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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT
TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Fiscal Year Ended December 31, 1999
or
/ / Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the Transition Period from _______ to _______
Commission File Number: 001-14875
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NETCREATIONS, INC.
(Exact name of registrant as specified in its charter)
New York 11-3300476
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
379 West Broadway, Suite 202
New York, New York 10012
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(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (212) 625-1370
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Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, $.01 par value Nasdaq National Market
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No --
Indicate by check mark if disclosure of delinquent filers pursuant to item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
The number of shares of Registrant's Common Stock outstanding on March 27,
2000 was 15,495,000.
The aggregate market value of voting stock held by non-affiliates of the
Registrant, based upon the last reported sales price of the Registrant's Common
Stock on March 27, 2000 was $189,750,000.*
* Excludes 11,700,000 shares deemed to be held by directors, officers and
greater than 10% holders of the Common Stock outstanding at March 27, 2000.
Exclusion of Common Stock held by any person should not be construed to
indicate that such person possesses the power, direct or indirect, to direct
or cause the direction of the management or policies of the Company, or that
such person is controlled by, or under common control with, the Company.
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NetCreations, Inc.
ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
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PAGE
REFERENCE
TO
FORM 10-K
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Part I
Item 1. Business ................................................................... 1
Item 2. Properties ................................................................. 10
Item 3. Legal Proceedings .......................................................... 10
Item 4. Submission of Matters to a Vote of Security Holders ........................ 10
Part II
Item 5. Market for the Company's Common Equity and Related Shareholder Matters ..... 11
Item 6. Selected Financial Data .................................................... 12
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations ....................................................... 14
Item 7A. Quantitative and Qualitative Disclosure about Market Risk .................
Item 8. Financial Statements and Supplementary Data ............................... 32
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure ........................................................ 32
Part III
Item 10. Directors and Executive Officers of the Company ........................... 33
Item 11. Executive Compensation .................................................... 36
Item 12. Security Ownership of Certain Beneficial Owners and Management ............ 40
Item 13. Certain Relationships and Related Transactions ............................ 40
Part IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K ............ 42
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PART I
ITEM 1. BUSINESS
Overview
We provide Internet-based opt-in email direct marketing services that
enable direct marketers to target promotional campaigns to consumers who have
given their permission to receive email messages in any of over 3,000 topical
categories. Our technology allows real-time, online email address selection and
ordering by direct marketers, as well as response-tracking. We have, as of
December 31, 1999, over 6 million email addresses in our database, which is
currently growing at the average net rate of more than 20,000 email addresses
per day.
Through our www.postmasterdirect.com Web site and through third-party Web
sites whose email address lists we manage, we have collected the email
addresses in our database from consumers who have elected to receive
promotional email messages, and have not subsequently opted out. We refer to
these third-party Web sites and our own Web site as our NetCreations Network
because they provide us email addresses for our database. We charge direct
marketers a fee each time we send marketing materials on their behalf to an
email address they have selected from our database. We pay a percentage of that
fee to the third-party Web sites in our network each time an email address they
own is used for a particular email marketing campaign. We generate
substantially all of our revenues from the fees obtained from our direct
marketing customers.
There are currently over 225 third-party Web sites in the NetCreations
Network, including sites such as Internet.com, Entrepreneur Magazine, CMPnet,
LinkExchange, CDROM Guide, Regards.com and Volition. Each Web site in the
NetCreations Network accumulates email addresses by placing a sign-up template
on one or more of its Web pages which allows consumers to elect to receive
email pertaining to a selection of topical categories. We believe that the
aggregation of topically targeted, opt-in email addresses collected from
third-party Web sites is an element of the attractiveness of our services to
direct marketers.
During 1999, we sent approximately 146 million email messages on behalf of
more than 1,800 direct marketers and resellers. 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,
1997, 1998 and 1999, we generated net revenues of $1.1 million, $3.4 million
and $20.7 million, respectively, and during those same periods we generated net
income of $260,000, $606,000 and $4,531,000, respectively.
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
500 million by the end of 2003. Email was originally viewed as a simple
personal communications tool, but it is increasingly used as a powerful and
cost-effective business tool. Consequently, it has become one of the most
popular Internet applications.
The increasing functionality, accessibility and overall usage of the
Internet and online services have made them an attractive commercial medium.
The Internet and other online services are evolving into a unique sales and
marketing channel, similar to retail stores, mail-order catalogs and television
shopping. According to International Data Corporation, the number of Web buyers
worldwide is estimated to increase from 30.8 million in 1998 to 182.6 million
in 2003, which represents a compounded annual growth rate of 44%. International
Data Corporation also estimates that the total value of goods and services
purchased worldwide
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over the Web will increase from $50.4 billion in 1998 to $1 trillion in 2003, a
compounded annual growth rate of 92%. 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 and magazines and on radio and
television. According to the DMA, approximately $162.7 billion, representing
57% of the total advertising expenditures in the United States, was spent on
direct marketing in 1998. Furthermore, the DMA projects direct marketing
spending to grow to $221.5 billion by 2003.
Internet Advertising. The rise of the Internet and its fast-growing
popularity among consumers and business owners has led both brand advertisers
and direct marketers to begin experimenting with advertising and marketing
online. According to Forrester Research, Internet advertising expenditures are
expected to increase from $3.3 billion in 1999 to $33.1 billion in 2004
worldwide, and from $2.8 billion in 1999 to $22.2 billion in 2004 in the United
States. According to the DMA, online direct marketing expenditures in the
United States are expected to increase from $1.1 billion in 1999 to $5.3
billion in 2003.
Currently, the most popular form of Internet advertising is banner
advertising. Web sites display advertising banners which users can click
through to visit the advertiser's Web site and obtain more information about a
company's product or service. However, while banners provide advertisers with
the ability to reach broad audiences and establish brand awareness, they have
proven to be less than effective as vehicles for direct marketing. Response
rates, or click-throughs, from banner advertisements averaged approximately
0.7% as reported by Forrester Research in March 1999.
Email advertising campaigns are cheaper and faster than traditional direct
marketing. However, the practice of sending unsolicited commercial email, or
"spam," is strongly opposed by many Internet users. Spam lists are databases of
email addresses gathered without the recipients' knowledge or consent from
Internet newsgroups, chat rooms, Web sites, and member directories. While spam
lists may be inexpensive to rent, costing less than $1 for 1,000 addresses, the
hostile reaction they can generate among Internet users can be very costly to a
marketer's reputation. Spamming can also result in attacks on the marketer's
corporate mail server by the automated transmission of extremely large volumes
of angry email messages. Moreover, a marketer who engages in spamming risks
being disconnected from its Internet service provider or having all subsequent
email transmission attempts blocked. Over the last few years, spam transmitters
have been successfully sued by Internet service providers such as America
Online and Earthlink and several states have passed legislation barring or
restricting the transmission of unsolicited email messages.
Businesses attempt to utilize the most cost-effective advertising source
to maximize their advertising dollar. Drawbacks to traditional direct mail
include the high costs involved, the delay in response and the difficulty in
tracking responses. Banner advertising is not a cost-effective form of direct
marketing because of its relatively low click-through rate. Unsolicited email
advertising is generally not desirable because of privacy concerns and
potential damage to marketers' reputations.
Our Business
We provide Internet-based opt-in email direct marketing services which
respect consumers' privacy. Our opt-in email marketing system enables direct
marketers to target promotional campaigns to consumers who choose (1) whether
or not they would like to receive commercial messages, (2) the type or
categories of information that they would like to receive and (3) the amount of
personal data that they are willing to disclose. The users can opt out, or stop
receiving these messages, at any time. Unlike some "permission-based" email
marketing companies that do not always verify the election of their list
members to receive email messages, we have developed a double opt-in
confirmation system. We require each Internet user to confirm the user's desire
to receive messages, typically by responding to a verification email. This way,
no Internet user can be signed up for our lists by an unauthorized third party.
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Our opt-in email direct marketing business offers direct marketers three
key advantages over postal direct marketing and banner advertising:
o 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.
o Responsiveness. Opt-in email campaigns typically generate higher response
rates than postal mail or banner ad campaigns. We believe that opt-in
email campaigns typically generate response rates ranging from 5% to 15%,
although Forrester Research estimates that opt-in email campaigns
generated average response rates of 18% as of March 1999. This greatly
exceeds the typical banner advertising response rate of 0.7% and typical
postal direct mail response rates, which we believe to be approximately
2%. We also believe, based on the response rates reported to us by our
direct marketing customers, that our double opt-in system contributes to
our lists generating higher response rates than other email lists in the
market. In addition, we can confirm to Internet service providers that
messages sent are not unsolicited spam. As a result, NetCreations' and our
direct marketers' email messages are allowed to travel freely through the
networks of all of the major Internet service providers.
o 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.
Our email address database offers direct marketers and email address list
brokers more than 6 million email addresses gathered from a network of more
than 225 third-party Web sites, including sites such as internet.com,
Entrepreneur Magazine, CMPnet, LinkExchange, CDROM Guide, Regards.com and
Volition. In February 2000 we signed a number of agreements, which we are in
the process of implementing, to build lists for sites including Uproar.com,
SportsLine.com, AllAdvantage.com and About.com. We provide marketers and
e-commerce retailers a selection of targeted email address lists designed to
achieve maximum response to their offers. We currently have email addresses
listed in our database in over 3,000 topical categories, from general consumer
lists to business-to-business lists.
Our services enable Web site owners to compile email address lists and
demographic profiles of their members. We then make these lists available to
direct marketers on our www.postmasterdirect.com online store, providing
incremental revenue opportunities in the form of commissions for Web sites when
email addresses owned by those Web sites are used by marketers. In addition,
our Web site provides marketing, mailing, merging of lists, purging of
duplicate email addresses, and subscribe/unsubscribe services to users of our
email addresses.
Our Strategy
Our goal is to become the leader in opt-in direct marketing services on
the Internet. Key elements of our strategy include the following:
o 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
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to join our network. In addition, we may participate in cooperative
databases, in which we would agree to share opt-in email addresses and
fees. We may also acquire other Web sites in an effort to aggregate more
opt-in email addresses. In connection with our worldwide list expansion,
we intend to develop capabilities for adding email addresses to our
database from non-English language consumers. We also plan on hiring
additional business development personnel to assist us in obtaining more
list members.
o Enrich Our Database with Opt-In Transaction Data. We intend to develop
mechanisms to provide direct marketers with lists of consumers who have
purchased specified products on the Internet. We plan to work with leading
e-commerce and catalog sites to incorporate an opt-in sign-up form that
will allow Internet consumers to elect to receive targeted offers related
to the products and services that they have purchased. By doing so, we
will build a large, comprehensive database of consumer purchase behavior
on the Internet which we believe will be attractive to direct marketers.
o Develop New Internet Marketing Products and Services. We intend to expand
our direct marketing services to additional applications on the Internet
such as incentive programs and sweepstakes promotions. We also intend to
expand the use of our current response-tracking system to create an
end-to-end system that measures responses all the way from the message
delivery to the sale. In addition, we intend to develop email delivery and
tracking capabilities for non-English languages and character sets to
facilitate our worldwide list expansion and marketing plans.
o 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.
o Leverage Our Scaleable Technology Platform. We have developed and rely
upon our proprietary software and intend to capitalize on its modular
design to easily expand our capabilities to process increasing demand for
email messaging by our direct marketing customers. Our platform also
enables the addition of new features and products to satisfy the needs of
our customers for quality, innovative products and services.
Our Services
We provide Internet-based opt-in email address list management, email
address list brokerage, a response management system, and email delivery
services through our www.postmasterdirect.com Web site.
Email Address List Management. We currently aggregate and manage opt-in
email addresses across a network of more than 225 third-party Web sites. Once a
Web site joins our network, we provide a sign-up template for the site to place
on one or more of its Web pages. Generally, this is a page that receives a
large number of visitors, such as a registration page or a page thanking
visitors for entering a contest or downloading some software. Our template
allows the participating site to facilitate the gathering of opt-in email
addresses in a variety of topical categories, including business, investing,
sports, travel, computing, contests, and entertainment. Although our system is
capable of processing elections to receive email messages relating to more than
3,000 topical categories, most Web sites post the selection of category choices
that they believe will be of greatest interest to their visitors. The sign-up
form also includes a demographic profile asking the visitor for an email
address, postal address, age, income, gender, occupation, title and other
information. However, the only information users are required to submit is an
email address.
In November 1997, we adopted a double opt-in process to protect Internet
users' privacy by preventing anyone from signing them up without authorization.
Generally, whenever a visitor to a participating Web site opts in to receive
email, the sign-up request is immediately transmitted to our server. Our server
then sends the visitor a confirmation message requiring the person to click on
an embedded link in the message and enter a special code on our
www.postmasterdirect.com Web site. When the visitor confirms the sign-up
request and
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becomes an email list member, the visitor's email address is added to our
database and is made available to our direct marketing customers. However, the
Web site from which the email address was derived continues to own its list of
email addresses which are included in our database.
We typically pay to the applicable Web site owner a commission of 50% of
the revenue we have earned, less volume discounts, if applicable, each time we
send an email message to the email addresses owned by that Web site owner. In
the event that an email address appears on more than one email address list
selected by our customer, the 50% commission is paid only 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. In a small number of cases, primarily
involving Web sites that we believe are well-known to both consumers and our
direct marketing customers, such as ICQ, Inc., we have agreed to pay advance
fees to such Web sites. In those cases, we generally, but not always, have the
right to offset against those payments any payment of the percentage of fees
that may become payable to those Web sites. In addition, we may pay third-party
Web sites flat fees for the collection of email addresses for inclusion in our
database.
Email Address List Brokerage. We provide marketers and e-commerce
retailers with a selection of targeted email address lists designed to achieve
the maximum response rates to their offers. Direct marketers can make their own
list selections and place their own orders through our Web site. On-screen
menus and instructions help direct marketers pick lists and choose selection
criteria. Alternatively, our sales and customer service staff provides
assistance with email address list recommendations, order placement, and,
occasionally, copywriting of email messages. Orders placed by 5 PM Eastern Time
are generally sent out that night. Orders placed through our online marketplace
by the direct marketers themselves are generally paid by credit card.
Our service allows direct marketers to:
o open a customer account;
o search for email address lists by topical category or keyword, such as
"travel" or "sports;"
o select demographic data characteristics, such as age, income and zip
code, to define the email addresses to which they would like to send email
messages (but they do not actually access demographic data in our
database); and
o aggregate the various email address lists the direct marketer wants to
use and remove any duplicate addresses.
TrackBot Email Response Management System. Through TrackBot, we can
provide campaign results to our customers, but only on an anonymous, aggregate
basis that does not violate an individual's expectation that personal data will
not be disclosed without their permission. TrackBot offers direct marketers, if
they elect to use this service, a way to track aggregate responses to their
mailings through the responder's click-through, allowing direct marketers to
gauge the success of their campaigns quickly and to focus their campaigns on
the best-performing email address lists. TrackBot provides a simple one-click
setup through www.postmasterdirect.com's automated Web ordering system and easy
to read charts that display aggregate response rates by list or by offer.
Direct marketers who select email address lists from our email marketing
service simply place their order in their online accounts and TrackBot
automatically generates customized hypertext links for insertion into the email
messages sent out. The click-throughs produced by the campaign are then tracked
and recorded by our servers. TrackBot is a free service to companies that use
our opt-in email address lists. We intend to upgrade our current
response-tracking system to create an end-to-end system that would permit us to
measure responses from the message delivery to the sale.
Email List Delivery. In addition to emailing messages for our direct
marketing customers' campaigns, our email list delivery service provides
high-volume email distribution for delivery of email for customers sending
messages to email addresses owned by such customers. Our sophisticated email
infrastructure is available to direct marketers, publishers, list managers,
online merchants and Web site owners seeking a fast, affordable way to
communicate with their own customers by email.
Our Customers
Email Address List Management Customers. We manage email address lists for
our NetCreations Network, which currently consists of more than 225 third-party
Web sites. Our network sites include a variety
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of Web sites such as internet.com, ICQ, Entrepreneur Magazine, CMPnet,
LinkExchange, CDROM Guide, Regards.com and Volition. In February 2000 we signed
agreements, which we are in the process of implementing, to build lists for
sites such as Uproar.com, SportsLine.com, AllAdvantage.com and About.com. Net
revenues generated from the email address lists of two of the Web sites in our
network accounted for approximately 15% and 24% of our total net revenues
during 1998 and 1999, respectively. Loss of these email address lists could
materially adversely affect our business, financial condition and results of
operations.
Email Address List Brokerage Customers. Our email direct marketing
customers consist of advertisers and email list brokers. During 1999 we sent
email messages on behalf of more than 1,800 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. No email direct
marketing customer accounted for more than 5% of our net revenues during 1999.
Sales And Marketing
We market our services through our direct sales organization and through
indirect distribution channels, including email list brokers, advertising
agencies, Web design firms and other resellers. We sell our services to direct
marketers primarily through our direct sales organization. As of December 31,
1999, our direct sales organization included 21 employees responsible for
account management, business development and customer service and we had one
employee 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 49.5% of our net revenues for 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. As of December 31, 1999, we had 11 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:
o scale our technology platform;
o maintain and enhance its speed, reliability, capacity, and connectivity
across multiple platforms; and
o 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 services. We believe that this results in
a highly scaleable, secure, reliable, and modular architecture that blends our
internal expertise with industry-standard technology to create a proprietary
infrastructure.
We intend to continue expanding our technology infrastructure to support
the growth of our business. This will include, among other things, co-locating
our servers and increasing the redundancy of our networks and database storage
systems.
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Connectivity. We currently have redundant T1 Internet connections provided
by Globix and Frontier Communications, enabling us to deliver approximately two
million email messages per day. We believe that the scaleable nature of our
system's design will allow us to increase our email delivery capacity as
needed. We are in the process of co-locating our systems which will initially
triple our internet access and provide us with access to additional Internet
bandwidth to meet our growth for 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 three 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. Two of the DEC machines are
clustered together as the primary Web server for our www.postmasterdirect.com
Web site. In addition, a third server has been installed which is used to back
up system information and increase processing power and redundancy.
Intel-based servers are dedicated to sending out email messages and
allowing tens of thousands of users per day to access the list sign-up forms on
our third-party Web sites, to opt in to receive email messages on topics of
interest, and to confirm that their elections to receive commercial email
messages are valid. We utilize a dedicated server to balance the load among our
email delivery servers and to provide redundancy within the email delivery
system. We currently have a server which is dedicated for system backup. In
addition, a separate server is dedicated to monitoring system activity and will
notify an administrator if a problem arises. All of these servers run Linux
operating systems from Red Hat Software; we believe that more servers can be
added to increase capacity as needed.
We employ a Network Associates firewall to protect our computer systems
from unauthorized access.
Software. Our research and development team developed proprietary software
using MetaHTML, PERL and SQL. This software enables Internet users to opt in to
receive targeted advertising information from our marketing customers through
sign-up forms on our network of more than 200 third-party Web sites. In
addition, this software enables our direct marketing customers and email
address list brokers to target Internet users with specific demographics who
have opted in to our database. This process allows our marketing customers to
send specific advertising messages to recipients who have indicated an interest
in receiving messages on the topic.
Our software is modular. Modularity enhances our ability to add, remove,
or replace system applications as needed. For example, we recently implemented
TrackBot, a proprietary software application which allows marketers to track
the response rates to their mailings. We can continue to enhance TrackBot, or
any other application, as well as add additional software elements as needed.
We have also developed a double opt-in list subscription confirmation
system which sends Internet users a confirmation email message after they have
signed up for a list and requires them to verify that they would like to begin
receiving commercial email messages from our marketing clients. We developed
the double opt-in system in November 1997 and have filed a patent application
for this technology.
Competition
The market for our email address list management and brokerage services is
intensely competitive, evolving and subject to rapid technological change. We
expect the intensity of competition to increase in the future. Competitors vary
in size and in the scope and breadth of the services offered. While no
competitor, to our knowledge, currently has a network of third-party Web sites
similar to ours that generates double opt-in email address lists, we face
intense competition for companies' Internet-based direct marketing budgets.
We face direct competition from companies in the following categories:
o email direct marketers such as YesMail.com, BulletMail and 24/7 Media;
o incentive-based direct marketers such as MyPoints.com and Netcentives;
and
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o permission-based outsourced email direct marketers such as Exactis.com
and MessageMedia.
In addition, we presently indirectly compete with companies in the
following categories:
o email address list owners who manage their own email address lists, such
as Xoom.com;
o banner advertising managers such as DoubleClick and Flycast
Communications; and
o postal direct marketing companies such as Direct Media (Acxiom) and
American List Counsel.
In addition, because there are relatively low barriers to entry in the
email direct marketing business, we expect additional competition from other
established and emerging companies as the email direct marketing business
continues to develop and expand. We also expect to face competition in the
future from other companies entering the field as email address list owners,
managers and brokers.
Many of our competitors have longer operating histories, significantly
greater financial, technical, marketing and other resources, significantly
greater name recognition and a larger installed base of customers than we have.
In addition, many of our competitors have well-established relationships with
our current and potential marketing customers, have extensive knowledge of our
industry and are capable of offering non-email based advertising and marketing
products that are beyond the scope of our current business operations but might
be attractive to customers seeking to purchase services in addition to email
direct marketing services. As a result, our competitors may be able to respond
more quickly to new or emerging technologies and changes in customer
requirements or to devote greater resources to the development, promotion and
sale of their services than we can. In addition, current and potential
competitors have established, or may establish, cooperative relationships among
themselves or with third parties to increase the ability of their services to
address their customers' needs. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. We also expect that competition will increase as a
result of industry consolidations.
We may not be able to compete successfully against current and future
competitors, because increased competition is likely to result in price
reductions, reduced gross margins and loss of market share, any of which could
seriously harm our business, financial condition and results of operations.
Intellectual Property and Other Proprietary Rights
While we provide a direct marketing service, we are also a technology
company. A large part of our success depends on protecting our intellectual
property, which is one of our most important assets. If we do not adequately
protect our intellectual property, our business, financial condition and
results of operations would be seriously harmed.
We have developed and continue to develop our proprietary software and
make it available for our customers' use over the Internet. This way, we never
allow our customers access to our source code. In addition, we require
employees, contractors and other persons with access to our proprietary
information to execute confidentiality and non-compete agreements with us. We
seek to protect our software, documentation and other written materials under
trade secret and other intellectual property laws, which afford only limited
protection.
We have one pending United States patent application. This application
seeks to protect our "double opt-in" system of verifying the requests of
Internet users who ask to join our targeted email lists. We have no issued
foreign patents, nor do we have any pending foreign patent applications. It is
possible that no patent will issue from the currently pending patent
application. It is also possible that any potential future patents may be found
invalid or unenforceable, or otherwise be successfully challenged. Also, any
patent issued to us may not provide us with any competitive advantages. We may
not develop future proprietary products or technologies that are patentable,
and the patents of others may seriously limit our ability to do business. In
this regard, we have not performed any comprehensive analysis of patents of
others that may limit our ability to do business.
Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy aspects of our products or to obtain and use
information that we regard as proprietary. Policing unauthorized use of our
8
<PAGE>
products is difficult, and, while we are unable to determine the extent to
which piracy of our software products exists, software piracy can be expected
to be a persistent problem. In addition, the laws of some foreign countries do
not protect our proprietary rights to as great an extent as do the laws of the
United States. Our means of protecting our proprietary rights may not be
adequate, and our competitors may independently develop similar technology,
duplicate our products or design around patents issued to us or our other
intellectual property.
There has been a substantial amount of litigation in the software industry
regarding intellectual property rights. It is possible, that in the future,
third parties may claim that our current or potential future products infringe
upon their intellectual property. We expect that persons, such as ourselves,
that develop software will increasingly be subject to infringement claims as
the number of products and competitors in our industry segment grows and the
functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time-consuming, result in costly
litigation, cause product shipment delays or require us to enter into royalty
or licensing agreements. Such royalty or licensing agreements, if required, may
not be available on terms acceptable to us or at all, which could seriously
harm our business, financial condition and results of operations.
We integrate third-party software in our software products. We license
server software from Digital Equipment Corporation and Universal Access, Inc.
The third-party software may not continue to be available to us on commercially
reasonable terms. We may not be able to renew these agreements or develop
alternative technology. If we cannot maintain licenses to key third-party
software, develop similar technology or license similar technology from another
source on a timely or commercially feasible basis, our business, financial
condition and results of operations could be seriously harmed.
Government Regulation
Currently, there are relatively few laws and regulations directly
applicable to access to or commerce on the Internet. However, due to the
increasing popularity and use of the Internet, it is likely that a growing
number of laws and regulations will be adopted and that existing laws or
regulations may be applied differently with respect to the Internet and email
direct marketing services covering issues such as user privacy, pricing,
content, copyrights, distribution, antitrust, and characteristics and quality
of products and services. Also, the growth and development of the market 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.
9
<PAGE>
Employees
As of December 31, 1999, we had a total of 40 employees, including 21
employees responsible for account management, business development and customer
service, 11 in technology, seven in administration, and one 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.
ITEM 2. PROPERTIES
We lease our principal sales, marketing, technology, and administrative
facility of approximately 7,400 square feet in New York City at an annual cost
of approximately $195,000 with customary escalation clauses. The lease expires
on March 1, 2003. We have no other offices at this time. We are presently
negotiating to lease additional space in a location near our current offices to
accommodate our expansion. We believe that with the addition of that space, our
facilities will be adequate for our current needs and for at least 18 months
thereafter and that suitable additional or alternative space will be available
in the future as required on commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to our shareholders for consideration during the
quarter ended December 31, 1999.
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<PAGE>
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
Since our initial public offering on November 12, 1999, our common stock
has traded on the Nasdaq National Market under the symbol "NTCR". The following
table sets forth for the periods indicated the high and low sales prices for
the common stock, as reported on the Nasdaq National Market for each fiscal
quarter.
HIGH LOW
--------- ---------
FISCAL YEAR ENDED DECEMBER 31, 1999
Fourth fiscal quarter
(from November 12, 1999) $693/4 $171/2
On March 27, 2000, the closing sales price for our common stock on the
Nasdaq National Market was $50.00.
The number of record holders of our common stock as of March 27, 2000 was
14 and the number of beneficial holders was approximately 2,800.
Dividends
We have not declared or paid any cash dividends on our common stock to
date and do not anticipate paying any cash dividends on its shares of common
stock in the foreseeable future because we intend to retain earnings, if any,
to finance the expansion of our business and for general corporate purposes.
Sales of Unregistered Securities
Our 1999 Stock Option Plan (the "Plan") was adopted by the board of
directors in July 1999. The Plan provides for the grant of options to our
directors, officers, employees and certain consultants. We have granted options
to purchase 241,000 shares of our common stock at an exercise price of $5.00 per
share. We have granted options to purchase 300,000 shares of our common stock to
three of our directors at an exercise price per share equal to $10.00. We have
granted options to purchase 5,500 shares of our common stock at prices below
fair market value. In addition, we have granted options, effective as of January
6, 2000 and February 2, 2000, to purchase a total of 1,050,000 shares of our
common stock to four executive officers at exercise prices per share equal to
$33.25 to $33.50, respectively. In 2000, we have also granted options to
purchase 33,000 shares of our common stock to employees at exercise prices equal
to the fair market value on the date of grant.
Use of Proceeds
On November 12, 1999, the Securities and Exchange Commission declared
effective our Registration Statement on Form S-1 (File No. 333-84019). Pursuant
to this Registration Statement, we completed our initial public offering of
3,795,000 shares of our common stock (including 495,000 shares issued upon the
exercise of the over-allotment by the underwriters) at an initial public
offering price of $13.00 per share. Our initial public offering was managed by
Friedman Billing Ramsey. Net proceeds to us from our initial public offering,
after calculation of the underwriter's discount and commission of $3.5 million
and offering expenses of $2.2 million, totaled $43.6 million. None of the
expenses incurred in our initial public offering were direct or indirect
payments to our directors, officers, general partners or their associates, to
persons owning ten percent or more of any class of our equity or our equity
securities or to our affiliates. As of December 31, 1999, we have used an
estimated $5.0 million to pay off our bank loan, purchase equipment to support
the growth of our business and other general corporate purposes. The remainder
will be used for working capital, capital expenditures and other general
corporate purposes. In addition, we may also use a portion of the net proceeds
to acquire or invest in businesses, technologies or products complementary to
our business.
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<PAGE>
ITEM 6. 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 Report,
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, 1997, 1998 and 1999, and balance sheet data as of December 31,
1998 and 1999 from the audited financial statements in this Report. Those
financial statements were audited by Grant Thornton LLP, independent certified
public accountants. NetCreations derived the statement of operations data for
the year ended December 31, 1996 and the balance sheet data as of December 31,
1996 and 1997 from audited financial statements that are not included in this
Report. NetCreations derived the statement of operations data for the period
from NetCreations' inception to 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 Report. Historical results are not
necessarily indicative of the results to be expected in the future.
<TABLE>
<CAPTION>
Period from
Inception to Year Ended December 31,
December 31, ---------------------------------------------------------
1995 1996 1997 1998 1999
-------------- ----------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Net revenues ................................. $ 101,652 $476,190 $1,100,781 $3,446,539 $20,658,223
Cost of revenues ............................. 8,213 43,090 173,124 1,509,776 10,464,359
--------- -------- ---------- ---------- -----------
Gross profit ................................. 93,439 433,100 927,657 1,936,763 10,193,864
--------- -------- ---------- ---------- -----------
Operating expenses:
Selling and marketing ....................... 29,482 195,451 289,904 492,004 2,088,100
Technology, support and development ......... 28,275 177,923 193,554 373,746 694,311
General and administrative .................. 12,893 60,734 151,221 365,343 1,914,608
Depreciation and amortization ............... -- 554 9,515 23,414 195,362
--------- -------- ---------- ---------- -----------
Total operating expenses ..................... 70,650 434,662 644,194 1,254,507 4,892,381
--------- -------- ---------- ---------- -----------
Income (loss) from operations ................ 22,789 (1,562) 283,463 682,256 5,301,483
--------- -------- ---------- ---------- -----------
Interest income .............................. -- -- -- -- 209,182
Interest expense ............................. -- -- (86) (4,165) (33,157)
--------- -------- ---------- ---------- -----------
Interest income (expense) -- net ............. -- -- (86) (4,165) 176,025
--------- -------- ---------- ---------- -----------
Income (loss) before income taxes ............ 22,789 (1,562) 283,377 678,091 5,477,508
--------- -------- ---------- ---------- -----------
Income tax provision ......................... -- 7,434 23,028 72,228 946,000
--------- -------- ---------- ---------- -----------
Net income (loss) ............................ $ 22,789 $ (8,996) $ 260,349 $ 605,863 $ 4,531,508
========= ======== ========== ========== ===========
Net income (loss) per share-basic and
diluted ..................................... $ 0.00 $ (0.00) $ 0.02 $ 0.05 $ 0.37
========= ======== ========== ========== ===========
Weighted average shares used in per share
computation (000's omitted):
For basic ................................. 11,700 11,700 11,700 11,700 12,187
For diluted ............................... 11,700 11,700 11,700 11,700 12,352
Pro forma Data: (1)
Historical income (loss) before income tax
provision ................................... $ 22,789 $ (1,562) $ 283,377 $ 678,091 $ 5,477,508
Pro forma income tax provision (benefit) ..... 3,500 (1,000) 129,000 316,000 2,537,000
--------- -------- ---------- ---------- -----------
Pro forma net income (loss) .................. $ 19,289 $ (562) $ 154,377 $ 362,091 $ 2,940,508
========= ======== ========== ========== ===========
Pro forma basic and diluted net income
(loss) per share ............................ $ 0.00 $ (0.00) $ 0.01 $ 0.03 $ 0.24
========= ======== ========== ========== ===========
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Period from
Inception to
Year Ended December 31,
December 31, -------------------------------------
1995 1996 1997 1998 1999
-------------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Shares used in per share computation
(000's omitted):
For basic .......................... 11,700 11,700 11,700 11,700 12,187
For diluted ........................ 11,700 11,700 11,700 11,700 12,352
</TABLE>
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------
1996 1997 1998 1999
------------ ---------- ---------- --------------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents ....................... $ 32,981 $ 54,002 $ 96,855 $41,305,814
Working capital (deficiency) .................... (16,593) 68,698 339,981 43,047,007
Total assets .................................... 59,372 233,489 943,804 52,391,415
Long-term debt (less current portion) ........... -- -- 30,180 101,225
Total stockholders' equity (deficiency) ......... (5,459) 121,129 476,992 45,262,021
</TABLE>
- ------------
(1) Prior to November 15, 1999, we had elected to be taxed as an S corporation
for federal and state income tax purposes. Accordingly, no provision has
been made for federal and certain state income taxes during these periods.
Pro forma net income has been computed as if we had been fully subject to
federal, state and local income taxes. On November 15, 1999, we terminated
the S corporation election and became a C corporation which is fully
subject to federal, state and local income taxes.
13
<PAGE>
ITEM 7. 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 Report.
Overview
We provide Internet-based opt-in email direct marketing services that
enable direct marketers to target promotional campaigns to consumers who have
given their permission to receive email messages regarding selected topical
categories. In addition, our technology provides direct marketers, as well as
list brokers who purchase use of our email address lists on behalf of their
customers, with real-time, online email address selection and ordering as well
as response-tracking.
As of December 31, 1999, we had over 6 million email addresses in our
database. The email addresses in our database were collected from consumers who
opted in through our Web site or a third-party Web site, and have not
subsequently opted out or been removed from our database because an email to
that address had been returned as undeliverable. We currently manage opt-in
email address lists for over 225 Web sites. Each Web site in the NetCreations
Network accumulates email addresses by placing a sign-up template on one or
more of its Web pages which allows consumers to opt in to receive email
messages in a selection of topical categories that the Web site owner believes
will be of greatest interest to the Web site's visitors. We currently have
email addresses listed in more than 3,000 topical categories in our database.
During 1999 we generated substantially all of our net revenues by
providing Internet opt-in email direct marketing services to our advertising
customers. We charge direct marketers for each use of an opt-in email address
from our database. In some cases, we grant volume discounts to our customers.
During 1999, we earned less than 1% of our net revenue by charging for delivery
of email for customers sending messages to email addresses owned by such
customers.
Some of our customers consist of resellers. These resellers, principally
consisting of email list brokers but also including interactive advertising
agencies, Web design firms and Web sites that attract small business owners,
place orders in the reseller's own name for use of opt-in email addresses in
our database by the reseller's email direct marketing customers. We bill the
reseller our customary fees for that use of opt-in email addresses, less any
applicable volume discounts. In addition, we grant a brokerage discount to the
reseller. Revenue earned for our services after volume and broker discounts, is
reported in our financial statements as net revenues and is recognized when
email messages are transmitted to the selected email addresses.
We generally pay to the applicable Web site owner a commission, typically
amounting to 50% of the revenue we have earned, less volume discounts, if
applicable, each time we send an email message to the email addresses owned by
that Web site owner. Net revenues generated from the email address lists of two
of the Web sites in our network accounted for approximately 15% and 24% of our
total net revenues during 1998 and 1999, respectively. Loss of these email
address lists could materially adversely affect our business, financial
condition and results of operations. In the event that an email address appears
on more than one email address list selected by our customer, the commission is
only paid to the Web site owner whose email address list is designated by our
customer as the preferred list. These commissions, along with amounts incurred
in implementing the Web site's sign-up program are reported as cost of revenues
in our financial statements. During 1999, commissions accounted for over 99% of
cost of revenue. We do not incur these commissions when customers select names
from our own email address lists. As of December 31, 1999, we derived
approximately 5% of the total email addresses in our database from our own Web
site, but the proportion of email addresses in our database that are derived
from our Web site has been decreasing and we expect that proportion will
continue to decrease over time.
In a small number of cases, primarily involving Web sites that we believe
are well-known to both consumers and our direct marketing customers, such as
ICQ, Inc., we have agreed to pay advance fees to such Web sites. In those
cases, we generally, but not always, have the right to offset against those
payments any payment of the percentage of fees that may become payable to those
Web sites. In addition, we may pay third-party Web sites flat fees for the
collection of email addresses for inclusion in our database. Advance
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<PAGE>
payments could impact our cash flow, and may prevent us from making other
expenditures that could generate other revenues or growth for us. Our net
income could be negatively affected if a list management arrangement is not
profitable enough for us to earn amounts sufficient to offset advance payments,
or if a list management arrangement is terminated before we are able to earn
amounts sufficient to offset advance payments.
If competitive pressures or strategic or other reasons cause us to make
advance payments that are not recovered or pay commissions of more than 50% of
the revenue from sending email messages to email address list owners, our
margins will be reduced. We may have reduced profits or may become unprofitable
if any increase in the amount of unrecovered advance payments to Web site
owners or the rate of commissions paid to Web site owners, and the consequent
decrease in our margins, is not offset by lower general and administrative
costs as a percentage of revenues or increased revenues from other sources.
For the year ended December 31, 1998, we had net revenues of $3,446,539
and net income of $605,863. For the year ended December 31, 1999, we had net
revenues of $20,658,223 and net income of $4,531,508. We intend to implement
our business strategy by increasing expenditures on sales and marketing, new
product offerings, technology, and infrastructure development. Incremental
costs relating to any new products that may be introduced in the immediately
foreseeable future would be primarily for increased personnel but would likely
also include nominal costs for technological enhancements. Those expenditures,
any changes in our customary arrangements with Web site owners described in the
two preceding paragraphs, as well as various factors beyond our control,
including increased competition, may negatively impact our operating margins
and our profitability in the future.
Additionally, future profits will be negatively impacted by the initial
granting of stock options to employees under our 1999 Stock Option Plan. To the
extent that options are granted at an exercise price which is below fair market
value on the date of grant a charge will result to our operations under
Financial Accounting Standards Board Statement No. 123 ("FASB 123"),
"Accounting for Stock-Based Compensation." During the year ended December 31,
1999, we granted options to acquire 546,500 shares of our common stock to our
employees and directors other than Ms. Resnick and Mr. Druckenmiller. Of these
options, 241,000 were granted at an exercise price of $5.00 per share, which
was below fair market value on the date of grant 300,000 were at an exercise
price of $10.00 per share, which was below fair market value on the date of
grant and 5,500 were granted at various prices below fair market value on the
date of grant. During the year ended December 31, 1999, we recorded deferred
compensation in connection with these grants of $2,865,465 of which $552,294
was amortized to expense.
As permitted by FASB 123, we have elected to follow Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25") and
related interpretations in accounting for our stock options. Under APB 25, when
the exercise price of stock options equals or exceeds the market price of the
underlying stock on the date of grant, no compensation expense is recorded. If
the exercise price of the stock option is less than the market price of the
underlying stock on the date of grant, we will record an expense equal to the
difference between the market price on the date of grant and the exercise
price. Such expense will be recorded in our statements of income, ratably over
the vesting periods of such stock options.
The amount of compensation expense that will be recognized subsequent to
December 31, 1999 over the next three years, relating to our options granted
through December 31, 1999 is as follows:
Year Ending
December 31,
- ------------
2000 ............... $ 955,155
2001 ............... 917,655
2002 ............... 440,361
----------
Total .............. $2,313,171
==========
Additionally, in 2000, we granted options to acquire 1,083,000 shares of
our common stock to employees. These options were granted at exercise prices
equal to the fair market value of our common stock on the date of grant.
15
<PAGE>
Results of Operations
The following table sets forth our statement of operations for the
indicated years expressed as a percentage of total net revenues:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Net revenues ............................... 100.0% 100.0% 100.0%
Cost of revenues ........................... 15.7 43.8 50.7
----- ----- -----
Gross profit ............................ 84.3 56.2 49.3
Operating expenses
Selling and marketing ..................... 26.3 14.3 10.1
Technology, support and
development ............................. 17.6 10.8 3.4
General and administrative ................ 13.7 10.6 9.3
Depreciation and amortization ............. 0.9 0.7 0.9
----- ----- -----
Total operating expenses ................ 58.5 36.4 23.6
----- ----- -----
Operating income ........................... 25.8 19.8 25.7
Interest income (expense) -- net ........... -- ( 0.1) 0.8
----- ----- -----
Income before income tax provision ......... 25.8 19.7 26.5
Income tax provision ....................... 2.1 2.1 4.6
----- ----- -----
Net income (loss) ....................... 23.7% 17.6% 21.9%
===== ===== =====
</TABLE>
Year Ended December 31, 1998 Compared to Year Ended December 31, 1999
Net Revenues. Net revenues increased 499.4% from $3,446,539 for the year
ended December 31, 1998, to $20,658,223 for the year ended December 31, 1999.
This increase was the result of increased demand for email marketing services,
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
1.9 million at the end of 1998, to over 6 million by the end of December 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. During 1998 and
1999 net revenues generated from the email address lists of two of the Web
sites in our network accounted for approximately 17% and 27%, respectively, of
our total net revenues.
For the year ended December 31, 1998, volume discounts and broker
discounts were $357,733 and $317,549, respectively. For the year ended December
31, 1999, volume discounts and broker discounts were $3,511,686 and $2,755,069,
respectively. The increase in volume discounts is attributable to the
significant growth in demand for our email marketing services and the increase
in broker discounts is attributable to the growth in utilization of our
services by resellers. For the year ended December 31, 1998, resellers
accounted for approximately 38% of our net revenues compared to approximately
49% of our net revenues for the year ended December 31, 1999. The proportion of
our marketing customers obtained through our reseller channels has continued to
increase during 1999. To the extent we continue to increase the proportion of
sales through resellers, our net revenues and gross profits could decrease.
Cost of Revenues. Cost of revenues increased 593.1% from $1,509,776, or
43.8% of net revenues, for the year ended December 31, 1998, to $10,464,359, or
50.7% of net revenues, for the year ended December 31, 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 324.4%
from $492,004 for the year ended December 31, 1998, to $2,088,100 for the year
ended December 31, 1999. Selling and marketing expenses consisted primarily of
personnel costs and direct expenditures for advertising, promotional programs
16
<PAGE>
and other related activities. This increase was the result of our business
expansion and is attributable to the addition of 17 sales and marketing
employees during 1999 as well as an increase in advertising expenditures of
$624,658 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 85.8% from $373,746 for the year ended December 31, 1998, to
$694,311 for the year ended December 31, 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 addition
of nine employees during 1999, in connection with our efforts to improve the
efficiency of our www.postmasterdirect.com Web site and expand its
capabilities.
General and Administrative. General and administrative expenses increased
424.1% from $365,343 for the year ended December 31, 1998, to $1,914,608 for
the year ended December 31, 1999. General and administrative expenses consisted
primarily of personnel, facilities, communication costs and professional fees.
This increase was attributable to the addition of five employees to support
growth in business activity, space expansion at our current location, increased
costs for expenses that support our increased business activities, profession
fees in connection with various legal matters relating to customer and
employment agreements, intellectual property and employee benefit matters, and
accounting and auditing fees. In addition, a portion of the increase was
attributable to the provision for doubtful accounts of $232,402 in 1999 and
$552,294 of expense relating to the amortization of the cost of options granted
to employees prior to the initial public offering.
Depreciation and Amortization. Depreciation and amortization expenses
increased 734.4% from $23,414 for the year ended December 31, 1998, to $195,362
for the year ended December 31, 1999. Depreciation and amortization expenses
consisted primarily of depreciation of computer equipment. This increase was
primarily a result of investments in computer equipment during the later part
of 1999.
Income Taxes. As we had elected to be taxed as an S corporation for
federal and certain state tax purposes until November 15, 1999, the provision
for income taxes for 1998 and substantially all of 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 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. During 1998, net revenues generated from the
email address lists of two of the Web sites in our network accounted for
approximately 17% of our net revenues.
For the year ended December 31, 1997, volume discounts were $16,181 and
there were no broker discounts. For the year ended December 31, 1998, volume
and broker discounts were $357,733 and $317,549, respectively. The increase in
volume discounts is attributable to the growth in demand for our email
marketing services. The increase in broker discounts is attributable to our use
of resellers as an additional sales channel in 1998. During 1998, resellers
accounted for approximately 38% of our net revenues.
Cost of Revenues. Cost of revenues increased 772.1% from $173,124, or
15.7% of net revenues, for the year ended December 31, 1997, to $1,509,776, or
43.8% of net revenues, for the year ended December 31, 1998. This increase was
the result of an increase in commissions due to a greater proportion of opt-in
email addresses being added to our database from third-party Web sites.
Selling and Marketing. Selling and marketing expenses increased 69.7% from
$289,904 for the year ended December 31, 1997, to $492,004 for the year ended
December 31, 1998. Of this increase, $145,000 was attributable to rising
personnel costs, including the addition of four employees. Additionally,
advertising expenditures increased by approximately $54,000 to heighten market
awareness of our company and the email marketing services we provide.
17
<PAGE>
Technology, Support and Development. Technology, support and development
expenses increased 93.1% from $193,554 for the year ended December 31, 1997, to
$373,746 for the year ended December 31, 1998. This increase was attributable
to a combination of hiring additional employees and utilizing consultants to
enhance the business support system and improving the infrastructure and
capabilities of our www.postmasterdirect.com Web site.
General and Administrative. General and administrative expenses increased
141.6% from $151,221 for the year ended December 31, 1997, to $365,343 for the
year ended December 31, 1998. This was generally attributable to growth in
business activities and the establishment of an office facility, replacing our
former home-based office.
Depreciation and Amortization. Depreciation and amortization expenses
increased 146.1% from $9,515 for the year ended December 31, 1997, to $23,414
for the year ended December 31, 1998. This increase was primarily a result of
investments in computer equipment.
Income Taxes. As we had elected to be taxed as an S corporation for
federal and certain state tax purposes, the provision for income taxes for 1997
and 1998 represents state and local taxes only to the extent that they do not
recognize the S corporation status, based on the pre-tax operating results for
each year.
Quarterly Results of Operations
The following tables set forth certain unaudited quarterly information for
each quarter of fiscal year 1998 and 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
----------------------------------------------------
1998
----------------------------------------------------
March June September December
31 30 30 31
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Net revenues ......................... $476,545 $709,653 $876,135 $1,384,206
Cost of revenues ..................... 139,913 282,580 390,054 697,229
-------- -------- -------- ----------
Gross profit ........................ 336,632 427,073 486,081 686,977
-------- -------- -------- ----------
Operating expenses
Selling and marketing ............... 82,870 119,422 129,872 159,840
Technology, support and
development ........................ 55,169 82,762 94,498 141,317
General and administrative .......... 71,050 80,950 114,286 99,057
Depreciation and amortization ....... 4,130 5,352 7,193 6,739
-------- -------- -------- ----------
Total operating expenses ............ 213,219 288,486 345,849 406,953
-------- -------- -------- ----------
Income from operations ............... 123,413 138,587 140,232 280,024
Interest (expense) income -- net ..... (450) (1,411) (441) (1,863)
-------- -------- -------- ----------
Income before income tax
provision ........................... 122,963 137,176 139,791 278,161
Income tax provision ................. 13,100 14,600 14,900 29,628
-------- -------- -------- ----------
Net income .......................... $109,863 $122,576 $124,891 $ 248,533
======== ======== ======== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------
1999
-----------------------------------------------------------
March June September December
31 30 30 31
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Net revenues ......................... $1,694,505 $3,578,089 $4,930,020 $10,455,609
Cost of revenues ..................... 827,152 1,750,815 2,383,700 5,502,692
---------- ---------- ---------- -----------
Gross profit ........................ 867,353 1,827,274 2,546,320 4,952,917
---------- ---------- ---------- -----------
Operating expenses
Selling and marketing ............... 294,328 307,632 516,923 969,217
Technology, support and
development ........................ 85,981 105,824 147,710 354,796
General and administrative .......... 135,886 229,003 424,259 1,125,460
Depreciation and amortization ....... 17,354 27,797 34,605 115,606
---------- ---------- ---------- -----------
Total operating expenses ............ 533,549 670,256 1,123,497 2,565,079
---------- ---------- ---------- -----------
Income from operations ............... 333,804 1,157,018 1,422,823 2,387,838
Interest (expense) income -- net ..... (2,980) (4,635) (6,106) 189,746
---------- ---------- ---------- -----------
Income before income tax
provision ........................... 330,824 1,152,383 1,416,717 2,577,584
Income tax provision ................. 36,300 121,700 144,355 643,645
---------- ---------- ---------- -----------
Net income .......................... $ 294,524 $1,030,683 $1,272,362 $ 1,933,939
========== ========== ========== ===========
</TABLE>
18
<PAGE>
Our operating results for these fiscal quarters expressed as a percentage
of sales were as follows:
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------
1998
-------------------------------------------------
March June September December
31 30 30 31
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Net revenues ............................ 100.0% 100.0% 100.0% 100.0%
Cost of revenues ........................ 29.4 39.8 44.5 50.4
------ ------ ------ ------
Gross profit ........................... 70.6 60.2 55.5 49.6
------ ------ ------ ------
Selling and marketing .................. 17.3 16.8 14.8 11.5
Technology, support and
development ........................... 11.6 11.7 10.8 10.2
General and administrative ............. 14.9 11.4 13.0 7.2
Depreciation and amortization .......... 0.9 0.8 0.8 0.5
------ ------ ------ ------
Total operating expenses ............... 44.7 40.7 39.4 29.4
------ ------ ------ ------
Income from operations .................. 25.9 19.5 16.1 20.2
Interest (expense) income -- net ........ ( 0.1) ( 0.2) ( 0.1) ( 0.1)
------ ------ ------ ------
Income before income tax
provision .............................. 25.8 19.3 16.0 20.1
Income tax provision .................... 2.7 2.0 1.7 2.1
------ ------ ------ ------
Net income ............................. 23.1% 17.3% 14.3% 18.0%
====== ====== ====== ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------
1999
--------------------------------------------------
March June September December
31 30 30 31
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues ............................ 100.0% 100.0% 100.0% 100.0%
Cost of revenues ........................ 48.8 48.9 48.4 52.6
------ ------ ------ ------
Gross profit ........................... 51.2 51.1 51.6 47.4
------ ------ ------ ------
Selling and marketing .................. 17.4 8.6 10.5 9.3
Technology, support and
development ........................... 5.1 3.0 3.0 3.4
General and administrative ............. 8.0 6.4 8.6 10.8
Depreciation and amortization .......... 1.0 0.8 0.7 1.1
------ ------ ------ ------
Total operating expenses ............... 31.5 18.8 22.8 24.5
------ ------ ------ ------
Income from operations .................. 19.7 32.3 28.9 22.9
Interest (expense) income -- net ........ ( 0.2) ( 0.1) ( 0.1) 1.8
------ ------ ------ ------
Income before income tax
provision .............................. 19.5 32.2 28.7 24.7
Income tax provision .................... 2.1 3.4 2.9 6.2
------ ------ ------ ------
Net income ............................. 17.4% 28.8% 25.8% 18.5%
====== ====== ====== ======
</TABLE>
Liquidity and Capital Resources
Since our inception, we have primarily financed our business using the
cash flow generated from operations. We borrow under our revolving line of
credit with Citibank, N.A. to supplement operating cash. Borrowings under this
line of credit are payable on demand, plus interest at 1% above the bank's
announced base rate and are collateralized by our accounts receivable. As of
December 31, 1999, we were permitted to borrow up to $1.3 million under the
line of credit, and borrowings bear interest at the rate of 8.75%. At December
31, 1999, there was no balance outstanding under the line of credit.
On November 12, 1999, we issued 3,300,000 shares of our common stock in
our initial public offering and 495,000 shares upon exercise of the
over-allotment by the underwriters. These shares were issued at a price to the
public of $13 per share. We realized the sum of $43,583,000 from the offering,
after deducting the cost of the offering. To date, we have used approximately
$6.0 million for the payment of advances under the ICQ agreement, repayment of
outstanding bank loans and the purchase of computer equipment to further the
growth of our business. The balance is currently invested in short term
government securities and available for use in the continuing implementation of
our growth strategy.
Net cash provided by operating activities was $205,737 for the year ended
December 31, 1997, $375,566 for the year ended December 31, 1998, and
$3,646,485 for the year ended December 31, 1999.
Net cash used in investing activities was $50,955 for the year ended
December 31, 1997, $79,422 for the year ended December 31, 1998, and $2,063,075
for the year ended December 31, 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 $133,761 for the year ended
December 31, 1997 and $253,261 for the year ended December 31, 1998. Cash used
in financing activities was primarily for distributions to the shareholders
relating to our election to be taxed as an S corporation. Net cash provided
from financing activities of $39,625,519 for the year ended December 31, 1999
primarily resulted from the sale of stock in our initial public offering.
As of December 31, 1999, we had $41,305,814 of cash and cash equivalents.
Our principal commitments consisted of $213,575 of obligations under our
capital lease financing arrangements and the payments due under the email list
management agreement with ICQ referred to above. 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.
19
<PAGE>
We believe that our cash and cash equivalents on hand, 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 addition, in connection with our expansion
program, we plan to make substantial expenditures over the near term primarily
in connection with (1) additional costs related to the expansion of our network
of third-party Web sites, (2) increased staffing of our sales and service
groups, (3) increased advertising and marketing activities, (4) additional
capital expenditures, primarily for computer equipment and (5) continued
research and development of our systems to improve our services. Changes in our
operating plans, acceleration of our expansion plans, lower than anticipated
sales, increased expenses, potential acquisitions or other events may cause us
to seek additional financing sooner than anticipated. Additional financing may
not be available on acceptable terms, or at all. Failure to obtain additional
financing as needed could have a material adverse effect on our business and
results of operations.
Seasonality
The traditional postal direct marketing industry tends to have higher
revenues in the fourth quarter of the year, when direct marketers send out
holiday promotions, and somewhat lower revenues during the summer, when direct
marketing activity is reduced overall. To date, because of the rapid growth of
the email direct marketing industry, our revenues have grown sequentially from
quarter to quarter. Therefore, our revenues have not followed the seasonal
patterns of the traditional postal direct marketing industry. We anticipate,
however, that as our business matures, our revenues will track more closely
with the seasonal patterns experienced in the traditional postal direct
marketing industry.
Recently Issued Accounting Standards
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. We do not believe
that the adoption of this statement will have a material impact on our
financial position or results of operations.
The Year 2000
Prior to January 1, 2000, there was a great deal of concern regarding the
ability of computers to adequately recognize 21st century dates from 20th
century dates due to the two-digit date fields used by many systems. Most
reports to date, however, are that computer systems are functioning normally
and the compliance and remediation work accomplished leading up to 2000 was
effective to prevent any problems. Computer experts have warned that there may
still be residual consequences of the change in centuries.
As our company is a relatively new enterprise, the majority of software
and hardware we use to operate and manage our business has all been purchased
or developed by us within the last 36 months. 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. While this does not uniformly protect us
against Year 2000 exposure, we believe our exposure is limited because the
information technology we use in our business is not based upon legacy hardware
and software systems. All of the software code we have internally developed to
manage our network and infrastructure is written with four or more digits to
define the applicable year.
We believe that any modifications necessary to be Year 2000 compliant were
completed and in place by the end of 1999. We are not aware of any substantial
issues or problems with in-house systems or systems and services provided by
our vendors. To date, Year 2000 problems have had a minimal effect on our
business. However, we may not have identified and remediated all significant
Year 2000 problems.
20
<PAGE>
Cautionary Notice Regarding Forward-Looking Statements
We make certain forward-looking statements in this Report and in documents
incorporated by reference in this Report within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, relating to our financial condition,
profitability, liquidity, resources, business outlook, proposed acquisitions,
market forces, corporate strategies, contractual commitments, capital
requirements and other matters. The Private Securities Litigation Reform Act of
1995 provides a safe harbor for forward-looking statements. To comply with the
terms of the safe harbor, we note that a variety of factors could cause our
actual results and experience to differ substantially from the anticipated
results or other expectations expressed in our forward-looking statements. When
words and expressions such as: "believes," "expects," "anticipates,"
"estimates," " plans," "intends," "objectives," "goals," "aims," "projects,"
"forecasts," "possible," "seeks," "may," "could," "should," "might," "likely,"
"enable" or similar words or expressions are used in this prospectus, as well
as statements containing phrases such as "in our view," "there can be no
assurance," "although no assurance can be given" or "there is no way to
anticipate with certainty," forward-looking statements are being made in all of
these instances. These forward-looking statements speak as of the date of this
Report.
Various risks and uncertainties may affect the operation, performance,
development and results of our business and could cause future outcomes to
differ materially from those set forth in our forward-looking statements,
including the following factors: our growth strategies; anticipated trends in
the industry; our ability to enter into additional list management contracts;
our relationships with list owners; general market and economic conditions; our
ability to finance our future business requirements; the ability to
successfully integrate acquired companies and businesses; management retention
and development; changes in Federal and state laws and regulations; as well as
the risks, uncertainties and other factors described from time to time in our
SEC filings and reports.
We undertake no obligation to publicly update or revise any
forward-looking statements as a result of future developments, events and
conditions outside of our control. New risk factors emerge from time to time
and it not possible for us to predict all such risk factors, nor can we assess
the impact of all such risk factors on our business or the extent to which any
factor, or combination of factors, may cause actual results to differ
significantly from those forecast in any forward-looking statements. Given
these risks and uncertainties, investors should not overly rely or attach undue
weight to our forward-looking statements as an indication of our actual future
results.
Risk Factors
You should carefully consider the following risks before you decide to
invest in our company. 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 your investment.
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:
21
<PAGE>
o inadequate network infrastructure;
o security concerns;
o inconsistent quality of service; and
o lack of availability of cost-effective, high-speed service.
The acceptance and effectiveness of Internet opt-in email direct marketing is
relatively unproven.
Our future success will depend on an increase in the use of the Internet
as an opt-in marketing medium or for opt-in email generally. The opt-in email
direct marketing industry is new and rapidly evolving. Consequently, current
indications of its effectiveness compared to traditional postal direct
marketing may not be supported as the industry matures. As a result, there
generally is significant uncertainty about the demand and market acceptance for
opt-in email marketing solutions or Internet advertising solutions.
Many of our current or potential customers may have little or no
experience using the Internet for direct marketing purposes. The adoption of
Internet direct marketing, particularly by those entities that have
historically relied upon traditional media and mailings for marketing, requires
the acceptance of a new way of conducting business. These companies may find
email direct marketing to be less effective for promoting their products and
services as compared to traditional mass media and postal marketing.
We cannot assure you that the market for email direct marketing will
continue to emerge, or will become sustainable.
Internet, software or hardware failures or shortcomings could adversely affect
our business in diverse ways.
We depend on software, hardware, and the Internet to collect, store,
retrieve and process email addresses and other data and to send email for our
direct marketing customers. The third-party Web sites which we rely upon to
collect email addresses are less likely to collect additional email addresses
for us if their operations are disrupted or slowed by Internet, software or
hardware failures or shortcomings or if such occurrences discourage potential
visitors from using the Internet or visiting their sites. Direct marketers are
less likely to utilize our services if potential customers are prevented or
discouraged from using the Internet and receiving promotional messages due to
Internet, software, or hardware failures or shortcomings.
Many of the Internet service providers and Web site operators on whom we
depend have experienced significant service slowdowns, malfunctions, outages
and capacity limitations. We also depend upon the reliability, speed, data
capacity, ease of use, accessibility and security of the Internet as well as
its continued development and acceptance for commercial use generally.
The Internet infrastructure may not be able to support the increasing
demands placed on it at acceptable service levels as Internet usage grows. An
individual's satisfactory Internet experience may also depend on the proper
functioning and the continued development of equipment such as high speed modems
and personal computers. Not all software and equipment protocols and standards
are compatible. Users may experience difficulties due to computer-related,
telecommunications, or 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.
22
<PAGE>
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.
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:
o anticipate and adapt to our evolving market;
o implement sales and marketing initiatives;
o develop and introduce new products and services;
o enhance our brands;
o attract, retain and motivate qualified personnel;
o respond to actions taken by our competitors;
o effectively manage our growth by building a solid base of management,
operations and technology; and
o integrate acquired businesses, technologies and services.
23
<PAGE>
We may not successfully address any of these risks.
Our quarterly operating results may fluctuate seasonally so the results of one
quarter are not necessarily indicative of results in the succeeding quarter and
the price of our securities may fluctuate in response to those fluctuations.
The traditional postal direct marketing industry tends to have higher
revenues in the fourth quarter of the year, when direct marketers send out
holiday promotions, and somewhat lower revenues during the summer, when direct
marketing activity is reduced overall. To date, because of the rapid growth of
the email direct marketing industry, our revenues have grown sequentially from
quarter to quarter. Therefore, our revenues have not followed the seasonal
patterns of the traditional postal direct marketing industry. We anticipate,
however, that as our business matures, our revenues will track more closely the
seasonal patterns experienced in the traditional postal direct marketing
industry.
Our future revenues are unpredictable, and our financial results may fluctuate.
Our historical financial data is not reliable as a basis upon which to
predict our future revenues or operating expenses for a number of reasons,
including our limited operating history, the emerging nature of our industry
category, and our growth strategy. Furthermore, there is no guarantee that the
seasonal fluctuations that we have experienced in our operating results to date
will continue as before as our business and the industry evolve and grow.
Our financial results may fluctuate significantly because of several
factors, such as the following, all of which are beyond our control except for
the incurrence of expenses:
o Revenues in any quarter are substantially dependent on orders booked and
delivered in that quarter;
o Demand by direct marketers for use of opt-in email addresses in our
database may fluctuate due to seasonal and cyclical marketing campaigns;
o The market in which we compete is relatively new and rapidly evolving;
o 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;
o 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;
o 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
o 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 $4,531,508 in 1999, $605,863 in 1998 and $260,349 in
1997. We were an S corporation through November 15, 1999. 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
$2,940,508 in 1999, $362,091 in 1998 and $154,377 in 1997. As of December 31,
1999, we had retained earnings of $907,866 and shareholder's equity of
$45,262,021. However, 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 record goodwill or other intangible assets or in
process research and development associated with any such acquisition.
Intangible assets would be amortized over their estimated useful lives, while
in process research and development would be written off at the date of
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.
24
<PAGE>
Changes in our commission policies may result in reduced margins or negative
impacts on our cash flow.
In a small number of cases, primarily involving Web sites that we believe
are well-known to both consumers and our direct marketing customers, we have
agreed to pay advance fees to the Web site. In those cases, we generally, but
not always, have the right to offset against those payments any payment of the
percentage of fees that may become payable to the Web site in the future if an
email address it owns is used for a particular email marketing campaign. In a
few cases, we pay third-party Web sites flat fees for the collection of email
addresses for inclusion in our database instead of paying a percentage of the
fee from direct marketing customers to those Web sites. Advance payments burden
our cash flow and might prevent us from making other expenditures that might
generate revenues or growth for us. Our net income would be negatively affected
if a list management arrangement is not profitable enough for us to earn amounts
sufficient to offset advance payments, or if a list management arrangement is
terminated before we are able to earn amounts sufficient to offset advance
payments.
We typically pay Web site owners commissions amounting to 50% of the
revenue we earn, less volume discounts, if applicable, each time we send an
email message to any email address list owned by that Web site owner. However,
competitive pressures or strategic or other reasons may cause us to make
advance payments or pay commissions of more than 50% of the revenue from
sending email messages to email address list owners in the future. If we pay to
our Web site owners a higher rate of commissions or make advance payments that
are not recovered, our margins will be reduced. We may have reduced profits or
may become unprofitable if any increase in the amount of unrecovered advance
payments to Web site owners or the rate of commissions paid to Web site owners,
and the consequent decrease in our margins, is not offset by lower general and
administrative costs as a percentage of revenues or increased revenues from
other sources.
If our direct marketing customers cease to do business with us, we might be
unable to replace lost revenues.
We have no long-term contracts with any of our direct marketing customers.
There is no guarantee that any of the direct marketers who have previously used
our services will use our lists in any particular quarter or that they will
continue to use our lists in the future. Substantially all of the contracts
with our direct marketing customers can be terminated on short notice without
penalty.
We are dependent on third parties to generate a sufficient number of email
addresses and, if they terminate their agreements with us, our business could
be seriously harmed.
We depend on our network of third-party Web sites to post sign-up forms on
their sites and encourage visitors to their sites to sign up to receive
commercial email messages from our direct marketing customers about topics of
interest. Several high-traffic sites with which we signed agreements in the
past have not been successful in generating significant numbers of opt-in email
addresses for our database. Furthermore, the sites in the network:
o are not within our control;
o may incorporate into their Web sites the sign-up forms of other email
marketing companies in addition to or in place of our sign-up form; and
o are not obligated to continue to build lists for us.
Net revenues generated from the email address lists of two of the Web
sites in our network accounted for approximately 15% and 24% of our total net
revenues during 1998 and 1999, respectively. Loss of these email address lists
could materially adversely affect our business, financial condition and results
of operations.
We intend to increase the size of our database through partnership
agreements with high-traffic Web sites, but there is no assurance that we will
do so in timely fashion or at all. Our increasing expenditures to develop this
channel could materially adversely affect our operating margins and our cash
flow. If we fail to successfully implement this strategy, our business,
financial condition and results of operations could be materially adversely
affected.
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The Internet users who sign up to receive our mailings can opt out, or remove
themselves from our lists, or may change their email addresses at any time.
We provide detailed instructions at the top of every email message we send
out allowing Internet users to remove themselves from our lists. Because this
is a new business model, we do not know how long the average Internet user will
stay on our lists or how many mailings they will accept before opting out.
Currently, the opt-out rate is less than one percent on any given mailing.
However, as more and more marketers use our lists and send out offers, the
number of mailings sent to names on our lists also increases and the number of
those opting out may increase as well. If the rate of list removal requests
were to increase substantially, our fees for the use of our lists could
decrease and our business, financial condition, and results of operations could
be materially adversely affected.
In addition, it is possible that some of the Internet users in our
database could change their email addresses, thus making some of our direct
marketing customers' messages undeliverable. If a message sent to an Internet
user is returned to us because the email address is invalid, we remove that
email address from our database. If a large number of Internet users in our
database change their email addresses and do not update the information in our
database, or if they delay before opting in again or do not opt in again, then
our business, financial condition or results of operations could be materially
adversely affected.
Our business could be seriously affected by the privacy concerns of Internet
users.
Our opt-in email direct marketing service collects consumer preference and
profile information each time an Internet user visits a participating Web site
and volunteers information in response to survey questions. Privacy concerns
may cause users to resist signing up for our lists and providing the personal
data necessary to support the growth and expansion of our database. More
importantly, even the perception of privacy concerns, whether or not valid, may
indirectly inhibit market acceptance of our service.
We depend on adding to and retaining our marketing customer base.
We have sent email messages for direct marketing campaigns to email
addresses in our database on behalf of over 1,800 email direct marketing
customers. However, 15 customers accounted for approximately 33% of our net
revenues in 1999. 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 49.5% of our net revenues in 1999.
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While we intend to expand our own sales force, we believe that we can grow
our business more rapidly by relying on the larger aggregate sales force
represented by those reseller channels. If we fail to grow our business,
competitors may be able to enter our industry or find ways to compete more
effectively with us for our customers. Consequently, if we fail to increase the
proportion of our marketing customers obtained through reseller channels, our
business, financial condition and results of operations could be materially
adversely affected.
Because we give resellers discounts, any sales through resellers will have
lower gross margins than direct sales of the same email addresses. To the
extent we increase the proportion of sales through resellers, our net revenues
and gross profits could decrease. Our agreements with such resellers are
generally not exclusive and, in many cases, may be terminated by either party
without cause. These resellers do not have minimum purchase or resale
requirements. Many of these resellers market email lists that are competitive
with our email lists. These resellers may not give a high priority to the
marketing of our lists or may not continue to carry our lists. They may give a
higher priority to other lists, including their own lists or the lists of our
competitors. We may not retain any of our current resellers or successfully
recruit new resellers.
The planned expansion of our business may strain our management systems and
other resources.
Since inception, our net revenues have grown from $102,000 in 1995, to
$3.4 million in 1998, to $20.7 million in 1999. We had two employees in 1995,
10 at the end of 1998 and 40 at the end of 1999. The pursuit of our business
strategy may strain upon our current managerial, operational and financial
resources.
We will need to continue 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.
Much of our management team is relatively new to our company and has a
short history of working together. Four members of our management team,
consisting of our President and Chief Operating Officer, our Senior Vice
President, Sales and Business Development, our Senior Vice President,
Marketing, and our Chief Information Officer, have joined us in the past two
months.
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 other email direct marketing companies;
incentive-based direct marketers; providers of permission-based outsourced
email solutions; email list owners that manage their own email lists in-house;
banner advertising companies; and postal direct marketing companies. In
addition, because there are relatively low barriers to entry in the email
direct marketing business, we expect additional competition from other
established and emerging companies as the email direct marketing business
continues to develop and expand. We expect to face competition in the future
from other companies entering the field as email address list owners, managers
and brokers. Companies that operate banner advertising networks have entered
the email marketing business through acquisitions of competing email marketing
companies.
Many of our competitors have longer operating histories; significantly
greater financial, technical, marketing and other resources; significantly
greater name recognition; and a larger installed base of customers than we
have. In addition, many of our competitors have well-established relationships
with our current and potential customers, have extensive knowledge of our
industry and are capable of offering complementary services and products that
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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:
o adapt to rapidly changing technologies;
o adapt our services to evolving industry standards; and
o improve the performance, features and reliability of our service and
product offerings in response to competitive product and service
offerings and evolving demands of the marketplace.
We cannot assure you that we will succeed in addressing these issues. Our
efforts to upgrade our software or introduce new software may not be completed
in a timely fashion or at all and may result in errors which could seriously
harm us. In addition, the widespread adoption of new Internet networking
technologies or other technological changes could require us to expend
substantial amounts of capital to change our services or infrastructure.
Moreover, these changes may involve new technologies which may not be measurable
by our current methods.
We expect to expand our operations overseas but you will not be able to
quantify the risks associated with international expansion.
We intend to pursue international expansion during the next 12 months but
do not have a specific geographic focus, detailed plan for implementation or
schedule to do so at this time. International operations are subject to risks
that may materially adversely affect our business, results of operations and
financial condition. In particular, opt-in email direct marketing might not
become an acceptable form of advertising internationally. In addition, privacy
regulations in some other countries, including the European Union, are more
stringent than in the United States. These regulations could hinder our ability
to collect demographic data on potential consumers, which could have a material
adverse affect on our business. Other risks of international operations are:
o regulatory requirements;
o reduced protection for intellectual property rights in some countries;
o difficulties and costs of staffing and managing foreign operations;
o political and economic instability; and
o fluctuations in currency exchange rates.
We are highly dependent upon Rosalind Resnick and Ryan Scott Druckenmiller, our
founders, and our other employees and the loss of their services could harm us.
Rosalind Resnick, our Chief Executive Officer 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. 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 President, Chief
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Financial Officer, our Senior Vice President, Sales and Business Development,
our Senior Vice President, Marketing, and our Chief Information Officer have
all executed and delivered employment contracts with us which will expire late
in 2002 or early in 2003, the employees may terminate the contracts at any time
upon 90 days written notice. In addition, the balance of our work force are
employed on an at-will and short-term basis.
Our future success also depends on our continuing ability to attract,
hire, train and retain other highly skilled managerial, technical, sales,
marketing and customer service personnel in order to accommodate the growth of
our business. In addition, we are likely to need to recruit additional senior
management personnel as our business grows, particularly in the international
arena. Competition for such personnel is intense, and we may fail to retain our
key employees, or attract, assimilate or retain other highly qualified
personnel in the future.
We may not be able to successfully protect our intellectual property.
Although we are a marketing company, we also depend heavily on technology
to operate our business. We have developed proprietary technology to enable Web
site visitors to opt in to receive targeted advertising information from our
direct marketing customers. The software also enables our direct marketing
customers and email address list brokers to target email addresses in our
database associated with persons with specific demographics, and allows direct
marketers to track the response rates to their mailings. We have developed a
double opt-in confirmation system which sends Internet users a confirmation
email message after they have signed up their email address in our database and
requires them to verify that they would like to begin receiving commercial
email messages from our marketing clients. We have filed a patent application
for this technology. We also have know-how and trade secrets, including the
identities and other information concerning our direct marketing customers and
the information in our email address database, which we seek to protect. If we
do not adequately protect our intellectual property, our business, financial
condition and results of operations will be materially adversely affected.
While we are unable to determine the extent to which piracy of our
technology exists, software piracy can be expected to be a persistent problem.
In addition, the laws of some foreign countries do not protect our proprietary
rights to as great an extent as do the laws of the United States. Our means of
protecting our proprietary rights may not be adequate. Our competitors may
independently develop similar technology, duplicate our technology design
around patents issued to us or our other intellectual property, attempt to copy
aspects of our service, or obtain and use our proprietary information that we
regard as proprietary.
There has been a substantial amount of litigation in the software industry
regarding 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:
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o the transmission of unsolicited email marketing messages;
o user privacy;
o content of email messages;
o quality of products and services; and
o the solicitation, collection, processing and distribution of
personal/customer information,
which could adversely affect our business. Such laws and regulations could
adversely affect the demand for our services if direct marketers perceive that
we will be hindered from reaching a substantial targeted audience or that
substantial liability might arise due to technical breaches of such
restrictions, such as limitations on content or transmission. Our own business
exposure might increase substantially if we were to be held responsible for the
content or quality of email messages which we transmit on behalf of our direct
marketing customers. If we are forced to bear additional administrative burdens
in collecting, storing or
maintaining data, our expenses would increase and market conditions might
preclude us from passing our increased costs on to our direct marketing
customers. While we seek to respect Web site visitor privacy and do not send
unsolicited email messages to our database, user privacy laws and regulations
might be designed so restrictively as to make it increasingly difficult to
obtain opt-in email addresses or sell the use of those addresses to our direct
marketing customers.
Laws and regulations regulating the transmission of unsolicited email
marketing messages are being considered by many jurisdictions. Legislation of
that type has recently been adopted by the States of California, Virginia and
Washington, and similar legislation is pending in the State of New York and in
Congress. The Telecommunications Act of 1996 prohibits some types of
information and content from being transmitted over the Internet. The
prohibition's scope and the liability associated with a Telecommunications Act
violation are currently unsettled. In addition, although substantial portions
of the Communications Decency Act were held to be unconstitutional, we cannot
be certain that similar legislation will not be enacted and upheld in the
future. The European Union adopted a Directive on Privacy, effective on October
24, 1998, which establishes minimum standards for the collection and use of
personal identifying information in the European Union and prohibits the
transfer of this information to countries whose privacy standards are deemed
inadequate.
Rosalind Resnick and Ryan Scott Druckenmiller control us, and their interests
may conflict with your interests.
Rosalind Resnick beneficially owns $5,954,500 shares, or approximately
38.4% of our outstanding common stock, and Ryan Scott Druckenmiller
beneficially owns 5,730,035 shares, or approximately 37.0% of our common stock.
In addition to being our founders, Ms. Resnick and Mr. Druckenmiller are
executive officers and members of our board of directors. 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 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.
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We may be subject to claims due to the activities of our customers.
We cannot predict whether our role in facilitating our customers'
promotion of products and services would expose us to liability. If that should
occur, we could be required to expend significant management and financial
resources to address any such claim or to pay any fines or penalties which
might result or we could be required to alter or discontinue certain methods of
doing business or take other steps which could be materially adverse to our
business, financial condition, or results of operations. Our current insurance
may not provide adequate coverage against claims which could have an adverse
effect on our business.
The future sale of shares of our common stock may negatively affect our stock
price.
The 3,795,000 shares sold in our initial public offering are freely
tradable without restriction except for any shares purchased by our
"affiliates" as defined in Rule 144 under the Securities Act. 11,700,000
of our outstanding shares of common stock are "restricted securities" as
defined in Rule 144, substantally all of which are owned by Ms. Resnick or Mr.
Druckenmiller, who are "affiliates" of the company. We have also granted
options to purchase 1,629,500 of our shares of common stock to our employees
and our directors other than Ms. Resnick and Mr. Druckenmiller. Our stock
option plan permits the issuance of options to purchase up to 2,000,000 shares
of our common stock.
Those shares may be resold only 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. In connection with our
initial public offering, all of our executive officers and directors, including
Ms. Resnick and Mr. Druckenmiller, 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 November 12, 1999.
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 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.
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:
o fluctuations in our quarterly or annual results of operations;
o changes in published earnings estimates by analysts and whether our
earnings meet or exceed such estimates;
o announcement of significant developments, such as the gain or loss of
contracts or relationships or innovations or product introductions by us
or our competitors;
o additions or departures of key personnel;
o changes in the rating or price targets of investment research analysts;
and
o 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.
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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 through November 15, 1999,
we elected to be taxed as an S corporation under United States federal and
state laws. In connection with that election, we typically 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. On November 15,
1999, we filed a notice of termination of our status as an S Corporation and we
have been taxed since then as a C corporation. As a result, we, rather than our
shareholders, will be taxed on income that we earn since November 15, 1999. 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:
o discourage potential acquisition proposals;
o delay or prevent a change in control; and
o 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.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The required information is at the end of this Report beginning with page
F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Our executive officers and directors as of March 27, 2000, are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ------------------------------- ----- -----------------------------------------------------------------
<S> <C> <C>
Rosalind B. Resnick ........... 40 Chief Executive Officer, Chairman of the Board of Directors, and
Treasurer
Ryan Scott Druckenmiller ...... 30 Chief Technology Officer, Vice President, Secretary and Director
Mitchell York ................. 42 President, Chief Operating Officer and Director
Gary Sindler .................. 53 Chief Financial Officer
Scott Wolf .................... 44 Senior Vice President, Sales and Business Development
Allison Fillmore .............. 32 Senior Vice President, Marketing
Tej Anand ..................... 37 Chief Information Officer
Michael Levy (1)(2) ........... 52 Director
Gregory W. Slayton (1)(2) ..... 40 Director
</TABLE>
- ------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
Rosalind B. Resnick has served as our Chief Executive Officer, and
Chairman of our board of directors since our inception. Prior to January 2000,
Ms. Resnick also served as our President. In September 1995, Ms. Resnick
developed America Online's NetGirl Forum, a dating and relationships area of
the America Online service which she hosted until September 1996. Ms. Resnick
began her career in the newspaper industry in 1980 as an intern at the
Baltimore Sun. From 1984 to 1989, Ms. Resnick worked as a business writer at
The Miami Herald. Her articles have appeared in Internet World, NetGuide,
Computer Life, PC Today, Home Office Computing, and other leading computer
magazines. In 1995, she co-authored The Internet Business Guide, and from 1994
to 1997, she served as the editor and publisher of Interactive Publishing
Alert, a semi-monthly newsletter tracking trends and developments in online
publishing and advertising. She is also a contributing editor to Phillips'
Interactive P.R. and Marketing News Newsletter. Ms. Resnick received B.A. and
M.A. degrees from Johns Hopkins University.
Ryan Scott Druckenmiller has served as our Chief Technology Officer and a
member of our board of directors since our inception. Mr. Druckenmiller is an
award-winning Web programmer who created the software that powers
www.postmasterdirect.com's online list store, list member sign-up process, and
list owner accounting system. Mr. Druckenmiller's prolific software output also
includes the PostMaster URL Announcement Service, which submits Web sites to
over 400 leading search engines and directories; PostMaster BannerNet, a free
banner network; TrackBot, an advertising tracking tool, and PinPoint, a
personalized search engine interface. Prior to joining NetCreations, from 1990
to 1995, Mr. Druckenmiller developed video games for the Amiga platform and
published an Amiga newsletter, providing software and information for Amiga
computer users.
Mitchell York has been a member of our board of directors since October
1999 and our President and Chief Operating Officer since January 2000. He
previously served as President of LendingTree, Inc., a leading online loan
marketplace, from September 1998 to September 1999. During that time he oversaw
LendingTree's marketing, technology and other key business areas. Prior to
this, Mr. York was, for 17 years, an executive of CMP Media Inc., a worldwide
technology information and marketing services company. As vice president of
CMP's Internet division, he lead the company's entry into online media by
launching TechWeb, an information service for information technology
professionals. Prior to launching TechWeb, Mr. York was a publisher of several
of CMP's major technology titles, including VARBusiness magazine. He also was
the founding editor of the company's Travel division, which was later sold to
Miller Freeman. Mr. York received a bachelor's degree with honors from
Northwestern University and an M.B.A. from the Columbia Graduate School of
Business.
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
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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.
Scott Wolf joined us as our Senior Vice President, Sales and Business
Development in January 2000. Previously Mr. Wolf was Chief Operating Officer at
EarthCam, a leading portal of live images on the Internet. Mr. Wolf spent 18
years at CMP Media Inc. where he held various senior level positions including
VP Group Publisher and Publishing Director of CMP's first paid magazine,
Windows Magazine. He holds a B.A. from the University of Pennsylvania and an
MBA from NYU's Stern School of Business.
Allison Fillmore joined us as Senior Vice President, Marketing in February
2000. From November 1998 to February 2000, Ms. Fillmore was the Vice President
of Marketing at MarketXT, Inc. a start-up, after-hours online trading company.
From October 1994 to November 1998, Ms. Fillmore founded Smartgirls .....
because it's fun to be smart, an entrepreneurial venture. During this time she
also worked as a consultant and further pursued her education. From 1989 to
September 1994, she was the Corporate Vice President for PaineWebber's Resource
Management Account. While at PaineWebber, she held various marketing and new
product development positions. Ms. Fillmore earned a B.A. degree in Comparative
Literature from Columbia University where she graduated Cum Laude.
Tej Anand joined us in February 2000 as our Chief Information Officer.
Since 1998, he held a similar position at Golden Books Family Entertainment
where he was responsible for overseeing systems development and computer
operations. From 1993 to 1998, Mr. Anand was Director of Knowledge Discovery
Solutions at NCR's Human Interface Technology Center. Mr. Anand worked for A.
C. Nielsen, where he developed two novel data mining tools, "Spotlight" and
"Opportunity Explorer," that extract business insights from retail
point-of-sale data. He is a member of the IEEE, the American Association of
Artificial Intelligence and the American Statistical Association. He has
authored several technical papers and is often invited to speak to technical
and business audiences. Mr. Anand received a Bachelor of Technology degree from
Indian Institute of Technology, Bombay, India and a Master of Science degree
from the University of South Carolina.
Michael Levy has been a member of our board of directors since October
1999. He has served as the President, Chief Executive Officer and Chairman of
the Board of SportslineUSA, Inc. since its inception in February 1994. From
1979 through March 1993, Mr. Levy served as President, Chief Executive Officer
and as a Director of Lexicon Corporation, a high technology company
specializing in data communications and signal processing technology. From
January 1988 to June 1993, Mr. Levy also served as Chairman of the Board and
Chief Executive Officer of Sports-Tech International, Inc., a company engaged
in the development, acquisition, integration, and sale of computer software,
equipment, and computer-aided video systems used by professional, collegiate
and high school sports programs. Between June 1993 and February 1994 Mr. Levy
was a private investor. Mr. Levy also serves as a member of the board of
directors of iVillage Inc. Mr. Levy received a B.S. in Electrical Engineering
from the Georgia Institute of Technology.
Gregory W. Slayton has been a member of our board of directors since
October 1999. He has served as President, Chief Executive Officer and a member
of the board of directors of ClickAction Inc. since December 1997. From March
1996 to July 1997, Mr. Slayton was the President, Chief Operating Officer, and
Director of ParaGraph International. In August 1994, Mr. Slayton co-founded
Worlds, Inc. and served as Senior Vice President and Chief Financial Officer
until November 1995. Prior to founding Worlds, Inc., Mr. Slayton served as Vice
President and Chief Financial Officer of Paramount Technology Group of
Paramount Communications Inc. Mr. Slayton was also a management consultant with
McKinsey & Company for four years. Mr Slayton serves on the board of directors
of inTest Corporation, and he is on the board of directors of Opportunity
International, a non-profit organization. Mr. Slayton holds a B.A. in Economics
from Dartmouth College and an M.B.A. from Harvard Business School.
Board Composition
We currently have five directors. Each director is elected at the annual
general meeting of our shareholders, by a vote of the holders of a plurality of
the voting power represented at such meeting. Each director holds office until
the annual general meeting of our shareholders or until his or her successor
has been elected.
35
<PAGE>
Our non-management directors, Messrs. Levy and Slayton serve on the audit
committee and the compensation committee of the board. The executive officers
serve at the discretion of the board.
Board Committees
In July 1999, our board of directors established an audit committee and a
compensation committee. Our board of directors does not currently have and does
not currently intend to establish an executive committee or a nominating
committee, as those functions are to be performed by our entire board of
directors.
Audit Committee. The audit committee of the board of directors consists of
Messrs. Levy and Slayton. This committee makes recommendations to the board of
directors with respect to various auditing and accounting matters, including
the recommendation of our auditors, the scope of the annual audits, fees to be
paid to the auditors, the performance of our independent auditors and our
accounting practices. The audit committee has responsibility for, among other
things, the planning and review of our annual and periodic reports and accounts
and the involvement of our auditors in that process, focusing particularly on
compliance with legal requirements and accounting standards and the related
rules of the Nasdaq, the Securities and Exchange Commission, and the United
States, and the establishment of an effective system of internal accounting
controls.
Compensation Committee. The compensation committee of the board of
directors consists of Messrs. Levy and Slayton. This committee recommends,
reviews and oversees the salaries, benefits and stock option plans for our
employees, consultants, directors and other individuals compensated by us. The
compensation committee also administers our compensation plans.
Director Compensation
None of our directors receive cash compensation for their service on our
board of directors, although our management directors receive cash compensation
for their services as our officers. All directors, however, are reimbursed for
reasonable expenses incurred in connection with serving as a director. We have
granted options to purchase 100,000 shares of our common stock to three of our
directors, Messrs. Levy, Slayton and Mr. York, our President, Chief Operating
Officer and director, at an exercise price of $10.00 per share. One-third of
the options granted to these three directors vested upon the consummation of
our initial public offering in November 1999. The remaining two-thirds vest in
equal installments on each of the next eight quarterly anniversaries following
November 1999. We anticipate that our board of directors will hold regularly
scheduled meetings quarterly.
36
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth all compensation received during the
indicated years by our Executive Officers in their indicated capacities as
officers. In these fiscal years we had no other executive officers or employees
who earned in excess of $100,000.
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
Securities
Underlying All Other
Name and Principal Position Salary Bonus Other Options Compensation(1)
- ----------------------------- ---------------- ---------- ------- ------------- ------------------
Annual Compensation
-----------------------------
<S> <C> <C> <C> <C> <C>
Rosalind Resnick,
Chief Executive Officer, and 1999-$157,292 $60,000 -- -- 1999-$1,999,633
Chairman of the Board of 1998-$185,000 -- -- -- 1998-$155,000
Directors ................... 1997-$120,000 -- -- -- 1997-$96,800
Ryan Scott Druckenmiller,
Chief Technology Officer and 1999-$157,292 $60,000 -- -- 1999-$1,922,000
member of the 1998-$185,000 -- -- -- 1998-$155,000
Board of Directors .......... 1997-$120,000 -- -- 1997-$96,880
Gary Sindler, 1999-$85,865 $37,500 -- 117,000 1999- --
Chief Financial 1998- -- -- -- -- 1998- --
Officer ..................... 1997- -- -- -- -- 1997- --
</TABLE>
- ------------
(1) Includes contributions to our pension plan of $20,000, $30,000 and $30,000
for the benefit of each of Ms. Resnick and Mr. Druckenmiller in 1999, 1998
and 1997, respectively. 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
Prior to our initial public offering, we granted options, effective as of
September 14, 1999 and as of November 11, 1999, to purchase 241,000 shares of
our common stock at an exercise price of $5.00 per share under our 1999 Stock
Option Plan. Additionally, we granted an additional 5,500 shares at prices less
than the fair market value on the date of grant. Those options were granted to
our employees other than Ms. Resnick and Mr. Druckenmiller. Those options are
exercisable for a period of five years, but not until they have vested. Those
options vest in equal one-third installments on each of the three anniversaries
of the date of grant, subject to the optionees' continued employment with us.
Ms. Resnick and Mr. Druckenmiller received S corporation distributions until
November 15, 1999, when the S corporation status was terminated. Ms. Resnick
and Mr. Druckenmiller have received no options or other stock-based
compensation. In addition, we have granted options to purchase 100,000 shares
of common stock to three of our directors, Messrs. Levy, Slayton and York, at
an exercise price of $10.00 per share. The options granted to these three
directors are also exercisable for a period of five years, but not until they
have vested. One third of these options vested upon the consummation of our
initial public offering in November 1999. The remaining two-thirds of the
options vest in equal installments on each of the next eight quarterly
anniversaries following November 1999. Vesting also depends on continued
service as our directors, subject to acceleration under certain circumstances.
All the outstanding options granted to our directors would be accelerated, and
all of our other outstanding options may be accelerated, as to vesting and
exercisability, in the event of certain transactions, including certain changes
in our control, certain mergers and reorganizations, and certain dispositions
of substantially all of our assets. The vesting and exercisability of the
options issued to the three directors would also be accelerated if those
directors are not re-elected to office, except if they are unable to serve or
choose not to serve, or if they are removed from office, except for cause or
material non-performance of their duties
Subsequent to our initial public offering, we granted options, effective
as of January 6, 2000, to purchase 700,000 shares of our common stock, at an
exercise price of $33.25 per share under our 1999 Stock Option
37
<PAGE>
Plan. These options were granted to two of our new executive employees,
Mitchell York and Scott Wolf. These options are exercisable for a period of
five years, but not until they have vested. Sixteen and two-thirds percent
(16.667%) of the options granted to Messrs. York and Wolf, vest on July 6,
2000. The remaining options vest in equal installments on each of the next ten
quarterly anniversaries after July 6, 2000, subject to the optionees' continued
employment with us. In addition, we have granted options, effective as of
February 2, 2000, to purchase 350,000 shares of our common stock at an exercise
price of $33.50 per share under our 1999 Stock Option Plan to Mr. Anand and Ms.
Fillmore. The options are exercisable for a period of five years, but not until
they have vested. Sixteen and two-thirds percent (16.667%) of the options
granted to Mr. Anand and Ms. Fillmore vest on August 2, 2000. The remaining
options vest in equal installments on each of the next ten quarterly
anniversaries following August 2, 2000, subject to the optionees' continued
employment with us. In 2000, we also granted options to purchase 33,000 shares
of our common stock to other employees at exercise prices equal to the fair
market value on the dates of grant.
Option Grants in Last Fiscal Year
The following table sets forth grants of stock options for the year ended
December 31, 1999 to each of our named executive officers. The potential
realizable value is calculated based on the term of the option at its time of
grant. It is calculated assuming that the fair market value of common stock on
the date of grant appreciates at the indicated annual rate compounded annually
for the entire term of the option and that the option is exercised and sold on
the last day of its term for the appreciated stock price. These numbers are
calculated based on the requirements of the Securities and Exchange Commission
and do not reflect our estimate of future stock price growth. The potential
realizable value computation does not take into account federal or state income
tax consequences of option exercises or sales of appreciated stock. The
percentage of total options granted to employees in the fiscal year is based on
options to purchase an aggregate of 246,500 shares of common stock granted
under our plan.
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------------
Number of % of Total
Shares Options
Underlying Granted to Exercise
Options Employees in Price Per Expiration
Name Granted Fiscal Year Share Date
- ---------------------------------- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C>
Rosalind B. Resnick .............. -- -- -- --
Ryan Scott Druckenmiller ......... -- -- -- --
Gary Sindler ..................... 117,000 47% $ 5.00 June 2004
</TABLE>
<TABLE>
<CAPTION>
Potential
Realizable Value at
Assumed Annual
Rates of Stock
Price Appreciation
Option Term
--------------------
Name 0% 5% 10%
- ---------------------------------- -------------------- ------------- -------------
<S> <C> <C> <C>
Rosalind B. Resnick .............. -- -- --
Ryan Scott Druckenmiller ......... -- -- --
Gary Sindler ..................... $936,000 $1,356,000 $1,865,000
</TABLE>
Aggregated Option Exercises in the Year Ended December 31, 1999 and Year-End
Option Values
The following table sets forth information concerning the options held by
each of our named executive officers at December 31, 1999. The values set forth
below have been calculated based on the last reported sale price of our common
stock on December 31, 1999 of $44.00, less the applicable exercise price per
share, multiplied by the number of shares underlying the options.
<TABLE>
<CAPTION>
Number of Shares Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year End at Fiscal Year End ($)
------------------------------- ------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Rosalind B. Resnick .............. -- -- -- --
Ryan Scott Druckenmiller ......... -- -- -- --
Gary Sindler ..................... -- 117,000 -- $4,563,000
</TABLE>
Employment Agreements
We have entered into one-year employment agreements with six of our
technology employees. These agreements are automatically renewable and are
terminable by either the employee or us upon 90 days' notice.
38
<PAGE>
The remaining non-management employees are employed on an at-will basis. All of
our non-management employment arrangements provide, among other things, that
each of the employees shall provide services to us on a full-time basis. All of
our non-management employees have also entered into agreements with us which
contain restrictive covenants relating to non-competition with us,
non-solicitation of our customers, non-dealing with our customers and
non-solicitation of our suppliers and employees. In addition, each of these
agreements contains an express obligation of confidentiality in respect of our
trade secrets and confidential information and provide for us to own any
intellectual property rights created by our employees in the course of their
employment.
We have entered into employment agreements with Rosalind Resnick, as our
Chief Executive Officer and Chairman of our board of directors, Ryan Scott
Druckenmiller, as our Chief Technology Officer, Mitchell York, as our
President, Chief Operating Officer and director, Gary Sindler, as our Chief
Financial Officer, Scott Wolf, as our Senior Vice President, Sales and Business
Development, Allison Fillmore, as our Senior Vice President, Marketing, and Tej
Anand, as our Chief Information Officer. Ms. Resnick's, Mr. Druckenmiller's and
Mr. Sindler's agreements expire on December 31, 2002. Messrs. York's and Wolf's
agreements expire on January 5, 2003. Ms. Fillmore's and Mr. Anand's agreements
expire on February 1, 2003. The executives are entitled to base salaries per
annum, initially as follows: Rosalind Resnick, $175,000; Ryan Scott
Druckenmiller, $175,000; Mitchell York, $250,000; Gary Sindler, $150,000; Scott
Wolf, $200,000; Allison Fillmore, $140,000; and Tej Anand, $200,000. 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; Mitchell York, up to $150,000 per year; Gary Sindler,
up to $75,000 per year; Scott Wolf, up to $100,000 per year; Allison Fillmore,
up to $60,000 year; and Tej Anand, up to $150,000 per year. Ms. Resnick and Mr.
Druckenmiller are also entitled to additional performance bonuses, if any, as
may be determined from time to time by the compensation committee upon the
achievement of performance goals to be mutually agreed upon by each of Ms.
Resnick and Mr. Druckenmiller, as the case may be, and the compensation
committee. Each of Ms. Resnick and Mr. Druckenmiller have agreed not to compete
with us in providing direct email marketing services to third parties for
compensation during the term of employment and for at least three years after
their employment is terminated other than a termination without cause or a
termination during the first year following a change in control. Each of the
remaining executives has agreed not to compete with us in providing direct
email marketing services to third parties for compensation during the term of
employment and for at least two years after their employment is terminated
other than a termination without cause or a termination during the first year
following a change in control. The executives are entitled to customary
medical, life insurance, vacation, and other benefits under each of the
agreements. Each of the executives will be eligible to be granted options under
our 1999 Stock Option Plan, at the discretion of the committee administering
that plan. Pursuant to each of their employment agreements, Messrs. York,
Sindler, Wolf, Anand and Ms. Fillmore have been granted 500,000, 117,000,
200,000, 200,000 and 150,000 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,
employees and certain consultants. Our board of directors recently approved an
increase in the number of shares reserved for issuance under the 1999 Stock
Option Plan to 2,000,000 shares. This amendment to the Plan is subject to
shareholder approval. We have granted options, effective as of September 14,
1999 and as of November 11, 1999, to purchase 241,000 shares of our common
39
<PAGE>
stock at an exercise price of $5.00 per share. We have also granted options to
purchase 5,500 shares at exercise prices below fair market value on the date of
grant. In addition, we have granted options to purchase 100,000 shares of our
common stock to each of Messrs. Levy, Slayton and York, at an exercise price of
$10.00 per share. Additionally, in 2000, 1,050,000 options were granted
pursuant to employment agreements and 33,000 options were granted to other
employees. The exercise price of such options was equal to the fair market value
on the dates of grant.
The 1999 Stock Option Plan provides for the grant of options intended to
qualify as "incentive stock options" under Section 422 of the Internal Revenue
Code of 1986, as amended, and non-qualified stock options. The board of
directors or a committee designated by the board is authorized to administer
the Plan, including the selection of individuals eligible for grants of
options, the terms of such grants, possible amendments to the terms of such
grants, and the interpretation of the terms of the Plan. The maximum term of
any stock option granted under the Plan is ten years, except that with respect
to incentive stock options granted to a person possessing more than 10% of our
combined voting power, the term of their options shall be for no more than five
years.
The exercise price of incentive stock options granted under the Plan must
be at least equal to the fair market value of our common stock on the date of
grant. However, for any employee holding more than 10% of our combined voting
power, the exercise price must be at least 110% of the fair market value of our
common stock. The exercise price of non-qualified stock options is set by the
administrator of the Plan.
The aggregate fair market value on the date of grant of the common stock
for which incentive stock options are exercisable for the first time by an
employee during any calendar year may not exceed $100,000. Also, the aggregate
number of options granted to any one optionee may not exceed 468,000 shares.
Options granted under the 1999 Stock Option Plan may be exercised at any
time or from time to time or only after a period of time in installments, as
our compensation committee or the board of directors determines. Our
compensation committee or the board of directors may in its sole discretion
accelerate the date on which any option may be exercised or determine to
provide in an option agreement that an option may become partially or fully
exercisable in the event of certain transactions, including certain changes in
our control, certain mergers and reorganizations, and certain dispositions of
substantially all of our assets. The exercise price of options granted under
the 1999 Stock Option Plan will be as determined by the relevant administrator,
although the exercise price of incentive stock options must be at least equal
to the fair market value of our common stock on the date of grant. Our board of
directors may amend, modify or terminate the 1999 Stock Option Plan at any time
as long as such amendment, modification or termination does not impair vesting
rights of plan participants. The 1999 Stock Option Plan will terminate in 2009,
unless terminated earlier by the board of directors.
Pension Plan
In 1997, 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 1997, 1998 and 1999, we incurred contribution expenses of $60,000, $60,000
and $40,000, respectively, relating to these plans. The 401(k) plan is
administered by us.
40
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of March 27, 2000 by:
o each person or group of affiliated persons who we know owns beneficially
5% or more of our common stock,
o each of our directors,
o our executive officers listed in the Summary Compensation Table, and
o 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.
Shares of Common Stock
Beneficially Owned
Name of -------------------------
Beneficial Owner Number Percent
- ------------------------------------ ------------ ----------
Rosalind B. Resnick ................ 5,954,500 38.4%
Ryan Scott Druckenmiller ........... 5,730,035 37.0%
Mitchell York(1) ................... 41,666 *
Gary Sindler ....................... -- --
Scott Wolf ......................... -- --
Michael Levy(1) .................... 41,666 *
Gregory W. Slayton(1) .............. 41,666 *
All directors and executive officers
as a group (9 persons) ............ 11,809,533 76.2%
- ------------
* Less than 1% of the outstanding common stock.
(1) Consists of options to purchase 41,666 shares of common stock which are
exercisable within 60 days following the date of this Report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
41
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following Financial Statements and Schedules are included beginning
on Page F-1 of this Report of Independent Certified Public
Accountants........................................................
Financial Statements:
Balance Sheets.................................................
Statements of Income...........................................
Statement of Stockholders' Equity..............................
Statements of Cash Flows.......................................
Notes to Financial Statements..................................
Financial Statement Schedule:
Schedule II -- Valuation and Qualifying Accounts.................
No other schedules need to be included as such information is not
applicable.
(b) Reports on Form 8-K -- No Current Reports on Form 8-K were filed during
1999.
(c) Exhibits
NUMBER DESCRIPTION
- ----------- --------------------------------------------------
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.
10.1* Employment Contract with Rosalind Resnick.
10.2* Employment Contract with Ryan Scott Drukenmiller.
10.3* Employment Contract with Gary Sindler.
10.4 Employment Contract with Mitchell York.
10.5 Employment Contract with Scott Wolf.
10.6 Employment Contract with Allison Fillmore.
10.7 Employment Contract with Tej Anand.
10.8* NetCreations 1999 Stock Option Plan.
24.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule
- ------------
* Incorporated herein by reference. Filed with the Commission as an exhibit to
our Registration Statement on Form S-1 (Registration No. 333-84019) on
November 12, 1999.
42
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Report has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized in New York, New York, on
this 29th day of March, 2000.
NETCREATIONS, INC.
By: /S/ ROSALIND B. RESNICK
---------------------
Rosalind B. Resnick
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Rosalind B. Resnick, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign
any and all amendments to this Report, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, and any other regulatory authority, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or her substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
to this Report has been signed by the following persons on behalf of the
Registrant in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title(s) Date
- --------------------------------- ------------------------------------- ----------------
<S> <C> <C>
/S/ ROSALIND B. RESNICK Chief Executive Officer, March 29, 2000
----------------------------- Chairman of the Board of Directors,
Rosalind B. Resnick and Treasurer (Principal
Executive Officer)
/S/ RYAN SCOTT DRUCKENMILLER Chief Technology Officer, March 29, 2000
----------------------------- Vice President, Secretary
Ryan Scott Druckenmiller and Director
/S/ GARY SINDLER Chief Financial Officer March 29, 2000
----------------------------- (Principal Financial and
Gary Sindler Accounting Officer)
/S/ MICHAEL LEVY Director March 29, 2000
- -------------------------------
Michael Levy
/S/ GREGORY W. SLAYTON Director March 29, 2000
- -------------------------------
Gregory W. Slayton
/S/ MITCHELL YORK President, Chief Operating Officer March 29, 2000
- ------------------------------- and Director
Mitchell York
</TABLE>
43
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Page
-----
Report of Independent Certified Public Accountants .......... F-2
Financial Statements:
Balance Sheets .......................................... F-3
Statements of Income .................................... F-4
Statement of Stockholders' Equity ....................... F-5
Statements of Cash Flows ................................ F-6
Notes to Financial Statements ........................... F-7
Financial Statement Schedule:
Schedule II -- Valuation and Qualifying Accounts ........... S-1
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, 1998 and 1999, and the related statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of NetCreations, Inc. as of
December 31, 1998 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999 in
conformity with accounting principles generally accepted in the United States.
We have also audited Schedule II for each of the three years in the period
ended December 31, 1999. In our opinion this schedule presents fairly, in all
material respects, the information required to be set forth therein.
GRANT THORNTON LLP
New York, New York
February 11, 2000
F-2
<PAGE>
NetCreations, Inc.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-----------------------------
1998 1999
ASSETS ----------- ---------------
<S> <C> <C>
Current assets
Cash and cash equivalents ................................ $ 96,885 $ 41,305,814
Accounts receivable (net of allowance for doubtful
accounts of $150,000 at December 31, 1999) ............. 673,706 5,636,967
Prepaid commissions ...................................... -- 3,000,000
Other current assets ..................................... 6,022 132,395
-------- ------------
Total current assets ................................... 776,613 50,075,176
Fixed assets, net ......................................... 155,740 2,268,225
Other assets .............................................. 11,451 48,014
-------- ------------
Total assets ........................................... $943,804 $ 52,391,415
======== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable .......................................... $ 7,197 $ 1,825,896
Accrued expenses .......................................... 77,466 939,405
Commissions payable ....................................... 293,000 3,696,466
Current portion of capital lease obligations .............. 14,331 112,350
Income taxes payable ...................................... 12,138 325,552
Deferred income taxes ..................................... 32,500 128,500
-------- ------------
Total current liabilities .............................. 436,632 7,028,169
Capital lease obligations ................................. 30,180 101,225
-------- ------------
Total liabilities ...................................... 466,812 7,129,394
Common stock, $.01 par value; 50,000,000 shares authorized;
issued and outstanding, 11,700,000 and 15,495,000 at
December 31, 1998 and 1999, respectively ................. 117,000 154,950
Additional paid-in capital ................................ -- 46,512,376
Deferred compensation ..................................... -- (2,313,171)
Retained earnings ......................................... 359,992 907,866
-------- ------------
Total stockholders' equity ............................. 476,992 45,262,021
-------- ------------
Total liabilities and stockholders' equity ............. $943,804 $ 52,391,415
======== ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
NetCreations, Inc.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------
1997 1998 1999
------------- ------------- --------------
<S> <C> <C> <C>
Net revenues ........................................ $1,100,781 $3,446,539 $20,658,223
Cost of revenues .................................... 173,124 1,509,776 10,464,359
----------- ----------- -----------
Gross profit ..................................... 927,657 1,936,763 10,193,864
Operating expenses
Selling and marketing .............................. 289,904 492,004 2,088,100
Technology, support and development ................ 193,554 373,746 694,311
General and administrative ......................... 151,221 365,343 1,914,608
Depreciation and amortization ...................... 9,515 23,414 195,362
----------- ----------- -----------
Total operating expenses ......................... 644,194 1,254,507 4,892,381
----------- ----------- -----------
Operating income .................................... 283,463 682,256 5,301,483
Interest income (expense):
Interest income .................................... 209,182
Interest expense ................................... (86) (4,165) (33,157)
----------- ----------- -----------
Interest income (expense) -- net ................... (86) (4,165) 176,025
----------- ----------- -----------
Income before income tax provision ............... 283,377 678,091 5,477,508
Income tax provision ................................ 23,028 72,228 946,000
----------- ----------- -----------
NET INCOME ....................................... $ 260,349 $ 605,863 $ 4,531,508
=========== =========== ===========
Net income per common share
Basic and diluted .................................. $ 0.02 $ 0.05 $ 0.37
=========== =========== ===========
Weighted-average common shares outstanding:
For basic net income per share ..................... 11,700,000 11,700,000 12,187,315
For diluted net income per share ................... 11,700,000 11,700,000 12,351,642
Pro forma data (unaudited)
Historical income before income taxes .............. $ 283,377 $ 678,091 $ 5,477,508
Pro forma income tax provision ..................... 129,000 316,000 2,537,000
----------- ----------- -----------
Pro forma net income ................................ $ 154,377 $ 362,091 $ 2,940,508
=========== =========== ===========
Pro forma net income per common share
Basic and diluted .................................. $ 0.01 $ 0.03 $ 0.24
=========== =========== ===========
Pro forma weighted-average common shares outstanding:
For basic net income per share ..................... 11,700,000 11,700,000 12,187,315
For diluted net income per share ................... 11,700,000 11,700,000 12,351,642
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
NetCreations, Inc.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Retained
Common Stock
-------------------------- paid-in Deferred earnings
Shares Dollars capital compensation (deficiency) Total
------------- ----------- -------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1997 .......................... 11,700,000 $117,000 $ (122,459) $ (5,459)
Net income ..................... 260,349 260,349
S Corporation
distributions to
shareholders .................. (133,761) (133,761)
------------ ------------
Balance at December 31,
1997 .......................... 11,700,000 117,000 -- -- 4,129 121,129
Net income ..................... 605,863 605,863
S Corporation
distributions to
shareholders .................. (250,000) (250,000)
------------ ------------
Balance at December 31,
1998 .......................... 11,700,000 117,000 -- -- 359,992 476,992
Net income ..................... 4,531,508 4,531,508
Issuance of common
stock ......................... 3,795,000 37,950 $43,544,911 43,582,861
Grant of stock options ......... 2,865,465 $ (2,865,465) --
Equity-based
compensation .................. 552,294 -- 552,294
Reclassification of
additional S
Corporation earnings to
paid-in capital ............. 102,000 (102,000) --
S Corporation
distributions to
shareholders .................. (3,881,634) (3,881,634)
---------- -------- ----------- ------------ ------------ ------------
Balance at December 31,
1999 .......................... 15,495,000 $154,950 $46,512,376 $ (2,313,171) $ 907,866 $ 45,262,021
========== ======== =========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
NetCreations, Inc.
STATEMENTS OF CASH FLOWS
Year ended December 31,
<TABLE>
<CAPTION>
1997 1998 1999
------------- ------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income ......................................... $ 260,349 $ 605,863 $ 4,531,508
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization ................... 9,515 23,414 195,362
Provision for doubtful accounts ................. -- 3,613 232,402
Deferred taxes .................................. 10,520 24,200 96,000
Equity-based compensation ....................... -- -- 552,294
Changes in assets and liabilities
Accounts receivable ........................... (107,702) (556,580) (5,195,663)
Prepaid commissions ........................... -- -- (3,000,000)
Other current assets .......................... (6,317) 295 (126,373)
Other assets .................................. 143 (10,980) (36,563)
Accounts payable and accrued expenses 21,493 13,505 2,680,638
Commissions payable ........................... 18,883 260,098 3,403,466
Income taxes payable .......................... (1,147) 12,138 313,414
---------- ---------- ------------
Net cash provided by operating
activities ................................... 205,737 375,566 3,646,485
---------- ---------- ------------
Cash flows from investing activities
Capital expenditures ............................... (50,955) (79,422) (2,063,075)
---------- ---------- ------------
Net cash used in investing activities ......... (50,955) (79,422) (2,063,075)
---------- ---------- ------------
Cash flows from financing activities
Proceeds from sale of common stock, net ............ -- -- 45,881,550
Distributions to shareholders ...................... (133,761) (250,000) (3,881,634)
Borrowings under line of credit .................... -- 284,240 1,300,000
Payments on line of credit ......................... -- (284,240) (1,300,000)
Payments of offering costs ......................... -- (2,298,689)
Payments on capital lease obligations .............. -- (3,261) (75,708)
---------- ---------- ------------
Net cash provided by (used in)
financing activities ......................... (133,761) (253,261) 39,625,519
---------- ---------- ------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS ............................. 21,021 42,883 41,208,929
Cash and cash equivalents at beginning of
year ............................................... 32,981 54,002 96,885
---------- ---------- ------------
Cash and cash equivalents at end of year ............ $ 54,002 $ 96,885 $ 41,305,814
========== ========== ============
Supplemental disclosures of cash flow
information:
Cash paid during the year for
Income taxes .................................... $ 18,825 $ 28,825 $ 535,000
========== ========== ============
Interest ........................................ $ -- $ -- $ 33,157
========== ========== ============
Noncash financing activities:
</TABLE>
Capital lease obligations of $47,772, and $244,772 during the years ended
December 31, 1998 and 1999, respectively, were incurred when the Company
entered into leases for new equipment.
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
NetCreations, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997, 1998 and 1999
NOTE A -- NATURE OF OPERATIONS
NetCreations, Inc. (the "Company") was incorporated and commenced
operations in 1995. NetCreations, Inc. is a provider of opt-in e-mail marketing
services on the Internet. The Company manages an extensive database of e-mail
addresses gathered from its own and from third-party Web sites. These lists are
available for rental, including list rental, e-mail delivery, and merge/purge.
The Company also maintains a Web site at www.postmasterdirect.com as a vehicle
for its services and another Web site that contains its corporate information
at www.netcreations.com.
The Company's primary revenue source is the rental of opt-in e-mail lists.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Revenue Recognition
The Company recognizes revenue when e-mail messages are transmitted to
selected addresses, net of volume discounts and broker discounts.
2. Fixed Assets
Owned fixed assets are 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. Leased equipment meeting
certain criteria is capitalized and the present value of related lease
payments is recorded as a liability. Amortization of assets under capital
leases and leasehold improvements are 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, 1997, 1998 and 1999 amounted to $74,000,
$128,000 and $753,000, respectively.
6. Cost of Revenues
Cost of revenues consists primarily of commissions to the Web site owners
that are incurred for each e-mailing to the e-mail addresses owned by the
Web sites.
F-7
<PAGE>
NetCreations, Inc.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1997, 1998 and 1999
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
7. List Management Agreement
When the Company advances amounts under a third-party list management
agreement, the Company accounts for advances made as prepaid commissions.
Commission expense is recognized as revenue is earned by NetCreations
upon the transmission of applicable e-mail messages and applied against
the advances. Should management determine that it is no longer probable
that sufficient revenue will be generated over the term of the agreement
to meet the minimum amounts advanced, the Company will amortize the
remaining advances at the greater of the method described in the
preceding sentence or the straight-line basis over the remaining term of
the agreement.
Management will also assess the recoverability of prepaid commissions at
each reporting period. To the extent that it is probable that some or all
of the prepaid commissions have become nonrecoverable, a charge to
operations will be made in that period to reduce the balance to the
amount recoverable. There are no required charges as of December 31,
1999.
8. Net Income Per Share
Basic and diluted net income per share is included, in accordance with
SFAS No. 128, "Earnings Per Share," for all periods presented. Basic net
income per share is computed by dividing the net income per share for the
period by the weighted-average number of common shares outstanding during
the period. The weighted-average shares have been adjusted retroactively
to give effect to a 117,000-to-1 share split effective September 14,
1999. Diluted net income per share is computed by dividing the net income
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.
Reference is made to Notes E and K.
9. Stock Split
On September 14, 1999, the Company effected a 117,000-to-1 stock split.
The accompanying financial statements have been adjusted retroactively to
reflect the stock split.
10. Cash and Cash Equivalents
The Company considers all securities with a maturity of three months or
less when purchased as cash and cash equivalents.
11. 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.
12. Segment Information
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 established standards for the way companies report
information about operating segments in annual financial statements. It
also established standards for related disclosures about products and
services, geographic areas and major customers. The disclosures
prescribed in SFAS No. 131 became 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.
F-8
<PAGE>
NetCreations, Inc.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1997, 1998 and 1999
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
13. Recently Issued Accounting Pronouncements
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. 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.
14. 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.
15. Reclassification
Certain amounts in the 1997 and 1998 financial statements have been
reclassified to conform to the 1999 presentation.
NOTE C -- FIXED ASSETS
Fixed assets consist of the following at December 31,:
<TABLE>
<CAPTION>
1998 1999
----------- -------------
<S> <C> <C>
Computer equipment ...................................... $ 177,342 $2,450,008
Office equipment ........................................ 11,881 15,474
Leasehold improvements .................................. -- 31,589
--------- ----------
189,223 2,497,021
Less accumulated depreciation and amortization .......... (33,483) (228,846)
--------- ----------
$ 155,740 $2,268,225
========= ==========
</TABLE>
Assets under capital lease at December 31, 1998 and 1999 were $47,772 and
$292,544, respectively, and related accumulated amortization was $4,060 and
$67,941, respectively, at December 31, 1998 and 1999.
NOTE D -- INCOME TAXES
The Company was an S Corporation for Federal and state income tax purposes
through the consummation of its IPO on November 15, 1999. Accordingly, no
provision has been made for Federal and certain state income taxes in the 1997
and 1998 financial statements, since the income of the Company was included in
the personal income tax returns of the stockholders. The Company was, however,
responsible for taxes in jurisdictions which do not recognize S Corporation
status (e.g., New York City). Provision was made for income taxes relating to
these jurisdictions in the 1997 and 1998 financial statements. The Company
files its tax returns on the cash basis of accounting.
Effective November 15, 1999, the Company terminated its S Corporation
status. The Company converted to a C Corporation and is now subject to Federal
and all applicable state and local income taxes. In connection with the
termination of the S Corporation election, the Company recognized a net Federal
deferred tax liability of $93,000.
F-9
<PAGE>
NetCreations, Inc.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1997, 1998 and 1999
NOTE D -- INCOME TAXES -- (Continued)
The components of the income tax provision are as follows for the years
ended December 31:
1997 1998 1999
--------- --------- -----------
Current
Federal .................. $ -- $ -- $205,000
State and local .......... 12,508 48,028 645,000
------- ------- --------
Total current .......... 12,508 48,028 850,000
------- ------- --------
Deferred
Federal .................. $ -- $ -- $ 77,000
State and local .......... 10,520 24,200 19,000
------- ------- --------
Total deferred ......... 10,520 24,200 96,000
------- ------- --------
$23,028 $72,228 $946,000
======= ======= ========
The differences between the income tax provision shown in the statements
of income and the computed income tax provision based on the Federal statutory
corporate rate are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------
1997 1998 1999
------------- ------------ --------------
<S> <C> <C> <C>
Computed income tax provision based on the
Federal statutory rate of 34% ............................... $ 96,000 $ 231,000 $ 1,862,000
State and local income taxes, net of Federal benefit ......... 33,000 80,000 641,000
Effect of S Corporation ...................................... (105,972) (238,772) (1,557,000)
---------- ---------- ------------
$ 23,028 $ 72,228 $ 946,000
========== ========== ============
</TABLE>
The significant components of the net deferred tax liability are as
follows:
<TABLE>
<CAPTION>
December 31,
----------------------------
1998 1999
----------- --------------
<S> <C> <C>
Deferred tax liabilities -- current
Accounts receivable and other current assets ......... $ 73,100 $ 2,664,500
Deferred tax assets -- current
Accounts payable and accrued expenses ................ (40,600) (2,536,000)
--------- ------------
Net deferred tax liability ........................... $ 32,500 $ 128,500
========= ============
</TABLE>
On January 1, 2000 the Company will become an accrual basis taxpayer
pursuant to the Internal Revenue Code. This change will result in a reversal of
the deferred tax liabilities of $128,500 and the recognition of a deferred tax
asset of approximately $443,000 and an additional current tax payable of
$141,000 as of January 1, 2000.
NOTE E -- PRO FORMA INCOME STATEMENT INFORMATION (UNAUDITED)
The Company had elected to be taxed as an S Corporation pursuant to the
Internal Revenue Code through November 15, 1999. Pro forma adjustments in the
statements of income for each of the three years in the period ended December
31, 1999 reflect a pro forma provision for income taxes based upon pretax
income, as if the Company had been subject to all applicable Federal, state and
local income taxes for the entire period. As the Company is a cash basis
taxpayer, the pro forma tax provision is calculated assuming that taxes are
reported on a cash basis.
F-10
<PAGE>
NetCreations, Inc.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1997, 1998 and 1999
NOTE E -- PRO FORMA INCOME STATEMENT INFORMATION (UNAUDITED) -- (Continued)
The pro forma income tax provision, after giving effect to the Federal
statutory rate of 34% and an applicable state and local tax provision, consists
of the following:
Year ended December 31,
-----------------------------------------
1997 1998 1999
----------- ----------- -------------
Current
Federal .................. $ 52,000 $115,000 $1,530,000
State and local .......... 33,000 71,000 1,015,500
-------- -------- ----------
Total current .......... 85,000 186,000 2,545,500
-------- -------- ----------
Deferred
Federal .................. 27,000 80,000 (7,000)
State and local .......... 17,000 50,000 (1,500)
-------- -------- ----------
Total deferred ......... 44,000 130,000 (8,500)
-------- -------- ----------
$129,000 $316,000 $2,537,000
======== ======== ==========
The differences between the pro forma provision for income taxes shown in
the statements of income and the pro forma computed income tax expense based on
the Federal statutory corporate rate are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------
1997 1998 1999
----------- ----------- -------------
<S> <C> <C> <C>
Computed income taxes based on Federal statutory rate
of 34% ..................................................... $ 96,000 $231,000 $1,862,000
State and local income taxes net of Federal benefit ......... 33,000 85,000 675,000
-------- -------- ----------
$129,000 $316,000 $2,537,000
======== ======== ==========
</TABLE>
The significant components of the pro forma net deferred tax liability,
assuming a 34% Federal statutory rate and an applicable state and local
provision, are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 1999
------------ ---------------
<S> <C> <C>
Deferred tax liability -- current
Accounts receivable and other current assets ......... $ 309,000 $ 2,664,500
Deferred tax asset -- current
Accounts payable and accrued expenses ................ (172,000) (2,536,000)
---------- ------------
Net deferred tax liability ............................ $ 137,000 $ 128,500
========== ============
</TABLE>
NOTE F -- LINE OF CREDIT
The Company has an available unused line of credit in the amount of
$1,300,000 at December 31, 1999. Borrowings are guaranteed by the Company's
Chief Executive Officer and Chief Technology Officer. The interest rate on such
borrowings is 1% above the bank's prime rate (8.75% at December 31, 1999).
F-11
<PAGE>
NetCreations, Inc.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1997, 1998 and 1999
NOTE G -- LEASES
1. Capital Lease Obligations
The annual maturities of capital lease obligations are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
- ----------------------------------------------------------------
<S> <C>
2000 ................................................ $112,350
2001 ................................................ 107,320
2002 ................................................ 20,541
--------
240,211
Less amount representing interest ................... 26,636
--------
Present value of net minimum lease payments ......... 213,575
Less: Current portion ............................... 112,350
--------
Long term portion ................................... $101,225
========
</TABLE>
2. Operating Lease Commitments
The Company leases office space under the terms of operating leases that
expire at various dates through 2003. Future minimum payments under
noncancellable operating leases consisted of the following at December 31,
1999:
2000 ................................. $194,000
2001 ................................. 198,000
2002 ................................. 202,000
2003 and thereafter .................. 75,000
--------
$669,000
========
The Company paid $49,600 and $136,000 in rent expense for the years ended
December 31, 1998 and 1999, respectively. No rent expense was incurred for the
year ended December 31, 1997, since the stockholders provided minimum
facilities in that year.
NOTE H -- DEFINED CONTRIBUTION PLAN
In 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 1997, 1998 and 1999, the Company
incurred contribution expenses of $60,000, $60,000 and $40,000, respectively,
relating to these plans.
NOTE I -- CONCENTRATIONS
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and cash equivalents
and trade receivables. The Company places its cash investments with high
quality financial institutions. The Company's cash equivalents are invested in
high quality government securities. 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, 1997, 1998 and 1999. During the years ended December 31,
1998 and 1999, revenues generated from the e-mail address lists of two Web
sites each represented 15.3% and 16.8% of revenues, and 0.0% and 7.7%
respectively.
F-12
<PAGE>
NetCreations, Inc.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1997, 1998 and 1999
NOTE I -- CONCENTRATIONS OF CREDIT RISK -- (Continued)
For the year ended December 31, 1998, one reseller accounted for
approximately 7% of net revenues as a reseller and 3.3% of net revenues as a
list owner. In July 1999, the Company terminated its agreement with this
reseller.
NOTE J -- STOCKHOLDERS' EQUITY
a. Common Stock
As of December 31, 1999, there were 15,495,000 shares of common stock
outstanding. 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 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 the Company may designate and issue in the
future.
b. Preferred Stock
The Company's amended certificate authorizes the board of directors,
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. No shares of preferred
stock have been issued.
c. 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. (See Note M) The Plan provides for the
granting of options intended to qualify as incentive stock options under the
Internal Revenue Code and nonqualified options. The Plan will terminate in July
2009 unless terminated earlier. As of September 14, 1999 and as of November 11,
1999, the Company granted options totaling 241,000 to officers and employees
other than the Company's officer/shareholders at an exercise price of $5.00 per
share. Additionally, the Company granted an additional 5,500 shares at prices
less than the fair market value on the date of grant. The options vest ratably
over a three-year period and may be accelerated under certain conditions. The
officer/shareholders of the Company did not receive any of the options or
stock-based compensation. In addition, the Company granted, effective October
8, 1999, options to purchase 100,000 shares of common stock to each of the
three nonmanagement directors at an exercise price per share equal to $10.00
per share. These options vest at a rate of one-third as of the date of the
initial public offering and the remainder vests quarterly over the next two
years and may be accelerated under certain conditions. During the year ended
December 31, 1999, the Company recorded deferred compensation for the above
options granted totaling $2,865,465, of which $552,294 was amortized to expense
during 1999. The amount of compensation expense that will be recognized
subsequent to December 31, 1999 over the next three years, relating to the
options that have been granted through December 31, 1999, is as follows:
F-13
<PAGE>
NetCreations, Inc.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1997, 1998 and 1999
NOTE J -- STOCKHOLDERS' EQUITY -- (Continued)
Year ending December 31,
- --------------------------
2000 ................... $ 955,155
2001 ................... 917,655
2002 ................... 440,361
----------
$2,313,171
==========
The Company accounts for options issued under the intrinsic value method
of APB 25. Had compensation cost been determined based on the fair value at the
grant date for stock option awards consistent with the provisions of SFAS No.
123, the Company's basic and diluted net income per share for the year ended
December 31, 1999 would have been as follows:
Net income
As reported ............................... $ 4,531,508
Pro forma - ............................... $ 4,007,854
Net income per share
As reported - basic and diluted ........... $ 0.37
Pro forma - basic ......................... $ 0.32
Pro forma - diluted ....................... $ 0.33
The weighted-average fair value at the date of grant for options granted
during 1999 was $9.83 per option. The fair value at each option at date of
grant was estimated using the Black-Scholes option pricing model with the
following weighted-average assumptions for grants in 1999:
Expected stock price volatility ......... 73.8%
Expected lives of options ............... 5 years
Risk-free interest rate ................. 6.1%
Expected dividend yield ................. 0%
Information regarding these options for 1999 is as follows:
Nonqualified options
-----------------------
Weighted-
average
exercise
Shares price
---------- ----------
Options outstanding at beginning of year ......... -- --
Granted ......................................... 546,500 $ 7.93
Exercised ....................................... -- --
Cancelled or forfeited .......................... -- --
------- -------
Options outstanding at end of year ............... 546,500 $ 7.93
======= =======
Exercisable ...................................... 100,000 $ 10.00
======= =======
F-14
<PAGE>
NetCreations, Inc.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1997, 1998 and 1999
NOTE J -- STOCKHOLDERS' EQUITY -- (Continued)
The following tables summarize information about stock options outstanding
as of December 31, 1999
<TABLE>
<CAPTION>
Options outstanding Options exercisable
-------------------------------------------- ----------------------------
Number Weighted- Number
outstanding average Weighted- exercisable Weighted
Ranges of as of remaining average as of average
exercise December 31, contractual exercise December 31, exercise
prices 1999 life price 1999 price
- --------------------- -------------- ------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C>
$ 5.00 241,000 4.68 years $ 5.00 -- --
$ 10.00 300,000 4.87 years $ 10.00 100,000 $ 10.00
$19.50 - $31.50 5,500 4.94 years $ 23.25 -- --
</TABLE>
Summary of weighted-average fair value of stock options granted during the
year ended December 31, 1999:
<TABLE>
<CAPTION>
Weighted Average Weighted Average
Exercise Price Fair Value
------------------ -----------------
<S> <C> <C>
Exercise price equals market price on grant date ............ $ 19.50 $ 12.69
Exercise price less than market price on grant date ......... $ 7.91 $ 9.82
</TABLE>
As of December 31, 1999 623,500 options were available for issuance
pursuant to the Plan.
<PAGE>
NOTE K -- NET INCOME AND PRO FORMA NET INCOME PER SHARE
A reconciliation between basic and diluted earnings per share is as
follows:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------
1997 1998 1999
--------------- --------------- ---------------
<S> <C> <C> <C>
Net Income ............................................... $ 260,349 $ 605,863 $ 4,531,508
============ ============ ============
Pro forma net income (unaudited) ......................... $ 154,377 $ 362,091 $ 2,940,508
============ ============ ============
Shares used in the computation of basic net income per
share ................................................... 11,700,000 11,700,000 12,187,315
Potential common shares .................................. -- -- 164,327
------------ ------------ ------------
Shares used in the computation of diluted net income per
share ................................................... 11,700,000 11,700,000 12,351,642
============ ============ ============
Net income per common share -- basic and diluted ......... $ 0.02 $ 0.05 $ 0.37
============ ============ ============
Pro forma net income per common share basic and diluted
(unaudited) ............................................. $ 0.01 $ 0.03 $ 0.24
============ ============ ============
</TABLE>
NOTE L -- EMPLOYMENT AGREEMENTS
The Company has entered into three-year employment agreements with three
of its executive officers. The agreements provide for, among other things,
aggregate annual compensation of $500,000 and for bonuses that will be earned
upon the achievement of specified goals.
In January and February 2000, the Company entered into employment
agreements with four executive officers. These agreements provide for, among
other things, aggregate annual compensation of $815,000 and for bonuses and
performance based options that will be earned upon the achievement of specified
goals. See Note M below.
All of the above agreements include customary non-competition
arrangements.
F-15
<PAGE>
NetCreations, Inc.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1997, 1998 and 1999
NOTE M -- SUBSEQUENT EVENTS (Unaudited)
1. Stock option grants--
In January 2000, the Board of Directors approved an increase in the number
of shares available for issuance pursuant to the 1999 Stock Option Plan to
2,000,000, subject to shareholder approval. In 2000, 1,050,000 options were
granted pursuant to employment agreements and an additional 33,000 shares
were granted to other employees. Of the shares granted pursuant to
employment agreements, an aggregate of 162/3% of these options vest on the
six month anniversary of the date of grant while the remainder vest in
equal quarterly installments over the next ten quarters. The exercise price
of such options was equal to the fair market value on the date of grant.
F-16
<PAGE>
NetCreations, Inc.
Schedule II - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Column C - Additions
--------------------------------------
Column B
Balance at
Beginning (1) Charged to (2) Charged to
Column A Description of Period Costs and Expenses Other Accounts
- ------------------------------------------ ------------ -------------------- ----------------
<S> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1999 ............ $-- $232,402 $--
--- -------- ---
Year ended December 31, 1998(B) ......... -- -- --
--- -------- ---
Year ended December 31, 1997(B) ......... -- -- --
--- -------- ---
</TABLE>
<TABLE>
<CAPTION>
Column E
Column D Balance at
Column A Description Deductions (A) End of Period
- ------------------------------------------ ---------------- --------------
<S> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1999 ............ 82,402 $150,000
------ --------
Year ended December 31, 1998(B) ......... -- --
------ --------
Year ended December 31, 1997(B) ......... -- --
------ --------
</TABLE>
Notes:
(A) Deductions consist of write-offs of uncollectible accounts
(B) There were no items to report on this schedule for the years ended
December 31, 1998 and 1997
S-1
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered
into as of the 6th day of January, 2000 (the "Commencement Date") by and between
NETCREATIONS, INC., a New York corporation (the "Company"), and Mitchell York
(hereinafter called the "Executive").
R E C I T A L S
A. The Executive desires to be employed as the President and
Chief Operating Officer of the Company.
B. The Company desires to employ the Executive as the
President 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 and
the Chief Operating Officer of the Company, shall diligently perform all
services as may reasonably be assigned to the Executive by the Chief Executive
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:
Managing the Company's day-to-day operations.
Maintaining reporting and supervisory responsibility
for all departments of the Company provided, that the Chief Executive Officer of
the Company shall maintain such involvement with departments and individuals as
the Chief Executive may deem to be necessary and appropriate.
Working with the Chief Executive Officer to establish
strategy and goals for the Company and for its operations, including overseeing
the establishment of goals for individuals within departments.
Such general business development activities as the
Chief Executive Officer may assign from time to time.
<PAGE>
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, provided that such assignments of duties to other persons do not
constitute a material or unreasonable diminution in the Executive's office,
title, and duties and responsibilities hereunder. The Executive shall devote the
Executive's full business 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 the (the "Commencement Date") and shall expire at midnight New York
City time on January 6, 2003, 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."
<PAGE>
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 $250,000 (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. Notwithstanding the foregoing, the Base Salary shall increase
by not less than 7% on January 6, 2001 and by not less than an additional 7% on
January 6, 2002.
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 $37,500 per fiscal quarter
of the Company during the Term of employment under this Agreement (each such
quarter hereinafter called a "Bonus Period") 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. Notwithstanding
the foregoing, the maximum potential limit of the Bonuses per Bonus Period shall
increase by not less than 7% on January 6, 2001 and by not less than an
additional 7% on January 6, 2002.
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 and earnings objectives, business development
goals, Company results and performance of the common stock ("Common Stock") of
the Company. For purposes of this Agreement, the term "Representative of the
Company" means the Company's Chief Executive 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 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 fiscal 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 applicable generally to its executive
employees, 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 including, without
<PAGE>
limitation, meals and hotel expenses or car service to the Executive's home when
the Executive is engaged in Company business beyond 9:00 pm at the Company's
offices and appropriate travel and entertainment expenses. During the period
commencing on February 1, 2000 and ending on July 1, 2000 the Company will
reimburse the Executive up to $1,250 per month for hotel expenses in Manhattan,
temporary apartment lease expenses in Manhattan, and car service to the
Executive's home in Bayville, Long Island.
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, without limitation,
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. The Company shall pay or reimburse the Executive for
any and all reasonable expenses the Executive incurs to maintain health care
continuation coverage under Section 4980B of the U.S. Internal Revenue Code of
1986, as amended ("COBRA") for the Executive, the Executive's spouse, and the
Executive's dependents under any and all health care plans of the Executive's
prior employer through May 2, 2000.
4.3 TRANSPORTATION ALLOWANCE. Except as set forth in
Section 4.1, 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. Upon the execution and delivery of this
Agreement and approval of the same by the Company's Board of Directors, the
Company shall grant to the Executive qualified Stock Options (incentive stock
options) to purchase 500,000 shares of the Company's Common Stock at an initial
exercise price of $33.25 per share provided, that this grant is subject to
shareholder approval of amendments to the Company's Stock Option Plan sufficient
to permit that number of incentive Stock Options to be granted to the Executive;
and further provided, that the Company undertakes to seek to obtain such
shareholder approval no later than at its next annual meeting of shareholders.
All of the Stock Options referred to in this paragraph (b) shall be subject to
the terms and conditions set forth on the form of stock option instrument
attached hereto as Exhibit A. The Company represents and warrants that the stock
option instrument shall evidence a valid and enforceable grant of Stock Options
by the Company upon approval of the grant by the Company's Board of Directors.
<PAGE>
c. If the Executive has fulfilled (or, as
determined by the Compensation Committee of the Company's Board of Directors, in
its sole discretion, substantially attained) performance goals to be established
by the Company's Chief Executive Officer for the period of one year terminating
on the first anniversary of the Commencement Date, and/or has fulfilled (or, as
determined by the Compensation Committee of the Company's Board of Directors, in
its sole discretion, substantially attained) performance goals to be established
by the Company's Chief Executive Officer for the one year period ending on the
second anniversary of the Commencement Date or the one year period ending on the
third anniversary of the Commencement Date, on any such anniversary on which the
applicable performance goals have been so fulfilled or so substantially attained
additional Stock Options to purchase 25,000 shares of the Company's Common Stock
of the Company's outstanding shares of Common Stock, shall be issued to the
Executive. These Stock Options are in addition to and not in substitution for
any other Stock Options granted to the Executive. These additional Stock Options
shall be exercisable at the average closing trading price of the Company's
common stock on the principal exchange or market on which its stock is traded
for the five (5) business days ending on the date of issuance, shall be vested
immediately upon grant, and shall otherwise be on substantially the same terms
and conditions as the other Stock Options granted to the Executive pursuant to
Section 4.4(b). All such performance goals established hereunder shall be set
forth in writing and delivered to the Executive prior to the one year period to
which they apply except that performance goals for the first year shall be
delivered to the Executive as soon as is reasonably practicable. Notwithstanding
the foregoing, the grant of additional stock options referred to in this
paragraph is subject to shareholder approval of amendments to the Company's
Stock Option Plan sufficient to permit that number of additional incentive Stock
Options to be granted to the Executive. The Company undertakes to seek to obtain
such shareholder approval no later than at its next annual meeting of
shareholders.
4.5 VACATION BENEFITS. The Executive shall be
entitled to four (4) weeks of vacation time each calendar year during the Term
of employment under this Agreement, to be taken at such times as the Executive
and the Company shall mutually determine. 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 unless otherwise mutually agreed
with the Chief Executive Officer of the Company. Vacation time that is not used
in one year may be carried over to the next year but may not be carried over
beyond that year.
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. In addition, upon execution of this Agreement the Company shall
reimburse the Executive (upon presentation of reasonable documentation therefor)
for the Executive's reasonable legal fees in connection with the negotiation of
this Agreement, not to exceed $10,000.
5. TERMINATION.
<PAGE>
5.1 TERMINATION FOR CAUSE. The Company shall at all
times have the right, upon written notice (which shall identify the basis for
dismissal per this Section and describe in general terms conduct or
circumstances constituting a basis for dismissal) 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 illegal 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 fiduciary duties in
connection with the Executive's services hereunder, (v) conviction of a felony;
(vi) conviction of any other crime or misdemeanor involving moral turpitude
which, in the Company's reasonable judgment, if the same were to become publicly
known or known within the Company or to its employees, suppliers or customers,
may be materially adverse to the reputation of the Company or the Executive, may
materially impair the standing of the Company or the Executive in the business
community or local community or with the employees, suppliers and customers of
the Company, may materially impair the Executive's ability to continue to be an
effective officer and representative of the Company, or may tend to expose the
Company or the Executive to ridicule; or (vii) 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,
earned but unpaid Bonuses and earned but unused vacation days (treating vacation
days, for this purpose, as being earned in accordance with the Company's
policies as may be applicable to executives generally from time to time) to the
date of termination. The Company shall have no further liability hereunder other
than its obligations, if any, (i) in accordance with the terms of options
granted to the Executive through the date of termination, (ii) reimbursement for
reasonable business expenses incurred by the Executive prior to the date of
termination, subject, however, to the provisions of Section 4.1, and (iii)
applicable statutes..
5.2 DISABILITY. The Company shall at all times have
the right, upon prior 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 such a 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 applicable long-term disability plan if any is 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 (which date shall not be prior to the date
upon which such notice is given), (ii) pay to the Executive the Executive's
accrued but unpaid Incentive Compensation, if any, for any Bonus Period ending
<PAGE>
on or before the date of termination of the Executive's employment with the
Company, (iii) continue to pay the Executive through the date which is six (6)
months after such termination (the period ending on such date being hereinafter
called the "Continuation Period"), an amount equal to the Base Salary the
Executive was receiving at the time of the Executive's termination hereunder due
to 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 hereunder 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 such
Incentive Compensation and 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 its obligations, if any, (i) in accordance with the terms
of options granted to the Executive through the date of termination, (ii)
reimbursement for reasonable business expenses incurred by the Executive prior
to the date of termination, subject, however, to the provisions of Section 4.1,
and (iii) applicable statutes..
5.3 DEATH. Upon the death of the Executive during the
Term of Employment the Executive's employment by the Company will automatically
terminate and, reasonably promptly thereafter, 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 at the
time of the Executive's death through the date which is six (6) months after
such death (the period ending on such date being hereinafter called the "Death
Continuation Period"), 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 Death
Continuation Period, in the manner and at such times as such Incentive
Compensation would have been payable or provided to the Executive. The Company
shall have no further liability hereunder other than its obligations, if any,
(i) in accordance with the terms of options granted to the Executive through the
date of termination, (ii) reimbursement for reasonable business expenses
incurred by the Executive prior to the date of termination, subject, however, to
the provisions of Section 4.1, and (iii) applicable statutes.
5.4 TERMINATION WITHOUT CAUSE. At any time the
Company shall have the right to terminate the Executive's employment hereunder
without Cause by prior 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
<PAGE>
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 date which is six (6) months after such termination
(the period ending on such date being hereinafter called the "Non-Cause
Termination 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 Non-Cause Termination
Continuation Period which would cause the relevant insurance and other benefits
available to the Executive to be reduced or eliminated) during the Non-Cause
Termination 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 its obligations, if any,
(i) in accordance with the terms of options granted to the Executive through the
date of termination, (ii) reimbursement for reasonable business expenses
incurred by the Executive prior to the date of termination, subject, however, to
the provisions of Section 4.1, and (iii) applicable statutes.
5.5 TERMINATION BY EXECUTIVE.
a. The Executive shall at all times have the
right, upon ninety (90) days prior written notice to the Company, to terminate
the Term of Employment.
b. Upon termination of the Term of
Employment (not pursuant to Section 5.5(c) or Section 5.6) pursuant to this
Section 5.5 by the Executive without Good Reason, 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
(iii) continue to provide the Executive with the Benefits the Executive was
receiving under Section 4.2 hereof through the date of such termination (to the
extent permitted under the terms of applicable insurance and other benefit
programs of the Company then in effect and covering the Executive, provided that
the Company will take no affirmative action from the time of receiving notice of
termination from the Executive through the date of termination which would cause
the relevant insurance and other benefits available to the Executive to be
reduced in any material fashion or eliminated except as such actions are
applicable to all executives of the Company generally), 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 its
obligations, if any, (i) in accordance with the terms of options granted to the
Executive through the date of termination, (ii) reimbursement for reasonable
business expenses incurred by the Executive prior to the date of termination,
subject, however, to the provisions of Section 4.1, and (iii) applicable
statutes.
<PAGE>
c. Upon termination of the Term of
Employment (not pursuant to Section 5.5(b) or Section 5.6) by the Executive for
Good Reason, 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 date which is six (6) months after such termination (the period ending on
such date being hereinafter called the "Good Cause Termination 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 effect 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 Good Cause Termination Continuation Period
which would cause the relevant insurance and other benefits available to the
Executive to be reduced or eliminated except as such actions are applicable to
all executives of the Company generally) during the Good Cause Termination
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 its obligations, if any, (i) in
accordance with the terms of options granted to the Executive through the date
of termination, (ii) reimbursement for reasonable business expenses incurred by
the Executive prior to the date of termination, subject, however, to the
provisions of Section 4.1, and (iii) applicable statutes.
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 and position (including status, offices, titles and reporting
relationships) 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;
<PAGE>
(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 hereof 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 unexercised options which
shall have vested before or 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:
<PAGE>
(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 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.
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.
<PAGE>
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 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.
<PAGE>
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.
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
<PAGE>
(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 fulfillment
of the Executive's obligations to 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. [INTENTIONALLY OMITTED]
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.
<PAGE>
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 9 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.
Notwithstanding the foregoing, this Agreement does not modify or supersede the
<PAGE>
agreement whereby the Executive agreed to join the Company's Board of Directors,
and said agreement remains in full force and effect. 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 or sent by
same-day or overnight courier, sent by registered or certified mail, all
applicable postage prepaid, 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. Notwithstanding
anything to the contrary in this Agreement, neither this Agreement nor the Stock
Options contemplated hereby shall be effective or binding until the same shall
have been approved by the Company's Board of Directors., 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.
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
<PAGE>
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).
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.
<PAGE>
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.]
e. The provisions of this Section 20 shall survive
the termination of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
COMPANY:
NETCREATIONS, INC.
By:___________________________________
Name: Rosalind Resnick
Title: Chief Executive Officer
EXECUTIVE:
By:___________________________________
Mitchell York, individually
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered
into as of the 6th day of January, 2000 (the "Commencement Date") by and between
NETCREATIONS, INC., a New York corporation (the "Company"), and Scott Wolf
(hereinafter called the "Executive").
R E C I T A L S
A. The Executive desires to be employed as the Senior Vice
President, Sales & Business Development of the Company.
B. The Company desires to employ the Executive as the Senior
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 Senior Vice
President, Sales & Business Development of the Company, shall diligently perform
all services as may be assigned to the Executive by the Chief Executive Officer,
the President, 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:
Ensuring that the Company meets and exceeds its
targets for revenue through aggressive development of new lists sources,
improvement of existing list owner productivity, and sales through all channels
(direct, brokers, online resellers and others as they develop).
Participating as a member of the Company's senior
management team in new product development and implementation strategies.
Such general business development activities as the
Chief Executive Officer, the President and the Chief Operating Officer may
assign from time to time.
<PAGE>
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 as long as the Executive's reporting
responsibilities and the business functions of the Company reporting to the
Executive remain substantially consistent with the Executive's duties and title
as expressed at the inception of this Agreement. 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 the (the "Commencement Date") and shall expire at midnight New York
City time on January 5, 2003, 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."
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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 $200,000 (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 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, except that during the first
three months after the Commencement Date, the Bonuses shall be not less than
$8,333 per month. 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, revenues and pretax income
goals. For purposes of this Agreement, the term "Representative of the Company"
means the Company's Chief Executive 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 including, without limitation, the Executive's reasonable cellular
telephone charges.
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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. Upon the execution and delivery of this
Agreement and approval of the same by the Company's Board of Directors, the
Company shall grant to the Executive qualified Stock Options (incentive stock
options) to purchase 200,000 shares of the Company's outstanding Common Stock at
an initial exercise price of $33.25 per share. All of the Stock Options referred
to in this paragraph (b) shall be subject to the terms and conditions set forth
on the form of stock option instrument attached hereto as Exhibit A.
c. If the Executive has fulfilled (or, as
determined by the Compensation Committee of the Company's Board of Directors, in
its sole discretion, substantially attained) performance goals to be established
by the Company's Chief Executive Officer for the period of one year terminating
on the first anniversary of the Commencement Date, and/or has fulfilled (or, as
determined by the Compensation Committee of the Company's Board of Directors, in
its sole discretion, substantially attained) performance goals to be established
by the Company's Chief Executive Officer for the one year period ending on the
second anniversary of the Commencement Date or the one year period ending on the
third anniversary of the Commencement Date, on any such anniversary on which the
applicable performance goals have been so fulfilled or so substantially attained
additional Stock Options to purchase 25,000 shares of the Company's Common Stock
of the Company's outstanding shares of Common Stock, shall be issued to the
Executive. These Stock Options are in addition to and not in substitution for
any other Stock Options granted to the Executive. These additional Stock Options
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shall be exercisable at the average closing trading price of the Company's
common stock on the principal exchange or market on which its stock is traded
for the five (5) business days ending on the date of issuance, shall be vested
immediately upon grant, and shall otherwise be on substantially the same terms
and conditions as the other Stock Options granted to the Executive pursuant to
Section 4.4(b). All such performance goals established hereunder shall be set
forth in writing and delivered to the Executive prior to the one year period to
which they apply except that performance goals for the first year shall be
delivered to the Executive as soon as is reasonably practicable and in any event
by the end of February 2000.
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 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
and earned but unpaid Incentive Compensation 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
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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 date which is six (6) months after the
termination (but no later than the Expiration Date) (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 effect 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. 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 and shall 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. 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).
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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 hereof 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
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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 and not lapsed in accordance with their terms before or 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
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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 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.
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, 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.
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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.
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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 may 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
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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, with a copy to Roger J. Breene, Esq., Wolff & Samson, 5
Becker Farm Road, Roseland, New Jersey 07068, 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.
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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.
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
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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.]
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:
Title:
EXECUTIVE:
By:___________________________________
Scott Wolf, individually
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EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered
into as of the 2nd day of February, 2000 (the "Commencement Date") by and
between NETCREATIONS, INC., a New York corporation (the "Company"), and Allison
Fillmore (hereinafter called the "Executive").
R E C I T A L S
A. The Executive desires to be employed as the Senior Vice President,
Marketing of the Company.
B. The Company desires to employ the Executive as the Senior Vice
President, Marketing 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 Senior Vice President, Marketing of
the Company, shall diligently perform all services as may be assigned to the
Executive by the Chief Executive Officer, the President, 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:
Developing and managing programs defining and implementing the
Company's strategic marketing objectives.
Creating and managing the Company's brand identity to increase the
level of awareness of the Company and its products/services among leading Web
sites, the direct marketing industry, and investors.
Creating dynamic advertising and public relations programs that
increase the Company's visibility among its core customer groups.
Participating as a member of the Company's senior management team in
developing and implementing marketing strategies.
<PAGE>
Such general business development activities as the Chief Executive
Officer, the President and the Chief Operating 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 responsibilities hereunder as long as the Executive's reporting
responsibilities and the business functions of the Company reporting to the
Executive remain substantially consistent with the Executive's duties and title
as expressed at the inception of this Agreement. 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 civic or
charitable boards or committees with the prior approval of the Company, which
shall not be unreasonably withheld, (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. Notwithstanding anything to the contrary contained herein, the
Executive need not devote more than 5 hours per week to the Executive's duties
pursuant to this Agreement from February 2, 2000 through March 12, 2000, but
shall perform such duties on a full time basis commencing March 13, 2000;
provided, that in no event shall the Executive otherwise breach the terms and
conditions of this Agreement during the period from February 2, 2000 through
March 12, 2000.
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 (the
"Commencement Date") and shall expire at midnight New York City time on February
1, 2003, 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
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<PAGE>
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
$140,000 (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. Notwithstanding the foregoing, during the period from
February 2, 2000 through March 12, 2000, the Executive shall only be paid at a
rate of $583.00 per day worked.
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 $60,000 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 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,
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, revenues and pretax income goals. For purposes of this Agreement,
the term "Representative of the Company" means the Company's Chief Executive
Officer or President. 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."
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Notwithstanding anything to the contrary contained herein, the initial Key
Initiatives will be established by the Company's President within thirty (30)
days of the date of this Agreement.
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 including, without limitation, the Executive's reasonable cellular
telephone charges.
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 shall pay or
reimburse the Executive for any and all reasonable expenses the Executive incurs
to maintain health care continuation coverage under Section 4980B of the U.S.
Internal Revenue Code of 1986, as amended ("COBRA") for the Executive, the
Executive's spouse, and the Executive's dependents under any and all health care
plans of the Executive's prior employer through May 2, 2000 or such earlier date
as the Executive shall be covered by the Company's then existing health care
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 Stock Options, intended to be incentive
stock options under Section 422 of the Internal Revenue Code of 1986, as
amended, to purchase the number of shares of the Company's Common Stock which
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<PAGE>
will constitute 150,000 shares of the Company's outstanding Common Stock. All of
the Stock Options referred to in this paragraph (b) shall have certain
characteristics:
(i) the Stock Options shall vest as follows for so long as the
Executive is continuously employed by the Company as its Senior Vice President,
Marketing: 16.667% of the Stock Options shall vest on August 2, 2000, and the
balance of the Stock Options shall vest thereafter in 8.334% increments on each
quarterly anniversary of that date until the entire 150,000 options have vested,
in each case subject to continued 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 close of business on February 1, 2005 at an initial exercise price of $33.50
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 customary in options granted by the Company;
(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 unless
the Executive has executed a written instrument, reasonably satisfactory to the
Executive and to the Company evidencing (a) the Executive's investment intent
and customary investment representations to substantiate compliance with
applicable securities laws, and (b) 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.
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
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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 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
and earned but unpaid Incentive Compensation 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 date which is six (6) months after the termination (but no later
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than the Expiration Date) (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
effect 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
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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 and
shall 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. 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 thereof given
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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 hereof 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 and not lapsed in
accordance with their terms before or 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).
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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 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.
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
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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, 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
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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.
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.
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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 may 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
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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.
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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, with a copy to such other person as the Executive may
indicate from time to time by written notice to 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.
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
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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).
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
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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.
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:
Title:
EXECUTIVE:
By:___________________________________
Allison Fillmore, individually
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EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered
into as of the 2nd day of February, 2000 (the "Commencement Date") by and
between NETCREATIONS, INC., a New York corporation (the "Company"), and Tej
Anand (hereinafter called the "Executive").
R E C I T A L S
A. The Executive desires to be employed as the Chief
Information Officer of the Company.
B. The Company desires to employ the Executive as the Chief
Information 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
Information Officer of the Company, shall diligently perform all services as may
be assigned to the Executive by the Chief Executive Officer, the President, 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 Provide day-to-day management of the systems staff and ensure the team is
prepared to support a rapidly-growing business which has multiple
markets/channels. Must achieve a high degree of short-term reliability and
build a plan for the continued operation of mission-critical systems in the
event of a major outage or "acts of God."
o Determine what it would take to build a first-class team of professionals who
can plan and implement simultaneous initiatives in a company which is
experiencing explosive growth.
o Utilize project management skills to plan and implement several major systems
projects which will affect the efficiency of all business functions.
o Negotiate major contracts regarding software licenses, telecommunications
hardware and other outside services.
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o Implement an architecture and infrastructure which can retrieve/distribute
all critical information from varied sources.
o Ensure the transaction platform is data secure and can handle a wide variety
of systems.
o Manage a back office that is scalable.
o Establish credibility throughout the organization and set the example as a
proactive senior manager who earns respect by demonstrating a sound
understanding of the business goals and objectives.
o Ensure the executive management team and "clients" are thoroughly informed.
Provide the necessary direction regarding the requirements for integrated
executive information and its effective utilization.
Participate in the product development process for the technical design and
implementation of all NetCreations products and services.
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 as long as the Executive's reporting
obligations and supervisory role in respect to those functions are not
materially changed. 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.
Notwithstanding anything to the contrary contained herein, the Executive need
not devote more than 5 hours per week to the Executive's duties pursuant to this
Agreement from February 2, 2000 through March 1, 2000, but shall perform such
duties on a full time basis commencing March 2, 2000; provided, that in no event
shall the Executive otherwise breach the terms and conditions of this Agreement
during the period from February 2, 2000 through March 1, 2000.
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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 (the "Commencement Date") and shall expire at the close of
business on February 1, 2003, 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 Two Hundred Thousand Dollars ($200,000) (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. Notwithstanding the
foregoing, during the period from February 2, 2000 through March 1, 2000, the
Executive shall only be paid at a rate of $100 per day worked.
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 One Hundred Fifty Thousand
Dollars ($150,000) 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 can be increased, but not
decreased, at any time or from time to time.
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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, revenues and pretax income goals. For purposes of this Agreement,
the term "Representative of the Company"" means the Company's Chief Executive
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
February 2, 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.
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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 Stock Options, intended to
be incentive stock options under Section 422 of the Internal Revenue Code of
1986, as amended, to purchase the number of shares of the Company's Common Stock
which will constitute 200,000 shares of the Company's outstanding Common Stock.
All of the Stock Options referred to in this paragraph (b) shall have certain
characteristics:
(i) the Stock Options shall vest as follows
for so long as the Executive is continuously employed by the Company as its
Chief Information Officer: 16.667 of the Stock Options shall vest on August 2,
2000, and the balance of the Stock Options shall vest thereafter in 8.334%
increments on each quarterly anniversary of that date until the entire 200,000
options have vested, in each case subject to continued 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 close of business on February 1, 2005 at an initial
exercise price of $33.50 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 customary in
options granted by the Company;
(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
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(vii) the Stock Options shall not be
exercisable at any time unless the Executive has executed a written instrument,
reasonably satisfactory to the Executive and to the Company evidencing (a) the
Executive's investment intent and customary investment representations to
substantiate compliance with applicable securities laws, and (b) 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.
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 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
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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 date which is six (6) months after the
termination but no later than the Expiration Date) (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. 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 and accrued Incentive Compensation 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 hereof 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
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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.
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c. Notwithstanding the foregoing, the term
"Change in Control" shall NOT include 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.
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 one (1) 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
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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.
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
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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.
13
<PAGE>
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
14
<PAGE>
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.
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
15
<PAGE>
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.
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).
16
<PAGE>
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.
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:___________________________________
EXECUTIVE:
By:___________________________________
Tej Anand, individually
17
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<NAME> NET CREATIONS INC.
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