enterprise" includes any employee benefit
plan of the Company, its subsidiaries, affiliates and predecessor corporations.
1.2 Expenses. For purposes of this Agreement, "expenses" includes
--------
all direct and indirect costs of any type or nature whatsoever (including,
without limitation, all attorneys' fees and related disbursements and other out-
of-pocket costs) actually and reasonably incurred by the Indemnitee in
connection with the investigation, defense or appeal of a proceeding or
establishing or enforcing a right to indemnification or advancement of expenses
under this Agreement, Section 145 or otherwise; provided, however, that expenses
-------- -------
shall not include any judgments, fines, ERISA excise taxes or penalties or
amounts paid in settlement of a proceeding.
1.3 Proceeding. For the purposes of this Agreement, "proceeding"
----------
means any threatened, pending or completed action, suit or other proceeding,
whether civil, criminal, administrative, investigative or any other type
whatsoever.
1.4 Subsidiary. For purposes of this Agreement, "subsidiary" means
----------
any corporation of which more than fifty percent (50%) of the outstanding voting
securities is owned directly or indirectly by the Company, by the Company and
one or more of its subsidiaries or by one or more of the Company's subsidiaries.
2. Agreement to Serve. The Indemnitee agrees to serve and/or continue to
------------------
serve as an agent of the Company, at the will of the Company (or under separate
agreement, if such agreement exists), in the capacity the Indemnitee currently
serves as an agent of the Company, faithfully and to the best of his ability, so
long as he is duly appointed or elected and qualified in accordance with the
applicable provisions of the charter documents of the Company or any subsidiary
of the Company; provided, however, that the Indemnitee may at any time and for
-------- -------
any reason resign from such position (subject to any contractual obligation that
the Indemnitee may have assumed apart from this Agreement), and the Company or
any subsidiary shall have no obligation under this Agreement to continue the
Indemnitee in any such position.
3. Directors' and Officers' Insurance. The Company shall, to the extent
----------------------------------
that the Board determines it to be economically reasonable, maintain a policy of
directors' and officers' liability insurance ("D&O Insurance"), on such terms
and conditions as may be approved by the Board.
4. Mandatory Indemnification. Subject to Section 9 below, the Company
-------------------------
shall indemnify the Indemnitee:
4.1 Third Party Actions. If the Indemnitee is a person who was or is
-------------------
a party or is threatened to be made a party to any proceeding (other than an
action by or in the right of the Company) by reason of the fact that he is or
was an agent of the Company, or by reason of anything done or not done by him in
any such capacity, against any and all expenses and liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
or penalties and amounts paid in settlement) actually and reasonably incurred by
him in connection with the investigation, defense, settlement or appeal of such
proceeding if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Company and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful.
2
<PAGE>
4.2 Derivative Actions. If the Indemnitee is a person who was or is
------------------
a party or is threatened to be made a party to any proceeding by or in the right
of the Company to procure a judgment in its favor by reason of the fact that he
is or was an agent of the Company, or by reason of anything done or not done by
him in any such capacity, against any amounts paid in settlement of any such
proceeding and all expenses actually and reasonably incurred by him in
connection with the investigation, defense, settlement or appeal of such
proceeding if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Company; except that no
------
indemnification under this subsection shall be made in respect of any claim,
issue or matter as to which such person shall have been finally adjudged to be
liable to the Company by a court of competent jurisdiction due to willful
misconduct of a culpable nature in the performance of his duty to the Company,
unless and only to the extent that the Court of Chancery or the court in which
such proceeding was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such amounts which the
Court of Chancery or such other court shall deem proper.
4.3 Exception for Amounts Covered by Insurance. Notwithstanding the
------------------------------------------
foregoing, the Company shall not be obligated to indemnify the Indemnitee for
expenses or liabilities of any type whatsoever (including, but not limited to,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) to the extent such have been paid directly to the Indemnitee by D&O
Insurance.
5. Partial Indemnification and Contribution.
----------------------------------------
5.1 Partial Indemnification. If the Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines, ERISA excise taxes or penalties and amounts
paid in settlement) incurred by him in the investigation, defense, settlement or
appeal of a proceeding but is not entitled, however, to indemnification for all
of the total amount thereof, then the Company shall nevertheless indemnify the
Indemnitee for such total amount except as to the portion thereof to which the
Indemnitee is not entitled to indemnification.
5.2 Contribution. If the Indemnitee is not entitled to the
------------
indemnification provided in Section 4 for any reason other than the statutory
limitations set forth in the Law, then in respect of any threatened, pending or
completed proceeding in which the Company is jointly liable with the Indemnitee
(or would be if joined in such proceeding), the Company shall contribute to the
amount of expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred and paid or payable by the
Indemnitee in such proportion as is appropriate to reflect (i) the relative
benefits received by the Company on the one hand and the Indemnitee on the other
hand from the transaction from which such proceeding arose and (ii) the relative
fault of the Company on the one hand and of the Indemnitee on the other hand in
connection with the events which resulted in such expenses, judgments, fines or
settlement amounts, as well as any other relevant equitable considerations. The
relative fault of the Company on the one hand and of the Indemnitee on the other
hand shall be determined by reference to, among other things, the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent the circumstances resulting in such expenses,
3
<PAGE>
judgments, fines or settlement amounts. The Company agrees that it would not be
just and equitable if contribution pursuant to this Section 5 were determined by
pro rata allocation or any other method of allocation which does not take
account of the foregoing equitable considerations.
6. Mandatory Advancement of Expenses.
---------------------------------
6.1 Advancement. Subject to Section 9 below, the Company shall
-----------
advance all expenses incurred by the Indemnitee in connection with the
investigation, defense, settlement or appeal of any proceeding to which the
Indemnitee is a party or is threatened to be made a party by reason of the fact
that the Indemnitee is or was an agent of the Company or by reason of anything
done or not done by him in any such capacity. The Indemnitee hereby undertakes
to promptly repay such amounts advanced only if, and to the extent that, it
shall ultimately be determined that the Indemnitee is not entitled to be
indemnified by the Company under the provisions of this Agreement, the
Certificate of Incorporation or Bylaws of the Company, the Law or otherwise.
The advances to be made hereunder shall be paid by the Company to the Indemnitee
within thirty (30) days following delivery of a written request therefor by the
Indemnitee to the Company.
6.2 Exception. Notwithstanding the foregoing provisions of this
---------
Section 6, the Company shall not be obligated to advance any expenses to the
Indemnitee arising from a lawsuit filed directly by the Company against the
Indemnitee if an absolute majority of the members of the Board reasonably
determines in good faith, within thirty (30) days of the Indemnitee's request to
be advanced expenses, that the facts known to them at the time such
determination is made demonstrate clearly and convincingly that the Indemnitee
acted in bad faith. If such a determination is made, the Indemnitee may have
such decision reviewed by another forum, in the manner set forth in Sections
8.3, 8.4 and 8.5 hereof, with all references therein to "indemnification" being
deemed to refer to "advancement of expenses," and the burden of proof shall be
on the Company to demonstrate clearly and convincingly that, based on the facts
known at the time, the Indemnitee acted in bad faith. The Company may not avail
itself of this Section 6.2 as to a given lawsuit if, at any time after the
occurrence of the activities or omissions that are the primary focus of the
lawsuit, the Company has undergone a change in control. For this purpose, a
change in control shall mean a given person or group of affiliated persons or
groups increasing their beneficial ownership interest in the Company by at least
twenty (20) percentage points without advance Board approval.
7. Notice and Other Indemnification Procedures.
-------------------------------------------
7.1 Promptly after receipt by the Indemnitee of notice of the
commencement of or the threat of commencement of any proceeding, the Indemnitee
shall, if the Indemnitee believes that indemnification with respect thereto may
be sought from the Company under this Agreement, notify the Company of the
commencement or threat of commencement thereof.
7.2 If, at the time of the receipt of a notice of the commencement of
a proceeding pursuant to Section 7.1 hereof, the Company has D&O Insurance in
effect, the Company shall give prompt notice of the commencement of such
proceeding to the insurers in accordance with the procedures set forth in the
respective policies. The Company shall thereafter take all necessary or
desirable action to cause such insurers to pay, on behalf of the Indemnitee,
4
<PAGE>
all amounts payable as a result of such proceeding in accordance with the terms
of such D&O Insurance policies.
7.3 In the event the Company shall be obligated to advance the
expenses for any proceeding against the Indemnitee, the Company, if appropriate,
shall be entitled to assume the defense of such proceeding, with counsel
approved by the Indemnitee (which approval shall not be unreasonably withheld),
upon the delivery to the Indemnitee of written notice of its election to do so.
After delivery of such notice, approval of such counsel by the Indemnitee and
the retention of such counsel by the Company, the Company will not be liable to
the Indemnitee under this Agreement for any fees of counsel subsequently
incurred by the Indemnitee with respect to the same proceeding, provided that:
--------
(a) the Indemnitee shall have the right to employ his own counsel in any such
proceeding at the Indemnitee's expense; (b) the Indemnitee shall have the right
to employ his own counsel in connection with any such proceeding, at the expense
of the Company, if such counsel serves in a review, observer, advice and
counseling capacity and does not otherwise materially control or participate in
the defense of such proceeding; and (c) if (i) the employment of counsel by the
Indemnitee has been previously authorized by the Company, (ii) the Indemnitee
shall have reasonably concluded that there may be a conflict of interest between
the Company and the Indemnitee in the conduct of any such defense or (iii) the
Company shall not, in fact, have employed counsel to assume the defense of such
proceeding, then the fees and expenses of the Indemnitee's counsel shall be at
the expense of the Company.
8. Determination of Right to Indemnification.
-----------------------------------------
8.1 To the extent the Indemnitee has been successful on the merits or
otherwise in defense of any proceeding referred to in Section 4.1 or 4.2 of this
Agreement or in the defense of any claim, issue or matter described therein, the
Company shall indemnify the Indemnitee against expenses actually and reasonably
incurred by him in connection with the investigation, defense or appeal of such
proceeding, or such claim, issue or matter, as the case may be.
8.2 In the event that Section 8.1 is inapplicable, or does not apply
to the entire proceeding, the Company shall nonetheless indemnify the Indemnitee
unless the Company shall prove by clear and convincing evidence to a forum
listed in Section 8.3 below that the Indemnitee has not met the applicable
standard of conduct required to entitle the Indemnitee to such indemnification.
8.3 The Indemnitee shall be entitled to select the forum in which the
validity of the Company's claim under Section 8.2 hereof that the Indemnitee is
not entitled to indemnification will be heard from among the following, except
------
that the Indemnitee can select a forum consisting of the stockholders of the
Company only with the approval of the Company:
(a) A quorum of the Board consisting of directors who are not
parties to the proceeding for which indemnification is being sought;
(b) The stockholders of the Company;
(c) Legal counsel mutually agreed upon by the Indemnitee and the
Board, which counsel shall make such determination in a written opinion;
5
<PAGE>
(d) A panel of three arbitrators, one of whom is selected by the
Company, another of whom is selected by the Indemnitee and the last of whom is
selected by the first two arbitrators so selected; or
(e) The Court of Chancery of Delaware or other court having
jurisdiction of subject matter and the parties.
8.4 As soon as practicable, and in no event later than thirty (30)
days after the forum has been selected pursuant to Section 8.3 above, the
Company shall, at its own expense, submit to the selected forum its claim that
the Indemnitee is not entitled to indemnification, and the Company shall act in
the utmost good faith to assure the Indemnitee a complete opportunity to defend
against such claim.
8.5 If the forum selected in accordance with Section 8.3 hereof is
not a court, then after the final decision of such forum is rendered, the
Company or the Indemnitee shall have the right to apply to the Court of Chancery
of Delaware, the court in which the proceeding giving rise to the Indemnitee's
claim for indemnification is or was pending or any other court of competent
jurisdiction, for the purpose of appealing the decision of such forum, provided
--------
that such right is executed within sixty (60) days after the final decision of
such forum is rendered. If the forum selected in accordance with Section 8.3
hereof is a court, then the rights of the Company or the Indemnitee to appeal
any decision of such court shall be governed by the applicable laws and rules
governing appeals of the decision of such court.
8.6 Notwithstanding any other provision in this Agreement to the
contrary, the Company shall indemnify the Indemnitee against all expenses
incurred by the Indemnitee in connection with any hearing or proceeding under
this Section 8 involving the Indemnitee and against all expenses incurred by the
Indemnitee in connection with any other proceeding between the Company and the
Indemnitee involving the interpretation or enforcement of the rights of the
Indemnitee under this Agreement unless a court of competent jurisdiction finds
that each of the material claims and/or defenses of the Indemnitee in any such
proceeding was frivolous or not made in good faith.
9. Exceptions. Any other provision herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
9.1 Claims Initiated by Indemnitee. To indemnify or advance expenses
------------------------------
to the Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by the Indemnitee and not by way of defense, except with respect to
------
proceedings specifically authorized by the Board or brought to establish or
enforce a right to indemnification and/or advancement of expenses arising under
this Agreement, the charter documents of the Company or any subsidiary or any
statute or law or otherwise, but such indemnification or advancement of expenses
may be provided by the Company in specific cases if the Board finds it to be
appropriate; or
9.2 Unauthorized Settlements. To indemnify the Indemnitee hereunder
------------------------
for any amounts paid in settlement of a proceeding unless the Company consents
in advance in writing to such settlement, which consent shall not be
unreasonably withheld; or
6
<PAGE>
9.3 Securities Law Actions. To indemnify the Indemnitee on account
----------------------
of any suit in which judgment is rendered against the Indemnitee for an
accounting of profits made from the purchase or sale by the Indemnitee of
securities of the Company pursuant to the provisions of Section l6(b) of the
Securities Exchange Act of 1934 and amendments thereto or similar provisions of
any federal, state or local statutory law; or
9.4 Unlawful Indemnification. To indemnify the Indemnitee if a final
------------------------
decision by a court having jurisdiction in the matter shall determine that such
indemnification is not lawful. In this respect, the Company and the Indemnitee
have been advised that the Securities and Exchange Commission takes the position
that indemnification for liabilities arising under the federal securities laws
is against public policy and is, therefore, unenforceable and that claims for
indemnification should be submitted to appropriate courts for adjudication.
10. Non-Exclusivity. The provisions for indemnification and advancement
---------------
of expenses set forth in this Agreement shall not be deemed exclusive of any
other rights which the Indemnitee may have under any provision of law, the
Company's Certificate of Incorporation or Bylaws, the vote of the Company's
stockholders or disinterested directors, other agreements or otherwise, both as
to action in the Indemnitee's official capacity and to action in another
capacity while occupying his position as an agent of the Company, and the
Indemnitee's rights hereunder shall continue after the Indemnitee has ceased
acting as an agent of the Company and shall inure to the benefit of the heirs,
executors and administrators of the Indemnitee.
11. General Provisions.
------------------
11.1 Interpretation of Agreement. It is understood that the parties
---------------------------
hereto intend this Agreement to be interpreted and enforced so as to provide
indemnification and advancement of expenses to the Indemnitee to the fullest
extent now or hereafter permitted by law, except as expressly limited herein.
11.2 Severability. If any provision or provisions of this Agreement
------------
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
then: (a) the validity, legality and enforceability of the remaining provisions
of this Agreement (including, without limitation, all portions of any paragraphs
of this Agreement containing any such provision held to be invalid, illegal or
unenforceable that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby; and (b) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraphs of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable and to give
effect to Section 11.1 hereof.
11.3 Modification and Waiver. No supplement, modification or
-----------------------
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar), nor shall such waiver constitute a continuing waiver.
7
<PAGE>
11.4 Subrogation. In the event of full payment under this Agreement,
-----------
the Company shall be subrogated to the extent of such payment to all of the
rights of recovery of the Indemnitee, who shall execute all documents required
and shall do all acts that may be necessary or desirable to secure such rights
and to enable the Company effectively to bring suit to enforce such rights.
11.5 Counterparts. This Agreement may be executed in one or more
------------
counter-parts, which shall together constitute one agreement.
11.6 Successors and Assigns. The terms of this Agreement shall bind,
----------------------
and shall inure to the benefit of, the successors and assigns of the parties
hereto.
11.7 Notice. All notices, requests, demands and other communications
------
under this Agreement shall be in writing and shall be deemed duly given: (a) if
delivered by hand and signed for by the party addressee; or (b) if mailed by
certified or registered mail, with postage prepaid, on the third business day
after the mailing date. Addresses for notice to either party are as shown on
the signature page of this Agreement or as subsequently modified by written
notice.
11.8 Governing Law. This Agreement shall be governed exclusively by
-------------
and construed according to the laws of the State of California, as applied to
contracts between California residents entered into and to be performed entirely
within California.
11.9 Consent to Jurisdiction. The Company and the Indemnitee each
-----------------------
hereby irrevocably consent to the jurisdiction of the courts of the State of
California for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement.
11.10 Attorneys' Fees. In the event Indemnitee is required to bring
---------------
any action to enforce rights under this Agreement (including, without
limitation, the expenses of any Proceeding described in Section 3), the
Indemnitee shall be entitled to all reasonable fees and expenses in bringing and
pursuing such action, unless a court of competent jurisdiction finds each of the
material claims of the Indemnitee in any such action was frivolous and not made
in good faith.
[Remainder of Page Intentionally Left Blank]
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this Indemnity
Agreement effective as of the date first written above.
ALLADVANTAGE.COM INC. INDEMNITEE:
By:___________________________ By:___________________________
Name:_________________________ Name:_________________________
Title:________________________
9
<PAGE>
EXHIBIT 10.03
ALLADVANTAGE.COM
2000 EQUITY INCENTIVE PLAN
As Adopted on January 25, 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 and Restricted Stock. Capitalized terms not defined
in the text are defined in Section 22 hereof. This Plan is intended to be a
written compensatory benefit plan within the meaning of Rule 701 promulgated
under the Securities Act.
2. SHARES SUBJECT TO THE PLAN.
--------------------------
2.1 Number of Shares Available. Subject to Sections 2.2 and 17
--------------------------
hereof, the total number of Shares reserved and available for grant and issuance
pursuant to this Plan will be 7,361,317 Shares or such lesser number of Shares
as permitted under Section 260.140.45 of Title 10 of the California Code of
Regulations. Subject to Sections 2.2, 5.10 and 17 hereof, Shares subject to
Awards previously granted will again be available for grant and issuance in
connection with future Awards under this Plan to the extent such Shares: (i)
cease to be subject to issuance upon exercise of an Option, other than due to
exercise of such Option; (ii) are subject to an Award granted hereunder but the
Shares subject to such Award are forfeited or repurchased by the Company at the
original issue price; or (iii) are subject to an Award that otherwise terminates
without Shares being issued. At all times the Company will reserve and keep
available a sufficient number of Shares as will be required to satisfy the
requirements of all Awards granted and outstanding under this Plan.
2.2 Adjustment of Shares. In the event that the number of
--------------------
outstanding shares of the Company's Common Stock 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 (i) the number of Shares reserved for issuance under
this Plan, (ii) the Exercise Prices of and number of Shares subject to
outstanding Options and (iii) the Purchase Prices of and number of Shares
subject to other outstanding Awards will be proportionately adjusted, subject to
any required action by the Board or the shareholders of the Company and
compliance with applicable securities laws; provided, however, that fractions of
a Share will not be issued but will either be paid in cash at the Fair Market
Value of such fraction of a Share or will be rounded down to the nearest whole
Share, as determined by the Committee.
3. ELIGIBILITY. ISOs (as defined in Section 5 hereof) 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. NQSOs (as defined in
Section 5 hereof) and Restricted Stock Awards may be granted to employees,
officers, directors and consultants of the Company or any Parent or Subsidiary
of the Company; provided such consultants render bona fide services
1
<PAGE>
not in connection with the offer and sale of securities in a capital-raising
transaction. A person may be granted more than one Award under this Plan.
4. ADMINISTRATION.
--------------
4.1 Committee Authority. This Plan will be administered by the
-------------------
Committee or the Board if no Committee is created by the Board. 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.
Without limitation, 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;
(c) approve 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 awards under any other incentive
or compensation plan of the Company or any Parent or Subsidiary
of the Company;
(g) grant waivers of any conditions of this Plan or any Award;
(h) determine the terms of vesting, exercisability and payment of
Awards;
(i) correct any defect, supply any omission, or reconcile any
inconsistency in this Plan, any Award, any Award Agreement, any
Exercise Agreement or any Restricted Stock Purchase Agreement;
(j) determine whether an Award has been earned;
(k) make all other determinations necessary or advisable for the
administration of this Plan; and
(l) extend the vesting period beyond a Participant's Termination
Date.
4.2 Committee Discretion. Unless in contravention of any express
--------------------
terms of this Plan or Award, any determination made by the Committee with
respect to any Award will be made in its sole discretion either (i) at the time
of grant of the Award, or (ii) subject to Section 5.9 hereof, at any later time.
Any 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, provided such officer or officers are members of the Board.
2
<PAGE>
5. OPTIONS. The Committee may grant Options to eligible persons
-------
described in Section 3 hereof and will determine whether such Options will be
Incentive Stock Options within the meaning of the Code ("ISOs") 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 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 a
later date is otherwise specified by the Committee. The Stock Option 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 immediately but
---------------
subject to repurchase pursuant to Section 11 hereof or 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 Shareholder") 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. Subject to earlier termination of the
Option as provided herein, each Participant who is not an officer, director or
consultant of the Company or of a Parent or Subsidiary of the Company shall have
the right to exercise an Option granted hereunder at the rate of no less than
twenty percent (20%) per year over five (5) years from the date such Option is
granted.
5.4 Exercise Price. The Exercise Price of an Option will be
--------------
determined by the Committee when the Option is granted and may not be less than
eighty-five percent (85%) of the Fair Market Value of the Shares on the date of
grant; provided that (i) the Exercise Price of an ISO will not be less than one
hundred percent (100%) of the Fair Market Value of the Shares on the date of
grant and (ii) the Exercise Price of any Option granted to a Ten Percent
Shareholder will not be less than one hundred ten percent (110%) of the Fair
Market Value of the Shares on the date of grant. Payment for the Shares
purchased must be made in accordance with Section 7 hereof.
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). The Exercise Agreement will state (i) the number of Shares
being purchased, (ii) the restrictions imposed on the Shares purchased under
such Exercise Agreement, if any, and (iii) such representations and
3
<PAGE>
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. Participant shall execute and deliver to
the Company the Exercise Agreement together with payment in full of the Exercise
Price, and any applicable taxes, for the number of Shares being purchased.
5.6 Termination. Subject to earlier termination pursuant to Sections
-----------
17 and 18 hereof and 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 other than death,
Disability or for Cause, then the Participant may exercise such
Participant's Options only to the extent that such Options are
exercisable upon the Termination Date or as otherwise determined
by the Committee. Such Options must be exercised by the
Participant, if at all, as to all or some of the Vested Shares
calculated as of the Termination Date or such other date
determined by the Committee, within three (3) months after the
Termination Date (or within such shorter time period, not less
than thirty (30) days, or within such longer time period, not
exceeding five (5) years, after the Termination Date 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), then Participant's
Options may be exercised only to the extent that such Options are
exercisable by Participant on the Termination Date or as
otherwise determined by the Committee. Such options must be
exercised by Participant (or Participant's legal representative
or authorized assignee), if at all, as to all or some of the
Vested Shares calculated as of the Termination Date or such other
date determined by the Committee, within twelve (12) months after
the Termination Date (or within such shorter time period, not
less than six (6) months, or within such longer time period, not
exceeding five (5) years, after the Termination Date as may be
determined by the Committee, with any exercise beyond (i) three
(3) months after the Termination Date when the Termination is for
any reason other than the Participant's death or disability,
within the meaning of Section 22(e)(3) of the Code, or (ii)
twelve (12) months after the Termination Date when the
Termination is for Participant's disability, within the meaning
of Section 22(e)(3) of the Code, deemed to be an NQSO) but in any
event no later than the expiration date of the Options.
(c) If the Participant is terminated for Cause, then Participant's
Options shall expire on such Participant's Termination Date, or
at such later time and on such conditions as are determined by
the Committee.
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
4
<PAGE>
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 ISOs. The aggregate Fair Market Value
-------------------
(determined as of the date of grant) of Shares with respect to which ISOs 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 or any
Parent or Subsidiary of the Company) will not exceed One Hundred Thousand
Dollars ($100,000). If the Fair Market Value of Shares on the date of grant with
respect to which ISOs are exercisable for the first time by a Participant during
any calendar year exceeds One Hundred Thousand Dollars ($100,000), then the
Options for the first One Hundred Thousand Dollars ($100,000) worth of Shares to
become exercisable in such calendar year will be ISOs and the Options for the
amount in excess of One Hundred Thousand Dollars ($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 (as
defined in Section 18 hereof) to provide for a different limit on the Fair
Market Value of Shares permitted to be subject to ISOs, then 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. Subject to Section 5.10 hereof, the Committee may reduce the
Exercise Price of outstanding Options without the consent of Participants 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 hereof 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 ISOs 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, to disqualify any Participant's 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 certain specified
restrictions. The Committee will determine to whom an offer will be made, the
number of Shares the person may purchase, 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 Restricted Stock Award 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
5
<PAGE>
Purchase Agreement is 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 such 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 and will be at least
eighty-five percent (85%) of the Fair Market Value of the Shares on the date the
Restricted Stock Award is granted or at the time the purchase is consummated,
except in the case of a sale to a Ten Percent Shareholder, in which case the
Purchase Price will be one hundred percent (100%) of the Fair Market Value on
the date the Restricted Stock Award is granted or at the time the purchase is
consummated. Payment of the Purchase Price must be made in accordance with
Section 7 hereof.
6.3 Restrictions. Restricted Stock Awards may be subject to the
------------
restrictions set forth in Section 11 hereof or such other restrictions as the
Committee may impose.
7. PAYMENT FOR SHARE PURCHASES.
---------------------------
7.1 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 owed to the
Participant;
(b) by surrender of shares that: (i) either (A) 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 (B) were
obtained by Participant in the public market and (ii) are clear
of all liens, claims, encumbrances or security interests;
(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 from
the Company 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:
(i) 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
6
<PAGE>
Shares so purchased sufficient to pay the total Exercise
Price, and whereby the NASD Dealer irrevocably commits upon
receipt of such Shares to forward the total Exercise Price
directly to the Company; or
(ii) through a "margin" commitment from the Participant and an
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 total Exercise
Price, and whereby the NASD Dealer irrevocably commits upon
receipt of such Shares to forward the total Exercise Price
directly to the Company; or
(f) by any combination of the foregoing.
7.2 Loan Guarantees. The Committee may, in its sole discretion,
---------------
elect to assist the Participant in paying for Shares purchased under this Plan
by authorizing a guarantee by the Company of a third-party loan to the
Participant.
8. WITHHOLDING TAXES.
-----------------
8.1 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 by the Company, such
payment will be net of an amount sufficient to satisfy federal, state, and local
withholding tax requirements.
8.2 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 for such elections and be in writing in a form
acceptable to the Committee.
9. PRIVILEGES OF STOCK OWNERSHIP.
-----------------------------
9.1 Voting and Dividends. No Participant will have any of the rights
--------------------
of a shareholder 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 shareholder and have all the rights of a shareholder 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
7
<PAGE>
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. The
Participant will have no right to retain such stock dividends or stock
distributions with respect to Unvested Shares that are repurchased pursuant to
Section 11 hereof. The Company will comply with Section 260.140.1 of Title 10 of
the California Code of Regulations with respect to the voting rights of Common
Stock.
9.2 Financial Statements. The Company will provide financial
--------------------
statements to each Participant annually during the period such Participant has
Awards outstanding, or as otherwise required under Section 260.140.46 of Title
10 of the California Code of Regulations. Notwithstanding the foregoing, the
Company will not be required to provide such financial statements to
Participants when issuance is limited to key employees whose services in
connection with the Company assure them access to equivalent information.
10. TRANSFERABILITY. Awards granted under this Plan, and any interest
---------------
therein, will not be transferable or assignable by Participant, other than by
will or by the laws of descent and distribution, and may not be made subject to
execution, attachment or similar process. During the lifetime of the
Participant an Award will be exercisable only by the Participant or
Participant's legal representative and any elections with respect to an Award
may be made only by the Participant or Participant's legal representative.
11. RESTRICTIONS ON SHARES.
----------------------
11.1 Right of First Refusal. At the discretion of the Committee, the
----------------------
Company may reserve to itself and/or its assignee(s) in the Award Agreement a
right of first refusal to purchase all Shares that a Participant (or a
subsequent transferee) may propose to transfer to a third party, provided that
such right of first refusal terminates upon the Company's initial public
offering of Common Stock pursuant to an effective registration statement filed
under the Securities Act.
11.2 Right of Repurchase. 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 Unvested Shares held by a Participant for cash and/or
cancellation of purchase money indebtedness owed to the Company by the
Participant following such Participant's Termination at any time within the
later of ninety (90) days after the Participant's Termination Date and the date
the Participant purchases Shares under the Plan at the Participant's Exercise
Price or Purchase Price, as the case may be, provided that, unless the
Participant is an officer, director or consultant of the Company or of a Parent
or Subsidiary of the Company, such right of repurchase lapses at the rate of no
less than twenty percent (20%) per year over five (5) years from: (a) the date
of grant of the Option or (b) in the case of Restricted Stock, the date the
Participant purchases the Shares.
12. 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.
8
<PAGE>
13. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
------------------------
Participant's Shares set forth in Section 11 hereof, 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.
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.
14. 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 of Common
Stock of the Company (including Restricted Stock) or other consideration, based
on such terms and conditions as the Committee and the Participant may agree.
15. 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 (i) obtaining any approvals from governmental agencies that the
Company determines are necessary or advisable, and/or (ii) compliance with any
exemption, 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
exemption, 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.
16. 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.
9
<PAGE>
17. CORPORATE TRANSACTIONS.
----------------------
17.1 Assumption or Replacement of Awards by Successor or Acquiring
-------------------------------------------------------------
Corporation. In the event of (i) a dissolution or liquidation of the Company,
- -----------
(ii) 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 shareholders of
the Company or their relative stock holdings and the Awards granted under this
Plan are assumed, converted or replaced by the successor or acquiring
corporation, which assumption, conversion or replacement will be binding on all
Participants), (iii) a merger in which the Company is the surviving corporation
but after which the shareholders of the Company immediately prior to such merger
(other than any shareholder which merges with the Company in such merger, or
which owns or controls another corporation which merges with the Company in such
merger) cease to own their shares or other equity interests in the Company, or
(iv) the sale of all or substantially all of the assets of the Company, any or
all outstanding Awards may be assumed, converted or replaced by the successor or
acquiring corporation (if any), which assumption, conversion or replacement will
be binding on all Participants. In the alternative, the successor or acquiring
corporation may substitute equivalent Awards or provide substantially similar
consideration to Participants as was provided to shareholders (after taking into
account the existing provisions of the Awards). The successor or acquiring
corporation may also substitute by issuing, in place of outstanding Shares of
the Company held by the Participant, substantially similar shares or other
property subject to repurchase restrictions and other provisions no less
favorable to the Participant than those which applied to such outstanding Shares
immediately prior to such transaction described in this Section 17.1. In the
event such successor or acquiring corporation (if any) refuses to assume or
substitute Awards, as provided above, pursuant to a transaction described in
this Section 17.1, then notwithstanding any other provision in this Plan to the
contrary, such Awards will expire on such transaction at such time and on such
conditions as the Board will determine.
17.2 Other Treatment of Awards. Subject to any greater rights
-------------------------
granted to Participants under the foregoing provisions of this Section 17, in
the event of the occurrence of any transaction described in Section 17.1 hereof,
any outstanding Awards will be treated as provided in the applicable agreement
or plan of merger, consolidation, dissolution, liquidation or sale of assets.
17.3 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 (i) granting an Award under this Plan in substitution of
such other company's award or (ii) 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
10
<PAGE>
rather than assuming an existing option, such new Option may be granted with a
similarly adjusted Exercise Price.
18. ADOPTION AND SHAREHOLDER APPROVAL. This Plan will become effective on
---------------------------------
the date that it is adopted by the Board (the "Effective Date"). This Plan will
be approved by the shareholders of the Company (excluding Shares issued pursuant
to this Plan), consistent with applicable laws, within twelve (12) months before
or after the Effective Date. Upon the Effective Date, the Board may grant
Awards pursuant to this Plan; provided, however, that: (i) no Option may be
exercised prior to initial shareholder approval of this Plan; (ii) no Option
granted pursuant to an increase in the number of Shares approved by the Board
shall be exercised prior to the time such increase has been approved by the
shareholders of the Company; (iii) in the event that initial shareholder
approval is not obtained within the time period provided herein, all Awards
granted hereunder shall be canceled, any Shares issued pursuant to any Award
shall be canceled and any purchase of Shares issued hereunder shall be
rescinded; and (iv) Awards granted pursuant to an increase in the number of
Shares approved by the Board which increase is not timely approved by
shareholders shall be canceled, any Shares issued pursuant to any such Awards
shall be canceled, and any purchase of Shares subject to any such Award shall be
rescinded.
19. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided
--------------------------
herein, this Plan will terminate ten (10) years from the Effective Date or, if
earlier, the date of shareholder approval. This Plan and all agreements
hereunder shall be governed by and construed in accordance with the laws of the
State of California.
20. AMENDMENT OR TERMINATION OF PLAN. Subject to Section 5.9 hereof, 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 shareholders of the Company, amend this Plan in any
manner that requires such shareholder approval pursuant to the Code or the
regulations promulgated thereunder as such provisions apply to ISO plans.
21. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the
--------------------------
Board, the submission of this Plan to the shareholders 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 other equity awards otherwise than under this
Plan, and such arrangements may be either generally applicable or applicable
only in specific cases.
22. DEFINITIONS. As used in this Plan, the following terms will have the
-----------
following meanings:
"Award" means any award under this Plan, including any Option or
Restricted Stock Award.
"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, including the Stock Option Agreement and
Restricted Stock Agreement.
11
<PAGE>
"Board" means the Board of Directors of the Company.
"Cause" means Termination because of (i) any willful, material
violation by the Participant of any law or regulation applicable to the business
of the Company or a Parent or Subsidiary of the Company, the Participant's
conviction for, or guilty plea to, a felony or a crime involving moral
turpitude, or any willful perpetration by the Participant of a common law fraud,
(ii) the Participant's commission of an act of personal dishonesty which
involves personal profit in connection with the Company or any other entity
having a business relationship with the Company, (iii) any material breach by
the Participant of any provision of any agreement or understanding between the
Company or any Parent or Subsidiary of the Company and the Participant regarding
the terms of the Participant's service as an employee, officer, director or
consultant to the Company or a Parent or Subsidiary of the Company, including
without limitation, the willful and continued failure or refusal of the
Participant to perform the material duties required of such Participant as an
employee, officer, director or consultant of the Company or a Parent or
Subsidiary of the Company, other than as a result of having a Disability, or a
breach of any applicable invention assignment and confidentiality agreement or
similar agreement between the Company or a Parent or Subsidiary of the Company
and the Participant, (iv) Participant's disregard of the policies of the Company
or any Parent or Subsidiary of the Company so as to cause loss, damage or injury
to the property, reputation or employees of the Company or a Parent or
Subsidiary of the Company, or (v) any other misconduct by the Participant which
is materially injurious to the financial condition or business reputation of, or
is otherwise materially injurious to, the Company or a Parent or Subsidiary of
the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the committee created and appointed by the Board to
administer this Plan, or if no committee is created and appointed, the Board.
"Company" means AllAdvantage.com, or any successor corporation.
"Disability" means a disability, whether temporary or permanent,
partial or total, as determined by the Committee.
"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:
(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;
-----------------------
12
<PAGE>
(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 by The Wall
--------
Street Journal (or, if not so reported, as otherwise reported by
--------------
any newspaper or other source as the Board may determine); or
(d) if none of the foregoing is applicable, by the Committee in good
faith.
"Option" means an award of an option to purchase Shares pursuant to
Section 5 hereof.
"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 representing fifty percent (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.
"Plan" means this AllAdvantage.com 2000 Equity Incentive Plan, as
amended from time to time.
"Purchase Price" means the price at which a Participant may purchase
Restricted Stock.
"Restricted Stock" means Shares purchased pursuant to a Restricted
Stock Award.
"Restricted Stock Award" means an award of Shares pursuant to Section
6 hereof.
"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 17 hereof, and
any successor security.
"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
representing fifty percent (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 or consultant to the Company
or a Parent or Subsidiary of the Company. A Participant will 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 ninety (90) days (a) unless
reinstatement (or, in the case of an employee with an ISO, reemployment) upon
the expiration of such leave is guaranteed by contract or statute, or (b) unless
provided otherwise pursuant to formal policy adopted from time to time
13
<PAGE>
to time by the Company's Board and issued and promulgated in writing. In the
case of any Participant on (i) sick leave, (ii) military leave or (iii) an
approved leave of absence, the Committee may make such provisions respecting
suspension of vesting of the Award while on leave from the Company or a Parent
or Subsidiary of the Company 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
Stock 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
2000 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
This Stock Option Agreement (the "Agreement") is made and entered into
as of the date of grant set forth below (the "Date of Grant") by and between
AllAdvantage.com, a California corporation (the "Company"), and the participant
named below (the "Participant"). Capitalized terms not defined herein shall
have the meaning ascribed to them in the Company's 2000 Equity Incentive Plan
(the "Plan").
Participant: __________________________________________
Social Security Number: __________________________________________
Address: __________________________________________
__________________________________________
Total Option Shares: __________________________________________
Exercise Price Per Share: __________________________________________
Date of Grant: __________________________________________
First Vesting Date: __________________________________________
Expiration Date: __________________________________________
(unless earlier terminated under Section 5.6
of the Plan)
Type of Stock Option
(Check one): [ ] Incentive Stock Option
[ ] Nonqualified Stock Option
1. Grant of Option. The Company hereby grants to Participant an
---------------
option (this "Option") to purchase the total number of shares of Common Stock of
the Company set forth above as Total Option Shares (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, the Option is intended to qualify as an "incentive
stock option" (the "ISO") within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
2. Exercise Period.
---------------
2.1 Exercise Period of Option. Provided Participant continues
-------------------------
to provide services to the Company or any Subsidiary or Parent of the Company,
the Option will become vested and exercisable as to portions of the Shares as
follows: (i) this Option shall not vest nor be exercisable with respect to any
of the Shares until the First Vesting Date set forth on
1
<PAGE>
the first page of this Agreement (the "First Vesting Date"); (ii) on the First
Vesting Date the Option will become vested and exercisable as to twenty-five
percent (25%) of the Total Option Shares; and (iii) thereafter at the end of
each full succeeding month after the First Vesting Date the Option will become
vested and exercisable as to an additional 2.0833% of the Total Option Shares
until the Shares are vested with respect to one hundred percent (100%) of the
Shares. If application of the vesting percentage causes a fractional share, such
share shall be rounded down to the nearest whole share for each month except for
the 36th month following the First Vesting Date, at the end of which month this
Option shall become exercisable for the full remainder of the Shares.
2.2 Expiration. The Option shall expire on the Expiration Date
----------
set forth above or earlier as provided in Section 3 below or pursuant to Section
5.6 of the Plan.
3. Termination.
-----------
3.1 Termination for Any Reason Except Death, Disability or
------------------------------------------------------
Cause. If Participant is Terminated for any reason, except death, Disability or
- -----
for Cause, the Option, to the extent (and only to the extent) that it would have
been exercisable by Participant on the Termination Date, may be exercised by
Participant 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 Participant
------------------------------------------
is Terminated because of death or Disability of Participant (or Participant dies
within three (3) months of Termination when Termination is for any reason other
than Participant's Disability or for Cause), the Option, to the extent that it
is exercisable by Participant on the Termination Date, may be exercised by
Participant (or Participant's legal representative) no later than twelve (12)
months after the Termination Date, but in any event no later than the Expiration
Date. Any exercise beyond (i) three (3) months after the Termination Date when
the Termination is for any reason other than the Participant's death or
disability, within the meaning of Section 22(e)(3) of the Code; or (ii) twelve
(12) months after the Termination Date when the termination is for Participant's
disability, within the meaning of Section 22(e)(3) of the Code, is deemed to be
an NQSO.
3.3 Termination for Cause. If Participant is Terminated for
---------------------
Cause, then the Option will expire on Participant's Termination Date, or at such
later time and on such conditions as are determined by the Committee.
3.4 No Obligation to Employ. Nothing in the Plan or this
-----------------------
Agreement shall confer on Participant 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 Participant's employment or other relationship at any time,
with or without Cause.
4. Manner of Exercise.
------------------
4.1 Stock Option Exercise Agreement. To exercise this Option,
-------------------------------
Participant (or in the case of exercise after Participant's death or incapacity,
Participant's
2
<PAGE>
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 Committee
---------
from time to time (the "Exercise Agreement"), which shall set forth, inter alia,
----- ----
(i) Participant's election to exercise the Option, (ii) the number of Shares
being purchased, (iii) any restrictions imposed on the Shares and (iv) any
representations, warranties and agreements regarding Participant's investment
intent and access to information as may be required by the Company to comply
with applicable securities laws. If someone other than Participant exercises the
Option, then such person must submit documentation reasonably acceptable to the
Company verifying that such person has the legal right to exercise the Option.
4.2 Limitations on Exercise. The 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. The Option may
not be exercised as to fewer than one hundred (100) Shares unless it is
exercised as to all Shares as to which the 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
Participant;
(b) by surrender of shares of the Company's Common Stock that (i)
either (A) 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 (B) were obtained by Participant in the open
public market; and (ii) are clear of all liens, claims,
encumbrances or security interests;
(c) by waiver of compensation due or accrued to Participant for
services rendered;
(d) provided that a public market for the Company's stock exists: (i)
through a "same day sale" commitment from Participant and a
broker-dealer that is a member of the National Association of
Securities Dealers (an "NASD Dealer") whereby Participant
irrevocably elects to exercise the Option and to sell a portion
of the Shares so purchased sufficient to pay for the total
Exercise Price and whereby the NASD Dealer irrevocably commits
upon receipt of such Shares to forward the total Exercise Price
directly to the Company, or (ii) through a "margin" commitment
from Participant and an NASD Dealer whereby 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
total Exercise Price, and whereby the NASD Dealer irrevocably
commits upon receipt of such Shares to forward the total Exercise
Price directly to the Company; or
3
<PAGE>
(e) any other form of consideration approved by the Committee; or
(f) by any combination of the foregoing.
4.4 Tax Withholding. Prior to the issuance of the Shares upon
---------------
exercise of the Option, Participant must pay or provide for any applicable
federal, state and local withholding obligations of the Company. If the
Committee permits, Participant may provide for payment of withholding taxes upon
exercise of the Option by requesting that the Company retain the minimum number
of Shares with a Fair Market Value equal to the minimum amount of taxes required
to be withheld; but in no event will the Company withhold Shares if such
withholding would result in adverse accounting consequences to the Company. In
such case, the Company shall issue the net number of Shares to the Participant
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 Participant,
Participant's authorized assignee, or Participant's legal representative, and
shall deliver certificates representing the Shares with the appropriate legends
affixed thereto.
5. Notice of Disqualifying Disposition of ISO Shares. If the Option
-------------------------------------------------
is an ISO, and if Participant sells or otherwise disposes of any of the Shares
acquired pursuant to the ISO on or before the later of (i) the date two (2)
years after the Date of Grant, and (ii) the date one (1) year after transfer of
such Shares to Participant upon exercise of the Option, Participant shall
immediately notify the Company in writing of such disposition. Participant
agrees that Participant may be subject to income tax withholding by the Company
on the compensation income recognized by Participant from the early disposition
by payment in cash or out of the current wages or other compensation payable to
Participant.
6. Compliance with Laws and Regulations. The exercise of the Option
------------------------------------
and the issuance and transfer of Shares shall be subject to compliance by the
Company and Participant 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. Participant 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. The Option 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 Participant only by Participant or in
the event of Participant's incapacity, by Participant's legal representative.
The terms of the Option shall be binding upon the executors, administrators,
successors and assigns of Participant.
8. Company's Right of First Refusal. Before any Shares held by
--------------------------------
Participant or any transferee of such Shares may be sold or otherwise
transferred (including without limitation a transfer by gift or operation of
law), the Company and/or its assignee(s) shall have an assignable right of first
refusal to purchase the Shares to be sold or transferred on the
4
<PAGE>
terms and conditions set forth in the Exercise Agreement (the "Right of First
Refusal"). The Company's Right of First Refusal will terminate when the
Company's securities become publicly traded.
9. Tax Consequences. Set forth below is a brief summary as of the
----------------
Effective Date of the Plan of some of the federal and California tax
consequences of exercise of the Option and disposition of the Shares. THIS
SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT
TO CHANGE. PARTICIPANT SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THE
OPTION OR DISPOSING OF THE SHARES.
9.1 Exercise of ISO. If the Option qualifies as an ISO, there
---------------
will be no regular federal or California income tax liability upon the exercise
of the 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 alternative minimum tax purposes and may subject the
Participant to the alternative minimum tax in the year of exercise.
9.2 Exercise of Nonqualified Stock Option. If the Option does
-------------------------------------
not qualify as an ISO, there may be a regular federal and California income tax
liability upon the exercise of the Option. Participant 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. If Participant is a current or former
employee of the Company, the Company may be required to withhold from
Participant's compensation or collect from Participant and pay to the applicable
taxing authorities an amount equal to a percentage of this compensation income
at the time of exercise.
9.3 Disposition of Shares. The following tax consequences may
---------------------
apply upon disposition of the Shares.
(a) Incentive Stock Options. If the Shares are held for more
-----------------------
than twelve (12) months after the date of the transfer of the Shares pursuant to
the exercise of an ISO and are disposed of more than two (2) years after the
Date of Grant, any gain realized on disposition of the Shares will be treated as
long term capital gain for federal and California 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 the Participant's compensation or collect from the Participant and pay to
the applicable taxing authorities an amount equal to a percentage of this
compensation income.
5
<PAGE>
10. Privileges of Stock Ownership. Participant shall not have any of
-----------------------------
the rights of a shareholder with respect to any Shares until the Shares are
issued to Participant.
11. Interpretation. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Participant 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 Participant.
12. Entire Agreement. The Plan is incorporated herein by reference.
----------------
This Agreement and the Plan constitute the entire agreement of the parties and
supersede all prior undertakings and agreements with respect to the subject
matter hereof.
13. 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 Participant shall be in writing and
addressed to Participant 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: (i) personal
delivery; (ii) three (3) days after deposit in the United States mail by
certified or registered mail (return receipt requested); (iii) one (1) business
day after deposit with any return receipt express courier (prepaid); or (iv) one
(1) business day after transmission by facsimile, rapifax or telecopier.
14. Successors and Assigns. The Company may assign any of its rights
----------------------
under this Agreement, including its rights to purchase Shares under the Right of
First Refusal. 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 Participant and
Participant's heirs, executors, administrators, legal representatives,
successors and assigns.
15. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of California as such laws are applied
to agreements between California residents entered into and to be performed
entirely within California. If any provision of this Agreement is determined by
a court of law to be illegal or unenforceable, then such provision will be
enforced to the maximum extent possible and the other provisions will remain
fully effective and enforceable.
16. Acceptance. Participant hereby acknowledges receipt of a copy of
----------
the Plan and this Agreement. Participant has read and understands the terms and
provisions thereof, and accepts the Option subject to all the terms and
conditions of the Plan and this Agreement. Participant acknowledges that there
may be adverse tax consequences upon exercise of the Option or disposition of
the Shares and that Participant should consult a tax adviser prior to such
exercise or disposition.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed in triplicate by its duly authorized representative and Participant has
executed this Agreement in triplicate, effective as of the Date of Grant.
6
<PAGE>
ALLADVANTAGE.COM PARTICIPANT
By:________________________________ ____________________________________
(Signature)
___________________________________ ____________________________________
(Please print name) (Please print name)
___________________________________
(Please print title)
7
<PAGE>
EXHIBIT A
---------
FORM OF STOCK OPTION EXERCISE AGREEMENT
1
<PAGE>
No._______
ALLADVANTAGE.COM
2000 EQUITY INCENTIVE PLAN
STOCK OPTION EXERCISE AGREEMENT
This Stock Option Exercise Agreement (the "Exercise Agreement") is made and
entered into as of _________________________ (the "Effective Date") by and
between AllAdvantage.com, a California corporation (the "Company"), and the
purchaser named below (the "Purchaser"). Capitalized terms not defined herein
shall have the meanings ascribed to them in the Company's 2000 Equity Incentive
Plan (the "Plan").
Purchaser: _________________________________________________
_________________________________________________
Social Security Number: _________________________________________________
Address: _________________________________________________
_________________________________________________
Total Number of Shares: _________________________________________________
Exercise Price Per Share: _________________________________________________
Date of Grant: _________________________________________________
First Vesting Date: _________________________________________________
Expiration Date: _________________________________________________
(Unless earlier terminated under Section 5.6 of
the Plan)
Type of Stock Option
(Check one): [ ] Incentive Stock Option
[ ] Nonqualified Stock Option
1. Exercise of Option.
------------------
1.1 Exercise. Pursuant to exercise of that certain option (the
--------
"Option") granted to Purchaser under the Plan and subject to the terms and
conditions of this Exercise Agreement, Purchaser hereby purchases from the
Company, and the Company hereby sells to Purchaser, the Total Number of Shares
set forth above (the "Shares") of the Company's Common Stock at the Exercise
Price Per Share set forth above (the "Exercise Price"). As used in this
Exercise Agreement, the term "Shares" refers to the Shares purchased under this
Exercise Agreement and includes all securities received (i) in replacement of
the Shares, (ii) as a result of stock dividends or stock splits with respect to
the Shares, and (iii) all securities received in
1
<PAGE>
replacement of the Shares in a merger, recapitalization, reorganization or
similar corporate transaction.
1.2 Title to Shares. The exact spelling of the name(s) under which
---------------
Purchaser will take title to the Shares is:
_________________________________________________________________
_________________________________________________________________
Purchaser desires to take title to the Shares as follows:
[ ] Individual, as separate property
[ ] Husband and wife, as community property
[ ] Joint Tenants
[ ] Other; please specify:_______________________________________
To assign the Shares to a trust, a stock transfer agreement in the
form reasonably requested by the Company must be completed and executed.
1.3 Payment. Purchaser hereby delivers payment of the Exercise
-------
Price in the manner permitted in the Stock Option Agreement as follows (check
and complete as appropriate):
[ ] in cash (by check) in the amount of $____________, receipt
of which is acknowledged by the Company;
[ ] by cancellation of indebtedness of the Company owed to
Purchaser in the amount of $_______________;
[ ] by delivery of _________ fully-paid, nonassessable and
vested shares of the Common Stock of the Company owned by
Purchaser for at least six (6) months prior to the date
hereof which have been paid for within the meaning of SEC
Rule 144, (if purchased by use of a promissory note, such
note has been fully paid with respect to such vested shares),
or obtained by Purchaser 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 for
services rendered in the amount of $_________.
2. Delivery.
--------
2.1 Deliveries by Purchaser. Purchaser hereby delivers to the
-----------------------
Company (i) this Exercise Agreement, (ii) two (2) copies of a blank Stock Power
and Assignment Separate from Stock Certificate in the form of Exhibit 1 attached
---------
hereto (the "Stock Powers"), both executed by Purchaser (and Purchaser's spouse,
if any), (iii) if Purchaser is married, a Consent of Spouse in the form of
Exhibit 2 attached hereto (the "Spouse Consent") executed by Purchaser's
- ---------
2
<PAGE>
spouse, and (iv) the Exercise Price and payment or other provision for any
applicable tax obligations.
2.2 Deliveries by the Company. Upon its receipt of the Exercise
-------------------------
Price, payment or other provision for any applicable tax obligations and all the
documents to be executed and delivered by Purchaser to the Company under Section
2.1, the Company will issue a duly executed stock certificate evidencing the
Shares in the name of Purchaser to be placed in escrow as provided in Section 10
until expiration or termination of the Company's Right of First Refusal
described in Section 8.
3. Representations and Warranties of Purchaser. Purchaser represents and
-------------------------------------------
warrants to the Company that:
3.1 Agrees to Terms of the Plan. Purchaser has received a copy of
---------------------------
the Plan and the Stock Option Agreement, has read and understands the terms of
the Plan, the Stock Option Agreement and this Exercise Agreement, and agrees to
be bound by their terms and conditions. Purchaser acknowledges that there may
be adverse tax consequences upon exercise of the Option or disposition of the
Shares, and that Purchaser should consult a tax adviser prior to such exercise
or disposition.
3.2 Purchase for Own Account for Investment. Purchaser is
---------------------------------------
purchasing the Shares for Purchaser's own account for investment purposes only
and not with a view to, or for sale in connection with, a distribution of the
Shares within the meaning of the Securities Act. Purchaser has no present
intention of selling or otherwise disposing of all or any portion of the Shares
and no one other than Purchaser has any beneficial ownership of any of the
Shares.
3.3 Access to Information. Purchaser has had access to all
---------------------
information regarding the Company and its present and prospective business,
assets, liabilities and financial condition that Purchaser reasonably considers
important in making the decision to purchase the Shares, and Purchaser has had
ample opportunity to ask questions of the Company's representatives concerning
such matters and this investment.
3.4 Understanding of Risks. Purchaser is fully aware of: (i) the
----------------------
highly speculative nature of the investment in the Shares; (ii) the financial
hazards involved; (iii) the lack of liquidity of the Shares and the restrictions
on transferability of the Shares (e.g., that Purchaser may not be able to sell
----
or dispose of the Shares or use them as collateral for loans); (iv) the
qualifications and backgrounds of the management of the Company; and (v) the tax
consequences of investment in the Shares. Purchaser is capable of evaluating
the merits and risks of this investment, has the ability to protect Purchaser's
own interests in this transaction and is financially capable of bearing a total
loss of this investment.
3.5 No General Solicitation. At no time was Purchaser presented
-----------------------
with or solicited by any publicly issued or circulated newspaper, mail, radio,
television or other form of general advertising or solicitation in connection
with the offer, sale and purchase of the Shares.
4. Compliance with Securities Laws.
-------------------------------
4.1 Compliance with U.S. Federal Securities Laws. Purchaser
--------------------------------------------
understands and acknowledges that the Shares have not been registered with the
SEC under the Securities Act
3
<PAGE>
and that, notwithstanding any other provision of the Stock Option Agreement to
the contrary, the exercise of any rights to purchase any Shares is expressly
conditioned upon compliance with the Securities Act and all applicable state
securities laws. Purchaser agrees to cooperate with the Company to ensure
compliance with such laws.
4.2 Compliance with California Securities Laws. THE SALE OF THE
------------------------------------------
SECURITIES THAT ARE THE SUBJECT OF THIS EXERCISE AGREEMENT, IF NOT YET QUALIFIED
WITH THE CALIFORNIA COMMISSIONER OF CORPORATIONS AND NOT EXEMPT FROM SUCH
QUALIFICATION, IS SUBJECT TO SUCH QUALIFICATION, AND THE ISSUANCE OF SUCH
SECURITIES, AND THE RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO
SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE IS EXEMPT. THE RIGHTS OF THE
PARTIES TO THIS EXERCISE AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH
QUALIFICATION BEING OBTAINED OR AN EXEMPTION BEING AVAILABLE.
5. Restricted Securities.
---------------------
5.1 No Transfer Unless Registered or Exempt. Purchaser
---------------------------------------
understands that Purchaser may not transfer any Shares unless such Shares are
registered under the Securities Act or qualified under applicable state
securities laws or unless, in the opinion of counsel to the Company, exemptions
from such registration and qualification requirements are available. Purchaser
understands that only the Company may file a registration statement with the SEC
and that the Company is under no obligation to do so with respect to the Shares.
Purchaser has also been advised that exemptions from registration and
qualification may not be available or may not permit Purchaser to transfer all
or any of the Shares in the amounts or at the times proposed by Purchaser.
5.2 SEC Rule 144. In addition, Purchaser has been advised that
------------
SEC Rule 144 promulgated under the Securities Act, which permits certain limited
sales of unregistered securities, is not presently available with respect to the
Shares and, in any event, requires that the Shares be held for a minimum of one
(1) year, and in certain cases two (2) years, after they have been purchased and
---
paid for (within the meaning of Rule 144). Purchaser understands that Rule 144
- --------
may indefinitely restrict transfer of the Shares so long as Purchaser remains an
"affiliate" of the Company or if "current public information" about the Company
(as defined in Rule 144) is not publicly available.
6. Restrictions on Transfers.
-------------------------
6.1 Disposition of Shares. Purchaser hereby agrees that Purchaser
---------------------
shall make no disposition of the Shares (other than as permitted by this
Exercise Agreement) unless and until:
(a) Purchaser shall have notified the Company of the
proposed disposition and provided a written summary of the terms and conditions
of the proposed disposition;
(b) Purchaser shall have complied with all requirements of
this Exercise Agreement applicable to the disposition of the Shares;
4
<PAGE>
(c) Purchaser shall have provided the Company with written
assurances, in form and substance satisfactory to counsel for the Company, that
(i) the proposed disposition does not require registration of the Shares under
the Securities Act or (ii) all appropriate actions necessary for compliance with
the registration requirements of the Securities Act or of any exemption from
registration available under the Securities Act (including Rule 144) have been
taken; and
(d) Purchaser shall have provided the Company with written
assurances, in form and substance satisfactory to the Company, that the proposed
disposition will not result in the contravention of any transfer restrictions
applicable to the Shares pursuant to the provisions of the Regulations referred
to in Section 4.2 hereof.
6.2 Restriction on Transfer. Purchaser shall not transfer,
-----------------------
assign, grant a lien or security interest in, pledge, hypothecate, encumber or
otherwise dispose of any of the Shares which are subject to the Company's Right
of First Refusal described below, except as permitted by this Exercise
Agreement.
6.3 Transferee Obligations. Each person (other than the Company)
----------------------
to whom the Shares are transferred by means of one of the permitted transfers
specified in this Exercise Agreement must, as a condition precedent to the
validity of such transfer, acknowledge in writing to the Company that such
person is bound by the provisions of this Exercise Agreement and that the
transferred Shares are subject to the Company's Right of First Refusal granted
hereunder and the market stand-off provisions of Section 7 hereof, to the same
extent such Shares would be so subject if retained by the Purchaser.
7. Market Standoff Agreement. Purchaser agrees in connection with any
-------------------------
registration of the Company's securities that, upon the request of the Company
or the underwriters managing any public offering of the Company's securities,
Purchaser will not sell or otherwise dispose of any Shares without the prior
written consent of the Company or such underwriters, as the case may be, for
such period of time (not to exceed one hundred eighty (180) days) after the
effective date of such registration requested by such managing underwriters and
subject to all restrictions as the Company or the underwriters may specify.
Purchaser further agrees to enter into any agreement reasonably required by the
underwriters to implement the foregoing.
8. Company's Right of First Refusal. Before any Shares held by Purchaser
--------------------------------
or any transferee of such Shares (either sometimes referred to herein as the
"Holder") may be sold or otherwise transferred (including, without limitation, a
transfer by gift or operation of law), the Company and/or its assignee(s) will
have a right of first refusal to purchase the Shares to be sold or transferred
(the "Offered Shares") on the terms and conditions set forth in this Section
(the "Right of First Refusal").
8.1 Notice of Proposed Transfer. The Holder of the Offered Shares
---------------------------
will deliver to the Company a written notice (the "Notice") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer the Offered Shares;
(ii) the name and address of each proposed purchaser or other transferee (the
"Proposed Transferee"); (iii) the number of Offered Shares to be transferred to
each Proposed Transferee; (iv) the bona fide cash price or other consideration
for which the Holder proposes to transfer the Offered Shares (the "Offered
Price"); and (v) that the Holder acknowledges this Notice is an offer to sell
the Offered Shares to the
5
<PAGE>
Company and/or its assignee(s) pursuant to the Company's Right of First Refusal
at the Offered Price as provided for in this Exercise Agreement.
8.2 Exercise of Right of First Refusal. At any time within thirty
----------------------------------
(30) days after the date of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all (or, with the
consent of the Holder, less than all) the Offered Shares proposed to be
transferred to any one or more of the Proposed Transferees named in the Notice,
at the purchase price, determined as specified below.
8.3 Purchase Price. The purchase price for the Offered Shares
--------------
purchased under this Section will be the Offered Price, provided that if the
Offered Price consists of no legal consideration (as, for example, in the case
of a transfer by gift) the purchase price will be the fair market value of the
Offered Shares as determined in good faith by the Company's Board of Directors.
If the Offered Price includes consideration other than cash, then the value of
the non-cash consideration, as determined in good faith by the Company's Board
of Directors, will conclusively be deemed to be the cash equivalent value of
such non-cash consideration.
8.4 Payment. Payment of the purchase price for the Offered Shares
-------
will be payable, at the option of the Company and/or its assignee(s) (as
applicable), by check or by cancellation of all or a portion of any outstanding
indebtedness owed by the Holder to the Company (or to such assignee, in the case
of a purchase of Offered Shares by such assignee) or by any combination thereof.
The purchase price will be paid without interest within sixty (60) days after
the Company's receipt of the Notice, or, at the option of the Company and/or its
assignee(s), in the manner and at the time(s) set forth in the Notice.
8.5 Holder's Right to Transfer. If all of the Offered Shares
--------------------------
proposed in the Notice to be transferred to a given Proposed Transferee are not
purchased by the Company and/or its assignee(s) as provided in this Section,
then the Holder may sell or otherwise transfer such Offered Shares to each
Proposed Transferee at the Offered Price or at a higher price, provided that (i)
--------
such sale or other transfer is consummated within one hundred twenty (120) days
after the date of the Notice, (ii) any such sale or other transfer is effected
in compliance with all applicable securities laws, and (iii) each Proposed
Transferee agrees in writing that the provisions of this Section will continue
to apply to the Offered Shares in the hands of such Proposed Transferee. If the
Offered Shares described in the Notice are not transferred to each Proposed
Transferee within such one hundred twenty (120) day period, then a new Notice
must be given to the Company pursuant to which the Company will again be offered
the Right of First Refusal before any Shares held by the Holder may be sold or
otherwise transferred.
8.6 Exempt Transfers. Notwithstanding anything to the contrary in
----------------
this Section, the following transfers of Shares will be exempt from the Right of
First Refusal: (i) the transfer of any or all of the Shares during Purchaser's
lifetime by gift or on Purchaser's death by will or intestacy to Purchaser's
"Immediate Family" (as defined below) or to a trust for the benefit of Purchaser
or Purchaser's Immediate Family, provided that each transferee or other
recipient agrees in a writing satisfactory to the Company that the provisions of
this Section will continue to apply to the transferred Shares in the hands of
such transferee or other recipient; (ii) any transfer of Shares made pursuant to
a statutory merger or statutory consolidation of the Company with or into
another corporation or corporations (except that the Right of First Refusal will
continue to apply thereafter to such Shares, in which case the surviving
corporation of such
6
<PAGE>
merger or consolidation shall succeed to the rights of the Company under this
Section unless the agreement of merger or consolidation expressly otherwise
provides); or (iii) any transfer of Shares pursuant to the winding up and
dissolution of the Company. As used herein, the term "Immediate Family" will
mean Purchaser's spouse, the lineal descendant or antecedent, father, mother,
brother or sister, child, adopted child, grandchild or adopted grandchild of the
Purchaser or the Purchaser's spouse, or the spouse of any child, adopted child,
grandchild or adopted grandchild of Purchaser or the Purchaser's spouse or
Spousal Equivalent, as defined herein. As used herein, a person is deemed to be
a "Spousal Equivalent" provided the following circumstances are true: (i)
irrespective of whether or not the Participant and the Spousal Equivalent are
the same sex, they are the sole spousal equivalent of the other for the last
twelve (12) months, (ii) they intend to remain so indefinitely, (iii) neither
are married to anyone else, (iv) both are at least 18 years of age and mentally
competent to consent to contract, (v) they are not related by blood to a degree
of closeness that which would prohibit legal marriage in the state in which they
legally reside, (vi) they are jointly responsible for each other's common
welfare and financial obligations, and (vii) they reside together in the same
residence for the last twelve (12) months and intend to do so indefinitely.
8.7 Termination of Right of First Refusal. The Right of First
-------------------------------------
Refusal will terminate as to all Shares on the effective date of the first sale
of Common Stock of the Company to the general public pursuant to a registration
statement filed with and declared effective by the SEC under the Securities Act
(other than a registration statement relating solely to the issuance of Common
Stock pursuant to a business combination or an employee incentive or benefit
plan).
8.8 Encumbrances on Shares. Purchaser may grant a lien or
----------------------
security interest in, or pledge, hypothecate or encumber Shares only if each
party to whom such lien or security interest is granted, or to whom such pledge,
hypothecation or other encumbrance is made, agrees in a writing satisfactory to
the Company that: (i) such lien, security interest, pledge, hypothecation or
encumbrance will not apply to such Shares after they are acquired by the Company
and/or its assignees under this Section; and (ii) the provisions of this Section
will continue to apply to such Shares in the hands of such party and any
transferee of such party.
9. Rights as a Shareholder. Subject to the terms and conditions of this
-----------------------
Exercise Agreement, Purchaser will have all of the rights of a shareholder of
the Company with respect to the Shares from and after the date that Shares are
issued to Purchaser until such time as Purchaser disposes of the Shares or the
Company and/or its assignee(s) exercise(s) the Right of First Refusal. Upon an
exercise of the Right of First Refusal, Purchaser will have no further rights as
a holder of the Shares so purchased upon such exercise, other than the right to
receive payment for the Shares so purchased in accordance with the provisions of
this Exercise Agreement, and Purchaser will promptly surrender the stock
certificate(s) evidencing the Shares so purchased to the Company for transfer or
cancellation.
10. Escrow. As security for Purchaser's faithful performance of this
------
Exercise Agreement, Purchaser agrees, immediately upon receipt of the stock
certificate(s) evidencing the Shares, to deliver such certificate(s), together
with the Stock Powers executed by Purchaser and by Purchaser's spouse, if any
(with the date and number of Shares left blank), to the Secretary of the Company
or other designee of the Company (the "Escrow Holder"), who is hereby appointed
to hold such certificate(s) and Stock Powers in escrow and to take all such
actions and to effectuate all such transfers and/or releases of such Shares as
are in accordance with the terms of
7
<PAGE>
this Exercise Agreement. Purchaser and the Company agree that Escrow Holder will
not be liable to any party to this Exercise Agreement (or to any other party)
for any actions or omissions unless Escrow Holder is grossly negligent or
intentionally fraudulent in carrying out the duties of Escrow Holder under this
Exercise Agreement. Escrow Holder may rely upon any letter, notice or other
document executed with any signature purported to be genuine and may rely on the
advice of counsel and obey any order of any court with respect to the
transactions contemplated by this Exercise Agreement. The Shares will be
released from escrow upon termination of the Right of First Refusal.
11. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
12.1 Legends. Purchaser understands and agrees that the Company
-------
will place the legends set forth below or similar legends on any stock
certificate(s) evidencing the Shares, together with any other legends that may
be required by state or U.S. Federal securities laws, the Company's Articles of
Incorporation or Bylaws, any other agreement between Purchaser and the Company
or any agreement between Purchaser and any third party:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER
THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT
TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE
AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER
TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE
WITH THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON PUBLIC RESALE AND TRANSFER, INCLUDING THE RIGHT OF
FIRST REFUSAL OPTION HELD BY THE ISSUER AND/OR ITS ASSIGNEE(S) AS SET
FORTH IN A STOCK OPTION EXERCISE AGREEMENT BETWEEN THE ISSUER AND THE
ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT
THE PRINCIPAL OFFICE OF THE ISSUER. SUCH PUBLIC SALE AND TRANSFER
RESTRICTIONS INCLUDING THE RIGHT OF FIRST REFUSAL ARE BINDING ON
TRANSFEREES OF THESE SHARES.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A 180 DAY
MARKET STANDOFF RESTRICTION AS SET FORTH IN A CERTAIN AGREEMENT
BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF
WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. AS A
RESULT OF SUCH AGREEMENT, THESE SHARES MAY NOT BE TRADED PRIOR TO 180
DAYS AFTER THE EFFECTIVE DATE OF THE INITIAL PUBLIC
8
<PAGE>
OFFERING OF THE COMMON STOCK OF THE ISSUER HEREOF. SUCH RESTRICTION IS
BINDING ON TRANSFEREES OF THESE SHARES.
11.2 Stop-Transfer Instructions. Purchaser agrees that, to ensure
--------------------------
compliance with the restrictions imposed by this Exercise Agreement, the Company
may issue appropriate "stop-transfer" instructions to its transfer agent, if
any, and if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
11.3 Refusal to Transfer. The Company will not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Exercise Agreement or (ii) to treat
as owner of such Shares, or to accord the right to vote or pay dividends to any
purchaser or other transferee to whom such Shares have been so transferred.
12. Tax Consequences. PURCHASER UNDERSTANDS THAT PURCHASER MAY SUFFER
----------------
ADVERSE TAX CONSEQUENCES AS A RESULT OF PURCHASER'S PURCHASE OR DISPOSITION OF
THE SHARES. PURCHASER REPRESENTS: (i) THAT PURCHASER HAS CONSULTED WITH ANY TAX
ADVISER THAT PURCHASER DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR
DISPOSITION OF THE SHARES AND (ii) THAT PURCHASER IS NOT RELYING ON THE COMPANY
FOR ANY TAX ADVICE. Set forth below is a brief summary as of the date the Plan
was adopted by the Board of some of the U.S. Federal and California tax
consequences of exercise of the Option and disposition of the Shares. THIS
SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT
TO CHANGE. PURCHASER SHOULD CONSULT HIS OR HER OWN TAX ADVISER BEFORE EXERCISING
THIS OPTION OR DISPOSING OF THE SHARES.
12.1 Exercise of Incentive Stock Option. If the Option qualifies
----------------------------------
as an ISO, there will be no regular U.S. Federal income tax liability or
California income tax liability upon the exercise of the 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 U.S.
Federal alternative minimum tax purposes and may subject Purchaser to the
alternative minimum tax in the year of exercise.
12.2 Exercise of Nonqualified Stock Option. If the Option does not
-------------------------------------
qualify as an ISO, there may be a regular U.S. Federal income tax liability and
a California income tax liability upon the exercise of the Option. Purchaser
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. If Purchaser is or was
an employee of the Company, the Company may be required to withhold from
Purchaser's compensation or collect from Purchaser and pay to the applicable
taxing authorities an amount equal to a percentage of this compensation income
at the time of exercise.
12.3 Disposition of Shares. The following tax consequences may
---------------------
apply upon disposition of the Shares.
(a) Incentive Stock Options. If the Shares are held for
-----------------------
more than twelve (12) months after the date of the transfer of the Shares
pursuant to the exercise of an ISO
9
<PAGE>
and are disposed of more than two (2) years after the Date of Grant, any gain
realized on disposition of the Shares will be treated as long term capital gain
for federal and California 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 the Purchaser's compensation or collect from the Purchaser and pay to the
applicable taxing authorities an amount equal to a percentage of this
compensation income.
13. Compliance with Laws and Regulations. The issuance and transfer of the
------------------------------------
Shares will be subject to and conditioned upon compliance by the Company and
Purchaser with all applicable state and U.S. Federal laws and regulations and
with all applicable requirements of any stock exchange or automated quotation
system on which the Company's Common Stock may be listed or quoted at the time
of such issuance or transfer.
14. Successors and Assigns. The Company may assign any of its rights under
----------------------
this Exercise Agreement, including its rights to purchase Shares under the Right
of First Refusal. This Exercise Agreement shall be binding upon and inure to the
benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer herein set forth, this Exercise Agreement will be
binding upon Purchaser and Purchaser's heirs, executors, administrators, legal
representatives, successors and assigns.
15. Governing Law; Severability. This Exercise Agreement shall be governed
---------------------------
by and construed in accordance with the internal laws of the State of California
as such laws are applied to agreements between California residents entered into
and to be performed entirely within California. If any provision of this
Exercise Agreement is determined by a court of law to be illegal or
unenforceable, then such provision will be enforced to the maximum extent
possible and the other provisions will remain fully effective and enforceable.
17. Notices. Any notice required to be given or delivered to the Company
-------
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 Purchaser shall be in writing and addressed to Purchaser at the address
indicated above or to such other address as Purchaser may designate in writing
from time to time to the Company. All notices shall be deemed effectively given
upon personal delivery, (i) three (3) days after deposit in the United States
mail by certified or registered mail (return receipt requested), (ii) one (1)
business day after its deposit with any return receipt express courier
(prepaid), or (iii) one (1) business day after transmission by rapifax or
telecopier.
18. Further Instruments. The parties agree to execute such further
-------------------
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Exercise Agreement.
10
<PAGE>
19. Headings. The captions and headings of this Exercise Agreement are
--------
included for ease of reference only and will be disregarded in interpreting or
construing this Exercise Agreement. All references herein to Sections will
refer to Sections of this Exercise Agreement.
20. Entire Agreement. The Plan, the Stock Option Agreement and this
----------------
Exercise Agreement, together with all Exhibits thereto, constitute the entire
agreement and understanding of the parties with respect to the subject matter of
this Exercise Agreement, and supersede all prior understandings and agreements,
whether oral or written, between the parties hereto with respect to the specific
subject matter hereof.
11
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Exercise Agreement to be
executed in triplicate by its duly authorized representative and Purchaser has
executed this Exercise Agreement in triplicate as of the Effective Date,
indicated above.
ALLADVANTAGE.COM PURCHASER
By:______________________ _____________________________
(Signature)
_________________________ ______________________________
(Please print name) (Please print name
_________________________
(Please print title)
[Signature page to AllAdvantage.com Stock Option Exercise Agreement]
12
<PAGE>
LIST OF EXHIBITS
----------------
Exhibit 1: Stock Power and Assignment Separate from Stock Certificate
Exhibit 2: Spouse Consent
<PAGE>
EXHIBIT 1
---------
STOCK POWER AND ASSIGNMENT
--------------------------
SEPARATE FROM STOCK CERTIFICATE
-------------------------------
<PAGE>
Stock Power and Assignment
--------------------------
Separate from Stock Certificate
-------------------------------
FOR VALUE RECEIVED and pursuant to that certain Stock Option Exercise
Agreement No. ________ dated as of _______________, _____, (the "Agreement"),
the undersigned hereby sells, assigns and transfers unto
_______________________________, __________ shares of the Common Stock of
AllAdvantage.com, a California corporation (the "Company"), standing in the
undersigned's name on the books of the Company represented by Certificate No(s).
______ delivered herewith, and does hereby irrevocably constitute and appoint
the Secretary of the Company as the undersigned's attorney-in-fact, with full
power of substitution, to transfer said stock on the books of the Company. THIS
ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT AND ANY EXHIBITS
THERETO.
Dated: _______________, _____
PURCHASER
__________________________________
(Signature)
__________________________________
(Please Print Name)
__________________________________
(Spouse's Signature, if any)
__________________________________
(Please Print Spouse's Name)
Instructions to Purchaser: Please do not fill in any blanks other than the
- -------------------------
signature line. The purpose of this Stock Power and Assignment is to enable the
Company to acquire the shares and to exercise its "Right of First Refusal" set
forth in the Exercise Agreement without requiring additional signatures on the
part of the Purchaser or Purchaser's Spouse.
<PAGE>
Stock Power and Assignment
--------------------------
Separate from Stock Certificate
-------------------------------
FOR VALUE RECEIVED and pursuant to that certain Stock Option Exercise
Agreement No. ________ dated as of _______________, _____, (the "Agreement"),
the undersigned hereby sells, assigns and transfers unto
_______________________________, __________ shares of the Common Stock of
AllAdvantage.com, a California corporation (the "Company"), standing in the
undersigned's name on the books of the Company represented by Certificate No(s).
______ delivered herewith, and does hereby irrevocably constitute and appoint
the Secretary of the Company as the undersigned's attorney-in-fact, with full
power of substitution, to transfer said stock on the books of the Company. THIS
ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT AND ANY EXHIBITS
THERETO.
Dated: _______________, _____
PURCHASER
__________________________________
(Signature)
__________________________________
(Please Print Name)
__________________________________
(Spouse's Signature, if any)
__________________________________
(Please Print Spouse's Name)
Instructions to Purchaser: Please do not fill in any blanks other than the
- -------------------------
signature line. The purpose of this Stock Power and Assignment is to enable the
Company to acquire the shares and to exercise its "Right of First Refusal" set
forth in the Exercise Agreement without requiring additional signatures on the
part of the Purchaser or Purchaser's Spouse.
<PAGE>
EXHIBIT 2
---------
SPOUSE CONSENT
--------------
<PAGE>
Spouse Consent
--------------
The undersigned spouse of ______________________________ (the "Purchaser")
has read, understands, and hereby approves the Stock Option Exercise Agreement
between Purchaser and the Company (the "Agreement"). In consideration of the
Company's granting my spouse the right to purchase the Shares as set forth in
the Agreement, the undersigned hereby agrees to be irrevocably bound by the
Agreement and further agrees that any community property interest I may have in
the Shares shall similarly be bound by the Agreement. The undersigned hereby
appoints Purchaser as my attorney-in-fact with respect to any amendment or
exercise of any rights under the Agreement.
Date:___________________________
__________________________________
Print Name of Purchaser's Spouse
__________________________________
Signature of Purchaser's Spouse
Address: __________________________________
__________________________________
1
<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.
6
<PAGE>
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.
7
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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>
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
- ----------------
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
<PAGE>
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:
2
<PAGE>
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.
4
<PAGE>
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
<PAGE>
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.
6
<PAGE>
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>
EXHIBIT 10.12
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
This Series D Preferred Stock Purchase Agreement (this "Agreement") is made
and entered into as of February 4, 2000 by and among AllAdvantage.com, a
California corporation (the "Company"), and the parties listed on the Schedule
of Investors attached to this Agreement as Exhibit A (each hereinafter
---------
individually referred to as an "Investor" and collectively referred to as the
"Investors").
Whereas, the Company desires to sell to the Investors, and the Investors
desire to purchase from the Company, shares of the Company's Series D Preferred
Stock on the terms and conditions set forth in this Agreement;
Now, therefore, the parties hereby agree as follows:
1. AGREEMENT TO PURCHASE AND SELL STOCK.
------------------------------------
1.1 Authorization. As of the Closing (as defined below), the Company
-------------
will have authorized the issuance, pursuant to the terms and conditions of this
Agreement, of at least 16,528,926 shares of the Company's Series D Preferred
Stock, no par value (the "Series D Stock"), having the rights, preferences,
privileges and restrictions set forth in the Amended and Restated Articles of
Incorporation of the Company attached to this Agreement as Exhibit B (the
---------
"Restated Articles").
1.2 Agreement to Purchase and Sell. The Company agrees to sell to
------------------------------
each Investor at the Closing, and each Investor agrees, severally and not
jointly, to purchase from the Company at the Closing, the number of shares of
Series D Stock set forth beside such Investor's name on Exhibit A, at a price of
---------
$6.05 per share (the "Per Share Purchase Price"). The shares of Series D Stock
purchased and sold pursuant to this Agreement will be collectively hereinafter
referred to as the "Purchased Shares" and the shares of Common Stock issuable
upon conversion of the Purchased Shares will be collectively hereinafter
referred to as the "Conversion Shares".
2. CLOSING.
-------
2.1 The Closing. The purchase and sale of the Purchased Shares will
-----------
take place at the offices of Fenwick & West LLP, Two Palo Alto Square, Palo
Alto, California, at 10:00 a.m. Pacific Time, on February 4, 2000 or at such
other time and place as the Company and Investors who have agreed to purchase a
majority of the Purchased Shares listed on Exhibit A mutually agree upon (which
time and place are referred to in this Agreement as the "Closing"). At the
Closing, the Company will deliver to each Investor a certificate representing
the number of Purchased Shares that such Investor has agreed to purchase
hereunder as shown on Exhibit A against delivery to the Company by such Investor
of the full purchase price of such Purchased Shares, paid by (a) a check payable
to the Company's order, (b) wire transfer of funds to the Company, or (c) any
combination of the foregoing.
<PAGE>
2.2 Additional Closing(s).
---------------------
(a) Conditions of Additional Closing(s). At any time and from
-----------------------------------
time to time during the thirty (30) day period immediately following the Closing
(the "Additional Closing Period"), the Company may, at one or more additional
closings (each an "Additional Closing"), without obtaining the signature,
consent or permission of any of the Investors, offer and sell to other investors
("New Investors"), at a price of $6.05 per share, up to that number of shares of
Series D Stock that is equal to 16,453,926 shares of Series D Stock less the
number of shares of Series D Stock actually issued and sold by the Company at
the Closing.
(b) Amendments. The Company and the New Investors purchasing
----------
Series D Stock at each Additional Closing will execute counterpart signature
pages to this Agreement, the Investors' Rights Agreement (as defined in Section
5.11), the Voting Agreement (as defined in Section 5.12), and the Co-Sale
Agreement (as defined in Section 5.13) and such New Investors will, upon
delivery to the Company of such signature pages, become parties to, and bound
by, this Agreement, the Investors' Rights Agreement, the Voting Agreement, and
the Co-Sale Agreement, each to the same extent as if they had been Investors at
the Closing. Immediately after each Additional Closing, Exhibit A to this
Agreement will be amended to list the New Investors purchasing shares of Series
D Stock hereunder and the number of shares of Series D Stock purchased by each
New Investor under this Agreement at each such Additional Closing. The Company
will promptly furnish to each Investor copies of the amendments to Exhibit A
referred to in the preceding sentence.
(c) Status of New Investors. Upon the completion of each
-----------------------
Additional Closing as provided in this Section 2, each New Investor will be
deemed to be an "Investor" for all purposes of this Agreement, the Investors'
Rights Agreement, the Voting Agreement and the Co-Sale Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
---------------------------------------------
represents and warrants to each Investor that, except as set forth in the
Schedule of Exceptions ("Schedule of Exceptions") attached to this Agreement as
Exhibit C (which Schedule of Exceptions shall be deemed to be representations
- ---------
and warranties to the Investors by the Company under this Section 3), the
statements in the following paragraphs of this Section 3 are all true and
complete:
3.1 Organization, Good Standing and Qualification. The Company has
---------------------------------------------
been duly incorporated and organized, and is validly existing in good standing,
under the laws of the State of California. The Company has the corporate power
and authority to enter into and perform this Agreement, the Investors' Rights
Agreement, the Voting Agreement and the Co-Sale Agreement, to own and operate
its properties and assets, to issue and sell the Purchased Shares and the shares
issuable on conversion of the Purchased Shares, and to carry on its business as
currently conducted and as presently proposed to be conducted. The Company is
duly qualified and is authorized to do business and is in good standing as a
foreign corporation in all jurisdictions in which the nature of its activities
and of its properties (both owned and leased)
2
<PAGE>
makes such qualification necessary, except for those jurisdictions in which
failure to do so would not have a material adverse effect on the Company or its
business.
3.2 Capitalization. The capitalization of the Company immediately
--------------
prior to the Closing consists of the following:
(a) Preferred Stock. A total of 36,335,044 authorized shares of
---------------
preferred stock, no par value per share (the "Preferred Stock"), consisting of
4,000,000 shares designated as Series A Preferred Stock ("Series A Stock"),
4,000,000 of which will be issued and outstanding, 2,500,000 shares designated
as Series B Preferred Stock ("Series B Stock"), 2,500,000 of which will be
issued and outstanding, 13,306,118 shares designated as Series C Preferred Stock
("Series C Stock"), 13,067,343 of which will be issued and outstanding, and
16,528,926 shares designated as Series D Preferred Stock ("Series D Stock"),
none of which will be issued and outstanding. Upon the Closing, the rights,
preferences and privileges of the Series A Stock, the Series B Stock, the Series
C Stock and the Series D Stock, will be as stated in the Restated Articles and
as provided by law.
(b) Common Stock. A total of 150,000,000 authorized shares of
------------
common stock, no par value per share (the "Common Stock"), of which 29,299,483
shares will be issued and outstanding.
(c) Options, Warrants, Reserved Shares. Except for (i) the
----------------------------------
conversion privileges of the Series A Stock, the Series B Stock, the Series C
Stock and the Series D Stock, (ii) the 15,200,000 shares of Common Stock
reserved for issuance under the Company's 1999 Equity Incentive Plan (under
which options to purchase 9,682,883 shares are currently outstanding), (iii) the
7,361,317 shares of Common Stock reserved for issuance under the Company's 2000
Equity Incentive Plan (under which no options to purchase shares have been
granted or are currently outstanding), and (iv) warrants to purchase 238,775
shares of Series C Stock and 75,000 shares of Series D Stock, there is no
outstanding option, warrant, right (including conversion or preemptive rights)
or agreement for the purchase or acquisition from the Company of any shares of
its capital stock or any securities convertible into or ultimately exchangeable
or exercisable for any shares of the Company's capital stock. Apart from the
exceptions noted in this Section 3.2(c), and except for rights of first refusal
held by the Company to purchase shares of its stock issued under stock purchase
agreements and the Company's 1999 Equity Incentive Plan and 2000 Equity
Incentive Plan (the "Plans"), no shares of the Company's outstanding capital
stock, or stock issuable upon exercise or exchange of any outstanding options,
warrants or rights, or other stock issuable by the Company, are subject to any
preemptive rights, rights of first refusal or other rights to purchase such
stock (whether in favor of the Company or any other person), pursuant to any
agreement or commitment of the Company. As of the Closing under the terms of the
Restated Articles, each outstanding share of Series A Stock shall be convertible
into four shares of Common Stock, each outstanding share of Series B Stock shall
be convertible into four shares of Common Stock, each outstanding share of
Series C Stock shall be convertible into two shares of Common Stock and each
outstanding share of Series D Stock shall be convertible into one share of
Common Stock.
3
<PAGE>
(d) Except as set forth on Exhibit C, no stock plan, stock
purchase, stock option or other agreement or understanding between the Company
and any holder of any equity securities or rights to purchase equity securities
provides for acceleration or other changes in the vesting provisions or other
terms of such agreement or understanding as the result of any merger,
consolidated sale of stock or assets, change in control or any other
transaction(s) by the Company.
(e) The outstanding shares of the capital stock of the Company
are duly authorized and validly issued, fully paid and nonassessable, and have
been approved by all requisite shareholder action. The outstanding shares of
capital stock of the Company were issued in compliance with all applicable state
and federal laws concerning the issuance of securities.
3.3 Subsidiaries. The Company does not presently own or control,
------------
directly or indirectly, any interest in any other corporation, partnership,
trust, joint venture, association, or other entity.
3.4 Due Authorization. All corporate action on the part of the
-----------------
Company's officers, directors and shareholders necessary for the authorization,
execution, delivery of, and the performance of all obligations of the Company
under, this Agreement, the Investors' Rights Agreement, the Voting Agreement,
and the Co-Sale Agreement, the authorization, issuance, reservation for issuance
and delivery of all of the Purchased Shares being sold under this Agreement and
of the Conversion Shares and the filing of the Restated Articles has been taken
other than any required shareholder approvals which will be taken prior to the
Closing, and this Agreement constitutes, and the Investors' Rights Agreement,
the Voting Agreement, and the Co-Sale Agreement, when executed and delivered,
will constitute, valid and legally binding obligations of the Company,
enforceable in accordance with their respective terms, except as may be limited
by (i) applicable bankruptcy, insolvency, reorganization or others laws of
general application relating to or affecting the enforcement of creditors'
rights generally and (ii) the effect of rules of law governing the availability
of equitable remedies.
3.5 Corporate Documents. The Restated Articles and Bylaws of the
-------------------
Company are each in the form provided to counsel for the Investors. The minute
books of the Company contain minutes of all meetings of directors and
shareholders and all actions by written consent without a meeting by the
directors and shareholders since the date of incorporation and reflect
accurately in all material respects all actions by the directors (and any
committee of directors) and shareholders.
3.6 Valid Issuance of Stock.
-----------------------
(a) The Purchased Shares, when issued and paid for as provided
in this Agreement, will be duly authorized and validly issued, fully paid and
nonassessable. The Conversion Shares and the shares of Common Stock issuable
upon conversion of the Series D Preferred Stock have been duly and validly
reserved for issuance upon conversion thereof and, when issued upon such
conversion in accordance with the Restated Articles (assuming no change in the
Restated Articles or in applicable law), will be duly authorized and validly
issued, fully paid and nonassessable, and free of liens, encumbrances or
restrictions on transfer other than
4
<PAGE>
restrictions on transfer under this Agreement, the Investors' Rights Agreement,
the Voting Agreement, the Co-Sale Agreement or applicable law.
(b) Assuming the accuracy of the representations made by the
Investors in Section 4 hereof, the offer and sale of the Purchased Shares solely
to the Investors in accordance with this Agreement and (assuming no change in
currently applicable law or the Restated Articles, no transfer of Purchased
Shares by any holder thereof and no commission or other remuneration is paid or
given, directly or indirectly, for soliciting the issuance of Conversion Shares
upon conversion of the Purchased Shares) the offer and sale of the Conversion
Shares are exempt from the registration and prospectus delivery requirements of
the U.S. Securities Act of 1933, as amended (the "1933 Act") and the securities
registration and qualification requirements of the currently effective
provisions of the securities laws of the States in which the Investors are
resident based upon their addresses set forth on the Schedule of Investors
attached hereto as Exhibit A.
3.7 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority is required on
the part of the Company in order to enable the Company to execute, deliver and
perform its obligations under this Agreement, the Investors' Rights Agreement,
the Voting Agreement and the Co-Sale Agreement except for such qualifications or
------ ---
filings under applicable securities laws as may be required in connection with
the transactions contemplated by this Agreement. All such filings will be made
within the time prescribed by law.
3.8 Litigation. There is no action, suit, proceeding, claim,
----------
arbitration or investigation ("Action") pending (or, to the Company's knowledge,
currently threatened) against the Company, its activities, properties or assets
or, to the Company's knowledge, against any officer, director or employee of the
Company in connection with such officer's, director's or employee's relationship
with, or actions taken on behalf of, the Company.
3.9 Invention Assignment and Confidentiality Agreement. Each former
--------------------------------------------------
and current employee and contractor of the Company has entered into and executed
an Invention Assignment and Confidentiality Agreement substantially in the form
attached to this Agreement as Exhibit D or an employment or consulting agreement
---------
containing substantially similar terms.
3.10 Status of Proprietary Assets.
----------------------------
(a) Status. The Company has full title and ownership of, or is
------
duly licensed under or otherwise authorized to use, all patents, patent
applications, trademarks, service marks, trade names, copyrights, mask works,
trade secrets, confidential and proprietary information, designs and proprietary
rights (all of the foregoing collectively hereinafter referred to as the
"Proprietary Assets"), necessary to enable it to carry on its business as now
conducted and as presently proposed to be conducted without any conflict with or
infringement of the rights of others.
5
<PAGE>
(b) Licenses; Other Agreements. The Company has not granted, and, to
--------------------------
the Company's knowledge, there are not outstanding, any options, licenses or
agreements of any kind relating to any Proprietary Asset of the Company, nor is
the Company bound by or a party to any option, license or agreement of any kind
with respect to any of its Proprietary Assets. The Company is not obligated to
pay any royalties or other payments to third parties with respect to the
marketing, sale, distribution, manufacture, license or use of any Proprietary
Asset or any other property or rights. The Company has not received any
communications alleging that the Company has violated, or by conducting its
business as presently proposed would violate, any of the patents, trademarks,
service marks, trade names, copyrights or trade secrets or other proprietary
rights of any other person or entity. The Company is not aware that any of its
employees is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere with
their duties to the Company or that would conflict with the Company's business
as presently proposed to be conducted. Neither the execution nor delivery by
the Company of this Agreement, the Investors' Rights Agreement, the Voting
Agreement or the Co-Sale Agreement, nor the carrying on of the Company's
business by the employees of the Company, nor the conduct of the Company's
business as presently proposed will, to the Company's knowledge, conflict with
or result in a breach of the terms, conditions or provisions of, or constitute a
default under, any contract, covenant or instrument under which any employee of
the Company is now obligated. The Company does not believe it is or will be
necessary to utilize any inventions, trade secrets or proprietary information of
any of its employees made prior to their employment by the Company, except for
inventions, trade secrets or proprietary information that have been assigned to
the Company.
3.11 Compliance with Law and Documents. The Company is not in
---------------------------------
violation or default of any provisions of its Articles of Incorporation or
Bylaws, both as amended, or of any instrument, judgment, order, writ, decree or
contract to which it is a party, and to the Company's knowledge, except for any
violations that individually and in the aggregate would have no material adverse
impact on the Company's business, assets, financial condition, operations or
prospects, the Company is in compliance with all applicable statutes, laws,
regulations and executive orders of the United States of America and all states,
foreign countries or other governmental bodies and agencies having jurisdiction
over the Company's business or properties. The Company has not received any
notice of any violation of any such statute, law, regulation or order which has
not been remedied prior to the date hereof. The execution, delivery and
performance of this Agreement, the Investors' Rights Agreement, the Voting
Agreement and the Co-Sale Agreement and the consummation of the transactions
contemplated hereby or thereby will not result in any such violation or default,
or be in conflict with or result in a violation or breach of, with or without
the passage of time or the giving of notice or both, the Company's Articles of
Incorporation or Bylaws, any judgment, order or decree of any court or
arbitrator to which the Company is a party or is subject, any agreement or
contract of the Company, or, to the Company's knowledge, a violation of any
statute, law, regulation or order, or an event which results in the creation of
any lien, charge or encumbrance upon any asset of the Company.
6
<PAGE>
3.12 Registration Rights. Except as provided in the Investors' Rights
-------------------
Agreement, the Company is not under any obligation to register under the 1933
Act any of its currently outstanding securities or any securities issuable upon
exercise or conversion of its currently outstanding securities nor is the
Company obligated to register or qualify any such securities under any state
securities or blue sky laws.
3.13 Full Disclosure. The Company has provided the Investors with
---------------
all information requested by the Investors in connection with their decision to
purchase the Purchased Shares. To the Company's knowledge, neither this
Agreement, the Exhibits hereto, nor any other document delivered by the Company
to Investors or their attorneys or agents in connection herewith or therewith or
with the transactions contemplated hereby or thereby, contain any untrue
statement of a material fact nor omit to state a material fact necessary in
order to make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading. Notwithstanding the
foregoing, the Private Placement Memorandum dated December 28, 1999 (the
"Private Placement Memorandum") provided or made available to each of the
Investors was prepared by the management of the Company in a good faith effort
to describe the Company's then proposed business and products and the markets
therefor. The assumptions applied in preparing the Private Placement Memorandum
appeared reasonable to management of the Company as of the date thereof;
however, there is no assurance that these assumptions will prove to be valid or
that the objectives set forth in the Private Placement Memorandum will be
achieved. To the Company's knowledge, there are no facts which (individually or
in the aggregate) materially adversely affect the business, assets, liabilities,
financial condition, prospects or operations of the Company (aside from general
economic, stock market or industry conditions) that have not been set forth in
the Agreement, the Exhibits hereto, or in other documents delivered to Investors
or their attorneys or agents in connection herewith.
3.14 Material Agreements. There are no agreements, understandings,
-------------------
instruments, contracts, proposed transactions, judgments, orders, writs or
decrees to which the Company is a party or by which it is bound which may
involve (i) obligations (contingent or otherwise) of, or payments to, the
Company in excess of $50,000 (other than obligations of, or payments to, the
Company arising from purchase or sale agreements entered into in the ordinary
course of business), or (ii) the transfer or license of any patent, copyright,
trade secret or other proprietary right to or from the Company (other than
licenses arising from the purchase of "off the shelf" or other standard
products), or (iii) provisions restricting the development, manufacture or
distribution by the Company of its products or services, or (iv) indemnification
by the Company with respect to infringements of proprietary rights (other than
indemnification obligations arising from purchase or sale or license agreements
entered into in the ordinary course of business).
3.15 Title to Property and Assets. The properties and assets the
----------------------------
Company owns are owned by the Company free and clear of all mortgages, deeds of
trust, liens, encumbrances and security interests except for statutory liens for
the payment of current taxes that are not yet delinquent and liens, encumbrances
and security interests which arise in the ordinary course of business and which
do not affect material properties and assets of the
7
<PAGE>
Company. With respect to the property and assets it leases, the Company is in
material compliance with such leases and has good title to the leasehold
estates.
3.16 Financial Statements. Attached to this Agreement as Exhibit E
-------------------- ---------
is an unaudited balance sheet of the Company dated December 31, 1999 (the
"Balance Sheet Date") and an unaudited income statement of the Company for the
period from inception to the Balance Sheet Date (all such financial statements
being collectively referred to herein as the "Financial Statements").
(a) Statements. Such Financial Statements (i) are in accordance
----------
with the books and records of the Company; (ii) are true, correct and complete
and present fairly the financial condition of the Company at the date or dates
therein indicated and the results of operations for the period or periods
therein specified; and (iii) have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated, except as disclosed therein, provided, however, that the
unaudited Financial Statements are subject to normal recurring year-end audit
adjustments (which are not expected to be material) and do not contain all
footnotes required under generally accepted accounting principles.
(b) Liabilities. The Company has no material liabilities and, to
-----------
the best of its knowledge, knows of no material contingent liabilities not
disclosed in the Financial Statements, except current liabilities incurred in
the ordinary course of business subsequent to the Balance Sheet Date which have
not been, either in any individual case or in the aggregate, materially adverse.
3.17 Certain Actions. Since the Balance Sheet Date, the Company has
---------------
not: (i) declared or paid any dividends, or authorized or made any distribution
upon or with respect to any class or series of its capital stock; (ii) incurred
any indebtedness for money borrowed or incurred any other liabilities
individually in excess of $25,000 or in excess of $50,000 in the aggregate;
(iii) made any loans or advances to any person, other than ordinary advances for
travel expenses; (iv) sold, exchanged or otherwise disposed of any material
assets or rights other than the sale of inventory in the ordinary course of its
business; or (v) except for the grant of options under the Company's 1999 Equity
Incentive Plan and 2000 Equity Incentive Plan, entered into any material
transactions with any of its officers, directors or employees or any entity
controlled by any of such individuals.
3.18 Activities Since Balance Sheet Date. Since the Balance Sheet
-----------------------------------
Date, there has not been:
(a) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the assets, properties, financial
condition, operating results, prospects or business of the Company (as presently
conducted and as presently proposed to be conducted);
(b) any waiver by the Company of a valuable right or of a
material debt owed to it;
8
<PAGE>
(c) any material change or amendment to a material contract or
arrangement by which the Company or any of its assets or properties is bound or
subject, except for changes or amendments which are expressly provided for or
disclosed in this Agreement;
(d) any change in the assets, liabilities, financial condition or
operations of the Company from that reflected in the Financial Statements, other
than changes in the ordinary course of business, none of which individually or
in the aggregate has had or is expected to have a material adverse effect on
such assets, liabilities, financial condition or operations of the Company;
(e) any mortgage, pledge, transfer of a security interest in, or lien
created by the Company, with respect to any of its material properties or
assets, except liens for taxes not yet due or payable;
(f) any material change, except in the ordinary course of business, in
the contingent obligations of the Company by way of guaranty, endorsement,
indemnity, warranty or otherwise;
(g) any resignation or termination of any officer or key employee of
the Company; and the Company, to the best of its knowledge, does not know of the
impending resignation or termination of employment of any such officer or key
employee;
(h) any material change in any compensation arrangement or agreement
of the Company with any employee, officer, director or shareholder of the
Company;
(i) any labor organization activity of the Company;
(j) any sale, assignment or transfer by the Company of any of its
patents, trademarks, copyrights, trade secrets or other intangible assets;
(k) to the Company's knowledge, any other event or condition of any
character which would materially and adversely affect the assets, properties,
financial condition, operating results or business of the Company; and
(l) any arrangement or commitment by the Company to do any of the
preceding acts described in subsections (a) - (k) above.
3.19 Agreements; Action. The Company has not engaged in the past
------------------
three (3) months in any discussion (i) with any representative of any
corporation or corporations regarding the consolidation or merger of the Company
with or into any such corporation or corporations, (ii) with any corporation,
partnership, association or other business entity or any individual regarding
the sale, conveyance or disposition of all or substantially all of the assets of
the Company, or a transaction or series of related transactions in which more
than fifty percent (50%) of the voting power of the Company would be disposed
of, or (iii) regarding any other form of acquisition, liquidation, dissolution
or winding up of the Company.
9
<PAGE>
3.20 Obligations to Related Parties. There are no obligations of the
------------------------------
Company to officers, directors, shareholders, or employees of the Company other
than (a) for payment of salary for services rendered, (b) reimbursement for
reasonable expenses incurred on behalf of the Company, (c) for other standard
employee benefits made generally available to all employees (including equity
incentive agreements outstanding under any equity incentive plan approved by the
Board of Directors of the Company) or (d) as provided in stock purchase
agreements previously entered into. None of the officers, directors or
shareholders of the Company, or any members of their immediate families, is,
directly or indirectly, interested in any material contract with the Company
(other than such contracts as relate to any such person's ownership of capital
stock or other securities of the Company). Except as may be disclosed in the
Financial Statements, the Company is not a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.
3.21 ERISA Plans. The Company does not have any Employee Pension
-----------
Benefit Plan as defined in Section 3 of the Employee Retirement Income Security
Act of 1974, as amended.
3.22 Obligations of Management. To the knowledge of the Company,
-------------------------
each officer of the Company, excluding the Assistant Secretary, is currently
devoting one hundred percent (100%) of his or her business time to the conduct
of the business of the Company. The Company is not aware that any officer or
key employee of the Company is planning to work less than full time at the
Company in the future. No officer or key employee of the Company is currently
working or, to the Company's knowledge, plans to work for a competitive
enterprise, whether or not such officer or key employee is or will be
compensated by such enterprise.
3.23 Tax Returns and Payments. The Company has timely filed all tax
------------------------
returns and reports required by law and has never been audited by any state or
federal taxing authority. All tax returns and reports of the Company are true
and correct in all material respects. The Company has paid all taxes and other
assessments due, except those, if any, currently being contested by it in good
faith which are listed in the Schedule of Exceptions.
3.24 Section 83(b) Elections. To the Company's knowledge, all
-----------------------
elections and notices permitted by Section 83(b) of the U.S. Internal Revenue
Code of 1986, as amended ("IRC"), and any analogous provisions of applicable
state tax laws have been timely filed by all employees who have purchased shares
of the Company's common stock under agreements that provide for the vesting of
such shares.
3.25 Labor Agreements and Actions. The Company is not bound by or
----------------------------
subject to any contract, commitment or arrangement with any labor union, and to
the Company's best knowledge, no labor union has requested, sought or attempted
to represent any employees, representatives or agents of the Company. There is
no strike or other labor dispute involving the Company pending nor, to the
Company's best knowledge, threatened, nor is the Company aware of any labor
organization activity involving its employees.
10
<PAGE>
3.26 Insurance. The Company has in full force and effect fire and
---------
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed.
3.27 Environmental and Safety Laws. The Company is not in violation
-----------------------------
of any applicable statue, law or regulation relating to the environment or
occupational health and safety, and, to its knowledge, no material expenditures
by the Company are or will be required in order to comply with any such existing
statute, law or regulation.
3.28 Real Property Holding Corporation Status. Since its inception,
----------------------------------------
the Company has not been a "United States real property holding corporation", as
defined in Section 897(c)(2) of the IRC, and in Section 1.897-2(b) of the
Treasury Regulations issued thereunder (the "Regulations"), and the Company has
filed with the Internal Revenue Service all statements, if any, with its United
States income tax returns which are required under Section 1.897-2(h) of the
Regulations.
3.29 Year 2000 Compliance. All of the Company's software products,
--------------------
devices and programs will operate prior to, during and after the calendar year
2000 A.D. without material error relating to date data that represents or
references different centuries or more than one century, other than such errors
which have not have nor would reasonably be expected to have, individually or in
the aggregate, a material adverse effect on the Company's business as presently
conducted or as proposed by the Company to be conducted. Other than any of the
following which has not had nor could reasonably be expected to have a material
adverse effect, individually or in the aggregate, on the Company's business as
presently conducted or as proposed by the Company to be conducted without
limiting the generality of the foregoing:
(a) each such software product, device or program will not abnormally
end or provide invalid or incorrect results as a result of date data including
date data that represents or references different centuries or more than one
century;
(b) each such product, device or program has been designed to ensure
Year 2000 compatibility, including, but not limited to, date data century
recognition, calculations that accommodate same century and multi-century
formulas and date values and date data interface values that reflect the
century; and
(c) each such program includes "Year 2000 Capabilities." For the
purposes hereof, "Year 2000 Capabilities" means each such product, device or
program to the extent applicable: which (i) manages and manipulates data
involving dates, including single century formulas and multi-century formulas,
and will not cause an abnormally ending scenario within the application or
generate incorrect values or invalid results involving such dates; and (ii)
provides that all date-related interface functionalities and data fields include
the indication of century.
11
<PAGE>
4. REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF INVESTORS. Each
---------------------------------------------------------------
Investor hereby represents and warrants to, and agrees with, the Company,
severally and not jointly, that:
4.1 Authorization. This Agreement constitutes such Investor's valid
-------------
and legally binding obligation, enforceable in accordance with its terms except
as may be limited by (i) applicable bankruptcy, insolvency, reorganization or
other laws of general application relating to or affecting the enforcement of
creditors' rights generally and (ii) the effect of rules of law governing the
availability of equitable remedies. Each Investor represents that such Investor
has full power and authority to enter into this Agreement, the Investors' Rights
Agreement, the Voting Agreement and the Co-Sale Agreement.
4.2 Purchase for Own Account. The Purchased Shares to be purchased
------------------------
by such Investor hereunder will be acquired for investment for such Investor's
own account, not as a nominee or agent, and not with a view to the public resale
or distribution thereof within the meaning of the 1933 Act, and such Investor
has no present intention of selling, granting any participation in, or otherwise
distributing the same. If not an individual, such Investor also represents that
such Investor has not been formed for the specific purpose of acquiring
Purchased Shares.
4.3 Disclosure of Information. Such Investor has received or has had
-------------------------
full access to all the information it considers necessary or appropriate to make
an informed investment decision with respect to the Purchased Shares to be
purchased by such Investor under this Agreement. Such Investor further has had
an opportunity to ask questions and receive answers from the Company regarding
the terms and conditions of the offering of the Purchased Shares and to obtain
additional information (to the extent the Company possessed such information or
could acquire it without unreasonable effort or expense) necessary to verify any
information furnished to such Investor or to which such Investor had access.
The foregoing, however, does not in any way limit or modify the representations
and warranties made by the Company in Section 3.
4.4 Investment Experience. Such Investor understands that the
---------------------
purchase of the Purchased Shares involves substantial risk. Such Investor: (i)
has experience as an investor in securities of companies in the development
stage and acknowledges that such Investor is able to fend for itself, can bear
the economic risk of such Investor's investment in the Purchased Shares and has
such knowledge and experience in financial or business matters that such
Investor is capable of evaluating the merits and risks of this investment in the
Purchased Shares and protecting its own interests in connection with this
investment and/or (ii) has a preexisting personal or business relationship with
the Company and certain of its officers, directors or controlling persons of a
nature and duration that enables such Investor to be aware of the character,
business acumen and financial circumstances of such persons.
4.5 Accredited Investor Status. Such Investor is an "accredited
--------------------------
investor" within the meaning of Regulation D promulgated under the 1933 Act.
12
<PAGE>
4.6 Restricted Securities. Such Investor understands that the
---------------------
Purchased Shares are characterized as "restricted securities" under the 1933 Act
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under the 1933 Act and applicable
regulations thereunder such securities may be resold without registration under
the 1933 Act only in certain limited circumstances. In this connection, such
Investor represents that such Investor is familiar with Rule 144 of the U.S.
Securities and Exchange Commission (the "SEC"), as presently in effect, and
understands the resale limitations imposed thereby and by the 1933 Act. Such
Investor understands that the Company is under no obligation to register any of
the securities sold hereunder except as provided in the Investors' Rights
Agreement. Such Investor understands that no public market now exists for any
of the Purchased Shares and that it is uncertain whether a public market will
ever exist for the Purchased Shares or the Conversion Shares.
4.7 Further Limitations on Disposition. Without in any way limiting
----------------------------------
the representations set forth above, such Investor further agrees not to make
any disposition of all or any portion of the Purchased Shares or the Conversion
Shares unless and until:
(a) there is then in effect a registration statement under the
1933 Act covering such proposed disposition and such disposition is made in
accordance with such registration statement; or
(b) such Investor shall have notified the Company of the proposed
disposition and shall have furnished the Company with a statement of the
circumstances surrounding the proposed disposition, and, if reasonably requested
by the Company, at the expense of such Investor or its transferee, with an
opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of such securities under the 1933 Act.
Notwithstanding the provisions of paragraphs (a) and (b) above, no such
registration statement or opinion of counsel shall be required: (i) for any
transfer of any Purchased Shares or Conversion Shares in compliance with SEC
Rule 144 or Rule 144A, or (ii) for any transfer of Purchased Shares or
Conversion Shares by an Investor that is a partnership or a corporation to (A) a
partner of such partnership or shareholder of such corporation, (B) a retired
partner of such partnership who retires after the date hereof, or (C) the estate
of any such partner or shareholder, or (iii) for any transfer of Purchased
Shares or Conversion Shares by a limited liability company to its members or
former members, or (iv) for the transfer by gift, will or intestate succession
by any Investor to his or her spouse or lineal descendants or ancestors or any
trust for any of the foregoing; provided that in each of the foregoing cases,
--------
other than in clause (i) above, the transferee agrees in writing to be subject
to the terms of this Section 4 (other than Section 4.5) to the same extent as if
the transferee were an original Investor hereunder.
4.8 Legends. It is understood that the certificates evidencing the
-------
Purchased Shares and the Conversion Shares will bear the legends set forth
below:
(a) The securities represented hereby have not been registered
under the Securities Act of 1933, as amended (the "Act"), or under
13
<PAGE>
the securities laws of certain states. These securities are subject to
restrictions on transferability and resale and may not be transferred or
resold except as permitted under the Act and the applicable state
securities laws, pursuant to registration or exemption therefrom. investors
should be aware that they may be required to bear the financial risks of
this investment for an indefinite period of time. The issuer of these
securities may require an opinion of counsel in form and substance
satisfactory to the issuer to the effect that any proposed transfer or
resale is in compliance with the Act and any applicable state securities
laws.
(b) Any legend required by the laws of the State of California,
including any legend required by the California Department of Corporations and
Sections 417 and 418 of the California Corporations Code or any other state
securities laws, including a legend substantially in the form of the following:
The shares evidenced by this certificate: (1) are convertible into shares
of common stock of the Company at the option of the holder at any time
prior to automatic conversion thereof; and (2) automatically convert into
common stock of the Company in the event of a public offering meeting
certain requirements or upon certain consents of the holders of the
Company's preferred stock; all pursuant to and upon the terms and
conditions specified in the Company's Articles of Incorporation. A copy of
such Articles of Incorporation may be obtained, without charge, at the
Company's principal office.
The legend set forth in (a) above shall be removed by the Company from any
certificate evidencing Purchased Shares or Conversion Shares upon delivery to
the Company of an opinion by counsel, reasonably satisfactory to the Company
(which counsel may be counsel to the Company), that a registration statement
under the 1933 Act is at that time in effect with respect to the legended
security or that such security can be freely transferred in a public sale
without such a registration statement being in effect and that such transfer
will not jeopardize the exemption or exemptions from registration pursuant to
which the Company issued the Purchased Shares or Conversion Shares.
5. CONDITIONS TO INVESTORS' OBLIGATIONS AT CLOSING. The obligations of
-----------------------------------------------
each Investor under Section 2 of this Agreement are subject to the fulfillment
or waiver, on or before the Closing, of each of the following conditions, the
waiver of which shall not be effective against any Investor who does not consent
to such waiver, which consent may be given by written, oral or telephone
communication to the Company, its counsel or to special counsel to the
Investors:
5.1 Representations and Warranties True. Each of the representations
-----------------------------------
and warranties of the Company contained in Section 3 shall be true and complete
on and as of the Closing with the same effect as though such representations and
warranties had been made on and as of the date of the Closing.
14
<PAGE>
5.2 Performance. The Company shall have performed and complied with
-----------
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing and
shall have obtained all approvals, consents and qualifications necessary to
complete the purchase and sale described herein.
5.3 Restated Articles Effective. The Restated Articles shall have
---------------------------
been duly adopted by the Company by all necessary corporate action of its Board
of Directors and shareholders, and shall have been duly filed with and accepted
by the Secretary of State of the State of California.
5.4 Compliance Certificate. The Company shall have delivered to each
----------------------
Investor at the Closing a certificate signed on its behalf by its President,
Chief Executive Officer, or Chief Financial Officer certifying that the
conditions specified in Sections 5.1, 5.2 and 5.3 have been fulfilled and
stating that there has been no material adverse change in the business, affairs,
prospects, operations, properties, assets or condition of the Company not
previously disclosed to the Investors in writing.
5.5 Securities Exemptions. The offer and sale of the Purchased
---------------------
Shares to the Investors pursuant to this Agreement shall be exempt from the
registration requirements of the 1933 Act, the qualification requirements of the
Law and the registration and/or qualification requirements of all other
applicable state securities laws.
5.6 Proceedings and Documents. All corporate and other proceedings
-------------------------
in connection with the transactions contemplated at the Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to each Investor and to the Investors' special counsel, and they shall
each have received all such counterpart originals and certified or other copies
of such documents as they may reasonably request. Such documents shall include
(but not be limited to) the following:
(a) Certified Charter Documents. A copy of the Restated Articles
---------------------------
and the Bylaws of the Company (as amended through the date of the Closing),
certified by the Secretary of the Company as true and correct copies thereof as
of the Closing.
(b) Corporate Actions. A copy of the resolutions of the Board of
-----------------
Directors and, if required, the shareholders of the Company evidencing the
authorization of the amendment to the Company's Articles of Incorporation
providing for the authorization of the Series D Stock, the approval of this
Agreement, the Investors' Rights Agreement, the Voting Agreement and the Co-Sale
Agreement, the issuance of the Purchased Shares and the other matters
contemplated hereby, certified by the Secretary of the Company to be true,
complete and correct.
(c) Consents, Permits and Waivers. The Company shall have
--------
obtained any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by this Agreement, the Investors'
Rights Agreement, the Voting Agreement and the Co-Sale Agreement (except for
such as may be properly obtained subsequent to the Closing).
15
<PAGE>
5.7 Bylaws. The Bylaws of the Company shall be in the form
------
previously presented to special counsel to the investors and shall provide that
the authorized number of members of the Board of Directors of the Company shall
be a variable number between five (5) and nine (9) persons.
5.8 Board of Directors. The directors of the Company shall be James
------------------
Jorgensen, Johannes Pohle, David Pidwell, John Shoch, Richard LeFurgy, Thomas
Unterman and Bill Burnham with the eighth director to be elected to the Board
following the Closing.
5.9 No Material Change. There shall have been no material adverse
------------------
change in the business, affairs, prospects, operations, properties, assets or
condition of the Company.
5.10 Opinion of Company Counsel. Each Investor shall have received
--------------------------
an opinion from Fenwick & West, LLP, counsel for the Company, dated as of the
date of the Closing, in the form attached hereto as Exhibit F.
---------
5.11 Investors' Rights Agreement. The Company and each Investor
---------------------------
shall have executed and delivered the Second Amended and Restated Investors'
Rights Agreement in the form attached to this Agreement as Exhibit G (the
---------
"Investors' Rights Agreement").
5.12 Voting Agreement. The Company, each Investor and certain
----------------
shareholders shall have executed and delivered the Second Amended and Restated
Voting Agreement in the form attached to this Agreement as Exhibit H (the
---------
"Voting Agreement").
5.13 Co-Sale Agreement. The Company, each Investor and certain
-----------------
shareholders shall have executed and delivered the Amended and Restated Co-Sale
Agreement in the form attached to this Agreement as Exhibit I (the "Co-Sale
---------
Agreement").
5.14 Hart-Scott-Rodino Compliance. All applicable waiting periods
----------------------------
under the Hart-Scott-Rodino Antitrust Improvements Act shall have expired or
early termination shall have been granted by both the Federal Trade Commission
and the United States Department of Justice.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations
--------------------------------------------------
of the Company to each Investor under this Agreement are subject to the
fulfillment or waiver on or before the Closing of each of the following
conditions by such Investor:
6.1 Representations and Warranties. The representations and
------------------------------
warranties of such Investor contained in Section 4 shall be true and complete on
the date of the Closing with the same effect as though such representations and
warranties had been made on and as of the Closing.
6.2 Payment of Purchase Price. Each Investor shall have delivered
-------------------------
to the Company the purchase price specified for such Investor on Exhibit A in
accordance with the provisions of Section 2.
16
<PAGE>
6.3 Restated Articles Effective. The Restated Articles shall have
---------------------------
been duly adopted by the Company by all necessary corporate action of its
shareholders, and shall have been duly filed with and accepted by the Secretary
of State of the State of California.
6.4 Securities Exemptions. The offer and sale of the Purchased
---------------------
Shares to the Investors pursuant to this Agreement shall be exempt from the
registration requirements of the 1933 Act, the qualifications requirements of
the Law and the registration and/or qualification requirements of all other
applicable state securities laws, except to the extent that the failure of this
condition to be satisfied results from or is attributable to any action by the
Company or any of its officers, directors, employees or shareholders or any
action required to be taken by any such person in conjunction with such
registration or qualification and not so taken.
6.5 Investors' Rights Agreement. Each Investor shall have executed
---------------------------
and delivered the Investors' Rights Agreement.
6.6 Voting Agreement. Each Investor and certain shareholders shall
----------------
have executed and delivered the Voting Agreement.
6.7 Co-Sale Agreement. Each Investor and certain shareholders shall
-----------------
have executed and delivered the Co-Sale Agreement.
6.8 Lock-Up Agreement. Each Investor and all shareholders shall have
-----------------
executed and delivered the Lock-Up Agreement in substantially the form attached
to this Agreement as Exhibit J (the "Lock-Up Agreement").
---------
6.9 NASD Questionnaire. Each Investor and all shareholders shall
------------------
have completed, executed and delivered the NASD Questionnaire in substantially
the form attached to this Agreement as Exhibit K (the "NASD Questionnaire").
---------
6.10 Hart-Scott-Rodino Compliance. All applicable waiting periods
----------------------------
under the Hart-Scott-Rodino Antitrust Improvements Act shall have expired or
early termination shall have been granted by both the Federal Trade Commission
and the United States Department of Justice.
7. COVENANTS OF THE COMPANY.
------------------------
7.1 Books. The Company will maintain true books and records of
-----
account in which full and correct entries will be made of all business
transactions required to be maintained pursuant to a system of accounting
established and administered in accordance with generally accepted accounting
principles consistently applied, and will set aside on its books all such proper
accruals and reserves as shall be required under generally accepted accounting
principles consistently applied.
7.2 Stock Vesting. Unless otherwise approved by the Board of
-------------
Directors: (i) all incentive stock options and other incentive stock
equivalents issued by the Company after the date of this Agreement to its
employees, directors, consultants and other service providers shall
17
<PAGE>
be subject to vesting as follows: (a) each option, of the stock issuable
thereunder, will vest as to twenty-five percent (25%) of such stock at the end
of the first year following the earlier of the date of issuance of such option
or such person's services commencement date with the Company, and (b) seventy-
five percent (75%) of such stock over the remaining three (3) years; and (ii)
with respect to any shares of stock purchased by any such person, the Company's
repurchase option shall provide that upon such person's termination of
employment and/or service with the Company, with or without cause, the Company
or its assignee (to the extent permissible under applicable securities laws and
other laws) shall have the option to purchase at cost any unvested shares of
stock held by such person.
7.3 Proprietary Information and Inventions Agreement. The Company
------------------------------------------------
shall require all employees and consultants to execute and deliver an Invention
Assignment and Confidentiality Agreement substantially in the applicable form
attached to this Agreement as Exhibit D.
---------
7.4 Real Property Holding Corporation. The Company covenants that,
---------------------------------
unless otherwise approved by the Board of Directors, it will operate in a manner
such that it will not become a "United States real property holding corporation"
(a "USRPHC") as that term is defined in IRC Section 897(c)(2), and the
regulations thereunder ("FIRPTA"). The Company agrees to make determinations as
to its status as a USRPHC, and will file statements concerning those
determinations with the Internal Revenue Service, in the manner and at the times
required under IRC Reg. (S) 1.897-2(h), or any supplementary or successor
provision thereto. Within 30 days of a request from an Investor or any of its
partners, the Company will inform the requesting party, in the manner set forth
in IRC Reg. (S) 1.897- 2(h)(1) or any supplementary or successor provision
thereto, whether that party's interest in the Company constitutes a United
States real property interest (within the meaning of IRC Section 897(c)(1) and
the regulations thereunder) and whether the Company has provided to the Internal
Revenue Service all required notices as to its USRPHC status.
7.5 Right of First Refusal. Unless otherwise approved by the Board of
----------------------
Directors, each person who, after the Closing, holds shares of common stock or
Series A Preferred Stock or other securities of the Company or any option,
warrant or right to acquire such shares or other securities, pursuant to any
benefit, bonus or incentive plan of the Company will be bound by an agreement
granting the Company an assignable right of first refusal with respect to
transfers of such shares of common stock or other securities (excluding
transfers to immediate family members, or trusts therefor, transfers upon a
statutory merger or consolidation of the Company, or upon the winding up or
dissolution of the Company), provided that such right of first refusal
terminates upon the Company's initial public offering (the "IPO") of its common
stock pursuant to an effective registration statement filed under the Securities
Act or such shares of common stock or other securities are exchanged for or
converted into capital stock of a company subject to the registration and/or
reporting requirements under Section 12 and/or 13 of the Exchange Act of 1934,
as amended.
7.6 Transferability. Unless otherwise approved by the Board of
---------------
Directors, options granted under the 1999 Equity Incentive Plan or 2000 Equity
Incentive Plan, and any
18
<PAGE>
interest therein, will not be transferable or assignable by the grantee of such
option prior to vesting other than by will or by the laws of descent and
distribution.
7.7 Termination. The provisions of Sections 7.1 through 7.7 above
-----------
shall terminate (a) immediately before the closing of the IPO or (b) upon (1)
the acquisition of all or substantially all the assets of the Company or (2) an
acquisition of the Company by another corporation or entity by consolidation,
merger or other reorganization in which the holders of the Company's outstanding
voting stock immediately prior to such transaction own, immediately after such
transaction, securities representing less than fifty percent (50%) or more of
the voting power of the corporation or other entity surviving such transaction.
8. GENERAL PROVISIONS.
------------------
8.1 Survival of Warranties. The representations, warranties and
----------------------
covenants of the Company and the Investors contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of any of the Investors, their counsel or
the Company, as the case may be.
8.2 Successors and Assigns. The terms and conditions of this
----------------------
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties.
8.3 Governing Law. This Agreement shall be governed by and construed
-------------
under the internal laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California, without reference to principles of conflict of laws or choice of
laws.
8.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
8.5 Headings. The headings and captions used in this Agreement are
--------
used for convenience only and are not to be considered in construing or
interpreting this Agreement. All references in this Agreement to sections,
paragraphs, exhibits and schedules shall, unless otherwise provided, refer to
sections and paragraphs hereof and exhibits and schedules attached hereto, all
of which exhibits and schedules are incorporated herein by this reference.
8.6 Notices. Unless otherwise provided, any notice required or
-------
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on Exhibit A or, in the case of the Company, at 25954
Eden Landing Road, Hayward, CA 94545, or at such other address as any party or
the Company may designate by giving ten (10) days advance written notice to all
other parties.
19
<PAGE>
8.7 No Finder's Fees. Each party represents that it neither is nor
----------------
will be obligated for any finder's or broker's fee or commission in connection
with this transaction. Each Investor agrees to indemnify and to hold harmless
the Company from any liability for any commission or compensation in the nature
of a finders' or broker's fee (and any asserted liability) for which the
Investor or any of its officers, partners, employees, or representatives is
responsible. The Company agrees to indemnify and hold harmless each Investor
from any liability for any commission or compensation in the nature of a
finder's or broker's fee (and any asserted liability) for which the Company or
any of its officers, employees or representatives is responsible.
8.8 Costs, Expenses. The Company shall pay in connection with the
---------------
preparation, execution and delivery of this Agreement and the issuance of the
Purchased Shares, the fees and out-of-pocket expenses of Sullivan & Cromwell,
special counsel to the Investors, with respect thereto, such fees and expenses
not to exceed $15,000. The Company has retained Credit Suisse First Boston as
Placement Agent for this offering, for which the Company has agreed to pay the
Placement Agent a fee and reimburse its reasonable expenses.
8.9 Amendments and Waivers. Except as specified in Section 2.2, any
----------------------
term of this Agreement may be amended and the observance of any term of this
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and the holders of Purchased Shares and/or Conversion Shares representing at
least a majority of the aggregate number of shares of Common Stock into which
the Purchased Shares then are convertible and/or have been converted (excluding
any of such shares that have been sold to the public or pursuant to SEC Rule
144). Any amendment or waiver effected in accordance with this Section shall be
binding upon each holder of any Purchased Shares and/or Conversion Shares at the
time outstanding, each future holder of such securities, and the Company;
provided, however, that no condition set forth in Section 5 may be waived with
- -------- -------
respect to any Investor who does not consent thereto; and provided further, that
-------- -------
New Investors may become parties to this Agreement in accordance with Section
2.2 without any amendment of this Agreement or any consent or approval of any
Investor.
8.10 Waiver of Conflict of Interest. Each Investor and the Company
------------------------------
is aware that Fenwick & West LLP ("F&W") may have previously performed and may
continue to perform certain legal services for certain of the Investors in
matters unrelated to F&W's representation of the Company. In connection with
its Investor representation, F&W may have obtained confidential information of
such Investors that could be material to F&W's representation of the Company in
connection with negotiation, execution and performance of this Agreement. In
addition, F&W Investments 2000, an affiliate of F&W, may invest as an Investor
under the terms of this Agreement. By signing this Agreement, each Investor and
the Company hereby acknowledges that the terms of this Agreement were negotiated
between the Investors and the Company and are fair and reasonable, waives any
potential conflict of interest arising out of such representation or such
possession of confidential information and consents to the investment by F&W
Investments 2000. Each Investor and the Company further represents that it has
had the opportunity to be, or has been, represented by independent counsel in
giving the waivers contained in this Section 8.10.
20
<PAGE>
8.11 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, such provision(s) shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its terms.
8.12 Entire Agreement. This Agreement, together with all exhibits
----------------
and schedules hereto, constitutes the entire agreement and understanding of the
parties with respect to the subject matter hereof and supersedes any and all
prior negotiations, correspondence, agreements, understandings duties or
obligations between the parties with respect to the subject matter hereof.
8.13 Further Assurances. From and after the date of this Agreement,
------------------
upon the request of any Investor or the Company, the Company and the Investors
shall execute and deliver such instruments, documents or other writings as may
be reasonably necessary or desirable to confirm and carry out and to effectuate
fully the intent and purposes of this Agreement.
[Remainder of Page Intentionally Left Blank]
21
<PAGE>
In Witness Whereof, the parties hereto have executed this Agreement as of
the date first written above.
<TABLE>
<CAPTION>
THE COMPANY: THE INVESTORS:
- ----------- -------------
<S> <C>
By: /s/ CARL T. ANDERSON SOFTBANK CAPITAL PARTNERS LP
(please print name here)
-----
Name: Carl T. Anderson
By: /s/ STEVEN J. MURRAY
Title: Secretary
Address: 2954 Eden Landing Road Name: Steven J. Murray
Hayward, CA 94545 Title: Admin. Member of G.P.
Address: 1188 Centre St.
Newton Center, MA 02459
SOFTBANK CAPITAL ADVISORS FUND LP
(please print name here)
-----
By: /s/ STEVEN J. MURRAY
Name: Steven J. Murray
Title: Admin Member of GP
Address: 1188 Centre St.
Newton, MA 02459
The Putnam Advisory Company, Inc. on behalf of
PUTNAM EMERGING INFORMATION SCIENCES TRUST S.A.
(please print name here)
-----
By: /s/ JOHN R. VERANI
Name: John R. Verani
Title: Senior Vice President
Address: One Post Office Square
Boston, Massachusetts 02109
</TABLE>
[SIGNATURE PAGE TO ALLADVANTAGE.COM
SERIES D PREFERRED STOCK PURCHASE AGREEMENT]
<PAGE>
THE INVESTORS:
-------------
Putnam Investment Management, Inc. on
behalf of PUTNAM OTC & EMERGING GROWTH FUND
(please print name here)
-----
By: /s/ JOHN R. VERANI
Name: John R. Verani
Title: Senior Vice President
Address: One Post Office Square
Boston, Massachusetts 02109
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC.
(please print name here)
-----
By: /s/ CHARLES A. MORRIS
Name: Charles A. Morris
Title: President
Address: 100 East Pratt Street
Baltimore, MD 21202
CREDIT SUISSE FIRST BOSTON VENTURE FUND I, LP
(please print name here)
-----
By: /s/ FRANK QUATTRONE
Name: Frank Quattrone
Title: Member
Address: 2400 Hanover Street
Palo Alto, CA 94304
[SIGNATURE PAGE TO ALLADVANTAGE.COM
SERIES D PREFERRED STOCK PURCHASE AGREEMENT]
<PAGE>
THE INVESTORS:
-------------
DLJ ESC II, L.P.
BY: DLJ LBO PLANS MANAGEMENT CORPORATION
(please print name here)
-----
By: /s/ IVY DODES
Name: Ivy Dodes
Title: Vice President
Address: 277 Park Avenue, 23/rd/ Flr.
New York, NY 10172
DLJ FUND INVESTMENT PARTNERS II, L.P.
BY: DLJ LBO PLANS MANAGEMENT CORPORATION
(please print name here)
By: /s/ IVY DODES
Name: Ivy Dodes
Title: Vice President
Address: 277 Park Avenue, 23/rd/ Flr.
New York, NY 10172
DLJ PRIVATE EQUITY EMPLOYEES FUND, L.P.
BY: DLJ LBO PLANS MANAGEMENT CORPORATION
(please print name here)
-----
By: /s/ IVY DODES
Name: Ivy Dodes
Title: Vice President
Address: 277 Park Avenue, 23/rd/ Flr.
New York, NY 10172
[SIGNATURE PAGE TO ALLADVANTAGE.COM
SERIES D PREFERRED STOCK PURCHASE AGREEMENT]
<PAGE>
THE INVESTORS:
-------------
DLJ PRIVATE EQUITY PARTNERS FUND, L.P.
BY: WSW CAPITAL, INC.
(please print name here)
-----
By: /s/ IVY DODES
Name: Ivy Dodes
Title: Vice President
Address: 277 Park Avenue, 23/rd/ Flr.
New York, NY 10172
JEFFREY C. HINES
(please print name here)
-----
By: /s/ JEFFREY C. HINES
Name: Jeffrey C. Hines
Title:
Address: 3415 Sleepy Hollow Court
Houston, Texas 77019
JAMES C. BUIE, JR.
(please print name here)
-----
By: /s/ JAMES C. BUIE, JR.
Name: James C. Buie, Jr.
Title:
Address:. 118 Winding Way, PO Box 1043
Ross, CA 94957-1043
[SIGNATURE PAGE TO ALLADVANTAGE.COM
SERIES D PREFERRED STOCK PURCHASE AGREEMENT]
<PAGE>
THE INVESTORS:
-------------
DOUGLAS G. HOLTE
(please print name here)
-----
By: /s/ DOUGLAS G. HOLTE
Name: Douglas G. Holte
Title:
Address: 910 Chautauqua Blvd.
LA, CA 90272
COLIN P. SHEPHERD
(please print name here)
-----
By: /s/ COLIN P. SHEPHERD
Name: Colin P. Shepherd
Title: Senior Vice President
Address: 601 S. Figueroa St., #3860
Los Angeles, CA 90017
JAMES A. MORRISON
(please print name here)
-----
By: /s/ JAMES A. MORRISON
Name: James A. Morrison
Title:
Address:. 501 Oak Avenue
San Anselmo, CA 94960
[SIGNATURE PAGE TO ALLADVANTAGE.COM
SERIES D PREFERRED STOCK PURCHASE AGREEMENT]
<PAGE>
THE INVESTORS:
-------------
PAYDAY INVESTMENTS LLC
(please print name here)
-----
By: /s/ JOHN PETTWAY
Name: John Pettway
Title: Manager
Address: 700 Bitner Road
Park City, UT 84098
52/nd/ STREET ASSOCIATES, INC.
(please print name here)
-----
By: /s/ LETA APPLEGATE
Name: Leta Applegate
Title: Assistant Secretary
Address: 55 East 52/nd/ St. 27/th/ floor
New York, NY 10022
WINTHER VENTURES LLC
(please print name here)
By: /s/ STEVE ABBOT
Name: Steve Abbot
Title: Managing Member
Address:. 72 Mercury Ave.
Tiburon, CA 94920
[SIGNATURE PAGE TO ALLADVANTAGE.COM
SERIES D PREFERRED STOCK PURCHASE AGREEMENT]
<PAGE>
THE INVESTORS:
-------------
MARK H. SHERMAN
(please print name here)
-----
By: /s/ MARK H. SHERMAN
Name: Mark H. Sherman
Title: Managing Director
Address: 2506 Union
SF 94123
LOWELL SINGER
(please print name here)
-----
By: /s/ LOWELL J. SINGER
Name: Lowell J. Singer
Title:
Address: 2600 Buchanan St.
San Francisco, CA 94115
EARLYBIRD PRESEED BETEINGUNGS-KGNR. 7
(please print name here)
-----
By: /s/ ROLF MATHES
Name: Rolf Mathes
Title: Managing Director
Address:. Maximilianstr. 14
80539 Munchen, Germany
[SIGNATURE PAGE TO ALLADVANTAGE.COM
SERIES D PREFERRED STOCK PURCHASE AGREEMENT]
<PAGE>
THE INVESTORS:
-------------
WALDEN MEDIA AND INFORMATION TECHNOLOGY
FUND, L.P.
(please print name here)
-----
By: /s/ STEVE ESKENAZI
Name: Steve Eskenazi
Title: Manager
Address: 750 Battery St. 7/th/ Floor
San Francisco, CA 94111
TMCT VENTURES, LP
UNDER MANAGEMENT BY RUSTIC CANYON PARTNERS, LLP
(please print name here)
-----
By: /s/ MICHAEL SONG
Name: Michael Song
Title: Partner
Address: 2425 Olympic Blvd., Suite 6050W
Santa Monica, CA 90404
(please print name here)
-----
By: /s/ JOHN F. SHOCH
Name: John F. Shoch
Title: Managing Member of Alloy Ventures 1999,
LLC the general partner of AMA 98 Partners,
L.P., AMA98 Ventures, LP, AMA98 Corporate,
L.P., AMA98 Investors, L.P.
Address:
[SIGNATURE PAGE TO ALLADVANTAGE.COM
SERIES D PREFERRED STOCK PURCHASE AGREEMENT]
<PAGE>
THE INVESTORS:
-------------
TECHNOLOGY PARTNERS FUND VI, LP
TP MANAGEMENT VI, LLC
(please print name here)
-----
By: /s/ IRA EHRENPREIS
Name: Ira Ehrenpreis
Title: Managing Member
Address: 1550 Tiburon Blvd., Suite A
Belvedere, CA 94920
SELIGMAN COMMUNICATIONS AND INFORMATION FUND,
INC.
BY: J&W SELIGMAN CO.
INCORPORATED, ITS INVESTMENT
ADVISORY
(please print name here)
-----
By: /s/ RICHARD R. SCHMALTZ
Name: Richard R. Schmaltz
Title: Managing Director
Address: 100 Park Ave. 8/th/ Floor
New York, NY 10017
Att: James M. Curtis
[SIGNATURE PAGE TO ALLADVANTAGE.COM
SERIES D PREFERRED STOCK PURCHASE AGREEMENT]
<PAGE>
THE INVESTORS:
-------------
SELIGMAN NEW TECHNOLOGIES FUND, INC.
BY: J&W SELIGMAN CO. INCORPORATED, ITS
INVESTMENT ADVISORY
(please print name here)
-----
By: /s/ RICHARD R. SCHMALTZ
Name: Richard R. Schmaltz
Title: Managing Director
Address: 100 Park Ave. 8th Floor
New York, NY 10017
Att: James M. Curtis
SELIGMAN INVESTMENT OPPORTUNITIES
(MASTER) FUND-NTV PORTFOLIO
BY: J&W SELIGMAN & CO. INCORPORATED, ITS
INVESTMENT ADVISORY
(please print name here)
-----
By: /s/ RICHARD R. SCHMALTZ
Name: Richard R. Schmaltz
Title: Managing Director
Address: 100 Park Ave. 8th Floor
New York, NY 10017
Att: James M. Curtis
[SIGNATURE PAGE TO ALLADVANTAGE.COM
SERIES D PREFERRED STOCK PURCHASE AGREEMENT]
<PAGE>
THE INVESTORS:
--------------
PARTECH U.S. PARTNERS III C.V.
AXA. GROWTH FUND LLC
PARALLEL CAPITAL I LLC
PARALLEL CAPITAL II LLC
DOUBLE BLACK DIAMOND II LLC
45TH PARALLEL LLC
MULTINVEST LLC
ALMANORI LIMITED
(please print name here)
-----
By: /s/ VINCENT WORMS
Name: Vincent Worms
Title: General Partner/Managing
Member/Attorney-in-fact
Address: 50 California Street, Suite
3200
San Francisco, CA 94111
F&W INVESTMENTS 2000
(please print name here)
-----
By: /s/ LAIRD H. SIMONS III
Name: Laird H. Simons III
Title: Partner
Address: Two Palo Alto Square
Palo Alto CA 94306
[SIGNATURE PAGE TO ALLADVANTAGE.COM
SERIES D PREFERRED STOCK PURCHASE AGREEMENT]
<PAGE>
THE INVESTORS:
-------------
PIDWELL INVESTMENTS LLC
(please print name here)
-----
By: /s/ DAVID W. PIDWELL
Name: David W. Pidwell
Title: Manager
Address: 20628 Vickery Lane
Saratoga, CA 95070
DAVID BECKMAN -ROBERTSON
(please print name here)
-----
By: /s/ D.B. ROBERTSON
Name: David Beckman-Robertson
Title:
Address:
DANA H. ABER
(please print name here)
-----
By: /s/ DANA H. ABER
Name: Dana H. Aber
Title: Director of Sales - West Coast
Address: 2100 Mar East
Tiburon, CA 94920
[SIGNATURE PAGE TO ALLADVANTAGE.COM
SERIES D PREFERRED STOCK PURCHASE AGREEMENT]
<PAGE>
THE INVESTORS:
-------------
MAURO CALVI
(please print name here)
-----
By: /s/ MAURO CALVI
Name: Mauro Calvi
Title: VP International
Address: 35 Pear Court
Hillsborough, CA 94010
JAN DANIEL
(please print name here)
-----
By: /s/ JAN DANIEL
Name: Jan Daniel
Title: VP HR
Address: 2108 Blackwood Dr.
Walnut Creek, CA 94596
PAMELA DAY
(please print name here)
-----
By: /s/ PAMELA DAY
Name: Pamela Day
Title:
Address:
[SIGNATURE PAGE TO ALLADVANTAGE.COM
SERIES D PREFERRED STOCK PURCHASE AGREEMENT]
<PAGE>
THE INVESTORS:
-------------
JOSEPH M. FELIU, PATRICIA E. FELIU
(please print name here)
-----
By: /s/ JOSEPH M. FELIU
PATRICIA E. FELIU
Name: Joseph M. Feliu, Patricia E. Feliu
Title: VP Operations
Address: 544 Gabilan St.
Los Altos, CA 94022
MICHAEL D. FLOYD
(please print name here)
-----
By: /s/ MICHAEL D. FLOYD
Name: Michael D. Floyd
Title: Software Engineer
Address: 1436 Fourth St.
Alameda, CA 94501
LOUIS A. JOHNSTON
(please print name here)
-----
By: /s/ LOUIS A. JOHNSTON
Name: Louis A. Johnston
Title:
Address: 251 Staysail Court
Foster City, CA 94404
[SIGNATURE PAGE TO ALLADVANTAGE.COM
SERIES D PREFERRED STOCK PURCHASE AGREEMENT]
<PAGE>
THE INVESTORS:
-------------
MARISSA R. JOHNSTON
(please print name here)
-----
By: /s/ MARISSA R. JOHNSTON
Name: Marissa R. Johnston
Title:
Address: 251 Staysail Court
Foster City, CA 94404
RICHARD W. JONES
(please print name here)
-----
By: /s/ RICHARD W. JONES
Name: Richard W. Jones
Title:
Address: 3182 Campus Drive #204
San Mateo, CA 94403
FIROOZ KHODADDY
FARIMAH KHODADDY
(please print name here)
-----
By: /s/ FIROOZ KHODADDY
/s/ FARIMAH KHODADDY
Name: Firooz Khodaddy
Title:
Address: 43 Plymouth Ct.
San Ramon, CA 94583
[SIGNATURE PAGE TO ALLADVANTAGE.COM
SERIES D PREFERRED STOCK PURCHASE AGREEMENT]
<PAGE>
THE INVESTORS:
-------------
FARAMARZ MAHDAVI
(please print name here)
-----
By: /s/ FARAMARZ MAHDAVI
Name: Faramarz Mahdavi
Title:
Address: 2425 Alamo Glen Dr.
Alamo, CA 94507
BERNIE AND JACKIE MURPHY REVOCABLE TRUST
(please print name here)
-----
By: /s/ BERNIE J. MURPHY, TRUSTEE
Name: Bernie J. Murphy, Trustee
Title: VP of Finance, Treasurer
Address: 10 Broadview Dr.
San Rafael, CA 94901
KURT D. RUNKE
(please print name here)
-----
By: /s/ KURT D. RUNKE
Name: Kurt D. Runke
Title:
Address: 1120 Runnymead Dr.
Los Altos, CA 94024
[SIGNATURE PAGE TO ALLADVANTAGE.COM
SERIES D PREFERRED STOCK PURCHASE AGREEMENT]
<PAGE>
THE INVESTORS:
-------------
WILLIAM P. TRENTO
(please print name here)
-----
By: /s/ WILLIAM P. TRENTO
Name: William P. Trento
Title: VP, Community
Address: 1456 10th Ave.
San Francisco, CA 94122
KENT WOLOSON
(please print name here)
-----
By: /s/ KENT WOLOSON
Name: Kent Woloson
Title: Regional VP Sales
Address: 855 W. Erie #122
Chicago, IL 60622
DERICK YEE
(please print name here)
-----
By: /s/ DERICK YEE
Name: Derick Yee
Title:
Address: 4469 Winding River Cir.
Stockton, CA 95219
[SIGNATURE PAGE TO ALLADVANTAGE.COM
SERIES D PREFERRED STOCK PURCHASE AGREEMENT]
<PAGE>
LIST OF EXHIBITS
----------------
Exhibit A - Schedule of Investors
Exhibit B - Restated Articles of Incorporation
Exhibit C - Schedule of Exceptions
Exhibit D - Invention Assignment and Confidentiality Agreement
Exhibit E - Unaudited Financial Statement
Exhibit F - Opinion of Company Counsel
Exhibit G - Investors' Rights Agreement
Exhibit H - Voting Agreement
Exhibit I - Co-Sale Agreement
Exhibit J - Lock-Up Agreement
Exhibit K - NASD Questionnaire
<PAGE>
EXHIBIT A
Schedule of Investors
---------------------
[Can be provided upon request]
<PAGE>
EXHIBIT B
Amended and Restated Articles of Incorporation
----------------------------------------------
[Can be provided upon request]
<PAGE>
EXHIBIT C
Schedule of Exceptions
----------------------
[Can be provided upon request]
<PAGE>
EXHIBIT D
Invention Assignment and Confidentiality Agreement
--------------------------------------------------
<PAGE>
EMPLOYEE INVENTION ASSIGNMENT AND
---------------------------------
CONFIDENTIALITY AGREEMENT
-------------------------
In consideration of, and as a condition of my employment with
AllAdvantage.com, a California corporation (the "Company"), I hereby represent
to, and agree with the Company as follows:
1. Purpose of Agreement. I understand that the Company is engaged in a
--------------------
continuous program of research, development, production and marketing in
connection with its business and that it is critical for the Company to preserve
and protect its "Proprietary Information" (as defined in Section 7 below), its
rights in "Inventions" (as defined in Section 2 below) and in all related
intellectual property rights. Accordingly, I am entering into this Employee
Invention Assignment and Confidentiality Agreement (this "Agreement") as a
condition of my employment with the Company, whether or not I am expected to
create inventions of value for the Company.
2. Disclosure of Inventions. I will promptly disclose in confidence to
------------------------
the Company all inventions, improvements, designs, original works of authorship,
formulas, processes, compositions of matter, computer software programs,
databases, mask works and trade secrets (the "Inventions") that I make or
conceive or first reduce to practice or create, either alone or jointly with
others, during the period of my employment, whether or not in the course of my
employment, and whether or not such Inventions are patentable, copyrightable or
protectible as trade secrets.
3. Work for Hire; Assignment of Inventions. I acknowledge and agree that
---------------------------------------
any copyrightable works prepared by me within the scope of my employment are
"works for hire" under the Copyright Act and that the Company will be considered
the author and owner of such copyrightable works. I agree that all Inventions
that (i) are developed using equipment, supplies, facilities or trade secrets of
the Company, (ii) result from work performed by me for the Company, or (iii)
relate to the Company's business or current or anticipated research and
development, will be the sole and exclusive property of the Company and are
hereby irrevocably assigned by me to the Company.
4. Labor Code Section 2870 Notice. I have been notified and understand
------------------------------
that the provisions of Sections 3 and 5 of this Agreement do not apply to any
Invention that qualifies fully under the provisions of Section 2870 of the
California Labor Code, which states as follows:
ANY PROVISION IN AN EMPLOYMENT AGREEMENT WHICH PROVIDES THAT
AN EMPLOYEE SHALL ASSIGN, OR OFFER TO ASSIGN, ANY OF HIS OR
HER RIGHTS IN AN INVENTION TO HIS OR HER EMPLOYER SHALL NOT
APPLY TO AN INVENTION THAT THE EMPLOYEE DEVELOPED ENTIRELY ON
HIS OR HER OWN TIME WITHOUT USING THE EMPLOYER'S EQUIPMENT,
SUPPLIES, FACILITIES, OR TRADE SECRET INFORMATION
<PAGE>
EXCEPT FOR THOSE INVENTIONS THAT EITHER: (1) RELATE AT THE
TIME OF CONCEPTION OR REDUCTION TO PRACTICE OF THE INVENTION
TO THE EMPLOYER'S BUSINESS, OR ACTUAL OR DEMONSTRABLY
ANTICIPATED RESEARCH OR DEVELOPMENT OF THE EMPLOYER; OR (2)
RESULT FROM ANY WORK PERFORMED BY THE EMPLOYEE FOR THE
EMPLOYER. TO THE EXTENT A PROVISION IN AN EMPLOYMENT
AGREEMENT PURPORTS TO REQUIRE AN EMPLOYEE TO ASSIGN AN
INVENTION OTHERWISE EXCLUDED FROM BEING REQUIRED TO BE
ASSIGNED UNDER CALIFORNIA LABOR CODE SECTION 2870(a), THE
PROVISION IS AGAINST THE PUBLIC POLICY OF THIS STATE AND IS
UNENFORCEABLE.
5. Assignment of Other Rights. In addition to the foregoing assignment of
--------------------------
Inventions to the Company, I hereby irrevocably transfer and assign to the
Company: (i) all worldwide patents, patent applications, copyrights, mask
works, trade secrets and other intellectual property rights in any Invention;
and (ii) any and all "Moral Rights" (as defined below) that I may have in or
with respect to any Invention. I also hereby forever waive and agree never to
assert any and all Moral Rights I may have in or with respect to any Invention,
even after termination of my work on behalf of the Company. "Moral Rights" mean
any rights to claim authorship of an Invention, to object to or prevent the
modification of any Invention, or to withdraw from circulation or control the
publication or distribution of any Invention, and any similar right, existing
under judicial or statutory law of any country in the world, or under any
treaty, regardless of whether or not such right is denominated or generally
referred to as a "moral right".
6. Assistance. I agree to assist the Company in every proper way to
----------
obtain for the Company and enforce patents, copyrights, mask work rights, trade
secret rights and other legal protections for the Company's Inventions in any
and all countries. I will execute any documents that the Company may reasonably
request for use in obtaining or enforcing such patents, copyrights, mask work
rights, trade secrets and other legal protections. My obligations under this
paragraph will continue beyond the termination of my employment with the
Company, provided that the Company will compensate me at a reasonable rate after
such termination for time or expenses actually spent by me at the Company's
request on such assistance. I appoint the Secretary of the Company as my
attorney-in-fact to execute documents on my behalf for this purpose.
7. Proprietary Information. I understand that my employment by the
-----------------------
Company creates a relationship of confidence and trust with respect to any
information of a confidential or secret nature that may be disclosed to me by
the Company that relates to the business of the Company or to the business of
any parent, subsidiary, affiliate, customer or supplier of the Company or any
other party with whom the Company agrees to hold information of such party in
confidence (the "Proprietary Information"). Such Proprietary Information
includes, but is not limited to, Inventions, marketing plans, product plans,
business strategies, financial information, forecasts, personnel information,
customer lists and domain names.
2
<PAGE>
8. Confidentiality. At all times, both during my employment and after its
---------------
termination, I will keep and hold all such Proprietary Information in strict
confidence and trust. I will not use or disclose any Proprietary Information
without the prior written consent of the Company, except as may be necessary to
perform my duties as an employee of the Company for the benefit of the Company.
Upon termination of my employment with the Company, I will promptly deliver to
the Company all documents and materials of any nature pertaining to my work with
the Company. I will not take with me any documents or materials or copies
thereof containing any Proprietary Information.
9. No Breach of Prior Agreement. I represent that my performance of all
----------------------------
the terms of this Agreement and my duties as an employee of the Company will not
breach any invention assignment, proprietary information, confidentiality or
similar agreement with any former employer or other party. I represent that I
will not bring with me to the Company or use in the performance of my duties for
the Company any documents or materials or intangibles of a former employer or
third party that are not generally available to the public or have not been
legally transferred to the Company.
10. Efforts; Duty Not to Compete. I understand that my employment with the
----------------------------
Company requires my undivided attention and effort during normal business hours.
While I am employed by the Company, I will not, without the Company's express
prior written consent, provide services to, or assist in any manner, any
business or third party which competes with the current or planned business of
the Company.
11. Notification. I hereby authorize the Company to notify my actual or
------------
future employers of the terms of this Agreement and my responsibilities
hereunder.
12. Non-Solicitation of Employees/Consultants. During my employment with
-----------------------------------------
the Company and for a period of one (1) year thereafter, I will not directly or
indirectly solicit away employees or consultants of the Company for my own
benefit or for the benefit of any other person or entity.
13 Non-Solicitation of Suppliers/Customers. During my employment with the
---------------------------------------
Company and after termination of my employment, I will not directly or
indirectly solicit or take away suppliers or customers of the Company if the
identity of the supplier or customer or information about the supplier or
customer relationship is a trade secret or is otherwise deemed confidential
information within the meaning of California law.
14. Name & Likeness Rights. I hereby authorize the Company to use, reuse,
----------------------
and to grant others the right to use and reuse, my name, photograph, likeness
(including caricature), voice, and biographical information, and any
reproduction or simulation thereof, in any form of media or technology now known
or hereafter developed (including, but not limited to, film, video and digital
or other electronic media), both during and after my employment, for whatever
purposes the Company deems necessary.
3
<PAGE>
15. Injunctive Relief. I understand that in the event of a breach or
-----------------
threatened breach of this Agreement by me the Company may suffer irreparable
harm and will therefore be entitled to injunctive relief to enforce this
Agreement.
16. Governing Law; Severability. This Agreement will be governed by and
---------------------------
construed in accordance with the laws of the State of California, without giving
effect to that body of laws pertaining to conflict of laws. If any provision of
this Agreement is determined by any court or arbitrator of competent
jurisdiction to be invalid, illegal or unenforceable in any respect, such
provision will be enforced to the maximum extent possible given the intent of
the parties hereto. If such clause or provision cannot be so enforced, such
provision shall be stricken from this Agreement and the remainder of this
Agreement shall be enforced as if such invalid, illegal or unenforceable clause
or provision had (to the extent not enforceable) never been contained in this
Agreement. Notwithstanding the forgoing, if the value of this Agreement based
upon the substantial benefit of the bargain for any party is materially
impaired, which determination as made by the presiding court or arbitrator of
competent jurisdiction shall be binding, then this Agreement will not be
enforceable against such affected party and both parties agree to renegotiate
such provision(s) in good faith.
17. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed and delivered will be deemed an
original, and all of which together shall constitute one and the same agreement.
18. Titles and Headings. The titles, captions and headings of this
-------------------
Agreement are included for ease of reference only and will be disregarded in
interpreting or construing this Agreement. Unless otherwise specifically
stated, all references herein to "sections" and "exhibits" will mean "sections"
and "exhibits" to this Agreement.
19. Entire Agreement. This Agreement and the documents referred to herein
----------------
constitute the entire agreement and understanding of the parties with respect to
the subject matter of this Agreement, and supersede all prior understandings and
agreements, whether oral or written, between or among the parties hereto with
respect to the specific subject matter hereof.
20. Amendment and Waivers. This Agreement may be amended only by a written
----------------------
agreement executed by each of the parties hereto. No amendment of or waiver of,
or modification of any obligation under this Agreement will be enforceable
unless set forth in a writing signed by the party against which enforcement is
sought. Any amendment effected in accordance with this section will be binding
upon all parties hereto and each of their respective successors and assigns. No
delay or failure to require performance of any provision of this Agreement shall
constitute a waiver of that provision as to that or any other instance. No
waiver granted under this Agreement as to any one provision herein shall
constitute a subsequent waiver of such provision or of any other provision
herein, nor shall it constitute the waiver of any performance other than the
actual performance specifically waived.
21. Successors and Assigns; Assignment. Except as otherwise provided in
----------------------------------
this Agreement, this Agreement, and the rights and obligations of the parties
hereunder, will be
4
<PAGE>
binding upon and inure to the benefit of their respective successors, assigns,
heirs, executors, administrators and legal representatives. The Company may
assign any of its rights and obligations under this Agreement. No other party to
this Agreement may assign, whether voluntarily or by operation of law, any of
its rights and obligations under this Agreement, except with the prior written
consent of the Company.
22. Further Assurances. The parties agree to execute such further
------------------
documents and instruments and to take such further actions as may be reasonably
necessary to carry out the purposes and intent of this Agreement.
23. "At Will" Employment. I understand that this Agreement does not
--------------------
constitute a contract of employment or obligate the Company to employ me for any
stated period of time. I understand that I am an "at will" employee of the
Company and that my employment can be terminated at any time, for any reason or
for no reason, by either the Company or myself. This Agreement shall be
effective as of the first day of my employment by the Company, which is
____________________, _____ .
ALLADVANTAGE.COM Employee:
By:______________________________ ________________________________________
Signature
Name:____________________________ ________________________________________
Name (Please print)
Title:______
5
<PAGE>
EXHIBIT E
Unaudited Financial Statement
-----------------------------
[Can be provided upon request]
<PAGE>
EXHIBIT F
Opinion of Company Counsel
--------------------------
[Can be provided upon request]
<PAGE>
EXHIBIT G
Investors' Rights Agreement
---------------------------
[Incorporated by Reference to Exhibit 4.02 to the Registration Statement]
<PAGE>
EXHIBIT H
Voting Agreement
----------------
<PAGE>
SECOND AMENDED AND RESTATED VOTING AGREEMENT
This Second Amended and Restated Voting Agreement (this "Agreement") is
made and entered into as of February 4, 2000 (the "Effective Date") by and among
AllAdvantage.com, a California corporation (the "Company"), the parties listed
on Exhibit A attached hereto (the "Series A Investors"), the parties listed on
---------
Exhibit B attached hereto (the "Series B Investors"), the parties listed on
- ---------
Exhibit C attached hereto (the "Series C Investors"), the parties listed on
- ---------
Exhibit D attached hereto (the "Series D Investors") and the parties listed on
- ---------
Exhibit E attached hereto (the "Shareholders"). The Series A Investors, the
- ---------
Series B Investors, the Series C Investors and the Series D Investors are
sometimes hereinafter collectively referred to as the "Investors", and the
Investors and the Shareholders are sometimes hereinafter collectively referred
to as the "Holders".
R E C I T A L S
- - - - - - - -
A. The Series A Investors are holders of shares of the Company's Series A
Preferred Stock (the "Series A Stock") purchased under a Series A Preferred
Stock Purchase Agreement dated April 29, 1999 (the "Series A Agreement") by and
among the Company and the Series A Investors.
B. The Series B Investors are holders of shares of the Company's Series B
Preferred Stock (the "Series B Stock") purchased under a Series B Preferred
Stock Purchase Agreement dated June 10, 1999 (the "Series B Agreement") by and
among the Company and the Series B Investors.
C. The Series C Investors are holders of shares of the Company's Series C
Preferred Stock (the "Series C Stock") purchased under a Series C Preferred
Stock Purchase Agreement dated September 22, 1999 (the "Series C Agreement") by
and among the Company and the Series C Investors.
D. The Series A Investors, the Series B Investors, the Series C Investors
and the Shareholders (collectively, the "Prior Holders") are parties to a
certain Amended and Restated Voting Agreement dated September 22, 1999, by and
among the Company and the Prior Holders (the "Prior Agreement").
E. The Series D Investors have agreed to purchase from the Company shares
of its Series D Preferred Stock (the "Series D Stock") pursuant to a Series D
Preferred Stock Purchase Agreement dated of even date herewith between the
Company and such Investors (the "Series D Agreement"). The Series A Stock,
Series B Stock, Series C Stock and Series D Stock is sometimes referred to
collectively herein as the "Preferred Stock." The obligations of the Company and
the Series D Investors under the Series D Agreement are conditioned on, among
other things, the execution and delivery of this Agreement by the parties
hereto.
<PAGE>
F. As an inducement to the Series D Investors to purchase the Series D
Stock pursuant to the Series D Agreement, the Series A Investors, Series B
Investors, the Series C Investors, the Series D Investors, the Shareholders and
the Company desire to enter into this Agreement in order to amend and restate
the Prior Agreement and to set forth their agreements and understandings with
respect to how shares of the Company's capital stock held by them will be voted
on certain matters.
NOW THEREFORE, in consideration of the above recitals and the mutual
covenants made herein, the parties hereby agree as follows:
1. Election of Board of Directors.
------------------------------
1.1 Voting; Board Composition. During the term of this Agreement,
-------------------------
each Holder agrees to vote all shares of capital stock of the Company, now or
hereafter directly or indirectly owned (of record or beneficially) by such
Holder, in such manner as may be necessary to elect (and maintain in office) as
members of the Company's Board of Directors, the following individuals:
(a) as each of the directors to be elected by the holders of the
Common Stock and the Preferred Stock, voting together as a single class,
under Article VI, Section 4.5(a)(v) of the Company's Amended and Restated
Articles of Incorporation (each such director shall be referred to herein
as an "Independent Director"), an individual designated from time to time
in a writing delivered to the Company and signed by Holders holding, at the
time in question, at least a majority of the outstanding shares of Common
Stock then held by all Holders, voting separately, and Holders holding, at
the time in question, Series B Stock, Series C Stock and Series D Stock
representing at least a majority of the voting power of all the then-
outstanding shares of Series B Stock, Series C Stock and Series D Stock
then held by all Holders, voting separately (such Holders collectively, the
"Designators");
(b) as one of the directors to be elected by the holders of
Series C Stock under Article VI, Section 4.5(a)(ii) of the Company's
Amended and Restated Articles of Incorporation (the "Series C Directors"),
so long as Walden Media and Information Technology Fund L.P. and its
affiliates ("Walden") hold at least 500,000 shares of Series C Stock, an
individual designated from time to time in a writing delivered to the
Company by Walden;
(c) as one of the Series C Directors, so long as TMCT Ventures,
L.P. and its affiliates ("Times Mirror") hold at least 500,000 shares of
Series C Stock, an individual designated from time to time in a writing
delivered to the Company by Times Mirror; and
(d) if the Company has a Chief Executive Officer, then as one of
the directors to be elected by the holders of the Common Stock and the
Series A Preferred Stock, voting together as a single class, under Article
IV, Section 4.5 (a) (iv) of the
2
<PAGE>
Company's Amended and Restated Articles of Incorporation, the individual
serving as the Chief Executive Officer of the Company.
For purposes of this Agreement: (i) any individual who is designated for
election to the Company's Board of Directors pursuant to the foregoing
provisions of this Section 1.1 is hereinafter referred to as a "Board Designee";
and (ii) any individual, entity, or group of individuals and/or entities who has
the right to designate one (1) or more Board Designees for election to the
Company's Board of Directors pursuant to the foregoing provisions of this
Section 1.1 is hereinafter referred to as a "Designator" or as "Designators", as
applicable.
1.2 Initial Board Member. David Pidwell shall constitute one of the
--------------------
Independent Directors on the date hereof, and the other Independent Director
shall be determined following the date hereof. Richard LeFurgy shall constitute
the Series C Director designated by Walden on the date hereof. Thomas Unterman
shall constitute the Series C Director designated by Times Mirror on the date
hereof.
1.3 Changes in Board Designees. From time to time during the term of
--------------------------
this Agreement, a Designator or Designators may, in their sole discretion:
(a) elect to remove from the Company's Board of Directors any
incumbent Board Designee who occupies a Board seat for which such
Designator or Designators are entitled to designate the Board Designee
under Section 1.1; and/or
(b) designate a new Board Designee for election to a Board seat
for which such Designator or Designators are entitled to designate the
Board Designee under Section 1.1 (whether to replace a prior Board Designee
or to fill a vacancy in such Board seat); provided such removal and/or
--------
designation of a Board Designee is approved in a writing signed by
Designators who are entitled to designate such Board Designee under Section
1.1, in which case such election to remove a Board Designee and/or elect a
new Board Designee will be binding on all such Designators. In the event
of such a removal and/or designation of a Board Designee under this Section
1.3, the Holders shall vote their shares of the Company's capital stock as
provided in Section 1.1 to cause: (a) the removal from the Company's Board
of Directors of the Board Designee or Designees so designated for removal
by the appropriate Designator or Designators; and (b) the election to the
Company's Board of Directors of any new Board Designee or Designees so
designated for election to the Company's Board of Directors by the
appropriate Designator or Designators.
1.4 Notice; Cumulative Voting. The Company shall promptly give each
-------------------------
of the Holders written notice of any change in composition of the Company's
Board of Directors and of any proposal by a Designator or Designators to remove
or elect a new Board Designee. In any election of directors pursuant to this
Section 1, the Holders shall vote their shares in a manner sufficient to elect
to the Company's Board of Directors the individuals to be elected thereto as
provided in Section 1.1, utilizing cumulative voting, if and to the extent
necessary to do so.
3
<PAGE>
2. Automatic Conversion.
--------------------
2.1 Consent. Upon the Company's receipt of (i) the written consent
-------
from Series B Investors holding Series B Stock representing at least a majority
of the voting power of all the then-outstanding shares of Series B Stock to the
conversion to Common Stock of all then outstanding Series B Stock under Article
VI, Section 5.2(b) of the Company's Amended and Restated Articles of
Incorporation and (ii) the written consent from Series C Investors holding
Series C Stock representing at least a majority of the voting power of all the
then-outstanding shares of Series C Stock to the conversion to Common Stock of
all then outstanding Series C Stock under Article VI, Section 5.2(c) of the
Company's Amended and Restated Articles of Incorporation and (iii) the written
consent from Series D Investors holding Series D Stock representing at least a
majority of the voting power of all then-outstanding shares of Series D Stock to
the conversion to Common Stock of all then outstanding Series D Stock under
Article VI, Section 5.2(d) of the Company's Amended and Restated Articles of
Incorporation (the "Series B/C/D Consent"), each Series A Investor agrees to
execute and deliver to the Company a written consent to the conversion to Common
Stock of the then outstanding Series A Stock under Article VI, Section 5.2 (a)
of the Company's Amended and Restated Articles of Incorporation.
2.2 Notice. Upon receipt of a Series B/C/D Consent executed by
------
holders of a number of shares of Series B Stock, Series C Stock and Series D
Stock in satisfaction of Section 2.1, the Company shall promptly thereafter give
each Series A Investor written notice of its receipt of and a copy of such
Series B/C/D Consent, and provide each Series A Investor with a form of consent
to the conversion to be executed by such Series A Investor in accordance with
Section 2.1 (the Series A Consent"). Each Series A Investor shall promptly
execute and deliver the Series A Consent to the Company.
3. Further Assurances. Each of the Holders and the Company agree not to
------------------
vote any shares of the Company's stock, or to take any other actions, that would
in any manner defeat, impair, be inconsistent with or adversely affect the
stated intentions of the parties under Section 1 of this Agreement.
4. Representations. Each of the Holders warrants and represents to each
---------------
of the other Holders that (a) such Holder has not, prior to or on the date of
this Agreement, executed or delivered any proxy or entered into any other voting
agreement or similar arrangement with respect to the Company's capital stock
other than one which has expired or terminated prior to the date hereof, and (b)
such Holder has full power and capacity to execute, deliver and perform this
Agreement, which has been duly executed and delivered by, and evidences the
valid and binding obligation of, such Holder enforceable in accordance with its
terms.
5. Transferees; Legends on Certificates.
------------------------------------
5.1 Effect on Transferees. Each and every transferee or assignee of
---------------------
any shares of capital stock of the Company from any Holder shall be bound by and
subject to the terms and conditions of this Agreement that are applicable to the
transferor or assignor of such shares, and the Company shall require, as a
condition precedent to the transfer of any shares of capital stock
4
<PAGE>
of the Company subject to this Agreement, that the transferee agrees in writing
to be bound by, and subject to, all the terms and conditions of this Agreement.
5.2 Legend. The Holders agree that all Company share certificates
------
now or hereafter held by them that represent shares of capital stock of the
Company subject to this Agreement will be stamped or otherwise imprinted with a
legend to read as follows:
"THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO
AGREEMENTS AND RESTRICTIONS WITH REGARD TO THE VOTING OF
SUCH SHARES AND THEIR TRANSFER, AS PROVIDED IN THE
PROVISIONS OF A VOTING AGREEMENT, A COPY OF WHICH IS ON FILE
IN THE OFFICE OF THE SECRETARY OF THE CORPORATION."
The legend set forth in Section 5.2 above shall be removed by the Company from
any certificate evidencing Series D Stock upon termination or expiration of this
Agreement.
6. Enforcement of Agreement. Each of the Holders acknowledge and agree
------------------------
that any breach by any of them of this Agreement shall cause the other Holders
irreparable harm which may not be adequately compensable by money damages.
Accordingly, in the event of a breach or threatened breach by a Holder of any
provision of this Agreement, the Company and each other Holder shall each be
entitled to the remedies of specific performance, injunction or other
preliminary or equitable relief, including the right to compel any such
breaching Holder, as appropriate, to vote such Holder's shares of capital stock
of the Company in accordance with the provisions of this Agreement, in addition
to such other rights remedies as may be available to the Company or any Holder
for any such breach or threatened breach, including but not limited to the
recovery of money damages.
7. Term. This Agreement shall commence on the Effective Date and shall
----
terminate upon the first to occur of the following:
(a) February 4, 2010;
(b) The execution by (i) Series B Investors, Series C Investors and
Series D Investors holding a majority of the shares of the Company's then
outstanding Series B Stock, Series C Stock and Series D Stock issued under the
Series B Agreement, Series C Agreement and Series D Agreement, respectively (on
an as-converted to Common Stock basis) and/or Common Stock acquired on
conversion of such Series B Stock, Series C Stock and Series D Stock then held
by all Series B Investors, Series C Investors and Series D Investors, and (ii)
Holders holding capital stock of the Company representing at least a majority of
the voting power of all the Company's then outstanding Common Stock then held by
all Holders (excluding, for this purpose, shares of Common Stock issued upon
conversion of Series A Stock, Series B Stock, Series C Stock or Series D Stock),
of a written agreement to terminate this Agreement;
5
<PAGE>
(c) Immediately prior to the closing of a firm commitment
underwritten public offering pursuant to an effective registration statement
filed under the Securities Act of 1933, as amended, covering the offer and sale
of Common Stock for the account of the Company in which the aggregate public
offering price (before deduction of underwriters' discounts and commissions)
equals or exceeds $10,000,000 and the public offering price per share of which
equals or exceeds $3.675 per share before deduction of underwriters' discounts
and commissions (such price per share of Common Stock to be appropriately
adjusted to reflect a stock dividend, stock split, reverse stock split,
subdivision, combination, reclassification or similar change in the Common Stock
without consideration effected following the date hereof);
(d) The first date on which (i) the outstanding shares of Common
Stock and Preferred Stock of the Company owned by the Series B Investors
signatory to this Agreement (calculated on an as-converted-into-Common Stock
basis) constitutes less than 625,000 shares (as adjusted for applicable stock
splits, combinations or stock dividends following the date hereof); (ii) the
outstanding shares of Common Stock and Preferred Stock of the Company owned by
the Series C Investors signatory to this Agreement (calculated on an as-
converted-into-Common Stock basis) constitutes less than 3,200,000 shares (as
adjusted for applicable stock splits, combinations or stock dividends following
the date hereof); and (iii) the outstanding shares of Common Stock and Preferred
Stock of the Company owned by the Series D Investors signatory to this Agreement
(calculated on an as-converted-into-Common Stock basis) constitutes less than
4,132,231 shares (as adjusted for applicable stock splits, combinations or stock
dividends following the date hereof); or
(e) Immediately prior to the closing of (i) any consolidation or
merger of the Company with or into any other corporation or corporations in
which the holders of the Company's outstanding shares immediately before such
consolidation or merger do not, immediately after such consolidation or merger,
retain stock representing a majority of the voting power of the surviving
corporation of such consolidation or merger or stock representing a majority of
the voting power of a corporation that wholly owns, directly or indirectly, the
surviving corporation of such consolidation or merger; (ii) the sale, transfer
or assignment of securities of the Company representing a majority of the voting
power of all the Company's outstanding voting securities by the holders thereof
to an acquiring party in a single transaction or series of related transactions;
(iii) any other sale, transfer or assignment of securities of the Company
representing over fifty percent (50%) of the voting power of the Company's then
outstanding voting securities by the holders thereof to an acquiring party; or
(iv) the sale of all or substantially all the Company's assets.
8. General Provisions.
------------------
8.1 Notices. Any and all notices required or permitted to be given
-------
to a party pursuant to the provisions of this Agreement will be in writing and
will be effective and deemed to provide such party sufficient notice under this
Agreement on the earliest of the following: (i) at the time of personal
delivery, if delivery is in person; (ii) at the time of transmission by
facsimile, addressed to the other party at its facsimile number specified herein
(or hereafter modified by subsequent notice to the parties hereto), with
confirmation of receipt made by
6
<PAGE>
printed confirmation sheet verifying successful transmission of the facsimile;
(iii) one (1) business day after deposit with an express overnight courier for
United States deliveries, or two (2) business days after such deposit for
deliveries outside of the United States, with proof of delivery from the courier
requested; or (iv) three (3) business days after deposit in the United States
mail by certified mail (return receipt requested) for United States deliveries.
All notices for delivery outside the United States will be sent
by facsimile or by express courier. Notices by facsimile shall be machine
verified as received. All notices not delivered personally or by facsimile will
be sent with postage and/or other charges prepaid and properly addressed to the
party to be notified at the address or facsimile number as follows, or at such
other address or facsimile number as such other party may designate by one of
the indicated means of notice herein to the other parties hereto as follows:
(a) if to an Investor, at such Investor's respective address as
set forth on Exhibit A to the Series B Agreement, Series C Agreement, or Series
D Agreement, as applicable.
(b) if to the Company, marked "Attention: President", at 25954
Eden Landing Road, Hayward, CA 94545.
(c) if to a Shareholder, at such Shareholder's address last
provided to the Company.
8.2 Entire Agreement. This Agreement and the documents referred to
----------------
herein, together with all the Exhibits hereto, constitute the entire agreement
and understanding of the parties with respect to the subject matter of this
Agreement, and supersede any and all prior understandings and agreements,
whether oral or written, between or among the parties hereto with respect to the
specific subject matter hereof.
8.3 Governing Law. This Agreement will be governed by and construed
-------------
in accordance with the laws of the State of California, without giving effect to
that body of laws pertaining to conflict of laws.
8.4 Severability. If any provision of this Agreement is determined
------------
by any court or arbitrator of competent jurisdiction to be invalid, illegal or
unenforceable in any respect, such provision will be enforced to the maximum
extent possible given the intent of the parties hereto. If such clause or
provision cannot be so enforced, such provision shall be stricken from this
Agreement and the remainder of this Agreement shall be enforced as if such
invalid, illegal or unenforceable clause or provision had (to the extent not
enforceable) never been contained in this Agreement. Notwithstanding the
forgoing, if the value of this Agreement based upon the substantial benefit of
the bargain for any party is materially impaired, which determination as made by
the presiding court or arbitrator of competent jurisdiction shall be binding,
then both parties agree to substitute such provision(s) through good faith
negotiations.
7
<PAGE>
8.5 Third Parties. Nothing in this Agreement, express or implied, is
-------------
intended to confer upon any person, other than the parties hereto and their
successors and assigns, any rights or remedies under or by reason of this
Agreement.
8.6 Successors And Assigns. Except as otherwise provided in this
----------------------
Agreement, this Agreement, and the rights and obligations of the parties
hereunder, will be binding upon and inure to the benefit of their respective
successors, assigns, heirs, executors, administrators and legal representatives.
8.7 Titles and Headings. The titles, captions and headings of this
-------------------
Agreement are included for ease of reference only and will be disregarded in
interpreting or construing this Agreement. Unless otherwise specifically
stated, all references herein to "sections" and "exhibits" will mean "sections"
and "exhibits" to this Agreement.
8.8 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed and delivered will be deemed an
original, and all of which together shall constitute one and the same agreement.
8.9 Adjustments for Stock Splits, Etc. Wherever in this Agreement
----------------------------------
there is a reference to a specific number of shares of Common Stock or Preferred
Stock of the Company of any class or series, then, upon the occurrence of any
subdivision, combination or stock dividend of such class or series of stock, the
specific number of shares so referenced in this Agreement shall automatically be
proportionally adjusted to reflect the affect on the outstanding shares of such
class or series of stock by such subdivision, combination or stock dividend.
8.10 Further Assurances. The parties agree to execute such further
------------------
documents and instruments and to take such further actions as may be reasonably
necessary to carry out the purposes and intent of this Agreement.
8.11 Facsimile Signatures. This Agreement may be executed and
--------------------
delivered by facsimile and upon such delivery the facsimile signature will be
deemed to have the same effect as if the original signature had been delivered
to the other party.
8.12 Amendment and Waivers. This Agreement may be amended only by a
---------------------
written agreement executed by the Company and (i) Series B Investors, Series C
Investors, and Series D Investors holding a majority of the shares of the
Company's then outstanding Series B Stock, Series C Stock and Series D Stock
issued under the Series B Agreement, Series C Agreement and Series D Agreement,
respectively (on an as-converted to Common Stock basis) and/or Common Stock
acquired on conversion of such Series B Stock, Series C Stock and Series D Stock
then held by all Series B Investors, Series C Investors and Series D Investors,
and (ii) Holders holding capital stock of the Company representing at least a
majority of the voting power of all the Company's then outstanding Common Stock
then held by all Holders (excluding, for this purpose, shares of Common Stock
issued upon conversion of Series A Stock, Series B Stock, Series C Stock or
Series D Stock); provided, that no amendment imposing any greater obligations or
-------- ----
liabilities upon the Series A Investors will be effective without the written
agreement of Series A Investors holding a majority of the shares of the
Company's then
8
<PAGE>
outstanding Series A Stock issued under the Series A Agreement (on an as-
converted to Common Stock basis) and/or Common Stock acquired on conversion of
such Series A Stock then held by all Series A Investors; provided further, that
-------- -------
no amendment imposing any greater obligations or liabilities upon the
Shareholders will be effective without a written agreement of the Shareholders
holding a majority of the shares of the Company's then outstanding Common Stock
and Preferred Stock on an as-converted to Common Stock basis then held by all
Shareholders. No amendment of or waiver of, or modification of any obligation
under this Agreement will be enforceable unless set forth in a writing signed by
the party against which enforcement is sought. Any amendment effected in
accordance with this section will be binding upon all parties hereto and each of
their respective successors and assigns. No delay or failure to require
performance of any provision of this Agreement shall constitute a waiver of that
provision as to that or any other instance. No waiver granted under this
Agreement as to any one provision herein shall constitute a subsequent waiver of
such provision or of any other provision herein, nor shall it constitute the
waiver of any performance other than the actual performance specifically waived.
8.13 New Investors. Notwithstanding anything herein to the contrary,
-------------
if pursuant of Section 2.2 of the Series D Agreement, additional parties may
purchase shares of Series D Stock as "New Investors" thereunder, then each such
New Investor shall become a party to this Agreement as an "Investor" hereunder,
without the need of any consent, approval or signature of any Investor when such
New Investor has both: (a) purchased shares of Series D Stock under the Series D
Agreement and paid the Company all consideration payable for such shares and (b)
executed one or more counterpart signature pages to this Agreement as an
"Investor", with the Company's consent.
8.14 Prior Agreement Superseded. Pursuant to Section 8.12 of the
--------------------------
Prior Agreement, the undersigned parties who are parties to such Prior Agreement
hereby amend and restate the Prior Agreement to read in its entirety as set
forth in this Agreement, such that the Prior Agreement is hereby terminated and
entirely replaced and superseded by this Agreement.
[The remainder of this page is intentionally left blank.]
9
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
THE COMPANY: THE HOLDERS:
- ----------- -----------
By: _______________________________ __________________________________
(please print name here)
Name: _____________________________
By: ______________________________
Title: ____________________________
Name: ____________________________
Address: 2954 Eden Landing Road
Hayward, CA 94545 Title: ___________________________
Address: _________________________
_________________________
[SIGNATURE PAGE TO ALLADVANTAGE.COM
SECOND AMENDED AND RESTATED VOTING AGREEMENT]
<PAGE>
EXHIBIT A
Series A Investors
------------------
[Can be provided upon request]
<PAGE>
EXHIBIT B
Series B Investors
------------------
[Can be provided upon request]
<PAGE>
EXHIBIT C
Series C Investors
------------------
[Can be provided upon request]
<PAGE>
EXHIBIT D
Series D Investors
------------------
[Can be provided upon request]
<PAGE>
EXHIBIT E
Shareholders
------------
[Can be provided upon request]
<PAGE>
EXHIBIT I
Co-Sale Agreement
-----------------
<PAGE>
AMENDED AND RESTATED CO-SALE AGREEMENT
--------------------------------------
This Agreement is made and entered into as of February 4, 2000 by and among
AllAdvantage.com, a California corporation (the "Company"), those investors in
the Company listed on Exhibit A attached hereto (the "Investors") and those
---------
shareholders of the Company listed on Exhibit B attached hereto (the
---------
"Shareholders").
A. Each Shareholder currently owns that number of shares of the Company's
Series A Preferred Stock (the "Series A Stock") and that number of shares of the
Company's Common Stock (the "Common Stock") as shown beside such Shareholder's
name on Exhibit B attached hereto.
---------
B. Certain of the Investors (the "Prior Investors") currently own that
number of shares of the Company's Series B Preferred Stock (the "Series B
Stock") and/or that number of shares of the Company's Series C Preferred Stock
(the "Series C Stock") as shown beside such Investor's name on Exhibit A. The
---------
Prior Investors, the Shareholders and the Company have previously entered into
that certain Co-Sale Agreement dated as of September 22, 1999 (the "Prior
Agreement").
C. The Company currently has certain assignable rights of first refusal
pursuant to the Company's 1999 Equity Incentive Plan and 2000 Equity Incentive
Plan (the "Plans"), those certain Founder's Restricted Stock Purchase Agreements
dated as of April 26, 1999 between the Company and each of the Shareholders (the
"Founders Agreements") and that certain Series A Preferred Stock Purchase
Agreement dated as of April 29, 1999 among the Company and the Shareholders (the
"Series A Agreement").
D. Certain of the Investors ("Series D Investors") have agreed to
purchase from the Company that number of shares of the Company's Series D
Preferred Stock ("Series D Stock") shown beside such Investor's name on Exhibit
-------
A attached hereto, pursuant to that certain Series D Preferred Stock Purchase
- -
Agreement by and among the Company and the Series D Investors dated of even date
herewith, as amended from time to time (the "Series D Agreement"). For purposes
of this Agreement, Series A Stock, Series B Stock, Series C Stock and Series D
Stock shall hereinafter collectively be defined as "Preferred Stock". The
obligations of the Company and the Series D Investors under the Series D
Agreement are conditioned on, among other things, the execution and delivery of
this Agreement by the parties hereto.
E. The Company, the undersigned Prior Investors, the Shareholders and the
Series D Investors desire to enter into this Agreement in order to amend and
restate the rights and obligations of the Prior Investors under the Prior
Agreement and to grant the Prior Investors and the Series D Investors the rights
and obligations set forth in this Agreement. For purposes of this Agreement, the
Prior Investors and the Series D Investors are referred to collectively as the
"Investors".
1
<PAGE>
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises herein contained, and for other consideration, the receipt and adequacy
of which is hereby acknowledged, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS. For purposes of this Agreement, the following
-------------------
terms have the following meanings:
1.1 "Stock" means and includes all shares of Series A Stock, Series B
Stock, Series C Stock, Series D Stock and Common Stock issued and outstanding at
the relevant time plus (a) all shares of Common Stock or Preferred Stock that
may be issued upon exercise of any options, warrants and other rights of any
kind that are then exercisable, and (b) all shares of Common Stock or Preferred
Stock that may be issued upon conversion of (i) any convertible securities,
including, without limitation, Preferred Stock and debt securities then
outstanding that are by their terms then convertible into or exchangeable for
Common Stock or (ii) any such convertible securities issuable upon exercise of
outstanding options, warrants or other rights that are then exercisable.
1.2 "Shareholder Stock" means all Stock proposed to be Transferred by
a Shareholder other than Excluded Stock.
1.3 "Excluded Stock" means, with respect to any Shareholder, an
aggregate of ten percent (10%) of the shares of Stock (on an as-converted to
Common Stock basis) held by such Shareholder on the date of this Agreement.
1.4 "Transfer" and "Transferred" mean and include any sale,
assignment, encumbrance, hypothecation, pledge, conveyance in trust, gift,
transfer by bequest, devise or descent, or other transfer or disposition of any
kind, including but not limited to transfers to receivers, levying creditors,
trustees or receivers in bankruptcy proceedings or general assignees for the
benefit of creditors, whether voluntary or by operation of law, directly or
indirectly, except for:
------ ---
(a) any pledge made pursuant to a bona fide loan transaction if the
pledgee executes a counterpart copy of this Agreement and becomes bound thereby
as if such pledgee were a Shareholder;
(b) any transfers of Stock by gift during a Shareholder's lifetime or
on a Shareholder's death by will or intestacy to such Shareholder's "immediate
family" (as defined below) or to a trust for the benefit of Shareholder or
Shareholder's immediate family, provided that each transferee or other recipient
executes a counterpart copy of this Agreement and becomes bound thereby as a
Shareholder. For purposes of this Agreement, the term "immediate family" means
----------------
Shareholder's spouse, lineal descendant or antecedent (whether natural or
adopted), brother or sister, or the spouse of any of the foregoing;
(c) any transfer of Stock by a Shareholder made: (i) pursuant to a
statutory merger or statutory consolidation of the Company with or into another
corporation or
2
<PAGE>
corporations; (ii) pursuant to the winding up and dissolution of the Company; or
(iii) at, and pursuant to, the IPO;
(d) any transfers of Stock to an Investor pursuant to such Investor's
exercise of such Investor's assigned right of first refusal hereunder; or
(e) any transfer of Stock to the Company upon exercise of the right
of repurchase or right of first refusal set forth in any founders' stock
purchase agreement, option exercise agreement or other agreement with the
Company that was entered into by the Shareholder at the time he or she acquired
such Stock.
1.5 "IPO" means the firm underwritten public offering of the
Company's Common Stock to the general public pursuant to an effective
registration statement filed on Form S-1, or any successor form, under the
Securities Act of 1933, as amended.
2. ASSIGNMENT OF RIGHT OF FIRST REFUSAL.
------------------------------------
2.1 Company's Right of First Refusal. Pursuant to the Founders
--------------------------------
Agreements, the Series A Agreement and stock option exercise agreements entered
under the Plans (collectively, the "Restricted Stock Agreements"), the Company
has certain rights of first refusal to purchase shares of capital stock of the
Company ("Shares"), initially acquired under such Restricted Stock Agreements,
in the event that the holders of such Shares (each, a "Holder") wish to sell,
assign or otherwise transfer such Shares (which rights of the Company, excluding
rights to acquire Shares at their original purchase price upon termination of
employment or services, are referred to herein as "Rights of First Refusal").
Upon receipt by the Company of a written notice (the "Notice") from a Holder (a
"Selling Holder"), pursuant to a Right of First Refusal, of a proposed sale,
assignment or other transfer of Shares (the "Offer Stock"), the Company will
elect, within ten (10) days following the date such Notice is given, whether to
exercise, in full or in part, its Right of First Refusal to purchase the Offered
Stock. If the Company does not exercise its Right of First Refusal in full to
purchase all the Offered Stock, the Company must, within two business days
following such ten day period, (i) give copies of the Notice to the Investors
and (ii) assign to the Investors, pro rata based upon their ownership of shares
of Series B Stock, Series C Stock, Series D Stock and Common Stock issuable upon
conversion of such Series B Stock, Series C Stock and Series D Stock (on an as-
converted to Common Stock basis), its Right of First Refusal respecting the
Offered Stock as to which it has not exercised its Right of First Refusal.
3. RIGHT OF CO-SALE.
----------------
3.1 Right of Co-Sale. If a Shareholder wishes to Transfer any shares
----------------
of Shareholder Stock (other than Excluded Stock), then upon such Shareholder's
receipt from a third party or third parties (the "Proposed Transferee(s)") of a
bona fide offer therefor, each Investor will have the right to participate in
the Transfer of such shares in the manner set forth herein (the "Right of Co-
Sale"). The Shareholder must give to each Investor a written notice setting
forth the number of shares and type of Shareholder Stock proposed to be
Transferred, the purchase price therefor, the identity of the Proposed
Transferee(s) and other noticed terms of
3
<PAGE>
such proposed Transfer (the "Co-Sale Notice"). Pursuant to this Section 3, each
Investor may Transfer to the Proposed Transferee(s) identified in the Co-Sale
Notice such Investor's Pro Rata Share of the Shareholder Stock by giving written
notice to the Selling Shareholder within ten (10) days after the Co-Sale Notice
is given in accordance with the preceding sentence specifying the number of
shares and type of Stock that such Investor desires to Transfer to each Proposed
Transferee by exercising the Right of Co-Sale. For purposes of this Section 3,
an Investor's "Pro Rata Share" will be defined as a fraction, the numerator of
which is the number of shares of Series B Stock, Series C Stock, Series D Stock
and Common Stock issuable upon conversion of such Series B Stock, Series C
Stock, and Series D Stock (on an as-converted to Common Stock basis) then owned
by such Investor, and the denominator of which is the number of shares of Series
B Stock, Series C Stock, Series D Stock and Common Stock issuable upon
conversion of such Series B Stock, Series C Stock and Series D Stock (on an as-
converted to Common Stock basis) then owned by all Investors having a Right of
Co-Sale hereunder plus the number of shares of Stock held by the Selling
Shareholder who proposes the Transfer.
3.2 Consummation of Co-Sale. Each Investor, in exercising the Right
-----------------------
of Co-Sale, may effect such Investor's participation in such Transfer by
delivering to the Selling Shareholder at the closing of the Transfer of
Shareholder Stock to the Proposed Transferee(s) (the "Closing") one or more
certificates, properly endorsed for Transfer, representing such Stock to be
Transferred by such Investor. At the Closing, such certificates or other
instruments will be Transferred and delivered to the Proposed Transferee(s) set
forth in the Notice in consummation of the Transfer of the Shareholder Stock
pursuant to the terms and conditions specified in the Notice, and the
Shareholder will remit, or will cause to be remitted, to such Investor within
seven (7) days after such Closing that portion of the proceeds of the Transfer
to which such Investor is entitled by reason of such Investor's participation in
such transfer pursuant to the Right of Co-Sale.
3.3 Multiple Series, Classes Or Types Of Stock. If the Shareholder
------------------------------------------
Stock consists of more than one series or class or type of Stock, each Investor
has the right to Transfer hereunder such Investor's Pro Rata Share of each such
series, class or type of Stock; provided, however, that (a) if such Investor
does not hold any of such series, class, or type of Stock, and the Proposed
Transferee is not willing, at the Closing, to purchase some other series, class
or type of Stock from such Investor as part of such Investor's Pro Rata Share or
(b) if the Proposed Transferee is unwilling to purchase any Stock from such
Investor at the Closing (each such circumstance being referred to herein as an
"Incomplete Co-Sale"), then such Investor will have the put right (the "Put
Right") set forth in Section 4.2 hereof.
4. REFUSAL TO TRANSFER; PUT RIGHT.
------------------------------
4.1 Refusal to Transfer. Any attempt by any Transferring Shareholder
-------------------
to Transfer any Stock in violation of Section 3 of this Agreement will be void.
The Company will not (a) transfer on its books any Stock that has been sold,
gifted or otherwise transferred in violation of this Agreement, or (b) treat as
owner of such Stock, or accord the right to vote to or pay dividends to any
purchaser, donee or other transferee to whom such Stock may have been so
transferred.
4
<PAGE>
4.2 Put Right. If a Transferring Shareholder Transfers any Stock in
---------
contravention of an Investor's Right of Co-Sale under this Agreement (a
"Prohibited Transfer"), or if an Incomplete Co-Sale occurs and the provisions of
Section 3.3 hereof apply, the relevant Investor may require such Transferring
Shareholder to purchase from such Investor, for cash or such other consideration
as the Transferring Shareholder received in the Prohibited Transfer or
Incomplete Co-Sale, that number of shares of Stock (of the same class, series or
type as transferred in the Prohibited Transfer or Incomplete Co-Sale, if such
Investor then owns Stock of such class, series or type, and otherwise of Common
Stock) having a purchase price equal to the aggregate purchase price such
Investor would have received in the closing of such Prohibited Transfer or
Incomplete Co-Sale if such Investor had exercised and been able to consummate
such Investor's Right of Co-Sale with respect thereto (the Investor's "Put
Right"). An Investor may exercise such Investor's Put Right by delivery of
written notice to the Transferring Shareholder and the Company (a "Put Notice")
within ten (10) days after such Investor becomes aware of the Prohibited
Transfer or Incomplete Co-Sale. The closing of such sale to the Transferring
Shareholder under such Investor's Put Right will occur within seven (7) days
after the date of such Investor's Put Notice.
5. RESTRICTIVE LEGEND AND STOP-TRANSFER ORDERS.
-------------------------------------------
5.1 Legend. Each Shareholder understands and agrees that the Company
------
will cause the legend set forth below, or a legend substantially equivalent
thereto, to be placed upon any certificate(s) or other documents or instruments
evidencing ownership of Stock by the Shareholder:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RIGHTS OF CO-SALE AS SET FORTH IN A CO-SALE AGREEMENT ENTERED
INTO BY THE HOLDER OF THESE SHARES, THE COMPANY AND CERTAIN
SHAREHOLDERS OF THE COMPANY. A COPY OF SUCH AGREEMENT IS ON FILE
AT THE PRINCIPAL OFFICE OF THE COMPANY. SUCH RIGHTS OF CO-SALE
ARE BINDING ON TRANSFEREES OF THESE SHARES.
5.2 Stop Transfer Instructions. Each Shareholder agrees, to ensure
--------------------------
compliance with the restrictions referred to herein, that the Company may issue
appropriate "stop transfer" certificates or instructions and that, if the
Company transfers its own securities, it may make appropriate notations to the
same effect in its records.
6. ESCROW. As security for the faithful performance of this Agreement,
------
each Shareholder agrees to immediately deliver all certificate(s) evidencing
such Shareholder's Stock (whether now owned or hereafter acquired by each
Shareholder), together with a stock power for each certificate in the form of
Exhibit C attached hereto, or such comparable instrument as the Company
- ---------
reasonably may request, executed by such Shareholder and his or her spouse (with
the transferee, date, certificate number and number of shares of Stock left
blank), to the President of the Company or the President's designee (the "Escrow
Holder"), who is hereby appointed to hold such certificate(s) and stock power(s)
in escrow and to take all such actions and to
5
<PAGE>
effectuate all such transfers and/or releases of such Stock as are in accordance
with this Agreement. Upon marriage or remarriage of a Shareholder, so long as he
or she still holds Stock, such Shareholder will deliver to the Escrow Holder a
new stock power, or comparable instrument, executed by such Shareholder and his
or her new spouse. Each party hereto agrees that the Escrow Holder (a) is an
intended third party beneficiary of this Section 6, (b) will not be liable to
any party to this Agreement (or to any other party) for any actions or omissions
except for willful misconduct in violation of this Agreement and (c) may rely
upon any letter, notice or other document executed by any signature purported to
be genuine and may rely on advice of counsel and obey any order of any court
with respect to the transactions contemplated herein. The Stock will be released
from escrow hereunder as necessary to effect the Right of Co-Sale and upon
termination of the Right of Co-Sale.
7. TERMINATION AND WAIVER.
----------------------
7.1 Termination. The Company's obligations under Section 2.1 and the
-----------
Right of Co-Sale will terminate upon the earliest to occur of the following: (a)
immediately prior to the closing of the IPO; (b) the date on which this
Agreement is terminated by a writing executed by the Company and holders of a
majority of the voting power of the Stock then held by all Investors; (c) the
dissolution of the Company; (d) the closing of the sale of all or substantially
all the assets of the Company, or a merger, consolidation, reorganization or
other transaction or series of related transactions resulting in the exchange of
outstanding shares of the Company's securities such that the shareholders of the
Company prior to such transaction or series of transactions owns, directly or
indirectly, less than fifty (50%) of the voting power of the surviving entity;
or (e) as to any Investor, the date on which such Investor owns less than
1,250,000 shares of Preferred Stock (on an as-converted to Common Stock basis)
of the Company.
7.2 Waiver. The application of the Right of Co-Sale of an Investor as
------
to any proposed Transfer by a Shareholder of any Stock may be waived in advance
of or after such transfer by the written agreement of the Investors holding a
majority of the voting power of the Stock then held by all Investors, in which
case such waiver will be binding as to all Investors. The Company and the
Investors will have the absolute right to exercise or refrain from exercising
any right or rights that each such party may have by reason of this Agreement,
including without limitation the right to purchase or participate in the sale of
Shareholder Stock. Neither the Company nor any Investor will incur any liability
to any other party hereto with respect to exercising or refraining from
exercising any such right or rights. Any waiver by a party of its rights
hereunder will be effective only if evidenced by a written instrument executed
by such party or its authorized representative.
8. MISCELLANEOUS PROVISIONS.
------------------------
8.1 Notices. Any notice required or permitted to be given to a party
-------
pursuant to the provisions of this Agreement will be in writing and will be
effective and deemed given to such party under this Agreement on the earliest of
the following:
(a) the date of personal delivery;
6
<PAGE>
(b) one (1) business day after transmission by facsimile or
telecopier, addressed to the other party at its facsimile number or telecopier
address specified herein (or hereafter noticed to the parties hereto), with
confirmation of transmission;
(c) one (1) business day after deposit with a return receipt express
courier for United States deliveries, or three (3) business days after such
deposit for deliveries outside of the United States; or
(d) three (3) business days after deposit in the United States mail
by registered or certified mail (return receipt requested) for United States
deliveries.
All notices not delivered personally or by facsimile will be sent with postage
and/or other charges prepaid and properly addressed to the party to be notified
at the address set forth below such party's signature on this Agreement or on an
Exhibit hereto, or at such other address as such other party may designate by
ten (10) days advance written notice to the other parties hereto. All notices
for delivery outside the United States will be sent by facsimile or by express
courier. Any notice given hereunder to more than one person will be deemed to
have been given, for purposes of counting time periods hereunder, on the date
effectively given to the last party required to be given such notice. Notices
to the Company will be marked "Attention: President."
8.2 Binding on Successors and Assigns; Inclusion Within Certain
-----------------------------------------------------------
Definitions. This Agreement, and the rights and obligations of the parties
- -----------
hereunder, will inure to the benefit of, and be binding upon, their respective
successors, assigns, heirs, executors, administrators and legal representatives
and any transferee of Stock. Any permitted transferee of a Shareholder who is
required to become a party hereto will be considered a "Shareholder" for
purposes of this Agreement without the need for any consent, approval or
signature of any party hereto.
8.3 Severability. If any provision of this Agreement is held to be
------------
invalid, illegal or unenforceable in any respect, such provision will be
enforced to the maximum extent possible and such invalidity, illegality or
unenforceability will not affect any other provision of this Agreement, and this
Agreement will be construed as if such invalid, illegal or unenforceable
provision had (to the extent not enforceable) never been contained herein.
8.4 Amendment.
---------
(a) This Agreement may be amended only by a written agreement
executed by the Company, Investors holding at least a majority of the Series B
Stock, Series C Stock and Series D Stock (on an as-converted to Common Stock
basis) then held by all Investors and Shareholders holding at least a majority
of the Series A Stock (on an as-converted to Common Stock basis) and Common
Stock then held by all Shareholders, provided, that any amendment that treats
-------- ----
any Shareholder in a materially adverse manner that is different than any other
Shareholder will require the separate approval of such Shareholder. Any
amendment effected in accordance with this Section 8.4 will be binding upon the
Company, the Investors, the Shareholders and each of their respective successors
and assigns.
7
<PAGE>
(b) If an Investor sells or transfers some or all of such Investor's
Stock, then any transferee of such Investor shall be subject to all rights and
obligations under this Agreement as the Investor from whom such Stock was
acquired would have if such Investor owned the Stock so transferred. If a
Shareholder sells or transfers some or all of such Shareholder's Stock, and such
Stock remains subject to this Agreement, then such Shareholder's transferee
shall be subject to all of the rights and obligations under this Agreement as
the Shareholder from whom such Stock was acquired would have if such Shareholder
owned the Stock so transferred.
(c) Notwithstanding anything herein to the contrary, if pursuant to
Section 2.2 of the Purchase Agreement, additional parties may purchase shares of
Series D Stock as "New Investors" thereunder, then each such New Investor shall
become a party to this Agreement as an "Investor" hereunder, without the need
for any consent, approval or signature of any Investor or any Shareholder when
such new Investor has both: (a) purchased shares of Series D Stock under the
Purchase Agreement and paid the Company all consideration payable for such
shares and (b) executed one or more counterpart signature pages to this
Agreement.
8.5 Governing Law. This Agreement will be governed by and construed
-------------
in accordance with the internal laws of the State of California, excluding that
body of law pertaining to conflict of laws.
8.6 Obligation of Company; Binding Nature of Exercise. The Company
-------------------------------------------------
agrees to use its best efforts to enforce the terms of this Agreement, to inform
each Investor of any breach hereof (to the extent the Company has knowledge
thereof) and to assist each Investor in the exercise of such Investor's rights
and performance of such Investor's obligations hereunder.
8.7 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed and delivered will be deemed an
original, and all such counterparts together will constitute one and the same
agreement.
8.8 Entire Agreement. This Agreement, including all Exhibits hereto,
----------------
each of which is incorporated herein by reference, constitutes the entire
agreement of the parties with respect to the specific subject matter hereof and
supersedes in their entirety all other agreements or understandings between or
among the parties hereto with respect to such specific subject matter.
8.9 Conflict. In the event of any conflict between the terms of this
--------
Agreement and the Company's Articles of Incorporation or its Bylaws, the terms
of the Company's Articles of Incorporation or its Bylaws, as the case may be,
will control. In the event of any conflict between the terms of this Agreement
and any other agreement to which an Investor is a party or by which the Selling
Shareholder is bound, the terms of this Agreement will control, except insofar
as this Agreement provides otherwise with respect to any Founders Agreement. In
the event of any conflict between the Company's books and records and this
Agreement or any notice delivered hereunder, the Company's books and records
will control absent fraud or error.
8
<PAGE>
8.10 Calculation; Binding Effect of Company Notices. All calculations
----------------------------------------------
of an Investor's Pro Rata Share will be made by the Company as of the date of
the Company's notice in which such Pro Rata Share appears. The Pro Rata Share of
an Investor as shown on any notice required hereunder to be delivered by the
Company will be binding upon the parties hereto absent fraud or error.
8.11 Headings. The captions and headings of this Agreement are
--------
included for ease of reference only and will be disregarded in interpreting or
construing this Agreement. Unless otherwise stated, all references herein to
Sections and Exhibits will refer to Sections of and Exhibits to this Agreement.
8.12 Adjustments for Stock Splits, Etc. Wherever in this Agreement
---------------------------------
there is a reference to a specific number of shares of Common Stock or Preferred
Stock of the Company of any class or series, then, upon the occurrence of any
subdivision, combination or stock dividend of such class or series of stock, the
specific number of shares so referenced in this Agreement shall automatically be
proportionally adjusted to reflect the affect on the outstanding shares of such
class or series of stock by such subdivision, combination or stock dividend.
8.13 Prior Agreement Superseded. Pursuant to Section 8.4 of the Prior
--------------------------
Agreement, the undersigned parties who are parties to such Prior Agreement
hereby restate the Prior Agreement to read in its entirety as set forth in this
Agreement, such that the Prior Agreement is hereby terminated and entirely
replaced and superseded by this Agreement.
[Remainder of page intentionally left blank]
9
<PAGE>
IN WITNESS WHEREOF, the undersigned parties hereto have executed this
Agreement as of the date first written above.
COMPANY: INVESTORS:
- ------- ---------
By: ________________________________ ___________________________________
(please print name here)
-----
Name: ______________________________
By: _______________________________
Title: _____________________________
Name: _____________________________
Address: 2954 Eden Landing Road
Hayward, CA 94545 Title: ____________________________
Address: __________________________
__________________________
SHAREHOLDERS:
- ------------
____________________________________
(please print name here)
-----
By: ________________________________
Name: ______________________________
Title: _____________________________
Address: ___________________________
___________________________
[Signature Page to Amended and Restated Co-Sale Agreement]
Exhibits
- --------
Exhibit A: List of Investors
Exhibit B: List of Shareholders
Exhibit C: Stock Power Separate from Certificate
10
<PAGE>
EXHIBIT A
---------
LIST OF INVESTORS
[Can be provided upon request]
<PAGE>
EXHIBIT B
---------
LIST OF SHAREHOLDERS
[Can be provided upon request]
<PAGE>
EXHIBIT C
---------
STOCK POWER AND ASSIGNMENT
SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Amended and Restated Co-
Sale Agreement dated as of February 4, 2000 (the "Agreement"), the undersigned
hereby sells, assigns and transfers unto ______________________________________,
______________________________ shares of the common stock of AllAdvantage.com, a
California corporation (the "Company"), standing in the undersigned's name on
the books of the Company represented by Certificate No(s). __________ delivered
herewith, and does hereby irrevocably constitute and appoint the Secretary of
the Company as the undersigned's attorney-in-fact, with full power of
substitution, to transfer said stock on the books of the Company. THIS
ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT AND THE EXHIBITS
THERETO.
Dated: ________________, _____
SHAREHOLDER
________________________________________
[Signature of Shareholder]
________________________________________
[Print name of Shareholder]
________________________________________
[Spouse's Signature, if married]
________________________________________
[Print Spouse's Name, if married]
Instruction: Please do not fill in any blanks other than the signature line.
- ----------- ---
The purpose of this Stock Power and Assignment is to enable the Company and/or
its assignee(s) and certain other parties to exercise their respective "Rights
of Co-Sale" as set forth in the Agreement without requiring additional
signatures on the part of the Shareholder or Shareholder's Spouse.
<PAGE>
EXHIBIT J
Lock-Up Agreement
-----------------
[Can be provided upon request]
<PAGE>
EXHIBIT K
NASD Questionnaire
------------------
[Can be provided upon request]
<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 11, as to which
the date is March , 2000), in the Registration Statement (Form S-1) and
related Prospectus of AllAdvantage.com Inc.
Ernst & Young LLP
Palo Alto, California
March , 2000
- --------------------------------------------------------------------------------
The foregoing consent is in the form that will be signed upon the completion
of the reincorporation and other matters described in Note 11 to the
consolidated financial statements.
/s/ Ernst & Young LLP
Palo Alto, California
February 28, 2000
