<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 3, 1999
REGISTRATION NO. 333-84019
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
NETCREATIONS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NEW YORK 7319 11-3300476
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) No.)
</TABLE>
379 WEST BROADWAY, SUITE 202
NEW YORK, NEW YORK 10012
TELEPHONE: (212) 625-1370; FACSIMILE: (212) 625-1387
(Address and telephone number
of Registrant's principal executive offices)
GREENBERG TRAURIG
200 PARK AVENUE, 15(TH) FLOOR
NEW YORK, NEW YORK 10166
REFERENCE: NETCREATIONS
TELEPHONE: (212) 801-9200; FACSIMILE: (212) 801-6400
(Name, address and telephone number of agent for service)
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
ANDREW J. COSENTINO, ESQ. RICHARD H. GILDEN, ESQ.
ALAN N. SUTIN, ESQ. GREGG J. BERMAN, ESQ.
MARIA ALLEN, ESQ. FULBRIGHT & JAWORSKI L.L.P.
GREENBERG TRAURIG 666 FIFTH AVENUE
200 PARK AVENUE NEW YORK, NEW YORK 10103
NEW YORK, NEW YORK 10166 TELEPHONE: (212) 318-3000
TELEPHONE: (212) 801-9304 FACSIMILE: (212) 752-5958
FACSIMILE: (212) 801-6400
</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, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON THE DATE OR
DATES AS MAY BE NECESSARY TO DELAY OUR 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 THE DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT
TO SAID SECTION 8(A), MAY DETERMINE.
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<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 WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 3, 1999
PROSPECTUS
3,300,000 SHARES
[LOGO]
COMMON STOCK
------------------
This is NetCreations, Inc.'s initial public offering. We anticipate that the
initial public offering price will be between $10.00 and $12.00 per share. We
have applied to list the common stock on the Nasdaq National Market under the
symbol "NTCR."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF FACTORS THAT YOU
SHOULD CONSIDER BEFORE YOU INVEST IN THE COMMON STOCK BEING SOLD WITH THIS
PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PER SHARE TOTAL
<S> <C> <C>
Public Offering Price..................................... $ $
Underwriting Discount and Commissions..................... $ $
Proceeds to NetCreations.................................. $ $
</TABLE>
In connection with this offering, the underwriters have reserved up to
330,000 shares of the common stock being offered for sale at the initial public
offering price to our directors, officers, employees and friends.
The underwriters may purchase up to an additional 495,000 shares from us at
the public offering price, less underwriting discounts, solely to cover
over-allotments.
FRIEDMAN BILLINGS RAMSEY
C.E. UNTERBERG, TOWBIN
FBR.COM
FIDELITY CAPITAL MARKETS
----------------
THIS PROSPECTUS IS DATED , 1999
<PAGE>
[Inside front cover page]
[Description of Artwork]
The top of the inside front cover contains the centered captioned statement
"Samples of NetCreations Network of Web sites."
The inside front cover contains a sample of mostly third-party Web sites
comprising the NetCreations Network such as CMPnet, PostMasterDirect.com,
Regards.com, etc. The bottom left corner of the page contains a NetCreations
logo graphic. The bottom right corner of the page contains the captioned
statements "The above Web sites are among the top 25 suppliers of email
addresses for our database" and "Each Web site in the NetCreations Network
receives commissions when marketers use our services to deliver email messages
to the addresses provided by that Web site." The bottom of the page contains the
captioned statement "Service marks, trademarks and tradenames referred to on
this page are the property of their respective owners."
[Gatefold]
[Description of Artwork]
The top of the gatefold contains the centered captioned statement "NetCreations,
Inc. Double Opt-In Email Marketing Services."
The center of the gatefold contains a large circle. Within the circle and
towards the top is the NetCreations logo. In the middle of the circle and
directly below the NetCreations logo is the captioned statement "Email Address
Database." Below that captioned statement are the captioned statements
"4+Million Names" and "3000+Topical Categories."
Above the circle is the captioned statement "Internet User." Extending from the
left side of the captioned statement "Internet User" is a long horizontal arrow
that first extends out towards the left and then down towards the left center of
the gatefold. Directly above the arrow is the captioned statement "Opt In Via
Sign-Up Form on Web." In between the circle and the captioned statement
"Internet User" are two vertical arrows. The left arrow, which points up to the
captioned statement "Internet User," has the captioned statement "Request for
Opt-in Confirmation" on the left of it. The right arrow, which points down to
the circle, has the captioned statement "Opt-in Confirmation" on the right of
it.
Directly below the circle is a semi-circle. The left side of the semi-circle
contains the captioned statement "Web Site Owner Support." The right side of the
semi-circle contains the captioned statements "Email Direct Marketing Campaign
Support." Directly below the semi-circle is the captioned statement
"PostMasterDirect.com" with a vertical arrow pointing down to a captioned
statement "Email List Member." To the right of the arrow is the captioned
statement "Delivery of Email Message."
To the left side of the semi-circle is a picture of a desktop computer with a
monitor sitting on top. The monitor screen contains the captioned statement "Web
site." Directly above the monitor, and below the down pointed arrow that
extended from the left side of the captioned statement "Internet User" is the
captioned statement "NetCreations Network: 175+Websites." In between the left
side of the semi-circle and the monitor are two horizontal arrows. Directly
above the top arrow, which extends from the monitor and points to the captioned
statement on the left side semi-circle, is the captioned statement "Email
Addresses." Directly below the bottom arrow, which extends from the left side of
the semi-circle pointing to the monitor, is the captioned statement "Report
Address Use."
The right side of the semi-circle is also a picture of a desktop computer with a
monitor sitting on top. This monitor screen contains the captioned statement
"Marketing Customers." Directly above this monitor is the captioned statement
"Marketer/Reseller." In between the right side of the semi-circle and this
monitor are two horizontal arrows. Directly above the top arrow, which extends
from this monitor and points to the right semi-circle, is the captioned
statement "Order Email & Submit Message." Directly below the bottom arrow, which
extends from the right side of the semi-circle pointing to the monitor, is the
captioned statement "Confirm Delivery Optional Tracking."
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND THE NOTES TO THOSE STATEMENTS APPEARING
ELSEWHERE IN THIS PROSPECTUS.
EXCEPT AS OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS: (1) REFLECTS
A 117,000 FOR 1 STOCK SPLIT OF OUR COMMON STOCK, EFFECTIVE SEPTEMBER 14, 1999
AND (2) ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION WILL NOT BE
EXERCISED.
OUR COMPANY
We provide Internet-based opt-in email direct marketing services that enable
direct marketers to target promotional campaigns to consumers who have given
their permission to receive email messages in any of over 3,000 topical
categories. Our technology allows real-time, online email address selection and
ordering by direct marketers, as well as response-tracking. We have, as of
September 30, 1999, over 4.3 million email addresses in our database, which is
currently growing at the average net rate of more than 20,000 email addresses
per day.
Through our WWW.POSTMASTERDIRECT.COM Web site and through third-party Web
sites whose email address lists we manage, we have collected the email addresses
in our database from consumers who have elected to receive promotional email
messages, and have not subsequently opted out. We refer to these third-party Web
sites and our own Web site as our NetCreations Network because they provide us
email addresses for our database. We charge direct marketers a fee each time we
send marketing materials on their behalf to an email address they have selected
from our database. We pay a percentage of that fee to the third-party Web sites
in our network each time an email address they own is used for a particular
email marketing campaign. We generate substantially all of our revenues from the
fees obtained from our direct marketing customers.
There are currently over 175 third-party Web sites in the NetCreations
Network, including sites such as Internet.com, NetZero, Entrepreneur Magazine,
CMPnet, LinkExchange, CDROM Guide, Regards.com and Volition. On November 3,
1999, we entered into an email list management agreement with ICQ, Inc., an
instant messaging subsidiary of America Online, Inc., to be the newest
third-party Web site in the NetCreations Network. Each Web site in the
NetCreations Network accumulates email addresses by placing a sign-up template
on one or more of its Web pages which allows consumers to elect to receive email
pertaining to a selection of topical categories. We believe that the aggregation
of topically targeted, opt-in email addresses collected from third-party Web
sites is an element of the attractiveness of our services to direct marketers.
As of September 30, 1999, we have sent email messages on behalf of more than
1,500 direct marketers. Our direct marketing customers range from large
companies, such as Dell, Compaq, Ziff-Davis and J. Crew, to small retailers
selling items over the Internet, such as Vermont Nutrition, Cyberswap, Inc.,
Technology Marketing Corp., and Intratech Alliance Corp. We also sell use of
email addresses in our database to email address list brokers for use by their
direct marketing customers. For the years ended December 31, 1996, 1997 and
1998, we generated net revenues of $476,000, $1.1 million and $3.4 million,
respectively, and during those same periods we generated a net loss of $9,000 in
1996 and net income of $260,000 and $606,000 in 1997 and 1998, respectively. For
the nine months ended September 30, 1999, we delivered approximately 68 million
email messages in email marketing campaigns for our customers using email
addresses in our database, which generated over 95% of our net revenues for the
period. During that period, we generated net revenues of $10.2 million and net
income of $2.6 million, as compared with net revenues of $2.1 million and net
income of $357,000 for the nine months ended September 30, 1998.
At September 30, 1999, we had $275,000 of outstanding borrowings under a
line of credit and no other borrowings, although we did have capital lease
obligations of $202,510. However, pursuant to the agreement with ICQ, Inc., we
incurred an obligation to advance to ICQ, Inc. $5.0 million, constituting a
portion of the fees that ICQ, Inc. expects to earn under the agreement.
$1 million of those advances was paid on signing. An additional $2.0 million is
payable on consummation of this offering. The remaining $2.0 million is payable
in installments over time. We are entitled to take credit for the
3
<PAGE>
advances against fees due to ICQ, Inc. under the email address list management
agreement. If the agreement terminates before May 3, 2000, all of the advances
other than the first $1.0 million will be refunded to us. The remaining
$4.0 million of the advances will also become non-refundable with the passage of
time. In connection with paying the first advance, we borrowed $1.0 million
under our line of credit.
MARKET OPPORTUNITY
The Direct Marketing Association, or DMA, estimates that approximately
$221.5 billion will be spent on direct marketing in the United States in 2003.
Direct marketing includes postal direct mail, credit card offers and other
solicitations that encourage consumers to buy products or services.
The emergence of the Internet as a global communication and commerce medium
has led traditional and e-commerce businesses to direct increasing portions of
their marketing budgets to the Internet. Forrester Research projects that
worldwide Internet advertising expenditures are expected to reach $24.1 billion
in 2003. Currently, the most popular form of Internet advertising is banner
advertising. We believe that, while banners provide marketers with the ability
to reach broad audiences and establish brand awareness, banners have proven less
than effective as vehicles for generating consumer response. Forrester Research
reports that response rates, or click-throughs, from banner advertising averaged
approximately 0.7% as of March 1999.
Businesses seek to maximize the impact of their advertising campaigns.
Drawbacks to traditional direct mail include the high costs involved, the delay
in response and the difficulty in tracking responses. Banner advertising is not
cost-effective because of the relatively low click-through rate it generates.
Finally, unsolicited email advertising is not desirable because of privacy
concerns and potential damage to marketers' reputations.
OUR BUSINESS
Our opt-in email direct marketing business offers direct marketers three key
advantages over postal direct marketing and banner advertising:
- SPEED. Opt-in email campaigns can be sent out immediately and generate
results in a shorter period of time than direct mail or banner
advertising.
- RESPONSIVENESS. We believe that opt-in email campaigns typically generate
response rates ranging from 5% to 15%, although Forrester Research
estimates that opt-in email campaigns generated average response rates of
18% as of March 1999. This greatly exceeds the typical banner advertising
response rate of 0.7% and typical postal direct mail response rates, which
we believe to be approximately 2%.
- COST. Forrester Research estimates that opt-in email marketing campaigns
typically cost 25% to 75% less than postal direct mail campaigns.
OUR STRATEGY
Our goal is to become the leader in opt-in direct marketing on the Internet.
The key elements of our strategy include:
- maintain and extend market leadership in opt-in email direct marketing;
- enrich our database with opt-in transaction data;
- develop new Internet marketing products and services;
- expand our sales channels; and
- leverage our scaleable technology platform.
4
<PAGE>
RISK FACTORS
An investment in our common stock involves certain risks associated with our
business, including
- the difficulty you may have in evaluating our business and prospects or
projecting our future operating results because we have a relatively
limited operating history and we are an early-stage company;
- the unpredictability of our future revenues and financial results quarter
to quarter and otherwise;
- the possibility that we may incur losses in the future;
- the possibility that changes in our sales and pricing policies may result
in reduced margins or negative impacts on our cash flow;
- the possibility that we may be unable to replace lost revenues if our
marketing customers cease to do business with us, as they may do at any
time;
- our dependence on third parties, who may terminate their agreements with
us any time, for collection of email addresses for our database;
- the ability of Internet users to remove their names from our database or
to change their email addresses at any time;
- our need to expand and retain our marketing customer base;
- our reliance on resellers to increase the orders for use of opt-in email
addresses in our database;
- the strain we are experiencing and the additional strains which we
anticipate our planned growth will place upon our management systems and
resources;
- uncertainties associated with possible overseas expansion;
- our dependence upon Rosalind Resnick, Ryan Scott Druckenmiller, and our
employees;
- the difficulty of preventing others from using our intellectual property;
- following this offering, Rosalind Resnick and Ryan Scott Druckenmiller
will control us, and their interests may conflict with yours; and
- uncertainty concerning our ability to obtain additional financing if we
need it.
In addition, investing in our common stock involves certain risks associated
with our industry in general, including
- our dependence on growth in use of, and perceived effectiveness of, the
Internet for email direct marketing and e-commerce;
- our exposure to Internet, software or hardware failures or shortcomings
and to Year 2000 risks;
- the potential for damage to our business due to privacy concerns of
Internet users;
- the competition we face;
- our need to adapt to rapid changes in technology, industry standards, and
product offerings;
- the damaging impact that increasing governmental regulation may have upon
us; and
- our exposure to product liability claims and claims due to the activities
of our customers.
For a fuller discussion of these and other risk factors affecting us and our
business, see "Risk Factors."
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by NetCreations......... 3,300,000 shares
Common stock to be outstanding after the
offering................................... 15,000,000 shares(1)
Use of proceeds.............................. To fund expansion of our network of
third-party Web sites, to increase
expenditures on sales, marketing, research
and development and other costs of expanding
our business, to repay indebtedness under our
line of credit, for working capital and for
other general corporate purposes, which may
include payment of the second, third and
fourth advances of fees to ICQ, Inc. and
which may also include acquiring or investing
in companies, technologies or expertise
complementary to our business.
Proposed Nasdaq National Market symbol....... NTCR
</TABLE>
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(1) The number of shares to be outstanding after the offering excludes 1,170,000
shares of common stock reserved for issuance under our 1999 Stock Option
Plan. We have granted options, effective as of September 14, 1999, to
purchase 232,500 shares of common stock at an exercise price of $5.00 per
share. In addition, we have granted options, effective as of October 8,
1999, to purchase 100,000 shares of common stock to each of our
non-management directors, Messrs. Michael Levy, Gregory W. Slayton and
Mitchell York, at an exercise price per share equal to the lesser of $10.00
or the initial public offering price.
CORPORATE INFORMATION
We are a New York corporation. We were originally incorporated in Florida in
1995 and we reincorporated in New York in January 1996. Our principal executive
offices are located at 379 West Broadway, Suite 202, New York, New York 10012
and our telephone number is (212) 625-1370. Our corporate Web site is located at
WWW.NETCREATIONS.COM. We provide our services on our other Web site,
WWW.POSTMASTERDIRECT.COM. Information on our Web sites does not constitute part
of this prospectus.
NETCREATIONS, POSTMASTER and 100% OPT-IN are registered trademarks of
NetCreations, Inc. We have filed applications to register POSTMASTERDIRECT.COM
and POSTMASTER DIRECT RESPONSE. Other service marks, trademarks and tradenames
referred to in this prospectus are the property of their respective owners.
6
<PAGE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
PERIOD FROM NINE MONTHS ENDED
INCEPTION TO YEAR ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ---------------------------------- ------------------------
1995 1996 1997 1998 1998 1999
------------ -------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net revenues (1)............... $101,652 $476,190 $1,100,781 $3,446,539 $2,062,333 $10,202,614
Gross profit................... 93,439 433,100 927,657 1,936,763 1,249,786 5,240,947
Income (loss) before income tax
provision.................... 22,789 (1,562) 283,377 678,091 399,930 2,899,924
Net income (loss).............. $ 22,789 $ (8,996) $ 260,349 $ 605,863 $ 357,330 $ 2,597,569
======== ======== ========== ========== ========== ===========
Net income (loss) per
share-basic and diluted...... $ 0.00 $ (0.00) $ 0.02 $ 0.05 $ 0.03 $ 0.22
======== ======== ========== ========== ========== ===========
Shares used in per share
computation (000's
omitted)..................... 11,700 11,700 11,700 11,700 11,700 11,700
PRO FORMA DATA (2):
Historical income (loss) before
income tax provision......... $ 22,789 $ (1,562) $ 283,377 $ 678,091 399,930 2,899,924
Pro forma income tax provision
(benefit).................... 3,500 (1,000) 129,000 316,000 186,000 1,342,000
-------- -------- ---------- ---------- ---------- -----------
Pro forma net income (loss).... $ 19,289 $ (562) $ 154,377 $ 362,091 $ 213,930 $ 1,557,924
======== ======== ========== ========== ========== ===========
Pro forma net income (loss) per
share--basic & diluted....... $ 0.00 $ (0.00) $ 0.01 $ 0.03 $ 0.02 $ 0.13
======== ======== ========== ========== ========== ===========
Shares used in per share
computation (000's
omitted)..................... 11,700 11,700 11,700 11,700 11,700 11,700
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-----------------------------------------------
PRO FORMA
ACTUAL PRO FORMA (3) AS ADJUSTED (3)(4)
---------- ------------- ------------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash................................................ $ 798,135 $ -- $31,984,000
Working capital (deficiency)........................ 179,445 (710,190) 31,548,810
Total assets........................................ 4,576,265 3,778,130 35,762,130
Long-term debt (including current portion).......... 477,510 477,510 202,510
Total stockholders' equity.......................... 1,112,994 223,359 32,482,359
</TABLE>
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(1) Net revenues represent revenues earned for our services less volume and
broker discounts.
(2) We have elected to be taxed as an S corporation for federal and state income
tax purposes since our inception. Accordingly, no provision has been made
for federal or certain state income taxes. Pro forma net income has been
computed as if we had been fully subject to federal, state and city taxes.
Immediately prior to the effective date of this offering, we will terminate
the S corporation election and, thereafter, become a C corporation.
(3) We intend to pay to Ms. Resnick and Mr. Druckenmiller final S corporation
distributions based on current year earnings, to the extent of available
cash balances. At September 30, 1999, this amount would have been $798,135.
Pro forma adjustments reflect (a) our pro forma S corporation distributions
for this amount and (b) the deferred tax liability resulting from the
termination of our S corporation election.
(4) As adjusted to reflect the sale of 3,300,000 shares of common stock offered
at an assumed initial public offering price of $11.00 per share, the
mid-point of the filing range, and the application of the estimated net
proceeds from this offering.
7
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS BEFORE YOU DECIDE TO BUY
OUR COMMON STOCK. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS,
FINANCIAL CONDITION OR RESULTS OF OPERATIONS MAY SUFFER. AS A RESULT, THE
TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR PART OF
THE MONEY YOU PAID TO BUY OUR COMMON STOCK.
WE DEPEND ON CONTINUED GROWTH IN USE OF THE INTERNET FOR EMAIL DIRECT MARKETING
AND E-COMMERCE.
The business of email direct marketing and e-commerce is new and rapidly
evolving. Our business would be adversely affected if Internet usage for the
exchange of information and for commerce does not continue to grow because
advertisers might feel less compelled to use our services as opposed to more
traditional advertising services. Internet usage may be inhibited for a number
of reasons, such as:
- inadequate network infrastructure;
- security concerns;
- inconsistent quality of service; and
- lack of availability of cost-effective, high-speed service.
THE ACCEPTANCE AND EFFECTIVENESS OF INTERNET OPT-IN EMAIL DIRECT MARKETING IS
RELATIVELY UNPROVEN.
Our future success will depend on an increase in the use of the Internet as
an opt-in marketing medium or for opt-in email generally. The opt-in email
direct marketing industry is new and rapidly evolving. Consequently, current
indications of its effectiveness compared to traditional postal direct marketing
may not be supported as the industry matures. As a result, there generally is
significant uncertainty about the demand and market acceptance for opt-in email
marketing solutions or Internet advertising solutions.
Many of our current or potential customers may have little or no experience
using the Internet for direct marketing purposes. The adoption of Internet
direct marketing, particularly by those entities that have historically relied
upon traditional media and mailings for marketing, requires the acceptance of a
new way of conducting business. These companies may find email direct marketing
to be less effective for promoting their products and services as compared to
traditional mass media and postal marketing.
We cannot assure you that the market for email direct marketing will
continue to emerge, or will become sustainable.
INTERNET, SOFTWARE OR HARDWARE FAILURES OR SHORTCOMINGS COULD ADVERSELY AFFECT
OUR BUSINESS IN DIVERSE WAYS.
We depend on software, hardware, and the Internet to collect, store,
retrieve and process email addresses and other data and to send email for our
direct marketing customers. The third-party Web sites which we rely upon to
collect email addresses are less likely to collect additional email addresses
for us if their operations are disrupted or slowed by Internet, software or
hardware failures or shortcomings or if such occurrences discourage potential
visitors from using the Internet or visiting their sites. Direct marketers are
less likely to utilize our services if potential customers are prevented or
discouraged from using the Internet and receiving promotional messages due to
Internet, software, or hardware failures or shortcomings.
Many of the Internet service providers and Web site operators on whom we
depend have experienced significant service slowdowns, malfunctions, outages and
capacity limitations. We also depend upon the reliability, speed, data capacity,
ease of use, accessibility and security of the Internet as well as its continued
development and acceptance for commercial use generally.
The Internet infrastructure may not be able to support the increasing
demands placed on it at acceptable service levels as Internet usage grows. An
individual's satisfactory Internet experience may also depend on the proper
functioning and the continued development of equipment such as high speed modems
and personal computers. Not all software and equipment protocols and standards
are compatible. Users may experience difficulties due to computer-related,
telecommunications, or
8
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other equipment, software, or system failures or shortcomings unrelated to our
services.
In addition, some of our systems' infrastructure is not yet supported by
redundant servers. Any failure in our system that is not backed up by redundant
servers could cause significant delays in our business operations.
If we experience a temporary or permanent business interruption, whether due
to casualty, an operating malfunction, a power outage or otherwise, we may have
to reconfigure our software, hardware and Internet infrastructure to address our
customers' needs and orders. We may be unable to do so effectively or rapidly
enough to avoid loss of business or damage to our reputation. Any interruption
of service would be potentially harmful to our business and reputation because
even a short interruption in the midst of performing a time-sensitive project
for a customer could be very damaging to our relationship with that customer. In
certain instances, such as power outages or Internet service provider outages,
we may be unable to do anything other than wait for the restoration of service
and suffer the consequences of business interruption.
OUR BUSINESS COULD BE NEGATIVELY AFFECTED BY YEAR 2000 ISSUES.
Historically, most computer databases, as well as embedded microprocessors
in computer systems and industrial equipment, were designed with date data using
only two digits of the year. Most computer programs, computers and embedded
microprocessors controlling equipment were programmed to assume that all two
digit dates were preceded by "19," causing "00" to be interpreted as the year
1900. This formerly common practice now could result in a computer system or
embedded microprocessor which fails to recognize properly a year that begins
with "20," rather than "19." This in turn could result in computer system
miscalculations or failures, as well as failures of equipment controlled by date
sensitive microprocessors, and is generally referred to as the "Year 2000"
issue.
It is uncertain what impact the Year 2000 issue will have on the Internet,
but major disruption is possible. We rely on telecommunications carriers to
transmit our Internet traffic over local and long distance networks, on Internet
service providers for access to the Internet, and on electric utilities for
power for our systems and the operation of our business. We may not be able to
operate if the networks and systems of the telecommunications carriers, Internet
service providers, or electric utilities on which we rely fail due to the Year
2000 issue. There is no assurance that we would be able to make alternative
arrangements effectively, in timely fashion, or at all to avoid loss of business
or damage to our reputation in the event of any such failure.
The third-party Web sites upon which we rely for collection of email
addresses rely upon those same types of utility and service providers, and upon
the operation of hardware and software for their operations. Our direct
marketing clients depend upon services and equipment of that type for their own
operations and for access to our online services. The Web site visitors whose
email addresses we seek to collect and to whom we seek to send email for our
customers depend on services and equipment of that type in order to access and
utilize the Internet. Web sites would not be able to collect email addresses,
direct marketing clients would not be able to access our online services and
might be unable to operate and generate revenues to pay for our services, and
consumers might be unable to visit Web sites or receive email or otherwise
utilize the Internet if the networks and systems of the telecommunications
carriers, Internet service providers, electric utilities, hardware or software
on which any of them rely fail due to the Year 2000 issue. Any occurrence of
that type would adversely affect our business.
Our own software was designed to be Year 2000 compliant when configured and
used in accordance with the related documentation and provided that the
underlying operating system of the host machine and any other software used with
or in the host machine or our service are Year 2000 compliant. However, we have
not yet tested our software or software obtained from third parties for Year
2000 compliance. We are seeking assurances from our vendors that licensed
software is Year 2000 compliant but
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have not yet received them. Even with such assurances the software may contain
undetected errors or defects associated with Year 2000 date functions.
We are evaluating our material internal information technology systems,
including both our software products and third-party software and hardware
technology, to determine whether that software is Year 2000 compliant. We have
not yet initiated a similar assessment of our non-information technology systems
although we expect to complete a Year 2000 compliance evaluation of that
software before the end of 1999. We may experience significant unanticipated
problems and costs caused by undetected errors or defects in the technology used
in our internal information technology and non-information technology systems.
We do not currently have any information concerning the Year 2000 compliance
status of our customers. Our current or future customers may incur significant
expenses to achieve Year 2000 compliance. If our customers are not Year 2000
compliant, our business may be harmed because they may experience material costs
to remedy problems, they may face litigation costs, and they may delay purchases
or implementation of our service.
We estimate that we have incurred nominal costs to date in connection with
our Year 2000 plan which we have funded from cash balances and for which we have
not separately accounted. We currently estimate the total costs of completing
our Year 2000 plan, including costs incurred to date, to be less than $250,000,
but the costs of implementing and developing any plan may be significant if we
discover that problems have been overlooked by ourselves or by our vendors or
suppliers. We expect to be unable to develop any contingency plan to deal with
Year 2000-related service outages by the telecommunications carriers, Internet
service providers, and electric utilities upon which we rely. We plan to develop
contingency plans to deal with Year 2000 compliance issues which we may discover
in our internal systems after we complete our evaluations for Year 2000
compliance, but there can be no assurance that we will be able to develop and
implement effective contingency plans in timely fashion or at all, and failure
to address Year 2000 compliance problems could materially adversely affect us.
We estimate that our evaluation will be completed by December 1, 1999.
There is considerable risk of litigation arising due to Year 2000 compliance
issues. Because of the unprecedented nature of litigation of that type, it is
uncertain whether or to what extent we may be affected by litigation in the
event that our service is interrupted or experiences other problems due to Year
2000 issues.
YOU MAY HAVE DIFFICULTY EVALUATING OUR BUSINESS AND PROSPECTS OR PROJECTING OUR
FUTURE OPERATING RESULTS BECAUSE WE HAVE A RELATIVELY LIMITED OPERATING HISTORY
AND WE WILL ENCOUNTER RISKS AND DIFFICULTIES AS AN EARLY-STAGE COMPANY IN A NEW
AND RAPIDLY EVOLVING MARKET.
We have been in the business of providing Internet marketing services since
we commenced operations in 1995. During 1996, our principal service offerings
transitioned from that of Web site design and promotion to opt-in email
marketing services. It is unlikely that the growth rates we have experienced are
sustainable as our business and the market for opt-in email marketing services
mature and more competitors enter the field.
We will encounter risks and difficulties frequently experienced by
early-stage companies in new and rapidly evolving markets, including our ability
to:
- anticipate and adapt to our evolving market;
- implement sales and marketing initiatives;
- develop and introduce new products and services;
- enhance our brands;
- attract, retain and motivate qualified personnel;
- respond to actions taken by our competitors;
- effectively manage our growth by building a solid base of management,
operations and technology; and
- integrate acquired businesses, technologies and services.
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We may not successfully address any of these risks.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SEASONALLY SO THE RESULTS OF ONE
QUARTER ARE NOT NECESSARILY INDICATIVE OF RESULTS IN THE SUCCEEDING QUARTER AND
THE PRICE OF OUR SECURITIES MAY FLUCTUATE IN RESPONSE TO THOSE FLUCTUATIONS.
The traditional postal direct marketing industry tends to have higher
revenues in the fourth quarter of the year, when direct marketers send out
holiday promotions, and somewhat lower revenues during the summer, when direct
marketing activity is reduced overall. To date, because of the rapid growth of
the email direct marketing industry, our revenues have grown sequentially from
quarter to quarter. Therefore, our revenues have not followed the seasonal
patterns of the traditional postal direct marketing industry. We anticipate,
however, that as our business matures, our revenues will track more closely the
seasonal patterns experienced in the traditional postal direct marketing
industry.
OUR FUTURE REVENUES ARE UNPREDICTABLE, AND OUR FINANCIAL RESULTS MAY FLUCTUATE.
Our historical financial data is not reliable as a basis upon which to
predict our future revenues or operating expenses for a number of reasons,
including our limited operating history, the emerging nature of our industry
category, and our growth strategy. Furthermore, there is no guarantee that the
seasonal fluctuations that we have experienced in our operating results to date
will continue as before as our business and the industry evolve and grow.
Our financial results may fluctuate significantly because of several
factors, such as the following, all of which are beyond our control except for
the incurrence of expenses:
- Revenues in any quarter are substantially dependent on orders booked and
delivered in that quarter;
- Demand by direct marketers for use of opt-in email addresses in our
database may fluctuate due to seasonal and cyclical marketing campaigns;
- The market in which we compete is relatively new and rapidly evolving;
- We expect to increase our expense levels in the near future in an attempt
to grow our database and our market share more rapidly. As a result, any
delay in generating or recognizing revenues could cause significant
variations in our operating results from quarter to quarter and could
result in operating losses;
- The relatively new industry in which we are engaged has not been tested in
a recessionary economic environment where budget constraints and
contraction in income available for discretionary purchases could reduce
the use of our services;
- Competition is increasing in our industry, and we anticipate that this
could result in changes in our sales, pricing policies or expenses or
those of our competitors; and
- General economic conditions and economic conditions specific to the
Internet and the online direct marketing industry may vary.
THERE IS NO ASSURANCE THAT WE WILL CONTINUE TO BE PROFITABLE, AND WE MAY INCUR
LOSSES IN THE FUTURE.
We had net income of $605,863 in 1998 and $260,349 in 1997. On a pro forma
basis, to adjust net income as if it had been fully subject to Federal, state
and city taxes as a C corporation, rather than an S corporation, we had net
income of $362,091 in 1998 and $154,377 in 1997. As of September 30, 1999, we
had retained earnings of $976,619 and shareholder's equity of 1,112,994. We had
net income of $2,597,569 ($1,557,924 pro forma) for the nine months ended
September 30, 1999, as compared with net income of $357,330 ($213,930 pro forma)
for the nine months ended September 30, 1998. We may not be able to sustain our
current levels of profitability and may incur losses in the future.
We expect to increase our expenditures on sales and marketing, research and
development, and general and administrative expenses in order to expand our
business. If we acquire other businesses in connection with our planned
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expansion, we may have to write off goodwill and/or other intangibles associated
with any such acquisition. Increased competition in our industry may also
adversely affect our profitability as may other conditions which may be beyond
our control. In addition, many of our direct marketing customers are not
profitable and may not have resources available in the future to rent our lists
or pay for our services.
CHANGES IN OUR SALES AND PRICING POLICIES MAY RESULT IN REDUCED MARGINS OR
NEGATIVE IMPACTS ON OUR CASH FLOW.
In connection with the email address list management agreement with ICQ,
Inc., we have made an initial advance of $1.0 million of commissions that is
non-refundable if the agreement is terminated. We have agreed to make additional
advances of $4.0 million of commissions to ICQ, Inc. that will become non-
refundable with the passage of time. Our net income would be negatively affected
if advanced commissions that become non-refundable have not been earned by the
applicable Web site owner. Advances of commissions also burden our cash flow and
might prevent us from making other expenditures that might generate revenues or
growth for us.
We do not typically make such advances to Web site owners. We also do not
typically pay any Web site owner commissions of more than 50% of the revenue we
earn, less volume discounts, if applicable, each time we send an email message
to any email address list owned by that Web site owner. However, competitive
pressures or strategic or other reasons may cause us to make such advances or
pay commissions of more than 50% of the revenue from sending email messages to
email address list owners in the future. If we pay to our Web site owners a
higher rate of commissions, our margins will be reduced. We may have reduced
profits or may become unprofitable if any increase in the rate of commissions
paid to Web site owners, and the consequent decrease in our margins, is not
offset by lower general and administrative costs as a percentage of revenues or
increased revenues from other sources.
IF OUR DIRECT MARKETING CUSTOMERS CEASE TO DO BUSINESS WITH US, WE MIGHT BE
UNABLE TO REPLACE LOST REVENUES.
We have no long-term contracts with any of our direct marketing customers.
There is no guarantee that any of the direct marketers who have previously used
our services will use our lists in any particular quarter or that they will
continue to use our lists in the future. Substantially all of the contracts with
our direct marketing customers can be terminated on short notice without
penalty.
WE ARE DEPENDENT ON THIRD PARTIES TO GENERATE A SUFFICIENT NUMBER OF EMAIL
ADDRESSES AND, IF THEY TERMINATE THEIR AGREEMENTS WITH US, OUR BUSINESS COULD BE
SERIOUSLY HARMED.
We depend on our network of third-party Web sites to post sign-up forms on
their sites and encourage visitors to their sites to sign up to receive
commercial email messages from our direct marketing customers about topics of
interest. Several high-traffic sites with which we signed agreements in the past
have not been successful in generating significant numbers of opt-in email
addresses for our database. Furthermore, the sites in the network:
- are not within our control;
- may incorporate into their Web sites the sign-up forms of other email
marketing companies in addition to or in place of our sign-up form; and
- are not obligated to continue to build lists for us.
Less than five Web sites have left our network. We have terminated our
relationship with four Web sites with which we did not desire to continue to do
business. We intend to increase the size of our database through partnership
agreements with high-traffic Web sites, but there is no assurance that we will
do so in timely fashion or at all. Our increasing expenditures to develop this
channel could materially adversely affect our operating margins and our cash
flow. If we fail to successfully implement this strategy, our business,
financial condition and results of operations could be materially adversely
affected.
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THE INTERNET USERS WHO SIGN UP TO RECEIVE OUR MAILINGS CAN OPT OUT, OR REMOVE
THEMSELVES FROM OUR LISTS, OR MAY CHANGE THEIR EMAIL ADDRESSES AT ANY TIME.
We provide detailed instructions at the top of every email message we send
out allowing Internet users to remove themselves from our lists. Because this is
a new business model, we do not know how long the average Internet user will
stay on our lists or how many mailings they will accept before opting out.
Currently, the opt-out rate is less than one percent on any given mailing.
However, as more and more marketers use our lists and send out offers, the
number of mailings sent to names on our lists also increases and the number of
those opting out may increase as well. If the rate of list removal requests were
to increase substantially, our fees for the use of our lists could decrease and
our business, financial condition, and results of operations could be materially
adversely affected.
In addition, it is possible that some of the Internet users in our database
could change their email addresses, thus making some of our direct marketing
customers' messages undeliverable. If a message sent to an Internet user is
returned to us because the email address is invalid, we remove that email
address from our database. If a large number of Internet users in our database
change their email addresses and do not update the information in our database,
or if they delay before opting in again or do not opt in again, then our
business, financial condition or results of operations could be materially
adversely affected.
OUR BUSINESS COULD BE SERIOUSLY AFFECTED BY THE PRIVACY CONCERNS OF INTERNET
USERS.
Our opt-in email direct marketing service collects consumer preference and
profile information each time an Internet user visits a participating Web site
and volunteers information in response to survey questions. Privacy concerns may
cause users to resist signing up for our lists and providing the personal data
necessary to support the growth and expansion of our database. More importantly,
even the perception of privacy concerns, whether or not valid, may indirectly
inhibit market acceptance of our service.
WE DEPEND ON ADDING TO AND RETAINING OUR MARKETING CUSTOMER BASE.
We have sent email messages for direct marketing campaigns to email
addresses in our database on behalf of over 1,500 email direct marketing
customers. However, 15 customers accounted for approximately 45% of our net
revenues in the first nine months of 1999. On July 5, 1999, we terminated our
email list management agreement to manage opt-in email addresses collected from
YesMail.com's Web site. We also terminated our email list brokerage agreement
whereby we agreed that YesMail.com would earn brokerage discounts on orders for
use of opt-in email addresses in our database by YesMail.com's email direct
marketing customers. YesMail.com, using the email addresses in the NetCreations
database, resold use of certain of those lists to its own email direct marketing
customers to account for approximately 7% of our net revenues in 1998 and
approximately 11% of our net revenues for the first nine months of 1999. In
addition, 3.3% and 0.8% of our net revenues in 1998 and the first nine months of
1999, respectively, were generated by selling use of opt-in email addresses
collected from the YesMail.com Web site, of which YesMail.com is the email list
owner, to our email direct marketing customers. Our ability to attract new
marketing customers will depend on a variety of factors, including the
responsiveness, scalability, reliability and cost-effectiveness of our email
marketing services and our ability to effectively market these services.
Many of our current marketing customers initially use a small number of our
lists for testing purposes. If such a test mailing is successful, the customer
may repeat his mailing to a much larger universe of lists and continue to use
our lists in the future. If we fail to generate repeat and expanded business
from our current and future customers, our business, financial condition and
results of operations would be seriously harmed.
WE RELY ON RESELLERS AND INTEND TO INCREASE OUR RELIANCE ON RESELLERS.
We intend to increase the proportion of our marketing customers obtained
through our reseller channels, which include email address
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list brokers, interactive advertising agencies, Web design firms and Web sites
that attract small business owners. Such parties are typically referred to as
"resellers" because they place orders in their own names for use of opt-in email
addresses in our database on behalf of their email direct marketing customers.
We bill the reseller our customary fees for use of opt-in email addresses in our
database by their email direct marketing customers, less any applicable volume
discounts, but we also grant a brokerage discount to the reseller. In 1998,
resellers were responsible for approximately 38% of our net revenues and
represented approximately 44% of our net revenues for the first nine months of
1999.
While we intend to expand our own sales force, we believe that we can grow
our business more rapidly by relying on the larger aggregate sales force
represented by those reseller channels. If we fail to grow our business,
competitors may be able to enter our industry or find ways to compete more
effectively with us for our customers. Consequently, if we fail to increase the
proportion of our marketing customers obtained through reseller channels, our
business, financial condition and results of operations could be materially
adversely affected.
Because we give resellers discounts, any sales through resellers will have
lower gross margins than direct sales of the same email addresses. To the extent
we increase the proportion of sales through resellers, our net revenues and
gross profits could decrease. Our agreements with such resellers are generally
not exclusive and, in many cases, may be terminated by either party without
cause. These resellers do not have minimum purchase or resale requirements. Many
of these resellers market email lists that are competitive with our email lists.
These resellers may not give a high priority to the marketing of our lists or
may not continue to carry our lists. They may give a higher priority to other
lists, including their own lists or the lists of our competitors. We may not
retain any of our current resellers or successfully recruit new resellers.
THE PLANNED EXPANSION OF OUR BUSINESS WILL STRAIN OUR MANAGEMENT SYSTEMS AND
OTHER RESOURCES.
Since inception, our net revenues have grown from $102,000 in 1995, to
$3.4 million in 1998, to $10.2 million for the first nine months of 1999. We had
two employees in 1995, 10 at the end of 1998 and 29 on September 30, 1999. In
addition, the pursuit of our business strategy will continue to place a
significant strain upon our managerial, operational and financial resources.
We will need to improve our financial and management controls, reporting
systems and procedures. We will also have to continue to expand, train and
manage our work force for marketing, sales and technical support, product
development, and infrastructure management, and manage multiple relationships
with customers and other third parties. We also plan to expand the geographic
scope of our customer base and operations. We will need to continually expand
and upgrade our technology infrastructure and systems and ensure continued high
levels of service, speedy operation, and reliability. To achieve our objectives,
we may acquire technologies or products or enter into strategic alliances or
acquisitions, although we have no plans or agreements to do so at the present
time.
Our senior management is not experienced in managing the kind of rapid
growth that we currently envision. In addition, three members of our management
team, our Chief Financial Officer, our Vice President of Sales, and our Vice
President of Business Development, have joined us in the past three months and
therefore have a short history of working together.
WE FACE INTENSE COMPETITION AND MAY BE UNABLE TO COMPETE SUCCESSFULLY.
The market for our service is intensely competitive, evolving and subject to
rapid technological change. We expect the intensity of competition to increase
in the future. We believe that we must rapidly expand our business and market
share. If we fail to do so, competitors may copy our business strategy or take
other steps to prevent us from achieving our goals.
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Our competitors include other email direct marketing companies;
incentive-based direct marketers; providers of permission-based outsourced email
solutions; email list owners that manage their own email lists in-house; banner
advertising companies; and postal direct marketing companies. In addition,
because there are relatively low barriers to entry in the email direct marketing
business, we expect additional competition from other established and emerging
companies as the email direct marketing business continues to develop and
expand. We expect to face competition in the future from other companies
entering the field as email address list owners, managers and brokers. Companies
that operate banner advertising networks have entered the email marketing
business through acquisitions of competing email marketing companies.
Many of our competitors have longer operating histories; significantly
greater financial, technical, marketing and other resources; significantly
greater name recognition; and a larger installed base of customers than we have.
In addition, many of our competitors have well-established relationships with
our current and potential customers, have extensive knowledge of our industry
and are capable of offering complementary services and products that are beyond
the scope of our current business operations but might be attractive to
customers seeking to purchase services in addition to email direct marketing
services. As a result, our competitors may be able to respond more quickly to
new or emerging technologies and changes in customer requirements, or to devote
greater resources to the development, promotion and sale of their services than
we can.
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 customer needs. Accordingly,
it is possible that new competitors or alliances among competitors may emerge
and rapidly acquire significant market share. We also expect that competition
will increase as a result of industry consolidations.
OUR MARKET IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE.
Our future success depends on our ability to:
- adapt to rapidly changing technologies;
- adapt our services to evolving industry standards; and
- improve the performance, features and reliability of our service and
product offerings in response to competitive product and service offerings
and evolving demands of the marketplace.
We cannot assure you that we will succeed in addressing these issues. Our
efforts to upgrade our software or introduce new software may not be completed
in a timely fashion or at all and may result in errors which could seriously
harm us. In addition, the widespread adoption of new Internet networking
technologies or other technological changes could require us to expend
substantial amounts of capital to change our services or infrastructure.
Moreover, these changes may involve new technologies which may not be measurable
by our current methods.
WE EXPECT TO EXPAND OUR OPERATIONS OVERSEAS BUT YOU WILL NOT BE ABLE TO QUANTIFY
THE RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION.
We intend to pursue international expansion during the next 12 months but do
not have a specific geographic focus, detailed plan for implementation or
schedule to do so at this time. International operations are subject to risks
that may materially adversely affect our business, results of operations and
financial condition. In particular, opt-in email direct marketing might not
become an acceptable form of advertising internationally. In addition, privacy
regulations in some other countries, including the European Union, are more
stringent than in the United States. These regulations could hinder our ability
to collect demographic data on potential consumers, which could have a material
adverse affect on our business. Other risks of international operations are:
- regulatory requirements;
- reduced protection for intellectual property rights in some countries;
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- difficulties and costs of staffing and managing foreign operations;
- political and economic instability; and
- fluctuations in currency exchange rates.
WE ARE HIGHLY DEPENDENT UPON ROSALIND RESNICK AND RYAN SCOTT DRUCKENMILLER, OUR
FOUNDERS, AND OUR OTHER EMPLOYEES AND THE LOSS OF THEIR SERVICES COULD HARM US.
Rosalind Resnick, our Chief Executive Officer, President and Chairman of our
board of directors, and Ryan Scott Druckenmiller, our Chief Technology Officer
and a member of our board of directors, founded us and are essential to the
continued viability of the business. We have key man life insurance in the
amount of $5 million each, and disability insurance in the amount of $3 million
each, on Ms. Resnick and on Mr. Druckenmiller. We cannot assure you that this
coverage will be adequate to compensate us for the loss of services of either
one of our founders.
Our future success depends on the continued service of our senior
management, sales, marketing, customer service, administrative, and technology
personnel. Both our management team and our work force are currently small. As
of September 30, 1999, we had 29 employees. The loss of the services of one or
more of our key personnel could seriously harm our business, financial condition
and results of operations. Although Ms. Resnick and Mr. Druckenmiller, as well
as our Chief Financial Officer, our Vice President of Sales and our Vice
President of Business Development have all executed and delivered employment
contracts with us which will expire on December 31, 2002, the employees may
terminate the contracts at any time. In addition, the balance of our work force
are employed on an at-will and short-term basis.
Our future success also depends on our continuing ability to attract, hire,
train and retain other highly skilled managerial, technical, sales, marketing
and customer service personnel in order to accommodate the growth of our
business. In addition, we are likely to need to recruit additional senior
management personnel as our business grows, particularly in the international
arena. Competition for such personnel is intense, and we may fail to retain our
key employees, or attract, assimilate or retain other highly qualified personnel
in the future.
WE MAY NOT BE ABLE TO SUCCESSFULLY PROTECT OUR INTELLECTUAL PROPERTY.
Although we are a marketing company, we also depend heavily on technology to
operate our business. We have developed proprietary technology to enable Web
site visitors to opt in to receive targeted advertising information from our
direct marketing customers. The software also enables our direct marketing
customers and email address list brokers to target email addresses in our
database associated with persons with specific demographics, and allows direct
marketers to track the response rates to their mailings. We have developed a
double opt-in confirmation system which sends Internet users a confirmation
email message after they have signed up their email address in our database and
requires them to verify that they would like to begin receiving commercial email
messages from our marketing clients. We have filed a patent application for this
technology. We also have know-how and trade secrets, including the identities
and other information concerning our direct marketing customers and the
information in our email address database, which we seek to protect. If we do
not adequately protect our intellectual property, our business, financial
condition and results of operations will be materially adversely affected.
While we are unable to determine the extent to which piracy of our
technology exists, software piracy can be expected to be a persistent problem.
In addition, the laws of some foreign countries do not protect our proprietary
rights to as great an extent as do the laws of the United States. Our means of
protecting our proprietary rights may not be adequate. Our competitors may
independently develop similar technology, duplicate our technology design around
patents issued to us or our other intellectual property, attempt to copy aspects
of our service, or obtain and use our proprietary information that we regard as
proprietary.
There has been a substantial amount of litigation in the software industry
regarding
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intellectual property rights. It is possible that, in the future, third parties
may claim that our current or potential future technologies infringe upon their
intellectual property. We have not performed any comprehensive analysis of
patents of others that may limit our ability to do business.
We expect that as the number of products and competitors in our industry
segment grows and the functionality of products in different industry segments
overlaps infringement claims will be made more frequently. Any such claims, with
or without merit, could be time-consuming, result in costly litigation and
diversion of management resources, cause product shipment delays or require us
to enter into royalty or licensing agreements. Such royalty or licensing
agreements, if required, may not be available on terms acceptable to us or at
all, which could seriously harm our business, financial condition and results of
operations.
INCREASING GOVERNMENT REGULATION COULD LIMIT THE MARKET FOR OUR SERVICE, WHICH
COULD SERIOUSLY HARM OUR BUSINESS.
As Internet marketing and commerce evolves, we expect that federal, state or
foreign governments will increasingly adopt laws and regulations which could
hinder the acceptance of the Internet as a communications and commercial medium
or otherwise harm our business. We expect that laws or regulations will be
enacted in various jurisdictions covering issues such as:
- the transmission of unsolicited email marketing messages;
- user privacy;
- content of email messages;
- quality of products and services; and
- the solicitation, collection, processing and distribution of
personal/customer information,
which could adversely affect our business. Such laws and regulations could
adversely affect the demand for our services if direct marketers perceive that
we will be hindered from reaching a substantial targeted audience or that
substantial liability might arise due to technical breaches of such
restrictions, such as limitations on content or transmission. Our own business
exposure might increase substantially if we were to be held responsible for the
content or quality of email messages which we transmit on behalf of our direct
marketing customers. If we are forced to bear additional administrative burdens
in collecting, storing or maintaining data, our expenses would increase and
market conditions might preclude us from passing our increased costs on to our
direct marketing customers. While we seek to respect Web site visitor privacy
and do not send unsolicited email messages to our database, user privacy laws
and regulations might be designed so restrictively as to make it increasingly
difficult to obtain opt-in email addresses or sell the use of those addresses to
our direct marketing customers.
Laws and regulations regulating the transmission of unsolicited email
marketing messages are being considered by many jurisdictions. Legislation of
that type has recently been adopted by the States of California, Virginia and
Washington, and similar legislation is pending in the State of New York and in
Congress. The Telecommunications Act of 1996 prohibits some types of information
and content from being transmitted over the Internet. The prohibition's scope
and the liability associated with a Telecommunications Act violation are
currently unsettled. In addition, although substantial portions of the
Communications Decency Act were held to be unconstitutional, we cannot be
certain that similar legislation will not be enacted and upheld in the future.
The European Union adopted a Directive on Privacy, effective on October 24,
1998, which establishes minimum standards for the collection and use of personal
identifying information in the European Union and prohibits the transfer of this
information to countries whose privacy standards are deemed inadequate.
ROSALIND RESNICK AND RYAN SCOTT DRUCKENMILLER CONTROL US, AND THEIR INTERESTS
MAY CONFLICT WITH YOUR INTERESTS.
We anticipate that after we complete this offering, Rosalind Resnick will
beneficially own 5,967,000 shares, or approximately 39.8% of our outstanding
common stock, and Ryan Scott Druckenmiller will beneficially own 5,733,000
shares, or approximately 38.2% of our common
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stock. In addition to being our founders, as well as executive officers and
members of our board of directors, Ms. Resnick and Mr. Druckenmiller have chosen
to be partners in life. Ms. Resnick and Mr. Druckenmiller disclaim beneficial
ownership of each other's shares. However, if Ms. Resnick and Mr. Druckenmiller
were to act in concert they would be able to exercise control over all matters
requiring approval by our shareholders, 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 our
company and of giving Ms. Resnick and Mr. Druckenmiller the opportunity to
substantially impact all matters requiring approval by our shareholders even if
Ms. Resnick and Mr. Druckenmiller do not act in concert.
WE FACE UNCERTAINTY OF ADDITIONAL FINANCING FOR OUR CAPITAL NEEDS.
We currently anticipate that the net proceeds from this offering, together
with our funds from operations, will be sufficient to meet our anticipated need
for working capital, capital expenditures and business expansion for at least
the next twelve months. If we are unable to increase our revenues as
anticipated, we will need to raise additional funds. We may need more money
sooner if we:
- decide to expand faster than planned;
- develop new or enhanced services or products ahead of schedule;
- need to respond to competitive pressures; or
- need to acquire complementary products, businesses or technologies.
We currently do not have any commitments for additional financing. We cannot
be certain that additional financing will be available when and to the extent
required or that, if available, it will be on acceptable terms. If adequate
funds are not available on acceptable terms, we may not be able to fund our
expansion, develop or enhance our products or services or respond to competitive
pressures.
WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS.
Errors, omissions or defects in or other performance problems with our
service could result in financial or other damages to our marketing customers
because our marketing customers use our service for time-critical communications
with their prospective customers. Our marketing customers could seek damages for
losses from us. Our license agreements typically contain provisions designed to
limit our exposure to such claims, but the protection afforded by such
provisions is dependent upon the solvency of the parties to our licensing
agreements and existing or future laws or unfavorable judicial decisions could
negate such limitation of liability provisions. We have not experienced any
liability claims to date. However, a liability claim brought against us, even if
not successful, would likely be time-consuming and costly. A liability claim
could materially adversely affect our business, financial condition and results
of operations.
WE MAY BE SUBJECT TO CLAIMS DUE TO THE ACTIVITIES OF OUR CUSTOMERS.
We cannot predict whether our role in facilitating our customers' promotion
of products and services would expose us to liability. If that should occur, we
could be required to expend significant management and financial resources to
address any such claim or to pay any fines or penalties which might result or we
could be required to alter or discontinue certain methods of doing business or
take other steps which could be materially adverse to our business, financial
condition, or results of operations. Our current insurance may not provide
adequate coverage against claims which could have an adverse effect on our
business.
THE FUTURE SALE OF SHARES OF OUR COMMON STOCK MAY NEGATIVELY AFFECT OUR STOCK
PRICE.
The 3,300,000 shares of common stock that we are offering will be freely
tradable without restriction except for any shares purchased by our "affiliates"
as defined in Rule 144 under the Securities Act. Ms. Resnick and
Mr. Druckenmiller are our only affiliates at this time although other persons
may be deemed to be our affiliates in the future. In addition, if the
underwriters exercise their over-allotment option
18
<PAGE>
in part or in full, up to 495,000 additional shares will be issued and freely
tradable, except for shares purchased by our "affiliates." 11,700,000 of our
outstanding shares of common stock are "restricted securities" as defined in
Rule 144. We have also granted options to purchase 232,500 of our shares of
common stock to our employees other than Ms. Resnick and Mr. Druckenmiller. In
addition, we have granted options, effective as of October 8, 1999, to purchase
100,000 shares of common stock to each of Messrs. Levy, Slayton and York, our
non-management directors. Our stock option plan permits the issuance of options
to purchase up to 1,170,000 shares of our common stock.
Those shares may only be resold if there is an effective registration
statement under the Securities Act covering those shares or an exemption from
registration under Rule 144 or otherwise is available. Ms. Resnick and
Mr. Druckenmiller, the holders of all of our currently outstanding shares, have
agreed that they will not sell any shares without the prior consent of the
representative of the underwriters for a period of 180 days from the effective
date of this prospectus.
The market price of our common stock could decline as a result of sales by
Ms. Resnick or Mr. Druckenmiller and optionholders of a large number of shares
of our common stock in the market after this offering or because of the
perception that such sales could occur. We intend to register all shares of our
common stock reserved for issuance under our stock option plan. Shares covered
by such registration will be eligible for resale in the public market, subject
to Rule 144 limitations applicable to "affiliates" and to the lock-up agreements
described above. These sales also might make it more difficult for us to sell
equity securities in the future at a time and at a price that we deem
appropriate.
YOU WILL SUFFER DILUTION IN THE VALUE OF YOUR SHARES.
Investors purchasing shares in this offering will incur immediate and
substantial dilution in net tangible book value per share in the amount of $8.88
per share, assuming that the initial public offering price is $11.00 per share,
the mid-point of the filing range. We have granted to our employees options to
purchase 232,500 shares of our common stock that are exercisable at $5.00 per
share. In addition, we have granted options, effective as of October 8, 1999, to
purchase 100,000 shares of common stock to each of Messrs. Levy, Slayton and
York, our non-management directors, at an exercise price per share equal to the
lesser of $10.00 or the initial pubic offering price. To the extent outstanding
options to purchase common stock are exercised at less than the initial public
offering price, there will be further dilution.
THE MARKET PRICE OF OUR STOCK MAY BE ADVERSELY AFFECTED BY MARKET VOLATILITY.
The stock market has experienced extreme price and volume fluctuations,
particularly with respect to Internet-related stocks. The trading price of our
common stock could be subject to wide fluctuations in response to a various
factors, such as the following:
- fluctuations in our quarterly or annual results of operations;
- changes in published earnings estimates by analysts and whether our
earnings meet or exceed such estimates;
- announcement of significant developments, such as the gain or loss of
contracts or relationships or innovations or product introductions by us
or our competitors;
- additions or departures of key personnel;
- changes in the rating or price targets of investment research analysts;
and
- changes in overall stock market conditions, including the stock prices of
other Internet companies.
In the past, companies that have experienced volatility in the market price
of their stock have been the object of securities class action litigation. If we
were subject to securities class action litigation, it could result in
substantial costs and a diversion of our management's attention and resources.
19
<PAGE>
OUR OFFERING PRICE DOES NOT NECESSARILY RELATE TO ANY ESTABLISHED CRITERIA OF
VALUE, AND SO OUR STOCK MAY TRADE AT MARKET PRICES BELOW THE OFFERING PRICE.
The initial public offering price for the shares will be determined by
negotiations among us and the representative of the underwriters. This initial
price may not be indicative of prices that will prevail in the trading market.
WE DO NOT PLAN TO PAY CASH DIVIDENDS EVEN THOUGH WE MADE DISTRIBUTIONS TO OUR
SHAREHOLDERS WHEN WE WERE A PRIVATE COMPANY.
From the date of commencement of our business, we have elected to be taxed
as an S corporation under United States federal and state laws. In connection
with that election, we typically have made large distributions of income to our
shareholders each year, who were subject to all federal and substantially all
state taxes levied in respect of our earnings. Our shareholders paid taxes at
their personal tax rates on that income and we did not pay federal corporate
income taxes on that income. Upon consummation of this offering, we will cease
to be an S corporation and we will be taxed as a C corporation. As a result, we,
rather than our shareholders, will be taxed on income that we earn after the
date on which we cease to be an S corporation. We do not currently intend to pay
any cash dividends from or after that date.
CERTAIN ANTI-TAKEOVER PROVISIONS MAY ADVERSELY AFFECT OUR SHARE PRICE AND IMPEDE
"CHANGE OF CONTROL" TRANSACTIONS.
Our restated certificate of incorporation includes provisions (1) requiring
advance notice to us before nominating any person to be elected a director or
concerning any other matter to be voted upon by our shareholders,
(2) precluding shareholders from taking actions by written consent in lieu of a
meeting, (3) requiring a majority of our shareholders or our president, chairman
of our board of directors or a majority of our board to call a special meeting
of shareholders, and (4) requiring the affirmative vote of at least two-thirds
of our shareholders to amend these provisions. Our bylaws include corresponding
provisions, as well as a provision permitting our board of directors to fill
vacant directorships or increase the size of our board of directors.
Section 912 of the New York Business Corporation Law prohibits an "interested
shareholder" from engaging in a "business combination" with us for a period of
five years from the date that person first became an interested shareholder
unless certain conditions are met. Those provisions could, together or
separately:
- discourage potential acquisition proposals;
- delay or prevent a change in control; and
- limit the price that certain investors might be willing to pay in the
future for shares of our common stock.
In particular, our restated certificate of incorporation permits our board
of directors to issue up to 5,000,000 shares of preferred stock with rights and
privileges that might be senior to our common stock, without the consent of the
holders of common stock. Those rights and privileges could include voting rights
that could effectively eliminate the rights of common shareholders to control us
and direct our affairs.
20
<PAGE>
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus contains forward-looking
statements within the meaning of the federal securities laws. These statements
are not historical facts, but rather are based on our current expectations,
assumptions, estimates and projections about us and our industry, and certain
beliefs and assumptions. Words including "may," "could," "would," "will,"
"anticipates," "expects," "intends," "plans," "projects," "believes," "seeks,"
"estimates," and similar expressions are intended to identify forward-looking
statements. These statements are not guarantees of future performance and are
subject to certain risks, uncertainties and other factors, some of which are
beyond our control, are difficult to predict and could cause actual results to
differ materially from those expressed or forecasted in the forward-looking
statements. These risks and uncertainties are described in "Risk Factors" and
elsewhere in this prospectus. We caution you not to place undue reliance on
these forward-looking statements, which reflect our management's view only as of
the date of this prospectus.
TERMINATION OF S CORPORATION STATUS
At our founding, we elected to be taxed as an S corporation. An S
corporation is exempt from federal and certain state and local taxes with the
owners being taxed instead of the business entity. As a result, our shareholders
during this period, Ms. Resnick and Mr. Druckenmiller, were subject to all
federal and certain state taxes levied on our earnings.
Immediately prior to the effective date of this offering, we will terminate
the S corporation election and, thereafter, become a C corporation. Adjustments
were necessary to reflect income tax expense in our pro forma statements of
operations to show the tax expense that would have been recorded had we been
taxed as a C corporation.
We agreed with Ms. Resnick and Mr. Druckenmiller that, if any adjustment is
made to our taxable income for any period through the date on which the S
corporation election is terminated that increases their tax liability, we will
reimburse them to the extent our tax liability is decreased. If an adjustment
during that period increases our tax liability, they will reimburse us to the
extent their tax liability is decreased. These reimbursements to Ms. Resnick and
Mr. Druckenmiller must also compensate them for any taxes due as a result of our
reimbursement to them.
We intend to pay to Ms. Resnick and Mr. Druckenmiller final S corporation
distributions based on current year earnings, to the extent of available cash
balances. At September 30, 1999, this amount would have been $798,135.
21
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the shares of common
stock in this offering will be approximately $32.3 million. If the underwriters
fully exercise the over-allotment option, the net proceeds of the shares sold by
NetCreations will be approximately $37.3 million. Net proceeds is the amount
NetCreations expects to receive after paying the underwriting discount and other
expenses related to the offering. For the purpose of estimating net proceeds,
NetCreations is assuming that the public offering price will be $11.00 per
share.
We intend to use the net proceeds as follows:
- approximately $7.5 million to expand our NetCreations Network of
third-party Web sites and our database of email addresses. Although we
have no commitments or agreements with any third-party at this time, we
may explore this expansion through the acquisition of, or partnership
with, other Web sites or through other means that we may consider from
time to time;
- approximately $7.0 million to expand the sales and marketing functions
of our business;
- approximately $4.0 million to expand and continue to upgrade our
hardware to support the rapid growth of our business, including
co-locating our servers and increasing the redundancy of our networks
and database storage systems;
- approximately $1.0 million to pursue continued research and development
of our systems to improve the services we provide to our list owners
and marketers as well as to ensure the quality of the delivery of
messages to our subscribers;
- approximately $1.3 million to repay the outstanding balance under our
line of credit; and
- approximately $11.5 million to fund general corporate purposes,
including working capital.
To achieve our expansion and growth plans, we may also use a portion of the
net proceeds to acquire or invest in companies, technologies or expertise
complementary to our business. From time to time, we evaluate potential
acquisitions of companies, technologies and expertise. We have no agreements for
acquisitions or investments of that nature at this time. We may use a portion of
the net proceeds to pay any portion of the $4.0 million of advance commissions
we have agreed to pay to ICQ, Inc. in the future that we do not (1) pay out of
borrowings or our operating cash flow or (2) offset against fees earned by ICQ,
Inc. under our email address list management agreement.
The timing and amount of NetCreations' actual expenditures will be based on
many factors, including changes in technology, the availability of human
resources and cash flow from operations. The proposed use of the net proceeds of
the offering represents our management's best estimate of the expected
utilization of funds to finance our activities in accordance with our
management's current objectives and market conditions. Our management and board
of directors may actually allocate the funds in significantly different
proportions depending upon their assessment of our needs at that time.
Until NetCreations uses the net proceeds of the offering, NetCreations will
invest the funds in short-term, investment-grade, interest-bearing securities.
DIVIDEND POLICY
We have made distributions to our shareholders during the time we were
deemed an S corporation. Immediately prior to the closing of this offering, we
will change our status to a C corporation. At that same time, we intend to pay
to Ms. Resnick and Mr. Druckenmiller final S corporation distributions based on
current year earnings, to the extent of available cash balances. At
September 30, 1999, this amount would have been $798,135. We anticipate that we
will retain earnings to support operations and to finance the growth and
development of our business. Therefore, we do not expect to pay cash dividends
in the foreseeable future. Any future determination to pay cash dividends will
be at the discretion of our board of directors and will be dependent on the
financial condition, operating results, capital requirements and other factors
that our board deems relevant.
22
<PAGE>
CAPITALIZATION
The following table should be read in conjunction with our financial
statements and the notes included elsewhere in this prospectus. The following
table shows the capitalization of NetCreations as of September 30, 1999. Our
capitalization is presented (1) on an actual basis, (2) on a pro forma basis and
(3) on an as adjusted basis.
The number of issued and outstanding shares in the following table excludes
1,170,000 shares of common stock reserved for issuance under our stock option
plan of which options to purchase (1) 232,500 shares have been granted,
effective as of September 14, 1999, at an exercise price of $5.00 per share and
(2) 100,000 shares have been granted, effective as of October 8, 1999, to each
of our three non-management directors at an exercise price per share equal to
the lesser of $10.00 or our initial public offering price.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------------------------------------
PRO FORMA
ACTUAL PRO FORMA (1) AS ADJUSTED (1)(2)
----------- ------------- ------------------
<S> <C> <C> <C>
Short-term debt, including current portion of
long-term debt............................... $ 357,261 $ 357,261 $ 82,261
=========== =========== ===========
Long-term debt, less current portion........... 120,249 120,249 120,249
----------- ----------- -----------
Stockholders' equity:
Preferred Stock, no par value; no shares
authorized, issued or outstanding, actual
and pro forma; 5,000,000 shares authorized,
no shares issued and outstanding, as
adjusted................................... -- -- --
Common Stock, $.01 par value; 50,000,000
shares authorized, 11,700,000 shares issued
and outstanding, actual and pro forma;
50,000,000 shares authorized, 15,000,000
shares issued and outstanding, as
adjusted................................... 117,000 117,000 150,000
Additional paid-in capital(1)................ 1,395,000 1,481,984 33,707,984
Deferred compensation........................ (1,375,625) (1,375,625) (1,375,625)
Retained earnings(1)......................... 976,619 -- --
----------- ----------- -----------
Total stockholders' equity................. 1,112,994 223,359 32,482,359
----------- ----------- -----------
Total capitalization..................... $ 1,233,243 $ 343,608 $32,602,608
=========== =========== ===========
</TABLE>
- ------------------------
(1) Pro forma adjustments reflect:
- Our final S corporation distribution. We intend to pay to Ms. Resnick and
Mr. Druckenmiller final S corporation distributions based on current year
earnings, to the extent of available cash balances. At September 30, 1999,
this amount would have been $798,135;
- An additional deferred tax liability of $91,500 resulting from the
termination of our status as an S corporation; and
- Reclassification of balance in retained earnings to additional paid in
capital, after the distribution to shareholders upon conversion to a
C corporation.
(2) As adjusted to reflect:
- The sale of 3,300,000 shares of common stock offered at an assumed initial
public offering price of $11.00 per share, the mid-point of the filing
range; and
- The application of the estimated net proceeds from this offering.
23
<PAGE>
DILUTION
Purchasers of the common stock in this offering will experience immediate
and substantial dilution in the pro forma net tangible book value of the common
stock from the initial public offering price. NetCreations' net tangible book
value on September 30, 1999 was approximately $492,357, or $0.04 per share, and
$(397,278), or $(0.03) per share, on a pro forma basis after giving effect to
the final S corporation distribution and the deferred tax liability resulting
from the termination of our S corporation election. "Net tangible book value" is
total assets minus the sum of liabilities and intangible assets. "Net tangible
book value per share" is net tangible book value divided by the total number of
shares outstanding before the offering.
After giving effect to adjustments relating to the offering, NetCreations'
pro forma net tangible book value on September 30, 1999, would have been
$31,861,722 or $2.12 per share. The adjustments made to determine pro forma net
tangible book value per share are the following:
- An increase in total assets to reflect the net proceeds of the offering as
described under "Use of Proceeds," assuming that the public offering price
will be $11.00 per share.
- The addition of the number of shares offered by this prospectus to the
number of shares outstanding.
The following table illustrates the pro forma increase in net tangible book
value of $2.15 per share and the dilution (the difference between the offering
price per share and net tangible book value per share) to new investors:
<TABLE>
<S> <C> <C>
Assumed public offering price per share..................... $11.00
Net tangible book value per share as of September 30,
1999...................................................... $0.04
Pro forma S corporation distribution and deferred tax
liability................................................. (0.07)
-----
Pro forma net tangible book value per share as of
September 30, 1999........................................ (0.03)
Increase in net tangible book value per share attributable
to this offering.......................................... 2.15
-----
Pro forma net tangible book value per share as of
September 30, 1999 after giving effect to this
offering.................................................. 2.12
------
Dilution per share to new investors......................... $ 8.88
======
</TABLE>
The following table shows the difference between existing stockholders and
new investors with respect to the number of shares purchased from NetCreations,
the total consideration paid and the average price paid per share. The table
assumes that the public offering price will be $11 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------- -------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------------- -------- --------------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........ 11,700,000 78.0% $ 1,000 0.0% $0.00
New investors................ 3,300,000 22.0 36,300,000 100.0 11.00
---------- ---- ----------- ----- -----
Total...................... 15,000,000 100.0% $36,301,000 100.0% $2.42
========== ==== =========== ===== =====
</TABLE>
24
<PAGE>
SELECTED FINANCIAL DATA
This section presents selected historical financial data of NetCreations.
The data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
you should read carefully the financial statements included in this prospectus,
including the notes to the financial statements. The selected data in this
section is not intended to replace the financial statements.
NetCreations derived the statement of operations data for the years ended
December 31, 1996, 1997 and 1998, and balance sheet data as of December 31, 1997
and 1998 from the audited financial statements in this prospectus. Those
financial statements were audited by Grant Thornton LLP, independent certified
public accountants. NetCreations derived the balance sheet data as of
December 31, 1996 from audited financial statements that are not included in
this prospectus. NetCreations derived the statement of operations data for the
period from NetCreations' inception to December 31, 1995 and the balance sheet
data as of December 31, 1995 from unaudited financial statements prepared by
management. In the opinion of management, such information has been prepared on
the same basis as the audited financial statements included elsewhere in this
prospectus. NetCreations derived the statement of operations data for the nine
months ended September 30, 1998 and 1999 and balance sheet data as of
September 30, 1999 from the unaudited financial statements included in this
prospectus. NetCreations' management believes that the unaudited historical
financial statements contain all adjustments needed to present fairly the
information included in those statements, and that the adjustments made consist
only of normal recurring adjustments. Historical results are not necessarily
indicative of the results to be expected in the future. The results of
operations for the nine months ended September 30, 1999 are not necessarily
indicative of the results to be expected for the entire year.
25
<PAGE>
<TABLE>
<CAPTION>
PERIOD FROM NINE MONTHS ENDED
INCEPTION TO YEAR ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ---------------------------------- ------------------------
1995 1996 1997 1998 1998 1999
------------- -------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Net revenues............... $101,652 $476,190 $1,100,781 $3,446,539 $2,062,333 $10,202,614
Cost of revenues........... 8,213 43,090 173,124 1,509,776 812,547 4,961,667
-------- -------- ---------- ---------- ---------- -----------
Gross profit............... 93,439 433,100 927,657 1,936,763 1,249,786 5,240,947
-------- -------- ---------- ---------- ---------- -----------
Operating expenses:
Selling and marketing.... 29,482 195,451 289,904 492,004 332,164 1,118,883
Technology, support and
development............ 28,275 177,923 193,554 373,746 232,429 339,515
General and
administrative......... 12,893 60,734 151,307 369,508 268,587 802,869
Depreciation and
amortization........... -- 554 9,515 23,414 16,676 79,756
-------- -------- ---------- ---------- ---------- -----------
Total operating expenses... 70,650 434,662 644,280 1,258,672 849,856 2,341,023
-------- -------- ---------- ---------- ---------- -----------
Income (loss) before income
tax provision............ 22,789 (1,562) 283,377 678,091 399,930 2,899,924
Income tax provision....... -- 7,434 23,028 72,228 42,600 302,355
-------- -------- ---------- ---------- ---------- -----------
Net income (loss).......... $ 22,789 $ (8,996) $ 260,349 $ 605,863 $ 357,330 $ 2,597,569
======== ======== ========== ========== ========== ===========
Net income (loss) per
share-basic and
diluted.................. $ 0.00 $ (0.00) $ 0.02 $ 0.05 $ 0.03 $ 0.22
======== ======== ========== ========== ========== ===========
Shares used in per share
computation (000's
omitted)................. 11,700 11,700 11,700 11,700 11,700 11,700
PRO FORMA DATA: (1)
Historical income (loss)
before income tax
provision................ $ 22,789 $ (1,562) $ 283,377 $ 678,091 $ 399,930 $ 2,899,924
Pro forma income tax
provision (benefit)...... 3,500 (1,000) 129,000 316,000 186,000 1,342,000
-------- -------- ---------- ---------- ---------- -----------
Pro forma net income
(loss)................... $ 19,289 $ (562) $ 154,377 $ 362,091 $ 213,930 $ 1,557,924
======== ======== ========== ========== ========== ===========
Pro forma basic and diluted
net income (loss) per
share.................... $ 0.00 $ (0.00) $ 0.01 $ 0.03 $ 0.02 $ 0.13
======== ======== ========== ========== ========== ===========
Shares used in per share
computation (000's
omitted)................. 11,700 11,700 11,700 11,700 11,700 11,700
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1999
------------------------------ --------------------------
1996 1997 1998 ACTUAL PRO FORMA(2)
-------- -------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash...................................... $ 32,981 $ 54,002 $ 96,855 $ 798,135 --
Working capital (deficiency).............. (16,593) 68,698 339,981 179,445 (710,190)
Total assets.............................. 59,372 233,489 943,804 4,576,265 3,778,130
Long-term debt (including current
portion)................................ -- -- 44,511 477,510 477,510
Total stockholders' equity (deficiency)... (5,459) 121,129 476,992 1,112,994 223,359
</TABLE>
- ------------------------------
(1) We have elected to be taxed as an S corporation for federal and state income
tax purposes, since our inception. Accordingly, no provision has been made
for federal and certain state income taxes. Pro forma net income has been
computed as if the Company had been fully subject to federal, state and city
income taxes. Immediately prior to the effective date of this offering, we
will terminate the S corporation election and, thereafter, become a C
corporation.
(2) We intend to pay to Ms. Resnick and Mr. Druckenmiller final S corporation
distributions based on current year earnings, to the extent of available
cash balances. At September 30, 1999, this amount would have been $798,135.
Pro forma adjustments reflect our (a) pro forma S corporation distributions
for this amount and (b) the deferred tax liability resulting from the
termination of our S corporation election.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THIS DISCUSSION TOGETHER WITH THE FINANCIAL STATEMENTS AND
OTHER FINANCIAL INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We provide Internet-based opt-in email direct marketing services that enable
direct marketers to target promotional campaigns to consumers who have given
their permission to receive email messages regarding selected topical
categories. In addition, our technology provides direct marketers, as well as
list brokers who purchase use of our email address lists on behalf of their
customers, with real-time, online email address selection and ordering as well
as response-tracking.
As of September 30, 1999, we had over 4.3 million email addresses in our
database. The email addresses in our database were collected from consumers who
opted in through our Web site or a third-party Web site, and have not
subsequently opted out or been removed from our database because an email to
that address had been returned as undeliverable. We currently manage opt-in
email address lists for over 175 Web sites. Each Web site in the NetCreations
Network accumulates email addresses by placing a sign-up template on one or more
of its Web pages which allows consumers to opt in to receive email messages in a
selection of topical categories that the Web site owner believes will be of
greatest interest to the Web site's visitors. We currently have email addresses
listed in more than 3,000 topical categories in our database.
In the first nine months of 1999, we generated over 95% of our net revenues
by providing Internet opt-in email direct marketing services to our advertising
customers. We charge direct marketers for each use of an opt-in email address
from our database. In some cases, we grant volume discounts to our customers.
Additionally, for the first nine months of 1999, we earned less than 5% of our
net revenue by charging for delivery of email for customers sending messages to
email addresses owned by such customers.
Some of our customers consist of resellers. These resellers, principally
consisting of email list brokers but also including interactive advertising
agencies, Web design firms and Web sites that attract small business owners,
place orders in the reseller's own name for use of opt-in email addresses in our
database by the reseller's email direct marketing customers. We bill the
reseller our customary fees for that use of opt-in email addresses, less any
applicable volume discounts. In addition, we grant a brokerage discount to the
reseller. Revenue earned for our services after volume and broker discounts, is
reported in our financial statements as net revenues and is recognized when
email messages are transmitted to the selected email addresses.
We pay to the applicable Web site owner a commission amounting to typically
50% of the revenue we have earned, less volume discounts, if applicable, each
time we send an email message to the email addresses owned by that Web site
owner. In the event that an email address appears on more than one email address
list selected by our customer, the commission is only paid to the Web site owner
whose email address list is designated by our customer as the preferred list.
These commissions, along with amounts incurred in implementing the Web site's
sign-up program are reported as cost of revenues in our financial statements. In
the first nine months of 1999, commissions accounted for over 98% of cost of
revenue. We do not incur these commissions when customers select names from our
own email address lists. As of September 30, 1999, we derived approximately 6.0%
of the total email addresses in our database from our own Web site, but the
proportion of email addresses in our database that are derived from our Web site
has been decreasing and we expect that proportion will continue to decrease over
time.
27
<PAGE>
In connection with the email address list management agreement with ICQ,
Inc., we have made an initial advance of $1.0 million of commissions to ICQ,
Inc. We have agreed to advance an additional $4.0 million of commissions to ICQ,
Inc. as follows: (1) $2.0 million on consummation of this offering,
(2) $1.0 million on May 3, 2000, and (3) $1.0 million on November 3, 2000. We
are entitled to take credits for the advances against commissions due to ICQ,
Inc. under the email address list management agreement. If the agreement
terminates before May 3, 2000, all of the advances other than the first
$1.0 million will be refunded to us to the extent not offset by commissions
earned by ICQ, Inc. However, the remaining $4.0 million of the advances will
become non-refundable with the passage of time as follows: (1) $1.0 million on
May 3, 2000, (2) $1.0 million on November 3, 2000, and (3) $2.0 million on
May 3, 2001. Our net income would be negatively affected if advanced commissions
that become non-refundable have not been earned. Advances of commissions also
burden our cash flow and might prevent us from making other expenditures that
might generate revenues or growth for us.
We do not typically make such advances to Web site owners. We also do not
typically pay any Web site owner commissions of more than 50% of the revenue we
earn, less volume discounts, if applicable, each time we send an email message
to any email address list owned by that Web site owner. However, it is possible
that competitive pressures or strategic or other reasons may cause us to make
such advances or pay commissions of more than 50% of the revenue from sending
email messages to email address list owners in the future. If we should pay to
our Web site owners higher commissions our margins will be reduced. We may have
reduced profits or may become unprofitable if any increase in the rate of
commissions paid to Web site owners, and the consequent decrease in our margins,
is not offset by lower general and administrative costs as a percentage of
revenues or increased revenues from other sources.
For the year ended December 31, 1998, we had net revenues of $3,446,539 and
net income of $605,863. For the first nine months of 1999, we had net revenues
of $10,202,614 and net income of $2,597,569. We intend to implement our business
strategy by increasing expenditures on sales and marketing, new product
offerings, technology, and infrastructure development. Incremental costs
relating to any new products that may be introduced in the immediately
foreseeable future would be primarily for increased personnel but would likely
also include nominal costs for technological enhancements. Those expenditures,
any changes in our customary arrangements with Web site owners described in the
two preceding paragraphs, as well as various factors beyond our control,
including increased competition, may negatively impact our operating margins and
our profitability in the future.
Additionally, future profits are likely to be negatively impacted by the
initial granting of stock options to employees under our 1999 Stock Option Plan.
To the extent that options are granted at an exercise price which is below fair
market value on the date of grant a charge will result to our operations under
Financial Accounting Standards Board Statement No. 123 ("FASB 123"), "Accounting
for Stock-Based Compensation." We have granted options to acquire 232,500 shares
of our common stock to our employees other than Ms. Resnick and Mr.
Druckenmiller at $5.00 per share, which we anticipate will be below our initial
public offering price. During the three months ended September 30, 1999, we
recorded deferred compensation of $1,395,000 of which $19,375 was amortized to
expense. In addition, we have granted options, effective as of October 8, 1999,
to purchase 100,000 shares of common stock to each of our three non-management
directors at an exercise price per share equal to the lower of $10.00 or the
initial public offering price.
As permitted by FASB 123, we have elected to follow Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25") and
related interpretations in accounting for our stock options. Under APB 25, when
the exercise price of stock options equals or exceeds the market price of the
underlying stock on the date of grant, no compensation expense is recorded. If
the exercise price of the stock option is less than the market price of the
underlying stock on the date of grant, we will record an expense equal to the
difference between the market price on
28
<PAGE>
the date of grant and the exercise price. Such expense will be recorded in our
statements of income, ratably over the vesting periods of such stock options.
The amount of compensation expense that would be recognized subsequent to
September 30, 1999 over the next four years, relating to our options granted to
date, assuming an offering price of $11.00 per share, is as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C>
1999..................... $ 232,917
2000..................... 565,000
2001..................... 548,333
2002..................... 329,375
----------
Total.................. $1,675,625
==========
</TABLE>
RESULTS OF OPERATIONS
The following table sets forth our statement of operations expressed as a
percentage of total net revenues:
<TABLE>
<CAPTION>
PERIOD FROM NINE MONTHS ENDED
INCEPTION TO YEAR ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------------------- -------------------
1995 1996 1997 1998 1998 1999
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net revenues............................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues........................ 8.1 9.0 15.7 43.8 39.4 48.6
----- ------ ------ ------ -------- -------
Gross profit........................ 91.9 91.0 84.3 56.2 60.6 51.4
Operating expenses
Selling and marketing................. 29.0 41.0 26.3 14.3 16.1 11.0
Technology, support and development... 27.8 37.4 17.6 10.8 11.3 3.3
General and administrative............ 12.7 12.8 13.7 10.7 13.0 7.8
Depreciation and amortization......... -- 0.1 0.9 0.7 0.8 0.8
----- ------ ------ ------ -------- -------
Total operating expenses............ 69.5 91.3 58.5 36.5 41.2 22.9
----- ------ ------ ------ -------- -------
Income (loss) before income tax
provision............................. 22.4 (0.3) 25.8 19.7 19.4 28.5
Income tax provision.................... -- 1.6 2.1 2.1 2.1 3.0
----- ------ ------ ------ -------- -------
Net income (loss)................... 22.4% (1.9)% 23.7% 17.6% 17.3% 25.5%
===== ====== ====== ====== ======== =======
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1999
NET REVENUES. Net revenues increased 394.7% from $2,062,333 for the nine
months ended September 30, 1998, to $10,202,614 for the nine months ended
September 30, 1999. This increase was the result of continued growth in the
number of email messages delivered for our customers as well as in the number of
customers utilizing our opt-in email address database. The number of opt-in
email addresses in our database grew from approximately 1.7 million at the end
of September 1998, to approximately 4.3 million by the end of September 1999,
primarily as a result of the addition of opt-in email addresses to our database
from third-party Web sites added to our NetCreations Network.
For the nine months ended September 30, 1998, volume and broker discounts
were $172,695 and $98,729, respectively. For the nine months ended
September 30, 1999, volume and broker discounts were $1,548,754 and $1,530,867,
respectively. The increase in volume discounts is attributable to the growth in
demand for our email marketing services and the increase in broker discounts is
attributable
29
<PAGE>
to the growth in utilization of our services by resellers. For the nine months
ended September 30, 1998, resellers accounted for approximately 21% of our net
revenues compared to approximately 44% of our net revenues for the nine months
ended September 30, 1999. We intend to increase the proportion of our marketing
customers obtained through our reseller channels. To the extent we increase the
proportion of sales through resellers, our net revenues and gross profits could
decrease.
On July 5, 1999, we terminated our email list management and email list
brokerage agreements with YesMail.com. Use of email addresses in our database by
YesMail.com as an email address list reseller accounted for approximately 7% of
our net revenues in 1998 and approximately 11% of our net revenues for the first
nine months of 1999. Although we can give no assurance, we anticipate that
substantially all of such net revenues will be replaced by selling our services,
either directly or indirectly through other email address list brokers, to
direct marketers, including direct marketers represented by YesMail.com as well
as other direct marketing customers. In addition, net revenues generated by
selling use of the email address list in our database collected from
YesMail.com's Web site and, therefore, owned by YesMail.com as an email address
list owner, represented 3.3% and 0.8% in 1998 and the first nine months of 1999,
respectively.
COST OF REVENUES. Cost of revenues increased 510.6% from $812,547, or 39.4%
of net revenues, for the nine months ended September 30, 1998, to $4,961,667, or
48.6% of net revenues, for the nine months ended September 30, 1999. This
increase was the result of an increase in commissions due to a greater
proportion of opt-in email addresses being added to our database from
third-party Web sites.
SELLING AND MARKETING. Selling and marketing expenses increased 236.8% from
$332,164 for the nine months ended September 30, 1998, to $1,118,883 for the
nine months ended September 30, 1999. Selling and marketing expenses consisted
primarily of personnel costs and direct expenditures for advertising,
promotional programs and other related activities. This increase was the result
of our business expansion and is attributable to an increase in the number of
employees. As of September 30, 1999, we had 18 employees in sales and marketing
functions as compared to four employees as of September 30, 1998. Additionally,
advertising expenditures increased by $282,637 in connection with our efforts to
enhance recognition of our company and the services we provide.
TECHNOLOGY, SUPPORT AND DEVELOPMENT. Technology, support and development
expenses increased 46.1% from $232,429 for the nine months ended September 30,
1998, to $339,515 for the nine months ended September 30, 1999. Technology,
support and development expenses consisted primarily of personnel costs and
expenditures for software and related supplies. This increase was the result of
the hiring of four employees during the first nine months of 1999, in connection
with our efforts to improve the efficiency of our WWW.POSTMASTERDIRECT.COM Web
site and expand its capabilities.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
198.9% from $268,587 for the nine months ended September 30, 1998, to $802,869
for the nine months ended September 30, 1999. General and administrative
expenses consisted primarily of personnel, facilities, communication costs and
professional fees. This increase was attributable to the addition of two
employees to support growth in business activity, space expansion at our current
location, professional fees in connection with various legal matters relating to
customer and employment agreements, intellectual property and employee benefit
matters, and accounting and auditing fees.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased 378.3% from $16,676 for the nine months ended September 30, 1998, to
$79,756 for the nine months ended September 30, 1999. Depreciation and
amortization expenses consisted primarily of depreciation of computer equipment.
This increase was primarily a result of investments in computer equipment.
INCOME TAXES. As we had elected to be taxed as an S corporation for federal
and certain state tax purposes, the provision for income taxes for the first
nine months of 1998 and 1999 represents state
30
<PAGE>
and local taxes only to the extent they do not recognize the S corporation
status, based on the pre-tax operating results for each year.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1998
NET REVENUES. Net revenues increased 213.1% from $1,100,781 for the year
ended December 31, 1997, to $3,446,539 for the year ended December 31, 1998.
This increase was the result of continued growth in the number of email messages
delivered for our customers as well as in the number of customers utilizing our
opt-in email address database. The number of opt-in email addresses in our
database grew from approximately 675,000 at the end of 1997, to approximately
1.9 million by the end of 1998, primarily as a result of the addition of opt-in
email addresses to our database from third-party Web sites added to our
NetCreations Network.
For the year ended December 31, 1997, volume discounts were $16,181 and
there were no broker discounts. For the year ended December 31, 1998, volume and
broker discounts were $357,733 and $317,549, respectively. The increase in
volume discounts is attributable to the growth in demand for our email marketing
services. The increase in broker discounts is attributable to our use of
resellers as an additional sales channel in 1998. During 1998, resellers
accounted for approximately 38% of our net revenues.
COST OF REVENUES. Cost of revenues increased 772.1% from $173,124, or 15.7%
of net revenues, for the year ended December 31, 1997, to $1,509,776, or 43.8%
of net revenues, for the year ended December 31, 1998. This increase was the
result of an increase in commissions due to a greater proportion of opt-in email
addresses being added to our database from third-party Web sites.
SELLING AND MARKETING. Selling and marketing expenses increased 69.7% from
$289,904 for the year ended December 31, 1997, to $492,004 for the year ended
December 31, 1998. Of this increase, $145,000 was attributable to rising
personnel costs, including the addition of four employees. Additionally,
advertising expenditures increased by approximately $54,000 to heighten market
awareness of our company and the email marketing services we provide.
TECHNOLOGY, SUPPORT AND DEVELOPMENT. Technology, support and development
expenses increased 93.1% from $193,554 for the year ended December 31, 1997, to
$373,746 for the year ended December 31, 1998. This increase was attributable to
a combination of hiring additional employees and utilizing consultants to
enhance the business support system and improving the infrastructure and
capabilities of our WWW.POSTMASTERDIRECT.COM Web site.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
144.2% from $151,307 for the year ended December 31, 1997, to $369,508 for the
year ended December 31, 1998. This was generally attributable to growth in
business activities and the establishment of an office facility, replacing our
former home-based office.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased 146.1% from $9,515 for the year ended December 31, 1997, to $23,414
for the year ended December 31, 1998. This increase was primarily a result of
investments in computer equipment.
INCOME TAXES. As we had elected to be taxed as an S corporation for federal
and certain state tax purposes, the provision for income taxes for 1997 and 1998
represents state and local taxes only to the extent that they do not recognize
the S corporation status, based on the pre-tax operating results for each year.
31
<PAGE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1997
NET REVENUES. Net revenues increased 131.2% from $476,190 for the year
ended December 31, 1996, to $1,100,781 for the year ended December 31, 1997.
This increase was the result of a shift in the focus of our business from Web
site design and promotion to email direct marketing and the growth in the number
of email messages delivered for our customers as well as in the number of
customers utilizing our opt-in email address database.
For the year ended December 31, 1996, there were no volume or broker
discounts. For the year ended December 31, 1997, volume discounts were $16,181
and there were no broker discounts.
COST OF REVENUES. Cost of revenues increased 301.8% from $43,090, or 9.0%
of net revenues, for the year ended December 31, 1996, to $173,124, or 15.7% of
net revenues, for the year ended December 31, 1997. This increase was the result
of a shift in the focus of our business from Web site promotion to email direct
marketing and the increase in the number of opt-in email addresses being added
to our database through third-party Web sites, the majority of which were added
during 1997. The lower amount in 1996 represents higher utilization of opt-in
email addresses from our own email address list, as compared with use of opt-in
email address lists in our database that are owned by third-party Web sites.
SELLING AND MARKETING. Selling and marketing expenses increased 48.3% from
$195,451 for the year ended December 31, 1996, to $289,904 for the year ended
December 31, 1997. This was primarily attributable to increases in advertising
expenditures in various marketing publications and attendance at industry
related trade shows and conferences.
TECHNOLOGY, SUPPORT AND DEVELOPMENT. Technology, support and development
expenses increased 8.8% from $177,923 for the year ended December 31, 1996, to
$193,554 for the year ended December 31, 1997 as a result of additional
personnel costs incurred during the year.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
149.1% from $60,734 for the year ended December 31, 1996, to $151,307 for the
year ended December 31, 1997. This increase was generally attributable to
additional employees hired to support growth in business activity,
infrastructure development expenses and various legal and accounting services.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased 1,617.5% from $554 for the year ended December 31, 1996, to $9,515 for
the year ended December 31, 1997. This increase was primarily as a result of
investments in computer equipment and furniture.
INCOME TAXES. As we had elected to be taxed as an S corporation for federal
and certain state tax purposes, the provision for income taxes for 1996 and 1997
represents state and local taxes only to the extent they do not recognize the
S corporation status, based on the pre-tax operating results for each year.
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited quarterly information for
each quarter of fiscal year 1998 and the first three quarters of 1999. This
quarterly information has been prepared on a basis consistent with the audited
financial statements and, we believe, includes all adjustments, consisting of
normal recurring adjustments, necessary for a fair presentation of the
information shown. Our quarterly operating results may fluctuate significantly
as a result of a variety of factors and operating results for any quarter are
not necessarily indicative of results for a full fiscal year.
32
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------------------
1998 1999
-------------------------------------------------- --------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
--------- -------- ------------ ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues........................ $476,545 $709,653 $876,135 $1,384,206 $1,694,505 $3,578,089 $4,930,020
Cost of revenues.................... 139,913 282,580 390,054 697,229 827,152 1,750,815 2,383,700
-------- -------- -------- ---------- ---------- ---------- ----------
Gross profit.................... 336,632 427,073 486,081 686,977 867,353 1,827,274 2,546,320
Operating expenses
Selling and marketing............. 82,870 119,422 129,872 159,840 294,328 307,632 516,923
Technology, support and
development..................... 55,169 82,762 94,498 141,317 85,981 105,824 147,710
General and administrative........ 71,500 82,361 114,727 100,920 138,866 233,638 430,365
Depreciation and amortization..... 4,130 5,352 7,193 6,739 17,354 27,797 34,605
-------- -------- -------- ---------- ---------- ---------- ----------
Total operating expenses........ 213,669 289,897 346,290 408,816 536,529 674,891 1,129,603
-------- -------- -------- ---------- ---------- ---------- ----------
Income before income tax
provision......................... 122,963 137,176 139,791 278,161 330,824 1,152,383 1,416,717
Income tax provision................ 13,100 14,600 14,900 29,628 36,300 121,700 144,355
-------- -------- -------- ---------- ---------- ---------- ----------
Net income...................... $109,863 $122,576 $124,891 $ 248,533 $ 294,524 $1,030,683 $1,272,362
======== ======== ======== ========== ========== ========== ==========
</TABLE>
Our operating results for these fiscal quarters expressed as a percentage of
sales were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------------------
1998 1999
-------------------------------------------------- --------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
--------- -------- ------------ ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues........................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues.................... 29.4 39.8 44.5 50.4 48.8 48.9 48.4
-------- -------- -------- ---------- ---------- ---------- --------
Gross profit.................... 70.6 60.2 55.5 49.6 51.2 51.1 51.6
Operating expenses
Selling and marketing............. 17.3 16.8 14.8 11.5 17.4 8.6 10.5
Technology, support and
development..................... 11.6 11.7 10.8 10.2 5.1 3.0 3.0
General and administrative........ 15.0 11.6 13.1 7.3 8.2 6.5 8.7
Depreciation and amortization..... 0.9 0.8 0.8 0.5 1.0 0.8 0.7
-------- -------- -------- ---------- ---------- ---------- --------
Total operating expenses........ 44.8 40.9 39.5 29.5 31.7 18.9 22.9
-------- -------- -------- ---------- ---------- ---------- --------
Income before income tax
provision......................... 25.8 19.3 16.0 20.1 19.5 32.2 28.7
Income tax provision................ 2.7 2.0 1.7 2.1 2.1 3.4 2.9
-------- -------- -------- ---------- ---------- ---------- --------
Net income...................... 23.1% 17.3% 14.3% 18.0% 17.4% 28.8% 25.8%
======== ======== ======== ========== ========== ========== ========
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have primarily financed our business using the cash
flow generated from operations. We borrow under our revolving line of credit
with Citibank, N.A. to supplement operating cash. Borrowings under this line of
credit are payable on demand, plus interest at 1% above the bank's announced
base rate and are collateralized by our accounts receivable. As of November 3,
1999, we are permitted to borrow up to $1.3 million under the line of credit,
and borrowings bear interest at the rate of 9.25%. At November 3, 1999,
$1.3 million was outstanding under the line of credit. These borrowings are
personally guaranteed by Ms. Resnick and Mr. Druckenmiller.
In connection with the email address list management agreement with ICQ,
Inc., we are required to make $5.0 million in advance payments to ICQ, Inc., for
commissions to be earned under the agreement. We paid $1.0 million of these
advance payments on November 3, 1999. We will pay the remaining $4.0 million of
the advance payments as follows: (1) $2.0 million on consummation of this
offering, (2) $1.0 million on May 3, 2000, and (3) $1.0 million on November 3,
2000. The first $1.0 million of these advance payments is non-refundable. The
remaining $4.0 million becomes non-refundable in increments upon the passage of
time. In connection with paying the first advance, we
33
<PAGE>
borrowed $1.0 million under our line of credit. We anticipate that we will pay
the remaining advances from additional borrowings, operating cash flows or the
proceeds from this offering.
Net cash provided by operating activities was $40,518 for the year ended
December 31, 1996, $205,737 for the year ended December 31, 1997, $375,566 for
the year ended December 31, 1998, and $2,911,333 for the nine months ended
September 30, 1999.
Net cash used in investing activities was $11,074 for the year ended
December 31, 1996, $50,955 for the year ended December 31, 1997, $79,422 for the
year ended December 31, 1998, and $98,426 for the nine months ended
September 30, 1999. Cash used in investing activities was used for capital
expenditures, primarily computer hardware and software for the operation and
support of our business activities.
Net cash used in financing activities was none for the year ended
December 31, 1996, $133,761 for the year ended December 31, 1997, $253,261 for
the year ended December 31, 1998, and $2,111,657 for the nine months ended
September 30, 1999. Cash used in financing activities was primarily for
distributions to the shareholders relating to our election to be taxed as
an S corporation.
As of September 30, 1999, we had $798,135 of cash and our principal
commitments consisted of $202,510 of obligations under our capital lease
financing arrangement. Although we have no material commitments for capital
expenditures, we expect to increase our capital expenditures and lease
commitments consistent with our expected growth in operations, infrastructure
and personnel.
We believe that the proceeds from this offering, together with anticipated
cash flow from operations and funds available from our credit facility, will be
sufficient to satisfy our working capital and capital expenditure requirements
for at least the next 12 months. We believe that we would be able to satisfy our
working capital requirements for our current level of operations with
anticipated cash flows from operations and funds available from our credit
facility. However, if we do not obtain the proceeds of this offering, we would
implement our expansion program more slowly and we might be unable to make large
expenditures, such as acquisitions of other companies that we might otherwise
have the necessary funds to complete from time to time. In connection with our
expansion program, we plan to make substantial expenditures over the near term
primarily in connection with (1) additional costs related to the expansion of
our network of third-party Web sites, (2) increased staffing of our sales and
service groups, (3) increased advertising and marketing activities,
(4) additional capital expenditures, primarily for computer equipment and
(5) continued research and development of our systems to improve our services.
Changes in our operating plans, acceleration of our expansion plans, lower than
anticipated sales, increased expenses, potential acquisitions or other events
may cause us to seek additional financing sooner than anticipated. Additional
financing may not be available on acceptable terms, or at all. Failure to obtain
additional financing as needed could have a material adverse effect on our
business and results of operations.
SEASONALITY
The traditional postal direct marketing industry tends to have higher
revenues in the fourth quarter of the year, when direct marketers send out
holiday promotions, and somewhat lower revenues during the summer, when direct
marketing activity is reduced overall. To date, because of the rapid growth of
the email direct marketing industry, our revenues have grown sequentially from
quarter to quarter. Therefore, our revenues have not followed the seasonal
patterns of the traditional postal direct marketing industry. We anticipate,
however, that as our business matures, our revenues will track more closely the
seasonal patterns experienced in the traditional postal direct marketing
industry.
34
<PAGE>
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"),
"Disclosures About Segments of an Enterprise and Related Information." SFAS
No. 131 establishes standards for the way companies report information about
operating segments in annual financial statements. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. The disclosures prescribed in SFAS No. 131 are effective for the year
ended December 31, 1998. The Company has determined that it operates as one
business segment, a provider of Internet marketing services.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging
Activities," which defines derivatives, requires that all derivatives be carried
at fair value, and provides for hedge accounting when certain conditions are
met. SFAS No. 133 is effective for us in 2002. Although we have not fully
assessed the implications of SFAS No. 133, we do not believe that the adoption
of this statement will have a material impact on our financial position or
results of operations.
In April 1998, Statement of Position (SOP) 98-5, "Reporting on the Costs of
Start-Up Activities" was issued by the Accounting Standards Executive Committee.
SOP 98-5 provides guidance on the financial reporting of start-up costs and
organization costs. It requires costs of start-up activities and organization
costs to be expensed as incurred, and is effective for fiscal years beginning
after December 15, 1998. The adoption of this SOP will not have a material
effect on our operations.
THE YEAR 2000
The "Year 2000 issue" refers generally to the problems that some software
may have in determing 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.
OUR STATE OF YEAR 2000 READINESS. We designed our current software to be
Year 2000 compliant when configured and used in accordance with the related
documentation, and provided that the underlying operating system of the host
machine and any other software used with or in the host machine or our service
are Year 2000 compliant. However, we have not tested our software for Year 2000
compliance.
We have not tested software obtained from third parties. However, we are
seeking assurances from our vendors that licensed software is Year 2000
compliant. Despite assurances from developers of software incorporated into our
software, our software may contain undetected errors or defects associated with
Year 2000 date functions. Known or unknown errors or defects in our software
could result in delay or loss of revenues, diversion of development resources,
damage to our reputation, or increased service and warranty costs, any of which
could seriously harm our business, financial condition and results of
operations. Some commentators have predicted significant litigation regarding
Year 2000 compliance issues, and we are aware of such lawsuits against other
software vendors. Because of the unprecedented nature of such litigation, it is
uncertain whether or to what extent we may be affected by it.
We are assessing our material internal information technology systems,
including both our own software products and third-party software and hardware
technology, but we have not initiated an assessment of our non-information
technology systems. We expect to complete testing of our information technology
systems in 1999. To the extent that we are not able to test the technology
provided by third-party vendors, we are seeking assurances from such vendors
that their systems are Year 2000 compliant. We are not currently aware of any
significant operational issues or costs associated with preparing our internal
information technology and non-information technology systems
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for the Year 2000. However, we may experience significant unanticipated problems
and costs caused by undetected errors or defects in the technology used in our
internal information technology and non-information technology systems.
We do not currently have any information concerning the Year 2000 compliance
status of our customers. Our current or future customers may incur significant
expenses to achieve Year 2000 compliance. If our customers are not Year 2000
compliant, they may experience material costs to remedy problems, they may face
litigation costs and they may delay purchases or implementation of our service.
Year 2000 issues could reduce or eliminate the budgets that current or potential
customers could have for purchases of our service. As a result, our business,
financial condition and results of operations could be seriously harmed.
THE COSTS TO ADDRESS OUR YEAR 2000 ISSUES. We estimate that we have
incurred nominal costs to date in connection with our Year 2000 plan. We
currently estimate the total costs of completing our Year 2000 plan, including
costs incurred to date, to be less than $250,000. This estimate is based on
currently available information and will be updated as we continue our
assessment of third-party relationships, proceed with our testing and
implementation and design contingency plans.
THE RISKS OF OUR YEAR 2000 ISSUES. If any information technologies or
embedded microprocessor technology systems critical to our operations have been
overlooked, there could be a material adverse effect on our business or results
of operations of a magnitude which we have not yet fully analyzed. If the
vendors of our important goods and services or the suppliers of our necessary
energy, telecommunications and transportation needs fail to provide us with
(1) the materials and services which are necessary to sell our products and
services, (2) the electrical power and other utilities necessary to sustain our
operations, or (3) reliable means of transportation, such failure could affect
our ability to sell our products and services which could have a material
adverse effect on our business or results of operations.
OUR CONTINGENCY PLAN. We have not yet fully developed a contingency plan to
address situations that may result if we are unable to achieve Year 2000
readiness of our critical operations. The cost of developing and implementing
such a plan may itself be significant. Although we expect to have a plan to deal
with Year 2000 compliance issues pertaining to our internal systems soon after
December 1, 1999, we expect to be unable to deal with Year 2000-related service
outages by the telecommunications carriers, Internet service providers, and
electric utilities upon which we rely. In addition, enhancements and revisions
to any contingency plan will be continuously considered and implemented as
appropriate.
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BUSINESS
INDUSTRY BACKGROUND
THE INTERNET AND ONLINE COMMERCE. The Internet is an increasingly
significant global medium for communications, content and commerce.
International Data Corporation estimates that the number of Web users worldwide
was approximately 142 million at the end of 1998 and will grow to approximately
399 million by the end of 2002. Email was originally viewed as a simple personal
communications tool, but it is increasingly used as a powerful and
cost-effective business tool. Consequently, it has become one of the most
popular Internet applications.
The increasing functionality, accessibility and overall usage of the
Internet and online services have made them an attractive commercial medium. The
Internet and other online services are evolving into a unique sales and
marketing channel, similar to retail stores, mail-order catalogs and television
shopping. According to International Data Corporation, the number of Web buyers
worldwide is estimated to increase from 30.8 million in 1998 to 133.9 million in
2002, which represents a compounded annual growth rate of 44%. International
Data Corporation also estimates that the total value of goods and services
purchased worldwide over the Web will increase from $50.4 billion in 1998 to
$733.6 billion in 2002. The growing use of the Internet has led businesses to
develop e-commerce strategies to drive traffic to their Web sites, attract
customers and facilitate transactions.
ADVERTISING. Businesses use two forms of advertising to attract customers:
brand advertising and direct marketing. Brand advertisements, including
television, radio, magazine displays, and billboards, target a mass audience to
generate awareness of a particular company, product or service. The goal of
direct marketing, by contrast, is to target specific individuals who appear from
behavioral patterns or demographic data to be likely purchasers of products or
services. Direct marketing includes direct mail, telemarketing, and direct
response advertising in newspapers, magazines and on radio and television.
According to the DMA, approximately $162.7 billion, representing 57% of the
total advertising expenditures in the United States, was spent on direct
marketing in 1998. Furthermore, the DMA projects direct marketing spending to
grow to $221.5 billion by 2003.
INTERNET ADVERTISING. The rise of the Internet and its fast-growing
popularity among consumers and business owners has led both brand advertisers
and direct marketers to begin experimenting with advertising and marketing
online. According to Forrester Research, Internet advertising expenditures are
expected to increase from $3.3 billion in 1999 to $24.1 billion in 2003
worldwide, and from $2.8 billion in 1999 to $17.2 billion in 2003 in the United
States. According to the DMA, online direct marketing expenditures in the United
States are expected to increase from $1.1 billion in 1999 to $5.3 billion in
2003.
Currently, the most popular form of Internet advertising is banner
advertising. Web sites display advertising banners which users can click through
to visit the advertiser's Web site and obtain more information about a company's
product or service. However, while banners provide advertisers with the ability
to reach broad audiences and establish brand awareness, they have proven to be
less than effective as vehicles for direct marketing. Response rates, or
click-throughs, from banner advertisements averaged approximately 0.7% as
reported by Forrester Research in March 1999.
Email advertising campaigns are cheaper and faster than traditional direct
marketing. However, the practice of sending unsolicited commercial email, or
"spam," is strongly opposed by many Internet users. Spam lists are databases of
email addresses gathered without the recipients' knowledge or consent from
Internet newsgroups, chat rooms, Web sites, and member directories. While spam
lists may be inexpensive to rent, costing less than $1 for 1,000 addresses, the
hostile reaction they can generate among Internet users can be very costly to a
marketer's reputation. Spamming can also result in attacks on the marketer's
corporate mail server by the automated transmission of extremely large volumes
of angry email messages. Moreover, a marketer who engages in spamming risks
being
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disconnected from its Internet service provider or having all subsequent email
transmission attempts blocked. Over the last few years, spam transmitters have
been successfully sued by Internet service providers such as America Online and
Earthlink and several states have passed legislation barring or restricting the
transmission of unsolicited email messages.
Businesses attempt to utilize the most cost-effective advertising source to
maximize their advertising dollar. Drawbacks to traditional direct mail include
the high costs involved, the delay in response and the difficulty in tracking
responses. Banner advertising is not a cost-effective form of direct marketing
because of its relatively low click-through rate. Unsolicited email advertising
is generally not desirable because of privacy concerns and potential damage to
marketers' reputations.
OUR BUSINESS
We provide Internet-based opt-in email direct marketing services. Our opt-in
email marketing system enables direct marketers to target promotional campaigns
to consumers who choose (1) whether or not they would like to receive commercial
messages, (2) the type or categories of information that they would like to
receive and (3) the amount of personal data that they are willing to disclose.
The users can opt out, or stop receiving these messages, at any time. Unlike
some "permission-based" email marketing companies that do not always verify the
election of their list members to receive email messages, we have developed a
double opt-in confirmation system. We require each Internet user to confirm the
user's desire to receive messages, typically by responding to a verification
email. This way, no Internet user can be signed up for our lists by an
unauthorized third party.
Our opt-in email direct marketing business offers direct marketers three key
advantages over postal direct marketing and banner advertising:
- SPEED. Opt-in email campaigns can be sent out immediately without waiting
days or weeks at a postal lettershop. We believe that email campaigns also
generate results in a shorter period of time than traditional direct mail,
producing leads and sales within 24 to 48 hours, compared to six to eight
weeks offline.
- RESPONSIVENESS. Opt-in email campaigns typically generate higher response
rates than postal mail or banner ad campaigns. We believe that opt-in
email campaigns typically generate response rates ranging from 5% to 15%,
although Forrester Research estimates that opt-in email campaigns
generated average response rates of 18% as of March 1999. This greatly
exceeds the typical banner advertising response rate of 0.7% and typical
postal direct mail response rates, which we believe to be approximately
2%. We also believe, based on the response rates reported to us by our
direct marketing customers, that our double opt-in system contributes to
our lists generating higher response rates than other email lists in the
market. In addition, we can confirm to Internet service providers that
messages sent are not unsolicited spam. As a result, NetCreations' and our
direct marketers' email messages are allowed to travel freely through the
networks of all of the major Internet service providers.
- COST. Opt-in email campaigns cost less than postal mail campaigns.
Forrester Research estimates that the typical costs for email campaigns
range from 15 to 45 cents per email message sent (to rent a list and have
an email service bureau send it out). This compares to an average cost of
60 cents per delivery for a postal direct mail campaign, including the
list rental, printing, postage and processing fees. While banner ads may
cost less than email campaigns, on a CPM (cost per thousand) basis, banner
campaigns often end up costing more because of their low response rates.
Our customers include Web sites that collect email addresses and direct
marketers, including advertisers and email address list brokers. Our service
allows demographic selection of email addresses based on the personal data
provided by Internet users when their sign-up forms were completed.
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Additionally, it provides real-time, online list selection and ordering. We also
provide an optional response-tracking program that allows marketers to monitor
and improve the effectiveness of their email marketing campaigns.
Our email address database offers direct marketers and email address list
brokers more than 4.3 million email addresses gathered from a network of more
than 175 third-party Web sites, including sites such as Internet.com, NetZero,
Entrepreneur Magazine, CMPnet, LinkExchange, CDROM Guide, Regards.com and
Volition. We provide marketers and e-commerce retailers a selection of targeted
email address lists designed to achieve maximum response to their offers. We
currently have email addresses listed in our database in over 3,000 topical
categories, from general consumer lists to business-to-business lists.
On November 3, 1999, we entered into a two-year email list management
agreement with ICQ, Inc., an instant messaging subsidiary of America Online,
Inc. We will be ICQ's exclusive email address list manager for delivery of
targeted email messages on behalf of third-party advertisers to ICQ users who
opt in to our service. Under the agreement, we have agreed that ICQ will be our
exclusive instant messaging partner and that we will not enter into any similar
transactions with a company that provides instant messaging applications as a
material part of its business, other than America Online or its affiliates. We
agreed to advance to ICQ $5.0 million, constituting a portion of the fees that
ICQ expects to earn under the agreement. Of that sum, $1.0 million was paid on
signing. An additional $2.0 million is payable on consummation of this offering.
The remaining $2.0 million is payable in installments over time. We are entitled
to take credit for the advances against fees due to ICQ under the email address
list management agreement. If the agreement terminates before May 3, 2000, all
of the advances other than the first $1 million will be refunded to us. The
remaining $4.0 million of the advances will also become non-refundable with the
passage of time.
Our services enable Web site owners to compile email address lists and
demographic profiles of
their members. We then make these lists available to direct marketers on our
WWW.POSTMASTERDIRECT.COM online store, providing incremental revenue
opportunities in the form of commissions for Web sites when email addresses
owned by those Web sites are used by marketers. In addition, our Web site
provides marketing, mailing, merging of lists, purging of duplicate email
addresses, and subscribe/ unsubscribe services to users of our email addresses.
OUR STRATEGY
Our goal is to become the leader in opt-in direct marketing services on the
Internet. Key elements of our strategy include the following:
- MAINTAIN AND EXTEND MARKET LEADERSHIP IN OPT-IN EMAIL DIRECT MARKETING. We
intend to maintain and extend our leadership role in email direct
marketing by aggressively expanding our network of third-party Web sites
with additional Web sites worldwide. We are exploring ways to encourage
third-party Web sites currently participating in our NetCreations Network
to refer additional Web sites to join our network. In addition, we may
participate in cooperative databases, in which we would agree to share
opt-in email addresses and fees. We may also acquire other Web sites in an
effort to aggregate more opt-in email addresses. In connection with our
worldwide list expansion, we intend to develop capabilities for adding
email addresses to our database from non-English language consumers. We
also plan on hiring additional business development personnel to assist us
in obtaining more list members.
- ENRICH OUR DATABASE WITH OPT-IN TRANSACTION DATA. We intend to develop
mechanisms to provide direct marketers with lists of consumers who have
purchased specified products on the Internet. We plan to work with leading
e-commerce and catalog sites to incorporate an opt-in sign-up form that
will allow Internet consumers to elect to receive targeted offers related
to the products and services that they have purchased. By doing so, we
will build a large, comprehensive
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database of consumer purchase behavior on the Internet which we believe
will be attractive to direct marketers.
- DEVELOP NEW INTERNET MARKETING PRODUCTS AND SERVICES. We intend to expand
our direct marketing services to additional applications on the Internet
such as incentive programs and sweepstakes promotions. We also intend to
expand the use of our current response-tracking system to create an
end-to-end system that measures responses all the way from the message
delivery to the sale. In addition, we intend to develop email delivery and
tracking capabilities for non-English languages and character sets to
facilitate our worldwide list expansion and marketing plans.
- EXPAND OUR SALES CHANNELS. In addition to our direct sales efforts, we
market our services through indirect sales channels such as list brokers,
advertising agencies, Web design firms and other resellers. We intend to
develop additional sales channels to penetrate vertical markets such as
small business/home office, technology, publishing and manufacturing. In
addition, we continuously work with our existing indirect sales channels
to further the growth of sales through these sales channels. We recently
launched an online list brokerage program that enables Web sites that
target small business owners and entrepreneurs to private-label our email
address list rental program and earn commissions by referring customers to
us.
- LEVERAGE OUR SCALEABLE TECHNOLOGY PLATFORM. We have developed and rely
upon our proprietary software and intend to capitalize on its modular
design to easily expand our capabilities to process increasing demand for
email messaging by our direct marketing customers. Our platform also
enables the addition of new features and products to satisfy the needs of
our customers for quality, innovative products and services.
OUR SERVICES
We provide Internet-based opt-in email address list management, email
address list brokerage, a response management system, and email delivery
services through our WWW.POSTMASTERDIRECT.COM Web site.
EMAIL ADDRESS LIST MANAGEMENT. We currently aggregate and manage opt-in
email addresses across a network of more than 175 third-party Web sites. Once a
Web site joins our network, we provide a sign-up template for the site to place
on one or more of its Web pages. Generally, this is a page that receives a large
number of visitors, such as a registration page or a page thanking visitors for
entering a contest or downloading some software. Our template allows the
participating site to facilitate the gathering of opt-in email addresses in a
variety of topical categories, including business, investing, sports, travel,
computing, contests, and entertainment. Although our system is capable of
processing elections to receive email messages relating to more than 3,000
topical categories, most Web sites post the selection of category choices that
they believe will be of greatest interest to their visitors. The sign-up form
also includes a demographic profile asking the visitor for an email address,
postal address, age, income, gender, occupation, title and other information.
However, the only information a user is required to submit is their email
address.
In November 1997, we adopted a double opt-in process to protect Internet
users' privacy by preventing anyone from signing them up without authorization.
Generally, whenever a visitor to a participating Web site opts in to receive
email, the sign-up request is immediately transmitted to our server. Our server
then sends the visitor a confirmation message requiring the person to click on
an embedded link in the message and enter a special code on our
WWW.POSTMASTERDIRECT.COM Web site. In a few cases, the Web site owner confirms
the visitor's sign-up request for us. When the visitor confirms the sign-up
request and becomes an email list member, the visitor's email address is added
to our database and is made available to our direct marketing customers.
However, the Web site from which the email address was derived continues to own
its list of email addresses which are included in our database. We typically pay
to the applicable Web site owner a commission of 50% of the revenue we
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have earned, less volume discounts, if applicable, each time we send an email
message to the email addresses owned by that Web site owner. In the event that
an email address appears on more than one email address list selected by our
customer, the 50% commission is only paid to the Web site owner whose email
address list is designated by our customer as the preferred list. We currently
do not charge the list owners any additional setup, processing or maintenance
fees for our service.
EMAIL ADDRESS LIST BROKERAGE. We provide marketers and e-commerce retailers
with a selection of targeted email address lists designed to achieve the maximum
response rates to their offers. Direct marketers can make their own list
selections and place their own orders through our Web site. On-screen menus and
instructions help direct marketers pick lists and choose selection criteria.
Alternatively, our sales and customer service staff provides assistance with
email address list recommendations, order placement, and, occasionally,
copywriting of email messages. Orders placed by 5 PM Eastern Time are generally
sent out that night. Orders placed through our online marketplace by the direct
marketers themselves are generally paid by credit card.
Our service allows direct marketers to:
- open a customer account;
- search for email address lists by topical category or keyword, such as
"travel" or "sports;"
- select demographic data characteristics, such as age, income and zip code,
to define the email addresses to which they would like to send email
messages (but they do not actually access demographic data in our
database); and
- aggregate the various email address lists the direct marketer wants to use
and remove any duplicate addresses.
TRACKBOT EMAIL RESPONSE MANAGEMENT SYSTEM. Through TrackBot, we can provide
campaign results to our customers, but only on an anonymous, aggregate basis
that does not violate an individual's expectation that personal data will not be
disclosed without their permission. TrackBot offers direct marketers, if they
elect to use this service, a way to track aggregate responses to their mailings
through the responder's click-through, allowing direct marketers to gauge the
success of their campaigns quickly and to focus their campaigns on the
best-performing email address lists. TrackBot provides a simple one-click setup
through WWW.POSTMASTERDIRECT.COM's automated Web ordering system and easy to
read charts that display aggregate response rates by list or by offer. Direct
marketers who select email address lists from our email marketing service simply
place their order in their online accounts and TrackBot automatically generates
customized hypertext links for insertion into the email messages sent out. The
click-throughs produced by the campaign are then tracked and recorded by our
servers. TrackBot is a free service to companies that use our opt-in email
address lists. We intend to upgrade our current response-tracking system to
create an end-to-end system that would permit us to measure responses from the
message delivery to the sale.
EMAIL LIST DELIVERY. In addition to emailing messages for our direct
marketing customers' campaigns, our email list delivery service provides
high-volume email distribution for delivery of email for customers sending
messages to email addresses owned by such customers. Our sophisticated email
infrastructure is available to direct marketers, publishers, list managers,
online merchants and Web site owners seeking a fast, affordable way to
communicate with their own customers by email.
OUR CUSTOMERS
EMAIL ADDRESS LIST MANAGEMENT CUSTOMERS. We manage email address lists for
our NetCreations Network, which currently consists of more than 175 third-party
Web sites. Our network sites include a variety of Web sites such as
Internet.com, NetZero, Entrepreneur Magazine, CMPnet, LinkExchange, CDROM Guide,
Regards.com and Volition. On November 3, 1999, we entered into an email list
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management agreement with ICQ, Inc., an instant messaging subsidiary of America
Online, Inc., to be the newest third-party Web site in the NetCreations Network.
EMAIL ADDRESS LIST BROKERAGE CUSTOMERS. Our email direct marketing
customers consist of advertisers and email list brokers. As of September 30,
1999, we have sent email messages on behalf of more than 1,500 direct marketing
customers, from large companies such as Dell, Compaq, Ziff-Davis and J. Crew to
small retailers selling items over the Web, such as Vermont Nutrition,
Cyberswap, Inc., Technology Marketing Corp., and Intratech Alliance Corp.
On July 5, 1999 we terminated our email list management and email list
brokerage agreements with YesMail.com. Use of email addresses in our database by
YesMail.com as an email address list reseller accounted for approximately 7% of
our net revenues in 1998 and approximately 11% of our net revenues for the first
nine months of 1999. Although we can give no assurance, we anticipate that
substantially all of such net revenues will be replaced by selling our services,
either directly or indirectly through other email address list brokers, to
direct marketers, including direct marketers represented by YesMail.com as well
as other direct marketing customers. In addition, net revenues generated by
selling use of the email address list in our database collected from
YesMail.com's Web site, and therefore, owned by Yesmail.com as an email address
list owner, represented 3.3% and 0.8% in 1998 and the first nine months of 1999,
respectively.
SALES AND MARKETING
We market our services through our direct sales organization and through
indirect distribution channels, including email list brokers, advertising
agencies, Web design firms and other resellers. We sell our services to direct
marketers primarily through our direct sales organization. As of September 30,
1999, our direct sales organization included 16 employees responsible for
account management, business development and support, and we had two employees
engaged in separate marketing activities.
Our sales organization is complemented by independent resellers, such as
list brokers, advertising agencies and Web design firms. These resellers
purchase our service at a discount for resale to their own marketing customers
and may provide list selection, support and customer service to end users. In
1998, resellers were responsible for approximately 38% of our net revenues and
represented approximately 44% of our net revenues for the first nine months of
1999. We anticipate that the percentage of our total revenues derived from
indirect sales will increase in the future.
RESEARCH AND DEVELOPMENT
Our research and development efforts include product architecture, core
technology, product testing, quality assurance and expanding the ability of our
products to operate with the leading email software and Web browser platforms.
In addition, our research and development group also provides some customer
support activities. Currently we have three employees, including our Chief
Technology Officer, Ryan Scott Druckenmiller, who devote a substantial portion
of their time to our research and development efforts. We believe that research
and development expenses will increase in the future and that we will need to
hire more developers as our operations expand.
We believe that our future performance will depend in large part on our
ability to:
- scale our technology platform;
- maintain and enhance its speed, reliability, capacity, and connectivity
across multiple platforms; and
- assure its ease-of-use by customers, flexibility and effectiveness in
satisfying evolving customer requirements.
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TECHNOLOGY
We employ a combination of hardware and custom and third-party software to
implement our opt-in direct marketing services. We believe that this results in
a highly scaleable, secure, reliable, and modular architecture that blends our
internal expertise with industry-standard technology to create a proprietary
infrastructure.
We intend to continue expanding our technology infrastructure to support the
growth of our business. This will include, among other things, co-locating our
servers and increasing the redundancy of our networks and database storage
systems.
CONNECTIVITY. We currently have redundant T1 Internet connections provided
by Globix and Frontier Communications, enabling us to deliver approximately two
million email messages per day. We believe that the scaleable nature of our
system's design will allow us to increase our email delivery capacity as needed.
We are in the process of establishing a new T3 Internet connection which we
anticipate will provide us more than sufficient Internet bandwidth for at least
the next 12 months.
Our online ordering system provides for secure e-commerce credit card
purchases and for email delivery. We believe that this encourages use of our
online marketplace.
HARDWARE. Multiple servers and personal computers are dedicated to specific
functions within our network architecture. We utilize two ALPHA servers from
Digital Equipment Corporation running Digital Unix operating systems. One server
utilizes an Oracle database to aggregate, sort, and store the data we manage
from our network of Web sites. The second DEC machine serves as the primary Web
server for our WWW.POSTMASTERDIRECT.COM Web site. In addition, we plan on
installing in the next few months a third server, which will be used to back up
system information and increase processing power and redundancy.
Intel-based servers are dedicated to sending out email messages and allowing
tens of thousands of users per day to access the list sign-up forms on our
third-party Web sites, to opt in to receive email messages on topics of
interest, and to confirm that their elections to receive commercial email
messages are valid. We utilize a dedicated server to balance the load among our
email delivery servers and to provide redundancy within the email delivery
system. We currently have a server which is dedicated for system backup. In
addition, a separate server is dedicated to monitoring system activity and will
notify an administrator if a problem arises. All of these servers run Linux
operating systems from Red Hat Software; we believe that more servers can be
added to increase capacity as needed.
We employ a Network Associates firewall to protect our computer systems from
unauthorized access.
SOFTWARE. Our research and development team developed proprietary software
using MetaHTML, PERL and SQL. This software enables Internet users to opt in to
receive targeted advertising information from our marketing customers through
sign-up forms on our network of more than 175 third-party Web sites. In
addition, this software enables our direct marketing customers and email address
list brokers to target Internet users with specific demographics who have opted
in to our database. This process allows our marketing customers to send specific
advertising messages to recipients who have indicated an interest in receiving
messages on the topic.
Our software is modular. Modularity enhances our ability to add, remove, or
replace system applications as needed. For example, we recently implemented
TrackBot, a proprietary software application which allows marketers to track the
response rates to their mailings. We can continue to enhance TrackBot, or any
other application, as well as add additional software elements as needed.
We have also developed a double opt-in list subscription confirmation system
which sends Internet users a confirmation email message after they have signed
up for a list and requires them to verify that
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they would like to begin receiving commercial email messages from our marketing
clients. We developed the double opt-in system in November 1997 and have filed a
patent application for this technology.
COMPETITION
The market for our email address list management and brokerage services is
intensely competitive, evolving and subject to rapid technological change. We
expect the intensity of competition to increase in the future. Competitors vary
in size and in the scope and breadth of the services offered. While no
competitor, to our knowledge, currently has a network of third-party Web sites
similar to ours that generates double opt-in email address lists, we face
intense competition for companies' Internet-based direct marketing budgets.
We face direct competition from companies in the following categories:
- email direct marketers such as YesMail.com, BulletMail and 24/7 Media;
- incentive-based direct marketers such as MyPoints.com and Netcentives; and
- permission-based outsourced email direct marketers such as Exactis.com and
MessageMedia.
In addition, we presently indirectly compete with companies in the following
categories:
- email address list owners who manage their own email address lists, such
as Xoom.com;
- banner advertising managers such as DoubleClick and Flycast
Communications; and
- postal direct marketing companies such as Direct Media (Acxiom) and
American List Counsel;
In addition, because there are relatively low barriers to entry in the email
direct marketing business, we expect additional competition from other
established and emerging companies as the email direct marketing business
continues to develop and expand. We also expect to face competition in the
future from other companies entering the field as email address list owners,
managers and brokers.
Many of our competitors have longer operating histories, significantly
greater financial, technical, marketing and other resources, significantly
greater name recognition and a larger installed base of customers than we have.
In addition, many of our competitors have well-established relationships with
our current and potential marketing customers, have extensive knowledge of our
industry and are capable of offering non-email based advertising and marketing
products that are beyond the scope of our current business operations but might
be attractive to customers seeking to purchase services in addition to email
direct marketing services. As a result, our competitors may be able to respond
more quickly to new or emerging technologies and changes in customer
requirements or to devote greater resources to the development, promotion and
sale of their services than we can. 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 their customers' needs. Accordingly, it is possible that new competitors
or alliances among competitors may emerge and rapidly acquire significant market
share. We also expect that competition will increase as a result of industry
consolidations.
We may not be able to compete successfully against current and future
competitors, because increased competition is likely to result in price
reductions, reduced gross margins and loss of market share, any of which could
seriously harm our business, financial condition and results of operations.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
While we provide a direct marketing service, we are also a technology
company. A large part of our success depends on protecting our intellectual
property, which is one of our most important assets.
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If we do not adequately protect our intellectual property, our business,
financial condition and results of operations would be seriously harmed.
We have developed and continue to develop our proprietary software and make
it available for our customers' use over the Internet. This way, we never allow
our customers access to our source code. In addition, we require employees,
contractors and other persons with access to our proprietary information to
execute confidentiality and non-compete agreements with us. We seek to protect
our software, documentation and other written materials under trade secret and
other intellectual property laws, which afford only limited protection.
We have one pending United States patent application. This application seeks
to protect our "double opt-in" system of verifying the requests of Internet
users who ask to join our targeted email lists. We have no issued foreign
patents, nor do we have any pending foreign patent applications. It is possible
that no patent will issue from the currently pending patent application. It is
also possible that any potential future patents may be found invalid or
unenforceable, or otherwise be successfully challenged. Also, any patent issued
to us may not provide us with any competitive advantages. We may not develop
future proprietary products or technologies that are patentable, and the patents
of others may seriously limit our ability to do business. In this regard, we
have not performed any comprehensive analysis of patents of others that may
limit our ability to do business.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Policing unauthorized use of our products is
difficult, and, while we are unable to determine the extent to which piracy of
our software products exists, software piracy can be expected to be a persistent
problem. In addition, the laws of some foreign countries do not protect our
proprietary rights to as great an extent as do the laws of the United States.
Our means of protecting our proprietary rights may not be adequate, and our
competitors may independently develop similar technology, duplicate our products
or design around patents issued to us or our other intellectual property.
There has been a substantial amount of litigation in the software industry
regarding intellectual property rights. It is possible, that in the future,
third parties may claim that our current or potential future products infringe
upon their intellectual property. We expect that persons, such as ourselves,
that develop software will increasingly be subject to infringement claims as the
number of products and competitors in our industry segment grows and the
functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time-consuming, result in costly
litigation, cause product shipment delays or require us to enter into royalty or
licensing agreements. Such royalty or licensing agreements, if required, may not
be available on terms acceptable to us or at all, which could seriously harm our
business, financial condition and results of operations.
We integrate third-party software in our software products. We license
server software from Digital Equipment Corporation and Universal Access, Inc.
The third-party software may not continue to be available to us on commercially
reasonable terms. We may not be able to renew these agreements or develop
alternative technology. If we cannot maintain licenses to key third-party
software, develop similar technology or license similar technology from another
source on a timely or commercially feasible basis, our business, financial
condition and results of operations could be seriously harmed.
GOVERNMENT REGULATION
Currently, there are relatively few laws and regulations directly applicable
to access to or commerce on the Internet. However, due to the increasing
popularity and use of the Internet, it is likely that a growing number of laws
and regulations will be adopted and that existing laws or regulations may be
applied differently with respect to the Internet and email direct marketing
services covering issues such as user privacy, pricing, content, copyrights,
distribution, antitrust, and characteristics and quality of products and
services. Also, the growth and development of the market
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<PAGE>
for email direct marketing may lead to more stringent consumer protection laws
and regulations that may impose additional burdens on those companies conducting
business online. In addition, the applicability to the Internet of existing laws
in various jurisdictions governing issues such as property ownership, sales and
other taxes, libel and personal privacy is uncertain and may take years to
resolve. Any such new laws or regulations or new applications of those existing
laws or regulations could hinder the growth of the Internet or email direct
marketing, which could, in turn, decrease the demand for our products and
services and increase our cost of doing business or otherwise adversely affect
our business.
Legislation has recently been enacted in several states relating to
spamming. The federal government and several states, including New York, are
considering, or have considered, similar legislation. The provisions of these
current and contemplated laws vary, but they generally limit or prohibit both
the transmission of unsolicited emails and the use of familiar spamming
techniques such as the use of forged or fraudulent routing and header
information. Some states, including California, require that unsolicited emails
include opt-out instructions and that senders of such emails honor any opt-out
requests, a requirement that is consistent with our own permission email
policies. We believe that our opt-in email system will not be affected by such
legislation because we do not send unsolicited messages and because our current
practices are intended to comply with current and proposed legislation. However,
there can be no assurance that such legislation or similar legislation will not
also affect permission email marketing in a way that could force us to change
our business practices, particularly in light of the rapidly evolving state of
the law in this area. In such event, our business could suffer.
EMPLOYEES
As of September 30, 1999, we had a total of 29 employees, including 16 in
sales and customer service, seven in technology, four in administration, and two
in marketing. All of these employees were located at our headquarters in New
York City. None of our employees is represented by a collective bargaining
agreement, and we believe our employee relations to be good.
FACILITIES
We lease our principal sales, marketing, technology, and administrative
facility of approximately 7,400 square feet in New York City at an annual cost
of approximately $195,000 with customary escalation clauses. The lease expires
on March 1, 2003. We have no other offices at this time. We believe that our
existing facilities are adequate for our current needs and that suitable
additional or alternative space will be available in the future as required on
commercially reasonable terms.
LEGAL PROCEEDINGS
As of the date of this prospectus, we are not a party to any litigation.
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MANAGEMENT
Our executive officers and directors as of October 10, 1999, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- ---------------------------------------------------------
<S> <C> <C>
Rosalind B. Resnick........ 40 Chief Executive Officer, President, Chairman of the Board
of Directors, and Treasurer
Ryan Scott Druckenmiller... 30 Chief Technology Officer, Vice President, Secretary and
Director
Gary Sindler............... 53 Chief Financial Officer
Larry Mahon................ 36 Vice President of Sales
Daniel Sweeney............. 24 Vice President of Business Development
Michael Levy (1)(2)........ 52 Director
Gregory W. Slayton 40 Director
(1)(2).....................
Mitchell York (1)(2)....... 42 Director
</TABLE>
- ------------------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
ROSALIND B. RESNICK has served as our Chief Executive Officer, President and
Chairman of our board of directors since our inception. In September 1995,
Ms. Resnick developed America Online's NetGirl Forum, a dating and relationships
area of the America Online service which she hosted until September 1996.
Ms. Resnick began her career in the newspaper industry in 1980 as an intern at
the BALTIMORE SUN. From 1984 to 1989, Ms. Resnick worked as a business writer at
THE MIAMI HERALD. Her articles have appeared in INTERNET WORLD, NETGUIDE,
COMPUTER LIFE, PC TODAY, HOME OFFICE COMPUTING, and other leading computer
magazines. In 1995, she co-authored THE INTERNET BUSINESS GUIDE, and from 1994
to 1997, she served as the editor and publisher of INTERACTIVE PUBLISHING ALERT,
a semi-monthly newsletter tracking trends and developments in online publishing
and advertising. She is also a contributing editor to PHILLIPS' INTERACTIVE P.R.
AND MARKETING NEWS NEWSLETTER. Ms. Resnick received B.A. and M.A. degrees from
Johns Hopkins University.
RYAN SCOTT DRUCKENMILLER has served as our Chief Technology Officer and a
member of our board of directors since our inception. Mr. Druckenmiller is an
award-winning Web programmer who created the software that powers
WWW.POSTMASTERDIRECT.COM's online list store, list member sign-up process, and
list owner accounting system. Mr. Druckenmiller's prolific software output also
includes the PostMaster URL Announcement Service, which submits Web sites to
over 400 leading search engines and directories; PostMaster BannerNet, a free
banner network; TrackBot, an advertising tracking tool, and PinPoint, a
personalized search engine interface. Prior to joining NetCreations, from 1990
to 1995, Mr. Druckenmiller developed video games for the Amiga platform and
published an Amiga newsletter, providing software and information for Amiga
computer users.
GARY SINDLER has been our Chief Financial Officer since June 1999. From
February 1999 to June 1999, Mr. Sindler was a consultant to FTI
Consulting, Inc., a provider of litigation, applied sciences and expert
financial consulting services based in Annapolis, Maryland. From July 1996 to
February 1999, Mr. Sindler was Executive Vice President, Secretary and Chief
Financial Officer of FTI. From August 1993 to July 1996, Mr. Sindler was Chief
Financial Officer of Aon Risk Services, Inc. of New York. Prior to 1993, he held
various senior-level positions in finance and administration with Willis
Corroon, PLC and Alexander & Alexander Services Inc., two international
insurance brokerage firms. Mr. Sindler holds a B.S. degree in accounting from
the University of Baltimore and is a certified public accountant.
LARRY MAHON joined us as our Vice President of Sales in June 1999. From
July 1985 through January 1999, Mr. Mahon was employed by AlphaNet
Solutions, Inc., a systems integration firm that provides computer products and
IT services to Fortune 1000 clients, in various capacities, chiefly from
47
<PAGE>
November 1996 through January 1999 as Vice President of Sales, New York, from
July 1993 to October 1996 as Vice President of Operations and from August 1990
to July 1993 as Vice President of Client Services.
DANIEL SWEENEY joined us as Vice President of Business Development in
September 1999. From February 1998 to August 1999, Mr. Sweeney was the Network
Manager for The @dventure Network, a direct marketing/sales firm in New York.
From August 1997 to December 1997, Mr. Sweeney was a manager of operations for
Adbot, Inc., an Internet advertising auction business based in Chicago,
Illinois. From 1993 to June 1997, Mr. Sweeney was a student at Harvard
University where he received his A.B. degree in Economics.
MICHAEL LEVY has been a member of our board of directors since October 1999.
He has served as the President, Chief Executive Officer and Chairman of the
Board of SportslineUSA, Inc. since its inception in February 1994. From 1979
through March 1993, Mr. Levy served as President, Chief Executive Officer and as
a Director of Lexicon Corporation, a high technology company specializing in
data communications and signal processing technology. From January 1988 to June
1993, Mr. Levy also served as Chairman of the Board and Chief Executive Officer
of Sports-Tech International, Inc., a company engaged in the development,
acquisition, integration, and sale of computer software, equipment, and
computer-aided video systems used by professional, collegiate and high school
sports programs. Between June 1993 and February 1994 Mr. Levy was a private
investor. Mr. Levy also serves as a member of the board of directors of iVillage
Inc. Mr. Levy received a B.S. in Electrical Engineering from the Georgia
Institute of Technology.
GREGORY W. SLAYTON has been a member of our board of directors since October
1999. He has served as President, Chief Executive Officer and a member of the
board of directors of ClickAction Inc. since December 1997. From March 1996 to
July 1997, Mr. Slayton was the President, Chief Operating Officer, and Director
of ParaGraph International. In August 1994, Mr. Slayton co-founded Worlds, Inc.
and served as Senior Vice President and Chief Financial Officer until November
1995. Prior to founding Worlds, Inc., Mr. Slayton served as Vice President and
Chief Financial Officer of Paramount Technology Group of Paramount
Communications Inc. Mr. Slayton was also a management consultant with McKinsey &
Company for four years. Mr Slayton serves on the board of directors of inTest
Corporation, and he is on the board of directors of Opportunity International, a
non-profit organization. Mr. Slayton holds a B.A. in Economics from Dartmouth
College and an M.B.A. from Harvard Business School.
MITCHELL YORK has been a member of our board of directors since October
1999. He has served as President of LendingTree, Inc., a leading online loan
marketplace, from September 1998 to September 1999. During that time he oversaw
LendingTree's marketing, technology and other key business areas. Prior to this,
Mr. York was, for 17 years, an executive of CMP Media Inc., a worldwide
technology information and marketing services company. As vice president of
CMP's Internet division, he lead the company's entry into online media by
launching TechWeb, an information service for information technology
professionals. Prior to launching TechWeb, Mr. York was a publisher of several
of CMP's major technology titles, including VARBusiness magazine. He also was
the founding editor of the company's Travel division, which was later sold to
Miller Freeman. Mr. York received a bachelor's degree with honors from
Northwestern University and an M.B.A. from the Columbia Graduate School of
Business.
BOARD COMPOSITION
We currently have five directors. Each director is elected at the annual
general meeting of our shareholders, by a vote of the holders of a plurality of
the voting power represented at such meeting. Each director holds office until
the annual general meeting of our shareholders or until his or her successor has
been elected.
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<PAGE>
Our non-management directors serve on the audit committee and the
compensation committee of the board. The executive officers serve at the
discretion of the board.
BOARD COMMITTEES
In July 1999, our board of directors established an audit committee and a
compensation committee. Our board of directors does not currently have and does
not currently intend to establish an executive committee or a nominating
committee, as those functions are to be performed by our entire board of
directors.
AUDIT COMMITTEE. The audit committee of the board of directors consists of
Messrs. Levy, Slayton and York. This committee makes recommendations to the
board of directors with respect to various auditing and accounting matters,
including the recommendation of our auditors, the scope of the annual audits,
fees to be paid to the auditors, the performance of our independent auditors and
our accounting practices. The audit committee has responsibility for, among
other things, the planning and review of our annual and periodic reports and
accounts and the involvement of our auditors in that process, focusing
particularly on compliance with legal requirements and accounting standards and
the related rules of the Nasdaq, the Securities and Exchange Commission, and the
United States, and the establishment of an effective system of internal
accounting controls.
COMPENSATION COMMITTEE. The compensation committee of the board of
directors consists of Messrs. Levy, Slayton and York. This committee recommends,
reviews and oversees the salaries, benefits and stock option plans for our
employees, consultants, directors and other individuals compensated by us. The
compensation committee also administers our compensation plans.
DIRECTOR COMPENSATION
None of our directors receive cash compensation for their service on our
board of directors, although our management directors receive cash compensation
for their services as our officers. All directors, however, are reimbursed for
reasonable expenses incurred in connection with serving as a director. We have
granted options, effective as of October 8, 1999, to purchase 100,000 shares of
our common stock to each of our non-management directors, Messrs. Levy, Slayton
and York, at an exercise price per share equal to the lesser of $10.00 or our
initial public offering price. The options granted to our three non-management
directors vest one-third upon the consummation of our initial public offering.
The remaining two-thirds vest in equal installments on each of the next eight
quarterly anniversaries following the consummation of our initial public
offering. We anticipate that our board of directors will hold regularly
scheduled meetings quarterly.
EXECUTIVE COMPENSATION
The following table sets forth all compensation received during the
indicated years by our Chief Executive Officer and President and our Chief
Technology Officer in their capacities as officers. In these fiscal years we had
no other executive officers and no other employee earned in excess of $100,000.
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<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION SECURITIES
------------------------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OTHER OPTIONS COMPENSATION(1)
- --------------------------- --------------------- -------- -------- ------------ ----------------------
<S> <C> <C> <C> <C> <C>
Rosalind Resnick,
Chief Executive Officer,
President and Chairman of the
Board of Directors............... 1998-$185,000 -- -- -- 1998-$155,000
1997-$120,000 -- -- -- 1997-$96,880
1996-$198,000 -- -- -- 1996- --
Ryan Scott Druckenmiller,
Chief Technology Officer and
member of the Board of
Directors........................ 1998-$185,000 -- -- -- 1998-$155,000
1997-$120,000 -- -- -- 1997-$96,880
1996-$198,000 -- -- -- 1996-$30,000
</TABLE>
- ------------------------
(1) Includes contributions to our pension plan of $30,000 and $30,000 for the
benefit of each of Ms. Resnick and Mr. Druckenmiller in 1998 and 1997,
respectively, and $30,000 for the benefit of Mr. Druckenmiller in 1996. Also
includes distributions to the shareholders which were made in accordance
with our election to be taxed as an S corporation. Such distributions are
common for S corporations.
STOCK OPTION INFORMATION
We granted options, effective as of September 14, 1999, to purchase 232,500
shares of our common stock at an exercise price of $5.00 per share under our
1999 Stock Option Plan. Those options were granted to our employees other than
Ms. Resnick and Mr. Druckenmiller. Those options are exercisable for a period of
five years, but not until they have vested. Those options vest in equal one-
third installments on each of the three anniversaries of the date of grant,
subject to the optionees' continued employment with us. Ms. Resnick and
Mr. Druckenmiller have received, and will continue to receive until the
consummation of our initial public offering, S corporation distributions. Upon
termination of our status as an S corporation immediately prior to the effective
date of this offering, we intend to pay Ms. Resnick and Mr. Druckenmiller final
S corporation distributions based on current year earnings to the extent of
available cash balances. At September 30, 1999, this amount would have been
$798,135. Ms. Resnick and Mr. Druckenmiller have received no options or other
stock-based compensation. In addition, we have granted options, effective as of
October 8, 1999, to purchase 100,000 shares of common stock to each of our
non-management directors, Messrs. Levy, Slayton and York, at an exercise price
per share equal to the lesser of $10.00 or the initial public offering price.
The options granted to our three non-management directors are also exercisable
for a period of five years, but not until they have vested. These options vest
one-third upon the consummation of our initial public offering. The remaining
two-thirds of the options vest in equal installments on each of the next eight
quarterly anniversaries following the consummation of our initial public
offering. Vesting also depends on continued service as our director, subject to
acceleration under certain circumstances. All the outstanding options granted to
our non-management directors would be accelerated, and all of our other
outstanding options may be accelerated, as to vesting and exercisability, in the
event of certain transactions, including certain changes in our control, certain
mergers and reorganizations, and certain dispositions of substantially all of
our assets. The vesting and exercisability of the options issued to our
non-management directors would also be accelerated if those directors are not
re-elected to office,
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<PAGE>
except if they are unable to serve or choose not to serve, or if they are
removed from office, except for cause or material non-performance of their
duties. We have granted no other options and no stock appreciation rights.
EMPLOYMENT AGREEMENTS
We have entered into one-year employment agreements with six of our
technology employees. These agreements are automatically renewable and are
terminable by either the employee or us upon 90 days' notice. The remaining
non-management employees are employed on an at-will basis. All of our
non-management employment arrangements provide, among other things, that each of
the employees shall provide services to us on a full-time basis. All of our
non-management employees have also entered into agreements with us which contain
restrictive covenants relating to non-competition with us, non-solicitation of
our customers, non-dealing with our customers and non-solicitation of our
suppliers and employees. In addition, each of these agreements contains an
express obligation of confidentiality in respect of our trade secrets and
confidential information and provide for us to own any intellectual property
rights created by our employees in the course of their employment.
We have entered into employment agreements with Rosalind Resnick, as our
Chief Executive Officer, President, and Chairman of our board of directors, Ryan
Scott Druckenmiller, as our Chief Technology Officer, Gary Sindler, as our Chief
Financial Officer, Larry Mahon, as our Vice President of Sales, and Daniel
Sweeney, as our Vice President of Business Development, all of which expire on
December 31, 2002. The executives are entitled to base salaries per annum,
initially as follows: Rosalind Resnick, $175,000; Ryan Scott Druckenmiller,
$175,000; Gary Sindler, $150,000; Larry Mahon, $100,000; and Daniel Sweeney,
$100,000. The executives are entitled to annual bonuses as the compensation
committee of our board of directors may determine based upon their performance
and achievement of specified goals to be established and mutually agreed upon by
each of them and the compensation committee prior to the beginning of their
bonus period as follows: Rosalind Resnick, up to $175,000 per year; Ryan Scott
Druckenmiller, up to $175,000 per year; Gary Sindler, up to $75,000 per year;
Larry Mahon, up to $100,000 per year; and Daniel Sweeney, up to $50,000 per
year. Ms. Resnick and Mr. Druckenmiller are also entitled to additional
performance bonuses, if any, as may be determined from time to time by the
compensation committee upon the achievement of performance goals to be mutually
agreed upon by each of Ms. Resnick and Mr. Druckenmiller, as the case may be,
and the compensation committee. Each of Ms. Resnick and Mr. Druckenmiller have
agreed not to compete with us in providing direct email marketing services to
third parties for compensation during the term of employment and for at least
three years after their employment is terminated other than a termination
without cause or a termination during the first year following a change in
control. Each of the remaining executives has agreed not to compete with us in
providing direct email marketing services to third parties for compensation
during the term of employment and for at least two years after their employment
is terminated other than a termination without cause or a termination during the
first year following a change in control. The executives are entitled to
customary medical, life insurance, vacation, and other benefits under each of
the agreements. Each of the executives will be eligible to be granted options
under our 1999 Stock Option Plan, at the discretion of the committee
administering that plan. Pursuant to each of their employment agreements,
Messrs. Sindler, Mahon and Sweeney have been granted 117,000, 20,000 and 20,000
stock options respectively, under our 1999 Stock Option Plan. Ms. Resnick and
Mr. Druckenmiller have not been granted any options. Each of the contracts
include customary provisions entitling us to terminate the executive's
employment for cause, upon extended disability of the executive, upon the
executive's death, and otherwise without cause. Each executive is entitled to
terminate the executive's employment upon material breach of the contract by us
and without cause upon prior notice to us. The contracts contain customary
provisions to protect our confidential information and to ensure that we will
own inventions and improvements developed by the executive during the
executive's employment activities.
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<PAGE>
STOCK OPTION PLAN
Our 1999 Stock Option Plan was adopted by the board of directors in July
1999. The Plan provides for the grant of options to our directors, officers,
employees and certain consultants. There are 1,170,000 shares reserved for
issuance under the 1999 Stock Option Plan. We have granted options, effective as
of September 14, 1999, to purchase 232,500 shares of our common stock at an
exercise price of $5.00 per share. In addition, we have granted options,
effective as of October 8, 1999, to purchase 100,000 shares of our common stock
to each of our three non-management directors at an exercise price per share
equal to the lesser of $10.00 or the initial public offering price.
The 1999 Stock Option Plan provides for the grant of options intended to
qualify as "incentive stock options" under Section 422 of the Internal Revenue
Code of 1986, as amended, and non-qualified stock options. The board of
directors or a committee designated by the board is authorized to administer the
Plan, including the selection of individuals eligible for grants of options, the
terms of such grants, possible amendments to the terms of such grants, and the
interpretation of the terms of the Plan. The maximum term of any stock option
granted under the Plan is ten years, except that with respect to incentive stock
options granted to a person possessing more than 10% of our combined voting
power, the term of their options shall be for no more than five years.
The exercise price of incentive stock options granted under the Plan must be
at least equal to the fair market value of our common stock on the date of
grant. However, for any employee holding more than 10% of our combined voting
power, the exercise price must be at least 110% of the fair market value of our
common stock. The exercise price of non-qualified stock options is set by the
administrator of the Plan.
The aggregate fair market value on the date of grant of the common stock for
which incentive stock options are exercisable for the first time by an employee
during any calendar year may not exceed $100,000. Also, the aggregate number of
options granted to any one optionee may not exceed 468,000 shares.
Options granted under the 1999 Stock Option Plan may be exercised at any
time or from time to time or only after a period of time in installments, as our
compensation committee or the board of directors determines. Our compensation
committee or the board of directors may in its sole discretion accelerate the
date on which any option may be exercised or determine to provide in an option
agreement that an option may become partially or fully exercisable in the event
of certain transactions, including certain changes in our control, certain
mergers and reorganizations, and certain dispositions of substantially all of
our assets. The exercise price of options granted under the 1999 Stock Option
Plan will be as determined by the relevant administrator, although the exercise
price of incentive stock options must be at least equal to the fair market value
of our common stock on the date of grant. Our board of directors may amend,
modify or terminate the 1999 Stock Option Plan at any time as long as such
amendment, modification or termination does not impair vesting rights of plan
participants. The 1999 Stock Option Plan will terminate in 2009, unless
terminated earlier by the board of directors.
PENSION PLAN
In 1997 and 1996, we had a money purchase pension and profit sharing plan
for our officers and directors, who were also our only shareholders. Upon
termination of that plan, we established a defined contribution plan in 1998 for
eligible employees under Section 401(k) of the Internal Revenue Code. Employees
must complete one year of service to be eligible to participate in the 401(k)
plan. In 1996, 1997 and 1998, we incurred contribution expenses of $30,000,
$60,000 and $60,000, respectively, relating to these plans. The 401(k) plan is
administered by us.
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of October 15, 1999 by:
- each person or group of affiliated persons who we know owns beneficially
5% or more of our common stock,
- each of our directors,
- our executive officers listed in the Summary Compensation Table, and
- all of our directors and executive officers as a group.
Percentage of ownership is calculated as required by Commission
Rule 13d-3(d)(1). Except as otherwise indicated below, the persons named in this
table have sole voting and investment power with respect to all shares of common
stock shown as beneficially owned by them, subject to community property laws.
The address for each individual is: 379 West Broadway, Suite 202, New York, New
York 10012.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES
SHARES -------------------
BENEFICIALLY BEFORE AFTER
BENEFICIAL OWNER OWNED OFFERING OFFERING
- ---------------- ------------ -------- --------
<S> <C> <C> <C>
Rosalind B. Resnick......................................... 5,967,000 51.0% 39.8%
Ryan Scott Druckenmiller.................................... 5,733,000 49.0% 38.2%
Michael Levy(1)............................................. 33,333 * *
Gregory W. Slayton(1)....................................... 33,333 * *
Mitchell York(1)............................................ 33,333 * *
All directors and executive officers as a group (8
persons).................................................. 11,799,999 100.0% 78.1%
</TABLE>
- ------------------------
* Less than 1% of the outstanding common stock.
(1) Consists of options to purchase 33,333 shares of common stock which are
exercisable within 60 days following the date of this prospectus.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following information describes our common stock and preferred stock, as
well as some provisions of our restated certificate of incorporation and our
amended and restated bylaws as in effect upon the closing of this offering. This
description is only a summary. You should also refer to the certificate and
bylaws which have been filed with the SEC as exhibits to our registration
statement, of which this prospectus forms a part.
Our authorized capital stock consists of 50,000,000 shares of common stock,
par value $0.01 per share, and 5,000,000 shares of preferred stock, $0.01 par
value per share.
COMMON STOCK
As of September 30, 1999, there were 11,700,000 shares of common stock
outstanding and held of record by two shareholders. Based upon the number of
shares outstanding and giving effect to the issuance of the 3,300,000 shares of
common stock offered hereby, there will be 15,000,000 shares of common stock
outstanding upon the closing of this offering.
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of shareholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive ratably
such dividends, if any, as may be declared by the board of directors out of
funds legally available for that purpose, subject to any preferential dividend
rights of any outstanding preferred stock. Holders of common stock have no
preemptive, subscription, redemption or conversion rights. The outstanding
shares of common stock are, and the shares offered by us in this offering will
be, when issued in consideration for payment thereof, fully paid and
nonassessable. The rights, preferences and privileges of holders of common stock
are subject to, and may be adversely affected by, the rights of the holders of
shares of any series of preferred stock which we may designate and issue in the
future. Upon the closing of this offering, there will be no shares of preferred
stock outstanding.
PREFERRED STOCK
The board of directors is authorized, without further shareholder approval,
to issue from time to time up to an aggregate of 5,000,000 shares of preferred
stock in one or more series and to fix or alter the designations, powers,
preferences, rights and any qualifications, limitations or restrictions of the
shares of each such series thereof, including the dividend rights, dividend
rates, conversion rights, voting rights, terms of redemption (including sinking
fund provisions), redemption price or prices, liquidation preferences and the
number of shares constituting any series or designations of such series. We have
no present plans to issue any shares of preferred stock.
OPTIONS
We have granted options, effective as of September 14, 1999, to purchase
232,500 shares of our common stock at an exercise price of $5.00 per share under
our 1999 Stock Option Plan. Those options have been granted to our employees
other than Rosalind Resnick and Ryan Scott Druckenmiller. In addition, we have
granted options, effective as of October 8, 1999, to purchase 100,000 shares of
our common stock to each of our three non-management directors at an exercise
price per share equal to the lesser of $10.00 or the initial public offering
price. The options are exercisable for a period of five years, but not until
they have vested. The options, other than the options granted to our three non-
management directors, vest in equal one-third installments on each of the three
anniversaries of the date of the grant, subject to the optionees' continued
employment with us. The options granted to our three non-management directors
vest one-third upon the consummation of our initial public offering. The
remaining two-thirds vest in equal installments on each of the next eight
quarterly anniversaries
54
<PAGE>
following the consummation of our initial public offering. The vesting period
for all the outstanding options granted to our non-management directors would be
accelerated, and all of our other outstanding options may be accelerated, if we
do not survive a "change in control," as defined in the option instrument, and
the surviving company or the acquiror in a change in control transaction does
not make appropriate arrangements to continue the rights of the optionholder
under the option. The acceleration provisions do not apply to a change in
control as a consequence of this offering, an acquisition of thirty percent
(30%) or more of our shares after which Ms. Resnick and Mr. Druckenmiller
continue to hold the largest indivdual percentages of our outstanding shares of
common stock, or to certain restructurings that will be completed prior to the
offering in connection with the termination of our S corporation election and
related estate planning by Ms. Resnick and Mr. Druckenmiller. The vesting period
of the options granted to our employees would be accelerated in the event that
the employee is terminated within one year after a change in control. The
vesting period of the options granted to our three non-management directors
would also be accelerated if those directors are not re-elected to office,
except if they are unable to serve or choose not to serve, or if they are
removed from office, except for cause or material non-performance of their
duties. The holders of the options do not have any rights as our shareholders
until they exercise their options.
REGISTRATION RIGHTS
After this offering, Ms. Resnick and Mr. Druckenmiller will be entitled to
registration rights with respect to their shares. These holders can require us
to register all or part of their shares at any time following 180 days after
this offering. Subsequent to that time, Ms. Resnick and Mr. Druckenmiller may
sell, dispose of or transfer their shares in accordance with Rule 144 or other
available exemptions. In addition, these holders may also require us to include
their shares for sale in future registration statements, subject to such
restrictions, and unless acquired by one of our affiliates, purchasers of those
shares will have freely tradable shares.
Also, we intend to register the shares of common stock underlying any stock
options issued or issuable pursuant to our stock option plan. Upon registration,
the registered shares are freely tradable in the public market without
restriction, unless held by an affiliate of ours, within the meaning of
applicable securities laws.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF NEW YORK LAW AND OUR RESTATED
CERTIFICATE OF INCORPORATION AND AMENDED AND RESTATED BYLAWS
GENERAL. A number of provisions of New York law, our restated certificate
of incorporation and our bylaws could make any attempt to acquire us by means of
a tender offer, a proxy contest or otherwise and the removal of incumbent
officers and directors more difficult. These provisions are intended to
discourage certain types of coercive takeover practices and inadequate takeover
bid, even though such a transaction may offer our shareholders the opportunity
to sell their stock at a price above the prevailing market price. This also
encourages persons seeking to acquire control of us to negotiate with us first.
NEW YORK TAKEOVER STATUTE. We are subject to the "business combination"
provisions of Section 912 of the New York Business Corporation Law and expect to
continue to be so subject if and for so long as we have a class of securities
registered under Section 12 of the Securities Exchange Act of 1934. Section 912
provides, with some exceptions (which include, among others, transactions with
shareholders who became interested prior to the effective date of an amendment
to our Certificate of Incorporation providing that we would be subject to
Section 912 if such corporation did not then have a class of stock registered
pursuant to Section 12 of the Exchange Act), that a New York corporation may not
engage in a "business combination" (e.g., merger, consolidation,
recapitalization or disposition
55
<PAGE>
of stock) with any "interested shareholder" for a period of five years from the
date that such person first became an interested shareholder unless:
(1) the transaction resulting in a person becoming an interested
shareholder was approved by the board of directors of the corporation prior
to that person becoming an interested shareholder; or
(2) the business combination is approved by the holders of a majority of
the outstanding voting stock not beneficially owned by such interested
shareholder; or
(3) the business combination is approved by the disinterested
shareholders at a meeting called no earlier than five years after the
interested shareholder's stock acquisition date; or
(4) the business combination meets certain valuation requirements for
the stock of the New York corporation.
An "interested shareholder" is defined as any person that (a) is the
beneficial owner of 20% or more of the outstanding voting stock of a New York
corporation or (b) is an affiliate or associate of the corporation that at any
time during the prior five years was the beneficial owner, directly or
indirectly, of 20% or more of the then outstanding voting stock.
A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the interested shareholder.
Subject to certain exceptions, an "interested shareholder" is a person who,
together with affiliates and associates, owns, or within five years did own, 20%
or more of the corporation's outstanding voting stock. This statute could
prohibit or delay the accomplishment of mergers or other takeover or change in
control attempts with respect to us and, accordingly, may discourage attempts to
acquire us. These provisions are likely to impose greater restrictions on an
unaffiliated shareholder than on the existing shareholders who will continue to
own a majority of our outstanding common stock after this offering.
The "stock acquisition date," with respect to any person and any New York
corporation, means the date that such person first becomes an interested
shareholder of such corporation.
In addition, some provisions of our certificate of incorporation and bylaws
summarized in the following paragraphs may be deemed to have an anti-takeover
effect and may delay, defer or prevent a tender offer or takeover attempt that a
shareholder might consider in its best interest, including those attempts that
might result in a premium over the market price for the shares held by
shareholders.
BOARD OF DIRECTORS VACANCIES. Our bylaws authorize the board of directors
to fill vacant directorships or increase the size of the board of directors.
This may deter a shareholder from removing incumbent directors and
simultaneously gaining control of the board of directors by filling the
vacancies created by such removal with its own nominees.
ADVANCE NOTICE OF SHAREHOLDER PROPOSALS AND NOMINEES. Our bylaws establish
an advance notice procedure for shareholders to make nominations of candidates
for election as directors or bring other business before any meeting of our
shareholders. The shareholder notice procedure provides that only persons who
are nominated by, or at the direction of, the board, or by a shareholder who has
given timely written notice prior to the meeting at which directors are to be
elected, will be eligible for election as directors and that, at a shareholders'
meeting, only such business may be conducted as has been brought before the
meeting by, or at the direction of, the board of directors or by a shareholder
who has given timely written notice of such shareholder's intention to being
such business before such meeting.
Under the shareholder notice procedure, for notice of shareholder
nominations or other business to be made at a shareholders' meeting to be
timely, such notice must be received by us not less than 60 days prior to the
meeting.
56
<PAGE>
A shareholder's notice to us proposing to nominate a person for election as
a director or proposing other business must contain information specified in the
bylaws, including the identity and address of the nominating shareholder, a
representation that the shareholder is a record holder of our stock entitled to
vote at the meeting and information regarding each proposed nominee or each
proposed matter of business that would be required under the federal securities
laws to be included in a proxy statement soliciting proxies for the proposed
nominee or the proposed matter of business.
The shareholder notice procedure may have the effect of precluding a contest
for the election of directors or the consideration of shareholder proposals if
the proper procedures are not followed, and of discouraging or deterring a third
party from conducting a solicitation of proxies to elect its own slate of
directors or to approve its own proposal, without regard to whether
consideration of such nominees or proposals might be harmful or beneficial to us
and our shareholders.
SPECIAL MEETINGS OF SHAREHOLDERS. Our restated certificate of incorporation
provides that special meetings of shareholders can be only called by a majority
of the board of directors, the Chairman of the Board, the President or the
holders of at least 50% of the outstanding shares of stock entitled to vote at
the meeting.
SHAREHOLDER ACTION. Our restated certificate of incorporation provides that
shareholders may act only at duly called annual or special meetings of
shareholders, not by written consent.
AMENDMENT OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS. Our restated
certificate of incorporation and bylaws require the affirmative vote of at least
two-thirds of our shareholders of our capital stock entitled to vote to amend
certain provisions of the certificate or to amend our bylaws.
AUTHORIZED BUT UNISSUED SHARES. Our authorized but unissued shares of
common stock and preferred stock are available for future issuance without
shareholder approval, subject to certain limitations imposed by the Nasdaq
National Market. These additional shares may be utilized for a variety of
corporate purposes, including future public offerings to raise additional
capital, corporate acquisitions and employee benefit plans. The existence of
authorized but unissued and unreserved common stock and preferred stock could
render more difficult or discourage an attempt to obtain control of us by means
of a proxy contest, tender offer, merger or otherwise.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by the New York Business Corporation Law, our restated
certificate of incorporation provides that a director will not be personally
liable to us or our shareholders for damages for any breach of duty in his or
her capacity as a director unless a judgment or other final adjudication adverse
to such director establishes that (1) his or her acts or omissions were in bad
faith or involved intentional misconduct or a knowing violation of law,
(2) such director personally gained in fact a financial profit or other
advantage to which he or she was not legally entitled or (3) his or her acts
violated Section 719 of the New York Business Corporation Law.
This provision is intended to afford directors protection, and limit their
potential liability, from suits alleging a breach of the duty of care by a
director. We believe this provision will assist us in maintaining and securing
the services of directors who are not employees of NetCreations. As a result of
the inclusion of such a provision, shareholders may be unable to recover
monetary damages against directors for actions taken by them that constitute
negligence or gross negligence or that are in violation of their fiduciary
duties, although it may be possible to obtain injunctive or other equitable
relief with respect to those actions. If equitable remedies are found not to be
available to shareholders for any particular case, shareholders may not have any
effective remedy against the challenged conduct This provision does not affect
the directors' responsibilities, under any other laws, such as the Federal
securities laws or state or Federal environmental laws.
57
<PAGE>
Our restated certificate of incorporation also provides that directors and
officers shall be indemnified against liabilities arising from their service as
directors or officers to the fullest extent permitted by law, which generally
requires that the individual have acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to NetCreations' best interests. No
indemnification may be made to or on behalf of any directors or officers if a
judgment or other final adjudication adverse to him or her established that his
or her acts were committed in bad faith or were the result of active and
deliberate dishonesty and were material to the cause of action so adjudicated,
or that he or she personally gained in fact a financial profit or other
advantage to which he or she was not legally entitled.
New York law provides further that the indemnification permitted under New
York law shall not be deemed exclusive of any other rights to which the
directors and officers may be entitled under our bylaws, any agreement, a vote
of shareholders or otherwise.
We have also entered into agreements to indemnify our directors and
executive officers, in addition to the indemnification provided for in our
bylaws. We believe that these provisions and agreements are necessary to attract
and retain qualified directors and executive officers. Our bylaws also permit us
to secure insurance on behalf of any officer, director, employee or other agent
for any liability arising out of his or her actions, regardless of whether New
York law would permit indemnification. We have obtained directors' and officers'
liability insurance for our officers and directors.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under our restated certificate of incorporation, bylaws,
or any indemnification agreement. We are not aware of any threatened litigation
or proceeding that may result in a claim for such indemnification.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is American Stock
Transfer and Trust Company.
58
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
When the offering is completed, NetCreations will have a total of 15,000,000
shares of common stock outstanding. The 3,300,000 shares offered by this
prospectus will be freely tradable unless they are purchased by "affiliates" of
NetCreations, as defined in Rule 144 under the Securities Act of 1933. The
remaining 11,700,000 shares are "restricted," which means they were originally
sold in offerings that were not subject to a registration statement filed with
the Securities and Exchange Commission. These restricted shares may be resold
only through registration under the Securities Act of 1933 or under an available
exemption from registration, such as provided through Rule 144. Under Rule 144,
all of the restricted shares may be sold subject to applicable volume and other
restrictions, commencing 90 days after the consummation of this offering.
However, the holders of these 11,700,000 shares of common stock have agreed to a
180-day "lock-up" with respect to their shares. This generally means that they
cannot sell these shares during the 180 days following the date of this
prospectus. After the 180-day lock-up period expires, or sooner if earlier
terminated by the underwriters, these shares may be sold in accordance with
Rule 144.
In addition, 232,500 shares are issuable upon exercise of options that have
been granted as of September 14, 1999 and 300,000 shares are issuable upon
exercise of options that have been granted as of October 8, 1999. If any options
are exercised, the shares issued upon exercise will also be restricted, but may
be sold under Rule 144 after the shares have been held for one year. Sales under
Rule 144 may be subject to volume limitations and other conditions.
59
<PAGE>
UNDERWRITING
Subject to the terms and conditions of an underwriting agreement, the
underwriters named below are acting through their representatives, Friedman,
Billings, Ramsey & Co., Inc.; C.E. Unterberg, Towbin; fbr.com, a division of FBR
Investment Services, Inc., which is an affiliate of Friedman, Billings, Ramsey &
Co., Inc.; and Fidelity Capital Markets, a division of National Financial
Services Corporation. The representatives have agreed with us, subject to the
terms and conditions of the underwriting agreement, to purchase from us the
number of shares of common stock shown opposite their names below. Other than
the shares covered by the over-allotment option, the underwriters are obligated
to purchase and accept delivery of all the shares of common stock if any are
purchased.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ----------- ----------------
<S> <C>
Friedman, Billings, Ramsey & Co., Inc.......................
C.E. Unterberg, Towbin......................................
fbr.com, a division of FBR Investment Services, Inc.........
Fidelity Capital Markets, a division of National Financial
Services Corporation......................................
---------
Total............................................... 3,300,000
=========
</TABLE>
The underwriters propose initially to offer the shares of common stock in
part directly to the public at the initial public offering price shown on the
cover page of this prospectus and in part to dealers, including the
underwriters, at this price less a discount not in excess of $ per share.
The underwriters may allow, and such dealers may re-allow other dealers, a
discount not in excess of $ per share.
The following table shows the underwriting discounts and commissions to be
paid to the underwriters by us. These amounts represent the public offering
price per share minus the amount paid by the underwriters per share and are
shown assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares of common stock. The underwriters' compensation was
determined through negotiations between their representatives and us. The table
also includes other expenses we expect to incur in connection with this
offering. All these other expenses, other than the SEC registration fee, the
NASD filing fee and the Nasdaq National Market listing fee are estimates.
<TABLE>
<CAPTION>
EXERCISE NO EXERCISE FULL EXERCISE
- -------- ----------- -------------
<S> <C> <C>
Total underwriting fees.............................. $ $
Underwriting fees per share.................... $ $
Other offering expenses:
SEC registration fee............................... $ 15,985 $ 15,985
NASD filing fee.................................... $ 6,250 $ 6,250
Nasdaq National Market listing fee................. $ 88,500 $ 88,500
Legal fees and expenses............................ $ 600,000 $ 600,000
Accounting fees and expenses....................... $ 350,000 $ 350,000
Printing and engraving............................. $ 400,000 $ 400,000
Blue sky fees and expenses......................... $ 5,000 $ 5,000
Transfer agent fees................................ $ 15,000 $ 15,000
Miscellaneous...................................... $ 19,265 $ 19,265
Total other offering expenses........................ $1,500,000 $1,500,000
Other offering expenses per share.............. $ 0 $ 0
</TABLE>
60
<PAGE>
OVER-ALLOTMENT. The underwriters have an option, exercisable within
30 days after the date of this prospectus, to purchase up to an aggregate of
495,000 additional shares of common stock at the public offering price less the
underwriting discounts and commissions. The underwriters may exercise this
option solely to cover over-allotments, if any, made in this offering. If the
underwriters exercise this option, each underwriter will purchase shares in
approximately the same proportion as indicated in the table above.
INDEMNITY. NetCreations, Rosalind Resnick and Ryan Scott Druckenmiller have
agreed to indemnify the underwriters against some types of liabilities,
including liabilities under the Securities Act provided that the underwriters
will not assert any claim for indemnification against Ms. Resnick or
Mr. Druckenmiller unless NetCreations has failed to so indemnify the
underwriters for any amounts properly due to the underwriters within 365 days of
their request for indemnification. These parties have also agreed to contribute
to payments that the underwriters may be required to make with respect to any of
those liabilities. In addition, we have agreed to make the underwriters insured
parties under our directors and officers insurance policy prior to the
consummation of the offering.
FUTURE SALES. NetCreations, its executive officers, directors and our
existing stockholders, have agreed not to offer, pledge, sell, hedge or
otherwise transfer or dispose of, directly or indirectly, any shares of common
stock or any securities convertible into or exercisable or exchangeable for
common stock for a period of 180 days from the date of this prospectus.
Transfers or dispositions can be made sooner with the prior written consent of
Friedman, Billings, Ramsey & Co., Inc. Such consent may be given at any time
without public notice. During such 180-day period, we have agreed not to file
any registration statement with respect to any shares of our common stock.
OFFERS IN OTHER JURISDICTIONS. Neither we nor the underwriters have taken
any action that would permit a public offering of the shares of common stock
offered by this prospectus in any jurisdiction other than the United States
where action for that purpose is required. The shares of common stock offered by
this prospectus may not be offered or sold, directly or indirectly, nor may this
prospectus or any other offering material or advertisements related to the offer
and sale of these shares of common stock be distributed or published, in any
jurisdiction, except under circumstances that will result in compliance with the
applicable rules and regulations of such jurisdiction. This prospectus is not an
offer to sell or a solicitation of an offer to buy any shares of common stock
offered hereby in any jurisdiction in which such an offer or solicitation is
unlawful.
DISCRETIONARY ACCOUNT SALES. Friedman, Billings, Ramsey & Co., Inc. has
advised us that the underwriters do not expect discretionary sales by the
underwriters to exceed five percent of the shares offered by this prospectus.
DIRECTED SHARE PROGRAM. At our request, the underwriters have reserved up
to 330,000 shares of common stock to be issued by us and offered for sale by
this prospectus, at the initial public offering price, to directors, officers,
employees, business associates and related persons of NetCreations, Inc. The
number of shares of common stock available for sale to the general public will
be reduced to the extent these individuals purchase such reserved shares. Any
reserved shares which are not so purchased will be offered by the underwriters
to the general public on the same basis as the other shares offered by this
prospectus.
INTERNET DISTRIBUTION. fbr.com, a division of FBR Investment Services,
Inc., is acting as an underwriter in this offering. The underwriters have agreed
to allocate a limited number of shares to fbr.com for sale to its online
brokerage account holders and to participants in our directed share program. An
electronic prospectus is available on the Web site maintained by fbr.com. Other
than the prospectus in electronic format, the information on this Web site
relating to this offering is not a part of this prospectus and has not been
approved and/or endorsed by us or any underwriter, and should not be relied upon
by prospective investors.
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<PAGE>
Fidelity Capital Markets, a division of National Financial Services
Corporation, is acting as an underwriter in this offering, and will be
facilitating electronic dissemination of information through the Internet,
intranet and other proprietary electronic technology.
STABILIZATION. In connection with this offering, the underwriters may
engage in transactions on the Nasdaq National Market or the over-the-counter
market or otherwise that stabilize, maintain or otherwise affect the price of
the common stock. Specifically, the underwriters may overallot this offering,
creating a syndicate short position. In addition, the underwriters may bid for
and purchase shares of common stock. In addition, Friedman, Billings Ramsey &
Co., Inc., on behalf of the underwriters, may reclaim selling concessions
allowed to an underwriter or dealer for distributing the common stock in the
offering if the syndicate repurchases previously distributed shares of common
stock to cover syndicate short positions, in stabilizing transactions or
otherwise. These activities may stabilize or maintain the market price of the
common stock above independent market levels. The underwriters are not required
to engage in these activities and may discontinue any of these activities at any
time.
NO PRIOR PUBLIC MARKET. Prior to this offering, there has been no public
market for our common stock. As a result, the initial public offering price for
the common stock will be determined by negotiations between us and the
underwriters. Among the factors to be considered in determining the public
offering price will be:
- prevailing market conditions;
- our results of operations in recent periods;
- the present stage of our development;
- the market capitalizations and development stages of other companies that
we and the underwriters believe to be comparable to us; and
- estimates of our growth potential.
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<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by Greenberg Traurig, a partnership of limited liability entities,
New York, New York. Certain legal matters in connection with this offering will
be passed upon for the underwriters by Fulbright & Jaworski L.L.P., New York,
New York.
EXPERTS
The financial statements as of December 31, 1997 and December 31, 1998 and
for each of the three years in the period ended December 31, 1998 included in
this prospectus have been audited by Grant Thornton LLP, independent certified
public accountants, as stated in their report appearing herein, and are included
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the Securities and
Exchange Commission in connection with this offering. In addition, upon
completion of the offering, we will be required to file annual, quarterly and
current reports, proxy statements and other information with the Securities and
Exchange Commission. You may read and copy the registration statement and any
other documents filed by us at the Securities and Exchange Commission's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call
the Securities and Exchange Commission at 1-800-SEC-0330 for further information
on the Public Reference Room. Our Securities and Exchange Commission filings
will also be available to the public at the Securities and Exchange Commission's
Internet site at www.sec.gov.
This prospectus is part of the registration statement and does not contain
all of the information included in the registration statement. Whenever a
reference is made in this prospectus to any of our contracts or our other
documents, the reference may not be complete and you should refer to the
exhibits that are a part of the registration statement for a copy of the
contract or document.
After the offering, we expect to provide annual reports to our shareholders
containing audited financial statements and quarterly reports for the first
three quarters of each year containing unaudited interim financial information.
63
<PAGE>
INDEX TO
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Certified Public Accountants.......... F-2
Financial Statements:
Balance Sheets............................................ F-3
Statements of Operations.................................. F-4
Statement of Stockholders' Equity......................... F-5
Statements of Cash Flows.................................. F-6
Notes to Financial Statements............................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders of
NETCREATIONS, INC.
We have audited the accompanying balance sheets of NetCreations, Inc. as of
December 31, 1997 and 1998, and the related statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of NetCreations, Inc. as of
December 31, 1997 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998 in conformity
with generally accepted accounting principles.
GRANT THORNTON LLP
New York, New York
June 25, 1999 (except for Notes B-8 and B-9 as to which
the date is September 14, 1999)
F-2
<PAGE>
NETCREATIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
(UNAUDITED)
DECEMBER 31, -----------------------
------------------- PRO FORMA
1997 1998 ACTUAL (NOTE G)
ASSETS -------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Current assets
Cash........................................... $ 54,002 $ 96,885 $ 798,135 $ --
Accounts receivable (net of allowance for
doubtful accounts of $41,000 at
September 30, 1999).......................... 120,739 673,706 2,708,164 2,708,164
Prepaid income taxes........................... 6,317 -- --
Other current assets........................... -- 6,022 16,168 16,168
-------- -------- ---------- ----------
Total current assets....................... 181,058 776,613 3,522,467 2,724,332
Equipment (net of accumulated depreciation and
amortization).................................. 51,960 155,740 385,488 385,488
Deferred offering costs.......................... -- -- 620,637 620,637
Other assets..................................... 471 11,451 47,673 47,673
-------- -------- ---------- ----------
Total assets............................... $233,489 $943,804 $4,576,265 $3,778,130
======== ======== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Borrowings on credit line........................ $ -- $ -- $ 275,000 $ 275,000
Accounts payable and accrued expenses............ 11,158 24,663 583,423 583,423
Commissions payable.............................. 32,902 293,000 2,180,351 2,180,351
Accrued pension.................................. 60,000 60,000 45,000 45,000
Current portion of capital lease obligations..... -- 14,331 82,261 82,261
Income taxes payable............................. -- 12,138 145,487 145,487
Deferred income taxes............................ 8,300 32,500 31,500 123,000
-------- -------- ---------- ----------
Total current liabilities.................. 112,360 436,632 3,343,022 3,434,522
Capital lease obligations........................ -- 30,180 120,249 120,249
-------- -------- ---------- ----------
Total liabilities.......................... 112,360 466,812 3,463,271 3,554,771
Common stock, $.01 par value; 50,000,000 shares
authorized, 11,700,000 issued and
outstanding.................................... 117,000 117,000 117,000 117,000
Additional paid-in capital....................... -- -- 1,395,000 1,481,984
Deferred compensation............................ -- -- (1,375,625) (1,375,625)
Retained earnings................................ 4,129 359,992 976,619 --
-------- -------- ---------- ----------
Total stockholders' equity................. 121,129 476,992 1,112,994 223,359
-------- -------- ---------- ----------
Total liabilities and stockholders'
equity................................... $233,489 $943,804 $4,576,265 $3,778,130
======== ======== ========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-3
<PAGE>
NETCREATIONS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues.................. $ 476,190 $ 1,100,781 $ 3,446,539 $ 2,062,333 $10,202,614
Cost of revenues.............. 43,090 173,124 1,509,776 812,547 4,961,667
----------- ----------- ----------- ----------- -----------
Gross profit............ 433,100 927,657 1,936,763 1,249,786 5,240,947
Operating expenses
Selling and marketing....... 195,451 289,904 492,004 332,164 1,118,883
Technology, support and
development............... 177,923 193,554 373,746 232,429 339,515
General and
administrative............ 60,734 151,307 369,508 268,587 802,869
Depreciation and
amortization.............. 554 9,515 23,414 16,676 79,756
----------- ----------- ----------- ----------- -----------
Total operating
expenses.............. 434,662 644,280 1,258,672 849,856 2,341,023
----------- ----------- ----------- ----------- -----------
Income (loss) before
income tax
provision............. (1,562) 283,377 678,091 399,930 2,899,924
Income tax provision.......... 7,434 23,028 72,228 42,600 302,355
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS)....... $ (8,996) $ 260,349 $ 605,863 $ 357,330 $ 2,597,569
=========== =========== =========== =========== ===========
Basic and diluted net income
(loss) per common share..... $ (0.00) $ 0.02 $ 0.05 $ 0.03 $ 0.22
=========== =========== =========== =========== ===========
Weighted-average common shares
outstanding used for basic
and diluted net income
(loss) per share............ 11,700,000 11,700,000 11,700,000 11,700,000 11,700,000
=========== =========== =========== =========== ===========
Pro forma data (unaudited)
Historical income (loss)
before income tax
provision................. $ (1,562) $ 283,377 $ 678,091 $ 399,930 $ 2,899,924
Pro forma income tax
provision (benefit)....... (1,000) 129,000 316,000 186,000 1,342,000
----------- ----------- ----------- ----------- -----------
Pro forma net income (loss)... $ (562) $ 154,377 $ 362,091 $ 213,930 $ 1,557,924
=========== =========== =========== =========== ===========
Pro forma basic and diluted
net income (loss) per common
share....................... $ (0.00) $ 0.01 $ 0.03 $ 0.02 $ 0.13
=========== =========== =========== =========== ===========
Pro forma weighted-average
common shares outstanding
used for basic and diluted
net income (loss) per
share....................... 11,700,000 11,700,000 11,700,000 11,700,000 11,700,000
=========== =========== =========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-4
<PAGE>
NETCREATIONS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON PAID-IN DEFERRED EARNINGS
STOCK CAPITAL COMPENSATION (DEFICIENCY) TOTAL
-------- ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996.......... 117,000 $ -- -- $ (113,463) $ 3,537
Net loss............................ -- (8,996) (8,996)
------- ---------- ----------- ---------- ----------
Balance at December 31, 1996........ 117,000 -- -- (122,459) (5,459)
Net income.......................... -- 260,349 260,349
S corporation distributions to
shareholders...................... -- (133,761) (133,761)
------- ---------- ----------- ---------- ----------
Balance at December 31, 1997........ 117,000 -- -- 4,129 121,129
Net income.......................... -- 605,863 605,863
S corporation distributions to
shareholders...................... -- (250,000) (250,000)
------- ---------- ----------- ---------- ----------
Balance at December 31, 1998........ 117,000 -- -- 359,992 476,992
Net income (unaudited).............. -- 2,597,569 2,597,569
Grant of stock options
(unaudited)....................... 1,395,000 (1,375,625) 19,375
S corporation distributions to
shareholders (unaudited).......... -- (1,980,942) (1,980,942)
------- ---------- ----------- ---------- ----------
Balance at September 30, 1999
(unaudited)....................... 117,000 $1,395,000 $(1,375,625) $ 976,619 $1,112,994
======= ========== =========== ========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.
F-5
<PAGE>
NETCREATIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------- -----------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
-------- --------- --------- --------- -----------
(UNAUDITED)
Cash flows from operating activities
Net income (loss)....................... $ (8,996) $ 260,349 $ 605,863 $ 357,330 $ 2,597,569
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities
Depreciation and amortization....... 554 9,515 23,414 16,676 79,756
Provision for doubtful accounts..... -- -- 3,613 -- 41,000
Deferred taxes...................... (2,220) 10,520 24,200 -- (1,000)
Equity based expense................ -- -- -- -- 19,375
Changes in assets and liabilities
Accounts receivable............... (13,037) (107,702) (556,580) (230,197) (2,075,458)
Prepaid income taxes.............. -- (6,317) 6,317 -- --
Other current assets.............. -- -- (6,022) -- (10,146)
Other assets...................... (614) 143 (10,980) (11,050) (36,222)
Accounts payable and accrued
expenses........................ 19,665 (8,507) 13,505 33,766 290,759
Commissions payable............... 14,019 18,883 260,098 136,374 1,887,351
Accrued pension................... 30,000 30,000 (15,000) (15,000)
Income taxes payable.............. 1,147 (1,147) 12,138 17,697 133,349
-------- --------- --------- --------- -----------
Net cash provided by operating
activities.................... 40,518 205,737 375,566 305,596 2,911,333
-------- --------- --------- --------- -----------
Cash flows from investing activities
Capital expenditures.................... (11,074) (50,955) (79,422) (59,195) (98,426)
-------- --------- --------- --------- -----------
Net cash used in investing
activities.................... (11,074) (50,955) (79,422) (59,195) (98,426)
-------- --------- --------- --------- -----------
Cash flows from financing activities
Distributions to shareholders........... -- (133,761) (250,000) (150,000) (1,980,942)
Borrowings under line of credit......... -- -- 284,240 -- 275,000
Payments on line of credit.............. -- -- (284,240) --
Payments of offering costs.............. -- -- -- -- (352,637)
Payments on capital lease obligation.... -- -- (3,261) -- (53,078)
-------- --------- --------- --------- -----------
Net cash used in financing
activities.................... (133,761) (253,261) (150,000) (2,111,657)
-------- --------- --------- --------- -----------
NET INCREASE IN CASH............ 29,444 21,021 42,883 96,401 701,250
Cash at beginning of period............... 3,537 32,981 54,002 54,002 96,885
-------- --------- --------- --------- -----------
Cash at end of period..................... $ 32,981 $ 54,002 $ 96,885 $ 150,403 $ 798,135
======== ========= ========= ========= ===========
Supplemental disclosures of cash flow
information:
Cash paid during the period for income
taxes............................... $ 8,500 $ 18,825 $ 28,825 $ 31,062 $ 170,804
======== ========= ========= ========= ===========
Noncash financing activities:
</TABLE>
Capital lease obligations of $47,772, $11,335, and $211,078 during the year
ended December 31, 1998 and the nine months ended September 30, 1998 and 1999,
respectively, were incurred when the Company entered into leases for new
equipment.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-6
<PAGE>
NETCREATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
NOTE A--NATURE OF OPERATIONS
NetCreations, Inc. (the "Company") was incorporated and commenced operations
in 1995. NetCreations, Inc. is a provider of opt-in email marketing services on
the Internet. The Company manages an extensive database of email addresses
gathered from its own and from third-party Web sites. These lists are available
for rental, including list rental, email delivery, and merge/purge. The Company
also maintains a Web site at www.postmasterdirect.com as a vehicle for its
services and another Web site that contains its corporate information at
www.netcreations.com.
The Company's primary revenue source is the rental of opt-in email lists.
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. REVENUE RECOGNITION
The Company recognizes revenue when email messages are transmitted to
selected addresses, net of volume discounts and broker discounts.
2. EQUIPMENT
Equipment is stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, generally
ranging from three to five years. Amortization of assets under capital leases is
computed using the straight-line method over the lesser of the lease term or the
estimated useful lives of the assets, generally three to five years.
3. INCOME TAXES
Deferred tax assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
4. USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in determining the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
5. ADVERTISING
Advertising costs are expensed as incurred. Advertising expense for the
years ended December 31, 1996, 1997 and 1998 amounted to $10,000, $74,000 and
$128,000, respectively.
F-7
<PAGE>
NETCREATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
6. COST OF REVENUES
Cost of revenues consists primarily of commissions to the Web site owners
that are incurred for each emailing to the email addresses owned by the Web
sites.
7. INTERIM FINANCIAL STATEMENTS (UNAUDITED)
Information in the accompanying financial statements for the nine months
ended September 30, 1998 and 1999 is unaudited.
The condensed financial statements as of September 30, 1999 and for the nine
months then ended have been prepared in accordance with generally accepted
accounting principles applicable to interim financial information and the rules
and regulations promulgated by the Securities and Exchange Commission.
Accordingly, such condensed financial statements do not include all of the
information and footnote disclosures required by generally accepted accounting
principles.
In the opinion of the Company's management, the September 30, 1998 and 1999
unaudited condensed interim financial statements include all adjustments,
consisting of normal recurring adjustments necessary for a fair presentation of
such financial statements. The results of operations for the nine months ended
September 30, 1999 are not necessarily indicative of the results to be expected
for the entire year.
8. NET INCOME (LOSS) PER SHARE:
The Company has adopted Statement of Financial Accounting Standards No. 128
("SFAS 128"), "Earnings Per Share," which requires public companies to present
basic net income (loss) per share, and, if applicable, diluted net income (loss)
per share. Basic and diluted net income (loss) per share are included, in
accordance with SFAS No. 128, for all periods presented. Basic net income (loss)
per share is computed by dividing the net income (loss) per share for the period
by the weighted-average number of common shares outstanding during the period.
The weighted average shares have been adjusted retroactively to give effect to a
117,000-to-1 share split effective September 14, 1999. Diluted net income (loss)
per share is computed by dividing the net income (loss) for the period by the
weighted-average number of common shares adjusted for the dilutive effect of any
potential shares issuable outstanding during the period. The Company did not
have any potential common shares outstanding during the periods presented in
these financial statements.
Reference is made to Note G.
9. STOCK SPLIT
On September 14, 1999 the Company effected a 117,000-to-1 stock split. The
accompanying financial statements have been adjusted retroactively to reflect
the stock split.
10. OTHER COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 130 ("SFAS No. 130"), "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for reporting
comprehensive income and its components in financial statements.
F-8
<PAGE>
NETCREATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Other comprehensive income, as defined, includes all changes in equity during a
period from non-owner sources. To date, the Company has not had any transactions
that are required to be reported as other comprehensive income.
11. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"),
"Disclosures About Segments of an Enterprise and Related Information." SFAS
No. 131 establishes standards for the way companies report information about
operating segments in annual financial statements. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. The disclosures prescribed in SFAS No. 131 are effective for the year
ended December 31, 1998. The Company has determined that it operates as one
business segment, a provider of internet marketing services.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging
Activities," which defines derivatives, requires that all derivatives be carried
at fair value, and provides for hedge accounting when certain conditions are
met. SFAS No. 133 is effective for the Company in 2002. Although the Company has
not fully assessed the implications of SFAS No. 133, the Company does not
believe that the adoption of this statement will have a material impact on the
Company's financial position or results of operations.
12. TECHNOLOGY, SUPPORT AND DEVELOPMENT EXPENSES
Technology, support and development costs, which consist principally of
salaries, including that of the Company's Chief Technology Officer, have been
expensed as incurred.
Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use (the SOP) is effective for the Company
beginning with its fiscal year ending December 31, 1999. The adoption of this
SOP had no effect for the period ended September 30, 1999. Costs incurred that
meet the criteria under this SOP will be capitalized prospectively.
NOTE C--EQUIPMENT
Equipment consists of the following:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Computer equipment....................................... $62,029 $177,342
Office equipment......................................... -- 11,881
------- --------
62,029 189,223
Less accumulated depreciation............................ (10,069) (33,483)
------- --------
$51,960 $155,740
======= ========
</TABLE>
Assets under capital lease at December 31, 1998 were $47,772 and related
accumulated amortization was $4,060 at December 31, 1998.
F-9
<PAGE>
NETCREATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
NOTE D--INCOME TAXES
The Company is an S corporation for Federal and state income tax purposes.
Accordingly, no provision has been made for Federal and certain state income
taxes in the accompanying financial statements, since the income of the Company
is included in the personal income tax returns of the stockholders. The Company
is, however, responsible for taxes in jurisdictions which do not recognize
S corporation status (e.g., New York City.) Provision is made for income taxes
relating to these jurisdictions. In addition, the Company files its tax returns
on the cash basis of accounting.
The S corporation status will terminate immediately upon the effective date
of the Initial Public Offering (see Note I-3). The Company will convert to a
C corporation and will be subject to Federal and all applicable state and local
income taxes, prospectively. Any income tax adjustment required as a result of
the conversion will be reflected in the period in which it becomes effective
(see Note G-1).
The components of income tax expense are as follows at December 31:
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Current--state and local.................................... $9,654 $12,508 $48,028
Deferred--state and local................................... (2,220) 10,520 24,200
------ ------- -------
$7,434 $23,028 $72,228
====== ======= =======
</TABLE>
The differences between income tax expense shown in the statements of
operations and the computed income tax expense based on the Federal statutory
corporate rate are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
<S> <C> <C> <C>
1996 1997 1998
------ -------- --------
Computed income tax expense (benefit) based on the Federal
statutory rate of 34%..................................... $ -- $ 96,000 $231,000
State and local income taxes, net of Federal benefit........ 7,434 33,000 80,000
Effect of S corporation..................................... -- (105,972) (238,772)
------ -------- --------
$7,434 $ 23,028 $ 72,228
====== ======== ========
</TABLE>
The significant components of the net deferred tax liability are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
<S> <C> <C>
1997 1998
------- -------
Deferred tax liabilities--current
Accounts receivable and prepaid expenses.................. $13,000 $73,100
Deferred tax assets--current
Accounts payable and accrued expenses..................... (4,700) (40,600)
------- -------
Net deferred tax liability............................ $ 8,300 $32,500
======= =======
</TABLE>
F-10
<PAGE>
NETCREATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
NOTE E--LINE OF CREDIT
The Company had an unused line of credit in the amount of $175,000 at
December 31, 1998.
NOTE F--COMMITMENTS AND CONTINGENCIES
1. CAPITAL LEASE OBLIGATIONS
The annual maturities of capital lease obligations are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C>
1999................................................... $19,856
2000................................................... 19,856
2001................................................... 14,793
-------
54,505
Less amount representing interest...................... (9,994)
-------
Present value of net minimum lease payments including
current portion of $14,331........................... $44,511
=======
</TABLE>
2. OPERATING LEASE COMMITMENTS
The Company leases office space under the terms of operating leases that
expire in 2003. Future minimum payments under noncancellable operating leases
consisted of the following at December 31, 1998:
<TABLE>
<S> <C>
1999................................................... $115,000
2000................................................... 124,000
2001................................................... 124,000
2002................................................... 124,000
2003................................................... 10,000
--------
$497,000
========
</TABLE>
The Company paid $49,600 in rent expense for the year ended December 31,
1998. No rent expense was incurred for the years ended December 31, 1996 and
1997, since the stockholders provided minimum facilities in those years.
3. DEFINED CONTRIBUTION PLAN
In 1996 and 1997, the Company had a money purchase pension and profit
sharing plan for its officers/shareholders. Upon termination, the Company
established a defined contribution plan in 1998 for eligible employees under
Section 401(k) of the Internal Revenue Code. Employees must complete one year of
service to be eligible to participate in the 401(k) plan. In 1996, 1997 and
1998, the Company incurred contribution expenses of $30,000, $60,000 and
$60,000, respectively, relating to these plans.
F-11
<PAGE>
NETCREATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
NOTE G--PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
1. PRO FORMA BALANCE SHEET
The Company intends to make a final S corporation distribution based on
current period earnings to the extent of available cash. Such distribution will
not be paid out of proceeds of the planned IPO. The pro forma balance sheet
reflects adjustments at September 30, 1999 for pro forma S corporation
distributions of $798,135, an additional deferred tax liability of $91,500
resulting from the termination of our S corporation election and the
reclassification of the undistributed retained earnings to additional paid in
capital.
2. PRO FORMA INCOME TAXES
As disclosed in Note A, the Company has elected to be taxed as an
S corporation pursuant to the Internal Revenue Code. Pro forma adjustments in
the statements of operations for each of the three years in the period ended
December 31, 1998 and for the nine months ended September 30, 1998 and 1999,
reflect a pro forma provision for income taxes based upon pre-tax income as if
the Company had been subject to all applicable Federal, state and local income
taxes. As disclosed in Note D, the Company is a cash basis taxpayer.
Accordingly, the pro forma tax provision is calculated assuming that taxes are
reported on a cash basis.
The pro forma provision for income taxes, after giving effect to the Federal
statutory rate of 34% and an applicable state and local tax provision consists
of the following:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -----------------------
1996 1997 1998 1998 1999
-------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
Current
Federal............................... $ 5,000 $ 52,000 $115,000 $ 68,000 $ 816,000
State and local....................... 4,000 33,000 71,000 42,000 542,000
-------- -------- -------- -------- ----------
Total current....................... 9,000 85,000 186,000 110,000 1,358,000
-------- -------- -------- -------- ----------
Deferred
Federal............................... (6,000) 27,000 80,000 47,000 (10,000)
State and local....................... (4,000) 17,000 50,000 29,000 (6,000)
-------- -------- -------- -------- ----------
Total deferred...................... (10,000) 44,000 130,000 76,000 (16,000)
-------- -------- -------- -------- ----------
Total................................... $ (1,000) $129,000 $316,000 $186,000 $1,342,000
======== ======== ======== ======== ==========
</TABLE>
F-12
<PAGE>
NETCREATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
NOTE G--PRO FORMA FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
The differences between pro forma provision for income taxes shown in the
statements of operations and the pro forma computed income tax expense based on
the Federal statutory corporate rate are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ ----------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
------- -------- -------- -------- ----------
Computed income taxes based
on Federal statutory rate of 34%........ $ -- $ 96,000 $231,000 $136,000 $ 986,000
State and local income taxes,
net of Federal benefit.................. (1,000) 33,000 85,000 50,000 356,000
Other..................................... -- -- --
------- -------- -------- -------- ----------
$(1,000) $129,000 $316,000 $186,000 $1,342,000
======= ======== ======== ======== ==========
</TABLE>
The significant components of the pro forma net deferred tax liability,
assuming a 34% Federal statutory rate and an applicable state and local tax
provision are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998 SEPTEMBER 30, 1999
-------- --------- ------------------
<S> <C> <C> <C>
Deferred tax liability--current
Accounts receivable and prepaid expenses............. $ 55,000 $ 309,000 $ 1,275,000
Deferred tax asset--current
Accounts payable and accrued expenses................ (20,000) (172,000) (1,152,000)
-------- --------- -----------
Net deferred tax liability..................... $ 35,000 $ 137,000 $ 123,000
======== ========= ===========
</TABLE>
NOTE H--CONCENTRATIONS
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and trade receivables.
The Company places its cash investments with high quality financial institutions
and does not maintain balances that exceed FDIC-insured limits. Concentrations
of credit risk with respect to trade receivables are limited due to the
Company's large number of customers and their dispersion across many different
industries and countries worldwide. The Company had no significant
concentrations of credit risk. No single customer represented more than 10% of
the Company's revenues during the years ended December 31, 1996, 1997 and 1998.
For the nine months ended September 30, 1999 one reseller accounted for
approximately 11% of net revenues. In addition, net revenues derived from this
reseller as a list owner represented 0.8% of the Company's net revenues for the
nine months ended September 30, 1999. For the year ended December 31, 1998, this
reseller accounted for approximately 7% of net revenues as a reseller and 3.3%
of net revenues as a list owner. In July 1999, the Company terminated its
agreement with this reseller.
F-13
<PAGE>
NETCREATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
NOTE I--SUBSEQUENT EVENTS (UNAUDITED)
1. FINANCING
On June 3, 1999, the Company increased its line of credit to $500,000, of
which $275,000 is outstanding as of September 30, 1999. On November 3, 1999, the
Company further increased its line of credit to $1,300,000, all of which became
outstanding on that date. Reference is made to Note J-6. Borrowings are
guaranteed by the Company's stockholders/officers.
Through September 30, 1999, the Company acquired equipment and obtained
additional equipment financing approximating $260,000.
2. STOCK OPTION PLAN
The Company adopted its 1999 Stock Option Plan (the "Plan") in July 1999.
The Plan provides for the granting of up to 1,170,000 options to directors,
officers, employees and consultants. The Plan provides for the granting of
options intended to qualify as incentive stock options under the Internal
Revenue Code and non-qualified options. The Plan will terminate in July 2009
unless terminated earlier. As of September 14, 1999 the Company granted 232,500
options to officers and employees other than the Company's officer/shareholders
at an exercise price of $5.00 per share. The options vest ratably over a
three-year period and may be accelerated under certain conditions. The officer/
shareholders of the Company did not receive any of the options granted on
September 14, 1999 nor any options or stock based compensation prior to that
date. The Company will recognize compensation expense for any excess of its IPO
price per share over $5.00 over the period of vesting. During the three months
ended September 30, 1999 the Company recorded deferred compensation of
$1,395,000 of which $19,375 was amortized to expense. In addition, the Company
granted, effective October 8, 1999, options to purchase 100,000 shares of common
stock to each of the three non-management directors at an exercise price per
share equal to the lower of $10.00 or the initial public offering price per
share. These options vest at a rate of one-third as of the date of the initial
public offering and the remainder vests quarterly over the next two years and
may be accelerated under certain conditions. The Company will recognize
compensation expense for any excess of its IPO price per share over the exercise
price over the period of vesting. No other options have been granted pursuant to
the Plan. The amount of compensation expense that would be recognized subsequent
to September 30, 1999 over the next four years, relating to the options that
have been granted to date, assuming an offering price of $11.00, is as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C>
1999...................................................... $ 232,917
2000...................................................... 565,000
2001...................................................... 548,333
2002...................................................... 329,375
----------
Total................................................... $1,675,625
==========
</TABLE>
F-14
<PAGE>
NETCREATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
NOTE I--SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
3. INITIAL PUBLIC OFFERING AND DEFERRED OFFERING COSTS
The Company intends to offer shares of its common stock to the general
public through an initial public offering (the "IPO").
In connection with this planned IPO, the Company has deferred offering costs
of $620,637 as of September 30, 1999. These costs will be reflected as a
reduction of the proceeds of the offering. In the event the offering is not
consummated, these costs will be charged to operations.
4. EMPLOYMENT AGREEMENTS
The Company has entered into five employment agreements which expire on
December 31, 2002 with its five executive officers. The agreements provide for,
among other things, aggregate annual compensation of $700,000 and for bonuses
that will be earned upon the achievement of specified goals.
5. PREFERRED STOCK
The Company's restated certificate of incorporation authorizes the board of
directors to issue an aggregate of up to 5,000,000 shares of preferred stock. No
shares of preferred stock have been issued.
6. NEW LIST MANAGEMENT AGREEMENT
On November 3, 1999, the Company entered into a two year email list
management agreement with a third-party Web site. The third-party Web site has
the right to renew the agreement for three successive one-year renewal terms.
Pursuant to such agreement, the Company incurred an obligation to advance to the
third-party website, an aggregate of $5,000,000. The Company paid $1,000,000 of
those advance payments upon signing. The remaining $4,000,000 will be paid as
follows: (1) $2,000,000 on the consummation of the Company's IPO
(2) $1,000,000, on May 3, 2000 and (3) $1,000,000 on November 3, 2000. The
Company is entitled to take credit for the advance payments against fees earned
by the third-party website, payable under the email list management agreement.
The initial advance payment is non-refundable. The remaining $4,000,000 of
advances become non-refundable upon the passage of time, not to extend past two
years.
F-15
<PAGE>
[Inside back cover page]
[Description of Artwork]
Large NetCreations logo graphic.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YOU MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN
THIS PROSPECTUS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR THE SALE OF COMMON
STOCK MEANS THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AFTER THE
DATE OF THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY COMMON STOCK IN ANY CIRCUMSTANCES UNDER WHICH
THE OFFER OR SOLICITATION IS UNLAWFUL.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 8
Cautionary Notice Regarding Forward-
Looking Statements................. 21
Termination of S Corporation
Status............................. 21
Use of Proceeds...................... 22
Dividend Policy...................... 22
Capitalization....................... 23
Dilution............................. 24
Selected Financial Data.............. 25
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 27
Business............................. 37
Management........................... 47
Principal Shareholders............... 53
Description of Capital Stock......... 54
Shares Eligible For Future Sale...... 59
Underwriting......................... 60
Legal Matters........................ 63
Experts.............................. 63
Where You Can Find More Information.. 63
Index To Financial Statements........ F-1
</TABLE>
------------------------
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
THAT BUY, SELL OR TRADE THESE SHARES OF COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
3,300,000 SHARES
[LOGO]
COMMON STOCK
---------------------
PROSPECTUS
---------------------
FRIEDMAN BILLINGS RAMSEY
C.E. UNTERBERG, TOWBIN
FBR.COM
FIDELITY CAPITAL MARKETS
, 1999
- -------------------------------------------
- -------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be paid by the Registrant are as follows. All amounts other
than the SEC registration fee, the NASD filing fee and the Nasdaq National
Market listing fee are estimates.
<TABLE>
<CAPTION>
AMOUNT TO BE
PAID
------------
<S> <C>
SEC registration fee........................................ $ 15,985
NASD filing fee............................................. $ 6,250
Nasdaq National Market listing fee.......................... $ 88,500
Legal fees and expenses..................................... $ 600,000
Accounting fees and expenses................................ $ 350,000
Printing and engraving...................................... $ 400,000
Blue sky fees and expenses (including legal fees)........... $ 5,000
Transfer agent fees......................................... $ 15,000
Miscellaneous............................................... $ 19,265
----------
Total..................................................... $1,500,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The New York Business Corporation Law ("BCL") provides that if a derivative
action is brought against a director or officer of a corporation, the
corporation may indemnify him or her against amounts paid in settlement and
reasonable expenses, including attorneys' fees incurred by him or her, in
connection with the defense or settlement of such action, if such director or
officer acted in good faith for a purpose which he or she reasonably believed to
be in the best interests of the corporation, except that no indemnification
shall be made without court approval in respect of a threatened action, or a
pending action settled or otherwise disposed of, or in respect of any matter as
to which such director or officer has been found liable to the corporation. In a
nonderivative action or threatened action, the BCL provides that a corporation
may indemnify a director or officer against judgments, fines, amounts paid in
settlement and reasonable expenses, including attorneys' fees incurred by him or
her in defending such action, if such director or officer acted in good faith
for a purpose which he or she reasonably believed to be in the best interests of
the corporation.
Under the BCL, a director or officer who is successful, either in a
derivative or nonderivative action, is entitled to indemnification as outlined
above. Under any other circumstances, such director or officer may be
indemnified only if certain conditions specified in the BCL are met. The
indemnification provisions of the BCL are not exclusive of any other rights to
which a director or officer seeking indemnification may be entitled pursuant to
the provisions of the certificate of incorporation or the bylaws of a
corporation or, when authorized by such certificate of incorporation or bylaws,
pursuant to a shareholders' resolution, a directors' resolution or an agreement
providing for such indemnification.
The above is a general summary of certain provisions of the BCL and is
subject, in all cases, to the specific and detailed provisions of Sections
721-725 of the BCL.
Article VII, Section 1 of our bylaws contains provisions requiring
indemnification by NetCreations of our directors and officers against certain
liabilities and expenses which they may incur as directors and officers of
NetCreations or of certain other entities in accordance with Sections 722-723 of
the BCL.
II-1
<PAGE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS (CONTINUED)
Section 726 of the BCL also contains provisions authorizing a corporation to
obtain insurance on behalf of any director and officer against liabilities,
whether or not the corporation would have the power to indemnify against such
liabilities. We maintain insurance coverage under which our directors and
officers are insured, subject to the limits of the policy, against certain
losses, as defined in the policy, arising from claims made against such
directors and officers by reason of any wrongful acts as defined in the policy,
in their respective capacities as directors or officers.
Reference is also made to Section of the Underwriting Agreement, which
provides for the indemnification of officers, directors and controlling persons
of the Registrant against certain liabilities. The indemnification provision in
the Registrant's certificate of incorporation, bylaws and the indemnification
agreements entered into between the Registrant and each of its directors and
executive officers may be sufficiently broad to permit indemnification of the
Registrant's directors and executive officers for liabilities arising under the
Securities Act of 1933.
The Registrant has obtained liability and errors and omissions insurance for
its officers and directors.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere in this prospectus:
<TABLE>
<CAPTION>
DOCUMENT EXHIBIT NUMBER
- -------- --------------
<S> <C>
Underwriting Agreement...................................... 1.1
Form of Amended and Restated Certificate of Incorporation of
Registrant................................................ 3.2
Form of Restated Bylaws of Registrant....................... 3.4
Form of Indemnification Agreement........................... 10.7
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(1) On February 1, 1996, the Registrant issued a total of 100 shares of common
stock to the Registrant's founders for an aggregate consideration of $1,000.
The above securities were offered and sold by the Registrant in reliance
upon exemptions from registration pursuant to either (1) Section 4(2) of the
Securities Act of 1933 as transactions not involving any public offering, or
(2) Rule 701 promulgated under the Securities Act of 1933. No underwriters were
involved in connection with the sales of securities referred to in this Item 15.
(2) Grants and Exercises of Stock Options
The Registrant's 1999 Stock Option Plan (the "Plan") was adopted by the
board of directors in July 1999. The Plan provides for the grant of options to
its directors, officers, employees and certain consultants. The Registrant has
granted options, effective as of September 14, 1999, to purchase 232,500 shares
of its common stock at an exercise price of $5.00 per share. In addition, the
Registrant has granted options, effective as of October 8, 1999, to purchase
100,000 shares of its common stock to each of its three non-management directors
at an exercise price per share equal to the lesser of $10.00 or the initial
public offering price.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
1.1** Form of Underwriting Agreement.
1.1-A Evidences of Directors' and Officers' Liability Insurance
and Specimen Form of Policy
3.1** Certificate of Incorporation.
3.2** Restated Certificate of Incorporation.
3.3** Bylaws.
3.4** Amended and Restated Bylaws.
4.1 Specimen common stock certificate.
5.1 Form of Opinion of Greenberg Traurig.
10.1** Form of Employment Contract of Rosalind Resnick.
10.2** Form of Employment Contract of Ryan Scott Druckenmiller.
10.3** Form of Employment Contract of Gary Sindler.
10.4** Form of Employment Contract of Larry Mahon.
10.5** Form of Employment Contract of Daniel Sweeney.
10.6** NetCreations 1999 Stock Option Plan.
10.7** Form of Indemnification Agreement.
10.8 Form of Registration Rights Agreement.
10.9* Form of Stock Option Agreement.
23.1 Consent of Independent Certified Public Accountants.
23.2 Consent of Greenberg Traurig (included in Exhibit 5.1).
24.1** Powers of Attorney (See Signature Page on Page II-5).
27.1 Financial Data Schedule.
27.2 Financial Data Schedule.
</TABLE>
(b) Financial Statement Schedules.
All financial statement schedules have been omitted because the required
information is not applicable or not present in amounts sufficient to require
submission of the schedule, or because the information required is included in
the financial statements or the notes thereto.
- ------------------------
* To be filed by amendment
** Previously filed.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriter
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities Exchange Commission such
indemnification is against public policy as expressed in the 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
II-3
<PAGE>
ITEM 17. UNDERTAKINGS (CONTINUED)
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424 (b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 4 to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized in New York, New
York, on this 3rd day of November, 1999.
<TABLE>
<S> <C> <C>
NETCREATIONS, INC.
By: /s/ ROSALIND B. RESNICK
-----------------------------------------
Rosalind B. Resnick
Chief Executive Officer and President
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to this Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<C> <S> <C>
Chief Executive Officer,
/s/ ROSALIND B. RESNICK President, Chairman of the
------------------------------------------- Board of Directors, and November 3, 1999
Rosalind B. Resnick Treasurer (Principal
Executive Officer)
* Chief Technology Officer,
------------------------------------------- Vice President, Secretary November 3, 1999
Ryan Scott Druckenmiller and Director
* Chief Financial Officer
------------------------------------------- (Principal Financial and November 3, 1999
Gary Sindler Accounting Officer)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<C> <S> <C>
</TABLE>
<TABLE>
<S> <C> <C> <C>
By: *
------------------------------------- Director November 3, 1999
Michael Levy
By: *
------------------------------------- Director November 3, 1999
Gregory W. Slayton
By: *
------------------------------------- Director November 3, 1999
Mitchell York
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ ROSALIND B. RESNICK
---------------------------------------
Rosalind B. Resnick November 3, 1999
Attorney-in-Fact
</TABLE>
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------
<S> <C>
1.1** Form of Underwriting Agreement.
1.1-A Evidences of Directors' and Officers' Liability Insurance
and Specimen Form of Policy.
3.1** Certificate of Incorporation.
3.2** Restated Certificate of Incorporation.
3.3** Bylaws.
3.4** Amended and Restated Bylaws.
4.1 Specimen common stock certificate.
5.1 Form of Opinion of Greenberg Traurig.
10.1** Form of Employment Contract of Rosalind Resnick.
10.2** Form of Employment Contract of Ryan Scott Druckenmiller.
10.3** Form of Employment Contract of Gary Sindler.
10.4** Form of Employment Contract of Larry Mahon.
10.5** Form of Employment Contract of Daniel Sweeney.
10.6** NetCreations 1999 Stock Option Plan.
10.7** Form of Indemnification Agreement.
10.8 Form of Registration Rights Agreement.
10.9* Form of Stock Option Agreement.
23.1 Consent of Independent Certified Public Accountants.
23.2 Consent of Greenberg Traurig (included in Exhibit 5.1).
24.1** Powers of Attorney (See Signature Page on Page II-5).
27.1 Financial Data Schedule.
27.2 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed.
II-7
<PAGE>
Exhibit 1.1A
[LETTERHEAD OF D & O CONCEPTS, INC.]
Evidence of Insurance
Insured: Mr. Gary Sindler
NetCreations, Inc.
379 West Broadway, Suite 202
New York, New York 10012
Submitted By: Mr. Larry Singer
New Jersey Life & Casualty
354 Eisenhower Parkway
Livingston, NJ 07039
We are please to advise you that, pending the issuance of the applicable
insurance policy, coverage is bound as follows:
================================================================================
Insurance Carrier: Genesis Insurance Company
- --------------------------------------------------------------------------------
Type of Coverage: Directors & Officers Liability
- --------------------------------------------------------------------------------
Binder Number: DOC-2519
- --------------------------------------------------------------------------------
Binder Type: New |X| Renewal |_| Endorsement |_|
- --------------------------------------------------------------------------------
Policy Term: From: 10/8/99 To: 10/8/2000
- --------------------------------------------------------------------------------
Retention / Deductible: $5,000 / $50,000 / $75,000 / $150,000
- --------------------------------------------------------------------------------
Premium: $211,024 Annual Premium inclusive of
Administrative Fee.
- --------------------------------------------------------------------------------
Endorsements/ Exclusions: In accordance with our quote letter dated:
9/2/99 and subsequent fax dated 10/5/99.
- --------------------------------------------------------------------------------
Conditions: Original Genesis application signed and
dated by the President; Final Prospectus
(and any amendment thereto); All SEC and
NASD Comments on the Registration Statement
and responses thereto; Slides from the
presentation to analysts in conjunction with
the initial public offering; Year 2000
Questionnaire; Conference call with the
carrier within thirty days of the effective
date.
================================================================================
Issuance of a policy is contingent upon receipt, review and acceptance of the
aforementioned conditions AND upon receipt by D & O Concepts, Inc., of the
premium due.
As documentation or information is received in satisfaction of the
aforementioned conditions, the underwriter reserves the right to modify or
rescind this temporary binder. Furthermore, this binder and any policy issued
pursuant thereto, are subject to confirmation of no material change in the
information provided in the insured's original application.
If the requested information is not received, reviewed and approved by the
binder expiration date, or if a material change in the original application
information is revealed, then this binder, and any policy issued pursuant
thereto, may become null and void Ab Initio. Extension or modification of any
binder may only be made in writing by D & O Concepts, Inc.
/s/ David A. Ratner
- -------------------------------
By: David A. Ratner, President.
Dated: October 13, 1999
<PAGE>
- --------------------------------------------------------------------------------
ACORD(TM) CERTIFICATE OF LIABILITY INSURANCE DATE (MM/DD/YY)
10/20/99
- --------------------------------------------------------------------------------
PRODUCER
D&O Concepts, Inc.
61 Broadway - Suite 2120
New York, NY 10006
INSURED
NetCreations Inc.
379 West Broadway, Suite 202
New York, New York 10012
THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS
UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AMEND, EXTEND OR ALTER
THE COVERAGE AFFORDED BY THE POLICIES BELOW.
COMPANIES AFFORDING COVERAGE
COMPANY
A Genesis Insurance Company
COMPANY
B
COMPANY
C
COMPANY
D
- --------------------------------------------------------------------------------
COVERAGES
- --------------------------------------------------------------------------------
THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED
TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED, NOTWITHSTANDING ANY
REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO
WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY
THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND
CONDITIONS OF SUCH POLICIES, LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
POLICY POLICY
EFFECTIVE EXPIRATION
CO DATE DATE
LTR TYPE OF INSURANCE POLICY NUMBER (MM/DD/YY) (MM/DD/YY) LIMITS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GENERAL LIABILITY GENERAL AGGREGATE $
|_| COMMERCIAL GENERAL LIABILITY PRODUCTS - COMP/OP AGG $
|_| |_| CLAIMS MADE |_| OCCUR PERSONAL & ADV INJURY $
|_| OWNER'S & CONTRACTOR'S PROT EACH OCCURRENCE $
|_| FIRE DAMAGE (Any one fire) $
|_| MED EXP (Any one person) $
- ------------------------------------------------------------------------------------------------------------------------------------
AUTOMOTIVE LIABILITY COMBINED SINGLE LIMIT $
|_| ANY AUTO
|_| ALL OWNED AUTOS BODILY INJURY $
|_| SCHEDULED AUTOS (Per person)
|_| HIRED AUTOS BODILY INJURY $
|_| NON-OWNED AUTOS (Per accident)
|_| PROPERTY DAMAGE $
|_|
- ------------------------------------------------------------------------------------------------------------------------------------
GARAGE LIABILITY AUTO ONLY - EA ACCIDENT $
|_| ANY AUTO OTHER THAN AUTO ONLY: $
|_| EACH ACCIDENT $
|_| AGGREGATE $
- ------------------------------------------------------------------------------------------------------------------------------------
EXCESS LIABILITY EACH OCCURRENCE $
|_| UMBRELLA FORM AGGREGATE $
|_| OTHER THAN UMBRELLA FORM $
- ------------------------------------------------------------------------------------------------------------------------------------
WORKER'S COMPENSATION AND |_| WC STATUTORY LIMITS |_| OTHER $
EMPLOYEE'S LIABILITY EL EACH ACCIDENT $
THE PROPRIETOR/ |_| INCL EL DISEASE - POLICY LIMIT $
PARTNERS/EXECUTIVE |_| EXCL EL DISEASE - EA EMPLOYEE $
OFFICERS ARE:
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER
Directors & Officers Liability YXB002024 10/8/1999 10/8/2000 $10,000,000/$10,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
DESCRIPTION OF OPERATIONS/LOCATIONS/VEHICLES/SPECIAL ITEMS
- --------------------------------------------------------------------------------
CERTIFICATE HOLDER
- --------------------------------------------------------------------------------
Fidelity Capital Markets
World Trade Center
164 Northern Avenue ZT3
Boston, MA. 00210
- --------------------------------------------------------------------------------
CANCELLATION
- --------------------------------------------------------------------------------
SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION
DATE THEREOF, THE ISSUING COMPANY WILL ENDEAVOR TO MAIL 30 DAYS WRITTEN NOTICE
TO THE CERTIFICATE HOLDER NAMED TO THE LEFT, BUT FAILURE TO MAIL SUCH NOTICE
SHALL IMPOSE NO OBLIGATION OR LIABILITY OF ANY KIND UPON THE COMPANY, ITS AGENTS
OR REPRESENTATIVES.
- --------------------------------------------------------------------------------
AUTHORIZED REPRESENTATIVE
/s/ Donna Griffin 10/20/99
- --------------------------------------------------------------------------------
ACORD 26S(1/95) (C)ACORD CORPORATION 1988
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
ACORD(TM) CERTIFICATE OF LIABILITY INSURANCE DATE (MM/DD/YY)
10/20/99
- --------------------------------------------------------------------------------
PRODUCER
D&O Concepts, Inc.
61 Broadway - Suite 2120
New York, NY 10006
INSURED
NetCreations Inc.
379 West Broadway, Suite 202
New York, New York 10012
THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS
UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AMEND, EXTEND OR ALTER
THE COVERAGE AFFORDED BY THE POLICIES BELOW.
COMPANIES AFFORDING COVERAGE
COMPANY
A Genesis Insurance Company
COMPANY
B
COMPANY
C
COMPANY
D
- --------------------------------------------------------------------------------
COVERAGES
- --------------------------------------------------------------------------------
THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED
TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED, NOTWITHSTANDING ANY
REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO
WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY
THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND
CONDITIONS OF SUCH POLICIES, LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
POLICY POLICY
EFFECTIVE EXPIRATION
CO DATE DATE
LTR TYPE OF INSURANCE POLICY NUMBER (MM/DD/YY) (MM/DD/YY) LIMITS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GENERAL LIABILITY GENERAL AGGREGATE $
|_| COMMERCIAL GENERAL LIABILITY PRODUCTS - COMP/OP AGG $
|_| |_| CLAIMS MADE |_| OCCUR PERSONAL & ADV INJURY $
|_| OWNER'S & CONTRACTOR'S PROT EACH OCCURRENCE $
|_| FIRE DAMAGE (Any one fire) $
|_| MED EXP (Any one person) $
- ------------------------------------------------------------------------------------------------------------------------------------
AUTOMOTIVE LIABILITY COMBINED SINGLE LIMIT $
|_| ANY AUTO
|_| ALL OWNED AUTOS BODILY INJURY $
|_| SCHEDULED AUTOS (Per person)
|_| HIRED AUTOS BODILY INJURY $
|_| NON-OWNED AUTOS (Per accident)
|_| PROPERTY DAMAGE $
|_|
- ------------------------------------------------------------------------------------------------------------------------------------
GARAGE LIABILITY AUTO ONLY - EA ACCIDENT $
|_| ANY AUTO OTHER THAN AUTO ONLY: $
|_| EACH ACCIDENT $
|_| AGGREGATE $
- ------------------------------------------------------------------------------------------------------------------------------------
EXCESS LIABILITY EACH OCCURRENCE $
|_| UMBRELLA FORM AGGREGATE $
|_| OTHER THAN UMBRELLA FORM $
- ------------------------------------------------------------------------------------------------------------------------------------
WORKER'S COMPENSATION AND |_| WC STATUTORY LIMITS |_| OTHER $
EMPLOYEE'S LIABILITY EL EACH ACCIDENT $
THE PROPRIETOR/ |_| INCL EL DISEASE - POLICY LIMIT $
PARTNERS/EXECUTIVE |_| EXCL EL DISEASE - EA EMPLOYEE $
OFFICERS ARE:
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER
Directors & Officers Liability YXB002024 10/8/1999 10/8/2000 $10,000,000/$10,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
DESCRIPTION OF OPERATIONS/LOCATIONS/VEHICLES/SPECIAL ITEMS
- --------------------------------------------------------------------------------
CERTIFICATE HOLDER
- --------------------------------------------------------------------------------
Friedman, Billings, Ramsey & Co., Inc.
1001 19th Street North
Arlington, Virginia 22209
- --------------------------------------------------------------------------------
CANCELLATION
- --------------------------------------------------------------------------------
SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION
DATE THEREOF, THE ISSUING COMPANY WILL ENDEAVOR TO MAIL 30 DAYS WRITTEN NOTICE
TO THE CERTIFICATE HOLDER NAMED TO THE LEFT, BUT FAILURE TO MAIL SUCH NOTICE
SHALL IMPOSE NO OBLIGATION OR LIABILITY OF ANY KIND UPON THE COMPANY, ITS AGENTS
OR REPRESENTATIVES.
- --------------------------------------------------------------------------------
AUTHORIZED REPRESENTATIVE
/s/ Donna Griffin 10/20/99
- --------------------------------------------------------------------------------
ACORD 26S(1/95) (C)ACORD CORPORATION 1988
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
ACORD(TM) CERTIFICATE OF LIABILITY INSURANCE DATE (MM/DD/YY)
10/20/99
- --------------------------------------------------------------------------------
PRODUCER
D&O Concepts, Inc.
61 Broadway - Suite 2120
New York, NY 10006
INSURED
NetCreations Inc.
379 West Broadway, Suite 202
New York, New York 10012
THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS
UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AMEND, EXTEND OR ALTER
THE COVERAGE AFFORDED BY THE POLICIES BELOW.
COMPANIES AFFORDING COVERAGE
COMPANY
A Genesis Insurance Company
COMPANY
B
COMPANY
C
COMPANY
D
- --------------------------------------------------------------------------------
COVERAGES
- --------------------------------------------------------------------------------
THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED
TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED, NOTWITHSTANDING ANY
REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO
WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY
THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND
CONDITIONS OF SUCH POLICIES, LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
POLICY POLICY
EFFECTIVE EXPIRATION
CO DATE DATE
LTR TYPE OF INSURANCE POLICY NUMBER (MM/DD/YY) (MM/DD/YY) LIMITS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GENERAL LIABILITY GENERAL AGGREGATE $
|_| COMMERCIAL GENERAL LIABILITY PRODUCTS - COMP/OP AGG $
|_| |_| CLAIMS MADE |_| OCCUR PERSONAL & ADV INJURY $
|_| OWNER'S & CONTRACTOR'S PROT EACH OCCURRENCE $
|_| FIRE DAMAGE (Any one fire) $
|_| MED EXP (Any one person) $
- ------------------------------------------------------------------------------------------------------------------------------------
AUTOMOTIVE LIABILITY COMBINED SINGLE LIMIT $
|_| ANY AUTO
|_| ALL OWNED AUTOS BODILY INJURY $
|_| SCHEDULED AUTOS (Per person)
|_| HIRED AUTOS BODILY INJURY $
|_| NON-OWNED AUTOS (Per accident)
|_| PROPERTY DAMAGE $
|_|
- ------------------------------------------------------------------------------------------------------------------------------------
GARAGE LIABILITY AUTO ONLY - EA ACCIDENT $
|_| ANY AUTO OTHER THAN AUTO ONLY: $
|_| EACH ACCIDENT $
|_| AGGREGATE $
- ------------------------------------------------------------------------------------------------------------------------------------
EXCESS LIABILITY EACH OCCURRENCE $
|_| UMBRELLA FORM AGGREGATE $
|_| OTHER THAN UMBRELLA FORM $
- ------------------------------------------------------------------------------------------------------------------------------------
WORKER'S COMPENSATION AND |_| WC STATUTORY LIMITS |_| OTHER $
EMPLOYEE'S LIABILITY EL EACH ACCIDENT $
THE PROPRIETOR/ |_| INCL EL DISEASE - POLICY LIMIT $
PARTNERS/EXECUTIVE |_| EXCL EL DISEASE - EA EMPLOYEE $
OFFICERS ARE:
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER
Directors & Officers Liability YXB002024 10/8/1999 10/8/2000 $10,000,000/$10,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
DESCRIPTION OF OPERATIONS/LOCATIONS/VEHICLES/SPECIAL ITEMS
- --------------------------------------------------------------------------------
CERTIFICATE HOLDER
- --------------------------------------------------------------------------------
fbr.com
1001 19th Street North
Arlington, Virginia 22209
- --------------------------------------------------------------------------------
CANCELLATION
- --------------------------------------------------------------------------------
SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION
DATE THEREOF, THE ISSUING COMPANY WILL ENDEAVOR TO MAIL 30 DAYS WRITTEN NOTICE
TO THE CERTIFICATE HOLDER NAMED TO THE LEFT, BUT FAILURE TO MAIL SUCH NOTICE
SHALL IMPOSE NO OBLIGATION OR LIABILITY OF ANY KIND UPON THE COMPANY, ITS AGENTS
OR REPRESENTATIVES.
- --------------------------------------------------------------------------------
AUTHORIZED REPRESENTATIVE
/s/ Donna Griffin 10/20/99
- --------------------------------------------------------------------------------
ACORD 26S(1/95) (C)ACORD CORPORATION 1988
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
ACORD(TM) CERTIFICATE OF LIABILITY INSURANCE DATE (MM/DD/YY)
10/20/99
- --------------------------------------------------------------------------------
PRODUCER
D&O Concepts, Inc.
61 Broadway - Suite 2120
New York, NY 10006
INSURED
NetCreations Inc.
379 West Broadway, Suite 202
New York, New York 10012
THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS
UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AMEND, EXTEND OR ALTER
THE COVERAGE AFFORDED BY THE POLICIES BELOW.
COMPANIES AFFORDING COVERAGE
COMPANY
A Genesis Insurance Company
COMPANY
B
COMPANY
C
COMPANY
D
- --------------------------------------------------------------------------------
COVERAGES
- --------------------------------------------------------------------------------
THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED
TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED, NOTWITHSTANDING ANY
REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO
WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY
THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND
CONDITIONS OF SUCH POLICIES, LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
POLICY POLICY
EFFECTIVE EXPIRATION
CO DATE DATE
LTR TYPE OF INSURANCE POLICY NUMBER (MM/DD/YY) (MM/DD/YY) LIMITS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GENERAL LIABILITY GENERAL AGGREGATE $
|_| COMMERCIAL GENERAL LIABILITY PRODUCTS - COMP/OP AGG $
|_| |_| CLAIMS MADE |_| OCCUR PERSONAL & ADV INJURY $
|_| OWNER'S & CONTRACTOR'S PROT EACH OCCURRENCE $
|_| FIRE DAMAGE (Any one fire) $
|_| MED EXP (Any one person) $
- ------------------------------------------------------------------------------------------------------------------------------------
AUTOMOTIVE LIABILITY COMBINED SINGLE LIMIT $
|_| ANY AUTO
|_| ALL OWNED AUTOS BODILY INJURY $
|_| SCHEDULED AUTOS (Per person)
|_| HIRED AUTOS BODILY INJURY $
|_| NON-OWNED AUTOS (Per accident)
|_| PROPERTY DAMAGE $
|_|
- ------------------------------------------------------------------------------------------------------------------------------------
GARAGE LIABILITY AUTO ONLY - EA ACCIDENT $
|_| ANY AUTO OTHER THAN AUTO ONLY: $
|_| EACH ACCIDENT $
|_| AGGREGATE $
- ------------------------------------------------------------------------------------------------------------------------------------
EXCESS LIABILITY EACH OCCURRENCE $
|_| UMBRELLA FORM AGGREGATE $
|_| OTHER THAN UMBRELLA FORM $
- ------------------------------------------------------------------------------------------------------------------------------------
WORKER'S COMPENSATION AND |_| WC STATUTORY LIMITS |_| OTHER $
EMPLOYEE'S LIABILITY EL EACH ACCIDENT $
THE PROPRIETOR/ |_| INCL EL DISEASE - POLICY LIMIT $
PARTNERS/EXECUTIVE |_| EXCL EL DISEASE - EA EMPLOYEE $
OFFICERS ARE:
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER
Directors & Officers Liability YXB002024 10/8/1999 10/8/2000 $10,000,000/$10,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
DESCRIPTION OF OPERATIONS/LOCATIONS/VEHICLES/SPECIAL ITEMS
- --------------------------------------------------------------------------------
CERTIFICATE HOLDER
- --------------------------------------------------------------------------------
C.E. Unterbeg Towbin
Swiss Bank Tower
10 East 50th Street
New York, New York 10022
- --------------------------------------------------------------------------------
CANCELLATION
- --------------------------------------------------------------------------------
SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION
DATE THEREOF, THE ISSUING COMPANY WILL ENDEAVOR TO MAIL 30 DAYS WRITTEN NOTICE
TO THE CERTIFICATE HOLDER NAMED TO THE LEFT, BUT FAILURE TO MAIL SUCH NOTICE
SHALL IMPOSE NO OBLIGATION OR LIABILITY OF ANY KIND UPON THE COMPANY, ITS AGENTS
OR REPRESENTATIVES.
- --------------------------------------------------------------------------------
AUTHORIZED REPRESENTATIVE
/s/ Donna Griffin 10/20/99
- --------------------------------------------------------------------------------
ACORD 26S(1/95) (C)ACORD CORPORATION 1988
- --------------------------------------------------------------------------------
<PAGE>
SPECIMEN
[LOGO] GENESIS
GENESIS INSURANCE COMPANY
DIRECTORS AND OFFICERS LIABILITY INSURANCE POLICY
DECLARATIONS PAGE
Policy Number:
NOTE: THIS IS A CLAIMS MADE POLICY, PLEASE READ IT CAREFULLY. AMOUNTS INCURRED
AS DEFENSE COSTS SHALL REDUCE THE LIMIT OF LIABILITY AVAILABLE TO PAY
JUDGMENTS OR SETTLEMENTS AND SHALL ALSO BE APPLIED AGAINST THE RETENTION.
THIS POLICY DOES NOT PROVIDE FOR ANY DUTY BY THE INSURER TO DEFEND THOSE
INSURED UNDER THIS POLICY
THIS IS A CLAIMS MADE POLICY, PLEASE READ IT CAREFULLY
ITEM 1. Insured Entity...
Principal Office...
ITEM 2. Policy Period... From: To:
(Both dates at 12:01 a.m. at the Principal Address of the Insured Entity)
ITEM 3. Limit of Liability (inclusive of Defense Costs)
$ Aggregate Limit of Liability for the Policy Year
ITEM 4. Retentions Applicable to Insuring Agreements:
A. For Securities Claims:
1. Defense Costs:
$ Each Director or Officer for each single Securities
Claim under Insuring Agreement Section I.A., and in no
event exceeding
$ for all Directors and Officers under Insuring Agreement
Section I.A. for each single Securities Claim; and
$ for each single Securities Claim to which Insuring
Agreements Sections I.B. or I.C. apply.
2. Settlements end Judgments.
NONE for Settlements and Judgments in Securities Claims
B. For Claims other than Securities Claims:
$ Each Director or Officer for each single Claim under
Insuring Agreement Section I.A., and in no event
exceeding
$ for all Directors and Officers under Insuring Agreement
Section I.A. for each single Claim; and
$ for each single claim to which Insuring Agreement
Section I.B. applies.
ITEM 5. Premium:
$ year pre-paid premium.
ITEM 6. Premium for Discovery Period:
% of the Premium in ITEM 5 above, to be paid only if the eligibility
requirement are met and the Discovery Period option is properly exercised
ITEM 7. Endorsements:
This Policy includes the following attached endorsements, and all other
endorsements issued by the Insurer to be attached hereto after the
issuance of this Policy.
ITEM 8. Notices and Information:
All notices and information required to be provided to the Insurer under
this Policy shall be addressed to: Genesis Insurance Company, 25550
Chagrin Boulevard, Suite 300, Beachwood, Ohio 44122.
These Declarations along with the Application, including all materials submitted
therewith, and the Directors and Officers Liability Insurance Policy, shall
constitute the entire contract between the Directors, Officers, the Company and
the Insurer GENESIS INSURANCE COMPANY.
Date: By ___________________________________
Company Officer or Authorized Agent
<PAGE>
SPECIMEN
[LOGO] GENESIS
GENESIS INSURANCE COMPANY
DIRECTORS AND OFFICERS LIABILITY INSURANCE POLICY
THIS IS A CLAIMS MADE POLICY, PLEASE READ IT CAREFULLY
In consideration of the premium paid and in reliance upon the information
provided in and with the Application, and subject to the terms, conditions and
limitations of this Policy, the Insurer, the Company and the Directors and
Officers agree as follows:
- --------------------------------------------------------------------------------
SECTION I. INSURING AGREEMENTS
- --------------------------------------------------------------------------------
A. The Insurer will pay, on behalf of the Directors and Officers, Loss
arising from Claims first made during the Policy (or Discovery) Period
against the Directors or Officers, individually or collectively, for a
Wrongful Act, except for such Loss which the Company pays to or on behalf
of the Directors and Officers;
B. The Insurer will pay, on behalf of the Company, Loss which the Company is
required to indemnify, or which the Company may legally indemnify, the
Directors or Officers, arising from Claims first made during the Policy
(or Discovery) Period against the Directors or Officers, individually or
collectively, for a Wrongful Act; and
C. The Insurer will pay, on behalf of the Company, Loss arising from
Securities Claims first made against the Company during the Policy (or
Discovery) Period for a Wrongful Act.
- --------------------------------------------------------------------------------
SECTION II. DEFINITIONS
- --------------------------------------------------------------------------------
A. "Claim" shall mean the following proceedings initiated against a Director
or Officer for money damages or other relief, whether brought within or
outside of the United States:
(1) any civil, arbitration or administrative proceeding commenced by:
(a) service of a complaint or similar pleading, or (b) receipt of a
notice of charges;
(2) any criminal proceeding commenced by the return of an indictment or
an information;
(3) any appeal from the above proceedings; or
(4) other written or verbal demand for money or services.
"Claim" shall also mean any of the above-listed proceedings initiated
against a Director, Officer or the Company, which is a Securities Claim,
B. "Company" shall mean the Insured Entity and its Subsidiaries under
Insuring Agreements Sections I.A. and I.B. Under Insuring Agreement
Section I.C., "Company shall mean the Insured Entity only.
C. "Defense Costs" shall mean reasonable and necessary legal fees and
expenses incurred in the investigation and/or defense of any Claim,
including costs of attachment or similar bonds; provided, however, Defense
Costs shall not include salaries, wages, overhead or benefit expenses of
or associated with Directors, Officers, employees of the Company, or the
Company.
D. "Determination of No Liability" shall mean: (1) a final judgment of no
liability in a Securities Claim in favor of all Directors and Officers and
the Company, after the exhaustion of all appeals, or (2) a dismissal of a
Securities Claim without prejudice, and without the payment of any
consideration by the Directors, Officers, and/or the Company.
E. "Directors" and "Officers" shall mean:
1
<PAGE>
SPECIMEN
(1) all past, current or prospective duly elected or appointed directors
and officers of the Company, and their foreign equivalents for
Company operations outside of the United States, including their
estates, heirs, legal representatives or assigns in the event of
their death, incapacity or bankruptcy;
(2) for Securities Claims only, all past, current and future employees
of the Company; and
(3) spouses of duly elected or appointed directors and officers of the
Company, but only for Claims
(i) which are based upon Wrongful Acts of the directors or
officers, and not upon any alleged conduct of a spouse, and
(ii) which are based upon either the legal status as a spouse or
the joint ownership of property between a spouse and a
director or officer.
F. "Loss" shall mean any amounts which the Directors or Officers are legally
obligated to pay, such amounts which the Company is required to indemnify
the Directors or Officers, or such amounts which the Company may legally
indemnify the Directors or Officers, for Claims made against the Directors
or Officers or any amounts which the Company is legally obligated to pay
for Securities Claims made against the Company, in excess of the
applicable Retention, including damages, judgments, orders, Settlements,
and Defense Costs; provided, however, Loss shall not include criminal or
civil fines or penalties imposed by law, multiplied portions of damages in
excess of actual damages, taxes, or any matter which may be deemed
uninsurable under the law pursuant to which this Policy shall be
construed.
G. "Outside Entity" shall mean any nonprofit entity under Section 501(c)(3)
of the Internal Revenue Code of 1986, as amended, for which any of the
Directors or Officers serve as directors or officers with the consent of
the Company.
H. "Policy Period" shall mean the time period from the inception date of this
Policy to the expiration date as stated in Item 2 of the Declarations, or
to its earlier cancellation or termination date.
I. "Securities Claim" means any Claim brought by any person or entity,
directly or derivatively, based upon, arising out of, or attributable to,
the purchase or sale, or offer to purchase or sell, any securities of the
Company, brought by a securities holder of the Company in their capacity
as a securities holder, or brought by the United States Securities and
Exchange Commission.
J. "Settlement" shall mean a compromise of any Claim to which the Insurer has
given its written consent pursuant to Section VI.A.
K. "Subsidiary" shall mean:
(1) any entity in which the Insured Entity owns or at any time owned
more than fifty percent (50%) of the issued and outstanding voting
securities, directly or indirectly, subject to clauses (2) and (3)
below for acquisitions made by the Company during the Policy Period;
(2) any entity in which the Insured Entity acquires more than 50% of the
issued and outstanding voting securities or substantially all of the
assets, directly or indirectly, during the Policy Period, if such
entity's total assets represent less than 20% of the Company's total
assets prior to the acquisition; and
(3) for forty-five (45) days immediately following the acquisition date,
any entity in which the Insured Entity acquires more than 50% of the
issued and outstanding voting securities or substantially all of the
assets, directly or indirectly, during the Policy Period, if such
entity's total assets represent more than 20% of the Company's total
assets prior to the acquisition; provided, however, such entity will
not be considered a Subsidiary or included within the definition of
Company beyond such automatic forty-five (45) day period unless the
Insurer specifically agrees in writing to provide such coverage,
subject to such additional information, coverage terms and premium
as the Insurer may require.
The term "Subsidiary" shall also include any subsidiary of a Subsidiary.
L. "Wrongful Act" shall mean:
(1) under Insuring Agreements Sections I.A. and B., any actual or
alleged act, omission, misstatement, misleading statement, neglect,
error or breach of duty by the Directors or Officers in their
capacity as Directors or
2
<PAGE>
SPECIMEN
Officers of the Company or in their capacity as directors or
officers of an Outside Entity, individually or collectively;
(2) under Insuring Agreement Section I.C., any actual or alleged act,
omission, misstatement, misleading statement, neglect, error or
breach of duty by the Company, or by persons for whose actual or
alleged conduct the Company is legally responsible.
- --------------------------------------------------------------------------------
SECTION III. DISCOVERY PERIOD
- --------------------------------------------------------------------------------
A. If either the Insurer or Insured Entity cancels this Policy pursuant to
Section VIII, or if either the Insurer or Insured Entity chooses to not
renew this Policy, for any reason other than the Company's nonpayment of
premium or non-compliance with the terms of this Policy, then the Insured
Entity shall have the right, upon payment of the additional premium set
forth in Item 6 of the Declarations, to an extension of the Policy Period
for Claims first made during the period of one year after the effective
date of such cancellation or nonrenewal, but only with respect to Wrongful
Acts committed before such effective date and otherwise covered by this
Policy. This one year extension period shall be referred to as the
Discovery Period.
B. The right to purchase the Discovery Period shall terminate unless a
written request for the Discovery Period is provided to the Insurer within
thirty (30) days after the effective date of cancellation or nonrenewal,
together with full payment of the premium for the Discovery Period.
C. Purchase of the Discovery Period shall not in any way increase the Limit
of Liability.
D. The additional premium paid for the Discovery Period shall be fully earned
at its commencement.
- --------------------------------------------------------------------------------
SECTION IV. EXCLUSIONS
- --------------------------------------------------------------------------------
The Insurer shall not be liable to make any payment for Loss in connection with
any Claim:
A. Arising out of, based upon or attributable to the Directors or Officers or
the Company gaining in fact any profit or advantage to which they were not
legally entitled;
B. Arising out of, based upon or attributable to the committing in fact of
deliberate fraudulent, dishonest or criminal acts by the Directors or
Officers, or by employees, agents or representatives of the Company;
C. Which is insured in whole or in part by another valid policy or policies,
including policies issued to an Outside Entity, regardless of whether or
not any Loss arising from such Claim is collectible or recoverable under
such other policy or policies; provided, however, this exclusion shall not
apply to policies which are specifically excess of this Policy by
reference hereto (including the Policy Number);
D. Arising out of, based upon or in any way involving: (1) any Wrongful Act,
or any fact, circumstance or situation which has been the subject of any
notice given prior to the Policy Period under any insurance policy
providing protection for the Directors or Officers or the Company,
including any matter in any way related thereto; or (2) any other Wrongful
Act which has as a common nexus any fact, circumstance, situation, event,
or transaction with any fact, circumstance or situation which has been the
subject of notice as described in clause (1) of this exclusion;
E. For actual or alleged: (1) bodily injury, sickness, disease, or death of
any person, assault, battery, mental anguish, emotional distress, loss of
consortium; (2) damage to or destruction of any tangible property,
including loss of use thereof; or (3) invasion of privacy, wrongful entry,
eviction, false arrest, false imprisonment, malicious prosecution,
defamation or false light, libel or slander;
F. For actual or alleged violations of the Employee Retirement Income
Security Act of 1974, as amended, and regulations promulgated thereunder;
3
<PAGE>
SPECIMEN
G. For any actual or alleged act, omission, misstatement, misleading
statement, neglect, error or breach of duty committed in the capacity as a
director or officer of any entity other than the Company or an Outside
Entity;
H. Arising out of, based upon, or in any way involving, directly or
indirectly:
(1) the actual, alleged or threatened discharge, disposal, migration,
dispersal, release or escape of pollutants, or
(2) any direction, order or request to test for, monitor, remediate,
clean up, remove, contain, treat, detoxify or neutralize pollutants,
or to pay for or contribute to the costs of undertaking such actions
including claims alleging damage to the Company or its shareholders.
Pollutants include (but are not limited to) any solid, liquid, nuclear,
gaseous or thermal irritant or contaminant, including smoke, vapor, soot,
fumes, acids, alkalis, chemicals, organisms or other hazardous substances,
and waste. Waste includes materials to be recycled, reconditioned or
reclaimed;
I. Brought by, at the behest of, or with the assistance or active
participation of, the Insured Entity or a Subsidiary (or any affiliated
person), or any Director or Officer of the Insured Entity or a Subsidiary;
however, this exclusion shall not apply to wrongful termination of
employment actions, shareholder derivative actions which are not brought
by, at the behest of, or with the assistance or active participation of a
Director or Officer of the Insured Entity or a Subsidiary, crossclaims, or
to other claims for contribution or indemnity which are part of or arise
directly from a Claim;
J. Arising out of, based upon, or in any way involving actual or alleged
conduct in the capacity as a director, officer or employee of any
Subsidiary, which actual or alleged conduct occurred prior to or after the
time period when such subject entity was a Subsidiary of the Insured
Entity;
K. Which is indemnified by an Outside Entity.
NOTE: THE ACTUAL OR ALLEGED CONDUCT OF ANY DIRECTOR, OFFICER OR THE COMPANY
SHALL NOT BE IMPUTED TO ANY OTHER DIRECTOR OR OFFICER FOR THE PURPOSE OF
DETERMINING THE APPLICABILITY OF THE ABOVE EXCLUSIONS.
- --------------------------------------------------------------------------------
SECTION V. LIMIT OF LIABILITY, RETENTIONS, ALLOCATION
- --------------------------------------------------------------------------------
A. The Insurer shall be liable to pay one hundred percent (100%) of covered
Loss in excess of the applicable Retention up to the Limit of Liability
stated in Item 3 of the Declarations. The Limit of Liability is the
Insurer's maximum aggregate limit of liability for all Loss under all of
the Insuring Agreements combined, arising out of all Claims first made
during the Policy Period and Discovery Period (if applicable), regardless
of the time of payment by the insurer.
B. Defense Costs shall be part of and not in addition to the Limit of
Liability, and such Defense Costs shall reduce the Limit of Liability and
shall also be applied against the Retention.
C. More than one Claim based upon or arising out of the same Wrongful Act(s),
or facts, circumstances or situations, or one or more series of similar,
repeated or continuous Wrongful Acts, shall be considered a single Claim,
and only one Retention shall be applicable to such single Claim. Such
single Claim shall be deemed to be first made on the date when the
earliest Claim is first made, or on the date within the Policy Period in
which notice of a potential Claim pursuant to Section VII.B. is given.
D. One Retention amount shall apply to the covered portion of each and every
single Claim. In the event a single Claim is covered under more than one
Insuring Agreement, the Retentions stated in Item 4 of the Declarations
shall be applied separately to the portion of the Claim covered by each
Insuring Agreement, and the sum of the Retentions so applied shall
constitute the Retention for each single Claim, which in total shall not
exceed the largest of the applicable Retentions. Notwithstanding other
Policy provisions, for purposes of determining the applicable
Retention(s), the Retentions applicable to Insuring Agreement Section I.B.
shall apply to Claims made against Directors or Officers, and
indemnification (including advancement of defense costs) by the Company
will be presumed to be required or permissible, whenever indemnification
is legally permissible under the broadest
Form No. GIC-7418 (9/97) 4
<PAGE>
SPECIMEN
applicable laws, regardless of whether the Company has agreed in its
by-laws or otherwise to provide such Indemnification, unless
indemnification cannot be provided due to financial insolvency.
E. Notwithstanding the foregoing provisions of Section V, the Retention(s)
applicable to Securities Claims shall apply only to Defense Costs.
Further, no Retention shall apply in the event of a Determination of No
Liability in a Securities Claim, in which event the Insurer shall
reimburse any Defense Costs paid by the Directors and Officers or the
Company within the Retention amount. Such reimbursement shall be made
within sixty (60) days of the Determination of No Liability, only if:
(1) the subject Securities Claim, or another Claim which would be
treated as a single Claim with the subject Securities Claim under
Section V.C., is not brought or refiled within such sixty (60) day
period;
(2) the Determination of No Liability is not challenged by motion or
appeal within such sixty (60) day period; and
(3) only with respect to a dismissal of or stipulation to dismiss a
Securities Claim without prejudice, the Company provides a written
undertaking satisfactory to the Insurer which states that such
reimbursement shall be returned to the Insurer if the subject
Securities Claim, or another Securities Claim which would be treated
as a single Claim with the subject Securities Claim under Section
V.C., is brought or refiled after the sixty (60) day period.
F. The Company is not covered under Insuring Agreement Section I.A.; the
Company is covered, subject to the Policy's terms and conditions, only
with respect to Indemnification of Directors or Officers under Insuring
Agreement Section I.B. for Claims made against the Directors and Officers;
but the Company is covered, subject to the Policy's terms and conditions,
under Insuring Agreement Section I.C. for Securities Claims made against
the Company. Accordingly, the Insurer has no obligation under this Policy
for defense fees and costs incurred by, judgments against or settlements
by the Company arising out of any Claims or other actions in which the
Company is a party other than a covered Securities Claim, nor any
obligation to pay any amount arising out of any legal liability that the
Company has except with respect to covered Securities Claims against the
Company.
G. If both Loss covered by this Policy and other loss are incurred, either
because a Claim includes both covered and non-covered matters, or because
a Claim is made against both covered and non-covered parties, then the
Directors, Officers, the Company and the Insurer agree to use their best
efforts to determine a fair and proper allocation of all such amounts. In
making such determination, the parties shall take into account the
relative legal and financial exposures, and the relative benefits obtained
in connection with the defense and/or settlement, of and between the
covered and non-covered parties and matters involved in the Claim. In the
event the parties cannot agree to an appropriate allocation percentage for
the Claim, then the Insurer shall be obligated to make an Interim payment
of the amount of Loss, including Defense Costs, which the parties agree is
not in dispute until a final allocation is agreed upon or determined
pursuant to the terms of this Policy.
- --------------------------------------------------------------------------------
SECTION VI. DEFENSE COSTS AND SETTLEMENTS
- --------------------------------------------------------------------------------
A. The Directors, Officers and the Company shall not admit liability for or
settle any Claim, or incur Defense Costs in connection with any Claim,
without the Insurer's prior written consent, which consent shall not be
unreasonably withheld. The Insurer shall be entitled to full information
and all particulars it may request in order to reach a decision as to such
consent. Any Defense Costs incurred, and/or settlements or judgments
agreed to prior to the Insurer's consent thereto shall not be covered by
this Policy.
B. The Insurer shall, upon request, advance Defense Costs prior to the final
disposition of a Claim, subject to an allocation, if any, determined in
accordance with Sections V.F. and V.G., and subject further to prior
satisfaction of the applicable Retention. Any agreement by the Insurer to
advance Defense Costs shall be on the condition that the parties for whom
the Defense Costs are advanced provide a written undertaking satisfactory
to the Insurer which states that in the event it is finally established
that the Insurer has no liability under the Policy to the Directors,
Officers or the Company, or any of them separately, for such Claim, they
agree to repay to the Insurer upon demand all Defense Costs advanced on
their behalf.
C. It shall be the duty of the Directors, Officers and the Company and not
the duty of the Insurer to defend Claims, and the Directors, Officers and
the Company shall obtain the consent of the Insurer as to the choice of
defense counsel, which consent shall not be unreasonably withheld. The
Insurer shall at all times have the right, but not
Form No. GIC-7418 (9/97) 5
<PAGE>
SPECIMEN
the duty, to associate in the investigation, defense or Settlement of any
Claim that appears reasonably likely to involve the Insurer.
D. The Directors, Officers and the Company shall give the Insurer such
information, assistance arid cooperation as the Insurer reasonably
requests, including furnishing the Insurer with copies of reports,
investigations, pleadings and any other information requested by the
Insurer in connection therewith.
E. The Insurer shall have the right but not the obligation to make any
investigation it deems expedient with respect to a Claim and, with the
consent of the Company or the person(s) against whom the Claim is made,
make Settlement within the available Limit of Liability (whether above or
below the applicable Retention).
- --------------------------------------------------------------------------------
SECTION VII. NOTICE OF CLAIMS AND POTENTIAL CLAIMS
- --------------------------------------------------------------------------------
A. The Directors, Officers and/or the Company shall give the Insurer written
notice as soon as practicable of any Claim first made during the Policy
(or Discovery) Period, and in no event later than thirty (30) days after
the expiration of the Policy (or Discovery) Period, and, for Claims deemed
to be first made during the Policy Period under Section VII.B., within
sixty (60) days from when such Claims are made.
B. If, prior to the effective date of the expiration of the Policy Period,
the Directors, Officers or the Company first become aware of circumstances
which may subsequently give rise to a Claim, and the Directors, Officers
or the Company as soon as practicable during the Policy Period give
written notice to the Insurer of the circumstances and the reasons for
anticipating a Claim, then any Claim subsequently made based upon such
circumstances (of which the Insurer receives proper notice under Section
VII.A.) shall be deemed for the purposes of this Policy to have been first
made during the Policy Period; provided, however, as a condition precedent
for any coverage to arise hereunder, such notice must be specific and
contain full particulars as to the facts and circumstances potentially
giving rise to the Claim, including a narrative setting forth dates, names
of the potential plaintiffs and affected Directors or Officers, names of
other parties involved, the nature and scope of the anticipated Claim, and
all reasons why such a Claim is reasonably to be anticipated.
- --------------------------------------------------------------------------------
SECTION VIII. GENERAL CONDITIONS
- --------------------------------------------------------------------------------
A. CANCELLATION OR NON-RENEWAL
(1) By acceptance of this Policy, the Company and the Directors and
Officers hereby confer the exclusive power and authority to cancel
this Policy to the Insured Entity. The Insured Entity may cancel
this Policy by surrender thereof to the Insurer, or by mailing to
the Insurer written notice stating when thereafter such cancellation
shall be effective. The mailing of such notice shall be sufficient
notice and the effective date of cancellation stated in the notice
shall become the end of the Policy Period. Delivery of such written
notice shall be equivalent to mailing.
(2) This Policy may be canceled by the Insurer by mailing to the Insured
Entity written notice stating when, not less than sixty (60) days
thereafter, such cancellation shall be effective. The mailing of
such notice shall be sufficient notice and the effective date of
cancellation stated in the notice shall become the end of the Policy
Period. Delivery of such written notice by the Insurer shall be
equivalent to mailing.
(3) If this Policy is canceled by the Insured Entity, the Insurer shall
retain the customary short rate portion of the premium. If this
Policy is canceled by or on behalf of the Insurer, the Insurer shall
retain the pro-rata portion of the premium. Payment or tender of any
unearned premium by the Insurer shall not be a condition precedent
to the effectiveness of cancellation, but such payment shall be made
as soon as practicable.
(4) If the Insurer elects not to renew this Policy, the Insurer shall
provide the Insured Entity with no less than sixty (60) days advance
notice thereof, unless any of the events described in Section
VIII.B. occur.
B. SUBSEQUENT MAJOR EVENTS
If in the event of:
(1) the acquisition by another entity or persons of the Insured Entity,
a majority of its voting securities, or substantially all of its
assets;
(2) the merger or consolidation of the Insured Entity into or with
another entity such that the Insured Entity is
Form No. GIC-7418 (9/97) 6
<PAGE>
SPECIMEN
(not the surviving entity; or
(3) the appointment of a receiver, liquidator, conservator, trustee or
similar official with respect to the Insured Entity;
then the Policy will remain in effect until the end of the Policy Period
as stated in Item 2 of the Declarations, but only with respect to Wrongful
Acts occurring prior to such acquisition, merger, consolidation or
appointment. Further, the premium will be considered fully earned upon the
occurrence of any of the above events in consideration of the coverage
extended.
C. REPRESENTATIONS
It is agreed that the information and statements contained in the
Application for this Policy, a copy of which is attached hereto, and any
materials submitted therewith (which are on file with the Insurer and
shall be deemed to be attached to and part of the Application as if
physically attached hereto), are the basis of this Policy and are to be
considered as incorporated into and constituting a part of this Policy.
By acceptance of this Policy the Directors and Officers and the Company
agree:
(1) That the statements in the Application and in any materials
submitted therewith are their representations, that they shall be
deemed material to the acceptance of the risk or hazard assumed by
the Insurer under this Policy, and that this Policy is issued in
reliance upon the truth of such representations; and
(2) That in the event that the Application, including materials
submitted therewith, contains misrepresentations made with the
actual intent to deceive, or contain misrepresentations which
materially affect either the acceptance of the risk or the hazard
assumed by the Insurer under this Policy, no coverage shall be
afforded under this Policy (including under Insuring Agreement
Section I.B.) for any Director or Officer who did not sign the
Application but who knew on the inception date of this Policy the
facts that were so misrepresented, and this Policy in its entirety
shall be void and of no effect whatsoever if such misrepresentations
were known to be untrue on the inception date of the Policy by one
or more of the individuals who signed the Application.
D. ACTION AGAINST THE INSURER
(1) No action shall be taken against the Insurer unless, as a condition
precedent thereto, there shall have been full compliance with all
terms of this Policy, and until the Directors', Officers' or the
Company's obligation to pay shall have been finally determined,
either by an adjudication or by written agreement of the Directors,
Officers, and/or the Company, and the Insurer.
(2) No persons or entities shall have any right under this Policy to
join the Insurer as a party to any Claim, nor shall the Insurer be
impleaded by the Directors, Officers, or the Company or their legal
representatives in any Claim.
E. SUBROGATION
In the event of any payment under this Policy, the Insurer shall be
subrogated to any of the Directors', Officers' and the Company's rights to
recovery thereof. The Directors or Officers and the Company shall execute
all papers required and shall do everything that may be necessary to
secure or transfer such rights, including the execution of such documents
as may be necessary to enable the Insurer to effectively bring suit in the
name of any Director, Officer or the Company. The Insurer shall not
exercise these rights of subrogation against a Director or Officer with
respect to Loss excluded by Section IV.B., however, unless such individual
has been judicially determined to have committed deliberate fraudulent,
dishonest or criminal acts.
F. ASSIGNMENT
Assignment of interest under this Policy shall not bind the Insurer unless
its consent is endorsed hereon.
G. CONFORMITY TO STATUTE
Form No. GIC-7418 (9/97) 7
<PAGE>
SPECIMEN
Any terms of this Policy which are in conflict with the terms of any
applicable laws construing this Policy, including any endorsement to this
Policy which is required by any state Department of Insurance (or
equivalent authority) ("State Amendatory Endorsement"), are hereby amended
to conform to such laws. Nothing herein shall be construed to restrict the
terms of any State Amendatory Endorsement. In addition, to the extent
permissible by law, nothing in any State Amendatory Endorsement shall be
construed to restrict the terms of this Policy.
H. ENTIRE AGREEMENT
By acceptance of this Policy, the Directors, Officers and the Company and
the Insurer agree that this Policy (including the Application and any
materials submitted therewith) and any written endorsements attached
hereto constitute the entire agreement between the parties.
I. CHANGES
Notice to any agent or knowledge possessed by any agent or other person
acting on behalf of the Insurer shall not effect a waiver or a change in
any part of this Policy or stop the Insurer from asserting any right under
the terms of this Policy. This Policy cannot be waived or changed, except
by written endorsement issued to form a part of this Policy.
Form No. GIC-7418 (9/97) 8
<PAGE>
[LOGO] GENESIS INSURANCE COMPANY
ADDITION TO SECTION IV EXCLUSIONS
Policy Number:
Endorsement Number:
It is understood and agreed that Section IV. of the Policy is hereby amended by
the addition of the following exclusion L. to said Section:
L. Arising from or in any way involving any pending or prior litigation or
administrative proceeding as of _____________, as well as all future
claims or litigation based upon the pending or prior litigation or derived
from the same or essentially the same facts (actual or alleged) that gave
rise to the prior or pending litigation.
Nothing herein contained shall be held to vary, alter, waive or extend any of
the terms, conditions, provisions, agreements or limitations of the above
mentioned Policy other than as above stated.
Date: By: /s/ Michael Zartman
--------------------------------------
Company Officer or Authorized Agent
<PAGE>
[LOGO] GENESIS INSURANCE COMPANY
GENERAL LIMITATION OF COVERAGE
PAYMENTS/DISBURSEMENTS EXCLUSION
Policy Number:
It is understood and agreed that the Insurer shall not be liable to make any
payment for Loss based upon or attributable to or arising out of.
(1) payments, commissions, gratuities, benefits or any other favors to or for
the benefit of any full or part-time domestic or foreign governmental or
armed services officials, agents, representatives, employees or any
members of their family or any entity with which they are affiliated; or
(2) payments, commissions, gratuities, benefits or any other favors to or for
the benefit of any full or part-time officials, directors, agents,
partners, representatives, principal shareholders, or owners or employees
of affiliates (as the term in defined in the Securities Exchange Act of
1934), including any of their officers, directors, agents, owners,
partners, representatives, principal shareholders or employees of any
customers of the Company or any members of their family or any entity with
which they are affiliated; or
(3) political contribution, whether domestic or foreign
Nothing herein contained shall be held to vary, alter, waive or extend any of
the terms, conditions, provisions, agreements or limitations of the above
mentioned Policy other than as above stated.
Date: By: /s/ Michael Zartman
--------------------------------------
Company Officer or Authorized Agent
<PAGE>
[LOGO] GENESIS INSURANCE COMPANY
PAST ACTS EXCLUSION
Policy Number:
It is understood and agreed that the Insurer shall not be liable to make any
payment for Loss based upon or attributable to or arising out of any actual or
alleged Wrongful Acts which occurred before _____________.
LIMITATION OF COVERAGE
This endorsement restricts your Policy so that coverage applies only to Claims
made during the Policy Period, or the Discovery Period if exercised, but only
for Wrongful Acts which occurred on or after _________.
Date: By: /s/ Michael Zartman
--------------------------------------
Company Officer or Authorized Agent
<PAGE>
[LOGO] GENESIS INSURANCE COMPANY
DIRECTORS AND OFFICERS LIABILITY INSURANCE
NEW YORK MANDATORY DISCLOSURE FORM
Policy Number:
Endorsement Number:
IMPORTANT NOTICE TO APPLICANTS AND POLICYHOLDERS
THIS DISCLOSURE FORM IS FOR INFORMATIONAL PURPOSES ONLY, IT IS NOT YOUR POLICY.
THE STATE OF NEW YORK INSURANCE DEPARTMENT REQUIRES THAT THIS DISCLOSURE BE
ATTACHED TO EVERY CLAIMS-MADE LIABILITY INSURANCE POLICY APPLICATION AND
DECLARATIONS PAGE. PLEASE READ YOUR POLICY CAREFULLY TO DETERMINE RIGHTS,
DUTIES, AND WHAT IS AND IS NOT COVERED. ONLY THE PROVISIONS OF YOUR POLICY
DETERMINE THE SCOPE OF YOUR INSURANCE PROTECTION.
THIS POLICY IS WRITTEN ON A CLAIMS-MADE BASIS.
It will provide no coverage for claims arising out of incidents,
occurrences or alleged wrongful acts which took place prior to the
retroactive date stated in the policy.
The policy will cover only claims actually made against the insured while
the policy remains in effect and all coverage under the policy ceases upon
the termination of the policy, except for the automatic extended reporting
period coverage required by applicable law or regulation, unless the
insured purchases additional extended reporting period coverage.
The automatic extended reporting period will be for 60 days and the
additional extended reporting period (DISCOVERY PERIOD) will be for one
year at a cost of 100% of the policy's annual premium. If an extended
reporting period is not purchased, the insured risks having gaps in
coverage when switching from one company to another. Moreover, even if
such reporting period is purchased, the insured may still be personally
liable for claims reported after the period expires.
According to the Insurance Department, during the first several years of
the claims-made relationship, claims-made rates are comparatively lower
than occurrence rates, and the insured can expect substantial annual
premium increases, independent of overall rate level increases, until the
claims-made relationship matures.
Date: By: /s/ Michael Zartman
--------------------------------------
Company Officer or Authorized Agent
<PAGE>
[LOGO] GENESIS INSURANCE COMPANY
DIRECTORS AND OFFICERS LIABILITY INSURANCE
NEW YORK MANDATORY DISCLOSURE FORM
Policy Number:
Endorsement Number:
IMPORTANT NOTICE TO APPLICANTS AND POLICYHOLDERS
THIS DISCLOSURE FORM IS FOR INFORMATIONAL PURPOSES ONLY, IT IS NOT YOUR POLICY.
THE STATE OF NEW YORK INSURANCE DEPARTMENT REQUIRES THAT THIS DISCLOSURE BE
ATTACHED TO EVERY CLAIMS-MADE LIABILITY INSURANCE POLICY APPLICATION AND
DECLARATIONS PAGE. PLEASE READ YOUR POLICY CAREFULLY TO DETERMINE RIGHTS,
DUTIES, AND WHAT IS AND IS NOT COVERED. ONLY THE PROVISIONS OF YOUR POLICY
DETERMINE THE SCOPE OF YOUR INSURANCE PROTECTION.
THIS POLICY IS WRITTEN ON A CLAIMS-MADE BASIS.
It will provide no coverage for claims arising out of incidents,
occurrences or alleged wrongful acts which took place prior to the
retroactive date stated in the policy.
The policy will cover only claims actually made against the insured while
the policy remains in effect and all coverage under the policy ceases upon
the termination of the policy, except for the automatic extended reporting
period coverage required by applicable law or regulation, unless the
insured purchases additional extended reporting period coverage.
The automatic extended reporting period will be for 60 days and the
additional extended reporting period (DISCOVERY PERIOD) will be for one
year at a cost of 100% of the policy's annual premium. If an extended
reporting period is not purchased, the insured risks having gaps in
coverage when switching from one company to another. Moreover, even if
such reporting period is purchased, the insured may still be personally
liable for claims reported after the period expires.
According to the Insurance Department, during the first several years of
the claims-made relationship, claims-made rates are comparatively lower
than occurrence rates, and the insured can expect substantial annual
premium increases, independent of overall rate level increases, until the
claims-made relationship matures.
Date: By: /s/ Michael Zartman
--------------------------------------
Company Officer or Authorized Agent
<PAGE>
[LOGO] GENESIS INSURANCE COMPANY
DIRECTORS AND OFFICERS LIABILITY INSURANCE
NEW YORK MANDATORY ENDORSEMENT
Policy Number:
Endorsement Number:
IMPORTANT NOTICE TO POLICYHOLDERS
THE STATE OF NEW YORK INSURANCE DEPARTMENT REQUIRES THAT THE FOLLOWING NOTICE BE
ENDORSED ON THIS LIABILITY INSURANCE POLICY.
NOTICE: The limits of liability contained in this Policy shall be reduced, and
may be completely exhausted by legal defense costs and, to the extent that
policy limits are thereby exceeded, the INSURER shall not be liable for legal
defense costs or for the amount of any judgment or settlement.
LIMITATION OF COVERAGE
By signing this endorsement form, the Directors and Officers acknowledge that
they are aware this policy's defense cost offset provisions significantly limit
coverage under the Policy.
- ----------------------------- -------------------------------------
Date Signature (Title)
Nothing herein contained shall be held to vary, alter, waive or extend any of
the terms, conditions, provisions, agreements or limitations of the above
mentioned Policy other than as above stated.
Date: By: /s/ Michael Zartman
--------------------------------------
Company Officer or Authorized Agent
<PAGE>
[LOGO] GENESIS INSURANCE COMPANY
DIRECTORS AND OFFICERS LIABILITY INSURANCE
NEW YORK MANDATORY ENDORSEMENT
Policy Number:
Endorsement Number:
IMPORTANT NOTICE TO POLICYHOLDERS
THE STATE OF NEW YORK INSURANCE DEPARTMENT REQUIRES THAT THE FOLLOWING NOTICE BE
ENDORSED ON THIS LIABILITY INSURANCE POLICY.
NOTICE: The limits of liability contained in this Policy shall be reduced, and
may be completely exhausted by legal defense costs and, to the extent that
policy limits are thereby exceeded, the INSURER shall not be liable for legal
defense costs or for the amount of any judgment or settlement.
LIMITATION OF COVERAGE
By signing this endorsement form, the Directors and Officers acknowledge that
they are aware this policy's defense cost offset provisions significantly limit
coverage under the Policy.
- ----------------------------- -------------------------------------
Date Signature (Title)
Nothing herein contained shall be held to vary, alter, waive or extend any of
the terms, conditions, provisions, agreements or limitations of the above
mentioned Policy other than as above stated.
Date: By: /s/ Michael Zartman
--------------------------------------
Company Officer or Authorized Agent
<PAGE>
[LOGO] GENESIS INSURANCE COMPANY
DIRECTORS AND OFFICERS LIABILITY INSURANCE
NEW YORK AMENDATORY ENDORSEMENT
Policy Number:
Endorsement Number:
SECTION VIII. A. (2), (3), and (4), under the section entitled "GENERAL
CONDITIONS," is hereby deleted and the following is substituted into the Policy:
SECTION VIII. GENERAL CONDITIONS
A. CANCELLATION OR NON-RENEWAL
(2) If this Policy has been in effect for sixty (60) days or less, this
Policy may be canceled by the Insurer by mailing or delivering to
the entity named in Item 1 of the Declarations, at the address shown
on the Policy, and to its authorized agent or broker, written notice
stating when, not less then twenty (20) days thereafter (except for
the bases for cancellation set forth in paragraphs (a), (b) or (c)
hereof), such cancellation shall be effective. After this Policy has
been in effect for more than sixty (60) days, or on or after the
effective date if this Policy is a renewal, this Policy may be
canceled by the Insurer by mailing or delivering to the entity named
in Item 1 of the Declarations, at the address shown on the Policy,
and to its authorized agent or broker, written notice stating when,
not less than fifteen (15) days thereafter such cancellation shall
become effective, and stating one of the following reasons:
(a) nonpayment of premium;
(b) conviction of a crime arising out of acts increasing the
hazard insured against;
(c) discovery of fraud or material misrepresentation in the
obtaining of the Policy or in the presentation of a claim
thereunder;
(d) after issuance of the Policy or after the last renewal date,
discovery of an act or omission, or a violation of any Policy
condition that substantially and materially increases the
hazard insured against, and which occurred subsequent to the
inception of the current Policy Period;
(e) material change in the nature or extent of the risk, occurring
after issuance or last annual renewal anniversary date of the
Policy, which causes the risk of loss to be substantially and
materially increased beyond that contemplated at the time the
Policy was issued or last renewed;
(f) a determination by the Superintendent that continuation of the
present premium volume of the Insurer would jeopardize that
Insurer's solvency or be hazardous to the interest of
policyholders of the Insurer, its creditors or the public;
(g) a determination by the Superintendent that the continuation of
the Policy would violate, or would place the Insurer in
violation of, any provision of the applicable Insurance Laws;
(h) revocation or suspension of the Insured's license to practice
his or its profession;
(i) with respect to excess liability policies, cancellation of one
or more of the underlying policies providing primary or
intermediate coverage, where (i) such cancellation is based
upon any bases set forth above, and (ii) such policies are not
replaced without lapse.
<PAGE>
[LOGO] GENESIS INSURANCE COMPANY
DIRECTORS AND OFFICERS LIABILITY INSURANCE
NEW YORK AMENDATORY ENDORSEMENT
Policy Number:
Endorsement Number:
SECTION VIII. A. (2), (3), and (4), under the section entitled "GENERAL
CONDITIONS," is hereby deleted and the following is substituted into the Policy:
SECTION VIII. GENERAL CONDITIONS
A. CANCELLATION OR NON-RENEWAL
(2) If this Policy has been in effect for sixty (60) days or less, this
Policy may be canceled by the Insurer by mailing or delivering to
the entity named in Item 1 of the Declarations, at the address shown
on the Policy, and to its authorized agent or broker, written notice
stating when, not less then twenty (20) days thereafter (except for
the bases for cancellation set forth in paragraphs (a), (b) or (c)
hereof), such cancellation shall be effective. After this Policy has
been in effect for more than sixty (60) days, or on or after the
effective date if this Policy is a renewal, this Policy may be
canceled by the Insurer by mailing or delivering to the entity named
in Item 1 of the Declarations, at the address shown on the Policy,
and to its authorized agent or broker, written notice stating when,
not less than fifteen (15) days thereafter such cancellation shall
become effective, and stating one of the following reasons:
(a) nonpayment of premium;
(b) conviction of a crime arising out of acts increasing the
hazard insured against;
(c) discovery of fraud or material misrepresentation in the
obtaining of the Policy or in the presentation of a claim
thereunder;
(d) after issuance of the Policy or after the last renewal date,
discovery of an act or omission, or a violation of any Policy
condition that substantially and materially increases the
hazard insured against, and which occurred subsequent to the
inception of the current Policy Period;
(e) material change in the nature or extent of the risk, occurring
after issuance or last annual renewal anniversary date of the
Policy, which causes the risk of loss to be substantially and
materially increased beyond that contemplated at the time the
Policy was issued or last renewed;
(f) a determination by the Superintendent that continuation of the
present premium volume of the Insurer would jeopardize that
Insurer's solvency or be hazardous to the interest of
policyholders of the Insurer, its creditors or the public;
(g) a determination by the Superintendent that the continuation of
the Policy would violate, or would place the Insurer in
violation of, any provision of the applicable Insurance Laws;
(h) revocation or suspension of the Insured's license to practice
his or its profession;
(i) with respect to excess liability policies, cancellation of one
or more of the underlying policies providing primary or
intermediate coverage, where (i) such cancellation is based
upon any bases set forth above, and (ii) such policies are not
replaced without lapse.
<PAGE>
The effective date of cancellation stated in the notice shall become
the end of the Policy Period.
(3) If this Policy shall be canceled by the entity named in item 1 of
the Declarations, the Insurer shall retain the customary short rate
portion of the premium. If this Policy shall be canceled by or on
behalf of the Insurer, the Insurer shall retain the pro-rate portion
of the premium. Payment or tender of any return premium due the
Insured shall be made as soon as practicable on or after the
effective date of the cancellation; any return premium due the
Insured shall be credited toward the premium for the Discovery
Period if the Insured elects that coverage.
(4) if the Insurer intends (a) not to renew this Policy, or (b) to
condition the renewal of this Policy upon change of limits, type of
coverage, reduction of coverage, increased retention or addition of
exclusions, or increased premium in excess of ten (10) percent
(exclusive of any premium increase generated as a result of
increased exposure units, or as a result of experience rating, loss
rating, retrospective rating or audit), the Insurer shall mail or
deliver to the entity named in Item 1 of the Declarations, at the
address shown on the Policy, and to its authorized agent or broker,
written notice not less than sixty (60) days (or thirty (30) days
for an excess Policy or policy issued to a jumbo risk) nor more than
one hundred twenty (120) days prior to the expiration of the Policy
Period, stating with specificity the reasons for the action or,
alternatively, advising that the Insurer intends to take one of the
two actions and that a second notice shall be mailed or delivered at
a later date indicating the Insurer's intent; in such case, and in
the event of a late nonrenewal or conditional renewal notice
coverage shall continue on the same terms, conditions, and rates as
the expiring Policy until the later of the expiration of the Policy
Period or sixty (60) days (after the mailing or delivery of the
notice), except to the extent that prior thereto the entity named in
Item 1 of the Declarations replaces coverage, elects to cancel
(whereas cancellation shall be on a pro-rata basis), or renew on the
basis of the conditional renewal notice (where notice was provided
at least thirty (30) days prior to the expiration of the Policy
Period). The notice shall also contain, if applicable, the amount of
any premium increase (or a reasonable estimate), and describe any
other proposed changes. With respect to an excess liability policy,
the Insurer may condition its renewal upon requirements relating to
the underlying coverage, in which event the conditional renewal
notice shall be treated as an effective notice of nonrenewal if such
requirements are not satisfied as of the expiration of the Policy
Period or within sixty (60) days after mailing or delivery of the
notice. Any notice hereunder shall not be required if the broker, or
another insurer of the entity named in Item 1 of the Declarations
mails or delivers written notice to the Insurer that the Policy has
been replaced or is no longer desired.
SECTION VIII. A. (6), under the section entitled "GENERAL CONDITIONS," is hereby
added to the Policy as follows:
(6) Every notice mailed or delivered by the Insurer pursuant to Section
VII. A. shall advise the entity named in Item 1 of the Declarations,
or its authorized agent or broker, of the availability of loss
information upon written request; the Insurer shall mail or deliver
such information as is required by applicable law within twenty (20)
days of its receipt of the request.
Nothing herein contained shall be held to vary, alter, waive or extend any of
the terms, conditions, provisions, agreements or limitations of the above
mentioned Policy other than as above stated.
Date: By: /s/ Michael Zartman
--------------------------------------
Company Officer or Authorized Agent
<PAGE>
The effective date of cancellation stated in the notice shall become
the end of the Policy Period.
(3) If this Policy shall be canceled by the entity named in item 1 of
the Declarations, the Insurer shall retain the customary short rate
portion of the premium. If this Policy shall be canceled by or on
behalf of the Insurer, the Insurer shall retain the pro-rate portion
of the premium. Payment or tender of any return premium due the
Insured shall be made as soon as practicable on or after the
effective date of the cancellation; any return premium due the
Insured shall be credited toward the premium for the Discovery
Period if the Insured elects that coverage.
(4) if the Insurer intends (a) not to renew this Policy, or (b) to
condition the renewal of this Policy upon change of limits, type of
coverage, reduction of coverage, increased retention or addition of
exclusions, or increased premium in excess of ten (10) percent
(exclusive of any premium increase generated as a result of
increased exposure units, or as a result of experience rating, loss
rating, retrospective rating or audit), the Insurer shall mail or
deliver to the entity named in Item 1 of the Declarations, at the
address shown on the Policy, and to its authorized agent or broker,
written notice not less than sixty (60) days (or thirty (30) days
for an excess Policy or policy issued to a jumbo risk) nor more than
one hundred twenty (120) days prior to the expiration of the Policy
Period, stating with specificity the reasons for the action or,
alternatively, advising that the Insurer intends to take one of the
two actions and that a second notice shall be mailed or delivered at
a later date indicating the Insurer's intent; in such case, and in
the event of a late nonrenewal or conditional renewal notice
coverage shall continue on the same terms, conditions, and rates as
the expiring Policy until the later of the expiration of the Policy
Period or sixty (60) days (after the mailing or delivery of the
notice), except to the extent that prior thereto the entity named in
Item 1 of the Declarations replaces coverage, elects to cancel
(whereas cancellation shall be on a pro-rata basis), or renew on the
basis of the conditional renewal notice (where notice was provided
at least thirty (30) days prior to the expiration of the Policy
Period). The notice shall also contain, if applicable, the amount of
any premium increase (or a reasonable estimate), and describe any
other proposed changes. With respect to an excess liability policy,
the Insurer may condition its renewal upon requirements relating to
the underlying coverage, in which event the conditional renewal
notice shall be treated as an effective notice of nonrenewal if such
requirements are not satisfied as of the expiration of the Policy
Period or within sixty (60) days after mailing or delivery of the
notice. Any notice hereunder shall not be required if the broker, or
another insurer of the entity named in Item 1 of the Declarations
mails or delivers written notice to the Insurer that the Policy has
been replaced or is no longer desired.
SECTION VIII. A. (6), under the section entitled "GENERAL CONDITIONS," is hereby
added to the Policy as follows:
(6) Every notice mailed or delivered by the Insurer pursuant to Section
VII. A. shall advise the entity named in Item 1 of the Declarations,
or its authorized agent or broker, of the availability of loss
information upon written request; the Insurer shall mail or deliver
such information as is required by applicable law within twenty (20)
days of its receipt of the request.
Nothing herein contained shall be held to vary, alter, waive or extend any of
the terms, conditions, provisions, agreements or limitations of the above
mentioned Policy other than as above stated.
Date: By: /s/ Michael Zartman
--------------------------------------
Company Officer or Authorized Agent
<PAGE>
[LOGO] GENESIS INSURANCE COMPANY
ADDITION TO SECTION VII
GENERAL CONDITIONS
Policy Number:
Endorsement Number:
It is hereby understood and agreed that Section VIII. of the Policy is amended
by the addition of the following paragraph L:
L. OFFERING UNDERWRITER COVERAGE
(1) It is hereby understood and agreed that Section I, under the title
"INSURING AGREEMENTS," is amended by the addition of the following:
C. With the Company, that if during the Policy Period or the
Discovery Period (if applicable), any Securities Claim is
first made against the Company for a Wrongful Act, the Insurer
will reimburse the Company:
(i) for all Loss in excess of the applicable Retention
amount stated in Item 4 of the Declarations which the
Company shall be legally obligated to pay; and
(ii) for amounts which the Company pays to or on behalf of
the Offering Underwriter as indemnification pursuant to
the terms and conditions of the Underwriting Agreement
in excess of the applicable Retention amount stated in
Item 4 of the Declarations and not exceeding the Limit
of Liability specified in Section V. A.
(2) It is hereby understood and agreed that Section II, under the title
"DEFINITIONS," is amended by the addition of the following:
Offering Underwriter shall mean______.
Underwriting Agreement shall mean the agreement entered into
between the Company and the Offering Underwriter.
Determination of No Liability shall mean, solely with respect
to a Securities Claim: (1) a final judgment of no liability in
favor of all Directors and Officers and the Company, after the
exhaustion of all appeals, or (2) a dismissal or stipulation
to dismiss a Securities Claim with prejudice, and without the
payment of any consideration by the Directors, Officers,
Company and/or the Offering Underwriter.
Settlement shall mean a compromise of any Claim against the
Directors and Officers, the Company, and the Offering
Underwriter to which the insurer has given its written consent
pursuant to Section VI. A. Solely with respect to the coverage
provided under Section I. C. (ii), Settlement shall mean a
compromise or release of the indemnity obligation provided in
the Underwriting Agreement between the Company and the
Offering Underwriter.
(3) It is hereby understood and agreed that Section V., under the title
"LIMIT OF LIABILITY, RETENTIONS, ALLOCATION," is amended by the
addition of the following:
<PAGE>
H. This Policy shall also provide a sublimit of Liability of Two
Million Dollars ($2,000,000) for amounts paid by the insurer
to the Company under Insuring Agreement I.C. (ii). The maximum
amounts paid by the insurer to the Company under Insuring
Agreement I.C.(ii) during the Policy Period will not in any
event exceed the sublimit of Liability of $2,000,000.
Nothing herein contained shall be held to vary, alter, waive or extend any of
the terms, conditions, provisions, agreements or limitations of the above
mentioned Policy other than as above stated.
Date: By: /s/ Michael Zartman
--------------------------------------
Company Officer or Authorized Agent
<PAGE>
Exhibit 4.1
NETCREATIONS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF NEW YORK
50,000 Shares of Common Stock Authorized Par Value $.01 per share
CUSIP
THIS CERTIFIES THAT
is the registered holder of
transferable only on the books of the Corporation by the holder hereof in
person or by Attorney upon surrender of this Certificate properly endorsed.
This Certificate is not valid unless countersigned by the Transfer Agent and
registered by the Registrar.
Witness the facsimile signature of its duly authorized officers, and the
facsimile seal of the corporation hereunto official.
Dated
- -------------------------------- -------------------------------------
Secretary President and Chief Executive Officer
AUTHORIZED SIGNATURES
COUNTERSIGNED AND REGISTERED
AMERICAN STOCK TRANSFER & TRUST COMPANY
(NEW YORK, NY)
TRANSFER AGENT AND REGISTRAR
<PAGE>
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUEST A STATEMENT OF POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR
SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH
PREFERENCES AND/OR RIGHTS.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C> <C> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- Custodian
TEN ENT -- as tenants by the entities ---------------- ------------------
IT TEN -- as joint tenant with right of (CUST) (MINOR)
survivorship and not as tenants under Uniform Gifts to Minors
in common Act
-------------------------
(GIFT)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _____________________ HEREBY SELL, ASSIGN AND TRANSFER UNTO
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
/ /
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SHARES REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY AND IRREVOCABLY
CONSTITUTE AND APPOINT
--------------------------------------------------------
- -------------------------------------------------------------------------------
ATTORNEY TO TRANSFER THE SAID SHARES ON THE BOOKS OF THE WITHIN-NAMED
CORPORATION WITH FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED,
--------------------------
----------------------------------------
IN PRESENCE OF
- ---------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
<PAGE>
EXHIBIT 5.1
November __, 1999
NetCreations, Inc.
379 West Broadway, Suite 202
New York, New York 10012
Re: REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
We have acted as counsel to NetCreations, Inc., a New York corporation
(the "Company"), in connection with the preparation of a Registration Statement
on Form S-1 (the "Registration Statement") to be filed under the Securities Act
of 1933, as amended (the "Securities Act"), covering up to (i) 3,300,000 shares
(the "Initial Shares") of the Company's common stock, par value $0.01 per share
("Common Stock"), and (ii) 495,000 additional shares (together with the Initial
Shares, the "Shares") of Common Stock to cover over-allotment, if any, by the
Company to the underwriters, which are being registered in connection with the
Company's initial public offering.
In connection with this opinion, we have examined the Registration
Statement, the Company's Restated Certificate of Incorporation, its Amended and
Restated By-laws, the records of the proceedings and actions of the Board of
Directors of the Company in respect of these transactions, and such other
documents and records as we have deemed relevant. In our examinations, we have
assumed the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, and the conformity with the originals of all
documents submitted to us as copies. In addition, we have made such other
examinations of law and of fact as we have deemed appropriate in order to form a
basis for the opinion hereinafter expressed.
We have been informed by the Company that the Shares will be
transferred or issued, and the certificates evidencing the same will be duly
delivered, against receipt of the consideration stipulated therefor, which will
not be less than the par value of the Shares.
Based on the foregoing, we are of the opinion that the Shares have been
duly authorized and, when transferred or issued, delivered and paid for in
accordance with the foregoing assumptions, will be validly issued, fully paid
and non-assessable.
<PAGE>
NetCreations, Inc.
Registration Statement on Form S-1
November __, 1999
Page 2
The opinion set forth above is limited to the New York Business
Corporation Law, as amended.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus forming a pert of the Registration Statement.
In giving this opinion and consent, we do not thereby admit that we are acting
within the category of persons whose consent is required under Section 7 of the
Securities Act, or the rules and regulations of the Securities and Exchange
Commission promulgated thereunder.
Very truly yours,
/s/ GREENBERG TRAURIG
A Partnership of Limited Liabilities Entities
<PAGE>
Exhibit 10.8
REGISTRATION RIGHTS AGREEMENT
This Agreement is made as of September 14, 1999, by and among
NetCreations, Inc. (the "Company"), a New York corporation having its principal
address at 379 West Broadway, Suite 202, New York, NY 10012, and Rosalind B.
Resnick and Ryan Scott Druckenmiller, each of 47 Joralemon St., Brooklyn, NY
11201 (together, the "Holders").
RECITALS
WHEREAS, the Holders are the principal shareholders of the Company; and
WHEREAS, without being legally bound to do so, the Company has
expressed its willingness to register with the Commission (as defined below)
under the Securities Act (as defined below) upon any of the Holders' request any
or all of their shares of Common Stock at any time following one hundred and
eighty (180) days after the closing of its initial public offering;
NOW, THEREFORE, in consideration of the premises and mutual agreements
set forth herein, the Company and the Holders agree as follows:
Section 1. DEFINITIONS. As used in this Agreement, the following terms
shall have the following meanings:
(a) "Commission" shall mean the U. S. Securities and Exchange
Commission, or any other federal agency at the time administering the Securities
Act.
(b) "Common Stock" shall mean shares of the Company's Common
Stock, par value $0.01 per share.
(c) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations thereunder, as the same shall be in
effect at the time.
(d) "Register," "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement, and compliance with applicable
state securities laws of such states in which any of the Holders notifies the
Company of his intention to offer Registrable Securities.
(e) "Registrable Securities" shall mean the shares of the Common
Stock held by the Holders. Such securities shall cease to be Registrable
Securities when (i) a registration statement with respect to the sale of such
securities shall have become effective under the Securities Act and such
securities shall have been disposed of under such registration statement, (ii)
such securities shall have become eligible for resale pursuant to Rule 144(k)
and any restrictive legend on certificates representing such securities shall
have been removed, (iii) such securities shall have been otherwise transferred
or disposed of, and (x) new certificates therefor
<PAGE>
not bearing a legend restricting further transfer shall have been delivered by
the Company, and (y) subsequent transfer or disposition of them shall not
require their registration or qualification under the Securities Act or any
similar state law then in force or compliance with Rule 144, or (iv) such
securities shall have ceased to be outstanding. Notwithstanding the foregoing,
Registrable Securities shall not include otherwise Registrable Securities (i)
sold by a person in a transaction in which his rights under this Agreement are
not properly assigned; or (ii) (A) sold to or through a broker or dealer or
underwriter in a public distribution or a public securities transaction, or (B)
sold in a transaction exempt from the registration and prospectus delivery
requirements of the Securities Act under Section 4(1) thereof so that all
transfer restrictions, and restrictive legends with respect thereto, if any, are
removed upon the consummation of such sale or (C) the registration rights
associated with such securities have been terminated pursuant to Section 13 of
this Agreement.
(f) "Rule 144" shall mean Rule 144 promulgated under the
Securities Act or any successor or similar rule as may be enacted by the
Commission from time to time.
(g) "Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations thereunder, as the same shall be in
effect at the time
Section 2. RESTRICTIONS ON TRANSFERABILITY.
The Registrable Securities may not be sold, assigned,
transferred or pledged except in compliance with the terms and conditions of
this Agreement. At such time as the Registrable Securities cease to be
Registrable Securities under the terms of this Agreement, the provisions of this
Agreement shall no longer apply to the shares of Common Stock that theretofore
were Registrable Securities.
Section 3. RESTRICTIVE LEGEND. Each certificate representing
Registrable Securities shall (unless other permitted by the provisions of
Section 4 below) be stamped or otherwise imprinted with a legend substantially
in the following form (in addition to any legend required under applicable state
securities laws or otherwise):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THESE SHARES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT. COPIES OF THE AGREEMENTS
COVERING THE RIGHTS TO REGISTER THESE SHARES MAY BE OBTAINED
AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF
THIS CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE
PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION.
The Holders consent to the Company making a notation on its records and giving
instructions to any transfer agent of the Registrable Securities in order to
implement the restrictions on transfer established in this Agreement.
2
<PAGE>
Section 4. NOTICE AND OTHER REQUIREMENT OF TRANSFER. None of the
Holders will make any sale, assignment, transfer, pledge or other disposition of
all or any portion of any Registrable Securities unless and until:
(a) The intended sale, assignment, transfer, pledge or other
disposition is permitted;
(b) There is in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement; or
(c) As an alternative to Section 4(b), (i) such Holder has
notified the Company of the proposed disposition and has furnished the Company
with a detailed statement of the circumstances surrounding the proposed
disposition, including the name and address of the purchaser and identifying the
Registrable Securities with respect to which such rights are being assigned, and
(ii) the purchaser, as a condition to the effectiveness of such assignment, has
executed a counterpart of this Agreement agreeing to be treated as a Holder
hereunder; and, if the Company reasonably requests, such Holder shall also
furnish the Company with an opinion of U.S. counsel, reasonably satisfactory to
the Company, that such disposition does not require registration of such shares
under the Securities Act (save that the Company acknowledges and confirms that
no such opinion shall be necessary in respect of any transfer to any spouse,
lineal descendant or family trust of such Holder).
Section 5. DEMAND REGISTRATION. (a) At any time following
one hundred and eighty (180) days following the closing of the Company's initial
public offering and, for the purposes of this Section 5(a) only, in no event on
more than three (3) occasions, any Holder may require the Company to file a
registration statement under the Securities Act for a public offering of any or
all of such Holder's Registrable Securities to be lead managed by an underwriter
designated by such demanding Holder and reasonably acceptable to the Company by
delivering written notice thereof to the Company specifying the number of
Registrable Securities to be included in such registration and the intended
method of distribution thereof (the "Demand Request"); provided that the Demand
Request for registration pursuant to this Section 5(a) shall relate to the
intention to dispose of not less than ten percent (10%) of the Registrable
Securities then owned by such Holder or permitted successors or assigns. The
Company shall, within ten (10) days after receipt, give written notice ("Notice
of Demand Request") of such Demand Request to the other Holder. Thereupon, the
Company shall prepare and file with the Commission as promptly as practicable
following the receipt of the Demand Request, and in any event within forty-five
(45) days thereafter, a registration statement covering, and shall use its best
efforts to effect the registration under the Securities Act, the Registrable
Securities included in the Demand Request and all other Registrable Securities
as to which the other Holder shall have made a written request to the Company
for registration thereof within ten (10) days after the transmittal of such
Notice of Demand Request, all to the extent necessary to permit the sale or
other disposition by such Holder of such Registrable Securities. Any Holder that
has made a Demand Request may, at any time prior to the sale of its Registrable
Securities, revoke such
3
<PAGE>
Holder Request by providing a written notice to the Company revoking such
request. In the event of such a revocation, no Holder Request shall be deemed to
have been given for the purpose of this Section 5(a); provided, however, that in
the event of such a revocation, the Holder shall not make a Holder Request for a
period of ninety (90) days following such revocation.
(b) The Company's obligation pursuant to Section 5(a) above are subject
to the following limitations and conditions: (i) the Company shall not be
obligated to fulfill the requirements or file the registration statement
referred to therein (A) during any period of time (not to exceed ninety (90)
days in the aggregate with respect to each request) when the Company has
determined to proceed with a public offering and, in the good faith judgment of
the managing underwriter, the fulfillment of such requirement or such filing
would have an adverse effect on such offering; provided that no Holder Request
shall be deemed to have been given for the purpose of Section 5(a) above or (B)
during the ninety (90) period following the effectiveness of any previous
registration statement (the periods of time referred to in sub-clauses (A) and
(B) hereof being hereinafter referred to as "Blackout Periods"); provided, that
the aggregate period of time during which the Company shall be relieved from its
obligation to file such a registration statement pursuant to this clause (i)
shall in no event exceed ninety (90) consecutive days with respect to each
request; provided, further, that, in the case of a Blackout Period pursuant to
sub-clause (i)(A) above, the Blackout Period shall earlier terminate upon the
completion or abandonment of the relevant public offering; and (ii) the
aggregate number of days included in all Blackout Periods during any consecutive
twelve (12) months shall not exceed one hundred and eighty (180) days.
(c) The Company may elect to include in any registration statement
filed pursuant to this Section 5 any authorized but unissued shares of Common
Stock and the Company shall not, without the prior written consent of the
demanding Holders include in any such registration statement any other
securities (other than Registrable Securities); provided, that such inclusion
shall be permitted only to the extent that it is pursuant to and subject to the
terms of any underwriting agreement or arrangements entered into by the
demanding Holder whose Registrable Securities are also included therein.
Section 6. PIGGYBACK REGISTRATION. (a) If at any time or from time to
time, the Company shall determine to register any shares Common Stock for its
own account or the account of any of its shareholders, other than: (i) a
transaction relating solely to the sale of convertible debt instruments; or (ii)
a registration on Form S-4 or S-8 or another form not available for registering
the Registrable Securities for sale to the public, the Company will give to the
Holders written notice as soon as practicable prior to filing the registration
statement and include in such registration, and in any underwriting involved
therein, all the Registrable Securities specified in one or more written
requests which have been made within 15 days after receipt of such written
notice from the Company by any of the Holders, except as set forth in subsection
(b) below.
(b) If the registration is for a registered public offering
involving an underwriting, the Company shall so advise each Holder as a part of
the written notice given
4
<PAGE>
pursuant to Section 6(a). In such event, the right of each Holder to
registration pursuant to this Section 6 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. If any
Holder proposes to distribute his securities through such underwriting, he shall
(together with the Company and the other holders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting by the
Company (provided that the terms of such underwriting agreement must be
consistent with this Agreement). Notwithstanding any other provision of this
Section 6, if the managing underwriter determines that marketing factors require
a limitation of the number of shares to be underwritten, the managing
underwriter may limit the number of Registrable Securities to be included in the
registration and underwriting, or may limit the number of Registrable Securities
to be include in such registration. The Company shall so advise each of the
Holders and the other holders distributing their securities through such
underwriting pursuant to piggyback registration rights similar to this Section
6, and the number of shares of Registrable Securities and other securities that
may be included in the registration and underwriting shall be allocated among
such Holder and other holders in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities held by each Holder and other
securities held by other holders at the time of filing the registration
statement. If any of the Holders disapproves of the terms of any such
underwriting, he may elect to withdraw therefrom by written notice to the
Company and the managing underwriter. Any Registrable Securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
(c) NON-PUBLIC INFORMATION. Notwithstanding any other
provision of this Agreement, the Company's obligation to file a registration
statement, or cause such registration statement to become and remain effective,
shall be suspended for a period not to exceed 90 days (and for periods not
exceeding, in the aggregate, 180 days in any 12-month period) if there exists at
the time material non-public information relating to the Company which, in the
reasonable opinion of the Company, should not be disclosed.
Section 7. EXPENSES OF REGISTRATION. All expenses incurred in
connection with registrations pursuant to Section 5 and Section 6, including
without limitation all registration, filing and qualification fees, printing
expenses, fees and disbursements of counsel for the Company and independent
accounts for the Company and expenses of any special audits of the Company's
financial statements incidental to or required by such registration, fees of the
National Association of Securities Dealers, Inc., transfer taxes, fees of
transfer agents and registrars' fees shall be borne by the Company, except that
the Company shall not be required to pay underwriters' fees, discounts or
commissions relating to Registrable Securities or fees of one separate legal
counsel for all of the Holders.
Section 8. REGISTRATION PROCEDURES. In the case of each registration
effected by the Company pursuant to this Agreement, the Company will keep the
Holders participating therein advised in writing as to the initiation of each
registration and as to the completion thereof. At its expense the Company will:
5
<PAGE>
(a) file and keep such registration pursuant to Section 5 and
Section 6 continuously effective for periods of 180 days or, in each case, such
reasonable period necessary to permit the Holders to complete the distribution
described in the registration statement relating thereto, whichever first
occurs;
(b) promptly prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to comply with the provisions
of the Securities Act, and to keep such registration statement effective for
that period of time specified in Section 8(a);
(c) furnish such number of the registration statement and the
prospectus included therein, including preliminary prospectuses and other
documents incident thereto as the Holders from time to time may reasonably
request;
(d) use reasonable best efforts to obtain the withdrawal of
any order suspending the effectiveness of a registration statement, or the
lifting of any suspension of the qualification of any of the Registrable
Securities for sale in any jurisdiction, at the earliest possible moment;
(e) register or qualify such Registrable Securities for offer
and sale under the securities or Blue Sky laws of such jurisdictions as the
Holders or underwriter reasonably requests and keep such registration or
qualification effective during the period set forth in Section 8(a) above, and
do all other such things that may be necessary or desirable to enable the
Holders to consummate the public sale or other disposition in such jurisdiction
of the Registrable Securities;
(f) cause all Registrable Securities covered by such
registrations to be listed on each securities exchange, including the American
Stock Exchange, on which similar securities issued by the Company are then
listed or, if no such listing exists, use reasonable best efforts to list all
Registrable Securities on one of the New York Stock Exchange, the American Stock
Exchange or NASDAQ;
(g) cause its accountants to issue to the underwriter, if any,
or the Holders, if there is no underwriter, comfort letters and updates thereof
in customary form and covering matters of the type customarily covered in such
letters with respect to underwritten offerings;
(h) enter into such customary agreements (including
underwriting agreements in customary form) and take all such other actions as
the Holders or the underwriters, if any, reasonably, request in order to
expedite or facilitate the disposition of such Registrable Securities
(including, without limitation, effecting a stock split or a combination of
shares);
(i) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement, and any attorney, accountant or other agent retained by
any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the
6
<PAGE>
Company's officers, directors, employees and independent accountants to supply
all information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement and afford
such entities the reasonable opportunity to review and comment thereon and
participate in the preparation of such registration statement;
(j) if the offering is underwritten, at the request of the
Holders of Registrable Securities to furnish on the date that Registrable
Securities are delivered to the underwriters for sale pursuant to such
registration: (i) an opinion dated such date of counsel representing the Company
for the purposes of such registration, addressed to the underwriters and to the
Holders, stating that such registration statement has become effective under the
Securities Act and that (A) to the best knowledge of such counsel, no stop order
suspending the effectiveness thereof has been issued and no proceedings for that
purpose have been instituted or are pending or contemplated under the Securities
Act, (B) the registration statement, the related prospectus and each amendment
or supplement thereof comply as to form in all material respects with the
requirements of the Securities Act and the applicable rules and regulations of
the Commission thereunder (except that such counsel need not express any opinion
as to financial statements or other financial data contained therein) and (C) to
such other effects as reasonably may be requested by counsel for the
underwriters or by the Holders or its counsel and (ii) a letter dated such date
from the independent public accountants retained by the Company, addressed to
the underwriters and to such seller, stating that they are independent public
accountants within the meaning of the Securities Act and that, in the opinion of
such accountants, the financial statements of the Company included in the
registration statement or the prospectus, or any amendment or supplement
thereof, comply as to form in all material respects with the applicable
accounting requirements of the Securities Act, and such letter shall
additionally cover such other financial matters (including information as to the
period ending no more than five business days prior to the date of such letter)
with respect to such registration as such underwriters reasonably may request;
(k) notify the Holders, at any time a prospectus covered by
such registration statement is required to be delivered under the Securities
Act, of the happening of any event of which it has knowledge 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; and
(l) take such other actions as shall be reasonably requested
by the Holders.
Section 9. INDEMNIFICATION.
(a) In the event of a registration of any of the Registrable
Securities under the Securities Act pursuant to Section 5 and Section 6, the
Company will indemnify and hold harmless the Holders of such Registrable
Securities thereunder, each underwriter of such Registrable Securities
thereunder and each other person, if any, who controls any Holder or underwriter
within the meaning of the Securities Act, against any losses, claims, damages or
7
<PAGE>
liabilities, joint or several, to which such Holders, underwriter or controlling
persons may become subject under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any registration statement under which such
Registrable Securities were registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon 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 any violation by the Company of any
rule or regulation promulgated under the Securities Act or any state securities
law applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration, and will reimburse the
Holders, each of their respective officers, directors and partners, and each
person controlling any of the Holders, each such underwriter and each person who
controls any such underwriter, for any reasonable legal and any other expenses
incurred in connection with investigating, defending or settling any such claim,
loss, damage, liability or action, provided that the Company will not be liable
in any such case to the extent that any such claim, loss, damage or liability
arises out of or is based on any untrue statement or omission based upon written
information furnished to the Company by an instrument duly executed by any of
the Holders or underwriter specifically for use therein.
(b) The Holders will, if Registrable Securities held by or
issuable to the Holders are included in the securities as to which such
registration is being effected, indemnify and hold harmless the Company, each of
its directors, each officer who signs the registration statement, each
underwriter, if any, of the Company's securities covered by such a registration
statement, each person who controls the Company and each underwriter within the
meaning of the Securities Act, against all claims, losses, expenses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company, such directors, officers, partners,
persons or underwriters for any reasonable legal or any other expenses incurred
by them in connection with investigating, defending or settling any such claim,
loss, damage, liability or action, in each case to the extent, but only to the
extent, that such untrue statement (or alleged untrue statement) or omission (or
alleged omission) is made in such registration statement, prospectus, offering
circular or other document in reliance upon and in conformity with written
information furnished to the Company by an instrument duly executed by the
Holders specifically for use therein; PROVIDED, that the total amount for which
the Holders, its officers, directors and partners, and any person controlling
such Holders, shall be liable under this Section 9(b) shall not in any event
exceed the proceeds (net of underwriting discounts and commissions) received by
the Holders from the sale of Registrable Securities sold by such Holders in such
registration.
(c) Each party entitled to indemnification under this Section
9 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the
8
<PAGE>
"Indemnifying Party") promptly after such Indemnified Party has actual knowledge
of any claims as to which indemnity may be sought, and shall permit the
Indemnifying Party to assume the defense of any such claim or any litigation
resulting therefrom, provided that counsel for the Indemnifying Party, who shall
conduct the defense of such claim or litigation, shall be approved by the
Indemnified Party (whose approval shall not be unreasonably withheld), and the
Indemnified Party may participate in such defense at such party's expense, and
provided further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
hereunder, unless such failure resulted in actual detriment to the Indemnifying
Party. No Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the consent of each Indemnified Party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect of such claim or
litigation.
(d) Notwithstanding the foregoing, to the extent that the
provisions on indemnification contained in the underwriting agreements entered
into among the selling Holders, the Company and the underwriters in connection
with the underwritten public offering are in conflict with the foregoing
provisions, the provisions in the underwriting agreement shall be controlling as
to the Registrable Securities included in the public offering; PROVIDED, that
if, as a results of this Section 9(d), the Holders, and any persons controlling
such Holders is held liable for an amount which exceeds the aggregate proceeds
received by such Holders from the sale of Registrable Securities included in a
registration, as provided in Section 8(b) above, pursuant to such underwriting
agreement (the "Excess Liability"), the Company shall reimburse any such Holders
for such Excess Liability.
(e) If the indemnification provided for in this Section 9 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party thereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other
hand in connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relevant fault of the indemnifying party and the indemnified
party shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the indemnifying party or by
the indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
Notwithstanding the foregoing, the amount that any Holder shall be obligated to
contribute pursuant to this Section 9(e) shall be limited to an amount equal to
the proceeds to such Holder of the Restricted Securities sold pursuant to the
registration statement which gives rise to such obligation to contribute (less
the aggregate amount of any damages which such Holder has otherwise been
required to pay in respect of such loss, claim, damage, liability or action or
any substantially similar loss, claim, damage, liability or action arising from
the sale of such Restricted Securities).
9
<PAGE>
(f) The indemnification provided by this Section 9 shall be a
continuing right to indemnification and shall survive the registration and sale
of any securities by any Person entitled to indemnification hereunder and the
expiration or termination of this Agreement.
Section 10. LOCKUP AGREEMENT. In consideration for the Company agreeing
to its obligations under this Agreement, each of the Holders agrees in
connection with any registration of any Registrable Securities, at the request
of the Company or the underwriters managing any underwritten offering of the
Company's securities, not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Registrable Securities
(other than those included in the registration) without the prior written
consent of the Company or such underwriters, as the case may be, for such period
of time (not to exceed 180 days) from the effective date of such registration as
the Company and the underwriters may specify, so long as the Holders or
stockholders holding more than one percent (1%) of the outstanding common stock
and all officers and directors of the Company are bound by a comparable
obligation, PROVIDED, that nothing herein shall prevent any of the Holders that
is a partnership or corporation from making a distribution of Registrable
Securities to the partners or shareholders thereof that is otherwise in
compliance with applicable securities laws, so long as such distributees agree
to be so bound.
Section 11. HOLDER'S COOPERATION.
(a) Each of the Holders shall promptly furnish to the Company
such information regarding such Holder and the distribution proposed by such
Holder as the Company may request in writing and as shall be required in
connection with any registration referred to herein.
(b) Each of the Holders holding shares included in the
registration will not (until further notice by the Company) effect sales thereof
(or deliver a prospectus to any purchaser) after receipt of telegraphic or
written notice from the Company to suspend sales to permit the Company to
correct or update a registration statement or prospectus. At the end of the
period during which the Company is obligated to keep the registration statement
current and effective as described in Section 8(a), each of the Holders holding
shares of Registrable Securities included in the registration shall discontinue
sales of shares pursuant to such registration statement upon receipt of notice
from the Company of its intention to remove from registration the shares of
Registrable Securities covered by such registration statement that remain
unsold, and each of the Holders shall notify the Company of the number of such
shares registered that remain unsold immediately upon receipt of such notice
from the Company.
Section 12. RULE 144. With a view to making available to the Holders of
Registrable Securities the benefits of certain rules and regulations of the
Commission which may permit the sale of the Registrable Securities to the public
without registration, the Company agrees to:
(a) make and keep public information available, as those
terms are understood and defined in Rule 144; and
10
<PAGE>
(b) use its best 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 Exchange Act.
Section 13. TERMINATION OF RIGHTS.
(a) The rights of any Holder to cause the Company to register
securities under Section 5 shall terminate at such time as such Holders is able
to dispose of all of the Registrable Securities owned by him in one three-month
period pursuant to the provisions of Rule 144, provided that at the time such
Holder holds not more than one percent (1%) of the outstanding voting stock of
the Company.
(b) Notwithstanding the provisions of Section 13(a), all
rights of the Holders under this Agreement shall terminate at 5:00 P.M. Eastern
time on the date seven years after the date of this Agreement.
Section 14. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company represents and warrants to the Holders as follows:
(a) The execution, delivery and performance of this Agreement
by the Company have been duly authorized by all requisite corporate action and
will not violate any provision of law, any order of any court or other agency of
government, the Articles of Organization or Bylaws of the Company or any
provision of any indenture, agreement or other instrument to which it or any or
its properties or assets is bound, conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any such
indenture, agreement or other instrument or result in the creation or imposition
of any lien, charge or encumbrance of any nature whatsoever upon any of the
properties or assets of the Company.
(b) This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms, subject to (i) applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance and moratorium laws and other
laws of general application affecting enforcement of creditors' rights generally
and (ii) the availability of equitable remedies as such remedies may be limited
by equitable principles of general applicability (regardless of whether
enforcement is sought in a proceeding in equity or at law).
Section 15. MISCELLANEOUS.
(a) AMENDMENTS. This Agreement may be amended only by a
writing signed by the Holders of a majority of the Registrable Securities and
the Company.
(b) COUNTERPARTS. This Agreement may be executed in any number
of counterparts, all of which shall constitute a single instrument.
11
<PAGE>
(c) NOTICES, ETC. All notices, requests, demands and other
communications required or permitted to be given hereunder shall be in writing
and shall be given personally, sent by facsimile transmission or sent by prepaid
air courier or certified or express mail, postage prepaid. Any such notice shall
be deemed to have been given (a) when received, if delivered in person, sent by
facsimile transmission and confirmed in writing within three business days
thereafter or sent by prepaid air courier or (b) three business days following
the mailing thereof, if mailed by certified first class mail, postage prepaid,
in any such case to the respective addresses set forth in the initial paragraph
of this Agreement (or to such other address or addresses as a party may have
advised the other in the manner provided in this Section 15).
(d) SEVERABILITY. If any provision of this Agreement shall be
held to be illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if any such illegal,
invalid or unenforceable provision were not contained herein.
(e) GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of New York without regard to principles
of conflict of law.
(f) JURISDICTION. Each of the Holders and the Company hereby
irrevocably and unconditionally consents and submits to the exclusive
jurisdiction of any state or federal court located within the County of New
York, State of New York, in connection with any, actions, suits or proceedings
arising out of or relating to this Agreement or any of the agreements delivered
in connection herewith or the transactions contemplated hereby or thereby. Each
of the Company and Holders hereby waives any objection to venue in such
jurisdiction, and agrees that service of any summons, complaint, notice or other
process relating to such proceeding may be effected (x) as provided by Section
15 (c), or (y) to their respective attorneys at their respective addresses set
forth in Section 15 (c) by internationally regarded overnight express service
such as Federal Express.
12
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
THE COMPANY:
NETCREATIONS, INC.
By:
-----------------------
Name:
Title:
THE HOLDERS:
---------------------------------
Rosalind B. Resnick
---------------------------------
Ryan Scott Duckenmiller
13
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated June 25, 1999, (except for Notes B-8 and B-9
as to which the date is September 14, 1999) accompanying the financial
statements of NetCreations, Inc. contained in the Registration Statement and
Prospectus. We consent to the use of the aforementioned report in the
Registration Statement and Prospectus, and to the use of our name as it appears
under the captions "Selected Financial Data" and "Experts."
GRANT THORNTON LLP
New York, New York
November 1, 1999
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