<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 17, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
DIGITAL IMPACT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 7310 94-3286913
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
177 BOVET ROAD
SAN MATEO, CALIFORNIA 94402
(650) 356-3400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
WILLIAM PARK
CHIEF EXECUTIVE OFFICER
DIGITAL IMPACT, INC.
177 BOVET ROAD
SAN MATEO, CALIFORNIA 94402
(650) 356-3400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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<S> <C>
JEFFREY D. SAPER, ESQ. ALAN F. DENENBERG, ESQ.
SELIM DAY, ESQ. SHEARMAN & STERLING
DAVID R. KING, ESQ. 1550 EL CAMINO REAL, SUITE 100
AVA M. HAHN, ESQ. MENLO PARK, CA 94025
WILSON SONSINI GOODRICH & ROSATI (650) 330-2200
PROFESSIONAL CORPORATION
650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304
(650) 493-9300
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement is declared effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1)(2) REGISTRATION FEE
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Common Stock, par value $0.001 per share.................... $65,000,000 $18,100.00
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</TABLE>
(1) Includes shares that the Underwriters have the option to purchase solely to
cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(a).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THE PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED SEPTEMBER 17, 1999
Shares
[LOGO]
DIGITAL IMPACT
Common Stock
------------------
Prior to this offering, there has been no public market for our common
stock. The initial public offering price of the common stock is expected to be
between $ and $ per share. We have applied to list our common stock
on The Nasdaq Stock Market's National Market under the symbol "MPCT."
The underwriters have an option to purchase a maximum of
additional shares to cover over-allotments of shares.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 7.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS DIGITAL IMPACT
-------- ------------- --------------
<S> <C> <C> <C>
Per Share............................................ $ $ $
Total................................................ $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about
, 1999.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON
HAMBRECHT & QUIST
DONALDSON, LUFKIN & JENRETTE
U.S. BANCORP PIPER JAFFRAY
The date of this prospectus is , 1999.
<PAGE> 3
------------------
TABLE OF CONTENTS
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Page
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PROSPECTUS SUMMARY ............... 3
RISK FACTORS ..................... 7
YOU SHOULD NOT RELY ON
FORWARD-LOOKING
STATEMENTS ..................... 16
USE OF PROCEEDS .................. 16
DIVIDEND POLICY .................. 16
CAPITALIZATION ................... 17
DILUTION ......................... 18
SELECTED FINANCIAL DATA .......... 19
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ...... 21
</TABLE>
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<CAPTION>
Page
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BUSINESS ......................... 29
MANAGEMENT ....................... 43
CERTAIN TRANSACTIONS ............. 53
PRINCIPAL STOCKHOLDERS ........... 55
DESCRIPTION OF CAPITAL STOCK ..... 57
SHARES ELIGIBLE FOR FUTURE
SALE ........................... 60
UNDERWRITING ..................... 62
NOTICE TO CANADIAN RESIDENTS ..... 65
LEGAL MATTERS .................... 66
EXPERTS .......................... 66
WHERE YOU CAN FIND OTHER DIGITAL
IMPACT INFORMATION ............. 66
INDEX TO FINANCIAL STATEMENTS .... F-1
</TABLE>
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 1999 (25 DAYS AFTER THE COMMENCEMENT OF THIS
OFFERING), ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR
NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN
ACTING AS AN UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 4
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all the information you should
consider before buying shares in this offering. You should read the entire
prospectus carefully.
DIGITAL IMPACT, INC.
Digital Impact offers Internet direct marketing, or e-marketing, services
to businesses that wish to communicate more effectively with their customers
online through email. We combine proprietary technologies, rigorous business
processes and expertise developed over thousands of email campaigns to provide a
comprehensive, outsourced e-marketing solution. The services we provide are
designed to maximize our clients' return on their marketing investment.
Our core set of services includes campaign management, targeting and
personalization, email format optimization, campaign tracking and reporting, and
database hosting and management. We sell these services under the name Merchant
Mail. In addition, we recently introduced the Email Exchange Network, an online
marketing network that provides our clients with a new method to acquire
additional online customers.
Businesses and other marketing organizations spent an estimated $285
billion on general advertising in 1998, of which $160 billion was spent on
direct marketing, according to the Direct Marketing Association. To capitalize
on the growth of e-commerce, businesses are increasingly shifting this spending
to online advertising and direct marketing. Forrester Research projects that
total Internet advertising expenditures in the U.S. will increase from $1.3
billion in 1998 to over $10 billion in 2002. Forrester also estimates that
Internet direct marketing will account for 60%, or $6.2 billion, of these
expenditures in 2002, up from 15% in 1998.
Email, the most widely used application on the Internet today, is a
critical element of Internet direct marketing. Email offers businesses
significant advantages over paper-based communications, including more rapid
delivery, reduced costs and a greater degree of personalization. E-marketing
campaigns using email also generate response rates that are between 3 and 10
times higher than the response rates for traditional direct mail campaigns.
However, many businesses do not have the desire or the ability to effectively
design, implement and manage their own e-marketing campaigns.
We offer our clients a suite of technology-enabled services that includes
email marketing services, customer acquisition tools, data mining and strategic
analysis and client support services. These services provide our clients with
the following benefits:
- Targeted content relevant to each recipient.
- Personalized formatting of customer emails.
- Real-time performance tracking and campaign analysis.
- Substantial e-marketing domain expertise.
- A robust and scalable infrastructure.
- Significantly improved time to market.
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Our objective is to be the leading provider of technology-enabled,
e-marketing services. As part of our strategy, we intend to:
- Expand our service offerings.
- Exploit new market opportunities.
- Leverage our database of 20 million consumer profiles.
- Establish the Email Exchange Network as a leading service for client
acquisition.
- Build our brand.
We were incorporated in October 1997 and commenced sales of our services in
December 1997. Our principal executive offices are located at 177 Bovet Road,
Suite 200, San Mateo, California, 94402, and our telephone number is (650)
356-3400. Our web site is located at www.digitalimpact.com. Information
contained on our web site does not constitute part of this prospectus.
Merchant Mail and Digital Impact are our trademarks. Other trademarks or
service marks appearing in this prospectus are trademarks or service marks of
the companies that use them.
4
<PAGE> 6
THE OFFERING
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Common stock offered................. shares
Common stock to be outstanding after
this offering...................... shares
Use of proceeds...................... For general corporate purposes,
principally working capital.
Proposed Nasdaq National Market
symbol............................. MPCT
</TABLE>
- -------------------------
The share amounts in this table are based on shares outstanding as of June
30, 1999 and our shares of series C convertible preferred stock issued in July
1999. This table excludes:
- 8,795,000 shares of common stock reserved for issuance under our 1998
stock plan, of which options to purchase 2,911,208 shares were
outstanding as of June 30, 1999, at a per share weighted average exercise
price of $0.15.
- 128,000 shares of convertible preferred stock that are issuable upon the
exercise of outstanding warrants, at a per share weighted average
exercise price of $0.72, and are convertible into 128,000 shares of
common stock immediately before completion of this offering.
- 1,200,000 shares reserved for issuance under our 1999 employee stock
purchase plan and our 1999 director option plan.
-------------------------
Except as otherwise indicated, information in this prospectus is based on
the following assumptions:
- Our reincorporation in Delaware.
- The conversion of each outstanding share of our convertible preferred
stock into one share of common stock immediately before completion of
this offering.
- The filing of our amended and restated certificate of incorporation upon
completion of this offering.
- No exercise of the underwriters' over-allotment option.
5
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SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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<CAPTION>
OCTOBER 16, 1997 THREE MONTHS ENDED
(DATE OF INCEPTION) YEAR ENDED JUNE 30,
TO MARCH 31, MARCH 31, -------------------
1998 1999 1998 1999
------------------- ---------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................... $ 4 $ 1,307 $ 25 $ 1,385
Cost of revenues.............. 4 674 24 672
------ ------- ------ -------
Gross margin.................. -- 633 1 713
------ ------- ------ -------
Operating expenses:
Research and development.... 27 966 77 843
Sales and marketing......... -- 670 46 1,010
General and
administrative........... 77 1,151 86 1,047
Stock-based compensation.... -- 1,157 95 977
------ ------- ------ -------
Total operating
expenses............... 104 3,944 304 3,877
------ ------- ------ -------
Loss from operations.......... (104) (3,311) (303) (3,164)
Interest income (expense),
net......................... 1 71 6 4
------ ------- ------ -------
Net loss...................... $ (103) $(3,240) $ (297) $(3,160)
====== ======= ====== =======
Net loss per common share --
basic and diluted........... $(0.45) $ (2.86) $(0.90) $ (1.27)
====== ======= ====== =======
Shares used in net loss per
common share calculation --
basic and diluted........... 231 1,133 330 2,497
====== ======= ====== =======
Pro forma net loss per share--
basic and diluted
(unaudited)................. $ (0.39) $ (0.25)
======= =======
Shares used in pro forma net
loss per share
calculation -- basic and
diluted (unaudited)......... 8,370 12,541
======= =======
</TABLE>
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<CAPTION>
JUNE 30, 1999
---------------------
PRO FORMA
ACTUAL AS ADJUSTED
------ -----------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 900 $
Working capital (deficit)................................. (912)
Total assets.............................................. 5,719
Capital lease obligations, less current portion........... 352
Long term debt, less current portion...................... 196
Stockholders' equity...................................... 2,196
</TABLE>
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The preceding balance sheet data is shown on an actual basis and a pro
forma as adjusted basis to give effect to the issuance of the series C
convertible preferred stock in July 1999 and the sale of shares of common stock
by Digital Impact in this offering at an assumed initial public offering price
of $ per share, after deducting the estimated underwriting discounts and
commissions and offering expenses.
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RISK FACTORS
An investment in our common stock is very risky. You should carefully
consider the risks described below, together with all of the other information
in this prospectus, before buying shares in this offering.
OUR LIMITED OPERATING HISTORY MAKES FINANCIAL FORECASTING AND EVALUATION OF OUR
BUSINESS DIFFICULT.
We were incorporated in October 1997 and first recorded revenue in December
1997. Our limited operating history makes financial forecasting and evaluation
of our business difficult. Since we have limited financial data that you can use
to evaluate our business, any predictions about our future revenues and expenses
may not be as accurate as they would be if we had a longer business history.
Because of the emerging nature of the e-marketing industry, we cannot determine
trends that may emerge in our market or affect our business. The revenue and
income potential of the e-marketing industry, and our business, are unproven.
WE HAVE A HISTORY OF LOSSES, WE EXPECT CONTINUING LOSSES AND WE MAY NEVER
ACHIEVE PROFITABILITY.
Our operating costs have exceeded our revenues in each quarter since our
inception in October 1997. We incurred net losses of approximately $3.3 million
from October 1997 through March 31, 1999 and approximately $3.2 million for the
three months ended June 30, 1999. We had an accumulated deficit of approximately
$6.5 million as of June 30, 1999. We cannot assure you that our revenues will
continue to grow or that we will achieve or maintain profitability in the
future. In addition, we expect that our product development, sales and marketing
and administrative expenses will increase significantly in the future.
Accordingly, we will need to significantly increase our revenues to achieve and
maintain profitability. If we do not achieve or sustain profitability in the
future, we may be unable to continue our operations.
OUR OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY AND OUR STOCK PRICE MAY
DECLINE IF WE FAIL TO MEET THE EXPECTATIONS OF ANALYSTS AND INVESTORS.
Our operating results are difficult to predict. Our future quarterly
operating results may fluctuate and may not meet the expectations of securities
analysts or investors. If this occurs, the price of our common stock would
likely decline. In addition to the risks discussed elsewhere in this prospectus,
the factors that may cause our operating results to fluctuate include the
following:
- The fixed nature of many of our expenses, such as salaries and rent.
- The loss of a major client or the timing of a significant e-marketing
campaign.
- The absence of continuing obligations of our clients to purchase services
from us.
- The variability in our sales cycle, which historically has ranged from
one to six months.
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<PAGE> 9
SEASONAL TRENDS MAY MAKE IT DIFFICULT FOR INVESTORS TO PREDICT OUR QUARTERLY AND
ANNUAL OPERATING RESULTS.
The traditional direct marketing industry has typically generated lower
revenues during the summer months and higher revenues during the year-end
months. We believe our business may be subject to similar effects, but our
limited operating history is insufficient to predict the existence or magnitude
of these effects. If we do experience these effects, investors may not be able
to predict our quarterly or annual operating results.
OUR BUSINESS WILL SUFFER IF BUSINESSES OR CONSUMERS FAIL TO ACCEPT E-MARKETING.
The market for e-marketing is new and rapidly evolving, and our business
will be harmed if sufficient demand for our services does not develop. Our
current and planned services are very different from the traditional methods
that many of our clients have historically used to attract new customers and
maintain customer relationships. Demand for e-marketing, including our services,
may not materialize for several reasons, including:
- Businesses that have already invested substantial resources in other
methods of marketing and communications may be reluctant to adopt new
marketing strategies and methods.
- Consumers and businesses may choose not to accept e-marketing messages.
- Businesses may elect not to engage in e-marketing because of concerns
over privacy and unsolicited commercial email.
- The effectiveness of direct marketing through the use of emails may
diminish significantly if the volume of direct marketing email saturates
consumers.
IF WE ARE UNABLE TO INCREASE THE NUMBER OF OUR CLIENTS, OUR REVENUES WILL
PROBABLY NOT GROW.
We expect that our revenues will grow from period to period based in large
part on our ability to attract additional clients. If we are unable to retain
our current clients and attract additional clients, our revenues will probably
not grow which could cause our stock price to fall.
A SMALL NUMBER OF CLIENTS ACCOUNT FOR A HIGH PERCENTAGE OF OUR REVENUES, AND THE
LOSS OF A MAJOR CLIENT COULD RESULT IN LOWER THAN EXPECTED REVENUES.
A small number of clients account for a high percentage of our revenues.
The loss of a major client could harm our business. For the fiscal year ended
March 31, 1999, three clients accounted for 26.8%, 11.5% and 10.9% of our
revenues. For the three months ended June 30, 1999, four of our clients
accounted for 11.3%, 11.0%, 10.8% and 10.3% of our revenues. We expect that a
small number of clients will continue to account for a high percentage of our
revenues for at least the foreseeable future.
COMPETITION IN THE E-MARKETING INDUSTRY IS INTENSE AND, IF WE ARE UNABLE TO
COMPETE EFFECTIVELY, THE DEMAND FOR, OR THE PRICES OF, OUR SERVICES MAY DECLINE.
The market for e-marketing is intensely competitive, rapidly evolving and
subject to rapid technological change. We expect the intensity of competition to
increase significantly
8
<PAGE> 10
in the future because of the attention the Internet has received as a medium for
advertising and direct marketing and because there are no significant barriers
to entry into our market. Intense competition may result in price reductions,
reduced sales, gross margins and operating margins, and loss of market share.
Our principal competitors include:
- Providers of e-marketing solutions such as Acxiom and its affiliate
Bigfoot, @Once, Exactis.com, Kana Communications, L-Soft, Media Synergy,
Message Media, Net Creations, Responsys.com and Yesmail.com.
- The in-house information technology departments of our existing and
prospective clients.
In addition, we expect competition to persist and intensify in the future,
which could harm our ability to increase sales and maintain our prices. In the
future, we may experience competition from Internet service providers,
advertising and direct marketing agencies and other large established businesses
such as America Online, DoubleClick, Microsoft, IBM, AT&T, Yahoo!, ADVO and the
Interpublic Group of Companies. Each of these companies possess large, existing
customer bases, substantial financial resources and established distribution
channels and could develop, market or resell a number of e-marketing solutions.
Such potential competitors may also choose to enter the market for e-marketing
by acquiring one of our existing competitors or by forming strategic alliances
with such competitors. Any of these occurrences could harm our ability to
compete effectively.
For a further discussion of our competition, please see
"Business -- Competition."
RAPID TECHNOLOGICAL CHANGES COULD CAUSE OUR SERVICES TO BECOME OBSOLETE OR
REQUIRE US TO REDESIGN OUR SERVICES.
The market for e-marketing services is characterized by rapid technological
change. Our services could become obsolete and unmarketable if we are unable to
adapt our services to these new technologies. For example, the emergence of new
media formats such as streaming video and audio may require us to adapt our
services to remain competitive which could be costly and time-consuming.
OUR BUSINESS WILL SUFFER IF WE DO NOT ATTRACT AND RETAIN ADDITIONAL
HIGHLY-SKILLED PERSONNEL.
If we fail to identify, attract, retain and motivate highly skilled
personnel our business could be harmed. We plan to significantly expand our
operations, and we will need to hire additional personnel as our business grows.
Competition for qualified personnel is intense. In particular, we have
experienced difficulties in hiring highly skilled technical and client services
personnel due to significant competition for experienced personnel in our
market.
LOSS OF OUR KEY EMPLOYEES COULD HARM OUR BUSINESS.
Our future success depends to a significant degree on the skills,
experience and efforts of our senior management. In particular, we depend upon
the continued services of William Park and Gerardo Capiel. The loss of the
services of either of these individuals could harm our business and operations.
In addition, we have not obtained life insurance
9
<PAGE> 11
benefiting Digital Impact on any of our key employees. If any of our key
employees left or was seriously injured and unable to work and we were unable to
find a qualified replacement, our business could be harmed.
SEVERAL KEY MEMBERS OF OUR MANAGEMENT TEAM HAVE ONLY RECENTLY JOINED US AND IF
THEY ARE UNABLE TO EFFECTIVELY INTEGRATE THEMSELVES INTO OUR BUSINESS OR WORK
TOGETHER AS A MANAGEMENT TEAM, OUR BUSINESS WILL SUFFER.
Several key members of our management team have joined us recently. David
Oppenheimer, our Chief Financial Officer, Alan Flohr, our Vice President of
Sales and Client Services, and Harry Drake, our Vice President of Client
Services Engineering have joined since March 31, 1999. These individuals must
spend a significant amount of time learning our business model and management
system, in addition to performing their regular duties. If they are unable to
effectively integrate themselves into our business or work together as a
management team, our business will suffer.
IF WE ARE UNABLE TO MANAGE OUR EXPECTED GROWTH, OUR BUSINESS WILL SUFFER.
Our ability to successfully offer services and implement our business plan
requires an effective planning and management process. If we are unable to
manage our expected growth, our business will suffer. Since we began operations,
we have significantly increased the size of our operations. We expect to
continue this growth which will place a significant strain on our management and
resources. We will need to continue to improve our operational, financial and
managerial controls as well as our reporting systems and procedures. We also
need to continue to expand, train and manage our work force.
IF WE FAIL TO EXECUTE OUR STRATEGY TO EXPAND INTO NEW MARKETS, OUR BUSINESS WILL
SUFFER.
The majority of our e-marketing clients to date have been online
business-to-consumer retailers. We intend to expand our presence among clients
in other consumer markets, in markets where the customers are businesses rather
than consumers, and in international markets. If this strategy fails, our
business will be harmed. We have limited experience in these markets and may
encounter obstacles which we have not anticipated.
IF WE FAIL TO INTRODUCE NEW SERVICES, OUR REVENUES MAY NOT INCREASE.
Part of our strategy is to increase our revenues by introducing new
services. If we fail to introduce new services our revenues will not increase.
For example, we recently introduced our Email Exchange Network which we expect
will account for a growing percentage of our future revenues. If the Email
Exchange Network is not accepted by our clients, our revenues may be lower.
IF WE ARE UNABLE TO EXPAND CAPACITY WE MAY LOSE MARKET SHARE.
If we are unable to expand capacity to keep pace with our clients' demands
we may lose market share. The volume of emails we are sending has grown
significantly and we expect this volume to continue to grow. We will need to
enhance our services to handle both any increased email volume and the increased
level of response from consumers that are generated by this volume. In addition,
as we seek to grow our base of clients, we must add client services personnel to
handle the increased volume of emails and campaigns. If we are unable to add
client services personnel, our business will be harmed.
10
<PAGE> 12
IF THE DELIVERY OF OUR EMAILS IS LIMITED OR BLOCKED, THEN OUR BUSINESS WILL BE
HARMED.
Our business model relies on our ability to deliver emails over the
Internet through Internet service providers and to recipients in major
corporations. In particular, a significant percentage of our emails are sent to
recipients who use America Online. America Online uses a proprietary set of
technologies to handle and deliver email and to block unwanted messages. If
these companies limit or halt the delivery of our emails, or if we fail to
deliver emails in such a way as to be compatible with these companies' email
handling technologies, then our clients may discontinue their use of our
services and our business will be harmed.
INTERRUPTION OF OUR SERVICE COULD CAUSE US TO LOSE CLIENTS.
The success of our service depends on the efficient and uninterrupted
operation of our proprietary and outsourced computer and communications hardware
and software systems. These systems and operations are vulnerable to damage or
interruption from human error, natural disasters, telecommunications failures,
break-ins, sabotage, computer viruses, software defects, intentional acts of
vandalism and similar adverse events. Interruption of our service for any of
these, or other reasons, could cause us to lose clients.
Our data center, which is critical to our ongoing operations, is located in
Northern California at facilities provided by an independent party. Our
operations depend on this party's ability to protect our data center from damage
or interruption.
Our disaster recovery plan may not be adequate to restore service in the
event of damage or interruption, and our insurance policies may not sufficiently
compensate us for any losses that we may incur.
IF WE ARE UNABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY, OUR BUSINESS
WILL SUFFER.
Our ability to successfully compete is substantially dependent upon our
internally developed technology and intellectual property, which we protect
through a combination of copyright, trade secret and trademark law, and
contractual obligations. We have no issued patents and have two patent
applications pending. We may not be able to adequately protect our proprietary
rights which may harm our business. Unauthorized parties may attempt to obtain
and use our proprietary information. Policing unauthorized use of our
proprietary information is difficult, and we cannot be certain that the steps we
have taken will prevent misappropriation, particularly in foreign countries
where the laws may not protect our proprietary rights as fully as in the United
States.
For a further discussion of our intellectual property, please see
"Business -- Intellectual Property."
OUR PROPRIETARY TECHNOLOGY MAY BE SUBJECT TO INFRINGEMENT CLAIMS WHICH COULD
HARM OUR BUSINESS.
There is a substantial risk of litigation regarding intellectual property
rights in our industry. A successful claim of technology infringement against us
and our failure or inability to license the infringed or similar technology
could harm our business.
We expect that our technologies may be increasingly subject to third-party
infringement claims as the number of our competitors grows. In addition, we
believe that
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many of our competitors have filed or intend to file patent applications
covering aspects of their technology that they may claim our intellectual
property infringes. We cannot be certain that third parties will not make a
claim of infringement against us with respect to our technology. Any claims,
with or without merit, could:
- Be time-consuming to defend.
- Result in costly litigation.
- Divert management's attention and resources.
- Cause delays in delivering services.
- Require the payment of monetary damages which may be tripled if the
infringement is found to be willful.
- Result in an injunction which would prohibit us from offering a
particular service.
- Require us to enter into royalty or licensing agreements which, if
required, may not be available on acceptable terms.
IF ANY OF THE THIRD PARTY TECHNOLOGIES WE USE BECOME UNAVAILABLE TO US, OUR
BUSINESS WILL BE HARMED.
We are highly dependent on technologies we license from TIBCO, Oracle, Sun
Microsystems and Microsoft which enable us to send email through the Internet
and allow us to offer a variety of targeted marketing capabilities. Our market
is evolving, and we may need to license additional technologies to remain
competitive. However, we may not be able to license these technologies on
commercially reasonable terms or at all. Our inability to obtain any of these
licenses could delay the development of our services until equivalent technology
can be identified, licensed and integrated. Any delays could cause our business
to suffer.
Our use of third party licensed technology may expose us to additional
risks, including risks related to:
- Difficulties in integrating this technology with our services.
- Defects in third party technology.
- The diversion of resources from the development of our own proprietary
technology.
- Our inability to generate revenue from new technology sufficient to
offset associated acquisition and maintenance costs.
IF WE ARE UNABLE TO SAFEGUARD THE CONFIDENTIAL INFORMATION ON OUR DATA
WAREHOUSE, OUR REPUTATION MAY BE HARMED AND WE MAY BE EXPOSED TO LIABILITY.
We currently retain highly confidential customer information in a secure
data warehouse. We cannot assure you, however, that we will be able to prevent
unauthorized individuals from gaining access to this database warehouse. If any
compromise or breach of security were to occur, it could harm our reputation and
expose us to possible liability. Any unauthorized access to our servers could
result in the misappropriation of confidential customer information or cause
interruptions in our services. It is also possible that one of our employees
could attempt to misuse confidential customer information, exposing us to
liability. In addition, our reputation may be harmed if we lose customer
information maintained in our data warehouse due to systems interruptions or
other reasons.
12
<PAGE> 14
THE TERMINATION OF RELATIONSHIPS WITH DIRECT MARKETING FIRMS AND ADVERTISING
AGENCIES COULD SIGNIFICANTLY REDUCE OUR FUTURE REVENUES AND INCREASE OUR COSTS.
We have relationships with direct marketing firms and advertising agencies
which we anticipate will provide significant revenues in the future. If these
relationships are terminated or otherwise fail, our revenues may suffer and we
may be required to devote additional resources to our sales, marketing and
client services efforts. These companies generally are not obligated to offer
our services to their clients or restricted from working with our competitors.
Accordingly, our success will depend on their willingness to devote resources
and efforts to marketing our services.
WE MAY FACE CLAIMS FOR ACTIVITIES OF OUR CLIENTS WHICH COULD HARM OUR BUSINESS.
Our clients' promotion of their products and services may not comply with
federal, state and local laws. We cannot predict whether our role in
facilitating these marketing activities would expose us to liability under these
laws. Any costs incurred as a result of that liability or asserted liability
could harm our business. If we are exposed to this kind of liability, we could
be required to pay substantial fines or penalties, redesign our business
methods, discontinue some of our services or otherwise expend resources to avoid
liability.
Our services involve the transmission of information through the Internet.
Our services could be used to transmit harmful applications, negative messages,
unauthorized reproduction of copyrighted material, inaccurate data or computer
viruses to end-users in the course of delivery. Any such transmission could
damage our reputation or could give rise to legal claims against us. We could
spend a significant amount of time and money defending against these legal
claims.
NEW REGULATION OF AND UNCERTAINTIES REGARDING THE APPLICATION OF EXISTING LAWS
AND REGULATIONS TO, E-MARKETING AND THE INTERNET, COULD HARM OUR BUSINESS.
Legislation has recently been enacted in several states restricting the
sending of unsolicited commercial email. We cannot assure you that existing or
future legislation regarding commercial email will not harm our business. The
federal government and several other states are considering, or have considered,
similar legislation. These provisions generally limit or prohibit both the
transmission of unsolicited commercial emails and 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.
Our business could be negatively impacted by new laws or regulations
applicable to e-marketing or the Internet, the application of existing laws and
regulations to e-marketing or the Internet or the application of new laws and
regulations to our business as we expand into new jurisdictions. There is a
growing body of laws and regulations applicable to access to or commerce on the
Internet. Moreover, the applicability to the Internet of existing laws is
uncertain and may take years to resolve. Due to the increasing popularity and
use of the Internet, it is likely that additional laws and regulations will be
adopted covering issues such as privacy, pricing, content, copyrights,
distribution, taxation antitrust, characteristics and quality of services and
consumer protection. The adoption of any additional laws or regulations may
impair the growth of the Internet or e-marketing, which could, in turn, decrease
the demand for our services and increase our cost of doing business, or
otherwise harm our business.
13
<PAGE> 15
YEAR 2000 ISSUES PRESENT TECHNOLOGICAL RISKS, COULD CAUSE DISRUPTION TO OUR
BUSINESS AND COULD HARM SALES OF OUR SERVICES.
Any failure of our technology or systems, third-party software or hardware
on which we rely or the Internet to be Year 2000 compliant could cause
disruption to our business and could harm our sales. Many currently installed
computer systems and software products are coded to accept or recognize only two
digit entries in the date code field. These systems and software products will
need to accept four digit entries to distinguish dates before and after January
1, 2000. As a result, computer systems and software used by many companies and
governmental agencies may need to be upgraded to comply with these Year 2000
requirements or risk system failure or miscalculations causing disruptions of
normal business activities.
We are currently assessing the Year 2000 readiness of the software,
computer technology and other services that we use that may not be Year 2000
compliant. Since we have not completed this assessment, we are unable to predict
to what extent our business may be affected if our technology or systems, third
party hardware or software on which we rely or the Internet experience a
material Year 2000 failure.
For a further discussion of the impact of Year 2000 on our business, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000 Compliance."
INTERNET-RELATED STOCK PRICES ARE ESPECIALLY VOLATILE AND THIS VOLATILITY MAY
DEPRESS OUR STOCK PRICE.
The stock market and specifically the stock prices of Internet-related
companies have been very volatile. Due to this volatility, the market price of
our common stock could significantly decrease. This volatility is often not
related to the operating performance of the companies. This broad market
volatility and industry volatility may reduce the price of our common stock,
without regard to our operating performance.
AN AGGREGATE OF 18,464,628 SHARES, OR %, OF OUR OUTSTANDING STOCK WILL BECOME
ELIGIBLE FOR RESALE IN THE PUBLIC MARKET BETWEEN 180 DAYS AND ONE YEAR AFTER
THIS OFFERING, AND FUTURE SALES OF SUCH STOCK MAY CAUSE OUR STOCK PRICE TO
DECLINE.
The market price of our common stock could drop as a result of sales of a
large number of shares of common stock in the market after this offering or in
response to the perception that sales of a large number of shares could occur.
No prediction can be made about the effect that future sales of common stock
will have on the market price of our common stock. Of the shares of
our common stock to be outstanding upon completion of the offering, the
shares offered hereby (plus any shares issued upon exercise of the
underwriters' over-allotment option) will be freely tradable.
All of the shares outstanding prior to the offering will be "restricted
securities" as the term is defined under Rule 144 promulgated under the
Securities Act. Unless sold pursuant to Rule 144, which provides for minimum
holding periods, public availability of information, and volume and manner
restrictions on sales, "restricted securities" cannot be
14
<PAGE> 16
sold without an effective registration statement on file with the Securities and
Exchange Commission. These shares will be available for sale in the public
market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES/
PERCENT OUTSTANDING
AFTER THE OFFERING DATE WHEN SHARES BECOME AVAILABLE FOR RESALE IN THE PUBLIC MARKET
------------------- -----------------------------------------------------------------
<S> <C>
/ % 180 days after the date of this prospectus pursuant to agreements
between the stockholders and the underwriters or Digital Impact,
provided that none of these shares are released from lock-up
restrictions by Credit Suisse First Boston Corporation.
of these shares will also be subject to sales volume
restrictions under Rule 144 under the Securities Act
/ % Upon expiration of applicable one-year holding periods under Rule
144, which will expire between , 2000 and
, 2000, subject to sales volume restrictions under
Rule 144
</TABLE>
In addition, we intend to file a registration statement on Form S-8 under
the Securities Act after the date of this offering to register an aggregate of
million shares of common stock issued or reserved for issuance under
our various stock plans.
OUR STOCK HAS NO PRIOR TRADING MARKET AND YOU MAY NOT BE ABLE TO RESELL YOUR
STOCK AT OR ABOVE THE INITIAL PUBLIC OFFERING PRICE
Before this offering, there has not been a public trading market for our
common stock, and an active trading market for our common stock may not develop
or be sustained after this offering. Further, the market price of our common
stock may decline below our initial public offering price. The initial public
offering price will be determined by negotiations between the representatives of
the underwriters and us. See "Underwriting" for a discussion of the factors to
be considered in determining the initial public offering price.
15
<PAGE> 17
YOU SHOULD NOT RELY ON FORWARD-LOOKING STATEMENTS
BECAUSE THEY ARE INHERENTLY UNCERTAIN
You should not rely on forward-looking statements in this prospectus. This
prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipates," "believes," "expects,"
"plans," "future," "intends," "estimates," "should," "potential," "continue,"
"may," "will" and similar expressions to identify such forward-looking
statements. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this prospectus. Our actual
results could differ materially from those anticipated in these forward-looking
statements for many reasons, including the risks faced by us described above and
elsewhere in this prospectus.
USE OF PROCEEDS
Our net proceeds from the sale of the shares of common stock in this
offering at an assumed public offering price of $ per share, are estimated
to be $ , or $ if the underwriters' over-allotment option is
exercised in full and after deducting the estimated underwriting discounts and
commissions and offering expenses.
We intend to use the net proceeds from this offering primarily for general
corporate purposes, including working capital. Such uses are expected to include
an expansion of our sales and marketing efforts and technical support services
as well as expenses associated with our geographic expansion. We also may use a
portion of the net proceeds to acquire complementary businesses, products or
technologies; however, we currently have no commitments or agreements and are
not involved in any negotiations to do so. Pending use of the net proceeds of
this offering, we intend to invest the net proceeds in short-term,
interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain all future earnings, if any, for use in the operation
and expansion of our business and do not anticipate declaring or paying cash
dividends for the foreseeable future. Our existing line of credit prohibits the
payment of cash dividends.
16
<PAGE> 18
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999:
- On an actual basis.
- On a pro forma basis to give effect to the conversion of all outstanding
shares of convertible preferred stock into 12,292,000 shares of common
stock, including the series C convertible preferred stock issued in July
1999.
- On a pro forma as adjusted basis to give effect to the sale of
shares of common stock at an assumed initial public offering price of
$ per share in this offering, less estimated underwriting
discounts and commissions and offering expenses payable by Digital
Impact.
<TABLE>
<CAPTION>
JUNE 30, 1999
-----------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ------------- -------------
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C>
Capital lease obligations, less current
portion........................................ $ 352 $ 352 $ 352
Borrowings, less current portion................. 196 196 196
------- ------- -------
Long term debt, less current portion........... 548 548 548
------- ------- -------
Stockholders' equity:
Convertible preferred stock, $0.001 par value
per share, 12,000,000 shares authorized,
10,064,000 shares issued and outstanding,
actual; 16,000,000 shares authorized, none
issued or outstanding, pro forma; 5,000,000
shares authorized, none issued or
outstanding, pro forma as adjusted.......... 3
Common stock, $0.001 par value per share,
54,000,000 shares authorized, 6,172,000
shares issued and outstanding, actual;
54,000,000 shares authorized, 18,464,000
shares issued and outstanding, pro forma;
100,000,000 shares authorized, shares
issued and outstanding, pro forma as
adjusted.................................... 1 18
Additional paid-in capital..................... 12,653 23,299
Unearned stock-based compensation.............. (3,958) (3,958) (3,958)
Accumulated deficit............................ (6,503) (6,503) (6,503)
------- ------- -------
Total stockholders' equity.................. 2,196 12,856
------- ------- -------
Total capitalization................... $ 2,744 $13,404 $
======= ======= =======
</TABLE>
This tables excludes:
- 8,795,000 shares of common stock reserved for issuance under our 1998
stock plan, of which options to purchase 2,911,208 shares were
outstanding as of June 30, 1999, at a per share weighted average exercise
price of $0.15.
- 128,000 shares of convertible preferred stock that are issuable upon the
exercise of an outstanding warrant, at a per share weighted average
exercise price of $0.72, and are convertible into 128,000 shares of
common stock immediately before completion of this offering.
- 1,200,000 shares reserved for issuance under our 1999 employee stock
purchase plan and our 1999 director option plan.
17
<PAGE> 19
DILUTION
The pro forma net tangible book value as of June 30, 1999 was $12,856,000
or approximately $0.70 per share of common stock. Pro forma net tangible book
value represents the amount of our total tangible assets less total liabilities,
divided by the total number of shares of common stock outstanding after giving
effect to the conversion of all outstanding shares of convertible preferred
stock into 12,292,000 shares of common stock, including the series C convertible
preferred stock issued in July 1999. Dilution in pro forma net tangible book
value per share represents the difference between the amount per share paid by
purchasers of shares of our common stock in this offering and the pro forma net
tangible book value per share of our common stock immediately following this
offering.
After giving effect to our sale of the shares of common stock
offered in this offering and after deducting the estimated underwriting
discounts and commissions and estimated offering expenses payable by us, our pro
forma net tangible book value as of June 30, 1999 would have been $ ,
or approximately $ per share. This represents an immediate increase in net
tangible book value of $ per share to existing stockholders and an immediate
dilution in net tangible book value of $ per share to new investors.
The following table illustrates this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of June 30,
1999................................................... $0.70
Increase per share attributable to new investors..........
Pro forma net tangible book value per share after the
offering..................................................
-----
Dilution in pro forma net tangible book value per share to
new investors............................................. $
=====
</TABLE>
The following table sets forth, on a pro forma basis as of June 30, 1999,
the differences between the number of shares of common stock purchased from us,
the total price and average price per share paid by existing investors and by
new investors, before deducting the estimated underwriting discounts and
commissions and estimated offering expenses payable by us, at an assumed public
offering price of $ per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- ------------------------ PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
---------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 18,464,000 % $17,209,000 % $0.93
New investors.............
---------- --- ----------- ----
Total........... 100% $ 100%
========== === =========== ====
</TABLE>
- -------------------------
This table assumes no exercise of outstanding options and warrants. See
note 6 to the financial statements. The exercise of outstanding options and
warrants would increase the dilutive effect to new investors.
If the underwriters' over-allotment option is exercised in full, the
following will occur:
- The number of shares of common stock held by existing stockholders will
decrease to approximately % of the total number of shares of our
common stock outstanding after this offering.
- The number of shares held by new investors will increase to
or approximately % of the total number of shares of
our common stock outstanding after this offering.
18
<PAGE> 20
SELECTED FINANCIAL DATA
The selected statement of operations data for the period from October 16,
1997 (date of inception) through March 31, 1998 and for the year ended March 31,
1999 and the selected balance sheet data as of March 31, 1998 and 1999 have been
derived from our financial statements included elsewhere in this prospectus that
have been audited by PricewaterhouseCoopers LLP independent accountants. The
selected results of operations for the three months ended June 30, 1998 and 1999
and the selected balance sheet data as of June 30, 1999 are derived from
unaudited financial statements included elsewhere in this prospectus that have
been prepared on the same basis as the audited financial statements and, in the
opinion of management, contain all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of our operating
results for such periods and our financial condition as of such date. The
historical results are not necessarily indicative of results to be expected for
any future period. The data has been derived from financial statements that have
been prepared in accordance with generally accepted accounting principles and
should be read in conjunction with the financial statements and the notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
OCTOBER 16, 1997 THREE MONTHS ENDED
(DATE OF INCEPTION) YEAR ENDED JUNE 30,
TO MARCH 31, MARCH 31, -------------------
1998 1999 1998 1999
------------------- ---------- ------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................... $ 4 $ 1,307 $ 25 $ 1,385
Cost of revenues....................... 4 674 24 672
------ ------- ------ -------
Gross margin........................... -- 633 1 713
------ ------- ------ -------
Operating expenses:
Research and development............. 27 966 77 843
Sales and marketing.................. -- 670 46 1,010
General and administrative........... 77 1,151 86 1,047
Stock-based compensation............. -- 1,157 95 977
------ ------- ------ -------
Total operating expenses.......... 104 3,944 304 3,877
------ ------- ------ -------
Loss from operations................... (104) (3,311) (303) (3,164)
Interest income (expense), net......... 1 71 6 4
------ ------- ------ -------
Net loss............................... $ (103) $(3,240) $ (297) $(3,160)
====== ======= ====== =======
Net loss per common share -- basic and
diluted.............................. $(0.45) $ (2.86) $(0.90) $ (1.27)
====== ======= ====== =======
Shares used in net loss per common
share calculation -- basic and
diluted.............................. 231 1,133 330 2,497
====== ======= ====== =======
Pro forma net loss per share -- basic
and diluted (unaudited).............. $ (0.39) $ (0.25)
======= =======
Shares used in pro forma net loss per
share calculation -- basic and
diluted (unaudited).................. 8,370 12,541
======= =======
</TABLE>
19
<PAGE> 21
<TABLE>
<CAPTION>
AS OF MARCH 31,
---------------- AS OF JUNE 30,
1998 1999 1999
------ ------ --------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $1,032 $2,864 $ 900
Working capital (deficit)............................... 1,013 2,403 (912)
Total assets............................................ 1,078 6,314 5,719
Capital lease obligations, less current portion......... -- 465 352
Long term debt, less current portion.................... -- 234 196
Stockholders' equity.................................... 1,056 4,370 2,196
</TABLE>
20
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of our financial condition and
results of operations in conjunction with our financial statements and related
notes. This discussion contains forward-looking statements that involve risks
and uncertainties. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of factors including
those discussed in "Risk Factors," starting on page 6 and elsewhere in this
prospectus.
OVERVIEW
We are a leading provider of technology-enabled, e-marketing services. Our
primary suite of e-marketing services, Merchant Mail, is sold as a single
service and currently consists of the following components: email campaign
management, targeting and personalization, email format optimization, campaign
tracking and reporting, and data hosting and management. We also recently
introduced the Email Exchange Network, a service which enables our clients to
acquire new customers by sharing email addresses with each other, with the
consumer providing explicit consent.
We were incorporated in October 1997 and commenced sales of our services in
December 1997. During the period from inception through March 1998, we had
insignificant revenues. Operating activities during this period related
primarily to developing our services, building our corporate infrastructure and
raising capital. In April 1998, we began executing e-marketing campaigns for
major clients. To date our revenues have consisted of sales of Merchant Mail. In
July 1999, we established the Email Exchange Network and expect that it will
contribute to our revenue in future periods. Although our revenues have
increased each quarter since inception, we have never been profitable. We expect
to incur net losses for the foreseeable future and may never be profitable. As
of June 30, 1999, we had an accumulated deficit of $6.5 million.
We generate revenues from the sale of services to businesses that enable
them to proactively communicate with their customers online. Historically, these
services have primarily consisted of the design and execution of e-marketing
campaigns. For each campaign, we generally charge our clients a fixed fee for
the set up and a variable fee based on the number of emails sent to our clients'
customers. We recognize revenue for these fees when we complete an e-marketing
campaign, which typically lasts less than one week.
Cost of revenues consists primarily of expenses relating to the delivery of
e-marketing services, including personnel costs, primarily consisting of our
client services staff, the amortization of equipment and licensed technology,
and data center rent.
Operating expenses are categorized into research and development, sales and
marketing, general and administrative, and stock-based compensation.
Research and development expenses consist primarily of personnel and
related costs, consultants and outside contractor costs, and software and
hardware maintenance costs for our development efforts. To date, all research
and development costs have been expensed as incurred.
21
<PAGE> 23
Sales and marketing expenses consist of personnel and related costs
primarily for our direct sales force, and marketing staff, in addition to
marketing programs which include trade shows, advertisements, promotional
activities and media events.
General and administrative expenses consist primarily of personnel and
related costs for corporate functions, including information services, finance,
accounting, human resources, facilities and legal.
Stock-based compensation represents the aggregate difference, at the date
of grant, between the respective exercise price of stock options and the deemed
fair market value of the underlying stock. Stock-based compensation is amortized
over the vesting period of the underlying options based on an accelerated
vesting method, generally four years. Through June 30, 1999, we recorded
unearned stock-based compensation totaling $5.5 million. For the year ended
March 31, 1999, we recognized amortization of stock-based compensation of
$542,000 and for the three months ended June 30, 1999, we recognized
amortization of stock-based compensation of $1.0 million.
We anticipate recognizing substantial additional stock-based compensation
based on option grants in July and August 1999 and recording an additional $4.5
million of unearned stock-based compensation.
The total unamortized unearned stock-based compensation recorded for all
option grants through August 31, 1999 will be amortized as follows: $4.0 million
for the remainder of the year ended March 31, 2000; $2.7 million for the year
ended March 31, 2001; $1.3 million for the year ended March 31, 2002; and
$472,000 for the year ended March 31, 2003 and thereafter.
RESULTS OF OPERATIONS.
THREE MONTHS ENDED JUNE 30, 1998 AND 1999
Revenues. Total revenues increased from $25,000 for the three months ended
June 30, 1998 to $1.4 million for the three months ended June 30, 1999. The
increase was primarily due to the increased number of clients to whom we provide
e-marketing services, in addition to a significant increase in the number of
emails sent on behalf of our clients.
Cost of Revenues. Cost of revenues increased from $24,000 for the three
months ended June 30, 1998 to $672,000 for the three months ended June 30, 1999.
The increase was primarily due to increased personnel costs associated with
supporting a larger number of clients and a higher volume of emails, as well as
costs associated with expansion of our data center capacity. Gross margins
increased from 4% for the three months ended June 30, 1998 to 51% for the three
months ended June 30, 1999. This increase was primarily the result of higher
capacity utilization as revenues increased at a greater rate than associated
costs.
Research and Development. Research and development expenses increased from
$77,000 for the three months ended June 30, 1998 to $843,000 for the three
months ended June 30, 1999. The increase was primarily due to the increase in
personnel needed to further develop and enhance our services. We are continuing
to invest substantially in research and development, and we expect costs of
research and development to increase on an absolute basis in future periods.
Sales and Marketing. Sales and marketing expenses increased from $46,000
for the three months ended June 30, 1998 to $1.0 million for the three months
ended June 30,
22
<PAGE> 24
1999. The increase was a result of growth primarily in our direct sales force,
and marketing staff, as well as an increase in promotional spending targeted at
building our brand, increasing our client base and growing sales. We expect our
sales and marketing expenses to significantly increase on an absolute basis as
we continue to grow our sales force and expand our marketing activities.
General and Administrative. General and administrative expenses increased
from $86,000 for the three months ended June 30, 1998 to $1.0 million for the
three months ended June 30, 1999. The increase was due primarily to an increase
in personnel and an increase in overhead costs associated with the growth of our
business.
Stock-based Compensation. We recorded unearned stock-based compensation of
$350,000 during the three months ended June 30, 1998 and $3.7 million during the
three months ended June 30, 1999, which is being amortized over the period
during which the options vest, generally four years. Amortization of this
stock-based compensation recognized during the three months ended June 30, 1998
was $95,000 and during the three months ended June 30, 1999 was $977,000.
PERIOD FROM OCTOBER 16, 1997 (DATE OF INCEPTION) TO MARCH 31, 1998 AND YEAR
ENDED MARCH 31, 1999
Revenues. Total revenues increased from $4,000 for the period ended March
31, 1998 to $1.3 million for the year ended March 31, 1999. The increase was
primarily due to the increased number of clients to whom we provide e-marketing
services, in addition to a significant increase in the number of emails sent on
behalf of our clients.
Cost of Revenues. Cost of revenues increased from $4,000 for the period
ended March 31, 1998 to $674,000 for the year ended March 31, 1999. The increase
was primarily due to increased personnel costs associated with supporting a
larger number of clients and a higher volume of emails, as well as costs
associated with expansion of our data center capacity. Gross margins were 48%
for the year ended March 31, 1999. This increase was primarily the result of
higher capacity utilization as revenues increased at a greater rate than
associated costs.
Research and Development. Research and development expenses increased from
$27,000 for the period ended March 31, 1998 to $966,000 for the year ended March
31, 1999. The increase was primarily due to an increase in personnel and costs
associated with new product development.
Sales and Marketing. Sales and marketing expenses were not significant for
the period ended March 31, 1998 and were $670,000 for the year ended March 31,
1999. The increase was a result of growth primarily in our direct sales force,
and marketing staff, as well as an increase in promotional spending targeted at
building our brand, increasing our client base and growing sales.
General and Administrative. General and administrative expenses increased
from $77,000 for the period ended March 31, 1998 to $1.2 million for the year
ended March 31, 1999. The increase was due primarily to an increase in personnel
and an increase in overhead costs associated with the growth of our business.
Stock-based compensation. During the year ended March 31, 1999, we recorded
unearned stock-based compensation of $1.8 million which is being amortized over
the period during which the options vest, generally four years. For the year
ended March 31,
23
<PAGE> 25
1999, we recognized amortization of stock-based compensation of $542,000 as a
result of options granted to employees and non-employees during the year. In
addition, we recognized additional stock-based compensation of $614,000 in the
year for 270,000 shares of common stock which we issued as a bonus to a founder.
Income Taxes. No provision for federal and state income taxes was recorded
as we incurred net operating losses from inception through June 30, 1999. As of
March 31, 1999 we had approximately $2.1 million of federal and state net
operating loss carryforwards which expire in varying amounts beginning in 2005.
Due to the uncertainty regarding the ultimate utilization of the net operating
loss carryforwards, we have not recorded any benefit for losses and a valuation
allowance has been recorded for the entire amount of the net deferred tax asset.
In addition, sales of our stock, including shares sold in this offering, may
further restrict our ability to utilize our net operating loss carryforwards.
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<PAGE> 26
QUARTERLY OPERATING RESULTS
The following table presents our historical unaudited quarterly results of
operations for our most recent five quarters. This data is unaudited and derived
from our audited annual financial statements and notes included elsewhere in
this prospectus. In the opinion of management, such quarterly financial
information has been prepared on the same basis as our annual financial
statements and includes all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial results set forth
therein. Such statement of operations data should be read in conjunction with
the financial statements and related notes included in this prospectus. Our
results of operations have fluctuated and are likely to continue to fluctuate in
the future. Results of operations for any previous periods are not necessarily
comparable to future periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1998 1998 1998 1999 1999
-------- ------------- ------------ --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................... $ 25 $ 96 $ 396 $ 790 $ 1,385
Cost of revenues.............. 24 63 189 398 672
-------- ------- ------- ------- -------
Gross margin.................. 1 33 207 392 713
-------- ------- ------- ------- -------
Operating expenses:
Research and development.... 77 132 292 465 843
Sales and marketing......... 46 88 152 384 1,010
General and
administrative............ 86 95 225 745 1,047
Stock-based compensation.... 95 67 110 885 977
-------- ------- ------- ------- -------
Total operating
expenses.......... 304 382 779 2,479 3,877
-------- ------- ------- ------- -------
Loss from operations.......... (303) (349) (572) (2,087) (3,164)
Interest income (expense),
net......................... 6 4 22 39 4
-------- ------- ------- ------- -------
Net loss...................... $ (297) $ (345) $ (550) $(2,048) $(3,160)
======== ======= ======= ======= =======
AS A PERCENTAGE OF REVENUES:
Revenues...................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues.............. 96.0 65.6 47.7 50.3 48.5
-------- ------- ------- ------- -------
Gross margin.................. 4.0 34.4 52.3 49.7 51.5
-------- ------- ------- ------- -------
Operating expenses:
Research and development.... 308.0 137.5 73.7 58.9 61.0
Sales and marketing......... 184.0 91.7 38.4 48.6 72.9
General and
administrative............ 344.0 99.0 56.8 94.3 75.6
Stock-based compensation.... 380.0 69.8 27.8 112.0 70.5
-------- ------- ------- ------- -------
Total operating
expenses.......... 1216.0 398.0 196.7 313.8 280.0
-------- ------- ------- ------- -------
Loss from operations.......... (1212.0) (363.6) (144.4) (264.1) (228.5)
Interest income (expense),
net......................... 24.0 4.2 5.6 4.9 0.3
-------- ------- ------- ------- -------
Net loss...................... (1188.0)% (359.4)% (138.8)% (259.2)% (228.2)%
======== ======= ======= ======= =======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
From our inception to June 30, 1999, we funded our operations primarily
with $6.5 million raised through the private sale of our equity securities. As
of June 30, 1999, we had cash and cash equivalents of $900,000 and availability
of $1.3 million under a
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<PAGE> 27
leasing line of credit. Since June 30, 1999, we have raised an additional $10.6
million through the private sale of our equity securities.
Net cash used in operating activities was $95,000 for the period ended
March 31, 1998 and $2.0 million for the year ended March 31, 1999, primarily the
result of net losses of $103,000 for the period ended March 31, 1998 and $2.0
million for the year ended March 31, 1999, after adjusting for stock-based
compensation expense of $1.2 million for the year ended March 31, 1999. Net cash
used in operating activities was $1.2 million for three months ended June 30,
1999, primarily the result of net losses of $2.2 million, after adjusting for
stock-based compensation expense of $1.0 million.
Net cash used in investing activities was $31,000 for the period ended
March 31, 1998, $2.4 million for the year ended March 31, 1999 and $1.1 million
for the three months ended June 30, 1999. The cash used in investing activities
was related to purchases of property and equipment.
Net cash provided by financing activities was $1.2 million for the period
ended March 31, 1998 and $6.2 million for the year ended March 31, 1999. Cash
provided by financing activities was primarily from proceeds of the sale of our
preferred stock and the sale and leaseback of assets, as well as draws against
our line of credit. Net cash provided by financing activities was $359,000 for
the three months ended June 30, 1999.
We believe that the net proceeds from this offering, together with our
current cash and cash equivalents and availability under our line of credit
facilities, will be sufficient to meet our anticipated cash needs for working
capital, repayment of debt and capital expenditures for at least the next twelve
months. After that time, we may need additional capital. However, we may need to
raise additional funds sooner to fund additional expansion, develop new or
enhanced services, respond to competitive pressures or make acquisitions. We
cannot be certain that additional financing will be available to us on favorable
terms. If adequate funds are not available on acceptable terms, our business
will be harmed.
YEAR 2000 READINESS DISCLOSURE
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit entries to
distinguish dates before and after January 1, 2000. This could result in system
failures or miscalculations causing disruption of operations for any company
using such computer programs or hardware. As a result, many companies' computer
systems may need to be upgraded or replaced in order to avoid Year 2000 issues.
We are a comparatively new enterprise, and, accordingly, the majority of
software and hardware we use to manage our business has all been purchased or
developed by us within the last 18 months. While this does not completely
protect us against Year 2000 exposure, we believe our exposure is limited
because the technology we use to manage our business is not based upon legacy
hardware and software systems.
We are in the process of testing our technology and systems. The testing we
have completed has primarily been performed internally, and we have recently
retained a consultant to test and review our systems for Year 2000 compliance.
Based on the testing we have performed, we believe that our software is Year
2000 compliant.
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<PAGE> 28
In addition, we rely on software and hardware developed by third parties,
which we have not independently tested to determine Year 2000 compliance. We
have reviewed certifications from our key equipment suppliers for our data
centers that their equipment is Year 2000 compliant. Additionally, we have
reviewed certifications from the providers of key software applications that
their software is Year 2000 compliant. Based on an initial evaluation of our
broader list of software and hardware providers, we believe that these providers
are in the process of reviewing and implementing their own Year 2000 compliance
programs. We will work with these providers to address the Year 2000 issue and
continue to seek assurances from them that their products are Year 2000
compliant.
To date we have incurred less than $100,000 in costs associated with our
Year 2000 remediation efforts, and anticipate that any future costs will not
exceed $500,000. However, if we, or third party providers of hardware, software
and communications services fail to remedy any Year 2000 issues, the result
could be lost revenues, increased operating expenses, the loss of customers and
other business interruptions, any of which could harm our business. Moreover,
the failure to adequately address Year 2000 compliance issues in the delivery of
services to our clients could result in claims against us of misrepresentation
or breach of contract and related litigation, any of which could be costly and
time consuming to defend.
We have not developed any specific contingency plans for Year 2000 issues.
Our worst case scenario for Year 2000 problems would be our inability to execute
our clients' e-marketing campaigns and the potential initiation by our clients
of associated litigation.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position 98-1, or SOP 98-1, "Software for Internal Use,"
which provides guidance on accounting for the cost of computer software
developed or obtained for internal use. SOP 98-1 is effective for financial
statements for fiscal years beginning after December 15, 1998. We believe that
the adoption of SOP 98-1 will not have a material impact on our financial
statements.
In April 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5, or SOP 98-5, "Reporting on the Costs of Start-Up
Activities." This standard requires companies to expense the costs of start-up
activities and organization costs as incurred. In general, SOP 98-5 is effective
for fiscal years beginning after December 15, 1998. We believe the adoption of
SOP 98-5 will not have a material impact on our results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, or SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes new standards of
accounting and reporting for derivative instruments and hedging activities. SFAS
133 requires that all derivatives be recognized at fair value in the statement
of financial position, and that the corresponding gains or losses be reported
either in the statement of operations or as a component of comprehensive income,
depending on the type of hedging relationship that exists. SFAS 133 will be
effective for fiscal years beginning after June 15, 2000. We do not currently
hold derivative instruments or engage in hedging activities.
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<PAGE> 29
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We provide our services to clients primarily in the U.S. As a result, it is
unlikely that our financial results could be directly affected by factors such
as changes in foreign currency exchange rates or weak economic conditions in
foreign markets. All of our sales are currently denominated in U.S. dollars.
Our exposure to market risk for changes in interest rates relates primarily
to the increase or decrease in the amount of interest income we can earn on our
investment portfolio and on the increase or decrease in the amount of interest
expense we must pay with respect to our outstanding debt instruments. The risk
associated with fluctuating interest expense is limited, however, to the
exposure related to those debt instruments and credit facilities which are tied
to market rates. We do not plan to use derivative financial instruments in our
investment portfolio. We plan to ensure the safety and preservation of our
invested principal funds by limiting default risk, market risk and reinvestment
risk. We plan to mitigate default risk by investing in high-credit quality
securities.
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<PAGE> 30
BUSINESS
OVERVIEW
We offer Internet direct marketing, or e-marketing, services to businesses
that wish to communicate more effectively with their customers online through
email. We combine proprietary technologies, rigorous business processes and
expertise developed over thousands of email campaigns to provide a
comprehensive, outsourced e-marketing solution. The services we provide are
designed to maximize our clients' return on their marketing investment.
Our core set of services includes campaign management, targeting and
personalization, email format optimization, campaign tracking and reporting, and
database hosting and management. We sell these services under the name Merchant
Mail. In addition, we recently introduced the Email Exchange Network, an online
marketing network that provides our clients with a new method to acquire
additional online customers.
INDUSTRY BACKGROUND
THE GROWTH OF INTERNET COMMERCE AND EMAIL
The explosive growth of the Internet as a tool for global communications
and commerce has prompted a wide variety of businesses to develop strategies to
sell products and services online. International Data Corporation, or IDC,
estimates that worldwide commerce over the Internet will increase from
approximately $50 billion in 1998 to $1.3 trillion in 2003. To attract and
retain a broader range of customers and increase e-commerce revenues, businesses
are seeking ways to more effectively communicate with their customers online.
Email is the most widely used application on the Internet today and its
proliferation has been critical to the growth of e-commerce. Businesses use
email as the primary means to proactively communicate with their customers
online. For example, email is often used to confirm electronic transactions and
to notify customers of important new developments or product offerings. IDC
estimates that the number of electronic mailboxes worldwide will grow from
approximately 240 million in 1998 to over 590 million by 2003, and that the
number of emails sent annually worldwide will grow from 809 billion to 4.8
trillion during the same period.
THE EMERGENCE OF INTERNET DIRECT MARKETING
Businesses and other marketing organizations spent an estimated $285
billion on general advertising in 1998, of which $160 billion was spent on
direct marketing, according to the Direct Marketing Association. An increasing
percentage of this spending is expected to move into online forms of advertising
and direct marketing as businesses seek to grow their e-commerce revenues. Since
direct marketing expenditures have traditionally been larger than expenditures
for advertising, spending on Internet direct marketing, or e-marketing, is
expected to soon outpace Internet advertising spending as a means to drive
e-commerce. Forrester Research projects total Internet advertising expenditures
in the U.S. to increase from $1.3 billion in 1998 to over $10 billion in 2002.
Forrester also estimates that Internet direct marketing will account for 60%, or
$6.2 billion, of these expenditures in 2002, up from 15% in 1998.
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<PAGE> 31
E-marketing allows businesses to cost-effectively target online customers
through customized email marketing campaigns. Initially, email did not gain wide
acceptance as an e-marketing tool because of concerns regarding privacy and
unsolicited communication. With the recent advent of permission-based email,
where individuals sign up to receive information from specific sources on topics
of interest to them, email has become an increasingly important direct marketing
tool. Email campaigns offer significant advantages over paper-based
communications, including more rapid delivery, reduced cost and a greater degree
of personalization. Direct email campaigns generate response rates that are 3 to
10 times higher than response rates for traditional direct mail campaigns.
CHALLENGES IN IMPLEMENTING E-MARKETING PROGRAMS
Companies face significant challenges in effectively implementing
e-marketing programs internally. These challenges include the difficulties and
costs associated with:
- Assembling and delivering high volumes of personalized email messages.
- Determining the most effective layout, copy and graphical email format
for each recipient.
- Tracking and analyzing large volumes of individual customer response
data.
- Hiring and retaining a team of specialized e-marketing and technology
experts.
- Building and maintaining the necessary hardware and software
infrastructure.
- Rapidly setting-up, designing and executing successful e-marketing
campaigns.
A company's failure to adequately address any of these challenges can
result in lost business opportunities and substantial damage to its brand. As a
result, we believe companies are seeking an outsourced solution that will enable
them to fully realize their e-marketing objectives while maintaining a focus on
their core competencies.
THE DIGITAL IMPACT SOLUTION
We offer a comprehensive suite of e-marketing services designed to maximize
our clients' return on their marketing investment. Our e-marketing services
currently include direct email marketing services, customer acquisition tools,
strategic and data mining analysis and client support services. We combine
proprietary technologies, a rigorous process methodology and the domain
expertise of our client services professionals to create e-marketing campaigns
for our clients. We provide our clients with a high quality e-marketing solution
featuring accurate and timely delivery of email messages with limited client
oversight requirements. The benefits of our solution include:
Targeted, relevant content. Through our proprietary technologies and
processes, we can dynamically assemble and deliver millions of personalized
emails based on recipient profiles. Each recipient's profile can include
demographic information, past response and purchase behavior and customizable
business rules. We continually update each individual profile with real-time
response data.
Personalized email formatting. Our email sensor technology enables us to
ensure that each recipient receives an email that fully utilizes the graphical
capabilities of that recipient's email software. This technology allows us to
deliver a particular email in one of several formats, including basic text,
America Online format, and hypertext markup language, or HTML, depending on the
recipient's email capabilities. Our use of rich graphical formats can
significantly increase the likelihood of a customer response.
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Real-time performance tracking and campaign analysis. Using our campaign
management tools, we can track and analyze large volumes of real-time customer
response data. This capability allows our clients to quickly execute test
campaigns, gain valuable market research data, and evaluate the effectiveness of
alternative e-marketing strategies. Clients can then launch full-scale campaigns
based on these test results, all within a short period of time.
Domain expertise. Our experience gained from designing and managing
thousands of email campaigns has allowed us to develop an e-marketing process
built on best practices, a term we use to describe our accumulated knowledge of
effective e-marketing strategies and techniques. This institutionalized process
provides us with a methodology to reliably execute each phase of a campaign,
from initial setup to results analysis and allows us to consistently deliver
valuable e-marketing services to our clients.
Robust and scalable infrastructure. Our ongoing investments in hardware and
software enable us to reliably assemble and deliver large volumes of client
emails on a timely basis. We delivered over 28 million emails in June 1999 and
have the capacity to deliver up to 180 million emails per month with our
existing hardware infrastructure. We have designed our systems to be highly
scalable so that we can readily expand to meet the increasing demands of our
clients.
Significantly improve time to market. By leveraging our investment in
infrastructure and technology, combined with our institutionalized processes and
experience, our clients are able to deploy their e-marketing campaigns rapidly
and reliably. This approach allows our clients to remain focused on their core
business competencies and enhance their competitive positions.
STRATEGY
Our objective is to be the leader in technology-enabled e-marketing
services. The following are the key elements of our strategy:
Expand our service offerings. We intend to leverage our e-marketing and
technology expertise to develop new tools, functionalities and features that
will enable us to maximize our clients' return on their marketing investment. By
working closely with our network of clients, we continually refine our
e-marketing expertise to increase the value of each of our services.
Exploit new market opportunities. We believe there are significant
opportunities to introduce our services into new markets. The majority of our
e-marketing clients to date have been traditional and online retailers. We
intend to expand our presence among clients in other consumer markets, in
markets where the customers are businesses rather than consumers, and in
international markets.
Leverage our database of consumer profiles. We intend to leverage our
database of consumer profiles to implement new services in a permission-based
environment. We believe that the increasing scope and depth of this database
will create opportunities for the sharing of information among our clients. This
will enable our network of clients to obtain broader and more meaningful
information about consumers than any single client would otherwise obtain on its
own.
Establish the Email Exchange Network as a leading service for client
acquisition. We recently began offering our clients the opportunity to
participate in the Email Exchange
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Network, a cooperative marketing network that allows our clients to collectively
acquire new customer information and share email addresses in an opt-in,
permission-based program. We believe that the Email Exchange Network will
provide us with an additional means to attract and retain clients.
Build brand awareness and strategic alliances. To increase our brand
awareness, we are promoting our services to online marketers and advertising
agencies through the use of our Web site, trade advertisements and selected
media events. We are also promoting our client success stories through the use
of case studies, technical papers and regular briefings with industry analysts.
We intend to build alliances with leading Internet technology and service
providers to leverage their sales, marketing and engineering capabilities, and
to enhance awareness of our brand.
SERVICES
We provide comprehensive services for executing personalized direct email
marketing campaigns designed to enable our clients to acquire and retain online
customers. Our primary suite of e-marketing services, Merchant Mail, is sold as
a single service and currently consists of the following components:
- Email campaign management.
- Targeting and personalization.
- Media optimization.
- Tracking and reporting.
- Data hosting and management.
We also provide the Email Exchange Network, a service which enables our
clients to acquire new customers by sharing email addresses with each other,
with the consumer providing explicit consent.
EMAIL CAMPAIGN MANAGEMENT
We assign each client a client services manager, an e-marketing specialist
who applies our extensive domain expertise and methodologies, to manage that
client's email campaigns. The campaign management process includes:
- Establishing rules for email personalization based upon each recipient's
profile and email software environment.
- Checking the quality of each email across over 30 email software
packages.
- Applying our accumulated knowledge base to analyze the results of each
campaign.
- Managing and ensuring the integrity of data transfers with our clients.
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TARGETING AND PERSONALIZATION
We create targeted email messages for each customer based on our clients'
e-marketing objectives. Our targeting and personalization capabilities include:
- Matching a particular email offer to the appropriate group of recipients
based on a pre-defined set of marketing parameters determined by our
clients. For example, in a recent campaign we emailed different offers to
multiple customer groups based on the timing of their last purchase from
that client. In another instance, we created and delivered emails
containing gardening advice tailored to each recipient's geographic
region.
- Automatically sending an email based on a pre-determined event or
schedule. For example, currently we help one of our clients sell
additional products by sending each online purchaser an order
confirmation email containing offers for related products.
- Dynamically assembling unique emails using sophisticated algorithms and
statistical models to predict the content most relevant to each
recipient. For example, we recently assembled and delivered 35,000 unique
emails, each featuring six different products from a pool of 3,000
possible choices. The six products and the order in which they were
presented to each customer were determined on the basis of the customer's
purchase behavior, self-reported preferences and demographic profile.
EMAIL FORMAT OPTIMIZATION
We use our email sensor technology to determine the optimal graphical
format for each recipient's email software environment. This technology enables
us to deliver email at the highest level of graphics and interaction currently
available to the recipient, including:
- Plain text emails with universal resource locator, or URL, links.
- Plain text emails with hyperlinked words that are blue and underlined.
- Emails tailored for subscribers of America Online with hyperlinked words
and font formatting.
- Hypertext markup language, or HTML, emails with advanced graphical
elements.
- Dynamic HTML and Java-based email with interactive capabilities greater
than HTML.
CAMPAIGN TRACKING AND REPORTING
We monitor and report the performance of our clients' email campaigns. The
data is collected at the individual customer level and includes the number and
percentage of:
- Emails successfully delivered.
- Emails rejected by email servers.
- HTML and dynamic HTML emails opened.
- Click throughs per campaign, per recipient and per specific offer.
- Email replies from customers.
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DATA HOSTING AND MANAGEMENT
We collect, warehouse and manage key marketing elements of our clients'
customer information. In total, we manage over 20 million consumer profiles. Our
data hosting and management services include:
- Maintaining the integrity of our clients' email lists by purging
undeliverable addresses, correcting invalid addresses and eliminating
duplicate records.
- Developing and hosting Web pages that transparently integrate with a
client's Web site and that allow consumers to enter and update their
profile and subscription information.
- Capturing and processing real-time campaign response data at the
individual recipient level, including the recipient's email software
environment, whether the email was successfully delivered and opened and
which items were clicked on within the email.
- Automatically handling campaign email replies, including unsubscribe
requests, vacation notices, undeliverable messages, and forwarding of
customer service requests.
THE EMAIL EXCHANGE NETWORK
We have created an online cooperative marketing network, the Email Exchange
Network, which provides our clients with a new customer acquisition model. Our
Email Exchange Network operates as follows:
- Clients select other participating clients with whom they would like to
share customer profiles.
- Clients include links to the Email Exchange Network web site in their
emails or on their web sites.
- Consumers click on these links to access the Email Exchange Network.
- Consumers choose the participating clients from whom they would like to
receive information, and complete an optional profile form.
- Each consumer's email address and optional profile information is
automatically added to the customer profile database of the selected
clients.
- Clients pay us for every consumer profile added and are credited when one
of their customers joins another participant's list.
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CLIENTS
We began providing services in March 1998 and as of August 31, 1999, have
over 40 clients. Our clients consist of a diverse group of companies operating
in many industries throughout the United States, ranging from Fortune 100 to
small private companies. For the year ended March 31, 1999 Preview Travel,
ONSALE and The Gap accounted for 26.8%, 11.5% and 10.9% of our revenues. For the
quarter ended June 30, 1999, four of our clients accounted for 11.3%, 11.0%,
10.8% and 10.3% of revenues. During the six months ended August 31, 1999, we
completed a campaign for each of the following clients:
Another Universe
Apple Computer
Avon
BMG Direct
Barnes and Noble
Cooking.com
Digital Work
Doughnet
eBay
Elemental Software
eToys
Expedia
Financial Engines
Flooz.com
Fogdog Sports
Furniture.com
The Gap
Garden.com
Hewlett-Packard
iGo
Intel
iTurf
Knight-Ridder
Macy's
Mastercard
Medscape
Netcentives
Omaha Steaks
ONSALE
Peet's Coffee and Tea
Petco
Pets.com
Preview Travel
Reel.com
Service Merchandise
Sharper Image
Smarter Kids
Sprint
Tavolo (formerly Digital Chef)
Tektronix
Tower Records
Universal Studios
Virtual Vineyards
yourPharmacy.com
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SELECTED CLIENT CASE STUDIES
The following case studies illustrate different components of the
e-marketing services we perform for our clients. The clients described in these
case studies are current clients, and they did not, in the aggregate, constitute
more than 15% of our revenues for the quarter ended June 30, 1999.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
SERVICE
CLIENT COMPONENT SUMMARY OF CASE STUDY
- -------------------------------------------------------------------------------------------
<S> <C> <C>
The Sharper Image Email Campaign The Sharper Image, a specialty gifts retailer
Management tested and validated new e-marketing
strategies with the aid of our campaign
management system. Over the course of several
months, we measured the effectiveness of
promotions and email layouts based on the
characteristics of different customer groups.
Using the results of these tests, The Sharper
Image refined their e-marketing strategy to
increase the frequency and size of customer
orders. We began working with The Sharper
Image in May 1998.
- -------------------------------------------------------------------------------------------
ONSALE Targeting and ONSALE, an online auction retailer, used our
Personalization services to target and deliver personalized
email offers to their customers. We adapted
our data modeling system to assemble
personalized emails containing offers for
selected ONSALE customers based on their bid
and buy behavior in previous auctions. This
model utilized daily customer response data
to improve the effectiveness of the campaigns
over time. We began working with ONSALE in
November 1998.
- -------------------------------------------------------------------------------------------
Peet's Coffee & Tea Media Optimization Peet's Coffee and Tea, a gourmet beverage
retailer, used our email sensor technology to
determine the graphical capabilities of each
recipient's email. We then delivered a New
Yorker cartoon to those customers who could
view graphics in their email. All other
customers received an email containing a
hyperlink to the Peet's website where the
cartoon was displayed. We began working with
Peet's in April 1999.
- -------------------------------------------------------------------------------------------
Tower Records Tracking and Tower Records, a leading music retailer, used
Reporting our services to track and report their
customers' music interests. We provided them
with comprehensive reporting on those
customers who responded to each e-marketing
campaign, the timing of that response, and
the revenue and return on investment per
campaign. Using our services, Tower Records
was able to gauge customer reaction to its
outbound e-marketing campaigns and gain
insight into online customer behavior. We
began working with Tower Records in March
1998.
- -------------------------------------------------------------------------------------------
</TABLE>
SALES AND MARKETING
We sell our services primarily through direct sales representatives located
in San Mateo, California and New York City. We focus our sales efforts on the
senior marketing
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<PAGE> 38
and business executives of our prospective clients. Our sales personnel tailor
their demonstrations and proposals to address each client's particular needs.
We complement our direct sales force by entering into arrangements with
leading companies in the direct marketing and advertising industries. We have an
agreement with Harte-Hanks, a large direct marketing company, under which we are
the exclusive provider of e-marketing services sold by Harte-Hanks' over 200
national and international sales representatives. In addition, we recently
launched a marketing program to enable advertising agencies to offer our
services to their clients.
Our marketing strategy is to build and promote our brand and to generate
qualified leads for our sales team. We focus our marketing efforts on dedicated
Internet companies as well as traditional companies seeking to take advantage of
the commercial opportunities presented by e-commerce. We rely on a range of
marketing activities to pursue our objectives, including trade shows, trade
advertisements, selected media events and our own web site. We publish
collateral materials to support the sales process, including company brochures,
feature descriptions, technology research papers and client case studies.
CLIENT SERVICES
Our client services group is responsible for the ongoing support of our
clients. Based on the specific requirements of their e-marketing campaigns, each
client is assigned a team that typically consists of the following personnel:
- A client services manager, responsible for the overall relationship and
coordination of activities to effectively serve our client.
- A production specialist, responsible for integration of content and
offers to be sent in our client's email campaigns.
- A graphic designer, responsible for the creation of the graphic design
elements for the campaigns.
- A marketing analyst, responsible for testing services and for providing
insight into the results of campaigns.
For clients that require additional services, the client services manager
has access to a staff of marketing statisticians and engineers capable of
creating complex data mining and modeling algorithms and developing extensions
to our core services.
TECHNOLOGY
Our technology organization is responsible for research and development,
systems integration quality assurance and network operations. We have designed
an architecture based in part on proprietary technologies and in part on
licensed technologies.
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ARCHITECTURE
Our scalable, distributed architecture is based on a publish-and-subscribe
model and parallel computing technology. The key components of our architecture
are illustrated in the chart below:
[GRAPHIC]
Client Information. We use proprietary software tools to import a client's
customer profile information and email content elements, and convert them into a
format compatible with our data warehouse.
Data Warehouse. Our data warehouse currently stores over 20 million
customer profiles, each of which may include consumer preferences, demographics,
transaction histories and e-marketing response data. The data warehouse also
contains the assembly instructions for our clients' e-marketing campaigns.
Information in our data warehouse is organized by use of a proprietary set of
tables and relationships to optimize the performance and scalability of the
other system components.
Campaign Management. We use a variety of campaign management tools that
enable our client services managers to implement e-marketing campaigns. These
tools consist of the following:
- Data mining. We employ various technologies to review and analyze
customer response data, transaction histories, web site tracking data and
customer-reported preference data to identify patterns of behavior and
predict subsequent purchase behavior. We refer to these technologies
collectively as data mining.
- Campaign configuration. Our campaign configuration system is a
proprietary software application used to configure the content,
targeting, formatting and delivery timing of our clients' e-marketing
campaigns.
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- Reporting. We provide immediate reporting of campaign results to our
clients. We deliver these reports to our clients as spreadsheet
attachments to an email, through their Internet browser or as raw data
files.
Assembly and Delivery Engine. Our email assembly and delivery engine is
designed to construct, format and deliver large volumes of personalized email on
behalf of our clients. The modules of this engine are optimized for specific
tasks, including dynamic email assembly, high volume email delivery, graphical
content serving and load management.
Response Handler. We use proprietary web-based software to track the
delivery of our email transmissions and each recipient's response to those
emails. We track emails delivered, emails opened, emails rejected, unsubscribe
requests and recipients' responses to our clients' offers. We also use our
proprietary email sensor to automatically detect a recipient's ability to
display emails in media formats other than plain text, such as HTML, dynamic
HTML and Java-based content.
NETWORK OPERATIONS AND SYSTEM SECURITY
Our servers are located at Exodus Communications in Santa Clara,
California. Exodus provides fully redundant Internet access with an aggregate
network capacity of over 17 gigabits per second. Additionally, Exodus provides
power, climate control and monitoring services 24 hours per day, seven days per
week. We plan to add a similar facility in the eastern United States within the
next 12 months. Our internal network operations are managed by experienced
systems architects and security experts who provide around the clock operations
and database administration support.
Our data center consists of over 100 Sun Microsystems and Intel-based
servers. These servers are connected to a high speed network backbone. Our
production and internal networks are protected by a fault-tolerant firewall
system that filters all network communications. We have also implemented a
secure link with our corporate office facility that allows direct and secure
access to our data center systems, enabling timely campaign administration.
CORE TECHNOLOGIES
We utilize a number of industry-standard technologies to support our
architecture. Our software is written primarily in the Java programming
language, enabling us to build reusable components and designs. We also use the
extensible markup language, or XML, to facilitate the dynamic assembly of
emails. We use Sun Solaris, Linux and Microsoft Windows NT operating systems
running on Sun Microsystems and Intel-based servers.
We also license technologies from a number of third parties. Our data
warehouse is managed using Oracle 8.0 relational database software. The
performance of our email assembly and delivery engine is monitored using
software licensed from TIBCO, which also allows us to easily install additional
servers to increase capacity without service interruptions. Campaign results are
reported on the Internet to clients using software we license from Actuate.
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COMPETITION
The market for e-marketing services is intensely competitive, rapidly
evolving and subject to rapid technological change. We expect competition to
increase significantly in the future because of the attention the Internet has
received as a means of advertising and direct marketing and because there are no
significant barriers to entry into our market.
We believe that the factors on which we compete include:
- Credibility of clients and their willingness to act as references.
- Quality and features of e-marketing services.
- Quality of customer service.
- Sophistication and reliability of core technology.
- Speed of implementation of e-marketing campaigns.
- Cost-effectiveness of a given solution.
Although we believe that our solution currently competes favorably with
respect to these factors, our market is relatively new and is evolving rapidly.
We may not be able to maintain our competitive position against current and
potential competitors.
Our principal competitors include providers of e-marketing services such as
Acxiom and its affiliate Bigfoot, @Once, Exactis.com, Kana Communications,
L-Soft, Media Synergy, Message Media, Net Creations, Responsys.com and
Yesmail.com. We also compete with the information technology departments of
current and prospective clients.
We may experience additional competition from Internet service providers,
advertising and direct marketing agencies and other large established businesses
such as America Online, DoubleClick, Microsoft, IBM, AT&T, Yahoo!, ADVO and the
Interpublic Group of Companies. Each of these companies possess large, existing
customer bases, substantial financial resources and established distribution
channels and could develop, market or resell a number of e-marketing services.
Such potential competitors may also choose to enter the market for e-marketing
services by acquiring one of our existing competitors or by forming strategic
alliances with such competitors. Any of these occurrences could harm our ability
to compete effectively.
Many of our current and potential competitors have longer operating
histories, greater name recognition, larger customer bases, more diversified
lines of products and services and significantly greater resources than we have.
These competitors may be able to devote significant resources to sales and
marketing, adopt more aggressive pricing policies and deliver superior
solutions. In addition, many of our current or potential competitors have broad
distribution channels that may be used to bundle competing products or services.
If such competitors bundle competing products or services, the demand for our
services could substantially decline. As a result, we cannot assure you that we
will compete effectively with our current or future competitors or that
competitive pressures will not harm our business.
INTELLECTUAL PROPERTY RIGHTS
Our success and ability to compete are substantially dependent upon our
technology and intellectual property. While we rely on copyright, trade secret
and trademark law to
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protect our technology and intellectual property, we believe that factors such
as the technological and creative skills of our personnel, new service
developments and frequent service enhancements are more essential to
establishing and maintaining an intellectual property leadership position. We
have two patent applications pending and two trademark applications pending.
We generally enter into confidentiality agreements with our employees and
consultants. Despite our efforts to protect our proprietary information,
unauthorized parties may attempt to obtain and use our proprietary information.
Policing unauthorized use of our proprietary information is difficult, and the
steps we have taken might not prevent misappropriation, particularly in foreign
countries where the laws may not protect our proprietary rights as fully as do
the laws of the United States.
We collect and use data derived from our clients. This creates the
potential for claims to be made against us, either directly or through
contractual indemnification provisions with customers, including copyright or
trademark infringement, invasion of privacy or other legal theories. Although we
carry general liability insurance, our insurance may not cover potential claims
of this type or may not be adequate to indemnify us for all liability that may
be imposed.
Substantial litigation regarding intellectual property rights exists in the
technology industry. From time to time, third parties have asserted and may
assert exclusive patent, copyright, trademark and other intellectual property
rights to technologies and related standards that are important to us. We expect
that we may increasingly be subject to infringement claims as the number of
competitors in our industry segments grows and the functionality of products and
services in different industry segments overlaps. In addition, we believe that
many of our competitors have filed or intend to file patent applications
covering aspects of their technology that they may claim our intellectual
property infringes. Although we have not been party to any litigation asserting
claims that allege infringement of intellectual property rights, we cannot
assure you that we will not be a party to litigation in the future. Any third
party claims, with or without merit, could be time-consuming to defend, result
in costly litigation, divert management's attention and resources 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, if at
all. A successful claim of infringement against us could harm our business.
GOVERNMENT REGULATION
Legislation has recently been enacted in several states restricting the
sending of unsolicited commercial email. The federal government and several
other states are considering, or have considered, similar legislation. Although
the provisions of these current and contemplated laws vary, they generally limit
or prohibit both the transmission of unsolicited commercial emails and 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. We believe that our
current suite of services will not be affected by such legislation because we do
not send unsolicited commercial email. We cannot assure you that future
legislation or the application of existing legislation will not harm our
business.
There is a growing body of laws and regulations applicable to access to or
commerce on the Internet. Due to the increasing popularity and use of the
Internet, it is likely that a growing number of laws and regulations will be
adopted at the international, federal, state
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and local level with respect to the Internet or e-marketing services covering
issues such as user privacy, pricing, content, copyrights, distribution,
antitrust and characteristics and quality of services. Further, the growth and
development of the market for e-marketing may prompt calls for more stringent
consumer protection laws that may impose additional burdens on those companies
conducting business online. The adoption of any additional laws or regulations
may impair the growth of the Internet or e-marketing, which could, in turn,
decrease the demand for our services and increase our cost of doing business.
Moreover, 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 legislation or regulation, the application of laws and regulations
from jurisdictions whose laws do not currently apply to our business or the
application of existing laws and regulations to the Internet could harm our
business.
EMPLOYEES
As of June 30, 1999, we had a total of 83 employees, all of whom were
full-time employees. Of the total number of employees, 24 were engaged in
research and development, 10 in sales, marketing and business development, 42 in
professional services and technical support and 7 in finance, administration and
operations. Our future performance depends in significant part upon the
continued service of our key technical, sales and senior management personnel.
Our future success also depends on our continuing ability to attract, train and
retain highly qualified technical, sales and managerial personnel. Competition
for such personnel is intense, and we may not be able to retain our key
personnel in the future. None of our employees is represented by a labor union.
We have not experienced any work stoppages and consider our relations with our
employees to be good.
FACILITIES
Our principal executive offices are located in San Mateo, California, where
we lease approximately 29,400 square feet under two leases that expire in 2002
and 2003.
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MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
The following table sets forth information regarding our executive
officers, key employees and directors as of September 17, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
William Park....................... 32 Chief Executive Officer and Chairman of the
Board of Directors
David Oppenheimer.................. 42 Vice President, Finance, Chief Financial
Officer, Treasurer and Secretary
Gerardo Capiel..................... 31 Chief Technical Officer and Director
Raymond Kaupp...................... 47 Vice President, Marketing and Business
Development
Alan Flohr......................... 34 Vice President, Sales and Client Services
Harry Drake........................ 32 Vice President, Client Services Engineering
Brian Platter...................... 34 Vice President, Product Management
Ruthann Quindlen................... 45 Director
Warren Packard..................... 31 Director
Michael Brown...................... 40 Director
</TABLE>
William Park has served as our Chief Executive Officer since July 1999 and
serves as Chairman of our board of directors, a position he has held since he
co-founded Digital Impact in October 1997. From October 1997 through June 1999,
Mr. Park served as our President. From July 1996 until November 1996, Mr. Park
was Director of Profile Marketing for NetAngels, an Internet company focused on
web personalization technologies. From 1989 to 1994, Mr. Park held a variety of
marketing positions at ZAI*NET Software, Inc., an enterprise software company,
where he became Vice President of Marketing in 1993. Mr. Park holds a B.A. from
the University of Pennsylvania and an M.B.A. from Stanford University.
Gerardo Capiel has served as our Chief Technology Officer and as a member
of our board of directors, a position he has held since he co-founded Digital
Impact in October 1997. From August 1996 to August 1997, Mr. Capiel was Director
of Internet/ Internet Solutions for Altro Solutions, an information technology
and business process consulting firm. From June 1995 to September 1995, Mr.
Capiel was a marketing analyst at Broadvision, an Internet applications software
company. Prior to that, Mr. Capiel held various positions at Altro Solutions.
Mr. Capiel holds a B.S. in engineering systems and computation from the
Massachusetts Institute of Technology and an M.B.A. from Stanford University.
David Oppenheimer has served as our Vice President, Finance and Chief
Financial Officer since July 1999. From November 1997 to July 1999, Mr.
Oppenheimer was Vice President, Finance for Autodesk, Inc., a supplier of design
and visual effect software. From January 1995 to November 1997, Mr. Oppenheimer
held several positions with AlliedSignal, Inc., an advanced technology and
manufacturing company, including Chief Financial Officer of AlliedSignal
Electronic Materials, Vice President of Finance for AlliedSignal Aerospace
Services and Controller of AlliedSignal Engines. From August 1985 to January
1995, Mr. Oppenheimer was employed by United Airlines, a commercial air
transportation company, most recently as Division Controller. Mr. Oppenheimer
holds a
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B.S. in mechanical engineering from State University of New York, Buffalo and an
M.B.A. from the University of California, Berkeley.
Raymond Kaupp has served as our Vice President, Marketing and Business
Development since April 1998. From July 1993 to March 1998, Mr. Kaupp served as
President of UGC, a catalog retailer. From January 1988 to July 1993, Mr. Kaupp
held a variety of marketing management positions at Apple Computer, a computer
manufacturer. Prior to that, Mr. Kaupp served as a marketing manager at Metaphor
Computer Systems, a decision support systems company. Mr. Kaupp holds a B.S. in
business administration from San Diego State University and an M.B.A. from the
University of California, Berkeley.
Alan Flohr has served as our Vice President, Sales and Client Services
since August 1999. From April 1999 to August 1999, Mr. Flohr served as Vice
President, Sales. From May 1995 to April 1999, Mr. Flohr was employed by Advo
Incorporated, a direct mail marketing company, as Vice President of Strategic
Account Development, Vice President of Field Marketing and Director of Marketing
Planning. From December 1992 to April 1995, Mr. Flohr co-founded and served as
principal of New Paradigm Ventures, a marketing consulting and venture capital
company. Mr. Flohr holds a B.S. in industrial engineering from State University
of New York, Buffalo and an M.B.A. from The Amos Tuck School of Business
Administration at Dartmouth College.
Harry Drake has served as our Vice President, Client Services Engineering
since July 1999. Mr. Drake joined Digital Impact in February 1999 as Director,
Client Services Engineering. From March 1994 until February 1999, Mr. Drake was
a Director for Altro Systems, an information technology and business process
consulting firm. Mr. Drake holds a B.A. in economics from the University of
California, Berkeley.
Brian Platter has served as our Vice President, Product Management since
May 1999. Mr. Platter joined Digital Impact in April 1998 and served as
Director, Client Services through April 1999. From July 1997 to January 1998,
Mr. Platter worked for Fujitsu Computer Products of America, an information
technology company. From June 1994 until July 1997, Mr. Platter served as a
Senior Consultant for Gemini Management Consulting, a management consulting
firm. Mr. Platter holds a B.S. in mechanical engineering from the University of
Colorado and an M.B.A. from Stanford University.
Ruthann Quindlen has served as a member of our board of directors since
November 1998. Since June 1994, Ms. Quindlen has been a general partner of
Institutional Venture Partners, a venture capital investment firm. Ms. Quindlen
serves on the board of directors of Mpath Inc., an Internet media company, and
on the board of directors of several private companies. Ms. Quindlen holds a
B.S. in economics from Georgetown University and an M.B.A. from the Wharton
School of the University of Pennsylvania.
Warren Packard has served as a member of our board of directors since March
1998. Mr. Packard is a partner of Draper Fisher Jurvetson, a position he has
held since June 1997. From January 1996 to June 1997, Mr. Packard founded and
served as the Vice President of Business Development of Angara Database Systems.
From June 1996 to January 1997 Mr. Packard was an associate at Institutional
Venture Partners. Mr. Packard also serves on the board of directors of several
private companies. Mr. Packard holds a B.S. and M.S. in mechanical engineering
and an M.B.A. from Stanford University.
Michael Brown has served as a member of our board of directors since
September 1999. Mr. Brown also serves as Chief Executive Officer of Quantum
Corporation, a data
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storage company, a position he has held since September 1995. In May 1998, he
was also appointed Chairman of the Board of Quantum. Prior to September 1995,
Mr. Brown held several other positions at Quantum. Mr. Brown holds a B.A. in
economics from Harvard University and an M.B.A. from Stanford University.
BOARD COMPOSITION
Our certificate of incorporation provides for a classified board of
directors consisting of three classes of directors, each serving staggered
three-year terms. As a result, a portion of the board of directors will be
elected each year. To implement the classified structure, prior to the
consummation of the offering, two of the nominees to the board will be elected
to a one-year term, one will be elected to a two-year term and two will be
elected to three-year terms. Subsequently, directors will be elected for
three-year terms. Mr. Capiel and Mr. Packard have been designated Class I
directors whose term expires at the 2000 annual meeting of stockholders. Ms.
Quindlen has been designated a Class II director whose term expires at the 2001
annual meeting of stockholders. Mr. Brown and Mr. Park have been designated
Class III directors whose term expires at the 2002 annual meeting of
stockholders. There are no family relationships among any of our directors,
officers or key employees.
BOARD COMMITTEES
We established an audit committee in September 1999 and a compensation
committee in July 1999.
Our audit committee consists of Ms. Quindlen and Mr. Packard. The audit
committee reviews internal accounting procedures and consults with and reviews
the services provided by our independent accountants.
Our compensation committee consists of Ms. Quindlen and Mr. Brown. The
compensation committee establishes salaries, incentives and other forms of
compensation for officers and other employees. This committee also administers
our incentive compensation and benefit plans.
DIRECTOR COMPENSATION
Directors do not currently receive any cash compensation from us for their
service as members of the board of directors. Directors who are employees of
Digital Impact are eligible to participate in our 1998 stock plan and our 1999
employee stock purchase plan. Directors who are not employees of Digital Impact
are eligible to participate in our 1999 director option plan. Our 1999 director
option plan generally provides for an automatic initial grant of an option to
purchase 20,000 shares of our common stock to each non-employee director on the
later to occur of the effective date of the plan or the date on which a person
first becomes a non-employee director. After the initial grant, a non-employee
director will be granted a subsequent option to purchase 5,000 shares of our
common stock each year on the date of our annual meeting of stockholders, if on
such date he or she has served as a director for at least six months. These
grants have a term of ten years. Each initial option grant will vest as to 25%
of the shares subject to the option on each anniversary of its date of grant and
each subsequent option grant will vest as to 100% of the shares subject to the
option on each anniversary of its date of grant. The exercise price of all
options will be 100% of the fair market value per share of our common
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<PAGE> 47
stock on the date of grant. For an additional description of these option plans,
please refer to our discussion under "-- Compensation Plans."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of our compensation committee is an officer or employee
of Digital Impact. No interlocking relationship exists between our board of
directors or compensation committee and the board of directors or compensation
committee of any other company, nor has such an interlocking relationship
existed in the past. Ms. Quindlen, a member of our compensation committee, is a
general partner of Institutional Venture Partners, a stockholder of our company.
For more information on this relationship, please refer to "Certain
Transactions."
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
Mr. Oppenheimer is party to an at-will employment agreement, dated July 29,
1999, effective as of August 2, 1999. Under the agreement, we agreed to pay Mr.
Oppenheimer an annual salary of $225,000, and granted him an option to purchase
275,000 shares of our common stock. The shares subject to this option will vest
over a four year period, with 6.25% of these shares vesting at the end of the
first three months of employment and the remaining shares vesting monthly
thereafter. In the event that Mr. Oppenheimer is terminated without cause, he
will be entitled to receive continued payment of his base salary for three
months as severance. If within twelve months of a change in control, Mr.
Oppenheimer's employment is terminated without cause or he terminates his
employment as a result of a reduction in his compensation, a change in his
responsibilities or refusal of the successor company to assume our
responsibilities under the employment agreement, 50% of his unvested shares
shall have their vesting accelerated in full as of the date of termination. A
change of control will be deemed to have occurred in the event of a merger or
reorganization in which we are not the surviving corporation, our transfer of
all or substantially all of our assets, our liquidation or dissolution, or if
any person becomes the beneficial owner of 50% or more of our voting stock.
Mr. Flohr is party to an at-will employment agreement, dated March 12,
1999, effective as of April 1, 1999. Under this agreement, we agreed to pay Mr.
Flohr an annual salary of $165,000, and granted him an option to purchase
300,000 shares of our common stock. Mr. Flohr is also eligible to receive a
sales commission of $85,000 upon achieving his sales quota. The shares subject
to this option will vest over a four year period, with 12.5% of these shares
vesting at the end of six months and the remaining shares vesting monthly
thereafter. In the event that Mr. Flohr is terminated without cause, he will be
entitled to receive continued payment of his base salary for six months as
severance.
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EXECUTIVE COMPENSATION
The following table sets forth the compensation earned for services
rendered to us in all capacities for the fiscal year ended March 31, 1999 by our
Chief Executive Officer and our other most highly compensated executive officer
who earned more than aggregate cash compensation of $100,000 during the fiscal
year ended March 31, 1999. These executives are referred to as the named
executive officers in this prospectus.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL ------------
COMPENSATION SECURITIES
-------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS
--------------------------- --------- -------- ------------
<S> <C> <C> <C>
William Park................................... $ 83,333 $ -- --
Chief Executive Officer
Raymond Kaupp.................................. 131,969 7,875 260,820
Vice President, Marketing and Business
Development
</TABLE>
Mr. Park has served as our Chief Executive Officer since July 1999. Prior
to that time, we did not have a Chief Executive Officer. Mr. Park, as our
President, acted in a capacity similar to Chief Executive Officer during that
period. Messrs. Oppenheimer and Flohr were hired as executive officers
subsequent to March 31, 1999 and are compensated at annual rates of $225,000 and
$200,000, respectively.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to stock options
granted to each of the named executive officers in the fiscal year ended March
31, 1999, including the potential realizable value over the term of the options
which may be five to ten years, based on assumed rates of stock appreciation of
5% and 10%, compounded annually. These assumed rates of appreciation comply with
the rules of the Securities and Exchange Commission and do not represent our
estimate of future stock price. Actual gains, if any, on stock option exercises
will be dependent on the future performance of our common stock.
The percentages below are based on a total of 1,964,804 shares subject to
options granted by us during the year ended March 31, 1999 to employees,
directors and consultants. All options were granted under our 1998 stock plan at
exercise prices at the fair market value of our common stock on the date of
grant, as determined in good faith by the board of directors. All options listed
below are immediately exercisable upon grant; however, any unvested shares are
subject to repurchase by us at their cost if the optionee's service with us
terminates. All option shares listed in the table below vest over four years,
with 25% of the option shares vesting one year after the option grant date, and
the remaining option shares vesting ratably each month thereafter.
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<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SHARES PERCENTAGE OF PRICE APPRECIATION FOR
UNDERLYING TOTAL OPTIONS EXERCISE OPTION TERM
OPTIONS GRANTED TO PRICE EXPIRATION ----------------------
NAME GRANTED EMPLOYEES PER SHARE DATE 5% 10%
---- ---------- ------------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
William Park......... -- --% $ -- -- $ -- $ --
Raymond Kaupp........ 260,820 13.3 0.02 4/29/08 -- --
</TABLE>
FISCAL YEAR-END OPTION VALUES
The following table provides summary information concerning the shares of
common stock represented by outstanding stock options held by each of the named
executive officers as of March 31, 1999. No options were exercised by the named
executive officers during the year ended March 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
MARCH 31, 1999 MARCH 31, 1999
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
William Park............... -- -- $ -- --
Raymond Kaupp.............. 260,820 -- 125,193 --
</TABLE>
These values are based on the fair market value as of March 31, 1999, as
determined by the board of directors, minus the exercise price, multiplied by
the number of shares underlying the option.
In April 1999, we granted to Mr. Flohr options to purchase 300,000 shares
of common stock at an exercise price of $0.25 per share. In July 1999, we
granted to Mr. Oppenheimer options to purchase 275,000 shares of common stock at
an exercise price of $2.50 per share. In August 1999, we granted to Mr. Flohr
options to purchase 100,000 shares of common stock at an exercise price of $2.50
per share. In September 1999, we granted to Mr. Kaupp options to purchase 50,000
shares of common stock at an exercise price of $8.00 per share. These options
vest over a four year period.
COMPENSATION PLANS
AMENDED AND RESTATED 1998 STOCK PLAN
Our amended and restated 1998 stock plan provides for the grant of
incentive stock options to employees, including officers and employee directors,
and for the grant of nonstatutory stock options and stock purchase rights to
employees, directors and consultants. The 1998 stock plan was originally adopted
by our board of directors and approved by the stockholders in March 1998 and
amended and restated by the board of directors in September 1999, subject to
stockholder approval. Unless terminated sooner, the 1998 stock plan will
terminate automatically ten years from the date of obtaining stockholder
approval.
A total of 8,795,000 shares of our common stock has been reserved for
issuance under this plan. In addition, annual increases will be added to the
1998 stock plan, beginning on
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January 1, 2001, equal to the lesser of 1,500,000 shares, 4% of the outstanding
shares or an amount determined by our board of directors. As of June 30, 1999,
options to purchase 2,911,208 shares of common stock were outstanding under the
1998 stock plan and 4,711,497 were available for further issuance.
The administrator of our 1998 stock plan has the power to determine, among
other things:
- the terms of the options or stock purchase rights granted, including the
exercise price of the option or stock purchase right;
- the number of shares subject to each option or stock purchase right;
- the exercisability of each option or stock purchase right; and
- the form of consideration payable upon the exercise of each option or
stock purchase right.
In addition, the administrator has the authority to amend, suspend or
terminate the 1998 stock plan, so long as no such action affects any shares of
common stock previously issued and sold or any option previously granted under
the 1998 stock plan. During any fiscal year, each optionee may be granted
options to purchase a maximum of 1,000,000 shares. In addition, in connection
with an optionee's initial employment with us, such optionee may be granted an
option covering an additional 1,000,000 shares.
Options and stock purchase rights granted under our 1998 stock plan are
generally not transferable by the optionee, and each option and stock purchase
right is exercisable during the lifetime of the optionee only by such optionee.
Options granted under the 1998 stock plan must generally be exercised within
three months after the end of optionee's status as an employee, director or
consultant of Digital Impact, or within twelve months after such optionee's
termination by death or disability, but in no event later than the expiration of
the option's term.
In the case of stock purchase rights, unless the administrator determines
otherwise, the restricted stock purchase agreement grants us a repurchase option
exercisable upon the voluntary or involuntary termination of the purchaser's
employment or consulting relationship with us for any reason, including death or
disability. The purchase price for shares repurchased pursuant to the restricted
stock purchase agreement must be the original price paid by the purchaser and
may be paid by cancellation of any indebtedness of the purchaser to us. The
repurchase option lapses at a rate determined by the administrator.
The exercise price of all incentive stock options granted under the 1998
stock plan must be at least equal to the fair market value of the common stock
on the date of grant. The exercise price of nonstatutory stock options and stock
purchase rights granted under the 1998 stock plan is determined by the
administrator, but with respect to nonstatutory stock options intended to
qualify as "performance-based compensation" within the meaning of Section 162(m)
of the Internal Revenue Code, the exercise price must be at least equal to the
fair market value of our common stock on the date of grant. With respect to any
participant who owns stock possessing more than 10% of the voting power of all
classes of our outstanding capital stock, the exercise price of any incentive
stock option granted must be at least equal to 110% of the fair market value on
the grant date and the term of such incentive stock option must not exceed five
years. The term of all other options granted under the 1998 stock plan may not
exceed ten years.
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<PAGE> 51
The 1998 stock plan provides that in the event of our merger with or into
another corporation, or a sale of substantially all of our assets, each option
and stock purchase right shall be assumed or an equivalent option substituted
for by the successor corporation. If the outstanding options and stock purchase
rights are not assumed or substituted for by the successor corporation, the
optionees will become fully vested in and have the right to exercise such
options or stock purchase rights. If an option or stock purchase right becomes
fully vested and exercisable in the event of a merger or sale of assets, the
administrator must notify the optionee that the option or stock purchase right
is fully exercisable for a period of 15 days from the date of the notice, and
the option or stock purchase right will terminate upon the expiration of the 15
day period.
1999 EMPLOYEE STOCK PURCHASE PLAN
Our 1999 employee stock purchase plan was adopted by our board of directors
in September 1999, subject to stockholder approval. A total of 700,000 shares of
our common stock has been reserved for issuance under the 1999 employee stock
purchase plan, plus annual increases beginning on January 1, 2001 equal to the
lesser of 700,000 shares, 2% of the outstanding shares on such date or an amount
determined by our board of directors. As of the date of this prospectus, no
shares have been issued under the 1999 employee stock purchase plan.
The 1999 employee stock purchase plan, which is intended to qualify under
Section 423 of the Internal Revenue Code, contains consecutive, overlapping,
twelve month offering periods. Each offering period includes two six-month
purchase periods. The offering periods generally start on the first trading day
on or after June 1 and December 1 of each year, except for the first such
offering period which commences on the first trading day on or after the
effective date of this offering and ends on the last trading day on or before
November 30, 2000.
Employees are eligible to participate if they are customarily employed by
us or any participating subsidiary for at least 20 hours per week and more than
five months in any calendar year. However, employees may not be granted an
option to purchase stock under the 1999 employee stock purchase plan if they
either:
- immediately after grant, own stock possessing 5% or more of the total
combined voting power or value of all classes of our capital stock, or
- hold rights to purchase stock under our employee stock purchase plans
which accrue at a rate which exceeds $25,000 worth of stock for each
calendar year.
The 1999 employee stock purchase plan permits participants to purchase our
common stock through payroll deductions of up to 15% of the participant's
"compensation." Compensation is defined as the participant's base straight time
gross earnings and commissions but exclusive of payments for overtime, profit
sharing payments, shift premium payments, incentive compensation, incentive
payments and bonuses. The maximum number of shares a participant may purchase
during a single purchase period is 5,000 shares.
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<PAGE> 52
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each purchase period. The price of stock
purchased under the 1999 purchase plan is generally 85% of the lower of the fair
market value of the common stock either:
- at the beginning of the offering period; or
- at the end of the purchase period.
In the event the fair market value at the end of a purchase period is less
than the fair market value at the beginning of the offering period, the
participants will be withdrawn from the current offering period following
exercise and automatically re-enrolled in a new offering period. The new
offering period will use the lower fair market value as of the first date of the
new offering period to determine the purchase price for future purchase periods.
Participants may end their participation at any time during an offering period,
and they will be paid their payroll deductions to date. Participation ends
automatically upon termination of employment with Digital Impact.
Rights granted under the 1999 employee stock purchase plan are not
transferable by a participant other than by will, the laws of descent and
distribution, or as otherwise provided under the 1999 employee stock purchase
plan. The 1999 employee stock purchase plan provides that, in the event we merge
with or into another corporation or there is a sale of substantially all of our
assets, each outstanding option may be assumed or substituted for by the
successor corporation. If the successor corporation refuses to assume or
substitute for the outstanding options, the offering period then in progress
will be shortened and a new exercise date will be set.
The 1999 employee stock purchase plan will terminate in 2009. Our board of
directors has the authority to amend or terminate the 1999 employee stock
purchase plan, except that no such action may adversely affect any outstanding
rights to purchase stock under the 1999 employee stock purchase plan.
1999 DIRECTOR OPTION PLAN
Non-employee directors are entitled to participate in our 1999 director
option plan. The 1999 director option plan was adopted by our board of directors
in September 1999, subject to stockholder approval. The 1999 director option
plan has a term of ten years, unless terminated sooner by our board of
directors. A total of 500,000 shares of our common stock have been reserved for
issuance under the 1999 director option plan. In addition, annual increases will
be added to this plan, beginning on January 1, 2001, equal to the lesser of
250,000 shares, or an amount determined by our board of directors.
The 1999 director option plan generally provides for an automatic initial
grant of an option to purchase 20,000 shares of our common stock to each
non-employee director on the date which the later of the following events occur:
- the effective date of the 1999 director option plan; or
- the date when a person first becomes a non-employee director.
After the initial grant, a non-employee director will be granted a
subsequent option to purchase 5,000 shares of our common stock each year on the
date of our annual meeting of stockholders, if on such date he or she has served
on our board of directors for at least six months. Each initial option grant and
each subsequent option grant shall have a term of 10 years. Each initial option
grant will vest as to 25% of the shares subject to the option
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<PAGE> 53
on each anniversary of its date of grant and each subsequent option grant will
vest as to 100% of the shares subject to the option on each anniversary of its
date of grant. The exercise price of all options will be 100% of the fair market
value per share of our common stock on the date of grant.
The 1999 director option plan provides that in the event of our merger with
or into another corporation, or a sale of substantially all of our assets, the
successor corporation shall assume each option or substitute an equivalent
option. If following such assumption or substitution, the optionee's status as a
director is terminated other than upon voluntary resignation, each option will
become fully vested and exercisable generally for a period of three months from
the date of termination. If outstanding options are not assumed or substituted
for by the successor corporation, each option will become fully vested and
exercisable for a period of thirty days from the date our board of directors
notifies the optionee of the option's full exercisability, after which period
the option shall terminate. Options granted under the 1999 director option plan
must be exercised within three months of the end of the optionee's tenure as our
director, or within twelve months after such director's termination by death or
disability, but in no event later than the expiration of the option's ten year
term. No option granted under the 1999 director option plan is transferable by
the optionee other than by will or the laws of descent and distribution, and
each option is exercisable, during the lifetime of the optionee, only by the
optionee.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Section 145 of the Delaware General
Corporation Law provides that directors of a corporation will not be personally
liable for monetary damages for breach of their fiduciary duties as directors,
except liability for:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General
Corporation Law; or
- any transaction from which the director derived an improper personal
benefit.
This limitation of liability does not apply to liabilities arising under
the federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our certificate of incorporation and bylaws provide that we shall indemnify
our directors and executive officers and may indemnify other officers and
employees and our agents to the fullest extent permitted by law. We believe that
indemnification under our bylaws covers at least negligence and gross negligence
on the part of indemnified parties. Our bylaws also permit us to secure
insurance on behalf of any officer, director, employee or other agent for any
liability arising out of his or her actions in such capacity, regardless of
whether the bylaws would permit indemnification. We maintain directors' and
officers' liability insurance.
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<PAGE> 54
CERTAIN TRANSACTIONS
PREFERRED STOCK SALE
SERIES A CONVERTIBLE PREFERRED STOCK. In March 1998, we sold shares of our
series A preferred stock convertible into an aggregate of 5,592,000 shares of
common stock at a price of approximately $0.21 per share, to raise capital to
finance our operations. The following 5% stockholders purchased shares in the
financing:
<TABLE>
<CAPTION>
NUMBER OF
COMMON EQUIVALENT AGGREGATE
PURCHASER SHARES CONSIDERATION
--------- ----------------- -------------
<S> <C> <C>
Draper Fisher Associates Fund IV,
L.P. .................................. 3,124,800 $ 651,000
Draper Fisher Partners IV, L.L.C. ....... 235,200 49,000
Draper Richards L.P. .................... 1,440,000 240,000
</TABLE>
The share numbers and price per share set forth above reflect the
three-for-one stock split of our capital stock effected in November 1998 and the
two-for-one stock split of our capital stock effected in August 1999. The
holders of our series A preferred stock were allotted one seat on our board of
directors, currently filled by Mr. Packard, in connection with their investment.
This right expires upon closing of this offering.
SERIES B CONVERTIBLE PREFERRED STOCK. In November 1998, we sold shares of our
series B preferred stock convertible into an aggregate of 4,448,264 shares of
common stock at a price of approximately $1.21 per share, to raise capital to
finance our operations. The following 5% stockholders purchased shares in the
financing:
<TABLE>
<CAPTION>
NUMBER OF
COMMON EQUIVALENT AGGREGATE
PURCHASER SHARES CONSIDERATION
--------- ----------------- -------------
<S> <C> <C>
Institutional Venture Partners VIII,
L.P. .................................. 3,429,312 $ 4,143,809
IVM Investment Fund VIII, LLC............ 36,930 44,624
IVM Investment Fund VIII-A, LLC.......... 15,828 19,125
IVP Founders Fund I, L.P. ............... 35,172 42,500
Draper Fisher Associates Fund IV,
L.P. .................................. 747,654 903,428
Draper Fisher Partners IV, L.L.C. ....... 56,276 68,001
Draper Richards L.P. .................... 82,758 100,000
</TABLE>
The share numbers and price per share set forth above reflect the
two-for-one stock split of our capital stock effected in August 1999. The
holders of our series B preferred stock were allotted one seat on our board of
directors, currently filled by Ms. Quindlen, in connection with their
investment. This right expires upon closing of this offering.
SERIES C CONVERTIBLE PREFERRED STOCK. In July 1999, we sold shares of our series
C preferred stock convertible into an aggregate of 2,227,294 shares of common
stock at a price of approximately $4.78 per share, to raise capital to finance
our operations. The following 5% stockholders purchased shares in the financing:
<TABLE>
<CAPTION>
NUMBER OF
COMMON EQUIVALENT AGGREGATE
PURCHASER SHARES CONSIDERATION
--------- ----------------- -------------
<S> <C> <C>
Institutional Venture Partners VIII,
L.P. .................................. 1,230,720 $ 5,888,995
IVM Investment Fund VIII, LLC............ 23,198 111,002
Draper Fisher Associates Fund IV,
L.P. .................................. 429,530 2,055,300
Draper Fisher Partners IV, L.L.C. ....... 32,330 154,700
Draper Richards L.P. .................... 52,247 250,000
</TABLE>
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<PAGE> 55
The share numbers and price per share set forth above reflect the
two-for-one stock split of our capital stock effected in August 1999.
OTHER TRANSACTIONS
In connection with the above transactions, we entered into an agreement
with the investors providing for registration rights with respect to these
shares. For more information regarding this agreement, see "Description of
Capital Stock -- Registration Rights."
For information regarding agreements between us and some of our executive
officers, please see "Management -- Employment Contracts and Change of Control
Arrangements."
COMMON STOCK ISSUANCE
In February 1999, William Park, our Chief Executive Officer, contributed to
our capital 270,000 shares of our common stock, without consideration.
Contemporaneously, we issued to Gerardo Capiel, our Chief Technology Officer, an
aggregate of 270,000 shares of our common stock as a bonus.
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<PAGE> 56
PRINCIPAL STOCKHOLDERS
The table on the following page sets forth information regarding the
beneficial ownership of our common stock as of June 30, 1999, and assumes the
issuance of the series C convertible preferred stock issued in July 1999, by the
following individuals or groups:
- each person or entity who is known by us to own beneficially more than 5%
of our outstanding stock.
- each of the named executive officers and directors.
- all directors and executive officers as a group.
Unless otherwise indicated, the persons listed below have sole voting and
investment power with respect to shares of our common stock shown as
beneficially owned by them, subject to community property laws where applicable.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Percentage of beneficial ownership prior to
the offering is based on 18,464,628 shares of common stock outstanding as of
June 30, 1999, and assumes the issuance of the series C convertible preferred
stock issued in July 1999. Each beneficial owner's percentage ownership assumes
the exercise or conversion of all options, warrants and other convertible
securities held by such person and that are exercisable or convertible 60 days
after June 30, 1999. Each beneficial owner's percentage ownership does not
include any shares of common stock that such owner may purchase in the offering.
Except as otherwise noted, the address of each person listed is c/o Digital
Impact, Inc., 177 Bovet Road, Suite 200, San Mateo, California 94402.
<TABLE>
<CAPTION>
PERCENTAGE
OF SHARES OUTSTANDING
----------------------
NUMBER OF SHARES PRIOR TO AFTER
NAME AND ADDRESS BENEFICIALLY OWNED OFFERING OFFERING
---------------- ------------------ --------- ---------
<S> <C> <C> <C>
Entities affiliated with Institutional
Venture Partners(1).................. 4,771,160 25.8%
3000 Sand Hill Road
Building 2, Suite 290
Menlo Park, California 94025
Entities affiliated with Draper Fisher
Jurvetson(2)......................... 4,625,790 25.1
400 Seaport Court, Suite 250
Redwood City, California 94063
Draper Richards L.P.................... 1,575,004 8.5
50 California Street, Suite 2925
San Francisco, California 94111
William Park(3)........................ 3,600,000 19.5
Gerardo Capiel(4)...................... 2,070,000 11.0
Alan Flohr(5).......................... 300,000 1.6
David Oppenheimer(6)................... -- --
Raymond Kaupp(7)....................... 260,820 1.4
Michael Brown(8)....................... -- *
Warren Packard(9)...................... 4,625,790 25.1
Ruthann Quindlen(10)................... 4,771,160 25.8
All executive officers and directors as
a group (8 persons)(11).............. 15,627,770 82.1%
</TABLE>
55
<PAGE> 57
- -------------------------
* Less than 1% of the outstanding shares of common stock.
(1) Consists of 4,660,032 shares held by Institutional Venture Partners VIII,
L.P., 60,128 shares held by IVM Investment Fund VIII, LLC, 15,828 shares
held by IVM Investment Fund VIII-A, LLC and 35,172 shares held by IVP
Founders Fund I, L.P. Ruthann Quindlen, a member of our board of directors,
is a general partner of Institutional Venture Partners.
(2) Consists of 4,301,984 shares held by Draper Fisher Associates Fund IV,
L.P., and 323,806 shares held by Draper Fisher Partners IV, L.L.C. Warren
Packard, a member of our board of directors, is a general partner of Draper
Fisher Jurvetson.
(3) Consists of 3,600,000 restricted shares which are subject to a repurchase
option held by us which lapses over a four year period.
(4) Consists of 270,000 shares of common stock and 1,800,000 restricted shares
which are subject to a repurchase option held by us which lapses over a
four year period.
(5) Consists of 300,000 shares issuable upon exercise of currently exercisable
stock options. Mr. Flohr was granted an option to purchase an additional
100,000 shares of common stock subsequent to June 30, 1999.
(6) Mr. Oppenheimer was granted an option to purchase 275,000 shares of common
stock subsequent to June 30, 1999.
(7) Consists of 260,820 shares issuable upon exercise of currently exercisable
stock options.
(8) Mr. Brown was granted an option to purchase 30,000 shares of common stock
subsequent to June 30, 1999.
(9) Mr. Packard disclaims beneficial ownership of the shares held by the
entities associated with Draper Fisher Jurvetson except to the extent of
his pecuniary interest in Draper Fisher Jurvetson.
(10) Ms. Quindlen disclaims beneficial ownership of the shares held by the
entities associated with Institutional Venture Partners except to the
extent of her pecuniary interest in Institutional Venture Partners.
(11) Includes the information contained in footnotes (1) to (10) above and
includes an aggregate of 560,820 shares issuable upon exercise of stock
options held by the directors and officers that are exercisable within 60
days of June 30, 1999.
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<PAGE> 58
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon the completion of this offering, we will be authorized to issue
100,000,000 shares of common stock, $0.001 par value, and 5,000,000 shares of
undesignated preferred stock, $0.001 par value.
COMMON STOCK
As of June 30, 1999, and assuming the issuance of the series C convertible
preferred stock issued in July 1999, there were 18,464,628 shares of common
stock outstanding which were held of record by 22 stockholders. There will be
shares outstanding, assuming no exercise of the underwriters'
over-allotment option and no exercise or conversion of outstanding options after
June 30, 1999, after giving effect to the sale of the shares of common stock
offered hereby.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the board of directors out of funds legally available for that
purpose. See "Dividend Policy." In the event of a liquidation, dissolution or
winding up of Digital Impact, the holders of common stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to prior
distribution rights of preferred stock, if any, then outstanding. The holders of
common stock have no preemptive or conversion rights or other subscription
rights. There are no redemption or sinking fund provisions applicable to the
common stock. All outstanding shares of common stock are fully paid and
nonassessable, and the shares of common stock to be issued upon the closing of
this offering will be fully paid and nonassessable.
PREFERRED STOCK
The board of directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series and
to designate the rights, preferences and privileges of each series, any or all
of which may be greater than the rights of the common stock. It is not possible
to state the actual effect of the issuance of any shares of preferred stock upon
the rights of holders of the common stock until the board of directors
determines the specific rights of the holders of such preferred stock. However,
the effects might include, among other things, restricting dividends on the
common stock, diluting the voting power of the common stock, impairing the
liquidation rights of the common stock and delaying or preventing a change in
control without further action by the stockholders. Immediately prior to the
closing, no shares of preferred stock will be outstanding. We have no present
plans to issue any shares of preferred stock.
REGISTRATION RIGHTS
As of June 30, 1999, and assuming the issuance of the series C convertible
preferred stock issued in July 1999, the holders of 12,354,638 shares of our
common stock have rights to register those shares under the Securities Act
pursuant to an investor rights agreement. Holders of these registrable shares
have unlimited rights to request that these shares be included in any Digital
Impact-initiated underwritten public offering of our securities. The
underwriters may reduce the registrable shares to be included on the
registration statement for marketing reasons. In addition, at any time the
earlier of July 7,
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<PAGE> 59
2002 or one year after the effective date of this prospectus, holders of at
least two-thirds of the registrable shares may demand that we register their
shares up to two times. Also, after we become eligible to use Form S-3, holders
of registrable shares may request that we effect a registration of these shares
on a shelf registration statement up to two times in any twelve month period.
All expenses incurred in connection with these registrations, other than
underwriters' and brokers' discounts and commissions, will be borne by us.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
Certain provisions of Delaware law and our certificate of incorporation and
bylaws summarized below could make more difficult our acquisition by means of a
tender offer, a proxy contest or otherwise and the removal of incumbent officers
and directors. These provisions are expected to discourage certain types of
coercive takeover practices and inadequate takeover bids and to encourage
persons seeking to acquire control to first negotiate with us. We believe that
the benefits of increased protection of our potential ability to negotiate with
the proponent of an unfriendly or unsolicited proposal to acquire or restructure
us outweighs the disadvantages of discouraging such proposals because, among
other things, negotiation of such proposals could result in an improvement of
their terms.
STOCKHOLDER MEETINGS
Under our restated certificate of incorporation and restated bylaws, the
Board of Directors, the Chairman of the Board and the President may call special
meetings of stockholders but the stockholders may not call a special meeting. In
addition, our restated certificate of incorporation and restated bylaws do not
provide for the right of stockholders to act by written consent without a
meeting or for cumulative voting in the election of directors.
REQUIREMENTS FOR ADVANCE NOTIFICATION OF STOCKHOLDER NOMINATIONS AND PROPOSALS
Our restated bylaws establish advance notice procedures with respect to
stockholder proposals and the nomination of candidates for election as
directors, other than nominations made by or at the direction of the Board of
Directors or a committee thereof.
CLASSIFIED BOARD
Our amended and restated certificate of incorporation provides that the
board of directors will be divided into three classes, each serving staggered
three-year terms. For more information concerning our classified board of
directors, see "Management -- Board Composition."
DELAWARE ANTI-TAKEOVER LAW
We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years following the date the person became an
interested stockholder, unless, with some exceptions, the "business combination"
or the transaction in which the person became an interested stockholder is
approved in a prescribed manner. Generally, a "business combination" includes a
merger, asset or stock sale, or other transaction resulting in a financial
benefit to the interested stockholder. Generally, an "interested stockholder" is
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<PAGE> 60
a person who, together with affiliates and associates, owns, or within three
years prior to the determination of interested stockholder status, did own, 15%
or more of a corporation's voting stock. The existence of this provision would
be expected to have an anti-takeover effect with respect to transactions not
approved in advance by the Board of Directors, including discouraging attempts
that might result in a premium over the market price for the shares of common
stock held by stockholders.
UNDESIGNATED PREFERRED STOCK
The authorization of undesignated preferred stock makes it possible for our
board of directors to issue preferred stock with voting or other rights or
preferences that could impede the success of any attempt to change control of
Digital Impact. These and other provisions may have the effect of deferring
hostile takeovers or delaying changes in control or management.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is .
NASDAQ NATIONAL MARKET LISTING
We have applied to list our common stock on The Nasdaq National Market
under the trading symbol "MPCT."
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<PAGE> 61
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. If our stockholders sell substantial amounts of our common stock
(including shares issued upon the exercise of outstanding options) in the public
market following this offering, the market price of our common stock could fall
dramatically. These sales also might make it more difficult for us to sell
equity or equity-related securities in the future at a time and price that we
deem appropriate.
The number of shares of common stock available for sale in the public
market is limited by restrictions under federal securities law and by certain
"lock-up" agreements that our stockholders have entered into with the
underwriters. For a description of these "lock-up" agreements, please see
"Underwriting."
Upon completion of this offering, we will have outstanding shares
of common stock (based on shares outstanding as of June 30, 1999 and assuming
the issuance of the series C convertible preferred stock issued in July 1999),
assuming no exercise of the underwriters' over-allotment option and no exercise
of outstanding options after June 30, 1999. Of these shares, the
shares to be sold in this offering ( shares if the underwriters'
over-allotment option is exercised in full) will be freely tradable in the
public market without restriction under the Securities Act, unless the shares
are held by "affiliates" of Digital Impact, as that term is defined in Rule 144
under the Securities Act.
The remaining 18,464,628 shares outstanding upon completion of this
offering will be "restricted securities" as that term is defined under Rule 144.
Restricted securities may be sold in the public market only if they are
registered or if they qualify for an exemption from registration under Rule 144
or Rule 701 under the Securities Act, which are summarized below.
Pursuant to "lock-up" agreements, all the executive officers, directors and
stockholders of Digital Impact, who collectively hold an aggregate of 18,464,628
of these restricted securities, have agreed not to offer, sell, contract to
sell, grant any option to purchase or otherwise dispose of any of these shares
for a period of 180 days from the date of this prospectus. We also have entered
into an agreement with the underwriters that we will not offer, sell or
otherwise dispose of common stock for a period of 180 days from the date of this
prospectus. However, Credit Suisse First Boston Corporation may in its sole
discretion, at any time without notice, release all or any portion of the shares
subject to lock-up agreements.
Taking into account the lock-up agreements and assuming Credit Suisse First
Boston Corporation does not release stockholders from these agreements, the
following shares will be eligible for sale in the public market at the following
times:
- beginning on the effective date of this prospectus, only the shares sold
in the offering will be immediately available for sale in the public
market;
- beginning 180 days after the effective date of this prospectus,
approximately shares will be eligible for sale pursuant to
Rules 144 and 701 of the Securities Act;
- an additional shares will be eligible for sale under Rule
144 upon the expiration of various one-year holding periods after the
expiration of the lock-up period;
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<PAGE> 62
Any common stock that has been purchased or may be purchased in this
offering by our "affiliates," as defined in Rule 144 of the Securities Act, will
be subject to the volume and other selling limitations under Rule 144 of the
Securities Act. All of the shares eligible for sale at the 180th day after the
date of this prospectus or afterward will be subject initially to certain volume
and other limitations under Rule 144 of the Securities Act.
In addition, we intend to file, after the effective date of this offering,
a registration statement on Form S-8 under the Securities Act covering all
shares of common stock reserved for issuance under our 1998 stock plan, 1999
employee stock purchase plan and 1999 director option plan. The registration
statement will become effective automatically upon filing. Shares registered
under this registration statement would be available for sale in the open market
in the future unless these shares are subject to vesting restrictions with
Digital Impact or the contractual restrictions described above. For more
information on shares eligible for resale, our stock plans and registration
rights, see "Risk Factors -- An aggregate of shares, or %, of our
outstanding stock will become eligible for resale in the public market between
180 days and one year after this offering, and future sales of such stock may
cause our stock price to decline," "Management -- Compensation Plans," and
"Description of Capital Stock -- Registration Rights."
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<PAGE> 63
UNDERWRITING
Under the terms of and subject to the conditions contained in an
underwriting agreement dated , 1999, we have agreed to sell to
the underwriters named below, for whom Credit Suisse First Boston Corporation,
Hambrecht & Quist LLC, Donaldson, Lufkin & Jenrette Securities Corporation and
U.S. Bancorp Piper Jaffray Inc. are acting as representatives, the following
respective numbers of shares of common stock:
<TABLE>
<CAPTION>
Number
of
Underwriter Shares
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation......................
Hambrecht & Quist LLC.......................................
Donaldson, Lufkin & Jenrette Securities Corporation.........
U.S. Bancorp Piper Jaffray Inc..............................
-------
Total.....................................................
=======
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a thirty-day option to purchase on a
pro rata basis up to additional shares from us at the initial
public offering price less the underwriting discounts and commissions. The
option may be exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other brokers/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
Per Share Total
------------------------------- -------------------------------
Without With Without With
Over-allotment Over-allotment Over-allotment Over-allotment
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts and
commissions payable by
us....................... $ $ $ $
Expenses payable by us..... $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
62
<PAGE> 64
We, our officers and directors and our stockholders have agreed that we and
they will not offer, sell, contract to sell, announce an intention to sell,
pledge or directly or indirectly dispose of, or file with the Commission a
registration statement under the Securities Act relating to, any additional
shares of common stock or securities convertible into or exchangeable or
exercisable for any shares of common stock without the prior written consent of
Credit Suisse First Boston Corporation for a period of 180 days after the date
of this prospectus. These restrictions do not prohibit us from issuing employee
stock options and common stock issuable upon exercise of employee stock options
outstanding on the date of this prospectus, or filing a registration statement
on Form S-8 covering all shares of common stock reserved for issuance under our
compensation plans.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of the common stock for our customers and business
partners. At the discretion of our management, other parties, including our
employees, may participate in the reserve share program. The number of shares
available for sale to the general public in the offering will be reduced to the
extent such persons purchase reserved shares. Any reserved shares not so
purchased will be offered by the underwriters to the general public on the same
terms as the other shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act or contribute to payments which the underwriters may be required
to make in that respect.
We have applied to list our common stock on The Nasdaq National Market
under the symbol "MPCT."
Before this offering, there has been no public market for the common stock.
The initial public offering price will be determined by negotiation between us
and the underwriters. The principal factors to be considered in determining the
public offering price include:
- the information set forth in this prospectus and otherwise available to
the underwriters;
- the history and the prospectus for the industry in which we will compete;
- the ability of our management;
- the prospects for our future earnings;
- the present state of our development and our current financial condition;
- the general condition of the securities markets at the time of this
offering; and
- the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act of 1934.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified number.
63
<PAGE> 65
- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed to cover
syndicate short positions.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a syndicate covering transaction to
cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would be in
the absence of these transactions. These transactions may be effected on The
Nasdaq National Market or otherwise, and, if commenced, may be discontinued at
any time.
64
<PAGE> 66
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common stock
in Canada must be made in accordance with applicable securities laws which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom the
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, that such purchaser is purchasing as principal and not as
agent, and (iii) such purchaser has reviewed the text above under "Resale
Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario Securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts names
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one such report
must be filed in respect of common stock acquired on the same date and under the
same prospectus exemption.
65
<PAGE> 67
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
LEGAL MATTERS
The validity of our common stock offered hereby will be passed upon for
Digital Impact by Wilson Sonsini Goodrich & Rosati, Professional Corporation,
Palo Alto, California, and for the underwriters by Shearman & Sterling, Menlo
Park, California. A member of Wilson Sonsini Goodrich & Rosati is the holder of
an option to acquire 20,000 shares of our common stock.
EXPERTS
The financial statements as of March 31, 1998 and 1999, and for the period
from October 16, 1997 (date of inception) to March 31, 1998 and for the year
ended March 31, 1999 included in this Prospectus have been so included in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND OTHER DIGITAL IMPACT INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock
offered hereby. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the registration
statement and the exhibits filed as a part thereof, certain parts of which are
omitted in accordance with the rules and regulations of the SEC. For further
information with respect to us and the common stock offered hereby, reference is
made to the registration statement and to the exhibits filed as a part thereof.
Statements contained in this prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete and are
qualified in their entirety by reference to each such contract, agreement or
other document which is filed as an exhibit to the registration statement. The
registration statement, including the exhibits and schedules thereto, may be
inspected without charge at the principal office of the SEC at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, or at the Regional Offices of the
SEC at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661 and Seven World Trade Center, Suite 1300, New York, New York 10048. Our
SEC filings are also available to the public from the SEC's web site at
http://www.sec.gov. In addition, such material will be available for inspection
at the offices of The Nasdaq Stock Market, Inc., at 1735 K Street, N.W.,
Washington D.C. 20006. Copies of such material may be obtained by mail from the
Public Reference Branch of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
66
<PAGE> 68
DIGITAL IMPACT, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statement of Stockholders' Equity........................... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 69
REPORT OF INDEPENDENT ACCOUNTANTS
To the board of directors and stockholders of
Digital Impact, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Digital Impact, Inc. at March 31,
1998 and 1999, and the results of its operations and its cash flows for the
period from October 16, 1997 (date of inception) to March 31, 1998 and for the
year ended March 31, 1999, in conformity with generally accepted accounting
principles. 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 of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
San Jose, California
June 16, 1999, except for Note 10, as to which
the date is September 16, 1999
To the board of directors and stockholders of
Digital Impact, Inc.
The accompanying financial statements included herein reflect the approval
by the Company's board to reincorporate under the laws of Delaware. The above
opinion is in the form that will be signed by PricewaterhouseCoopers LLP upon
the effectiveness of such event assuming that from September 16, 1999 to the
effective date of that event, no other events shall have occurred that would
affect the accompanying financial statements.
San Jose, California
September 16, 1999
F-2
<PAGE> 70
DIGITAL IMPACT, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
MARCH 31, EQUITY
---------------- JUNE 30, JUNE 30,
1998 1999 1999 1999
------ ------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $1,032 $ 2,864 $ 900
Accounts receivable, net of allowance for
doubtful accounts of $0, $10 and $28 at
March 31, 1998, 1999 and June 30, 1999,
respectively............................ -- 668 1,036
Prepaid and other current assets........... 3 116 127
------ ------- -------
Total current assets.................... 1,035 3,648 2,063
Property and equipment, net.................. 28 2,494 3,410
Restricted cash.............................. -- 108 108
Other assets................................. 15 64 138
------ ------- -------
Total assets............................ $1,078 $ 6,314 $ 5,719
====== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................... $ 21 $ 591 $ 1,495
Accrued liabilities........................ 1 221 546
Current portion of capital lease
obligations............................. -- 199 200
Current portion of long term debt.......... -- 234 234
Bridge loan................................ -- -- 500
------ ------- -------
Total current liabilities............... 22 1,245 2,975
------ ------- -------
Capital lease obligations, less current
portion................................. -- 465 352
Long term debt, less current portion....... -- 234 196
------ ------- -------
Total liabilities....................... 22 1,944 3,523
------ ------- -------
Commitments (Note 5)
Stockholders' equity:
Convertible preferred stock, $0.001 par
value
Authorized: 16,000 shares;
Issued and outstanding: 5,592, 10,040
and 10,064 shares at March 31, 1998,
1999 and June 30, 1999, respectively;
and none pro forma.................... 3 3 3 $ --
(Liquidation preference: $6,540)
Common stock, $0.001 par value
Authorized: 54,000 shares;
Issued and outstanding: 6,000, 6,022 and
6,172 shares at March 31, 1998, 1999
and June 30, 1999, respectively; and
18,464 pro forma...................... 1 1 1 18
Additional paid-in capital................. 1,155 8,937 12,653 23,299
Unearned stock-based compensation.......... -- (1,227) (3,958) (3,958)
Stock subscription receivable.............. -- (1) -- --
Accumulated deficit........................ (103) (3,343) (6,503) (6,503)
------ ------- ------- -------
Total stockholders' equity.............. 1,056 4,370 2,196 $12,856
------ ------- ------- =======
Total liabilities and stockholders'
equity................................ $1,078 $ 6,314 $ 5,719
====== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 71
DIGITAL IMPACT, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
OCTOBER 16, 1997
(DATE OF INCEPTION) THREE MONTHS ENDED
TO YEAR ENDED JUNE 30,
MARCH 31, MARCH 31, -------------------
1998 1999 1998 1999
------------------- ---------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues........................ $ 4 $ 1,307 $ 25 $ 1,385
Cost of revenues................ 4 674 24 672
------ ------- ------ -------
Gross margin.................... -- 633 1 713
------ ------- ------ -------
Operating expenses:
Research and development...... 27 966 77 843
Sales and marketing........... -- 670 46 1,010
General and administrative.... 77 1,151 86 1,047
Stock-based compensation...... -- 1,157 95 977
------ ------- ------ -------
Total operating expenses... 104 3,944 304 3,877
------ ------- ------ -------
Loss from operations............ (104) (3,311) (303) (3,164)
Interest income (expense),
net........................... 1 71 6 4
------ ------- ------ -------
Net loss........................ $ (103) $(3,240) $ (297) $(3,160)
====== ======= ====== =======
Net loss per common
share -- basic and diluted.... $(0.45) $ (2.86) $(0.90) $ (1.27)
====== ======= ====== =======
Shares used in net loss per
common share
calculation -- basic and
diluted....................... 231 1,133 330 2,497
====== ======= ====== =======
Pro forma net loss per share --
basic and diluted
(unaudited)................... $ (0.39) $ (0.25)
======= =======
Shares used in pro forma net
loss per share
calculation -- basic and
diluted (unaudited)........... 8,370 12,541
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 72
DIGITAL IMPACT, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM OCTOBER 16, 1997 (DATE OF INCEPTION) TO JUNE 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL UNEARNED STOCK
--------------- --------------- PAID-IN STOCK-BASED SUBSCRIPTION ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION RECEIVABLE DEFICIT TOTAL
------ ------ ------ ------ ---------- ------------ ------------ ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock to
founders................. -- $-- 6,000 $1 $ -- $ -- $-- $ -- $ 1
Issuance of Series A
convertible preferred
stock, net of issuance
costs of $19............. 5,592 3 -- -- 1,155 -- -- -- 1,158
Net loss................... -- -- -- -- -- -- -- (103) (103)
------ -- ----- -- ------- ------- -- ------- -------
Balances, March 31, 1998... 5,592 3 6,000 1 1,155 -- -- (103) 1,056
Issuance of Series B
convertible preferred
stock, net of issuance
costs of $30............. 4,448 -- -- -- 5,345 -- -- -- 5,345
Issuance of Series B
convertible preferred
stock warrant............ -- -- -- -- 52 -- -- -- 52
Exercise of stock
options.................. -- -- 22 -- 1 -- (1) -- --
Issuance of common stock
options for services..... -- -- -- -- 1 -- -- -- 1
Unearned stock-based
compensation............. -- -- -- -- 1,769 (1,769) -- -- --
Amortization of unearned
stock-based
compensation............. -- -- -- -- -- 542 -- -- 542
Contribution of shares from
a founder................ -- -- (270) -- -- -- -- -- --
Issuance of shares as bonus
to a founder............. -- -- 270 -- 614 -- -- -- 614
Net loss................... -- -- -- -- -- -- -- (3,240) (3,240)
------ -- ----- -- ------- ------- -- ------- -------
Balances, March 31, 1999... 10,040 3 6,022 1 8,937 (1,227) (1) (3,343) 4,370
Exercise of convertible
preferred stock warrant.. 24 -- -- -- 6 -- -- -- 6
Exercise of stock
options.................. -- -- 150 -- 2 -- -- -- 2
Issuance of common stock
options for services..... -- -- -- -- 9 -- -- -- 9
Unearned stock-based
compensation............. -- -- -- -- 3,699 (3,699) -- -- --
Amortization of unearned
stock-based
compensation............. -- -- -- -- -- 968 -- -- 968
Repayment on stock
subscription............. -- -- -- -- -- -- 1 -- 1
Net loss................... -- -- -- -- -- -- -- (3,160) (3,160)
------ -- ----- -- ------- ------- -- ------- -------
Balances, June 30, 1999
(unaudited).............. 10,064 $3 6,172 $1 $12,653 $(3,958) $-- $(6,503) $ 2,196
====== == ===== == ======= ======= == ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 73
DIGITAL IMPACT, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 16, 1997 THREE MONTHS
(DATE OF INCEPTION) YEAR ENDED ENDED JUNE 30,
TO MARCH 31, MARCH 31, ----------------
1998 1999 1998 1999
------------------- ---------- ----- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operations:
Net loss........................................... $ (103) $(3,240) $(297) $(3,160)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization.................... 3 250 4 190
Provision for bad debts.......................... -- 10 -- 18
Stock-based compensation expense for shares
issued to founder............................. -- 614 -- --
Amortization of unearned stock-based
compensation.................................. -- 543 95 977
Change in assets and liabilities:
Accounts receivable......................... -- (678) (4) (386)
Prepaid expenses and other current assets... (3) (113) (1) (11)
Restricted cash............................. -- (108) -- --
Other assets................................ (14) (49) -- (74)
Accounts payable............................ 21 570 4 904
Accrued liabilities......................... 1 220 (1) 325
------ ------- ----- -------
Net cash used in operating activities....... (95) (1,981) (200) (1,217)
------ ------- ----- -------
Cash flows from investing activities:
Acquisition of property and equipment.............. (31) (2,423) (84) (1,106)
------ ------- ----- -------
Net cash used in investing activities....... (31) (2,423) (84) (1,106)
------ ------- ----- -------
Cash flows from financing activities:
Proceeds from long-term debt....................... -- 350 -- --
Principal payments on long-term debt............... -- (173) -- (150)
Proceeds from bridge loan.......................... -- -- -- 500
Proceeds from sale of assets, subject to
lease-back....................................... -- 714 -- --
Proceeds from issuance of common stock............. -- -- -- 2
Proceeds from issuance of convertible preferred
stock, net....................................... 1,158 5,345 -- 6
Repayment of stock subscription.................... -- -- -- 1
------ ------- ----- -------
Net cash provided by financing activities... 1,158 6,236 -- 359
------ ------- ----- -------
Net increase (decrease) in cash and cash
equivalents........................................ 1,032 1,832 (284) (1,964)
Cash and cash equivalents at beginning of period..... -- 1,032 1,032 2,864
------ ------- ----- -------
Cash and cash equivalents at end of period........... $1,032 $ 2,864 $ 748 $ 900
====== ======= ===== =======
Supplemental disclosure of cash flow information:
Cash paid for interest............................. $ 1 $ 18 $ 1 $ 10
Supplemental disclosure of noncash financing
activities:
Acquisition of software license in exchange for
note............................................. $ -- $ 291 $ -- $ --
Contribution of technology in exchange for Common
Stock............................................ $ 1 $ -- $ -- $ --
Warrant issued for preferred stock................. $ -- $ 52 $ -- $ --
Assets acquired under capital leases............... $ -- $ 714 $ -- $ --
Unearned stock-based compensation.................. $ -- $ 1,769 $ 350 $ 3,699
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 74
DIGITAL IMPACT, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY:
Digital Impact, Inc. (the "Company") was incorporated in the state of
California on October 16, 1997. The Company is a leading provider of
technology-enabled e-marketing services. The Company's (primary suite) of
e-marketing services, Merchant Mail, is sold as a single service and currently
consists of the following components: email campaign management, targeting and
personalization, media optimization, tracking and reporting, and data hosting
and management. In connection with the organization of the Company, the founders
transferred some proprietary technology and other intangible assets to the
Company in exchange for 6,000,000 shares of common stock. For accounting
purposes, a nominal value was assigned to this transaction as there was no
predecessor basis in the technology and other intangible assets.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
UNAUDITED INTERIM RESULTS
The accompanying balance sheet as of June 30, 1999, the statements of
operations and of cash flows for the three months ended June 30, 1998 and 1999
and the statement of stockholders' equity for the three months ended June 30,
1999 are unaudited. The unaudited interim financial statements have been
prepared on the same basis as the annual financial statements and, in the
opinion of management, reflect all adjustments, which include only normal
recurring adjustments, necessary to present fairly the Company's financial
position and its results of operations and its cash flows for the three months
ended June 30, 1998 and 1999. The financial data and other information disclosed
in these notes to financial statements related to these periods are unaudited.
The results for the three months ended June 30, 1999 are not necessarily
indicative of the results to be expected for the year ending March 31, 2000.
USE OF ESTIMATES
Preparation of the accompanying financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company generates from the sale of services such as design and
execution of Internet direct marketing or e-marketing campaigns. For each
campaign, the Company charges their clients a fixed fee for the set up and a
variable fee based on the number of emails sent to the customers of the
Company's clients. The Company also enters into contractual arrangements to
provide a minimum number of email campaigns for a monthly fee. Revenue is
recognized upon the completion of campaigns provided that there are no remaining
significant obligations and collection of the resulting receivable is probable.
F-7
<PAGE> 75
DIGITAL IMPACT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less at the time of purchase to be cash equivalents.
At March 31, 1999, approximately $108,000 of cash was pledged as collateral for
an outstanding letter of credit (see Note 5).
CONCENTRATION OF CREDIT RISK AND OTHER RISKS AND UNCERTAINTIES
The Company's cash and cash equivalents are maintained at a major U.S.
financial institution. Deposits in this institution may exceed the amount of
insurance provided on such deposits.
During the year ended March 31, 1999, three clients accounted for 26.8%,
11.5% and 10.9% of the Company's revenue and as of March 31, 1999, these same
three clients accounted for 22.1%, 12.5% and 13.6% of accounts receivables. For
the three months ended June 30, 1999, four of the Company's clients accounted
for 11.3%, 11.0%, 10.8% and 10.3% of revenues for that period.
FINANCIAL INSTRUMENTS
The carrying value of the Company's financial instruments, including cash
and cash equivalents, restricted cash, accounts receivable, accounts payable and
accrued liabilities approximate their fair value due to their relatively short
maturities.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development costs are expensed as incurred.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization is
computed using the straight-line method over the shorter of the estimated useful
lives of the assets, generally three to five years, or the lease term, if
applicable. Gains and losses upon asset disposal are taken into income in the
year of disposition. Maintenance and repairs are charged to operations as
incurred.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company continually monitors its long-lived assets to determine whether
any impairment of these assets has occurred. In making such determination, the
Company evaluates the performance of the underlying products and product lines.
The Company recognizes impairment of long-lived assets in the event the net book
value of such assets exceeds the future undiscounted cash flows attributable to
such assets. No material impairments have been experienced to date.
SEGMENTS
The Company follows Statement of Financial Accounting Standards No. 131, or
SFAS 131, "Disclosures about Segments of an Enterprise and Related Information."
The
F-8
<PAGE> 76
DIGITAL IMPACT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Company operates in one segment, using one measurement of profitability to
manage its business. All long-lived assets are maintained in the United States.
INCOME TAXES
Deferred tax assets and liabilities are determined based on the differences
between financial reporting and tax basis of assets and liabilities, measured at
tax rates that will be in effect when the differences are expected to reverse.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company's employee stock option plans are accounted for in accordance
with the provisions of Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" and complies with the disclosure provisions
required under Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation."
The Company accounts for equity instruments issued to non-employees in
accordance with the provisions of SFAS 123 and Emerging Issues Task Force Issue
No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services."
COMPREHENSIVE INCOME
Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. Through March 31, 1999, the Company has not had any
transactions that are required to be reported in comprehensive income.
NET LOSS PER COMMON SHARE
Basic net loss per share is computed by dividing net loss available to
common stockholders by the weighted average number of vested common shares
outstanding for the period. Diluted net loss per share is computed giving effect
to all dilutive potential common shares, including options, warrants and
preferred stock. Options, warrants and preferred stock were not included in the
computation of diluted net loss per share for the period ended March 31, 1998
and for the year ended March 31,1999 because the effect would be antidilutive. A
reconciliation of the numerator and denominator used in the
F-9
<PAGE> 77
DIGITAL IMPACT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
calculation of historical basic and diluted net loss per share follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 16, 1997, THREE MONTHS
(DATE OF INCEPTION) YEAR ENDED ENDED JUNE 30,
TO MARCH 31, MARCH 31, ------------------
1998 1999 1998 1999
------------------- ---------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Numerator:
Net loss....................... $ (103) $(3,240) $ (297) $(3,160)
======= ======= ======= =======
Denominator:
Weighted average common
shares outstanding...... 4,771 6,002 6,000 6,123
Weighted average unvested
common shares subject to
repurchase.............. (4,540) (4,869) (5,670) (3,626)
------- ------- ------- -------
Denominator for basic and
diluted calculation.......... 231 1,133 330 2,497
======= ======= ======= =======
Net loss per common share --
basic and diluted............ $ (0.45) $ (2.86) $ (0.90) $ (1.27)
======= ======= ======= =======
</TABLE>
ANTIDILUTIVE SECURITIES
Warrants to purchase 86,000 shares of Series A convertible preferred stock
at an exercise price of $0.2083 per share have not been included in the
computation of diluted net loss per share for the period from October 16, 1997
(date of inception) to March 31, 1998. Options to purchase 1,887,000 shares of
common stock at a weighted average exercise price of $0.043 per share and
warrants to purchase 152,000 shares of Series A and B convertible preferred
stock at a weighted average exercise price of $0.643 per share have not been
included in the computation of diluted net loss per share for the year ended
March 31, 1999. Options to purchase 2,912,000 shares of common stock at a
weighted average exercise price of $0.154 per share and warrants to purchase
128,000 shares of Series A and B convertible preferred stock at a weighted
average exercise price of $0.724 per share have not been included in the
computation of diluted net loss per share for three months ended June 30, 1999.
Additionally, all shares of convertible preferred stock have not been
included in the computation of diluted net loss per share for all periods
presented as they are anti-dilutive (see Note 9).
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position No. 98-1, or SOP 98-1, "Software for Internal Use,"
which provides guidance on accounting for the cost of computer software
developed or obtained for internal use. SOP 98-1 is effective for financial
statements for fiscal years beginning after
F-10
<PAGE> 78
DIGITAL IMPACT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 15, 1998. The Company does not expect that the adoption of SOP 98-1
will have a material impact on its financial statements.
In April 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5, or SOP 98-5, "Reporting on the Costs of Start-Up
Activities." This standard requires companies to expense the costs of start-up
activities and organization costs as incurred. In general, SOP 98-5 is effective
for fiscal years beginning after December 15, 1998. The Company believes the
adoption of SOP 98-5 will not have a material impact on its results of
operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, or SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes new standards of
accounting and reporting for derivative instruments and hedging activities. SFAS
133 requires that all derivatives be recognized at fair value in the statement
of financial position, and that the corresponding gains or losses be reported
either in the statement of operations or as a component of comprehensive income,
depending on the type of hedging relationship that exists. SFAS 133 will be
effective for fiscal years beginning after June 15, 2000. The Company does not
currently hold derivative instruments or engage in hedging activities.
\NOTE 3 -- BALANCE SHEET COMPONENTS
PROPERTY AND EQUIPMENT, NET (IN THOUSANDS):
<TABLE>
<CAPTION>
MARCH 31,
--------------
1998 1999
---- ------
<S> <C> <C>
Furniture and office equipment......................... $ 3 $ 201
Computer equipment and software........................ 28 2,544
--- ------
Total cost............................................. 31 2,745
Less accumulated depreciation.......................... (3) (251)
--- ------
$28 $2,494
=== ======
</TABLE>
Depreciation and amortization expense was $3,000 and $248,000 for the
period ended March 31, 1998 and for the year ended March 31, 1999, respectively.
During the year ended March 31, 1999, the Company sold to a financial
institution computer equipment and software at cost and leased-back the assets,
which were classified as capital leases. The cost of the assets acquired under
capital leases was $714,000 at March 31, 1999. The accumulated depreciation on
these assets was $11,000 at March 31, 1999.
ACCRUED LIABILITIES (IN THOUSANDS):
<TABLE>
<CAPTION>
MARCH 31,
------------
1998 1999
---- ----
<S> <C> <C>
Payroll and related..................................... $ -- $185
Other................................................... 1 36
---- ----
$ 1 $221
==== ====
</TABLE>
F-11
<PAGE> 79
DIGITAL IMPACT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- BORROWINGS:
The Company had $312,000 outstanding for equipment purchases under a loan
and security agreement with a bank at March 31, 1999. The loan agreement
provides for borrowings of up to $350,000, $300,000 of which is collateralized
by the Company's property and equipment. Under the terms of the loan agreement,
certain transactions, including payment of dividends, are prohibited without the
bank's consent. The loan bears interest at the prime rate (8.25% at March 31,
1999) plus 0.25% per annum. The Company is required to make monthly repayments
on this loan through December 2000. Principal payments under the loan are
$200,000 in the year ending March 31, 2000 and $112,000 in the year ending March
31, 2001.
In November 1998, the Company acquired a software license in exchange for a
promissory note for $291,000. The note bears interest at 12.7% per annum. This
note is collateralized by the software license purchased. Remaining principal
payments due under the note are $34,000 in the year ending March 31, 2000 and
$122,000 in the year ending March 31, 2001.
On February 12, 1999, the Company signed an agreement with a leasing
company for a leasing line of credit of $2.0 million. Amounts borrowed under
this agreement bear interest at rates of between 2.70% and 3.66% and are
collateralized by the leased assets. At March 31, 1999, the Company had used
$714,000 of this leasing line of credit. In conjunction with this agreement, the
Company issued a warrant to the leasing company for 66,000 shares of Series B
convertible preferred stock at an exercise price of $1.20875 per share (see Note
6).
NOTE 5 -- COMMITMENTS:
OPERATING LEASES
The Company leases its facility under an operating lease which expires in
2002. Rent expense for the period from October 16, 1997 (date of inception) to
March 31, 1998 and for the year ended March 31, 1999 was $7,000 and $122,000
respectively. Rent expense for the three months ended June 30, 1999 was
$153,000.
F-12
<PAGE> 80
DIGITAL IMPACT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Future minimum lease payments under noncancelable capital and operating
leases, including lease commitments entered into as of March 31, 1999 are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING CAPITAL OPERATING
MARCH 31, LEASES LEASES
----------- ------- ---------
<S> <C> <C>
2000........................................................ $267 $ 423
2001........................................................ 267 435
2002........................................................ 173 353
2003........................................................ 40 --
---- ------
Total minimum lease payments................................ 747 $1,211
---- ======
Less: Discount due to warrants.............................. (50)
Less: Amount representing interest.......................... (33)
----
Present value of capital lease obligations.................. 664
Less: Current portion....................................... 199
----
Long-term portion of capital lease obligations.............. $465
====
</TABLE>
LETTER OF CREDIT
The Company obtained a letter of credit from a financial institution
totaling $108,000 in lieu of a security deposit for leased office space. No
amounts have been drawn against the letter of credit at March 31, 1999.
NOTE 6 -- STOCKHOLDERS' EQUITY:
CONVERTIBLE PREFERRED STOCK
Convertible preferred stock at March 31, 1999 consists of the following (in
thousands):
<TABLE>
<CAPTION>
PROCEEDS
SHARES NET OF
------------------------ LIQUIDATION ISSUANCE
SERIES AUTHORIZED OUTSTANDING AMOUNT COSTS
------ ---------- ----------- ----------- --------
<S> <C> <C> <C> <C>
A..................................... 6,000 5,592 $1,165 $1,158
B..................................... 6,000 4,448 5,375 5,345
C..................................... 4,000 -- -- --
------- ------ ------ ------
16,000 10,040 $6,540 $6,503
======= ====== ====== ======
</TABLE>
The holders of convertible preferred stock have various rights and
preferences as follows:
DIVIDENDS
The holders of Series A and Series B convertible preferred stock are
entitled to receive dividends of $0.0167 and $0.0967 per share per annum,
respectively. Such dividends, which are in preference to any common stock
dividends, are payable whenever funds are legally available and when declared by
the board of directors. The right of the
F-13
<PAGE> 81
DIGITAL IMPACT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
holders of the preferred stock to receive dividends is not cumulative. At March
31, 1999 no dividends have been declared.
LIQUIDATION
In the event of any liquidation, dissolution or winding up of the Company,
the holders of convertible preferred stock are entitled to receive, prior and in
preference to any distribution of any of the assets of the Company to the
holders of common stock, an amount per share equal to the sum of $0.2083 and
$1.2085 for each outstanding share of Series A and Series B convertible
preferred stock, respectively, plus any declared and unpaid dividends. If the
funds available for distribution are insufficient to cover the liquidation
preference, then the entire assets and funds of the Company legally available
for distribution are to be distributed ratably among the holders of preferred
stock.
After payment of the full liquidation preference of the preferred
stockholders, any remaining assets of the Company legally available are to be
distributed ratably to the holders of common stock.
CONVERSION
Each share of preferred stock, at the option of the holder, is convertible
into a number of fully paid shares of common stock as determined by dividing the
respective preferred stock issue price by the conversion price in effect at the
time. The initial conversion prices of Series A and Series B convertible
preferred stock are $0.2083 and $1.2085, respectively, subject to adjustments in
accordance with antidilution provisions contained in the Company's Certificate
of Incorporation. Conversion is automatic immediately upon the closing of a firm
commitment underwritten public offering in which the per share price values the
Company on a fully-diluted basis to be at least $125 million, and the gross
proceeds raised exceed $10,000,000.
VOTING RIGHTS
As long as at least 4,140,000 shares of preferred stock remain outstanding,
the Company must obtain approval from a majority of the holders of preferred
stock to declare or pay any dividend on common stock; redeem, purchase or
otherwise acquire any common stock other than shares subject to right of
repurchase by the Company; cause the acquisition, reorganization, merger or
consolidation of the Company that results in a transfer of 50% or more of the
voting control of the Company; authorize or issue another equity security having
a preference over, or being on parity with, the Series A and Series B
convertible preferred stock; increase the number of directors of the Company; or
alter the Certificate of Incorporation as it relates to the preferred stock or
change the authorized number of shares of preferred stock.
WARRANTS FOR CONVERTIBLE PREFERRED STOCK
In March 1998, the Company granted a fully exercisable warrant to purchase
86,000 shares of Series A convertible preferred for $0.2083 per share in
connection with the issuance of Series A convertible preferred stock. Such
warrants are outstanding at
F-14
<PAGE> 82
DIGITAL IMPACT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 and expire five years after issuance. Using the Black-Scholes
pricing model, the Company determined that the fair value of the warrants was
$12,000.
In November 1998, the Company granted a fully exercisable warrant to
purchase 66,000 shares of Series B convertible preferred for $1.2085 per share
in connection with a capital lease agreement. Such warrants were outstanding at
March 31, 1999 and expire five years after issuance. Using the Black Scholes
pricing model, the Company determined that the fair value of these warrants was
$52,000. The warrants were recorded as a discount on the debt and will be
amortized over the life of the underlying borrowings. The amortization recorded
in the year ended March 31, 1999 was $2,000.
COMMON STOCK
Share information for all periods has been retroactively adjusted to
reflect a 10-for-1 common stock split effected in March 1998 and a 3-for-1
preferred and common stock split effected in November 1998.
The Company has issued 6,000,000 shares of its common stock to the founders
of the Company under stock purchase agreements. Each share of common stock has
the right to one vote. The holders of common stock are also entitled to receive
dividends whenever funds are legally available and when declared by the Board of
Directors, subject to the prior rights of holders of all classes of stock
outstanding having priority rights as to dividends. No dividends have been
declared or paid through March 31, 1999.
All of the 6,000,000 shares of common stock issued thus far have been
issued under restrictive stock purchase agreements, under which the Company has
the option to repurchase issued shares of common stock. Generally, 25% of the
Company's repurchase rights lapse within one year, with the remaining rights
lapsing at a rate of 2.083% per month until all shares have been released. At
March 31, 1998 and 1999, 5,670,000 and 3,609,000 outstanding common shares were
subject to repurchase, respectively.
STOCK OPTION PLAN
In 1998, the Company adopted the 1998 Stock Plan (the "Plan") under which
3,795,000 shares of the Company's common stock were reserved for issuance to
employees, directors and consultants. Options granted under the Plan may be
incentive stock options or non-statutory stock options. Incentive stock options
may only be granted to employees. The board of directors determines the period
over which options become exercisable, however, options shall become exercisable
at a rate of no less than 20% per year over five years from the date the options
are granted. The exercise price of incentive stock options and non-statutory
stock options shall be no less than 100% and 85%, respectively, of the fair
market value per share of the Company's common stock on the grant date. The term
of the options granted under the Plan may range from four to ten years.
F-15
<PAGE> 83
DIGITAL IMPACT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Activity under this Plan is as follows (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------------------
SHARES WEIGHTED
AVAILABLE NUMBER OF PRICE PER AVERAGE AGGREGATE
FOR GRANT SHARES SHARE EXERCISE PRICE PROCEEDS
--------- --------- ------------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Options reserved at Plan
inception.............. 1,695 -- -- -- --
------
Balances, March 31,
1998................... 1,695 -- -- -- --
Additional shares
reserved............... 2,100 -- -- -- --
Options granted.......... (1,965) 1,965 $0.02-$0.25 $0.08 $160
Options exercised........ -- (22) $ 0.02 $0.02 $ 0
Options cancelled........ 56 (56) $0.02-$0.25 $0.24 $ (2)
------ ----- ----
Balances, March 31,
1999................... 1,886 1,887 $0.02-$0.25 $0.08 $158
Options granted.......... (1,175) 1,175 $ 0.25 $0.25 $291
Options exercised........ -- (150) $ 0.02 $0.02 $ (2)
------ ----- ----
Balances, June 30, 1999
(unaudited)............ 711 2,912 $0.02-$0.25 $0.15 $447
====== ===== ====
</TABLE>
PRO FORMA STOCK-BASED COMPENSATION
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). Had compensation cost been determined based on
the fair value at the grant date for the awards for the periods ended March 31,
1998 and 1999 and the three months ended June 30, 1999 consistent with the
provisions of SFAS No. 123, the Company's net loss for the year ended March 31,
1999 and for the three months ended June 30, 1999, respectively, would have been
as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
MARCH 31, JUNE 30,
1999 1999
---------- ------------
(UNAUDITED)
<S> <C> <C>
Net loss attributable to common stockholders -- as
reported.......................................... $(3,240) $(3,160)
Net loss attributable to common stockholders -- pro
forma............................................. $(3,252) $(3,180)
Net loss per common share -- basic and diluted as
reported.......................................... $ (2.86) $ (1.27)
Net loss per common share -- basic and diluted pro
forma............................................. $ (2.87) $ (1.27)
</TABLE>
F-16
<PAGE> 84
DIGITAL IMPACT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Such pro forma disclosures may not be representative of future compensation
cost because options vest over several years and additional grants are made each
year. The fair value of each option grant is estimated on the date of grant
using the minimum value method with the following assumptions used for grants:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
MARCH 31, JUNE 30,
1999 1999
---------- ------------
(UNAUDITED)
<S> <C> <C>
Expected volatility........................... 0% 0%
Weighted average risk-free interest rate...... 5.18% 5.45%
Expected life (from vesting date)............. 5 years 5 years
Expected dividends............................ 0% 0%
</TABLE>
MINIMUM VALUE OF OPTION
Based on the above assumptions, the weighted average minimum values per
share of options granted were $0.02 and $0.06 the year ended March 31, 1999 and
the three months ended June 30, 1999, respectively.
The options outstanding and currently exercisable by exercise price at
March 31, 1999 are as follows (in thousands except per share amounts):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
----------- ----------------------- -------- ----------- --------
<S> <C> <C> <C> <C>
1,376 9.2 $0.02 64 $0.02
511 9.8 $0.25 3 $0.25
----------- --
1,887 9.4 67
=========== ==
</TABLE>
The options outstanding and currently exercisable by exercise price at June
30, 1999 (unaudited) are as follows (in thousands except per share amounts):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
----------- ----------------------- -------- ----------- --------
<S> <C> <C> <C> <C>
1,226 9.0 $0.02 224 $0.02
1,686 9.8 $0.25 11 $0.25
----------- ---
2,912 9.4 235
=========== ===
</TABLE>
During the year ended March 31, 1999 the Company recorded unearned
stock-based compensation totalling $1,769,000 which is being amortized to
expense over the period
F-17
<PAGE> 85
DIGITAL IMPACT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
during which the options vest, generally four years. For the year ended March
31, 1999, the Company recorded stock-based compensation of $543,000 in respect
of options granted to employees and non-employees during the year. In addition,
the Company recognized additional stock-based compensation of $614,000 in the
year for 270,000 shares of common stock which the Company bonused to a founder.
(See Note 8).
Based on the above assumptions, the weighted average fair values per share
of options granted were $0.98 and $3.36 for the year ended March 31, 1999 and
the three months ended June 30, 1999 respectively.
NOTE 7 -- INCOME TAXES:
At March 31, 1999, the Company had federal and state net operating loss
carryforwards of approximately $2,107,000 available to offset future regular and
alternative minimum taxable income. The Company's federal and state net
operating loss carryforwards expire in 2005 through 2019.
At March 31, 1999, the Company had federal and state research and
development and other credits of approximately $34,000 and $26,000,
respectively. The research and development credit carryforwards expire in 2019,
if not utilized.
The Tax Reform Act of 1986 limits the use of net operating loss and tax
credit carryforward in certain situations where changes occur in the stock
ownership of a company. If the Company should have an ownership change, as
defined for tax purposes, utilization of the carryforwards could be restricted.
Temporary differences which give rise to significant portions of deferred
tax assets and liabilities at March 31, 1998 and 1999 are as follows (in
thousands):
<TABLE>
<CAPTION>
MARCH 31,
-------------
1998 1999
---- -----
<S> <C> <C>
Net operating loss carryforwards....................... $ 12 $ 839
Research and development credit carryover.............. -- 51
Capitalized start-up and other......................... 28 37
---- -----
Total deferred tax assets.............................. 40 927
Less valuation allowance............................... (40) (927)
---- -----
Net deferred tax asset................................. $ -- $ --
==== =====
</TABLE>
The Company has established a 100% valuation allowance at March 31, 1999 as
it appears more likely than not that no benefit will be realized for its
deferred tax assets.
NOTE 8 -- RELATED PARTY TRANSACTION:
On February 11, 1999, the Board of Directors approved the contribution of
270,000 shares of common stock from one of the founders to the Company. The
Company then issued these shares to another founder as a bonus. The fair value
of the shares on February 11, 1999 was determined to be $2.27 per share. The
Company recognized $614,000 in stock-based compensation in connection with this
transaction for the year ended March 31, 1999.
F-18
<PAGE> 86
DIGITAL IMPACT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- UNAUDITED PRO FORMA NET LOSS PER COMMON SHARE AND PRO FORMA
STOCKHOLDERS' EQUITY:
Upon the closing of the Company's initial public offering, all outstanding
Series A, Series B and Series C convertible preferred stock (See Note 10) will
be converted automatically into common stock. The pro forma effect of this
conversion has been presented as a separate column in the Company's balance
sheet, assuming, that the Series C convertible preferred stock had been issued
and this conversion had occurred as of June 30, 1999.
Pro forma basic and diluted net loss per common share have been computed to
give effect to common equivalent shares from preferred stock that will
automatically convert upon the closing of the Company's initial public offering
(using the as-if-converted method) for the years ended March 31, 1999 and the
three months ended June 30, 1999.
A reconciliation of the numerator and denominator used in the calculation
of pro forma basic and fully diluted net loss per common share follows (in
thousands except per share data):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
MARCH 31, JUNE 30, 1999
1999 1999
----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Numerator
Net loss........................................... $(3,240) $(3,160)
------- -------
Denominator:
Shares used in computing basic and diluted net loss
per share....................................... 1,133 2,497
Adjusted to reflect the effect of the assumed
conversion of convertible preferred stock from
the date of issuance:
Series A convertible preferred stock............ 5,592 5,596
Series B convertible preferred stock............ 1,645 4,448
Series C convertible preferred stock............ -- --
------- -------
Weighted average shares used in computing pro forma
basic and diluted net loss per share............... 8,370 12,541
------- -------
Pro forma basic and diluted net loss per share....... $ (0.39) $ (0.25)
======= =======
</TABLE>
F-19
<PAGE> 87
DIGITAL IMPACT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- SUBSEQUENT EVENTS:
OFFICE LEASE
On May 28, 1999, the Company entered into a lease agreement to lease
additional office space. The Company is required to make monthly payments which
are due as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
MARCH 31,
-----------
<S> <C>
2000......................................... $ 362
2001......................................... 770
2002......................................... 782
2003......................................... 793
------
$2,707
======
</TABLE>
1998 STOCK OPTION PLAN
On July 1, 1999, the board of directors authorized an increase in the
number of shares reserved under the 1998 stock option plan of 1,000,000 shares
of common stock.
SERIES C FINANCING
On June 30, 1999, the Company received a $500,000 bridge loan from one of
its existing investors. On July 7, 1999, the Company issued 2,228,000 shares of
Series C convertible preferred stock for $4.785 per share for total cash
proceeds of $10,160,000 and the conversion of the $500,000 bridge loan. The
holders of Series C convertible preferred stock are entitled to receive
dividends of $0.3825 per share per annum when declared by the board of directors
and $4.785 per share upon liquidation. Each share of Series C convertible
preferred stock converts automatically into one share of common stock upon the
closing of a firm commitment underwritten public offering.
STOCK SPLIT AND AMENDMENT TO ARTICLES OF INCORPORATION
On July 8, 1999, the board of directors approved a 2-for-1 forward split of
its preferred and common stock. All common stock data and common stock option
plan information in this report has been restated to reflect the split. In
addition, the conversion prices of the Company's Series A, Series B and Series C
convertible preferred stock have also been adjusted to reflect the effect of the
split.
Additionally, on August 16, 1999 the board of directors amended the
Articles of Incorporation to increase the number of common shares authorized to
54,000,000 and the number of preferred shares authorized to 16,000,000.
REINCORPORATION
On September 16, 1999, the Company authorized the reincorporation of the
Company in the State of Delaware.
Following the reincorporation, the Company will be authorized to issue
54,000,000 shares of $0.001 par value common stock and 16,000,000 shares of
$0.001 par
F-20
<PAGE> 88
DIGITAL IMPACT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
value preferred stock. The board of directors has the authority to issue the
undesignated preferred stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof.
AMENDED AND RESTATED 1998 STOCK PLAN
On September 16, 1999, the board of directors amended the 1998 stock option
plan, which provides for the grant of incentive stock options to employees and
non-statutory stock options to non-employees, directors and consultants. A total
of 8,795,000 shares of common stock has been reserved under the plan.
1999 DIRECTOR OPTION PLAN
On September 16, 1999, the Company adopted the 1999 director option plan
under which 500,000 shares have been reserved for issuance of common stock.
EMPLOYEE STOCK PURCHASE PLAN
On September 16, 1999, the board of directors adopted the employee stock
purchase plan under which 700,000 shares have been reserved for issuance and
approved for issuance. The 1999 employee stock purchase plan contains successive
six-month offering periods and the price of stock purchased under the plan is
85% of the lower of the fair value of the common stock either at the beginning
of the period or at the end.
STOCK-BASED COMPENSATION
In connection with certain stock option grants to employees and
non-employees during the three months ended June 30, 1999, the Company recorded
unearned stock-based compensation totalling $3,699,000, which is being amortized
over the vesting periods of the related options which is generally four years.
Amortization of stock-based compensation recognized during the three months
ended June 30, 1999 totalled approximately $977,000.
The Company also anticipates recognizing substantial additional stock-based
compensation based on options granted in July and August 1999. The Company
expects to record an additional $4.5 million of unearned stock-based
compensation for these option grants.
The total unamortized unearned stock-based compensation recorded for all
option grants through August 31, 1999 will be amortized as follows: $4.0 million
for the remainder of the year ending March 31, 2000; $2.7 million for the year
ending March 31, 2001; $1.3 million for the year ending March 31, 2002; $472,000
for the year ending March 31, 2003 and thereafter.
INITIAL PUBLIC OFFERING
On September 16, 1999, the board of directors approved the filing of a
registration statement for an underwritten public offering of the Company's
common stock whereupon the authorized number of shares of common stock will be
increased to 100,000,000 and the authorized number of shares of undesignated
preferred stock will be reduced to 5,000,000.
F-21
<PAGE> 89
DESCRIPTION OF GRAPHICS
Page 38:
[Graphical diagram consisting of a set of labeled boxes and stylized
illustrations, connected to each other by arrows. In the center of the diagram
is a box labeled "Data Warehouse," which is connected by bi-directional arrows
to three other boxes positioned to the left, right, and above the "Data
Warehouse" box. These three boxes are labeled "Client Information," Assembly and
Delivery Engine," and "Campaign Management."
The "Campaign Management" box contains three smaller boxes, labeled from
left to right "Data Mining," "Campaign Configuration," and "Reporting."
The box labeled "Assembly and Delivery Engine" has three outbound arrows
which are connected to three identical stylized envelopes, each labeled "email."
Each of these stylized envelopes has an outbound arrow connecting it to a
stylized drawing of a person, and from there to a box labeled "Response
Handler." This box is connected using an outbound arrow to the box labeled
"Data Warehouse."]
<PAGE> 90
[LOGO]
<PAGE> 91
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the securities being registered. All amounts shown are estimates except for
the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $18,100
NASD filing fee............................................. 7,000
NASDAQ National Market Fees................................. *
Blue Sky qualification fees and expenses.................... *
Printing and engraving expenses............................. *
Accountant's fees and expenses.............................. *
Legal fees and expenses..................................... *
Miscellaneous............................................... *
-------
Total..................................................... $ *
=======
</TABLE>
- ---------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law permits a corporation
to include in its charter documents, and in agreements between the corporation
and its directors and officers, provisions expanding the scope of
indemnification beyond that specifically provided by the current law.
Article VIII of the Registrant's Restated Certificate of Incorporation
provides for the indemnification of directors to the fullest extent permissible
under Delaware law.
Article VI of the Registrant's Bylaws provides for the indemnification of
officers, directors and third parties acting on behalf of the Registrant if such
person acted in good faith and in a manner reasonably believed to be in and not
opposed to the best interest of the Registrant, and, with respect to any
criminal action or proceeding, the indemnified party had no reason to believe
his or her conduct was unlawful.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
(a) Since October 1997, the Registrant has issued and sold (without payment
of any selling commission to any person) the following unregistered securities:
(1) In March 1998, the Registrant completed a ten-for-one stock split
of its outstanding common stock in which each outstanding share of its
common stock was split into ten shares of common stock.
(2) In November 1998, the Registrant completed a three-for-one stock
split of its outstanding common and preferred stock in which each
outstanding share of common stock was split into three shares of common
stock, and each share of preferred stock was split into three shares of
preferred stock.
(3) In August 1999, the Registrant completed a two-for-one stock split
of its outstanding common and preferred stock in which each outstanding
share of common
II-1
<PAGE> 92
stock was split into two shares of common stock, and each outstanding share
of preferred stock was split into two shares of preferred stock.
(4) In July 1999, the Registrant issued and sold shares of series C
preferred stock convertible into an aggregate of 2,227,794 shares of common
stock to a total of 8 investors for an aggregate purchase price of
$10,659,995.
(5) In November 1998, the Registrant issued and sold shares of its
series B preferred stock convertible into an aggregate of 4,448,264 shares
of common stock to a total of 8 investors for an aggregate purchase price
of $5,375,060.
(6) In March 1998, the Registrant issued and sold shares of its series
A preferred stock convertible into an aggregate of 5,592,000 shares of
common stock to a total of 11 investors for an aggregate purchase price of
$1,165,000.00.
(7) As of June 30, 1999, 6,172,571 shares of common stock had been
issued upon exercise of options or pursuant to restricted stock purchase
agreements and 2,911,208 shares of common stock were issuable upon exercise
of outstanding options under the Registrant's 1998 stock plan.
(b) There were no underwritten offering employed in connection with any of
the transactions set forth in Item 15(a).
The issuances described in Items 15(a)(1), 15(a)(2) and 15(a)(3) were or
will be exempt from registration under Section 2(3) of the Securities Act on the
basis that such transaction did not involve a "sale" of securities. The
issuances described in Items 15(a)(4), 15(a)(5), and 15(a)(6) were deemed to be
exempt from registration under the Securities Act Section 4(2) thereof as
transactions by an issuer not involving any public offering. The issuances
described in Item 15(a)(7) were deemed to be exempt from registration under the
Securities Act in reliance upon Rule 701 promulgated thereunder in that they
were offered and sold either pursuant to written compensatory benefit plans or
pursuant to a written contract relating to compensation, as provided by Rule
701. In addition, such issuances were deemed to be exempt from registration
under Section 4(2) of the Securities Act as transactions by an issuer not
involving any public offering. The recipients of securities in each such
transaction represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the securities
issued in such transactions. All recipients had adequate access, through their
relationships with the Registrant, to information about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NO.
- ------- ----------------------- ----------
<C> <S> <C>
1.1* Form of Underwriting Agreement..............................
3.1* Certificate of Incorporation of Digital Impact..............
3.2* Form of Amended and Restated Certificate of Incorporation of
the Registrant to be filed promptly after the closing of the
offering....................................................
3.3* Bylaws of the Registrant....................................
4.1* Specimen Common Stock Certificate...........................
4.2 Amended and Restated Investor Rights Agreement..............
</TABLE>
II-2
<PAGE> 93
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NO.
- ------- ----------------------- ----------
<C> <S> <C>
5.1 Form of Opinion of Wilson Sonsini Goodrich & Rosati,
Professional Corporation....................................
10.1 Form of Amended and Restated 1998 Stock Plan and form of
agreements thereunder.......................................
10.2 Form of 1999 Employee Stock Purchase Plan and form of
agreements thereunder.......................................
10.3* 1999 Director Option Plan and form of agreements
thereunder..................................................
10.4 Employment Agreement by and between Registrant and David
Oppenheimer.................................................
10.5 Employment Agreement by and between Registrant and Alan
Flohr.......................................................
10.6 Starter Kit Loan and Security Agreement by and between
Registrant and Imperial Bank................................
10.7* Digital Impact Solutions Provider Reseller Agreement by and
between Registrant and Harte-Hanks Response
Management/Austin, Inc. ....................................
10.8* Master Lease Agreement by and between Registrant and
Comdisco, Inc. .............................................
10.9* Standard Form Lease by and between Registrant and Casiopea
Venture Corporation.........................................
10.10* Sublease Agreement by and Registrant and Legato Systems,
Inc. .......................................................
10.11* Form of Indemnification Agreement by and between Registrant
and each of its directors and officers......................
23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants.................................................
23.2 Consent of Counsel (see Exhibit 5.1)........................
24.1 Power of Attorney (see page II-6)...........................
27.1 Financial Data Schedules....................................
</TABLE>
- -------------------------
+ The omitted portions have been separately filed with the Commission.
* To be filed by amendment.
(b) FINANCIAL STATEMENT SCHEDULES.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will,
II-3
<PAGE> 94
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 95
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto, duly
authorized, in the City of San Mateo, California, on September 17, 1999.
DIGITAL IMPACT, INC.
By: /s/ WILLIAM PARK
-----------------------------------
William Park
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints William Park and David Oppenheimer, and
each of them his attorney-in-fact, with the power of substitution, for him in
any and all capacities, to sign any amendment or post-effective amendment to
this Registration Statement on Form S-1 or abbreviated registration statement
(including, without limitation, any additional registration filed pursuant to
Rule 462 under the Securities Act of 1933) with respect hereto and to file the
same, with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ WILLIAM PARK Chief Executive Officer and September 17, 1999
- ----------------------------- Chairman of the Board of
William Park Directors (Principal
Executive Officer)
/s/ DAVID OPPENHEIMER Vice President and Chief September 17, 1999
- ----------------------------- Financial Officer, Treasurer
David Oppenheimer and Secretary (Principal
Financial and Accounting
Officer)
/s/ GERARDO CAPIEL Director September 17, 1999
- -----------------------------
Gerardo Capiel
/s/ RUTHANN QUINDLEN Director September 17, 1999
- -----------------------------
Ruthann Quindlen
</TABLE>
II-5
<PAGE> 96
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ WARREN PACKARD Director September 17, 1999
- -----------------------------
Warren Packard
/s/ MICHAEL BROWN Director September 17, 1999
- -----------------------------
Michael Brown
</TABLE>
II-6
<PAGE> 97
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1* Certificate of Incorporation of Digital Impact
3.2* Form of Amended and Restated Certificate of Incorporation of
the Registrant to be filed promptly after the closing of the
offering
3.3* Bylaws of the Registrant
4.1* Specimen Common Stock Certificate
4.2 Amended and Restated Investor Rights Agreement
5.1 Form of Opinion of Wilson Sonsini Goodrich & Rosati,
Professional Corporation
10.1 Form of Amended and Restated 1998 Stock Plan and form of
agreements thereunder
10.2 Form of 1999 Employee Stock Purchase Plan and form of
agreements thereunder
10.3* 1999 Director Option Plan and form of agreements thereunder
10.4 Employment Agreement by and between Registrant and David
Oppenheimer
10.5 Employment Agreement by and between Registrant and Alan
Flohr
10.6 Starter Kit Loan and Security Agreement by and between
Registrant and Imperial Bank
10.7* Digital Impact Solutions Provider Reseller Agreement by and
between Registrant and Harte-Hanks Response
Management/Austin, Inc.
10.8* Master Lease Agreement by and between Registrant and
Comdisco, Inc.
10.9* Standard Form Lease by and between Registrant and Casiopea
Venture Corporation
10.10* Sublease Agreement by and Registrant and Legato Systems,
Inc.
10.11* Form of Indemnification Agreement by and between Registrant
and each of its directors and officers
23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants
23.2 Consent of Counsel (see Exhibit 5.1)
24.1 Power of Attorney (see page II-6)
27.1 Financial Data Schedules
</TABLE>
- -------------------------
+ The omitted portions have been separately filed with the Commission.
* To be filed by amendment.
<PAGE> 1
(i) if Form S-3 (or any successor or similar form) is not
available for such offering by the Holders; or
(ii) if the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose to
sell Registrable Securities and such other securities (if any) at an aggregate
price to the public of less than two million dollars ($2,000,000); or
(iii) if within (30) days of receipt of a written request from
Initiating Holders pursuant to Section 3.2(a), the Company gives notice to the
Holders of the Company's intention to make a public offering within sixty (60)
days;
(iv) if the Company shall furnish to the Holders a certificate
signed by the Chairman of the Board of Directors of the Company stating that in
the good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its shareholders for such Form S-3
registration to be effected at such time, in which event the Company shall have
the right to defer the filing of the Form S-3 registration statement for a
period of not more than ninety (90) days after receipt of the request of the
Holder or Holders under this Section 3.4; provided, that such right to delay a
request shall be exercised by the Company not more than once in any twelve (12)
month period; or
(v) if the Company has, within the twelve (12) month period
preceding the date of such request, already effected two (2) registrations on
Form S-3 for the Holders pursuant to this Section 3.4; or
(vi) in any particular jurisdiction in which the Company would
be required to qualify to do business or to execute a general consent to
service of process in effecting such registration, qualification or compliance;
or
(vii) after the Company has effected three (3) registrations
pursuant to this Section 3.4, and such registration have been declared or
ordered effective.
(c) Subject to the foregoing, the Company shall file a Form S-3
registration statement covering the registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. Registrations effected pursuant to this
Section 3.4 shall not be counted as demands for registration or registrations
effected pursuant to Sections 3.2 or 3.3, respectively.
3.5 EXPENSES OF REGISTRATION. Except as specifically provided herein, all
Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Section 3.2 or any registration under
Section 3.3 or Section 3.4 herein shall be borne by the Company. All Selling
Expenses incurred in connection with any registrations hereunder, shall be born
by the holders of the securities so registered pro rata on the basis of the
number of shares so registered. The Company shall not, however, be required to
pay for expenses of any registration proceeding begun pursuant to Section 3.2
or 3.4, the request of which has been subsequently withdrawn by the Initiating
Holders unless (a) the withdrawal is based upon material adverse information
concerning the Company of which the Initiating Holders were not aware at the
time of such request or (b) the Holders of a majority of Registrable Securities
agree
8.
<PAGE> 2
to forfeit their right to one requested registration pursuant to Section 3.2 or
Section 3.4, as applicable, in which event such right shall be forfeited by all
Holders). If the Holders are required to pay the Registration Expenses, such
expenses shall be borne by the holders of securities (including Registrable
Securities) requesting such registration in proportion to the number of shares
for which registration was requested. If the Company is required to pay the
Registration Expenses of a withdrawn offering pursuant to clause (a) above,
then the Holders shall not forfeit their rights pursuant to Section 3.2 or
Section 3.4 to a demand registration.
3.6 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use all reasonable efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for up to ninety (90) days or, if
earlier, until the Holder or Holders have completed the distribution related
thereto. The Company shall not be required to file, cause to become effective
or maintain the effectiveness of any registration statement that contemplates a
distribution of securities on a delayed or continuous basis pursuant to Rule
415 under the Securities Act.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by
such registration statement for the period set forth in paragraph (a) above.
(c) Furnish to the Holders such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in
order to facilitate the disposition of Registrable Securities owned by them.
(d) Use its reasonable best efforts to register and qualify the
securities covered by such registration statement under such other securities
or Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders; provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder or Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits
9.
<PAGE> 3
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Use its best efforts to furnish, on the date that such
Registrable Securities are delivered to the underwriters for sale, if such
securities are being sold through underwriters, (i) an opinion, dated as of
such date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and
(ii) a letter dated as of such date, from the independent certified public
accountants of the Company, in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering addressed to the underwriters.
3.7 TERMINATION OF REGISTRATION RIGHTS. All registration rights granted
under this Section 3 shall terminate and be of no further force and effect five
(5) years after the date of the Company's Initial Offering. In addition, a
Holder's registration rights shall expire if (a) the Company has completed its
Initial Offering and is subject to the provisions of the Exchange Act, (b) such
Holder (together with its affiliates, partners and former partners) holds less
than 1% of the Company's outstanding Common Stock (treating all shares of
convertible Preferred Stock on an as converted basis) and (c) all Registrable
Securities held by and issuable to such Holder (and its affiliates, partners,
former partners, members and former members) may be sold under Rule 144 during
any ninety (90) day period.
3.8 DELAY OF REGISTRATION; FURNISHING INFORMATION.
(a) No Holder shall have any right to obtain or seek an injunction
restraining or otherwise delaying any such registration as the result of any
controversy that might arise with respect to the interpretation or
implementation of this Section 3.
(b) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to Section 3.2, 3.3 or 3.4 that the selling
Holders shall furnish to the Company such information regarding themselves, the
Registrable Securities held by them and the intended method of disposition of
such securities as shall be required to effect the registration of their
Registrable Securities.
(c) The Company shall have no obligation with respect to any
registration requested pursuant to Section 3.2 or Section 3.4 if, due to the
operation of subsection 3.2(b), the number of shares or the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of shares or the anticipated
aggregate offering price required to originally trigger the Company's
obligation to initiate such registration as specified in Section 3.2 or Section
3.4, whichever is applicable.
3.9 INDEMNIFICATION. In the event any Registrable Securities are included
in a registration statement under Sections 3.2, 3.3 or 3.4:
a. To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, the partners, officers and directors of each Holder,
any underwriter (as defined in the Securities Act) for such Holder and each
person, if any, who controls such Holder or underwriter within the meaning of
the Securities Act or the Exchange Act, against any losses,
10.
<PAGE> 4
claims, damages, or liabilities (joint or several) to which they may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation") by the Company: (i) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any state securities law in
connection with the offering covered by such registration statement; and the
Company will pay as incurred to each such Holder, partner, officer, director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided however, that the indemnity
agreement contained in this Section 3.9(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company, which consent shall
not be unreasonably withheld, nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by such Holder, partner, officer, director, underwriter
or controlling person of such Holder.
(b) To the extent permitted by law, each Holder will, if Registrable
Securities held by such Holder are included in the securities as to which such
registration qualifications or compliance is being effected, indemnify and hold
harmless the Company, each of its directors, its officers and each person, if
any, who controls the Company within the meaning of the Securities Act, any
underwriter and any other Holder selling securities under such registration
statement or any of such other Holder's partners, directors or officers or any
person who controls such Holder, against any losses, claims, damages or
liabilities (joint or several) to which the Company or any such director,
officer, controlling person, underwriter or other such Holder, or partner,
director, officer or controlling person of such other Holder may become subject
under the Securities Act, the Exchange Act or other federal or state law,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished by such Holder under an
instrument duly executed by such Holder and stated to be specifically for use in
connection with such registration; and each such Holder will pay as incurred any
legal or other expenses reasonably incurred by the Company or any such director,
officer, controlling person, underwriter or other Holder, or partner, officer,
director or controlling person of such other Holder in connection with
investigating or defending any such loss, claim, damage, liability or action if
it is judicially determined that there was such a Violation; provided, however,
that the indemnity agreement contained in this Section 3.9(b) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld; provided, further, that in no event shall
any indemnity under this Section 3.9 exceed the net proceeds from the offering
received by such Holder.
11.
<PAGE> 5
(c) Promptly after receipt by an indemnified party under this
Section 3.9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 3.9,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 3.9, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 3.9.
(d) If the indemnification provided for in this Section 3.9 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any losses, claims, damages or liabilities referred to
herein, the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the Violation(s) that resulted in such
loss, claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by a court of law by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission; provided, that in no event shall any contribution
by a Holder hereunder exceed the proceeds from the offering received by such
Holder.
(e) The obligations of the Company and Holders under this Section
3.9 shall survive completion of any offering of Registrable Securities in a
registration statement and the termination of this agreement. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect to such claim or litigation.
3.10 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company
to register Registrable Securities pursuant to this Section 3 may be assigned
by a Holder to a transferee or assignee of Registrable Securities which (a) is
a subsidiary, parent, general partner, limited partner, retired partner, member
or retired member of a Holder, (b) is a Holder's family member or trust for the
benefit of an individual Holder, (c) acquires at least fifteen percent (15%) of
the
12.
<PAGE> 6
Registrable Securities then outstanding (as adjusted for stock splits and
combinations), or (d) acquires all of the Registrable Securities held by such
holder and its affiliates; provided, however, (i) the transferor shall, within
ten (10) days after such transfer, furnish to the Company written notice of the
name and address of such transferee or assignee and the securities with respect
to which such registration rights are being assigned and (ii) such transferee
shall agree to be subject to all restrictions set forth in this Agreement.
3.11 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Section 3
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Holders of at least two-thirds (2/3) of
the Registrable Securities then outstanding. Any amendment or waiver effected in
accordance with this Section 3.11 shall be binding upon each Holder and the
Company. By acceptance of any benefits under this Section 3, Holders of
Registrable Securities hereby agree to be bound by the provisions hereunder.
3.12 LIMITATION ON SUBSEQUENT REGISTRATION RIGHTS. After the date of this
Agreement, the Company shall not, without the prior written consent of the
Holders of at least two-thirds (2/3) of the Registrable Securities then
outstanding, enter into any agreement with any holder or prospective holder of
any securities of the Company that would grant such holder registration rights
senior to those granted to the Holders hereunder.
3.13 "MARKET STAND-OFF" AGREEMENT; AGREEMENT TO FURNISH INFORMATION. Each
Holder hereby agrees that such Holder shall not sell or otherwise transfer or
dispose of any Common Stock (or other securities) of the Company held by such
Holder (other than those included in the registration) for a period specified by
the representative of the underwriters of Common Stock (or other securities) of
the Company not to exceed one hundred eighty (180) days following the effective
date of a registration statement of the Company filed under the Securities Act;
provided that, such agreement shall apply only to the Company's Initial
Offering.
Each Holder agrees to execute and deliver such other agreements as may be
reasonably requested by the Company or the underwriter which are consistent with
the foregoing or which are necessary to give further effect thereto. In
addition, if requested by the Company or the representative of the underwriters
of Common Stock (or other securities) of the Company, each Holder shall provide,
within ten (10) days of such request, such information as may be required by the
Company or such representative in connection with the completion of any public
offering of the Company's securities pursuant to a registration statement filed
under the Securities Act. The obligations described in this Section 3.13 shall
not apply to a registration relating solely to employee benefit plans on Form
S-1 or Form S-1 or Form S-8 or similar forms that may be promulgated in the
future, or a registration relating solely to a Commission Rule 145 transaction
on Form S-4 or similar forms that may be promulgated in the future. The Company
may impose stop-transfer instructions with respect to the shares of Common Stock
(or other securities) subject to the foregoing restriction until the end of said
one hundred eighty (180) day period.
3.14 RULE 144 REPORTING. With a view to making available to the Holders
the benefits of certain rules and regulations of the SEC which may permit the
sale of the Registrable Securities to the public without registration, the
Company agrees to use its best efforts to:
13.
<PAGE> 7
(a) Make and keep public information available, as those terms are
understood and defined in SEC Rule 144 or any similar or analogous rule
promulgated under the Securities Act, at all times after the effective date of
the first registration filed by the Company for an offering of its securities
to the general public;
(b) File with the SEC, in a timely manner, all reports and other
documents required of the Company under the Exchange Act; and
(c) So long as a Holder owns by Registrable Securities, furnish to
such Holder forthwith upon request: a written statement by the Company as to
its compliance with the reporting requirements of said Rule 144 of the
Securities Act, and of the Exchange Act (at any time after it has become
subject to such reporting requirements): a copy of the most recent annual or
quarterly report of the Company; and such other reports and documents as a
Holder may reasonably request in availing itself of any rule or regulation of
the SEC allowing it to sell any such securities without registration.
SECTION 4. COVENANTS OF THE COMPANY
4.1 BASIC FINANCIAL INFORMATION AND REPORTING.
(a) The Company will maintain true books and records of
account in which full and correct entries will be made of all its business
transactions pursuant to a system of accounting established in accordance with
generally accepted accounting principles consistently applied, and will set
aside on its books all such proper accruals and reserves as shall be required
under generally accepted accounting principles consistently applied.
(b) As soon as practicable after the end of each fiscal year of the
Company, and in any event within one hundred twenty (120) days thereafter, the
Company will furnish each Investor a balance sheet of the Company, as at the
end of such fiscal year and a statement of income and a statement of cash flows
of the Company, for such year, all prepared in accordance with generally
accepted accounting principles consistently applied and setting forth in each
case in comparative form the figures for the previous fiscal year, all in
reasonable detail. Such financial statements shall be accompanied by a report
and opinion thereon by independent public accountants of national standing
selected by the Company's Board of Directors.
(c) The Company will furnish each Investor, as soon as practicable
after the end of the first, second and third quarterly accounting periods in
each fiscal year of the Company, and in any event within forty-five (45) days
thereafter, a balance sheet of the Company as of the end of each such quarterly
period, and a statement of income and a statement of cash flows of the Company
for such period and for the current fiscal year to date, prepared in accordance
with generally accepted accounting principles, with the exception that no notes
need be attached to such statements and year-end audit adjustments may not have
been made.
(d) So long as an Investor (with its affiliates) shall own not less
than ten percent (10%) of Registrable Securities then outstanding (as adjusted
for stock splits and combinations) (a "Major Investor"), the Company will
furnish each such Major Investor (i) at least thirty (30) days prior to the
beginning of each fiscal year an annual budget and operating plans for such
fiscal year (and as soon as available, any subsequent revisions thereto); and
(ii) as
14.
<PAGE> 8
soon as practicable after the end of each month, and in any event within twenty
(20) days thereafter, a balance sheet of the Company as of the end of each such
month, and a statement of income and a statement of cash flows of the Company
for such month and for the current fiscal year to date, including a comparison
to plan figures for such period, prepared in accordance with generally accepted
accounting principles consistently applied, with the exception that no notes
need be attached to such statements and year-end audit adjustments may not have
been made.
4.2 INSPECTION RIGHTS. Each Major Investor shall have the right to visit
and inspect any of the properties of the Company or any of its subsidiaries,
and to discuss the affairs, finances and accounts of the Company or any of its
subsidiaries with its officers, and to review such information as is reasonably
requested all at such reasonable times and as often as may be reasonably
requested; provided, however, that the Company shall not be obligated under
this Section 4.2 with respect to a competitor of the Company or with respect to
information which the Board of Directors determines in good faith is
confidential and should not, therefore, be disclosed.
4.3 CONFIDENTIALITY OF RECORDS. Each Investor agrees to use, and to use
its best efforts to insure that its authorized representatives use, the same
degree of care as such Investor uses to protect its own confidential information
to keep confidential any information furnished to it which the Company
identifies as being confidential or proprietary (as long as such information is
not in the public domain), except that such Investor may disclose such
proprietary of confidential information to any partner, subsidiary or parent of
such Investor for the purpose of evaluating its investment in the Company as
long as such partner, subsidiary or parent is advised of the confidentiality
provisions of this Section 4.3.
4.4 RESERVATION OF COMMON STOCK. The Company will at all times reserves
and keep available, solely for issuance and delivery upon the conversion of the
Preferred Stock, all Common Stock issuable from time to time upon such
conversion.
4.5 STOCK VESTING. Unless otherwise approved by the Board of Directors,
all stock options and other stock equivalents issued after the date of this
Agreement to employees, directors, consultants and other service providers
shall be subject to vesting as follows: (a) twenty-five percent (25%) of such
stock shall vest at the end of the first year following the earlier of the date
of issuance or such person's services commencement date with the company, and
(b) seventy-five percent (75%) of such stock shall vest monthly over the
remaining three (3) years. With respect to any shares of stock purchased by
any such person, the Company's repurchase option shall provide that upon such
person's termination of employment or service with the Company, with or without
cause, the Company or its assignee (to the extent permissible under applicable
securities laws and other laws) shall have the option to purchase at cost any
unvested shares of stock held by such person.
4.6 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. The Company shall
require all employees and consultants to execute and deliver a Proprietary
Information and Inventions Agreement in the form provided to the Investors.
4.7 USE OF PROCEEDS. The proceeds from the issuance and sale of the Series
A Stock, the Series B Stock, and the Series C Stock (collectively, the
"Proceeds") shall be used by the
15.
<PAGE> 9
Company for its growth, modernization or expansion. The Company shall provide
each Investor which is a licensed Small Business Investment company (an "SBIC
Investor") and the Small business Administration (the "SBA") reasonable access
to the Company's books and records for the purpose of confirming the use of
Proceeds.
4.8 BRIDGE FINANCINGS. The Company agrees that in the event it (a) issues
debt convertible into or exchangeable for any class of equity securities or (b)
issues debt with associated warrants or other rights exercisable for any class
of equity securities, the Company shall first obtain the approval of a majority
of the directors then in office (including one representative designated by
either the Series A Stock or series B Stock).
4.9 CHANGE IN AUTHORIZED NUMBER OF BOARD OF DIRECTORS. The Company agrees
that in the event that the Board of Directors, pursuant to Section 19 of the
Company's Bylaws, as amended, changes the number of directors from seven (7),
the Company shall first obtain the approval of a majority of the directors then
in office (including the representative designated by the Series B Stock).
4.10 QUALIFIED SMALL BUSINESS. The Company will use reasonable efforts to
comply with the reporting and recordkeeping requirements of Section 1202 of the
Code, any regulations promulgated thereunder and any similar state laws and
regulations.
4.11 TERMINATION OF COVENANTS. All covenants of the Company contained in
Section 4 of this Agreement shall expire and terminate as to each Investor upon
the earlier of (i) the effective date of the registration statement pertaining
to the Initial Offering or (ii) upon (a) the acquisition of all or substantially
all of the assets of the Company or (b) an acquisition of the Company by another
corporation or entity by consolidation, merger or other reorganization in which
the holders of the Company's outstanding voting stock immediately prior to such
transaction own, immediately after such transaction, securities representing
less than fifty percent (50%) of the voting power of the corporation or other
entity surviving such transaction (a "Change in Control").
SECTION 5. RIGHTS OF FIRST REFUSAL
5.1 SUBSEQUENT OFFERINGS. Each Investor shall have a right of first
refusal to purchase its pro rata share of all Equity Securities, as defined
below, that the Company may, from time to time, propose to sell and issue after
the date of this Agreement, other than the Equity Securities excluded by Section
5.6 hereof. Each Investor's pro rata share is equal to the ratio of (a) the
number of shares of the Company's Common stock (including all shares of Common
Stock issued or issuable upon conversion of the Shares) of which such Investor
is deemed to be a holder immediately prior to the issuance of such Equity
Securities to (b) the total number of shares of the Company's outstanding Common
Stock (including all shares of Common Stock issuable upon conversion of the
Shares or upon the exercise of any outstanding warrants or options) immediately
prior to the issuance of the Equity Securities. The term "Equity Securities"
shall mean (i) any Common Stock, Preferred Stock or other security of the
Company, (ii) any security convertible, with or without consideration, into any
Common Stock, Preferred Stock or other security (including any option to
purchase such a convertible
16.
<PAGE> 10
security), (iii) any security carrying any warrant or right to subscribe to or
purchase any Common Stock, Preferred Stock or other security or (iv) any such
warrant or right.
5.2 EXERCISE OF RIGHTS. If the Company proposes to issue any Equity
Securities, it shall give each Investor written notice of its intention,
describing the Equity Securities, the price and the terms and conditions upon
which the Company proposes to issue the same. Each Investor shall have fifteen
(15) days from the giving of such notice to agree to purchase its pro rata share
of the Equity Securities for the price and upon the terms and conditions
specified in the notice by giving written notice to the Company and stating
therein the quantity of Equity Securities to be purchased. Notwithstanding the
foregoing, the Company shall not be required to offer or sell such Equity
Securities to any Investor who would cause the Company to be in violation of
applicable federal securities laws by virtue of such offer or sale.
5.3 ISSUANCE OF EQUITY SECURITIES TO OTHER PERSONS. If the Investors fail
to exercise in full the rights of first refusal, the Company shall have one
hundred twenty (120) days thereafter to sell the Equity Securities in respect of
which the Investor's rights were not exercised, at a price and upon general
terms and conditions materially no more favorable to the purchasers thereof than
specified in the Company's notice to the Investors pursuant to Section 5.2
hereof. If the Company has not sold such Equity Securities within one hundred
twenty (120) days of the notice provided pursuant to Section 5.2, the Company
shall not thereafter issue or sell any Equity Securities, without first offering
such securities to the Investors in the manner provided above.
5.4 SALE WITHOUT NOTICE. In lieu of giving notice to the Investors prior
to the issuance of Equity Securities as provided in Section 5.2, the Company may
elect to give notice to the Investors within thirty (30) days after the issuance
of Equity Securities. Such notice shall describe the type, price and terms of
the Equity Securities. Each Investor shall have fifteen (15) days from the date
of receipt of such notice to elect to purchase its pro rata share of Equity
Securities (as defined in Section 5.1, and calculated before giving effect to
the sale of the Equity Securities to the purchasers thereof). The closing of
such sale shall occur within sixty (60) days of the date of notice to the
Investors.
5.5 TERMINATION AND WAIVER OF RIGHTS OF FIRST REFUSAL. The rights of first
refusal established by this Section 5 shall not apply to, and shall terminate
upon the earlier of (i) effective date of the registration statement pertaining
to the Company's Initial Public Offering or (ii) a Change in control. The rights
of first refusal established by this Section 5 may be amended, or any provision
waived with the written consent of Investors holding at least two-thirds (2/3)
of the Registrable Securities held by all Investors, or as permitted by Section
6.6.
5.6 TRANSFER OF RIGHTS OF FIRST REFUSAL. The rights of first refusal of
each Investor under this Section 5 may be transferred to the same parties,
subject to the same restrictions as any transfer of registration rights pursuant
to Section 3.10.
5.7 EXCLUDED SECURITIES. The rights of first refusal established by this
Section 5 shall have no application to any of the following Equity Securities:
17.
<PAGE> 11
(a) shares of Common Stock (and/or options, warrants or other Common
Stock purchase rights issued pursuant to such options, warrants or other rights)
issued or to be issued to employees, officers or directors of, or consultants or
advisors to the Company or any subsidiary, pursuant to stock purchase or stock
option plans or other arrangements that are approved by the Board of Directors
including one representative designated by either the Series A Stock or Series B
Stock;
(b) stock issued pursuant to any rights or agreements outstanding as
of the date of this Agreement, options and warrants outstanding as of the date
of this Agreement; and stock issued pursuant to any such rights or agreements
granted after the date of this Agreement; provided that the rights of first
refusal established by this Section 5 applied with respect to the initial sale
or grant by the Company of such rights or agreements;
(c) any Equity Securities issued for consideration other than cash
pursuant to a merger, consolidation, acquisition or similar business
combination;
(d) shares of Common Stock issued in connection with any stock split,
stock dividend or recapitalization by the Company;
(e) shares of Common Stock issued upon conversion of the Shares;
(f) any Equity Securities issued pursuant to any equipment leasing
arrangement, or debt financing from a bank or similar financial institution;
(g) any Equity Securities that are issued by the Company pursuant to
a registration statement filed under the Securities Act; and
(h) shares of the Company's Common Stock or Preferred Stock issued in
connection with strategic transactions involving the Company and other entities,
including, but not limited to, (i) joint ventures, manufacturing, marketing or
distribution arrangements or (ii) technology transfer or development
arrangements; provided that such strategic transactions and the issuance of
shares therein, has been approved by the Company's Board of Directors including
one representative designated by either the Series A or Series B Stock.
SECTION 6. MISCELLANEOUS
6.1 GOVERNING LAW. This Agreement shall be governed by and construed under
the laws of the State of California as applied to agreements among California
residents entered into and to be performed entirely within California.
6.2 SURVIVAL. The representations, warranties, covenants, and agreements
made herein shall survive any investigation made by any Holder and the closing
of the transactions contemplated hereby. All statements as to factual matters
contained in any certificate or other instrument delivered by or on behalf of
the Company pursuant hereto in connection with the transactions contemplated
hereby shall be deemed to be representations and warranties by the Company
hereunder solely as of the date of such certificate or instrument.
18.
<PAGE> 12
6.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of Registrable Securities from time to time:
provided, however, that prior to the receipt by the Company of adequate written
notice of the transfer of any Registrable Securities specifying the full name
and address of the transferee, the Company may deem and treat the person
listed as the holder of such shares in its records as the absolute owner and
holder of such shares for all purposes, including the payment of dividends of
any redemption price.
6.4 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules hereto,
the Purchase Agreement and the other documents delivered pursuant thereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and no party shall be liable or bound to any
other in any manner by any representations, warranties, covenants and
agreements except as specifically set forth herein and therein.
6.5 SEVERABILITY. In case any provision of the Agreement shall be invalid
illegal, or unenforceable, the validity, legality, and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
'
6.6 AMENDMENT AND WAIVER.
(a) Except as otherwise expressly provided, this Agreement may be
amended or modified only upon the written consent of the Company and the
holders of two-thirds (2/3) of the Registrable Securities.
(b) Except as otherwise expressly provided, the obligations of the
Company and the rights of the Holders under this Agreement may be waived only
with the written consent of the holders of at least two-thirds (2/3) of the
Registrable Securities.
(d) Notwithstanding the foregoing, this Agreement may be amended
with only the written consent of the Company to include additional purchasers
of Shares as "Investors," "Holders" and parties hereto.
6.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any Holder, upon any breach,
default or noncompliance of the Company under this Agreement shall impair any
such right, power, or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescense therein, or of any
similar breach, default or noncompliance thereafter occurring. It is further
agreed that any waiver, permit, consent, or approval of any kind or character
on any Holder's part of any breach, default or noncompliance under the Agreement
or any waiver on such Holder's part of any provisions or conditions of this
Agreement must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement, by law, or otherwise afforded to Holders, shall be cumulative and
not alternative.
6.8 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to
the party to be noticed, (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient; if not, then
19.
<PAGE> 13
on the next business day, (c) five (5) days after having been sent by registered
or certified mail, return receipt requested, postage prepaid, or (d) one (1) day
after deposit with a nationally recognized overnight courier, specifying next
day delivery, with written verification of receipt. All communications shall be
sent to the party to be notified at the address as set forth on the signature
pages hereof or Exhibits A, B or C hereto or at such other address as such party
may designate by ten (10) days advance written notice to the other parties
hereto.
6.9 Attorneys' Fees. In the event that any dispute among the parties to
this Agreement should result in litigation, the prevailing party in such
dispute shall be entitled to recover from the losing party all fees, costs and
expenses of enforcing any right of such prevailing party under or with respect
to this Agreement, including without limitation, such reasonable fees and
expenses of attorneys and accountants, which shall include, without limitation,
all fees, costs and expenses of appeals.
6.10 Titles and Subtitles. The titles of the sections and subsections
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
6.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
[THIS SPACE LEFT BLANK INTENTIONALLY]
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND
RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
COMPANY:
DIGITAL IMPACT, INC.
By: /s/ William C. Park
------------------------------------
Title: Chief Executive Officer
---------------------------------
INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
<PAGE> 15
FOUNDERS:
/s/ WILLIAM C. PARK
- -----------------------------
William C. Park
/s/ GERARDO CAPIEL
- -----------------------------
Gerardo Capiel
2.
<PAGE> 16
INVESTORS:
INSTITUTIONAL VENTURE PARTNERS VIII, L.P.
By: Institutional Venture Management VIII, L.P.
its General Partner
By: /s/ RUTHANN QUINDLEN
-------------------------------------------
Managing Director
IVM INVESTMENT FUND VIII, LLC
By: Institutional Venture Management VIII, LLC
its Manager
By: /s/ RUTHANN QUINDLEN
-------------------------------------------
Managing Director
IVM INVESTMENT FUND VIII-A, LLC
By: Institutional Venture Management VIII, LLC
its Manager
By: /s/ RUTHANN QUINDLEN
-------------------------------------------
Its: Managing Director
IVP FOUNDERS FUND I, L.P.
By: Institutional Venture Management VI, L.P.
its General Partner
By: /s/ RUTHANN QUINDLEN
-------------------------------------------
General Partner
INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
3.
<PAGE> 17
DRAPER FISHER ASSOCIATES FUND IV, L.P.
By: /s/ TIMOTHY DRAPER
----------------------------------
Timothy Draper
Its: Director
DRAPER FISHER PARTNERS IV, L.L.C.
By: /s/ TIMOTHY DRAPER
----------------------------------
Timothy Draper
Its: Director
DRAPER RICHARDS L.P.
By: Draper Richards Management Company
By:
----------------------------------
William H. Draper III
Its: President
LABRADOR VENTURES II, L.P.
By:
----------------------------------
Lawrence Kubal
Its: Partner
GC&H INVESTMENTS
By:
----------------------------------
Its:
HARTE-HANKS
By:
----------------------------------
Jacques Kerrest
Its: Chief Financial Officer
INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
4.
<PAGE> 18
DRAPER FISHER ASSOCIATES FUND IV, L.P.
By:
----------------------------------
Timothy Draper
Its: Director
DRAPER FISHER PARTNERS IV, L.L.C.
By:
----------------------------------
Timothy Draper
Its: Director
DRAPER RICHARDS L.P.
By: Draper Richards Management Company
By: /s/ William H. Draper III
----------------------------------
William H. Draper III
Its: President
LABRADOR VENTURES II, L.P.
By:
----------------------------------
Lawrence Kubal
Its: Partner
GC&H INVESTMENTS
By:
----------------------------------
Its:
HARTE-HANKS
By:
----------------------------------
Jacques Kerrest
Its: Chief Financial Officer
INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
4.
<PAGE> 19
DRAPER FISHER ASSOCIATES FUND IV, L.P.
By: /s/ TIMOTHY DRAPER
----------------------------------
Timothy Draper
Its: Director
DRAPER FISHER PARTNERS IV, L.L.C.
By: /s/ TIMOTHY DRAPER
----------------------------------
Timothy Draper
Its: Director
DRAPER RICHARDS L.P.
By: Draper Richards Management Company
By:
----------------------------------
William H. Draper III
Its: President
LABRADOR VENTURES II, L.P.
By: /s/ LAWRENCE KUBAL
----------------------------------
Lawrence Kubal
Its: Managing Director
GC&H INVESTMENTS
By:
----------------------------------
Its:
HARTE-HANKS
By:
----------------------------------
Jacques Kerrest
Its: Chief Financial Officer
INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
4.
<PAGE> 20
DRAPER FISHER ASSOCIATES FUND IV, L.P.
By:
----------------------------------
Timothy Draper
Its: Director
DRAPER FISHER PARTNERS IV, L.L.C.
By:
----------------------------------
Timothy Draper
Its: Director
DRAPER RICHARDS L.P.
By: Draper Richards Management Company
By:
----------------------------------
William H. Draper III
Its: President
LABRADOR VENTURES II, L.P.
By:
----------------------------------
Lawrence Kubal
Its: Partner
GC&H INVESTMENTS
By: /s/ JOHN L. CARDOZA
----------------------------------
John L. Cardoza
Its: Executive Partner
INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
4.
<PAGE> 21
HARTE-HANKS, INC.
By: /s/ JACQUES KERREST
----------------------------------
Jacques Kerrest
Its: Chief Financial Officer
---------------------------------------
Eugene DeRose
---------------------------------------
Avinash Mehrotra
---------------------------------------
John J. Park
---------------------------------------
John L. Barnum
---------------------------------------
Richard R. Keenly
---------------------------------------
Ariel Poler
WALTON INVESTMENT
PARTNERSHIP II, LTD.
By:
-----------------------------------
5.
<PAGE> 22
HARTE-HANKS, INC.
By:
----------------------------------
Jacques Kerrest
Its: Chief Financial Officer
/s/ EUGENE DeROSE
---------------------------------------
Eugene DeRose
---------------------------------------
Avinash Mehrotra
---------------------------------------
John J. Park
---------------------------------------
John L. Barnum
---------------------------------------
Richard R. Keenly
---------------------------------------
Ariel Poler
WALTON INVESTMENT
PARTNERSHIP II, LTD.
By:
-----------------------------------
5.
<PAGE> 23
HARTE-HANKS, INC.
By:
----------------------------------
Jacques Kerrest
Its: Chief Financial Officer
---------------------------------------
Eugene DeRose
---------------------------------------
Avinash Mehrotra
---------------------------------------
John J. Park
/s/ JOHN L. BARNUM
---------------------------------------
John L. Barnum
---------------------------------------
Richard R. Keenly
---------------------------------------
Ariel Poler
WALTON INVESTMENT
PARTNERSHIP II, LTD.
By:
-----------------------------------
5.
<PAGE> 24
HARTE-HANKS, INC.
By:
----------------------------------
Jacques Kerrest
Its: Chief Financial Officer
---------------------------------------
Eugene DeRose
---------------------------------------
Avinash Mehrotra
---------------------------------------
John J. Park
---------------------------------------
John L. Barnum
/s/ RICHARD R. KEENLY
---------------------------------------
Richard R. Keenly
---------------------------------------
Ariel Poler
WALTON INVESTMENT
PARTNERSHIP II, LTD.
By:
-----------------------------------
5.
<PAGE> 25
HARTE-HANKS, INC.
By:
----------------------------------
Jacques Kerrest
Its: Chief Financial Officer
---------------------------------------
Eugene DeRose
---------------------------------------
Avinash Mehrotra
---------------------------------------
John J. Park
---------------------------------------
John L. Barnum
---------------------------------------
Richard R. Keenly
---------------------------------------
Ariel Poler
WALTON INVESTMENT
PARTNERSHIP II, LTD.
By: /s/ [Signature Illegible]
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5.
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EXHIBIT 5.1
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
650 Page Mill Road
Palo Alto, CA 94304-1050
www.wsgr.com
, 1999
Digital Impact, Inc.
177 Bovet Road, Suite 200
San Mateo, CA 94402
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 (File No. 333- )
to be filed by you with the Securities and Exchange Commission on , 1999
(the "Registration Statement") in connection with the registration under the
Securities Act of 1933, as amended, of shares (including shares
issuable upon exercise of the underwriters' over-allotment option) of Common
Stock of Digital Impact, Inc. (the "Shares"). As your counsel in connection with
this transaction, we have examined the proceedings proposed to be taken in
connection with such sale and issuance of the Shares.
It is our opinion that, upon completion of the proceedings being taken or
contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares, and upon completion of the proceedings being taken in order to permit
such transactions to be carried out in accordance with the securities laws of
various states, where required, the Shares when issued and sold in the manner
referred to in the Registration Statement will be legally and validly issued,
fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in the
Registration Statement, including the prospectus constituting a part thereof,
and any amendment thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
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EXHIBIT 10.1
DIGITAL IMPACT, INC.
1998 STOCK PLAN
(AS AMENDED AND RESTATED EFFECTIVE AS OF THE DATE
OF OBTAINING STOCKHOLDER APPROVAL IN _____ 1999)
1. Purposes of the Plan. The purposes of this 1998 Stock Plan are:
- to attract and retain the best available personnel for
positions of substantial responsibility,
- provide additional incentive to Employees, Directors and
Consultants, and
- To promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees as
shall be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a committee of Directors appointed by the
Board in accordance with Section 4 of the Plan.
(f) "Common Stock" means the common stock of the Company.
(g) "Company" means Digital Impact, Inc., a Delaware corporation.
(h) "Consultant" means any person, including an advisor, engaged
by the Company or a Parent or Subsidiary to render services to such entity.
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(i) "Director" means a member of the Board.
(j) "Disability" means total and permanent disability as defined
in Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company. A
Service Provider shall not cease to be an Employee in the case of (i) any leave
of absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(m) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i)If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "IPO Effective Date" means the date upon which the Securities
and Exchange Commission declares the initial public offering of the Company's
common stock as effective.
(o) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
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(p) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(q) "Notice of Grant" means a written or electronic notice
evidencing certain terms and conditions of an individual Option or Stock
Purchase Right grant. The Notice of Grant is part of the Option Agreement.
(r) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(s) "Option" means a stock option granted pursuant to the Plan.
(t) "Option Agreement" means an agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
The Option Agreement is subject to the terms and conditions of the Plan.
(u) "Option Exchange Program" means a program whereby outstanding
Options are surrendered in exchange for Options with a lower exercise price.
(v) "Optioned Stock" means the Common Stock subject to an Option
or Stock Purchase Right.
(w) "Optionee" means the holder of an outstanding Option or Stock
Purchase Right granted under the Plan.
(x) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(y) "Plan" means this 1998 Stock Plan.
(z) "Restricted Stock" means shares of Common Stock acquired
pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan.
(aa) "Restricted Stock Purchase Agreement" means a written
agreement between the Company and the Optionee evidencing the terms and
restrictions applying to stock purchased under a Stock Purchase Right. The
Restricted Stock Purchase Agreement is subject to the terms and conditions of
the Plan and the Notice of Grant.
(bb) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(cc) "Section 16(b)" means Section 16(b) of the Exchange Act.
(dd) "Service Provider" means an Employee, Director or
Consultant.
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(ee) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
(ff) "Stock Purchase Right" means the right to purchase Common
Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(gg) "Subsidiary" means a "subsidiary corporation", whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is [+4,000,000] Shares, plus an annual increase to be added on
January 1 of each year, beginning in 2001, equal to the lesser of (i) 1,500,000
shares, (ii) 4% of the outstanding shares on such date or (iii) a lesser amount
determined by the Board. The Shares may be authorized, but unissued, or
reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i)Multiple Administrative Bodies. The Plan may be
administered by different Committees with respect to different groups of Service
Providers.
(ii) Section 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
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(iv) Other Administration. Other than as provided above, the
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and
Stock Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option or Stock Purchase Right granted
hereunder. Such terms and conditions include, but are not limited to, the
exercise price, the time or times when Options or Stock Purchase Rights may be
exercised (which may be based on performance criteria), any vesting acceleration
or waiver of forfeiture restrictions, and any restriction or limitation
regarding any Option or Stock Purchase Right or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
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(xi) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option or Stock Purchase Right that number of Shares
having a Fair Market Value equal to the amount required to be withheld. The Fair
Market Value of the Shares to be withheld shall be determined on the date that
the amount of tax to be withheld is to be determined. All elections by an
Optionee to have Shares withheld for this purpose shall be made in such form and
under such conditions as the Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may
be granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
6. Limitations.
(a) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year
of the Company, Options to purchase more than 1,000,000 Shares.
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(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 1,000,000 Shares
which shall not count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 13.
(iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 13), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 19 of the Plan, the amendment and
restatement of the Plan shall become effective upon the date of stockholder
approval of the Plan in ____ 1999; provided, however, that amendments that would
cause the Plan or Options granted hereunder to fail to comply with applicable
California "blue sky" securities laws shall not be effective until the IPO
Effective Date. It shall continue in effect for a term of ten (10) years from
the date of obtaining stockholder approval of the Plan in ______, 1999, unless
terminated earlier under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Option
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the Shares
to be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
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(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per
Share exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted
with a per Share exercise price of less than 100% of the Fair Market Value per
Share on the date of grant pursuant to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised.
(c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired
upon exercise of an option, have been owned by the Optionee for more than six
months on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to
the Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation program or
arrangement;
(vii) any combination of the foregoing methods of payment; or
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(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives: (i)
written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number of Shares
thereafter available, both for purposes of the Plan and for sale under the
Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an
Optionee ceases to be a Service Provider, other than upon the Optionee's death
or Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of
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termination (but in no event later than the expiration of the term of such
Option as set forth in the Option Agreement). In the absence of a specified time
in the Option Agreement, the Option shall remain exercisable for twelve (12)
months following the Optionee's termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by the
unvested portion of the Option shall revert to the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service
Provider, the Option may be exercised within such period of time as is specified
in the Option Agreement (but in no event later than the expiration of the term
of such Option as set forth in the Notice of Grant), by the Optionee's estate or
by a person who acquires the right to exercise the Option by bequest or
inheritance, but only to the extent that the Option is vested on the date of
death (unless otherwise provided for in the Notice of Grant). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for twelve (12) months following the Optionee's termination. If, at the time of
death, the Optionee is not vested as to his or her entire Option, the Shares
covered by the unvested portion of the Option shall immediately revert to the
Plan. The Option may be exercised by the executor or administrator of the
Optionee's estate or, if none, by the person(s) entitled to exercise the Option
under the Optionee's will or the laws of descent or distribution. If the Option
is not so exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to
buy out for a payment in cash or Shares an Option previously granted based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing or electronically, by means of a Notice of Grant,
of the terms, conditions and restrictions related to the offer, including the
number of Shares that the offeree shall be entitled to purchase, the price to be
paid, and the time within which the offeree must accept such offer. The offer
shall be accepted by execution of a Restricted Stock Purchase Agreement in the
form determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by
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cancellation of any indebtedness of the purchaser to the Company. The
repurchase option shall lapse at a rate determined by the Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. Unless
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior
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to the effective date of such proposed transaction. The Administrator in its
discretion may provide for an Optionee to have the right to exercise his or her
Option until ten (10) days prior to such transaction as to all of the Optioned
Stock covered thereby, including Shares as to which the Option would not
otherwise be exercisable. In addition, the Administrator may provide that any
Company repurchase option applicable to any Shares purchased upon exercise of an
Option or Stock Purchase Right shall lapse as to all such Shares, provided the
proposed dissolution or liquidation takes place at the time and in the manner
contemplated. To the extent it has not been previously exercised, an Option or
Stock Purchase Right will terminate immediately prior to the consummation of
such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option and Stock Purchase Right shall be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Optionee shall fully vest in and have the right to
exercise the Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable. If
an Option or Stock Purchase Right becomes fully vested and exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Option or
Stock Purchase Right shall terminate upon the expiration of such period. For the
purposes of this paragraph, the Option or Stock Purchase Right shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each Share
of Optioned Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
14. Date of Grant. The date of grant of an Option or Stock Purchase
Right shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall be
provided to each Optionee within a reasonable time after the date of such grant.
-12-
<PAGE> 13
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
16. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of
an Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
17. Inability to Obtain Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
18. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Shareholder Approval. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
-13-
<PAGE> 14
DIGITAL IMPACT, INC.
1998 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number ____________________________________
Date of Grant ____________________________________
Vesting Commencement Date ____________________________________
Exercise Price per Share $___________________________________
Total Number of Shares Granted ____________________________________
Total Exercise Price $___________________________________
Type of Option: _____ Incentive Stock Option
_____ Nonstatutory Stock Option
Term/Expiration Date: ____________________________________
Vesting Schedule:
This Option may be exercised, in whole or in part, in accordance with
the following schedule:
25% of the Shares subject to the Option shall vest twelve months after
the Vesting Commencement Date, and 1/48 of the Shares subject to the Option
shall vest each month thereafter, subject to the Optionee continuing to be a
Service Provider on such dates. Notwithstanding anything to the contrary, upon
the Optionee's ceasing to be a Service Provider due to death, the Shares subject
to the Option shall immediately vest as to that number of Shares which would
have become vested
<PAGE> 15
and exercisable, pursuant to the vesting schedule listed above, if Optionee had
continued to be a Service Provider until the date one year following the
Optionee's death.
Termination Period:
This Option may be exercised for three (3) months after Optionee ceases
to be a Service Provider. Upon the death or Disability of the Optionee, this
Option may be exercised for one (1) year after Optionee ceases to be a Service
Provider. In no event shall this Option be exercised later than the
Term/Expiration Date as provided above.
II. AGREEMENT
1. Grant of Option. The Plan Administrator of the Company hereby grants
to the Optionee named in the Notice of Grant attached as Part I of this
Agreement (the "Optionee") an option (the "Option") to purchase the number of
Shares, as set forth in the Notice of Grant, at the exercise price per share set
forth in the Notice of Grant (the "Exercise Price"), subject to the terms and
conditions of the Plan, which is incorporated herein by reference. Subject to
Section 15(c) of the Plan, in the event of a conflict between the terms and
conditions of the Plan and the terms and conditions of this Option Agreement,
the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option under
Section 422 of the Code. However, if this Option is intended to be an Incentive
Stock Option, to the extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
2. Exercise of Option.
(a) Right to Exercise. This Option is exercisable during its term
in accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of
an exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be completed
by the Optionee and delivered to the Company. The Exercise Notice shall be
accompanied by payment of the aggregate Exercise Price as to all Exercised
Shares. This Option shall be deemed to be exercised upon receipt by the Company
of such fully executed Exercise Notice accompanied by such aggregate Exercise
Price.
No Shares shall be issued pursuant to the exercise of this Option unless
such issuance and exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the
-2-
<PAGE> 16
Exercised Shares shall be considered transferred to the Optionee on the date the
Option is exercised with respect to such Exercised Shares.
3. Method of Payment. Payment of the aggregate Exercise Price shall be
by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash; or
(b) check; or
(c) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan.
4. Non-Transferability of Option. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by the Optionee. The terms
of the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
5. Term of Option. This Option may be exercised only within the term set
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option Agreement.
6. Tax Consequences. Some of the federal tax consequences relating to
this Option, as of the date of this Option, are set forth below. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR
DISPOSING OF THE SHARES.
(a) Exercising the Option.
(i) Nonstatutory Stock Option. The Optionee may incur regular
federal income tax liability upon exercise of a NSO. The Optionee will be
treated as having received compensation income (taxable at ordinary income tax
rates) equal to the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price. If the
Optionee is an Employee or a former Employee, the Company will be required to
withhold from his or her compensation or collect from Optionee and pay to the
applicable taxing authorities an amount in cash equal to a percentage of this
compensation income at the time of exercise, and may refuse to honor the
exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.
(ii) Incentive Stock Option. If this Option qualifies as an
ISO, the Optionee will have no regular federal income tax liability upon its
exercise, although the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price
-3-
<PAGE> 17
will be treated as an adjustment to alternative minimum taxable income for
federal tax purposes and may subject the Optionee to alternative minimum tax in
the year of exercise. In the event that the Optionee ceases to be an Employee
but remains a Service Provider, any Incentive Stock Option of the Optionee that
remains unexercised shall cease to qualify as an Incentive Stock Option and will
be treated for tax purposes as a Nonstatutory Stock Option on the date three (3)
months and one (1) day following such change of status.
(b) Disposition of Shares.
(i) NSO. If the Optionee holds NSO Shares for at least one
year, any gain realized on disposition of the Shares will be treated as
long-term capital gain for federal income tax purposes.
(ii) ISO. If the Optionee holds ISO Shares for at least one
year after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the lesser of (A) the difference
between the Fair Market Value of the Shares acquired on the date of exercise and
the aggregate Exercise Price, or (B) the difference between the sale price of
such Shares and the aggregate Exercise Price. Any additional gain will be taxed
as capital gain, short-term or long-term depending on the period that the ISO
Shares were held.
(c) Notice of Disqualifying Disposition of ISO Shares. If the
Optionee sells or otherwise disposes of any of the Shares acquired pursuant to
an ISO on or before the later of (i) two years after the grant date, or (ii) one
year after the exercise date, the Optionee shall immediately notify the Company
in writing of such disposition. The Optionee agrees that he or she may be
subject to income tax withholding by the Company on the compensation income
recognized from such early disposition of ISO Shares by payment in cash or out
of the current earnings paid to the Optionee.
7. Entire Agreement; Governing Law. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by the internal substantive laws, but not
the choice of law rules, of California.
8. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS
-4-
<PAGE> 18
CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT
CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE
PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT
INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S
RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.
By your signature and the signature of the Company's representative
below, you and the Company agree that this Option is granted under and governed
by the terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
OPTIONEE: DIGITAL IMPACT, INC.
- ------------------------------------- --------------------------------------
Signature By
- ------------------------------------- --------------------------------------
Print Name Title
- -------------------------------------
Residence Address
- -------------------------------------
-5-
<PAGE> 19
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the
terms and conditions of the Plan and this Option Agreement. In consideration of
the Company's granting his or her spouse the right to purchase Shares as set
forth in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
-----------------------------------
Spouse of Optionee
<PAGE> 20
EXHIBIT A
DIGITAL IMPACT, INC.
1998 STOCK PLAN
EXERCISE NOTICE
Digital Impact, Inc.
177 Bovet Road, Suite 200
San Mateo, California 94402
Attention: [Title]
1. Exercise of Option. Effective as of today, ________________, 199__,
the undersigned ("Purchaser") hereby elects to purchase ______________ shares
(the "Shares") of the Common Stock of Digital Impact, Inc. (the "Company") under
and pursuant to the 1998 Stock Plan (the "Plan") and the Stock Option Agreement
dated, 19___ (the "Option Agreement"). The purchase price for the Shares shall
be $_____, as required by the Option Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company the
full purchase price for the Shares.
3. Representations of Purchaser. Purchaser acknowledges that Purchaser
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance, except as provided in Section 13 of the
Plan.
5. Tax Consultation. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
<PAGE> 21
6. Entire Agreement; Governing Law. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
hereof, and may not be modified adversely to the Purchaser's interest except by
means of a writing signed by the Company and Purchaser. This agreement is
governed by the internal substantive laws, but not the choice of law rules, of
California.
Submitted by: Accepted by:
PURCHASER: DIGITAL IMPACT, INC.
- --------------------------------- ----------------------------------------
Signature By
- --------------------------------- ----------------------------------------
Print Name Its
Address: Address:
- --------------------------------- Digital Impact, Inc.
- --------------------------------- 177 Bovet Road, Suite 200
San Mateo, California 94402
-------------------------------------
Date Received
-2-
<PAGE> 22
DIGITAL IMPACT, INC.
1998 STOCK PLAN
NOTICE OF GRANT OF STOCK PURCHASE RIGHT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Notice of Grant.
[Grantee's Name and Address]
You have been granted the right to purchase Common Stock of the Company,
subject to the Company's Repurchase Option and your ongoing status as a Service
Provider (as described in the Plan and the attached Restricted Stock Purchase
Agreement), as follows:
Grant Number ________________________________
Date of Grant ________________________________
Price Per Share $_______________________________
Total Number of Shares Subject ________________________________
to This Stock Purchase Right
Expiration Date: ________________________________
YOU MUST EXERCISE THIS STOCK PURCHASE RIGHT BEFORE THE EXPIRATION DATE
OR IT WILL TERMINATE AND YOU WILL HAVE NO FURTHER RIGHT TO PURCHASE THE SHARES.
By your signature and the signature of the Company's representative below, you
and the Company agree that this Stock Purchase Right is granted under and
governed by the terms and conditions of the 1998 Stock Plan and the Restricted
Stock Purchase Agreement, attached hereto as Exhibit A-1, both of which are made
a part of this document. You further agree to execute the attached Restricted
Stock Purchase Agreement as a condition to purchasing any shares under this
Stock Purchase Right.
GRANTEE: DIGITAL IMPACT, INC.
--------------------------------
- ---------------------------------------- ---------------------------------
Signature By
- ---------------------------------------- ---------------------------------
Print Name Title
<PAGE> 23
EXHIBIT A-1
DIGITAL IMPACT, INC.
1998 STOCK PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Restricted Stock Purchase Agreement.
WHEREAS the Purchaser named in the Notice of Grant, (the "Purchaser") is
an Service Provider, and the Purchaser's continued participation is considered
by the Company to be important for the Company's continued growth; and
WHEREAS in order to give the Purchaser an opportunity to acquire an
equity interest in the Company as an incentive for the Purchaser to participate
in the affairs of the Company, the Administrator has granted to the Purchaser a
Stock Purchase Right subject to the terms and conditions of the Plan and the
Notice of Grant, which are incorporated herein by reference, and pursuant to
this Restricted Stock Purchase Agreement (the "Agreement").
NOW THEREFORE, the parties agree as follows:
1. Sale of Stock. The Company hereby agrees to sell to the Purchaser and
the Purchaser hereby agrees to purchase shares of the Company's Common Stock
(the "Shares"), at the per Share purchase price and as otherwise described in
the Notice of Grant.
2. Payment of Purchase Price. The purchase price for the Shares may be
paid by delivery to the Company at the time of execution of this Agreement of
cash, a check, or some combination thereof.
3. Repurchase Option.
(a) In the event the Purchaser ceases to be a Service Provider
for any or no reason (including death or disability) before all of the Shares
are released from the Company's Repurchase Option (see Section 4), the Company
shall, upon the date of such termination (as reasonably fixed and determined by
the Company) have an irrevocable, exclusive option (the "Repurchase Option") for
a period of sixty (60) days from such date to repurchase up to that number of
shares which constitute the Unreleased Shares (as defined in Section 4) at the
original purchase price per share (the "Repurchase Price"). The Repurchase
Option shall be exercised by the Company by delivering written notice to the
Purchaser or the Purchaser's executor (with a copy to the Escrow Holder) AND, at
the Company's option, (i) by delivering to the Purchaser or the Purchaser's
executor a check in the amount of the aggregate Repurchase Price, or (ii) by
cancelling an amount of the Purchaser's
<PAGE> 24
indebtedness to the Company equal to the aggregate Repurchase Price, or (iii) by
a combination of (i) and (ii) so that the combined payment and cancellation of
indebtedness equals the aggregate Repurchase Price. Upon delivery of such notice
and the payment of the aggregate Repurchase Price, the Company shall become the
legal and beneficial owner of the Shares being repurchased and all rights and
interests therein or relating thereto, and the Company shall have the right to
retain and transfer to its own name the number of Shares being repurchased by
the Company.
(b) Whenever the Company shall have the right to repurchase
Shares hereunder, the Company may designate and assign one or more employees,
officers, directors or shareholders of the Company or other persons or
organizations to exercise all or a part of the Company's purchase rights under
this Agreement and purchase all or a part of such Shares. If the Fair Market
Value of the Shares to be repurchased on the date of such designation or
assignment (the "Repurchase FMV") exceeds the aggregate Repurchase Price of such
Shares, then each such designee or assignee shall pay the Company cash equal to
the difference between the Repurchase FMV and the aggregate Repurchase Price of
such Shares.
4. Release of Shares From Repurchase Option.
(a) Twenty-five percent (25%) of the Shares shall be released
from the Company's Repurchase Option one year after the Date of Grant and 1/48th
percent of the Shares at the end of each month thereafter, provided that the
Purchaser does not cease to be a Service Provider prior to the date of any such
release. Notwithstanding anything to the contrary, upon the Optionee's ceasing
to be a Service provider due to death, the Shares shall be released from the
Company's Repurchase Option as to that number of Shares which would have been
released if Optionee had continued to be a Service Provider until the date one
year following the date of death.
(b) Any of the Shares that have not yet been released from the
Repurchase Option are referred to herein as "Unreleased Shares."
(c) The Shares that have been released from the Repurchase Option
shall be delivered to the Purchaser at the Purchaser's request (see Section 6).
5. Restriction on Transfer. Except for the escrow described in Section 6
or the transfer of the Shares to the Company or its assignees contemplated by
this Agreement, none of the Shares or any beneficial interest therein shall be
transferred, encumbered or otherwise disposed of in any way until such Shares
are released from the Company's Repurchase Option in accordance with the
provisions of this Agreement, other than by will or the laws of descent and
distribution.
6. Escrow of Shares.
(a) To ensure the availability for delivery of the Purchaser's
Unreleased Shares upon repurchase by the Company pursuant to the Repurchase
Option, the Purchaser shall, upon execution of this Agreement, deliver and
deposit with an escrow holder designated by the Company
-2-
<PAGE> 25
(the "Escrow Holder") the share certificates representing the Unreleased Shares,
together with the stock assignment duly endorsed in blank, attached hereto as
Exhibit A-2. The Unreleased Shares and stock assignment shall be held by the
Escrow Holder, pursuant to the Joint Escrow Instructions of the Company and
Purchaser attached hereto as Exhibit A-3, until such time as the Company's
Repurchase Option expires. As a further condition to the Company's obligations
under this Agreement, the Company may require the spouse of Purchaser, if any,
to execute and deliver to the Company the Consent of Spouse attached hereto as
Exhibit A-4.
(b) The Escrow Holder shall not be liable for any act it may do
or omit to do with respect to holding the Unreleased Shares in escrow while
acting in good faith and in the exercise of its judgment.
(c) If the Company or any assignee exercises the Repurchase
Option hereunder, the Escrow Holder, upon receipt of written notice of such
exercise from the proposed transferee, shall take all steps necessary to
accomplish such transfer.
(d) When the Repurchase Option has been exercised or expires
unexercised or a portion of the Shares has been released from the Repurchase
Option, upon request the Escrow Holder shall promptly cause a new certificate to
be issued for the released Shares and shall deliver the certificate to the
Company or the Purchaser, as the case may be.
(e) Subject to the terms hereof, the Purchaser shall have all the
rights of a shareholder with respect to the Shares while they are held in
escrow, including without limitation, the right to vote the Shares and to
receive any cash dividends declared thereon. If, from time to time during the
term of the Repurchase Option, there is (i) any stock dividend, stock split or
other change in the Shares, or (ii) any merger or sale of all or substantially
all of the assets or other acquisition of the Company, any and all new,
substituted or additional securities to which the Purchaser is entitled by
reason of the Purchaser's ownership of the Shares shall be immediately subject
to this escrow, deposited with the Escrow Holder and included thereafter as
"Shares" for purposes of this Agreement and the Repurchase Option.
7. Legends. The share certificate evidencing the Shares, if any, issued
hereunder shall be endorsed with the following legend (in addition to any legend
required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT
BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.
8. Adjustment for Stock Split. All references to the number of Shares
and the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock
-3-
<PAGE> 26
dividend or other change in the Shares which may be made by the Company after
the date of this Agreement.
9. Tax Consequences. The Purchaser has reviewed with the Purchaser's own
tax advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contemplated by this Agreement. The Purchaser is
relying solely on such advisors and not on any statements or representations of
the Company or any of its agents. The Purchaser understands that the Purchaser
(and not the Company) shall be responsible for the Purchaser's own tax liability
that may arise as a result of the transactions contemplated by this Agreement.
The Purchaser understands that Section 83 of the Internal Revenue Code of 1986,
as amended (the "Code"), taxes as ordinary income the difference between the
purchase price for the Shares and the Fair Market Value of the Shares as of the
date any restrictions on the Shares lapse. In this context, "restriction"
includes the right of the Company to buy back the Shares pursuant to the
Repurchase Option. The Purchaser understands that the Purchaser may elect to be
taxed at the time the Shares are purchased rather than when and as the
Repurchase Option expires by filing an election under Section 83(b) of the Code
with the IRS within 30 days from the date of purchase. The form for making this
election is attached as Exhibit A-5 hereto.
THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE
RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION
83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE
THIS FILING ON THE PURCHASER'S BEHALF.
10. General Provisions.
(a) This Agreement shall be governed by the internal substantive
laws, but not the choice of law rules of California. This Agreement, subject to
the terms and conditions of the Plan and the Notice of Grant, represents the
entire agreement between the parties with respect to the purchase of the Shares
by the Purchaser. Subject to Section 15(c) of the Plan, in the event of a
conflict between the terms and conditions of the Plan and the terms and
conditions of this Agreement, the terms and conditions of the Plan shall
prevail. Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Agreement.
(b) Any notice, demand or request required or permitted to be
given by either the Company or the Purchaser pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered
personally or deposited in the U.S. mail, First Class with postage prepaid, and
addressed to the parties at the addresses of the parties set forth at the end of
this Agreement or such other address as a party may request by notifying the
other in writing.
Any notice to the Escrow Holder shall be sent to the Company's address
with a copy to the other party hereto.
-4-
<PAGE> 27
(c) The rights of the Company under this Agreement shall be
transferable to any one or more persons or entities, and all covenants and
agreements hereunder shall inure to the benefit of, and be enforceable by the
Company's successors and assigns. The rights and obligations of the Purchaser
under this Agreement may only be assigned with the prior written consent of the
Company.
(d) Either party's failure to enforce any provision of this
Agreement shall not in any way be construed as a waiver of any such provision,
nor prevent that party from thereafter enforcing any other provision of this
Agreement. The rights granted both parties hereunder are cumulative and shall
not constitute a waiver of either party's right to assert any other legal remedy
available to it.
(e) The Purchaser agrees upon request to execute any further
documents or instruments necessary or desirable to carry out the purposes or
intent of this Agreement.
(f) PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES
PURSUANT TO SECTION 4 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS A SERVICE
PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED OR
PURCHASING SHARES HEREUNDER). PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT
THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE
SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT
ALL, AND SHALL NOT INTERFERE WITH PURCHASER'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE PURCHASER'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE.
By Purchaser's signature below, Purchaser represents that he or she is
familiar with the terms and provisions of the Plan, and hereby accepts this
Agreement subject to all of the terms and provisions thereof. Purchaser has
reviewed the Plan and this Agreement in their entirety, has had an opportunity
to obtain the advice of counsel prior to executing this Agreement and fully
understands all provisions of this Agreement. Purchaser agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Agreement.
Purchaser further agrees to notify the Company upon any change in the residence
indicated in the Notice of Grant.
DATED: ---------------------
PURCHASER: DIGITAL IMPACT, INC.
- --------------------------------- ----------------------------------------
Signature By
- --------------------------------- ----------------------------------------
Print Name Title
-5-
<PAGE> 28
EXHIBIT A-2
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, __________________________, hereby sell, assign
and transfer unto (__________) shares of the Common Stock of Digital Impact,
Inc., standing in my name of the books of said corporation represented by
Certificate No. _____ herewith and do hereby irrevocably constitute and appoint
to transfer the said stock on the books of the within named corporation with
full power of substitution in the premises.
This Stock Assignment may be used only in accordance with the Restricted
Stock Purchase Agreement (the "Agreement") between________________________ and
the undersigned dated ______________, 19__.
Dated: _______________, 19
Signature:_________________________________
INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise the
Repurchase Option, as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.
<PAGE> 29
EXHIBIT A-3
JOINT ESCROW INSTRUCTIONS
______, 19___
Corporate Secretary
Digital Impact, Inc.
177 Bovet Road, Suite 200
San Mateo, California 94402
Dear:
As Escrow Agent for both Digital Impact, Inc., a Delaware corporation
(the "Company"), and the undersigned purchaser of stock of the Company (the
"Purchaser"), you are hereby authorized and directed to hold the documents
delivered to you pursuant to the terms of that certain Restricted Stock Purchase
Agreement ("Agreement") between the Company and the undersigned, in accordance
with the following instructions:
1. In the event the Company and/or any assignee of the Company (referred
to collectively as the "Company") exercises the Company's Repurchase Option set
forth in the Agreement, the Company shall give to Purchaser and you a written
notice specifying the number of shares of stock to be purchased, the purchase
price, and the time for a closing hereunder at the principal office of the
Company. Purchaser and the Company hereby irrevocably authorize and direct you
to close the transaction contemplated by such notice in accordance with the
terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's Repurchase Option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and privileges of a shareholder of the Company while the
stock is held by you.
<PAGE> 30
4. Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's Repurchase Option has been exercised, you
shall deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's Repurchase Option.
Within 90 days after Purchaser ceases to be a Service Provider, you shall
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's Repurchase
Option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of the same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith,
and any act done or omitted by you pursuant to the advice of your own attorneys
shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law, and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case you obey or comply with any such order, judgment or decree, you shall not
be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other experts
as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
-2-
<PAGE> 31
12. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be an officer or agent of the Company or if you shall resign
by written notice to each party. In the event of any such termination, the
Company shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such disputes shall have been settled either by mutual written agreement
of the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses or at such other addresses as a party may designate by ten
days' advance written notice to each of the other parties hereto.
COMPANY: Digital Impact, Inc.
177 Bovet Road, Suite 200
San Mateo, California 94402
PURCHASER: -----------------------------
-----------------------------
-----------------------------
ESCROW AGENT: Corporate Secretary
Digital Impact, Inc.
177 Bovet Road, Suite 200
San Mateo, California 94402
16. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns.
-3-
<PAGE> 32
18. These Joint Escrow Instructions shall be governed by, and construed
and enforced in accordance with, the internal substantive laws, but not the
choice of law rules, of California.
Very truly yours,
DIGITAL IMPACT, INC.
----------------------------
By
----------------------------
Title
PURCHASER:
----------------------------
Signature
----------------------------
Print Name
ESCROW AGENT:
- --------------------------------
Corporate Secretary
-4-
<PAGE> 33
EXHIBIT A-4
CONSENT OF SPOUSE
I, ____________________, spouse of ___________________, have read and
approve the foregoing Restricted Stock Purchase Agreement (the "Agreement"). In
consideration of the Company's grant to my spouse of the right to purchase
shares of Digital Impact, Inc., as set forth in the Agreement, I hereby appoint
my spouse as my attorney-in-fact in respect to the exercise of any rights under
the Agreement and agree to be bound by the provisions of the Agreement insofar
as I may have any rights in said Agreement or any shares issued pursuant thereto
under the community property laws or similar laws relating to marital property
in effect in the state of our residence as of the date of the signing of the
foregoing Agreement.
Dated: _______________, 19___
----------------------------
Signature of Spouse
<PAGE> 34
EXHIBIT A-5
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income
for the current taxable year the amount of any compensation taxable to taxpayer
in connection with his or her receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME: TAXPAYER: SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR:
2. The property with respect to which the election is made is described as
follows: shares (the "Shares") of the Common Stock of Digital Impact, Inc.
(the "Company").
3. The date on which the property was transferred is: , 19__.
4. The property is subject to the following restrictions:
The Shares may be repurchased by the Company, or its assignee, upon certain
events. This right lapses with regard to a portion of the Shares based on the
continued performance of services by the taxpayer over time.
5. The fair market value at the time of transfer, determined without regard to
any restriction other than a restriction which by its terms will never
lapse, of such property is:
$---------------.
6. The amount (if any) paid for such property is:
$---------------.
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
except with the consent of the Commissioner.
Dated:___________________, 19____ _____________________________________________
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated:___________________, 19____ _____________________________________________
Spouse of Taxpayer
-2-
<PAGE> 1
EXHIBIT 10.2
DIGITAL IMPACT, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" shall mean the common stock of the Company.
(d) "Company" shall mean Digital Impact, Inc. and any Designated
Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross
earnings and commissions, exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary which has
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of
the Company for tax purposes whose customary employment with the Company is at
least twenty (20) hours per week and more than five (5) months in any calendar
year. For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first Trading Day of each
Offering Period.
(i) "Exercise Date" shall mean the last Trading Day of each
Purchase Period.
(j) "Fair Market Value" shall mean, as of any date, the value of
Common Stock determined as follows:
<PAGE> 2
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day on the date of such determination, as reported in
The Wall Street Journal or such other source as the Board deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of such determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board; or
(iv) For purposes of the Enrollment Date of the first
Offering Period under the Plan, the Fair Market Value shall be the initial price
to the public as set forth in the final prospectus included within the
registration statement in Form S-1 filed with the Securities and Exchange
Commission for the initial public offering of the Company's Common Stock (the
"Registration Statement").
(k) "Offering Periods" shall mean the periods of approximately
twelve (12) months during which an option granted pursuant to the Plan may be
exercised, commencing on the first Trading Day on or after June 1 and December 1
of each year and terminating on the last Trading Day in the periods ending
twelve months later; provided, however, that the first Offering Period under the
Plan shall commence with the first Trading Day on or after the date on which the
Securities and Exchange Commission declares the Company's Registration Statement
effective and ending on the last Trading Day on or before November 30, 2000. The
duration and timing of Offering Periods may be changed pursuant to Section 4 of
this Plan.
(l) "Plan" shall mean this 1999 Employee Stock Purchase Plan.
(m) "Purchase Period" shall mean the approximately six month
period commencing after one Exercise Date and ending with the next Exercise
Date, except that the first Purchase Period of any Offering Period shall
commence on the Enrollment Date and end with the next Exercise Date.
(n) "Purchase Price" shall mean 85% of the Fair Market Value of a
share of Common Stock on the Enrollment Date or on the Exercise Date, whichever
is lower; provided however, that the Purchase Price may be adjusted by the Board
pursuant to Section 20.
(o) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
<PAGE> 3
(p) "Subsidiary" shall mean a corporation, domestic or foreign,
of which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock
exchanges and the Nasdaq System are open for trading.
3. Eligibility.
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding,
no Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive,
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after June 1 and December 1 each year, or on such other date
as the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or before
November 30, 2000. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings without shareholder approval if such change is announced at
least five (5) days prior to the scheduled beginning of the first Offering
Period to be affected thereafter.
5. Participation.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office
fifteen days prior to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last payroll in
the Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
<PAGE> 4
6. Payroll Deductions.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding fifteen percent (15%) of
the Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or filing
with the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to zero percent (0%) at any
time during a Purchase Period. Payroll deductions shall recommence at the rate
provided in such participant's subscription agreement at the beginning of the
first Purchase Period which is scheduled to end in the following calendar year,
unless terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or
at the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than 5,000
shares of the Company's Common Stock (subject to any adjustment pursuant to
Section 19), and provided further that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 12 hereof. The Board may, for future
<PAGE> 5
Offering Periods, increase or decrease, in its absolute discretion, the maximum
number of shares of the Company's Common Stock an Employee may purchase during
each Purchase Period of such Offering Period. Exercise of the option shall occur
as provided in Section 8 hereof, unless the participant has withdrawn pursuant
to Section 10 hereof. The option shall expire on the last day of the Offering
Period.
8. Exercise of Option.
(a) Unless a participant withdraws from the Plan as provided in
Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
(b) If the Board determines that, on a given Exercise Date, the
number of shares with respect to which options are to be exercised may exceed
(i) the number of shares of Common Stock that were available for sale under the
Plan on the Enrollment Date of the applicable Offering Period, or (ii) the
number of shares available for sale under the Plan on such Exercise Date, the
Board may in its sole discretion (x) provide that the Company shall make a pro
rata allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Exercise Date, and continue all Offering Periods then in effect, or (y) provide
that the Company shall make a pro rata allocation of the shares available for
purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform
a manner as shall be practicable and as it shall determine in its sole
discretion to be equitable among all participants exercising options to purchase
Common Stock on such Exercise Date, and terminate any or all Offering Periods
then in effect pursuant to Section 20 hereof. The Company may make pro rata
allocation of the shares available on the Enrollment Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any
authorization of additional shares for issuance under the Plan by the Company's
shareholders subsequent to such Enrollment Date.
9. Delivery. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. Withdrawal.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any
<PAGE> 6
time by giving written notice to the Company in the form of Exhibit B to this
Plan. All of the participant's payroll deductions credited to his or her account
shall be paid to such participant promptly after receipt of notice of withdrawal
and such participant's option for the Offering Period shall be automatically
terminated, and no further payroll deductions for the purchase of shares shall
be made for such Offering Period. If a participant withdraws from an Offering
Period, payroll deductions shall not resume at the beginning of the succeeding
Offering Period unless the participant delivers to the Company a new
subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not
have any effect upon his or her eligibility to participate in any similar plan
which may hereafter be adopted by the Company or in succeeding Offering Periods
which commence after the termination of the Offering Period from which the
participant withdraws.
11. Termination of Employment.
Upon a participant's ceasing to be an Employee, for any reason, he or
she shall be deemed to have elected to withdraw from the Plan and the payroll
deductions credited to such participant's account during the Offering Period but
not yet used to exercise the option shall be returned to such participant or, in
the case of his or her death, to the person or persons entitled thereto under
Section 15 hereof, and such participant's option shall be automatically
terminated. The preceding sentence notwithstanding, a participant who receives
payment in lieu of notice of termination of employment shall be treated as
continuing to be an Employee for the participant's customary number of hours per
week of employment during the period in which the participant is subject to such
payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. Stock.
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be 700,000 shares, plus an annual increase to be added on each anniversary
date of the adoption of the Plan equal to the lesser of (i) 700,000 shares, (ii)
2% of the outstanding shares on such date or (iii) a lesser amount determined by
the Board.
(b) The participant shall have no interest or voting right in
shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall
be registered in the name of the participant or in the name of the participant
and his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine
<PAGE> 7
eligibility and to adjudicate all disputed claims filed under the Plan. Every
finding, decision and determination made by the Board or its committee shall, to
the full extent permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to an
Exercise Date on which the option is exercised but prior to delivery to such
participant of such shares and cash. In addition, a participant may file a
written designation of a beneficiary who is to receive any cash from the
participant's account under the Plan in the event of such participant's death
prior to exercise of the option. If a participant is married and the designated
beneficiary is not the spouse, spousal consent shall be required for such
designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution,
Liquidation, Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7), as well
as the price per share and the number of shares of
<PAGE> 8
Common Stock covered by each option under the Plan which has not yet been
exercised shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration." Such adjustment shall
be made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all
or substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
20. Amendment or Termination.
(a) The Board of Directors of the Company may at any time and for
any reason terminate or amend the Plan. Except as provided in Section 19 hereof,
no such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Offering Period or the Plan
is in the best interests of the Company and its shareholders. Except as provided
in Section 19 and this Section 20 hereof, no amendment may make any change in
any option theretofore granted which adversely affects the rights of any
participant. To the extent necessary to
<PAGE> 9
comply with Section 423 of the Code (or any successor rule or provision or any
other applicable law, regulation or stock exchange rule), the Company shall
obtain shareholder approval in such a manner and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
(c) In the event the Board determines that the ongoing operation
of the Plan may result in unfavorable financial accounting consequences, the
Board may, in its discretion and, to the extent necessary or desirable, modify
or amend the Plan to reduce or eliminate such accounting consequence including,
but not limited to:
(i) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;
(ii) shortening any Offering Period so that Offering Period
ends on a new Exercise Date, including an Offering Period underway at the time
of the Board action; and
(iii) allocating shares.
Such modifications or amendments shall not require stockholder approval
or the consent of any Plan participants.
21. Notices. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
<PAGE> 10
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
24. Automatic Transfer to Low Price Offering Period. To the extent
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period as of the first day thereof.
<PAGE> 11
EXHIBIT A
DIGITAL IMPACT, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. ____________________ hereby elects to participate in the Digital Impact,
Inc. 1999 Employee Stock Purchase Plan (the "Employee Stock Purchase
Plan") and subscribes to purchase shares of the Company's Common Stock
in accordance with this Subscription Agreement and the Employee Stock
Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount
of ____% of my Compensation on each payday (up to 20%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is
in all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is
subject to shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only):
6. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after
the Exercise Date, I will be treated for federal income tax purposes as
having received ordinary income at the time of such disposition in an
amount equal to the excess of the fair market value of the shares at the
time such shares were purchased by me over the price which I paid for
the shares. I hereby agree to notify the Company in writing
<PAGE> 12
within 30 days after the date of any disposition of my shares and I will
make adequate provision for Federal, state or other tax withholding
obligations, if any, which arise upon the disposition of the Common
Stock. The Company may, but will not be obligated to, withhold from my
compensation the amount necessary to meet any applicable withholding
obligation including any withholding necessary to make available to the
Company any tax deductions or benefits attributable to sale or early
disposition of Common Stock by me. If I dispose of such shares at any
time after the expiration of the 2-year and 1-year holding periods, I
understand that I will be treated for federal income tax purposes as
having received income only at the time of such disposition, and that
such income will be taxed as ordinary income only to the extent of an
amount equal to the lesser of (1) the excess of the fair market value of
the shares at the time of such disposition over the purchase price which
I paid for the shares, or (2) 15% of the fair market value of the shares
on the first day of the Offering Period. The remainder of the gain, if
any, recognized on such disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)___________________________________________________________
(First) (Middle) (Last)
_____________________________ _____________________________
Relationship
_____________________________
(Address)
<PAGE> 13
Employee's Social
Security Number: ------------------------------------
Employee's Address: ------------------------------------
------------------------------------
------------------------------------
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:
------------------------------ -----------------------------------
Signature of Employee
-----------------------------------
Spouse's Signature
(If beneficiary other than spouse)
<PAGE> 14
EXHIBIT B
DIGITAL IMPACT, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Digital
Impact, Inc. 1999 Employee Stock Purchase Plan which began on ____________,
______ (the "Enrollment Date") hereby notifies the Company that he or she hereby
withdraws from the Offering Period. He or she hereby directs the Company to pay
to the undersigned as promptly as practicable all the payroll deductions
credited to his or her account with respect to such Offering Period. The
undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address of Participant:
--------------------------------
--------------------------------
--------------------------------
Signature:
--------------------------------
Date:
---------------------------
<PAGE> 1
EXHIBIT 10.4
DIGITAL IMPACT, INC.
July 29, 1999
David Oppenheimer
35 Oak Valley Drive
Novato, CA 94947
Re: Employment Agreement
Dear David:
Digital Impact, Inc. and/or its affiliates (collectively, the
"Company") is pleased to offer you the position of Chief Financial Officer on
the terms set forth below (the "Agreement"), beginning on August 2, 1999.
As Chief Financial Officer, your initial responsibilities will include
external financing and investor relations, mergers and acquisitions, financial
planning and budgeting, treasury and cash management, human resources and
administration, and such other duties as may be assigned to you by the Company.
You will initially report to William Park, in his capacity as CEO. As a Company
employee, you will be expected to abide by all of the Company's policies and
procedures, and acknowledge in writing that you have received and read the
Company's employee handbook.
Your initial base salary will be two hundred and twenty-five thousand
dollars ($225,000.00) per year, less payroll deductions and withholdings. As an
exempt employee, you will be paid on a salary, not hourly, basis. Therefore,
you will be "exempt" from overtime pay. You will be paid semi-monthly. In
addition, the Company will also provide you with sick leave, personal time, ten
(10) days of paid vacation time, and medical, dental, and other benefits
coverage consistent with Company policy for exempt employees. Of course, the
Company reserves the right to modify your job duties, compensation and benefits
from time to time, as it deems necessary.
In compliance with all applicable regulatory requirements, and subject
to approval by the Board of Directors, you will also receive an incentive stock
option to purchase two hundred and seventy-five thousand (275,000) shares (post
2-1 split) of Common Stock of the Company (the "Option"). The shares subject to
the Option will vest over a four (4) year period, with 6.25% of such shares
vesting at the end of the first three (3) months of employment, and the
remaining shares vesting monthly thereafter in accordance with the Company's
standard policy. The exercise price of the Option will be the fair market value
of the Common Stock on the date of grant as determined in good faith by the
Board of Directors.
As a Company employee, you will be expected to abide by the Company
rules and regulations, acknowledge in writing that you have read the Company's
Employee Handbook, and sign and comply with the Proprietary Information and
Inventions Agreement (attached hereto as
-1-
<PAGE> 2
Exhibit A), which prohibits unauthorized use or disclosure of Company
proprietary information and which PROHIBITS, WITHOUT THE COMPANY'S EXPRESS
WRITTEN CONSENT, ENGAGEMENT IN ANY EMPLOYMENT OR BUSINESS ACTIVITY OTHER THAN
FOR THE COMPANY.
Your employment with the Company is at-will. This means that you may resign
your employment at any time simply by notifying the Company. Likewise, the
Company may terminate your employment relationship at any time and for any
reason whatsoever, with or without cause or advanced notice, simply by notifying
you. This at-will employment relationship cannot be changed except in writing
signed by a duly authorized officer of the Company.
If the Company terminates your employment without Cause (as defined below)
during the first year of your employment, you will receive, as severance,
continued payment of your base salary and health care benefits for a period of
three (3) months. In the event (a) the Company undergoes a Change of Control (as
defined below) and (b) within twelve (12) months of the Change of Control either
your employment is terminated without Cause or you terminate your employment
with Good Reason (as defined below), then 50% of the unvested shares subject to
the Option shall have their vesting accelerated in full so as to become one
hundred percent (100%) vested and immediately exercisable in full as of the date
of any such termination. In the event of such termination without Cause or with
Good Reason, you will not be entitled to any additional compensation or benefits
beyond what is provided in this paragraph. If you resign without Good Reason or
your employment is terminated for Cause, all compensation and benefits will
cease immediately, and you will receive no severance benefits.
For the purposes of this Agreement, "Cause" shall mean misconduct,
including: (i) conviction of any felony or any crime involving moral turpitude
or dishonesty; (ii) participation in a fraud or act of dishonesty against the
Company; (iii) willful breach of the Company's policies; (iv) intentional damage
to the Company's property; (v) material breach of this Agreement or your
Proprietary Information and Inventions Agreement; or (vi) conduct by you which
in the good faith and reasonable determination of the Company's Board of
Directors demonstrates unacceptable job performance or gross unfitness to serve
provided that you have had fair notice of such cause and do not substantially
cure or mitigate its consequences to the reasonable satisfaction of the Company
as determined by the Company's Board of Directors within thirty (30) days after
the Company notifies you in writing of the cause.
For the purposes of this Agreement, "Good Reason" shall mean: (i) reduction
of your rate of salary compensation as in effect immediately prior to a Change
of Control; (ii) change in your responsibilities, authority, title or office
resulting in diminution of position, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith which is remedied by
the Company promptly after notice thereof is given by you, provided that
following a Change of Control, your continuation as Chief Financial Officer of a
division or subsidiary of the surviving corporation shall be deemed a diminution
of position; (iii) request that you relocate to a worksite that is more than 35
miles from your prior worksite, unless you accept such relocation opportunity;
or (iv) failure or refusal of a successor company to assume the Company's
obligations under this Agreement.
- 2 -
<PAGE> 3
For purposes of this Agreement, a "Change of Control" will mean: (a) any
reorganization, consolidation or merger of the Company in which the Company is
not the surviving corporation or pursuant to which shares of the Company's
voting stock would be converted into cash, securities or other property, in
either case other than a merger of the Company in connection with a
re-incorporation transaction or other reorganization transaction as a result of
which the holders of the Company's voting stock immediately prior to the merger
have the same proportionate ownership of voting stock of the surviving
corporation or other surviving entity immediately after the merger; (b) the
sale, lease, exchange or other transfer (in one transaction or a series of
related transactions) of all, or substantially all, of the assets of the
Company; (c) approval by the stockholders of the Company of a plan or proposal
for the liquidation or dissolution of the Company; or (d) any "person" (as
defined in Sections 13(d) or 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) becoming the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of 50% or more of
the Company's outstanding voting stock; provided, however, that "person" will
not include any holder of shares of the Company's preferred stock on the date of
this Agreement.
This Agreement, including Exhibit A, constitutes the complete, final and
exclusive embodiment of the entire agreement between you and the Company with
respect to the terms and conditions of your employment. This Agreement is
entered into without reliance upon any promise, warranty or representation,
written or oral, other than those expressly contained herein, and it supersedes
any other such promises, warranties, representations or agreements. It may not
be amended or modified except by a written instrument signed by you and a duly
authorized officer of the Company. If any provision of this Agreement is
determined to be invalid or unenforceable, in whole or in part, this
determination will not affect any other provision of this Agreement. This
Agreement shall be construed and interpreted in accordance with the laws of the
State of California.
As required by law, this offer of employment is subject to satisfactory
proof of your right to work in the United States.
To indicate your acceptance of our offer under the terms described above,
please sign below and return this letter to me. We look forward to your
favorable reply, and to a productive and enjoyable work relationship.
Very truly yours,
DIGITAL IMPACT, INC.
By: /s/ WILLIAM C. PARK
---------------------------------
William C. Park, CEO
Accepted by: /s/ DAVID OPPENHEIMER
------------------------
-3-
<PAGE> 1
EXHIBIT 10.5
March 12, 1999
Alan Flohr
22 Brae Burn
Glastonbury, CT 06033
Re: Employment Agreement
Dear Al:
Digital Impact, Inc. and/or its affiliates (collectively, the
"Company") is pleased to offer you the position of Vice President of Sales on
the terms set forth below (the "Agreement"), beginning on April 1, 1999.
As Vice President of Sales, your initial responsibilities will be to
manage and grow the Sales department, develop and implement sales strategies,
accomplish sales objectives and revenue targets, and such other duties as may
be assigned to you by the Company. You will initially report to William Park,
in his capacity as President. As a Company employee, you will be expected to
abide by all of the Company's policies and procedures, and acknowledge in
writing that you have received and read the Company's employee handbook.
Your initial base salary will be one hundred and sixty-five thousand
dollars ($165,000.00) per year, less payroll deductions and withholdings. As an
exempt employee, you will be paid on a salary, not hourly basis. Therefore, you
will be "exempt" from overtime pay. You will be paid two times per month. In
addition, the Company will also provide you with sick leave, personal time, ten
(10) days of paid vacation time, and medical, dental, and other benefits
coverage consistent with Company policy for exempt employees. Of course, the
Company reserves the right to modify your job duties, compensation and benefits
from time to time, as it deems necessary.
In addition to your base salary, you will be eligible to participate in
the Company's standard sales commission program as outlined in the attached
Schedule A. Under the terms of the attached schedule, you may receive a sales
commission of eighty-five thousand dollars ($85,000.00) upon achieving your
sales quota. Sales commissions will be paid quarterly based on all sales
collected in that quarter. The sales commission schedule may be adjusted at the
Company's discretion on a quarterly basis.
In compliance with all applicable regulatory requirements, you will
receive an incentive stock option to purchase one hundred and fifty thousand
(150,000) shares of Common Stock of the Company. The shares subject to the
option will vest over a four-year period with 12.5% of such shares vesting at
the end of six months and 1/42 of the remaining shares vesting monthly
thereafter in accordance with the Company's standard policy. The exercise price
of the option will be the fair market value of the Common Stock on the date of
grant as determined in good faith by the Board of Directors.
In the event that your employment is discontinued without "Cause", you
will be entitled to a severance package of six (6) months base salary. For this
purpose, "Cause" shall mean:
-1-
<PAGE> 2
(i) commission of any criminal act involving moral turpitude or dishonesty, (ii)
any willful act or omission that causes material injury to the Company, (iii)
habitual abuse of chemical substance or alcohol, (iv) inability to perform your
duties to the reasonable expectation of the President, CEO or the Board of
Directors, (v) willful and material breach of the Company's policies, or (vii)
material breach of your Proprietary Information and Inventions Assignment
Agreement.
In addition, we are extending additional financial support for your
relocation to the Bay Area. The relocation benefits available to you are
described below:
1. At the Company's option, the Company will (i) guarantee a loan of up
to two hundred thousand dollars ($200,000.00) with an agreed-upon bank
or lending institution.
2. Moving of typical and customary household goods to your primary
residence in California, including one automobile up to six thousand
dollars ($6,000.00).
3. Reimbursement for any points, closing costs, commission, for your
relocation as needed up to a maximum of twenty-five thousand dollars
($25,000.00).
4. Storage of household goods for up to ninety (90) days.
5. Temporary living accommodations for a period of up to ninety (90) days
at accommodations selected by the Company.
6. Substitute automotive transportation for a period of up to thirty
(30) days or until your personal vehicle arrives, whichever is sooner.
7. Payment of reasonable expenses related to two house-hunting trips to
the Bay Area with your spouse. This would include round-trip airfare,
rental car, and per diem meal expenses.
Should you voluntarily terminate your employment with Digital Impact, or
should you be terminated by Digital Impact for cause within one year of the
date you start your employment with the Company, you will be responsible for
the repayment to Digital Impact of all payments made on your behalf as listed
above.
As a Company employee, you will be expected to abide by the Company rules
and regulations, acknowledge in writing that you have read the Company's
Employee Handbook, and sign and comply with a Proprietary Information and
Inventions Agreement which prohibits unauthorized use or disclosure of Company
proprietary information and, which prohibits, without the Company's express
written consent, engagement in any employment or business activity other than
for the Company.
Your employment with the Company is at-will. This means that you may
resign your employment at any time simply by notifying the Company. Likewise,
the Company may terminate your employment relationship at any time and for any
reason whatsoever, with or without cause or advanced notice, simply by
notifying you. This at-will employment relationship cannot be changed except
in a writing signed by a duly authorized officer of the Company.
This Agreement, including the attachments, constitutes the complete, final
and exclusive embodiment of the entire agreement between you and the Company
with respect to the terms and conditions of your employment. This Agreement is
entered into without reliance upon any promise, warranty or representation,
written or oral, other than those expressly contained herein, and it
-2-
<PAGE> 3
supersedes any other such promises, warranties, representations or agreements.
It may not be amended or modified except by a written instrument signed by you
and a duly authorized officer of the Company. If any provision of this
Agreement is determined to be invalid or unenforceable, in whole or in part,
this determination will not affect any other provision of this Agreement. This
Agreement shall be construed and interpreted in accordance with the laws of the
State of California.
As required by law, this offer of employment is subject to satisfactory
proof of your right to work in the United States.
To indicate your acceptance of our offer under the terms described
above, please sign below and return this letter to me within 72 hours. We look
forward to your favorable reply, and to a productive and enjoyable work
relationship.
Very truly yours,
DIGITAL IMPACT, INC.
By: /s/ RUTHANN QUINDLEN
------------------------------
RUTHANN QUINDLEN, Director
Accepted by: ________________________
Date:____________________, 19 ____
-3-
<PAGE> 1
EXHIBIT 10.6
[IMPERIAL BANK LOGO]
STARTER KIT LOAN AND SECURITY AGREEMENT
Borrower: Digital Impact, Inc. Address: 1730 South Amphlett Blvd.
Date: June 12, 1998 San Mateo, CA 94402
THIS LOAN AND SECURITY AGREEMENT ("Agreement") is made and entered into on the
above date between IMPERIAL BANK ("Bank"), whose address is 226 Airport
Parkway, San Jose,California 95110-1024, and the party(ies) name above (jointly
and severally, "Borrower"), whose chief executive office is located at the
above address ("Borrower's Address").
1. LOANS. Bank will make loans to Borrower (the "Loans") up to the amount (the
"Credit Limit") shown on the Schedule to this Agreement (the "Schedule"),
provided no Event of Default and no event which, with notice or passage of time
or both, would constitute an Event of Default has occurred and is continuing.
All Loans and other monetary Obligations will bear interest at the rate shown
on the Schedule. Interest will be payable monthly, on the date shown on the
monthly billing from Bank. Bank may, in its discretion, charge Borrower's
deposit accounts maintained with Bank for any amounts coming due under this
Agreement.
2. SECURITY INTEREST. As security for all present and future indebtedness,
guarantees, liabilities, and other obligations, of Borrower to Bank
(collectively, the "Obligations"), Borrower hereby grants Bank a continuing
security interest in all of Borrower's right title and interest in and to any
property excluding intellectual property now or hereafter described in an
security agreement executed by Borrower to Bank as well as the following types
of property, whether now owned or hereafter acquired, and wherever located
(collectively, the "Collateral"): All "accounts", "general intangibles,"
"chattel paper," "documents," "letters of credit," "instruments," "deposit
accounts," "inventory," "farm products," "fixtures" and "equipment," as such
terms are defined in Division 9 of the California Uniform Commercial Code in
effect on the date hereof, and all products, proceeds and insurance proceeds of
the foregoing, provided, however, in no event shall this Agreement cover any
intellectual property or any rights or interests therein, including any
licenses or sublicenses.
3. REPRESENTATIONS AND AGREEMENTS OF BORROWER. Borrower represents to Bank as
follows, and Borrower agrees that the following representations will continue
to be true, and that Borrower will comply with all of the following agreements
throughout the term of this Agreement:
3.1 CORPORATE EXISTENCE AND AUTHORITY. Borrower, if a corporation, is and will
continue to be, duly authorized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation. The execution, delivery and
performance by Borrower of this Agreement, and all other documents
contemplated hereby have been duly and validly authorized, and do not violate
any law or any provision of and are not grounds for acceleration under, any
agreement or instrument which is binding upon Borrower.
3.2 NAME: PLACES OF BUSINESS. The name of Borrower set forth in this Agreement
is its correct name. Borrower shall give Bank 15 days' prior written notice
before changing its name. The address set forth in the heading to this Agreement
is Borrower's chief executive office. In addition, Borrower has places of
business and Collateral is located only at the locations set forth on the
Schedule. Borrower will give Bank at least 15 days prior written notice before
changing its chief executive office or locating the Collateral at any other
location.
3.3 COLLATERAL. Bank has and will at all times continue to have a first-priority
perfected security interest in all of the Collateral other than specific
equipment identified in existing filed or to be filed Financing Statements.
Borrower will immediately advise Bank in writing of any material loss or damage
to the Collateral.
3.4 FINANCIAL CONDITION AND STATEMENTS. All financial statements now or in the
future delivered to Bank have been, and will be prepared in conformity with
generally accepted accounting principles. Since the last date covered by any
such statement, there has been no material adverse change in the financial
condition or business of Borrower. Borrower will provide Bank: (i) within 30
days after the end of each month, a monthly financial statement prepared by
Borrower, and such other information as Bank shall reasonably request; (ii)
within 120 days
<PAGE> 2
following the end of Borrower's Fiscal year, complete annual financial
statements, certified by independent certified public accountants acceptable to
Bank and accompanied by the unqualified report thereon by said independent
certified public accountants: and (iii) other financial information reasonably
requested by Bank from time to time.
3.5 TAXES: COMPLIANCE WITH LAW. Borrower has filed, and will file, when due,
all tax returns and reports required by applicable law, and Borrower has paid,
and will pay, when due, all taxes, assessments, deposits and contributions
required by applicable law now or in the future owed by Borrower unless
diligently contested in good faith in proper proceedings, proper reserves for
tax liability are established in Borrower's financial statements according to
GAAP, and a stay of enforcement is in effect with respect to lien arising from
or securing the non-payment thereof. Borrower has complied, and will comply, in
all material respects, with all applicable laws, rules and regulations.
3.6 INSURANCE. Borrower will at all times adequately insure all of the
tangible personal property Collateral and carry such other business insurance as
is customary in Borrower's industry. Bank will be designated as Loss Payee on
all such insurance.
3.7 ACCESS TO COLLATERAL AND BOOKS AND RECORDS. At reasonable times but no more
than twice annually (and at any time when an Event of Default exists), on one
business day's notice, Bank, or its agents, shall have the right to inspect the
Collateral, and the right to audit and copy Borrower's books and records,
provided that Bank shall keep all such information confidential except as
required by law.
3.8 BANKING RELATIONSHIP AND OPERATING ACCOUNTS. Borrower shall maintain its
primary operating deposit accounts with Bank. Borrower shall at all times
maintain its primary banking relationship with Bank.
3.9 ADDITIONAL AGREEMENTS. Borrower shall not, without Bank's prior written
consent, do any of the following: (i) enter into any transaction outside the
ordinary course of business except for the sale of capital stock to venture
investors, provided that Borrower promptly delivers written notification to Bank
of any such stock sale;(ii) sell or transfer any Collateral, except in the
ordinary course of business; (iii) pay or declare any dividends on Borrower's
stock (except for dividends payable solely in stock of Borrower): or (iv)
redeem, retire, purchase or otherwise acquire, directly or indirectly, any of
Borrower's stock other than the repurchase of up to five percent (5%) of
Borrower's then issued stock in any fiscal year from Borrower's employees or
directors pursuant to written agreements with Borrower.
4. TERM. This Agreement shall continue in effect until the maturity date set
forth on the Schedule (the "Maturity Date"). This Agreement may be terminated,
without penalty, prior to the Maturity Date as follows: (i) by Borrower,
effective three business days after written notice of termination is given to
Bank: or (ii) by Bank at any time after the occurrence of an Event of Default,
without notice, effective immediately. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay all Obligations in full,
whether or not such Obligations are otherwise then due and payable. No
termination shall in any way affect or impair any security interest or other
right or remedy of Bank, nor shall any such termination relieve Borrower of any
Obligation to Bank, until all of the Obligations have been paid and performed
in full.
5. EVENTS OF DEFAULT AND REMEDIES. The occurrence of any of the following events
shall constitute an "Event of Default" under this Agreement: (a) Any
representation, statement, report or certificate given to Bank by Borrower or
any of its officers, employees or agents, now or in the future, is untrue or
misleading in a material respect; or (b) Borrower fails to pay when due any Loan
or any interest thereon or any other monetary Obligation; or (c) the total
Obligations outstanding at any time exceed the Credit Limit; or (d) Borrower
fails to perform any other non-monetary Obligation, which failure is not cured
within 15 business days after the date due; or (e) Dissolution, termination of
existence, insolvency or business failure of Borrower or appointment of a
receiver, trustee or custodian, for all or any part of the property of,
assignment for the benefit of creditors by, or the commencement of any
proceeding by or against Borrower under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect, which proceeding is
not dismissed within sixty (60) days in the event of a proceeding commenced
against Borrower; or (f) a material adverse change in the business, operations,
or financial or other condition of Borrower. If an Event of Default occurs, Bank
shall have the right to accelerate and declare all of the Obligations to be
immediately due and payable, increase the interest rate by an additional five
percent per annum, and exercise all rights and remedies recorded by applicable
law. If any interest payment, principal payment or principal balance payment due
from Borrower is delinquent ten or more days, Borrower agrees to pay Bank a late
charge in the amount of 5% of the payment so due and unpaid, in addition to the
payment; but nothing in this provision is to be construed as any obligation on
the part of Bank to accept payment past due or less than the total unpaid
principal
<PAGE> 3
balance after maturity. All payments shall be applied first to any late charges
owing, then to interest and the remainder, if any, to principal.
6. GENERAL. If any provision of this Agreement is held to be unenforceable, the
remainder of this Agreement shall still continue in full force and effect. This
Agreement and any other written agreements, documents and instruments executed
in connection herewith are the complete agreement between Borrower and Bank and
supersede all prior and contemporaneous negotiations and oral representations
and agreements, all of which are merged and integrated in this Agreement. There
are no oral understandings, representations or agreements between the parties
which are not in this Agreement or in other written agreements signed by the
parties in connection this Agreement. The failure of Bank at any time to require
Borrower to comply strictly with any of the provisions of this Agreement shall
not waive Bank's right later to demand and receive strict compliance. Any waiver
of a default shall not waive any other default. None of the provisions of this
Agreement may be waived except by a specific written waiver signed by an officer
of Bank and delivered to Borrower. The provisions of this Agreement may not be
amended, except in a writing signed by Borrower and Bank. Borrower shall
reimburse Bank for all reasonable attorney's fees and all other reasonable costs
incurred by Bank, in connection with this Agreement (whether or not a lawsuit is
filed) including any post petition bankruptcy activities. If Bank or Borrower
files any lawsuit against the other predicated on a breach of this Agreement,
the prevailing party shall be entitled to recover its reasonable costs and
reasonable attorney's fees from the non-prevailing party. Borrower may not
assign any rights under this Agreement without Bank's prior written consent.
This Agreement shall be governed by the laws of the State of California to the
jurisdiction of whose courts Borrower hereby agrees to submit.
7. MUTUAL WAIVER OF JULY TRIAL. BORROWER AND BANK EACH HEREBY WAIVER THE RIGHT
TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN
ANY WAY RELATING TO, THIS AGREEMENT OR ANY CONDUCT, ACT OR OMISSION OF BANK OR
BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR
AFFILIATES.
8. REFERENCE PROCEEDINGS. a. Each controversy, dispute or claim ("Claim")
between the parties arising out of or relating to this Agreement, which is not
settled in writing within ten days after the "Claim Date" (defined as the date
on which a party gives written notice to all other parties that a controversy,
dispute or claim exists), will be settled by a reference proceeding in Los
Angeles, California in accordance with the provisions of Section 638 et seq. of
the California Code of Civil Procedure, or their successor section ("CCP"),
which shall constitute the exclusive remedy for the settlement of any Claim,
including whether such Claim is subject to the reference proceeding and the
parties waive their rights to initiate any legal proceedings against each other
in any court or jurisdiction other than the Superior Court of Los Angeles (the
"Court"). The referee shall be a retired Judge selected by mutual agreement of
the parties, and if they cannot so agree within thirty days after the Claim
Date, the referee shall be selected by the Presiding Judge of the Court. The
referee shall be appointed to sit as a temporary judge, as authorized by law.
The referee shall (a) be requested to set the matter for hearing within sixty
(60) days after the Claim Date and (b) try any and all issues of law or fact and
report a statement of decision upon them, if possible, within ninety (90) days
of the Claim Date. Any decision rendered by the referee will be final, binding
and conclusive and judgment shall entered pursuant to CCP 644 in the Court. All
discovery permitted by this Agreement shall be completed no later than fifteen
(15) days before the first hearing date established by the referee. The referee
may extend such period in the event of a party's refusal to provide requested
discovery for any reason whatsoever, including, without limitation, legal
objections raised to such discovery or unavailability of a witness due to
absence or illness. No party shall be entitled to "priority" in conducting
discovery. Depositions may be taken by either party upon seven (7) days written
notice, and, request for production or inspection of documents shall be
responded to within ten (10) days after service. All disputes relating to
discovery which cannot be resolved by the parties shall be submitted to the
referee whose decision shall be final and binding upon the parties.
<PAGE> 4
b. The referee shall be required to determine all issues in accordance
with existing case law and the statutory laws of the State of California. The
rules of evidence applicable to proceedings at law in the State of California
will be applicable to the reference proceeding. The referee shall be empowered
to enter equitable as well as legal relief, to provide all temporary and/or
provisional remedies and to enter equitable orders that will be binding upon the
parties. The referee shall issue a single judgment at the close of the reference
proceeding which shall dispose of all of the claims of the parties that are the
subject of the reference. The parties hereto expressly reserve the right to
contest or appeal from the final judgment or any appealable order or appealable
judgment entered by the referee. The parties expressly reserve the right to
findings of fact, conclusions of law, a written statement of decision, and the
right to move for a new trial or a different judgment, which new trial, if
granted, is also to be a reference proceeding under this provision.
Borrower:
Digital Impact, Inc.
By: /s/ [Signature Illegible]
--------------------------------------------------
President or Vice President
By: /s/ [Signature Illegible]
--------------------------------------------------
(Assistant) Secretary or Chief Financial Officer
Bank:
IMPERIAL BANK
By: /s/ ANURAG CHANDRA
--------------------------------------------------
Assistant Vice President
<PAGE> 5
[IMPERIAL BANK LOGO]
SCHEDULE TO
STARTER KIT LOAN AND SECURITY AGREEMENT (EQUIPMENT ADVANCES)
BORROWER: DIGITAL IMPACT, INC.
DATE: JUNE 12, 1998
This Schedule is an integral part of the Loan and Security Agreement
between Imperial Bank (""Bank'') and the above-named Borrower of even date.
CREDIT LIMIT (EQUIPMENT)
(Section 1): $350,000 (such amount to be funded under the aggregate
Credit Limit). At no time shall total equipment Advances
exceed the Credit Limit. Equipment Advances will be made
during two consecutive advance periods identified as
Period (1) and Period (2).
Period (1) Equipment Advances will be made only on or
prior to December 17, 1998 (the "Last Advance Date" for
Period (1)) and Period (2) Equipment Advances will be
made only during the period beginning December 18, 1998
and on or prior to June 17, 1999 (the "Last Advance
Date" for Period (2)), and in either case only for the
purpose of purchasing equipment reasonably acceptable to
Bank. Borrower must provide invoices for the equipment to
Bank on or before the Last Advance Date for Period (1)
and/or Period (2).
INTEREST RATE
(Section 1): The rate equal to Bank's Prime Rate in effect from time
to time, plus .25% per annum during each advance period
and prime plus .50 after each advance period has ended
through maturity. Interest shall be calculated on the
basis of a 360 day year for the actual number of days
elapsed. The Prime Rate shall be the rate announced from
time to time by Bank as its "Prime Rate," as a base rate
upon which other rates charged by Bank are based, and it
is not necessarily the best rate available at Bank. The
interest rate applicable to the Obligations shall change
on each date there is a change in the Prime Rate.
MATURITY DATE
(Section 4): After the Last Advance Date of Period (1) and/or the Last
Advance Date of Period (2), the unpaid principal balance
of the Equipment Advances advanced during either period
shall be repaid in 24 equal monthly installments of
principal plus interest. The 24 equal monthly
installments shall commence for Period (1) on December
18, 1998 and for Period (2) on June 18, 1999 and shall
continue on the same day of each month thereafter until
the entire unpaid principal balance of the Equipment
Advances and all accrued unpaid interest have been paid
(subject to Bank's right to accelerate the Equipment
Advances upon the occurrence and during the continuation
of an Event of Default).
BORROWER: BANK:
DIGITAL IMPACT, INC. IMPERIAL BANK
By: /s/ WILLIAM C. PARK By: /s/ ANURAG CHANDRA
----------------------------- -------------------------
PRESIDENT OR VICE PRESIDENT ASSISTANT VICE PRESIDENT
By:
-----------------------------
<PAGE> 6
[IMPERIAL BANK LOGO]
MASTER SCHEDULE TO STARTER KIT LOAN AND SECURITY AGREEMENT
BORROWER: DIGITAL IMPACT, INC.
DATE: JUNE 12, 1998
This Schedule is incorporated into and an integral part of the Starter Kit
Loan and Security Agreement between Imperial bank ("Bank") and the above-named
Borrower of even date.
CREDIT LIMIT (AGGREGATE)
(Section 1): $350,000 (includes, without limitation, Equipment,
if any)
INTEREST RATE (Section 1): The rate equal to Bank's Prime Rate in effect
from time to time, plus .25% per year. Interest
shall be calculated on the basis of a 360 day
year for the actual number of days elapsed. The
Prime Rate shall be the rate announced from time
to time by Bank as its "Prime Rate;" as a base
rate upon which other rates charged by Bank are
based, and it is not necessarily the best rate
available at Bank. The interest rate applicable
to the Obligations shall change on each date
there is a change in the Prime Rate
MATURITY DATE (Section 4): For working capital loans, December 17, 1999
OTHER LOCATIONS AND ADDRESSES
(Section 3.2): ________________________________________________
________________________________________________
________________________________________________
________________________________________________
BORROWER: BANK:
DIGITAL IMPACT, INC. IMPERIAL BANK
By: /s/ WILLIAM C. PARK By: /s/ ANURAG CHANDRA
-------------------------- -------------------------
President or Vice President Assistant Vice President
By:
----------------------------
<PAGE> 7
[IMPERIAL BANK LOGO]
RESOLUTION AUTHORIZING CREDIT
BORROWER: DIGITAL IMPACT, INC., A CORPORATION
ORGANIZED UNDER THE LAWS OF THE STATE OF CALIFORNIA
DATE: JUNE 12, 1998
I, the undersigned, officer of the above-named borrower, a corporation
organized under the laws of the state set forth above, do hereby certify that
the following is a full, true and correct copy of resolutions duly and regularly
adopted by the Board of Directors of said corporation as required by law, and by
the by-laws, of said corporation, and that said resolutions are still in full
force and effect and have not been in any way modified, repealed, rescinded,
amended or revoked.
RESOLVED, that this corporation borrow from Imperial Bank ("Bank"), from
time to time, such sum or sums of money as, in the judgment of the officer or
officers authorized hereby, this corporation may require.
RESOLVED FURTHER, that any officer of this corporation be, and he or she is
hereby authorized, in the name of this corporation, to execute and deliver to
Bank the loan agreements, security agreements, notes financing statements, and
other documents and instruments providing for such loans and evidencing or
securing such loans and said authorized officers are authorized from time to
time to execute renewals, extensions and/or amendments of said loan agreements,
security agreements, and other documents and instruments.
RESOLVED FURTHER, that said authorized officers be and they are hereby
authorized, as security for any and all indebtedness of this corporation to
Bank, whether arising pursuant to this resolution or otherwise, to grant to but
not limited to, any and all real property, accounts, inventory, equipment,
general intangibles, instruments documents, chattel paper, notes, money, deposit
accounts, furniture, fixtures, goods and other property of every kind, and to
execute and deliver to Bank any and all pledge agreements mortgages, deeds of
trust, financing statements, security agreements and other agreements, which
said instruments and the note or notes and other instruments referred to in the
proceeding paragraph may contain such provisions, covenants, recitals and
agreements as Bank may require, and said authorized officers may approve, and
the execution thereof by said authorized officers shall be conclusive evidence
of such approval.
RESOLVED FURTHER, that Bank may conclusively rely on a certified copy of
these resolutions and a certificate of an officer of this corporation as to the
officers of this corporation and their offices and signatures, and continue to
conclusively rely on such certified copy of these resolutions and said
certificate for all past, present and future transactions until written notice
of any change hereto or thereto is given to Bank by this corporation by
certified mail, return receipt requested.
The undersigned further hereby certified that the following persons are the
fully elected and acting officers of the corporation named above as borrower and
that the following are their actual signatures.
NAMES OFFICE(S) ACTUAL SIGNATURES
- ----- --------- -----------------
WILLIAM PARK PRESIDENT/CHAIRMAN WILLIAM PARK
- -------------------------- ------------------------ --------------------------
- -------------------------- ------------------------ --------------------------
- -------------------------- ------------------------ --------------------------
IN WITNESS WHEREOF, I have hereunto set my hand as such corporate officer on
the date set forth above.
X /s/ GERARDO CAPIEL
----------------------------------------------------
Its: Secretary
<PAGE> 8
[IMPERIAL BANK LETTERHEAD]
IMPERIAL BANK
INTERNATIONAL DIVISION
275 BATTERY STREET
SUITE 1100
SAN FRANCISCO, CA 94111
Telex: 3730628 (IMPERIAL INW)
Tel: (415) 954-5042 FAX: (415) 394-8121
DATE: 12/31/98
DIGITAL IMPACT, INC.
1730 SOUTH AMPHLETT BLVD.
SAN MATEO, CA 94402
ATTN: JOAN CUMMINGS
DEAR CUSTOMER:
AT YOUR REQUEST, WE HEREBY ESTABLISH OUR STANDBY LETTER OF CREDIT NO.
0SF98000522, A COPY OF WHICH IS ATTACHED FOR YOUR INFORMATION. SHOULD YOU HAVE
ANY QUESTIONS REGARDING THIS L/C, PLEASE CONTACT OUR INTERNATIONAL BANKING
DIVISION AT 415-954-5078.
PLEASE REVIEW THE DETAILS OF THE LETTER OF CREDIT.
ANY INCONGRUITY MUST BE REPORTED AS SOON AS POSSIBLE OR THE TERMS AND
CONDITIONS OF THE LETTER OF CREDIT SHALL BE DEEMED CONCLUSIVELY TO COMPLY WITH
THE APPLICATION. THIS L/C IS SUBJECT TO THE U.C.P. 1993 ICC PUBLICATION NO. 500
THIS IS A COMPUTER GENERATED ADVICE WHICH DOES NOT REQUIRE AN AUTHORIZED
SIGNATURE.
Page 1
<PAGE> 9
[IMPERIAL BANK LETTERHEAD]
INTERNATIONAL DIVISION, 275 BATTERY STREET, SUITE 1100, SAN FRANCISCO, CA 94111
IRREVOCABLE STANDBY LETTER OF CREDIT NO. OSF98000522 DATED DECEMBER 31, 1998
<TABLE>
<S> <C>
BENEFICIARY: APPLICANT:
CASIOPEA VENTURE CORPORATION DIGITAL IMPACT INC.
C/O RIM PACIFIC MANAGEMENT 1730 SOUTH AMPHLETT BLVD.
155 BOVET ROAD, SUITE 460 SAN MATEO, CA 94402
SAN MATEO, CA 94402
EXPIRY DATE AND PLACE: AMOUNT:
JANUARY 15, 2002 AT OUR OFFICE $108,229.95 (ONE HUNDRED
275 BATTERY STREET, SUITE 1100 EIGHT THOUSAND TWO
SAN FRANCISCO, CA 94111 HUNDRED TWENTY NINE
AND 95/100 U.S. DOLLARS)
</TABLE>
GENTLEMEN:
WE HEREBY ESTABLISH OUR IRREVOCABLE STANDBY LETTER OF CREDIT IN YOUR FAVOR
AVAILABLE BY PAYMENT OF YOUR DRAFT(S) DRAWN AT SIGHT ON IMPERIAL BANK, SAN
FRANCISCO, CA. DRAFT(S) MUST BE MARKED AS DRAWN UNDER IMPERIAL BANK STANDBY
LETTER OF CREDIT NO. 0SF98000522 AND ACCOMPANIED BY THE FOLLOWING DOCUMENT(S):
1. THE ORIGINAL OF THIS STANDBY LETTER OF CREDIT AND AMENDMENTS, IF ANY.
2. YOUR WRITTEN STATEMENT: (A) CERTIFYING THAT TENANT HAS FAILED TO PERFORM A
PAYMENT OBLIGATION OR OTHER OBLIGATION UNDER THE TERMS OF ITS LEASE DATED
NOVEMBER 30, 1998, FOR REFERENCE PURPOSES, AND COVERING THE PREMISES AT 177
BOVET ROAD, SUITE 300, SAN MATEO, CA ("THE LEASE"), AND THAT AS A RESULT OF
SUCH FAILURE, YOU ARE ENTITLED TO DRAW AGAINST AND RECEIVED PROCEEDS UNDER
THIS LETTER OF CREDIT IN THE AMOUNT OF $_______, OR (B) SPECIFYING EITHER
(I) THAT YOUR DRAW IS BEING MADE AS DEFAULT RELATED DRAW PURSUANT TO
SUBSECTION 6.1.2.2 OF THE LEASE, OR (II) THAT YOUR DRAW IS BEING MADE AS AN
EXPIRATION RELATED DRAW PURSUANT TO SUBSECTION 6.1.2.4 OR SUBSECTION
6.1.2.6 OF THE LEASE.
SPECIAL CONDITIONS:
1. PARTIAL DRAWING ALLOWED.
2. YOU MAY TRANSFER THIS LETTER OF CREDIT TO YOUR TRANSFEREE(S), SUCCESSORS OR
ASSIGNS UPON SATISFACTORY DELIVERY AND PRESENTATION TO THE ISSUING BANK OF
(1) THE ORIGINAL STANDBY LETTER OF CREDIT AND AMENDMENTS, IF ANY, FOR
PROPER ENDORSEMENT (2) A REQUEST FOR TRANSFER ON THE ISSUER'S USUAL
TRANSFER FORM (3) VERIFICATION OF SIGNATURE AND AUTHORITY ON SUCH TRANSFER
FORM SIGNING FOR THE BENEFICIARY (4) PAYMENT OF A TRANSFER FEE AND (5) ANY
OTHER REASONABLE REQUIREMENTS RELATIVE TO THE UCP 500 AND U.S. GOVERNMENT
REGULATIONS.
<PAGE> 10
[IMPERIAL BANK LETTERHEAD]
INTERNATIONAL DIVISION, 275 BATTERY STREET, SUITE 1100, SAN FRANCISCO, CA 94111
IRREVOCABLE STANDBY LETTER OF CREDIT NO. OSF98000522 DATED DECEMBER 31, 1998
PAGE 2
ALL DOCUMENTS DRAWN UNDER THIS LETTER OF CREDIT ARE TO BE DISPATCHED IN ONE LOT
BY COURIER TO IMPERIAL BANK, INTERNATIONAL BANKING DIVISION, 275 BATTERY STREET
SUITE 1100, SAN FRANCISCO, CA 94111.
WE HEREBY ENGAGE WITH YOU THAT ALL DRAFTS DRAWN UNDER AND IN COMPLIANCE WITH THE
TERMS OF THIS CREDIT WILL BE DULY HONORED IF DRAWN AND PRESENTED FOR PAYMENT AT
THIS OFFICE ON OR BEFORE THE EXPIRATION DATE OF THIS CREDIT.
EXCEPT SO FAR AS OTHERWISE EXPRESSLY STATED, THIS CREDIT IS SUBJECT TO THE
"UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS" (1993 REVISION)
INTERNATIONAL CHAMBER OF COMMERCE (PUBLICATION NO. 500).
/s/ [Signature Illegible] /s/ [Signature Illegible]
--------------------- ---------------------
AUTHORIZED SIGNATURE AUTHORIZED SIGNATURE
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated June 16, 1999, except as to items described in Note 10 as to
which the date is September 16, 1999, relating to the financial statements of
Digital Impact, Inc., which appear in such Registration Statement. We also
consent to the references to us under the headings "Experts" and "Selected
Financial Data" in such Registration Statement.
PricewaterhouseCoopersLLP
San Jose, California
September 17, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> MAR-31-1999 MAR-31-2000
<PERIOD-START> APR-01-1998 APR-01-1999
<PERIOD-END> MAR-31-1999 JUN-30-1999
<CASH> 2,864 900
<SECURITIES> 0 0
<RECEIVABLES> 678 1,064
<ALLOWANCES> (10) (28)
<INVENTORY> 0 0
<CURRENT-ASSETS> 3,648 2,063
<PP&E> 2,745 3,851
<DEPRECIATION> (251) (441)
<TOTAL-ASSETS> 6,314 5,719
<CURRENT-LIABILITIES> 1,245 2,975
<BONDS> 699 548
0 0
3 3
<COMMON> 1 1
<OTHER-SE> 4,366 2,192
<TOTAL-LIABILITY-AND-EQUITY> 6,314 5,719
<SALES> 0 0
<TOTAL-REVENUES> 1,307 1,385
<CGS> 0 0
<TOTAL-COSTS> 674 672
<OTHER-EXPENSES> 3,944 3,877
<LOSS-PROVISION> 10 18
<INTEREST-EXPENSE> 18 16
<INCOME-PRETAX> (3,240) (3,160)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (3,311) (3,164)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,240) (3,160)
<EPS-BASIC> $(0.39) $(0.25)
<EPS-DILUTED> $(0.39) $(0.25)
</TABLE>
