<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 15, 1999
REGISTRATION NO. 333-84109
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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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 No.)
incorporation or organization) Classification Code Number)
</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 SEPTEMBER 15, 1999
PROSPECTUS
3,300,000 SHARES
[LOGO]
NETCREATIONS, INC.
COMMON STOCK
------------------
This is our 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 7 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 common stock being sold by NetCreations for sale at the
initial public offering price to directors, officers, employees and friends of
NetCreations.
The underwriters may purchase up to an additional 495,000 shares from
NetCreations at the public offering price, less underwriting discounts, solely
to cover over-allotments.
FRIEDMAN BILLINGS RAMSEY
THE UNDERSIGNED IS FACILITATING INTERNET DISTRIBUTION.
FBR.COM
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THIS PROSPECTUS IS DATED , 1999
<PAGE>
[Inside Front Cover]
[Front Gatefold]
[Inside Back Cover]
[Artwork to be filed by amendment]
<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 WHICH WILL BE COMPLETED PRIOR TO
THE COMMENCEMENT OF THIS OFFERING AND (2) ASSUMES THAT THE UNDERWRITERS'
OVER-ALLOTMENT OPTION WILL NOT BE EXERCISED.
OUR COMPANY
We are a leading provider of Internet-based opt-in email direct marketing
services. Our opt-in email marketing system enables 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 as well as
response-tracking. As of August 31, 1999, we had over 3.4 million email
addresses in our database, which is currently growing at the average net rate of
more than 10,000 email addresses per day. We generate substantially all of our
revenues by charging customers for each use of an opt-in email address from our
database. The email addresses in our database are email addresses that were
collected from consumers who opted in through our Web site or a third-party Web
site and have not subsequently been deleted.
We are currently engaged by over 175 third-party Web sites, including sites
such as CMPnet, NetZero and LinkExchange, to manage and market opt-in email
addresses collected from users of their respective Web sites. We refer to these
Web sites as our NetCreations Network because of the mutual benefits derived
from our relationships. Each participating Web site places a signup template on
one or more of its Web pages which allows consumers to opt in for email
pertaining to a selection of topical categories. We believe that the aggregation
of the topically targeted, opt-in email addresses collected from third-party Web
sites is an element of the attractiveness of our services to advertising
customers.
As of June 30, 1999, we have facilitated opt-in direct email campaigns for
more than 1,500 direct marketing customers. 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 a net loss of $9,000 in 1996 and net
income of $260,000 and $606,000 in 1997 and 1998, respectively. For the six
months ended June 30, 1999, when we delivered approximately 28 million email
messages, we generated net revenues of $5.3 million and net income of $1.3
million, as compared with net revenues of $1.2 million and net income of
$232,000 for the six months ended June 30, 1998.
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.
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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 SOLUTION
Our opt-in email direct marketing solution offers three key advantages to
businesses 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. Jupiter Communications estimates that opt-in email
campaigns typically generate response rates ranging from 5% to 15%. This
greatly exceeds the typical banner advertising response rate of 0.7% and
typical postal direct mail response rates, which the DMA reports to be 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
- LEVERAGE OUR SCALEABLE TECHNOLOGY PLATFORM
RISK FACTORS
An investment in our common stock involves certain risks associated with our
business and our industry generally, including (1) our dependence on growth in
use of, and perceived effectiveness of, the Internet for email direct marketing
and e-commerce, (2) our exposure to Internet, software or hardware failures or
shortcomings and to Year 2000 risks, (3) 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, (4) the unpredictability of our future revenues and financial results
quarter to quarter and otherwise, (5) the possibility that we may incur losses
in the future, (6) 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, (7) our dependence on third parties, who may terminate their
agreements with us any time, for collection of email addresses for our database,
(8) the ability of Internet users to remove their names from our database at any
time, (9) the potential for damage to our business due to privacy concerns of
Internet users, (10) our need to expand and retain our marketing customer base,
(11) our reliance on resellers to increase the orders for use of opt-in email
addresses in our database, (12) the strain we are experiencing and the
additional strains which we anticipate our planned growth will place upon our
management systems and resources, (13) the competition we face, (14) our need to
adapt to rapid changes in technology, industry standards, and product offerings,
(15) uncertainties associated with possible overseas expansion, (16) our
dependence upon Rosalind Resnick, Ryan Scott Druckenmiller, and our employees,
(17) the difficulty of preventing others from using our intellectual property,
(18) the damaging impact that increasing governmental regulation may have upon
us, (19) following this offering, Rosalind
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Resnick and Ryan Scott Druckenmiller will control us, and their interests may
conflict with yours, (20) uncertainty concerning our ability to obtain
additional financing if we need it, (21) our exposure to product liability
claims and claims due to the activities of our customers, (22) the possible
adverse impact on our stock price of future stock sales, (23) the dilution you
will suffer in the value of your shares, (24) the adverse effect that market
volatility may have on the market price of our stock after the offering, (25)
the possibility that our stock may trade at prices below the initial public
offering price, (26) our plan to pay no cash dividends at this time, and (27)
the potentially adverse effects of certain anti-takeover provisions on our share
price and the completion of "change of control" transactions.
For a fuller discussion of these and other risk factors affecting us and our
business, see "Risk Factors."
THE OFFERING
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<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, increases in sales,
marketing, research and development
expenditures and other costs of expanding our
business, for working capital and other
general corporate purposes, 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. As of September 14, 1999, we have granted options to purchase 232,500
shares of common stock at an exercise price of $5.00 per share.
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 and POSTMASTER are registered trademarks of NetCreations, Inc.
We have filed applications to register POSTMASTERDIRECT.COM, POSTMASTER DIRECT
RESPONSE, and 100% OPT-IN. Other service marks, trademarks and tradenames
referred to in this prospectus are the property of their respective owners.
5
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SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS ENDED
INCEPTION TO YEAR ENDED DECEMBER 31, JUNE 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 $ 1,186,198 $ 5,272,594
Gross profit........................... 93,439 433,100 927,657 1,936,763 763,705 2,694,627
Income (loss) before income tax
provision (benefit).................. 22,789 (1,562) 283,377 678,091 260,139 1,483,207
Net income (loss)...................... $ 22,789 $ (8,996) $ 260,349 $ 605,863 $ 232,439 $ 1,325,207
------------ ---------- ------------ ------------ ------------ ------------
------------ ---------- ------------ ------------ ------------ ------------
Net income per share-basic and
diluted.............................. $ 0.00 $ (0.00) $ 0.02 $ 0.05 $ 0.02 $ 0.11
------------ ---------- ------------ ------------ ------------ ------------
------------ ---------- ------------ ------------ ------------ ------------
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 $ 260,139 $ 1,483,207
Pro forma income tax provision
(benefit)............................ 3,500 (1,000) 129,000 316,000 120,000 677,000
------------ ---------- ------------ ------------ ------------ ------------
Pro forma net income (loss)............ $ 19,289 $ (562) $ 154,377 $ 362,091 $ 140,139 $ 806,207
------------ ---------- ------------ ------------ ------------ ------------
------------ ---------- ------------ ------------ ------------ ------------
Pro forma net income (loss) per
share--basic & diluted............... $ 0.00 $ (0.00) $ 0.01 $ 0.03 $ 0.01 $ 0.07
------------ ---------- ------------ ------------ ------------ ------------
------------ ---------- ------------ ------------ ------------ ------------
Shares used in per share computation
(000's omitted)...................... 11,700 11,700 11,700 11,700 11,700 11,700
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1999
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<S> <C> <C> <C>
PRO FORMA
AS ADJUSTED
ACTUAL PRO FORMA (2) (2)(3)
------------ ------------- -----------------
BALANCE SHEET DATA:
Cash.............................................................. $ 521,086 $ -0- $ 32,259,000
Working capital................................................... 539,950 18,864 32,277,864
Total assets...................................................... 2,586,165 2,065,079 34,324,079
Long-term debt (including current portion)........................ 169,710 169,710 169,710
Total stockholders' equity........................................ 920,567 399,481 32,658,481
</TABLE>
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(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 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.
(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 June 30, 1999, this amount would have been $521,086. Pro
forma adjustments reflect our pro forma S corporation distributions for this
amount.
(3) 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.
6
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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
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due to computer-related, telecommunications, or 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. We do not have any
business interruption insurance, and our property insurance may not cover that
type of loss.
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
8
<PAGE>
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 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.
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;
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- effectively manage our growth by building a solid base of management,
operations and technology; and
- integrate acquired businesses, technologies and services.
We may not successfully address any of these risks.
OUR QUARTERLY OPERATING RESULTS HAVE TENDED TO 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.
Our quarterly operating results over the last three years have followed
seasonal patterns typical of the traditional postal direct marketing industry.
To date, our revenues have tended to be highest in the fourth quarter of the
year when direct marketers send out holiday promotions, and to be somewhat lower
during the summer when direct marketing activity is reduced overall.
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 June 30, 1999, we had
retained earnings of $919,567 and shareholder's equity of $920,567. We had net
income of $1,325,207 ($806,207 pro forma) for the six months ended June 30,
1999, as compared with net income of $232,439 ($140,139 pro forma) for the six
months ended June 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
expansion, we may have to write off goodwill and/or other intangibles associated
with any such
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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.
IF OUR MARKETING CUSTOMERS CEASE TO DO BUSINESS WITH US, WE MIGHT BE UNABLE TO
REPLACE LOST REVENUES.
We have no long-term contracts, which are not cancellable on ninety days'
notice, guaranteeing any level of orders with any of our 1,500 marketing
customers. There is no guarantee that any of our marketing customers 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 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 signup 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 signup forms of other email
marketing companies in addition to or in place of our signup 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.
THE INTERNET USERS WHO SIGN UP TO RECEIVE OUR MAILINGS CAN OPT OUT, OR REMOVE
THEMSELVES FROM OUR LISTS, 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.
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 over 1,500 customers, but 15 customers accounted for approximately
52% of our revenues in the first six months of 1999. On
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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 18% of our net revenues for the first six
months of 1999. In addition, 3.3% and 1.6% of our net revenues in 1998 and the
first six 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 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 42% of our net revenues for the first six 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. 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 revenue has grown from $102,000 in 1995, to $3.4
million in 1998, to $5.3 million for the first six months of 1999. We had two
employees in 1995, 10 at the end of 1998 and 19 on June 30, 1999. In addition,
the pursuit of our business strategy will continue to place a significant strain
upon our managerial, operational and financial resources.
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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.
Our competitors include postal direct marketing companies; Internet direct
marketing companies; email list owners that manage their own email lists
in-house, and incentive marketers. In addition, because there are relatively low
barriers to entry in the email marketing business, we expect additional
competition from other established and emerging companies as the email marketing
business continues to develop and expand. We expect to face competition from
companies entering the field as email 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
current and potential customers of ours, 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
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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 AND, THEREFORE, OUR BUSINESS WILL BE
SUSCEPTIBLE TO NUMEROUS CURRENTLY UNQUANTIFIABLE RISKS TYPICALLY ASSOCIATED WITH
INTERNATIONAL OPERATIONS.
We intend to pursue international expansion but do not have a certain
geographic focus for international expansion at this time. Consequently, the
risks which may arise upon our international expansion into any geographic area
cannot be evaluated.
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 August 31, 1999, we only had 23 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,
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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 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
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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 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
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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 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. We intend to grant to non-management
directors additional options in amounts to be determined upon their election to
our board. 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 $8.83
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. We also intend to grant to non-management directors additional options to
purchase shares of our common stock, exercisable at the initial public offering
price, in amounts to be determined upon their election to our board. 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;
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- 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.
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 U.S. 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.
18
<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. We undertake no obligation to update or revise
these forward-looking statements to reflect new events or circumstances after
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 June 30, 1999, this amount would have been $521,086.
19
<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 what
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 to ensure the quality of the delivery of messages
to our subscribers; and
- approximately $12.8 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.
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 June 30,
1999, this amount would have been $521,086. 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.
20
<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 June 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 232,500 shares have been granted as of
September 14, 1999 at an exercise price of $5.00 per share.
<TABLE>
<CAPTION>
JUNE 30, 1999
----------------------------------------------
<S> <C> <C> <C>
PRO FORMA
AS ADJUSTED
ACTUAL PRO FORMA (1) (1)(2)
------------ ------------- -----------------
Short-term debt, including current portion of long-term
debt........................................................ $ 93,419 $ 93,419 $ 93,419
------------ ------------- -----------------
------------ ------------- -----------------
Long-term debt, less current portion.......................... $ 101,291 $ 101,291 $ 101,291
------------ ------------- -----------------
Stockholders' equity:
Preferred Stock, no par value; no shares authorized, issued
or outstanding, actual and pro forma; 5,000,000
authorized, no shares issued and outstanding, as
adjusted.................................................. -- -- --
Common Stock; $.01 par value; 2,000 shares authorized, 100
shares issued and outstanding, actual and pro forma;
50,000,000 shares authorized, 15,000,000 shares issued and
outstanding, as adjusted.................................. 1 1 150,000
Additional paid-in capital(1)............................... 999 399,480 32,508,481
Retained earnings(1)........................................ 919,567 -- --
------------ ------------- -----------------
Total stockholders' equity................................ 920,567 399,481 32,658,481
------------ ------------- -----------------
Total capitalization.................................... $ 1,021,858 $ 500,772 $ 32,759,772
------------ ------------- -----------------
------------ ------------- -----------------
</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 June 30, 1999, this
amount would have been $521,086; and
- Reclassification of retained earnings to additional paid in capital, 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;
- The application of the estimated net proceeds from this offering; and
- A 117,000-to-1 stock split effective on September 14, 1999.
21
<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 June 30, 1999 was approximately $807,904, or $.07 per share, and
$286,818, or $.02 per share, on a pro forma basis after giving effect to the
final S corporation distribution. "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 the 117,000-to-1 stock
split.
After giving effect to adjustments relating to the offering, NetCreations'
pro forma net tangible book value on June 30, 1999, would have been $32,545,818
or $2.17 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 June 30, 1999........ $ .07
Pro forma S corporation distribution......................... (.05)
---------
Pro forma net tangible book value per share as of
June 30, 1999.............................................. .02
Increase in net tangible book value per share attributable to
this offering.............................................. 2.15
---------
Pro forma net tangible book value per share as of June 30,
1999 after giving effect to this offering.................. 2.17
---------
Dilution per share to new investors.......................... $ 8.83
---------
---------
</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>
22
<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 six months ended
June 30, 1998 and 1999 and balance sheet data as of June 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 six months ended
June 30, 1999 are not necessarily indicative of the results to be expected for
the entire year.
23
<PAGE>
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS ENDED
INCEPTION TO YEAR ENDED DECEMBER 31, JUNE 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 $ 1,186,198 $ 5,272,594
Cost of revenues................. 8,213 43,090 173,124 1,509,776 422,493 2,577,967
------------ --------- ----------- ----------- ----------- -----------
Gross profit..................... 93,439 433,100 927,657 1,936,763 763,705 2,694,627
------------ --------- ----------- ----------- ----------- -----------
Operating expenses:
Selling and marketing.......... 29,482 195,451 289,904 492,004 202,292 601,960
Technology, support and
development.................. 28,275 177,923 193,554 373,746 137,930 191,805
General and administrative..... 12,893 60,734 151,307 369,508 153,861 372,504
Depreciation and
amortization................. 554 9,515 23,414 9,483 45,151
------------ --------- ----------- ----------- ----------- -----------
Total operating expenses......... 70,650 434,662 644,280 1,258,672 503,566 1,211,420
------------ --------- ----------- ----------- ----------- -----------
Income (loss) before income tax
provision...................... 22,789 (1,562) 283,377 678,091 260,139 1,483,207
Income tax provision (benefit)... -- 7,434 23,028 72,228 27,700 158,000
------------ --------- ----------- ----------- ----------- -----------
Net income (loss)................ $ 22,789 $ (8,996) $ 260,349 $ 605,863 $ 232,439 $ 1,325,207
------------ --------- ----------- ----------- ----------- -----------
------------ --------- ----------- ----------- ----------- -----------
Net income (loss) per share-basic
and diluted.................... $ 0.00 $ (0.00) $ 0.02 $ 0.05 $ 0.02 $ 0.11
------------ --------- ----------- ----------- ----------- -----------
------------ --------- ----------- ----------- ----------- -----------
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 $ 260,139 $ 1,483,207
Pro forma income tax provision
(benefit)...................... 3,500 (1,000) 129,000 316,000 120,000 677,000
------------ --------- ----------- ----------- ----------- -----------
Pro forma net income (loss)...... $ 19,289 $ (562) $ 154,377 $ 362,091 $ 140,139 $ 806,207
------------ --------- ----------- ----------- ----------- -----------
------------ --------- ----------- ----------- ----------- -----------
Pro forma basic and diluted net
income (loss) per share........ $ 0.00 $ (0.00) $ 0.01 $ 0.03 $ 0.01 $ 0.07
------------ --------- ----------- ----------- ----------- -----------
------------ --------- ----------- ----------- ----------- -----------
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, JUNE 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 $ 521,086 --
Working capital (deficiency)....................... (16,593) 68,698 339,981 539,950 18,864
Total assets....................................... 59,372 233,489 943,804 2,586,165 2,065,079
Long-term debt (including current portion)......... -- -- 44,511 169,710 169,710
Total stockholders' equity (deficiency)............ (5,459) 121,129 476,992 920,567 399,481
</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 June 30, 1999, this amount would have been $521,086. Pro
forma adjustments reflect our pro forma S corporation distributions for this
amount.
24
<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 are a leading provider of Internet-based opt-in email direct marketing
services. Our opt-in email marketing system enables 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 August 31, 1999, we had over 3.4 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 are currently engaged by
over 175 Web sites to manage and market opt-in email addresses collected from
users of their respective Web sites. Each Web site sign-up form typically
permits visitors to opt in to receive email messages in more than a dozen
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 six months of 1999, we generated over 95% of our 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. As of June 30, 1999, we derived approximately 7.2% of the
total names in our database from our own Web site, but the proportion of names
that we own in our database has been decreasing and we expect that proportion
will continue to decrease over time. Additionally, for the first six 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.
We offer volume discounts on certain emailings. 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 typically pay to the applicable Web site owner a commission of 50% of the
revenue we have earned after volume discounts, if applicable, from each emailing
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 do not incur these
commissions when customers select names from our own email address lists. These
commissions, along with insignificant amounts incurred in implementing the Web
site's sign-up program are reported as cost of revenues in our financial
statements.
For the year ended December 31, 1998, we had net revenues of $3,446,539 and
net income of $605,863. For the first six months of 1999, we had net revenues of
$5,272,594 and net income of $1,325,207. We intend to implement our business
strategy by increasing expenditures on sales and
25
<PAGE>
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, 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. 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, and
that will result in a charge to our operations under Financial Accounting
Standards Board ("FASB") Statement No. 123, "Accounting for Stock-Based
Compensation." Immediately prior to the offering, we also intend to grant to
non-management directors additional options to purchase shares of our common
stock, in amounts to be determined upon their election to our board. These
options will be exercisable at the initial public offering price.
RESULTS OF OPERATIONS
The following table sets forth our statement of operations expressed as a
percentage of total net revenues:
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS ENDED
INCEPTION TO YEAR ENDED DECEMBER 31, JUNE 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 35.6 48.9
----- --------- --------- --------- --------- ---------
Gross profit.................................... 91.9 91.0 84.3 56.2 64.4 51.1
Operating expenses
Selling and marketing............................. 29.0 41.0 26.3 14.3 17.1 11.4
Technology, support and development............... 27.8 37.4 17.6 10.8 11.6 3.6
General and administrative........................ 12.7 12.8 13.7 10.7 13.0 7.1
Depreciation and amortization..................... 0.0 0.1 0.9 0.7 0.8 0.9
----- --------- --------- --------- --------- ---------
Total operating expenses........................ 69.5 91.3 58.5 36.5 42.5 23.0
----- --------- --------- --------- --------- ---------
Income (loss) before income tax provision........... 22.4 (0.3) 25.8 19.7 21.9 28.1
Income tax provision................................ 3.4 1.6 2.1 2.1 2.3 3.0
----- --------- --------- --------- --------- ---------
Net income (loss)............................... 19.0% (1.9)% 23.7% 17.6% 19.6% 25.1%
----- --------- --------- --------- --------- ---------
----- --------- --------- --------- --------- ---------
</TABLE>
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
NET REVENUES. Net revenues increased 344.5% from $1,186,198 for the six
months ended June 30, 1998, to $5,272,594 for the six months ended June 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 1.4 million at the end of June
1998, to approximately 3.1 million by the end of June 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.
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 18% of our net revenues for the first
six months of 1999. Although we can give no assurance, we anticipate that
26
<PAGE>
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 1.6% in 1998 and the first six months of 1999,
respectively.
COST OF REVENUES. Cost of revenues increased 510.2% from $422,493, or 35.6%
of net revenues, for the six months ended June 30, 1998, to $2,577,967, or 48.9%
of net revenues, for the six months ended June 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 197.6% from
$202,292 for the six months ended June 30, 1998, to $601,960 for the six months
ended June 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
June 30, 1999, we had ten employees in sales and marketing functions as compared
to four employees as of June 30, 1998. Additionally, advertising expenditures
increased by $71,900 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 39.1% from $137,930 for the six months ended June 30, 1998,
to $191,805 for the six months ended June 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
three employees during the first half of 1999, in connection with our efforts to
improve the efficiency of PostMasterDirect.com and expand its capabilities.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
142.1% from $153,861 for the six months ended June 30, 1998, to $372,504 for the
six months ended June 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 376.1% from $9,483 for the six months ended June 30, 1998, to $45,151
for the six months ended June 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 the Company had elected to be taxed as an S corporation
for federal and certain state tax purposes, the provision for income taxes for
the first six months of 1998 and 1999 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.
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
27
<PAGE>
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.
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 PostMasterDirect.com.
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 the Company 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.
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.
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
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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 the Company 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.
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QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited quarterly information for
each quarter of fiscal year 1998 and the first two 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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1998 1999
-------------------------------------------------- --------------------------
<CAPTION>
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30
---------- ---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues............................. $ 476,545 $ 709,653 $ 876,135 $1,384,206 $ 1,694,505 $ 3,578,089
Cost of revenues......................... 139,913 282,580 390,054 697,229 827,152 1,750,815
---------- ---------- ------------ ------------ ------------ ------------
Gross profit......................... 336,632 427,073 486,081 686,977 867,353 1,827,274
Operating expenses
Selling and marketing.................. 82,870 119,422 129,872 159,840 294,328 307,632
Technology, support and development.... 55,169 82,762 94,498 141,317 85,981 105,824
General and administrative............. 71,500 82,361 114,727 100,920 138,866 233,638
Depreciation and amortization.......... 4,130 5,352 7,193 6,739 17,354 27,797
---------- ---------- ------------ ------------ ------------ ------------
Total operating expenses............. 213,669 289,897 346,290 408,816 536,529 674,891
---------- ---------- ------------ ------------ ------------ ------------
Income before income tax provision....... 122,963 137,176 139,791 278,161 330,824 1,152,383
Income tax provision..................... 13,100 14,600 14,900 29,628 36,300 121,700
---------- ---------- ------------ ------------ ------------ ------------
Net income........................... $ 109,863 $ 122,576 $ 124,891 $ 248,533 $ 294,524 $ 1,030,683
---------- ---------- ------------ ------------ ------------ ------------
---------- ---------- ------------ ------------ ------------ ------------
</TABLE>
Our operating results for these fiscal quarters expressed as a percentage of
sales were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1998 1999
-------------------------------------------------- --------------------------
<CAPTION>
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30
---------- ---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues............................. 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
---------- ---------- ------------ ------------ ------------ ------------
Gross profit......................... 70.6 60.2 55.5 49.6 51.2 51.1
Operating expenses
Selling and marketing.................. 17.3 16.8 14.8 11.5 17.4 8.6
Technology, support and development.... 11.6 11.7 10.8 10.2 5.1 3.0
General and administrative............. 15.0 11.6 13.1 7.3 8.2 6.5
Depreciation and amortization.......... 0.9 0.8 0.8 0.5 1.0 0.8
---------- ---------- ------------ ------------ ------------ ------------
Total operating expenses............. 44.8 40.9 39.5 29.5 31.7 18.9
---------- ---------- ------------ ------------ ------------ ------------
Income before income tax provision....... 25.8 19.3 16.0 20.1 19.5 32.2
Income tax provision..................... 2.7 2.0 1.7 2.1 2.1 3.4
---------- ---------- ------------ ------------ ------------ ------------
Net income........................... 23.1% 17.3% 14.3% 18.0% 17.4% 28.8%
---------- ---------- ------------ ------------ ------------ ------------
---------- ---------- ------------ ------------ ------------ ------------
</TABLE>
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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 of up to $500,000
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.
These borrowings are personally guaranteed by Ms. Resnick and Mr. Druckenmiller.
At June 30, 1999, $25,000 was outstanding under the line of credit.
Net cash provided by operating activities was $40,500 for the year ended
December 31, 1996, $205,700 for the year ended December 31, 1997, and $375,600
for the year ended December 31, 1998, and $1,439,700 for the six months ended
June 30, 1999.
Net cash used in investing activities was $11,100 for the year ended
December 31, 1996, $51,000 for the year ended December 31, 1997, $79,500 for the
year ended December 31, 1998, and $76,900 for the six months ended June 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, $133,800 for the year ended December 31, 1997, $253,300 for the year
ended December 31, 1998, and $938,600 for the six months ended June 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 June 30, 1999, we had $521,100 of cash and our principal commitments
consisted of $169,700 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. 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
websites, (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
Our quarterly operating results over the last three years have followed
seasonal patterns typical of the traditional postal direct marketing industry.
To date, our revenues have tended to be highest in the fourth quarter of the
year when direct marketers send out holiday promotions, and to be somewhat lower
during the summer when direct marketing activity is reduced overall.
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
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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
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.
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 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.
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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 the plan well
developed by September 30, 1999, enhancements and revisions 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 is one of the most popular Internet
applications. According to Jupiter Communications, approximately 90 billion
email messages were sent in the United States in 1998. Email was originally
viewed as a simple personal communications tool, but it is increasingly used as
a powerful and cost-effective business tool.
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 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, worldwide Internet advertising
expenditures are expected to increase from $1.5 billion in 1998 to $24.1 billion
in 2003. According to the DMA, online direct marketing expenditures are expected
to increase from $603 million in 1998 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 disconnected from its Internet service provider or having all subsequent
email transmission attempts
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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.
THE NETCREATIONS SOLUTION
NetCreations provides 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 their desire to receive messages by responding to a verification email.
This way, no Internet user can be signed up for our lists by an unauthorized
third party.
Opt-in email direct marketing offers three key advantages to businesses 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. Jupiter Communications
estimates that opt-in email campaigns typically generate response rates
ranging from 5% to 15%. This greatly exceeds the typical banner
advertising response rate of 0.7% and typical postal direct mail response
rates, which the DMA reports to be 2%. We also believe that our double
opt-in system contributes to our lists generating higher response rates
than other email lists on 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.
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.
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Our PostMasterDirect.com database offers marketers more than 3.4 million
email addresses gathered from a network of more than 175 third-party Web sites,
including sites such as CMPnet, NetZero and LinkExchange. We provide leading
marketers and e-commerce retailers a selection of targeted email lists desiged
to achieve maximum response to their offers. Our list members' names are in over
3,000 topical categories from general consumer lists to business-to-business
lists.
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 PostMasterDirect.com online store, providing incremental
revenue opportunities for Web sites. In addition, we provide marketing, mailing,
merging of lists, purging of duplicate email addresses, and
subscribe/unsubscribe services.
STRATEGY
Our goal is to become the leader in opt-in direct marketing solutions 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 online Web site
communities 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 signup 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 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 solution 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
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also enables the addition of new features and products to satisfy the
needs of our customers for quality, innovative products and services.
SERVICES
We provide Internet opt-in email address list management, email address list
brokerage, a response management system, and email delivery services through our
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 only a few 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.
Our double opt-in process protects Internet users' privacy by preventing
anyone from signing them up without authorization. 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 PostMasterDirect.com Web site. 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 a commission of 50% of the revenue we have earned
after volume discounts, if applicable, from each emailing 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 leading 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 they would like to select (but they do not
actually access demographic data in our database); and
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- aggregate the various email address lists the direct marketer wants to
rent 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 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 rent email address lists from NetCreations' PostMasterDirect.com
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 the PostMasterDirect.com servers. TrackBot is a
free service to companies that use PostMasterDirect.com opt-in email lists. We
intend to upgrade our current response-tracking system to create an end-to-end
solution 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, PostMasterDirect.com Email List Delivery
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.
CUSTOMERS
EMAIL ADDRESS LIST MANAGEMENT CUSTOMERS. We manage email addresses 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, MessageMates,
Regards.com and Volition.
EMAIL ADDRESS LIST BROKERAGE CUSTOMERS. Our email direct marketing
customers consist of advertisers and email list brokers. As of June 30, 1999, we
had rented our email lists to 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 18% of our net revenues for the first
six 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 1.6% in 1998 and the first six 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
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sell our services to direct marketers primarily through our direct sales
organization. As of August 31, 1999, our direct sales organization included 12
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 42% of our net revenues for the first six 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.
TECHNOLOGY
We employ a combination of hardware and custom and third-party software to
implement our opt-in direct marketing solution. 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 scalable 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 bandwith 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 PostMasterDirect.com. 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.
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Intel-based servers are dedicated to sending out email messages and allowing
tens of thousands of users per day to access the list signup 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.
Finally, we have 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 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 generate double opt-in email address lists, we face intense
competition from companies entering the field as email address list owners,
managers and brokers. 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 from these and other competitors, including:
- postal direct marketing companies such as Direct Media (Acxiom) and
American List Counsel;
- Internet direct marketing companies such as YesMail.com and BulletMail;
- banner advertising managers such as DoubleClick, 24/7 Media and Flycast
Communications;
- email address list owners who manage their own email address lists, such
as Xoom.com; and
- incentive-based marketers such as MyPoints.com and Netcentives.
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
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current and potential marketing customers of ours, have extensive knowledge of
our industry and are capable of offering complementary sources 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 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. 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 U.S. 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
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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 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 August 31, 1999, we had a total of 23 employees, including 12 in sales
and customer service, six in technology, three 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 $178,000 with customary escalation clauses. The lease expires
on March 1, 2003. We have no other offices at this time. We
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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 September 15, 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
</TABLE>
ROSALIND 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 a B.A./M.A. from Johns
Hopkins University in 1981.
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
PostMasterDirect.com's online list store, list member signup 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 November 1996 through
January 1999 as VP, Sales, New York, from July 1993 to October 1996 as VP,
Operations and from August 1990 to July 1993 as VP, 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
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manager of operations for Adbot, Inc., an internet advertising auction business
based in Chicago, Illinois. Mr. Sweeney received his A.B. degree in Economics
from Harvard University.
BOARD COMPOSITION
We currently have two 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 and until his or her successor
has been elected.
We intend to increase the size of our board and elect at least two
non-management directors prior to the completion of this offering. Our
non-management directors will 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 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 Commission, and
the United States, and the establishment of an effective system of internal
accounting controls. Our audit committee currently does not have any members but
will be composed of non-management directors.
COMPENSATION COMMITTEE. The compensation committee of the board of
directors 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. Our compensation committee currently does not have any members but will
be composed of non-management directors.
DIRECTOR COMPENSATION
Our directors do not receive cash compensation for their service on our
board of directors. All directors are reimbursed for reasonable expenses
incurred in connection with serving as a director. Immediately prior to the
offering, we intend to grant to non-management directors options to purchase
shares of our common stock in amounts to be determined upon their election to
our board. These options will be exercisable at the initial public offering
price. 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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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 no options to any person during our fiscal year ended December
31, 1998, and we have not granted any stock appreciation rights. As of September
14, 1999, we have granted options 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
Druckenmiller. The options are exercisable for a period of five years, but not
until they have vested. The options vest one-third after one full year of
employment with us, an additional third after two full years of employment by
us, and the balance after a third full year of employment by us.
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with most of our employees. The
non-senior management employment agreements are on an at-will basis or for terms
of one year or less, renewable by mutual agreement of the parties thereto and
terminable by us on notice of ninety (90) days or less. The employment
agreements provide, among other things, that each of the employee parties shall
provide services to us on a full-time basis. The agreements 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 employment agreement 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:
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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 e-mail 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.
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, and
employees, and certain consultants. There are 1,170,000 shares reserved for
issuance under the 1999 Stock Option Plan. As of September 14, 1999, options to
purchase 232,500 shares of common stock had been granted at an exercise price of
$5.00 per share.
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.
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<PAGE>
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 control of NetCreations,
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 NetCreations, Inc.
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<PAGE>
PRINCIPAL SHAREOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of September 14, 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% 39.8%
Ryan Scott Druckenmiller........................................................ 5,733,000 49% 38.2%
All directors and executive officers as a group (2 persons)..................... 11,700,000 100% 78.0%
</TABLE>
49
<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 $.01 per share, and 5,000,000 shares of preferred stock, $.01 par
value per share.
COMMON STOCK
As of June 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
As of September 14, 1999, we have granted options 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. The options are exercisable for a
period of five years, but not until they have vested. The options vest one-third
after one full year of employment with us, an additional third after two full
years of employment by us, and the balance after a third full year of employment
by us. The vesting period is accelerated (1) in the event that the employee is
terminated within one year after a "change in control," as defined in the option
instrument, or (2) if we do not survive a change in control transaction 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
50
<PAGE>
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 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. In addition, these holders may also require us to include their
shares for sale in future registration statements 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.
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 certificate of
incorporation and our bylaws could make more difficult any attempt to acquire us
by means of a tender offer, a proxy contest or otherwise and the removal of
incumbent officers and directors. 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 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
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<PAGE>
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.
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
52
<PAGE>
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.
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.
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<PAGE>
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.
54
<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. 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.
55
<PAGE>
UNDERWRITING
Subject to the terms and conditions of an underwriting agreement, the
underwriters named below, acting through their representative Friedman,
Billings, Ramsey & Co., Inc., 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......................................
-----------------
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 underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Friedman, Billings, Ramsey & Co., Inc., in covering syndicate positions or
making stabilizing purchases, repurchases shares originally sold by that
syndicate member.
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.
<TABLE>
<CAPTION>
FULL
EXERCISE NO EXERCISE EXERCISE
- ------------------------------------------------------------------ ------------ ------------
<S> <C> <C>
Underwriting fees per share....................................... $ $
Total underwriting fees........................................... $ $
Other offering expenses per share................................. $ $
Total other offering expenses..................................... $ 1,500,000 $1,500,000
</TABLE>
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
56
<PAGE>
option, each underwriter will purchase shares in approximately the same
proportion as indicated in the table above.
INDEMNITY. We have agreed to indemnify the underwriters against some types
of liabilities, including liabilities under the Securities Act. We have also
agreed to contribute to payments that the underwriters may be required to make
in respect of any of those liabilities.
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. An electronic prospectus is available on the Web
site maintained by fbr.com, an affiliate of Friedman, Billings, Ramsey & Co.,
Inc. 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. 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.
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. 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.
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<PAGE>
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.
58
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by Greenberg Traurig, 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 NetCreations 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 contract or other document of
NetCreations, 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.
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<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 provides 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 Note B-8 as to which
the date is September 14, 1999)
F-2
<PAGE>
NETCREATIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1999
(UNAUDITED)
DECEMBER 31, --------------------
-------------------- PRO FORMA
ASSETS 1997 1998 ACTUAL (NOTE G)
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Current assets
Cash........................................... $ 54,002 $ 96,885 $ 521,086 $ --
Accounts receivable............................ 120,739 673,706 1,576,116 1,576,116
Prepaid income taxes........................... 6,317 -- -- --
Other current assets........................... -- 6,022 7,055 7,055
--------- --------- --------- ---------
Total current assets....................... 181,058 776,613 2,104,257 1,583,171
Equipment (net of accumulated depreciation and
amortization).................................. 51,960 155,740 338,393 338,393
Deferred offering costs.......................... -- -- 112,663 112,663
Other assets..................................... 471 11,451 30,852 30,852
--------- --------- --------- ---------
Total assets............................... $ 233,489 $ 943,804 $2,586,165 $2,065,079
--------- --------- --------- ---------
--------- --------- --------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Borrowings on credit line........................ $ -- $ -- $ 25,000 $ 25,000
Accounts payable and accrued expenses............ 11,158 24,663 234,281 234,281
Commissions payable.............................. 32,902 293,000 1,026,495 1,026,495
Accrued pension.................................. 60,000 60,000 33,125 33,125
Current portion of capital lease obligations..... -- 14,331 68,419 68,419
Income taxes payable............................. -- 12,138 145,487 145,487
Deferred taxes................................... 8,300 32,500 31,500 31,500
--------- --------- --------- ---------
Total current liabilities.................. 112,360 436,632 1,564,307 1,564,307
Capital lease obligations........................ -- 30,180 101,291 101,291
--------- --------- --------- ---------
Total liabilities.......................... 112,360 466,812 1,665,598 1,665,598
Common stock, $.01 par value; 2,000 shares
authorized, 100 issued and outstanding......... 1 1 1 1
Additional paid-in capital....................... 999 999 999 399,480
Retained earnings................................ 120,129 475,992 919,567 --
--------- --------- --------- ---------
Total stockholders' equity................. 121,129 476,992 920,567 399,481
--------- --------- --------- ---------
Total liabilities and stockholders'
equity................................... $ 233,489 $ 943,804 $2,586,165 $2,065,079
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-3
<PAGE>
NETCREATIONS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
------------- ------------- ------------- ------------- -------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues......................... $ 476,190 $ 1,100,781 $ 3,446,539 $ 1,186,198 $ 5,272,594
Cost of revenues..................... 43,090 173,124 1,509,776 422,493 2,577,967
------------- ------------- ------------- ------------- -------------
Gross profit................... 433,100 927,657 1,936,763 763,705 2,694,627
Operating expenses
Selling and marketing.............. 195,451 289,904 492,004 202,292 601,960
Technology, support and
development...................... 177,923 193,554 373,746 137,930 191,805
General and administrative......... 60,734 151,307 369,508 153,861 372,504
Depreciation and amortization...... 554 9,515 23,414 9,483 45,151
------------- ------------- ------------- ------------- -------------
Total operating expenses....... 434,662 644,280 1,258,672 503,566 1,211,420
------------- ------------- ------------- ------------- -------------
Income (loss) before income tax
provision.................... (1,562) 283,377 678,091 260,139 1,483,207
Income tax provision................. 7,434 23,028 72,228 27,700 158,000
------------- ------------- ------------- ------------- -------------
NET INCOME (LOSS).............. $ (8,996) $ 260,349 $ 605,863 $ 232,439 $ 1,325,207
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Basic and diluted net income (loss)
per common share................... $ (0.00) $ 0.02 $ 0.05 $ 0.02 $ 0.11
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Weighted-average common shares
out-standing 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) 283,377 678,091 260,139 1,483,207
Pro forma income tax provision
(benefit)........................ (1,000) 129,000 316,000 120,000 677,000
------------- ------------- ------------- ------------- -------------
Pro forma net income (loss).......... $ (562) $ 154,377 $ 362,091 $ 140,139 $ 806,207
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Pro forma basic and diluted net
income (loss) per common share..... $ (0.00) $ 0.01 $ 0.03 $ 0.01 $ 0.07
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
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
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
--------------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at January 1, 1996........................................ 1 $ 999 $ 2,537 $ 3,537
Net loss.......................................................... (8,996) (8,996)
-
----- ---------- ----------
Balance at December 31, 1996...................................... 1 999 (6,459) (5,459)
Net income........................................................ 260,349 260,349
S corporation distributions to shareholders....................... (133,761) (133,761)
-
----- ---------- ----------
Balance at December 31, 1997...................................... 1 999 120,129 121,129
Net income........................................................ 605,863 605,863
S corporation distributions to shareholders....................... (250,000) (250,000)
-
----- ---------- ----------
Balance at December 31, 1998...................................... 1 999 475,992 476,992
Net income (unaudited)............................................ 1,325,207 1,325,207
S corporation distributions to shareholders (unaudited)........... (881,632) (881,632)
-
----- ---------- ----------
Balance at June 30, 1999 (unaudited).............................. 1 $ 999 $ 919,567 $ 920,567
-
-
----- ---------- ----------
----- ---------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.
F-5
<PAGE>
NETCREATIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss)................................ $ (8,996) $ 260,349 $ 605,863 $ 232,439 $ 1,325,207
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Depreciation and amortization................ 554 9,515 23,414 9,483 45,151
Provision for bad debt....................... -- -- 3,613 -- --
Deferred taxes............................... (2,220) 10,520 24,200 -- (1,000)
Changes in assets and liabilities
Accounts receivable........................ (13,037) (107,702) (556,580) (132,642) (902,410)
Prepaid income taxes....................... -- (6,317) 6,317 -- --
Other current assets....................... -- -- (6,022) -- (1,033)
Other assets............................... (614) 143 (10,980) (11,000) (22,825)
Accounts payable and accrued expenses...... 19,665 (8,507) 13,505 25,782 156,614
Commissions payable........................ 14,019 18,883 260,098 99,880 733,495
Accrued pension............................ 30,000 30,000 (30,000) (26,875)
Income taxes payable....................... 1,147 (1,147) 12,138 20,299 133,349
---------- ---------- ---------- ---------- ------------
Net cash provided by operating
activities............................. 40,518 205,737 375,566 214,241 1,439,673
---------- ---------- ---------- ---------- ------------
Cash flows from investing activities
Capital expenditures............................. (11,074) (50,955) (79,422) (56,963) (76,918)
---------- ---------- ---------- ---------- ------------
Net cash used in investing activities.... (11,074) (50,955) (79,422) (56,963) (76,918)
---------- ---------- ---------- ---------- ------------
Cash flows from financing activities
Distributions to shareholders.................... -- (133,761) (250,000) (70,000) (881,632)
Borrowings under line of credit.................. -- -- 284,240 -- 25,000
Payments on line of credit....................... -- -- (284,240) -- --
Payments of offering costs....................... -- -- -- -- (59,662)
Payments on capital lease obligation............. -- -- (3,261) -- (22,260)
---------- ---------- ---------- ---------- ------------
Net cash used in financing activities.... (133,761) (253,261) (70,000) (938,554)
---------- ---------- ---------- ---------- ------------
NET INCREASE IN CASH..................... 29,444 21,021 42,883 87,278 424,201
Cash at beginning of year.......................... 3,537 32,981 54,002 54,002 96,885
---------- ---------- ---------- ---------- ------------
Cash at end of year................................ $ 32,981 $ 54,002 $ 96,885 $ 141,280 $ 521,086
---------- ---------- ---------- ---------- ------------
---------- ---------- ---------- ---------- ------------
Supplemental disclosures of cash flow information:
Cash paid during the period for Income taxes... $ 8,500 $ 18,825 $ 28,825 $ 7,000 $ 25,141
---------- ---------- ---------- ---------- ------------
---------- ---------- ---------- ---------- ------------
Noncash financing activities:
</TABLE>
Capital lease obligations of $47,772 and $150,886 during the year ended December
31, 1998 and the six months ended June 30, 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. NetCreations' PostMaster Direct Response service manages an
extensive database of unique email addresses gathered from leading 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 and management 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 six months
ended June 30, 1998 and 1999 is unaudited.
The condensed financial statements as of June 30, 1999 and for the six
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 June 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 six months ended
June 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 per share, and, if applicable, diluted net income (loss) per
share. Basic and diluted net income (loss) per share is 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 loss per
share is computed by dividing the net 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. 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. 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.
F-8
<PAGE>
NETCREATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
10. 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.
11. 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 June 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.
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
F-9
<PAGE>
NETCREATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
NOTE D--INCOME TAXES (CONTINUED)
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.
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. The pro forma balance
sheet reflects adjustments at June 30, 1999 for pro forma S corporation
distributions of $521,086 and the reclassification of the undistributed retained
earnings to additional paid in capital. Such distribution will not be paid out
of proceeds of the planned IPO.
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 six months ended June 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>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------- ---------------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
---------- ---------- ---------- ----------- --------------
Current
Federal....................................... $ 5,000 $ 52,000 $ 115,000 $ 44,000 $ 421,000
State and local............................... 4,000 33,000 71,000 27,000 261,000
---------- ---------- ---------- ----------- --------------
Total current............................... 9,000 85,000 186,000 71,000 682,000
---------- ---------- ---------- ----------- --------------
Deferred
Federal....................................... (6,000) 27,000 80,000 30,000 (4,000)
State and local............................... (4,000) 17,000 50,000 19,000 (1,000)
---------- ---------- ---------- ----------- --------------
Total deferred.............................. (10,000) 44,000 130,000 49,000 (5,000)
---------- ---------- ---------- ----------- --------------
Total........................................... $ (1,000) $ 129,000 $ 316,000 $ 120,000 $ 677,000
---------- ---------- ---------- ----------- --------------
---------- ---------- ---------- ----------- --------------
</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 tax expense (benefit) 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>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 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 $ 88,000 $ 504,000
State and local income taxes, net of Federal
benefit............................................ (1,000) 33,000 85,000 32,000 173,000
Other................................................ -- -- --
--------- ---------- ---------- ----------- ----------
$ (1,000) $ 129,000 $ 316,000 $ 120,000 $ 677,000
--------- ---------- ---------- ----------- ----------
--------- ---------- ---------- ----------- ----------
</TABLE>
The significant components of the pro forma net deferred tax liability,
assuming a 34% Federal statutory rate and applicable state and local tax
provision are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1997 1998 1999
--------- ---------- ----------
<S> <C> <C> <C>
Deferred tax liability--current
Accounts receivable and prepaid expenses..................................... $ 55,000 $ 309,000 $ 720,000
Deferred tax asset--current
Accounts payable and accrued expenses........................................ (20,000) (172,000) (588,000)
--------- ---------- ----------
Net deferred tax liability............................................. $ 35,000 $ 137,000 $ 132,000
--------- ---------- ----------
--------- ---------- ----------
</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 six months ended June 30, 1999 one reseller accounted for
approximately 18% of net revenues. In addition, net revenues derived from this
reseller as a list owner represented 1.6% of the Company's net revenues for the
six months ended June 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. The Company has subsequently 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 $25,000 is outstanding as of June 30, 1999. Borrowings are guaranteed by
the Company's stockholders/officers.
Through June 30, 1999, the Company acquired equipment and obtained
additional equipment financing approximating $150,000.
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 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 Company will recognize compensation expense for any
excess of its IPO price over $5.00 over the period of vesting.
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
as of June 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.
F-14
<PAGE>
[INSIDE BACK COVER]
[TO BE FILED BY AMENDMENT]
<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.............................................................. 7
Cautionary Notice Regarding Forward-Looking Statements.................... 19
Termination of S Corporation Status....................................... 19
Use of Proceeds........................................................... 20
Dividend Policy........................................................... 20
Capitalization............................................................ 21
Dilution.................................................................. 22
Selected Financial Data................................................... 23
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 25
Business.................................................................. 34
Management................................................................ 44
Principal Shareholders.................................................... 49
Description of Capital Stock.............................................. 50
Shares Eligible For Future Sale........................................... 55
Underwriting.............................................................. 56
Legal Matters............................................................. 59
Experts................................................................... 59
Where You Can Find More Information....................................... 59
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]
NETCREATIONS, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
FRIEDMAN BILLINGS RAMSEY
----------------
FBR.COM
, 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 fees 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.............................................. *
Legal fees and expenses......................................................... *
Accounting fees and expenses.................................................... *
Printing and engraving.......................................................... *
Blue sky fees and expenses (including legal fees)............................... *
Transfer agent fees............................................................. *
Miscellaneous................................................................... *
Total......................................................................... $1,500,000
------------
------------
</TABLE>
* To be supplied by amendment
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.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement.
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* 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* 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. 1 to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized in New York, New
York, on this 15th day of September, 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. 1 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, September 15, 1999
Rosalind B. Resnick and Treasurer (Principal
Executive Officer)
* Chief Technology Officer,
- ------------------------------ Vice President, September 15, 1999
Ryan Scott Druckenmiller Secretary and Director
* Chief Financial Officer
- ------------------------------ (Principal Financial and September 15, 1999
Gary Sindler Accounting Officer)
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ ROSALIND B. RESNICK
-------------------------
Rosalind B. Resnick September 15, 1999
Attorney-in-Fact
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement.
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* 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* 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-6
<PAGE>
EXHIBIT 3.2
RESTATED
CERTIFICATE OF INCORPORATION
OF
NETCREATIONS, INC.
UNDER SECTION 807 OF THE BUSINESS CORPORATION LAW
--------------------
Rosalind Resnick, President of NetCreations, Inc. (the
"Corporation"), a corporation organized pursuant to Section 402 of the Business
Corporation Law of the State of New York, hereby certifies:
1. The name of the Corporation is NetCreations, Inc.
2. The Corporation's original Certificate of Incorporation was
filed with the Secretary of State of the State of New York on January 17, 1996.
4. This Restated Certificate of Incorporation of the Corporation
hereby amends the following:
(a) Article 3. to change the location of the Corporation's
office from Kings County to New York County;
(b) (i) Article 4. to increase the number of the
Corporation's authorized common stock from 2,000 shares of common stock, $.01
par value per share, to 50,000,000 shares of common stock $.01 par value per
share;
(b) (ii) to authorize 5,000,000 shares of preferred stock,
$.01 par value per share;
(c) Article 5. to change the Corporation's address of
service of process and shall be amended to become Article Twelfth;
(d) A new Article Fifth shall be added to eliminate the
preemptive rights of the shareholders;
(e) Article 6. To eliminate the personal liability of the
directors and officers to the Corporation to the extent permitted by New York
law and is amended to become Article Seventh;
(f) A new Article 6. Shall be amended to permit the election
of directors other than by written ballot, and to authorize the Board of
Directors to adopt, amend, or repel the Bylaws;
<PAGE>
(g) Article 7. which names the registered agent in New York
upon whom process against the Corporation may be served is deleted, and the
authority of the registered agent is hereby revoked;
(h) A new Article Eighth shall be added to authorize the
indemnification of the directors and officers to the fullest extent permitted by
New York law; and further, to establish the procedures for such indemnification;
(i) A new Article Ninth shall be added to require that
advance notice of shareholder nominations for election of directors and other
business to be brought by the shareholders before a shareholder meeting, be
given in the manner provided by the Bylaws;
(j) A new Article Tenth shall be added to require that
shareholders may only take action at a meeting and not by written consent;
(k) A new Article Eleventh shall be added to provide that
special meetings of shareholders may only be called by the Chairman of the
Board, President, the majority of the Board of Directors, or holders of at least
50% of the outstanding stock;
(l) A new Article Twelfth shall be added to change the
Corporation's address of service of process; and further
(m) A new Article Thirteenth shall be added to reserve the
right of the Corporation to amend, alter, change or repeal any provisions in
this Restated Certificate of Incorporation prescribed by statute and all rights
conferred upon the shareholders subject to this reservation.
4. The text of the Certificate of Incorporation is hereby amended
and restated to read in its entirety as follows:
FIRST: The name of the Corporation is NetCreations, Inc.
SECOND: The purpose for which the Corporation is formed is to engage
in any lawful act or activity for which corporations may be organized under the
New York Business Corporation Law. The Corporation is not formed to engage in
any act or activity requiring the consent or approval of any official,
department, board, agency or other body of the State of New York without such
consent or approval first being obtained.
THIRD: The office of the Corporation is to be located in the City of
New York, County of New York, State of New York.
FOURTH: The aggregate number of shares of all classes which the
Corporation shall have the authority to issue is shares, divided into two
classes, of which 5,000,000 shares shall be designated Preferred Stock (par
value $.01 per share) and 50,000,000 shares shall be
2
<PAGE>
designated Common Stock (par value $.01 per share).
The relative rights, preferences and limitations of the shares of
Preferred Stock and the shares of Common Stock shall be as follows:
A. PREFERRED STOCK
1. ISSUANCE IN SERIES. The shares of Preferred Stock may be divided
into and issued in one or more series, and each series shall be designated to
distinguish the shares of such series from the shares of all other series. All
shares of Preferred Stock shall be of equal rank and identical except to the
extent that variations in the relative rights, preferences, and limitations
enumerated in subparagraphs (a) through (h), inclusive, of Section 2 of this
Paragraph A may be fixed and determined by the Board of Directors between series
hereafter established; and each share of a series shall be of equal rank and
identical in all respects with the other shares of such series.
2. AUTHORITY OF THE BOARD WITH RESPECT TO SERIES. Authority is
hereby expressly granted to the Board of Directors, subject to the provisions of
this Article Fourth, to establish and designate one or more series of Preferred
Stock, and with respect to each such series, to fix and determine the following
variations in the relative rights, preferences and limitations of each such
series so established:
(a) the distinctive designation of such series and the
number of shares which shall constitute such series which number may be
increased (except as otherwise provided by the Board of Directors for such
series) or decreased (but not below the number of shares then outstanding) from
time to time by like action of the Board of Directors;
(b) the annual rate of dividends payable on shares of such
series, and the date or dates when such dividends shall be payable;
(c) the time or times when and the price or prices at which
shares of such series shall be redeemable;
(d) the amount payable on shares of such series in the event
of any dissolution, liquidation or winding-up of the affairs of the Corporation;
(e) if the shares of such series are to be entitled to the
benefit of a sinking or retirement fund to be applied to the purchase or
redemption of shares of such series, the amount of the fund and the manner of
its application, including the price or prices at which the shares may be
redeemed or purchased through the application of the fund;
(f) if the shares of such series are to be convertible into
or exchangeable for shares of Common Stock or shares of any other series of
Preferred Stock, the conversion price or prices or the rate or rates of exchange
and the terms and conditions of such
3
<PAGE>
conversion or exchange;
(g) the voting rights, if any, of such series, in addition
to the voting rights provided in Section 5 of this Paragraph A; and
(h) such other relative rights, preferences and limitations
of shares of such series as the Board of Directors may deem advisable and as are
not inconsistent with the provisions of the Certificate of Incorporation and are
permitted by law.
3. DIVIDENDS. (a) The holders of shares of Preferred Stock of each
series shall be entitled to receive, out of the assets of the Corporation which
are by law available for the payment of dividends, cash dividends at the rate
per annum fixed by the Board of Directors for such series, and no more, payable
at such time or times (and shall be cumulative from such date or dates) as shall
be fixed by the Board of Directors for such series. If shares of Preferred Stock
of more than one series are outstanding, and the stated dividends are not paid
in full, the shares of all series shall share ratably in the payment of
dividends (including accumulations, if any), in accordance with the sum which
would be payable on such shares if all dividends were declared and paid in full.
Cash dividends upon shares of Preferred Stock of any series shall commence to
accrue and shall be cumulative from the dividend payment date as of which cash
dividends shall have been paid next preceding the date of issue thereof, unless
the date of issue thereof is a dividend payment date as of which cash dividends
shall have been paid, in which case dividends shall accrue and shall be
cumulative from such dividend payment date, or unless the date of issue thereof
is prior to the first dividend payment date, in which case dividends shall
commence to accrue and shall be cumulative from the date of issue thereof.
(b) If dividends shall not have been paid or declared and
set apart for payment upon all outstanding shares of Preferred Stock of any
series, such deficiency shall be cumulative in full and thereby accumulate.
Accumulated dividends on the shares of Preferred Stock shall not bear interest.
No dividend or distribution, whether in cash, stock (other than Junior Shares)
or other property, shall be paid or declared or set apart for payment in respect
of the Common Stock or any other class of stock of the Corporation hereafter
authorized ranking junior to the Preferred Stock as to the payment of dividends
or the distribution of assets upon dissolution, liquidation or winding up (such
Common Stock and other classes of stock being herein called the "Junior Shares")
and no Junior Shares shall be purchased, redeemed or otherwise acquired for
value by the Corporation, unless, at the date of such declaration, distribution,
other payment, purchase, redemption or other acquisition, all accumulated
dividends on the then outstanding shares of Preferred Stock of all series for
all past quarterly dividend periods and the then current quarterly dividend
period shall have been paid or declared and set apart for payment in full.
4. REDEMPTION. (a) The shares of Preferred Stock of any series then
outstanding shall be redeemable, in whole or in part, at the option of the
Corporation, by resolution of its Board of Directors, at any time or from time
to time at the applicable redemption
4
<PAGE>
price fixed by the Board of Directors for such series, together with all
dividends accrued thereon to the date fixed for redemption and not theretofore
paid or declared and set apart for payment in full. In case of redemption of a
part only of the shares of Preferred Stock of any series at the time
outstanding, the redemption may be either pro rata or by lot, as determined by
the Board of Directors. Subject to the foregoing the Board of Directors shall
have full authority and power to prescribe the manner in which the drawing by
lot or the pro rata redemption shall be conducted and the terms and conditions
upon which the shares of Preferred Stock of any series shall be redeemed.
(b) Notice of every redemption of shares of Preferred Stock
in the form approved by the Board of Directors shall be given by mailing such
notice, postage prepaid, not less than 10 or more than 20 days before the date
fixed for such redemption to each holder of record of shares so to be redeemed
at his address as the same shall appear on the books of the Corporation and the
transfer records of the Corporation may be closed as to such shares at any time
prior to the date fixed for redemption. Each such notice shall specify the date
fixed for redemption and the place where payment of the redemption price is to
be made. Failure to mail such notice or any defect therein or in the mailing
thereof shall not affect the validity of the proceedings for such redemption
except as to any holder to whom the Corporation has failed to mail such notice
or whose notice was defective. Any notice mailed in the manner provided herein
shall be conclusively presumed to have been duly given whether or not the holder
receives the notice.
(c) At any time on or after notice of redemption has been
duly given as provided above, the Corporation may deposit the aggregate
redemption price in trust with a bank or trust company named in such notice,
doing business in the United States, and having a capital, surplus and undivided
profits aggregating at least $15,000,000 for payment on or before the date fixed
for redemption in respect of the shares called for redemption. Such deposit of
funds shall not relieve the Corporation of its obligation to pay the redemption
price when due, if for any reason, such bank or trust company shall not make
such payment of the redemption price. Any interest accrued on funds which are so
deposited shall be paid to the Corporation from time to time, and the holders of
shares to be redeemed shall have no claim to any such interest. Any funds so
deposited and unclaimed at the end of three years from date fixed for redemption
shall be repaid to the Corporation, after which the holders of the shares so
called for redemption shall look only to the Corporation for payment of the
amounts to which they are entitled under this Section 4.
(d) If notice of redemption shall have been duly given as
provided above, upon the deposit of the aggregate redemption price in trust in
accordance with subparagraph (c) of this Section 4, or if no such deposit is
made, on and after the date fixed for redemption (unless the Corporation shall
default in making payment of the redemption price) (i) all shares so called for
redemption shall be deemed no longer outstanding; (ii) all rights with respect
to such shares, including, but not limited to, the right to receive dividends
thereon, shall cease and terminate notwithstanding that any certificate for such
shares so called for redemption
5
<PAGE>
shall not have been surrendered for redemption; and (iii) the holders of such
shares so called for redemption shall cease to be shareholders in respect
thereof and shall have no interest or claim against the Corporation except the
right to receive the redemption price, without interest, upon surrender of their
certificates for cancellation.
5. VOTING RIGHTS. Except as otherwise fixed and determined by the
Board of Directors in any resolution providing for the issuance of any series of
Preferred Stock, or as otherwise provided herein or required by law, the holders
of shares of Preferred Stock shall not be entitled to vote at any annual or
special meeting of shareholders of the Corporation, PROVIDED, HOWEVER, that so
long as any shares of Preferred Stock of any series shall be outstanding the
Corporation shall not, without the affirmative vote or written consent of the
holders of record of two-thirds of the aggregate number of shares of Preferred
Stock of all series then outstanding, voting as a class, (i) increase the total
number of authorized shares of Preferred Stock, (ii) create or issue any shares
of any class of capital stock ranking, either as to payment of dividends or
distribution of assets upon dissolution, liquidation or winding-up prior to or
on a parity with the Preferred Stock, or (iii) alter or change the designation
or the relative rights, preferences and limitations of the Preferred Stock as a
class; and PROVIDED FURTHER that nothing herein contained shall require the
class vote or consent of the holders of shares of Preferred Stock for or in
respect of (i) any increase in the total number of authorized shares of Common
Stock or (ii) the fixing of any of the relative rights, preferences and
limitations of any series of Preferred Stock that may be fixed and determined by
the Board of Directors as provided in Section 2 of this Paragraph A.
6. DISSOLUTION, LIQUIDATION OR WINDING UP. In the event of any
dissolution, liquidation or winding up of the affairs of the Corporation, after
payment or provision for payment of the debts or other liabilities of the
Corporation, the holders of all then outstanding shares of Preferred Stock of
each series shall be entitled to receive, out of the net assets of the
Corporation, an amount in cash for each share equal to the amount fixed by the
Board of Directors for such series of Preferred Stock, together with all
dividends accrued thereon to the date fixed for distribution and not theretofore
paid or declared and set apart for payment in full before any distribution is
made to the holders of Junior Shares. If upon any dissolution, liquidation or
winding up of the affairs of the Corporation, the net assets available for
distribution shall be insufficient to pay the holders of all outstanding shares
of Preferred Stock in full the amounts to which they respectively shall be
entitled, the holders of all outstanding shares of Preferred Stock of all series
shall share ratably in any distribution of assets in accordance with the sums
which would be payable upon such distribution if all sums payable were paid in
full. Neither the merger nor the consolidation of the Corporation, nor the sale,
lease or conveyance of all or a part of its assets, shall be deemed to be a
liquidation or winding up of the affairs of the Corporation within the meaning
of this Article Fourth.
B. COMMON STOCK
1. DIVIDENDS. Subject to the preferential rights of the holders of
shares of Preferred Stock, the holders of shares of Common Stock shall be
entitled to receive, when and if
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declared by the Board of Directors, out of the assets of the Corporation which
are by law available therefor, dividends payable either in cash, in property or
in shares of Common Stock.
2. VOTING RIGHTS. At every annual or special meeting of shareholders
of the Corporation, every holder of Common Stock shall be entitled to one vote,
in person or by proxy, for each share of Common Stock standing in his name on
the books of the Corporation in the election of directors and upon all other
matters.
3. DISSOLUTION, LIQUIDATION OR WINDING UP. In the event of any
dissolution, liquidation or winding up of the affairs of the Corporation, after
payment or provision for payment of the debts and other liabilities of the
Corporation, and of the amounts to which the holders of all outstanding shares
of Preferred Stock shall be entitled, the holders of all outstanding shares of
Common Stock shall be entitled to share ratably in the remaining net assets of
the Corporation.
FIFTH: No shareholder of the Corporation shall, by reason of his
holding shares of any class, have any preemptive or preferential right to
purchase or subscribe to any shares of any class of the Corporation, now or
hereafter to be authorized, or any other securities convertible into or carrying
rights or options to purchase shares of any class, now or hereafter to be
authorized, whether or not the issuance of any such shares or the issuance of
shares upon exercise of any rights or options or upon conversion of such other
securities would adversely affect the dividend or voting rights of such
shareholder. The Board of Directors may issue, and grant rights or options to
purchase, shares of any class of the Corporation, now or hereafter to be
authorized, or any other securities convertible into or carrying rights or
options to purchase shares of any class, now or hereafter to be authorized,
without offering any such shares or other securities, either in whole or in
part, to the shareholders of any class.
SIXTH: In furtherance of and not in limitation of powers conferred
by statute, it is further provided:
1. Election of directors need not be by written ballot.
2. The Board of Directors is expressly authorized to adopt, amend or
repeal the By-Laws of the Corporation.
SEVENTH: Except to the extent that the Business Corporation Law of
New York prohibits the elimination or limitation of liability of directors for
breaches of fiduciary duty, no director or officer of the Corporation shall be
personally liable to the Corporation or its shareholders for monetary damages
for any breach of fiduciary duty as a director, notwithstanding any provision of
law imposing such liability. No amendment to or repeal of this provision shall
apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment. Notwithstanding any other provisions
of law, the Amended and Restated
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Certificate of Incorporation or the By-Laws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least sixty-six 2/3 percent (66 2/3%) of
the shares of capital stock of the Corporation issued and outstanding and
entitled to vote shall be required to amend or repeal, or to adopt any provision
inconsistent with, this Article SEVENTH.
EIGHTH: 1. ACTIONS, SUITS AND PROCEEDINGS OTHER THAN BY OR IN THE
RIGHT OF THE CORPORATION. The Corporation shall indemnify each person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) (all such persons being
referred to hereafter as an "Indemnitee"), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful. Notwithstanding
anything to the contrary in this Article, except as set forth in Section 7
below, the Corporation shall not indemnify an Indemnitee seeking indemnification
in connection with a proceeding (or part thereof) initiated by the Indemnitee
unless the initiation theeof was approved by the Board of Directors of the
Corporation. Notwithstanding anything to the contrary in this Article, the
Corporation shall not indemnify an Indemnitee to the extent such Indemnitee is
reimbursed from the proceeds of insurance, and in the event the Corporation
makes any indemnification payments to an Indemnitee and such Indemnitee is
subsequently reimbursed from the proceeds of insurance, such Indemnitee shall
promptly refund such indemnification payments to the Corporation to the extent
of such insurance reimbursement.
2. ACTIONS OR SUITS BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify any Indemnitee who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation.
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partnership, joint venture, trust or other enterprise (including any employee
benefit plan), or by reason of any action alleged to have been taken or omitted
in such capacity, against all expenses (including attorneys' fees) and, to the
extent permitted by law, amounts paid in settlement actually and reasonably
incurred by him or on his behalf in connection with such action, suit or
proceeding and any appeal therefrom, if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
Corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the appropriate
court shall determine upon application that, despite the adjudication of such
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses (including
attorneys' fees) which the appropriate court shall deem proper.
3. INDEMNIFICATION FOR EXPENSES OF SUCCESSFUL PARTY. Notwithstanding
the other provisions of this Article, to the extent that an Indemnitee has been
successful, on the merits or otherwise, in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article, or in defense of any
claim, issue or matter therein, or on appeal from any such action, suit or
proceeding, he shall be indemnified against all expenses (including attorneys'
fees) actually and reasonably incurred by him or on his behalf in connection
therewith. Without limiting the foregoing, if any action, suit or proceeding is
disposed of, on the merits or otherwise (including a disposition without
prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an
adjudication that the Indemnitee was liable to the Corporation, (iii) a plea of
guilty or nolo contendere by the Indemnitee, (iv) an adjudication that the
Indemnitee did not act in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and (v) with
respect to any criminal proceeding, an adjudication that the Indemnitee had
reasonable cause to believe his conduct was unlawful, the Indemnitee shall be
considered for the purposes hereof to have been wholly successful with respect
thereto.
4. NOTIFICATION AND DEFENSE OF CLAIM. As a condition precedent to
his right to be indemnified, the Indemnitee must notify the Corporation in
writing as soon as practicable of any action, suit, proceeding or investigation
involving him for which indemnity will or could be sought. With respect to any
action, suit, proceeding or investigation of which the Corporation is so
notified, the Corporation will be entitled to participate therein at its own
expense and/or to assume the defense thereof at its own expense, with legal
counsel reasonably acceptable to the Indemnitee. After notice from the
Corporation to the Indemnitee of its election so to assume such defense, the
Corporation shall not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with such claim,
other than as provided below in this Section 4. The Indemnitee shall have the
right to employ his own counsel in connection with such claim, but the fees and
expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee has been authorized by
the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded
that there may be a
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conflict of interest or position on any significant issue between the
Corporation and the Indemnitee in the conduct of the defense of such action or
(iii) the Corporation shall not in fact have employed counsel to assume the
defense of such action, in each of which cases the fees and expenses of counsel
for the Indemnitee shall be at the expense of the Corporation, except as
otherwise expressly provided by this Article. The Corporation shall not be
entitled, without the consent of the Indemnitee, to assume the defense of any
claim brought by or in the right of the Corporation or as to which counsel for
the Indemnitee shall have reasonably made the conclusion provided for in clause
(ii) above.
5. ADVANCE OF EXPENSES. Subject to the provisions of Section 6
below, in the event that the Corporation does not assume the defense pursuant to
Section 4 of this Article of any action, suit, proceeding or investigation of
which the Corporation receives notice under this Article, any expenses
(including attorneys' fees) incurred by an Indemnitee in defending a civil or
criminal action, suit, proceeding or investigation or any appeal therefrom shall
be paid by the Corporation in advance of the final disposition of such matter;
provided, however, that the payment of such expenses incurred by an Indemnitee
in advance of the final disposition of such matter shall be made only upon
receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts
so advanced in the event that it shall ultimately be determined that the
Indemnitee is not entitled to be indemnified by the Corporation as authorized in
this Article. Such undertaking shall be accepted without reference to the
financial ability of the Indemnitee to make such repayment.
6. PROCEDURE FOR INDEMNIFICATION. In order to obtain indemnification
or advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article, the
Indemnitee shall submit to the Corporation a written request, including in such
request such documentation and information as is reasonably available to the
Indemnitee and is reasonably necessary to determine whether and to what extent
the Indemnitee is entitled to indemnification or advancement of expenses. Any
such indemnifiction or advancement of expenses shall be made promptly, and in
any event within 60 days after receipt by the Corporation of the written request
of the Indemnitee, unless with respect to requests under Section 1, 2 or 5 the
Corporation determines within such 60-day period that the Indemnitee did not
meet the applicable standard of conduct set forth in Section 1 or 2, as the case
may be. Such determination shall be made in each instance by (a) a majority vote
of the directors of the Corporation consisting of persons who are not at that
time parties to the action, suit or proceeding in question ("disinterested
directors"), whether or not a quorum, (b) a majority vote of a committee of
disinterested directors designated by majority vote of disinterested directors,
whether or not a quorum, (c) a majority vote of a quorum of the outstanding
shares of stock of all classes entitled to vote for directors, voting as a
single class, which quorum shall consist of stockholders who are not at that
time parties to the action, suit or proceeding in question, (d) independent
legal counsel (who may, to the extent permitted by law, be regular legal counsel
to the Corporation), or (e) a court of competent jurisdiction.
7. REMEDIES. The right to indemnification or advances as granted by
this Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the
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Corporation denies such request, in whole or in part, or if no disposition
thereof is made within the 60-day period refered to above in Section 6. Unless
otherwise required by law, the burden of proving that the Indemnitee is not
entitled to indemnification or advancement of expenses under this Article shall
be on the Corporation. Neither the failure of the Corporation to have made a
determination prior to the commencement of such action that indemnification is
proper in the circumstances because the Indemnitee has met the applicable
standard of conduct, nor an actual determination by the Corporation pursuant to
Section 6 that the Indemnitee has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the Indemnitee has
not met the applicable standard of conduct. The Indemnitee's expenses (including
attorneys' fees) incurred in connection with successfully establishing his right
to indemnification, in whole or in part, in any such proceeding shall also be
indemnified by the Corporation.
8. SUBSEQUENT AMENDMENT. No amendment, termination or repeal of this
Article or of the relevant provisions of the Business Corporation Law of New
York or any other applicable laws shall affect or diminish in any way the rights
of any Indemnitee to indemnification under the provisions hereof with respect to
any action, suit, proceeding or investigation arising out of or relating to any
actions, transactions or facts occurring prior to the final adoption of such
amendment, termination or repeal.
9. OTHER RIGHTS. The indemnification and advancement of expenses
provided by this Article shall not be deemed exclusive of any other rights to
which an Indemnitee seeking indemnification or advancement of expenses may be
entitled under any law (common or statutory), agreement or vote of shareholders
or disinterested directors or otherwise, both as to action in his official
capacity and as to action in any other capacity while holding office for the
Corporation, and shall continue as to an Indemnitee who has ceased to be a
director or officer, and shall inure to the benefit of the estate, heirs,
executors and administrators of the Indemnitee. Nothing contained in this
Article shall be deemed to prohibit, and the Corporation is specifically
authorized to enter into, agreements with officers and directors providing
indemnification rights and procedures different from those set forth in this
Article. In addition, the Corporation may, to the extent authorized from time to
time by its Board of Directors, grant indemnification rights to other employees
or agents of the Corporation or other persons serving the Corporation and such
rights may be equivalent to, or greater or less than, those set forth in this
Article.
10. PARTIAL INDEMNIFICATION. If an Indemnitee is entitled under any
provision of this Article to indemnification by the Corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by him or on his behalf in
connection with any action, suit, proceeding or investigation and any appeal
therefrom but not, however, for the total amount thereof, the Corporation shall
nevertheless indemnify the Indemnitee for the portion of such expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement to
which the Indemnitee is entitled.
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11. INSURANCE. The Corporation may purchase and maintain insurance,
at its expense, to protect itself and any director, officer, employee or agent
of the Corporation or another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) against any expense,
liability or loss incurred by him in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the power to indemnify
such person against such expense, liability or loss under the Business
Corporation Law of New York.
12. MERGER OR CONSOLIDATION. If the Corporation is merged into or
consolidated with another corportion and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation under this Article with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger or consolidation.
13. SAVINGS CLAUSE. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or adminstrative, including an action by or in the right of the
Corporation, to the fullest extent permitted by any applicable portion of this
Article that shall not have been invalidated and to the fullest extent permitted
by applicable law.
14. SUBSEQUENT LEGISLATION. If the Business Corporation Law of New
York is amended after adoption of this Article to expand further the
indemnification permitted to Indemnitees, then the Corporation shall Indemnify
such persons to the fullest extent permitted by the Business Corporation Law of
New York, as so amended.
15. AMENDMENTS TO ARTICLE. Notwithstanding any other provisions of
law, this Amended and Restated Certificate of Incorporation or the By-Laws of
the Corporation, and notwithstanding the fact that a lesser percentage may be
specified by law, the affirmative vote of the holders of at least sixty-six 2/3
percent (66 2/3%) of the shares of capital stock of the Corporation issued and
outstanding and entitled to vote shall be required to amend or repeal, or to
adopt any provision inconsistent with, this Article EIGHTH.
NINTH: 1. SHAREHOLDER NOMINATIONS AND INTRODUCTION OF BUSINESS, ETC.
Advance notice of shareholder nominations for election of directors and other
business to be brought by shareholders before a meeting of shareholders shall be
given in the manner provided by the By-Laws of the Corporation.
2. AMENDMENTS TO ARTICLE. Notwithstanding any other provisions of
law, this Amended and Restated Certificate of Incorporation or the By-laws of
the Corporation, and notwithstanding the fact that a lesser percentage may be
specified by law, the affirmative vote of the holders of at least sixty-six 2/3
percent (66 2/3%) of the shares of capital stock of the
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Corporation issued and outstanding and entitled to vote shall be required to
amend or repeal, or to adopt any provision inconsistent with, this Article
NINTH.
TENTH: Shareholders of the Corporation may not take any action by
written consent in lieu of a meeting. Notwithstanding any other provisions of
law, the Amended and Restated Certificate of Incorporation or the By-Laws of the
Corporation, and notwithstanding the fact that a lesser percentage may be
specified by law, the affirmative vote of the holders of at least sixty-six 2/3
percent (66 2/3%) of the shares of capital stock of the Corporation issued and
outstanding and entitled to vote shall be required to amend or repeal, or to
adopt any provision inconsistent with, this Article TENTH.
ELEVENTH: Special meetings of shareholders may be called at any time
by only the Chairman of the Board of Directors, the President, a majority of the
Board of Directors or the holders of at least fifty percent (50%) of the shares
of capital stock of the Corporation issued and outstanding and entitled to vote.
Business transacted at any special meeting of shareholders shall be limited to
matters relating to the purpose or purposes stated in the notice of meeting.
Notwithstanding any other provision of law, this Amended and Restated
Certificate of Incorporation or the By-Laws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least sixty-six 2/3 percent (66 2/3%) of
the shares of capital stock of the Corporation issued and outstanding and
entitled to vote shall be required to amend or repeal, or to adopt any provision
inconsistent with, this Article ELEVENTH.
TWELFTH: The Secretary of State is designated as the agent of the
Corporation upon whom process against the Corporation may be served. The post
office address to which the Secretary of State shall mail a copy of any process
against the corporation served upon him is: 379 West Broadway, Suite 202, New
York, New York 10012.
THIRTEENTH: The Corporation reserves the right to amend, alter,
change or repeal any provision contained in this Restated certificate of
incorporation in the manner now or hereafter prescribed by statute, and all
rights conferred upon shareholders herein are granted subject to this
reservation.
5. This Amended and Restated Certificate of Incorporation was
authorized by majority vote of the Board of Directors and by majority vote of
the Shareholders of the Corporation.
IN WITNESS WHEREOF, I have made and signed this certificate this 3rd
day of September, 1999 and I affirm the statements contained therein are true
under penalties of perjury.
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/s/ ROSALIND RESNICK
--------------------
Rosalind Resnick
President
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EXHIBIT 3.4
AMENDED AND RESTATED
BY-LAWS OF
NET CREATIONS, INC.
(A New York Corporation)
ARTICLE I
OFFICES
SECTION 1. PRINCIPAL OFFICE. The principal office of the Corporation
within the State of New York shall be in the City of New York, County of New
York.
SECTION 2. OTHER OFFICES. The Corporation may also have an office or
offices other than said principal office at such place or places, either within
or without the State of New York, as the Board of Directors shall from time to
time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
SECTION 1. PLACE OF MEETINGS. All meetings of the shareholders for the
election of directors or for any other purpose shall be held in the State of New
York, at such place as may be fixed from time to time by the Board of Directors,
or at such other place, either within or without the State of New York, as shall
be designated from time to time by the Board of Directors.
SECTION 2. ANNUAL MEETING. The annual meeting of shareholders for the
election of directors and for the transaction of such other business as may
properly be brought before the meeting shall held within six months after the
end of each fiscal year of the Corporation on a date to be fixed by the Board of
Directors or the President (which date shall not be a legal holiday in the place
where the meeting is to be held) at the time and place to be fixed by the Board
of Directors or the President and stated in the notice of the meeting.
SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders, unless
otherwise prescribed by statute, may be called at any time by a majority of the
Board of Directors or the Chairman of the Board, if one shall have been elected,
or the President and shall be called by the Secretary upon the request in
writing of a shareholder or shareholders holding of record at least fifty
percent (50%) of the outstanding shares of the Corporation entitled to vote at
such meeting.
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SECTION 4. NOTICE OF MEETINGS. Notice of the place, date and hour of
holding of each annual and special meeting of the shareholders and, unless it is
the annual meeting, the purpose or purposes thereof, shall be given personally
or by mail in a postage prepaid envelope, not less than ten nor more than fifty
days before the date of such meeting, to each shareholder entitled to vote at
such meeting, and, if mailed, it shall be directed to such shareholder at his
address as it appears on the record of shareholders, unless he shall have filed
with the Secretary of the Corporation a written request that notices to him be
mailed at some other address, in which case it shall be directed to him at such
other address. Any such notice for any meeting other than the annual meeting
shall indicate that it is being issued at the direction of the Board of
Directors, the Chairman of the Board, the President or the Secretary, whichever
shall have called the meeting. Notice of any meeting of shareholders shall not
be required to be given to any shareholder who shall attend such meeting in
person or by proxy and shall not, prior to the conclusion of such meeting,
protest the lack of notice thereof, or who shall, either before or after the
meeting, submit a signed waiver of notice, in person or by proxy. Unless the
Board of Directors shall fix a new record date for an adjourned meeting, notice
of such adjourned meeting need not be given if the time and place to which the
meeting shall be adjourned were announced at the meeting at which the
adjournment is taken.
SECTION 5. QUORUM. At all meetings of the shareholders the holders of a
majority of the shares of the Corporation issued and outstanding and entitled to
vote thereat shall be present in person or by proxy to constitute a quorum for
the transaction of business, except as otherwise provided by statute. In the
absence of a quorum, the holders of a majority of the shares present in person
or by proxy and entitled to vote may adjourn the meeting from time to time. At
any such adjourned meeting at which a quorum may be present any business may be
transacted which might have been transacted at the meeting as originally called.
SECTION 6. ORGANIZATION. At each meeting of the shareholders, the Chairman
of the Board, if one shall have been elected, or in his absence or if one shall
not have been elected, the President shall act as chairman of the meeting.
The Secretary, or in his absence or inability to act, the person whom the
chairman of the meeting shall appoint secretary of the meeting, shall act as
secretary of the meeting and keep the minutes thereof.
SECTION 7. ORDER OF BUSINESS. The order of business at all meetings of the
shareholders shall be as determined by the chairman of the meeting.
SECTION 8. VOTING. Except as otherwise provided by statute or the
Certificate of InCorporation, each holder of record of shares of the Corporation
having voting power shall be entitled at each meeting of the shareholders to one
vote for each share standing in his name on the record of shareholders of the
Corporation:
(a) on the date fixed pursuant to the provisions of Section 6 of
Article V of these By-Laws as the record date for the determination of the
shareholders who shall be entitled to notice of and to vote at such
meeting; or
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(b) if no such record date shall have been so fixed, then at the
close of business on the day next preceding the day on which notice
thereof shall be given.
Each shareholder entitled to vote at any meeting of the shareholders may
authorize another person or persons to act for him by a proxy signed by such
shareholder or his attorney-in-fact. Any such proxy shall be delivered to the
secretary of such meeting at or prior to the time designated in the order of
business for so delivering such proxies. Except as otherwise provided by statute
or the Certificate of InCorporation or these By-Laws, any corporate action to be
taken by vote of the shareholders shall be authorized by a majority of the votes
cast at a meeting of shareholders by the holders of shares present in person or
represented by proxy and entitled to vote on such action. Unless required by
statute, or determined by the chairman of the meeting to be advisable, the vote
on any question need not be by ballot. On a vote by ballot, each ballot shall be
signed by the shareholder voting, or by his proxy, if there be such proxy, and
shall state the number of shares voted.
SECTION 9. LIST OF SHAREHOLDERS. A list of shareholders as of the record
date, certified by the Secretary of the Corporation or by the transfer agent for
the Corporation, shall be produced at any meeting of the shareholders upon the
request of any shareholder made at or prior to such meeting.
SECTION 10. NOMINATION OF DIRECTORS. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors. Nomination for election to the Board of Directors of the Corporation
at a meeting of shareholders may be made by the Board of Directors or by any
shareholder of the Corporation entitled to vote for the election of directors at
such meeting who complies with the notice procedures set forth in this Section
10. Such nominations, other than those made by or on behalf of the Board of
Directors, shall be made by notice in writing delivered or mailed by first class
United States mail, postage prepaid, to the Secretary, and received not less
than 60 days nor more than 90 days prior to such meeting; provided, however,
that if less than 70 days' notice or prior public disclosure of the date of the
meeting is given to shareholders, such nomination shall have been mailed or
delivered to the Secretary not later than the close of business on the 10th day
following the date on which the notice of the meeting was mailed or such public
disclosure was made, whichever occurs first. Such notice shall set forth (a) as
to each proposed nominee (i) the name, age, business address and, if known,
residence address of each such nominee, (ii) the principal occupation or
employment of each such nominee, (iii) the number of shares of stock of the
Corporation which are beneficially owned by each such nominee, and (iv) any
other information concerning the nominee that must be disclosed as to nominees
in proxy solicitations pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (including such person's written consent to be named as
a nominee and to serve as a director if elected); and (b) as to the shareholder
giving the notice (i) the name and address, as they appear on the Corporation's
books, of such shareholder and (ii) the class and number of shares of the
Corporation which are beneficially owned by such shareholder. The Corporation
may require any proposed nominee to furnish such other information as may
reasonably be required by the Corporation to determine the eligibility of such
proposed nominee to serve as a director of the Corporation.
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The chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded
SECTION 11. NOTICE OF BUSINESS AT ANNUAL MEETINGS. At an annual meeting of
the shareholders, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before an annual
meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (b)
otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (c) otherwise properly brought before an annual meeting
by a shareholder. For business to be properly brought before an annual meeting
by a shareholder, if such business relates to the election of directors of the
Corporation, the procedures in Section 10 must be complied with. If such
business relates to any other matter, the shareholder must have given timely
notice thereof in writing to the Secretary. To be timely, a shareholder's notice
must be delivered to or mailed and received at the principal executive offices
of the Corporation not less than 60 days nor more than 90 days prior to the
meeting; provided, however, that in the event that less than 70 days' notice or
prior public disclosure of the date of the meeting is given or made to
shareholders, notice by the shareholder to be timely must be so received not
later than the close of business on the 10th day following the date on which
such notice of the date of the meeting was mailed or such public disclosure was
made, whichever occurs first. A shareholder's notice to the Secretary shall set
forth as to each matter the shareholder proposes to bring before the annual
meeting (a) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (b) the name and address, as they appear on the Corporation's books, of
the shareholder proposing such business, (c) the class and number of shares of
the Corporation which are beneficially owned by the shareholder, and (d) any
material interest of the shareholder in such business. Notwithstanding anything
in these By-laws to the contrary, no business shall be conducted at any annual
meeting except in accordance with the procedures set forth in this Section 11
and except that any shareholder proposal which complies with Rule 14a-8 of the
proxy rules (or any successor provision) promulgated under the Securities
Exchange Act of 1934, as amended, and is to be included in the Corporation's
proxy statement for an annual meeting of shareholders shall be deemed to comply
with the requirements of this Section 11.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 11, and if he should so
determine, the chairman shall so declare to the meeting that any such business
not properly brought before the meeting shall not be transacted.
SECTION 12. INSPECTORS. The Board of Directors may, in advance of any
meeting of shareholders, appoint one or more inspectors to act at such meeting
or any adjournment thereof. If any of the inspectors so appointed shall fail to
appear or act or on the request of any shareholder entitled to vote at such
meeting, the chairman of the meeting shall, or if inspectors shall not have been
appointed, the chairman of the meeting may, appoint one or more inspectors. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath
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faithfully to execute the duties of inspector at such meeting with strict
impartiality and according to the best of his ability. The inspectors shall
determine the number of shares outstanding and the voting power of each, the
number of shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
results, and do such acts as are proper to conduct the election or vote with
fairness to all shareholders. On request of the chairman of the meeting or any
shareholder entitled to vote thereat, the inspectors shall make a report in
writing of any challenge, request or matter determined by them and shall execute
a certificate of any fact found by them. No director or candidate for the office
of director shall act as an inspector of an election of directors.
Inspectors need not be shareholders.
SECTION 13. ACTION BY CONSENT. Unless otherwise provided by the
Certificate of InCorporation, whenever shareholders are required or permitted to
take any action by vote, such action may be taken without a meeting on written
consent, setting forth the action so taken signed by the holders of all
outstanding shares of the Corporation entitled to vote thereon.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the Corporation
shall be managed under the direction of the Board of Directors. The Board of
Directors may exercise all such authority and powers of the Corporation and do
all such lawful acts and things as are not by statute or the Certificate of
InCorporation directed or required to be exercised or done by the shareholders.
SECTION 2. NUMBER, QUALIFICATIONS, ELECTION AND TERM OF OFFICE. The number
of directors constituting the initial Board of Directors shall be two.
Thereafter, the number of directors may be fixed, from time to time, by the
affirmative vote of a majority of the entire Board of Directors or by action of
the shareholders of the Corporation. Any decrease in the number of directors
shall be effective at the time of the next succeeding annual meeting of the
shareholders unless there shall be vacancies in the Board of Directors, in which
case such decrease may become effective at any time prior to the next succeeding
annual meeting to the extent of the number of such vacancies. All the directors
shall be at least eighteen years of age. Directors need not be shareholders.
Except as otherwise provided by statute or these By-Laws, the directors (other
than members of the initial Board of Directors) shall be elected at the annual
meeting of the shareholders. At each meeting of the shareholders for the
election of directors at which a quorum is present the persons receiving a
plurality of the votes cast at such election shall be elected. Each director
shall hold office until the next annual meeting of the shareholders and until
his successor shall have been elected and qualified, or until his death, or
until he shall have resigned, or have been removed, as hereinafter provided in
these By-Laws.
SECTION 3. PLACE OF MEETINGS. Meetings of the Board of Directors shall be
held at the principal office of the Corporation in the State of New York or at
such other place, within or
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without such State, as the Board of Directors may from time to time determine or
as shall be specified in the notice of any such meeting.
SECTION 4. FIRST MEETING. The Board of Directors shall meet for the
purpose of organization, the election of officers and the transaction of other
business, as soon as practicable after each annual meeting of the shareholders,
on the same day and at the same place where such annual meeting shall be held.
Notice of such meeting need not be given. Such meeting may be held at any other
time or place (within or without the State of New York) which shall be specified
in a notice thereof given as hereinafter provided in Section 7 of this Article
III.
SECTION 5. REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at such time and place as the Board of Directors may fix. If any
day fixed for a regular meeting shall be a legal holiday at the place where the
meeting is to be held, then the meeting which would otherwise be held on that
day shall be held at the same hour on the next succeeding business day. Notice
of regular meetings of the Board of Directors need not be given except as
otherwise required by statute or these By-Laws.
SECTION 6. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the Chairman of the Board, if one shall have been elected, or
by two or more directors of the Corporation or by the President.
SECTION 7. NOTICE OF MEETINGS. Notice of each special meeting of the Board
of Directors (and of each regular meeting for which notice shall be required)
shall be given by the Secretary as hereinafter provided in this Section 7, in
which notice shall be stated the time and place of the meeting. Except as
otherwise required by these By-Laws, such notice need not state the purposes of
such meeting. Notice of each such meeting shall be mailed, postage prepaid, to
each director, addressed to him at his residence or usual place of business, by
first-class mail, at least two days before the day on which such meeting is to
be held, or shall be sent addressed to him at such place by telegraph, cable,
telex, telecopier or other similar means, or be delivered to him personally or
be given to him by telephone, or other similar means, at least twenty-four hours
before the time at which such meeting is to be held. Notice of any such meeting
need not be given to any director who shall, either before or after the meeting,
submit a signed waiver of notice or who shall attend such meeting without
protesting, prior to or at its commencement, the lack of notice to him.
SECTION 8. QUORUM AND MANNER OF ACTING. A majority of the entire Board of
Directors shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors, and, except as otherwise expressly required
by statute or the Certificate of InCorporation or these By-Laws, the act of a
majority of the directors present at any meeting at which a quorum is present
shall be the act of the Board of Directors. In the absence of a quorum at any
meeting of the Board of Directors, a majority of the directors present thereat
may adjourn such meeting to another time and place. Notice of the time and place
of any such adjourned meeting shall be given to the directors unless such time
and place were announced at the meeting at which the adjournment was taken, to
the other directors. At any adjourned meeting at which a quorum is present, any
business may be transacted which might have been transacted at the
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meeting as originally called. The directors shall act only as a Board and the
individual directors shall have no power as such.
SECTION 9. ORGANIZATION. At each meeting of the Board of Directors, the
Chairman of the Board, if one shall have been elected, or, in the absence of the
Chairman of the Board or if one shall not have been elected, the President (or,
in his absence, another director chosen by a majority of the directors present)
shall act as chairman of the meeting and preside thereat. The Secretary (or, in
his absence, any person who shall be an Assistant Secretary, if any of them
shall be present at such meeting appointed by the chairman) shall act as
secretary of the meeting and keep the minutes thereof.
SECTION 10. RESIGNATIONS. Any director of the Corporation may resign at
any time by giving written notice of his resignation to the Board of Directors
or the Chairman of the Board or the President or the Secretary. Any such
resignation shall take effect at the time specified therein or, if the time when
it shall become effective shall not be specified therein, immediately upon its
receipt. Unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
SECTION 11. VACANCIES. Subject to any express provision of the Certificate
of InCorporation, any vacancy in the Board of Directors, whether arising from
death, resignation, removal (with or without cause), an increase in the number
of directors or any other cause, may be filled only by the vote of a majority of
the directors then in office, though less than a quorum, or by a sole remaining
director. Each director so elected shall hold office until the next meeting of
the shareholders in which the election of directors is in the regular order of
business and until his successor shall have been elected and qualified.
SECTION 12. REMOVAL OF DIRECTORS. Except as otherwise provided by statute,
any director may be removed, either with or without cause, at any time, by the
shareholders at a special meeting thereof. Except as otherwise provided by
statute, any director may be removed for cause by the Board of Directors at a
special meeting thereof.
SECTION 13. COMPENSATION. The Board of Directors shall have authority to
fix the compensation, including fees and reimbursement of expenses, of directors
for services to the Corporation in any capacity.
SECTION 14. COMMITTEES. The Board of Directors may, by resolution passed
by a majority of the entire Board of Directors, designate one or more
committees, including an executive committee, each committee to consist of three
or more of the directors of the Corporation. The Board of Directors may
designate one or more directors as alternate members of any committee, who may
replace any absent member at any meeting of the committee. Except to the extent
restricted by statute or the Certificate of InCorporation, each such committee,
to the extent provided in the resolution creating it, shall have and may
exercise all the authority of the Board of Directors. Each such committee shall
serve at the pleasure of the Board of Directors and have such name as may be
determined from time to time by resolution adopted by the Board of Directors.
Each committee shall keep regular minutes of its meetings and report the same to
the Board of Directors.
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SECTION 15. ACTION BY CONSENT. Unless restricted by the Certificate of
InCorporation, any action required or permitted to be taken by the Board of
Directors or any committee thereof may be taken without a meeting if all members
of the Board of Directors or such committee consent in writing to the adoption
of a resolution authorizing the action. The resolution and the written consents
thereto by the members of the Board of Directors or such committee shall be
filed with the minutes of the proceedings of the Board of Directors or such
committee.
SECTION 16. TELEPHONIC MEETING. Unless restricted by the Certificate of
InCorporation, any one or more members of the Board of Directors or any
committee thereof may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications equipment
allowing all persons participating in the meeting to hear each other at the same
time. Participation by such means shall constitute presence in person at a
meeting.
ARTICLE IV
OFFICERS
SECTION 1. NUMBER AND QUALIFICATIONS. The officers of the Corporation
shall be elected by the Board of Directors and shall include the President, one
or more Vice-Presidents, the Secretary, and the Treasurer. If the Board of
Directors wishes, it may also elect as an officer of the Corporation a Chairman
of the Board and may elect other officers (including one or more Assistant
Treasurers and one or more Assistant Secretaries), as may be necessary or
desirable for the business of the Corporation. Any two or more offices may be
held by the same person, except the offices of President and Secretary;
PROVIDED, HOWEVER, that such two offices may be held by the same person if all
of the outstanding shares of the Corporation are owned by such person. Each
officer shall hold office until the first meeting of the Board of Directors
following the next annual meeting of the shareholders, and until his successor
shall have been elected and shall have qualified, or until his death, or until
he shall have resigned or have been removed, as hereinafter provided in these
By-Laws.
SECTION 2. RESIGNATIONS. Any officer of the Corporation may resign at any
time by giving written notice of his resignation to the Board of Directors or
the Chairman of the Board or the President or the Secretary. Any such
resignation shall take effect at the time specified therein or, if the time when
it shall become effective shall not be specified therein, immediately upon its
receipt. Unless otherwise specified therein, the acceptance of any such
resignation shall not be necessary to make it effective.
SECTION 3. REMOVAL. Any officer of the Corporation may be removed, either
with or without cause, at any time, by the Board of Directors at any meeting
thereof.
SECTION 4. CHAIRMAN OF THE BOARD. The Chairman of the Board, if one shall
have been elected, shall be a member of the Board, an officer of the Corporation
and, if present, shall preside at each meeting of the Board of Directors or the
shareholders. He shall advise and counsel with the President, and in his absence
with other executives of the Corporation, and shall
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perform such other duties as may from time to time be assigned to him by the
Board of Directors.
SECTION 5. THE PRESIDENT. The President shall be the chief executive
officer of the Corporation. He shall, in the absence of the Chairman of the
Board or if a Chairman of the Board shall not have been elected, preside at each
meeting of the Board of Directors or the shareholders. He shall perform all
duties incident to the office of President and chief executive officer and such
other duties as may from time to time be assigned to him by the Board of
Directors.
SECTION 6. VICE-PRESIDENT. Each Vice-President shall perform all such
duties as from time to time may be assigned to him by the Board of Directors or
the President. At the request of the President or in his absence or in the event
of his inability or refusal to act, the Vice-President, or if there shall be
more than one, the Vice-Presidents in the order determined by the Board of
Directors (or if there be no such determination, then the Vice-Presidents in the
order of their election), shall perform the duties of the President, and, when
so acting, shall have the powers of and be subject to the restrictions placed
upon the President in respect of the performance of such duties.
SECTION 7. TREASURER. The Treasurer shall
(a) have charge and custody of and be responsible for, all the
funds and securities of the Corporation;
(b) keep full and accurate accounts of receipts and disbursements
in books belonging to the Corporation;
(c) deposit all moneys and other valuables to the credit of the
Corporation in such depositories as may be designated by the Board of
Directors or pursuant to its direction;
(d) receive, and give receipts for, moneys due and payable to the
Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the
investments of its funds, taking proper vouchers therefor;
(f) render to the Board of Directors, whenever the Board of
Directors may require, an account of the financial condition of the
Corporation; and
(g) in general, perform all duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to
him by the Board of Directors.
SECTION 8. SECRETARY. The Secretary shall
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board of Directors, the
committees of the Board of Directors and the shareholders;
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(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation
and affix and attest the seal to all certificates for shares of the
Corporation (unless the seal of the Corporation on such certificates shall
be a facsimile, as hereinafter provided) and affix and attest the seal to
all other documents to be executed on behalf of the Corporation under its
seal;
(d) see that the books, reports, statements, certificates and
other documents and records required by law to be kept and filed are
properly kept and filed; and
(e) in general, perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned to
him by the Board of Directors.
SECTION 9. THE ASSISTANT TREASURER. The Assistant Treasurer, or if there
shall be more than one, the Assistant Treasurers in the order determined by the
Board of Directors (or if there be no such determination, then in the order of
their election), shall, in the absence of the Treasurer or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties as from time to time may be
assigned by the Board of Directors.
SECTION 10. THE ASSISTANT SECRETARY. The Assistant Secretary, or if there
be more than one, the Assistant Secretaries in the order determined by the Board
of Directors (or if there be no such determination, then in the order of their
election), shall, in the absence of the Secretary or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
Secretary and shall perform such other duties as from time to time may be
assigned by the Board of Directors.
SECTION 11. OFFICERS' BONDS OR OTHER SECURITY. If required by the Board of
Directors, any officer of the Corporation shall give a bond or other security
for the faithful performance of his duties, in such amount and with such surety
or sureties as the Board of Directors may require.
SECTION 12. COMPENSATION. The compensation of the officers of the
Corporation for their services as such officers shall be fixed from time to time
by the Board of Directors. An officer of the Corporation shall not be prevented
from receiving compensation by reason of the fact that he is also a director of
the Corporation.
ARTICLE V
SHARES, ETC.
SECTION 1. SHARE CERTIFICATES. Each owner of shares of the Corporation
shall be entitled to have a certificate, in such form as shall be approved by
the Board of Directors, certifying the number of shares of the Corporation owned
by him. The certificates representing
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shares shall be signed in the name of the Corporation by the Chairman of the
Board or the President or a Vice-President and by the Secretary, an Assistant
Secretary, the Treasurer or an Assistant Treasurer and sealed with the seal of
the Corporation (which seal may be a facsimile, engraved or printed); provided,
however, that where any such certificate is countersigned by a transfer agent,
or is registered by a registrar (other than the Corporation or one of its
employees), the signatures of the Chairman of the Board, President,
Vice-President, Secretary, Assistant Secretary, Treasurer or Assistant Treasurer
upon such certificates may be facsimiles, engraved or printed. In case any
officer who shall have signed any such certificate shall have ceased to be such
officer before such certificate shall be issued, it may nevertheless be issued
by the Corporation with the same effect as if such officer were still in office
at the date of their issue. When the Corporation is authorized to issue shares
of more than one class there shall be set forth upon the face or back of the
certificate, or the certificate shall have a statement that the Corporation will
furnish to any shareholder upon request and without charge, a full statement of
the designation, relative rights, preferences, and limitations of the shares of
each class authorized to be issued and, if the Corporation is authorized to
issue any class of preferred shares in series, the designation, relative rights,
preferences and limitations of each such series so far as the same have been
fixed and the authority of the Board of Directors to designate and fix the
tentative rights, preferences and limitations of other series.
SECTION 2. BOOKS OF ACCOUNT AND RECORD OF SHAREHOLDERS. There shall be
kept correct and complete books and records of account of all the business and
transactions of the Corporation. There shall also be kept, at the office of the
Corporation, in the State of New York, or at the office of its transfer agent in
said State, a record containing the names and addresses of all shareholders of
the Corporation, the number of shares held by each, and the dates when they
became the holders of record thereof.
SECTION 3. TRANSFER OF Shares. Transfers of shares of the Corporation
shall be made on the records of the Corporation only upon authorization by the
registered holder thereof, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary or with a transfer agent,
and on surrender of the certificate or certificates for such shares properly
endorsed or accompanied by a duly executed stock transfer power and the payment
of all taxes thereon. The person in whose name shares shall stand on the record
of shareholders of the Corporation shall be deemed the owner thereof for all
purposes as regards the Corporation. Whenever any transfer of shares shall be
made for collateral security and not absolutely and written notice thereof shall
be given to the Secretary or to a transfer agent, such fact shall be noted on
the records of the Corporation.
SECTION 4. TRANSFER AGENTS AND REGISTRARS. The Board of Directors may
appoint, or authorize any officer or officers to appoint, one or more transfer
agents and one or more registrars and may require all certificates for shares of
stock to bear the signature of any of them.
SECTION 5. REGULATIONS. The Board of Directors may make such additional
rules and regulations, not inconsistent with these By-Laws, as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of the Corporation.
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SECTION 6. FIXING OF RECORD DATE. The Board of Directors may fix, in
advance, a date not more than fifty nor less than ten days before the date then
fixed for the holding of any meeting of the shareholders or before the last day
on which the consent or dissent of the shareholders may be effectively expressed
for any purpose without a meeting, as the time as of which the shareholders
entitled to notice of and to vote at such meeting or whose consent or dissent is
required or may be expressed for any purpose, as the case may be, shall be
determined, and all persons who were shareholders of record of voting shares at
such time, and no others, shall be entitled to notice of and to vote at such
meeting or to express their consent or dissent, as the case may be. The Board of
Directors may fix, in advance, a date not more than fifty nor less than ten days
preceding the date fixed for the payment of any dividend or the making of any
distribution or the allotment of rights to subscribe for securities of the
Corporation, or for the delivery of evidences of rights or evidences of
interests arising out of any change, conversion or exchange of shares or other
securities, as the record date for the determination of the shareholders
entitled to receive any such dividend, distribution, allotment, rights or
interests, and in such case only the shareholders of record at the time so fixed
shall be entitled to receive such dividend, distribution, allotment, rights or
interests.
SECTION 7. LOST, DESTROYED OR MUTILATED CERTIFICATES. The holder of any
certificate representing shares of the Corporation shall immediately notify the
Corporation of any loss, destruction or mutilation of such certificate, and the
Corporation may issue a new certificate in the place of any certificate
theretofore issued by it which the owner thereof shall allege to have been lost
or destroyed or which shall have been mutilated. The Board of Directors may, in
its discretion, require such owner or his legal representatives to give to the
Corporation a bond in such sum, limited or unlimited, and in such form and with
such surety or sureties as the Board of Directors in its absolute discretion
shall determine, to indemnify the Corporation against any claim that may be made
against it on account of the alleged loss or destruction of any such
certificate, or the issuance of such new certificate.
ARTICLE VI
INDEMNIFICATION
On the terms, to the extent, and subject to the conditions prescribed by
statute and by such rules and regulations, not inconsistent with statute, as the
Board of Directors may in its discretion impose in general or particular cases
or classes of cases, (a) the Corporation shall indemnify any person made, or
threatened to be made, a party to an action or proceeding, civil or criminal,
including an action by or in the right of any other Corporation of any type or
kind, domestic or foreign, or any partnership, joint venture, trust, employee
benefit plan or other enterprise which any director or officer of the
Corporation served in any capacity at the request of the Corporation, by reason
of the fact that he, his testator or intestate, was a director or officer of the
Corporation, or served such other Corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise in any capacity, against
judgments, fines, amounts paid in settlement and reasonable expenses, including
attorneys' fees, actually and necessarily incurred as a result of such action or
proceeding, or any appeal therein, and (b) the Corporation may pay, in advance
of final disposition of any such action or proceeding, expenses incurred by such
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person in defending such action or proceeding.
On the terms, to the extent, and subject to the conditions prescribed by
statute and by such rules and regulations, not inconsistent with statute, as the
Board of Directors may in its discretion impose in general or particular cases
or classes of cases, (a) the Corporation shall indemnify any person made a party
to an action by or in the right of the Corporation to procure a judgment in its
favor, by reason of the fact that he, his testator or intestate, is or was a
director or officer of the Corporation, against the reasonable expenses,
including attorneys' fees, actually and necessarily incurred by him in
connection with the defense of such action, or in connection with an appeal
therein, and (b) the Corporation may pay, in advance of final disposition of any
such action, expenses incurred by such person in defending such action or
proceeding.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Subject to statute and the Certificate of
InCorporation, dividends upon the shares of the Corporation may be declared by
the Board of Directors at any regular or special meeting. Dividends may be paid
in cash, in property or in shares of the Corporation, unless otherwise provided
by statute or the Certificate of InCorporation.
SECTION 2. RESERVES. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the Board of Directors may, from time to time, in its absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation or for such other purpose as the Board of Directors may think
conducive to the interests of the Corporation. The Board of Directors may modify
or abolish any such reserves in the manner in which it was created.
SECTION 3. SEAL. The seal of the Corporation shall be in such form as
shall be approved by the Board of Directors.
SECTION 4. FISCAL YEAR. The fiscal year of the Corporation shall be fixed,
and once fixed, may thereafter be changed, by resolution of the Board of
Directors.
SECTION 5. CHECKS, NOTES, DRAFTS, ETC. All checks, notes, drafts or other
orders for the payment of money of the Corporation shall be signed, endorsed or
accepted in the name of the Corporation by such officer, officers, person or
persons as from time to time may be designated by the Board of Directors or by
an officer or officers authorized by the Board of Directors to make such
designation.
SECTION 6. EXECUTION OF CONTRACTS, DEEDS, ETC. The Board of Directors may
authorize any officer or officers, agent or agents, in the name and on behalf of
the Corporation to enter into or execute and deliver any and all deeds, bonds,
mortgages, contracts and other obligations or instruments, and such authority
may be general or confined to specific instances.
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SECTION 7. VOTING OF STOCKS IN OTHER CORPORATIONS. Unless otherwise
provided by resolution of the Board of Directors, the Chairman of the Board or
the President, from time to time, may (or may appoint one or more attorneys or
agents to) cast the votes which the Corporation may be entitled to cast as a
shareholder or otherwise in any other Corporation, any of whose shares or
securities may be held by the Corporation, at meetings of the holders of the
shares or other securities of such other Corporation, or to consent in writing
to any action by any such other Corporation. In the event one or more attorneys
or agents are appointed, the Chairman of the Board or the President may instruct
the person or persons so appointed as to the manner of casting such votes or
giving such consent. The Chairman of the Board or the President may, or may
instruct the attorneys or agents appointed to, execute or cause to be executed
in the name and on behalf of the Corporation and under its seal or otherwise,
such written proxies, consents, waivers or other instruments as may be necessary
or proper in the premises.
ARTICLE VIII
AMENDMENTS
These By-Laws may be amended or repealed or new By-Laws may be adopted at
any annual or special meeting of shareholders at which a quorum is present or
represented, by the vote of the holders of shares entitled to vote in the
election of directors provided that notice of the proposed amendment or repeal
or adoption of new By-Laws is contained in the notice of such meeting. These
By-Laws may also be amended or repealed or new By-Laws may be adopted by the
Board at any regular or special meeting of the Board of Directors. If any By-Law
regulating an impending election of directors is adopted, amended or repealed by
the Board of Directors, there shall be set forth in the notice of the next
meeting of the shareholders for the election of directors the By-Law so adopted,
amended or repealed, together with a concise statement of the changes made,
By-Laws adopted by the Board of Directors may be amended or repealed by the
shareholders.
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Exhibit 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into as of
the 7th day of September, 1999 by and between NETCREATIONS, INC., a New York
corporation (the "Company"), and Rosalind Resnick (hereinafter called the
"Executive").
R E C I T A L S
A. The Executive desires to continue to be employed as the President,
Chief Executive Officer, and Chief Operating Officer of the Company.
B. The Company desires to continue to employ the President, Chief
Executive Officer, and Chief Operating Officer of the Company.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties agree as follows:
1. EMPLOYMENT.
1.1 EMPLOYMENT. The Company hereby agrees to employ the
Executive and the Executive hereby agrees to serve the Company on the terms and
conditions set forth herein.
1.2 DUTIES OF EXECUTIVE. During the Term of Employment under
this Agreement, the Executive shall serve as the President, Chief Executive
Officer, and Chief Operating Officer of the Company, shall diligently perform
all services as may be assigned to the Executive by the Board of Directors (the
"Board") of the Company which are reasonable and appropriate for an Executive of
such stature, and shall exercise such other power and authority as may from time
to time be delegated to the Executive by the Board. The Executive acknowledges
and agrees that the Company and the Executive may mutually agree to assign some
of the foregoing specific duties to other persons as the Company's management
team expands, and that assignments of duties to other persons will not be viewed
by the Executive as constituting a diminution in the Executive's office, title,
and duties and responsibilities hereunder. The Executive shall devote the
Executive's time and attention during normal business hours to the business and
affairs of the Company, render such services to the best of the Executive's
ability, and use the Executive's best efforts to promote the interests of the
Company. It shall not be a violation of this Agreement for the Executive to (i)
serve on corporate, civic or charitable boards or committees, (ii) deliver
lectures, fulfill speaking engagements or teach at educational institutions, or
(iii) manage personal investments, so long as such activities do not
significantly interfere with the performance of the Executive's responsibilities
to the Company in accordance with this Agreement. The Executive`s duties will
require the Executive's regular presence during normal working hours on business
days Monday through Friday at the Company's principal
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executive offices, currently located at 379 West Broadway, New York, New York,
but the Executive's duties will also involve some business travel.
2. TERM.
2.1 INITIAL TERM. The initial Term of Employment under this
Agreement, and the employment of the Executive hereunder, shall commence on the
date hereof (the "Commencement Date") EXCEPT that no provision concerning
compensation of the Executive shall be effective to the extent that the same
might adversely affect the Executive's ability to receive distributions from the
Company as a shareholder of an S Corporation without adverse tax consequences
until such date as the earlier of (i) the date on which the Company terminates
its election to be taxed as an S Corporation and (ii) the date on which the
Company's initial public offering is consummated, and shall expire on December
31, 2002, unless sooner terminated in accordance with Section 5 hereof (the
"Initial Term").
2.2 RENEWAL TERMS. At the end of the Initial Term, the Term of
Employment automatically shall renew for successive one year terms (subject to
earlier termination as provided in Section 5 hereof), unless the Company or the
Executive delivers written notice to the other at least 90 days prior to the
last day of the Initial Term or any such applicable renewal period (in either
case, the "Expiration Date") of its or the Executive's election not to renew the
Term of Employment. For purposes of this Agreement, if the Term of Employment
expires as a result of the Company delivering written notice to the Executive
stating its intention not to renew the Term of the Employment pursuant to this
Section 2.2, the Executive shall be treated as if the Executive was terminated
by the Company without Cause, in accordance with Section 5.4 hereof, upon the
Expiration Date. In addition, if the Term of Employment expires as a result of
the Executive delivering written notice to the Company stating the Executive's
intention not to renew the Term of Agreement pursuant to this Section 2.2, the
Executive shall be treated as if the Executive had terminated the Executive's
employment with the Company without Good Reason, in accordance with Section
5.5(b) hereof, upon the Expiration Date.
2.3 TERM OF EMPLOYMENT. The period during which the Executive
shall be employed by the Company pursuant to the terms of this Agreement is
sometimes referred to in this Agreement as the "Term of Employment."
3. COMPENSATION.
3.1 BASE SALARY. The Executive shall receive a base salary at
the annual rate (prorated for any applicable period of less than one year) of
$175,000 (the "Base Salary") during the Term of Employment, with such Base
Salary payable in installments consistent with the Company's normal payroll
schedule, subject to applicable withholding and other taxes. The Base Salary
shall be reviewed, at least annually, for merit increases and may, by action and
in the discretion of the Board, be increased (but not decreased) at any time or
from time to time.
3.2 BONUSES. During the term of this Agreement, the Executive
shall be eligible to receive
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performance and annual incentive awards (the "Bonuses") of up to a maximum
potential limit of $175,000 per annum as described below. The Bonuses shall be
reviewed at least annually for merit increases and, by action and in the
discretion of the Compensation Committee of the Board, the limit on the
potential size of Bonuses can be increased, but not decreased, at any time or
from time to time.
The Executive shall also be eligible to receive performance
and annual incentive awards (the "Additional Bonuses") as may be determined
from time to time by the Compensation Committee of the Board.
Each period for which Bonuses or Additional Bonuses are
payable is sometimes hereinafter referred to as a "Bonus Period." Unless
otherwise specified by the Compensation Committee of the Board, the Bonus
Period shall be the designated fiscal year or fiscal quarter of the Company.
The amount of the Bonuses or Additional Bonuses that may be awarded for any
period, if any, shall be determined prior to the commencement of the relevant
Bonus Period by the Compensation Committee of the Board in accordance with this
Agreement. However, any bonus plan for the Executive shall be predicated on the
establishment of quarterly goals, referred to as "Key Initiatives,:" to be
mutually developed and signed off on between the Executive and the Compensation
Committee of the Company's Board prior to and/or adjusted during a quarter.
Key Initiatives will comprise, among other things, specific sales objectives,
business development goals, and Company results. All Bonuses and Additional
Bonuses shall be payable to the Executive quarterly in cash and/or to the
extent determined by the Board and agreed upon by the Executive, with common
stock ("Common Stock") of the Company by no later than ten (10) business
days after the Company has completed its financial statements, approved by the
Company's Chief Financial Officer and its Chief Executive Officer, for the
preceding fiscal period. Bonuses and Additional Bonuses shall be subject to
proration for periods of less than one quarter. Any Bonuses or Additional
Bonuses payable pursuant to this Section 3.2 are sometimes hereinafter
referred to as "Incentive Compensation."
4. EXPENSE REIMBURSEMENT AND OTHER BENEFITS.
4.1 REIMBURSEMENT OF EXPENSES. Upon the submission of proper
substantiation by the Executive, and subject to such rules and guidelines as the
Company may from time to time adopt, the Company shall reimburse the Executive
for all reasonable expenses actually paid or incurred by the Executive during
the Term of Employment in the course of and pursuant to the business of the
Company. The Executive shall account to the Company in writing for all expenses
for which reimbursement is sought and shall supply to the Company copies of all
relevant invoices, receipts or other evidence reasonably requested by the
Company.
4.2 COMPENSATION/BENEFIT PROGRAMS. During the term of
Employment, the Executive shall be entitled to participate in all medical,
dental, hospitalization, accidental death and dismemberment, disability, travel
and life insurance plans applicable to the Company's senior executives
generally, and any and all other plans as are presently and hereinafter offered
by the Company generally to its executives, including savings, pension,
profit-sharing and deferred compensation plans, subject to the general
eligibility and participation provisions set forth in such plans.
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4.3 TRANSPORTATION ALLOWANCE. The Executive will not be
entitled to reimbursement for his expenses in commuting to and from the
Company's offices.
4.4 STOCK OPTIONS. During the Term of Employment, the
Executive shall be eligible to be granted options (the "Stock Options") to
purchase the Common Stock of the Company under (and therefore subject to) all
terms and conditions of) the Company's Stock Option Plan. The number of Stock
Options and terms and conditions of the Stock Options shall be determined by the
Committee appointed pursuant to the Stock Option Plan, or by the Board of
Directors of the Company, in its discretion and pursuant to the Stock Option
Plan.
4.5 VACATION BENEFITS. The Executive shall be entitled to four
(4) weeks of vacation time each calendar year during the term of this Agreement,
to be taken at such times as the Executive and the Company shall mutually
determine and provided that no vacation time shall interfere with the duties
required to be rendered by the Executive hereunder.
4.6 OTHER BENEFITS. The Executive shall receive such
additional benefits, if any, as the Board of the Company shall from time to time
determine.
5. TERMINATION.
5.1 TERMINATION FOR CAUSE. The Company shall at all times have
the right, upon written notice (which shall describe in general terms the basis
for dismissal per this Section) to the Executive, to terminate the Term of
Employment, for Cause. For purposes of this Agreement, the term "Cause" shall
mean (i) an action or omission of the Executive which constitutes a willful and
material breach of, or failure or refusal (other than by reason of the
Executive's disability) to perform the Executive's duties under, this Agreement
which is not cured within fifteen (15) days after receipt by the Executive of
written notice of same if such action or omission is capable of being so cured,
(ii) habitual insobriety or use of controlled substances (other than under the
supervision of a licensed physician); (iii) habitual absenteeism; (iv) fraud,
non-disclosed self-dealing, embezzlement or misappropriation of funds or
property or breach of trust in connection with the Executive's services
hereunder, (v) conviction of a felony or conviction of any other crime or
misdemeanor involving moral turpitude; or (vi) gross negligence in connection
with the performance of the Executive's duties hereunder, which is not cured, to
the extent that the same is curable, within fifteen (15) days after receipt by
the Executive of written notice of same. Upon any termination pursuant to this
Section 5.1, the Company shall pay to the Executive the Executive's Base Salary
to the date of termination. The Company shall have no further liability
hereunder (other than for reimbursement for reasonable business expenses
incurred prior to the date of termination, subject, however, to the provisions
of Section 4.1).
5.2 DISABILITY. The Company shall at all times have the right,
upon written notice to the Executive, to terminate the Term of Employment, if
the Executive shall as the result of mental or physical incapacity, illness or
disability, become unable to perform the Executive's obligations hereunder for a
total of 180 days in any 12-month period. The Company shall have
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sole discretion based upon advice of a licensed medical doctor to determine
whether the Executive continues to be disabled provided that if the Executive
does not submit to examination by a licensed medical doctor for such purpose (if
requested by the Company) then the Company may terminate the Executive's
employment if the Executive shall become entitled to benefits under the
Company's disability plan as then in effect. Upon any termination pursuant to
this Section 5.2, the Company shall (i) pay to the Executive any unpaid Base
Salary through the effective date of termination specified in such notice, (ii)
pay to the Executive the Executive's accrued but unpaid Incentive Compensation,
if any, for any Bonus Period ending on or before the date of termination of the
Executive's employment with the Company, (iii) continue to pay the Executive
through the later of (x) the date which is one year after the termination but no
later than the Expiration Date), or (y) one year from the date of termination
(the "Continuation Period"), an amount equal to the Base Salary the Executive
was receiving at the time of the Executive's Disability, such amount to be paid
in the manner and at such times as the Base Salary otherwise would have been
payable to the Executive, and (iv) continue to pay the Executive Incentive
Compensation and continue to provide the Executive with the benefits the
Executive was receiving under Section 4.2 hereof (the "Benefits") through the
Continuation Period (to the extent permitted under the terms of applicable
insurance and other benefit programs of the Company then in affect and covering
the Executive, and provided further that the Company shall not take any
affirmative action from the time of giving notice of termination to the
Executive through the end of the Continuation Period which would cause the
relevant insurance and other benefits available to the Executive to be reduced
or eliminated) following the termination of the Executive's employment with the
Company, in the manner and at such times as the compensation or Benefits
otherwise would have been payable or provided to the Executive, provided that
the amounts payable to the Executive pursuant to the foregoing clauses (i)
through (iv) shall be reduced by the amount actually paid to the Executive
pursuant to the disability insurance referred to in Section 4.2 hereof. The
Company shall have no further liability hereunder (other than for reimbursement
for reasonable business expenses incurred prior to the date of termination,
subject, however to the provisions of Section 4.1).
5.3 DEATH. Upon the death of the Executive during the Term of
Employment, the Company shall (i) pay to the estate of the deceased Executive
any unpaid Base Salary through the Executive's date of death, (ii) pay to the
estate of the deceased Executive the Executive's accrued but unpaid Incentive
Compensation, if any, for any Bonus Period ending on or before the Executive's
date of death, (iii) continue to pay to the estate of the deceased Executive the
Base Salary the Executive was receiving prior to the Executive's death under
Section 3.1 hereof through the Continuation Period following the Executive's
death, in the manner and at such times as the Base Salary otherwise would have
been payable to the Executive, and (iv) continue to pay to the estate of the
deceased Executive Incentive Compensation through the Continuation Period
following the termination of the Executive's employment with the Company, in the
manner and at such times as the compensation would have been payable or provided
to the Executive. The Company shall have no further liability hereunder (other
than for reimbursement for reasonable business expenses incurred prior to the
date of the Executive's death, subject, however to the provisions of Section
4.1).
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5.4 TERMINATION WITHOUT CAUSE. At any time the Company shall
have the right to terminate the Executive's employment hereunder without Cause
by written notice to the Executive. Upon any termination pursuant to this
Section 5.4, the Company shall (i) pay to the Executive any unpaid Base Salary
through the effective date of termination specified in such notice, (ii) pay to
the Executive the accrued but unpaid Incentive Compensation, if any, for any
Bonus Period ending on or before the date of the termination of the Executive's
employment with the Company, and a prorated portion of the Bonus earned, if any,
for the quarterly Bonus Period, if any, in which the termination occurs, (iii)
continue to pay the Executive's Base Salary and Incentive Compensation through
the Continuation Period, in the manner and at such time as the Base Salary and
Incentive Compensation otherwise would have been payable to the Executive, and
(iv) continue to provide the Executive with the Benefits the Executive was
receiving under Section 4.2 hereof (to the extent permitted under the terms of
applicable insurance and other benefit programs of the Company then in affect
and covering the Executive, and provided further that the Company shall not take
any affirmative action from the time of giving notice of termination to the
Executive through the end of the Continuation Period which would cause the
relevant insurance and other benefits available to the Executive to be reduced
or eliminated) during the Continuation Period, in the manner and at such times
as the Benefits otherwise would have been payable or provided to the Executive.
In the event that the Executive has remained with the Company for five (5) years
or more the Continuation Period shall be two (2) years. The Company shall have
no further liability hereunder (other than for reimbursement for reasonable
business expenses incurred prior to the date of termination, subject, however,
to the provisions of Section 4.1).
5.5 TERMINATION BY EXECUTIVE.
a. The Executive shall at all times have the right,
upon ninety (90) days written notice to the Company, to terminate the Term of
Employment.
b. Upon termination of the Term of Employment
pursuant to this Section 5.5 (that is not a termination under Section 5.6) by
the Executive without Good Reason, the Company shall pay to the Executive any
unpaid Base Salary through the effective date of termination specified in such
notice. The Company shall have no further liability hereunder (other than for
reimbursement for reasonable business expenses incurred prior to the date of
termination, subject, however, to the provisions of Section 4.1).
c. Upon termination of the Term of Employment
pursuant to this Section 5.5 (that is not a termination under Section 5.6) by
the Executive for Good Reason, the Company shall pay to the Executive the same
amounts that would have been payable by the Company to the Executive under
Section 5.4 of this Agreement if the Term of Employment had been terminated by
the Company without Cause. The Company shall have no further liability hereunder
(other than for reimbursement for reasonable business expenses incurred prior to
the date of termination, subject, however, to the provisions of Section 4.1).
d. For purposes of this Agreement, "Good Reason"
shall mean any of
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the following:
(i) the assignment to the Executive of any material
duties inconsistent in any material respect with the Executive's duties as
defined hereunder or any other action by the Company which results in a material
diminution in the Executive's position, authority, duties or responsibilities
from those contemplated by Section 1.2 of this Agreement, which is not remedied
by the Company within fifteen (15) days after receipt of written notice from the
Executive of the same, excluding for this purpose any isolated, insubstantial
and inadvertent action not taken in bad faith;
(ii) any material failure by the Company to comply
with any of the provisions of Article 3 of this Agreement which is not remedied
by the Company within fifteen (15) days after receipt of written notice thereof
given by the Executive, other than an isolated, insubstantial and inadvertent
failure not occurring in bad faith and which is remedied by the Company promptly
after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be
based at any office or location more than 60 miles outside of New York City, NY,
except for business trips reasonably required in the performance of the
Executive's responsibilities; or
(iv) any purported termination by the Company of the
Executive's employment otherwise than pursuant to Sections 5.1 - 5.4 of this
Agreement.
5.6 CHANGE IN CONTROL OF THE COMPANY.
a. Unless otherwise provided in this Agreement, in
the event that a Change in Control (as defined in paragraph (b) of this Section
5.6) in the Company shall occur during the Term of Employment, and prior to the
first anniversary of the date of the Change in Control, either (x) the Term of
Employment is terminated by the Company without Cause, pursuant to Section 5.4
hereof or (y) the Executive terminates the Term of Employment for Good Reason
pursuant to Section 5.5(c) hereof, the Company shall (1) pay to the Executive
any unpaid Base Salary through the effective date of termination, (2) pay to the
Executive the Incentive Compensation, if any, not yet paid to the Executive for
any Bonus Period prior to such termination, at such time as the Incentive
Compensation otherwise would have been payable to the Executive, and (3) pay to
the Executive in a lump sum payment an amount equal to the amount of the
Executive's Base Salary for the six (6 months preceding such termination. If,
during the Term of Employment, any Change in Control should occur and, prior to
the first anniversary of the date of the Change in Control, either (x) the Term
of Employment is terminated by the Company without Cause, pursuant to Section
5.4 herof or (y) the Executive terminates the Term of Employment for Good Reason
pursuant to Section 5.5(c) hereof, the Executive's unvested Stock Options shall
be vested and become immediately exercisable. In addition, if a Change in
Control transaction shall occur in which the Company is not the surviving entity
and the acquiror does not agree to assume the obligations represented by the
Stock Option rights of the Executive on or prior to the closing of the Change in
Control
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transaction on such terms and conditions as shall be reasonably satisfactory to
the Company, THEN the Executive's unvested Stock Options shall be vested and
become immediately exercisable immediately prior to the consummation of the
closing of such Change in Control transaction so as to permit the Executive to
dispose of the shares of common stock underlying such Stock Options in that
Change in Control transaction on substantially the same terms and conditions as
are applicable to shareholders of the Company generally. If any of the
Executive's Stock Options shall vest according to the applicable vesting
schedule, the options which shall have vested after any such Change in Control
shall continue to be exercisable for a period of three months from the date of
any termination of the Executive's employment by the Company following such
Change in Control. The Company shall have no further liability hereunder (other
than for reimbursement for reasonable business expenses incurred prior to the
date of termination, subject, however, to the provisions of Section 4.1).
b. For purposes of this Agreement, the term "Change
in Control" shall mean:
(i) Approval by the shareholders of the
Company of (x) a reorganization, merger, consolidation or other form of
corporate transaction or series of transactions, in each case, with respect to
which persons who were the shareholders of the Company immediately prior to such
reorganization, merger or consolidation or other transaction do not, immediately
thereafter, own more than 50% of the combined voting power entitled to vote
generally in the election of directors of the reorganized, merged or
consolidated company's then outstanding voting securities, in substantially the
same proportions as their ownership immediately prior to such reorganization,
merger, consolidation or other transaction, or (y) a liquidation or dissolution
of the Company or (z) the sale of all or substantially all of the assets of the
Company (unless such reorganization, merger, consolidation or other corporate
transaction, liquidation, dissolution or sale is subsequently abandoned);
(ii) Individuals who, as of the Commencement
Date of this Agreement, constitute the Board (the "Incumbent Board") cease for
any reason to constitute at least a majority of the Board, provided that any
person becoming a director subsequent to the Commencement Date of this Agreement
whose election, or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then comprising the
Incumbent Board (other than an election or nomination of an individual whose
initial assumption of office is in connection with an actual or threatened
election contest relating to the election of the Directors of the Company, as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Securities Exchange Act) shall be, for purposes of this Agreement, considered as
though such person were a member of the Incumbent Board; or
(iii) the acquisition by any person, entity
or "group", within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act, of more than 30% of either the then outstanding shares of the
Company's Common Stock or the combined voting power of the Company's then
outstanding voting securities entitled to vote generally in the
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election of directors (hereinafter referred to as the ownership of a
"Controlling Interest") excluding, for this purpose, any acquisitions by (1) the
Company, (2) any person, entity or "group" that as of the Commencement Date of
this Agreement owns beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Securities Exchange Act) of a Controlling Interest, (3)
Rosalind Resnick and/or Ryan Scott Druckenmiller or their respective affiliates,
or (4) any employee benefit plan of the Company.
c. Notwithstanding the foregoing, the term "Change in
Control" shall NOT include (i) any transaction, event or circumstance as a
result of which or after which Rosalind Resnick, Ryan Scott Druckenmiller, and
their respective affiliates continue to own, in the aggregate, the largest
percentage of shares of the Company owned by any shareholder of the Company,
(ii) the IPO, (iii) the above-referenced strategic or financial investments
which are contemplated to occur prior to the IPO, or (iii) any transaction
entered into by the Company and its stockholders prior to the IPO primarily for
the purpose of facilitating estate planning of Rosalind Resnick or Ryan Scott
Druckenmiller or converting the Company from an "S Corp" to a "C Corp" in
preparation for the IPO.
5.7 RESIGNATION. Upon any termination of employment pursuant
to this Article 5, the Executive shall be deemed to have resigned as an officer,
and if the Executive was then serving as a director of the Company, as a
director, and if required by the Board, the Executive hereby agrees to
immediately execute a resignation letter to the Board.
5.8 SURVIVAL. The provisions of this Article 5 shall survive
the termination of this Agreement, as applicable.
6. RESTRICTIVE COVENANTS.
6.1 NON-COMPETITION. At all times while the Executive is
employed by the Company and for a three (3) year period after the termination
of the Executive's employment with the Company for any reason (other than (a)
termination by the Company without Cause or (b) termination by the Executive
for Good Reason (as defined in Section 5.5(d) hereof) or (c) termination by the
Company prior to the first anniversary of a Change in Control other than for
Cause), the Executive shall not, directly or indirectly, engage in or have any
interest in any sole proprietorship, partnership, corporation or business or any
other person or entity (whether as an employee, officer, director, partner,
agent, security holder, creditor, consultant or otherwise) that directly engages
in competition with the Company (for this purpose, any business unit or division
that provides e-mail direct marketing services to third parties for compensation
shall be deemed to be in competition with the Company); provided that such
provision shall not apply to the Executive's ownership of Common Stock of the
Company or the acquisition by the Executive, solely as an investment, of
securities of any issuer that is registered under Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, as amended, and that are listed or admitted for
trading on any United States national securities exchange or that are quoted on
the Nasdaq, or any similar system or automated dissemination of quotations of
securities prices in common use, so long as the Executive does not control,
acquire a controlling interest in or
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become a member of a group which exercises direct or indirect control or, more
than one percent (1%) of any class of capital stock of such corporation.
6.2 NONDISCLOSURE. The Executive shall not during the
Executive's employment under this Agreement or after the termination of such
employment divulge, communicate, use to the detriment of the Company or for the
benefit of any other person or persons, or misuse in any way, any Confidential
Information (as hereinafter defined) pertaining to the business of the Company.
Any Confidential Information or data now or hereafter acquired by the Executive
with respect to the business of the Company (which shall include, but not be
limited to, information concerning the Company's financial condition, prospects,
technology, customers, suppliers, sources of leads and methods of doing
business) shall be deemed a valuable, special and unique asset of the Company
that is received by the Executive in confidence and as a fiduciary, and
Executive shall remain a fiduciary to the Company with respect to all of such
information. For purposes of this Agreement, "Confidential Information" means
information disclosed to the Executive or known by the Executive as a
consequence of or through the Executive's employment by the Company (including
information conceived, originated, discovered or developed by the Executive)
prior to or after the date hereof (up to the date of termination of the
Executive's employment pursuant to this Agreement), and whose existence or
significance or utility in respect of the Company or its business is not
generally known. Notwithstanding the foregoing, nothing herein shall be deemed
to restrict the Executive from disclosing Confidential Information to the extent
required by law or in the valid performance of the Executive's duties.
6.3 NONSOLICITATION OF EMPLOYEES AND CLIENTS. At all times
while the Executive is employed by the Company and for a one (1) year period
after the termination of the Executive's employment with the Company for any
reason, the Executive shall not, directly or indirectly, for the Executive or
for any other person, firm, corporation, partnership, association or other
entity (a) employ or attempt to employ or enter into any contractual arrangement
with any employee or former employee of the Company, until a period of at least
six (6) months has elapsed from the date of termination of the employment of
such person with the Company, and/or (b) call on or solicit any of the actual or
targeted prospective clients of the Company on behalf of any person or entity in
connection with any business competitive with the business of the Company, while
the Executive is employed by the company, or in connection with any email direct
marketing business for a one-year period after the termination of the
executive's employment, nor shall the Executive make known the names and
addresses of such clients or any information relating in any manner to the
Company's trade or business relationships with such customers, other than in
connection with the performance of the Executive's duties under this Agreement.
6.4 OWNERSHIP OF DEVELOPMENTS. Except for any poetry, short
stories, novels, plays, movies or other literary works that the Executive might
create either on or off the Web as well as any non-fiction books that the
Executive might write about Internet marketing or email marketing, all
copyrights, patents, trade secrets, or other intellectual property rights
associated
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with any ideas, concepts, techniques, inventions, processes, or works of
authorship developed or created by the Executive in performing the Executive's
duties for the Company's email direct marketing business or its email direct
marketing clients (collectively, the "Work Product") shall belong exclusively to
the Company and shall, to the extent possible, be considered a work made by the
Executive for hire for the Company within the meaning of Title 17 of the United
States Code. To the extent the Work Product may not be considered work made by
the Executive for hire for the Company, the Executive agrees to assign, and
automatically assigns at the time of creation of the Work Product, without any
requirement of further consideration, any right, title, or interest the
Executive may have in such Work Product. Upon the request of the Company, the
Executive shall take such further actions, including execution and delivery of
instruments of conveyance, as may be appropriate to give full and proper effect
to such assignment.
6.5 BOOKS AND RECORDS. All books, records, and accounts
relating in any manner to the customers or clients of the Company, whether
prepared by the Executive or otherwise coming into the Executive's possession,
shall be the exclusive property of the Company and shall be returned immediately
to the Company on termination of the Executive's employment hereunder or on the
Company's request at any time, upon which the Executive shall not retain any
copies of the same in any media whatsoever.
6.6 DEFINITION OF COMPANY. Solely for purposes of this Article
6, the term "Company" also shall include any existing or future subsidiaries of
the Company that are operating during the time periods described herein and any
other entities that directly or indirectly, through one or more intermediaries,
control, are controlled by or are under common control with the Company during
the periods described herein.
6.7 ACKNOWLEDGMENT BY EXECUTIVE. The Executive acknowledges
and confirms that (a) the restrictive covenants contained in this Article 6 are
reasonable and necessary to protect the legitimate business interests of the
Company, and (b) the restrictions contained in this Article 6 (including without
limitation the length of the term of the provisions of this Article 6) are not
overbroad, overlong, or unfair and are not the result of overreaching, duress or
coercion of any kind. The Executive further acknowledges and confirms that the
Executive's full, uninhibited and faithful observance of each of the covenants
contained in this Article 6 will not cause the Executive any undue hardship,
financial or otherwise, and that enforcement of each of the covenants contained
herein will not impair the Executive's ability to obtain employment commensurate
with the Executive's abilities and on terms fully acceptable to the Executive or
otherwise to obtain income required for the comfortable support of the Executive
and the Executive's family and the satisfaction of the needs of the Executive's
creditors. The Executive acknowledges and confirms that the Executive's special
knowledge of the business of the Company is such as would cause the Company
serious injury or loss if the Executive were to use such ability and knowledge
to the benefit of a competitor or were to compete with the Company in violation
of the terms of this Article 6. The Executive further acknowledges that the
restrictions contained in this Article 6 are intended to be, and shall be, for
the benefit of and shall be enforceable by, the Company and its successors and
assigns,
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including, without limitation, any successor to the Company, whether by merger,
consolidation, sale of stock, sale of assets or otherwise.
6.8 REFORMATION BY COURT. In the event that a court of
competent jurisdiction shall determine that any provision of this Article 6 is
invalid or more restrictive than permitted under the governing law of such
jurisdiction, then only as to enforcement of this Article 6 within the
jurisdiction of such court, such provision shall be interpreted and enforced as
if it provided for the maximum restriction permitted under such governing law.
6.9 EXTENSION OF TIME. If the Executive shall be in violation
of any provision of this Article 6, then each time limitation set forth in this
Article 6 shall be extended for a period of time equal to the period of time
during which such violation or violations occur. If the Company seeks injunctive
relief from such violation in any court, then the covenants set forth in this
Article 6 shall be extended for a period of time equal to the pendency of such
proceeding including all appeals by the Executive.
6.10 SURVIVAL. The provisions of this Article 6 shall survive
the termination of this Agreement, as applicable.
7. INJUNCTION. It is recognized and hereby acknowledged by the parties
hereto that a breach by the Executive of any of the covenants contained in
Article 6 of this Agreement will cause irreparable harm and damage to the
Company, the monetary amount of which may be virtually impossible to ascertain.
As a result, the Executive recognizes and hereby acknowledges that the Company
shall be entitled, without the necessity of proving damages or posting a bond,
to an injunction from any court of competent jurisdiction enjoining and
restraining any violation of any or all of the covenants contained in Article 6
of this Agreement by the Executive or any of the Executive's affiliates,
associates, partners or agents, either directly or indirectly, and that such
right to injunction shall be cumulative and in addition to whatever other
remedies the Company may possess. If the Company should fail to obtain any
injunction when the Company seeks an injunction pursuant to this Section (other
than due to the fact that the parties reach a settlement or the Executive ceases
the activities complained of by the Company without need of an injunction), then
the Company shall reimburse the Executive for the Executive's reasonable
attorney's fees and expenses pertaining to the proceedings to seek the
injunction.
8. MEDIATION. In the event a dispute arises out of or relates to this
Agreement, or the breach thereof, and if the dispute cannot be settled through
negotiation, the parties hereby agree first to attempt in good faith to settle
the dispute by mediation administered by the American Arbitration Association
under its Employment Mediation Rules before resorting to arbitration as set
forth in Section 8 below. Notwithstanding the foregoing, (i) the Company has the
right to seek an injunction under Section 7 hereof, and (ii) either party may
seek an injunction or entry of judgment on an arbitration award under Section 9
of this Agreement. The cost and expenses of mediators (but not the fees and
expenses of any counsel or other professional representing any party other than
the Company) shall be borne by the Company. If any dispute is settled by
mediation pursuant to this Section and the Company fails to achieve any decision
in its favor,
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then the Company shall reimburse the Executive for the Executive's reasonable
attorneys' fees and expenses pertaining to the mediation proceedings.
9. ARBITRATION. In the event that mediation pursuant to Section 8 of
this Agreement has failed after thirty (30) days or the parties to this
Agreement both agree not to mediate, any dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by arbitration in
New York County, New York, in accordance with the Rules of the American
Arbitration Association then in effect with respect to arbitration of commercial
matters (except to the extent that the procedures outlined below differ from
such rules). Within ten (10) days after written notice by either party has been
given that a dispute exists and that arbitration is required, each party must
select an arbitrator and those two arbitrators shall promptly, but in no event
later than ten (10) days after their selection, select a third arbitrator. The
parties agree to act as expeditiously as possible to select arbitrators and
conclude the dispute. The selected arbitrators must render their decision in
writing. The cost and expenses of the arbitrators (but not the fees and expenses
of any counsel or other professional representing any party other than the
Company) shall be borne by the Company. Judgment may be entered on the
arbitrators' award in any court having jurisdiction. Pursuit of an injunction
shall not impair arbitration on all remaining issues. If any dispute is settled
by arbitration pursuant to this Section and the Company fails to achieve any
decision in its favor, then the Company shall reimburse the Executive for the
Executive's reasonable attorneys' fees and expenses pertaining to the
arbitration proceedings.
10. ASSIGNMENT. Neither party shall have the right to assign or
delegate their rights or obligations hereunder, or any portion thereof, to any
other person, except that the rights of the Company may be assigned by the
Company to any person or entity acquiring a substantial portion of the Company's
assets or to any successor of the Company.
11. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
12. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and, upon
its effectiveness, shall supersede all prior agreements, understandings and
arrangements, both oral and written, between the Executive and the Company (or
any of its affiliates) with respect to such subject matter. This Agreement may
not be modified in any way unless by a written instrument signed by both the
Company and the Executive.
13. NOTICES: All notices required or permitted to be given hereunder
shall be in writing and shall be personally delivered by courier, sent by
registered or certified mail, return receipt requested or sent by confirmed
facsimile transmission addressed as set forth herein. Notices personally
delivered, sent by facsimile or sent by overnight courier shall be deemed given
on the date of delivery and notices mailed in accordance with the foregoing
shall be deemed given upon the earlier of receipt by the addressee, as evidenced
by the return receipt thereof, or three (3) days after deposit in the U.S. mail.
Notice shall be sent (i) if to the
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Company, addressed to NetCreations, Inc., 379 West Broadway, Suite 202, New
York, New York 10012, attention: Chief Executive Officer, with a copy to
Greenberg Traurig, Met Life Building, 200 Park Avenue, 15th Floor, New York, New
York 10166, Attention: Andrew J. Cosentino, Esq.; and (ii) if to the Executive,
to the Executive's address as reflected on the payroll records of the Company,
or to such other address as either party hereto may from time to time give
notice of to the other.
14. BENEFITS; BINDING EFFECT. This Agreement shall be for the benefit
of and binding upon the parties hereto and their respective heirs, personal
representatives, legal representatives, and successors, including, without
limitation, any successor to the Company, whether by merger, consolidation, sale
of stock, sale of assets or otherwise.
15. SEVERABILITY. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement or any
part thereof, all of which are inserted conditionally on their being valid in
law, and, in the event that any one or more of the words, phrases, sentences,
clauses or sections contained in this Agreement shall be declared invalid, this
Agreement shall be construed as if such invalid word or words, phrase or
phrases, sentence or sentences, clause or clauses, or section or sections had
not been inserted. If such invalidity is caused by length of time or size of
area, or both, the otherwise invalid provision will be considered to be reduced
to a period or area which would cure such invalidity.1
16. WAIVERS. The waiver by either party hereto of a breach or violation
of any term or provision of this Agreement shall not operate nor be construed as
a waiver of any subsequent breach or violation.
17. DAMAGES. Subject to compliance with Sections 7, 8 and 9 of this
Agreement, to the extent applicable, nothing contained herein shall be construed
to prevent the Company or the Executive from seeking and recovering from the
other damages sustained by either or both of them as a result of its or the
Executive's breach of any term or provision of this Agreement. In the event that
either party hereto brings suit for the collection of any damages resulting
from, or the injunction of any action constituting, a breach of any of the terms
or provisions of this Agreement, then the party found to be at fault shall pay
all reasonable court costs and attorneys' fees of the other.
18. SECTION HEADINGS. The section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
19. NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
any rights or remedies under or by reason of this Agreement, other than the
Company, the parties hereto and their respective heirs, personal
representatives, legal representatives, and successors, including, without
limitation, any successor to the Company, whether by merger, consolidation, sale
of stock, sale
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of assets or otherwise.
20. INDEMNIFICATION.
a. The Company shall indemnify and hold harmless the
Executive to the fullest extent permitted by law from and against any and all
claims, damages, expenses (including reasonable attorneys' fees), judgments,
penalties, fines, settlements, and all other liabilities incurred or paid by the
Executive in connection with the investigation, defense, prosecution, settlement
or appeal of any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative and to which the
Executive was or is a party or is threatened to be made a party by reason of the
fact that the Executive is or was an officer, employee or agent of the Company,
or by reason of anything done or not done by the Executive in any such capacity
or capacities, provided that the Executive acted in good faith, in a manner that
was not grossly negligent and did not constitute willful misconduct and in a
manner the Executive reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the Executive's conduct was
unlawful. The Company also shall pay any and all reasonable expenses (including
attorney's fees) incurred by the Executive as a result of the Executive being
called as a witness in connection with any matter involving the Company and/or
any of its officers or directors (other than an action or suit by the Company
against the Executive).
b. The Company shall pay any reasonable expenses
(including attorneys' fees), judgments, penalties, fines, settlements, and other
liabilities incurred by the Executive in investigating, defending, settling or
appealing any action, suit or proceeding described in this Section 20 (other
than an action or proceeding by the Company against the Executive) in advance of
the final disposition of such action, suit or proceeding. The Company shall
promptly pay the amount of such expenses to the Executive, but in no event later
than ten (10) days following the Executive's delivery to the Company of a
written request for an advance pursuant to this Section 20, together with a
reasonable accounting of such expenses.
c. The Executive hereby undertakes and agrees to
repay to the Company any advances made pursuant to this Section 20 if and to the
extent that it shall ultimately be agreed by the parties or determined by a
court that the Executive is not entitled to be indemnified by the Company for
such amounts.
d. The Company shall make the advances contemplated
by this Section 20 regardless of the Executive's financial ability to make
repayment, and regardless of whether indemnification of the Indemnitee by the
Company will ultimately be required. Any advances and undertakings to repay
pursuant to this Section 20 shall be unsecured and interest-free.
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[THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
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e. The provisions of this Section 20 shall survive
the termination of this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
COMPANY:
NETCREATIONS, INC.
By:
--------------------------------
Name: Gary Sindler
Title: Chief Financial Officer
EXECUTIVE:
-----------------------------------
Rosalind Resnick, individually
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Exhibit 10.2
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into as of
the 7th day of September, 1999 by and between NETCREATIONS, INC., a New York
corporation (the "Company"), and Ryan Scott Druckenmiller (hereinafter called
the "Executive").
R E C I T A L S
A. The Executive desires to continue to be employed as the Chief
Technology Officer of the Company.
B. The Company desires to continue to employ the Chief Technology
Officer of the Company.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties agree as follows:
1. EMPLOYMENT.
1.1 EMPLOYMENT. The Company hereby agrees to employ the
Executive and the Executive hereby agrees to serve the Company on the terms and
conditions set forth herein.
1.2 DUTIES OF EXECUTIVE. During the Term of Employment under
this Agreement, the Executive shall serve as the Chief Technology Officer of the
Company, shall diligently perform all services as may be assigned to the
Executive by the Board of Directors (the "Board") of the Company which are
reasonable and appropriate for an Executive of such stature, and shall exercise
such other power and authority as may from time to time be delegated to the
Executive by the Board. Without limiting the generality of the foregoing, the
Executive duties shall include, among other things, the following:
Executive will serve as the Company's Chief Technology Officer, and the
Executive's duties in that regard shall include responsibility for the
development, implementation, and operation of all aspects of the
Company's technological infrastructure including software, hardware,
electrical, and telecommunications, as well as hiring, training, and
supervision of staff for those functions, in all cases subject to
direction of the Chief Executive, President, and Chief Operating
Officer of the Company..
The Executive acknowledges and agrees that the Company may assign some of the
foregoing specific duties to other persons as the Company's management team
expands, and that assignments of duties to other persons will not be viewed by
the Executive as constituting a diminution in the Executive's office, title, and
duties and responsibilities hereunder. The Executive shall devote the
Executive's time and attention during normal business hours to the business and
affairs of the Company, render such services to the best of the Executive's
ability, and use the Executive's best efforts to promote the interests of the
Company. It shall not be a violation of this Agreement for the Executive to (i)
serve on corporate, civic or charitable boards or committees, (ii) deliver
lectures, fulfill speaking engagements or teach at educational institutions, or
(iii) manage personal investments, so long as such activities do not
significantly interfere with the performance of the Executive's responsibilities
to the Company in accordance with this Agreement. The Executive`s duties will
require the Executive's regular presence during normal working hours on business
days Monday through Friday at the Company's principal executive offices,
currently located at 379 West Broadway, New York, New York, but the Executive's
duties will also involve some business travel.
<PAGE>
2. TERM.
2.1 INITIAL TERM. The initial Term of Employment under this
Agreement, and the employment of the Executive hereunder, shall commence on the
date hereof (the "Commencement Date") EXCEPT that no provision concerning
compensation of the Executive shall be effective to the extent that the same
might adversely affect the Executive's ability to receive distributions from the
Company as a shareholder of an S Corporation without adverse tax consequences
until such date as the earlier of (i) the date on which the Company terminates
its election to be taxed as an S Corporation and (ii) the date on which the
Company's initial public offering is consummated, and shall expire on December
31, 2002, unless sooner terminated in accordance with Section 5 hereof (the
"Initial Term").
2.2 RENEWAL TERMS. At the end of the Initial Term, the Term of
Employment automatically shall renew for successive one year terms (subject to
earlier termination as provided in Section 5 hereof), unless the Company or the
Executive delivers written notice to the other at least 90 days prior to the
last day of the Initial Term or any such applicable renewal period (in either
case, the "Expiration Date") of its or the Executive's election not to renew the
Term of Employment. For purposes of this Agreement, if the Term of Employment
expires as a result of the Company delivering written notice to the Executive
stating its intention not to renew the Term of the Employment pursuant to this
Section 2.2, the Executive shall be treated as if the Executive was terminated
by the Company without Cause, in accordance with Section 5.4 hereof, upon the
Expiration Date. In addition, if the Term of Employment expires as a result of
the Executive delivering written notice to the Company stating the Executive's
intention not to renew the Term of Agreement pursuant to this Section 2.2, the
Executive shall be treated as if the Executive had terminated the Executive's
employment with the Company without Good Reason, in accordance with Section
5.5(b) hereof, upon the Expiration Date.
2.3 TERM OF EMPLOYMENT. The period during which the Executive
shall be employed by the Company pursuant to the terms of this Agreement is
sometimes referred to in this Agreement as the "Term of Employment."
3. COMPENSATION.
3.1 BASE SALARY. The Executive shall receive a base salary at
the annual rate (prorated for any applicable period of less than one year) of
$175,000 (the "Base Salary") during the Term of Employment, with such Base
Salary payable in installments consistent with the Company's normal payroll
schedule, subject to applicable withholding and other taxes. The Base Salary
shall be reviewed, at least annually, for merit increases and may, by action and
in the discretion of the Board, be increased (but not decreased) at any time or
from time to time.
3.2 BONUSES. During the term of this Agreement, the Executive
shall be eligible to receiveperformance and annual incentive awards
(the "Bonuses") of up to a maximum potential limit of $175,000 per annum as
described below. The Bonuses shall be reviewed at least annually for merit
increases and, by action and in the discretion of the Compensation Committee of
the Board, the limit on the potential size of Bonuses can be increased, but not
decreased, at any time or from time to time.
The Executive shall also be eligible to receive performance
and annual incentive awards (the "Additional Bonuses") as may be determined
from time to time by the Compensation Committee of the Board.
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Each period for which Bonuses or Additional Bonuses are
payable is sometimes hereinafter referred to as a "Bonus Period." Unless
otherwise specified by the Compensation Committee of the Board, the Bonus
Period shall be the designated fiscal year or fiscal quarter of the Company.
The amount of the Bonuses or Additional Bonuses that may be awarded for any
period, if any, shall be determined prior to the commencement of the relevant
Bonus Period by the Compensation Committee of the Board in accordance with
this Agreement. However, any bonus plan for the Executive shall be predicated
on the establishment of quarterly goals, referred to as "Key Initiatives,:"
to be mutually developed and signed off on between the Executive and the
Company's Board/Representative of the Company prior to and/or adjusted during
a quarter. Key Initiatives will comprise, among other things, specific sales
objectives, business development goals, and Company results. For purposes of
this Agreement, the term "Representative of the Company" means the
Company's Chief Executive Officer, President, or Chief Operating Officer. All
Bonuses and Additional Bonuses shall be payable to the Executive quarterly in
cash and/or to the extent determined by the Board and agreed upon by the
Executive, with common stock ("Common Stock") of the Company by no later
than ten (10) business days after the Company has completed its financial
statements, approved by the Company's Chief Financial Officer and its Chief
Executive Officer, for the preceding fiscal period. Bonuses and Additional
Bonuses shall be subject to proration for periods of less than one quarter.
Any Bonuses or Additional Bonuses payable pursuant to this Section 3.2 are
sometimes hereinafter referred to as "Incentive Compensation."
4. EXPENSE REIMBURSEMENT AND OTHER BENEFITS.
4.1 REIMBURSEMENT OF EXPENSES. Upon the submission of proper
substantiation by the Executive, and subject to such rules and guidelines as the
Company may from time to time adopt, the Company shall reimburse the Executive
for all reasonable expenses actually paid or incurred by the Executive during
the Term of Employment in the course of and pursuant to the business of the
Company. The Executive shall account to the Company in writing for all expenses
for which reimbursement is sought and shall supply to the Company copies of all
relevant invoices, receipts or other evidence reasonably requested by the
Company.
4.2 COMPENSATION/BENEFIT PROGRAMS. During the term of
Employment, the Executive shall be entitled to participate in all medical,
dental, hospitalization, accidental death and dismemberment, disability, travel
and life insurance plans applicable to the Company's senior executives
generally, and any and all other plans as are presently and hereinafter offered
by the Company generally to its executives, including savings, pension,
profit-sharing and deferred compensation plans, subject to the general
eligibility and participation provisions set forth in such plans.
4.3 TRANSPORTATION ALLOWANCE. The Executive will not be
entitled to reimbursement for his expenses in commuting to and from the
Company's offices.
4.4 STOCK OPTIONS. During the Term of Employment, the
Executive shall be eligible to be granted options (the "Stock Options") to
purchase the Common Stock of the Company under (and therefore subject to) all
terms and conditions of) the Company's Stock Option Plan. The number of Stock
Options and terms and conditions of the Stock Options shall be determined by the
Committee appointed pursuant to the Stock Option Plan, or by the Board of
Directors of the Company, in its discretion and pursuant to the Stock Option
Plan.
4.5 VACATION BENEFITS. The Executive shall be entitled to four
(4) weeks of vacation time each calendar year during the term of this Agreement,
to be taken at such times as the Executive and the Company shall mutually
determine and provided that no vacation time shall interfere with the duties
required to be rendered by the Executive hereunder. Notwithstanding the
foregoing, in view of the Company's current circumstances the Executive will not
(i) take more than one week of vacation time in any 30-day period, or (2) take
any vacation time until the earlier of (x) the completion of the IPO or (y) four
(4) months from the date of this Agreement, unless otherwise mutually agreed
with the Chief Executive Officer of the Company.
4.6 OTHER BENEFITS. The Executive shall receive such
additional benefits, if any, as the Board of the Company shall from time to time
determine.
5. TERMINATION.
5.1 TERMINATION FOR CAUSE. The Company shall at all times have
the right, upon written notice (which shall describe in general terms the basis
for dismissal per this Section) to the Executive, to terminate the Term of
Employment, for Cause. For purposes of this Agreement, the term "Cause" shall
mean (i) an action or
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omission of the Executive which constitutes a willful and material breach of, or
failure or refusal (other than by reason of the Executive's disability) to
perform the Executive's duties under, this Agreement which is not cured within
fifteen (15) days after receipt by the Executive of written notice of same if
such action or omission is capable of being so cured, (ii) habitual insobriety
or use of controlled substances (other than under the supervision of a licensed
physician); (iii) habitual absenteeism; (iv) fraud, non-disclosed self-dealing,
embezzlement or misappropriation of funds or property or breach of trust in
connection with the Executive's services hereunder, (v) conviction of a felony
or conviction of any other crime or misdemeanor involving moral turpitude; or
(vi) gross negligence in connection with the performance of the Executive's
duties hereunder, which is not cured, to the extent that the same is curable,
within fifteen (15) days after receipt by the Executive of written notice of
same. Upon any termination pursuant to this Section 5.1, the Company shall pay
to the Executive the Executive's Base Salary to the date of termination. The
Company shall have no further liability hereunder (other than for reimbursement
for reasonable business expenses incurred prior to the date of termination,
subject, however, to the provisions of Section 4.1).
5.2 DISABILITY. The Company shall at all times have the right,
upon written notice to the Executive, to terminate the Term of Employment, if
the Executive shall as the result of mental or physical incapacity, illness or
disability, become unable to perform the Executive's obligations hereunder for a
total of 180 days in any 12-month period. The Company shall have sole discretion
based upon advice of a licensed medical doctor to determine whether the
Executive continues to be disabled provided that if the Executive does not
submit to examination by a licensed medical doctor for such purpose (if
requested by the Company) then the Company may terminate the Executive's
employment if the Executive shall become entitled to benefits under the
Company's disability plan as then in effect. Upon any termination pursuant to
this Section 5.2, the Company shall (i) pay to the Executive any unpaid Base
Salary through the effective date of termination specified in such notice, (ii)
pay to the Executive the Executive's accrued but unpaid Incentive Compensation,
if any, for any Bonus Period ending on or before the date of termination of the
Executive's employment with the Company, (iii) continue to pay the Executive
through the later of (x) the date which is one year after the termination but no
later than the Expiration Date), or (y) one year from the date of termination
(the "Continuation Period"), an amount equal to the Base Salary the Executive
was receiving at the time of the Executive's Disability, such amount to be paid
in the manner and at such times as the Base Salary otherwise would have been
payable to the Executive, and (iv) continue to pay the Executive Incentive
Compensation and continue to provide the Executive with the benefits the
Executive was receiving under Section 4.2 hereof (the "Benefits") through the
Continuation Period (to the extent permitted under the terms of applicable
insurance and other benefit programs of the Company then in affect and covering
the Executive, and provided further that the Company shall not take any
affirmative action from the time of giving notice of termination to the
Executive through the end of the Continuation Period which would cause the
relevant insurance and other benefits available to the Executive to be reduced
or eliminated) following the termination of the Executive's employment with the
Company, in the manner and at such times as the compensation or Benefits
otherwise would have been payable or provided to the Executive, provided that
the amounts payable to the Executive pursuant to the foregoing clauses (i)
through (iv) shall be reduced by the amount actually paid to the Executive
pursuant to the disability insurance referred to in Section 4.2 hereof. The
Company shall have no further liability hereunder (other than for reimbursement
for reasonable business expenses incurred prior to the date of termination,
subject, however to the provisions of Section 4.1).
5.3 DEATH. Upon the death of the Executive during the Term of
Employment, the Company shall (i) pay to the estate of the deceased Executive
any unpaid Base Salary through the Executive's date of death, (ii) pay to the
estate of the deceased Executive the Executive's accrued but unpaid Incentive
Compensation, if any, for any Bonus Period ending on or before the Executive's
date of death, (iii) continue to pay to the estate of the deceased Executive the
Base Salary the Executive was receiving prior to the Executive's death under
Section 3.1 hereof through the Continuation Period following the Executive's
death, in the manner and at such times as the Base Salary otherwise would have
been payable to the Executive, and (iv) continue to pay to the estate of the
deceased Executive Incentive Compensation through the Continuation Period
following the termination of the Executive's employment with the Company, in the
manner and at such times as the compensation would have been payable or provided
to the Executive. The Company shall have no further liability hereunder (other
than for reimbursement for reasonable business expenses incurred prior to the
date of the Executive's death, subject, however to the provisions of Section
4.1).
5.4 TERMINATION WITHOUT CAUSE. At any time the Company shall
have the right to terminate the Executive's employment hereunder without Cause
by written notice to the Executive. Upon any termination pursuant to this
Section 5.4, the Company shall (i) pay to the Executive any unpaid Base Salary
through the effective date of termination specified in such notice, (ii) pay to
the Executive the accrued but unpaid Incentive Compensation, if any, for any
Bonus Period ending on or before the date of the termination of the Executive's
employment with the Company, and a prorated portion of the Bonus earned, if any,
for the quarterly Bonus Period, if any, in which the termination occurs, (iii)
continue to pay the Executive's Base Salary and Incentive Compensation through
the Continuation Period, in the manner and at such time as the Base Salary and
Incentive Compensation otherwise would have been payable to the Executive, and
(iv) continue to provide the Executive with the Benefits the Executive was
receiving under Section 4.2 hereof (to the extent permitted under the terms of
applicable insurance and other benefit programs of the Company then in affect
and covering the Executive, and provided further that the Company shall not take
any affirmative action from the time of giving notice of termination to the
Executive through the end of the Continuation Period which would cause the
relevant insurance and other benefits available to the Executive to be reduced
or eliminated) during the Continuation Period, in the manner and at such times
as the Benefits otherwise would have been payable or provided to the Executive.
In the event that the Executive has remained with the Company for five (5) years
or more the Continuation Period shall be two (2) years. The Company shall have
no further liability hereunder (other than for reimbursement for
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reasonable business expenses incurred prior to the date of termination, subject,
however, to the provisions of Section 4.1).
5.5 TERMINATION BY EXECUTIVE.
a. The Executive shall at all times have the right,
upon ninety (90) days written notice to the Company, to terminate the Term of
Employment.
b. Upon termination of the Term of Employment
pursuant to this Section 5.5 (that is not a termination under Section 5.6) by
the Executive without Good Reason, the Company shall pay to the Executive any
unpaid Base Salary through the effective date of termination specified in such
notice. The Company shall have no further liability hereunder (other than for
reimbursement for reasonable business expenses incurred prior to the date of
termination, subject, however, to the provisions of Section 4.1).
c. Upon termination of the Term of Employment
pursuant to this Section 5.5 (that is not a termination under Section 5.6) by
the Executive for Good Reason, the Company shall pay to the Executive the same
amounts that would have been payable by the Company to the Executive under
Section 5.4 of this Agreement if the Term of Employment had been terminated by
the Company without Cause. The Company shall have no further liability hereunder
(other than for reimbursement for reasonable business expenses incurred prior to
the date of termination, subject, however, to the provisions of Section 4.1).
d. For purposes of this Agreement, "Good Reason"
shall mean any of the following:
(i) the assignment to the Executive of any material
duties inconsistent in any material respect with the Executive's duties as
defined hereunder or any other action by the Company which results in a material
diminution in the Executive's position, authority, duties or responsibilities
from those contemplated by Section 1.2 of this Agreement, which is not remedied
by the Company within fifteen (15) days after receipt of written notice from the
Executive of the same, excluding for this purpose any isolated, insubstantial
and inadvertent action not taken in bad faith;
(ii) any material failure by the Company to comply
with any of the provisions of Article 3 of this Agreement which is not remedied
by the Company within fifteen (15) days after receipt of written notice
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thereof given by the Executive, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be
based at any office or location more than 60 miles outside of New York City, NY,
except for business trips reasonably required in the performance of the
Executive's responsibilities; or
(iv) any purported termination by the Company of the
Executive's employment otherwise than pursuant to Sections 5.1 - 5.4 of this
Agreement.
5.6 CHANGE IN CONTROL OF THE COMPANY.
a. Unless otherwise provided in this Agreement, in
the event that a Change in Control (as defined in paragraph (b) of this Section
5.6) in the Company shall occur during the Term of Employment, and prior to the
first anniversary of the date of the Change in Control, either (x) the Term of
Employment is terminated by the Company without Cause, pursuant to Section 5.4
hereof or (y) the Executive terminates the Term of Employment for Good Reason
pursuant to Section 5.5(c) hereof, the Company shall (1) pay to the Executive
any unpaid Base Salary through the effective date of termination, (2) pay to the
Executive the Incentive Compensation, if any, not yet paid to the Executive for
any Bonus Period prior to such termination, at such time as the Incentive
Compensation otherwise would have been payable to the Executive, and (3) pay to
the Executive in a lump sum payment an amount equal to the amount of the
Executive's Base Salary for the six (6 months preceding such termination. If,
during the Term of Employment, any Change in Control should occur and, prior to
the first anniversary of the date of the Change in Control, either (x) the Term
of Employment is terminated by the Company without Cause, pursuant to Section
5.4 herof or (y) the Executive terminates the Term of Employment for Good Reason
pursuant to Section 5.5(c) hereof, the Executive's unvested Stock Options shall
be vested and become immediately exercisable. In addition, if a Change in
Control transaction shall occur in which the Company is not the surviving entity
and the acquiror does not agree to assume the obligations represented by the
Stock Option rights of the Executive on or prior to the closing of the Change in
Control transaction on such terms and conditions as shall be reasonably
satisfactory to the Company, THEN the Executive's unvested Stock Options shall
be vested and become immediately exercisable immediately prior to the
consummation of the closing of such Change in Control transaction so as to
permit the Executive to dispose of the shares of common stock underlying such
Stock Options in that Change in Control transaction on substantially the same
terms and conditions as are applicable to shareholders of the Company generally.
If any of the Executive's Stock Options shall vest according to the applicable
vesting schedule, the options which shall have vested after any such Change in
Control shall continue to be exercisable for a period of three months from the
date of any termination of the Executive's employment by the Company following
such Change in Control. The Company shall have no further liability hereunder
(other than for reimbursement for reasonable business expenses incurred prior to
the date of termination, subject, however, to the provisions of Section 4.1).
b. For purposes of this Agreement, the term "Change
in Control" shall mean:
(i) Approval by the shareholders of the
Company of (x) a reorganization, merger, consolidation or other form of
corporate transaction or series of transactions, in each case, with respect to
which persons who were the shareholders of the Company immediately prior to such
reorganization, merger or consolidation or other transaction do not, immediately
thereafter, own more than 50% of the combined voting power entitled to vote
generally in the election of directors of the reorganized, merged or
consolidated company's then outstanding voting securities, in substantially the
same proportions as their ownership immediately prior to such reorganization,
merger, consolidation or other transaction, or (y) a liquidation or dissolution
of the Company or (z) the sale of all or substantially all of the assets of the
Company (unless such reorganization, merger, consolidation or other corporate
transaction, liquidation, dissolution or sale is subsequently abandoned);
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(ii) Individuals who, as of the Commencement
Date of this Agreement, constitute the Board (the "Incumbent Board") cease for
any reason to constitute at least a majority of the Board, provided that any
person becoming a director subsequent to the Commencement Date of this Agreement
whose election, or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then comprising the
Incumbent Board (other than an election or nomination of an individual whose
initial assumption of office is in connection with an actual or threatened
election contest relating to the election of the Directors of the Company, as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Securities Exchange Act) shall be, for purposes of this Agreement, considered as
though such person were a member of the Incumbent Board; or
(iii) the acquisition by any person, entity
or "group", within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act, of more than 30% of either the then outstanding shares of the
Company's Common Stock or the combined voting power of the Company's then
outstanding voting securities entitled to vote generally in the election of
directors (hereinafter referred to as the ownership of a "Controlling Interest")
excluding, for this purpose, any acquisitions by (1) the Company, (2) any
person, entity or "group" that as of the Commencement Date of this Agreement
owns beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Securities Exchange Act) of a Controlling Interest, (3) Rosalind Resnick
and/or Ryan Scott Druckenmiller or their respective affiliates, or (4) any
employee benefit plan of the Company.
c. Notwithstanding the foregoing, the term "Change in
Control" shall NOT include (i) any transaction, event or circumstance as a
result of which or after which Rosalind Resnick, Ryan Scott Druckenmiller, and
their respective affiliates continue to own, in the aggregate, the largest
percentage of shares of the Company owned by any shareholder of the Company,
(ii) the IPO, (iii) the above-referenced strategic or financial investments
which are contemplated to occur prior to the IPO, or (iii) any transaction
entered into by the Company and its stockholders prior to the IPO primarily for
the purpose of facilitating estate planning of Rosalind Resnick or Ryan Scott
Druckenmiller or converting the Company from an "S Corp" to a "C Corp" in
preparation for the IPO.
5.7 RESIGNATION. Upon any termination of employment pursuant
to this Article 5, the Executive shall be deemed to have resigned as an officer,
and if the Executive was then serving as a director of the Company, as a
director, and if required by the Board, the Executive hereby agrees to
immediately execute a resignation letter to the Board.
5.8 SURVIVAL. The provisions of this Article 5 shall survive
the termination of this Agreement, as applicable.
6. RESTRICTIVE COVENANTS.
6.1 NON-COMPETITION. At all times while the Executive is
employed by the Company and for a three (3) year period after the termination
of the Executive's employment with the Company for any reason (other than (a)
termination by the Company without Cause or (b) termination by the Executive for
Good Reason (as defined in Section 5.5(d) hereof) or (c) termination by the
Company prior to the first anniversary of a Change in Control other than for
Cause), the Executive shall not, directly or indirectly, engage in or have any
interest in any sole proprietorship, partnership, corporation or business or any
other person or entity (whether as an employee, officer, director, partner,
agent, security holder, creditor, consultant or otherwise) that directly engages
in competition with the Company (for this purpose, any business unit or division
that provides e-mail direct marketing services to third parties for compensation
shall be deemed to be in competition with the Company); provided that such
provision shall not apply to the Executive's ownership of Common Stock of the
Company or the acquisition by the Executive, solely as an investment, of
securities of any issuer that is registered under Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, as amended, and that are listed or admitted for
trading on any United States national securities exchange or that are quoted on
the Nasdaq, or any similar system or automated dissemination of quotations of
securities prices in common use, so long as the Executive does not control,
acquire a controlling
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interest in or become a member of a group which exercises direct or indirect
control or, more than one percent (1%) of any class of capital stock of such
corporation.
6.2 NONDISCLOSURE. The Executive shall not during the
Executive's employment under this Agreement or after the termination of such
employment divulge, communicate, use to the detriment of the Company or for the
benefit of any other person or persons, or misuse in any way, any Confidential
Information (as hereinafter defined) pertaining to the business of the Company.
Any Confidential Information or data now or hereafter acquired by the Executive
with respect to the business of the Company (which shall include, but not be
limited to, information concerning the Company's financial condition, prospects,
technology, customers, suppliers, sources of leads and methods of doing
business) shall be deemed a valuable, special and unique asset of the Company
that is received by the Executive in confidence and as a fiduciary, and
Executive shall remain a fiduciary to the Company with respect to all of such
information. For purposes of this Agreement, "Confidential Information" means
information disclosed to the Executive or known by the Executive as a
consequence of or through the Executive's employment by the Company (including
information conceived, originated, discovered or developed by the Executive)
prior to or after the date hereof (up to the date of termination of the
Executive's employment pursuant to this Agreement), and whose existence or
significance or utility in respect of the Company or its business is not
generally known. Notwithstanding the foregoing, nothing herein shall be deemed
to restrict the Executive from disclosing Confidential Information to the extent
required by law or in the valid performance of the Executive's duties.
6.3 NONSOLICITATION OF EMPLOYEES AND CLIENTS. At all times
while the Executive is employed by the Company and for a one (1) year period
after the termination of the Executive's employment with the Company for any
reason, the Executive shall not, directly or indirectly, for the Executive or
for any other person, firm, corporation, partnership, association or other
entity (a) employ or attempt to employ or enter into any contractual arrangement
with any employee or former employee of the Company, until a period of at least
six (6) months has elapsed from the date of termination of the employment of
such person with the Company, and/or (b) call on or solicit any of the actual or
targeted prospective clients of the Company on behalf of any person or entity in
connection with any business competitive with the business of the Company, while
the Executive is employed by the company, or in connection with any email direct
marketing business for a one-year period after the termination of the
executive's employment, nor shall the Executive make known the names and
addresses of such clients or any information relating in any manner to the
Company's trade or business relationships with such customers, other than in
connection with the performance of the Executive's duties under this Agreement.
6.4 OWNERSHIP OF DEVELOPMENTS. Except for (i) any poetry,
short stories, novels, plays, movies or other literary works that the Executive
might create either on or off the Web as well as any non-fiction books that the
Executive might write about Internet marketing or email marketing, or (ii) any
software and systems not created or written for Internet marketing (and this
exclusion specifically includes, but is not limited to, video games and home
automation systems), all copyrights, patents, trade secrets, or other
intellectual property rights associated with any ideas, concepts, techniques,
inventions, processes, or works of authorship developed or created by the
Executive in performing the Executive's duties for the Company's email direct
marketing business or its email direct marketing clients (collectively, the
"Work Product") shall belong exclusively to the Company and shall, to the extent
possible, be considered a work made by the Executive for hire for the Company
within the meaning of Title 17 of the United States Code. To the extent the Work
Product may not be considered work made by the Executive for hire for the
Company, the Executive agrees to assign, and automatically assigns at the time
of creation of the Work Product, without any requirement of further
consideration, any right, title, or interest the Executive may have in such Work
Product. Upon the request of the Company, the Executive shall take such further
actions, including execution and delivery of instruments of conveyance, as may
be appropriate to give full and proper effect to such assignment.
6.5 BOOKS AND RECORDS. All books, records, and accounts
relating in any manner to the customers or clients of the Company, whether
prepared by the Executive or otherwise coming into the Executive's possession,
shall be the exclusive property of the Company and shall be returned immediately
to the Company on
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termination of the Executive's employment hereunder or on the Company's request
at any time, upon which the Executive shall not retain any copies of the same in
any media whatsoever.
6.6 DEFINITION OF COMPANY. Solely for purposes of this Article
6, the term "Company" also shall include any existing or future subsidiaries of
the Company that are operating during the time periods described herein and any
other entities that directly or indirectly, through one or more intermediaries,
control, are controlled by or are under common control with the Company during
the periods described herein.
6.7 ACKNOWLEDGMENT BY EXECUTIVE. The Executive acknowledges
and confirms that (a) the restrictive covenants contained in this Article 6 are
reasonable and necessary to protect the legitimate business interests of the
Company, and (b) the restrictions contained in this Article 6 (including without
limitation the length of the term of the provisions of this Article 6) are not
overbroad, overlong, or unfair and are not the result of overreaching, duress or
coercion of any kind. The Executive further acknowledges and confirms that the
Executive's full, uninhibited and faithful observance of each of the covenants
contained in this Article 6 will not cause the Executive any undue hardship,
financial or otherwise, and that enforcement of each of the covenants contained
herein will not impair the Executive's ability to obtain employment commensurate
with the Executive's abilities and on terms fully acceptable to the Executive or
otherwise to obtain income required for the comfortable support of the Executive
and the Executive's family and the satisfaction of the needs of the Executive's
creditors. The Executive acknowledges and confirms that the Executive's special
knowledge of the business of the Company is such as would cause the Company
serious injury or loss if the Executive were to use such ability and knowledge
to the benefit of a competitor or were to compete with the Company in violation
of the terms of this Article 6. The Executive further acknowledges that the
restrictions contained in this Article 6 are intended to be, and shall be, for
the benefit of and shall be enforceable by, the Company and its successors and
assigns, including, without limitation, any successor to the Company, whether by
merger, consolidation, sale of stock, sale of assets or otherwise.
6.8 REFORMATION BY COURT. In the event that a court of
competent jurisdiction shall determine that any provision of this Article 6 is
invalid or more restrictive than permitted under the governing law of such
jurisdiction, then only as to enforcement of this Article 6 within the
jurisdiction of such court, such provision shall be interpreted and enforced as
if it provided for the maximum restriction permitted under such governing law.
6.9 EXTENSION OF TIME. If the Executive shall be in violation
of any provision of this Article 6, then each time limitation set forth in this
Article 6 shall be extended for a period of time equal to the period of time
during which such violation or violations occur. If the Company seeks injunctive
relief from such violation in any court, then the covenants set forth in this
Article 6 shall be extended for a period of time equal to the pendency of such
proceeding including all appeals by the Executive.
6.10 SURVIVAL. The provisions of this Article 6 shall survive
the termination of this Agreement, as applicable.
7. INJUNCTION. It is recognized and hereby acknowledged by the parties
hereto that a breach by the Executive of any of the covenants contained in
Article 6 of this Agreement will cause irreparable harm and damage to the
Company, the monetary amount of which may be virtually impossible to ascertain.
As a result, the Executive recognizes and hereby acknowledges that the Company
shall be entitled, without the necessity of proving damages or posting a bond,
to an injunction from any court of competent jurisdiction enjoining and
restraining any violation of any or all of the covenants contained in Article 6
of this Agreement by the Executive or any of the Executive's affiliates,
associates, partners or agents, either directly or indirectly, and that such
right to injunction shall be cumulative and in addition to whatever other
remedies the Company may possess. If the Company should fail to obtain any
injunction when the Company seeks an injunction pursuant to this Section (other
than due to the fact that the parties reach a settlement or the Executive ceases
the activities complained of by the Company without need of an injunction), then
the Company shall reimburse the Executive for the Executive's reasonable
attorney's fees and expenses pertaining to the proceedings to seek the
injunction.
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8. MEDIATION. In the event a dispute arises out of or relates to this
Agreement, or the breach thereof, and if the dispute cannot be settled through
negotiation, the parties hereby agree first to attempt in good faith to settle
the dispute by mediation administered by the American Arbitration Association
under its Employment Mediation Rules before resorting to arbitration as set
forth in Section 8 below. Notwithstanding the foregoing, (i) the Company has the
right to seek an injunction under Section 7 hereof, and (ii) either party may
seek an injunction or entry of judgment on an arbitration award under Section 9
of this Agreement. The cost and expenses of mediators (but not the fees and
expenses of any counsel or other professional representing any party other than
the Company) shall be borne by the Company. If any dispute is settled by
mediation pursuant to this Section and the Company fails to achieve any decision
in its favor, then the Company shall reimburse the Executive for the Executive's
reasonable attorneys' fees and expenses pertaining to the mediation proceedings.
9. ARBITRATION. In the event that mediation pursuant to Section 8 of
this Agreement has failed after thirty (30) days or the parties to this
Agreement both agree not to mediate, any dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by arbitration in
New York County, New York, in accordance with the Rules of the American
Arbitration Association then in effect with respect to arbitration of commercial
matters (except to the extent that the procedures outlined below differ from
such rules). Within ten (10) days after written notice by either party has been
given that a dispute exists and that arbitration is required, each party must
select an arbitrator and those two arbitrators shall promptly, but in no event
later than ten (10) days after their selection, select a third arbitrator. The
parties agree to act as expeditiously as possible to select arbitrators and
conclude the dispute. The selected arbitrators must render their decision in
writing. The cost and expenses of the arbitrators (but not the fees and expenses
of any counsel or other professional representing any party other than the
Company) shall be borne by the Company. Judgment may be entered on the
arbitrators' award in any court having jurisdiction. Pursuit of an injunction
shall not impair arbitration on all remaining issues. If any dispute is settled
by arbitration pursuant to this Section and the Company fails to achieve any
decision in its favor, then the Company shall reimburse the Executive for the
Executive's reasonable attorneys' fees and expenses pertaining to the
arbitration proceedings.
10. ASSIGNMENT. Neither party shall have the right to assign or
delegate their rights or obligations hereunder, or any portion thereof, to any
other person, except that the rights of the Company may be assigned by the
Company to any person or entity acquiring a substantial portion of the Company's
assets or to any successor of the Company.
11. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
12. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and, upon
its effectiveness, shall supersede all prior agreements, understandings and
arrangements, both oral and written, between the Executive and the Company (or
any of its affiliates) with respect to such subject matter. This Agreement may
not be modified in any way unless by a written instrument signed by both the
Company and the Executive.
13. NOTICES: All notices required or permitted to be given hereunder
shall be in writing and shall be personally delivered by courier, sent by
registered or certified mail, return receipt requested or sent by confirmed
facsimile transmission addressed as set forth herein. Notices personally
delivered, sent by facsimile or sent by overnight courier shall be deemed given
on the date of delivery and notices mailed in accordance with the foregoing
shall be deemed given upon the earlier of receipt by the addressee, as evidenced
by the return receipt thereof, or three (3) days after deposit in the U.S. mail.
Notice shall be sent (i) if to the Company, addressed to NetCreations, Inc., 379
West Broadway, Suite 202, New York, New York 10012, attention: Chief Executive
Officer, with a copy to Greenberg Traurig, Met Life Building, 200 Park Avenue,
15th Floor, New York, New York 10166, Attention: Andrew J. Cosentino, Esq.; and
(ii) if to the Executive, to the Executive's address as reflected on the payroll
records of the Company, or to such other address as either party hereto may from
time to time give notice of to the other.
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14. BENEFITS; BINDING EFFECT. This Agreement shall be for the benefit
of and binding upon the parties hereto and their respective heirs, personal
representatives, legal representatives, and successors, including, without
limitation, any successor to the Company, whether by merger, consolidation, sale
of stock, sale of assets or otherwise.
15. SEVERABILITY. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement or any
part thereof, all of which are inserted conditionally on their being valid in
law, and, in the event that any one or more of the words, phrases, sentences,
clauses or sections contained in this Agreement shall be declared invalid, this
Agreement shall be construed as if such invalid word or words, phrase or
phrases, sentence or sentences, clause or clauses, or section or sections had
not been inserted. If such invalidity is caused by length of time or size of
area, or both, the otherwise invalid provision will be considered to be reduced
to a period or area which would cure such invalidity.1
16. WAIVERS. The waiver by either party hereto of a breach or violation
of any term or provision of this Agreement shall not operate nor be construed as
a waiver of any subsequent breach or violation.
17. DAMAGES. Subject to compliance with Sections 7, 8 and 9 of this
Agreement, to the extent applicable, nothing contained herein shall be construed
to prevent the Company or the Executive from seeking and recovering from the
other damages sustained by either or both of them as a result of its or the
Executive's breach of any term or provision of this Agreement. In the event that
either party hereto brings suit for the collection of any damages resulting
from, or the injunction of any action constituting, a breach of any of the terms
or provisions of this Agreement, then the party found to be at fault shall pay
all reasonable court costs and attorneys' fees of the other.
18. SECTION HEADINGS. The section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
19. NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
any rights or remedies under or by reason of this Agreement, other than the
Company, the parties hereto and their respective heirs, personal
representatives, legal representatives, and successors, including, without
limitation, any successor to the Company, whether by merger, consolidation, sale
of stock, sale of assets or otherwise.
20. INDEMNIFICATION.
a. The Company shall indemnify and hold harmless the
Executive to the fullest extent permitted by law from and against any and all
claims, damages, expenses (including reasonable attorneys' fees), judgments,
penalties, fines, settlements, and all other liabilities incurred or paid by the
Executive in connection with the investigation, defense, prosecution, settlement
or appeal of any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative and to which the
Executive was or is a party or is threatened to be made a party by reason of the
fact that the Executive is or was an officer, employee or agent of the Company,
or by reason of anything done or not done by the Executive in any such capacity
or capacities, provided that the Executive acted in good faith, in a manner that
was not grossly negligent and did not constitute willful misconduct and in a
manner the Executive reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the Executive's conduct was
unlawful. The Company also shall pay any and all reasonable expenses (including
attorney's fees) incurred by the Executive as a result of the Executive being
called as a witness in connection with any matter involving the Company and/or
any of its officers or directors (other than an action or suit by the Company
against the Executive).
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b. The Company shall pay any reasonable expenses
(including attorneys' fees), judgments, penalties, fines, settlements, and other
liabilities incurred by the Executive in investigating, defending, settling or
appealing any action, suit or proceeding described in this Section 20 (other
than an action or proceeding by the Company against the Executive) in advance of
the final disposition of such action, suit or proceeding. The Company shall
promptly pay the amount of such expenses to the Executive, but in no event later
than ten (10) days following the Executive's delivery to the Company of a
written request for an advance pursuant to this Section 20, together with a
reasonable accounting of such expenses.
c. The Executive hereby undertakes and agrees to
repay to the Company any advances made pursuant to this Section 20 if and to the
extent that it shall ultimately be agreed by the parties or determined by a
court that the Executive is not entitled to be indemnified by the Company for
such amounts.
d. The Company shall make the advances contemplated
by this Section 20 regardless of the Executive's financial ability to make
repayment, and regardless of whether indemnification of the Indemnitee by the
Company will ultimately be required. Any advances and undertakings to repay
pursuant to this Section 20 shall be unsecured and interest-free.
[THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
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e. The provisions of this Section 20 shall survive
the termination of this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
COMPANY:
NETCREATIONS, INC.
By:
---------------------------------------
Name: Rosalind Resnick
Title: President
EXECUTIVE:
------------------------------------------
Ryan Scott Druckenmiller, individually
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Exhibit 10.3
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into as of
the 27th day of August, 1999 by and between NETCREATIONS, INC., a New York
corporation (the "Company"), and Gary Sindler (hereinafter called the
"Executive").
R E C I T A L S
A. The Executive desires to be employed as the Chief Financial Officer
of the Company.
B. The Company desires to employ the Executive as the Chief Financial
Officer of the Company.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties agree as follows:
1. EMPLOYMENT.
1.1 EMPLOYMENT. The Company hereby agrees to employ the
Executive and the Executive hereby agrees to serve the Company on the terms and
conditions set forth herein.
1.2 DUTIES OF EXECUTIVE. During the Term of Employment under
this Agreement, the Executive shall serve as the Chief Financial Officer of the
Company, shall diligently perform all services as may be assigned to the
Executive by the President, Chief Executive Officer, and the Chief Operating
Officer of the Company and by the Board of Directors (the "Board") of the
Company, and shall exercise such power and authority as may from time to time be
delegated to the Executive by the Board. Without limiting the generality of the
foregoing, the Executive duties shall include, among other things, the
following:
Working with the Company's Chief Executive Officer and its auditors,
attorneys and investment bankers to successfully consummate the Company's
planned initial public offering;
Actively participating in communication with the investment community
before, during, and after the Company's planned initial public offering,
including meeting with shareholders, analysts and financial journalists on a
regular basis;
Preparing and supervising the filing of Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, and reports, filings and disclosure documents
with the Securities Exchange Commission, and related press releases;
Being responsible for the Company's finance department and related
functions, including supervising the functions and employees responsible for
collection of accounts receivable, accounts payable, budgeting, forecasting,
bank reconciliations, and similar matters, and recruiting, training, and
conducting performance reviews of these employees (the "Chief Financial Officer
function");
Being responsible for the Company's human resources, insurance and
benefits programs; and
Such general business development activities as the Chief Executive
Officer may assign from time to time.
The Executive acknowledges and agrees that the Company may assign some of the
foregoing specific duties to other persons as the Company's management team
expands, and that such assignments of duties to other persons will not be viewed
by the Executive as constituting a diminution in the Executive's office, title,
and duties and
<PAGE>
responsibilities hereunder. The Executive shall devote the Executive's full time
and attention to the business and affairs of the Company, render such services
to the best of the Executive's ability, and use the Executive's best efforts to
promote the interests of the Company. It shall not be a violation of this
Agreement for the Executive to (i) serve on corporate, civic or charitable
boards or committees, (ii) deliver lectures, fulfill speaking engagements or
teach at educational institutions, or (iii) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities to the Company in accordance with this Agreement.
The Executive`s duties will require the Executive's regular presence during
normal working hours on business days Monday through Friday at the Company's
principal executive offices, currently located at 379 West Broadway, New York,
New York, but the Executive's duties will also involve some business travel.
2. TERM.
2.1 INITIAL TERM. The initial Term of Employment under this
Agreement, and the employment of the Executive hereunder, shall commence on Aug.
30, 1999 (the "Commencement Date") and shall expire on December 31, 2002, unless
sooner terminated in accordance with Section 5 hereof (the "Initial Term").
2.2 RENEWAL TERMS. At the end of the Initial Term, the Term of
Employment automatically shall renew for successive one year terms (subject to
earlier termination as provided in Section 5 hereof), unless the Company or the
Executive delivers written notice to the other at least 90 days prior to the
last day of the Initial Term or any such applicable renewal period (in either
case, the "Expiration Date") of its or the Executive's election not to renew the
Term of Employment. For purposes of this Agreement, if the Term of Employment
expires as a result of the Company delivering written notice to the Executive
stating its intention not to renew the Term of the Employment pursuant to this
Section 2.2, the Executive shall be treated as if the Executive was terminated
by the Company without Cause, in accordance with Section 5.4 hereof, upon the
Expiration Date. In addition, if the Term of Employment expires as a result of
the Executive delivering written notice to the Company stating the Executive's
intention not to renew the Term of Agreement pursuant to this Section 2.2, the
Executive shall be treated as if the Executive had terminated the Executive's
employment with the Company without Good Reason, in accordance with Section
5.5(b) hereof, upon the Expiration Date.
2.3 TERM OF EMPLOYMENT. The period during which the Executive
shall be employed by the Company pursuant to the terms of this Agreement is
sometimes referred to in this Agreement as the "Term of Employment."
3. COMPENSATION.
3.1 BASE SALARY. The Executive shall receive a base salary at
the annual rate (prorated for any applicable period of less than one year) of
$150,000 (the "Base Salary") during the Term of Employment, with such Base
Salary payable in installments consistent with the Company's normal payroll
schedule, subject to applicable withholding and other taxes. The Base Salary
shall be reviewed, at least annually, for merit increases and may, by action and
in the discretion of the Board, be increased (but not decreased) at any time or
from time to time.
3.2 BONUSES. During the term of this Agreement, the Executive
shall be eligible to receive performance and annual incentive awards (the
"Bonuses") of up to a maximum potential limit of 50% of the Executive's Base
Salary per annum as described below. Bonuses shall be reviewed, at least
annually, for merit increases and, by action and in the discretion of the Board,
the limit on the potential size of Bonuses can be increased, but not decreased,
at any time or from time to time.
Each period for which Bonuses are payable is sometimes
hereinafter referred to as a Bonus Period. Unless otherwise specified by the
Board, the Bonus Period shall be the designated fiscal year or fiscal quarter of
the Company. The amount of the Bonuses that may be awarded for any period, if
any, shall be determined prior to the commencement of the relevant Bonus Period
by the Board, in its sole and absolute discretion. However, any bonus plan for
the Executive shall be predicated on the establishment of quarterly goals,
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referred to as Key Initiatives, to be mutually developed and signed-off on
between the Executive and the Company's Board/Representative of the Company
prior to and/or adjusted during a quarter. Key Initiatives will comprise,
among other things, specific sales objectives, business development goals and
Company results. For purposes of this Agreement, the term "Representative of
the Company"" means the Company's Chief Executive Officer, President or Chief
Operating Officer. All Bonuses shall be payable to the Executive quarterly in
cash and/or to the extent determined by the Board and agreed upon by the
Executive, with common stock ("Common Stock") of the Company by no later than
ten (10) business days after the Company has completed its financial
statements, approved by the Company's Chief Financial Officer and its Chief
Executive Officer, for the preceding fiscal period. Bonuses shall be subject
to proration for periods of less than one quarter. Any bonuses payable
pursuant to this Section 3.2 are sometimes hereinafter referred to as
"Incentive Compensation."
4. EXPENSE REIMBURSEMENT AND OTHER BENEFITS.
4.1 REIMBURSEMENT OF EXPENSES. Upon the submission of proper
substantiation by the Executive, and subject to such rules and guidelines as the
Company may from time to time adopt, the Company shall reimburse the Executive
for all reasonable expenses actually paid or incurred by the Executive during
the Term of Employment in the course of and pursuant to the business of the
Company. The Executive shall account to the Company in writing for all expenses
for which reimbursement is sought and shall supply to the Company copies of all
relevant invoices, receipts or other evidence reasonably requested by the
Company.
4.2 COMPENSATION/BENEFIT PROGRAMS. During the term of
Employment, the Executive shall be entitled to participate in all medical,
dental, hospitalization, accidental death and dismemberment, disability, travel
and life insurance plans applicable to the Company's senior executives
generally, and any and all other plans as are presently and hereinafter offered
by the Company generally to its executives, including savings, pension,
profit-sharing and deferred compensation plans, subject to the general
eligibility and participation provisions set forth in such plans. The Company
will use its best commercial efforts to obtain an administrative exception to
permit the Executive to participate in the Company's 401K Plan effective January
1, 2000.
4.3 TRANSPORTATION ALLOWANCE. The Executive will not be
entitled to reimbursement for his expenses in commuting to and from the
Company's offices.
4.4 STOCK OPTIONS.
a. During the Term of Employment, the Executive shall
be eligible to be granted options (the "Stock Options") to purchase the Common
Stock of the Company under (and therefore subject to) all terms and conditions
of the Company's Stock Option Plan. The number of Stock Options and terms and
conditions of the Stock Options shall be determined by the Committee appointed
pursuant to the Stock Option Plan, or by the Board of Directors of the Company,
in its discretion and pursuant to the Stock Option Plan.
b. Reasonably promptly following the date of this
Agreement, the Company shall grant to the Executive non-qualified Stock Options
to purchase the number of shares of the Company's Common Stock which will
constitute 154,000 shares of the Company's outstanding Common Stock after
completion of the restructuring, the recapitalization and the initial public
offering referred to in the next sentence. In this connection, the Executive
understands and agrees that: (x) the Company is in the process of adopting the
Stock Option Plan, (y) that the Company must complete a restructuring of its
capital structure prior to adopting the Stock Option Plan, and (z) that it is
currently anticipated (but not certain) that the Company will have approximately
15.4 million shares outstanding at the conclusion of its currently planned
154,000 for 1 stock split and 19.2 million shares outstanding at the conclusion
of its currently planned initial public offering (approximately 19.74 million
shares outstanding if an overallotment option is exercised by the underwriters).
Notwithstanding anything to the contrary contained in this Agreement, (i) the
Stock Options may not be transferred or otherwise disposed of, nor may they be
exercised, prior to the Company's currently contemplated initial public
offering, (ii) the grant of the Stock Options to be granted to the Executive
shall be conditioned upon the effectiveness of the initial public offering, and
(iii) the grant
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of the Stock Options, and the Stock Options themselves, shall be null and void
ab initio if the Company's initial public offering is not consummated by March
31, 2000. The number of shares covered by the Stock Options will be adjusted
proportionately downwards, to the effect that less shares than currently
anticipated are outstanding immediately after those transactions, and upwards,
in the event that more shares than currently anticipated are outstanding
immediately after those transactions. Notwithstanding the foregoing, it the
Company should (i) issue shares constituting up to 30% of the outstanding Common
Stock of the Company to strategic or financial investors prior to the IPO or
(ii) make other changes in its capital structure in connection with estate
planning for certain existing shareholders, there shall be no anti-dilution
adjustment for those changes. All of the non-qualified Stock Options referred to
in this paragraph (b) shall have certain characteristics:
(i) the Stock Options shall vest 1/3 after 1 year of
continuous employment of the Executive by the Company which employment, for this
purpose only, is deemed to have commenced on June 7, 1999, a second 1/3 after 2
years of continuous employment by the Company, and the balance after 3 years of
continuous employment by the Company;
(ii) subject to clause (vii) below, the Stock Options
shall be exercisable from and after the date upon which the Stock Options vest
through the date which is five (5) years from the date hereof at $5.00 per
share;
(iii) the Stock Options shall be on such other terms
and conditions as may be set forth in the instrument granting the Stock Options,
including without limitation the provisions concerning termination of unvested
Stock Options;
(iv) the option agreement shall provide that the
shares of common stock underlying those Stock Options shall be registered in the
first registration statement on Form S-8 or other form of registration statement
filed by the Company with the Securities Exchange Commission for the purpose of
registering options or other securities issued to executives or other employees
of the Company in their respective capacities as executive or employees of
(rather than shareholders of or investors in) the Company;
(v) the option agreement shall include certain
anti-dilution provisions PROVIDED, that the there will be no antidilution
adjustment with regard to the matters described in section 4.4(b) of this
Agreement except as set forth in section 4.4(b), if at all;
(vi) the Stock Options may not be hypothecated or
pledged, and may not be sold, transferred or otherwise disposed of (except by
exercise in accordance with the terms of the option agreement) other than
through transfer by will or the laws of descent and distribution, and during the
lifetime of the Executive the Stock Options shall be exercisable only by the
Executive; and
(vii) the Stock Options shall not be exercisable at
any time prior to the IPO unless the Executive has executed a written
instrument, reasonably satisfactory to the Executive, the Company, and the
Company's other shareholders, evidencing (a) the Executive's investment intent
and customary investment representations to substantiate compliance with
applicable securities laws, (b) the Executive's agreement that prior to the IPO
the shares which may be acquired upon exercise of the Stock Options may not be
hypothecated or pledged, and that the shares may not be sold, transferred or
otherwise disposed of except after giving the other shareholders and the Company
thirty (30) days prior written notice of a bona fide written offer for such
shares and the right of first refusal to acquire such shares on the terms and
conditions of such bona fide offer during such thirty day period; and (c) the
Executive's agreement that the sale, transfer, or other disposition of the
shares shall be subject to applicable securities law restrictions and applicable
restrictions under this Agreement and the option agreement, and that the
certificates evidencing the shares shall be legended to reflect the same. The
restrictions set forth in sub-clause (b) of this clause (vii) shall terminate
upon the consummation of the IPO.
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4.5 VACATION BENEFITS. The Executive shall be entitled to four
(4) weeks of vacation time each calendar year during the term of this Agreement,
to be taken at such times as the Executive and the Company shall mutually
determine and provided that no vacation time shall interfere with the duties
required to be rendered by the Executive hereunder. Notwithstanding the
foregoing, in view of the Company's current circumstances the Executive will not
(i) take more than one week of vacation time in any 30-day period, or (2) take
any vacation time until the earlier of (x) the completion of the IPO or (y) four
(4) months from the date of this Agreement, unless otherwise mutually agreed
with the Chief Executive Officer of the Company.
4.6 OTHER BENEFITS. The Executive shall receive such
additional benefits, if any, as the Board of the Company shall from time to time
determine.
5. TERMINATION.
5.1 TERMINATION FOR CAUSE. The Company shall at all times have
the right, upon written notice (which shall describe in general terms the basis
for dismissal per this Section) to the Executive, to terminate the Term of
Employment, for Cause. For purposes of this Agreement, the term "Cause" shall
mean (i) an action or omission of the Executive which constitutes a willful and
material breach of, or failure or refusal (other than by reason of the
Executive's disability) to perform the Executive's duties under, this Agreement
which is not cured within fifteen (15) days after receipt by the Executive of
written notice of same if such action or omission is capable of being so cured,
(ii) habitual insobriety or use of controlled substances (other than under the
supervision of a licensed physician); (iii) habitual absenteeism; (iv) fraud,
non-disclosed self-dealing, embezzlement or misappropriation of funds or
property or breach of trust in connection with the Executive's services
hereunder, (v) conviction of a felony or conviction of any other crime or
misdemeanor involving moral turpitude; or (vi) gross negligence in connection
with the performance of the Executive's duties hereunder, which is not cured, to
the extent that the same is curable, within fifteen (15) days after receipt by
the Executive of written notice of same. Upon any termination pursuant to this
Section 5.1, the Company shall pay to the Executive the Executive's Base Salary
to the date of termination. The Company shall have no further liability
hereunder (other than for reimbursement for reasonable business expenses
incurred prior to the date of termination, subject, however, to the provisions
of Section 4.1).
5.2 DISABILITY. The Company shall at all times have the right,
upon written notice to the Executive, to terminate the Term of Employment, if
the Executive shall as the result of mental or physical incapacity, illness or
disability, become unable to perform the Executive's obligations hereunder for a
total of 180 days in any 12-month period. The Company shall rely upon a
certification performed by the Company's disability insurer or by a physician
jointly chosen by the Executive's doctor and the Company's doctor to determine
whether the Executive continues to be disabled provided that if the Executive
does not submit to examination by a licensed medical doctor for such purpose (if
requested by the Company) then the Company may terminate the Executive's
employment if the Executive shall become entitled to benefits under the
Company's disability plan as then in effect. Upon any termination pursuant to
this Section 5.2, the Company shall (i) pay to the Executive any unpaid Base
Salary through the effective date of termination specified in such notice, (ii)
pay to the Executive the Executive's accrued but unpaid Incentive Compensation,
if any, for any Bonus Period ending on or before the date of termination of the
Executive's employment with the Company, (iii) continue to pay the Executive
through the later of (x) the date which is six (6) months after the termination
but no later than the Expiration Date), or (y) six (6) months from the date of
termination (the "Continuation Period"), an amount equal to the Base Salary the
Executive was receiving at the time of the Executive's Disability, such amount
to be paid in the manner and at such times as the Base Salary otherwise would
have been payable to the Executive, and (iv) continue to pay the Executive
Incentive Compensation and continue to provide the Executive with the benefits
the Executive was receiving under Section 4.2 hereof (the "Benefits") through
the Continuation Period (to the extent permitted under the terms of applicable
insurance and other benefit programs of the Company then in affect and covering
the Executive, and provided further that the Company shall not take any
affirmative action from the time of giving notice of termination to the
Executive through the end of the Continuation Period which would cause the
relevant insurance and other benefits available to the Executive to be reduced
or eliminated) following the termination of the
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Executive's employment with the Company, in the manner and at such times as the
compensation or Benefits otherwise would have been payable or provided to the
Executive, provided that the amounts payable to the Executive pursuant to the
foregoing clauses (i) through (iv) shall be reduced by the amount actually paid
to the Executive pursuant to the disability insurance referred to in Section 4.2
hereof. The Company shall have no further liability hereunder (other than for
reimbursement for reasonable business expenses incurred prior to the date of
termination, subject, however to the provisions of Section 4.1).
5.3 DEATH. Upon the death of the Executive during the Term of
Employment, the Company shall (i) pay to the estate of the deceased Executive
any unpaid Base Salary through the Executive's date of death, (ii) pay to the
estate of the deceased Executive the Executive's accrued but unpaid Incentive
Compensation, if any, for any Bonus Period ending on or before the Executive's
date of death, (iii) continue to pay to the estate of the deceased Executive the
Base Salary the Executive was receiving prior to the Executive's death under
Section 3.1 hereof through the Continuation Period following the Executive's
death, in the manner and at such times as the Base Salary otherwise would have
been payable to the Executive, and (iv) continue to pay to the estate of the
deceased Executive Incentive Compensation through the Continuation Period
following the termination of the Executive's employment with the Company, in the
manner and at such times as the compensation would have been payable or provided
to the Executive. The Company shall have no further liability hereunder (other
than for reimbursement for reasonable business expenses incurred prior to the
date of the Executive's death, subject, however to the provisions of Section
4.1).
5.4 TERMINATION WITHOUT CAUSE. At any time the Company shall
have the right to terminate the Executive's employment hereunder without Cause
by written notice to the Executive. Upon any termination pursuant to this
Section 5.4, the Company shall (i) pay to the Executive any unpaid Base Salary
through the effective date of termination specified in such notice, (ii) pay to
the Executive the accrued but unpaid Incentive Compensation, if any, for any
Bonus Period ending on or before the date of the termination of the Executive's
employment with the Company, and a prorated portion of the Bonus earned, if any,
for the quarterly Bonus Period, if any, in which the termination occurs, (iii)
continue to pay the Executive's Base Salary and Incentive Compensation through
the Continuation Period, in the manner and at such time as the Base Salary and
Incentive Compensation otherwise would have been payable to the Executive, and
(iv) continue to provide the Executive with the Benefits the Executive was
receiving under Section 4.2 hereof (to the extent permitted under the terms of
applicable insurance and other benefit programs of the Company then in affect
and covering the Executive, and provided further that the Company shall not take
any affirmative action from the time of giving notice of termination to the
Executive through the end of the Continuation Period which would cause the
relevant insurance and other benefits available to the Executive to be reduced
or eliminated) during the Continuation Period, in the manner and at such times
as the Benefits otherwise would have been payable or provided to the Executive.
The Company shall have no further liability hereunder (other than for
reimbursement for reasonable business expenses incurred prior to the date of
termination, subject, however, to the provisions of Section 4.1).
5.5 TERMINATION BY EXECUTIVE.
a. The Executive shall at all times have the right,
upon ninety (90) days written notice to the Company, to terminate the Term of
Employment.
b. Upon termination of the Term of Employment
pursuant to this Section 5.5 (that is not a termination under Section 5.6) by
the Executive without Good Reason, the Company shall pay to the Executive any
unpaid Base Salary through the effective date of termination specified in such
notice. The Company shall have no further liability hereunder (other than for
reimbursement for reasonable business expenses incurred prior to the date of
termination, subject, however, to the provisions of Section 4.1).
c. Upon termination of the Term of Employment
pursuant to this Section 5.5 (that is not a termination under Section 5.6) by
the Executive for Good Reason, the Company shall pay to the Executive the same
amounts that would have been payable by the Company to the Executive under
Section 5.4 of this
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Agreement if the Term of Employment had been terminated by the Company without
Cause. The Company shall have no further liability hereunder (other than for
reimbursement for reasonable business expenses incurred prior to the date of
termination, subject, however, to the provisions of Section 4.1).
d. For purposes of this Agreement, "Good Reason"
shall mean any of the following:
(i) the assignment to the Executive of any material
duties inconsistent in any material respect with the Executive's duties as
defined hereunder or any other action by the Company which results in a material
diminution in the Executive's position, authority, duties or responsibilities
from those contemplated by Section 1.2 of this Agreement, which is not remedied
by the Company within fifteen (15) days after receipt of written notice from the
Executive of the same, excluding for this purpose any isolated, insubstantial
and inadvertent action not taken in bad faith;
(ii) any material failure by the Company to comply
with any of the provisions of Article 3 of this Agreement which is not remedied
by the Company within fifteen (15) days after receipt of written notice thereof
given by the Executive, other than an isolated, insubstantial and inadvertent
failure not occurring in bad faith and which is remedied by the Company promptly
after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be
based at any office or location more than 60 miles outside of New York City, NY,
except for business trips reasonably required in the performance of the
Executive's responsibilities; or
(iv) any purported termination by the Company of the
Executive's employment otherwise than pursuant to Sections 5.1 - 5.4 of this
Agreement.
5.6 CHANGE IN CONTROL OF THE COMPANY.
a. Unless otherwise provided in this Agreement, in
the event that a Change in Control (as defined in paragraph (b) of this Section
5.6) in the Company shall occur during the Term of Employment, and prior to the
first anniversary of the date of the Change in Control, either (x) the Term of
Employment is terminated by the Company without Cause, pursuant to Section 5.4
hereof or (y) the Executive terminates the Term of Employment for Good Reason
pursuant to Section 5.5(c) hereof, the Company shall (1) pay to the Executive
any unpaid Base Salary through the effective date of termination, (2) pay to the
Executive the Incentive Compensation, if any, not yet paid to the Executive for
any Bonus Period prior to such termination, at such time as the Incentive
Compensation otherwise would have been payable to the Executive, and (3) pay to
the Executive in a lump sum payment an amount equal to the amount of the
Executive's Base Salary for the twelve (12) months preceding such termination.
If, during the Term of Employment, any Change in Control should occur and, prior
to the first anniversary of the date of the Change in Control, either (x) the
Term of Employment is terminated by the Company without Cause, pursuant to
Section 5.4 herof or (y) the Executive terminates the Term of Employment for
Good Reason pursuant to Section 5.5(c) hereof, the Executive's unvested Stock
Options shall be vested and become immediately exercisable. In addition, if a
Change in Control transaction shall occur in which the Company is not the
surviving entity and the acquiror does not agree to assume the obligations
represented by the Stock Option rights of the Executive on or prior to the
closing of the Change in Control transaction on such terms and conditions as
shall be reasonably satisfactory to the Company, THEN the Executive's unvested
Stock Options shall be vested and become immediately exercisable immediately
prior to the consummation of the closing of such Change in Control transaction
so as to permit the Executive to dispose of the shares of common stock
underlying such Stock Options in that Change in Control transaction on
substantially the same terms and conditions as are applicable to shareholders of
the Company generally. If any of the Executive's Stock Options shall vest
according to the applicable vesting schedule, the options which shall have
vested after any such Change in Control shall continue to be exercisable for a
period of three months from the date of any termination of the Executive's
employment by the Company following such Change in Control. The Company shall
have no further liability
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hereunder (other than for reimbursement for reasonable business expenses
incurred prior to the date of termination, subject, however, to the provisions
of Section 4.1).
b. For purposes of this Agreement, the term "Change
in Control" shall mean:
(i) Approval by the shareholders of the
Company of (x) a reorganization, merger, consolidation or other form of
corporate transaction or series of transactions, in each case, with respect to
which persons who were the shareholders of the Company immediately prior to such
reorganization, merger or consolidation or other transaction do not, immediately
thereafter, own more than 50% of the combined voting power entitled to vote
generally in the election of directors of the reorganized, merged or
consolidated company's then outstanding voting securities, in substantially the
same proportions as their ownership immediately prior to such reorganization,
merger, consolidation or other transaction, or (y) a liquidation or dissolution
of the Company or (z) the sale of all or substantially all of the assets of the
Company (unless such reorganization, merger, consolidation or other corporate
transaction, liquidation, dissolution or sale is subsequently abandoned);
(ii) Individuals who, as of the Commencement
Date of this Agreement, constitute the Board (the "Incumbent Board") cease for
any reason to constitute at least a majority of the Board, provided that any
person becoming a director subsequent to the Commencement Date of this Agreement
whose election, or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then comprising the
Incumbent Board (other than an election or nomination of an individual whose
initial assumption of office is in connection with an actual or threatened
election contest relating to the election of the Directors of the Company, as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Securities Exchange Act) shall be, for purposes of this Agreement, considered as
though such person were a member of the Incumbent Board; or
(iii) the acquisition by any person, entity
or "group", within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act, of more than 30% of either the then outstanding shares of the
Company's Common Stock or the combined voting power of the Company's then
outstanding voting securities entitled to vote generally in the election of
directors (hereinafter referred to as the ownership of a "Controlling Interest")
excluding, for this purpose, any acquisitions by (1) the Company, (2) any
person, entity or "group" that as of the Commencement Date of this Agreement
owns beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Securities Exchange Act) of a Controlling Interest, (3) Rosalind Resnick
and/or Ryan Scott Druckenmiller or their respective affiliates, or (4) any
employee benefit plan of the Company.
c. Notwithstanding the foregoing, the term "Change in
Control" shall NOT include (i) any transaction, event or circumstance as a
result of which or after which Rosalind Resnick, Ryan Scott Druckenmiller, and
their respective affiliates continue to own, in the aggregate, the largest
percentage of shares of the Company owned by any shareholder of the Company,
(ii) the IPO, (iii) the above-referenced strategic or financial investments
which are contemplated to occur prior to the IPO, or (iii) any transaction
entered into by the Company and its stockholders prior to the IPO primarily for
the purpose of facilitating estate planning of Rosalind Resnick or Ryan Scott
Druckenmiller or converting the Company from an "S Corp" to a "C Corp" in
preparation for the IPO.
5.7 RESIGNATION. Upon any termination of employment pursuant
to this Article 5, the Executive shall be deemed to have resigned as an officer,
and if the Executive was then serving as a director of the Company, as a
director, and if required by the Board, the Executive hereby agrees to
immediately execute a resignation letter to the Board.
5.8 SURVIVAL. The provisions of this Article 5 shall survive
the termination of this Agreement, as applicable.
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6. RESTRICTIVE COVENANTS.
6.1 NON-COMPETITION. At all times while the Executive is
employed by the Company and for a two (2) year period after the termination of
the Executive's employment with the Company for any reason (other than (a)
termination by the Company without Cause or (b) termination by the Executive for
Good Reason (as defined in Section 5.5(d) hereof) or (c) termination by the
Company prior to the first anniversary of a Change in Control other than for
Cause), the Executive shall not, directly or indirectly, engage in or have any
interest in any sole proprietorship, partnership, corporation or business or any
other person or entity (whether as an employee, officer, director, partner,
agent, security holder, creditor, consultant or otherwise) that directly engages
in competition with the Company (for this purpose, any business unit or division
that provides e-mail marketing services to third parties for compensation and
derives more than five percent (5%) of the division's or unit's revenues from
those activities shall be deemed to be in competition with the Company);
provided that such provision shall not apply to the Executive's ownership of
Common Stock of the Company or the acquisition by the Executive, solely as an
investment, of securities of any issuer that is registered under Section 12(b)
or 12(g) of the Securities Exchange Act of 1934, as amended, and that are listed
or admitted for trading on any United States national securities exchange or
that are quoted on the Nasdaq, or any similar system or automated dissemination
of quotations of securities prices in common use, so long as the Executive does
not control, acquire a controlling interest in or become a member of a group
which exercises direct or indirect control or, more than one percent (1%) of any
class of capital stock of such corporation.
6.2 NONDISCLOSURE. The Executive shall not during the
Executive's employment under this Agreement or after the termination of such
employment divulge, communicate, use to the detriment of the Company or for the
benefit of any other person or persons, or misuse in any way, any Confidential
Information (as hereinafter defined) pertaining to the business of the Company.
Any Confidential Information or data now or hereafter acquired by the Executive
with respect to the business of the Company (which shall include, but not be
limited to, information concerning the Company's financial condition, prospects,
technology, customers, suppliers, sources of leads and methods of doing
business) shall be deemed a valuable, special and unique asset of the Company
that is received by the Executive in confidence and as a fiduciary, and
Executive shall remain a fiduciary to the Company with respect to all of such
information. For purposes of this Agreement, "Confidential Information" means
information disclosed to the Executive or known by the Executive as a
consequence of or through the Executive's employment by the Company (including
information conceived, originated, discovered or developed by the Executive)
prior to or after the date hereof (up to the date of termination of the
Executive's employment pursuant to this Agreement), and whose existence or
significance or utility in respect of the Company or its business is not
generally known. Notwithstanding the foregoing, nothing herein shall be deemed
to restrict the Executive from disclosing Confidential Information to the extent
required by law or in the valid performance of the Executive's duties.
6.3 NONSOLICITATION OF EMPLOYEES AND CLIENTS. At all times
while the Executive is employed by the Company and for a one (1) year period
after the termination of the Executive's employment with the Company for any
reason, the Executive shall not, directly or indirectly, for the Executive or
for any other person, firm, corporation, partnership, association or other
entity (a) employ or attempt to employ or enter into any contractual arrangement
with any employee or former employee of the Company, until a period of at least
six (6) months has elapsed from the date of termination of the employment of
such person with the Company, and/or (b) call on or solicit any of the actual or
targeted prospective clients of the Company on behalf of any person or entity in
connection with any business competitive with the business of the Company, while
the Executive is employed by the company, or in connection with any email direct
marketing business for a one-year period after the termination of the
executive's employment, nor shall the Executive make known the names and
addresses of such clients or any information relating in any manner to the
Company's trade or business relationships with such customers, other than in
connection with the performance of the Executive's duties under this Agreement.
6.4 OWNERSHIP OF DEVELOPMENTS. All copyrights, patents, trade
secrets, or other intellectual property rights associated with any ideas,
concepts, techniques, inventions, processes, or works of authorship
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developed or created by the Executive during the course of performing work for
the Company or its clients (collectively, the "Work Product") shall belong
exclusively to the Company and shall, to the extent possible, be considered a
work made by the Executive for hire for the Company within the meaning of Title
17 of the United States Code. To the extent the Work Product may not be
considered work made by the Executive for hire for the Company, the Executive
agrees to assign, and automatically assigns at the time of creation of the Work
Product, without any requirement of further consideration, any right, title, or
interest the Executive may have in such Work Product. Upon the request of the
Company, the Executive shall take such further actions, including execution and
delivery of instruments of conveyance, as may be appropriate to give full and
proper effect to such assignment.
6.5 BOOKS AND RECORDS. All books, records, and accounts
relating in any manner to the customers or clients of the Company, whether
prepared by the Executive or otherwise coming into the Executive's possession,
shall be the exclusive property of the Company and shall be returned immediately
to the Company on termination of the Executive's employment hereunder or on the
Company's request at any time, upon which the Executive shall not retain any
copies of the same in any media whatsoever.
6.6 DEFINITION OF COMPANY. Solely for purposes of this Article
6, the term "Company" also shall include any existing or future subsidiaries of
the Company that are operating during the time periods described herein and any
other entities that directly or indirectly, through one or more intermediaries,
control, are controlled by or are under common control with the Company during
the periods described herein.
6.7 ACKNOWLEDGMENT BY EXECUTIVE. The Executive acknowledges
and confirms that (a) the restrictive covenants contained in this Article 6 are
reasonable and necessary to protect the legitimate business interests of the
Company, and (b) the restrictions contained in this Article 6 (including without
limitation the length of the term of the provisions of this Article 6) are not
overbroad, overlong, or unfair and are not the result of overreaching, duress or
coercion of any kind. The Executive further acknowledges and confirms that the
Executive's full, uninhibited and faithful observance of each of the covenants
contained in this Article 6 will not cause the Executive any undue hardship,
financial or otherwise, and that enforcement of each of the covenants contained
herein will not impair the Executive's ability to obtain employment commensurate
with the Executive's abilities and on terms fully acceptable to the Executive or
otherwise to obtain income required for the comfortable support of the Executive
and the Executive's family and the satisfaction of the needs of the Executive's
creditors. The Executive acknowledges and confirms that the Executive's special
knowledge of the business of the Company is such as would cause the Company
serious injury or loss if the Executive were to use such ability and knowledge
to the benefit of a competitor or were to compete with the Company in violation
of the terms of this Article 6. The Executive further acknowledges that the
restrictions contained in this Article 6 are intended to be, and shall be, for
the benefit of and shall be enforceable by, the Company and its successors and
assigns, including, without limitation, any successor to the Company, whether by
merger, consolidation, sale of stock, sale of assets or otherwise.
6.8 REFORMATION BY COURT. In the event that a court of
competent jurisdiction shall determine that any provision of this Article 6 is
invalid or more restrictive than permitted under the governing law of such
jurisdiction, then only as to enforcement of this Article 6 within the
jurisdiction of such court, such provision shall be interpreted and enforced as
if it provided for the maximum restriction permitted under such governing law.
6.9 EXTENSION OF TIME. If the Executive shall be in violation
of any provision of this Article 6, then each time limitation set forth in this
Article 6 shall be extended for a period of time equal to the period of time
during which such violation or violations occur. If the Company seeks injunctive
relief from such violation in any court, then the covenants set forth in this
Article 6 shall be extended for a period of time equal to the pendency of such
proceeding including all appeals by the Executive.
6.10 SURVIVAL. The provisions of this Article 6 shall survive
the termination of this Agreement, as applicable.
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7. INJUNCTION. It is recognized and hereby acknowledged by the parties
hereto that a breach by the Executive of any of the covenants contained in
Article 6 of this Agreement will cause irreparable harm and damage to the
Company, the monetary amount of which may be virtually impossible to ascertain.
As a result, the Executive recognizes and hereby acknowledges that the Company
shall be entitled, without the necessity of proving damages or posting a bond,
to an injunction from any court of competent jurisdiction enjoining and
restraining any violation of any or all of the covenants contained in Article 6
of this Agreement by the Executive or any of the Executive's affiliates,
associates, partners or agents, either directly or indirectly, and that such
right to injunction shall be cumulative and in addition to whatever other
remedies the Company may possess. If the Company should fail to obtain any
injunction when the Company seeks an injunction pursuant to this Section (other
than due to the fact that the parties reach a settlement or the Executive ceases
the activities complained of by the Company without need of an injunction), then
the Company shall reimburse the Executive for the Executive's reasonable
attorney's fees and expenses pertaining to the proceedings to seek the
injunction.
8. MEDIATION. In the event a dispute arises out of or relates to this
Agreement, or the breach thereof, and if the dispute cannot be settled through
negotiation, the parties hereby agree first to attempt in good faith to settle
the dispute by mediation administered by the American Arbitration Association
under its Employment Mediation Rules before resorting to arbitration as set
forth in Section 8 below. Notwithstanding the foregoing, (i) the Company has the
right to seek an injunction under Section 7 hereof, and (ii) either party may
seek an injunction or entry of judgment on an arbitration award under Section 9
of this Agreement. The cost and expenses of mediators (but not the fees and
expenses of any counsel or other professional representing any party other than
the Company) shall be borne by the Company. If any dispute is settled by
mediation pursuant to this Section and the Company fails to achieve any decision
in its favor, then the Company shall reimburse the Executive for the Executive's
reasonable attorneys' fees and expenses pertaining to the mediation proceedings.
9. ARBITRATION. In the event that mediation pursuant to Section 8 of
this Agreement has failed after thirty (30) days or the parties to this
Agreement both agree not to mediate, any dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by arbitration in
New York County, New York, in accordance with the Rules of the American
Arbitration Association then in effect with respect to arbitration of commercial
matters (except to the extent that the procedures outlined below differ from
such rules). Within ten (10) days after written notice by either party has been
given that a dispute exists and that arbitration is required, each party must
select an arbitrator and those two arbitrators shall promptly, but in no event
later than ten (10) days after their selection, select a third arbitrator. The
parties agree to act as expeditiously as possible to select arbitrators and
conclude the dispute. The selected arbitrators must render their decision in
writing. The cost and expenses of the arbitrators (but not the fees and expenses
of any counsel or other professional representing any party other than the
Company) shall be borne by the Company. Judgment may be entered on the
arbitrators' award in any court having jurisdiction. Pursuit of an injunction
shall not impair arbitration on all remaining issues. If any dispute is settled
by arbitration pursuant to this Section and the Company fails to achieve any
decision in its favor, then the Company shall reimburse the Executive for the
Executive's reasonable attorneys' fees and expenses pertaining to the
arbitration proceedings.
10. ASSIGNMENT. Neither party shall have the right to assign or
delegate their rights or obligations hereunder, or any portion thereof, to any
other person, except that the rights of the Company may be assigned by the
Company to any person or entity acquiring a substantial portion of the Company's
assets or to any successor of the Company.
11. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
12. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and, upon
its effectiveness, shall supersede all prior agreements, understandings and
arrangements, both oral and written, between the Executive and the Company (or
any of its
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affiliates) with respect to such subject matter. This Agreement may not be
modified in any way unless by a written instrument signed by both the Company
and the Executive.
13. NOTICES: All notices required or permitted to be given hereunder
shall be in writing and shall be personally delivered by courier, sent by
registered or certified mail, return receipt requested or sent by confirmed
facsimile transmission addressed as set forth herein. Notices personally
delivered, sent by facsimile or sent by overnight courier shall be deemed given
on the date of delivery and notices mailed in accordance with the foregoing
shall be deemed given upon the earlier of receipt by the addressee, as evidenced
by the return receipt thereof, or three (3) days after deposit in the U.S. mail.
Notice shall be sent (i) if to the Company, addressed to NetCreations, Inc., 379
West Broadway, Suite 202, New York, New York 10012, attention: Chief Executive
Officer, with a copy to Greenberg Traurig, Met Life Building, 200 Park Avenue,
15th Floor, New York, New York 10166, Attention: Andrew J. Cosentino, Esq.; and
(ii) if to the Executive, to the Executive's address as reflected on the payroll
records of the Company, or to such other address as either party hereto may from
time to time give notice of to the other.
14. BENEFITS; BINDING EFFECT. This Agreement shall be for the benefit
of and binding upon the parties hereto and their respective heirs, personal
representatives, legal representatives, and successors, including, without
limitation, any successor to the Company, whether by merger, consolidation, sale
of stock, sale of assets or otherwise.
15. SEVERABILITY. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement or any
part thereof, all of which are inserted conditionally on their being valid in
law, and, in the event that any one or more of the words, phrases, sentences,
clauses or sections contained in this Agreement shall be declared invalid, this
Agreement shall be construed as if such invalid word or words, phrase or
phrases, sentence or sentences, clause or clauses, or section or sections had
not been inserted. If such invalidity is caused by length of time or size of
area, or both, the otherwise invalid provision will be considered to be reduced
to a period or area which would cure such invalidity.1
16. WAIVERS. The waiver by either party hereto of a breach or violation
of any term or provision of this Agreement shall not operate nor be construed as
a waiver of any subsequent breach or violation.
17. DAMAGES. Subject to compliance with Sections 7, 8 and 9 of this
Agreement, to the extent applicable, nothing contained herein shall be construed
to prevent the Company or the Executive from seeking and recovering from the
other damages sustained by either or both of them as a result of its or the
Executive's breach of any term or provision of this Agreement. In the event that
either party hereto brings suit for the collection of any damages resulting
from, or the injunction of any action constituting, a breach of any of the terms
or provisions of this Agreement, then the party found to be at fault shall pay
all reasonable court costs and attorneys' fees of the other.
18. SECTION HEADINGS. The section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
19. NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
any rights or remedies under or by reason of this Agreement, other than the
Company, the parties hereto and their respective heirs, personal
representatives, legal representatives, and successors, including, without
limitation, any successor to the Company, whether by merger, consolidation, sale
of stock, sale of assets or otherwise.
20. INDEMNIFICATION.
a. The Company shall indemnify and hold harmless the
Executive to the fullest extent permitted by law from and against any and all
claims, damages, expenses (including reasonable attorneys' fees),
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judgments, penalties, fines, settlements, and all other liabilities incurred or
paid by the Executive in connection with the investigation, defense,
prosecution, settlement or appeal of any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative and to which the Executive was or is a party or is threatened to
be made a party by reason of the fact that the Executive is or was an officer,
employee or agent of the Company, or by reason of anything done or not done by
the Executive in any such capacity or capacities, provided that the Executive
acted in good faith, in a manner that was not grossly negligent and did not
constitute willful misconduct and in a manner the Executive reasonably believed
to be in or not opposed to the best interests of the Company, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe the
Executive's conduct was unlawful. The Company also shall pay any and all
reasonable expenses (including attorney's fees) incurred by the Executive as a
result of the Executive being called as a witness in connection with any matter
involving the Company and/or any of its officers or directors (other than an
action or suit by the Company against the Executive).
b. The Company shall pay any reasonable expenses
(including attorneys' fees), judgments, penalties, fines, settlements, and other
liabilities incurred by the Executive in investigating, defending, settling or
appealing any action, suit or proceeding described in this Section 20 (other
than an action or proceeding by the Company against the Executive) in advance of
the final disposition of such action, suit or proceeding. The Company shall
promptly pay the amount of such expenses to the Executive, but in no event later
than ten (10) days following the Executive's delivery to the Company of a
written request for an advance pursuant to this Section 20, together with a
reasonable accounting of such expenses.
c. The Executive hereby undertakes and agrees to
repay to the Company any advances made pursuant to this Section 20 if and to the
extent that it shall ultimately be agreed by the parties or determined by a
court that the Executive is not entitled to be indemnified by the Company for
such amounts.
d. The Company shall make the advances contemplated
by this Section 20 regardless of the Executive's financial ability to make
repayment, and regardless of whether indemnification of the Indemnitee by the
Company will ultimately be required. Any advances and undertakings to repay
pursuant to this Section 20 shall be unsecured and interest-free.
[THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
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e. The provisions of this Section 20 shall survive
the termination of this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
COMPANY:
NETCREATIONS, INC.
By:
-----------------------------
Name: Rosalind Resnick
Title: President
EXECUTIVE:
--------------------------------
Gary Sindler, individually
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Exhibit 10.4
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into as of
the 27th day of August, 1999 by and between NETCREATIONS, INC., a New York
corporation (the "Company"), and Larry Mahon (hereinafter called the
"Executive").
R E C I T A L S
A. The Executive desires to be employed as the Vice President - Sales
of the Company.
B. The Company desires to employ the Executive as the Vice President -
Sales of the Company.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties agree as follows:
1. EMPLOYMENT.
1.1 EMPLOYMENT. The Company hereby agrees to employ the
Executive and the Executive hereby agrees to serve the Company on the terms and
conditions set forth herein.
1.2 DUTIES OF EXECUTIVE. During the Term of Employment under
this Agreement, the Executive shall serve as the Vice President - Sales of the
Company, shall diligently perform all services as may be assigned to the
Executive by the President, Chief Executive Officer, and the Chief Operating
Officer of the Company and by the Board of Directors (the "Board") of the
Company, and shall exercise such power and authority as may from time to time be
delegated to the Executive by the Board. Without limiting the generality of the
foregoing, the Executive duties shall include, among other things, the
following:
Creation and administration of a compensation plan for sales
and sales support staff;
Sales and sales support staff development; establishment of
positions, functions, and hiring criteria; recruitment, training and performance
evaluation of sales and sales support staff personnel;
Sales staff management; leading the Company's efforts in
establishing new client relationships; growing present client relationships to
full potential; ensuring that quotas are met on both team and individual levels.
Other responsibilities include refining sales techniques, professionalism, and
technical skills of the sales and sales support staff; assisting the sales staff
in targeting prospective clients; determining the viability of business
opportunities; preparing client proposals; participating in sales calls and
making sales presentations; closing sales and negotiating sales contracts;
Developing and maintaining a consistent client database and
sales communication system, and ensuring that they are continually updated and
transferable to all staff as needed;
Developing and executing a marketing plan to open new markets
and outlets for the Company's services, including development of vendor and/or
partner relationships with complementary companies; reviewing the effectiveness
of the marketing plan and modifying the plan as needed; managing vendor/partner
relationships; ensuring that business efforts are properly targeted;
Creation and administration of sales reporting and forecasting
systems for the benefit and use of senior management;
<PAGE>
Directing the delivery of services to clients; ensuring the
timeliness and accuracy of delivery and continuously improving customer
satisfaction levels; and
Such other duties and responsibilities as may be assigned.
The Executive acknowledges and agrees that the Company may assign some of the
foregoing specific duties to other persons as the Company's management team
expands, and that such assignments of duties to other persons will not be viewed
by the Executive as constituting a diminution in the Executive's office, title,
and duties and responsibilities hereunder. The Executive shall devote the
Executive's full time and attention to the business and affairs of the Company,
render such services to the best of the Executive's ability, and use the
Executive's best efforts to promote the interests of the Company. It shall not
be a violation of this Agreement for the Executive to (i) serve on corporate,
civic or charitable boards or committees, (ii) deliver lectures, fulfill
speaking engagements or teach at educational institutions, or (iii) manage
personal investments, so long as such activities do not significantly interfere
with the performance of the Executive's responsibilities to the Company in
accordance with this Agreement. The Executive`s duties will require the
Executive's regular presence during normal working hours on business days Monday
through Friday at the Company's principal executive offices, currently located
at 379 West Broadway, New York, New York, but the Executive's duties will also
involve some business travel.
2. TERM.
2.1 INITIAL TERM. The initial Term of Employment under this
Agreement, and the employment of the Executive hereunder, shall commence on
August 30, 1999 (the "Commencement Date") and shall expire on December 31, 2002,
unless sooner terminated in accordance with Section 5 hereof (the "Initial
Term").
2.2 RENEWAL TERMS. At the end of the Initial Term, the Term of
Employment automatically shall renew for successive one year terms (subject to
earlier termination as provided in Section 5 hereof), unless the Company or the
Executive delivers written notice to the other at least 90 days prior to the
last day of the Initial Term or any such applicable renewal period (in either
case, the "Expiration Date") of its or the Executive's election not to renew the
Term of Employment. For purposes of this Agreement, if the Term of Employment
expires as a result of the Company delivering written notice to the Executive
stating its intention not to renew the Term of the Employment pursuant to this
Section 2.2, the Executive shall be treated as if the Executive was terminated
by the Company without Cause, in accordance with Section 5.4 hereof, upon the
Expiration Date. In addition, if the Term of Employment expires as a result of
the Executive delivering written notice to the Company stating the Executive's
intention not to renew the Term of Agreement pursuant to this Section 2.2, the
Executive shall be treated as if the Executive had terminated the Executive's
employment with the Company without Good Reason, in accordance with Section
5.5(b) hereof, upon the Expiration Date.
2.3 TERM OF EMPLOYMENT. The period during which the Executive
shall be employed by the Company pursuant to the terms of this Agreement is
sometimes referred to in this Agreement as the "Term of Employment."
3. COMPENSATION.
3.1 BASE SALARY. The Executive shall receive a base salary at
the annual rate (prorated for any applicable period of less than one year) of
$100,000 (the "Base Salary") during the Term of Employment, with such Base
Salary payable in installments consistent with the Company's normal payroll
schedule, subject to applicable withholding and other taxes. The Base Salary
shall be reviewed, at least annually, for merit increases and may, by action and
in the discretion of the Board, be increased (but not decreased) at any time or
from time to time.
3.2 BONUSES. During the term of this Agreement, the Executive
shall be eligible to receive performance and annual incentive awards (the
"Bonuses") of up to a maximum potential limit of $100,000 per
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annum as described below. Bonuses shall be reviewed, at least annually, for
merit increases and, by action and in the discretion of the Board, the limit on
the potential size of Bonuses may be increased, but not decreased, at any time
or from time to time.
Each period for which Bonuses are payable is sometimes
hereinafter referred to as a Bonus Period. Unless otherwise specified by the
Board, the Bonus Period shall be the designated fiscal year or fiscal quarter of
the Company. The amount of the Bonuses that may be awarded for any period, if
any, shall be determined prior to the commencement of the relevant Bonus Period
by the Board, in its sole and absolute discretion. However, any bonus plan for
the Executive shall be predicated on the establishment of quarterly goals,
referred to as Key Initiatives, to be mutually developed and signed-off on
between the Executive and the Company's Board/Representative of the Company
prior to and/or adjusted during a quarter. Key Initiatives will comprise, among
other things, specific sales objectives, business development goals and Company
results. For purposes of this Agreement, the term "Representative of the Company
means the Company's Chief Executive Officer, President or Chief Operating
Officer. All Bonuses shall be payable to the Executive quarterly in cash and/or
to the extent determined by the Board and agreed upon by the Executive, with
common stock ("Common Stock") of the Company by no later than ten (10) business
days after the Company has completed its financial statements, approved by the
Company's Chief Financial Officer and its Chief Executive Officer, for the
preceding fiscal period. Bonuses shall be subject to proration for periods of
less than one quarter. Any bonuses payable pursuant to this Section 3.2 are
sometimes hereinafter referred to as "Incentive Compensation."
4. EXPENSE REIMBURSEMENT AND OTHER BENEFITS.
4.1 REIMBURSEMENT OF EXPENSES. Upon the submission of proper
substantiation by the Executive, and subject to such rules and guidelines as the
Company may from time to time adopt, the Company shall reimburse the Executive
for all reasonable expenses actually paid or incurred by the Executive during
the Term of Employment in the course of and pursuant to the business of the
Company. The Executive shall account to the Company in writing for all expenses
for which reimbursement is sought and shall supply to the Company copies of all
relevant invoices, receipts or other evidence reasonably requested by the
Company.
4.2 COMPENSATION/BENEFIT PROGRAMS. During the term of
Employment, the Executive shall be entitled to participate in all medical,
dental, hospitalization, accidental death and dismemberment, disability, travel
and life insurance plans applicable to the Company's senior executives
generally, and any and all other plans as are presently and hereinafter offered
by the Company generally to its executives, including savings, pension,
profit-sharing and deferred compensation plans, subject to the general
eligibility and participation provisions set forth in such plans.
4.3 TRANSPORTATION ALLOWANCE. The Executive will not be
entitled to reimbursement for his expenses in commuting to and from the
Company's offices.
4.4 STOCK OPTIONS.
a. During the Term of Employment, the Executive shall
be eligible to be granted options (the "Stock Options") to purchase the Common
Stock of the Company under (and therefore subject to) all terms and conditions
of) the Company's Stock Option Plan. The number of Stock Options and terms and
conditions of the Stock Options shall be determined by the Committee appointed
pursuant to the Stock Option Plan, or by the Board of Directors of the Company,
in its discretion and pursuant to the Stock Option Plan.
b. Reasonably promptly following the date of this
Agreement, the Company shall grant to the Executive non-qualified Stock Options
to purchase the number of shares of the Company's Common Stock which will
constitute 20,000 shares of the Company's outstanding Common Stock after
completion of the restructuring, the recapitalization and the initial public
offering referred to in the next sentence. In this connection, the Executive
understands and agrees that: (x) the Company is in the process of adopting the
Stock Option Plan, (y)
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that the Company must complete a restructuring of its capital structure prior to
adopting the Stock Option Plan, and (z) that it is currently anticipated (but
not certain) that the Company will have approximately 15.4 million shares
outstanding at the conclusion of its currently planned 154,000 for 1 stock split
and 19.2 million shares outstanding at the conclusion of its currently planned
initial public (approximately 19.74 million shares outstanding if an
overallotment option is exercised by the underwriters). Notwithstanding anything
to the contrary contained in this Agreement, (i) the Stock Options may not be
transferred or otherwise disposed of, nor may they be exercised, prior to the
Company's currently contemplated initial public offering, (ii) the grant of the
Stock Options to be granted to the Executive shall be conditioned upon the
effectiveness of the initial public offering, and (iii) the grant of the Stock
Options, and the Stock Options themselves, shall be null and void ab initio if
the Company's initial public offering is not consummated by March 31, 2000. The
number of shares covered by the Stock Options will be adjusted proportionately
downwards, to the effect that less shares than currently anticipated are
outstanding immediately after those transactions, and upwards, in the event that
more shares than currently anticipated are outstanding immediately after those
transactions. Notwithstanding the foregoing, it the Company should (i) issue
shares constituting up to 30% of the outstanding Common Stock of the Company to
strategic or financial investors prior to the IPO or (ii) make other changes in
its capital structure in connection with estate planning for certain existing
shareholders, there shall be no anti-dilution adjustment for those changes. All
of the non-qualified Stock Options referred to in this paragraph (b) shall have
certain characteristics:
(i) the Stock Options shall vest 1/3 after 1 year of
continuous employment of the Executive by the Company, a second 1/3 after 2
years of continuous employment by the Company, and the balance after 3 years of
continuous employment by the Company;
(ii) subject to clause (vii) below, the Stock Options
shall be exercisable from and after the date upon which the Stock Options vest
through the date which is five (5) years from the date hereof at $5.00 per
share;
(iii) the Stock Options shall be on such other terms
and conditions as may be set forth in the instrument granting the Stock Options,
including without limitation the provisions concerning termination of unvested
Stock Options;
(iv) the option agreement shall provide that the
shares of common stock underlying those Stock Options shall be registered in the
first registration statement on Form S-8 or other form of registration statement
filed by the Company with the Securities Exchange Commission for the purpose of
registering options or other securities issued to executives or other employees
of the Company in their respective capacities as executive or employees of
(rather than shareholders of or investors in) the Company;
(v) the option agreement shall include certain
anti-dilution provisions PROVIDED, that the there will be no antidilution
adjustment with regard to the matters described in section 4.4(b) of this
Agreement except as set forth in section 4.4(b), if at all;
(vi) the Stock Options may not be hypothecated or
pledged, and may not be sold, transferred or otherwise disposed of (except by
exercise in accordance with the terms of the option agreement) other than
through transfer by will or the laws of descent and distribution, and during the
lifetime of the Executive the Stock Options shall be exercisable only by the
Executive; and
(vii) the Stock Options shall not be exercisable at
any time prior to the IPO unless the Executive has executed a written
instrument, reasonably satisfactory to the Executive, the Company, and the
Company's other shareholders, evidencing (a) the Executive's investment intent
and customary investment representations to substantiate compliance with
applicable securities laws, (b) the Executive's agreement that prior to the IPO
the shares which may be acquired upon exercise of the Stock Options may not be
hypothecated or pledged, and that the shares may not be sold, transferred or
otherwise disposed of except after giving the other shareholders and the Company
thirty (30) days prior written notice of a bona fide written offer for such
shares and
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<PAGE>
the right of first refusal to acquire such shares on the terms and conditions of
such bona fide offer during such thirty day period; and (c) the Executive's
agreement that the sale, transfer, or other disposition of the shares shall be
subject to applicable securities law restrictions and applicable restrictions
under this Agreement and the option agreement, and that the certificates
evidencing the shares shall be legended to reflect the same. The restrictions
set forth in sub-clause (b) of this clause (vii) shall terminate upon the
consummation of the IPO.
4.5 VACATION BENEFITS. The Executive shall be entitled to four
(4) weeks of vacation time each calendar year during the term of this Agreement,
to be taken at such times as the Executive and the Company shall mutually
determine and provided that no vacation time shall interfere with the duties
required to be rendered by the Executive hereunder. Notwithstanding the
foregoing, in view of the Company's current circumstances the Executive will not
(i) take more than one week of vacation time in any 30-day period, or (2) take
any vacation time until the earlier of (x) the completion of the IPO or (y) four
(4) months from the date of this Agreement, unless otherwise mutually agreed
with the Chief Executive Officer of the Company.
4.6 OTHER BENEFITS. The Executive shall receive such
additional benefits, if any, as the Board of the Company shall from time to time
determine.
5. TERMINATION.
5.1 TERMINATION FOR CAUSE. The Company shall at all times have
the right, upon written notice (which shall describe in general terms the basis
for dismissal per this Section) to the Executive, to terminate the Term of
Employment, for Cause. For purposes of this Agreement, the term "Cause" shall
mean (i) an action or omission of the Executive which constitutes a willful and
material breach of, or failure or refusal (other than by reason of the
Executive's disability) to perform the Executive's duties under, this Agreement
which is not cured within fifteen (15) days after receipt by the Executive of
written notice of same if such action or omission is capable of being so cured,
(ii) habitual insobriety or use of controlled substances (other than under the
supervision of a licensed physician); (iii) habitual absenteeism; (iv) fraud,
non-disclosed self-dealing, embezzlement or misappropriation of funds or
property or breach of trust in connection with the Executive's services
hereunder, (v) conviction of a felony or conviction of any other crime or
misdemeanor involving moral turpitude; or (vi) gross negligence in connection
with the performance of the Executive's duties hereunder, which is not cured, to
the extent that the same is curable, within fifteen (15) days after receipt by
the Executive of written notice of same. Upon any termination pursuant to this
Section 5.1, the Company shall pay to the Executive the Executive's Base Salary
to the date of termination. The Company shall have no further liability
hereunder (other than for reimbursement for reasonable business expenses
incurred prior to the date of termination, subject, however, to the provisions
of Section 4.1).
5.2 DISABILITY. The Company shall at all times have the right,
upon written notice to the Executive, to terminate the Term of Employment, if
the Executive shall as the result of mental or physical incapacity, illness or
disability, become unable to perform the Executive's obligations hereunder for a
total of 180 days in any 12-month period. The Company shall have sole discretion
based upon advice of a licensed medical doctor to determine whether the
Executive continues to be disabled provided that if the Executive does not
submit to examination by a licensed medical doctor for such purpose (if
requested by the Company) then the Company may terminate the Executive's
employment if the Executive shall become entitled to benefits under the
Company's disability plan as then in effect. Upon any termination pursuant to
this Section 5.2, the Company shall (i) pay to the Executive any unpaid Base
Salary through the effective date of termination specified in such notice, (ii)
pay to the Executive the Executive's accrued but unpaid Incentive Compensation,
if any, for any Bonus Period ending on or before the date of termination of the
Executive's employment with the Company, (iii) continue to pay the Executive
through the later of (x) the date which is three (3) months after the
termination but no later than the Expiration Date), or (y) three (3) months from
the date of termination (the "Continuation Period"), an amount equal to the Base
Salary the Executive was receiving at the time of the Executive's Disability,
such amount to be paid in the manner and at such times as the Base Salary
otherwise would have been payable to the Executive, and (iv) continue to pay the
Executive Incentive Compensation and continue to provide the Executive with the
benefits the Executive was
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receiving under Section 4.2 hereof (the "Benefits") through the Continuation
Period (to the extent permitted under the terms of applicable insurance and
other benefit programs of the Company then in affect and covering the Executive,
and provided further that the Company shall not take any affirmative action from
the time of giving notice of termination to the Executive through the end of the
Continuation Period which would cause the relevant insurance and other benefits
available to the Executive to be reduced or eliminated) following the
termination of the Executive's employment with the Company, in the manner and at
such times as the compensation or Benefits otherwise would have been payable or
provided to the Executive, provided that the amounts payable to the Executive
pursuant to the foregoing clauses (i) through (iv) shall be reduced by the
amount actually paid to the Executive pursuant to the disability insurance
referred to in Section 4.2 hereof. The Company shall have no further liability
hereunder (other than for reimbursement for reasonable business expenses
incurred prior to the date of termination, subject, however to the provisions of
Section 4.1).
5.3 DEATH. Upon the death of the Executive during the Term of
Employment, the Company shall (i) pay to the estate of the deceased Executive
any unpaid Base Salary through the Executive's date of death, (ii) pay to the
estate of the deceased Executive the Executive's accrued but unpaid Incentive
Compensation, if any, for any Bonus Period ending on or before the Executive's
date of death, (iii) continue to pay to the estate of the deceased Executive the
Base Salary the Executive was receiving prior to the Executive's death under
Section 3.1 hereof through the Continuation Period following the Executive's
death, in the manner and at such times as the Base Salary otherwise would have
been payable to the Executive, and (iv) continue to pay to the estate of the
deceased Executive Incentive Compensation through the Continuation Period
following the termination of the Executive's employment with the Company, in the
manner and at such times as the compensation would have been payable or provided
to the Executive. The Company shall have no further liability hereunder (other
than for reimbursement for reasonable business expenses incurred prior to the
date of the Executive's death, subject, however to the provisions of Section
4.1).
5.4 TERMINATION WITHOUT CAUSE. At any time the Company shall
have the right to terminate the Executive's employment hereunder without Cause
by written notice to the Executive. Upon any termination pursuant to this
Section 5.4, the Company shall (i) pay to the Executive any unpaid Base Salary
through the effective date of termination specified in such notice, (ii) pay to
the Executive the accrued but unpaid Incentive Compensation, if any, for any
Bonus Period ending on or before the date of the termination of the Executive's
employment with the Company and a prorated portion of the Bonus earned, if any,
for the quarterly Bonus Period, if any, in which the termination occurs, (iii)
continue to pay the Executive's Base Salary and Incentive Compensation through
the Continuation Period, in the manner and at such time as the Base Salary and
Incentive Compensation otherwise would have been payable to the Executive, and
(iv) continue to provide the Executive with the Benefits the Executive was
receiving under Section 4.2 hereof (to the extent permitted under the terms of
applicable insurance and other benefit programs of the Company then in affect
and covering the Executive, and provided further that the Company shall not take
any affirmative action from the time of giving notice of termination to the
Executive through the end of the Continuation Period which would cause the
relevant insurance and other benefits available to the Executive to be reduced
or eliminated) during the Continuation Period, in the manner and at such times
as the Benefits otherwise would have been payable or provided to the Executive.
In the event that the Executive has remained with the Company for five (5) years
or more the Continuation Period shall be six (6) months. The Company shall have
no further liability hereunder (other than for reimbursement for reasonable
business expenses incurred prior to the date of termination, subject, however,
to the provisions of Section 4.1).
5.5 TERMINATION BY EXECUTIVE.
a. The Executive shall at all times have the right,
upon ninety (90) days written notice to the Company, to terminate the Term of
Employment.
b. Upon termination of the Term of Employment
pursuant to this Section 5.5 (that is not a termination under Section 5.6) by
the Executive without Good Reason, the Company shall pay to the Executive any
unpaid Base Salary through the effective date of termination specified in such
notice. The Company
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shall have no further liability hereunder (other than for reimbursement for
reasonable business expenses incurred prior to the date of termination, subject,
however, to the provisions of Section 4.1).
c. Upon termination of the Term of Employment
pursuant to this Section 5.5 (that is not a termination under Section 5.6) by
the Executive for Good Reason, the Company shall pay to the Executive the same
amounts that would have been payable by the Company to the Executive under
Section 5.4 of this Agreement if the Term of Employment had been terminated by
the Company without Cause. The Company shall have no further liability hereunder
(other than for reimbursement for reasonable business expenses incurred prior to
the date of termination, subject, however, to the provisions of Section 4.1).
d. For purposes of this Agreement, "Good Reason"
shall mean any of the following:
(i) the assignment to the Executive of any material
duties inconsistent in any material respect with the Executive's duties as
defined hereunder or any other action by the Company which results in a material
diminution in the Executive's position, authority, duties or responsibilities
from those contemplated by Section 1.2 of this Agreement, which is not remedied
by the Company within fifteen (15) days after receipt of written notice from the
Executive of the same, excluding for this purpose any isolated, insubstantial
and inadvertent action not taken in bad faith;
(ii) any material failure by the Company to comply
with any of the provisions of Article 3 of this Agreement which is not remedied
by the Company within fifteen (15) days after receipt of written notice thereof
given by the Executive, other than an isolated, insubstantial and inadvertent
failure not occurring in bad faith and which is remedied by the Company promptly
after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be
based at any office or location more than 60 miles outside of New York City, NY,
except for business trips reasonably required in the performance of the
Executive's responsibilities; or
(iv) any purported termination by the Company of the
Executive's employment otherwise than pursuant to Sections 5.1 - 5.4 of this
Agreement.
5.6 CHANGE IN CONTROL OF THE COMPANY.
a. Unless otherwise provided in this Agreement, in
the event that a Change in Control (as defined in paragraph (b) of this Section
5.6) in the Company shall occur during the Term of Employment, and prior to the
first anniversary of the date of the Change in Control, either (x) the Term of
Employment is terminated by the Company without Cause, pursuant to Section 5.4
hereof or (y) the Executive terminates the Term of Employment for Good Reason
pursuant to Section 5.5(c) hereof, the Company shall (1) pay to the Executive
any unpaid Base Salary through the effective date of termination, (2) pay to the
Executive the Incentive Compensation, if any, not yet paid to the Executive for
any Bonus Period prior to such termination, at such time as the Incentive
Compensation otherwise would have been payable to the Executive, and (3) pay to
the Executive in a lump sum payment an amount equal to the amount of the
Executive's Base Salary for the six (6 months preceding such termination. If,
during the Term of Employment, any Change in Control should occur and, prior to
the first anniversary of the date of the Change in Control, either (x) the Term
of Employment is terminated by the Company without Cause, pursuant to Section
5.4 herof or (y) the Executive terminates the Term of Employment for Good Reason
pursuant to Section 5.5(c) hereof, the Executive's unvested Stock Options shall
be vested and become immediately exercisable. In addition, if a Change in
Control transaction shall occur in which the Company is not the surviving entity
and the acquiror does not agree to assume the obligations represented by the
Stock Option rights of the Executive on or prior to the closing of the Change in
Control transaction on such terms and conditions as shall be reasonably
satisfactory to the Company, THEN the Executive's unvested Stock Options shall
be vested and become immediately exercisable immediately prior to the
consummation of the closing of such
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Change in Control transaction so as to permit the Executive to dispose of the
shares of common stock underlying such Stock Options in that Change in Control
transaction on substantially the same terms and conditions as are applicable to
shareholders of the Company generally. If any of the Executive's Stock Options
shall vest according to the applicable vesting schedule, the options which shall
have vested after any such Change in Control shall continue to be exercisable
for a period of three months from the date of any termination of the Executive's
employment by the Company following such Change in Control. The Company shall
have no further liability hereunder (other than for reimbursement for reasonable
business expenses incurred prior to the date of termination, subject, however,
to the provisions of Section 4.1).
b. For purposes of this Agreement, the term "Change
in Control" shall mean:
(i) Approval by the shareholders of the
Company of (x) a reorganization, merger, consolidation or other form of
corporate transaction or series of transactions, in each case, with respect to
which persons who were the shareholders of the Company immediately prior to such
reorganization, merger or consolidation or other transaction do not, immediately
thereafter, own more than 50% of the combined voting power entitled to vote
generally in the election of directors of the reorganized, merged or
consolidated company's then outstanding voting securities, in substantially the
same proportions as their ownership immediately prior to such reorganization,
merger, consolidation or other transaction, or (y) a liquidation or dissolution
of the Company or (z) the sale of all or substantially all of the assets of the
Company (unless such reorganization, merger, consolidation or other corporate
transaction, liquidation, dissolution or sale is subsequently abandoned);
(ii) Individuals who, as of the Commencement
Date of this Agreement, constitute the Board (the "Incumbent Board") cease for
any reason to constitute at least a majority of the Board, provided that any
person becoming a director subsequent to the Commencement Date of this Agreement
whose election, or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then comprising the
Incumbent Board (other than an election or nomination of an individual whose
initial assumption of office is in connection with an actual or threatened
election contest relating to the election of the Directors of the Company, as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Securities Exchange Act) shall be, for purposes of this Agreement, considered as
though such person were a member of the Incumbent Board; or
(iii) the acquisition by any person, entity
or "group", within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act, of more than 30% of either the then outstanding shares of the
Company's Common Stock or the combined voting power of the Company's then
outstanding voting securities entitled to vote generally in the election of
directors (hereinafter referred to as the ownership of a "Controlling Interest")
excluding, for this purpose, any acquisitions by (1) the Company, (2) any
person, entity or "group" that as of the Commencement Date of this Agreement
owns beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Securities Exchange Act) of a Controlling Interest, (3) Rosalind Resnick
and/or Ryan Scott Druckenmiller or their respective affiliates, or (4) any
employee benefit plan of the Company.
c. Notwithstanding the foregoing, the term "Change in
Control" shall NOT include (i) any transaction, event or circumstance as a
result of which or after which Rosalind Resnick, Ryan Scott Druckenmiller, and
their respective affiliates continue to own, in the aggregate, the largest
percentage of shares of the Company owned by any shareholder of the Company,
(ii) the IPO, (iii) the above-referenced strategic or financial investments
which are contemplated to occur prior to the IPO, or (iii) any transaction
entered into by the Company and its stockholders prior to the IPO primarily for
the purpose of facilitating estate planning of Rosalind Resnick or Ryan Scott
Druckenmiller or converting the Company from an "S Corp" to a "C Corp" in
preparation for the IPO.
5.7 RESIGNATION. Upon any termination of employment pursuant
to this Article 5, the Executive shall be deemed to have resigned as an officer,
and if the Executive was then serving as a director of the Company, as a
director, and if required by the Board, the Executive hereby agrees to
immediately execute a
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resignation letter to the Board.
5.8 SURVIVAL. The provisions of this Article 5 shall survive
the termination of this Agreement, as applicable.
6. RESTRICTIVE COVENANTS.
6.1 NON-COMPETITION. At all times while the Executive is
employed by the Company and for a two (2) year period after the termination of
the Executive's employment with the Company for any reason (other than (a)
termination by the Company without Cause or (b) termination by the Executive for
Good Reason (as defined in Section 5.5(d) hereof) or (c) termination by the
Company prior to the first anniversary of a Change in Control other than for
Cause), the Executive shall not, directly or indirectly, engage in or have any
interest in any sole proprietorship, partnership, corporation or business or any
other person or entity (whether as an employee, officer, director, partner,
agent, security holder, creditor, consultant or otherwise) that directly engages
in competition with the Company (for this purpose, any business unit or division
that provides e-mail marketing services to third parties for compensation shall
be deemed to be in competition with the Company); provided that such provision
shall not apply to the Executive's ownership of Common Stock of the Company or
the acquisition by the Executive, solely as an investment, of securities of any
issuer that is registered under Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended, and that are listed or admitted for trading on
any United States national securities exchange or that are quoted on the Nasdaq,
or any similar system or automated dissemination of quotations of securities
prices in common use, so long as the Executive does not control, acquire a
controlling interest in or become a member of a group which exercises direct or
indirect control or, more than one percent (1%) of any class of capital stock of
such corporation.
6.2 NONDISCLOSURE. The Executive shall not during the
Executive's employment under this Agreement or after the termination of such
employment divulge, communicate, use to the detriment of the Company or for the
benefit of any other person or persons, or misuse in any way, any Confidential
Information (as hereinafter defined) pertaining to the business of the Company.
Any Confidential Information or data now or hereafter acquired by the Executive
with respect to the business of the Company (which shall include, but not be
limited to, information concerning the Company's financial condition, prospects,
technology, customers, suppliers, sources of leads and methods of doing
business) shall be deemed a valuable, special and unique asset of the Company
that is received by the Executive in confidence and as a fiduciary, and
Executive shall remain a fiduciary to the Company with respect to all of such
information. For purposes of this Agreement, "Confidential Information" means
information disclosed to the Executive or known by the Executive as a
consequence of or through the Executive's employment by the Company (including
information conceived, originated, discovered or developed by the Executive)
prior to or after the date hereof (up to the date of termination of the
Executive's employment pursuant to this Agreement), and whose existence or
significance or utility in respect of the Company or its business is not
generally known. Notwithstanding the foregoing, nothing herein shall be deemed
to restrict the Executive from disclosing Confidential Information to the extent
required by law or in the valid performance of the Executive's duties.
6.3 NONSOLICITATION OF EMPLOYEES AND CLIENTS. At all times
while the Executive is employed by the Company and for a one (1) year period
after the termination of the Executive's employment with the Company for any
reason, the Executive shall not, directly or indirectly, for the Executive or
for any other person, firm, corporation, partnership, association or other
entity (a) employ or attempt to employ or enter into any contractual arrangement
with any employee or former employee of the Company, until a period of at least
six (6) months has elapsed from the date of termination of the employment of
such person with the Company, and/or (b) call on or solicit any of the actual or
targeted prospective clients of the Company on behalf of any person or entity in
connection with any business competitive with the business of the Company, while
the Executive is employed by the company, or in connection with any email direct
marketing business for a one-year period after the termination of the
executive's employment, nor shall the Executive make known the names and
addresses of such clients or any information relating in any manner to the
Company's trade or business relationships with such customers, other than
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in connection with the performance of the Executive's duties under this
Agreement.
6.4 OWNERSHIP OF DEVELOPMENTS. All copyrights, patents, trade
secrets, or other intellectual property rights associated with any ideas,
concepts, techniques, inventions, processes, or works of authorship developed or
created by the Executive during the course of performing work for the Company or
its clients (collectively, the "Work Product") shall belong exclusively to the
Company and shall, to the extent possible, be considered a work made by the
Executive for hire for the Company within the meaning of Title 17 of the United
States Code. To the extent the Work Product may not be considered work made by
the Executive for hire for the Company, the Executive agrees to assign, and
automatically assigns at the time of creation of the Work Product, without any
requirement of further consideration, any right, title, or interest the
Executive may have in such Work Product. Upon the request of the Company, the
Executive shall take such further actions, including execution and delivery of
instruments of conveyance, as may be appropriate to give full and proper effect
to such assignment.
6.5 BOOKS AND RECORDS. All books, records, and accounts
relating in any manner to the customers or clients of the Company, whether
prepared by the Executive or otherwise coming into the Executive's possession,
shall be the exclusive property of the Company and shall be returned immediately
to the Company on termination of the Executive's employment hereunder or on the
Company's request at any time, upon which the Executive shall not retain any
copies of the same in any media whatsoever.
6.6 DEFINITION OF COMPANY. Solely for purposes of this Article
6, the term "Company" also shall include any existing or future subsidiaries of
the Company that are operating during the time periods described herein and any
other entities that directly or indirectly, through one or more intermediaries,
control, are controlled by or are under common control with the Company during
the periods described herein.
6.7 ACKNOWLEDGMENT BY EXECUTIVE. The Executive acknowledges
and confirms that (a) the restrictive covenants contained in this Article 6 are
reasonable and necessary to protect the legitimate business interests of the
Company, and (b) the restrictions contained in this Article 6 (including without
limitation the length of the term of the provisions of this Article 6) are not
overbroad, overlong, or unfair and are not the result of overreaching, duress or
coercion of any kind. The Executive further acknowledges and confirms that the
Executive's full, uninhibited and faithful observance of each of the covenants
contained in this Article 6 will not cause the Executive any undue hardship,
financial or otherwise, and that enforcement of each of the covenants contained
herein will not impair the Executive's ability to obtain employment commensurate
with the Executive's abilities and on terms fully acceptable to the Executive or
otherwise to obtain income required for the comfortable support of the Executive
and the Executive's family and the satisfaction of the needs of the Executive's
creditors. The Executive acknowledges and confirms that the Executive's special
knowledge of the business of the Company is such as would cause the Company
serious injury or loss if the Executive were to use such ability and knowledge
to the benefit of a competitor or were to compete with the Company in violation
of the terms of this Article 6. The Executive further acknowledges that the
restrictions contained in this Article 6 are intended to be, and shall be, for
the benefit of and shall be enforceable by, the Company and its successors and
assigns, including, without limitation, any successor to the Company, whether by
merger, consolidation, sale of stock, sale of assets or otherwise.
6.8 REFORMATION BY COURT. In the event that a court of
competent jurisdiction shall determine that any provision of this Article 6 is
invalid or more restrictive than permitted under the governing law of such
jurisdiction, then only as to enforcement of this Article 6 within the
jurisdiction of such court, such provision shall be interpreted and enforced as
if it provided for the maximum restriction permitted under such governing law.
6.9 EXTENSION OF TIME. If the Executive shall be in violation
of any provision of this Article 6, then each time limitation set forth in this
Article 6 shall be extended for a period of time equal to the period of time
during which such violation or violations occur. If the Company seeks injunctive
relief from such violation in any court, then the covenants set forth in this
Article 6 shall be extended for a period of time equal to the pendency of such
proceeding including all appeals by the Executive.
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6.10 SURVIVAL. The provisions of this Article 6 shall survive
the termination of this Agreement, as applicable.
7. INJUNCTION. It is recognized and hereby acknowledged by the parties
hereto that a breach by the Executive of any of the covenants contained in
Article 6 of this Agreement will cause irreparable harm and damage to the
Company, the monetary amount of which may be virtually impossible to ascertain.
As a result, the Executive recognizes and hereby acknowledges that the Company
shall be entitled, without the necessity of proving damages or posting a bond,
to an injunction from any court of competent jurisdiction enjoining and
restraining any violation of any or all of the covenants contained in Article 6
of this Agreement by the Executive or any of the Executive's affiliates,
associates, partners or agents, either directly or indirectly, and that such
right to injunction shall be cumulative and in addition to whatever other
remedies the Company may possess. If the Company should fail to obtain any
injunction when the Company seeks an injunction pursuant to this Section (other
than due to the fact that the parties reach a settlement or the Executive ceases
the activities complained of by the Company without need of an injunction), then
the Company shall reimburse the Executive for the Executive's reasonable
attorney's fees and expenses pertaining to the proceedings to seek the
injunction.
8. MEDIATION. In the event a dispute arises out of or relates to this
Agreement, or the breach thereof, and if the dispute cannot be settled through
negotiation, the parties hereby agree first to attempt in good faith to settle
the dispute by mediation administered by the American Arbitration Association
under its Employment Mediation Rules before resorting to arbitration as set
forth in Section 8 below. Notwithstanding the foregoing, (i) the Company has the
right to seek an injunction under Section 7 hereof, and (ii) either party may
seek an injunction or entry of judgment on an arbitration award under Section 9
of this Agreement. The cost and expenses of mediators (but not the fees and
expenses of any counsel or other professional representing any party other than
the Company) shall be borne by the Company. If any dispute is settled by
mediation pursuant to this Section and the Company fails to achieve any decision
in its favor, then the Company shall reimburse the Executive for the Executive's
reasonable attorneys' fees and expenses pertaining to the mediation proceedings.
9. ARBITRATION. In the event that mediation pursuant to Section 8 of
this Agreement has failed after thirty (30) days or the parties to this
Agreement both agree not to mediate, any dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by arbitration in
New York County, New York, in accordance with the Rules of the American
Arbitration Association then in effect with respect to arbitration of commercial
matters (except to the extent that the procedures outlined below differ from
such rules). Within ten (10) days after written notice by either party has been
given that a dispute exists and that arbitration is required, each party must
select an arbitrator and those two arbitrators shall promptly, but in no event
later than ten (10) days after their selection, select a third arbitrator. The
parties agree to act as expeditiously as possible to select arbitrators and
conclude the dispute. The selected arbitrators must render their decision in
writing. The cost and expenses of the arbitrators (but not the fees and expenses
of any counsel or other professional representing any party other than the
Company) shall be borne by the Company. Judgment may be entered on the
arbitrators' award in any court having jurisdiction. Pursuit of an injunction
shall not impair arbitration on all remaining issues. If any dispute is settled
by arbitration pursuant to this Section and the Company fails to achieve any
decision in its favor, then the Company shall reimburse the Executive for the
Executive's reasonable attorneys' fees and expenses pertaining to the
arbitration proceedings.
10. ASSIGNMENT. Neither party shall have the right to assign or
delegate their rights or obligations hereunder, or any portion thereof, to any
other person, except that the rights of the Company may be assigned by the
Company to any person or entity acquiring a substantial portion of the Company's
assets or to any successor of the Company.
11. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
12. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto
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with respect to the subject matter hereof and, upon its effectiveness, shall
supersede all prior agreements, understandings and arrangements, both oral and
written, between the Executive and the Company (or any of its affiliates) with
respect to such subject matter. This Agreement may not be modified in any way
unless by a written instrument signed by both the Company and the Executive.
13. NOTICES: All notices required or permitted to be given hereunder
shall be in writing and shall be personally delivered by courier, sent by
registered or certified mail, return receipt requested or sent by confirmed
facsimile transmission addressed as set forth herein. Notices personally
delivered, sent by facsimile or sent by overnight courier shall be deemed given
on the date of delivery and notices mailed in accordance with the foregoing
shall be deemed given upon the earlier of receipt by the addressee, as evidenced
by the return receipt thereof, or three (3) days after deposit in the U.S. mail.
Notice shall be sent (i) if to the Company, addressed to NetCreations, Inc., 379
West Broadway, Suite 202, New York, New York 10012, attention: Chief Executive
Officer, with a copy to Greenberg Traurig, Met Life Building, 200 Park Avenue,
15th Floor, New York, New York 10166, Attention: Andrew J. Cosentino, Esq.; and
(ii) if to the Executive, to the Executive's address as reflected on the payroll
records of the Company, or to such other address as either party hereto may from
time to time give notice of to the other.
14. BENEFITS; BINDING EFFECT. This Agreement shall be for the benefit
of and binding upon the parties hereto and their respective heirs, personal
representatives, legal representatives, and successors, including, without
limitation, any successor to the Company, whether by merger, consolidation, sale
of stock, sale of assets or otherwise.
15. SEVERABILITY. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement or any
part thereof, all of which are inserted conditionally on their being valid in
law, and, in the event that any one or more of the words, phrases, sentences,
clauses or sections contained in this Agreement shall be declared invalid, this
Agreement shall be construed as if such invalid word or words, phrase or
phrases, sentence or sentences, clause or clauses, or section or sections had
not been inserted. If such invalidity is caused by length of time or size of
area, or both, the otherwise invalid provision will be considered to be reduced
to a period or area which would cure such invalidity.1
16. WAIVERS. The waiver by either party hereto of a breach or violation
of any term or provision of this Agreement shall not operate nor be construed as
a waiver of any subsequent breach or violation.
17. DAMAGES. Subject to compliance with Sections 7, 8 and 9 of this
Agreement, to the extent applicable, nothing contained herein shall be construed
to prevent the Company or the Executive from seeking and recovering from the
other damages sustained by either or both of them as a result of its or the
Executive's breach of any term or provision of this Agreement. In the event that
either party hereto brings suit for the collection of any damages resulting
from, or the injunction of any action constituting, a breach of any of the terms
or provisions of this Agreement, then the party found to be at fault shall pay
all reasonable court costs and attorneys' fees of the other.
18. SECTION HEADINGS. The section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
19. NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
any rights or remedies under or by reason of this Agreement, other than the
Company, the parties hereto and their respective heirs, personal
representatives, legal representatives, and successors, including, without
limitation, any successor to the Company, whether by merger, consolidation, sale
of stock, sale of assets or otherwise.
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20. INDEMNIFICATION.
a. The Company shall indemnify and hold harmless the
Executive to the fullest extent permitted by law from and against any and all
claims, damages, expenses (including reasonable attorneys' fees), judgments,
penalties, fines, settlements, and all other liabilities incurred or paid by the
Executive in connection with the investigation, defense, prosecution, settlement
or appeal of any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative and to which the
Executive was or is a party or is threatened to be made a party by reason of the
fact that the Executive is or was an officer, employee or agent of the Company,
or by reason of anything done or not done by the Executive in any such capacity
or capacities, provided that the Executive acted in good faith, in a manner that
was not grossly negligent and did not constitute willful misconduct and in a
manner the Executive reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the Executive's conduct was
unlawful. The Company also shall pay any and all reasonable expenses (including
attorney's fees) incurred by the Executive as a result of the Executive being
called as a witness in connection with any matter involving the Company and/or
any of its officers or directors (other than an action or suit by the Company
against the Executive).
b. The Company shall pay any reasonable expenses
(including attorneys' fees), judgments, penalties, fines, settlements, and other
liabilities incurred by the Executive in investigating, defending, settling or
appealing any action, suit or proceeding described in this Section 20 (other
than an action or proceeding by the Company against the Executive) in advance of
the final disposition of such action, suit or proceeding. The Company shall
promptly pay the amount of such expenses to the Executive, but in no event later
than ten (10) days following the Executive's delivery to the Company of a
written request for an advance pursuant to this Section 20, together with a
reasonable accounting of such expenses.
c. The Executive hereby undertakes and agrees to
repay to the Company any advances made pursuant to this Section 20 if and to the
extent that it shall ultimately be agreed by the parties or determined by a
court that the Executive is not entitled to be indemnified by the Company for
such amounts.
d. The Company shall make the advances contemplated
by this Section 20 regardless of the Executive's financial ability to make
repayment, and regardless of whether indemnification of the Indemnitee by the
Company will ultimately be required. Any advances and undertakings to repay
pursuant to this Section 20 shall be unsecured and interest-free.
[THE BALANCE OF THIS PAGE LEFT INTENTIONALLY BLANK]
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<PAGE>
e. The provisions of this Section 20 shall survive
the termination of this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
COMPANY:
NETCREATIONS, INC.
By:
-----------------------------
Name: Rosalind Resnick
Title: President
EXECUTIVE:
--------------------------------
Larry Mahon, individually
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<PAGE>
Exhibit 10.5
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into as of
the 27th day of August, 1999 by and between NETCREATIONS, INC., a New York
corporation (the "Company"), and Daniel C. Sweeney (hereinafter called the
"Executive").
R E C I T A L S
A. The Executive desires to be employed as the Vice President -
Business Development of the Company.
B. The Company desires to employ the Executive as the Vice President -
Business Development of the Company.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties agree as follows:
1. EMPLOYMENT.
1.1 EMPLOYMENT. The Company hereby agrees to employ the
Executive and the Executive hereby agrees to serve the Company on the terms and
conditions set forth herein.
1.2 DUTIES OF EXECUTIVE. During the Term of Employment under
this Agreement, the Executive shall serve as the Vice President - Business
Development of the Company, shall diligently perform all services as may be
assigned to the Executive by the President, Chief Executive Officer, and the
Chief Operating Officer of the Company and by the Board of Directors (the
"Board") of the Company, and shall exercise such power and authority as may from
time to time be delegated to the Executive by the Board. Without limiting the
generality of the foregoing, the Executive duties shall include, among other
things, the following:
o Building and managing a network of partner Web sites
o Recruiting, training and managing a business
development staff
o Development and implementation of new products and
services
o General marketing and management
The Executive acknowledges and agrees that the Company may assign some of the
foregoing specific duties to other persons as the Company's management team
expands, and that such assignments of duties to other persons will not be viewed
by the Executive as constituting a diminution in the Executive's office, title,
and duties and responsibilities hereunder. The Executive shall devote the
Executive's full time and attention to the business and affairs of the Company,
render such services to the best of the Executive's ability, and use the
Executive's best efforts to promote the interests of the Company. It shall not
be a violation of this Agreement for the Executive to (i) serve on corporate,
civic or charitable boards or committees, (ii) deliver lectures, fulfill
speaking engagements or teach at educational institutions, or (iii) manage
personal investments, so long as such activities do not significantly interfere
with the performance of the Executive's responsibilities to the Company in
accordance with this Agreement. The Executive`s duties will require the
Executive's regular presence during normal working hours on
<PAGE>
business days Monday through Friday at the Company's principal executive
offices, currently located at 379 West Broadway, New York, New York, but the
Executive's duties will also involve some business travel.
2. TERM.
2.1 INITIAL TERM. The initial Term of Employment under this
Agreement, and the employment of the Executive hereunder, shall commence on Aug.
30, 1999 (the "Commencement Date") and shall expire on December 31, 2002, unless
sooner terminated in accordance with Section 5 hereof (the "Initial Term").
2.2 RENEWAL TERMS. At the end of the Initial Term, the Term of
Employment automatically shall renew for successive one year terms (subject to
earlier termination as provided in Section 5 hereof), unless the Company or the
Executive delivers written notice to the other at least 90 days prior to the
last day of the Initial Term or any such applicable renewal period (in either
case, the "Expiration Date") of its or the Executive's election not to renew the
Term of Employment. For purposes of this Agreement, if the Term of Employment
expires as a result of the Company delivering written notice to the Executive
stating its intention not to renew the Term of the Employment pursuant to this
Section 2.2, the Executive shall be treated as if the Executive was terminated
by the Company without Cause, in accordance with Section 5.4 hereof, upon the
Expiration Date. In addition, if the Term of Employment expires as a result of
the Executive delivering written notice to the Company stating the Executive's
intention not to renew the Term of Agreement pursuant to this Section 2.2, the
Executive shall be treated as if the Executive had terminated the Executive's
employment with the Company without Good Reason, in accordance with Section
5.5(b) hereof, upon the Expiration Date.
2.3 TERM OF EMPLOYMENT. The period during which the Executive
shall be employed by the Company pursuant to the terms of this Agreement is
sometimes referred to in this Agreement as the "Term of Employment."
3. COMPENSATION.
3.1 BASE SALARY. The Executive shall receive a base salary at
the annual rate (prorated for any applicable period of less than one year) of
$100,000 (the "Base Salary") during the Term of Employment, with such Base
Salary payable in installments consistent with the Company's normal payroll
schedule, subject to applicable withholding and other taxes. The Base Salary
shall be reviewed, at least annually, for merit increases and may, by action and
in the discretion of the Board, be increased (but not decreased) at any time or
from time to time.
3.2 BONUSES. During the term of this Agreement, the Executive
shall be eligible to receive performance and annual incentive awards (the
"Bonuses") of up to a maximum potential limit of $50,000 per annum as described
below. Bonuses shall be reviewed, at least annually, for merit increases and, by
action and in the discretion of the Board, the limit on the potential size of
Bonuses may be increased, but not decreased, at any time or from time to time.
Each period for which Bonuses are payable is sometimes
hereinafter referred to as a Bonus Period. Unless otherwise specified by the
Board, the Bonus Period shall be the designated or fiscal quarter of the
Company. The Maximum potential amount of the Bonuses that may be awarded for
any period, if any, shall be determined prior to the commencement of the
relevant Bonus Period by the Board, in its sole and absolute discretion.
However, any bonus plan for the Executive shall be predicated on the
establishment of quarterly goals, referred to as Key Initiatives, to be
mutually developed and signed-off on between the Executive and the Company's
Board/Representative of the Company prior to and/or adjusted during a
quarter. Key Initiatives will comprise, among other things, specific sales
objectives, business development goals and Company results. For purposes of
this Agreement, the term "Representative of the Company means the Company's
Chief Executive Officer, President or Chief Operating Officer. All Bonuses
shall be payable to the Executive quarterly in cash and/or to the extent
determined by the Board and agreed upon by the Executive, with common stock
("Common Stock") of the Company by no later than ten (10) business days after
the Company has completed its financial
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<PAGE>
statements, approved by the Company's Chief Financial Officer and its Chief
Executive Officer, for the preceding fiscal period. Bonuses shall be subject to
proration for periods of less than one quarter. Any bonuses payable pursuant to
this Section 3.2 are sometimes hereinafter referred to as "Incentive
Compensation."
4. EXPENSE REIMBURSEMENT AND OTHER BENEFITS.
4.1 REIMBURSEMENT OF EXPENSES. Upon the submission of proper
substantiation by the Executive, and subject to such rules and guidelines as the
Company may from time to time adopt, the Company shall reimburse the Executive
for all reasonable expenses actually paid or incurred by the Executive during
the Term of Employment in the course of and pursuant to the business of the
Company. The Executive shall account to the Company in writing for all expenses
for which reimbursement is sought and shall supply to the Company copies of all
relevant invoices, receipts or other evidence reasonably requested by the
Company.
4.2 COMPENSATION/BENEFIT PROGRAMS. During the term of
Employment, the Executive shall be entitled to participate in all medical,
dental, hospitalization, accidental death and dismemberment, disability, travel
and life insurance plans applicable to the Company's senior executives
generally, and any and all other plans as are presently and hereinafter offered
by the Company generally to its executives, including savings, pension,
profit-sharing and deferred compensation plans, subject to the general
eligibility and participation provisions set forth in such plans.
4.3 TRANSPORTATION ALLOWANCE. The Executive will not be
entitled to reimbursement for his expenses in commuting to and from the
Company's offices.
4.4 STOCK OPTIONS.
a. During the Term of Employment, the Executive shall
be eligible to be granted options (the "Stock Options") to purchase the Common
Stock of the Company under (and therefore subject to) all terms and conditions
of) the Company's Stock Option Plan. The number of Stock Options and terms and
conditions of the Stock Options shall be determined by the Committee appointed
pursuant to the Stock Option Plan, or by the Board of Directors of the Company,
in its discretion and pursuant to the Stock Option Plan.
b. Reasonably promptly following the date of this
Agreement, the Company shall grant to the Executive non-qualified Stock
Options to purchase the number of shares of the Company's Common Stock which
will constitute 20,000 shares of the Company's outstanding Common Stock after
completion of the restructuring, the recapitalization and the initial public
offering referred to in the next sentence. In this connection, the Executive
understands and agrees that: (x) the Company is in the process of adopting
the Stock Option Plan, (y) that the Company must complete a restructuring of
its capital structure prior to adopting the Stock Option Plan, and (z) that
it is currently anticipated (but not certain) that the Company will have
approximately 15.4 million shares outstanding at the conclusion of its
currently planned 154,000 for 1 stock split and 19.2 million shares
outstanding at the conclusion of its currently planned initial public
(approximately 19.74 million shares outstanding if an overallotment option is
exercised by the underwriters). Notwithstanding anything to the contrary
contained in this Agreement, (i) the Stock Options may not be transferred or
otherwise disposed of, nor may they be exercised, prior to the Company's
currently contemplated initial public offering, and (ii) the grant of the
Stock Options to be granted to the Executive shall be conditioned upon the
consummation effectiveness of the initial public offering. The number of
shares covered by the Stock Options will be adjusted proportionately
downwards, to the effect that less shares than currently anticipated are
outstanding immediately after those transactions, and upwards, in the event
that more shares than currently anticipated are outstanding immediately after
those transactions. Notwithstanding the foregoing, it the Company should (i)
issue shares constituting up to 30% of the outstanding Common Stock of the
Company to strategic or financial investors prior to the IPO or (ii) make
other changes in its capital structure in connection with estate planning for
certain
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<PAGE>
existing shareholders, there shall be no anti-dilution adjustment for those
changes. All of the non-qualified Stock Options referred to in this paragraph
(b) shall have certain characteristics:
(i) the Stock Options shall vest 1/3 after 1 year of
continuous employment of the Executive by the Company as its Vice President -
Business Development, a second 1/3 after 2 years of continuous employment by the
Company as its Vice President - Business Development, and the balance after 3
years of continuous employment by the Company as its Vice President - Business
Development;
(ii) subject to clause (vii) below, the Stock Options
shall be exercisable from and after the date upon which the Stock Options vest
through the date which is five (5) years from the date hereof at $5.00 per
share;
(iii) the Stock Options shall be on such other terms
and conditions as may be set forth in the instrument granting the Stock Options,
including without limitation the provisions concerning termination of unvested
Stock Options;
(iv) the option agreement shall provide that the
shares of common stock underlying those Stock Options shall be registered in the
first registration statement on Form S-8 or other form of registration statement
filed by the Company with the Securities Exchange Commission for the purpose of
registering options or other securities issued to executives or other employees
of the Company in their respective capacities as executive or employees of
(rather than shareholders of or investors in) the Company;
(v) the option agreement shall include certain
anti-dilution provisions PROVIDED, that the there will be no antidilution
adjustment with regard to the matters described in section 4.4(b) of this
Agreement except as set forth in section 4.4(b), if at all;
(vi) the Stock Options may not be hypothecated or
pledged, and may not be sold, transferred or otherwise disposed of (except by
exercise in accordance with the terms of the option agreement) other than
through transfer by will or the laws of descent and distribution, and during the
lifetime of the Executive the Stock Options shall be exercisable only by the
Executive; and
(vii) the Stock Options shall not be exercisable at
any time prior to the IPO unless the Executive has executed a written
instrument, reasonably satisfactory to the Executive, the Company, and the
Company's other shareholders, evidencing (a) the Executive's investment intent
and customary investment representations to substantiate compliance with
applicable securities laws, (b) the Executive's agreement that prior to the IPO
the shares which may be acquired upon exercise of the Stock Options may not be
hypothecated or pledged, and that the shares may not be sold, transferred or
otherwise disposed of except after giving the other shareholders and the Company
thirty (30) days prior written notice of a bona fide written offer for such
shares and the right of first refusal to acquire such shares on the terms and
conditions of such bona fide offer during such thirty day period; and (c) the
Executive's agreement that the sale, transfer, or other disposition of the
shares shall be subject to applicable securities law restrictions and applicable
restrictions under this Agreement and the option agreement, and that the
certificates evidencing the shares shall be legended to reflect the same. The
restrictions set forth in sub-clause (b) of this clause (vii) shall terminate
upon the consummation of the IPO.
4.5 VACATION BENEFITS. The Executive shall be entitled to four
(4) weeks of vacation time each calendar year during the term of this Agreement,
to be taken at such times as the Executive and the Company shall mutually
determine and provided that no vacation time shall interfere with the duties
required to be rendered by the Executive hereunder. Notwithstanding the
foregoing, in view of the Company's current circumstances the Executive will not
(i) take more than one week of vacation time in any 30-day period, or (2) take
any vacation time until the earlier of (x) the completion of the IPO or (y) four
(4) months from the date of this Agreement, unless otherwise mutually agreed
with the Chief Executive Officer of the Company.
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<PAGE>
4.6 OTHER BENEFITS. The Executive shall receive such
additional benefits, if any, as the Board of the Company shall from time to time
determine.
5. TERMINATION.
5.1 TERMINATION FOR CAUSE. The Company shall at all times have
the right, upon written notice (which shall describe in general terms the basis
for dismissal per this Section) to the Executive, to terminate the Term of
Employment, for Cause. For purposes of this Agreement, the term "Cause" shall
mean (i) an action or omission of the Executive which constitutes a willful and
material breach of, or failure or refusal (other than by reason of the
Executive's disability) to perform the Executive's duties under, this Agreement
which is not cured within fifteen (15) days after receipt by the Executive of
written notice of same if such action or omission is capable of being so cured,
(ii) habitual insobriety or use of controlled substances (other than under the
supervision of a licensed physician); (iii) habitual absenteeism; (iv) fraud,
non-disclosed self-dealing, embezzlement or misappropriation of funds or
property or breach of trust in connection with the Executive's services
hereunder, (v) conviction of a felony or conviction of any other crime or
misdemeanor involving moral turpitude; or (vi) gross negligence in connection
with the performance of the Executive's duties hereunder, which is not cured, to
the extent that the same is curable, within fifteen (15) days after receipt by
the Executive of written notice of same. Upon any termination pursuant to this
Section 5.1, the Company shall pay to the Executive the Executive's Base Salary
to the date of termination. The Company shall have no further liability
hereunder (other than for reimbursement for reasonable business expenses
incurred prior to the date of termination, subject, however, to the provisions
of Section 4.1).
5.2 DISABILITY. The Company shall at all times have the right,
upon written notice to the Executive, to terminate the Term of Employment, if
the Executive shall as the result of mental or physical incapacity, illness or
disability, become unable to perform the Executive's obligations hereunder for a
total of 180 days in any 12-month period. The Company shall have sole discretion
based upon advice of a licensed medical doctor to determine whether the
Executive continues to be disabled provided that if the Executive does not
submit to examination by a licensed medical doctor for such purpose (if
requested by the Company) then the Company may terminate the Executive's
employment if the Executive shall become entitled to benefits under the
Company's disability plan as then in effect. Upon any termination pursuant to
this Section 5.2, the Company shall (i) pay to the Executive any unpaid Base
Salary through the effective date of termination specified in such notice, (ii)
pay to the Executive the Executive's accrued but unpaid Incentive Compensation,
if any, for any Bonus Period ending on or before the date of termination of the
Executive's employment with the Company, (iii) continue to pay the Executive
through the later of (x) the date which is three (3) months after the
termination but no later than the Expiration Date), or (y) three (3) months from
the date of termination (the "Continuation Period"), an amount equal to the Base
Salary the Executive was receiving at the time of the Executive's Disability,
such amount to be paid in the manner and at such times as the Base Salary
otherwise would have been payable to the Executive, and (iv) continue to pay the
Executive Incentive Compensation and continue to provide the Executive with the
benefits the Executive was receiving under Section 4.2 hereof (the "Benefits")
through the Continuation Period (to the extent permitted under the terms of
applicable insurance and other benefit programs of the Company then in affect
and covering the Executive, and provided further that the Company shall not take
any affirmative action from the time of giving notice of termination to the
Executive through the end of the Continuation Period which would cause the
relevant insurance and other benefits available to the Executive to be reduced
or eliminated) following the termination of the Executive's employment with the
Company, in the manner and at such times as the compensation or Benefits
otherwise would have been payable or provided to the Executive, provided that
the amounts payable to the Executive pursuant to the foregoing clauses (i)
through (iv) shall be reduced by the amount actually paid to the Executive
pursuant to the disability insurance referred to in Section 4.2 hereof. The
Company shall have no further liability hereunder (other than for reimbursement
for reasonable business expenses incurred prior to the date of termination,
subject, however to the provisions of Section 4.1).
5.3 DEATH. Upon the death of the Executive during the Term of
Employment, the Company shall (i) pay to the estate of the deceased Executive
any unpaid Base Salary through the Executive's date of death,
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<PAGE>
(ii) pay to the estate of the deceased Executive the Executive's accrued but
unpaid Incentive Compensation, if any, for any Bonus Period ending on or before
the Executive's date of death, (iii) continue to pay to the estate of the
deceased Executive the Base Salary the Executive was receiving prior to the
Executive's death under Section 3.1 hereof through the Continuation Period
following the Executive's death, in the manner and at such times as the Base
Salary otherwise would have been payable to the Executive, and (iv) continue to
pay to the estate of the deceased Executive Incentive Compensation through the
Continuation Period following the termination of the Executive's employment with
the Company, in the manner and at such times as the compensation would have been
payable or provided to the Executive. The Company shall have no further
liability hereunder (other than for reimbursement for reasonable business
expenses incurred prior to the date of the Executive's death, subject, however
to the provisions of Section 4.1).
5.4 TERMINATION WITHOUT CAUSE. At any time the Company shall
have the right to terminate the Executive's employment hereunder without Cause
by written notice to the Executive. Upon any termination pursuant to this
Section 5.4, the Company shall (i) pay to the Executive any unpaid Base Salary
through the effective date of termination specified in such notice, (ii) pay to
the Executive the accrued but unpaid Incentive Compensation, if any, for any
Bonus Period ending on or before the date of the termination of the Executive's
employment with the Company and a prorated portion of the Bonus earned, if any,
for the quarterly Bonus Period, if any, in which the termination occurs, (iii)
continue to pay the Executive's Base Salary and Incentive Compensation through
the Continuation Period, in the manner and at such time as the Base Salary and
Incentive Compensation otherwise would have been payable to the Executive, and
(iv) continue to provide the Executive with the Benefits the Executive was
receiving under Section 4.2 hereof (to the extent permitted under the terms of
applicable insurance and other benefit programs of the Company then in affect
and covering the Executive, and provided further that the Company shall not take
any affirmative action from the time of giving notice of termination to the
Executive through the end of the Continuation Period which would cause the
relevant insurance and other benefits available to the Executive to be reduced
or eliminated) during the Continuation Period, in the manner and at such times
as the Benefits otherwise would have been payable or provided to the Executive.
In the event that the Executive has remained with the Company for five (5) years
or more the Continuation Period shall be six (6) months. The Company shall have
no further liability hereunder (other than for reimbursement for reasonable
business expenses incurred prior to the date of termination, subject, however,
to the provisions of Section 4.1).
5.5 TERMINATION BY EXECUTIVE.
a. The Executive shall at all times have the right,
upon ninety (90) days written notice to the Company, to terminate the Term of
Employment.
b. Upon termination of the Term of Employment
pursuant to this Section 5.5 (that is not a termination under Section 5.6) by
the Executive without Good Reason, the Company shall pay to the Executive any
unpaid Base Salary through the effective date of termination specified in such
notice. The Company shall have no further liability hereunder (other than for
reimbursement for reasonable business expenses incurred prior to the date of
termination, subject, however, to the provisions of Section 4.1).
c. Upon termination of the Term of Employment
pursuant to this Section 5.5 (that is not a termination under Section 5.6) by
the Executive for Good Reason, the Company shall pay to the Executive the same
amounts that would have been payable by the Company to the Executive under
Section 5.4 of this Agreement if the Term of Employment had been terminated by
the Company without Cause. The Company shall have no further liability hereunder
(other than for reimbursement for reasonable business expenses incurred prior to
the date of termination, subject, however, to the provisions of Section 4.1).
d. For purposes of this Agreement, "Good Reason"
shall mean any of the following:
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(i) the assignment to the Executive of any material
duties inconsistent in any material respect with the Executive's duties as
defined hereunder or any other action by the Company which results in a material
diminution in the Executive's position, authority, duties or responsibilities
from those contemplated by Section 1.2 of this Agreement, which is not remedied
by the Company within fifteen (15) days after receipt of written notice from the
Executive of the same, excluding for this purpose any isolated, insubstantial
and inadvertent action not taken in bad faith;
(ii) any material failure by the Company to comply
with any of the provisions of Article 3 of this Agreement which is not remedied
by the Company within fifteen (15) days after receipt of written notice thereof
given by the Executive, other than an isolated, insubstantial and inadvertent
failure not occurring in bad faith and which is remedied by the Company promptly
after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be
based at any office or location more than 60 miles outside of New York City, NY,
except for business trips reasonably required in the performance of the
Executive's responsibilities; or
(iv) any purported termination by the Company of the
Executive's employment otherwise than pursuant to Sections 5.1 - 5.4 of this
Agreement.
5.6 CHANGE IN CONTROL OF THE COMPANY.
a. Unless otherwise provided in this Agreement, in
the event that a Change in Control (as defined in paragraph (b) of this Section
5.6) in the Company shall occur during the Term of Employment, and prior to the
first anniversary of the date of the Change in Control, either (x) the Term of
Employment is terminated by the Company without Cause, pursuant to Section 5.4
hereof or (y) the Executive terminates the Term of Employment for Good Reason
pursuant to Section 5.5(c) hereof, the Company shall (1) pay to the Executive
any unpaid Base Salary through the effective date of termination, (2) pay to the
Executive the Incentive Compensation, if any, not yet paid to the Executive for
any Bonus Period prior to such termination, at such time as the Incentive
Compensation otherwise would have been payable to the Executive, and (3) pay to
the Executive in a lump sum payment an amount equal to the amount of the
Executive's Base Salary for the six (6 months preceding such termination. If,
during the Term of Employment, any Change in Control should occur and, prior to
the first anniversary of the date of the Change in Control, either (x) the Term
of Employment is terminated by the Company without Cause, pursuant to Section
5.4 herof or (y) the Executive terminates the Term of Employment for Good Reason
pursuant to Section 5.5(c) hereof, the Executive's unvested Stock Options shall
be vested and become immediately exercisable. In addition, if a Change in
Control transaction shall occur in which the Company is not the surviving entity
and the acquiror does not agree to assume the obligations represented by the
Stock Option rights of the Executive on or prior to the closing of the Change in
Control transaction on such terms and conditions as shall be reasonably
satisfactory to the Company, THEN the Executive's unvested Stock Options shall
be vested and become immediately exercisable immediately prior to the
consummation of the closing of such Change in Control transaction so as to
permit the Executive to dispose of the shares of common stock underlying such
Stock Options in that Change in Control transaction on substantially the same
terms and conditions as are applicable to shareholders of the Company generally.
If any of the Executive's Stock Options shall vest according to the applicable
vesting schedule, the options which shall have vested after any such Change in
Control shall continue to be exercisable for a period of three months from the
date of any termination of the Executive's employment by the Company following
such Change in Control. The Company shall have no further liability hereunder
(other than for reimbursement for reasonable business expenses incurred prior to
the date of termination, subject, however, to the provisions of Section 4.1).
b. For purposes of this Agreement, the term "Change
in Control" shall mean:
(i) Approval by the shareholders of the
Company of (x) a reorganization, merger, consolidation or other form of
corporate transaction or series of transactions, in each case, with respect to
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which persons who were the shareholders of the Company immediately prior to such
reorganization, merger or consolidation or other transaction do not, immediately
thereafter, own more than 50% of the combined voting power entitled to vote
generally in the election of directors of the reorganized, merged or
consolidated company's then outstanding voting securities, in substantially the
same proportions as their ownership immediately prior to such reorganization,
merger, consolidation or other transaction, or (y) a liquidation or dissolution
of the Company or (z) the sale of all or substantially all of the assets of the
Company (unless such reorganization, merger, consolidation or other corporate
transaction, liquidation, dissolution or sale is subsequently abandoned);
(ii) Individuals who, as of the Commencement
Date of this Agreement, constitute the Board (the "Incumbent Board") cease for
any reason to constitute at least a majority of the Board, provided that any
person becoming a director subsequent to the Commencement Date of this Agreement
whose election, or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then comprising the
Incumbent Board (other than an election or nomination of an individual whose
initial assumption of office is in connection with an actual or threatened
election contest relating to the election of the Directors of the Company, as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Securities Exchange Act) shall be, for purposes of this Agreement, considered as
though such person were a member of the Incumbent Board; or
(iii) the acquisition by any person, entity
or "group", within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act, of more than 30% of either the then outstanding shares of the
Company's Common Stock or the combined voting power of the Company's then
outstanding voting securities entitled to vote generally in the election of
directors (hereinafter referred to as the ownership of a "Controlling Interest")
excluding, for this purpose, any acquisitions by (1) the Company, (2) any
person, entity or "group" that as of the Commencement Date of this Agreement
owns beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Securities Exchange Act) of a Controlling Interest, (3) Rosalind Resnick
and/or Ryan Scott Druckenmiller or their respective affiliates, or (4) any
employee benefit plan of the Company.
c. Notwithstanding the foregoing, the term "Change in
Control" shall NOT include (i) any transaction, event or circumstance as a
result of which or after which Rosalind Resnick, Ryan Scott Druckenmiller, and
their respective affiliates continue to own, in the aggregate, the largest
percentage of shares of the Company owned by any shareholder of the Company,
(ii) the IPO, (iii) the above-referenced strategic or financial investments
which are contemplated to occur prior to the IPO, or (iii) any transaction
entered into by the Company and its stockholders prior to the IPO primarily for
the purpose of facilitating estate planning of Rosalind Resnick or Ryan Scott
Druckenmiller or converting the Company from an "S Corp" to a "C Corp" in
preparation for the IPO.
5.7 RESIGNATION. Upon any termination of employment pursuant
to this Article 5, the Executive shall be deemed to have resigned as an officer,
and if the Executive was then serving as a director of the Company, as a
director, and if required by the Board, the Executive hereby agrees to
immediately execute a resignation letter to the Board.
5.8 SURVIVAL. The provisions of this Article 5 shall survive
the termination of this Agreement, as applicable.
6. RESTRICTIVE COVENANTS.
6.1 NON-COMPETITION. At all times while the Executive is
employed by the Company and for a two (2) year period after the termination of
the Executive's employment with the Company for any reason (other than (a)
termination by the Company without Cause or (b) termination by the Executive for
Good Reason (as defined in Section 5.5(d) hereof) or (c) termination by the
Company prior to the first anniversary of a Change in Control other than for
Cause), the Executive shall not, directly or indirectly, engage in or have any
interest in any sole proprietorship, partnership, corporation or business or any
other person or entity (whether as an employee,
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officer, director, partner, agent, security holder, creditor, consultant or
otherwise) that directly engages in competition with the Company (for this
purpose, any business unit or division that provides e-mail marketing services
to third parties for compensation shall be deemed to be in competition with the
Company); provided that such provision shall not apply to the Executive's
ownership of Common Stock of the Company or the acquisition by the Executive,
solely as an investment, of securities of any issuer that is registered under
Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended, and
that are listed or admitted for trading on any United States national securities
exchange or that are quoted on the Nasdaq, or any similar system or automated
dissemination of quotations of securities prices in common use, so long as the
Executive does not control, acquire a controlling interest in or become a member
of a group which exercises direct or indirect control or, more than one percent
(1%) of any class of capital stock of such corporation.
6.2 NONDISCLOSURE. The Executive shall not during the
Executive's employment under this Agreement or after the termination of such
employment divulge, communicate, use to the detriment of the Company or for the
benefit of any other person or persons, or misuse in any way, any Confidential
Information (as hereinafter defined) pertaining to the business of the Company.
Any Confidential Information or data now or hereafter acquired by the Executive
with respect to the business of the Company (which shall include, but not be
limited to, information concerning the Company's financial condition, prospects,
technology, customers, suppliers, sources of leads and methods of doing
business) shall be deemed a valuable, special and unique asset of the Company
that is received by the Executive in confidence and as a fiduciary, and
Executive shall remain a fiduciary to the Company with respect to all of such
information. For purposes of this Agreement, "Confidential Information" means
information disclosed to the Executive or known by the Executive as a
consequence of or through the Executive's employment by the Company (including
information conceived, originated, discovered or developed by the Executive)
prior to or after the date hereof (up to the date of termination of the
Executive's employment pursuant to this Agreement), and whose existence or
significance or utility in respect of the Company or its business is not
generally known. Notwithstanding the foregoing, nothing herein shall be deemed
to restrict the Executive from disclosing Confidential Information to the extent
required by law or in the valid performance of the Executive's duties.
6.3 NONSOLICITATION OF EMPLOYEES AND CLIENTS. At all times
while the Executive is employed by the Company and for a one (1) year period
after the termination of the Executive's employment with the Company for any
reason, the Executive shall not, directly or indirectly, for the Executive or
for any other person, firm, corporation, partnership, association or other
entity (a) employ or attempt to employ or enter into any contractual arrangement
with any employee or former employee of the Company, until a period of at least
six (6) months has elapsed from the date of termination of the employment of
such person with the Company, and/or (b) call on or solicit any of the actual or
targeted prospective clients of the Company on behalf of any person or entity in
connection with any business competitive with the business of the Company while
the Executive is employed by the company, or in connection with any email direct
marketing business for a one-year period after the termination of the
executive's employment, nor shall the Executive make known the names and
addresses of such clients or any information relating in any manner to the
Company's trade or business relationships with such customers, other than in
connection with the performance of the Executive's duties under this Agreement.
6.4 OWNERSHIP OF DEVELOPMENTS. All copyrights, patents, trade
secrets, or other intellectual property rights associated with any ideas,
concepts, techniques, inventions, processes, or works of authorship developed or
created by the Executive during the course of performing work for the Company or
its clients (collectively, the "Work Product") shall belong exclusively to the
Company and shall, to the extent possible, be considered a work made by the
Executive for hire for the Company within the meaning of Title 17 of the United
States Code. To the extent the Work Product may not be considered work made by
the Executive for hire for the Company, the Executive agrees to assign, and
automatically assigns at the time of creation of the Work Product, without any
requirement of further consideration, any right, title, or interest the
Executive may have in such Work Product. Upon the request of the Company, the
Executive shall take such further actions, including execution and delivery of
instruments of conveyance, as may be appropriate to give full and proper effect
to such assignment.
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6.5 BOOKS AND RECORDS. All books, records, and accounts
relating in any manner to the customers or clients of the Company, whether
prepared by the Executive or otherwise coming into the Executive's possession,
shall be the exclusive property of the Company and shall be returned immediately
to the Company on termination of the Executive's employment hereunder or on the
Company's request at any time, upon which the Executive shall not retain any
copies of the same in any media whatsoever.
6.6 DEFINITION OF COMPANY. Solely for purposes of this Article
6, the term "Company" also shall include any existing or future subsidiaries of
the Company that are operating during the time periods described herein and any
other entities that directly or indirectly, through one or more intermediaries,
control, are controlled by or are under common control with the Company during
the periods described herein.
6.7 ACKNOWLEDGMENT BY EXECUTIVE. The Executive acknowledges
and confirms that (a) the restrictive covenants contained in this Article 6 are
reasonable and necessary to protect the legitimate business interests of the
Company, and (b) the restrictions contained in this Article 6 (including without
limitation the length of the term of the provisions of this Article 6) are not
overbroad, overlong, or unfair and are not the result of overreaching, duress or
coercion of any kind. The Executive further acknowledges and confirms that the
Executive's full, uninhibited and faithful observance of each of the covenants
contained in this Article 6 will not cause the Executive any undue hardship,
financial or otherwise, and that enforcement of each of the covenants contained
herein will not impair the Executive's ability to obtain employment commensurate
with the Executive's abilities and on terms fully acceptable to the Executive or
otherwise to obtain income required for the comfortable support of the Executive
and the Executive's family and the satisfaction of the needs of the Executive's
creditors. The Executive acknowledges and confirms that the Executive's special
knowledge of the business of the Company is such as would cause the Company
serious injury or loss if the Executive were to use such ability and knowledge
to the benefit of a competitor or were to compete with the Company in violation
of the terms of this Article 6. The Executive further acknowledges that the
restrictions contained in this Article 6 are intended to be, and shall be, for
the benefit of and shall be enforceable by, the Company and its successors and
assigns, including, without limitation, any successor to the Company, whether by
merger, consolidation, sale of stock, sale of assets or otherwise.
6.8 REFORMATION BY COURT. In the event that a court of
competent jurisdiction shall determine that any provision of this Article 6 is
invalid or more restrictive than permitted under the governing law of such
jurisdiction, then only as to enforcement of this Article 6 within the
jurisdiction of such court, such provision shall be interpreted and enforced as
if it provided for the maximum restriction permitted under such governing law.
6.9 EXTENSION OF TIME. If the Executive shall be in violation
of any provision of this Article 6, then each time limitation set forth in this
Article 6 shall be extended for a period of time equal to the period of time
during which such violation or violations occur. If the Company seeks injunctive
relief from such violation in any court, then the covenants set forth in this
Article 6 shall be extended for a period of time equal to the pendency of such
proceeding including all appeals by the Executive.
6.10 SURVIVAL. The provisions of this Article 6 shall survive
the termination of this Agreement, as applicable.
7. INJUNCTION. It is recognized and hereby acknowledged by the parties
hereto that a breach by the Executive of any of the covenants contained in
Article 6 of this Agreement will cause irreparable harm and damage to the
Company, the monetary amount of which may be virtually impossible to ascertain.
As a result, the Executive recognizes and hereby acknowledges that the Company
shall be entitled, without the necessity of proving damages or posting a bond,
to an injunction from any court of competent jurisdiction enjoining and
restraining any violation of any or all of the covenants contained in Article 6
of this Agreement by the Executive or any of the Executive's affiliates,
associates, partners or agents, either directly or indirectly, and that such
right to injunction shall be cumulative and in addition to whatever other
remedies the Company may possess. If the Company should fail to obtain any
injunction when the Company seeks an injunction pursuant to this Section (other
than due to the fact that
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the parties reach a settlement or the Executive ceases the activities complained
of by the Company without need of an injunction), then the Company shall
reimburse the Executive for the Executive's reasonable attorney's fees and
expenses pertaining to the proceedings to seek the injunction.
8. MEDIATION. In the event a dispute arises out of or relates to this
Agreement, or the breach thereof, and if the dispute cannot be settled through
negotiation, the parties hereby agree first to attempt in good faith to settle
the dispute by mediation administered by the American Arbitration Association
under its Employment Mediation Rules before resorting to arbitration as set
forth in Section 8 below. Notwithstanding the foregoing, (i) the Company has the
right to seek an injunction under Section 7 hereof, and (ii) either party may
seek an injunction or entry of judgment on an arbitration award under Section 9
of this Agreement. The cost and expenses of mediators (but not the fees and
expenses of any counsel or other professional representing any party other than
the Company) shall be borne by the Company. If any dispute is settled by
mediation pursuant to this Section and the Company fails to achieve any decision
in its favor, then the Company shall reimburse the Executive for the Executive's
reasonable attorneys' fees and expenses pertaining to the mediation proceedings.
9. ARBITRATION. In the event that mediation pursuant to Section 8 of
this Agreement has failed after thirty (30) days or the parties to this
Agreement both agree not to mediate, any dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by arbitration in
New York County, New York, in accordance with the Rules of the American
Arbitration Association then in effect with respect to arbitration of commercial
matters (except to the extent that the procedures outlined below differ from
such rules). Within ten (10) days after written notice by either party has been
given that a dispute exists and that arbitration is required, each party must
select an arbitrator and those two arbitrators shall promptly, but in no event
later than ten (10) days after their selection, select a third arbitrator. The
parties agree to act as expeditiously as possible to select arbitrators and
conclude the dispute. The selected arbitrators must render their decision in
writing. The cost and expenses of the arbitrators (but not the fees and expenses
of any counsel or other professional representing any party other than the
Company) shall be borne by the Company. Judgment may be entered on the
arbitrators' award in any court having jurisdiction. Pursuit of an injunction
shall not impair arbitration on all remaining issues. If any dispute is settled
by arbitration pursuant to this Section and the Company fails to achieve any
decision in its favor, then the Company shall reimburse the Executive for the
Executive's reasonable attorneys' fees and expenses pertaining to the
arbitration proceedings.
10. ASSIGNMENT. Neither party shall have the right to assign or
delegate their rights or obligations hereunder, or any portion thereof, to any
other person, except that the rights of the Company may be assigned by the
Company to any person or entity acquiring a substantial portion of the Company's
assets or to any successor of the Company.
11. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
12. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and, upon
its effectiveness, shall supersede all prior agreements, understandings and
arrangements, both oral and written, between the Executive and the Company (or
any of its affiliates) with respect to such subject matter. This Agreement may
not be modified in any way unless by a written instrument signed by both the
Company and the Executive.
13. NOTICES: All notices required or permitted to be given hereunder
shall be in writing and shall be personally delivered by courier, sent by
registered or certified mail, return receipt requested or sent by confirmed
facsimile transmission addressed as set forth herein. Notices personally
delivered, sent by facsimile or sent by overnight courier shall be deemed given
on the date of delivery and notices mailed in accordance with the foregoing
shall be deemed given upon the earlier of receipt by the addressee, as evidenced
by the return receipt thereof, or three (3) days after deposit in the U.S. mail.
Notice shall be sent (i) if to the Company, addressed to NetCreations, Inc., 379
West Broadway, Suite 202, New York, New York 10012, attention: Chief Executive
Officer, with a copy
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to Greenberg Traurig, Met Life Building, 200 Park Avenue, 15th Floor, New York,
New York 10166, Attention: Andrew J. Cosentino, Esq.; and (ii) if to the
Executive, to the Executive's address as reflected on the payroll records of the
Company, or to such other address as either party hereto may from time to time
give notice of to the other.
14. BENEFITS; BINDING EFFECT. This Agreement shall be for the benefit
of and binding upon the parties hereto and their respective heirs, personal
representatives, legal representatives, and successors, including, without
limitation, any successor to the Company, whether by merger, consolidation, sale
of stock, sale of assets or otherwise.
15. SEVERABILITY. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement or any
part thereof, all of which are inserted conditionally on their being valid in
law, and, in the event that any one or more of the words, phrases, sentences,
clauses or sections contained in this Agreement shall be declared invalid, this
Agreement shall be construed as if such invalid word or words, phrase or
phrases, sentence or sentences, clause or clauses, or section or sections had
not been inserted. If such invalidity is caused by length of time or size of
area, or both, the otherwise invalid provision will be considered to be reduced
to a period or area which would cure such invalidity.1
16. WAIVERS. The waiver by either party hereto of a breach or violation
of any term or provision of this Agreement shall not operate nor be construed as
a waiver of any subsequent breach or violation.
17. DAMAGES. Subject to compliance with Sections 7, 8 and 9 of this
Agreement, to the extent applicable, nothing contained herein shall be construed
to prevent the Company or the Executive from seeking and recovering from the
other damages sustained by either or both of them as a result of its or the
Executive's breach of any term or provision of this Agreement. In the event that
either party hereto brings suit for the collection of any damages resulting
from, or the injunction of any action constituting, a breach of any of the terms
or provisions of this Agreement, then the party found to be at fault shall pay
all reasonable court costs and attorneys' fees of the other.
18. SECTION HEADINGS. The section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
19. NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
any rights or remedies under or by reason of this Agreement, other than the
Company, the parties hereto and their respective heirs, personal
representatives, legal representatives, and successors, including, without
limitation, any successor to the Company, whether by merger, consolidation, sale
of stock, sale of assets or otherwise.
20. INDEMNIFICATION.
a. The Company shall indemnify and hold harmless the
Executive to the fullest extent permitted by law from and against any and all
claims, damages, expenses (including reasonable attorneys' fees), judgments,
penalties, fines, settlements, and all other liabilities incurred or paid by the
Executive in connection with the investigation, defense, prosecution, settlement
or appeal of any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative and to which the
Executive was or is a party or is threatened to be made a party by reason of the
fact that the Executive is or was an officer, employee or agent of the Company,
or by reason of anything done or not done by the Executive in any such capacity
or capacities, provided that the Executive acted in good faith, in a manner that
was not grossly negligent and did not constitute willful misconduct and in a
manner the Executive reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the Executive's conduct was
unlawful. The Company also shall pay any and all reasonable expenses (including
attorney's fees) incurred by the
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Executive as a result of the Executive being called as a witness in connection
with any matter involving the Company and/or any of its officers or directors
(other than an action or suit by the Company against the Executive).
b. The Company shall pay any reasonable expenses
(including attorneys' fees), judgments, penalties, fines, settlements, and other
liabilities incurred by the Executive in investigating, defending, settling or
appealing any action, suit or proceeding described in this Section 20 (other
than an action or proceeding by the Company against the Executive) in advance of
the final disposition of such action, suit or proceeding. The Company shall
promptly pay the amount of such expenses to the Executive, but in no event later
than ten (10) days following the Executive's delivery to the Company of a
written request for an advance pursuant to this Section 20, together with a
reasonable accounting of such expenses.
c. The Executive hereby undertakes and agrees to
repay to the Company any advances made pursuant to this Section 20 if and to the
extent that it shall ultimately be agreed by the parties or determined by a
court that the Executive is not entitled to be indemnified by the Company for
such amounts.
d. The Company shall make the advances contemplated
by this Section 20 regardless of the Executive's financial ability to make
repayment, and regardless of whether indemnification of the Indemnitee by the
Company will ultimately be required. Any advances and undertakings to repay
pursuant to this Section 20 shall be unsecured and interest-free.
[THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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e. The provisions of this Section 20 shall survive
the termination of this Agreement.
f. This Agreement supersedes any employment agreement
which the parties may have previously executed and delivered, and any such
employment agreement is deemed null and void ab inititio.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
COMPANY:
NETCREATIONS, INC.
By:
---------------------------------
Name: Rosalind Resnick
Title: President
EXECUTIVE:
------------------------------------
Daniel C. Sweeney, individually
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Exhibit 10.6
---------------------------------------
NETCREATIONS, INC.
1999 STOCK OPTION PLAN
---------------------------------------
1. PURPOSE. The purpose of this Plan is to advance the interests of
NETCREATIONS, INC., a New York corporation (the "Company"), and its Subsidiaries
by providing an additional incentive to attract and retain qualified and
competent persons who provide management services and upon whose efforts and
judgment the success of the Company and its Subsidiaries is largely dependent,
through the encouragement of stock ownership in the Company by such persons.
2. DEFINITIONS. As used herein, the following terms shall have the
meaning indicated:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(c) "Committee" shall mean the committee appointed by the
Board pursuant to Section 13(a) hereof, or, if such committee is not appointed,
the Board.
(d) "Common Stock" shall mean the Company's Common Stock, par
value $0.01 per share.
(e) "Company" shall mean NETCREATIONS, INC., a New York
corporation.
(f) "Director" shall mean a member of the Board.
(g) "Effective Date" shall mean July 22, 1999.
(h) "Fair Market Value" of a Share on any date of reference
shall mean the "Closing Price" (as defined below) of the Common Stock on the
business day immediately preceding the date of reference, unless the Board or
the Committee in its sole discretion shall determine otherwise in a fair and
uniform manner. For the purpose of determining Fair Market Value, the "Closing
Price" of the Common Stock on any business day shall be (i) if the Common Stock
is listed or admitted for trading on any United States national securities
exchange, or if actual transactions are otherwise reported on a consolidated
transaction reporting system, the last reported sale price of Common Stock on
such exchange or reporting system, as reported in any newspaper of general
circulation, (ii) if the Common Stock is quoted on the National Association of
Securities Dealers Automated Quotations System ("NASDAQ"), or any similar system
of
<PAGE>
automated dissemination of quotations of securities prices in common use, the
last reported sale price of Common Stock on such system or, if sales prices are
not reported, the mean between the closing high bid and low asked quotations for
such day of Common Stock on such system, as reported in any newspaper of general
circulation or (iii) if neither clause (i) or (ii) is applicable, the mean
between the high bid and low asked quotations for the Common Stock as reported
by the National Quotation Bureau, Incorporated if at least two securities
dealers have inserted both bid and asked quotations for Common Stock on at least
five of the ten preceding days.
(i) "Incentive Stock Option" shall mean an incentive stock
option as defined in Section 422 of the Internal Revenue Code.
(j) "Internal Revenue Code" shall mean the Internal Revenue
Code of 1986, as amended from time to time.
(k) "Non-Qualified Stock Option" shall mean an Option that is
not an Incentive Stock Option.
(l) "Officer" shall mean the Company's Chairman of the Board,
President, Chief Executive Officer, principal financial officer, principal
accounting officer, any vice-president of the Company in charge of a principal
business unit, division or function (such as sales, administration or finance),
any other officer who performs a policy-making function, or any other person who
performs similar policy-making functions for the Company. Officers of
Subsidiaries shall be deemed Officers of the Company if they perform such
policy-making functions for the Company. As used in this paragraph, the phrase
"policy-making function" does not include policy-making functions that are not
significant. If pursuant to Item 401(b) of Regulation S-K (17 C.F.R. Section
229.401(b)) the Company identifies a person as an "executive officer," the
person so identified shall be deemed an "Officer" even though such person may
not otherwise be an "Officer" pursuant to the foregoing provisions of this
paragraph.
(m) "Option" (when capitalized) shall mean any option granted
under this Plan.
(n) "Option Agreement" means the agreement between the Company
and the Optionee for the grant of an option.
(o) "Optionee" shall mean a person to whom a stock option is
granted under this Plan or any person who succeeds to the rights of such person
under this Plan by reason of the death of such person.
(p) "Outside Director" shall mean a member of the Board who
qualifies as an "outside director" under Section 162(m) of the Internal Revenue
Code and the regulations thereunder and as a "Non-Employee Director" under Rule
16b-3 promulgated under the Securities Exchange Act.
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(q) "Plan" shall mean this Stock Option Plan for the Company.
(r) "Securities Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended.
(s) "Share" shall mean a share of Common Stock.
(t) "Subsidiary" shall mean any corporation (other than the
Company) in any unbroken chain of corporations beginning with the Company if, at
the time of the granting of the Option, each of the corporations other than the
last corporation in the unbroken chain owns stock possessing 50 percent or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
3. SHARES AVAILABLE FOR OPTION GRANTS. The Committee or the Board may
grant to Optionees from time to time Options to purchase an aggregate of up to
ten (10) Shares from the Company's authorized and unissued Shares. If any Option
granted under the Plan shall terminate, expire, or be canceled or surrendered as
to any Shares, new Options may thereafter be granted covering such Shares.
4. INCENTIVE AND NON-QUALIFIED OPTIONS.
(a) An Option granted hereunder shall be either an Incentive
Stock Option or a Non-Qualified Stock Option as determined by the Committee or
the Board at the time of grant of such Option and shall clearly state whether it
is an Incentive Stock Option or Non-Qualified Stock Option. All Incentive Stock
Options shall be granted within 10 years from the effective date of this Plan.
Incentive Stock Options may not be granted to any person who is not an employee
of the Company or any Subsidiary.
(b) Options otherwise qualifying as Incentive Stock Options
hereunder will not be treated as Incentive Stock Options to the extent that the
aggregate fair market value (determined at the time the Option is granted) of
the Shares, with respect to which Options meeting the requirements of Section
422(b) of the Code are exercisable for the first time by any individual during
any calendar year (under all plans of the Company and its parent and subsidiary
corporations as defined in Section 424 of the Code), exceeds $100,000.
5. CONDITIONS FOR GRANT OF OPTIONS.
(a) Each Option shall be evidenced by an Option Agreement that
may contain any term deemed necessary or desirable by the Committee or the
Board, provided such terms are not inconsistent with this Plan or any applicable
law. Optionees shall be (i) those persons selected by the Committee or the Board
from the class of all regular employees of, or persons who provide consulting or
other services as independent contractors to, the Company or its
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Subsidiaries, including Directors and Officers who are regular employees, and
(ii) Directors who are not employees of the Company or of any Subsidiaries. Any
person who files with the Board or the Committee, in a form satisfactory to the
Board or the Committee, a written waiver of eligibility to receive any Option
under this Plan shall not be eligible to receive any Option under this Plan for
the duration of such waiver.
(b) In granting Options, the Committee or the Board shall take
into consideration the contribution the person has made to the success of the
Company or its Subsidiaries and such other factors as the Committee shall
determine. The Committee or the Board shall also have the authority to consult
with and receive recommendations from officers and other personnel of the
Company and its Subsidiaries with regard to these matters. The Committee or the
Board may from time to time in granting Options under the Plan prescribe such
other terms and conditions concerning such Options as it deems appropriate,
including, without limitation, (i) prescribing the date or dates on which the
Option becomes exercisable, (ii) providing that the Option rights accrue or
become exercisable in installments over a period of years, or upon the
attainment of stated goals or both, or (iii) relating an Option to the continued
employment of the Optionee for a specified period of time, provided that such
terms and conditions are not more favorable to an Optionee than those expressly
permitted herein.
(c) The Options granted to employees under this Plan shall be
in addition to regular salaries, pension, life insurance or other benefits
related to their employment with the Company or its Subsidiaries. Neither the
Plan nor any Option granted under the Plan shall confer upon any person any
right to employment or continuance of employment by the Company or its
Subsidiaries.
(d) Notwithstanding any other provision of this Plan, an
Incentive Stock Option shall not be granted to any person owning directly or
indirectly (through attribution under Section 424(d) of the Code) at the date of
grant, stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company (or of its parent or subsidiary [as defined in
Section 424 of the Code] at the date of grant) unless the option price of such
Option is at least 110% of the Fair Market Value of the Shares subject to such
Option on the date the Option is granted, and such Option by its terms is not
exercisable after the expiration of five years from the date such Option is
granted.
(e) Notwithstanding any other provision of this Plan, and in
addition to any other requirements of this Plan, the aggregate number of Options
granted to any one Optionee may not exceed four (4) Shares, subject to
adjustment as provided in Section 10 hereof.
6. OPTION PRICE. The option price per Share of any Option shall be any
price determined by the Board or the Committee but shall not be less than the
par value per Share; provided, however, that in no event shall the option price
per Share of any Incentive Stock Option be less than the Fair Market Value of
the Shares underlying such Option on the date such Option is granted.
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7. EXERCISE OF OPTIONS. An Option shall be deemed exercised when (i)
the Company has received written notice of such exercise in accordance with the
terms of the Option, (ii) full payment of the aggregate option price of the
Shares as to which the Option is exercised has been made, and (iii) arrangements
that are satisfactory to the Board or the Committee in its sole discretion have
been made for the Optionee's payment to the Company of the amount, if any, that
is necessary for the Company or Subsidiary employing the Optionee to withhold in
accordance with applicable Federal or state tax withholding requirements. The
consideration to be paid for the Shares to be issued upon exercise of an Option,
as well as the method of payment of the exercise price and of any withholding
and employment taxes applicable thereto, shall be determined by the Committee or
the Board and may, in the discretion of the Committee or the Board, consist of:
(1) cash, (2) certified or official bank check, (3) money order, (4) Shares that
have been held by the Optionee for at least six (6) months (or such other Shares
as the Company determines will not cause the Company to recognize for a
financial accounting purposes a charge for compensation expense), (5) the
withholding of Shares issuable upon exercise of the Option, (6) pursuant to a
"cashless exercise" procedure, by delivery of a properly executed exercise
notice together with such other documentation, and subject to such guidelines,
as the Board or the Committee shall require to effect an exercise of the Option
and delivery to the Company by a licensed broker acceptable to the Company of
proceeds from the sale of Shares or a margin loan sufficient to pay the exercise
price and any applicable income or employment taxes, or (7) in such other
consideration as the Committee or the Board deems appropriate, or by a
combination of the above. In the case of an Incentive Stock Option, the
permissible methods of payment shall be specified at the time the Option is
granted. The Committee or the Board in its sole discretion may accept a personal
check in full or partial payment of any Shares. If the exercise price is paid in
whole or in part with Shares, or through the withholding of Shares issuable upon
exercise of the Option, the value of the Shares surrendered or withheld shall be
their Fair Market Value on the date the Option is exercised. The Company in its
sole discretion may, on an individual basis or pursuant to a general program
established in connection with this Plan, lend money to an Optionee, guarantee a
loan to an Optionee, or otherwise assist an Optionee to obtain the cash
necessary to exercise all or a portion of an Option granted hereunder or to pay
any tax liability of the Optionee attributable to such exercise. If the exercise
price is paid in whole or part with Optionee's promissory note, such note shall
(i) provide for full recourse to the maker, (ii) be collateralized by the pledge
of the Shares that the Optionee purchases upon exercise of such Option, (iii)
bear interest at the prime rate of the Company's principal lender, and (iv)
contain such other terms as the Board in its sole discretion shall reasonably
require. No Optionee shall be deemed to be a holder of any Shares subject to an
Option unless and until a stock certificate or certificates for such Shares are
issued to such person(s) under the terms of this Plan. No adjustment shall be
made for dividends (ordinary or extraordinary, whether in cash, securities or
other property) or distributions or other rights for which the record date is
prior to the date such stock certificate is issued, except as expressly provided
in Section 10 hereof.
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8. EXERCISABILITY OF OPTIONS. Any Option shall become exercisable in
such amounts, at such intervals and upon such terms as the Committee or the
Board shall provide in such Option, except as otherwise provided in this Section
8.
(a) The expiration date of an Option shall be determined by
the Board or the Committee at the time of grant, but in no event shall an Option
be exercisable after the expiration of 10 years from the date of grant of the
Option.
(b) To the extent provided in any Option, each outstanding
Option shall become immediately fully exercisable in the event of a "Change in
Control" or in the event that the Committee or the Board exercises its
discretion to provide a cancellation notice with respect to the Option pursuant
to Section 9(b) hereof. For this purpose, the term "Change in Control" shall
mean:
(i) Approval by the shareholders of the Company of a
reorganization, merger, consolidation or other form of
corporate transaction or series of transactions, in each case,
with respect to which persons who were the shareholders of the
Company immediately prior to such reorganization, merger or
consolidation or other transaction do not, immediately
thereafter, own more than 50% of the combined voting power
entitled to vote generally in the election of directors of the
reorganized, merged or consolidated company's then outstanding
voting securities, in substantially the same proportions as
their ownership immediately prior to such reorganization,
merger, consolidation or other transaction, or a liquidation
or dissolution of the Company or the sale of all or
substantially all of the assets of the Company (unless such
reorganization, merger, consolidation or other corporate
transaction, liquidation, dissolution or sale is subsequently
abandoned); or
(ii) Individuals who, as of the date on which the
Option is granted hereof, constitute the Board (the "Incumbent
Board") cease for any reason to constitute at least a majority
of the Board, provided that any person becoming a director
subsequent to the date on which the Option was granted whose
election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board (other than
an election or nomination of an individual whose initial
assumption of office is in connection with an actual or
threatened election contest relating to the election of the
Directors of the Company, as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Securities
Exchange Act) shall be, for purposes of this Agreement,
considered as though such person were a member of the
Incumbent Board; or
(iii) The acquisition (other than from the Company)
by any person, entity or "group", within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act,
of more than 30% of either the then outstanding shares
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of the Company's Common Stock or the combined voting power of
the Company's then outstanding voting securities entitled to
vote generally in the election of directors (hereinafter
referred to as the ownership of a "Controlling Interest")
excluding, for this purpose, any acquisitions by (1) the
Company or its Subsidiaries, (2) any person, entity or "group"
that as of the date on which the Option is granted owns
beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Securities Exchange Act) of a
Controlling Interest, (3) Rosalind Resnick and/or Ryan Scott
Druckenmiller, or (4) any employee benefit plan of the Company
or its Subsidiaries.
(c) The Committee or the Board may in its sole discretion
accelerate the date on which any Option may be exercised and may accelerate the
vesting of any Shares subject to any Option or previously acquired by the
exercise of any Option.
9. TERMINATION OF OPTION PERIOD.
(a) Unless otherwise provided in any Option Agreement, the
unexercised portion of any Option shall automatically and without notice
terminate and become null and void at the time of the earliest to occur of the
following:
(i) three months after the date on which the
Optionee's employment with the Company and its Subsidiaries is terminated other
than by reason of (A) Cause, which, solely for purposes of this Plan, shall mean
the termination of the Optionee's employment by reason of the Optionee's willful
misconduct or gross negligence, (B) a mental or physical disability (within the
meaning of Internal Revenue Code Section 22(e)) of the Optionee as determined by
a medical doctor satisfactory to the Committee, or (C) death of the Optionee;
(ii) immediately upon the termination of the
Optionee's employment with the Company and its Subsidiaries for Cause;
(iii) twelve months after the date on which the
Optionee's employment with the Company and its Subsidiaries is terminated by
reason of a mental or physical disability (within the meaning of Section 22(e)
of the Code) of the Optionee as determined by a medical doctor satisfactory to
the Committee;
(iv) (A) twelve months after the date of termination
of the Optionee's employment with the Company and its Subsidiaries by reason of
death of the Optionee, or, if later, (B) three months after the date on which
the Optionee shall die if such death shall occur during the one year period
specified in Subsection 9(a)(iii) hereof; or
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(v) immediately in the event that the Optionee shall
file any lawsuit or arbitration claim against the Company or any Subsidiary, or
any of their respective officers, directors or shareholders.
All references herein to the termination of the Optionee's employment shall, in
the case of an Optionee who is not an employee of the Company or a Subsidiary,
refer to the termination of the Optionee's service with the Company or a
Subsidiary.
(b) To the extent not previously exercised, (i) each Option
shall terminate immediately in the event of (1) the liquidation or dissolution
of the Company, or (2) any reorganization, merger, consolidation or other form
of corporate transaction in which the Company does not survive, unless the
successor corporation, or a parent or subsidiary of such successor corporation,
assumes the Option or substitutes an equivalent option or right pursuant to
Section 10(c) hereof, and (ii) the Committee or the Board in its sole discretion
may by written notice ("cancellation notice") cancel, effective upon the
consummation of any corporate transaction described in Subsection 8(b)(i) hereof
in which the Company does survive, any Option that remains unexercised on such
date. The Committee or the Board shall give written notice of any proposed
transaction referred to in this Section 9(b) a reasonable period of time prior
to the closing date for such transaction (which notice may be given either
before or after approval of such transaction), in order that Optionees may have
a reasonable period of time prior to the closing date of such transaction within
which to exercise any Options that then are exercisable (including any Options
that may become exercisable upon the closing date of such transaction). An
Optionee may condition his exercise of any Option upon the consummation of a
transaction referred to in this Section 9(b).
10. ADJUSTMENT OF SHARES.
(a) If at any time while the Plan is in effect or unexercised
Options are outstanding, there shall be any increase or decrease in the number
of issued and outstanding Shares through the declaration of a stock dividend or
through any recapitalization resulting in a stock split-up, combination or
exchange of Shares, then and in such event:
(i) appropriate adjustment shall be made in the
maximum number of Shares available for grant under the Plan, so that the same
percentage of the Company's issued and outstanding Shares shall continue to be
subject to being so optioned; and
(ii) the Board or the Committee may, in its
discretion, make any adjustments it deems appropriate in the number of Shares
and the exercise price per Share thereof then subject to any outstanding Option,
so that the same percentage of the Company's issued and outstanding Shares shall
remain subject to purchase at the same aggregate exercise price.
(b) Unless otherwise provided in any Option, the Board or the
Committee may change the terms of Options outstanding under this Plan, with
respect to the option price or
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the number of Shares subject to the Options, or both, when, in the Board's or
the Committee's sole discretion, such adjustments become appropriate by reason
of a corporate transaction described in Subsections 8(b)(i) hereof so as to
preserve but not increase benefits under the Plan.
(c) In the event of a proposed sale of all or substantially
all of the Company's assets or any reorganization, merger, consolidation or
other form of corporate transaction in which the Company does not survive, where
the securities of the successor corporation, or its parent company, are issued
to the Company's shareholders, then the successor corporation or a parent of the
successor corporation may, with the consent of the Committee or the Board,
assume each outstanding Option or substitute an equivalent option or right. If
the successor corporation, or its parent, does not cause such an assumption or
substitution to occur, or the Committee or the Board does not consent to such an
assumption or substitution, then each Option shall terminate pursuant to Section
9(b) hereof upon the consummation of sale, merger, consolidation or other
corporate transaction.
(d) Except as otherwise expressly provided herein, the
issuance by the Company of shares of its capital stock of any class, or
securities convertible into shares of capital stock of any class, either in
connection with direct sale or upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or obligations of the Company
convertible into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made to, the number of or exercise price
for Shares then subject to outstanding Options granted under the Plan.
(e) Without limiting the generality of the foregoing, the
existence of outstanding Options granted under the Plan shall not affect in any
manner the right or power of the Company to make, authorize or consummate (i)
any or all adjustments, recapitalizations, reorganizations or other changes in
the Company's capital structure or its business; (ii) any merger or
consolidation of the Company; (iii) any issue by the Company of debt securities,
or preferred or preference stock that would rank above the Shares subject to
outstanding Options; (iv) the dissolution or liquidation of the Company; (v) any
sale, transfer or assignment of all or any part of the assets or business of the
Company; or (vi) any other corporate act or proceeding, whether of a similar
character or otherwise.
11. TRANSFERABILITY OF OPTIONS AND SHARES. No Incentive Stock Option,
and unless the prior written consent of the Committee or the Board is obtained
(which consent may be withheld for any reason) and the transaction does not
violate the requirements of Rule 16b-3 promulgated under the Securities Exchange
Act no Non-Qualified Stock Option, shall be subject to alienation, assignment,
pledge, charge or other transfer other than by the Optionee by will or the laws
of descent and distribution, and any attempt to make any such prohibited
transfer shall be void. Each Option shall be exercisable during the Optionee's
lifetime only by the Optionee, or in the case of a Non-Qualified Stock Option
that has been assigned or transferred with the prior written consent of the
Committee or the Board, only by the permitted assignee.
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12. ISSUANCE OF SHARES.
(a) Notwithstanding any other provision of this Plan, the
Company shall not be obligated to issue any Shares unless it is advised by
counsel of its selection that it may do so without violation of the applicable
Federal and State laws pertaining to the issuance of securities, and may require
any stock so issued to bear a legend, may give its transfer agent instructions,
and may take such other steps, as in its judgment are reasonably required to
prevent any such violation.
(b) As a condition to any sale or issuance of Shares upon
exercise of any Option, the Board or the Committee may require such agreements
or undertakings as the Board or the Committee may deem necessary or advisable to
facilitate compliance with any applicable law or regulation including, but not
limited to, the following:
(i) a representation and warranty by the Optionee to
the Company, at the time any Option is exercised, that he is acquiring the
Shares to be issued to him for investment and not with a view to, or for sale in
connection with, the distribution of any such Shares; and
(ii) a representation, warranty and/or agreement to
be bound by any legends endorsed upon the certificate(s) for such Shares that
are, in the opinion of the Board or the Committee, necessary or appropriate to
facilitate compliance with the provisions of any securities laws deemed by the
Board or the Committee to be applicable to the issuance and transfer of such
Shares.
13. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by the Board or, at the
discretion of the Board, by a committee appointed by the Board (the "Committee")
which shall be composed of two or more Directors. At all times, the membership
of the Committee shall be constituted so as to comply at all times with the then
applicable requirements for Outside Directors of Rule 16b-3 promulgated under
the Securities Exchange Act and Section 162(m) of the Internal Revenue Code. The
Committee shall serve at the pleasure of the Board and shall have the powers
designated herein and such other powers as the Board may from time to time
confer upon it.
(b) The Board may grant Options pursuant to this Plan to any
persons to whom Options may be granted under Section 5(a) hereof.
(c) The Committee or the Board, from time to time, may adopt
rules and regulations for carrying out the purposes of the Plan. The
determinations by the Board or the Committee and its interpretation and
construction of any provision of the Plan or any Option shall be final and
conclusive.
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(d) Any and all decisions or determinations of the Board or
the Committee shall be made either (i) by a majority vote of the members of the
Board or the Committee at a meeting or (ii) without a meeting by the unanimous
written approval of the members of the Board or the Committee.
14. WITHHOLDING OR DEDUCTION FOR TAXES. If at any time specified herein
for the making of any issuance or delivery of any Option or Common Stock to any
Optionee, any law or regulation of any governmental authority having
jurisdiction in the premises shall require the Company to withhold, or to make
any deduction for, any taxes or take any other action in connection with the
issuance or delivery then to be made, such issuance or delivery shall be
deferred until such withholding or deduction shall have been provided for by the
Optionee or beneficiary, or other appropriate action shall have been taken.
15. INTERPRETATION.
(a) As it is the intent of the Company that the Plan comply in
all respects with Rule 16b-3 promulgated under the Securities Exchange Act
("Rule 16b-3"), any ambiguities or inconsistencies in construction of the Plan
shall be interpreted to give effect to such intention, and if any provision of
the Plan is found not to be in compliance with Rule 16b-3, such provision shall
be deemed null and void to the extent required to permit the Plan to comply with
Rule 16b-3. The Committee or the Board may from time to time adopt rules and
regulations under, and amend, the Plan in furtherance of the intent of the
foregoing.
(b) The Plan and any Option agreements entered into pursuant
to the Plan shall be administered and interpreted so that all Incentive Stock
Options granted under the Plan will qualify as Incentive Stock Options under
Section 422 of the Code. If any provision of the Plan or any such Option
agreement should be held invalid for the granting of Incentive Stock Options or
illegal for any reason, such determination shall not affect the remaining
provisions hereof, but instead the Plan and the Option agreement shall be
construed and enforced as if such provision had never been included in the Plan
or the Option agreement.
(c) This Plan shall be governed by the laws of the State of
New York.
(d) Headings contained in this Plan are for convenience only
and shall in no manner be construed as part of this Plan.
(e) Any reference to the masculine, feminine, or neuter gender
shall be a reference to such other gender as is appropriate.
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16. AMENDMENT AND DISCONTINUATION OF THE PLAN. The Committee or the
Board may from time to time amend, suspend or terminate the Plan or any Option;
provided, however, that, any amendment to the Plan shall be subject to the
approval of the Company's shareholders if such shareholder approval is required
by any federal or state law or regulation (including, without limitation, Rule
16b-3 or to comply with Section 162(m) of the Internal Revenue Code) or the
rules of any Stock exchange or automated quotation system on which the Common
Stock may then be listed or granted. Except to the extent provided in Sections 9
and 10 hereof, no amendment, suspension or termination of the Plan or any Option
issued hereunder shall substantially impair the rights or benefits of any
Optionee pursuant to any Option previously granted without the consent of the
Optionee.
17. EFFECTIVE DATE AND TERMINATION DATE. The effective date of the Plan
is the date on which the Board adopts this Plan, and the Plan shall terminate on
the 10th anniversary of the Effective Date.
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Exhibit 10.7
INDEMNIFICATION AGREEMENT
This Indemnification Agreement, dated as of September __, 1999, is
made by and between NetCreations, Inc., a New York corporation (the
"Corporation"), and the person whose name, address and position at the
Corporation and/or any of the direct or indirect subsidiaries of the
Corporation appear on the signature page hereto ("Indemnitee").
RECITALS
A. Indemnitee is currently serving as, or is assuming the position
of, a director and/or officer of the Corporation and/or, at the Corporation's
request, a director, officer, employee and/or agent of another corporation,
partnership, joint venture, trust or other enterprise, and the Corporation
wishes Indemnitee to continue in such capacity(ies);
B. The Corporation and indemnitee recognize that the present state of
the law is too uncertain to provide the Corporation's directors and officers
with adequate and reliable advance knowledge or guidance with respect to the
legal risks and potential liabilities to which they may become personally
exposed as a result of performing their duties for the Corporation;
C. The Amended and Restated Certificate of Incorporation (the
"Certificate") and the Amended and Restated Bylaws (the "Bylaws") of the
Corporation each provide that the Corporation may indemnify, to the fullest
extent permitted by law, certain persons, including directors, officers,
employees or agents of the Corporation, against specified expenses and losses
arising out of certain threatened, pending or completed actions, suits or
proceedings;
D. Section 721 of the Business Corporation Law (the "BCL") expressly
recognizes that the indemnification provided by the other subsections of the BCL
shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any bylaw,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in an official capacity and as to action in another capacity while
holding such office;
E. Indemnitee has indicated that Indemnitee may not be willing to
serve, or continue to serve, as a director and/or officer of the Corporation
and/or, at the Corporation's request, as a director, officer, employee and/or
agent of another corporation, partnership, joint venture, trust or other
enterprise in the absence of an indemnification agreement of the Corporation;
F. The Board of Directors of the Corporation has concluded that, to
retain and attract talented and experienced individuals to serve as directors
and officers of the Corporation and to encourage such individuals to take the
business risks necessary for the success of the Corporation, it is necessary for
the Corporation to contractually indemnify them, and to assume for itself
liability for expenses and damages in connection with claims against them in
connection with their service to the Corporation, and has further concluded that
the failure to
<PAGE>
provide such contractual indemnification could result in great harm to the
Corporation and its shareholders.
NOW, THEREFORE, the Corporation and Indemnitee agree as follows:
AGREEMENT
1. Definitions.
(a) "Expenses" means, for the purposes of this Agreement, all
direct and indirect costs of any type or nature whatsoever (including, without
limitation, any fees and disbursements of Indemnitee's counsel, accountants and
other experts and other out-of-pocket costs) actually and reasonably incurred by
Indemnitee in connection with the investigation, preparation, defense or appeal
of a Proceeding; provided, however, that Expenses shall not include judgments,
fines, penalties or amounts paid in settlement of a Proceeding unless such
matters may be indemnified under applicable provisions of the BCL.
(b) "Proceeding" means, for the purposes of this Agreement,
any threatened, pending or completed action, suit or proceeding whether civil,
criminal, administrative or investigative (including actions, suits or
proceedings brought by or in the right of the Corporation) in which Indemnitee
may be or may have been involved as a party or otherwise, by reason of the fact
that Indemnitee is or was a director or officer of the Corporation, by reason of
any action taken by him or of any inaction on his part while acting as such
director or officer or by reason of the fact that he is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
foreign or domestic corporation, partnership, joint venture, trust or other
enterprise, or was a director and/or officer of the foreign or domestic
corporation which was a predecessor corporation to the Corporation or of another
enterprise at the request of such predecessor corporation, whether or not he is
serving in such capacity at the time any liability or expense is incurred for
which indemnification or reimbursement can be provided under this Agreement.
2. Indemnification.
(a) Third Party Proceedings. To the fullest extent permitted
by law, the Corporation shall indemnify Indemnitee against Expenses and
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, penalties, and amounts paid in settlement (if the settlement is approved
in advance by the Corporation)) actually and reasonably incurred by Indemnitee
in connection with a Proceeding (other than a Proceeding by or in the right of
the Corporation) if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe Indemnitee's conduct was unlawful. The termination
of any Proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a presumption
that Indemnitee did not act in good faith and in a manner that Indemnitee
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, or, with respect to any criminal Proceeding, had reasonable cause
to believe that Indemnitee's conduct was unlawful. Notwithstanding the
foregoing, no indemnification shall be made in any criminal proceeding where
Indemnitee has been adjudged
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guilty unless a disinterested majority of the directors determines that
Indemnitee did not receive, participate in or share in any pecuniary benefit to
the detriment of the Corporation and, in view of all the circumstances of the
case, Indemnitee is fairly and reasonably entitled to indemnity for Expenses or
liabilities.
(b) Proceedings by or in the Right of the Corporation. To the
fullest extent permitted by law, the Corporation shall indemnify Indemnitee
against Expenses actually and reasonably incurred by Indemnitee in connection
with the defense or settlement of a Proceeding by or in the right of the
Corporation to procure a judgment in its favor if Indemnitee acted in good faith
and in a manner Indemnitee reasonably believed to be in, or not opposed to, the
best interests of the Corporation. Notwithstanding the foregoing, no
indemnification shall be made in respect of any claim, issue or matter as to
which Indemnitee shall have been adjudged to be liable to the Corporation in the
performance of Indemnitee's duty to the Corporation unless and only to the
extent that the court in which such Proceeding is or was pending shall determine
upon application that, in view of all the circumstances of the case, Indemnitee
is fairly and reasonably entitled to indemnity for Expenses and then only to the
extent that the court shall determine.
(c) Scope. Notwithstanding any other provision of this
Agreement other than Sections 3 and 13, the Corporation shall indemnify
Indemnitee to the fullest extent permitted by law, notwithstanding that such
indemnification is not specifically authorized by other provisions of this
Agreement, the Certificate, the Bylaws or statute.
3. Limitations on Indemnification. Any other provision herein
to the contrary notwithstanding, the Corporation shall not be obligated pursuant
to the terms of this Agreement:
(a) Excluded Acts. To indemnify Indemnitee for any acts or
omissions or transactions from which a director may not be relieved of liability
under Section 402(b) of the BCL; or
(b) Claims Initiated by Indemnitee. To indemnify or advance
Expenses to Indemnitee with respect to Proceedings or claims initiated or
brought voluntarily by Indemnitee and not by way of defense, except with respect
to proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
Section 722 of the BCL, but such indemnification or advancement of Expenses may
be provided by the Corporation in specific cases if a majority of the
disinterested directors has approved the initiation or bringing of such suit; or
(c) Lack of Good Faith. To indemnify Indemnitee for any
Expenses incurred by Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by Indemnitee
in such proceeding was not made in good faith or was frivolous; or
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(d) Insured Claims. To indemnify Indemnitee for Expenses or
liabilities of any type whatsoever (including, but not limited to, judgments,
fines or penalties, and amounts paid in settlement) which have been paid
directly to or on behalf of Indemnitee by an insurance carrier under a policy of
directors' and officers' liability insurance maintained by the Corporation or
any other policy of insurance maintained by the Corporation or Indemnitee; or
(e) Claims Under Section 16(b). To indemnify Indemnitee for
Expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
4. Determination of Right to Indemnification. Upon receipt of
a written claim addressed to the Board of Directors for indemnification pursuant
to Section 2 of this Agreement, the Corporation shall determine by any of the
methods set forth in Section 723 of the BCL whether Indemnitee has met the
applicable standards of conduct that make it permissible under applicable law to
indemnify Indemnitee. If a claim under Section 2 of this Agreement is not paid
in full by the Corporation within ninety days after such written claim has been
received by the Corporation, Indemnitee may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim and, unless
such action is dismissed by the court as frivolous or brought in bad faith,
Indemnitee shall be entitled to be paid also the expense of prosecuting such
claim. Neither the failure of the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) to make a determination prior to
the commencement of such action that indemnification of Indemnitee is proper in
the circumstances because Indemnitee has met the applicable standard of conduct
under applicable law, nor an actual determination by the Corporation (including
its Board of Directors, independent legal counsel or its stockholders) that
Indemnitee has not met such applicable standard of conduct, shall create a
presumption that Indemnitee has not met the applicable standard of conduct. The
court in which such action is brought shall determine whether Indemnitee or the
Corporation shall have the burden of proof concerning whether Indemnitee has or
has not met the applicable standard of conduct.
5. Advancement and Repayment of Expenses. The Expenses
incurred by Indemnitee in defending and investigating any Proceeding shall be
paid by the Corporation prior to the final disposition of such Proceeding within
thirty days after receiving from Indemnitee copies of invoices presented to
Indemnitee for such Expenses and an undertaking by or on behalf of Indemnitee to
the Corporation to repay such amount to the extent it is ultimately determined
that Indemnitee is not entitled to indemnification. In determining whether or
not to make an advance hereunder, the ability of Indemnitee to repay shall not
be a factor. Notwithstanding the foregoing, in a proceeding brought by the
Corporation directly, in its own right (as distinguished from an action brought
derivatively or by any receiver or trustee), the Corporation shall not be
required to make the advances called for hereby if a majority of the
disinterested directors determine that it does not appear that Indemnitee has
met the standards of conduct that made it permissible under applicable law to
indemnify Indemnitee and that the advancement of Expenses would not be in the
best interests of the Corporation and its shareholders.
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6. Partial Indemnification. If Indemnitee is entitled under
any provision of this Agreement to indemnification or advancement by the
Corporation of some or a portion of any Expenses or liabilities of any type
whatsoever (including, but not limited to, judgments, fines, penalties, and
amounts paid in settlement) incurred by him in the investigation, defense,
settlement or appeal of a Proceeding, but is not entitled to indemnification or
advancement of the total amount thereof, the Corporation shall nevertheless
indemnify or pay advancements to Indemnitee for the portion of such Expenses or
liabilities to which Indemnitee is entitled.
7. Notice to Corporation by Indemnitee. Indemnitee shall
notify the Corporation in writing of any matter with respect to which Indemnitee
intends to seek indemnification hereunder as soon as reasonably practicable
following the receipt by Indemnitee of written notice thereof; provided that any
delay in so notifying the Corporation shall not constitute a waiver by
Indemnitee of his rights hereunder. The written notification to the Corporation
shall be addressed to the Board of Directors and shall include a description of
the nature of the Proceeding and the facts underlying the Proceeding and be
accompanied by copies of any documents filed with the court, if any, in which
the Proceeding is pending. In addition, Indemnitee shall give the Corporation
such information and cooperation as it may reasonably require and as shall be
within Indemnitee's power.
8. Defense of Claim. In the event that the Corporation shall
be obligated under Section 5 hereof to pay the Expenses of any Proceeding
against Indemnitee, the Corporation, if appropriate, shall be entitled to assume
the defense of such Proceeding, with the Corporation's counsel or such other
counsel as may be approved by Indemnitee, which approval shall not be
unreasonably withheld, upon the delivery to Indemnitee of written notice of its
election to do so. After delivery of such notice, approval of such counsel by
Indemnitee and the retention of such counsel by the Corporation, the Corporation
will not be liable to Indemnitee under this Agreement for any fees of counsel
subsequently incurred by Indemnitee with respect to the same Proceeding;
provided that (i) Indemnitee shall have the right to employ Indemnitee's own
counsel in any such Proceeding at Indemnitee's expense, and (ii) if (A) the
employment of counsel by Indemnitee has been previously authorized by the
Corporation, or (B) Indemnitee shall have reasonably concluded that there may be
a conflict of interest between the Corporation and Indemnitee in the conduct of
such defense or (C) the Corporation shall not, in fact, have employed counsel to
assume the defense of such Proceeding, then the fees and expenses of
Indemnitee's counsel shall be paid by the Corporation.
9. Attorneys' Fees. If any legal action is necessary to
enforce the terms of this Agreement, the prevailing party shall be entitled to
recover, in addition to other amounts to which the prevailing party may be
entitled, actual attorneys' fees and court costs as may be awarded by the court.
10. Continuation of Obligations. All agreements and
obligations of the Corporation contained herein shall continue during the period
Indemnitee is a director or officer of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, fiduciary, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, and shall continue thereafter so long as Indemnitee shall be subject
to any possible Proceeding by reason of the fact that Indemnitee served in any
capacity referred to herein.
5
<PAGE>
11. Successors and Assigns. This Agreement establishes
contract rights that shall be binding upon, and shall inure to the benefit of,
the successors, assigns, heirs and legal representatives of the parties hereto.
12. Non-exclusivity.
(a) The provisions for indemnification and advancement of
expenses set forth in this Agreement shall not be deemed to be exclusive of any
other rights that Indemnitee may have under any provision of law, the
Certificate or Bylaws, the vote of the Corporation's shareholders or
disinterested directors, other agreements or otherwise, both as to action in his
official capacity and action in another capacity while occupying his position as
a director or officer of the Corporation.
(b) In the event of any changes, after the date of this
Agreement, in any applicable law, statute, or rule that expand the right of a
New York corporation to indemnify its directors and officers, Indemnitee's
rights and the Corporation's obligations under this Agreement shall be expanded
to the fullest extent permitted by such changes. In the event of any changes in
any applicable law, statute or rule, that narrow the right of a New York
corporation to indemnify a director and officer, such changes, to the extent not
otherwise required by such law, statute or rule to be applied to this Agreement,
shall have no effect on this Agreement or the parties' rights and obligations
hereunder.
13. Effectiveness of Agreement. This Agreement shall be
effective as of the date set forth on the first page and may apply to acts or
omissions of Indemnitee that occurred prior to such date if Indemnitee was a
director or officer of the Corporation or its predecessor, or was serving at the
request of the Corporation or its predecessor as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, at the time such act or omission occurred.
14. Severability. Nothing in this Agreement is intended to
require or shall be construed as requiring the Corporation to do or fail to do
any act in violation of applicable law. The Corporation's inability, pursuant to
court order, to perform its obligations under this Agreement shall not
constitute a breach of this Agreement. The provisions of this Agreement shall be
severable as provided in this Section 14. If this Agreement or any portion
hereof shall be invalidated on any ground by any court of competent
jurisdiction, then the Corporation shall nevertheless indemnify Indemnitee to
the fullest extent permitted by any applicable portion of this Agreement that
shall not have been invalidated, and the balance of this Agreement not so
invalidated shall be enforceable in accordance with its terms.
15. Governing Law. This Agreement shall be interpreted and
enforced in accordance with the laws of the State of New York without regard to
its rules pertaining to conflicts of laws. To the extent permitted by applicable
law, the parties hereby waive any provisions of law that render any provision of
this Agreement unenforceable in any respect.
16. Notice. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed duly
given (i) if delivered by hand and receipted for by the party addressed, on the
date of such receipt, or (ii) if delivered by facsimile
6
<PAGE>
transmission to the recipient followed by a copy sent by mail on the same date
as the facsimile transmission, on the date of receipt of such facsimile
transmission, or (iii) if mailed by certified or registered mail with postage
prepaid, on the third business day after the mailing date. Addresses for notice
to either party are as shown on the signature page of this Agreement, or as
subsequently modified by written notice.
17. Mutual Acknowledgment. Both the Corporation and Indemnitee
acknowledge that in certain instances, federal law or applicable public policy
may prohibit the Corporation from indemnifying its directors and officers under
this Agreement or otherwise. Indemnitee understands and acknowledges that the
Corporation has undertaken or may be required in the future to undertake with
the Securities and Exchange Commission to submit the question of indemnification
to a court in certain circumstances for a determination of the Corporation's
right under public policy to indemnify Indemnitee.
18. Counterparts. This Agreement may be executed in several
counterparts, each of which shall constitute an original.
19. Amendment and Termination. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless in
writing signed by both parties hereto.
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year set forth above.
NETCREATIONS, INC.,
a New York corporation
By:
-------------------------------------
Title:
----------------------------------
Address:
379 West Broadway
Suite 202
New York, New York 10012
Tel: (212) 625-1370
Attn: Rosalind Resnick
INDEMNITEE:
- -----------------------------
Address:
- ------------------------------
- ------------------------------
- ------------------------------
Tel:
--------------------------
Attn:
-------------------------
8
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated June 25, 1999, (except for Note B-8 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
September 14, 1999
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