<PAGE>
As filed with the Securities and Exchange Commission on February 28, 2000
Registration No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
LINKSHARE CORPORATION
(Exact name of registrant as specified in its charter)
----------------
Delaware 7374 13-3967340
(Primary Standard (I.R.S. Employer
(State or other Industrial Identification Number)
jurisdiction of Classification Code
incorporation or Number)
organization)
LinkShare Corporation
215 Park Avenue South, 8th Floor
New York, New York 10003
(646) 654-6000
(Address, including zip code, telephone number, including
area code, of registrant's principal executive offices)
Joseph E. Young
Executive Vice President
LinkShare Corporation
215 Park Avenue South, 8th Floor
New York, New York 10003
(646) 654-6000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Lee D. Charles, Esq. Stephen H. Cooper, Esq.
Baker Botts L.L.P. Weil, Gotshal & Manges LLP
599 Lexington Avenue 767 Fifth Avenue
New York, New York 10022 New York, New York 10153
Telephone: (212) 705-5000 Telephone: (212) 310-8000
Telecopy: (212) 705-5125 Telecopy: (212) 310-8007
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date hereof.
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,
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 statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
<CAPTION>
Proposed
Proposed Maximum
Amount Maximum Aggregate Amount of
Title of Each Class of to Be Offering Price Offering Registration
Securities to Be Registered Registered Per Share Price(1) Fee
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par
value..................... shares $ $57,500,000 $15,180
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457(o) under the Securities Act.
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 said
Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY 28, 2000
Shares
[LINKSHARE LOGO]
Common Stock
--------
Prior to this offering, there has been no public market for our common stock.
The initial public offering price is expected to be between $ and $ per
share. We have applied to list our common stock on The Nasdaq Stock Market's
National Market under the symbol "LNKS."
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 .
<TABLE>
<CAPTION>
Underwriting
Discounts and Proceeds to
Price to Public Commissions LinkShare
--------------- ------------- -------------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total...................................... $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about , 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Credit Suisse First Boston
Deutsche Banc Alex. Brown
Bear, Stearns & Co. Inc.
The date of this prospectus is , 2000.
<PAGE>
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 5
Cautionary Note on Forward-Looking Statements............................ 13
Use of Proceeds.......................................................... 13
Dividend Policy.......................................................... 13
Capitalization........................................................... 14
Dilution................................................................. 15
Selected Financial Data.................................................. 16
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Our Business............................................................... 25
Management................................................................. 36
Certain Transactions....................................................... 42
Principal Stockholders..................................................... 44
Description of Capital Stock............................................... 45
Shares Eligible for Future Sale............................................ 49
Underwriting............................................................... 51
Notice to Canadian Residents............................................... 53
Experts.................................................................... 54
Legal Matters.............................................................. 54
Additional Information..................................................... 54
Index to Financial Statements.............................................. F-1
</TABLE>
------------
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
Dealer Prospectus Delivery Obligation
Until , 2000 (25 days after the commencement of the 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.
i
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained in other parts of this
prospectus. It is not complete and may not contain all of the information that
you may consider important. You should read the entire prospectus carefully,
including the financial statements and related notes. Unless otherwise
indicated, all information in this prospectus:
. assumes a - for-1 split of our currently outstanding common stock
immediately before the closing of this offering;
. reflects the conversion of all of our outstanding preferred stock and
convertible notes into a total of shares of common stock upon the
closing of this offering; and
. assumes that the underwriters will not exercise their over-allotment
option.
LinkShare
Our Company
LinkShare creates and operates networks that enable businesses to form and
manage online partnerships with thousands of independent Web sites for a
variety of purposes. By combining the reach of our fast-growing networks with
the capabilities of our patented LinkShare Synergy(R) technology, we enable
online businesses to:
. find the right Web sites for their business relationships;
. negotiate the terms of their relationships with the publishers of those
Web sites; and
. evaluate the success of those relationships.
Our first network, The LinkShare NetworkTM, enables online merchants to
establish performance-based relationships with thousands of Web site publishers
who seek to convert visitor traffic into revenues by becoming marketing
"affiliates" of those merchants. By providing a quick and easy way to establish
hyperlink promotions for merchant members of our network, we enable an
affiliate Web site publisher to drive traffic from its site to the merchants'
Web sites. If a visitor accesses a merchant's Web site through that hyperlink
and takes a prescribed action, such as buying a product, the affiliate earns a
fee payable by that merchant. We view The LinkShare NetworkTM as a model for
additional networks and applications that we may develop as e-commerce grows.
The LinkShare NetworkTM has facilitated more than three million marketing
relationships among thousands of participating affiliates and more than 450
merchants, including leading companies like Dell, Toysrus.com, OfficeMax.com,
L.L. Bean and CVS.com. In January 2000, we announced the creation of B2B
LinkShareTM, a separate affiliate network designed to serve the growing
business-to-business e-commerce market that we expect to launch by the end of
March 2000.
Our Sources of Revenue
We receive substantially all of our revenues from fees that we collect from
the merchant members of The LinkShare NetworkTM. Our merchant members pay us
two types of fees:
. licensing fees for the use of our software and access to our network; and
. network fees, which are based on:
. the volume and dollar amount of sales and other activities generated
through their hyperlinks with marketing affiliates, and
. charges for optional packages of enhanced software features, support
services and back-office services.
1
<PAGE>
Our revenue generating potential increases exponentially with the addition of
each new member to one or more of our networks since each of our members has
the ability to create thousands of online business relationships.
Our Market Opportunity
According to International Data Corporation, total e-commerce is expected to
grow to over $1.6 trillion by 2003. This growth represents both an opportunity
and a challenge for online merchants and advertisers seeking a cost-effective
method of reaching target audiences dispersed over millions of Web sites. These
businesses are expected to increasingly concentrate their online marketing
efforts on those Web sites that are best able to reach their target audiences
and charge only for results. Forrester Research, Inc. predicts that, by 2003,
performance-based marketing will account for 50% of the estimated $17.2 billion
of projected annual U.S. online advertising expenditures. The LinkShare
NetworkTM provides an efficient, performance-based marketing solution that
enables businesses to make better marketing decisions, reduce their customer
acquisition costs and generate greater revenue.
Our Strategy
Our goal is to be the premier provider of open networks that facilitate
online commercial activity. Key elements of our growth strategy include:
. continuing to add quality merchants and affiliates to our existing
networks;
. introducing new affiliate networks tailored to meet the needs of
identifiable business communities;
. adapting our technology and network model to serve the needs of emerging
online commercial activity;
. continuing to expand and enhance the features and performance of our
software and revenue-generating service offerings; and
. introducing our network solutions into suitable international markets.
Where to Find Us
Our principal executive offices are located at 215 Park Avenue South, New
York, New York 10003, and our telephone number is (646) 654-6000. Our corporate
Web site is located at www.linkshare.com. The information on our Web site is
not part of this prospectus.
Trademarks and Brand Names
LinkShare Synergy(R) is a registered trademark of LinkShare Corporation. We
have filed trademark applications for The LinkShare NetworkTM , B2B LinkShareTM
and TrafficShareTM. All other brand names appearing in this document are the
property of the companies that own them. These companies are not involved with
the offering of our common stock.
Data Sources
This document includes statistical data regarding commerce over the Web. We
obtained or derived this data from publicly-available sources, including:
. International Data Corporation, a provider of market information and
strategic information for the information technology industry;
. Forrester Research, Inc., an independent research firm that analyzes
technological change and its impact on businesses, consumers and society;
and
. Nielson/Net Ratings, a provider of market research on Internet usage
behavior.
Although we believe that the data cited in this prospectus is generally
correct, statistical information is inherently imprecise, and you should not
place undue reliance on it.
2
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock we are offering...... shares.
Common stock to be outstanding
after this offering.............. shares.
Use of Proceeds................... Working capital and other general corporate
purposes.
Proposed Nasdaq National Market
Symbol........................... LNKS
</TABLE>
The common stock to be outstanding after this offering is based on the
number of shares outstanding at January 31, 2000, which excludes:
. 1,625,399 shares issuable upon exercise of outstanding options at a
weighted average exercise price of $9.29 per share;
. 951,198 shares issuable upon exercise of options available for grant
under our stock option plan;
. 41,970 shares of common stock issuable upon the exercise of all of our
outstanding warrants; and
. shares subject to the underwriters' over-allotment option.
3
<PAGE>
Summary Financial Data
<TABLE>
<CAPTION>
Years Ended June Six Months Ended
30, December 31
-------------------- --------------------
1998 1999 1998 1999
--------- --------- --------- ---------
(In thousands, except share and per
Statement of Operations Data share data)
<S> <C> <C> <C> <C>
Licensing fees..................... $ 8 $ 221 $ 45 $ 612
Network fees....................... 39 494 94 2,001
--------- --------- --------- ---------
Total revenues................... 47 715 139 2,613
Operating expenses................. 240 4,156 1,205 5,283
--------- --------- --------- ---------
Loss from operations............... (193) (3,441) (1,066) (2,670)
Interest income (expense), net..... -- 61 28 (531)
Net loss attributable to common
stockholders...................... $ (193) $ (3,381) $ (1,038) $ (3,201)
========= ========= ========= =========
Basic and diluted net loss per
share............................. $ (0.05) $ (0.85) $ (0.26) $ (0.80)
Shares used in computing basic and
diluted net loss
per share ........................ 4,000,000 4,000,000 4,000,000 4,000,000
</TABLE>
Balance Sheet Data
The following balance sheet data is presented on:
. an actual basis;
. a pro forma basis to reflect:
. the automatic conversion of all outstanding shares of preferred stock
into 3,242,148 shares of common stock upon the closing of this
offering;
. the issuance of convertible notes payable and advances from
stockholders from January 1, 2000, through February 7, 2000, for net
proceeds of $3,655,000; and
. the automatic conversion of all outstanding notes into shares of
common stock upon the closing of this offering; and
. a pro forma as adjusted basis to reflect our receipt of the net proceeds
from the sale of shares of common stock in this offering at an
assumed initial offering price of $ per share, after deducting the
underwriting discounts and commissions and our estimated offering
expenses.
<TABLE>
<CAPTION>
As of June
30, As of December 31, 1999
------------- ------------------------------
Pro Forma
1998 1999 Actual Pro Forma as Adjusted
------ ------ ------- --------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and
short-term investments......... $ 4 $ 637 $ 7 $3,662
Working capital (deficit)....... (183) (88) (4,248) 2,252
Total assets.................... 102 1,788 4,752 8,407
Advances from stockholders...... -- -- 345 -- --
Convertible notes payable....... -- -- 2,500 -- --
Total stockholders' equity
(deficit)...................... (156) 563 (1,868) 4,632
</TABLE>
4
<PAGE>
RISK FACTORS
An investment in the shares of our common stock offered by this prospectus
involves a high degree of risk. This section describes some, but not all, of
the risks associated with our business. You should carefully review the
following risk factors as well as the other information set forth in this
prospectus before making an investment.
Risks Relating to Our Business
Our limited operating history makes it difficult to evaluate our business and
prospects.
We launched The LinkShare NetworkTM, our initial and currently most
significant service offering, in 1997. With such a limited operating history,
our past results do not provide meaningful bases for evaluating an investment
in our common stock, and you should not rely on them as indicators of our
future performance. You should consider all the risks and difficulties we may
encounter as an early stage company in our industry, including:
. our ability to establish and maintain sustainable online affiliate
networks that generate large and growing volumes of revenue producing
transactions;
. our ability to gain widespread acceptance of our network solutions by
online businesses; and
. the new and evolving nature of e-commerce in general.
We have incurred substantial losses and anticipate continued losses.
Since our inception, we have incurred substantial losses. Our losses were
$193,428 for the fiscal year ended June 30, 1998, $3.4 million for the fiscal
year ended June 30, 1999, and $3.2 million for the six months ended December
31, 1999. At December 31, 1999, we had an accumulated deficit of $6.8 million.
We anticipate that expenditures to develop, market and support our products
and services will increase substantially in the future. In particular, we
expect to spend significantly on the following activities:
. expanding and enhancing our networks and the capabilities of our software
systems;
. expanding and improving our sales and marketing operations;
. broadening our customer support capabilities;
. hiring additional management, technical and marketing personnel; and
. introducing new networks in international markets and in additional
online business communities.
For the foreseeable future, we expect to experience additional losses. These
additional losses will increase our accumulated deficit.
Our future operating results are uncertain and are likely to fluctuate
significantly.
We expect that our revenues, gross margins and other operating results will
fluctuate significantly from quarter to quarter, due to many factors,
including:
. the rate at which new merchants and marketing affiliates join our
networks;
. variations in transaction volume generated by new and existing members of
our networks;
. the volume of our sales of existing or planned products and services,
including future versions of software and additional services we may
provide to members of our networks;
. the rate at which we introduce our networks in international markets and
in additional online business communities;
5
<PAGE>
. the growth or possible decline of online commerce;
. the mix of revenues from our different sources, such as network fees and
licensing fees;
. changes in our, or our competitors', prices or pricing models; and
. the extent to which our network members renew their software licenses and
upgrade their support contracts.
Although we have experienced revenue growth in recent periods, this growth
may not be sustainable. As a result, we do not believe that our historical
results of operations are necessarily indicative of future performance. If our
results of operations in any period are below the expectations of securities
analysts and investors, the trading price of our stock will likely decrease
materially.
Our success depends on market acceptance of online performance-based marketing.
We expect that nearly all of our future revenues will be derived from fees
generated by the transactions and other activities taking place over our
networks, from sales of services that support those networks and from licensing
fees. Our future financial performance depends on the acceptance and growth of
our networks and the successful development, introduction and customer
acceptance of new and enhanced products and services to support these networks.
Failure of the market for online performance-based marketing to develop as we
expect, or lack of customer acceptance of our networks, will have a material
and adverse effect on our business, results of operations and financial
condition.
We face intense competition from many companies, some of which have
significantly greater resources than we do.
The market for online performance-based marketing is new, intensely
competitive and rapidly evolving. We expect competition from existing
competitors and new market entrants to continue to increase. We believe that
our ability to compete depends on many factors both within and beyond our
control, including the timing and market acceptance of our, and our
competitors', products and services.
We compete against companies of all sizes with respect to the products and
services we provide, and we expect to face increased competition from some of
these companies as they broaden the scope of their products and services.
We compete with software/service providers, such as Be Free, Inc., that
offer merchants software and services to operate their own private label
affiliate marketing programs. These programs can serve as an alternative to the
affiliate marketing programs conducted over our open networks. Private label
providers, such as Be Free, aggressively market their programs to many of the
online merchants that we may target. Be Free has substantially more financial
resources than we do and a larger sales force.
We also compete against other public network providers, such as Microsoft's
LinkExchange and Commission Junction. To some extent, we may also compete
against enterprise software providers, ad server companies and companies that
have internally developed their own affiliate marketing solutions.
Our planned international expansion may be expensive and may not succeed.
We intend to expand our operations internationally in future periods by
developing networks of online businesses located in foreign countries and by
opening international offices and hiring sales, marketing and support personnel
in those countries. We have little experience in marketing, selling and
supporting our services in foreign countries. As a result, our international
expansion may be more difficult or take longer than we anticipate, especially
due to language barriers and the less advanced Internet infrastructure that
exists in some of these countries. We will need to devote significant
management and financial resources to our international efforts.
6
<PAGE>
International operations are subject to a variety of additional risks that
could seriously harm our financial condition and operating results, including:
. currency exchange risks;
. difficulties in complying with laws and regulations of different
countries;
. potentially adverse tax consequences;
. tariffs and general export restrictions, including export controls
relating to encryption technology;
. difficulties in staffing and managing foreign operations;
. political instability;
. difficulties in enforcing contractual and intellectual property rights in
some countries;
. seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world; and
. the impact of local economic conditions and practices.
We may need to raise additional financing, which may not be available when we
need it or on acceptable terms.
We may need to raise more money following this offering. Our future capital
requirements will depend on many factors, including, but not limited to:
. the rate at which we develop and introduce additional products and
services;
. the market acceptance and competitive position of our products and
services;
. the level of promotion and advertising required to market our products
and services and attain a competitive position in the marketplace; and
. the response of competitors to our products and services.
If we require additional funds, these funds might not be available in
sufficient amounts or on terms favorable to us or our stockholders. If we raise
additional funds through the issuance of common stock, we may issue shares at a
price lower than the market price of our common stock at the time of the sale,
which may adversely affect the market for our common stock.
Risks Relating to Management
Managing our rapid growth may be difficult.
We are growing rapidly as we develop The LinkShare NetworkTM and our other
affiliate networks, increase our product offerings and expand into new markets.
Our rapid growth has placed, and will continue to place, a significant strain
on our management. Our personnel, systems, procedures and controls may be
inadequate to support our future operations. We will need to hire, train and
retain additional management and support personnel. We will also need to
implement improved billing and collection procedures and financial and
management information systems. If we do not adequately address these needs or
otherwise effectively manage our growth, it will have a material and adverse
affect on our business, operating results and financial condition.
We depend on the continued services of our founders and other key personnel,
whose knowledge of our business and technical expertise would be difficult to
replace.
Our products and services are complex, and we are substantially dependent
upon the continued services of our senior executives, especially our Chief
Executive Officer, Stephen Messer, our President, Heidi Messer, and
7
<PAGE>
our key marketing and technical personnel. The loss of any, or a group of,
these individuals, particularly to a competitor, could materially and adversely
affect our business, financial condition and operating results.
We must attract and retain a growing number of skilled employees to develop our
business.
Our business depends on having highly trained account executives and
software developers. We will need to continue hiring additional personnel as
our business grows. Competition for personnel, particularly for employees with
technical expertise, is intense and the costs of hiring and retaining such
personnel are high. Our business, financial condition and operating results
will be materially and adversely affected if we cannot hire and retain a
sufficient number of suitable personnel.
Our management team is new and, if they are unable to work together
effectively, our business could be seriously harmed.
Our business is highly dependent on the ability of our management team to
work together effectively to meet the demands of our growth. We grew from three
employees at June 30, 1998, to 97 employees at December 31, 1999. Of our
current management team, only seven members were employed by us at June 30,
1999. These individuals have not previously worked together as a management
team and have had only limited experience managing a rapidly growing company on
either a public or private basis. If they are unable to effectively integrate
themselves into our business or work together as a management team, we may not
be able to manage our business effectively.
Risks Relating to Technology
Our rapid growth will place increasing demands on our technology that we may
not be able to meet.
As traffic over our networks continues to increase, we must expand and
upgrade our technology, transaction processing systems and network hardware and
software. We may not be able to accurately project the rate of growth of our
networks. In addition, we may not be able to expand and upgrade our systems and
network hardware and software capabilities at a sufficient pace to accommodate
increased use of our networks. If we do not appropriately upgrade our systems
and network hardware and software, our business, financial condition and
operating results will be materially and adversely affected.
Our success depends on our ability to develop new products and keep pace with
rapid technological change.
Our products are designed to operate on a variety of hardware and software
platforms employed by our customers. We must continually modify and enhance our
products to keep pace with changes in hardware and software platforms and
database technology. As a result, uncertainties related to the timing and
nature of new product announcements, introductions or modifications by third
party vendors could materially and adversely affect our business, results of
operations and financial condition.
System failures and security breaches could cause us to lose clients and expose
us to liability.
Online merchants and their marketing affiliates that participate in our
networks depend on us to accurately track, store and report the traffic and
sales that are attributable to the links they establish. Software defects,
system failures, natural disasters, human error and other factors could lead to
inaccurate or lost information or the inability to access our networks.
Although we have experienced almost no unplanned system outages in the past, we
may experience outages in the future. In addition, members of our networks
consider much of the transactional data that we collect and store to be highly
sensitive. Our systems could be vulnerable to computer
8
<PAGE>
viruses and physical and electronic break-ins, and third parties may attempt to
breach our security. Our loss of information, our delivery of inaccurate
information or a breach or failure of our security mechanisms that leads to
unauthorized disclosure of information could lead to customer dissatisfaction,
damage to our reputation and possible claims against us for damages. If we are
not able to consistently deliver accurate information to our customers,
maintain the security of their confidential information and maintain the
availability of our networks, our business will be materially and adversely
affected.
Undetected defects in our technology could adversely affect our business.
Technology as complex as ours may contain errors, defects or performance
problems, commonly called "bugs." Although we regularly test our technology, we
cannot assure you that our testing will detect every potential defect, error or
performance problem. The discovery of a serious software defect, error or
performance problem in our technology could result in:
. the diversion of scarce resources away from customer service and product
development;
. lost revenues;
. delays in customer acceptance of our products; and
. damage to our reputation.
Any such result could have a material and adverse effect on our business. Our
customers and potential customers may be particularly sensitive to any post-
release defects, errors or performance problems because a failure of our
systems to accurately monitor an online relationship could result in lost or
reduced revenue to the affiliate members of our networks, or overpayment by
merchant members, during that failure.
We may not be able to protect our intellectual property rights, and we may
infringe the intellectual property rights of others.
Intellectual property rights are important to our success and our
competitive position. Although we seek to protect our intellectual property
rights through patents, copyrights, trademark and service mark registration and
other means, our actions may be inadequate to protect our technology and our
intellectual property rights or to prevent others from claiming violations of
their patents, copyrights, trademarks and other intellectual property rights.
Patent, copyright and trademark protection may be unenforceable or limited in
certain countries. We cannot be certain that any of our intellectual property
rights would withstand challenge by a third party or will be of value in the
future. The validity, enforceability and scope of protection of certain
intellectual property rights in Internet-related industries is uncertain and
still evolving. To date, we have not been notified that our technologies
infringe the intellectual property rights of third parties, but there can be no
assurance that third parties will not claim infringement by us of any past,
current or future intellectual property rights. Any such claim, whether
meritorious or not, could be time-consuming to defend, result in costly
litigation, cause service upgrade delays or require us to enter into royalty or
licensing agreements.
The actions of the members of our affiliate networks may expose us to
liability.
We facilitate the formation of partnerships between online businesses and
provide means for the delivery of advertisements, promotions and other
communications by and between those businesses. We are not party to the
contracts formed by these online partners, and we do not and cannot screen all
of the communications generated by them or the content of their Web sites.
However, because of our role in facilitating our members' online commerce
activities, we may be subject to claims based on their actions and face
potential liability for defamation, negligence, copyright, patent or trademark
infringement and other claims based on their contractual relations or the
materials generated by their promotions, displayed on their Web sites or
included in their e-mail messages. Consequently, we may be involved in legal
proceedings and disputes that we had no way of foreseeing or avoiding and that
are costly to resolve regardless of their merit.
9
<PAGE>
We depend on a limited number of hardware and software vendors for essential
products.
We buy and lease hardware, including our servers and storage arrays, from
Sun Microsystems Inc. and MTI Corporation. We also license software, including
operating systems, Web server technology, database technology, graphical user
interface technology and encryption technology, primarily from Sun Microsystems
and Oracle Corp. If these vendors change the terms of our lease or license
arrangements such that it becomes uneconomical for us to continue using their
hardware or software, or if they are unable or unwilling to supply us with the
hardware or software we need in the amount and at the time required, our
business may be materially and adversely affected until equivalent hardware or
software can be identified, procured and integrated into our existing systems.
Risks Relating to Our Industry
We will not achieve our growth plans unless Internet usage grows and Internet
performance is adequate.
If electronic commerce does not grow or grows slower than we expect, our
business will be adversely affected. Our long-term success depends on
widespread market acceptance of electronic commerce, which is subject to a high
level of uncertainty. A number of factors could prevent this acceptance,
including the following:
. Electronic commerce is at an early stage, and buyers may be unwilling to
shift their purchasing from traditional vendors to online vendors.
. The necessary network infrastructure for substantial growth in usage of
the Internet may not be adequately developed.
. Insufficient availability of or changes in telecommunication services
could result in slower response times.
. Adverse publicity and consumer concern about the security and privacy of
online transactions could discourage the growth of e-commerce.
. Companies may fail to meet their customers' expectations in delivering
goods and services sold over the Internet.
Governmental regulations and legal uncertainties may adversely affect our
business.
We are subject not only to regulations applicable to businesses generally,
but also laws and regulations directly applicable to electronic commerce.
Although there currently are few such laws and regulations, state, federal and
foreign governments may adopt a number of laws and regulations that may govern
or restrict any of the following issues:
. user privacy;
. the pricing and taxation of goods and services offered over the Internet;
. the content of Web sites;
. consumer protection; and
. the characteristics and quality of products and services offered over the
Internet.
Any such legislation or regulation could dampen the growth of the Internet and
decrease its acceptance as a commercial medium, in which event the need for our
products and services would be reduced seriously and our business, financial
condition and operating results would be materially and adversely affected.
10
<PAGE>
Risks Relating to this Offering
Our management has broad discretion as to how to use the proceeds from this
offering.
We intend to use the proceeds from this offering for general corporate
purposes, including working capital and capital expenditures. Our management
will have broad discretion over how we use these proceeds. You will not have
the opportunity to evaluate the economic, financial or other information on
which we base our decisions regarding how to use the proceeds from this
offering, and we may spend these proceeds in ways with which you may disagree.
Pending any of these uses, we plan to invest the proceeds of this offering in
short-term, investment-grade, interest-bearing securities. We cannot predict
whether these investments will yield a favorable return.
Our common stock has never been publicly traded, and you may not be able to
sell your shares at or above the initial offering price.
There has not been a public market for our common stock prior to this
offering. We cannot predict the extent to which a trading market will develop
or how liquid that market might become. Further, the market price of our common
stock may decline below the initial public offering price. The initial public
offering price will be determined by negotiations between our management and
representatives of the underwriters and may not be indicative of the price at
which our common stock will trade in the public market.
Internet-related stock prices are especially volatile, and this volatility may
depress our stock price. We may be subject to lawsuits as a result of extreme
fluctuations in our stock price.
Notwithstanding the general volatility of the stock market, the market price
of our common stock is likely to be highly volatile as the market for
technology and Internet-related companies, in particular, has been highly
volatile. Investors may not be able to resell their shares of our common stock
following periods of high volatility in the event that trading of our common
stock were to be suspended by the exchange on which it trades. The trading
prices of shares of many technology and Internet-related companies have reached
historical highs within the last 52 weeks. During the same period, prices for
the shares of these companies have been highly volatile, and many have recorded
lows well below their historical highs. We cannot assure you that our common
stock will trade at the same levels of other Internet stocks or that Internet
stocks in general will sustain their current market prices.
Factors that could cause volatility in the market price of our common stock
may include, among other things:
. actual or anticipated variations in quarterly operating results;
. announcements of technological innovations;
. new sales formats or new products or services;
. changes in financial estimates by securities analysts;
. conditions or trends in the Internet industry;
. changes in the market valuations of other Internet companies;
. announcements by us or our competitors of significant acquisitions,
strategic partnerships or joint ventures;
. capital commitments;
. additions or departures of key personnel; and
. sales of additional shares of our common stock.
Many of these factors are beyond our control and may materially and
adversely affect the market price of our common stock, regardless of our
operating performance.
11
<PAGE>
Following a significant decline in the market price of a company's
securities, securities class action litigation has often been instituted. If
this were to happen to us, even if the claims had no merit, litigation would be
expensive and would divert management's attention from the operation of our
business.
We are controlled by a few major stockholders whose interests may be different
than yours.
Following the closing of this offering, Stephen Messer and Heidi Messer will
beneficially own % and %, respectively, of our outstanding common stock, and
our officers and directors collectively will beneficially own %. In addition,
Internet Capital Group, Inc. and Comcast Interactive Capital, LP will own %
and % respectively. As a result, these stockholders will be able to determine
the outcome of any matter requiring a stockholder vote and, as a result, our
management and affairs. Matters that typically require stockholder approval
include the following:
. election of directors;
. merger or consolidation with another company; and
. sale of all or substantially all of our assets.
Internet Capital Group has significant, in some cases controlling, interests
in a growing number of businesses engaged in e-commerce. Some of these
businesses may be or may in the future become competitors or strategic partners
of LinkShare, and conflicts of interest may arise as a result of Internet
Capital Group's investment in these or other businesses. An affiliate of
Comcast is also a major stockholder of Internet Capital Group. Comcast and its
affiliates also hold ownership interests in other businesses that are or may
become competitors or strategic partners of LinkShare, which could lead to
conflicts of interest. The investment objectives of Internet Capital Group and
Comcast may differ from those of other stockholders, including our future
public stockholders. The concentration of ownership of LinkShare stock may also
delay, deter or prevent a change of control, which could reduce the market
price of our common stock.
You will experience an immediate and substantial dilution in the book value of
your investment.
The initial public offering price of our common stock is substantially
higher than what the net tangible book value per share of the common stock will
be immediately after this offering. If you purchase our common stock in this
offering, you will incur immediate dilution of approximately $ in the net
tangible book value per share of our common stock from the price you pay for
our common stock, based upon an assumed initial public offering price of $
per share. The exercise of outstanding options may result in further dilution.
The substantial number of shares that will be eligible for sale in the near
future may cause the market price of our common stock to decline.
A substantial number of shares of common stock will be available for sale in
the public market following this offering, which could adversely affect the
market price for our common stock. See "Shares Eligible for Future Sale" for a
more detailed description of the eligibility of shares of our common stock for
future sale.
We have various mechanisms in place to discourage takeovers.
Certain provisions of our restated certificate of incorporation and bylaws
may discourage, delay or prevent a change in control of LinkShare that a
stockholder may consider favorable. These provisions include the following:
. authorizing the issuance of "blank check" preferred stock that could be
issued by our board of directors to increase the number of outstanding
shares and thwart a takeover attempt;
. classifying our board of directors with staggered three-year terms, which
may lengthen the time required to gain control of our board of directors;
12
<PAGE>
. limiting who may call special meetings of stockholders;
. prohibiting stockholder action by written consent, thereby requiring all
stockholder actions to be taken at a meeting of the stockholders; and
. establishing advance notice requirements for nominations of candidates
for election to the board of directors or for proposing matters that can
be acted upon by stockholders at stockholder meetings.
In addition, Section 203 of the Delaware General Corporation Law and our
stock option plan may discourage, delay or prevent a change in control of
LinkShare.
CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements, which involve risks and
uncertainties. These forward-looking statements are not historical facts but
rather are based on current expectations, estimates and projections about our
industry, our beliefs and assumptions. We use words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates" and variations
of these words and similar expressions to identify forward-looking statements.
These statements are not guarantees of future performance and are subject to
certain risks, uncertainties and other factors, some of which are beyond our
control, are difficult to predict and could cause actual results to differ
materially from those expressed or forecasted in the forward-looking
statements. These risks and uncertainties include those described in "Risk
Factors" and other parts of this prospectus. You should not place undue
reliance on these forward-looking statements, which reflect our management's
view only as of the date of this prospectus.
USE OF PROCEEDS
Our net proceeds from the sale of the shares of common stock in this
offering will be approximately $ million, or approximately $ million if
the underwriters' over-allotment option is exercised in full, at an assumed
public offering price of $ per share and after deducting the underwriting
discounts and commissions and our estimated offering expenses.
The primary purposes of this offering are to obtain additional working
capital, to create a public market for our common stock and to facilitate
future access to public equity markets. Although we expect to use the proceeds
for working capital, capital expenditures and other general corporate purposes,
at the date of this prospectus, we have not allocated the net proceeds of this
offering for specific uses. The actual amounts expended for these purposes will
vary significantly depending on a number of factors, including revenue growth,
if any, and the timing of any expansion of our business.
Pending these uses, we will invest the net proceeds of this offering in
short-term, investment-grade, interest-bearing securities.
DIVIDEND POLICY
We have never paid cash dividends on our capital stock. We expect to retain
our future earnings, if any, to operate and expand our business, and we do not
anticipate paying any cash dividends in the foreseeable future. As a result,
our stockholders will need to sell their shares to realize any return on their
investment.
13
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999,
on:
. an actual basis,
. a pro forma basis that reflects:
. a -for -1 split of our currently outstanding common stock
immediately before the closing of this offering; and
. the automatic conversion of all outstanding shares of preferred stock
into 3,242,148 shares of common stock upon the closing of this
offering;
. the issuance of convertible notes payable and advances from
stockholders from January 1, 2000, through February 7, 2000, for net
proceeds of $3,655,000; and
. the automatic conversion of all outstanding notes into shares of
common stock upon the closing of this offering; and
. a pro forma as adjusted basis that reflects our issuance and sale of
shares of common stock in this offering at the initial public offering
price of $ per share and our receipt and application of the estimated
net proceeds from this offering, after deducting the underwriting
discounts and commissions and our estimated offering expenses.
Shares of common stock reflected by this table or in the calculation of
stockholders' equity do not include:
. 1,195,670 shares issuable upon exercise of outstanding options at
December 31, 1999, at a weighted average exercise price of $5.69 per
share;
. 1,380,927 shares issuable at December 31, 1999, upon exercise of options
that may be granted under our stock option plan;
. 41,970 shares of common stock issuable upon the exercise of all of our
outstanding warrants; and
. shares subject to the underwriters' over-allotment option.
We expect shares of common stock to be outstanding immediately after the
closing of this offering.
Please read this capitalization table together with the sections of this
prospectus entitled "Selected Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" as well as the
financial statements included in this prospectus.
<TABLE>
<CAPTION>
As of December 31, 1999
------------------------------
Pro Forma
Actual Pro Forma as Adjusted
------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Cash and cash equivalents....................... $ 7 $ 3,662 $
======= ======= ========
Advances from stockholders...................... 345 -- --
Convertible notes payable....................... 2,500 -- --
Stockholders' equity (deficit):
Preferred Stock, $.001 par value, 3,750,000
shares authorized:
Series A convertible preferred stock,
3,250,000 shares authorized, 3,242,148 issued
and outstanding actual, none issued pro forma
and pro forma as adjusted (liquidation
preference of $4 million at December 31, 1999
actual)...................................... 3 -- --
Common stock, $.001 par value, 10,000,000
shares authorized, 4,000,000 shares issued
actual, shares issued pro forma and
shares issued pro forma as adjusted.......... 4 7 --
Additional paid-in capital.................... 6,779 14,904 --
Deferred compensation......................... (1,879) (1,879) (1,879)
Accumulated deficit........................... (6,775) (8,400) (8,400)
------- ------- --------
Total stockholders' equity (deficit).......... (1,868) 4,632 --
------- ------- --------
Total capitalization............................ $ 977 $ 4,632 $ --
======= ======= ========
</TABLE>
14
<PAGE>
DILUTION
If you invest in our common stock, your interest will be diluted to the
extent of the difference between the public offering price per share of our
common stock and the pro forma as adjusted net tangible book value per share of
our common stock. At December 31, 1999, the net tangible book value of our
common stock was $4.6 million or $ per share of common stock, on a pro
forma basis after giving effect to:
. the automatic conversion of all outstanding shares of preferred stock
into 3,242,148 shares of common stock upon the closing of this offering;
. the issuance of convertible notes payable and advances from stockholders
from January 1, 2000, through February 7, 2000, for net proceeds of
$3,655,000; and
. the automatic conversion of all outstanding notes into shares of
common stock upon the closing of this offering.
"Net tangible book value" per share represents the amount of our total
tangible assets reduced by the amount of our total liabilities, divided by the
number of shares of common stock outstanding. At December 31, 1999, the net
tangible book value of our common stock, on a pro forma basis as adjusted for
the sale of shares offered in this offering and the application of the
estimated net proceeds from that sale of $ million, would have been
approximately $ per share. This value is based on an assumed initial public
offering price of $ per share and the deduction of underwriting discounts
and commissions and our other estimated offering expenses. The difference
between the pro forma and pro forma as adjusted net tangible book value of our
common stock represents an immediate increase of $ per share to our existing
stockholders and an immediate dilution of $ per share to new investors who
purchase shares in this offering. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $
----
Pro forma net tangible book value per share as of December 31,
1999........................................................... $
---
Increase per share attributable to new investors................
---
Pro forma net tangible book value per share after the offering....
----
Dilution per share to new investors............................... $
====
</TABLE>
The following table summarizes on a pro forma basis as of December 31, 1999,
the differences between the amounts of the total consideration paid and the
average price per share paid by our existing stockholders and amounts paid by
the new investors in this offering, based on an assumed initial public offering
price of $ per share:
<TABLE>
<CAPTION>
Shares Total
Purchased Consideration Average
-------------- -------------- Price Per
Number Percent Amount Percent Share
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................
New investors.........................
--- --- --- --- ---
Total...............................
=== === === === ===
</TABLE>
After this offering, we may issue additional shares of common stock upon the
exercise of options granted under our stock option plan.
15
<PAGE>
SELECTED FINANCIAL DATA
You should read the selected financial data set forth below in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and our financial statements and the related notes included
elsewhere in this prospectus. The statements of operations data for the fiscal
years ended June 30, 1998 and 1999 and the balance sheet data as of June 30,
1998 and 1999 are derived from our audited financial statements. The statements
of operations data for the six-month periods ended December 31, 1998 and 1999
and the balance sheet data as of December 31, 1999 are derived from our
unaudited financial statements. Our unaudited financial statements have been
prepared on the same basis as our audited financial statements and, in our
opinion, include all adjustments, consisting only of normal recurring
adjustments that we consider necessary for a fair presentation of our results
of operations and financial condition for the periods and at the date
presented. Historical results are not necessarily indicative of results that
may be expected for any future period.
KPMG LLP, independent certified public accountants, audited our historical
financial statements for the fiscal years ended June 30, 1998 and 1999. Their
report appears in another part of this prospectus.
<TABLE>
<CAPTION>
Years Ended Six Months Ended
June 30, December 31,
-------------------- --------------------
1998 1999 1998 1999
--------- --------- --------- ---------
(In thousands, except share and per
share data)
<S> <C> <C> <C> <C>
Statements of Operations Data:
Revenues:
Licensing fees................... $ 8 $ 221 $ 45 $ 612
Network fees..................... 39 494 94 2,001
--------- --------- --------- ---------
Total revenues................. 47 715 139 2,613
--------- --------- --------- ---------
Operating expenses:
Cost of revenues................. 13 126 17 408
Sales and marketing.............. 41 1,795 430 2,776
Product development.............. 103 621 212 718
General and administrative....... 83 1,412 454 1,130
Noncash compensation............. -- 203 92 251
--------- --------- --------- ---------
Total operating expenses....... 240 4,157 1,205 5,283
--------- --------- --------- ---------
Loss from operations........... (193) (3,442) (1,066) (2,670)
Interest income.................... -- 61 28 18
Interest expense................... -- -- -- (549)
--------- --------- --------- ---------
Net loss....................... $ (193) $ (3,381) $ (1,038) $ (3,201)
========= ========= ========= =========
Basic and diluted net loss per
share............................. $ (0.05) $ (0.85) $ (0.26) $ (0.80)
========= ========= ========= =========
Shares used in computing basic and
diluted net loss per
share ............................ 4,000,000 4,000,000 4,000,000 4,000,000
========= ========= ========= =========
</TABLE>
16
<PAGE>
The following balance sheet data is presented on:
. an actual basis;
. a pro forma basis to reflect:
. the automatic conversion of all outstanding shares of preferred stock
into 3,242,148 shares of common stock upon the closing of this
offering;
. the issuance of convertible notes payable and advances from
stockholders from January 1, 2000, through February 7, 2000, for net
proceeds of $3,655,000; and
. the automatic conversion of all outstanding notes into shares of
common stock upon the closing of this offering; and
. a pro forma as adjusted basis to reflect our receipt of the net proceeds
from the sale of shares of common stock in this offering at an
assumed initial offering price of $ per share, after deducting the
underwriting discounts and commissions and our estimated offering
expenses.
<TABLE>
<CAPTION>
As of June
30, As of December 31, 1999
------------- ------------------------------
Pro Forma
1998 1999 Actual Pro Forma as Adjusted
----- ------ ------- --------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and
short-term investments......... $ 4 $ 637 $ 7 $3,662
Working capital (deficit)....... (183) (88) (4,248) 2,252
Total assets.................... 102 1,788 4,752 8,407
Advances from stockholders...... -- -- 345 -- --
Convertible notes payable....... -- -- 2,500 -- --
Total stockholders' equity
(deficit)...................... (156) 563 (1,868) 4,632
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read together with our financial statements and the
related notes included in another part of this prospectus. 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 certain factors, including, but not limited
to, those set forth in the sections of this prospectus titled "Risk Factors"
and "Our Business."
Overview
LinkShare enables the formation of performance-based online business
relationships. Participants in our networks can find the right Web sites with
which to partner, negotiate the terms of their partnerships and evaluate their
success. Our first and largest network, The LinkShare Network(TM), enables
online merchants to establish relationships with thousands of Web site
publishers who seek to convert visitor traffic into revenues by linking their
Web sites with the Web sites of those merchants. If a visitor accesses a
merchant's Web site through that link and takes a prescribed action, such as
buying a product, the affiliate earns a fee payable by that merchant.
We were incorporated on July 1, 1997, and launched The LinkShare Network(TM)
later that year. To date, nearly all of our revenues have been derived from the
operation of The LinkShare Network(TM). In October 1999, we introduced
TrafficShareTM as an additional feature available to members of The LinkShare
Network(TM) whose primary goal is increasing traffic to their Web sites rather
than generating sales. In January 2000, we announced the creation of B2B
LinkShareTM, a separate affiliate network designed to serve the growing online
business-to-business market that we expect to launch by the end of March 2000.
Our fiscal year ends on June 30 of each year. All references to fiscal years
1998 and 1999 in the discussion that follows refer to the fiscal years ended
June 30, 1998, and June 30, 1999, respectively.
Sources of Revenue
To date, substantially all of our revenues have been derived from two types
of fees that we collect from the merchant members of The LinkShare Network(TM):
. licensing fees for the use of our software and access to the network; and
. network fees, which are based on:
. the volume and dollar amount of sales and other activities generated
through our merchant members' links with their affiliates, and
. charges for optional packages of enhanced software features, support
services and back-office services.
Access to The LinkShare Network(TM) is free to affiliates, and we currently
do not charge any fees for the services we provide to the affiliate members of
that network.
Merchants pay us an initial license fee upon first signing a contract for
the use of our LinkShare Synergy(R) software and access to The LinkShare
Network(TM). Merchants subsequently pay a lower renewal fee each year during
the term of their respective contracts. Our contracts with merchants generally
have terms of up to three years and renew automatically for successive terms of
up to two years, unless either party gives notice not to extend. We typically
bill each merchant once a month for fees based on the transactions or other
activities generated by that merchant's links with its affiliates. We also
provide optional support services, such as enhanced software packages, and
back-office services, such as e-mail generation and distribution and check
disbursement, for which merchants pay us additional fees. To date, these
additional fees have represented a minimal portion of our revenue.
18
<PAGE>
We defer revenue from licensing fees at the time of software shipment and
billing and recognize revenue ratably over the related contractual period
during which we provide the applicable merchant with access to our networks. We
recognize revenue from network fees during the period in which they are earned
or during the period in which the applicable service is provided.
We have incurred significant net losses since the commencement of
operations. Net losses totaled $193,428 for fiscal year 1998, $3.4 million for
fiscal year 1999 and $3.2 million for the six months ended December 31, 1999.
At December 31, 1999, we had an accumulated deficit of $6.8 million. We
anticipate that we will spend significantly on developing, marketing and
supporting our products and services in the future. As a result, we expect to
experience additional losses that will increase our accumulated deficit.
Comparison of Results of Operation for the Six-Month Periods Ended December 31,
1998 and 1999
Revenues
Revenues increased by $2.5 million from $139,313 for the six months ended
December 31, 1998, to $2.6 million for the six months ended December 31, 1999.
This increase is primarily attributable to an increase in the number of
merchants joining The LinkShare Network(TM) and an increase in the volume and
dollar amount of sales and other activities generated over the network. At
December 31, 1999, we had deferred revenue of $1.1 million relating primarily
to licensing fees.
Cost of Revenues
Cost of revenues consists primarily of expenses incurred in operating The
LinkShare Network(TM), including depreciation of servers and related software,
Internet connectivity and technical support costs. Cost of revenues totaled
$16,544 for the six months ended December 31,1998, compared to $407,826 for the
six months ended December 31, 1999. These costs represented 12% of our revenues
for the six months ended December 31, 1998, compared to 16% of our revenues for
the six months ended December 31, 1999. This increase is attributable to an
increase in technical support personnel costs, hosting costs and incremental
depreciation associated with the additional computer hardware and software
required by the increased activity over The LinkShare Network(TM).
Sales and Marketing
Sales and marketing expense consists primarily of salaries, commissions and
benefits for client development and marketing personnel, and costs associated
with participating in trade shows, hosting our symposia, public relations and
promotional expenses. Sales and marketing expenses increased by $2.4 million
from $430,161 for the six months ended December 31, 1998, to $2.8 million for
the six months ended December 31, 1999. This increase is primarily attributable
to personnel costs associated with a higher number of employees engaged in
sales and marketing and, to a lesser extent, an increase in public relations,
advertising and symposia costs. We expect these expenses to continue to
increase substantially as we continue expanding our sales and marketing
efforts.
Product Development
Product development expense consists primarily of salaries and benefits
provided to employees engaged in our software and new product development. All
product development costs have been expensed as incurred. Product development
expenses increased by $506,222 from $212,354 for the six months ended December
31, 1998, to $718,576 for the six months ended December 31, 1999. This increase
is primarily attributable to increased personnel engaged in product enhancement
and new product development, including such new products as TrafficShare(TM)
and our soon-to-be-launched B2B LinkShare(TM). We believe that continued
investment in software and product development is critical to attaining our
strategic objectives, and we therefore expect product development expenses to
continue increasing.
19
<PAGE>
General and Administrative
General and administrative expense consists primarily of employee salaries
and benefits for our executive, administrative, finance, human resource and
business development personnel, professional fees and bad debt expense. General
and administrative expenses increased by $676,216 from $453,724 for the six
months ended December 31, 1998, to $1.1 million for the six months ended
December 31, 1999. This increase is primarily attributable to increased
personnel in our administrative, finance, human resources and business
development departments, the addition of new members to our executive
management team and the leasing of our additional New York City office space.
We expect general and administrative expenses to increase as additional
personnel are hired and additional administrative and managerial activities are
undertaken consistent with the growth of our business.
Noncash Compensation
Noncash compensation charges relate to option grants to employees and
represent the excess of the fair value of our common stock on the date of
option grant over the applicable option's exercise price. The charge is
recorded as deferred compensation and expensed over the vesting period of the
option. Noncash compensation charges increased by $158,467 from $92,143 for the
six months ended December 31, 1998, to $250,610 for the six months ended
December 31, 1999. This increase is primarily attributable to the grant of
251,700 options to our employees during the six months ended December 31, 1999.
Additional deferred compensation of $8.9 million, resulting from the grant of
471,636 options in January 2000, will be amortized over the applicable vesting
period of the relevant options.
Interest Income
Interest income consists of interest earned on our cash, cash equivalents
and short-term investments. Interest income decreased by $9,695 from $28,344
for the six months ended December 31, 1998, to $18,649 for the six months ended
December 31, 1999.
Interest Expense
We had no interest expense for the six months ended December 31, 1998.
Interest expense totaled $549,505 for the six months ended December 31, 1999.
Interest expense consisted primarily of noncash charges of $519,505 related to
the issuance of warrants for the purchase of our common stock, which were
issued from August 1999 through December 1999 in connection with the issuance
of certain convertible notes on August 23, 1999. The interest charge is equal
to the fair value of the warrants at the time of their issuance.
Comparison of the Results of Operation for the Fiscal Years Ended June 30, 1998
and 1999
Revenues
Revenues increased by $667,207 from $47,494 for fiscal year 1998 to $714,701
for fiscal year 1999. This increase is primarily attributable to an increase in
the number of merchants joining The LinkShare Network(TM) and an increase in
the volume and dollar amount of sales and other activities generated over the
network.
Cost of Revenues
Cost of revenues increased from $12,968 for fiscal year 1998 to $125,432 for
fiscal year 1999. This increase is primarily attributable to an increase in
hosting expense and, to a lesser extent, an increase in technical support
personnel costs and incremental depreciation associated with the additional
computer hardware and software required by the increased activity over The
LinkShare Network(TM). These costs as a percentage of revenues decreased from
27% for fiscal year 1998 to 18% for fiscal year 1999.
20
<PAGE>
Sales and Marketing
Sales and marketing expense increased from $41,026 for fiscal year 1998 to
$1.8 million for fiscal year 1999. This increase is attributable to personnel
costs associated with a higher number of employees engaged in sales and
marketing and increased expenditures for public relations, advertising and
symposia.
Product Development
Product development expense increased by $517,001 from $103,520 for fiscal
year 1998 to $620,521 for fiscal year 1999. The increase is primarily
attributable to increased personnel engaged in product enhancement and new
product development.
General and Administrative
General and administrative expense increased by $1.3 million from $83,408
for fiscal year 1998 to $1.4 million for fiscal year 1999. This increase is
primarily attributable to increased personnel in our administrative, finance,
human resources and business development departments and the addition of new
members to our executive management team, an increase in professional fees and
an increase in bad debt expense.
Noncash Compensation
We incurred no noncash compensation charges during fiscal year 1998.
Noncash compensation charges related to employee stock option grants totaled
$203,039 for fiscal year 1999.
Interest Income
We had no interest income during fiscal year 1998. Interest income totaled
$61,102 for fiscal year 1999.
Income Taxes
We have made no provision for income taxes for the periods presented
because we have incurred losses since our inception. At June 30, 1999, we had
approximately $3.2 million of Federal net operating loss carryforwards. Our
Federal net operating loss carryforwards begin expiring in 2018.
21
<PAGE>
Quarterly Statement of Operations Data
The following table sets forth statement of operations data for the six
quarters ended December 31, 1999. The information for each quarter has been
prepared on substantially the same basis as the audited financial statements
included elsewhere in this prospectus and, in the opinion of management,
includes all adjustments, consisting only of normal recurring adjustments
necessary for a fair presentation of the results of operations for such
periods. Historical results are not necessarily indicative of future results.
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------------------------------------------
Sept. 30, 1998 Dec. 31, 1998 Mar. 31, 1999 June 30, 1999 Sept. 30, 1999 Dec. 31, 1999
-------------- ------------- ------------- ------------- -------------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Licensing Fees......... $ 10.1 $ 35.1 $ 65.4 $ 110.2 $ 231.5 $ 379.9
Network Fees .......... 28.1 65.9 110.2 289.7 620.6 1,380.6
-------- ------- ------- --------- --------- ---------
Total Revenues........ 38.2 101.0 175.6 399.9 852.1 1,760.5
-------- ------- ------- --------- --------- ---------
Operating Expenses:
Cost of Revenues....... 4.7 11.9 34.9 74.0 147.3 260.6
Sales and Marketing.... 74.8 355.3 413.7 951.2 1,235.3 1,540.6
Product Development.... 94.2 118.2 179.6 228.6 282.1 436.5
General and
Administrative........ 186.7 267.0 373.2 585.3 420.2 709.7
Noncash Compensation... 81.6 10.5 22.7 88.2 115.6 135.0
-------- ------- ------- --------- --------- ---------
Total Operating
Expenses............. 442.0 762.9 1,024.1 1,927.3 2,200.5 3,082.4
-------- ------- ------- --------- --------- ---------
Loss From Operations.... (403.8) (661.9) (848.5) (1,527.4) (1,348.4) (1,321.9)
-------- ------- ------- --------- --------- ---------
Interest Income......... 14.0 14.3 9.0 23.8 13.0 5.7
-------- ------- ------- --------- --------- ---------
Interest Expense........ -- -- -- -- (29.5) (520.0)
-------- ------- ------- --------- --------- ---------
Net Loss................ $ (389.8) $(647.6) $(839.5) $(1,503.6) $(1,364.9) $(1,836.2)
======== ======= ======= ========= ========= =========
</TABLE>
Our operating results have varied on a quarterly basis during our short
operating history and may fluctuate significantly in the future. The results of
any quarter do not indicate results to be expected for a full fiscal year. Our
annual or quarterly results of operations may be below the expectations of
public market analysts or investors, in which case the market price of our
common stock could be materially and adversely affected.
Liquidity and Capital Resources
We have financed our operations to date through the private issuance of
convertible preferred stock, convertible notes and warrants to purchase our
common stock. Through December 31, 1999, net proceeds from financing activities
totaled $6.7 million.
Net cash provided by operating activities totaled $4,680 for fiscal year
1998 and net cash used in operating activities totaled $2.6 million for fiscal
year 1999 and $659,668 and $1.5 million for the six months ending December 31,
1998, and December 31, 1999, respectively. Cash used in operating activities
for each period consisted primarily of the cash used to fund operating losses
in those periods.
Net cash used in investing activities totaled $680 for fiscal year 1998,
$1.1 million for fiscal year 1999 and $168,682 and $1.5 million for the six
months ending December 31, 1998, and December 31, 1999, respectively. Net cash
used in investing activities in these periods consisted primarily of capital
expenditures for computer hardware, software and other fixed assets.
22
<PAGE>
Net cash provided by financing activities totaled $3.9 million for fiscal
year 1999 and $3.9 million and $2.8 million for the six months ending December
31, 1998, and December 31, 1999, respectively. Cash provided by financing
activities was obtained primarily through the private issuance of convertible
preferred stock, convertible notes and warrants to purchase our common stock.
We believe that the net proceeds from this offering, together with our
existing cash and cash equivalents, will be sufficient to meet our working
capital and capital expenditure requirements for at least the next 15 months.
Thereafter, we may be required to raise additional funds. We may also be
required to raise additional financing before that time. If additional funds
are raised through the issuance of equity securities, our existing stockholders
may experience significant dilution. Furthermore, additional financing may not
be available when needed or may be available only on terms that are not
favorable to us or our stockholders. If additional financing is not available
when needed or is not available on acceptable terms, we may be unable to:
. develop or enhance our products or services;
. take advantage of business opportunities; or
. respond to competitive pressures;
which could have a material and adverse effect on our business, financial
condition or results of operations.
On February 7, 2000, we issued $6.5 million principal amount of new
convertible promissory notes to our founders and the holders of our Series A
Preferred Stock in exchange for (1) notes previously issued to them on August
23, 1999, and November 18, 1999, (2) a waiver of interest accrued on those
notes and (3) cash advances made by them prior to and contemporaneously with
the issuance of the new notes. Each of the February 2000 notes matures on July
31, 2000, and bears interest at the rate of 6.2% per year, payable upon
maturity. Upon the closing of this offering, each of the notes we issued on
February 7, 2000, will be converted into a number of shares of common stock
determined by dividing the principal amount of those notes plus accrued
interest by 80% of the per-share initial public offering price of our common
stock.
Year 2000 Compliance
A critical component of our solutions is the accurate tracking and reporting
of activity and transactions within our networks. We believe that all software
that we have developed is Year 2000 compliant. We developed a test environment
to simulate the change over to the Year 2000, and testing of the programs and
procedures related to the processing of data began in March 1999. We tested all
of our various operating systems and hardware platforms to ensure that the date
change would be handled in a correct manner.
We contacted all of our technology partners to insure Year 2000 compliance
and tested our desktop computers and office equipment to ensure proper
functioning relating to the Year 2000 date change.
We developed a contingency plan and related tools to facilitate continued
operations in the event of an unanticipated Year 2000 disruption. Our Year 2000
preparedness committee was composed of our Chairman, Chief Information Officer,
Chief Technology Officer and Executive Vice President. The committee reviewed
our compliance efforts and contingency plans.
No significant disruptions were experienced in LinkShare's operations
related to the Year 2000 date change.
Quantitative and Qualitative Disclosures About Market Risk
Our exposure to financial market risk, including changes in interest rates
and marketable equity security prices, relates primarily to any investment
portfolio we may hold after this offering. We do not plan to reduce or hedge
our market exposure on any investment securities because, to the extent we
invest in securities, we intend to invest mainly in fixed-rate, short-term
securities. We do not intend to buy or sell any derivative securities. All of
our outstanding indebtedness at December 31, 1999, was fixed-rate debt.
23
<PAGE>
Recent Accounting Pronouncements
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including derivative
instruments embedded in other contracts, and for hedging activities.
Subsequently, SFAS No. 137 was issued, which deferred the effective date of
SFAS No. 133 to all fiscal quarters of fiscal years beginning after June 15,
2000. SFAS No. 133 is not expected to affect LinkShare, as we do not have any
derivative instruments or hedging activities.
24
<PAGE>
OUR BUSINESS
LinkShare creates and operates networks that enable businesses to form and
manage online partnerships with thousands of independent Web sites for many
purposes, including selling products and services, building brand-recognition
and increasing Internet-user traffic. Our networks allow online businesses to
find in one convenient, central marketplace a large variety of partners with
whom they can link their Web sites. Our clients use our technology and services
to create and manage their partnerships and track activities through those
links with detailed reports that enable them to evaluate and optimize the
performance of their partnerships.
Our first network, The LinkShare NetworkTM, offers online merchants and Web
site publishers a performance-based marketing solution that maximizes the
revenue generating power of their Web sites. The LinkShare NetworkTM enables
merchants that sell products or services to consumers over the Internet to
select from thousands of other Web site publishers who seek to convert visitor
traffic into revenues by becoming marketing "affiliates" of those merchants. A
marketing affiliate directs visitor traffic from its own Web site to the
merchant's Web site through a hyperlink promotion appearing on the affiliate's
site. If a visitor who accesses a merchant's Web site through that hyperlink
takes a prescribed action, such as purchasing a product, the affiliate earns a
fee payable by the merchant. We view The LinkShare NetworkTM as a model for
additional networks and applications that we may develop to take advantage of
the growing opportunities offered by the Web.
Today, The LinkShare NetworkTM has more than 450 participating merchants,
including leading companies like Dell, Toysrus.com, OfficeMax.com, L.L. Bean
and CVS.com, and thousands of independent Web sites that are potential
marketing partners for those merchants. In January 2000, we announced the
creation of B2B LinkShareTM, a separate affiliate network designed to serve the
growing online business-to-business market that we expect to launch by the end
of March 2000. Currently, online businesses use our networks to manage more
than three million online marketing partnerships. Our clients pay us fees that
typically are based on the volume and dollar amount of the transactions and
other activities generated through these partnerships.
Industry Background
Growth of Online Commerce
Business use of the Web is growing rapidly as new Web-based businesses and
traditional businesses increasingly use the Internet as a medium to exchange
information and enter into a variety of transactions with customers, suppliers
and distributors. This marketplace consists of businesses selling their
products and services to consumers, commonly referred to as business-to-
consumer commerce, and businesses that use the Web for transactions with other
businesses, commonly referred to as business-to-business commerce. In its
February 2000 report, International Data Corporation predicted that:
. business-to-consumer spending will grow from $58.6 billion in 2000 to
$209.1 billion in 2003; and
. business-to-business spending will grow from $210 billion in 2000 to $1.4
trillion in 2003.
Expansion and Fragmentation of the Internet Marketplace
As e-commerce grows, advertisers and direct marketers increasingly use the
Web to locate customers, advertise and facilitate transactions. To a large
degree, merchants' online marketing efforts are focused on increasing visitors
to their Web sites, which is commonly referred to as Web site "traffic." As a
result of the disaggregated nature of the Web, merchants face significant
challenges in achieving that goal cost-effectively.
The proliferation of easy-to-use, low-cost Web publishing tools has led to
the creation of millions of Web sites of widely varying content. International
Data estimates that the number of Web pages grew from 303.4 million in 1997 to
2.2 billion in 1999. Nielson/NetRatings estimates that, as of December 1999,
the top ten major Web sites, such as AOL and Yahoo!, accounted for less than
22% of all page views. As a result, online
25
<PAGE>
retailers and Web sites seeking to convert visitor traffic into revenues need a
cost-efficient way to reach the vast majority of page views that are outside
the major Web sites and dispersed over millions of Web sites.
Early Online Marketing
Early Web marketing relied primarily on the posting of merchants' banner ads
on independent Web sites. A banner is a graphical rectangular box posted on a
Web site containing advertising material and a hypertext link that permits a
viewer to move from the Web site displaying the ad to the Web site of the
advertiser by "clicking on" the banner. Advertisers generally pay Web sites
carrying their banner ads fees based on the number of impressions, which is the
number of times the Web page displaying the ad is viewed. These fees are
usually fixed at a cost per-thousand (CPM) impressions.
We believe that traditional banner advertising has proven to be an
inefficient method for converting ad viewers into shoppers and, eventually,
buyers. Only a few content Web sites attract sufficient traffic to generate
significant advertising revenue on a CPM basis, and those few, high-traffic
sites charge increasingly expensive rates for their advertising space. We
believe that the relative effectiveness of traditional banner ads results from
the lack of integration and relevance of traditional banner ads within the
content of the Web sites where they are displayed.
With the decreasing effectiveness of traditional CPM-based banner
advertising, performance-based marketing methods that tie advertising fees to
tangible results, such as click-throughs, purchases or registrations, represent
the fastest growing segment of the online advertising market. In its August
1999 report, Forrester projects that online advertising spending in the United
States will grow from $2.8 billion in 1999 to $17.2 billion in 2003. Forrester
further projects that performance-based marketing will grow from 15% of all
U.S. online advertising spending in 1999 to over 50% in 2003, creating
significant opportunities for performance-based marketing techniques.
Emergence of Affiliate Marketing
"Affiliate marketing" is a performance-based marketing technique that has
emerged in response to the ineffectiveness of early online marketing efforts.
In an affiliate marketing program, a business seeking to attract more traffic
to its Web site to sell goods or services or for other purposes, broadly
referred to as a "merchant," links its Web site to multiple independent Web
sites, usually called "affiliates" of that merchant. These links are embedded
in an affiliate's site and can take the form of a textual mention, banner ad or
other image promoting the merchant or its products. If a visitor to an
affiliate site uses the link to move to the merchant's site and takes a
prescribed action, such as making a purchase or completing a registration form,
the merchant pays a fee to the affiliate. Affiliate marketing enables a
merchant to promote itself across thousands of affiliate Web sites, while only
paying for promotions that actually produce results. Affiliate marketing
enables an affiliate to generate fees by linking its Web site to merchant sites
with products or services likely to be of interest to the affiliate's visitors.
For most merchants, internally implementing this type of program poses
significant challenges. Developing and maintaining the software and systems
that provide sophisticated linking, updating and tracking capabilities are
expensive and require a high degree of technical expertise. Additionally,
merchants must employ and train personnel to manage all aspects of their
programs, including the identification and screening of potential affiliates,
the negotiation of contracts with potential affiliates and the monitoring of
performance. As a result, many merchants seek a cost-effective solution that
enables them to reap the benefits of an affiliate marketing program without the
costs of self-implementation.
We recognized early on the opportunities and challenges facing businesses
engaging in online commerce. Our approach was to develop a business model and
the technology to facilitate the creation of link-based partnerships over open
networks available to any individual, business or group with an address on the
Web. Our 1997 launch of The LinkShare NetworkTM to serve the rapidly emerging
business-to-consumer market represents the first application of our business
model.
26
<PAGE>
The LinkShare Solution
LinkShare creates and operates open online networks that enable businesses
to quickly and easily initiate and monitor multiple relationships through their
Web sites. Our networks enable online businesses to:
. find appropriate online partners with which to establish relationships;
. negotiate a wide variety of relationships and customize their
compensation arrangements;
. establish links with thousands of Web sites and easily update, remove or
replace those links; and
. monitor the traffic through those links and promptly obtain comprehensive
and detailed reports retrievable from anywhere the Web can be accessed.
Our Network Model
Our open or "public" network model provides a business that joins one of our
networks immediate access to the existing members of the network with whom it
can seek to form link-based relationships on mutually agreeable terms. As more
businesses join a network, the costs of maintaining that network are spread
over the growing pool of network members, and the growing pool of network
members becomes an increasingly attractive source of potential business
partners to businesses that have not yet joined. We believe our network model
can be applied to virtually any situation in which a business has a need to
manage relationships with multiple Web sites. We currently operate The
LinkShare NetworkTM and expect to launch B2B LinkShareTM by the end of March
2000. The LinkShare NetworkTM is an affiliate marketing solution for businesses
engaged in business-to-consumer commerce. B2B LinkShareTM will provide a
similar solution for businesses engaged in business-to-business commerce.
Within The LinkShare NetworkTM, we also operate TrafficShareTM, an affiliate
marketing solution for content sites whose primary goal is increasing traffic
to their sites, rather than making sales.
Technology and Services
Our LinkShare Synergy(R) technology forms the backbone of our network
solution. It enables multiple Web sites to form links, track the activity
through those links and analyze the results of that activity. Our technology is
easy for our clients to implement, produces prompt and comprehensive tracking
and reporting information and is highly scalable and flexible. We also have a
highly trained staff that provides client support services which enable network
members to optimize the benefits of participation in our networks.
The LinkShare NetworkTM
The LinkShare NetworkTM is the first and, to date, most significant
application of our open network solution. It brings together online businesses
that participate primarily in business-to-consumer commerce. Online merchants
seeking to sell goods or services to consumers can establish promotional links
across the thousands of affiliate Web sites that belong to The LinkShare
NetworkTM. Both merchant and affiliate members of The LinkShare NetworkTM can
easily find and establish relationships with suitable marketing partners and
manage multiple link-based relationships using our LinkShare Synergy(R)
software and a full suite of support services. Since its launch in 1997, The
LinkShare NetworkTM has grown to over 450 merchants who, as of January 2000,
had established more than three million link-based relationships with affiliate
members of the network. The LinkShare NetworkTM was designed to address the
needs of both merchants and affiliates:
. Benefits to Merchants
. Expansive reach of open networks. Merchants can quickly and easily access
and establish cost-effective marketing partnerships with the thousands of
eligible affiliates that belong to The LinkShare NetworkTM.
. Performance-based compensation. Merchants only pay their affiliates for
carrying a promotional link when that link produces a desired result. Our
technology gives merchants the flexibility to negotiate a variety of
performance-based compensation arrangements with their affiliates,
including percentage-of-sales, CPM, per-form and "hybrid" arrangements
combining any number of different compensation models.
27
<PAGE>
. Low cost and ease of implementation. Merchants can cost-effectively
manage multiple online relationships without incurring substantial
infrastructure or personnel costs and can analyze the effectiveness of
these relationships with prompt, reliable and comprehensive information
which can be accessed through any Internet connection.
. Flexibility and choice. Merchants can choose from among tiers of service
offerings we provide. Our service offerings enable a merchant member of
one of our networks to outsource management of its entire affiliate
marketing program, only certain functions of its program or none at all.
. Benefits to Affiliates
. Ability to monetize traffic. Affiliates of all sizes can convert traffic
on their Web sites into revenues, even when that traffic is insufficient
to attract significant advertising.
. One-stop access to quality merchants. Affiliates can quickly and easily
access and establish relationships with hundreds of quality merchants in
one open network.
. Customized compensation arrangements. Affiliates can negotiate
individualized compensation arrangements with their merchant partners
based on their performance as marketing partners.
. Centralized management and tracking. Affiliates can manage multiple
online relationships with prompt, detailed information provided by a
neutral third party and accessible from any Web connection.
Merchants that are members of The LinkShare NetworkTM pay us fees based on
the volume and dollar amount of the transactions and other activities generated
through their links with their affiliates. They also pay us recurring licensing
fees for access to the network and may pay us additional fees for optional
software features and service packages that we offer. Participation in The
LinkShare NetworkTM is free to affiliates.
Our Strategy for Future Growth
Our goal is to be the premier provider of open networks that facilitate
online commercial activity. Key elements of our growth strategy include:
. Attracting New Network Participants. We continually seek to attract
additional businesses to our networks. As a network grows, transaction
volume over the network increases, as does the pool of network members
that can benefit from our products and services. As The LinkShare
NetworkTM expands:
. each new merchant that joins the network attracts new affiliates by
its own brand recognition and individual marketing efforts; and
. the growing pool of easy to identify affiliates becomes an
increasingly attractive marketing opportunity for merchants not yet
in the network.
We believe that because of this self-reinforcing cycle, the addition of a
single merchant or affiliate increases exponentially the number of new
business relationships that may be formed on our affiliate networks. We
have teams of employees dedicated to identifying and recruiting new
merchants and affiliates to The LinkShare NetworkTM and to our soon-to-
be-launched B2B LinkShareTM. These teams focus on those merchants with
widely recognized brand names and high sales volumes and on those
affiliates with the greatest potential for increasing traffic over our
networks.
. Introducing New Affiliate Marketing Networks. We intend to leverage the
value of our open network model by introducing new affiliate networks
catering to identifiable business communities. We may introduce these new
networks specifically for a particular business community, as we will do
with B2B
28
<PAGE>
LinkShareTM, an affiliate network focused on business-to-business e-
commerce. By making B2B LinkShareTM a separate network, we will make it
easier for business-to-business merchants to find the right affiliates
without having to screen out thousands of unrelated consumer-oriented
sites. Alternatively, we may identify members of one of our existing
networks that have particular business needs and introduce specific
products or services to serve these needs. In October 1999, we introduced
TrafficShareTM, an affiliate marketing solution for proprietors of
advertising-based sites whose primary goal is to drive traffic to their
sites in order to maintain or increase the rates they charge advertisers.
TrafficShareTM is currently a feature available to all members of The
LinkShare NetworkTM, but as the number of businesses using it increases it
may become a separate network.
Because each additional network or program that we create is modeled upon
our existing networks, we can maximize the use of our existing
infrastructure. Our technology and systems are highly scalable and can
accommodate increased transactional volume that results from the
introduction of new networks, products or services.
. Adapting Our Technology and Network Model for New Uses. We believe that
our patented technology and expertise in operating affiliate marketing
networks can be useful in virtually any situation in which businesses
need to create and manage link-based relationships among multiple Web
sites, track activities through those links and receive detailed reports
on the performance of partners in those relationships. As e-commerce
continues to grow and evolve, we plan to pursue emerging opportunities to
apply our technology and network model for other uses.
. Expanding and Enhancing our Products and Services. We seek to develop new
revenue opportunities by introducing premium software features and
service packages to existing members of our networks for which we can
charge additional fees.
. Introducing Our Solution to International Markets. Just as we can
introduce our network model to additional business communities, we can
also introduce it to additional geographic markets. We intend to identify
suitable international markets for expansion. Our strategy for each
international market we enter may be different, depending on such factors
as language, culture and local conditions. We may, for example:
. directly operate affiliate networks in some markets;
. form joint ventures with strategic local partners; or
. license our solution to a third party to operate in a designated
market.
Products and Services
Networks and Programs
<TABLE>
<CAPTION>
Name Launch Date Focus
---- ------------ -----
<S> <C> <C>
The LinkShare NetworkTM... July 1997 A network of online businesses
engaging primarily in business-to-
consumer commerce.
TrafficShareTM (currently
part of The LinkShare October 1999 A program within The LinkShare
NetworkTM)............... NetworkTM serving online businesses
whose primary objective is to increase
traffic to their Web sites, such as
portals and large content sites that
derive most of their revenue by
selling advertising space on their
sites.
B2B LinkShareTM .......... March 2000 A network of online businesses
(proposed) engaging primarily in business-to-
business commerce.
</TABLE>
29
<PAGE>
Affiliate members of our networks can access and manage multiple merchant
partnerships in all of the networks they join from a single password-protected
Web site. Merchant members of one network can easily join another network
without any new learning time or significant additional infrastructure costs,
although we may charge them an additional licensing fee. We believe that our
open network platform is superior for most merchants; however, as an adjunct to
our open networks, we offer a private label option for merchants who prefer to
manage some partnerships separately from their participation in the open
network. Merchants using the private label option pay an additional fee to us
for each affiliate recruited into their marketing program from the open
network.
Technology
LinkShare Synergy(R). LinkShare Synergy(R) software is the platform on which
we build all of our affiliate networks. We believe LinkShare Synergy(R) is the
most secure, accurate and easy-to-use software available for affiliate
marketing solutions. Use of LinkShare Synergy(R) is included in the network
access fees we charge our merchants. Features of LinkShare Synergy(R) include:
Web-Based Technology: . Network participants have immediate access to a
full suite of services from any Internet
connection.
. It requires minimal infrastructure installation
because most of the requisite software resides
on our servers.
. All upgrades occur automatically.
. Merchants can update product displays, promote
seasonal or limited-time-only offers and replace
underperforming links across all affiliate sites
with one-click updates.
. Affiliates with multiple Web sites can track
activity and update links across all sites
through a single interface.
Full Suite of Software Tools:
. SmartReports. Network members can monitor the
performance of their relationships online
through detailed and aggregate data and
automated reports that can be delivered by e-
mail on specified days.
. V-Link. Affiliates can include links to a
merchant's site directly in e-mails and send
them to potential customers.
. Grouping. Merchants can segment or group their
affiliate partners and target those segments or
groups with individualized e-mails and special
offers.
. Team Meeting. Merchants can send and receive
mail and distribute newsletters over our
internal e-mail system or to external addresses,
all from one centralized interface.
. E-mail Thank You Notes. Automatic e-mailing
capabilities allow affiliates to send thank you
notes to customers who make purchases on the
sites of merchant partners through the
affiliate's link.
Flexibility: . CustomComp. Merchants can reward or compensate
different partners in different ways, such as
percentage of sale, CPMs, click-throughs,
completed forms, flat fees, return days, monthly
minimums or any combination of models.
. OpenServe Technology. Merchants can work with
any ad-serving technology a merchant chooses,
including LinkShare's, through a simple drop-
down menu in the interface.
30
<PAGE>
LinkShare Synergy Expert. We offer the LinkShare Synergy Expert software to
our merchant members for a fixed monthly fee. This optional software package
offers an expanded set of tools and features including:
. SmartTarget. Merchants can recruit particular affiliates by sending
targeted e-mails to affiliates within the network based on almost any
criteria, such as site type, geographical region and key word.
. Affiliate Content Spider. A "control spider" software feature patrols
affiliate sites automatically, according to a merchant's instructions, to
detect the use of prohibited words, such as a competitor's name or
offensive language, or to notify the merchant if an affiliate frames the
merchant's site without permission.
. SmartChat. Merchants can schedule chat sessions with affiliates and
potential affiliates over the network.
Services and Support
We work closely with the members of our networks to help them optimize the
value of their affiliate marketing programs. Our members can contact us with
their questions and problems via toll-free telephone number, e-mail and live
online chat sessions. When new merchants join our networks, we provide them
with four hours of free technical support and software training. Additional
support or training is available at hourly rates to merchants that do not
subscribe to one of our optional support packages described below. We also
provide other back-office services, such as e-mail generation and distribution,
check disbursement and 1099 form distribution, for which we charge fees on a
per-message, per-check or per-form basis.
Merchant members may subscribe to one of our tiered customer service
packages:
. AE Support. AE Support is designed to help merchants generate better
response rates by providing analyses of their affiliate marketing
programs and trends in marketing over the Web. Each merchant that
subscribes to AE Support is assigned a dedicated account executive to
assist with initial launch and marketing strategy and participate in
weekly discussions and six-month formal reviews of the merchant's overall
program. We provide AE Support free of charge to merchants who generate
specified transaction volumes over our network, and for a fixed monthly
fee in the case of merchants that do not achieve the monthly minimum.
. Client Services. Our Client Services package provides subscribing
merchants with more comprehensive and in-depth services designed to
optimize the results of their affiliate marketing programs. This service
package includes assistance with Web affiliate acquisition and approval,
affiliate relationship development and management, product merchandising,
cooperative advertising purchases and back-office services. Our Client
Services package, when combined with our affiliate payment and other
back-office service options, permits a merchant to outsource to us
responsibility for managing virtually all aspects of its affiliate
marketing program. We typically charge a fixed monthly fee for this
package and require a subscription for a minimum number of months.
We also provide services tailored to meet the needs of our affiliate
members:
. Signature Affiliates. Some of our network affiliates operate loyalty-
building programs that permit visitors who make a purchase from LinkShare
merchants with whom those affiliates have links to receive personal
rewards or credits based on the amount of the purchase. Other affiliates
make charitable contributions based on visitor purchases from linked
merchants. Our technology permits us to track transactions through the
links those affiliates have with our merchants down to the level of
individual transactions, so that the appropriate amounts can be credited
to visitors or contributed to the sponsored charity.
. Best Practices. We continually consult with our affiliates to learn the
best ways to make our networks work better for them. We organize online
chat and person-to-person conferences among network participants, and we
recently completed a comprehensive review of the affiliates in The
LinkShare NetworkTM that generate high levels of sales or other
compensated activities for their merchant partners to identify factors
that contribute to their success. We are implementing programs that will
permit other affiliates to institute the best practices we have
identified as a result of that review.
31
<PAGE>
Customers
Our clients include:
. businesses selling products and services to consumers and businesses over
the Web;
. portals and major content sites seeking to generate advertising revenue;
and
. Web publishers that partner with these businesses.
Merchants in our networks include companies with high brand recognition and
significant sales volumes both on and off the Web, as well as medium-sized and
some small merchants. We devote particular attention to recruiting large online
merchants or merchants that are recognized leaders in their industries. Our
goal is to offer members of our networks a selection of potential online
business partners that includes a variety of companies within each major
product or service category. Currently, the vast majority of our clients are
the merchant members of The LinkShare NetworkTM and their affiliate partners
who are engaged primarily in business-to-consumer e-commerce. The table below
lists some of the merchant members of The LinkShare NetworkTM. In addition,
during February 2000, we signed agreements with several new merchants,
including priceline.com and BlueLight.com (Kmart's online store).
<TABLE>
<S> <C> <C>
Borders.com Hallmark Outpost.com
CarsDirect.com ibeauty.com Petopia.com
CVS.com JCPenney SharperImage.com
Dell L.L. Bean Sony Music Direct
flooz.com Lands' End Toysrus.com
FragranceNet.com OfficeMax.com Verio
FreeShop.com OmahaSteaks.com WeddingChannel.com
FTD.com OurHouse.com Wine.com
</TABLE>
Typically, merchants in our networks enter into written agreements with us
for terms of up to three years that renew automatically for successive terms of
up to two years, unless either party gives notice not to extend. We generally
provide limited warranties concerning our system performance and protection for
our customers from infringement claims. Participating merchants agree to
exclusively use our networks and technology for sales affiliate programs, but
we sometimes permit merchants to maintain pre-existing relationships, to use
their own internal tracking systems for limited purposes or to enter into
business development deals with some Web affiliates.
Participating affiliates in our networks can discontinue their participation
at anytime. They agree to abide by standard terms of network membership by
completing an online agreement when they register with us, either at our Web
site or at the affiliate recruitment page of the Web site of one of our
merchant members.
Sales and Marketing
Client Development
Our merchant development teams, located in New York City, San Francisco,
Chicago and Los Angeles, actively identify and recruit new merchants into our
networks. Our Client Services team, located in Denver, and our account
executives, located primarily in New York City, support our merchant
development teams to market our tiered customer support offerings.
We also have an affiliate development team, located in New York City, that
actively identifies and recruits new affiliates. All affiliate members of our
networks are affiliates of LinkShare, and we pay them commissions if they
recruit qualified new affiliates into one of our networks.
32
<PAGE>
LinkShare Symposia
We sponsor periodic LinkShare Symposia in various locations in the United
States and abroad to which we invite a broad spectrum of the e-commerce
community as well as merchant and affiliate members of our networks. Prominent
industry figures speak on topics of general interest, and we organize closed
sessions at which our merchants and affiliates get special training and
information that will help them optimize their use of our solutions and share
the best practices that have been developed by the most successful members of
our networks. These symposia enable us to market our solutions to potential
clients and to strengthen our relationships with the members of our networks.
Attendance has continued to increase since our first Symposium, with over 600
people attending our February 2000 Symposium in San Francisco.
Advertising and Promotion
We also market our networks and build awareness of the LinkShare brand
through advertisements within trade and other publications, trade show
participation and other media events and promotional activities.
Technology Infrastructure
Our Software and Patented Processes
We have built scalable user interfaces and processing systems that are based
on internally-developed proprietary LinkShare Synergy(R) software. Our network
solutions are Web-based, and there is only a small amount of software for our
merchants to install. The bulk of our software resides on our own servers,
which minimizes both the amount of work and hardware needed by merchants and
Web affiliates to use our solutions and reduces the risk of theft or other
unauthorized copying of our software. To create links on their Web sites, Web
affiliates log in to our systems and then simply "cut and paste" the necessary
code into their Web sites. We work with our members to ensure that they
successfully integrate our technology, and we perform tests to guarantee that
the tracking mechanism is accurate and timely.
In December 1999, LinkShare was granted U.S. Patent No. 5,991,740 covering
"Data Processing System for Integrated Tracking and Management of Commerce
Related Activities on a Public Access Network." The patent is directed to the
system supporting our affiliate program. It claims a computer system linked to
an array of network-based businesses so that commerce generated by these
businesses may be properly tracked and quantified for reporting purposes. The
patent covers an enhanced programming capability for creating network-based
promotional arrangements and accurately tracking commerce governed by these
promotional arrangements in a non-intrusive manner. While patents issued by the
United States Patent & Trademark office enjoy a presumption of validity, we
cannot assure you that our patent is valid.
Our Computer Systems
Our computer systems handle all aspects of our networks, including:
. the maintenance of our Web site;
. the formation of links;
. the collection of new member registration information; and
. the collection and processing of transaction data needed to furnish
reports to merchants and affiliates.
Our computer systems are built around industry standard architectures and are
designed to reduce downtime in the event of outages or catastrophic
occurrences. Over the past year, our systems have experienced minimal unplanned
downtime. The servers for our networks provide 24 hour a day, seven day a week
availability, subject to short maintenance periods. During maintenance of our
administrative systems, our members are not able to run reports and perform
other administrative functions, but all e-commerce activity continues to
function normally. We are currently developing a solution that will allow us to
perform routine maintenance on our administrative systems without disrupting
our members' access to administrative functions. We expect this solution to be
in place in the second quarter of 2000.
33
<PAGE>
Scalability, Availability and Reliability
Our system infrastructure has been engineered to provide maximum reliability
and availability. We have divided our systems into two groups to make each
group operate at the highest level of availability and to provide the
infrastructure with scalability. The first group, which we refer to as the
"front-end," is responsible for tracking and all related functions that link
merchants with their affiliates. The second group, which we refer to as the
"back-end," is responsible for all administrative tasks, including participant
registrations, reporting and merchant and affiliate program maintenance.
The front-end systems consist of multiple Intel-based computers running the
Linux operating system. These systems are controlled by redundant geographical
load balancing hardware, and are designed to handle excess loads placed on
them. Since the front-end is designed to function independently of the back-
end, any disruptions to the back-end will have no effect on the front-end.
The back-end systems run on a combination of Sun Solaris-based systems and
Intel-based multi-processor systems running the Linux operating system. Our
systems allow for quick growth and scalability by enabling us to easily add
additional servers on the back-end for reporting and other administrative
purposes. Since our software is based on industry standards, we are able to
take advantage of new advances in hardware and software in a timely and
efficient manner. We are currently replicating our back-end data over multiple
machines located in geographically dispersed data centers to provide a greater
degree of redundancy in the event of disaster and to distribute the workload
across multiple systems and improve network performance.
Our system hardware is hosted at the Exodus Communications facility in
Harborside, New Jersey. We also maintain servers at hosting facilities in
Weehawken, New Jersey, New York City, New York, Santa Clara, California and
London, England. Our use of two providers of hosting facilities and the
dispersion of our servers over multiple sites in different regions is intended
to provide redundancy in the event of a natural disaster or other event
affecting any one facility or region. Our hosting facility providers are
contractually obligated to maintain redundant high-capacity Internet
connections, communications lines, emergency power backup, climate-control,
fire protection, seismic reinforcement and continuous security surveillance.
We regularly test and maintain the multiple connections between our servers,
and regularly test the connections between our network data centers and the
Internet. Our engineering and hosting center personnel monitor traffic patterns
and congestion points and reroute traffic flows to reduce end-user response
times.
Competition
The market for affiliate marketing solutions, which at present is our only
line of business, is new, rapidly evolving and highly competitive. We compete
against companies of all sizes with respect to the products and services we
provide, and we expect to face increased competition from some of these
companies as they broaden the scope of their products and services.
We compete with software/service providers, such as Be Free, Inc., that
offer merchants software and services to operate their own private label sales
affiliate programs. These programs can serve as an alternative to the sales
affiliate programs conducted over our networks. Private label providers, such
as Be Free, aggressively market their programs to many of the online merchants
that we may target. We believe that our network model is superior to private
label programs, although some online merchants have expressed a preference for
this structure. For those merchants, we offer a private label option as an
adjunct to membership in our open networks.
We also compete against other providers operating forms of open networks,
such as Microsoft's LinkExchange and Commission Junction. We believe that
LinkExchange currently focuses on providing exchange services for banner ads
rather than full scale affiliate networks. We believe that Commission Junction
provides its affiliate programs primarily to smaller and midsize merchants.
34
<PAGE>
To some extent, we also compete with companies that have internally
developed their own affiliate marketing solutions and with independent software
solution providers. Users of third-party software solutions must develop and
maintain databases and servers to track the performance of their marketing
channels.
We may also compete with companies that provide banner ad services, which
may be considered an alternative marketing solution. However, participants in
our networks are able to use any ad serving technology they choose.
We believe that the principal competitive factors in our market include:
. the ease of use of the system;
. the flexibility and scalability of solutions;
. technological features; and
. the quality, comprehensiveness and value of available services.
We compete with other affiliate marketing providers by:
. emphasizing the benefits of using an open network model over a
software/service model or private label program;
. providing our network members with state-of-the-art technology, such as
our individualized customer service;
. providing increasingly comprehensive, cost-effective and easily managed
solutions; and
. requiring our merchant members to use LinkShare as their exclusive
provider for affiliate networks and related technology.
Employees
At February 24, 2000, we had a total of 139 employees, none of whom are
unionized. From time to time, we also employ independent contractors to
supplement our development staff. We believe our relations with our employees
are good.
Facilities
Our headquarters are located in 15,000 square feet of office space that we
occupy in New York City under a lease expiring in December 2000. Some of our
personnel are based in 2,370 square feet of separate office space in New York
City that we use under a lease expiring in August 2001. Under a lease expiring
in September 2003, we rent 5,800 square feet of office space in San Francisco,
where we base regional sales and marketing staff. Our Client Services program
is managed from our Denver office, which occupies 5,458 square feet of space
under a lease expiring in December 2000. We have one sales person based in
Chicago and one sales person based in Los Angeles, each of whom works in home
office space. In the future, we may lease additional space as needed.
Legal Proceedings
From time to time, we may be involved in litigation incidental to the
conduct of our business. We are not currently a party to any legal proceedings.
35
<PAGE>
MANAGEMENT
Executive Officers, Key Employees and Directors
The following table sets forth our executive officers, key employees and
directors, their ages and the positions they held at February 28, 2000, except
in the case of Messrs. Gilligan and Pompadur, who have agreed to join our board
of directors effective upon the closing of this offering:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Stephen D. Messer............ 28 Chairman of the Board, Chief Executive Officer and Director
Heidi S. Messer.............. 30 President, Secretary and Director
Bowers W. Espy............... 49 Senior Vice President, Chief Financial Officer and Treasurer
Jianhao Meng................. 30 Senior Vice President and Chief Technology Officer
Richard S. Okin.............. 42 Vice President and Chief Information Officer
Joseph E. Young.............. 51 Executive Vice President, Business and Legal Affairs
Pamela A. Codispoti.......... 34 Senior Vice President, Marketing and Communications
Cheryl C. Ho................. 27 Senior Vice President, Product Development
Jodi B. Brenner.............. 37 Vice President, Business Development
Bruce R. Gilburne............ 37 Vice President, Sales
Catherine L. McCall.......... 42 Vice President, Client Services
Wendy N. Salomon............. 32 Vice President, Marketing
Douglas A. Alexander......... 38 Director
Edward P. Gilligan........... 40 Director
I. Martin Pompadur........... 64 Director
</TABLE>
Stephen D. Messer co-founded LinkShare and has been a director since our
inception. He was our Chief Executive Officer from inception until April 1999
and resumed that position in July 1999. Prior to founding LinkShare, Mr. Messer
was the Assistant Director of the Columbia University Institute of Tele-
Information from May 1996 to May 1997. He continues to serve as an Affiliated
Research Fellow at the Institute. Mr. Messer holds a J.D. from the Benjamin
Cardozo School of Law at Yeshiva University in New York and a B.A. degree from
Lafayette University in Pennsylvania. He is the brother of Heidi S. Messer.
Heidi S. Messer co-founded LinkShare and has been a director and our
President since our inception. From October 1995 to May 1997, Ms. Messer was
associated with the law firm of Baker Botts L.L.P. Ms. Messer holds a J.D. from
Harvard Law School and a B.A. from Brown University. Ms. Messer has served on
the board of shop.org, a trade association focused on Internet retailing, since
February 1999. She is the sister of Stephen D. Messer.
Bowers W. Espy has served as a Senior Vice President and our Chief Financial
Officer and Treasurer since January 2000. From 1983 to 1995, Mr. Espy served in
various senior management positions at Merrill Lynch & Co., including Managing
Director--Investment Banking, Co-head Depository Institutions--Mergers and
Acquisitions. Prior to joining Merrill Lynch, from 1981 to 1983, he served as
Deputy Director for Financial Analysis and Policy Research for the Federal Home
Loan Bank Board in Washington, D.C. After departing Merrill Lynch in 1995 and
until joining LinkShare, Mr. Espy was primarily retired, but served as a
consultant to various Internet-related companies. Mr. Espy holds a M.A. in
Economics and a B.S. in Business Administration from the University of Florida.
Jianhao Meng co-founded LinkShare and has been our Chief Technology Officer
since our inception. He became a Senior Vice President of LinkShare in January
2000. Mr. Meng was a graduate research assistant at the Center for
Telecommunications Research at Columbia University from 1993 to August 1998.
Previously, Mr. Meng worked as a programmer at Ernst & Young, LLP from 1992 to
1994 and a system engineer at Computers & Communications, Inc. from 1990 to
1992. Mr. Meng holds an M.S. in Electrical Engineering from Columbia
University. He is currently pursuing his Ph.D. in Electrical Engineering from
Columbia University.
36
<PAGE>
Richard S. Okin has been our Chief Information Officer since February 1999.
He became one of our Vice Presidents in January 2000. From January 1993 to
February 1999, Mr. Okin was with TIR Securities, first as a consultant and then
as Director of Software Development. Mr. Okin holds an A.B. from Vassar College
and has completed graduate work at Sloan Kettering Memorial Cancer Center in
the field of Biochemistry.
Joseph E. Young has served as our Executive Vice President, Business and
Legal Affairs since September 1999. Prior to joining LinkShare, Mr. Young was
Of Counsel to the law firm of Baker Botts L.L.P from January 1995 to September
1999. Mr. Young spent over 14 years in private legal practice with a number of
law firms, specializing in corporate and securities transactions. Mr. Young
holds a J.D. from Harvard Law School and a B.A. from the University of
Illinois.
Pamela A. Codispoti has been our Senior Vice President, Marketing and
Communications since January 2000. Prior to joining LinkShare, from 1993 until
joining LinkShare, Ms. Codispoti worked for American Express Company, where she
started as Senior Manager of the Strategic Planning Group and rose to
Vice President of Marketing for the Corporate Services Division. Ms. Codispoti
holds an M.B.A. from the Harvard Graduate School of Business Administration and
a B.A. in Math and Social Science from Dartmouth College.
Cheryl C. Ho co-founded LinkShare and has been with us since our inception.
She was our Vice President of Marketing and Product Development from May 1997
until she assumed the office of Vice President, Product Development, in
December 1998. She was promoted to Senior Vice President, Product Development
in January 2000. Prior to joining LinkShare, Ms. Ho worked as a research
assistant at the Columbia Institute for Tele-Information from September 1996 to
May 1997. Ms. Ho, a licensed CPA, worked as an Audit Associate (Information
Communications) for Coopers & Lybrand, L.L.P. from January 1994 to April 1996.
Ms. Ho holds an M.B.A., with a concentration in Marketing and Management of
Information and Communications, from the Columbia University School of
Business, and a B.S. from New York University's Leonard N. Stern School of
Business with majors in Accounting and International Business.
Jodi B. Brenner has served as our Vice President, Business Development since
October 1999. Before joining LinkShare, Ms. Brenner served as Associate General
Counsel at NBC Cable Networks from February 1998 to October 1999. She also
served as Vice President, Secretary and Counsel of Bell Atlantic Video Services
and Bell Atlantic Internet Solutions from 1996 to 1998, and as Counsel,
Entertainment, Video and Online Services at Bell Atlantic Network Solutions
from 1993 to 1996. Ms. Brenner holds a J.D. from Columbia University Law School
and a joint degree from the University of Pennsylvania: a B.S. in
Communications Public Policy from the Annenberg School of Communication and a
B.A. in English Literature from the College of Arts and Sciences.
Bruce R. Gilburne has been our Vice President, Sales since July 1999. From
August 1998 until being promoted to Vice President of Sales, Mr. Gilburne was a
Sales Director for LinkShare. Prior to joining LinkShare, Mr. Gilburne was a
senior sales executive at USN Communications, a large re-seller of telecom
services, from May 1998 to August 1998. From August 1996 until May 1998, Mr.
Gilburne was East Coast Sales Director with Northwest Molded Products. He
served as a Sales Manager for Gary Plastics Packaging from March 1994 to August
1996. Mr. Gilburne holds a B.S. in Economics, Finance and Business
Administration from the University of Hartford.
Catherine L. McCall has been our Vice President, Client Services since
August 1999. From December 1998 to August 1999, she was an Internet Marketing
Consultant, providing services to clients that included U.S. West, Guild.com,
Promark and Prima Capital. From March 1996 through December 1998, she was
responsible for marketing and investor relations with Online System Services, a
Denver-based broadband services, e-commerce and portal software company. From
January 1995 to March 1996, Ms. McCall was a Marketing Consultant to OnPoint
Technologies, an Internet software company. Prior to January 1995, she held a
variety of senior marketing, sales and product development positions at
Standard & Poor's Compustat. Ms. McCall is the co-author of The Complete
Idiot's Guide to Online Marketing, published by Macmillan in
37
<PAGE>
1999. Ms. McCall holds an M.B.A. from Keller Graduate School of Management and
a B.A. from The Colorado College.
Wendy N. Salomon has served as our Vice President, Marketing since April
1999. From September 1998 until being promoted to Vice President, Marketing,
Ms. Salomon served as our Director, Brand Development. From July 1997 to July
1998, Ms. Salomon was Manager of Marketing for MTV Consumer Products at MTV:
Music Television. From August 1991 to May 1994, Ms. Salomon worked in Account
Management at Tatham EURO RSCG, a Chicago advertising agency. She was an
Assistant Account Executive on Procter & Gamble brands from August 1991 to
September 1992, when she was promoted to Account Executive for Ameritech
Consumer Services. Ms. Salomon holds an M.B.A. from the Stanford University
Graduate School of Business and a B.A. in History of Art and Architecture from
Brown University.
Douglas A. Alexander has served as a director since July 1998. Mr. Alexander
is a Managing Director of Internet Capital Group, Inc. Prior to joining
Internet Capital Group, Mr. Alexander co-founded Reality Online, Inc. in 1986
and later sold it to Reuters Group in 1994. Mr. Alexander continued to serve as
President and Chief Executive Officer of Reality Online after its acquisition
by Reuters Group until September 1997. Mr. Alexander is Chairman of the Board
of VerticalNet, Inc. and serves as a director of Arbinet Communications, Inc.,
Blackboard Inc., ComputerJobs.com, Inc., Deja.com, Inc., eMerge Interactive,
Inc., SageMaker, Inc., StarCite, Inc. and traffic.com, Inc.
Edward P. Gilligan has agreed to join our board of directors upon the
closing of this offering. Mr. Gilligan has served as President, Corporate
Services for American Express Travel Related Services, since February 1996.
From June 1995 to February 1996, Mr. Gilligan served as Executive Vice
President of Travel Management Services for American Express Travel Related
Services. Initially joining American Express in 1980, Mr. Gilligan has since
held a number of key positions with that organization. Mr. Gilligan serves on
the boards of American Express Incentive Solutions and Concur Technologies,
Inc.
I. Martin Pompadur has agreed to join our board of directors upon the
closing of this offering. Mr. Pompadur has served as Chairman of News Corp.
Europe since January 2000. Since June 1998, he has served as Executive Vice
President of News Corp., President of News Corp. Eastern and Central Europe and
a member of News Corp.'s Executive Management Committee. Since 1983, Mr.
Pompadur has served as Chairman and Chief Executive Officer of RP Companies'
various private and public limited partnerships, which operate television and
radio stations and cable television systems. Mr. Pompadur serves on the boards
of BSkyB, Fox Kids Europe, Stream, Metromedia International Group, Inc.,
StoryFirst Communications and Big Star Entertainment.
Classes of the Board
Upon the closing of this offering, the board of directors will be divided
into three classes that serve staggered three-year terms as follows:
<TABLE>
<CAPTION>
Class Expiration Member
----- ---------- ------
<S> <C> <C>
Class I 2001 Edward P. Gilligan and I. Martin Pompadur
Class II 2002 Douglas A. Alexander
Class III 2003 Heidi S. Messer and Stephen D. Messer
</TABLE>
Board Committees
Compensation Committee
The compensation committee of our board of directors reviews and makes
recommendations to the board regarding all forms of compensation provided to
the executive officers and directors of LinkShare. In addition, the
compensation committee reviews and makes recommendations on bonus and stock
compensation arrangements for all of our employees. The compensation committee
also administers our stock option plan. Effective upon the closing of this
offering, the members of the compensation committee will consist of Heidi S.
Messer and Edward P. Gilligan.
38
<PAGE>
Audit Committee
The audit committee of our board of directors reviews and monitors the
corporate financial reporting and the internal and external audits of
LinkShare. The committee's functions include:
. recommending annually to our board of directors the appointment of our
independent auditors;
. discussing and reviewing in advance the scope and the fees of our annual
audit and reviewing the results of our audits with our independent
auditors;
. reviewing and approving non-audit services of our independent auditors;
. reviewing compliance with our existing major accounting and financial
reporting policies;
. reviewing the adequacy of major accounting and financial reporting
policies; and
. reviewing our management's procedures and policies relating to the
adequacy of our internal accounting controls and compliance with
applicable laws relating to accounting practices.
After the closing of this offering, the committee's functions will also
include:
. reviewing compliance with applicable Securities and Exchange Commission
and Nasdaq rules regarding audit committees; and
. preparing a report for our annual proxy statement.
Effective upon the closing of this offering, the members of the audit committee
will consist of Douglas A. Alexander, Edward P. Gilligan and I. Martin
Pompadur, each of whom will be an independent director as defined under the
rules of the National Association of Securities Dealers, Inc.
Director Compensation
Our directors currently do not receive cash compensation for their service
as directors. We do reimburse them for expenses they incur in attending
meetings of the board and board committees. Non-employee directors are eligible
to receive options to purchase common stock awarded under our stock option
plan. See "--Stock Option Information--LinkShare Corporation Long-Term
Incentive Plan." Upon the closing of this offering, we will grant to each of
Edward P. Gilligan and I. Martin Pompadur, each of whom will be an independent
director as defined under the rules of the National Association of Securities
Dealers, options to purchase shares of our common stock at the initial
public offering price of our common stock. We will grant these options under
our stock option plan. These options will vest over three years.
Compensation Committee Interlocks and Insider Participation
Effective upon the closing of this offering, the compensation committee will
consist of Heidi S. Messer and Edward P. Gilligan. No interlocking relationship
exists between the board of directors or compensation committee and the board
of directors or compensation committee of any other company, nor has any such
interlocking relationship existed in the past.
Employment Agreements
On July 16, 1998, we entered into a two-year employment agreement with each
of Stephen D. Messer and Heidi S. Messer that provides for an annual base
salary and an annual merit bonus that may be granted at the discretion of the
board of directors. Each agreement provides for payment to the officer of
accrued and unpaid compensation plus a lump sum equal to six months salary if
the officer's employment is terminated by LinkShare without "cause" or by the
officer with "good cause," as each term is defined in the applicable agreement.
39
<PAGE>
Change of Control Arrangements
Shares subject to options or restricted stock awards granted under our stock
option plan generally vest over four years, with 25% of the shares vesting
after one year and the remaining shares vesting in equal monthly installments
over the next 36 months. The option agreements under this plan generally
provide accelerated vesting of 50% of the unvested shares subject to the option
upon a change of control that occurs after the first and before the third
anniversary of the award, and full acceleration upon a change of control that
occurs on the termination of employment within two years after a change of
control without "cause" or for "good reason" as defined in the agreement. In
general terms, change of control would occur where any person acquires
ownership of more than 50% of our voting shares or upon any merger or
acquisition where our stockholders before the transaction hold less than a
majority of the voting stock of the surviving entity outstanding after the
transaction.
We have issued shares of restricted stock or options to certain of our
officers and employees that provide for accelerated vesting of those shares or
options upon a change in control or upon the termination of employment without
"cause" or for "good reason" as defined in the agreement under which those
shares or options were issued.
Executive Compensation
The following table sets forth information for the fiscal year ended June
30, 1999, concerning compensation we paid to our Chief Executive Officer. No
other executive officer received compensation in excess of $100,000 in the
fiscal year ended June 30, 1999.
Summary Compensation Table
Annual Compensation
<TABLE>
<CAPTION>
Fiscal Other Annual
Name and Principal Position Year Salary Bonus Compensation Options
--------------------------- ------ ------- ----- ------------ -------
<S> <C> <C> <C> <C> <C>
Stephen D. Messer(1)
Chief Executive Officer.......... 1999 $80,000 -- -- --
</TABLE>
- --------
(1) Mr. Messer's annual salary during calendar year 2000 is $180,000.
Stock Option Information
LinkShare Corporation Long-Term Incentive Plan
Our board of directors has adopted, and the stockholders have approved, the
LinkShare Corporation Long-Term Incentive Plan in order to provide grants of
options, stock appreciation rights, restricted stock and cash bonuses to our
employees, directors and consultants. The plan authorizes the issuance of a
maximum of 2,576,597 shares of common stock. As of January 31, 2000, options to
purchase 1,625,399 shares had been issued under the plan.
The compensation committee, which is designated by our board of directors,
administers the plan. This committee has the power to:
. interpret the plan and adopt any rules, regulations and guidelines for
carrying out the plan that the committee feels are proper;
. correct any defect or supply any omission or reconcile any inconsistency
in the plan or related documents;
40
<PAGE>
. determine the form and terms of the awards made under the plan, including
persons eligible to receive the awards, whether awards have been earned
and the number of shares or other consideration subject to awards; and
. provide that option exercises may be paid in cash, common stock, a
portion of any award or a combination thereof.
The compensation committee may delegate to one or more of our senior
officers some or all of its authority under the plan. However, the committee
may not delegate its authority to grant awards under the plan or take other
action with respect to our officers who are subject to Section 16 of the
Securities Exchange Act of 1934.
Options. Stock options entitle the holder to purchase a specified number of
shares of our common stock at a specified exercise price, subject to the other
terms and conditions in the option grant. Under present law, however, incentive
stock options and options intended to qualify as performance-based compensation
under Section 162(m) of the tax code may not be granted at an exercise price
less than the fair market value of the common stock on the date of grant (or
less than 110% of the fair market value in the case of incentive stock options
granted to optionees holding more than 10% of the voting power of LinkShare).
Also, incentive stock options may not be granted under the plan after July 16,
2008.
Stock Appreciation Rights. Stock appreciation rights entitle the recipient
to receive a payment in cash or in stock equal to the excess of the value of
the stock on the day the right is exercised over the price specified in the
grant.
Stock Award. A stock award may be based on fair market value or other
valuations set by the committee and the exercise of the award may be subject to
conditions set forth in the award agreement, such as:
. continuous service,
. achievement of specific business objectives,
. attaining certain growth rates, or
. other requirements established by the committee.
Cash Award. An award may be granted in cash with the amount of future
payment subject to requirements and goals set by the committee.
Awards Generally. The awards described above may be granted singly, in
combination or in tandem. However, no participant may be granted stock options
or stock appreciation rights exercisable for more than 25% of the shares of
stock authorized under the plan.
Non-Transferability of Awards. Awards granted under the plan are generally
not transferable by the participant. Each award is exercisable during the
lifetime of the participant only by the participant, and any elections
regarding the awards may be made only by the participant. Except with respect
to incentive stock options, the committee may allow a participant to transfer
an award to certain parties specified by the committee.
Amendment and Termination of the Plan. Our board of directors may at any
time terminate or amend the plan or any related document, except that our board
of directors may not make any amendments that would impair the rights of any
participant under any award previously granted to the participant or that would
require stockholder approval without obtaining it.
Option Grants
We did not grant options during fiscal year 1999 to our Chief Executive
Officer or any executive officer whose compensation exceeded $100,000 during
that fiscal year.
41
<PAGE>
CERTAIN TRANSACTIONS
Founder Stock Acquisitions
Stephen D. Messer and Heidi S. Messer, two of our directors and executive
officers, and Cheryl C. Ho and Jianhao Meng, two of our executive officers,
were all involved in our founding and organization and may be considered our
promoters. At the time of LinkShare's incorporation in July 1997, Mr. Messer,
Ms. Messer and Mr. Meng acquired 2,000,000, 1,600,000 and 400,000 shares,
respectively, of LinkShare's common stock for nominal cash consideration. Under
our stock option plan, in July 1998, we issued Ms. Ho an option to purchase
68,085 shares of common stock at $0.13 per share. Effective in April 1999, Ms.
Ho was granted an additional option under our stock option plan for 131,915
shares of common stock with an exercise price of $1.23375 per share.
Internet Capital Group and Comcast Equity Investments
In July 1998, we issued and sold 2,431,611 shares of our Series A Preferred
Stock to Internet Capital Group, LLC at a purchase price of $1.23375 per share
for an aggregate purchase price of $3 million. In February 1999, those shares
were acquired by Internet Capital Group, Inc. as a result of a reorganization
merger with Internet Capital Group, LLC. Douglas A. Alexander, one of our
directors, is a managing director of Internet Capital Group, Inc. In August
1998, we issued and sold 810,537 shares of our Series A Preferred Stock at a
purchase price of $1.23375 per share for an aggregate purchase price of $1
million to Comcast Internet Investments I, Inc., a wholly-owned subsidiary of
Comcast Corporation. In November 1999, those shares were acquired by Comcast
Interactive Capital, LP, which is controlled by Comcast Corporation.
In February 2000, Comcast Interactive Capital, LP sold 400,000 shares of our
Series A Preferred Stock to Internet Capital Group, Inc. for $50 per share.
Registration Rights
All of our existing stockholders have demand and "piggyback" registration
rights with respect to their shares of common stock. For further information,
please see the section of this prospectus titled "Description of Capital
Stock--Registration Rights."
Bridge Financings
On August 23, 1999, and November 18, 1999, we sold an aggregate $2.5 million
principal amount of convertible promissory notes to our founders and the
holders of our Series A Preferred Stock for an equal amount of cash. On
February 7, 2000, we issued $6.5 million principal amount of new convertible
promissory notes to those persons in exchange for the notes previously issued
to them, a waiver of interest accrued on those notes and additional cash
advances made by them. Each of the February 2000 notes matures on July 31,
2000, and bears interest at the rate of 6.2% per year, payable upon maturity.
The following table gives the names of the persons to whom we issued the new
notes in February 2000, the principal amount of those notes held by each person
and the consideration paid for each of those notes:
<TABLE>
<CAPTION>
Principal Amount of
February 2000 Note
Name Issued to Named Person
---- ----------------------
<S> <C>
Internet Capital Group, Inc........................ $2,805,638
Comcast Interactive Capital, LP.................... $ 657,880
Stephen D. Messer.................................. $1,518,242
Heidi S. Messer.................................... $1,215,394
Jianhao Meng....................................... $ 302,849
</TABLE>
42
<PAGE>
Upon the closing of this offering, each of the notes we issued on February
7, 2000, will be converted into the number of shares of common stock determined
by dividing the principal amount plus accrued interest by 80% of the per-share
initial public offering price of our common stock.
Warrants
In connection with the issuance of convertible notes to Comcast Interactive
Capital, we issued to Comcast Interactive Capital warrants to buy shares of our
common stock on the 23rd day of each month beginning on August 23, 1999, and
ending on December 23, 1999. At the date of this prospectus, Comcast
Interactive Capital holds warrants to purchase 41,970 shares of our common
stock. Each of these warrants has a term of five years from the date of
issuance and is exercisable at $1.00 per share. These warrants have a net
exercise provision under which Comcast Interactive Capital may, in lieu of
payment of the exercise price in cash, surrender the warrant and receive a net
amount of shares, based on the fair market value of our common stock at the
time of the exercise of the warrant, after deducting the aggregate exercise
price.
Employment Agreements
LinkShare has entered into employment agreements with Stephen D. Messer and
Heidi S. Messer. Please see the section of this prospectus titled "Management--
Employment Agreements."
Patent Assignment
In July 1998, Stephen D. Messer contributed and assigned to LinkShare all of
his rights to the "Data Processing System for Integrated Tracking and
Management of Commerce Related Activities on a Public Access Network" and any
related patents that might be issued.
Other
Accent Maintenance Corp. is owned by the mother of Stephen D. Messer and
Heidi S. Messer. In the second half of calendar 1999, Accent Maintenance Corp.
performed moving, construction, renovation and other services related to the
relocation of our principal offices in New York City. Accent Maintenance
charged us approximately $863,000 for those services. In addition, since August
1998, we have used Accent Maintenance to provide janitorial, porter,
maintenance and similar services at our New York offices for monthly charges of
up to $6,000 plus the cost of supplies.
43
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of our common stock after the offering by:
. each person who beneficially owns more than 5% of our common stock;
. each of our executive officers and directors; and
. all executive officers and directors as a group.
We have determined beneficial ownership in accordance with the rules of the
SEC. Unless otherwise indicated, the persons included in the table have sole
voting and investment power with respect to all shares beneficially owned.
Shares of common stock issuable under options, convertible securities or
warrants that are currently exercisable or are exercisable within 60 days of
February 28, 2000 are treated as outstanding and beneficially owned with
respect to the person holding these options for the purpose of computing the
percentage ownership of that person. However, these shares are not treated as
outstanding for purposes of computing the percentage ownership of any other
person. For purposes of this table, we have assumed the automatic conversion of
all of our outstanding shares of preferred stock into 3,242,148 shares of
common stock upon the closing of this offering. This table does not include the
shares of common stock into which our outstanding convertible notes will be
converted upon the closing of this offering. See "Certain Transactions--Bridge
Financings."
<TABLE>
<CAPTION>
Percent of Common
Stock Beneficially
Owned
--------------------
Shares of
Common Stock Before the After the
Beneficially Owned Offering Offering
------------------ ---------- ---------
<S> <C> <C> <C>
Internet Capital Group, LLC
#800 The Safeguard Bldg.
435 Devon Park Drive
Wayne, PA 19087....................... 2,831,611 39.1%
Comcast Interactive Capital, LP(1)
1500 Market Street
Philadelphia, PA 19102................ 452,507 6.2%
Stephen D. Messer..................... 2,000,000 27.6%
Heidi S. Messer....................... 1,600,000 22.1%
Jianhao Meng.......................... 400,000 5.5%
Douglas A. Alexander(2)............... 0 0 0
All executive officers and directors
as a group (10 persons)(3)........... 4,152,733 56.1%
</TABLE>
- --------
* Less than 1%.
(1) Includes 41,970 shares of common stock that may be purchased under certain
warrants issued in connection with our August 23, 1999 convertible note
financing. See "Certain Transactions--Warrants."
(2) Mr. Alexander, a director of LinkShare, is a Managing Director of Internet
Capital Group, Inc. and may be deemed to have beneficial ownership of the
2,831,611 shares beneficially owned by Internet Capital Group; however,
Mr. Alexander disclaims beneficial ownership of these shares.
(3) Includes 152,733 shares of common stock issuable under stock options that
are exercisable within 60 days of February 28, 2000.
44
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following is a summary description of our capital stock. We refer you to
our restated certificate of incorporation and bylaws, both of which have been
filed as exhibits to the registration statement, and the applicable provisions
of the Delaware General Corporation Law. Please see the section of this
prospectus titled "Additional Information."
General
Upon the closing of this offering, our authorized capital stock will consist
of shares of common stock and shares of preferred stock, both of which
have a par value of $.001 per share. Assuming the underwriters do not exercise
their over-allotment option, we will have shares of common stock and no
shares of preferred stock outstanding after the closing of this offering.
Common Stock
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive
proportionately any dividends as may be declared by our board of directors,
subject to any preferential dividend rights of outstanding preferred stock.
Upon our liquidation, dissolution or winding up, the holders of common stock
are entitled to receive proportionately our net assets available after the
payment of all debts and other liabilities and subject to the prior rights of
any outstanding preferred stock. Holders of common stock have no preemptive,
subscription, redemption or conversion rights. Our outstanding shares of common
stock are, and the shares offered by us in this offering will be, when issued
and paid for, fully paid and nonassessable. The rights, preferences and
privileges of holders of common stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any series of preferred
stock which we may designate and issue in the future.
Preferred Stock
The board of directors may issue preferred stock, without stockholder
approval, in such series and with such designations, preferences, conversion or
other rights, voting powers, qualifications, limitations, or restrictions as
the board of directors deems appropriate. While the board of directors has no
current intention of doing so, it could, without stockholder approval, issue
preferred stock with voting and conversion rights which adversely affect the
benefit of any voting power and the benefit of other rights of the holders of
the common stock and which the board of directors could use as an anti-takeover
measure without any further action by the holders of common stock. This may
have the effect of delaying, deferring or preventing a change of control of
LinkShare by increasing the number of shares necessary to gain control of the
company. Except as described below, the board of directors has not authorized
the issuance of any shares of preferred stock and we have no agreements or
current plans for the issuance of any shares of preferred stock.
Series A Preferred Stock
As of January 31, 2000 we had issued and outstanding 3,242,148 shares of
Series A Preferred Stock, par value $.001 per share, which will automatically
convert into an aggregate of 3,242,148 shares of common stock upon the closing
of this offering.
Options
As of January 31, 2000, options to purchase a total of 1,625,399 shares of
common stock were outstanding. The total number of shares of common stock that
may be subject to the granting of options under our stock option plan is equal
to 2,576,597. Please see the sections of this prospectus titled "Management--
Stock Option Information--LinkShare Corporation Long-Term Incentive Plan" and
"Shares Eligible for Future Sale."
45
<PAGE>
We have outstanding a large number of stock options to purchase our common
stock with exercise prices significantly below the price at which our common
stock is being offered in this offering. The possible sale of a significant
number of those shares by our option holders may have an adverse effect on the
price of the common stock. For a discussion of our intentions with respect to
the registration of the shares underlying these options, see "Shares Eligible
for Future Sale."
Warrants
As of January 31, 2000, we had issued and outstanding warrants to purchase
41,970 shares of common stock, at an exercise price of $1.00 per share. Of
those warrants, 8,394 will expire on the 23rd day of each month beginning
August 23, 2004. Please see the sections of this prospectus titled "Certain
Transactions-Warrants."
Registration Rights
Pursuant to the terms of the investor rights agreement that we entered into
with our current stockholders in connection with the issuance and sale of their
stock, as of January 31, 2000, the holders of shares of common stock are
entitled to certain demand registration rights with respect to the registration
of their shares under the Securities Act. The holders of a majority of these
shares are entitled to demand that we register their shares under the
Securities Act, subject to certain limitations. We are not required to effect
more than two such registrations pursuant to such demand registration rights
and not more than one in any 12 month period. In addition, pursuant to the
terms of the investor rights agreement, the holders of approximately
shares of common stock are entitled to certain piggyback registration rights
with respect to the registration of such shares of common stock under the
Securities Act, subject to certain limitations. Further, at any time after we
become eligible to file a registration statement on Form S-3 certain holders
may require us to file registration statements under the Securities Act on Form
S-3 with respect to their shares of common stock. These registration rights are
subject to certain conditions and limitations, including the right of the
underwriters of an offering to limit the number of shares of common stock held
by security holders with registration rights to be included in such
registration. In addition, holders of these shares will be restricted from
exercising their demand rights for a period of 180 days after the date of this
prospectus. We are generally required to bear all of the expenses of all such
registrations, except underwriting discounts and commissions. Registration of
any of the shares of common stock held by security holders with registration
rights would result in such shares becoming freely tradable without restriction
under the Securities Act immediately upon effectiveness of such registration.
Anti-takeover Effects of Certain Provisions of Delaware Law and Our Certificate
of Incorporation and Bylaws
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law, as amended from time to time (the DGCL). Subject to certain
exceptions, Section 203 prohibits a publicly-held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the interested stockholder attained
such status with the approval of the board of directors or unless the business
combination is approved in a prescribed manner. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested stockholder. Subject to certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, fifteen percent (15%) or more
of the corporation's voting stock. This statute could prohibit or delay the
accomplishment of mergers or other takeover or change in control attempts with
respect to LinkShare and, accordingly, may discourage attempts to acquire
LinkShare.
In addition, certain provisions of the restated certificate of incorporation
and bylaws, which provisions are summarized in the following paragraphs, may be
deemed to have an anti-takeover effect and may delay, defer or prevent a tender
offer or takeover attempt that a stockholder might consider in its best
interest, including those attempts that might result in a premium over the
market price for the shares held by stockholders.
46
<PAGE>
Board of Directors
Upon the closing of this offering, our board of directors will be divided
into three classes of directors serving staggered three-year terms. As a
result, approximately one-third of the board of directors will be elected each
year. In addition, our restated certificate of incorporation provides that
directors may be removed only for cause by the affirmative vote of the holders
of two-thirds of our shares of capital stock entitled to vote. Our restated
certificate of incorporation further provides that any vacancy on our board of
directors, including a vacancy resulting from an enlargement of our board of
directors, may only be filled by a vote of a majority of our directors then in
office. The classification of our board of directors and the limitations on the
removal of directors and filling of vacancies could make it more difficult for
a third party to acquire, or discourage a third party from acquiring, control
of LinkShare.
Stockholder Action; Special Meeting of Stockholders
Our restated certificate of incorporation provides that stockholders may not
take action by written consent, but only at duly called annual or special
meetings of stockholders. Special meetings of stockholders may be called only
by the chairman of the board of directors or by a majority of the board of
directors.
Advance Notice Requirements for Stockholder Proposals and Director Nominations
Our bylaws provide that stockholders seeking to bring business before an
annual meeting of stockholders, or to nominate candidates for election as
directors at an annual meeting of stockholders, must provide timely notice of
their proposals to the board of directors in writing. To be timely, a
stockholder's notice must be delivered to or mailed and received at our
principal executive offices not less than 120 days nor more than 150 days prior
to the first anniversary of the date of the notice of annual meeting we
provided with respect to the previous year's annual meeting of stockholders. If
no annual meeting of stockholders was held in the previous year or the date of
the annual meeting of stockholders has been changed to be more than 30 calendar
days earlier than or 60 calendar days after such anniversary, for notice by the
stockholder to be timely, we must receive it not more than 90 days before nor
later than the later of (1) 60 days prior to the annual meeting of stockholders
or (2) the close of business on the 10th day following the date on which notice
of the date of the meeting is given to stockholders or made public, whichever
occurs first. LinkShare's bylaws also specify certain requirements as to the
form and content of a stockholder's notice. These provisions could have the
effect of delaying stockholders from bringing matters before an annual meeting
of stockholders or from making nominations for directors at an annual meeting
of stockholders.
Authorized but Unissued Shares
The authorized but unissued shares of common stock and preferred stock are
available for future issuance without stockholder approval. We may use these
additional shares for a variety of corporate purposes, including future public
offerings to raise additional capital, corporate acquisitions and employee
benefit plans. The existence of authorized but unissued shares of common stock
and preferred stock could render more difficult or discourage an attempt to
obtain control of LinkShare by means of a proxy contest, tender offer, merger
or otherwise.
The DGCL provides generally that the affirmative vote of a majority of the
shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or bylaws, unless a corporation's certificate of
incorporation or bylaws, as the case may be, requires a greater percentage.
Limitation of Liability and Indemnification Matters
The restated certificate of incorporation provides that, except to the
extent prohibited by the DGCL, our directors shall not be personally liable to
us or our stockholders for monetary damages for any breach of fiduciary duty as
directors of LinkShare. Under the DGCL, the directors have a fiduciary duty to
LinkShare which is not eliminated by this provision of the restated certificate
of incorporation and, in appropriate
47
<PAGE>
circumstances, equitable remedies such as injunctive or other forms of
nonmonetary relief will remain available. In addition, each director will
continue to be subject to liability under the DGCL for breach of the director's
duty of loyalty to LinkShare, for acts or omissions which are found by a court
of competent jurisdiction to be not in good faith or which involve intentional
misconduct, or knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are prohibited by the DGCL. This
provision also does not affect the directors' responsibilities under any other
laws, such as the Federal securities laws or state or Federal environmental
laws.
The DGCL provides further that the indemnification permitted thereunder
shall not be deemed exclusive of any other rights to which the directors and
officers may be entitled under the corporation's bylaws, any agreement, a vote
of stockholders or otherwise. Our restated certificate of incorporation
eliminates the personal liability of directors to the fullest extent permitted
by Section 102(b)(7) of the DGCL and provides that LinkShare shall fully
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding (whether
civil, criminal, administrative or investigative) by reason of the fact that
person:
. is or was a director or officer of LinkShare, or
. is or was serving at LinkShare's request as a director or officer of:
. another corporation,
. partnership,
. joint venture,
. trust, or
. other enterprise,
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by that person in connection
with the action, suit or proceeding.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under our restated certificate of incorporation.
LinkShare is not aware of any threatened litigation or proceeding that may
result in a claim for such indemnification.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is HSBC Bank USA.
48
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no public market for our common stock.
Future sales of substantial amounts of our common stock in the public market
following this offering, including shares issued upon exercise of outstanding
options or options that may be granted after this offering, could harm market
prices and could impair our ability to raise capital through the sale of our
equity securities. As described below, less than % of our shares currently
outstanding will be available for sale immediately after this offering because
of restrictions on resale. Sales of a substantial amount of our common stock in
the public market after the restrictions lapse could adversely affect the
prevailing market price of our common stock and our ability to raise equity
capital in the future.
Upon the closing of this offering and assuming that none of our outstanding
options are exercised, we will have outstanding shares of common stock, or
shares if the underwriters exercise their over-allotment option in full. Of
these outstanding shares, shares, or shares if the underwriters
exercise their over-allotment option in full, will be freely tradable without
restriction under the Securities Act, except for shares purchased by our
"affiliates," as that term is defined in Rule 144 under the Securities Act. Any
shares purchased by our affiliates generally may be sold in compliance with
Rule 144 as described below.
The remaining shares outstanding are "restricted securities" within the
meaning of Rule 144. Restricted securities may be sold in the public market
only if registered or if they qualify for an exemption from registration under
Rules 144, 144(k) or 701 promulgated under the Securities Act, which are
summarized below. Sales of the restricted securities in the public market, or
the availability of these shares for sale, could adversely affect the market
price of our common stock.
At January 31, 2000, options for a total of 1,625,399 shares of common stock
had been granted under our stock option plan. Approximately 210,252 of those
options were vested and exercisable at such date. Of those vested shares,
are subject to 180-day lock-up agreements described below.
We anticipate that our current stockholders will enter into lock-up
agreements or other contractual restrictions providing that they will not
offer, sell, contract to sell or otherwise dispose of any shares of our common
stock for a period of 180 days after the date of this prospectus, without the
prior written consent of Credit Suisse First Boston Corporation. As a result of
these lock-up agreements and other contractual restrictions, notwithstanding
possible earlier eligibility for sale under the provisions of Rule 144, none of
these shares will be resellable until 181 days after the date of this
prospectus. Credit Suisse First Boston Corporation may, in its sole discretion
and at any time without notice, release any portion of the securities subject
to lock-up agreements or other contractual restrictions.
In general, under Rule 144 as currently in effect, after the expiration of
the lockup agreements, a person who has beneficially owned restricted shares
for at least one year would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of:
. 1% of the number of shares of our common stock then outstanding, which
will equal approximately shares immediately after this offering; or
. the average weekly trading volume of our common stock during the four
calendar weeks preceding the sale.
Sales under Rule 144 are also subject to manner of sale provisions, notice
requirements and the availability of current public information about us. Under
Rule 144(k), a person who is not deemed to have been an affiliate of ours at
any time during the six months preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years, is entitled to sell such
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
49
<PAGE>
Rule 701 permits our employees, officers, directors or consultants who
purchased shares pursuant to a written compensatory plan or contract to resell
these shares in reliance upon Rule 144 but without compliance with specific
restrictions. Rule 701 provides that affiliates may sell their Rule 701 shares
under Rule 144 without complying with the holding period requirement and that
non-affiliates may sell these shares in reliance on Rule 144 without complying
with the holding period, public information, volume limitation or notice
provisions of Rule 144.
Following the closing of this offering, we will file a registration
statement on Form S-8 to register shares of our common stock subject to
outstanding options or reserved for future issuance under our stock option
plan. As of January 31, 2000, options to purchase approximately 1,625,399
shares of our common stock were outstanding and approximately 951,198 shares of
our common stock were reserved for future issuance under our stock option plan.
This registration statement will automatically become effective upon filing. As
a result, the common stock issued upon exercise of outstanding vested options,
other than common stock issued to our affiliates, will be available for
immediate resale in the open market, subject to any applicable lock-up
agreement.
50
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, Deutsche Bank
Securities Inc, and Bear, Stearns & Co. 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................................
Deutsche Bank Securities Inc. ........................................
Bear, Stearns & Co. Inc. .............................................
-----
Total.............................................................
=====
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in this 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 this
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares from us at the initial public offering price
less the underwriting discounts. The option may be exercised only to cover any
over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker-dealers. After the initial public offering, the public
offering price and concession and discount to broker-dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
will pay:
<TABLE>
<CAPTION>
Per Share Total
------------------- -------------------
Without With Without With
Over- Over- Over- Over-
allotment allotment allotment allotment
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Underwriting Discounts and Commissions
paid by us........................... $ $ $ $
Expenses payable by us................ $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We, our officers, our directors and our stockholders have agreed that we and
they will not offer, sell, contract to sell, announce an intention to sell,
pledge or otherwise dispose of, directly or indirectly, or file with the SEC a
registration statement under the Securities Act relating to any additional
shares of our common stock or securities convertible into or exchangeable or
exercisable for any of our common stock, or publicly disclose the intention to
make any such offer, sale, pledge, disposition or filing, without the prior
written consent of Credit Suisse First Boston Corporation for a period of 180
days after the date of this prospectus, except in our case for issuances
pursuant to the exercise of employee stock options outstanding on the date
hereof.
51
<PAGE>
The underwriters have reserved for sale, at the initial public offering
price up to shares of our common stock for employees, directors and several
other persons associated with us who have expressed an interest in purchasing
common stock in this offering. The number of shares available for sale to the
general public in this offering will be reduced to the extent these persons
purchase the reserved shares. Any reserved shares not so purchased will be
offered by the underwriters to the general public on the same terms as the
other shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act or contribute to payments which the underwriters may be required
to make in that respect.
We have applied to list our common stock on The Nasdaq Stock Market's
National Market under the symbol "LNKS."
Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be determined by negotiation
between our management and representatives of the underwriters. The principal
factors that will 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 prospects 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 this offering size,
which creates a syndicate short position.
. Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
. Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by 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
otherwise be in the absence of these transactions. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
52
<PAGE>
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of our 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) the purchaser is entitled under
applicable provincial securities laws to purchase the common stock without the
benefit of a prospectus qualified under Canadian securities laws; (ii) where
required by law, that the purchaser is purchasing as principal and not as
agent; and (iii) the purchaser has reviewed the text above under "Resale
Restrictions."
Rights of Action for Ontario Purchasers
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named in
this prospectus may be located outside of Canada and, as a result, it may not
be possible for Canadian purchasers to effect service of process within Canada
upon the issuer or those persons. All or a substantial portion of the assets of
the issuer and those persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or those
persons in Canada or to enforce a judgment obtained in Canadian courts against
the issuer or persons outside of Canada.
Notice to British Columbia Residents
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the 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 the purchaser pursuant to this offering. The report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one report must
be filed in respect of common stock acquired on the same date and under the
same prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in our common
stock in their particular circumstances and with respect to the eligibility of
our common stock for investment by the purchaser under relevant Canadian
legislation.
53
<PAGE>
EXPERTS
Our financial statements as of June 30, 1998 and 1999 and for the years then
ended have been included in this prospectus and the registration statement in
reliance upon the report of KPMG LLP, independent certified public accountants,
appearing elsewhere in this prospectus, and upon the authority of such firm as
experts in auditing and accounting.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Baker Botts L.L.P., New York, New York. Certain legal matters in connection
with the offering will be passed upon for the underwriters by Weil, Gotshal &
Manges LLP, New York, New York.
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1, including
its exhibits and schedules, under the Securities Act with respect to the shares
to be sold in this offering. This prospectus, which forms a part of the
registration statement, does not contain all the information included in the
registration statement. You should refer to the registration statement,
including its exhibits and schedules, for further information about us or the
shares to be sold in this offering. Statements contained in this prospectus as
to the contents of any contract or other document referred to are not
necessarily complete, and where any contract or other document is an exhibit to
the registration statement, we refer you to that exhibit for a more complete
description of the matter involved.
We are not currently subject to the informational requirements of the
Securities Exchange Act of 1934. However, as a result of this offering, we will
become subject to the informational requirements of the Securities Exchange
Act. Accordingly, following this offering, we will file reports and other
information with the SEC.
You may read and copy the registration statement or any reports, statements
or other information we file with the SEC at the SEC's public reference room at
450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-
SEC-0330 for further information on the public reference rooms. Our SEC
filings, including the registration statement, are also available to you on the
SEC Internet site (http://www.sec.gov). In addition, reports, proxy statements
and other information concerning LinkShare may be inspected at the National
Association of Securities Dealers, Inc. at 1735 K Street, N.W., Washington,
D.C. 20006.
54
<PAGE>
LINKSHARE CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report.............................................. F-2
Balance Sheets as of June 30, 1998 and 1999 and December 31, 1999
(unaudited).............................................................. F-3
Statements of Operations for the years ended June 30, 1998 and 1999, and
for the six months ended December 31, 1998 (unaudited) and December 31,
1999 (unaudited)......................................................... F-4
Statements of Stockholders' Equity (Deficit) for the years ended June 30,
1998 and 1999, and for
the six months ended December 31, 1999 (unaudited)....................... F-5
Statements of Cash Flows for the years ended June 30, 1998 and 1999, and
for the six months ended December 31, 1998 (unaudited) and December 31,
1999 (unaudited)......................................................... F-6
Notes to Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
LinkShare Corporation:
We have audited the accompanying balance sheets of LinkShare Corporation as
of June 30, 1998 and 1999, and the related statements of operations,
stockholders' equity (deficit) and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of LinkShare Corporation as of
June 30, 1998 and 1999, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
KPMG LLP
New York, New York
February 16, 2000
F-2
<PAGE>
LINKSHARE CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
Pro Forma
June 30, (Note 1)
---------------------- December 31, December 31,
1998 1999 1999 1999
--------- ----------- ------------ ------------
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 4,000 $ 238,666 $ 6,822 $ 3,661,822
Short-term investments.................................. -- 398,695 -- --
Accounts receivable, less allowance for doubtful
accounts and returns of $0, $95,000 and $254,000 as of
June 30, 1998, June 30, 1999 and December 31, 1999,
respectively........................................... 2,847 479,880 2,344,941 2,344,941
Prepaid expenses and other current assets............... 67,475 20,327 19,840 19,840
--------- ----------- ----------- -----------
Total current assets.................................. 74,322 1,137,568 2,371,603 6,026,603
Property and equipment, net............................... 26,718 605,988 2,157,757 2,157,757
Other assets, net......................................... 680 44,602 222,162 222,162
--------- ----------- ----------- -----------
Total assets.......................................... $ 101,720 $ 1,788,158 $ 4,751,522 $ 8,406,522
========= =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable........................................ $ 103,987 $ 650,153 $ 2,190,812 $ 2,190,812
Accrued expenses........................................ 140,404 184,158 499,161 499,161
Deferred revenue........................................ 12,833 391,144 1,084,838 1,084,838
Advances from stockholders.............................. -- -- 345,000 --
Convertible notes payable............................... -- -- 2,500,000 --
--------- ----------- ----------- -----------
Total current liabilities............................. 257,224 1,225,455 6,619,811 3,774,811
Stockholders' equity (deficit):
Preferred stock, $.001 par value; 3,750,000 shares
authorized:
Series A convertible preferred stock, 3,250,000 shares
authorized, 0, 3,242,148 and 3,242,148 shares issued
and outstanding as of June 30, 1998 and 1999 and
December 31, 1999, respectively, none issued on a pro
forma basis (liquidation preference of $4,000,000 at
June 30, 1999)....................................... -- 3,242 3,242 --
Common stock, $.001 par value; 10,000,000 shares
authorized, 4,000,000 shares issued and outstanding;
shares issued on a pro forma basis................. 4,000 4,000 4,000 7,242
Additional paid-in capital.............................. 33,924 5,449,886 6,778,751 14,903,751
Deferred compensation................................... -- (1,320,485) (1,879,235) (1,879,235)
Accumulated deficit..................................... (193,428) (3,573,940) (6,775,047) (8,400,047)
--------- ----------- ----------- -----------
Total stockholders' equity (deficit).................. (155,504) 562,703 (1,868,289) 4,631,711
--------- ----------- ----------- -----------
Commitments and contingencies
Total liabilities and stockholders' equity (deficit).. $ 101,720 $ 1,788,158 $ 4,751,522 $ 8,406,522
========= =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
LINKSHARE CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six months ended
Year ended June 30, December 31,
---------------------- -------------------------
1998 1999 1998 1999
--------- ----------- ------------ -----------
(unaudited)
<S> <C> <C> <C> <C>
Revenues:
Licensing fees........... $ 8,167 $ 220,881 $ 45,275 $ 611,328
Network fees............. 39,327 493,820 94,038 2,001,297
--------- ----------- ------------ -----------
Total revenues......... 47,494 714,701 139,313 2,612,625
--------- ----------- ------------ -----------
Operating expenses:
Cost of revenues......... 12,968 125,432 16,544 407,826
Sales and marketing...... 41,026 1,795,020 430,161 2,775,924
Product development...... 103,520 620,521 212,354 718,576
General and
administrative.......... 83,408 1,412,303 453,724 1,129,940
Noncash compensation..... -- 203,039 92,143 250,610
--------- ----------- ------------ -----------
Total operating
expenses.............. 240,922 4,156,315 1,204,926 5,282,876
--------- ----------- ------------ -----------
Loss from operations... (193,428) (3,441,614) (1,065,613) (2,670,251)
Interest income............ -- 61,102 28,344 18,649
Interest expense........... -- -- -- (549,505)
--------- ----------- ------------ -----------
Net loss............... $(193,428) $(3,380,512) $ (1,037,269) $(3,201,107)
========= =========== ============ ===========
Basic and diluted net loss
per share................. $ (0.05) $ (0.85) $ (0.26) $ (0.80)
========= =========== ============ ===========
Shares used in computing
basic and diluted net loss
per share ................ 4,000,000 4,000,000 4,000,000 4,000,000
========= =========== ============ ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
LINKSHARE CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED JUNE 30, 1998 AND 1999 AND SIX MONTHS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Series A Total
Preferred Stock Common Stock Additional stockholders'
---------------- ---------------- paid-in Deferred Accumulated equity
Shares Amount Shares Amount capital Compensation deficit (deficit)
--------- ------ --------- ------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30,
1997................... -- $ -- -- $ -- $ -- $ -- $ -- $ --
Issuance of common
stock to founders..... -- -- 4,000,000 4,000 33,924 -- -- 37,924
Net loss............... -- -- -- -- -- -- (193,428) (193,428)
--------- ------ --------- ------ ---------- ----------- ----------- -----------
Balance at June 30,
1998................... -- -- 4,000,000 4,000 33,924 -- (193,428) (155,504)
Issuance of Series A
convertible preferred
stock, net of $104,320
of issuance costs..... 3,242,148 3,242 -- -- 3,892,438 -- -- 3,895,680
Deferred compensation
in connection with
grant of stock
options............... -- -- -- -- 1,523,524 (1,523,524) -- --
Amortization of
deferred
compensation.......... -- -- -- -- -- 203,039 -- 203,039
Net loss............... -- -- -- -- -- -- (3,380,512) (3,380,512)
--------- ------ --------- ------ ---------- ----------- ----------- -----------
Balance at June 30,
1999................... 3,242,148 3,242 4,000,000 4,000 5,449,886 (1,320,485) (3,573,940) 562,703
Deferred compensation
in connection with
grant of stock options
(unaudited)........... -- -- -- -- 809,360 (809,360) -- --
Amortization of
deferred compensation
(unaudited)........... -- -- -- -- -- 250,610 -- 250,610
Issuance of warrants in
connection with
convertible notes
(unaudited)........... -- -- -- -- 519,505 -- -- 519,505
Net loss for the period
(unaudited)........... -- -- -- -- -- -- (3,201,107) (3,201,107)
--------- ------ --------- ------ ---------- ----------- ----------- -----------
Balance at December 31,
1999 (unaudited)....... 3,242,148 $3,242 4,000,000 $4,000 $6,778,751 $(1,879,235) $(6,775,047) $(1,868,289)
========= ====== ========= ====== ========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
LINKSHARE CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months Ended
Year ended June 30, December 31,
---------------------- ------------------------
1998 1999 1998 1999
--------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss.................... $(193,428) $(3,380,512) $(1,037,269) $(3,201,107)
Adjustments to reconcile net
loss to net cash (used in)
provided by operating
activities:
Depreciation and
amortization.............. 11,206 84,494 16,390 210,731
Noncash compensation....... -- 203,039 92,143 250,610
Noncash financing expense
from issuance of
warrants.................. -- -- -- 519,505
Provision for doubtful
accounts.................. 25,000 261,000 -- 158,760
Changes in operating assets
and liabilities:
Accounts receivable....... (27,847) (738,033) (228,830) (2,023,821)
Prepaid expenses and other
current assets........... (67,475) 47,148 67,206 487
Accounts payable.......... 103,987 546,166 245,130 1,540,659
Accrued expenses.......... 140,404 43,754 (44,563) 315,003
Deferred revenue.......... 12,833 378,311 230,125 693,694
--------- ----------- ----------- -----------
Net cash (used in)
provided by operating
activities.............. 4,680 (2,554,633) (659,668) (1,535,479)
--------- ----------- ----------- -----------
Cash flows from investing
activities:
Sale (purchase) of short-
term investments........... -- (398,695) -- 398,695
Purchase of property and
equipment.................. -- (657,286) (132,654) (1,759,097)
Other assets................ (680) (50,400) (35,958) (180,963)
--------- ----------- ----------- -----------
Net cash used in
investing activities.... (680) (1,106,381) (168,682) (1,541,365)
--------- ----------- ----------- -----------
Cash flows from financing
activities:
Net proceeds from issuance
of convertible notes....... -- -- -- 2,500,000
Advances from stockholders.. -- -- -- 345,000
Net proceeds from issuance
of Series A convertible
preferred stock............ -- 3,895,680 3,895,680 --
--------- ----------- ----------- -----------
Net cash provided by
financing activities.... -- 3,895,680 3,895,680 2,845,000
--------- ----------- ----------- -----------
Net increase (decrease)
in cash and cash
equivalents............. 4,000 234,666 3,067,400 (231,844)
Cash and cash equivalents at
beginning of year........... -- 4,000 4,000 238,666
--------- ----------- ----------- -----------
Cash and cash equivalents at
the end of year............. $ 4,000 $ 238,666 $3,071,400 $ 6,822
========= =========== =========== ===========
Supplemental disclosure of
noncash transactions:
Issuance of common stock to
founders in exchange for
fixed assets............... $ 37,924 $ -- $ -- $ --
========= =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
LINKSHARE CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1999
(All information subsequent to June 30, 1999 is unaudited)
(1) Summary of Operations and Significant Accounting Policies
(a) Summary of Operations
LinkShare Corporation ("LinkShare" or the "Company") was incorporated on
July 1, 1997. LinkShare enables the formation of cooperative, performance-based
online business relationships. The Company's networks and technology enable
online businesses to find the right Web sites for those business relationships,
negotiate the terms of their relationships with the publishers of those Web
sites, and evaluate the success of those relationships. The Company's first
network is The LinkShare Network(TM), an affiliate marketing solution that
enables online merchants to establish performance-based relationships with
thousands of Web site publishers who seek to convert visitor traffic into
revenues by becoming marketing "affiliates" of those merchants. The LinkShare
Network(TM) provides affiliate Web sites a quick and easy way to establish
hyperlink promotions with the merchant members of the network to drive traffic
from its site to a merchant's Web site. If a visitor accesses a merchant's Web
site through that hyperlink and takes a prescribed action, such as buying a
product, the affiliate earns a fee payable by that merchant. Merchants pay
LinkShare fees for access to the network and for tracking the activity that
occurs through their links with their marketing affiliates. The Company
operates in one segment, operating online networks and providing software and
services to support those networks.
(b) Unaudited Interim Financial Information
The interim financial statements of the Company as of December 31, 1999, and
for the six months ended December 31, 1998 and 1999, are unaudited. Certain
information and note disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the Securities
and Exchange Commission ("SEC") relating to interim financial statements. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of the financial position, the
results of operations and cash flows have been included in such unaudited
financial statements. The results of operations for the six months ended
December 31, 1999, are not necessarily indicative of the results to be expected
for the entire year.
(c) Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(d) Cash and Cash Equivalents and Short Term Investments
The Company considers all highly liquid securities, with original maturities
of three months or less when acquired, to be cash equivalents. Cash
equivalents, consisting of money market accounts, were approximately $0 and
$418,000 at June 30, 1998 and 1999, respectively. Short-term investments at
June 30, 1999, are comprised entirely of U.S. Treasury bills, which matured in
July 1999. Such investments were classified as available for sale and are
carried at amortized cost, which approximates fair value.
(e) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is calculated using the straight-line method over the estimated
useful lives of the related assets, which is three years for computer
F-7
<PAGE>
LINKSHARE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
equipment and software and seven years for office equipment. Leasehold
improvements are amortized over the shorter of the related lease term or the
asset's estimated useful life.
(f) Other Assets
At June 30, 1999, other assets include $49,650 of intangible assets, which
are comprised of costs incurred for patents and trademarks related to the
Company's networks and software. Amortization is provided using the straight-
line method over five years. Accumulated amortization was $0 and $6,478 as of
June 30, 1998 and 1999, respectively.
(g) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in results of operations in the period that
the tax change occurs. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized.
(h) Revenue Recognition
The Company's revenues are derived primarily from software and network
access licensing fees and network fees for services provided to members of the
Company's networks, generally calculated as a percentage of net sales, or fee
per activity, generated through the networks, or from click-throughs,
calculated at a cost per thousand click-throughs ("CPM"). Licensing fees are
deferred at the time of software shipment and billing and recognized as revenue
ratably over the related contractual period the Company provides network
availability. The Company does not perform software installation and
integration services. Network fees are recognized monthly, when earned or when
the applicable service is provided. Cost of revenues primarily consists of the
costs of operating the networks, including depreciation of servers and related
software and Internet connectivity and technical support costs.
(i) Product Development Costs
Software development costs incurred subsequent to the establishment of
technological feasibility through general release of products are capitalized
and amortized over the estimated lives of the related products. Technological
feasibility is established upon completion of a working model. To date, the
timing of completion of a working model of the Company's products and general
release have substantially coincided. As a result, the Company has not
capitalized any software development costs since such costs have not been
significant. All development costs have been charged to product development
expense in the accompanying statements of operations.
(j) Stock-Based Compensation
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," permits entities to recognize as expense over
the vesting period the fair value of all stock-based awards on the date of
grant or to continue to apply the provisions of Accounting Principle Board
("APB") Opinion No. 25 and provide pro forma net earnings (loss) disclosures
for employee stock option grants as if the fair-value-based method defined in
SFAS No. 123 had been applied. The Company has elected to apply the provisions
of APB Opinion No. 25 and records compensation expense for employee stock
options
F-8
<PAGE>
LINKSHARE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
for the excess, if any, of the market price of the underlying stock on the date
of grant over the exercise price, and provides the pro forma disclosures.
(k) Advertising Costs
The Company expenses the cost of advertising and promoting its services as
incurred.
(l) Financial Instruments and Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist of cash and cash equivalents, short-term
investments, accounts receivable, accounts payable and accrued expenses. At
June 30, 1998 and 1999, the fair value of these instruments approximated their
financial statement carrying amount because of the short-term maturity of these
instruments. No single customer exceeded 10% of either revenue or accounts
receivable for any period presented.
(m) Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the assets to future net cash flows
expected to be generated by the assets. If the assets are considered to be
impaired, the impairment loss to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of the assets.
(n) Basic and Diluted Net Loss Per Share
Basic earnings per share ("EPS") excludes dilution for common stock
equivalents and is computed by dividing income or loss available to common
stockholders by the weighted average number of common shares outstanding for
the period. Diluted EPS is computed based on the weighted average number of
shares outstanding increased by the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. Diluted net loss per share is equal to basic net loss per
share for each of the periods presented since all common stock equivalents are
anti-dilutive.
Potential dilutive shares consist of stock options, convertible preferred
stock, convertible notes payable and warrants. During the year ended June 30,
1998, there were no potentially dilutive common stock equivalents. As of June
30, 1999, there were outstanding preferred shares convertible into 3,242,148
shares of common stock and options to purchase 951,470 shares of common stock.
As of December 31, 1999, there were outstanding preferred shares convertible
into 3,242,148 shares of common stock and options and warrants to purchase
1,195,670 and 41,970 common shares, respectively. In addition, there were notes
payable outstanding that, under differing circumstances, would be convertible
into varying amounts of common stock (see note 9(a)).
(o) Comprehensive Income (Loss)
The Company has not presented separate statements of comprehensive income
(loss) since, for all periods presented, comprehensive loss equaled net loss.
(p) Recent Accounting Pronouncements
In April 1998, Statement of Position ("SOP") 98-5, "Reporting on the Costs
of Start-Up Activities", was issued which provides guidance on the financial
reporting of start-up costs. SOP 98-5 requires costs of start-up activities and
organization costs to be expensed as incurred. The Company adopted SOP 98-5 as
of July 1, 1997.
F-9
<PAGE>
LINKSHARE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including derivative
instruments embedded in other contracts, and for hedging activities.
Subsequently, SFAS No. 137 was issued, which deferred the effective date of
SFAS No. 133 to all fiscal quarters of fiscal years beginning after June 15,
2000. SFAS No. 133 is not expected to affect the Company, as the Company does
not have any derivative instruments or hedging activities.
(q) Pro Forma Balance Sheet (unaudited)
Upon the closing of the Company's planned initial public offering, all of
the outstanding shares of Series A Convertible preferred stock will
automatically convert on a 1-for-1 basis into 3,242,148 shares of common stock
assuming an offering of at least $15 million and an offering price of at least
$4.94 per share. Subsequent to December 31, 1999, the Company received
$3,655,000 from the issuance of the 2000 Notes and stockholder advances and, on
February 7, 2000, all outstanding notes and advances were exchanged for 2000
Notes (see note 9(a)). Upon the closing of the Company's planned initial public
offering, all convertible notes payable will automatically convert into
approximately shares of common stock, assuming an offering price of $ .
The unaudited pro forma presentation of the balance sheet has been prepared
assuming the issuance of the 2000 Notes, the recording of a charge for the
related beneficial conversion feature and the conversion of the convertible
preferred stock and convertible notes payable into common stock at December 31,
1999.
(2) Property and Equipment
Property and equipment is summarized as follows:
<TABLE>
<CAPTION>
June 30,
---------------- December 31,
1998 1999 1999
------- -------- ------------
<S> <C> <C> <C>
Computer equipment and software.............. $35,924 $671,018 $1,430,485
Office equipment............................. 2,000 24,191 66,643
Leasehold improvements....................... -- -- 957,178
------- -------- ----------
37,924 695,209 2,454,306
Less accumulated depreciation and
amortization................................ 11,206 89,221 296,549
------- -------- ----------
$26,718 $605,988 $2,157,757
======= ======== ==========
</TABLE>
Depreciation and amortization expense was $11,206 and $78,016 for the years
ended June 30, 1998 and 1999, respectively, and $14,086 and $207,328 for the
six months ended December 31, 1998 and 1999, respectively.
(3) Capitalization
Common Stock
At formation, 200,000 shares of common stock were issued to the Company's
founders. In July 1998, coincidental with the sale of preferred stock, the
Company declared a 20-for-1 common stock split, resulting in 4,000,000 shares
of common stock outstanding. All references to the number of shares of common
stock and per share amounts have been adjusted to reflect the stock split. In
addition, stockholders' equity (deficit) has been restated to give retroactive
recognition to the split in prior periods by reclassifying from additional
paid-in capital to common stock the par value of the additional shares arising
from the split.
F-10
<PAGE>
LINKSHARE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
Preferred Stock
In July and August 1998, the Company sold in a private placement an
aggregate of 3,242,148 shares of Series A Convertible preferred stock ("Series
A Preferred") at a purchase price of $1.23375 per share. Proceeds, net of
offering costs of $104,320, amounted to $3,895,680. Each share of Series A
Preferred is convertible into one share of common stock, subject to adjustment
for certain events. Shares of Series A Preferred shall automatically be
converted into shares of common stock upon the closing of an underwritten
public offering resulting in gross proceeds to the Company equal to or greater
than $15,000,000 at a price per share of at least $4.94. The Series A Preferred
is not redeemable at the option of the holder or the Company and the purchase
price exceeded the fair value of the Company's common stock on the date of
issuance. The Series A Preferred shares have equal voting rights with the
shares of the Company's common stock.
(4) Stock Options
In July 1998, the Company established its Long-Term Incentive Plan (the
"Plan"), which provides for the grant of options and stock appreciation rights
and awards to employees, consultants and directors to purchase up to 2,576,597
shares of common stock, as amended. The Plan provides for the granting of
nonqualified and incentive stock options with a duration of ten years or less
from the date of grant. The exercise price for all incentive stock options
shall be no less than 100% of the fair value of common stock at the time of the
grant. The Board of Directors may provide that option exercise prices may be
paid in cash, common stock, or a portion of an award, or any combination
thereof.
The Company applies APB No. 25 in accounting for its stock options granted
to employees and, accordingly, compensation expense has been recognized in the
financial statements for those nonqualified options issued with exercise prices
less than the fair value of the common stock at the date of grant. During
fiscal 1999, certain of the options granted to employees had exercise prices
less than the fair value of the common stock on the date of grant. Deferred
compensation related to these options was $1,523,524, which is being amortized
over the vesting periods. Compensation expense related to these options was
$203,039 for the year ended June 30, 1999. Had the Company determined
compensation expense based on the fair value at the date of grant for its stock
options granted to employees under SFAS No. 123, the Company's net loss would
have been adjusted to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Year ended June 30,
----------------------
1998 1999
--------- -----------
<S> <C> <C>
Net loss--as reported............................. $(193,428) $(3,380,512)
========= ===========
Net loss--pro forma............................... $(193,428) $(3,387,786)
========= ===========
Diluted loss per share--as reported............... $ (0.05) $ (0.85)
========= ===========
Diluted loss per share--pro forma................. $ (0.05) $ (0.85)
========= ===========
</TABLE>
During the year ended June 30, 1999, the per share weighted average fair
value of stock options granted was $1.81 on the dates of grants using the Black
Scholes option-pricing method with the following assumptions: expected dividend
yield of 0%; risk-free interest rate of 5%; and an expected option life of four
years. As permitted under the provisions of SFAS No. 123, and based on the lack
of a historical public market for the Company's shares, no factor for
volatility has been reflected in the option pricing calculation.
F-11
<PAGE>
LINKSHARE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
A summary of the Company's stock option activity and weighted average
exercise prices is as follows:
<TABLE>
<CAPTION>
Weighted
Number average
of options exercise price
---------- --------------
<S> <C> <C>
Outstanding at June 30, 1998................... -- --
Granted........................................ 951,470 $ 1.01
Exercised...................................... -- --
Cancelled...................................... -- --
---------
Outstanding at June 30, 1999................... 951,470 1.01
Granted (unaudited)............................ 251,700 23.27
Exercised (unaudited).......................... -- --
Cancelled (unaudited).......................... (7,500) 1.23
---------
Outstanding at December 31, 1999 (unaudited)... 1,195,670 $ 5.69
========= ======
Exercisable at June 30, 1999................... 114,869
=========
Options available for grant at June 30, 1999... 1,625,127
=========
</TABLE>
The following table summarizes the information about stock options
outstanding at June 30, 1999.
<TABLE>
<CAPTION>
Options outstanding Options exercisable
--------------------------------- ----------------------------
Range of Weighted average
exercise Number remaining Weighted average Number Weighted average
price outstanding contractual life exercise price outstanding exercise price
-------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$0.13 196,555 9 years $0.13 114,869 $0.13
$1.23 754,915 9.6 years $1.23 -- --
------- -------
951,470 114,869
======= =======
</TABLE>
(5) Income Taxes
There has been no provision for U.S. Federal income taxes for all periods
presented, since the Company has incurred losses since inception.
Significant components of the Company's deferred tax assets for Federal and
state income taxes at June 30, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
1998 1999
-------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.................. $ 61,000 $ 1,296,000
Noncash compensation.............................. -- 81,000
Fixed assets depreciation......................... 16,400 7,000
Accounts receivable allowance..................... -- 38,000
-------- -----------
Total deferred tax assets....................... 77,400 1,422,000
Less valuation allowance............................ (77,400) (1,422,000)
-------- -----------
Net deferred tax assets......................... $ -- $ --
======== ===========
</TABLE>
Realization of deferred tax assets is dependent upon future earnings, if
any, the timing and amount of which are uncertain. The Company has recorded a
full valuation allowance against its deferred tax assets due to the
uncertainty of realization.
F-12
<PAGE>
LINKSHARE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
As of June 30, 1999, the Company had net operating loss carryforwards for
Federal income tax purposes of approximately $3,240,000, expiring in fiscal
2018 and 2019. There can be no assurance that the Company will realize the
benefit of the net operating loss carryforwards.
Due to the "change of ownership" provisions of Section 382 of the Internal
Revenue Code, the availability of the Company's net operating loss
carryforwards may be subject to an annual limitation against taxable income in
future periods, which could substantially limit the eventual utilization of
these carryforwards.
(6) Commitments and Contingencies:
The Company leases office space in several locations under agreements
accounted for as operating leases. These leases generally require the Company
to pay all executory costs such as maintenance and insurance.
Rent expense for the years ended June 30, 1998 and 1999 and for the six
months ended December 31, 1998 and 1999 was approximately $0, $33,000, $14,279
and $322,155, respectively.
Future minimum lease payments under operating leases are as follows:
<TABLE>
<CAPTION>
Year ending June 30, Amount
-------------------- ----------
<S> <C>
2000........................................................... $ 667,376
2001........................................................... 680,138
2002........................................................... 702,383
2003........................................................... 714,642
2004........................................................... 499,875
Thereafter..................................................... 1,143,811
----------
Total minimum lease payments................................. $4,408,225
==========
</TABLE>
(7) Valuation and Qualifying Accounts
The changes in the allowance for doubtful accounts and returns is as
follows:
<TABLE>
<CAPTION>
Provision
Balance at for Balance
beginning doubtful Write- at end
of period accounts offs of period
---------- --------- -------- ---------
<S> <C> <C> <C> <C>
Year ended June 30, 1998........... $ -- $ 25,000 $ 25,000 $ --
Year ended June 30, 1999........... $ -- $261,000 $166,000 $ 95,000
Six months ended December 31, 1999
(unaudited)....................... $95,000 $159,000 -- $254,000
</TABLE>
(8) Employment Agreements
In July 1998, the Company entered into employment agreements with two of its
executive officers. These agreements will be in effect for two years and may be
terminated by the Company at any time without cause and by the executive
officers under certain conditions.
(9) Subsequent Events--Unaudited
(a) Convertible Notes Payable
On August 23, 1999 and November 18, 1999, the Company issued noninterest-
bearing Convertible Promissory Notes (the "1999 Notes") to its common and
Series A Preferred stockholders (collectively the "Lenders"), with an aggregate
principal amount of $1,500,000 and $1,000,000, respectively. Upon the closing
of a preferred stock financing with gross proceeds to the Company of at least
$4 million, the 1999 Notes would
F-13
<PAGE>
LINKSHARE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
have automatically converted into preferred shares similar to those issued in
the preferred stock financing, with the number of shares issued determined by
dividing the principal balance by the price paid by third parties for the
preferred stock. The 1999 Notes were payable on November 23, 1999 and December
31, 1999, respectively. The 1999 Notes were not repaid on their due dates. As a
result, they were due on demand and, commencing from the due dates, began to
accrue interest at 18% per annum.
In connection with the issuance of the convertible notes in August 1999, the
Company issued warrants to purchase an aggregate of 41,970 shares of common
stock to one of the Lenders. The Company issued the warrants ratably on the
23rd day of each month from August to December 1999. The warrants can be
exercised at $1 per share for five years from the date of issuance. The Company
recorded the fair value of the warrants, amounting to $519,505, as financing
expense for the six months ended December 31, 1999.
From October 21, 1999 through January 6, 2000, certain of the Company's
common and Series A Preferred stockholders advanced the Company an aggregate of
$1,029,152, of which $345,000 was received by the Company as of December 31,
1999. On February 7, 2000 the Company issued Convertible Promissory Notes to
the Lenders with an aggregate principal amount of $6,500,000 (the "2000
Notes"). The 2000 Notes in an aggregate principal amount of $2,500,000 were
issued in exchange for the 1999 Notes, which were retired and $1,029,152 of the
2000 Notes were issued in exchange for the advances. In addition, the Lenders
waived their right to receive any unpaid interest accrued under the 1999 Notes.
The 2000 Notes are due on July 31, 2000 and bear interest at the rate of 6.2%
per annum. If the Company closes an underwritten initial public offering of its
common stock under the Securities Act of 1933, the 2000 Notes will
automatically convert into that number of common shares determined by dividing
the principal balance, plus accrued interest, by 80% of the price per share at
which common stock is sold to the public. If earlier, upon the closing of a
preferred stock financing with gross proceeds to the Company of at least
$4,000,000, the 2000 Notes shall automatically convert into preferred shares
similar to those issued in the preferred stock financing, with the number of
shares issued determined by dividing the principal balance, plus accrued
interest, by the price per share paid by third parties for the preferred stock.
If the Company is acquired prior to the closing of either of these financings,
the 2000 Notes will be due on demand, repayable at two times the principal
balance.
Based on the fair value of the common stock on February 7, 2000, the
convertible notes payable had a beneficial conversion feature of $1,625,000,
which will be allocated to additional paid-in-capital and recognized as
interest expense upon the closing of an underwritten initial public offering of
the Company's common stock.
(b) Options
During January 2000, the Company granted options to purchase an aggregate of
471,636 shares of the Company's common stock resulting in additional deferred
compensation of $8.9 million, which will be expensed over the options' vesting
periods.
(c) Authorized Shares
On February 4, 2000, the Company increased its authorized common shares to
13,000,000.
F-14
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Registration.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
sale of securities being registered. All amounts are estimates except the
registration fee, the NASD filing fee and the Nasdaq National Market entry and
application fee.
<TABLE>
<S> <C>
Registration fee................................................. $15,180
NASD filing fee.................................................. $ 6,250
Blue Sky/NASD fees and expenses (including legal fees)........... $ *
Nasdaq National Market entry and application fee................. $ *
Transfer agent and registrar fees................................ $ 4,500
Printing and engraving expenses.................................. $ *
Other legal fees and expenses.................................... $ *
Accounting fees and expenses..................................... $ *
Miscellaneous.................................................... $ *
-------
Total........................................................ $ *
=======
</TABLE>
- --------
* To be completed by amendment.
Item 14. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law ("DGCL") provides,
generally, that a corporation shall have the power to indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding (except actions by or in the
right of the corporation) by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation against all expenses,
judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful. A corporation may similarly indemnify
such person for expenses actually and reasonably incurred by such person in
connection with the defense or settlement of any action or suit by or in the
right of the corporation, provided such person acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the corporation, and, in the case of claims, issues and matters as
to which such person shall have been adjudged liable to the corporation,
provided that a court shall have determined, upon application, that, despite
the adjudication of liability but in view of all of the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses which such court shall deem proper.
Section 102(b)(7) of the DGCL provides, generally, that the certificate of
incorporation may contain a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such
provision may not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under section 174
of Title 8 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit. No such provision
may eliminate or limit the liability of a director for any act or omission
occurring prior to the date when such provision became effective.
II-1
<PAGE>
Upon the closing of this offering, Article V, Section E of the Restated
Certificate of Incorporation, as amended ("LinkShare charter"), of LinkShare
Corporation, a Delaware corporation ("LinkShare"), will provide as follows:
1. Limitation on Liability
To the fullest extent permitted by the DGCL as the same exists or may
hereafter be amended, a director of LinkShare shall not be liable to LinkShare
or any of its stockholders for monetary damages for breach of fiduciary duty as
a director. Any repeal or modification of this subparagraph 1 shall be
prospective only and shall not adversely affect any limitation, right or
protection of a director of LinkShare existing at the time of such repeal or
modification.
2. Indemnification
(a) Right to Indemnification. LinkShare shall indemnify and hold harmless,
to the fullest extent permitted by applicable law as it presently exists or may
hereafter be amended, any person who was or is made or is threatened to be made
a party or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (a "proceeding") by reason of
the fact that he, or a person for whom he is the legal representative, is or
was a director or officer of LinkShare or is or was serving at the request of
LinkShare as a director, officer, employee or agent of another corporation or
of a partnership, limited liability company, joint venture, trust, enterprise
or nonprofit entity, including service with respect, to employee benefit plans,
against all liability and loss suffered and expenses (including attorneys'
fees) reasonably incurred by such person. Such right of indemnification shall
inure whether or not the claim asserted is based on matters which antedate the
adoption of this Section E. LinkShare shall be required to indemnify a person
in connection with a proceeding (or part thereof) initiated by such person only
if the proceeding (or part thereof) was authorized by the Board of Directors of
LinkShare.
(b) Prepayment of Expenses. LinkShare shall pay the expenses (including
attorneys' fees) incurred by a director or officer in defending any proceeding
in advance of its final disposition, provided, however, that the payment of
expenses incurred by a director or officer in advance of the final disposition
of the proceeding shall be made only upon receipt of an undertaking by the
director or officer to repay all amounts advanced if it should be ultimately
determined that the director or officer is not entitled to be indemnified under
this subparagraph 2 or otherwise.
(c) Claims. If a claim for indemnification or payment of expenses under this
subparagraph 2 is not paid in full within 60 days after a written claim
therefor has been received by LinkShare, the claimant may file suit to recover
the unpaid amount of such claim and, if successful in whole or in part, shall
be entitled to be paid the expense of prosecuting such claim. In any such
action LinkShare shall have the burden of proving that the claimant was not
entitled to the requested indemnification or payment of expenses under
applicable law.
(d) Non-Exclusivity of Rights. The rights conferred on any person by this
subparagraph 2 shall not be exclusive of any other rights which such person may
have or hereafter acquire under any statute, provision of this Certificate, the
Bylaws, agreement, vote of stockholders or disinterested directors or
otherwise.
(e) Other Indemnification. LinkShare's obligation, if any, to indemnify any
person who was or is serving at its request as a director, officer, employee or
agent of another corporation, partnership, limited liability company, joint
venture, trust, enterprise or nonprofit entity shall be reduced by any amount
such person may collect as indemnification from such other corporation,
partnership, limited liability company, joint venture, trust, enterprise or
nonprofit entity.
3. Amendment or Repeal
Any repeal or modification of the foregoing provisions of this Section E
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification."
II-2
<PAGE>
Item 15. Recent Sales of Unregistered Securities.
(a) On July 18, 1997, LinkShare issued and sold an aggregate of
4,000,000 shares of its common stock to Stephen D. Messer, Heidi S. Messer
and Jianhao Meng for an aggregate purchase price of $200 and fixed assets
with a fair value of $37,924.
(b) On July 16, 1998, LinkShare issued and sold 2,431,611 shares of
Series A Preferred Stock to Internet Capital Group, LLC for $3,000,000.
(c) On August 28, 1998, LinkShare issued and sold 810,537 shares of
Series A Preferred Stock to Comcast Internet Investments I, Inc. for
$1,000,000.
(d) On August 23, 1999, LinkShare issued and sold (1) convertible notes
having an aggregate face value of $1,500,000 to Stephen D. Messer, Heidi S.
Messer, Jianhao Meng, Internet Capital Group, Inc. and Comcast Internet
Investments I, Inc., for an aggregate purchase price of $1,500,000.
Pursuant to the terms of the notes purchased by Comcast Internet
Investments I, LinkShare issued warrants to purchase an aggregate of 41,970
shares of common stock at an exercise price of $1.00 per share to Comcast
Interactive Capital, L.P., as successor in interest to Comcast Internet
Investments I, Inc. The warrants were issued ratably on the 23rd day of
each month from August to December 1999.
(e) On November 18, 1999, LinkShare issued and sold convertible notes
having an aggregate face value of $1,000,000 to Internet Capital Group,
Inc. and Comcast Interactive Capital, LP. for an aggregate purchase price
of $1,000,000.
(f) On February 7, 2000, LinkShare issued and sold convertible notes
having an aggregate face value of $6,500,000 to Stephen D. Messer, Heidi S.
Messer, Jianhao Meng, Internet Capital Group, Inc. and Comcast Interactive
Capital, LP. The consideration for those notes consisted of the surrender
of the August 1999 and November 1999 convertible notes issued to such
persons, waiver of interest accrued under those notes plus cash advances
equal to the difference between the aggregate principal amount of the notes
surrendered and the aggregate principal amount of the February 2000 notes.
None of the foregoing transactions involved any underwriters, underwriting
discounts or commissions, or any public offering, and LinkShare believes that
each transaction was exempt from the registration requirements of the
Securities Act by virtue of Section 4(2) thereof. The first transaction listed
was the initial capitalization of LinkShare by its founders. In each other
transaction the recipients of LinkShare securities represented to LinkShare
that they were acquiring the securities for investment only and not with a
view to the sale or distribution thereof. Appropriate legends were affixed to
the share certificates or other instruments issued in each transaction. Each
recipient of LinkShare securities had adequate access to information about
LinkShare and the securities acquired through that recipient's relationship
with LinkShare.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits. The following is a complete list of Exhibits filed as part of
this Registration Statement.
<TABLE>
<CAPTION>
Exhibit No. Document
----------- --------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Restated Certificate of Incorporation of the Registrant, as
amended to date.
3.2 Form of Amended and Restated Certificate of Incorporation of the
Registrant to be in effect upon the closing of this offering.
3.3 Bylaws of the Registrant, as amended to date.
3.4 Form of Amended and Restated Bylaws of the Registrant to be in
effect upon the closing of this offering.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Document
----------- --------
<C> <S>
4.1 Specimen certificate for shares of common stock, par value $.001
per share, of the Registrant.
4.2 Form of warrant to purchase common stock issued to Comcast
Interactive Capital, L.P.
5.1 Form of Opinion of Baker Botts L.L.P.
10.1 Investor Rights Agreement, dated as of July 16, 1998.
10.2 LinkShare Corporation Long-Term Incentive Plan.
10.3 Lease Agreement and Sublease Agreement for 215 Park Avenue South,
New York, New York.
10.4 Employment Agreement with Stephen D. Messer.*
10.5 Employment Agreement with Heidi S. Messer.*
23.1 Consent of KPMG LLP.
23.2 Form of Consent of Baker Botts L.L.P. (included in Exhibit 5.1).
24.1 Power of Attorney (included on page II-6).
</TABLE>
- --------
* To be filed by amendment
(b) Financial Statement Schedules. Schedules not listed above have been
omitted because the information to be set forth therein is not material, not
applicable or is shown in the financial statements or notes thereto.
Item 17. Undertakings.
(a) LinkShare hereby undertakes to provide to the underwriter at the closing
specified in the underwriting agreements, certificates in such denominations
and registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
LinkShare pursuant to the foregoing provisions, or otherwise, LinkShare 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 of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by LinkShare
of expenses incurred or paid by a director, officer or controlling person of
LinkShare 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, LinkShare will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
(c) LinkShare 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>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on February 28, 2000.
Linkshare Corporation
By: /s/ Stephen D. Messer
_______________________________
Name: Stephen D. Messer
Title:Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Joseph E. Young and Lee D. Charles, and each of
them his true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution for him and in his name, place and stead, in
any and all capacities, to sign and file (1) any or all amendments (including
post-effective amendments) to this Registration Statement, with all exhibits
thereto, and other documents in connection therewith, and (2) a registration
statement, and any and all exhibits thereto, relating to the offering covered
hereby filed pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents and each of them full power and authority, to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, to all intents and purposes and as fully as they might
or could do in person, hereby ratifying and confirming all that said attorneys-
in-fact and agents or their substitutes may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, 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/ Stephen D. Messer Chairman of the Board, February 28, 2000
______________________________________ Chief Executive Officer
Stephen D. Messer and Director (Principal
Executive Officer)
/s/ Heidi S. Messer President and Director February 28, 2000
______________________________________
Heidi S. Messer
/s/ Douglas A. Alexander Director February 28, 2000
______________________________________
Douglas A. Alexander
/s/ Bowers W. Espy Treasurer and Chief February 28, 2000
______________________________________ Financial Officer
Bowers W. Espy (Principal Financial and
Accounting Officer)
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Document
----------- --------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Restated Certificate of Incorporation of the Registrant, as
amended to date.
3.2 Form of Amended and Restated Certificate of Incorporation of the
Registrant to be in effect upon the closing of this offering.
3.3 Bylaws of the Registrant, as amended to date.
3.4 Form of Amended and Restated Bylaws of the Registrant to be in
effect upon the closing of this offering.
4.1 Specimen certificate for shares of common stock, par value $.001
per share, of the Registrant.
4.2 Form of warrant to purchase common stock issued to Comcast
Interactive Capital, LP.
5.1 Form of Opinion of Baker Botts L.L.P.
10.1 Investor Rights Agreement, dated as of July 16, 1998.
10.2 LinkShare Corporation Long-Term Incentive Plan.
10.3 Lease Agreement and Sublease Agreement for 215 Park Avenue South,
New York, New York.
10.4 Employment Agreement with Stephen D. Messer.*
10.5 Employment Agreement with Heidi S. Messer.*
23.1 Consent of KPMG LLP.
23.2 Form of Consent of Baker Botts L.L.P. (included in Exhibit 5.1).
24.1 Power of Attorney (included on page II--6).
</TABLE>
- --------
* To be filed by amendment.
II-6
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
TO
THE RESTATED CERTIFICATE OF INCORPORATION
OF
LINKSHARE CORPORATION
LINKSHARE CORPORATION, a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
(1) The name of the Corporation is LinkShare Corporation. The original
Certificate of Incorporation of the Corporation was filed on July 1, 1997. The
name under which the Corporation was originally incorporated is "LinkShare
Technologies Corp."
(2) This Certificate of Amendment amends the provisions of the Certificate
of Incorporation of the Corporation, as previously amended and restated by a
Restated Certificate of Incorporation dated July 16, 1998, to increase the
number of authorized shares of Common Stock of the Corporation.
(3) The Board of Directors of the Corporation duly adopted, by unanimous
written consent in accordance with Section 141 of the Delaware General
Corporation Law, resolutions that (i) set forth a proposed amendment of the
Restated Certificate of Incorporation of the Corporation, (ii) declared said
amendment to be advisable and in the best interests of the Corporation and (iii)
directed that such amendment be submitted to the stockholders of the Corporation
for consideration thereof. The text of the resolution setting forth the proposed
amendment is as follows:
RESOLVED, that Part A of Article IV of the Corporation's Restated
Certificate of Incorporation shall, subject to requisite stockholder
approval, be amended to read in its entirety as follows:
"A. This Corporation is authorized to issue two classes of stock
to be designated, respectively, 'Common Stock' and 'Preferred Stock.' The
total number of shares which the Corporation is authorized to issue is
Sixteen Million Seven Hundred Fifty Thousand (16,750,000) shares, Thirteen
Million (13,000,000) shares of which shall be Common Stock (the "Common
Stock"), and Three Million Seven Hundred Fifty Thousand (3,750,000) shares
of which shall be Preferred Stock (the "Preferred Stock"). The Preferred
Stock shall have a par value of $0.001 per share and the Common Stock shall
have a par value of $0.001 per share."
(4) Thereafter, pursuant to resolution of the Corporation's Board of
Directors, the foregoing amendment to the Restated Certificate of Incorporation
of the Corporation was submitted to and duly approved and adopted the
stockholders of the Corporation by unanimous written consent in accordance with
Section 228 of the Delaware General Corporation Law.
(5) Such amendment was duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by its Chairman and Chief Executive Officer this 25th day of February,
2000.
LINKSHARE CORPORATION
By: /s/ Stephen D. Messer
------------------------------------
Stephen D. Messer
Chairman and Chief Executive Office
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
LINKSHARE CORPORATION
ONE: The name of this corporation is LinkShare Corporation. The original
name of this corporation was LinkShare Technologies, Corp., and the date of
filing the original Certificate of Incorporation of this corporation with the
Secretary of State of the State of Delaware is July 1, 1997. The following
amendment and restatement of the Certificate of Incorporation has been duly
adopted in accordance with Sections 242 and 245 of the General Corporation Law
of the State of Delaware by the Board of Directors and the stockholders of the
Company.
TWO: The Certificate of Incorporation of this corporation is hereby amended
and restated to read as follows:
I.
The name of the corporation is LINKSHARE CORPORATION (the "Corporation" or
the "Company").
II.
The address of the registered office of the Corporation in the State of
Delaware is:
1013 Centre Road
City of Wilmington
County of New Castle
Delaware 19805
The name of the Corporation's registered agent at said address is
Corporation Service Company.
III.
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
IV.
A. This Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the Corporation is authorized to issue is Thirteen Million Seven
Hundred Fifty Thousand (13,750,000) shares, Ten Million (10,000,000) shares of
which shall be Common Stock (the "Common Stock") and Three Million Seven Hundred
Fifty Thousand (3,750,000) shares of which shall be Preferred Stock (the
"Preferred Stock"). The Preferred Stock shall have a par value of $.001 per
share and the Common Stock shall have a par value of $.001 per share.
1
<PAGE>
B. Upon the effective date of this Amended and Restated Certificate of
Incorporation each outstanding share of Common Stock shall be split and
reconstituted into 20 shares of Common Stock. Each of such shares of Common
Stock shall be fully paid and nonassessable. Effective as of such date, each
stock certificate that, immediately prior to such split and reconstitution,
evidenced any shares of the Corporation's Common Stock as then constituted (an
"Existing Certificate") shall continue to be valid and shall evidence ownership
of 20 times the number of shares of Common Stock enumerated thereon, and no
surrender for any notation upon, change in or exchange, substitution or
surrender of, any such certificate shall be required by virtue of such split or
reconstitution. Each holder of an Existing Certificate, however, shall be
entitled upon surrender of such Existing Certificate to the Corporation for
cancellation to receive one or more new certificates that in the aggregate
represent the full number of shares of Common Stock into which the issued and
outstanding shares of Common Stock evidenced thereby have been split and
reconstituted as provided herein.
C. The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares of Common Stock then outstanding)
by the affirmative vote of the holders of a majority of the stock of the
Corporation (voting together on an as-if-converted basis).
D. Three Million Two Hundred Fifty Thousand (3,250,000) of the authorized
shares of Preferred Stock are hereby designated "Series A Preferred Stock" (the
"Series Preferred").
E. The rights, preferences, privileges, restrictions and other matters
relating to the Series Preferred are as follows:
1. DIVIDEND RIGHTS.
a. Holders of Series Preferred, in preference to the holders of
any other stock of the Company ("Junior Stock"), shall be entitled to
receive, when, as and if declared by the Board of Directors, but only
out of funds that are legally available therefor, cash dividends at
the rate of eight percent (8%) of the "Original Issue Price" per annum
on each outstanding share of Series Preferred (as adjusted for any
stock dividends, combinations, splits, recapitalizations and the like
with respect to such shares). The Original Issue Price of the Series
Preferred shall be $1.23375 (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like with respect to
such shares). Such dividends shall be payable only when, as and if
declared by the Board of Directors and shall be non-cumulative.
b. So long as any shares of Series Preferred shall be
outstanding, no dividend, whether in cash or property, shall be paid
or declared, nor shall any other distribution be made, on any Junior
Stock, nor shall any shares of any Junior Stock of the Company be
purchased, redeemed, or otherwise acquired for value by the Company
(except for acquisitions of Common Stock by the Company pursuant to
agreements which permit the Company to repurchase such shares upon
termination of services to the Company or in exercise of the Company's
right of first refusal upon a proposed transfer) until all dividends
(set forth in Section 1a above) on the Series Preferred shall have
been paid or declared and set apart. In the event dividends are paid
on any share of Common Stock, an additional dividend shall be paid
with
2
<PAGE>
respect to all outstanding shares of Series Preferred in an amount
equal per share (on an as-if-converted to Common Stock basis) to the
amount paid or set aside for each share of Common Stock. The
provisions of this Section 1b shall not, however, apply to (i) a
dividend payable in Common Stock, (ii) the acquisition of shares of
any Junior Stock in exchange for shares of any other Junior Stock, or
(iii) any repurchase of any outstanding securities of the Company that
is unanimously approved by the Company's Board of Directors.
2. VOTING RIGHTS.
a. General Rights. Except as otherwise provided herein or as
required by law, the Series Preferred shall be voted equally with the
shares of the Common Stock of the Company and not as a separate class,
at any annual or special meeting of shareholders of the Company, and
may act by written consent in the same manner as the Common Stock, in
either case upon the following basis: each holder of shares of Series
Preferred shall be entitled to such number of votes as shall be equal
to the whole number of shares of Common Stock into which such holder's
aggregate number of shares of Series Preferred are convertible
(pursuant to Section 4 hereof) immediately after the close of business
on the record date fixed for such meeting or the effective date of
such written consent.
b. Separate Vote of Series Preferred. For so long as at least
Five Hundred Thousand (500,000) shares of Series Preferred (subject to
adjustment for any stock split, reverse stock split or other similar
event affecting the Series Preferred) remain outstanding, in addition
to the vote or written consent of the holders of at least a majority
of the Common Stock (as a separate class) or any other vote or consent
required herein or by law, the vote or written consent of the holders
of at least a majority of the outstanding Series Preferred shall be
necessary for effecting or validating the following actions:
(i) Any amendment, alteration, or repeal of any provision of
the Certificate of Incorporation or the Bylaws of the Company
(including any filing of a Certificate of Designation), that
adversely alters or changes the voting powers, preferences, or
other special rights or privileges, or restrictions of the Series
Preferred;
(ii) Any increase or decrease (other than by redemption or
conversion) in the authorized number of shares of Preferred
Stock;
(iii) Any authorization or any designation, whether by
reclassification or otherwise, of any new class or series of
stock or any other securities convertible into equity securities
of the Company having rights, preferences, or privileges ranking
on a parity with or senior to the Series Preferred or any
increase in the authorized or designated number of any such new
class or series;
(iv) Any redemption, repurchase or other distributions with
respect to Junior Stock (except for acquisitions of Common Stock
by the Company pursuant to agreements which permit the Company to
repurchase such shares upon termination of services to the
Company or in exercise of the Company's right of first refusal
upon a proposed transfer);
3
<PAGE>
(v) Any Asset Transfer or Acquisition (each as defined in
Section 3d);
(vi) The payment or declaration of a dividend on any shares
of Common Stock or Preferred Stock;
(vii) Any voluntary dissolution or liquidation of the
Company; or
(viii) Any increase or decrease in the authorized number of
members of the Company's Board of Directors.
c. Election of Board of Directors. For so long as at least Five
Hundred Thousand (500,000) shares of Series Preferred remain
outstanding (subject to adjustment for any stock split, reverse stock
split or similar event affecting the Series Preferred), (i) the
holders of Series Preferred, voting as a separate class, shall be
entitled to elect two (2) members of the Company's Board of Directors
at each meeting or pursuant to each consent of the Company's
shareholders for the election of directors, and to remove from office
such directors and to fill any vacancy caused by the resignation,
death or removal of such directors; (ii) the holders of Common Stock,
voting as a separate class, shall be entitled to elect two (2) members
of the Board of Directors at each meeting or pursuant to each consent
of the Company's shareholders for the election of directors, and to
remove from office such directors and to fill any vacancy caused by
the resignation, death or removal of such directors; and (iii) the
holders of Common Stock and Series Preferred, voting together as a
class, shall be entitled to elect all remaining members of the Board
of Directors at each meeting or pursuant to each consent of the
Company's shareholders for the election of directors, and to remove
from office such directors and to fill any vacancy caused by the
resignation, death or removal of such directors.
As of the first date that the number of Series Preferred
outstanding falls below the minimum required by the first sentence of
this subsection, the right of the holders of the Series Preferred to
nominate, appoint, vote for or vote in the election of any directors
of the Company shall automatically terminate; the terms of office of
the directors elected by the Series Preferred pursuant to Section 2(c)
above then serving on the Company's Board of Directors shall
automatically terminate; and the vacancies on the Board thereby
created shall be filled by solely by the vote of the holders of the
then outstanding Common Stock (without any separate vote on the part
of the holders of the Series Preferred). Nothing contained in this
Section is intended or shall be construed as preventing, impairing or
otherwise affecting the right of any holders of the Common Stock from
agreeing among themselves or with any holders of the Series Preferred
as to the manner in which their respective shares of capital stock of
the Company shall be voted with respect to the composition of the
Company's Board of Directors, the nomination or election of directors
or any other matter, which right is hereby confirmed.
d. No Other Class Votes. Except as expressly provided in this
Section 4 above and except as required by the Delaware General
Corporation Law, the holders of the Series Preferred will not have any
right to vote, give consents or otherwise take or approve
4
<PAGE>
action as a separate class or series with respect to any matter coming
before the stockholders of the Company.
3. LIQUIDATION RIGHTS.
a. Upon any liquidation, dissolution, or winding up of the Company,
whether voluntary or involuntary, before any distribution or payment shall
be made to the holders of any Junior Stock, the holders of Series Preferred
shall be entitled to be paid out of the assets of the Company an amount per
share of Series Preferred equal to the Original Issue Price plus all
declared and unpaid dividends on the Series Preferred Stock (as adjusted
for any stock dividends, combinations, splits, recapitalizations and the
like with respect to such shares) for each share of Series Preferred held
by them.
b. After the payment of the full liquidation preference of the Series
Preferred as set forth in Section 3a above, the assets of the Company
legally available for distribution, if any, shall be distributed ratably to
the holders of the Common Stock and Series Preferred on an as-if-converted
to Common Stock basis.
c. If, upon any liquidation, distribution, or winding up, the assets
of the Company shall be insufficient to make payment in full to all holders
of Series Preferred of the liquidation preference set forth in Section 3a,
then such assets shall be distributed among the holders of Series Preferred
at the time outstanding, ratably in proportion to the full amounts to which
they would otherwise be respectively entitled.
d. The following events shall be considered a liquidation under this
Section:
(i) any consolidation or merger of the Company with or into any
other corporation or other entity or person, or any other corporate
reorganization, in which the stockholders of the Company immediately
prior to such consolidation, merger or reorganization, own less than
50% of the Company's outstanding capital stock (on an as-converted to
Common Stock basis) immediately after such consolidation, merger or
reorganization, or any transaction or series of related transactions
to which the Company is a party in which in excess of fifty percent
(50%) of the Company's outstanding capital stock (on an as-converted
to Common Stock basis) is transferred (an "Acquisition"); or
(ii) a sale, lease or other disposition of all or substantially
all of the assets of the Company (an "Asset Transfer").
e. In any of such liquidation events, if the consideration received by
the Company is other than cash, its value will be deemed its fair market
value as determined in good faith by the Board of Directors. Any securities
shall be valued as follows:
(i) Securities not subject to investment letter or other similar
restrictions on free marketability covered by (ii) below:
5
<PAGE>
(A) If traded on a securities exchange or through the Nasdaq
National Market, the value shall be deemed to be the average of
the closing prices of the securities on such quotation system
over the thirty (30) day period ending three (3) days prior to
the closing;
(B) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid or sale prices
(whichever is applicable) over the thirty (30) day period ending
three (3) days prior to the closing; and
(C) If there is no active public market, the value shall be
the fair market value thereof, as determined by the Board of
Directors.
(ii) The method of valuation of securities subject to investment
letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an
affiliate or former affiliate) shall be to make an appropriate
discount from the market value determined as above in (i) (A), (B) or
(C) to reflect the approximate fair market value thereof, as
determined by the Board of Directors.
4. CONVERSION RIGHTS.
The holders of the Series Preferred shall have the following
rights with respect to the conversion of the Series Preferred into
shares of Common Stock (the "Conversion Rights"):
a. Optional Conversion. Subject to and in compliance with
the provisions of this Section 4, any shares of Series Preferred
may, at the option of the holder, be converted at any time into
fully-paid and nonassessable shares of Common Stock. The number
of shares of Common Stock to which a holder of Series Preferred
shall be entitled upon conversion shall be the product obtained
by multiplying the "Series Preferred Conversion Rate" then in
effect (determined as provided in Section 4b) by the number of
shares of Series Preferred being converted.
b. Series Preferred Conversion Rate. The conversion rate in
effect at any time for conversion of the Series Preferred (the
"Series Preferred Conversion Rate") shall be the quotient
obtained by dividing the Original Issue Price of the Series
Preferred by the "Series Preferred Conversion Price," calculated
as provided in Section 4c.
c. Series Preferred Conversion Price. The conversion price
for the Series Preferred shall initially be the Original Issue
Price of the Series Preferred (the "Series Preferred Conversion
Price"). Such initial Series Preferred Conversion Price shall be
adjusted from time to time in accordance with this Section 4. All
references to the Series Preferred Conversion Price herein shall
mean the Series Preferred Conversion Price as so adjusted.
d. Mechanics of Conversion. Each holder of Series Preferred
who desires to convert the same into shares of Common Stock
pursuant to this Section 4 shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the
Company or
6
<PAGE>
any transfer agent for the Series Preferred, and shall give
written notice to the Company at such office that such holder
elects to convert the same. Such notice shall state the number of
shares of Series Preferred being converted. Thereupon, but
subject the Section 4(t) below, the Company shall promptly issue
and deliver at such office to such holder a certificate or
certificates for the number of shares of Common Stock to which
such holder is entitled and shall promptly pay in cash or, to the
extent sufficient funds are not then legally available therefor,
in Common Stock (at the Common Stock's fair market value
determined by the Board of Directors as of the date of such
conversion), any declared and unpaid dividends on the shares of
Series Preferred being converted. Such conversion shall be deemed
to have been made at the close of business on the date of such
surrender of the certificates representing the shares of Series
Preferred to be converted, and the person entitled to receive the
shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder of such shares of
Common Stock on such date.
e. Adjustment for Stock Splits and Combinations. If the
Company shall at any time or from time to time after the date
that the first share of Series Preferred is issued (the "Original
Issue Date") effect a subdivision of the outstanding Common Stock
without a corresponding subdivision of the Preferred Stock, the
Series Preferred Conversion Price in effect immediately before
that subdivision shall be proportionately decreased. Conversely,
if the Company shall at any time or from time to time after the
Original Issue Date combine the outstanding shares of Common
Stock into a smaller number of shares without a corresponding
combination of the Preferred Stock, the Series Preferred
Conversion Price in effect immediately before the combination
shall be proportionately increased. Any adjustment under this
Section 4e shall become effective at the close of business on the
date the subdivision or combination becomes effective.
f. Adjustment for Common Stock Dividends and Distributions.
If the Company at any time or from time to time after the
Original Issue Date makes, or fixes a record date for the
determination of holders of Common Stock entitled to receive, a
dividend or other distribution payable in additional shares of
Common Stock, in each such event the Series Preferred Conversion
Price that is then in effect shall be decreased as of the time of
such issuance or, in the event such record date is fixed, as of
the close of business on such record date, by multiplying the
Series Preferred Conversion Price then in effect by a fraction
(i) the numerator of which is the total number of shares of
Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date,
and (ii) the denominator of which is the total number of shares
of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record
date plus the number of shares of Common Stock issuable in
payment of such dividend or distribution; provided, however, that
if such record date is fixed and such dividend is not fully paid
or if such distribution is not fully made on the date fixed
therefor, the Series Preferred Conversion Price shall be
recomputed accordingly as of the close of business on such record
date and thereafter the Series Preferred Conversion Price shall
be adjusted pursuant to this Section 4f to reflect the actual
payment of such dividend or distribution.
7
<PAGE>
g. Adjustments for Other Dividends and Distributions. If the
Company at any time or from time to time after the Original Issue
Date makes, or fixes a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other
distribution payable in securities of the Company other than
shares of Common Stock, in each such event provision shall be
made so that the holders of the Series Preferred shall be
entitled to receive upon conversion thereof, in addition to the
number of shares of Common Stock receivable thereupon, the amount
of other securities of the Company which they would have received
had their Series Preferred been converted into Common Stock on
the date of such event and had they thereafter, during the period
from the date of such event to and including the conversion date,
retained such securities receivable by them as aforesaid during
such period, subject to all other adjustments called for during
such period under this Section 4 with respect to the rights of
the holders of the Series Preferred or with respect to such other
securities by their terms.
h. Adjustment for Reclassification and Recapitalization. If
at any time or from time to time after the Original Issue Date,
the Common Stock issuable upon the conversion of the Series
Preferred is changed into the same or a different number of
shares of any class or classes of stock, whether by
recapitalization, reclassification or otherwise (other than an
Acquisition or Asset Transfer as defined in Section 3d or a
subdivision or combination of Common Stock or other dividend or
distribution or a reorganization, merger, consolidation or sale
of assets provided for elsewhere in this Section 4), in any such
event, provision shall be made so that the holders of the Series
Preferred shall thereafter be entitled to receive upon conversion
of the Series Preferred the number of shares of stock or other
securities or other property of the Company to which a holder of
the number of shares of Common Stock deliverable upon conversion
would have been entitled on such recapitalization,
reclassification or change, all subject to further adjustment as
provided herein or with respect to such other securities or
property by the terms thereof.
i. Reorganizations, Mergers, Consolidations or Sales of
Assets. If at any time or from time to time after the Original
Issue Date, there is a capital reorganization of the Common Stock
(other than an Acquisition or Asset Transfer as defined in
Section 3d or a subdivision or combination of Common Stock or
other dividend or distribution, capitalization, subdivision,
combination or reclassification of shares provided for elsewhere
in this Section 4), as a part of such capital reorganization,
provision shall be made so that the holders of the Series
Preferred shall thereafter be entitled to receive upon conversion
of the Series Preferred the number of shares of stock or other
securities or property of the Company to which a holder of the
number of shares of Common Stock deliverable upon conversion
would have been entitled on such capital reorganization, subject
to adjustment in respect of such stock or securities by the terms
thereof. In any such case, appropriate adjustment shall be made
in the application of the provisions of this Section 4 with
respect to the rights of the holders of Series Preferred after
the capital reorganization to the end that the provisions of this
Section 4 (including adjustment of the Series Preferred
Conversion Price then in effect and the number of shares issuable
upon conversion of the Series Preferred) shall be applicable
after that event and be as nearly equivalent as practicable.
8
<PAGE>
j. Sale of Shares Below Series Preferred Conversion Price.
(i) If at any time or from time to time after the
Original Issue Date, the Company issues or sells, or is
deemed by the express provisions of this subsection 4j to
have issued or sold, Additional Shares of Common Stock (as
defined in subsection 4j(iv) below), other than as a
dividend or other distribution on any class of stock as
provided in Section 4f above, and other than a subdivision
or combination of shares of Common Stock as provided in
Section 4e above, for an Effective Price (as defined in
subsection 4j(iv) below) less than the then effective Series
Preferred Conversion Price, then and in each such case the
then existing Series Preferred Conversion Price shall be
reduced, as of the opening of business on the date of such
issue or sale, to a price determined by multiplying the
Series Preferred Conversion Price by a fraction (i) the
numerator of which shall be (A) the number of shares of
Common Stock deemed outstanding (as defined below)
immediately prior to such issue or sale, plus (B) the number
of shares of Common Stock which the aggregate consideration
received (as defined in subsection 4j(ii)) by the Company
for the total number of Additional Shares of Common Stock so
issued would purchase at such Series Preferred Conversion
Price, and (ii) the denominator of which shall be the number
of shares of Common Stock deemed outstanding (as defined
below) immediately prior to such issue or sale plus the
total number of Additional Shares of Common Stock so issued.
For the purposes of the preceding sentence, the number of
shares of Common Stock deemed to be outstanding as of a
given date shall be the sum of (A) the number of shares of
Common Stock actually outstanding, (B) the number of shares
of Common Stock into which the then outstanding shares of
Series Preferred could be converted if fully converted on
the day immediately preceding the given date, and (C) the
number of shares of Common Stock which could be obtained
through the exercise or conversion of all other rights,
options and convertible securities, including options
granted pursuant to the Company's employee stock option
plan, exercisable on the day immediately preceding the given
date, which either were outstanding on the Original Issue
Date or the issuance of which was approved by a majority of
the Company's Board of Directors, which majority includes at
least one director appointed by the Series Preferred.
(ii) For the purpose of making any adjustment required
under this Section 4j, the consideration received by the
Company for any issue or sale of securities shall (A) to the
extent it consists of cash, be computed at the net amount of
cash received by the Company after deduction of any
underwriting or similar commissions, compensation or
concessions paid or allowed by the Company in connection
with such issue or sale but without deduction of any
expenses payable by the Company, (B) to the extent it
consists of property other than cash, be computed at the
fair value of that property as determined in good faith by
the Board of Directors, and (C) if Additional Shares of
Common Stock, Convertible Securities (as defined in
subsection 4j(iii)) or rights or options to purchase either
Additional Shares of Common Stock or Convertible Securities
are issued or sold together with other stock or securities
or other assets of the Company for a consideration which
covers both, be computed as the portion of the consideration
so received that may be reasonably determined in good faith
by the Board of Directors to be allocable to such Additional
Shares of Common Stock, Convertible Securities or rights or
options.
9
<PAGE>
(iii) For the purpose of the adjustment required under
this Section 4j, if the Company issues or sells (A) stock or
other securities convertible into Additional Shares of
Common Stock (such convertible stock or securities being
herein referred to as "Convertible Securities") or (B)
rights or options for the purchase of Additional Shares of
Common Stock or Convertible Securities and if the Effective
Price of such Additional Shares of Common Stock is less than
the Series Preferred Conversion Price, in each case the
Company shall be deemed to have issued at the time of the
issuance of such rights or options or Convertible Securities
the maximum number of Additional Shares of Common Stock
issuable upon exercise or conversion thereof and to have
received as consideration for the issuance of such shares an
amount equal to the total amount of the consideration, if
any, received by the Company for the issuance of such rights
or options or Convertible Securities, plus, in the case of
such rights or options, the minimum amounts of
consideration, if any, payable to the Company upon the
exercise of such rights or options, plus, in the case of
Convertible Securities, the minimum amounts of
consideration, if any, payable to the Company (other than by
cancellation of liabilities or obligations evidenced by such
Convertible Securities, except to the extent of the excess,
if any, of the amount or value of the cash, securities or
property that will be payable by the Company upon the
maturity, redemption or other event triggering a payment
obligation of the Company with respect to any such
Convertible Securities, assuming none of them are converted,
over the sum of the amount or value of the consideration
received or deemed to be received by the Company for such
Convertible Securities calculated as set forth in this
sentence plus the amount or value of the cash, securities or
other property, except shares of Common Stock, if any, that
would be payable by the Company with respect to such
Convertible Securities if it were assumed that all of them
are fully converted) upon the conversion thereof; provided
that (x) if in the case of Convertible Securities the
minimum amounts of such consideration cannot be ascertained,
but are a function of antidilution or similar protective
clauses, the Company shall be deemed to have received the
minimum amounts of consideration without reference to such
clauses; (y) if the minimum amount of consideration payable
to the Company upon the exercise or conversion of rights,
options or Convertible Securities is reduced over time or on
the occurrence or non-occurrence of specified events other
than by reason of antidilution adjustments, the Effective
Price shall be recalculated using the figure to which such
minimum amount of consideration is reduced; and (z) if the
minimum amount of consideration payable to the Company upon
the exercise or conversion of such rights, options or
Convertible Securities is subsequently increased, the
Effective Price shall be again recalculated using the
increased minimum amount of consideration payable to the
Company upon the exercise or conversion of such rights,
options or Convertible Securities. No further adjustment of
the Series Preferred Conversion Price, as adjusted upon the
issuance of such rights, options or Convertible Securities,
shall be made as a result of the actual issuance of
Additional Shares of Common Stock on the exercise of any
such rights or options or the conversion of any such
Convertible Securities. If any such rights or options or the
conversion privilege represented by any such Convertible
Securities shall expire without having been exercised, the
Series Preferred Conversion Price as adjusted upon the
issuance of such rights, options or Convertible Securities
shall be readjusted to the Series Preferred Conversion Price
which would have been in effect had an adjustment been made
on the basis that the only Additional Shares of Common Stock
so issued were the Additional Shares of Common Stock, if
any, actually issued or sold on the exercise of such rights
or options or rights of conversion of such Convertible
Securities, and such Additional Shares of
10
<PAGE>
Common Stock, if any, were issued or sold for the
consideration actually received by the Company upon such
exercise, plus the consideration, if any, actually received
by the Company for the granting of all such rights or
options, whether or not exercised, plus the consideration
received for issuing or selling the Convertible Securities
actually converted, plus the consideration, if any, actually
received by the Company (other than by cancellation of
liabilities or obligations evidenced by such Convertible
Securities, except to the extent of the excess, if any, of
the amount or value of the cash, securities or property
that, but for such conversion, would have been payable by
the Company upon the maturity, redemption or other event
triggering a payment obligation of the Company with respect
to any such Convertible Securities over the sum of the
amount or value of the consideration received or deemed to
be received by the Company for such Convertible Securities
calculated as set forth in this sentence plus the amount or
value of the cash, securities or other property, except
shares of Common Stock, if any, actually paid by the Company
with respect to the Convertible Securities actually
converted) on the conversion of such Convertible Securities,
provided that such readjustment shall not apply to prior
conversions of Series Preferred.
(iv) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued by the Company or deemed to be
issued pursuant to this Section 4j, whether or not
subsequently reacquired or retired by the Company other than
(A) shares of Common Stock issued upon conversion of the
Series Preferred, (B) shares of Common Stock and/or options,
warrants or other Common Stock purchase rights, and the
Common Stock issued pursuant to such options, warrants or
other rights (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like)
before, on or after the Original Issue Date 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 and (C) shares of Common Stock issued pursuant
to the exercise of options, warrants or convertible
securities outstanding as of the Original Issue Date. The
"Effective Price" of Additional Shares of Common Stock shall
mean the quotient determined by dividing the total number of
Additional Shares of Common Stock issued or sold, or deemed
to have been issued or sold by the Company under this
Section 4j, into the aggregate consideration received, or
deemed to have been received by the Company for such issue
under this Section 4j, for such Additional Shares of Common
Stock.
k. Certificate of Adjustment. In each case of an adjustment
or readjustment of the Series Preferred Conversion Price for the
number of shares of Common Stock or other securities issuable
upon conversion of the Series Preferred, if the Series Preferred
is then convertible pursuant to this Section 4, the Company, at
its expense, shall compute such adjustment or readjustment in
accordance with the provisions hereof and prepare a certificate
showing such adjustment or readjustment, and shall mail such
certificate, by first class mail, postage prepaid, to each
registered holder of Series Preferred at the holder's address as
shown in the Company's books. The certificate shall set forth
such adjustment or readjustment, showing in detail the facts upon
which such adjustment or readjustment is based, including a
statement of (i) the consideration received or deemed to be
received by the Company for any Additional Shares of
11
<PAGE>
Common Stock issued or sold or deemed to have been issued or
sold, (ii) the Series Preferred Conversion Price at the time in
effect, (iii) the number of Additional Shares of Common Stock and
(iv) the type and amount, if any, of other property which at the
time would be received upon conversion of the Series Preferred.
l. No Further Adjustments. Each adjustment pursuant to any
provision of this Section 4 by reason of any event or
circumstance shall be made without duplication and not under more
than one subsection this Section 4. Notwithstanding any other
provision of this Section 4, no adjustment shall be made or
required (whether under subsection 4i or otherwise) by reason of
any Acquisition or Asset Transfer that is or is deemed to be a
liquidation under Section 3d above, by reason of any other
liquidation, distribution or winding up of the Company or by
reason of any payment or distribution to the holders of, or any
change in, the Company's Common Stock or other capital stock. Any
adjustment of the Series Preferred Conversion Price that would
otherwise be required with respect to any share of Series
Preferred Stock may be postponed (except in the case of a
subdivision or combination of shares of the Common Stock) up to,
but not beyond the date of conversion of such share, if such
adjustment either by itself or with other adjustments not
previously made adjusts the applicable Series Preferred
Conversion price by less than $.01.
m. Notices of Record Date. Upon (i) any taking by the
Company of a record of the holders of any class of securities for
the purpose of determining the holders thereof who are entitled
to receive any dividend or other distribution, or (ii) any
Acquisition (as defined in Section 3d) or other capital
reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, any merger
or consolidation of the Company with or into any other
corporation, or any Asset Transfer (as defined in Section 3c), or
any voluntary or involuntary dissolution, liquidation or winding
up of the Company, the Company shall mail to each holder of
Series Preferred at least twenty (20) days prior to the record
date specified therein a notice specifying (A) the date on which
any such record is to be taken for the purpose of such dividend
or distribution and a description of such dividend or
distribution, (B) the date on which any such Acquisition,
reorganization, reclassification, transfer, consolidation,
merger, Asset Transfer, dissolution, liquidation or winding up is
expected to become effective, and (C) the date, if any, that is
to be fixed as to when the holders of record of Common Stock (or
other securities) shall be entitled to exchange their shares of
Common Stock (or other securities) for securities or other
property deliverable upon such Acquisition, reorganization,
reclassification, transfer, consolidation, merger, Asset
Transfer, dissolution, liquidation or winding up.
n. Automatic Conversion.
(i) Each share of Series Preferred shall automatically
be converted into shares of Common Stock, based on the
then-effective Series Preferred Conversion Price, (A) at any
time upon the affirmative election of the holders of at
least a majority of the outstanding shares of the Series
Preferred, or (B) immediately upon the closing of a firmly
underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as
amended, covering the offer and sale of Common Stock for the
account of the Company in which (i) the per share price is
at least four (4) times the Original Issue Price (as
adjusted for stock splits, dividends, recapitalizations and
the like), and (ii) the gross cash
12
<PAGE>
proceeds to the Company (before underwriting discounts,
commissions and fees) are at least Fifteen Million Dollars
$15,000,000. Upon such automatic conversion, any declared
and unpaid dividends shall be paid in accordance with the
provisions of Section 4d.
(ii) Upon the occurrence of the event specified in
paragraph (A) above, the outstanding shares of Series
Preferred shall be converted automatically without any
further action by the holders of such shares and whether or
not the certificates representing such shares are
surrendered to the Company or its transfer agent; provided,
however, that the Company shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable
upon such conversion unless the certificates evidencing such
shares of Series Preferred are either delivered to the
Company or its transfer agent as provided below, or the
holder notifies the Company or its transfer agent that such
certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to the Company to
indemnify the Company from any loss incurred by it in
connection with such certificates. Upon the occurrence of
such automatic conversion of the Series Preferred, the
holders of Series Preferred shall surrender the certificates
representing such shares at the office of the Company or any
transfer agent for the Series Preferred. Thereupon, there
shall be issued and delivered to such holder promptly at
such office and in its name as shown on such surrendered
certificate or certificates, a certificate or certificates
for the number of shares of Common Stock into which the
shares of Series Preferred surrendered were convertible on
the date on which such automatic conversion occurred, and
any declared and unpaid dividends shall be paid in
accordance with the provisions of Section 4d.
o. Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of Series Preferred. All shares
of Common Stock (including fractions thereof) issuable upon
conversion of more than one share of Series Preferred by a holder
thereof shall be aggregated for purposes of determining whether
the conversion would result in the issuance of any fractional
share. If, after the aforementioned aggregation, the conversion
would result in the issuance of any fractional share, the Company
shall, in lieu of issuing any fractional share, pay cash equal to
the product of such fraction multiplied by the Common Stock's
fair market value (as determined by the Board of Directors) on
the date of conversion.
p. Reservation of Stock Issuable Upon Conversion. The
Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the
purpose of effecting the conversion of the shares of the Series
Preferred, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all
outstanding shares of the Series Preferred. If at any time the
number of authorized but unissued shares of Common Stock shall
not be sufficient to effect the conversion of all then
outstanding shares of the Series Preferred, the Company will take
such corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for
such purpose.
q. Notices. Any notice required by the provisions of this
Section 4 shall be in writing and shall be deemed effectively
given: (i) upon personal delivery to the party to be notified,
(ii) when sent by confirmed telex or facsimile if sent during
normal business hours of the recipient; if not, then on the next
business day, (iii) five (5) days after having been sent by
13
<PAGE>
registered or certified mail, return receipt requested, postage
prepaid, or (iv) one (1) day after deposit with a nationally
recognized overnight courier, specifying next day delivery, with
written verification of receipt. All notices shall be addressed
to each holder of record at the address of such holder appearing
on the books of the Company.
r. Payment of Taxes. The Company will pay all United States
taxes (other than taxes based upon income) and other United
States governmental charges that may be imposed with respect to
the issue or delivery of shares of Common Stock upon conversion
of shares of Series Preferred, excluding any tax or other charge
imposed in connection with any transfer involved in the issue and
delivery of shares of Common Stock in a name other than that in
which the shares of Series Preferred so converted were
registered.
s. No Dilution or Impairment. Without the consent of the
holders of then outstanding Series Preferred as required under
Section 2b, the Company shall not amend its Restated Certificate
of Incorporation or participate in any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of
securities or take any other voluntary action, for the purpose of
avoiding or seeking to avoid the observance or performance of any
of the terms to be observed or performed hereunder by the
Company, but shall at all times in good faith assist in carrying
out all such action as may be reasonably necessary or appropriate
in order to protect the conversion rights of the holders of the
Series Preferred against dilution or other impairment.
t. Listing Requirements. To the extent that delivery to any
holder or any shares of Series Preferred of Common Stock or other
securities or property upon the conversion of such shares
requires, under any applicable law or rule of the Nasdaq Stock
Market or any national securities exchange or interdealer
quotation system, requires any registration, qualification,
listing or approval before such Common Stock or other securities
or property may be lawfully or properly issued, such holder shall
cooperate in good faith with the Company in satisfying such
requirement, and the conversion of such shares and the delivery
of such Common Stock, securities or other property shall be
postponed until such requirements is satisfied, whereupon such
conversion shall be consummated (as of the date specified in
Section 4d above) and such delivery shall be made as promptly as
reasonably practicable. Unless otherwise set forth in any
agreement relating to registration of such shares of Common Stock
or other written agreement between or binding on such holder and
the Company, each of the Company and such holder shall bear its
own costs and expenses in connection with the foregoing.
5. REDEMPTION. The Series Preferred shall not be redeemable.
6. NO REISSUANCE OF SERIES PREFERRED. No share or shares of Series
Preferred acquired by the Corporation by reason of redemption, purchase,
conversion or otherwise shall be reissued.
F. NO PREEMPTIVE RIGHTS. Stockholders shall have no preemptive rights
except as granted by the Company pursuant to written agreements.
14
<PAGE>
V.
A. To the extent permitted by applicable law a director of the corporation
shall not be personally liable to the Corporation or its stockholders for
monetary damages for any breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit. To the extent
permitted by applicable law if the Delaware General Corporation Law is amended
after approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
B. Any repeal or modification of this Article V shall only be prospective
and shall not effect the rights under this Article V in effect at the time of
the alleged occurrence of any action or omission to act giving rise to
liability.
VI.
For the management of the business and for the conduct of the affairs of
the Corporation, and in further definition, limitation and regulation of the
powers of the Corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A. The management of the business and the conduct of the affairs of the
Corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed by the Board
of Directors in the manner provided in the Bylaws.
B. The Board of Directors may from time to time make, amend, supplement or
repeal the Bylaws; provided, however, that the stockholders may change or repeal
any Bylaw adopted by the Board of Directors by the affirmative vote of the
percentage of holders of capital stock as provided therein; and, provided
further, that no amendment or supplement to the Bylaws adopted by the Board of
Directors shall vary or conflict with any amendment or supplement thus adopted
by the stockholders.
C. The directors of the Corporation need not be elected by written ballot
unless the Bylaws so provide.
* * * *
THREE: This Restated Certificate of Incorporation has been duly approved by
the Board of Directors of this Corporation.
15
<PAGE>
FOUR: This Restated Certificate of Incorporation has been duly adopted in
accordance with the provisions of Sections 228, 242 and 245 of the General
Corporation Law of the State of Delaware by the Board of Directors and the
stockholders of the Corporation. The total number of outstanding shares entitled
to vote or act by written consent was 200,000 shares of Common Stock. All of the
outstanding shares of Common Stock approved this Restated Certificate of
Incorporation by written consent in accordance with Section 228 of the General
Corporation Law of the State of Delaware.
16
<PAGE>
IN WITNESS WHEREOF, Linkshare Corporation has caused this Restated
Certificate of Incorporation to be signed by the Chief Executive Officer and the
Secretary in New York, New York, this 1st day of July 1997.
LINKSHARE CORPORATION
By:/s/ Stephen D. Messer
-----------------------------------
Stephen D. Messer
Chief Executive Officer
ATTEST:
By:/s/ Heidi S. Messer
---------------------------------
Heidi S. Messer
Secretary
17
<PAGE>
IN WITNESS WHEREOF, LinkShare Corporation has caused this Restated
Certificate of Incorporation to be signed by its Chairman of the Board and the
Secretary this ____ day of ______, 2000.
LINKSHARE CORPORATION
By:
----------------------------------
Stephen D. Messer
Chairman of the Board
ATTEST:
By:
------------------------------
Heidi S. Messer
Secretary
21
<PAGE>
EXHIBIT 3.3
BY-LAWS
OF
LINKSHARE CORPORATION
ARTICLE I
Offices
Section 1.01 Principal Office. The principal office of LinkShare
Corporation (the "Corporation") shall be where the Board of Directors of the
Corporation (the "Board") determines from time to time or the business of the
Corporation requires.
Section 1.02 Other Offices. The Corporation also may have offices at such
other places as the Board determines from time to time or the business of the
Corporation requires.
ARTICLE II
Meetings of Stockholders
Section 2.01 Place of Meetings, etc. Except as otherwise provided in these
By-Laws, all meetings of the stockholders shall be held at such dates, times and
places as shall be determined by the Board and as shall be stated in the notices
of the meeting or in waivers of notice thereof.
Section 2.02 Annual Meeting. The annual meeting of stockholders for the
election of directors and the transaction of such other business as properly may
be brought before the meeting shall be held on such date and at such time as
shall be set by the Board.
Section 2.03 Special Meetings. Special meetings of the stockholders, for
any purpose or purposes, may be called by the Chairman, the Chief Executive
Officer or the President and shall be called by the President or the Secretary
upon the written request of a majority of the Board. The request shall state the
date, time, place and purpose of the proposed meeting.
Section 2.04 Notice of Meetings. Except as otherwise required or permitted
by law, whenever the stockholders are required or permitted to take any action
at a meeting, written notice thereof shall be given, stating the place, date and
time of the meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called. A copy of the notice of any meeting
shall be delivered personally or shall be mailed, not less than ten (10) nor
more than sixty (60) days before the date of the meeting, to each stockholder of
record entitled to vote at the meeting. If mailed, the notice shall be given
when deposited in the United States mail, postage prepaid, and shall be directed
to each stockholder at his or her address as it appears on the record of
stockholders, or to such other address which such stockholder may have furnished
by written
<PAGE>
request to the Secretary of the Corporation. Notice of any meeting of
stockholders shall be deemed waived by any stockholder who attends the meeting,
except when the stockholder attends the meeting for the express purpose of
objecting at the beginning thereof to the transaction of any business because
the meeting is not lawfully called or convened. Notice need not be given to any
stockholder who submits, either before or after the meeting, a signed waiver of
notice. Unless the Board, after the adjournment of a meeting, shall fix a new
record date for the adjourned meeting, or unless the adjournment is for more
than thirty (30) days, notice of an adjourned meeting need not be given if the
place, date and time to which the meeting shall be adjourned is announced at the
meeting at which the adjournment is taken.
Section 2.05 Quorum. Except as otherwise provided by statute or by the
Certificate of Incorporation of the Corporation, at any meeting of stockholders,
the presence, in person or by proxy, of the holders of a majority of the
outstanding shares of the Corporation entitled to vote at such meeting shall be
necessary and sufficient to constitute a quorum for the transaction of business.
Whether or not a quorum shall be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in person or by
proxy, shall have the power to adjourn the meeting.
Section 2.06 Voting. At all meetings of the stockholders, every stockholder
having the right to vote thereat shall be entitled to one vote for every share
of stock registered in his or her name as of the record date and entitling him
or her to so vote. A stockholder may vote in person or by proxy. Except as
otherwise provided by statute or by the Certificate of Incorporation of the
Corporation, any corporate action, other than the election of directors, which
is to be taken by a vote of the stockholders at a meeting shall be authorized by
not less than a majority of the votes cast in person or by proxy by stockholders
entitled to vote thereon. Directors shall be elected as provided in Section 3.03
of Article III of these By-Laws. Written ballots shall not be required for
voting on any matter unless ordered by the Chairman of the meeting.
Section 2.07 Proxies. Each stockholder entitled to vote at a meeting of
stockholders may authorize another person or persons to act for him by proxy,
but no such proxy shall be voted or acted upon after 11 months from its date,
unless the proxy provides for a longer period.
Section 2.08 Conduct of Meetings. At each meeting of the stockholders the
Chief Executive Officer shall act as chairman of the meeting. The President, or
such other person as is appointed by the chairman of the meeting, shall act as
Secretary of the meeting and shall keep the minutes thereof. The order of
business at all meetings of the stockholders shall be as determined by the
chairman of the meeting.
Section 2.09 Consent of Stockholders in Lieu of Meeting. Any action which
may be taken at any annual or special meeting of stockholders may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken, shall be signed by the
holders of all of the outstanding shares entitled to vote thereon.
Section 2.10 Fixing of Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment
2
<PAGE>
thereof, the Board shall fix a record date which shall not precede the date upon
which the resolution fixing the record date is adopted by the Board and shall
not be more than sixty (60) days nor less than ten (10) days before the date of
such meeting. If the Board does not fix a record date for such purpose, the
record date for such purpose shall be at the close of business on the day next
preceding the day on which notice is given, or, if no notice is given, the day
on which the meeting is held.
ARTICLE III
Board of Directors
Section 3.01 Powers. The property, business and affairs of the Corporation
shall be managed by the Board which may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by statute or by
the Certificate of Incorporation of the Corporation or by these By-Laws directed
or required to be exercised or done by the stockholders.
Section 3.02 Number of Board Members. The number of directors which shall
constitute the entire Board shall initially be three. The number of directors
may be increased or decreased from time to time by the Board by resolution
adopted by vote of a majority of the then authorized number of directors, except
that the number of directors may not be decreased to less than two unless all
the shares of the Corporation are owned beneficially and of record by less than
two stockholders. When used in these By-Laws, the phrase "entire Board" means
the total number of directors which the Corporation would have if there were no
vacancies.
Section 3.03 Election and Term. Except as otherwise provided by law or by
these By-Laws, the Board shall be elected annually at the annual meeting of the
stockholders and the persons receiving a plurality of the votes cast shall be so
elected. Subject to his or her earlier death, resignation or removal as provided
in Section 3.04 of this Article III, each director shall hold office until his
or her successor shall have been duly elected and shall have qualified.
Section 3.04 Removal. A director may be removed at any time, with or
without cause, by the affirmative vote of the holders of a majority of the
shares then entitled to vote at an election of directors.
Section 3.05 Resignations. Any director may resign at any time by giving
written notice of his or her resignation to the Corporation. A resignation shall
take effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt, and,
unless otherwise specified therein, the acceptance of a resignation shall not be
necessarv to make it effective.
Section 3.06 Vacancies. Any vacancy in the Board arising from an increase
in the number of directors or otherwise may be filled by the vote of a majority
of the directors then in office, though less than a quorum, or by a sole
remaining director. Subject to his or her earlier death, resignation or removal
as provided in Section 3.04 of this Article III, each director so
3
<PAGE>
elected shall hold office until the next annual meeting of stockholders and
until his or her successor shall have been duly elected and shall have
qualified.
Section 3.07 Chairman of the Board. The directors shall elect one of their
members to be Chairman of the Board. The Chairman shall be subject to the
control of and may be removed by the Board. The Chairman shall perform such
duties as may from time to time be assigned by the Board.
Section 3.08 Place of Meetings. Except as otherwise provided in these
By-Laws, all meetings of the Board shall be held at such places as the Board
determines from time to time.
Section 3.09 Annual Meeting. The annual meeting of the Board shall be held
either (a) without notice immediately after the annual meeting of stockholders
and in the same place, or (b) as soon as practicable after the annual meeting of
stockholders on such date and at such time and place as the Board determines.
Section 3.10 Regular Meetings. Regular meetings of the Board shall be held
on such dates and at such places and times as the Board determines. Notice of
regular meetings need not be given, except as otherwise required by law.
Section 3.11 Special Meetings. Special meetings of the Board may be called
by or at the direction of the Chairman, the Chief Executive Officer or the
President. The request shall state the date, time, place and purpose of the
proposed meeting.
Section 3.12 Notice of Meetings. Notices of special meetings of the Board
(and of each annual meeting held pursuant to subdivision (b) of Section 3.08 of
this Article III) if mailed, shall be mailed to each director addressed to him
or her at his or her residence or usual place of business, not later than three
(3) days before the meeting is scheduled to commence, or shall be sent to him or
her at such place by telegraph, cable, facsimile, telex or any other form of
recorded communication, or be delivered personally or by telephone, not later
than the day before such day of the meeting. The notice may be given by the
Chairman, the Chief Executive Officer, the President or the Secretary of the
Corporation.
Section 3.13 Quorum and Voting. At all meetings of the Board, the presence
of a majority of the entire Board shall be necessary and sufficient to
constitute a quorum for the transaction of business, and the vote of a majority
of the directors present at a meeting at which a quorum is present shall be the
act of the Board. A majority of the directors present, whether or not a quorum
is present, may adjourn any meeting to another place, date and time.
Section 3.14 Conduct of Meetings. At each meeting of the Board, the
Chairman or, in his or her absence, a director chosen by a majority of the
directors present, shall act as chairman of the meeting. The President or, in
his or her absence, any person appointed by the chairman of the meeting, shall
act as Secretary of the meeting and keep the minutes thereof. The order of
business at all meetings of the Board shall be as determined by the chairman of
the meeting.
4
<PAGE>
Section 3.15 Written Consent to Action in Lieu of a Meeting. Any action
required or permitted to be taken at any meeting of the Board or of any
committee may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
Section 3.16 Meetings Held Other Than in Person. Members of the Board or
any committee may participate in a meeting of the Board or committee, as the
case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation shall constitute presence in person at the
meeting.
ARTICLE IV
Officers
Section 4.01 Executive Officers, etc. The Board shall elect as executive
officers of the Corporation a Chief Executive Officer, a President and a
Secretary. The Board also may elect one or more Vice Presidents (any of whom may
be designated as Executive Vice Presidents or otherwise), a Treasurer and any
other officers it deems necessary or desirable for the conduct of the business
of the Corporation, each of whom shall have such powers and duties as the Board
determines.
Section 4.02 Duties.
(a) The Chief Executive Officer. The Chief Executive Officer shall
have overall responsibility for the management and direction of the
business and affairs of the Corporation and shall exercise such duties as
customarily pertain to the office of Chief Executive Officer and such other
duties as may be prescribed from time to time by the Board of Directors. He
shall be the senior officer of the Corporation and in case of the inability
or failure of the President to perform his duties, he shall perform the
duties of the President. He may appoint and terminate the appointment or
election of officers, agents, or employees other than those appointed or
elected by the Board. He may sign, execute and deliver, in the name of the
Corporation, powers of attorney, contracts, bonds and other obligations
which implement policies established by the Board. The Chief Executive
Officer shall perform such other duties as may be prescribed from time to
time by the Board or these Bylaws.
(b) The President. The President of the Corporation shall be
responsible for the active direction of the daily business of the
Corporation and shall exercise such duties as customarily pertain to the
office of President and such other duties as may be prescribed from time to
time by the Board. The President may sign, execute and deliver, in the name
of the Corporation, powers of attorney, contracts, bonds and other
obligations which implement policies established by the Board. In the
absence or disability of the Chief Executive Officer, the President shall
perform the duties and exercise the powers of the Chief Executive Officer.
5
<PAGE>
(c) Vice Presidents. Vice Presidents shall have such powers and
perform such duties as may be assigned to them by the Chief Executive
Officer, the President, the executive committee, if any, or the Board. A
Vice President may sign and execute contracts and other obligations
pertaining to the regular course of his duties which implement policies
established by the Board.
(d) The Secretary. The Secretary shall keep the minutes of all
meetings of the stockholders and of the Board. The Secretary shall cause
notice to be given of meetings of stockholders, of the Board, and of any
committee appointed by the Board. He shall have custody of the corporate
seal, minutes and records relating to the conduct and acts of the
stockholders and Board, which shall, at all reasonable times, be open to
the examination of any director. The Secretary or any Assistant Secretary
may certify the record of proceedings of the meetings of the stockholders
or of the Board or resolutions adopted at such meetings; may sign or attest
certificates, statements or reports required to be filed with governmental
bodies or officials; may sign acknowledgments of instruments; may give
notices of meetings; and shall perform such other duties and have such
other powers as the Board may from time to time prescribe.
(e) The Treasurer. Subject to the control of the Board, the Treasurer
shall have the care and custody of corporate funds and the books relating
thereto; shall perform all other duties incident to the office of
Treasurer; and shall have such other powers and duties as the Board, the
Chief Executive Officer or the President assigns to him or her. In the
absence or disability of the Treasurer or in the event there is no
Treasurer, the Chief Executive Officer or the President, or such other
person as is appointed by the Chief Executive Officer or President, shall
perform the duties and exercise the powers of the Treasurer.
Section 4.03 Election; Removal. Subject to his or her earlier death,
resignation or removal as hereinafter provided, each officer shall hold his or
her office until his or her successor shall have been duly elected and shall
have qualified. Any officer may be removed at any time, with or without cause,
by the Board.
Section 4.04 Resignations. Any officer may resign at any time by giving
written notice of his or her resignation to the Corporation. A resignation shall
take effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt, and,
unless otherwise specified therein, the acceptance of a resignation shall not be
necessary to make it effective.
Section 4.05 Vacancies. If an office becomes vacant for any reason, the
Board shall fill the vacancy, and each officer so elected shall serve for the
remainder of his or her predecessor's term.
6
<PAGE>
ARTICLE V
Provisions Relating to Stock Certificates and Stockholders
Section 5.01 Certificates. Certificates for the Corporation's capital stock
shall be in such form as required by law and as approved by the Board. Each
certificate shall be signed in the name of the Corporation by (i) the Chief
Executive Officer, the President or any Vice President and (ii) the Secretary,
the Treasurer or any Assistant Secretary or any Assistant Treasurer and shall
bear the seal of the Corporation or a facsimile thereof. If any certificate is
countersigned by a transfer agent or registered by a registrar, other than the
Corporation or its employees, the signature of any officer of the Corporation
may be a facsimile signature. In case any officer, transfer agent or registrar
who shall have signed or whose facsimile signature was placed on any certificate
shall have ceased to be such officer, transfer agent or registrar before the
certificate shall be issued, it may nevertheless be issued by the Corporation
with the same effect as if he or she were such officer, transfer agent or
registrar at the date of issue.
Section 5.02 Lost Certificates, etc. The Board or any transfer agent of the
Corporation may issue a new certificate for shares in place of any certificate
theretofore issued by it, alleged to have been lost, mutilated, stolen or
destroyed, and the Board (or any transfer agent of the Corporation authorized to
do so by a resolution of the Board) may require the owner of the lost,
mutilated, stolen or destroyed certificate, or his or her legal representatives,
to make an affidavit of that fact and to give the Corporation a bond in such sum
as it may direct as indemnity against any claim that may be made against the
Corporation on account of the alleged loss, mutilation, theft or destruction of
the certificate or the issuance of a new certificate.
Section 5.03 Transfers of Shares. Transfers of shares shall be registered
on the books of the Corporation maintained for that purpose after due
presentation of the stock certificates therefor appropriately endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer.
ARTICLE VI
General Provisions
Section 6.01 Dividends, etc. To the extent permitted by law, the Board
shall have full power and discretion, subject to the provisions of the
Certificate of Incorporation of the Corporation and the terms of any other
corporate document or instrument binding upon the Corporation, to determine
what, if any, dividends or distributions shall be declared and paid or made.
Section 6.02 Fixing of Record Date for Dividends and Other Action. The
Board shall fix a record date for the purpose of determining the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or for the purpose of any other action. The record date fixed for
such purpose shall not precede the date upon which the resolution fixing the
record date is adopted and shall be no more than sixty (60) days prior to
7
<PAGE>
such action. If the Board does not fix a record date, the record date for
determining the stockholders for any such purpose shall be at the close of
business on the date on which the Board adopts the resolution relating thereto.
Section 6.03 Seal. The Corporation's seal shall be in such form as is
required by law and as shall be approved by the Board.
Section 6.04 Fiscal Year. The fiscal year of the Corporation shall be
determined by the Board.
ARTICLE VII
Indemnification
Section 7.01 Indemnification.
(a) The Corporation shall indemnify to the fullest extent now or
hereafter provided for or permitted by law each person involved in, or made
or threatened to be made a party to, any action, suit, claim or proceeding,
arbitration, alternative dispute resolution mechanism, investigation,
administrative or legislative hearing or any other actual, threatened,
pending or completed proceeding, whether civil or criminal, or whether
formal or informal, and including an action by or in the right of the
Corporation or any other corporation, or any partnership, joint venture,
trust, employee benefit plan or other enterprise, whether profit or
non-profit (any such entity, other than the Corporation, being hereinafter
referred to as an "Enterprise"), and including appeals therein (any such
process being hereinafter referred to as a "Proceeding"), by reason of the
fact that such person, such person's testator or intestate (i) is or was a
director or officer of the Corporation, or (ii) while serving as a director
or officer of the Corporation, is or was serving, at the request of the
Corporation, as a director, officer, or in any other capacity, any other
Enterprise, against any and all judgments, fines, penalties, amounts paid
in settlement, and expenses, including attorneys' fees, actually and
reasonably incurred as a result of or in connection with any Proceeding, or
any appeal therein, except as provided in Section 7.01 (b) of this Article
VII.
(b) No indemnification shall be made to or on behalf of any such
person if a judgment or other final adjudication adverse to such person
establishes that such person's acts were committed in bad faith or were the
result of active and deliberate dishonesty and were material to the cause
of action so adjudicated, or that such person personally gained in fact a
financial profit or other advantage to which such person was not legally
entitled. In addition, no indemnification shall be made with respect to any
Proceeding initiated by any such person against the Corporation, or a
director or officer of the Corporation, other than to enforce the terms of
this Article VII, unless such Proceeding was authorized by the Board.
Further, no indemnification shall be made with respect to any settlement or
compromise of any Proceeding unless and until the Corporation has consented
to such settlement or compromise.
8
<PAGE>
Section 7.02 Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation against any expense, liability or loss,
whether or not the Corporation would have the power to indemnify such person
against such expense, liability or loss under the General Corporation Law of the
State of Delaware.
ARTICLE VIII
Amendments
(a) The holders of shares entitled at the time to vote for the election of
directors shall have power to adopt, amend, or repeal these By-Laws by vote of
not less than a majority of such shares, and the Board of Directors by vote of
not less than a majority of the entire Board shall have power equal in all
respects to that of the stockholders to adopt, amend, or repeal these By-Laws.
However, any By-Law adopted by the Board may be amended or repealed by vote of
the holders of a majority of the shares entitled at the time to vote for the
election of directors.
(b) If any By-Law or By-laws regulating an impending election of directors
is adopted, amended, or repealed by the Board, there shall be set forth in the
notice of the next meeting of stockholders for the election of directors the
By-Law or By-Laws so adopted, amended, or repealed, together with a concise
statement of the changes made.
9
<PAGE>
EXHIBIT 3.4
BY-LAWS
OF
LINKSHARE CORPORATION
ARTICLE I
Offices
-------
Section 1.01. Principal Office. The principal office of LinkShare
Corporation (the "Corporation") shall be where the Board of Directors of the
Corporation (the "Board") determines from time to time or the business of the
Corporation requires.
Section 1.02. Other Offices. The Corporation also may have offices at
such other places as the Board determines from time to time or the business of
the Corporation requires.
ARTICLE II
Meetings of Stockholders
------------------------
Section 2.01. Place of Meetings, etc. Except as otherwise provided in these
By-Laws, all meetings of the stockholders shall be held at such dates, times and
places as shall be determined by the Board and as shall be stated in the notices
of the meeting or in waivers of notice thereof.
Section 2.02. Annual Meeting. The annual meeting of stockholders for the
election of directors and the transaction of such other business as properly may
be brought before the meeting shall be held on such date and at such time as
shall be set by the Board.
Section 2.03. Special Meetings. Special meetings of the stockholders, for
any purpose or purposes, may be called by the Chairman of the Board or a
majority of the Board. The Board or, in the absence of action by the Board, the
Chairman of the Board, shall have the sole power to
<PAGE>
determine the date, time and place of any special meeting of stockholders. A
special meeting of stockholders may be held at any place within or without the
State of Delaware designated by the Board, or in the absence of action by the
Board, the Chairman of the Board.
Section 2.04. Notice of Meeting and Waiver of Notice.
2.04.1 Notice of Meeting. Except as provided for in Section 2.04.2 of
these By-laws, the Chairman of the Board, the Chief Executive Officer, the
President, any Vice-President, the Secretary or the Board shall cause to be
delivered to each stockholder entitled to notice of or to vote at the
meeting either personally or by mail, not less than ten (10) nor more than
sixty (60) days before the meeting, written notice stating the date, time
and place of the meeting and, in the case of a special meeting, the purpose
or purposes for which the meeting is called.
2.04.2. Delivery of Notice. If notice is mailed, it shall be deemed
delivered when deposited in official government mail property addressed to
the stockholder at its address as it appears on the stock transfer books of
the Corporation with postage prepaid.
2.04.3. Waiver of Notice. (1) Whenever any notice is required to be
given to any stockholder under the provisions of these By-Laws, the
Restated Certificate of Incorporation (the "Certificate") or Delaware law,
a waiver thereof in writing, signed by the person or persons entitled to
such notice, whether before or after the time stated therein, shall be
deemed equivalent to the giving of such notice.
(2) The attendance of a stockholder at a meeting shall constitute
a waiver of notice of such meeting, except when a stockholder attends
a meeting for the express purpose of
-2-
<PAGE>
objecting at the beginning of the meeting to the transaction of any
business because the meeting is not lawfully called or convened.
Section 2.05. Advance Notice Requirements for Stockholder Nominations of
Directors or Stockholder Proposed Business.
2.05.1 Advance Notice of Stockholder Nominations of Directors. Only
persons who are nominated in accordance with the following procedures shall
be eligible for election as directors of the Corporation, except as may be
otherwise provided in the Certificate with respect to the right of holders
of preferred shares of the Corporation to nominate and elect a specified
number of directors in certain circumstances.
(a) Annual Meetings of Stockholders. (1) Nominations of persons
for election to the Board of the Corporation may be made at an annual
meeting of stockholders only (i) pursuant to the Corporation's notice
of meeting (or any supplement thereto) delivered pursuant to Section
2.04 of these By-laws, (ii) by or at the direction of the Board (or
any duly authorized committee thereof) or the Chairman of the Board or
(iii) by any stockholder of the Corporation who was a stockholder of
record of the Corporation at the time the notice provided for in this
Section 2.05 is delivered to the Secretary of the Corporation, who is
entitled to vote at the meeting and who complies with the notice
procedures set forth in subparagraphs (2) and (3) of this paragraph
(a) in this Section 2.05.1.
(2) For nominations to be properly brought before an annual
meeting by a stockholder pursuant to clause (iii) of paragraph
(a)(1) of this Section 2.05.1, the stockholder must have given
timely notice thereof in writing to the Secretary of the
Corporation.
-3-
<PAGE>
To be timely, a stockholder's notice shall be delivered to the
Secretary at the principal executive offices of the Corporation
not less than sixty (60) nor more than ninety (90) days prior to
the anniversary date of the immediately preceding annual meeting
of stockholders; provided, however, that in the event that the
annual meeting is called for a date that is not within thirty
(30) days before or after such anniversary date, notice by the
stockholder in order to be timely must be so received not later
than the close of business on the tenth (10th) day following the
day on which such notice of the date of the annual meeting was
mailed or public disclosure of the date of the annual meeting was
made, whichever first occurs. In no event shall the public
announcement of an adjournment or postponement of an annual
meeting of stockholders commence a new time period (or extend any
time period) for the giving of a stockholder's notice as
described above. The stockholder's notice shall contain, at a
minimum, the information set forth in Section 2.05.1(c).
(3) Notwithstanding anything in the second sentence of
paragraph (a)(2) of this Section 2.05.1 to the contrary, in the
event that the number of directors to be elected to the Board of
the Corporation at an annual meeting is increased, and there is
no public announcement by the Corporation naming all of the
nominees for director or specifying the size of the increased
Board at least one hundred (100) days prior to the first
anniversary of the preceding year's annual meeting, a
stockholder's notice required by this Section 2.05.1 shall also
be considered timely, but only with respect to nominees for any
new positions created by such increase, if it shall be delivered
to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the tenth
(10th) day following the day on which such public announcement is
first made by the Corporation.
-4-
<PAGE>
(b) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been
described in the Corporation's notice of meeting given pursuant to
Section 2.04 of these By- laws. To the extent such business includes
the election of directors, nominations of persons for election to the
Board may be made at a special meeting of stockholders only (i) by or
at the direction of the Board (or any duly authorized committee
thereof) or the Chairman of the Board, or (ii) by any stockholder of
the Corporation who is a stockholder of record at the time the notice
provided for in this Section 2.05.1(b) is delivered to the Secretary
of the Corporation, who is entitled to vote at the special meeting and
who gives timely notice in writing by the Secretary of the
Corporation. The stockholder's notice shall contain, at a minimum, the
information set forth in Section 2.05.1(c). To be timely, a
stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the
close of business on the tenth (10th) day following the day on which
public announcement is first made of the date of the special meeting
and of the nominees proposed by the Board to be elected at such
meeting. In no event shall the public announcement of an adjournment
or postponement of a special meeting commence a new time period (or
extend any time period) for the giving of a stockholder's notice as
described above.
(c) Contents of Stockholder's Notice Any stockholder's notice
required by this Section 2.05.1 shall set forth as to each person whom
the stockholder proposes to nominate for election or reelection as a
director (i) the name, age, business address and residence address of
the person, (ii) the principal occupation and employment of the
person, (iii) the class or series and number of shares of capital
stock of the Corporation which are owned beneficially or of record by
-5-
<PAGE>
the person and (iv) any other information relating to the person that
would be required to be disclosed in a proxy statement or other filing
required to be made in connection with solicitations of proxies for
election of directors pursuant to Section 14 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder. Such stockholder's notice
further shall set forth as to the stockholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or
proposal is made (i) the name and address of such stockholder and of
such beneficial owner, as they appear on the Corporation's books, (ii)
the class and number of shares of capital stock of the Corporation
which are owned beneficially and of record by such stockholder and
such beneficial owner, as to the stockholder giving the notice, (iii)
a description of all arrangements or understandings between such
stockholder and each proposed nominee and any other person or persons
(including their names) pursuant to which the nomination(s) are to be
made by such stockholder, (iv) a representation that such stockholder
intends to appear in person or by proxy at the annual meeting to
nominate the person named in its notice, (v) a representation whether
the stockholder or the beneficial owner, if any, intends or is part of
a group which intends to (1) deliver a proxy statement and/or form of
proxy to holders of at least the percentage of the Corporation's
outstanding capital stock required to elect the nominee and/or (2)
otherwise solicit proxies from stockholders in support of such
nomination, and (vi) any other information relating to such
stockholder that would be required to be disclosed in a proxy
statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section
14 of the Exchange Act, and the rules and regulations promulgated
thereunder. Such notice must be accompanied by a written consent of
each proposed nominee to
-6-
<PAGE>
being named as a nominee and to serve as a director if elected. The
Corporation may require any proposed nominee to furnish such other
information as it may reasonably require to determine the eligibility
of such proposed nominee to serve as a director of the Corporation.
(d) Only such persons who are nominated in accordance with the
procedures set forth in this Section 2.05.1 shall be eligible to be
elected at an annual or special meeting of stockholders of the
Corporation to serve as directors. Except as otherwise provided by
law, the chair of the meeting shall have the power and duty to (i)
determine whether a nomination to be brought before an annual or
special meeting was made in accordance with the procedures set forth
in this Section 2.05.1 and (ii) if any proposed nomination is not in
compliance with this Section 2.05.1 (including whether the stockholder
or beneficial owner, if any, on whose behalf the nomination is made
solicits (or is part of a group which solicits), or fails to so
solicit (as the case may be), proxies in support of such stockholder's
nominee in compliance with such stockholder's representation as
required by paragraph (c) of this Section 2.05.1), to declare that
such nomination shall be disregarded.
2.05.2 Advance Notice of Stockholder Proposed Business. No business
shall be transacted at a meeting of stockholders except in accordance with
the following procedures.
(a) Annual Meetings of Stockholders. (1) The proposal of business
to be considered by the stockholders may be made at an annual meeting
of stockholders only (i) pursuant to the Corporation's notice of
meeting (or any supplement thereto) delivered pursuant to Section 2.04
of these By-laws, (ii) by or at the direction of the Board (or any
duly authorized committee thereof) or (iii) by any stockholder of the
Corporation who was a stockholder of record of the
-7-
<PAGE>
Corporation at the time the notice provided for in Section 2.04 is
delivered to the Secretary of the Corporation, who is entitled to vote
at the meeting and who complies with the notice procedures set forth
in subparagraphs (2) and (3) of paragraph (a) of this Section 2.05.2.
(2) For business to be properly brought before an annual
meeting by a stockholder pursuant to clause (iii) of paragraph
(a)(1) of this Section 2.4.2, the stockholder must have given
timely notice thereof in writing to the Secretary of the
Corporation and such business must otherwise be a proper matter
for stockholder action as determined by the Board. To be timely,
a stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the Corporation not less than
sixty (60) nor more than ninety (90) days prior to the
anniversary date of the immediately preceding annual meeting of
stockholders; provided, however, that in the event that the
annual meeting is called for a date that is not within thirty
(30) days before or after such anniversary date, notice by the
stockholder in order to be timely must be so received not later
than the close of business on the tenth (10th) day following the
day on which such notice of the date of the annual meeting was
mailed or public disclosure of the date of the annual meeting was
made, whichever first occurs. In no event shall the public
announcement of an adjournment or postponement of an annual
meeting of stockholders commence a new time period (or extend any
time period) for the giving of a stockholder's notice as
described above. The stockholder's notice shall contain, at a
minimum, the information set forth in Section 2.05.2(c).
-8-
<PAGE>
(b) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been
described in the Corporation's notice of meeting given pursuant to
Section 2.04 of these By-laws.
(c) Contents of Stockholder's Notice. Any stockholder's notice
required by this Section 2.05.2 shall set forth for each item of
business that the stockholder proposes for consideration (i) a
description of the business desired to be brought before the
stockholder meeting, (ii) the text of the proposal or business
(including the text of any resolutions proposed for consideration and
in the event that such business includes a proposal to amend the
By-laws of the Corporation, the language of the proposed amendment),
(iii) the reasons for conducting such business at the stockholder
meeting, and (iv) any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the
proposal is made; and (v) any other information relating to the
stockholder, the beneficial owner or proposed business that would be
required to be disclosed in a proxy statement or other filings in
connection with solicitations of proxies relating to the proposed item
of business pursuant to Section 14 of the Exchange Act, and the rules
and regulations promulgated thereunder. Such stockholder's notice
further shall set forth as to the stockholder giving the notice and
the beneficial owner, if any, on whose behalf the proposal is made (i)
the name and address of such stockholder, as they appear on the
Corporation's books, and of such beneficial owner, (ii) the class and
number of shares of capital stock of the Corporation which are owned
beneficially and of record by such stockholder and such beneficial
owner, (iii) a description of all arrangements or understandings
between such stockholder and any other person or persons (including
their names) pursuant to which the proposals are to be made by such
-9-
<PAGE>
stockholder, (iv) a representation that such stockholder intends to
appear in person or by proxy at the annual meeting to propose the
items of business set forth in the notice, (v) a representation
whether the stockholder or the beneficial owner, if any, intends or is
part of a group which intends to (1) deliver a proxy statement and/or
form of proxy to holders of at least the percentage of the
Corporation's outstanding capital stock required to approve or adopt
the proposal and/or (2) otherwise solicit proxies from stockholders in
support of such proposal, and (vi) any other information relating to
such stockholder, beneficial owner or proposed business that would be
required to be disclosed in a proxy statement or other filings
required to be made in connection with solicitations of proxies in
support of such proposal pursuant to Section 14 of the Exchange Act,
and the rules and regulations promulgated thereunder. The Corporation
may require the stockholder to furnish such other information as it
may reasonably require to determine whether each proposed item of
business is a proper matter for stockholder action.
(d) Except as otherwise provided by law, the chair of the meeting
shall have the power and duty to (i) determine whether any business
proposed to be brought before an annual or special meeting was
proposed in accordance with the procedures set forth in this Section
2.05.2 and (ii) if any proposed business is not in compliance with
this Section 2.05.2 (including whether the stockholder or beneficial
owner, if any, on whose behalf the proposal is made solicits (or is
part of a group which solicits), or fails to so solicit (as the case
may be), proxies in support of such stockholder's proposal in
compliance with such stockholder's representation as required by
paragraph (c) of this Section 2.05.2), to declare that such proposed
business shall not be transacted.
-10-
<PAGE>
2.05.3. General.
(a) For purposes of this Section 2.05, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones
News Service, Associated Press or comparable national news service or
in a document publicly filed by the Corporation with the Securities
and Exchange Commission pursuant to Section 13, 14 or 15(d) of the
Exchange Act.
(b) Notwithstanding the foregoing provisions of this Section
2.05, a stockholder shall also comply with all applicable requirements
of the Exchange Act and the rules and regulations thereunder with
respect to the matters set forth in this Section 2.05. Nothing in this
Section 2.05 shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the Corporation's proxy statement
pursuant to Rule 14a-8 under the Exchange Act.
Section 2.06. Quorum. Except as otherwise provided by statute or by the
Certificate, at any meeting of stockholders, the presence, in person or by
proxy, of the holders of a majority in total voting power of the outstanding
shares of the Corporation entitled to vote at such meeting shall be necessary
and sufficient to constitute a quorum for the transaction of business.
Section 2.07. Adjournment of Meetings. Any meeting of stockholders, annual
or special, may be adjourned solely by the chair of the meeting from time to
time to reconvene at the same or some other time, date and place. The
stockholders present at a meeting shall not have authority to adjourn the
meeting. Notice need not be given of any such adjourned meeting if the date,
time and place thereof are announced at the meeting at which the adjournment is
taken. If the date, time and place of the adjourned meeting are not announced at
the meeting at which the adjournment is taken, then the Secretary of the
Corporation shall give written notice of the date, time and place of the
-11-
<PAGE>
adjourned meeting, either personally or by mail, not less than ten (10) days
prior to the date of the adjourned meeting. Such notice shall be given to each
stockholder present at the meeting at which the adjournment was taken. It is not
required that notice be given to stockholders who were not present at the
meeting at which the adjournment was taken. The provisions of Section 2.04.2 of
these By-laws shall govern the delivery of such notice.
At the adjourned meeting at which a quorum is present, the stockholders may
transact any business which might have been transacted at the original meeting.
Once a share is represented for any purpose at a meeting, it shall be present
for quorum purposes for the remainder of the meeting and for any adjournment of
that meeting unless a new record date is or must be set for the adjourned
meeting. A new record date must be set if the meeting is adjourned in a single
adjournment to a date more than 120 days after the original date fixed for the
meeting. If after the adjournment a new record date is fixed for the adjourned
meeting, notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the adjourned meeting consistent with the new record
date.
Section 2.08. Postponement and Cancellation of Stockholder Meeting. Any
previously scheduled annual or special meeting of the stockholders may be
postponed, and any previously scheduled annual or special meeting of the
stockholders called by the Board may be canceled, by resolution of the Board
upon public notice given prior to the time previously scheduled for such meeting
of stockholders.
Section 2.09. Conduct of Meetings. Meetings of stockholders shall be
presided over by the Chairman of the Board or by another chair designated by the
Board. The date and time of the opening and the closing of the polls for each
matter upon which the stockholders will vote at a
-12-
<PAGE>
meeting shall be determined by the chair of the meeting and announced at the
meeting. The Board may adopt by resolution such rules and regulations for the
conduct of the meeting of stockholders as it shall deem appropriate. Except to
the extent inconsistent with such rules and regulations as adopted by the Board,
the chair of any meeting of stockholders shall have the exclusive right and
authority to prescribe such rules, regulations and procedures and to do all such
acts as, in the judgment of such chair, are appropriate for the proper conduct
of the meeting. Such rules, regulations or procedures, whether adopted by the
Board or prescribed by the chair of the meeting, may include, without
limitation, the following: (i) the establishment of an agenda or order of
business for the meeting; (ii) rules and procedures for maintaining order at the
meeting and the safety of those present; (iii) limitations on attendance at or
participation in the meeting to stockholders of record of the Corporation, their
duly authorized and constituted proxies or such other persons as the chair of
the meeting shall determine; (iv) restrictions on entry to the meeting after the
time fixed for the commencement thereof; and (v) limitations on the time
allotted to questions or comments by participants. Unless and to the extent
determined by the Board or the chair of the meeting, meetings of stockholders
shall not be required to be held in accordance with the rules of parliamentary
procedure.
Section 2.10. Voting. At all meetings of the stockholders, every
stockholder having the right to vote thereat shall be entitled to one vote for
every share of stock registered in his or her name as of the record date and
entitling him or her to so vote. A stockholder may vote in person or by proxy.
Except as otherwise provided by statute or by the Certificate, any corporate
action, other than the election of directors, which is to be taken by a vote of
the stockholders at a meeting shall be
-13-
<PAGE>
authorized by not less than a majority of the votes cast in person or by proxy
by stockholders entitled to vote thereon. At any meeting called and held for the
election of directors at which a quorum is present, directors shall be elected
by a plurality of the votes of the shares present in person or represented by
proxy at the meeting and entitled to vote on the election of directors. Written
ballots shall not be required for voting on any matter unless ordered by the
chairman of the meeting.
Section 2.11. Voting List.
(a) A complete list of the stockholders of the Corporation entitled to
vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number and class of shares registered
in the name of each stockholder shall be prepared by the officer who has
charge of the stock ledger of the Corporation at least ten (10) days before
every meeting of stockholders. Such list shall be open to the examination
of any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall
also be produced and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any stockholder who is present.
(b) Upon the willful neglect or refusal of the directors to produce
such a list at any meeting for the election of directors, they shall be
ineligible for election to any office at such meeting.
-14-
<PAGE>
(c) The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by
this Section or the books of the Corporation or to vote in person or by
proxy at any meeting of stockholders.
Section 2.12. Proxies. Each stockholder entitled to vote at a meeting of
stockholders may authorize another person or persons to act for him by proxy,
but no such proxy shall be voted or acted upon after 11 months from its date,
unless the proxy provides for a longer period.
Section 2.13. Stockholder Action Without a Meeting. Subject to the rights
of the holders of any class or series of preferred stock, stockholder action may
be taken only at an annual or special meeting. Except as otherwise provided in
the terms of any class or series of preferred stock, no action required to be
taken or which may be taken at any annual meeting or special meeting of
stockholders may be taken without a meeting, and the power of stockholders to
consent in writing, without a meeting, is specifically denied.
Section 2.14. Fixing of Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the Board shall fix a record date which
shall not precede the date upon which the resolution fixing the record date is
adopted by the Board and shall not be more than sixty (60) days nor less than
ten (10) days before the date of such meeting. If the Board does not fix a
record date for such purpose, the record date for such purpose shall be at the
close of business on the day next preceding the day on which notice is given,
or, if no notice is given, the day on which the meeting is held.
-15-
<PAGE>
ARTICLE III
Board of Directors
------------------
Section 3.01. Powers. The property, business and affairs of the Corporation
shall be managed by the Board which may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by statute or by
the Certificate or by these By-Laws directed or required to be exercised or done
by the stockholders.
Section 3.02. Number of Board Members. The number of directors which shall
constitute the entire Board shall initially be five. The number of directors may
be increased or decreased from time to time by the Board by resolution adopted
by vote of a majority of the then authorized number of directors, except that
the number of directors may not be decreased to less than two unless all the
shares of the Corporation are owned beneficially and of record by less than two
stockholders. When used in these By-Laws, the phrase "entire Board" means the
total number of directors which the Corporation would have if there were no
vacancies.
Section 3.03. Election and Term. The Board shall be divided into three
classes: Class I, Class II and Class III. Each class shall consist, as nearly as
possible, of a number of directors equal to one-third (33-1/3%) of the then
authorized number of members of the Board. The term of office of the initial
Class I directors shall expire at the annual meeting of stockholders in 2001;
the term of office of the initial Class II directors shall expire at the annual
meeting of stockholders in 2002; and the term of office of the initial Class III
directors shall expire at the annual meeting of stockholders in 2003. At each
annual meeting of stockholders of the Corporation, the successors of that class
of directors whose term expires at that meeting shall be elected to hold office
for a term
-16-
<PAGE>
expiring at the annual meeting of stockholders held in the third year
following the year of their election. The directors of each class will hold
office until their respective successors are elected and qualified.
Section 3.04. Removal. Subject to the rights of the holders of any class or
series of preferred stock, directors may be removed from office only for cause
(as hereinafter defined), but not without cause, upon the affirmative vote of
the holders of at least 66-2/3% of the total voting power of the then
outstanding capital stock of the Corporation entitled to vote thereon, voting
together as a single class. Except as may otherwise be provided by law,
"cause" for removal, for purposes of this Section, shall exist only if: (i)
the director whose removal is proposed has been convicted of a felony, or has
been granted immunity to testify in an action where another has been convicted
of a felony, by a court of competent jurisdiction and such conviction is no
longer subject to direct appeal; (ii) such director has become mentally
incompetent, whether or not so adjudicated, which mental incompetence directly
affects his ability as a director of the Corporation, as determined by at least
66-2/3% of the members of the Board then in office (other than such director);
or (iii) such director's actions or failure to act have been determined by at
least 66-2/3% of the members of the Board then in office (other than such
director) to be in derogation of the director's duties.
Section 3.05. Resignations. Any director may resign at any time by giving
written notice of his or her resignation to the Corporation. A resignation shall
take effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt, and,
unless otherwise specified therein, the acceptance of a resignation shall not be
necessary to make it effective.
-17-
<PAGE>
Section 3.06. Vacancies. Any vacancy in the Board arising from an increase
in the number of directors or otherwise may be filled by the vote of a majority
of the directors then in office, though less than a quorum, or by a sole
remaining director. Any director elected in accordance with the preceding
sentence shall hold office for the remainder of the full term of the class of
directors in which the vacancy occurred or to which the new directorship is
apportioned, and until such director's successor shall have been elected and
qualified. No decrease in the number of directors constituting the Board shall
shorten the term of any incumbent director, except as may be provided in the
terms of any class or series of preferred stock with respect to any additional
director elected by the holders of such class or series of preferred stock.
Section 3.07. Chairman of the Board. The directors shall elect one of their
members to be Chairman of the Board. The Chairman shall be subject to the
control of and may be removed by the Board. The Chairman shall perform such
duties as may from time to time be assigned by the Board.
Section 3.08. Place of Meetings. Except as otherwise provided in these
By-Laws, all meetings of the Board shall be held at such places as the Board
determines from time to time.
Section 3.09. Annual Meeting. The annual meeting of the Board shall be held
either (a) without notice immediately after the annual meeting of stockholders
and in the same place, or (b) as soon as practicable after the annual meeting of
stockholders on such date and at such time and place as the Board determines.
Section 3.10. Regular Meetings. Regular meetings of the Board shall be held
on such dates and at such places and times as the Board determines. Notice of
regular meetings need not be given,
-18-
<PAGE>
except as otherwise required by law. Meetings (regular or special) shall be held
not less often than four times a year.
Section 3.11. Special Meetings. Special meetings of the Board may be
called by or at the direction of the Chairman, the Chief Executive Officer or a
majority of the Board. The request shall state the date, time, place and
purpose of the proposed meeting.
Section 3.12. Notice of Meetings. Notices of special meetings of the Board
(and of each annual meeting held pursuant to Section 3.09 of this Article III)
if mailed, shall be mailed to each director addressed to him or her at his or
her residence or usual place of business, not later than three (3) days before
the meeting is scheduled to commence, or shall be sent to him or her at such
place by telegraph, cable, facsimile, telex or any other form of recorded
communication, or be delivered personally or by telephone, not later than the
day before such day of the meeting. The notice may be given by the Chairman, the
Chief Executive Officer, the President or the Secretary of the Corporation.
Section 3.13. Quorum. A majority of the total number of directors fixed by
or in the manner provided in these By-laws shall constitute a quorum for the
transaction of business at any Board meeting but, if less than a majority are
present at a meeting, a majority of the directors present may adjourn the
meeting from time to time without further notice and time.
Section 3.14. Conduct of Meetings. At each meeting of the Board, the
Chairman or, in his or her absence, a director chosen by a majority of the
directors present, shall act as chairman of the meeting. The President or, in
his or her absence, any person appointed by the chairman of the
-19-
<PAGE>
meeting, shall act as Secretary of the meeting and keep the minutes thereof. The
order of business at all meetings of the Board shall be as determined by the
chairman of the meeting.
Section 3.15. Written Consent to Action in Lieu of a Meeting. Any action
required or permitted to be taken at any meeting of the Board or of any
committee may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
Section 3.16. Meetings Held Other Than in Person. Members of the Board or
any committee may participate in a meeting of the Board or committee, as the
case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation shall constitute presence in person at the
meeting.
Section 3.17. Committees of the Board of Directors.
(a) The Board may by resolution establish committees and shall specify
with particularity the powers and duties of any such committee. Subject to
the limitations of the laws of the State of Delaware and the Certificate,
any such committee shall exercise all powers and authority specifically
granted to it by the Board, which powers may include, without limitation,
(i) all the powers and authority of the Board in the management of the
business and affairs of the Corporation or (ii) the authority to authorize
the issuance of shares of common stock in an amount not in excess of the
number of shares as shall be specifically authorized from time to time by
the Board in respect of a particular transaction. Such committees shall
serve at the pleasure of the Board, keep minutes
-20-
<PAGE>
of their meetings and have such names as the Board by resolution may
determine and shall be responsible to the Board for the conduct of the
enterprises and affairs entrusted to them.
(b) The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member of any
meeting of such committee. In the absence or disqualification of a member
of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board to act at the
meeting in place of any such absent or disqualified member. Each committee
which may be established by the Board pursuant to these By-laws may fix its
own rules and procedures. Notice of meetings of committees, other than of
regular meetings provided for by such rules, shall be given to committee
members.
Section 3.18. Directors' Compensation. Directors shall receive such
compensation for attendance at any meetings of the Board and any expenses
incidental to the performance of their duties as the Board shall determine by
resolution. Such compensation may be in addition to any compensation received by
the members of the Board in any other capacity.
ARTICLE IV
Officers
--------
Section 4.01. Executive Officers, etc. The Board shall elect from its own
number, at its first meeting after each annual meeting of stockholders, a Chief
Executive Officer and a President. The Board may also elect such Vice Presidents
as in the opinion of the Board the business of the Corporation requires, a
Treasurer and a Secretary, any of whom may or may not be directors. The Board
may also elect, from time to time, such other or additional officers as in its
opinion are
-21-
<PAGE>
desirable for the conduct of business of the Corporation. Each
officer shall hold office until the first meeting of the Board following the
next annual meeting of stockholders following their respective election. Any
person may hold at one time two or more offices.
Section 4.02. Duties.
(a) The Chief Executive Officer. The Chief Executive Officer shall
have overall responsibility for the management and direction of the
business and affairs of the Corporation and shall exercise such duties as
customarily pertain to the office of Chief Executive Officer and such other
duties as may be prescribed from time to time by the Board. He shall be the
senior officer of the Corporation and in case of the inability or failure
of the President to perform his duties, he shall perform the duties of the
President. He may appoint and terminate the appointment or election of
officers, agents or employees other than those appointed or elected by the
Board. He may sign, execute and deliver, in the name of the Corporation,
powers of attorney, contracts, bonds and other obligations which implement
policies established by the Board. The Chief Executive Officer shall
perform such other duties as may be prescribed from time to time by the
Board or these By-laws.
(b) The President. The President of the Corporation shall be
responsible for the active direction of the daily business of the
Corporation and shall exercise such duties as customarily pertain to the
office of President and such other duties as may be prescribed from time to
time by the Board. The President may sign, execute and deliver, in the name
of the Corporation, powers of attorney, contracts, bonds and other
obligations which implement policies established by the Board. In the
absence or disability of the Chief Executive Officer, the President shall
perform the duties and exercise the powers of the Chief Executive Officer.
-22-
<PAGE>
(c) Vice Presidents. Vice Presidents shall have such powers and
perform such duties as may be assigned to them by the Chief Executive
Officer, the President, the executive committee, if any, or the Board. A
Vice President may sign and execute contracts and other obligations
pertaining to the regular course of his duties which implement policies
established by the Board.
(d) The Secretary. The Secretary shall keep the minutes of all
meetings of the stockholders. The Secretary shall cause notice to be given
of meetings of stockholders, of the Board, and of any committee appointed
by the Board. He shall have custody of the corporate seal, minutes and
records relating to the conduct and acts of the stockholders and Board,
which shall, at all reasonable times, be open to the examination of any
director. The Secretary or any Assistant Secre tary may certify the record
of proceedings of the meetings of the stockholders or of the Board or
resolutions adopted at such meetings; may sign or attest certificates,
statements or reports required to be filed with governmental bodies or
officials; may sign acknowledgments of instruments; may give notices of
meetings; and shall perform such other duties and have such other powers as
the Board may from time to time prescribe.
(e) The Treasurer. Subject to the control of the Board, the Treasurer
shall have the care and custody of corporate funds and the books relating
thereto; shall perform all other duties incident to the office of
Treasurer; and shall have such other powers and duties as the Board, the
Chief Executive Officer or the President assigns to him or her. In the
absence or disability of the Treasurer or in the event there is no
Treasurer, the Chief Executive Officer or the President, or such
-23-
<PAGE>
other person as is appointed by the Chief Executive Officer or President,
shall perform the duties and exercise the powers of the Treasurer.
Section 4.03. Election; Removal. Subject to his or her earlier death,
resignation or removal as hereinafter provided, each officer shall hold his or
her office until his or her successor shall have been duly elected and shall
have qualified. Any officer may be removed at any time, with or without cause,
by the Board.
Section 4.04. Resignations. Any officer may resign at any time by giving
written notice of his or her resignation to the Corporation. A resignation shall
take effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt, and,
unless otherwise specified therein, the acceptance of a resignation shall not be
necessary to make it effective.
Section 4.05. Vacancies. If an office becomes vacant for any reason, the
Board shall fill the vacancy, and each officer so elected shall serve for the
remainder of his or her predecessor's term.
Section 4.06. Bank Accounts. In addition to such bank accounts as may be
authorized in the usual manner by resolution of the Board, the Treasurer, with
approval of the Chief Executive Officer or the President, may authorize such
bank accounts to be opened or maintained in the name and on behalf of the
Corporation as he may deem necessary or appropriate, provided payments from such
bank accounts are to be made upon and according to the check of the Corporation,
which may be signed jointly or singularly by either the manual or facsimile
signature or signatures of such officers or bonded employees of the Corporation
as shall be specified in the written instructions of
-24-
<PAGE>
the Treasurer or Assistant Treasurer of the Corporation with the approval of the
Chief Executive Officer or the President of the Corporation.
Section 4.07. Proxies. Unless otherwise provided in the Certificate or
directed by the Board, the Chief Executive Officer or the President or their
designees shall have full power and authority on behalf of the Corporation to
attend and to vote upon all matters and resolutions at any meeting of
stockholders of any corporation in which this Corporation may hold stock, and
may exercise on behalf of this Corporation any and all of the rights and powers
incident to the ownership of such stock at any such meeting, whether regular or
special, and at all adjournments thereof, and shall have power and authority to
execute and deliver proxies and consents on behalf of this Corporation in
connection with the exercise by this Corporation of the rights and powers
incident to the ownership of such stock, with full power of substitution or
revocation.
ARTICLE V
Capital Stock
-------------
Section 5.01. Certificates. Certificates for the Corporation's capital
stock shall be in such form as required by law and as approved by the Board.
Each certificate shall be signed in the name of the Corporation by (i) the
Chairman of the Board, the Chief Executive Officer, the President or any Vice
President and (ii) the Secretary, the Treasurer or any Assistant Secretary or
any Assistant Treasurer and shall bear the seal of the Corporation or a
facsimile thereof. If any certificate is countersigned by a transfer agent or
registered by a registrar, other than the Corporation or its employees, the
signature of any officer of the Corporation may be a facsimile signature. In
case any officer, transfer agent or registrar who shall have signed or whose
facsimile signature was placed on
-25-
<PAGE>
any certificate shall have ceased to be such officer, transfer agent or
registrar before the certificate shall be issued, it may nevertheless be issued
by the Corporation with the same effect as if he or she were such officer,
transfer agent or registrar at the date of issue.
Section 5.02. Lost Certificates, etc. The Board or any transfer agent of
the Corporation may issue a new certificate for shares in place of any
certificate theretofore issued by it, alleged to have been lost, mutilated,
stolen or destroyed, and the Board (or any transfer agent of the Corporation
authorized to do so by a resolution of the Board) may require the owner of the
lost, mutilated, stolen or destroyed certificate, or his or her legal
representatives, to make an affidavit of that fact and to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation on account of the alleged loss, mutilation, theft
or destruction of the certificate or the issuance of a new certificate.
Section 5.03. Transfers of Shares. Transfers of shares shall be registered
on the books of the Corporation maintained for that purpose after due
presentation of the stock certificates therefor appropriately endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer. The person in whose name shares of stock stand on the books of the
Corporation shall be deemed by the Corporation to be the owner thereof for all
purposes, and the Corporation shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of the state of Delaware.
-26-
<PAGE>
Section 5.04. Transfer Agent and Registrar. The Board may appoint one or
more transfer agents and one or more registrars, any may require all
certificates for shares to bear the manual or facsimile signature or signatures
of any of them.
Section 5.05. Regulations. The Board shall have power and authority to make
all such rules and regulations as it may deem expedient concerning the issue,
transfer, registration, cancellation and replacement of certificates
representing stock of the Corporation.
ARTICLE VI
General Provisions
------------------
Section 6.01. Dividends, etc. To the extent permitted by law, the Board
shall have full power and discretion, subject to the provisions of the
Certificate and the terms of any other corporate document or instrument binding
upon the Corporation, to determine what, if any, dividends or distributions
shall be declared and paid or made.
Section 6.02. Fixing of Record Date for Dividends and Other Action. The
Board shall fix a record date for the purpose of determining the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or for the purpose of any other action. The record date fixed for
such purpose shall not precede the date upon which the resolution fixing the
record date is adopted and shall be no more than sixty (60) days prior to such
action. If the Board does not fix a record date, the record date for determining
the stockholders for any such purpose shall be at the close of business on the
date on which the Board adopts the resolution relating thereto.
-27-
<PAGE>
Section 6.03. Seal. The Corporation's seal shall be in such form as is
required by law and as shall be approved by the Board.
Section 6.04. Fiscal Year. The fiscal year of the Corporation shall be
determined by the Board.
Section 6.05. Notices and Waivers Thereof. Whenever any notice is required
by law, the Certificate or these By-laws to be given to any stockholder,
director or officer, such notice, except as otherwise provided by law, may be
given personally, or by mail, or, in the case of directors or officers, by
telegram, cable or facsimile transmission, addressed to such address as appears
on the books of the Corporation. Any notice given by telegram, cable or
facsimile transmission shall be deemed to have been given when it shall have
been delivered for transmission and any notice given by mail shall be deemed to
have been given three business days after it shall have been deposited in the
United States mail with postage thereon prepaid.
Whenever any notice is required to be given by law, the Certificate or
these By-laws, a written waiver thereof, signed by the person entitled to such
notice, whether before or after the meeting or the time stated therein, shall be
deemed equivalent in all respects to such notice to the full extent permitted by
law.
Section 6.06. Saving Clause. These By-laws are subject to the provisions of
the Certificate and applicable law. In the event any provision of these By-laws
is inconsistent with the Certificate or the corporate laws of the State of
Delaware, such provision shall be invalid to the extent only of such conflict,
and such conflict shall not affect the validity of all other provisions of these
By-laws.
-28-
<PAGE>
ARTICLE VII
Indemnification
---------------
Section 7.01. Indemnification.
(a) The Corporation shall indemnify to the fullest extent now or
hereafter provided for or permitted by law each person involved in, or made
or threatened to be made a party to, any action, suit, claim or proceeding,
arbitration, alternative dispute resolution mechanism, investigation,
administrative or legislative hearing or any other actual, threatened,
pending or completed proceeding, whether civil or criminal, or whether
formal or informal, and including an action by or in the right of the
Corporation or any other corporation, or any partnership, joint venture,
trust, employee benefit plan or other enterprise, whether profit or
non-profit (any such entity, other than the Corporation, being hereinafter
referred to as an "Enterprise"), and including appeals therein (any such
process being hereinafter referred to as a "Proceeding"), by reason of the
fact that such person, such person's testator or intestate (i) is or was a
director or officer of the Corporation, or (ii) while serving as a director
or officer of the Corporation, is or was serving, at the request of the
Corporation, as a director, officer, or in any other capacity, any other
Enterprise, against any and all judgments, fines, penalties, amounts paid
in settlement, and expenses, including attorneys' fees, actually and
reasonably incurred as a result of or in connection with any Proceeding, or
any appeal therein, except as provided in Section 7.01(b) of this Article
VII.
(b) No indemnification shall be made to or on behalf of any such
person if a judgment or other final adjudication adverse to such person
establishes that such person's acts were committed in bad faith or were the
result of active and deliberate dishonesty and were material to
-29-
<PAGE>
the cause of action so adjudicated, or that such person personally gained
in fact a financial profit or other advantage to which such person was not
legally entitled. In addition, no indemnification shall be made with
respect to any Proceeding initiated by any such person against the
Corporation, or a director or officer of the Corporation, other than to
enforce the terms of this Article VII, unless such Proceeding was
authorized by the Board. Further, no indemnification shall be made with
respect to any settlement or compromise of any Proceeding unless and until
the Corporation has consented to such settlement or compromise.
Section 7.02. Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation against any expense, liability or loss,
whether or not the Corporation would have the power to indemnify such person
against such expense, liability or loss under the General Corporation Law of the
State of Delaware.
ARTICLE VIII
Amendments
----------
(a) The holders of shares entitled at the time to vote for the
election of directors shall have power to adopt, amend or repeal these
By-Laws by vote of not less than a majority of such shares, and the Board
by vote of not less than 75% of the members of the Board then in office
shall have power equal in all respects to that of the stockholders to
adopt, amend or repeal these By-Laws. However, any By-Law adopted by the
Board may be amended or repealed by vote of the holders of a majority of
the shares entitled at the time to vote for the election of directors.
-30-
<PAGE>
(b) If any By-Law or By-laws regulating an impending election of
directors is adopted, amended or repealed by the Board, there shall be set
forth in the notice of the next meeting of stockholders for the election of
directors the By-Law or By-Laws so adopted, amended, or repealed, together
with a concise statement of the changes made.
-31-
<PAGE>
EXHIBIT 4.1
[SEAL] [LOGO OF LINKSHARE] [SEAL]
NUMBER LINKSHARE CORPORATION SHARES
__________ INCORPORATED UNDER THE LAWS __________
OF THE STATE OF DELAWARE CUSIP [ ]
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK,
PAR VALUE $.001 PER SHARE, OF
LINKSHARE CORPORATION
(hereinafter, referred to as the "Corporation"), transferable on the books of
the Corporation by the holder hereof in person or by duly authorized Attorney
upon surrender of this Certificate properly endorsed. This Certificate and the
shares represented hereby are issued and shall be held subject to all provisions
of the Restated Certificate of Incorporation and By-Laws of the Corporation and
any amendments thereto, to all of which the holder of this Certificate by
acceptance hereof assents.
This certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
/s/ [SEAL] /s/
SECRETARY CHAIRMAN and EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
HSBC BANK USA
TRANSFER AGENT AND REGISTRAR,
BY:
AUTHORIZED SIGNATURE
<PAGE>
LINKSHARE CORPORATION
The Corporation will furnish without charge to each stockholder who so
requests, the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof of the
Corporation and the qualifications, limitations, or restrictions of such
preferences and/or rights. Such request may be made to the Corporation or the
Transfer Agent.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM - as tenants in common
TEN COM - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT -- ___________ Custodian __________
(Cust) (Minor)
under Uniform Gifts to Minors
Act ___________________
(State)
Additional abbreviations may also be used though not in the above list.
For value received, ______________________________________________________
hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
___________________________
___________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ shares
of the Common Stock represented by the within Certificate, and does hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
<PAGE>
Dated____________________
___________________________________
NOTICE: THE SIGNATURE TO THIS
ASSIGNMENT MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF
THIS CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
___________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO SEC RULE 17Ad-15.
<PAGE>
EXHIBIT 4.2
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE
SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED.
LINKSHARE CORPORATION
WARRANT TO PURCHASE COMMON STOCK
Issue date: _______________, 2000
1. General. THIS CERTIFIES THAT, _________ (the "Holder") is entitled to
-------
subscribe for and purchase up to ______ shares of fully paid and nonassessable
common stock of LinkShare Corporation, a Delaware corporation (the "Company"),
at a price of $1.00 per share (the "Exercise Price") subject to the provisions
and upon the terms and conditions hereinafter set forth. This warrant (this
"Warrant") is being issued to the Holder in connection with a promissory note
issued by the Company to the Holder on February 7, 2000.
2. Exercise Period. This Warrant may be exercised by the Holder at any time
---------------
and from time to time beginning the issue date above for a term of five (5)
years.
3. Method of Exercise; Payment
---------------------------
a. Cash Exercise. The Holder may exercise this Warrant in whole or in part, by
-------------
surrendering this Warrant (with the notice of exercise form attached hereto as
Exhibit A duly executed) at the principal office of the Company and by the
- ---------
payment to the Company, by certified, cashier's or other check acceptable to the
Company, of an amount equal to the aggregate purchase price of the shares of
common stock being purchased.
b. Net Issue Exercise. In lieu of exercising this Warrant with cash, the
------------------
Holder may elect to receive shares equal to the value of this Warrant (or the
portion thereof being canceled) by surrendering this Warrant at the principal
office of the Company together with notice of such election, in which event the
Company shall issue to the Holder a number of shares of common stock computed
using the following formula:
<PAGE>
X = Y (A-B)
-------
A
where:
X = the number of share of common stock to be issued to the
Holder;
Y = the number of share of common stock purchasable under this
Warrant or, if only a portion of this Warrant is being
exercised, the portion of this Warrant being canceled (at the
date of such calculation);
A = the Fair Market Value (as defined below) of a share of common
(at the date of such calculation); and
B = the Exercise Price (on the date of such calculation).
c. Fair Market Value. The "Fair Market Value" of a share of common stock shall
-----------------
be as follows:
i. if the Company's common stock is traded on an exchange or is quoted on the
Nasdaq National Market, the closing price of the business day immediately
preceding the exercise date; or
ii. otherwise, as determined in good faith by the Company's board of directors.
d. Stock Certificates. In the event the Holder exercises any of the rights
------------------
represented by this Warrant to purchase the Company's common stock, the Company
shall deliver to the Holder certificates representing such shares within a
reasonable time and, unless the Holder has fully exercised this Warrant or the
Warrant has expired, a new warrant representing the remaining shares underlying
this Warrant.
4. Reservation of Shares. The Company covenants and agrees that all shares of
---------------------
common stock which may be issued upon the exercise of this Warrant will, upon
issuance, be duly authorized, validly issued, fully paid and nonassessable, free
from all preemptive rights of any shareholder and free from all taxes, liens and
charges created by the Company with respect to the issue thereof. During the
period within which the Holder may exercise this Warrant, the Company will at
all times have authorized, and reserved for the purpose of issuance upon
exercise of this Warrant, a sufficient number of shares of common stock to
provide for the exercise of the rights represented by this Warrant.
5. Adjustment of Exercise Price and Number of Shares. The number and kind of
-------------------------------------------------
securities purchasable upon the exercise of this Warrant and the Exercise Price
shall be subject to adjustment
<PAGE>
from time to time upon the occurrence of certain events as follows:
a. Reclassification or Merger. In case of any reclassification, change or
--------------------------
conversion of securities of the class issuable upon exercise of this Warrant
(other than a change in par value or as a result of a subdivision or
combination), or in case of any merger of the Company with or into another
company (other than (i) a merger effected solely for the purpose of changing the
Company's jurisdiction of incorporation or (ii) a merger with another company in
which the Company is the acquiring and surviving corporation and which does not
result in any reclassification or change of outstanding securities issuable upon
exercise of this Warrant), or in case of any sale of all or substantially all of
the assets of the Company, the Company, or such successor or purchasing company,
as the case may be, shall duly execute and deliver to the Holder a new warrant,
so that the Holder shall have the right to receive, at a total purchase price
not to exceed that payable upon the exercise of the unexercised portion of this
Warrant, and in lieu of the common stock theretofore issuable upon exercise of
this Warrant, the kind and amount of shares of stock, other securities, money
and property receivable upon such reclassification, change or merger by a holder
of the number of shares of common stock under this Warrant. Such new warrant
shall provide for adjustments as nearly equivalent as may be practicable to the
adjustments provided for in this section. The provisions of this subparagraph
(a) shall similarly apply to successive reclassifications, changes, mergers,
consolidations and transfers.
b. Combination or Subdivision of Shares. If the Company at any time while this
------------------------------------
Warrant remains outstanding and unexpired shall combine its outstanding shares
of common stock, the number of shares purchasable shall be proportionally
decreased and the Exercise Price proportionally increased effective concurrently
with such combination. In the case of a subdivision, the number of shares
purchasable shall be proportionally increased and the Exercise Price
proportionally decreased effective concurrently with such subdivision.
c. Stock Dividends. If the Company at any time while this Warrant is
---------------
outstanding and unexpired shall pay a dividend with respect to common stock in
common stock, then the Exercise Price shall be adjusted, from and after the date
of determination of shareholders entitled to receive such dividend or
distribution, to that price determined by multiplying the Exercise Price in
effect immediately prior to such date of determination by a fraction (i) the
numerator of which shall be the total number of shares of common stock
outstanding immediately prior to such dividend or distribution and (ii) the
denominator of which shall be the total number of shares of common stock
outstanding immediately after such dividend or distribution.
6. Fractional Shares. No fractional shares will be issued in connection with
-----------------
any exercise hereunder, but in lieu of such fractional shares the Company shall
make a cash payment therefor upon the basis of the Exercise Price then in
effect.
7. Compliance with Securities Law. The Holder, by acceptance hereof, agrees
------------------------------
that the Holder is acquiring this Warrant, and the shares of common stock to be
issued upon exercise hereof, for investment and will not offer, sell or
otherwise dispose of this Warrant, or any shares of common stock to be issued
upon exercise hereof, except under circumstances which will not result in a
<PAGE>
violation of the Securities Act of 1933 (the "Securities Act"). Upon exercise
of this Warrant, unless the shares being acquired are registered under the
Securities Act or an exemption from such registration is available, the holder
hereof shall confirm in writing, by executing the form attached as Schedule 1 to
----------
Exhibit A hereto, that the common stock so acquired are being acquired for
- ---------
investment and not with a view towards distribution or resale. This Warrant and
all shares of common stock issued upon exercise of this Warrant shall be stamped
or imprinted with a legend in substantially the following form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS. THEY
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN
OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED."
8. Transferability. Subject to compliance with applicable federal and state
---------------
securities laws, this Warrant and all rights hereunder are transferable, in
whole or in part, without charge to the Holder hereof (except for transfer
taxes), upon surrender of this Warrant properly endorsed.
9. Rights as Shareholders. No Holder, solely as such, shall be entitled to
----------------------
vote or receive dividends or be deemed a shareholder of the Company.
10. Modification and Waiver. This Warrant and any provision hereof may be
-----------------------
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
11. Notices of Change.
-----------------
a. Promptly upon any adjustment in the number or class of shares subject to
this Warrant and of the Exercise Price, the Company shall give written notice
thereof to the Holder, setting forth in reasonable detail and certifying the
calculation of such adjustment.
b. The Company shall give written notice to the Holder at least ten (10)
business days prior to the date on which the Company closes its books or takes a
record for determining rights to receive any dividends or distributions.
12. Transfer Books. The Company will at no time close its transfer books
--------------
against the transfer of this Warrant or of any shares of common stock issued or
issuable upon the exercise of this Warrant in any manner which interferes with
the timely exercise of this Warrant.
13. Loss, Theft, Destruction, or Mutilation. The Company represents and
---------------------------------------
warrants to the Holder that, upon receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction, or mutilation of this Warrant and,
in the case of any such loss, theft or destruction, upon receipt of an indemnity
reasonably satisfactory to the Company, or in the case of any such mutilation
<PAGE>
upon surrender and cancellation of this Warrant, the Company, at the Holder's
expense, will make and deliver a new warrant of like tenor in lieu of the lost,
stolen, destroyed or mutilated Warrant.
14. Notices. Any notice, request, communication or other document required or
-------
permitted to be given or delivered to the Holder or the Company shall be
delivered via overnight courier by certified or registered mail, postage
prepaid, to the Holder's address as shown on the books of the Company or to the
Company at the address indicated on the signature page of this Warrant.
15. Binding Effect on Successors. Except as otherwise set forth herein, this
----------------------------
Warrant shall be binding upon any company succeeding the Company by merger,
consolidation or acquisition of all or substantially all of the Company's
assets.
16. Descriptive Headings. The descriptive headings of the several paragraphs
--------------------
of this Warrant are inserted for convenience only and do not constitute a part
of this Warrant.
17. Governing Law. This Warrant shall be construed and enforced in accordance
-------------
with, and the rights of the parties shall be governed by, the laws of the State
of New York.
18. Acceptance. Receipt of this Warrant by the holder hereof shall constitute
----------
acceptance of and agreement to the foregoing terms and conditions.
LinkShare Corporation
215 Park Avenue South
8th Floor
New York, NY 10003
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
<PAGE>
EXHIBIT A
---------
NOTICE OF EXERCISE
------------------
TO: LinkShare Corporation
1. The undersigned hereby elects to purchase __________ shares of common
stock of LinkShare Corporation pursuant to the terms of the attached Warrant.
2. Method of Exercise (Please initial the applicable blank.):
______The undersigned elects to exercise the attached Warrant by means of
a cash payment, and tenders herewith payment in full for the purchase price of
the shares being purchased, together with all applicable transfer taxes, if any.
______The undersigned elects to exercise the attached Warrant by means of
the net exercise provisions of the Warrant.
3. Please issue a certificate or certificates representing said shares
of common stock in the name of the undersigned or in such other name as is
specified below:
--------------------------------
(Name)
--------------------------------
--------------------------------
--------------------------------
(Address)
4. The undersigned hereby represents and warrants that the aforesaid
shares of common stock are being acquired for the account of the undersigned for
investment and not with a view to or for resale in connection with the
distribution thereof, and that the undersigned has no present intention of
distributing or reselling such shares. The undersigned hereby delivers an
Investment Representation Statement in the form attached to the Warrant as
Schedule 1 to Exhibit A.
- ---------- ---------
Date: By:
------------------------ ----------------------------------
Name:
----------------------------------
Title:
----------------------------------
(if applicable)
<PAGE>
Schedule 1
----------
INVESTMENT REPRESENTATION STATEMENT
-----------------------------------
Purchaser:
---------------------------
Security: Common stock
Amount:
---------------------------
Date:
---------------------------
In connection with the purchase of the above-listed shares of common
stock (the "Securities"), the undersigned (the "Purchaser") represents to
LinkShare Corporation (the "Company") as follows:
(a) The Purchaser is aware of the Company's business affairs and
financial condition, and has acquired sufficient information about the Company
to reach an informed and knowledgeable decision to acquire the Securities. The
Purchaser is purchasing the Securities for its own account for investment
purposes only and not with a view to, or for the resale in connection with, any
"distribution" thereof for purposes of the Securities Act of 1933, as amended
(the "Securities Act").
(b) The Purchaser understands that the Securities have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of the Purchaser's investment intent as expressed herein. In this
connection, the Purchaser understands that, in the view of the Securities and
Exchange Commission (the "SEC"), the statutory basis for such exemption may be
unavailable if the Purchaser's representation was predicated solely upon a
present intention to hold these Securities for the minimum capital gains period
specified under tax statutes, for a deferred sale, for or until an increase or
decrease in the market price of the Securities, or for a period of one year or
any other fixed period in the future.
(c) The Purchaser further understands that the Securities must be held
indefinitely unless subsequently registered under the Securities Act or unless
an exemption from registration is otherwise available. Moreover, the Purchaser
understands that the Company is under no obligation to register the Securities.
In addition, the Purchaser understands that the certificate evidencing the
Securities will be imprinted with the legend referred to in the Warrant under
which the Securities are being purchased.
(d) The Purchaser is aware of the provisions of Rule 144, promulgated
under the Securities Act, which, in substance, permit limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a non-public offering subject
to the satisfaction of certain conditions, if
<PAGE>
applicable, including, among other things: The availability of certain public
information about the Company, the resale occurring not less than one year after
the party has purchased and paid for the securities to be sold; the sale being
made through a broker in an unsolicited "broker's transaction" or in
transactions directly with a market maker (as said term is defined under the
Securities Exchange Act of 1934, as amended) and the amount of securities being
sold during any three-month period not exceeding the specified limitations
stated therein.
(e) The Purchaser further understands that at the time it wishes to sell
the Securities there may be no public market upon which to make such a sale, and
that, even if such a public market then exists, the Company may not be
satisfying the current public information requirements of Rule 144 and that, in
such event, the Purchaser may be precluded from selling the Securities under
Rule 144 even if the one-year minimum holding period had been satisfied.
(f) The Purchaser further understands that in the event all of the
requirements of Rule 144 are not satisfied, registration under the Securities
Act, compliance with Regulation A, or some other registration exemption will be
required, and that, notwithstanding the fact that Rule 144 is not exclusive, the
SEC has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rule 144 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk.
PURCHASER
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
(if applicable)
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF BAKER BOTTS LLP]
[Date]
LinkShare Corporation
215 Park Avenue, 8th Floor
New York, New York 10003
Dear Sirs and Madames:
As counsel for LinkShare Corporation, a Delaware corporation (the
"Company"), we have examined and are familiar with the registration statement on
Form S-1, File No. 333-_______ (the "Registration Statement"), which relates to
the registration under the Securities Act of 1933, as amended, of _________
shares (the "Shares") of the Company's Common Stock, par value $.001 per share,
to be issued and sold to the underwriters (the "Underwriters") named in the
Registration Statement under the heading "Underwriting."
In connection therewith, we have examined, among other things,
originals, certified copies or copies otherwise identified to our satisfaction
as being copies of originals, of the Certificate of Incorporation, as amended,
and Bylaws of the Company, in the forms filed as Exhibits 3.1 and 3.3,
respectively, to the Registration Statement; the proposed Restated Certificate
of Incorporation (the "Restated Charter") and By-Laws of the Company, in the
forms filed as Exhibits 3.2 and 3.4, respectively, to the Registration
Statement; records of proceedings of the Company's Board of Directors, including
committees thereof, with respect to the filing of the Registration Statement and
related matters; the form of Underwriting Agreement, in the form filed as
Exhibit 1.1 to the Registration Statement (the "Underwriting Agreement"); and
such other documents, records, certificates of public officials and questions of
law as we deemed necessary or appropriate for the purpose of this opinion. In
rendering this opinion, we have relied, to the extent we deem such reliance
appropriate, on certificates of officers of the Company as to factual matters.
We have assumed the authenticity of all documents submitted to us as originals
and the conformity to authentic original documents of all documents submitted to
us as certified, conformed or reproduction copies. We have further assumed that
there will be no changes in applicable law between the date of this opinion and
the date of issuance and sale of the Shares to the Underwriters.
Based upon the foregoing, we are of the opinion that when (i) the
Restated Charter is accepted for filing by the Secretary of State of the State
of Delaware, and (ii) the Shares are issued, signed by the transfer agent and
delivered pursuant to the Underwriting Agreement and paid for by the
Underwriters in accordance therewith, such Shares will be duly authorized,
validly issued, fully paid and non-assessable.
<PAGE>
[LETTERHEAD OF BAKER BOTTS LLP]
2
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to us contained therein under the
heading "Legal Matters." In giving the foregoing consent, we do not admit that
we are in the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
Very truly yours,
BAKER BOTTS L.L.P.
<PAGE>
EXHIBIT 10.1
LINKSHARE CORPORATION
INVESTOR RIGHTS AGREEMENT
THIS INVESTOR RIGHTS AGREEMENT (the "Agreement") is entered into as of
the 16th day of July 1998, by and among LINKSHARE CORPORATION, a Delaware
corporation (the "Company"), Stephen Messer, Heidi Messer and Jianhao Meng
(collectively, the "Initial Founders") and the purchasers of the Company's
Series A Preferred Stock, par value $0.001 per share ("Series A Stock"), set
forth on Exhibit A attached hereto. The purchasers of the Series A Stock shall
be referred to hereinafter as the "Initial Investors" and each individually as
an "Initial Investor."
RECITALS
WHEREAS, the Company proposes to sell and issue to the Initial
Investors up to Three Million Two Hundred Forty-Two Thousand One Hundred
Forty-Eight (3,242,148) shares of its Series A Stock pursuant to that certain
Series A Preferred Stock Purchase Agreement of even date herewith ("the Purchase
Agreement");
WHEREAS, as a condition of entering into the Purchase Agreement, the
Investors have requested that the Company extend to them registration rights,
information rights and other rights as set forth below;
WHEREAS, the Company desires to grant such rights and impose certain
restrictions on to the Investors; and
WHEREAS, the Company and the Investors wish to grant certain rights to
and impose certain restrictions on the Founders, as set forth below.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement and in the Purchase Agreement, the parties mutually agree as follows:
SECTION 1. GENERAL
1.1 Definitions. As used in this Agreement the following terms shall
have the following respective meanings:
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"First Refusal and Co-Sale Agreement" means the Right of First
Refusal and Co-Sale Agreement, dated as of the date of this Agreement,
among the Company, the Founders and the Investors, as the same may be
amended from time to time in accordance with its terms.
<PAGE>
"Form S-3" means such form under the Securities Act as in
effect on the date hereof or any successor registration form under the
Securities Act subsequently adopted by the SEC which permits inclusion
or incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
"Founders" means any and all of the Initial Founders and each
Permitted Transferee (as defined in Section 2.10 hereof) of any Founder
or Initial Founder, in each case so long as such Person continues to
own any Registrable Securities.
"Holder" means any Investor or Founder.
"Initial Offering" means the Company's first firm commitment
underwritten public offering of its Common Stock registered under the
Securities Act.
"Investors" means the Initial Investors and each Permitted
Transferee (as defined in Section 2.10 hereof) of any Investor or
Initial Investor, in each case so long as such Person continues to own
any registrable securities.
"Register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement
in compliance with the Securities Act, and the declaration or ordering
of effectiveness of such Registration Statement or document.
"Registrable Securities" means, as of any time, (a) Common
Stock of the Company issued upon conversion of any Shares and then
outstanding (b) Common Stock of the Company then held by any of the
Founders, including, without limitation, any shares of Common Stock
issuable upon exercise of options or other rights or securities
exercisable for or convertible into Common Stock held by any of the
Founders and (c) any Common Stock of the Company issued as (or issuable
upon the conversion or exercise of any warrant, right or other security
which is issued as) a dividend or other distribution with respect to,
or in exchange for or in replacement of, any of such above-described
securities. Notwithstanding the foregoing, Registrable Securities shall
not include any securities sold by a person to the public either
pursuant to a registration statement or Rule 144 or sold in a private
transaction in which the transferor's rights under Section 2 of this
Agreement are not assigned.
"Registrable Securities then outstanding" shall be the number
of shares determined by calculating the total number of shares of the
Company's Common Stock that are Registrable Securities and either (a)
are then issued and outstanding or (b) are issuable pursuant to then
exercisable or convertible securities.
"Registration Expenses" shall mean all expenses incurred by
the Company in complying with Sections 2.2, 2.3 and 2.4 hereof,
including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel for the Company,
reasonable fees and disbursements not to exceed twenty-five thousand
dollars ($25,000) of a single special counsel
2
<PAGE>
for the Holders, blue sky fees and expenses and the expense of any
special audits incident to or required by any such registration (but
excluding the compensation of regular employees of the Company which
shall be paid in any event by the Company).
"SEC" or "Commission" means the Securities and Exchange
Commission.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to a sale of Registrable Securities by
the Holders participating in such sale.
"Shares" shall mean the Company's Series A Stock issued
pursuant to the Purchase Agreement and held by the Initial Investors
and each Permitted Transferee (as defined in Section 2.10 hereof) of
any Investor or Initial Investor.
SECTION 2. REGISTRATION; RESTRICTIONS ON TRANSFER
2.1 Restrictions on Transfer.
(a) In addition to the restrictions contained in the First
Refusal and Co-Sale Agreement, each Holder agrees not to make any
disposition of all or any portion of the Shares or Registrable
Securities unless and until:
(i) There is then in effect a registration statement
under the Securities Act covering such proposed disposition
and such disposition is made in accordance with such
registration statement; or
(ii) (A) The transferee has agreed in writing to be
bound by the terms of this Agreement, (B) such Holder shall
have notified the Company of the proposed disposition and
shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and
(C) such disposition is exempt from the registration
requirements of the Securities Act and (D) if reasonably
requested by the Company, such Holder shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to
the Company, that such disposition will not require
registration of such shares under the Securities Act; provided
that subclause (ii)(A) shall not apply to a transferee who
acquires Registrable Securities in a transaction exempt from
registration under Rule 144 under the Securities Act.
(b) Each certificate representing Shares or Registrable
Securities shall (unless otherwise permitted by the provisions of the
Agreement) be stamped or otherwise imprinted with a legend
substantially similar to the following (in addition to any legend
required under applicable laws or contract):
3
<PAGE>
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AS AMENDED (THE "ACT") AND
MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE
ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH
REGISTRATION IS NOT REQUIRED.
(c) The Company shall be obligated to reissue promptly
certificates not bearing the foregoing legend at the request of any
Holder thereof to the extent that the securities evidenced thereby that
are proposed to be disposed of by such Holder have been registered for
such disposition or the Holder shall have obtained an opinion of
counsel (which counsel may be counsel to the Company) reasonably
acceptable to the Company to the effect that the securities proposed to
be disposed of may lawfully be so disposed of without registration
under the Act or legend.
(d) Any legend endorsed on an instrument pursuant to
applicable state securities laws and the stop-transfer instructions
with respect to such securities shall be removed upon receipt by the
Company of an order of the appropriate blue sky authority authorizing
such removal.
2.2 Demand Registration.
(a) Subject to the conditions of this Section 2.2, if the
Company shall receive a written request from either (i) the Investors
holding a majority of the outstanding Registrable Securities held by
all Investors (the "Initiating") or (ii) the Founders holding a
majority of the outstanding Registrable Securities held by all
Founders, that the Company file a registration statement under the
Securities Act covering the registration of at least a majority of the
Registrable Securities then outstanding (or a lesser percent if the
anticipated aggregate offering price, net of underwriting discounts and
commissions, would be equal to or greater than $1,000,000 (a "Qualified
Public Offering")), then the Company shall, within thirty (30) days of
the receipt thereof, give written notice of such request to all
Holders, and subject to the limitations of this Section 2.2, use its
best efforts to effect, as soon as practicable, the registration under
the Securities Act of all Registrable Securities that the Holders
request to be registered.
(b) If the Initiating Investors or the Initiating Founders,
respectively intend to distribute the Registrable Securities covered by
their request by means of an underwriting, they shall so advise the
Company as a part of their request made pursuant to this Section 2.2 or
any request pursuant to Section 2.4 and the Company shall include such
information in the written notice referred to in Section 2.2(a) or
Section 2.4(a), as applicable. In such event, the right of any Holder
to include its Registrable Securities in such registration shall be
conditioned upon such Holder's participation in such underwriting and
the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to
distribute their securities
4
<PAGE>
through such underwriting shall enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by the Company (which underwriter or underwriters shall be
reasonably acceptable to a majority in interest of the Initiating
Holders). Notwithstanding any other provision of this Section 2.2 or
Section 2.4, if the underwriter advises the Company that marketing
factors require a limitation of the number of securities to be
underwritten (including Registrable Securities) then the Company shall
so advise all Holders of Registrable Securities which would otherwise
be underwritten pursuant hereto, and the number of shares that may be
included in the underwriting shall be allocated to the Holders of such
Registrable Securities on a pro rata basis based on the number of
Registrable Securities held by all such Holders (including the
Initiating Holders). Any Registrable Securities excluded or withdrawn
from such underwriting shall be withdrawn from the registration.
(c) The Company shall not be required to effect a registration
pursuant to this Section 2.2:
(i) prior to the earlier of (A) the second
anniversary of the date of this Agreement or (B) one hundred
eighty (180) days following the effective date of the
registration statement pertaining to the Initial Offering;
(ii) for the Initiating Investors after the Company
has effected two (2) registrations pursuant to this Section
2.2, and for the Initiating Founders after the Company has
effected two (2) registrations pursuant to this Section 2.2,
and such registrations have been declared or ordered
effective;
(iii) either (A) during the period starting with the
date of filing of, and ending on the date one hundred eighty
(180) days following the effective date of the registration
statement pertaining to the Initial Offering or (B) during the
period starting with the date of filing of, and ending on the
date ninety (90) days following the effective date of a
registration statement other than the Initial Offering in
which such Initiating Investors or Initiating Founders had the
right to participate pursuant to Section 2.3, including a
registration statement in which the underwriters reduced the
Holders' participation pursuant to Section 2.3(a); provided
that the Company makes reasonable good faith efforts to cause
such registration statement to become effective;
(iv) if within thirty (30) days of receipt of a
written request from Initiating Holders pursuant to Section
2.2(a), the Company gives notice to the Holders of the
Company's intention to make an offering described in (A) or
(B) of clause (iii) within ninety (90) days;
(v) if the Company shall furnish to Holders
requesting a registration statement pursuant to this Section
2.2, a certificate signed by the Chairman of the Board stating
that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company
and its shareholders for such registration statement to be
effected at such time, in which event the Company shall have
the right to defer such filing for a period of not more than
ninety (90) days after receipt of the request of the
Initiating Holders; provided that such right
5
<PAGE>
to delay a request shall be exercised by the Company not more
than once in any twelve (12) month period; or
(vi) if the Initiating Holders propose to dispose of
shares of Registrable Securities that may be immediately
registered on Form S-3 pursuant to a request made pursuant to
Section 2.4 below or such shares may be sold without volume
limitations under Rule 144 under the Securities Act.
2.3 Piggyback Registrations. The Company shall notify all Holders of
Registrable Securities in writing at least thirty (30) days prior to the filing
of any registration statement under the Securities Act for purposes of a public
offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding registration statements relating to employee benefit
plans or with respect to corporate reorganizations or other transactions under
Rule 145 of the Securities Act) and will afford each such Holder an opportunity
to include in such registration statement all or part of such Registrable
Securities held by such Holder. Each Holder desiring to include in any such
registration statement all or any part of the Registrable Securities held by it
shall, within fifteen (15) days after the above-described notice from the
Company, so notify the Company in writing. Such notice shall state the intended
method of disposition of the Registrable Securities by such Holder. If a Holder
decides not to include all of its Registrable Securities in any registration
statement thereafter filed by the Company, such Holder shall nevertheless
continue to have the right to include any Registrable Securities in any
subsequent registration statement or registration statements as may be filed by
the Company with respect to offerings of its securities, all upon the terms and
conditions set forth herein.
(a) Underwriting. If the registration statement under which
the Company gives notice under this Section 2.3 is for an underwritten
offering, the Company shall so advise the Holders of Registrable
Securities. In such event, the right of any such Holder to be included
in a registration pursuant to this Section 2.3 shall be conditioned
upon such Holder's participation in such underwriting and the inclusion
of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their
Registrable Securities through such underwriting shall enter into an
underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by the Company.
Notwithstanding any other provision of the Agreement, if the
underwriter determines in good faith that marketing factors require a
limitation of the number of shares to be underwritten, the number of
shares that may be included in the underwriting shall be allocated,
first, to the Company; second, to the Holders who have elected to
participate in such underwriting on a pro rata basis based on the
respective total numbers of Registrable Securities held by such
Holders; and third, to any other shareholder of the Company based on
the respective total number of shares of Common Stock held by such
other stockholders on a pro rata basis. No such reduction shall reduce
the securities being offered by the Company for its own account to be
included in the registration and underwriting. In no event will shares
of any other selling shareholder be included in such registration which
would reduce the number of shares which may be included by Holders
without the written consent of Holders of not less than sixty-six and
two-thirds percent (66- 2/3%) of the Registrable Securities proposed to
be sold in the offering. If any Holder disapproves of the terms of any
such underwriting, such Holder may elect to withdraw
6
<PAGE>
therefrom by written notice to the Company and the underwriter,
delivered at least ten (10) business days prior to the effective date
of the registration statement. Any Registrable Securities excluded or
withdrawn from such underwriting shall be excluded and withdrawn from
the registration.
(b) Right to Terminate Registration. The Company shall have
the right to terminate or withdraw any registration initiated by it
under this Section 2.3 prior to the effectiveness of such registration
whether or not any Holder has elected to include securities in such
registration. The Registration Expenses of such withdrawn registration
shall be borne by the Company in accordance with Section 2.5 hereof.
2.4 Form S-3 Registration. In case the Company shall receive from any
one or more Investors or Founders holding Registrable Securities a written
request or requests that the Company effect a registration on Form S-3 (or any
successor to Form S-3) or any similar shortform registration statement and any
related qualification or compliance with applicable State Securities laws, if
any, with respect to all or a part of the Registrable Securities owned by such
Holder or Holders, the Company will:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders of
Registrable Securities; and
(b) as soon as reasonably practicable, effect such
registration and all such qualifications and compliances as may be so
requested and as would permit or facilitate the sale and distribution
of all or such portion of such Holder's or Holders' Registrable
Securities as are specified in such request, together with all or such
portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given
within fifteen (15) days after receipt of such written notice from the
Company; provided, however, that the Company shall not be obligated to
effect any such registration, qualification or compliance pursuant to
this Section 2.4:
(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, 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 three million dollars ($3,000,000), or
(iii) 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 2.4; 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
7
<PAGE>
(iv) if the Company has, within the twelve (12) month
period preceding the date of such request, already effected
one (1) registration on Form S-3 for any of the Holders
pursuant to this Section 2.4, or
(v) in any particular jurisdiction in which the
Company would be required to qualify to do business, to
execute a general consent to service of process or become
subject to taxation in effecting such registration,
qualification or compliance.
(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 reasonably
practicable after receipt of the request or requests of the Holders.
Registrations effected pursuant to this Section 2.4 shall not be
counted as demands for registration or registrations effected pursuant
to Sections 2.2 or 2.3, respectively.
2.5 Expenses of Registration. Except as specifically provided herein,
all Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Section 2.2 or any registration under
Section 2.3 or Section 2.4 herein shall be borne by the Company. All Selling
Expenses incurred in connection with any registrations hereunder, shall be borne
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 any Registration Expenses of any registration proceeding begun pursuant
to Section 2.2 or 2.4, the request of which has been subsequently withdrawn by
the Holders participating therein unless (a) the withdrawal is based upon
material adverse information concerning the Company of which the Holders
initiating such registration were not aware at the time of such request or (b)
if the Initiating Holders were any Investors or Founders, one or more Investors
holding a majority of Registrable Securities held by the Investors or one or
more Founders holding a majority of the Registrable Securities held by the
Founders, respectively, agree to forfeit their right to one requested
registration pursuant to Section 2.2 or Section 2.4, as applicable (in which
event such right shall be forfeited by all Investors or Founders, respectively).
If the Holders participating therein are required to pay the Registration
Expenses, such expenses shall be borne by the Holders participating therein 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 2.2 or Section 2.4 to a demand registration.
2.6 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
8
<PAGE>
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 of Registrable Securities covered by
such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the
happening of any event as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing.
(g) 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.
2.7 Termination of Registration Rights. All registration rights granted
under this Section 2 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
9
<PAGE>
Company has completed its Initial Offering and is subject to the provisions of
Section 13 or 15(d) 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 share 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 without any volume limitations.
2.8 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 2.
(b) It shall be a condition precedent to the obligations of
the Company to take any action pursuant to Section 2.2, 2.3 or 2.4 that
the selling Holders shall furnish to the Company such information
regarding themselves, the Registrable Securities held by them and the
intended method of disposition of such securities as shall be 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 2.2 or Section 2.4 if, due
to the operation of Subsection 2.2 (b) or due to the withdrawal of such
request by one or more Holders, 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 2.2 or Section 2.4, whichever is applicable, but no event due
to the operation of Section 2.2 (b) shall result in the loss of any of
the demand registrations allowed under Section 2.2 (a).
2.9 Indemnification. In the event any Registrable Securities are
included in a registration statement under Sections 2.2, 2.3 or 2.4:
(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, 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
10
<PAGE>
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 2.9(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, any underwriter (as defined in the Securities
Act) for the Company and each person, if any, who controls the Company
or underwriter within the meaning of the Securities Act, 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 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 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
expressly for use in connection with such registration by such Holder,
partner, officer, director, underwriter or controlling person of such
Holder 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 2.9(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 2.9 exceed the proceeds from the
offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 2.9 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 2.9, 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
11
<PAGE>
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 2.9,
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 2.9.
(d) If the indemnification provided for in this Section 2.9 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 2.9 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.
(f) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with any public
offering in which any Holders are participating are in conflict with
the foregoing provisions, the provisions in the underwriting agreement
shall control.
2.10 Assignment of Registration Rights. The rights to cause the Company
to register Registrable Securities pursuant to this Section 2 may be assigned to
by a Holder to a transferee or assignee of Registrable Securities, pursuant to a
prior contractual obligation and with no additional
12
<PAGE>
consideration paid in the case of clauses (b) and (f) below, which (a) is a
subsidiary or parent, (b) is a general partner, limited partner, retired
partner, member or retired member of a Holder, (c) is a Holder's family member
or trust for the benefit of an individual Holder or such Holder's family members
or custodian for the benefit of a Holder's children, (d) is already a party to
this Agreement, (e) is the estate or legal representative of such Holder upon
such Holder's death or adjudication of incompetency (f) is a stockholder,
officer or director of the Company, or (g) acquires at least two hundred fifty
thousand (250,000) shares of Registrable Securities (as adjusted for stock
splits and combinations); 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; and
provided further that, in the case of any transferee specified in this Section
2.10, that (i) such transferee is not a competitor and (ii) the transfer of
Registrable Securities to such transferee is permitted by and made in accordance
with the applicable provisions of the First Refusal and Co-Sale Agreement.
2.11 Amendment of Registration Rights. Any provision of this Section 2
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 sixty-six and
two-thirds percent (66-2/3%) of the Registrable Securities then outstanding. Any
amendment or waiver effected in accordance with this Section 2.11 shall be
binding upon each Holder and the Company. By acceptance of any benefits under
this Section 2, Holders of Registrable Securities hereby agree to be bound by
the provisions hereunder.
2.12 Limitation on Subsequent Registration Rights. After the date of
this Agreement, the Company shall not, without the prior written consent of the
Holders of sixty-six and two-thirds percent (66-2/3%) 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 pari passu or senior to those granted to the Holders
hereunder.
2.13 "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
for a public offering of the Company's securities; provided that all officers
and directors of the Company and holders of at least ten percent (10%) of the
Company's voting securities enter into similar agreements.
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 fifteen (15) days of such request, such information as may be required
13
<PAGE>
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 2.13
shall not apply to a registration relating solely to employee benefit plans on
Form S-1 or Form S-8 or similar forms that may be promulgated in the future, or
a registration 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.
2.14 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:
(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 Initial Offering and while the Company continues to
be subject to the reporting requirements of Section 15(d) or Section 13
of the Exchange Act;
(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 any 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 filed
with the SEC; and such other publicly available 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 3. COVENANTS OF THE COMPANY
3.1 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
and administered in accordance with generally accepted accounting
principles consistently applied, and will set aside on its books all
such proper accruals and reserves as shall be required under generally
accepted accounting principles consistently applied.
(b) As soon as practicable after the end of each fiscal year
of the Company, and in any event within ninety (90) days thereafter,
the Company will furnish each Holder 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
14
<PAGE>
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) So long as any Holder (with its affiliates) shall own not
less than two hundred fifty thousand (250,000) shares of Registrable
Securities (as adjusted for stock splits and combinations) (a "Major
Holder"), the Company will furnish each such Major Holder, 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) The Company will furnish each such Major Holder (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 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.
3.2 Inspection Rights. Each such Major Holder 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 3.2 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.
3.3 Confidentiality of Records.
(a) Each Holder agrees to use, and to use its best efforts to
insure that its authorized representatives use, the same degree of care
as such Holder uses to protect its own confidential information to keep
confidential any information furnished to it which the Company
identifies as being confidential or proprietary (so long as such
information is not in the public domain), except that such Holder may
disclose such proprietary or confidential information to any partner,
subsidiary, parent or agent of such Holder for the purpose of
evaluating its investment in the Company as long as such partner,
subsidiary, parent or agent is advised of the confidentiality
15
<PAGE>
provisions of this Section 3.3 and any Confidentiality Agreement
between the Company and such Holder.
(b) Notwithstanding any provision of this Section 3 or any
other provision of this Agreement actually or apparently to the
contrary, the Company shall not be required to, and shall not provide
any Investor with any non-public information or any access or
inspection rights under Section 3.2 or otherwise if the Company
reasonably believes that such Investor (or any of its affiliates) is a
competitor (unless such Investor furnishes the Company with reasonable
evidence that it and its affiliates are not competitors) or unless such
Investor executes and delivers or previously has executed and delivered
to the Company a confidentiality agreement in substantially the form of
the Initial Investor Confidentiality Agreement. The provisions of this
Section 3.3 are supplemental to and do not supersede, terminate or
amend the terms of the Initial Investor Confidentiality Agreement or
any other confidentiality agreement which any Investor may enter into
with the Company.
(c) The Investors hereby acknowledge and agree that (i) by
reason of such Investor being furnished or granted access to material
non-public information regarding the Company as provided herein, such
Investor may be prohibited from purchasing or selling securities of the
Company unless and until such information is disclosed to the public
generally or to the persons with whom such Investor effects such
purchases or sales, (ii) the Company has and will have no obligation to
make such disclosure and (iii) such Investor is and will be prohibited
by the confidentiality provisions of this Agreement and any separate
confidentiality agreement which such Investor has or shall enter into
with the Company from making such disclosure.
3.4 Reservation of Common Stock. The Company will at all times reserve
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.
3.5 Stock Vesting. Unless otherwise determined by a majority of the
Board of Directors, which majority shall include at least one of the Directors
designated or elected by the Investors and at least one of the Directors
designated or elected by the Founders, 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 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.
3.6 Key Man Insurance. Unless otherwise determined by a majority of the
Board of Directors, which majority shall include at least one of the Directors
designated or elected by the
16
<PAGE>
Investors and at least one of Directors designated or elected by the Founders,
the Board of Directors, the Company will use its best efforts to obtain and
maintain in full force and effect term life insurance in the amount of one
million ($1,000,000) dollars on the lives of each of Stephen Messer, Heidi
Messer and Jianhao Meng naming the Company as beneficiary.
3.7 Proprietary Information and Inventions Agreement. Unless otherwise
determined by a majority of the Board of Directors, which majority shall include
at least one of the Directors designated or elected by the Investors and at
least one of Directors designated or elected by the Founders, the Company shall
require all employees and consultants to execute and deliver a Proprietary
Information and Inventions Agreement in the form attached to the Purchase
Agreement.
3.8 Approval. The Company shall not without the approval of a majority
of the Board of Directors, which majority shall include at least one of the
Directors designated by the Investors and at least one of the Directors
designated or elected by the Founders, authorize, approve, agree to take or take
any of the following actions:
(i) approval of annual budgets and business plans;
(ii) disposition, pledge or encumbrance assets otherwise than
pursuant to a budget in effect or in the ordinary course of business;
(iii) acquisitions of assets otherwise than pursuant to a
budget in effect or in the ordinary course of business;
(iv) investments (other than temporary investments in working
capital), formations of subsidiaries and participation in joint
ventures;
(v) appointment, employment, powers and duties, compensation,
termination or removal of the chief executive officer, chief operating
officer, chief financial officer or chief technical officer;
(vi) the payment, or agreement by the Company to pay, cash
compensation to any other officer or employee of the Company whose
aggregate annual cash compensation exceeds, or would exceed by reason
of a contemplated increase, $75,000 (except to the Initial Founders
pursuant to their employment agreements with the Company).
(vii) decisions to enter into, amend, terminate, or exercise,
waive or release or not exercise any Company rights or remedies of the
Company under any significant contract or license including, without
limitation, this Agreement, the Stock Purchase Agreement and the First
Refusal and Co-Sale Agreement;
(viii) deviations from any budget outside of limits to be
determined;
17
<PAGE>
(ix) loans to or guarantees of liabilities for obligations of
any Person, other than in the ordinary course of business;
(x) incurrence of indebtedness for borrowed money other than
in accordance with a budget or within limits to be established by the
Board of Directors pursuant to this Section 3.7;
(xi) changes in the Company's accountants or attorneys;
(xii) institution or settlement legal proceedings;
(xiii) changes in any significant tax or accounting practice
or principles or making of any significant tax or accounting election;
(xiv) the sale or other disposition of or the granting of any
license or other right to use any technology, intellectual property or
proprietary rights, except in the ordinary course of business;
(xv) merger, consolidation or other business combination;
(xvi) dissolution and winding up;
(xvii) any action that would make it impossible to carry on
ordinary business of the Company;
(xviii) any filing under any bankruptcy, insolvency or similar
law;
(xix) amendment of Certificate of Incorporation, By-laws, any
resolution of the Board of Directors designating any capital stock or
authorizing the execution and delivery of any documents in connection
with sale or issuance of securities of the Company;
(xx) issuance, redemption or repurchase of securities,
including issuances of options under any option plan of the Company,
any private placement or Rule 144A, public or other offering of
preferred or common stock or debt securities;
(xxi) dividends or other distributions;
(xxii) terminating or changing the terms of any employee
benefit plan, program or arrangement in any significant respect adverse
to the Company's employees (including officers);
(xxiii) increase the size of the Board of Directors to more
than five (5) members, except that if the Company hires a new chief
executive officer, the size of the Board of
18
<PAGE>
Directors shall increase to six (6) members and the new chief executive
officer shall be appointed to the vacant seat.
(xxiv) entry into new lines of business; or
(xxv) any other transaction or action not in the ordinary
course of business.
If the Company acquires or forms any subsidiary, the composition of the
board of directors or comparable body will mirror that of the Company's board
and transactions of the types listed above will be subject to the same approval
requirements.
3.9 Termination of Covenants. All covenants of the Company contained in
Section 3 of this Agreement except the covenant contained in Section 3.3 shall
expire and terminate 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"). In addition, Sections 3.1(c), Section 3.1(d) and Section 3.2 shall
no longer apply to a Holder who is no longer a Major Holder.
SECTION 4. RIGHTS OF FIRST REFUSAL
4.1 Subsequent Offerings. Each Major Investor and Founder (each a
"Right Holder") 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 4.7 hereof. Each Right Holder'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) which such Right Holder 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 issued or issuable upon conversion of the Shares or upon the
exercise of any outstanding warrants, options or other rights) immediately prior
to the issuance of the Equity Securities. The term "Equity Securities" shall
mean (i) any capital stock of the Company, (ii) any security convertible, with
or without consideration, into capital stock of the Company (including any
option to purchase such a convertible security), (iii) any security carrying any
warrant or right to subscribe to or purchase any capital stock of the Company or
(iv) any such warrant or right.
4.2 Exercise of Rights. If the Company proposes to issue any Equity
Securities, it shall give each Right Holder 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 Right Holder shall have
fifteen (15) days from the giving of such notice to agree to purchase its pro
rata share of
19
<PAGE>
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
Right Holder who would cause the Company to be in violation of applicable
federal securities laws by virtue of such offer or sale.
4.3 Issuance of Equity Securities to Other Right Holders. If not all of
the Right Holders elect to purchase their pro rata share of the Equity
Securities, then the Company shall first promptly notify in writing the Right
Holders who do so elect and shall offer such Right Holders the right to acquire
such unsubscribed shares. The fully participating Right Holders shall have five
(5) days after receipt of such notice to notify the Company of its election to
purchase all or a portion thereof of the unsubscribed shares. If the Right
Holders as a group, fail to exercise in full the rights of first refusal, the
Company shall have ninety (90) days thereafter to sell the Equity Securities in
respect of which the Right Holders' 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 Right Holders pursuant to
Section 4.2 hereof. If the Company has not sold such Equity Securities within
ninety (90) days of the notice provided pursuant to Section 4.2, the Company
shall not thereafter issue or sell any Equity Securities, without first offering
such securities to the Rights Holders in the manner provided above.
4.4 Sale Without Notice. In lieu of giving notice to the Right Holders
prior to the issuance of Equity Securities as provided in Section 4.2, the
Company may elect to give notice to the Right Holders within thirty (30) days
after the issuance of Equity Securities. Such notice shall describe the type,
price and terms of the Equity Securities. Each Right Holders shall have twenty
(20) days from the date of receipt of such notice to elect to purchase its pro
rata share of Equity Securities (as defined in Section 4.1, and calculated
before giving effect to the sale of the Equity Securities to the purchasers
thereof). Subject to Section 5.12, the closing of such sale shall occur within
sixty (60) days after the date of notice to the Right Holders.
4.5 Termination and Waiver of Rights of First Refusal. The rights of
first refusal established by this Section 4 shall not apply to, and shall
terminate upon the earlier of (i) effective date of the registration statement
pertaining to the Company's Initial Offering or (ii) a Change in Control. The
rights of first refusal established by this Section 4 may be amended, or any
provision waived with the written consent of the Company and the Right Holders
holding at least two-thirds (66-2/3%) of the Registrable Securities held by all
Right Holders, or as permitted by Section 5.6.
4.6 Transfer of Rights of First Refusal. The rights of first refusal of
each Right Holder under this Section 4 may be transferred to the same parties,
subject to the same restrictions and conditions as any transfer of registration
rights pursuant to Section 2.10.
4.7 Excluded Securities. The rights of first refusal established by
this Section 4 shall have no application to any of the following Equity
Securities:
20
<PAGE>
(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 at
least one director designated by each of the Investors and Founders.
(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 4 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 that is approved by the Board of Directors;
(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; and
(g) any Equity Securities that are issued by the Company
pursuant to a registration statement filed under the Securities Act.
SECTION 5. MISCELLANEOUS
5.1 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of New York as applied to agreements among New York
residents entered into and to be performed entirely within New York, including
Section 5-401 of the General Obligations Law of the State of New York.
5.2 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.
5.3 Successors and Assigns. Subject to Section 2.1, except as otherwise
expressly provided herein, the provisions hereof shall inure to the benefit of,
and be binding upon, the
21
<PAGE>
successors, permitted 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 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 or any redemption price. No party may assign
this Agreement or its rights or obligations hereunder without the prior written
consent of the Company, one or more Founders holding a majority of all
Registrable Securities held by the Founders and one or more Investors holding a
majority of all Registrable Securities held by the Investors, except for a
proportionate assignment of rights and obligations hereunder to a transferee of
Registrable Securities in a transfer permitted by this Agreement and the First
Refusal and Co-Sale Agreement.
5.4 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 thereof and no party shall be
liable or bound to any other in any manner by any prior representations,
warranties, covenants and agreements except as specifically set forth herein and
therein. This Agreement shall not supersede, merge, terminate or amend the terms
of the Initial Investor Confidentiality Agreement, which shall remain in full
force and effect and is hereby ratified, confirmed and approved by the Company
and the Initial Investor.
5.5 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.
5.6 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 at least two-thirds (66-2/3%) 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 (66-2/3%) of the Registrable Securities.
(c) Notwithstanding the foregoing, this Agreement shall be
amended to include additional purchasers of Shares as parties hereto
and "Investors" or "Holders," as applicable herewith, such amendment to
be conclusively evidenced by the delivery of an executed signature page
to this Agreement or a joinder agreement by such additional purchasers
and the issuance by the Company of stock certificates representing such
purchased Shares.
22
<PAGE>
5.7 Delays or Omissions. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any party, upon any breach,
default or noncompliance of another party 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 acquiescence 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 party's part of any breach, default or noncompliance under the Agreement or
any waiver on such party'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 any party, shall be cumulative and
not alternative.
5.8 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 notified, (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient; if not, then 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
Exhibit A hereto or at such other address as such party may designate by ten
(10) days advance written notice to the other parties hereto.
5.9 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.
5.10 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.
5.11 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.
5.12 Government Consents. All time periods specified in this Agreement
for the closing of any sale or purchase of securities pursuant to this Agreement
shall be extended to the tenth business day following the receipt by the Company
or the Holders of all material governmental approvals which may be required, and
the expiration of all applicable waiting periods under applicable laws or
regulations, in connection with such transaction.
[THIS SPACE INTENTIONALLY LEFT BLANK]
23
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this INVESTOR
RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY: INVESTORS:
LINKSHARE CORPORATION INTERNET CAPITAL GROUP, LLC
By: By:
----------------------------------- -----------------------------------
Name: Name:
--------------------------------- ---------------------------------
Title: Title:
-------------------------------- --------------------------------
FOUNDERS
- --------------------------------
Stephen Messer
- --------------------------------
Heidi Messer
- --------------------------------
Jianhao Meng
INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
<PAGE>
EXHIBIT A
SCHEDULE OF INVESTORS
Name and Address Shares Shares
Internet Capital Group, LLC .............................. 2,431,611
44 Montgomery Street
Suite 3705
San Francisco, CA 94104
Total 2,431,611
<PAGE>
EXHIBIT 10.2
LINKSHARE CORPORATION
LONG-TERM INCENTIVE PLAN
1. Objectives. The LinkShare Corporation Long-Term Incentive Plan (the
"Plan") is designed to retain selected employees of LinkShare Corporation (the
"Company") and its Subsidiaries and reward them for making significant
contributions to the success of the Company and its Subsidiaries. These
objectives are to be accomplished by making awards under the Plan and thereby
providing Participants with a proprietary interest in the growth and performance
of the Company and its Subsidiaries.
2. Definitions. As used herein, the terms set forth below shall have the
following respective meanings:
"Award" means the grant of any form of ISO, Nonqualified Option, stock
appreciation right, stock award or cash award, whether granted singly, in
combination or in tandem, to a Participant pursuant to any applicable
terms, conditions and limitations as the Committee may establish in order
to fulfill the objectives of the Plan.
"Award Agreement" means a written agreement between the Company and a
Participant that sets forth the terms, conditions and limitations
applicable to an Award.
"Board" means the Board of Directors of the Company.
"Change of Control" means (i) any sale by the Company of substantially
all of its assets or (ii) the acquisition by any "person," including a
"group" as determined in accordance with Section 13(d)(3) of the Exchange
Act, of beneficial ownership, directly or indirectly, of securities of the
Company representing 50% or more of the combined voting power of the
Company's then-outstanding securities; provided, however, that no Change of
Control shall be deemed to occur if beneficial ownership in the Company's
then-outstanding securities is acquired pursuant to any reorganization of
the Company or recapitalization, spinoff or other transaction if, after
giving effect to such transaction, however structured, at least 50% of the
outstanding voting securities with the ultimate parent entity corporation
are beneficially owned in the aggregate, directly or indirectly through one
or more intermediaries, by the former shareholders of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Committee" means such committee of the Board as is designated by the
Board to administer the Plan. The Committee shall be constituted to permit
the Plan to comply with Rule 16b-3.
"Common Stock" means the Common Stock, par value $0.001 per share, of
the Company.
<PAGE>
"Director" means an individual serving as a member of the Board.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
"Fair Market Value" means, as of a particular date, (a) if the shares
of Common Stock are listed on a national securities exchange, the mean
between the highest and lowest sales price per share of Common Stock on the
consolidated transaction reporting system for the principal such national
securities exchange on that date, or, if there shall have been no such sale
so reported on that date, on the last preceding date on which such a sale
was so reported, (b) if the shares of Common Stock are not so listed but
are quoted on the Nasdaq National Market, the mean between the highest and
lowest sales price per share of Common Stock on the Nasdaq National Market
on that date, or, if there shall have been no such sale so reported on that
date, on the last preceding date on which such a sale was so reported, (c)
if the Common Stock is not so listed or quoted, the mean between the
closing bid and asked price on that date, or, if there are no quotations
available for such date, on the last preceding date on which such
quotations shall be available, as reported by Nasdaq, or, if not reported
by Nasdaq, by the National Quotation Bureau, Inc. or (d) if none of the
above is applicable, such amount as may be determined by the Board (or an
Independent Third Party, should the Board elect in its sole discretion to
instead utilize an Independent Third Party for this purpose), in good
faith, to be the fair market value per share of Common Stock.
"Independent Third Party" means an individual or entity independent of
the Company (and any transferor or transferee of Common Stock acquired upon
the exercise of an option under the Plan, if applicable) with experience in
providing investment banking appraisal or valuation services and with
expertise generally in the valuation of securities or other property of the
type at issue, that is chosen by the Board, in its sole discretion, to
value securities or other property for purposes of this Plan. The Company's
independent accountants shall be deemed to satisfy the criteria for an
Independent Third Party if selected by the Board for that purpose. The
Board may utilize one or more Independent Third Parties.
"ISO" means an incentive stock option within the meaning of Code
Section 422.
"Nonqualified Option" means a nonqualified stock option within the
meaning of Code Section 83.
"Participant" means an employee or consultant of the Company or any of
its Subsidiaries or a non-employee Director to whom an Award has been made
under this Plan.
"Restricted Stock" means Common Stock that is restricted or subject to
forfeiture provisions.
"Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act, or
any successor rule.
-2-
<PAGE>
"Subsidiary" means (i) with respect to grants of ISOs, any subsidiary
within the meaning of Section 424(f) of the Code or any successor
provision, and (ii) with respect to all Awards other than ISOs, any
corporation, limited liability company or similar entity of which the
Company directly or indirectly owns shares representing more than 50% of
the voting power of all classes or series of capital stock of such
corporation which have the right to vote generally on matters submitted to
a vote of the shareholders of such corporation.
3. Eligibility. All employees, consultants and Directors of the Company and
its Subsidiaries are eligible for Awards under this Plan. The Committee shall
select the Participants in the Plan from time to time by the grant of Awards
under the Plan.
4. Common Stock Available for Awards. There shall be available for Awards
granted wholly or partly in Common Stock (including rights or options which may
be exercised for or settled in Common Stock) during the term of this Plan an
aggregate of 1,001,956 shares of Common Stock, subject to adjustment as provided
in Paragraph 14. The Board and the appropriate officers of the Company shall
from time to time take whatever actions are necessary to file required documents
with governmental authorities and stock exchanges and transaction reporting
systems to make shares of Common Stock available for issuance pursuant to
Awards. Common Stock related to Awards that are forfeited or terminated, expire
unexercised, are settled in cash in lieu of Common Stock or in a manner such
that all or some of the shares covered by an Award are not issued to a
Participant, or are exchanged for Awards that do not involve Common Stock, shall
immediately become available for Awards hereunder.
5. Administration. This Plan shall be administered by the Committee, which
shall have full and exclusive power to interpret this Plan and to adopt such
rules, regulations and guidelines for carrying out this Plan as it may deem
necessary or proper, all of which powers shall be exercised in the best
interests of the Company and in keeping with the objectives of this Plan. The
Committee may correct any defect or supply any omission or reconcile any
inconsistency in this Plan or in any Award in the manner and to the extent the
Committee deems necessary or desirable to carry it into effect. Any decision of
the Committee in the interpretation and administration of this Plan shall lie
within its sole and absolute discretion and shall be final, conclusive and
binding on all parties concerned. No member of the Committee or officer of the
Company to whom it has delegated authority in accordance with the provisions of
Paragraph 6 of this Plan shall be liable for anything done or omitted to be done
by him or her, by any member of the Committee or by any officer of the Company
in connection with the performance of any duties under this Plan, except for his
or her own willful misconduct or as expressly provided by statute.
6. Delegation of Authority. The Committee may delegate to the senior
officers of the Company its duties under this Plan pursuant to such conditions
or limitations as the Committee may establish, except that the Committee may not
delegate to any person the authority to grant Awards to, or take other action
with respect to, Participants who are subject to Section 16 of the Exchange Act.
7. Awards. The Board or the Committee shall determine the type or types of
Awards to be made to each Participant under this Plan. Each Award made hereunder
shall be
-3-
<PAGE>
embodied in an Award Agreement, which shall contain such terms, conditions and
limitations as shall be determined by the Committee in its sole discretion and
shall be signed by the Participant and by a senior officer of the Company to
whom the Committee has delegated such authority for and on behalf of the
Company. An Award Agreement may include provisions for the repurchase by the
Company of Common Stock acquired pursuant to the Plan and the repurchase of a
Participant's option rights under the Plan. Awards may consist of those listed
in this Paragraph 7 and may be granted singly, in combination or in tandem.
Awards may also be made in combination or in tandem with, in replacement of, or
as alternatives to grants or rights (a) under this Plan or any other employee
plan of the Company or any of its Subsidiaries, including the plan of any
acquired entity, or (b) made to any Company or Subsidiary employee by the
Company or any Subsidiary. An Award may provide for the granting or issuance of
additional, replacement or alternative Awards upon the occurrence of specified
events, including the exercise of the original Award. An Award Agreement may
include provisions for acceleration of the vesting and exercisability of and
lapse of restrictions with respect to Awards upon a Change of Control.
Notwithstanding anything herein to the contrary, no Participant may be granted
Awards consisting of stock options or stock appreciation rights exercisable for
more than 25% of the shares of Common Stock originally authorized for Awards
under this Plan, subject to adjustment as provided in Paragraph 14. In the event
of an increase in the number of shares authorized under the Plan, the 25%
limitation will apply to the number of shares authorized.
(i) Stock Option. An Award may consist of a right to purchase a
specified number of shares of Common Stock at a price specified by the
Committee in the Award Agreement or otherwise. A stock option may be in the
form of an incentive stock option ("ISO") which, in addition to being
subject to applicable terms, conditions and limitations established by the
Committee, complies with Section 422 of the Code, or in the form of a
Nonqualified Option. Notwithstanding the foregoing, no ISO can be granted
under the Plan more than ten years following the Effective Date of the
Plan.
(ii) Stock Appreciation Right. An Award may consist of a right to
receive a payment, in cash or Common Stock, equal to the excess of the Fair
Market Value or other specified valuation of a specified number of shares
of Common Stock on the date the stock appreciation right ("SAR") is
exercised over a specified strike price as set forth in the applicable
Award Agreement.
-4-
<PAGE>
(iii) Stock Award. An Award may consist of Common Stock or may be
denominated in units of Common Stock. All or part of any stock Award may be
subject to conditions established by the Committee and set forth in the
Award Agreement, which conditions may include, but are not limited to,
continuous service with the Company and its Subsidiaries, achievement of
specific business objectives, increases in specified indices, attaining
specified growth rates and other comparable measurements of performance.
Such Awards may be based on Fair Market Value or other specified
valuations. The certificates evidencing shares of Common Stock issued in
connection with a Stock Award shall contain appropriate legends and
restrictions describing the terms and conditions of the restrictions
applicable thereto.
(iv) Cash Award. An Award may be denominated in cash with the amount
of the eventual payment subject to future service and such other
restrictions and conditions as may be established by the Committee and set
forth in the Award Agreement, including, but not limited to, continuous
service with the Company and its Subsidiaries, achievement of specific
business objectives, increases in specified indices, attaining specified
growth rates and other comparable measurements of performance.
8. Payment of Awards.
(a) General. Payment of Awards may be made in the form of cash or
Common Stock or combinations thereof and may include such restrictions as
the Committee shall determine including, in the case of Common Stock,
restrictions on transfer and forfeiture provisions.
(b) Deferral. The Committee may, in its discretion, (i) permit
selected Participants to elect to defer payments of some or all types of
Awards in accordance with procedures established by the Committee or (ii)
provide for the deferral of an Award in an Award Agreement or otherwise.
Any such deferral may be in the form of installment payments or a future
lump sum payment. Any deferred payment, whether elected by the Participant
or specified by the Award Agreement or by the Committee, may be forfeited
if and to the extent that the Award Agreement so provides.
(c) Dividends and Interest. Dividends or dividend equivalent rights
may be extended to and made part of any Award denominated in Common Stock
or units of Common Stock, subject to such terms, conditions and
restrictions as the Committee may establish. The Committee may also
establish rules and procedures for the crediting of interest on deferred
cash payments and dividend equivalents for deferred payment denominated in
Common Stock or units of Common Stock.
(d) Substitution of Awards. At the discretion of the Committee, a
Participant may be offered an election to substitute an Award for another
Award or Awards of the same or different type.
-5-
<PAGE>
9. Stock Option Exercise. The price at which shares of Common Stock may be
purchased under a stock option shall be paid in full at the time of exercise in
cash or, if permitted by the Committee, by means of tendering Common Stock or
surrendering all or part of that or any other Award, including Restricted Stock,
valued at Fair Market Value on the date of exercise, or any combination thereof.
The Committee shall determine acceptable methods for tendering Common Stock or
Awards to exercise a stock option as it deems appropriate. If permitted by the
Committee, payment may be made by successive exercises by the Participant. The
Committee may provide for procedures to permit the exercise or purchase of
Awards by (a) loans from the Company or (b) use of the proceeds to be received
from the sale of Common Stock issuable pursuant to an Award. Unless otherwise
provided in the applicable Award Agreement, in the event shares of Restricted
Stock are tendered as consideration for the exercise of a stock option, a number
of the shares issued upon the exercise of the stock option, equal to the number
of shares of Restricted Stock used as consideration therefor, shall be subject
to the same restrictions as the Restricted Stock so submitted as well as any
additional restrictions that may be imposed by the Committee.
10. Tax Withholding. The Company shall have the right to deduct applicable
taxes from any Award payment and withhold, at the time of delivery or vesting of
cash or shares of Common Stock under this Plan, an appropriate amount of cash or
number of shares of Common Stock or a combination thereof for payment of taxes
required by law or to take such other action as may be necessary in the opinion
of the Company to satisfy all obligations for withholding of such taxes. The
Committee may also permit withholding to be satisfied by the transfer to the
Company of shares of Common Stock theretofore owned by the holder of the Award
with respect to which withholding is required. If shares of Common Stock are
used to satisfy tax withholding, such shares shall be valued based on the Fair
Market Value when the tax withholding is required to be made.
11. Amendment, Modification, Suspension or Termination. The Board may
amend, modify, suspend or terminate this Plan for the purpose of meeting or
addressing any changes in legal requirements or for any other purpose permitted
by law except that (a) no amendment or alteration that would impair the rights
of any Participant under any Award previously granted to such Participant shall
be made without such Participant's consent and (b) no amendment or alteration
shall be effective prior to approval by the Company's shareholders to the extent
such approval is then required pursuant to Rule 16b-3 in order to preserve the
applicability of any exemption provided by such rule to any Award then
outstanding (unless the holder of such Award consents) or to the extent
shareholder approval is otherwise required by applicable legal requirements.
12. Termination of Employment or Service on the Board. Upon either the
termination of employment or the termination of service as a Director by a
Participant, any unexercised, deferred or unpaid Awards shall be treated as
provided in the specific Award Agreement evidencing the Award. Unless otherwise
specifically provided in the Award Agreement, each Award granted pursuant to
this Plan which is a stock option shall provide that if the Participant ceases
to be employed by the Company or its affiliates or, in the case of a
non-employee Director, to serve on the Board for any reason whatsoever, the
option shall immediately terminate to the extent the option is not vested (or
does not become vested as a result of such termination) on the date the
Participant terminates employment or service on the Board.
-6-
<PAGE>
13. Assignability. Except as otherwise provided herein, no Award granted
under this Plan shall be sold, transferred, pledged, assigned or otherwise
alienated or hypothecated by a Participant other than by will or the laws of
descent and distribution, and during the lifetime of a Participant, any Award
shall be exercisable only by the Participant, or, in the case of a Participant
who is mentally incapacitated, the Award shall be exercisable by the
Participant's guardian or legal representative. The Committee may prescribe and
include in applicable Award Agreements other restrictions on transfer. Any
attempted assignment or transfer in violation of this Paragraph 13 shall be null
and void. Upon the Participant's death, the personal representative or other
person entitled to succeed to the rights of the Participant (the "Successor
Participant") may exercise such rights. A Successor Participant must furnish
proof satisfactory to the Company of his or her right to exercise the Award
under the Participant's will or under the applicable laws of descent and
distribution.
Subject to approval by the Committee in its sole discretion, all or a
portion of the Awards granted to a Participant under the Plan which are not
intended to be ISOs may be transferable by the Participant, to the extent and
only to the extent specified in such approval, to (i) the spouse, parent,
brother, sister, children or grandchildren of the Participant ("Immediate Family
Members"), (ii) a trust or trusts for the exclusive benefit of such Immediate
Family Members ("Immediate Family Member Trusts"), or (iii) a partnership or
partnerships in which such Immediate Family Members have at least 99% of the
equity, profit and loss interests ("Immediate Family Member Partnerships");
provided that the Award Agreement pursuant to which such Awards are granted (or
an amendment thereto) must expressly provide for transferability in a manner
consistent with this Section. Subsequent transfers of transferred Awards shall
be prohibited except by will or the laws of descent and distribution, unless
such transfers are made to the original Participant or a person to whom the
original Participant could have made a transfer in the manner described herein.
No transfer shall be effective unless and until written notice of such transfer
is provided to the Committee, in the form and manner prescribed by the
Committee. Following transfer, any such Awards shall continue to be subject to
the same terms and conditions as were applicable immediately prior to transfer,
and, except as otherwise provided herein, the term 'Participant' shall be deemed
to refer to the transferee. The events of termination of service in Paragraph 12
shall continue to be applied with respect to the original Participant, following
which the Awards shall be exercisable by the transferee only to the extent and
for the periods specified in this Plan and the Award Agreement.
14. Adjustments.
(a) The existence of outstanding Awards shall not affect in any manner
the right or power of the Company or its shareholders to make or authorize
any or all adjustments, recapitalizations, reorganizations or other changes
in the capital stock of the Company or its business or any merger or
consolidation of the Company, or any issue of bonds, debentures, preferred
or prior preference stock (whether or not such issue is prior to, on a
parity with or junior to the Common Stock) or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of
its assets or business, or any other corporate act or proceeding of any
kind, whether or not of a character similar to that of the acts or
proceedings enumerated above.
-7-
<PAGE>
(b) In the event of any subdivision or consolidation of outstanding
shares of Common Stock or declaration of a dividend payable in shares of
Common Stock or capital reorganization or reclassification or other
transaction involving an increase or reduction in the number of outstanding
shares of Common Stock, the Committee may adjust proportionally (i) the
number of shares of Common Stock reserved under this Plan and covered by
outstanding Awards denominated in Common Stock or units of Common Stock;
(ii) the exercise or other price in respect of such Awards; and (iii) the
appropriate Fair Market Value and other price determinations for such
Awards. In the event of any consolidation or merger of the Company with
another corporation or entity or the adoption by the Company of a plan of
exchange affecting the Common Stock or any distribution to holders of
Common Stock of securities or property (other than normal cash dividends or
dividends payable in Common Stock), the Committee shall make such
adjustments or other provisions as it may deem equitable, including
adjustments to avoid fractional shares, to give proper effect to such
event. In the event of a corporate merger, consolidation, acquisition of
property or stock, separation, reorganization or liquidation, the Committee
shall be authorized, in its discretion, (i) to issue or assume stock
options, regardless of whether in a transaction to which Section 424(a) of
the Code applies, by means of substitution of new options for previously
issued options or an assumption of previously issued options, (ii) to make
provision, prior to the transaction, for the acceleration of the vesting
and exercisability of, or lapse of restrictions with respect to, Awards (to
the extent not otherwise provided under paragraph 7) and the termination of
options that remain unexercised at the time of such transaction or (iii) to
provide for the acceleration of the vesting and exercisability of the
options and SARs and the cancellation thereof (to the extent not otherwise
provided under paragraph 7) in exchange for such payment as shall be
mutually agreeable to the Participant and the Committee.
15. Restrictions. No Common Stock or other form of payment shall be issued
with respect to any Award unless the Company shall be satisfied based on the
advice of its counsel that such issuance will be in compliance with applicable
federal and state securities laws. It is the intent of the Company that this
Plan comply with Rule 16b-3 with respect to persons subject to Section 16 of the
Exchange Act unless otherwise provided herein or in an Award Agreement, that any
ambiguities or inconsistencies in the construction of this Plan be interpreted
to give effect to such intention and that, if any provision of this Plan is
found not to be in compliance with Rule 16b-3, such provision shall be null and
void to the extent required to permit this Plan to comply with Rule 16b-3.
Certificates evidencing shares of Common Stock delivered under this Plan may be
subject to such stop transfer orders and other restrictions as the Committee may
deem advisable under the rules, regulations and other requirements of the
Securities and Exchange Commission, any securities exchange or transaction
reporting system upon which the Common Stock is then listed and any applicable
federal and state securities law. The Committee may cause a legend or legends to
be placed upon any such certificates to make appropriate reference to such
restrictions.
16. Unfunded Plan. Insofar as it provides for Awards of cash, Common Stock
or rights thereto, this Plan shall be unfunded. Although bookkeeping accounts
may be established with respect to Participants who are entitled to cash, Common
Stock or rights thereto under this Plan, any such accounts shall be used merely
as a bookkeeping convenience. The Company shall not be required to segregate any
assets that may at any time be represented by cash, Common Stock or rights
thereto, nor shall this Plan be construed as providing for such segregation, nor
shall the
-8-
<PAGE>
Company, the Board or the Committee be deemed to be a trustee of any cash,
Common Stock or rights thereto to be granted under this Plan. Any liability or
obligation of the Company to any Participant with respect to a grant of cash,
Common Stock or rights thereto under this Plan shall be based solely upon any
contractual obligations that may be created by this Plan and any Award
Agreement, and no such liability or obligation of the Company shall be deemed to
be secured by any pledge or other encumbrance on any property of the Company.
None of the Company, the Board or the Committee shall be required to give any
security or bond for the performance of any obligation that may be created by
this Plan.
17. Parachute Payment Limitation. Notwithstanding any contrary provision of
the Plan, the Committee may provide in the Award Agreement for a limitation on
the acceleration of vesting and exercisability of unmatured Awards to the extent
necessary to avoid or mitigate the impact of the golden parachute excise tax
under Section 4999 of the Code on the Participant or may provide for a
supplemental payment to be made to the Participant as necessary to offset or
mitigate the impact of the golden parachute excise tax on the Participant. In
the event the Award Agreement does not contain any contrary provision regarding
the method of avoiding or mitigating the impact of the golden parachute excise
tax under Section 4999 of the Code on the Participant, then notwithstanding any
contrary provision of this Plan, the aggregate present value of all parachute
payments payable to or for the benefit of a Participant, whether payable
pursuant to this Plan or otherwise, shall be limited to three times the
Participant's base amount less one dollar and, to the extent necessary, the
exercisability of an unmatured Award shall be reduced in order that this
limitation not be exceeded. For purposes of this Section 17, the terms
"parachute payment," "base amount" and "present value" shall have the meanings
assigned thereto under Section 280G of the Code. It is the intention of this
Section 17 to avoid excise taxes on the Participant under Section 4999 of the
Code or the disallowance of a deduction to the Company pursuant to Section 280G
of the Code.
18. Governing Law. This Plan and all determinations made and actions taken
pursuant hereto, to the extent not otherwise governed by mandatory provisions of
the Code or the securities laws of the United States, shall be governed by and
construed in accordance with the laws of the State of New York.
19. Effective Date of Plan. This Plan shall be effective as of the date
(the "Effective Date") it is approved by the Board of Directors of the Company.
Notwithstanding the foregoing, the adoption of this Plan is expressly
conditioned upon the approval by written consent of the holders of a majority of
shares of outstanding shares of Common Stock on or before the first
-9-
<PAGE>
anniversary of the Effective Date. If the shareholders of the Company should
fail so to approve this Plan prior to such date, this Plan shall terminate and
cease to be of any further force or effect and all grants of Awards hereunder
shall be null and void.
Attested to by the Secretary of LinkShare
Corporation as adopted by the Board of
Directors and Shareholders of LinkShare
Corporation effective as of the 16th day
of July, 1998 (the "Effective Date").
/s/
-----------------------------------------
Secretary
-10-
<PAGE>
EXHIBIT 10.3
LEASE
THIS LEASE (the "Lease") is made and entered into as of the 6th day of
July 1999, by and between HV 645 Harrison, Inc., a California corporation (the
"Landlord"), and Linkshare Corporation, a Delaware corporation (the "Tenant").
1. Premises
(a) Subject to and upon the terms, covenants and conditions hereinafter
set forth, Landlord leases to Tenant and Tenant rents from Landlord those
certain premises as set forth in the Basic Lease Information attached hereto and
as approximately shown on the plan attached hereto as Exhibit A (the "Premises")
on the ground floor of the building located at 645 Harrison Street, San
Francisco, California (the "Building").
(b) Tenant shall accept the Premises and the Building in their "as-is"
condition; provided, however, Landlord shall deliver the Premises in a broom
clean condition with the lighting, electrical and plumbing in good operating
condition. In addition Landlord shall repaint and recarpet the Premises with
paint and carpet mutually agreeable; provided the cost shall not exceed $17,400.
All alterations shall be performed in accordance with the terms of Section 9
below. Landlord acknowledges that Tenant is planning on demolishing non-load
bearing walls in the Premises as part of its initial construction of
improvements; and that Landlord shall not require the restoration of such walls
at the end of the term of this Lease.
2. Term
This Lease shall be for the term commencing on the Commencement Date
(provided Tenant shall have the right of access to the Premises upon the full
execution of this Lease, which access shall be governed by the terms of this
Lease, except the obligation to pay Base Rental) and expiring on the date that
is 48 and 1/2 months following the Commencement Date, unless sooner terminated
as provided herein (the "Term"). If Landlord, for any reason whatsoever, cannot
deliver possession of the Premises to Tenant on the date specified herein as the
Commencement Date, this Lease shall not be void or voidable, nor shall Landlord
be liable to Tenant for any loss or damage resulting therefrom. In that event,
however, Tenant shall not be liable for any Base Rental or Additional Charges
(as hereinafter defined) until Landlord delivers possession of the Premises to
Tenant.
3. Rent
(a) Tenant shall pay to Landlord "Base Rental" throughout the Term in
monthly installments as set forth in the Basic Lease Information attached
hereto, due and payable upon the first day of each and every month during the
Term, without any further notice from, or demand by Landlord and without any
offset or deduction whatsoever, in lawful money of the United States of America,
at the address set forth in the Basic Lease Information attached hereto or
elsewhere as designated from time to time by Landlord's written notice to
Tenant. Tenant shall also pay to
<PAGE>
Landlord all charges and other amounts whatsoever as provided in this Lease
("Additional Charges"); and such Additional Charges shall be payable to Landlord
at the place where the Base Rental is payable and Landlord shall have the same
remedies for a default in the payment of Additional Charges as for a default in
the payment of Base Rental. If the Commencement Date should occur on a day other
than the first day of a calendar month, or the Expiration Date should occur on a
day other than the last day of a calendar month, then the Base Rental and
Additional Charges for such fractional month shall be prorated on a daily basis.
(b) Tenant recognizes that late payment of any Base Rental or
Additional Charges will result in additional administrative expense to Landlord
and will impair Landlord's ability to meet its obligations with respect to the
Building and otherwise, the exact extent of which additional expense and
impairment will be extremely difficult or impractical to determine. Tenant
therefore agrees that if any Base Rental or Additional Charges remain unpaid for
a period of five (5) days after the date the same is due, the amount of such
unpaid Base Rental or Additional Charges shall be increased by a late charge to
be paid to Landlord by Tenant in an amount equal to ten percent (10%) of the
amount of the past due Base Rental and/or Additional Charges. The amount of the
late charge to be paid to Landlord by Tenant on any delinquent Base Rental
and/or Additional Charges shall be reassessed and added to Tenant's obligation
for each successive monthly period accruing after the date on which the late
charge is initially imposed until such late charge and all delinquent Base
Rental and Additional Charges have been paid in full by Tenant. Tenant agrees
that such amount is a reasonable estimate of the loss and expense to be suffered
by Landlord as a result of any such late payment by Tenant. The provisions of
this Paragraph 3(b) in no way relieve Tenant of the obligation to pay Base
Rental or Additional Charges on or before the date on which they are due, nor do
the terms of this Paragraph 3(b) in any way affect Landlord's remedies pursuant
to Paragraph 18 in the event any Base Rental or Additional Charges are unpaid
after the date due.
4. Additional Charges. For purposes of this Paragraph 4, the following
terms shall have the meanings hereinafter set forth:
(i) "Base Year" shall mean the calendar year 2000.
(ii) "Taxes" shall mean all impositions, taxes, assessments
(special or otherwise), and other governmental liens or charges of any
kind or nature whatsoever, ordinary and extraordinary, foreseen and
unforeseen, and any substitute therefor, including all taxes
attributable in any manner to the Premises, the land on which the
Premises is located or the rents (however the term may be defined)
receivable therefrom or any charge or other payment required to be paid
to any governmental authority, whether or not any of the foregoing
shall be designated "real estate tax", "sales tax", "rental tax",
"excise tax", "business tax", or designated in any other manner (except
only those taxes of the following categories: any inheritance, estate
succession, transfer or gift taxes imposed upon Landlord or any income
taxes specifically payable by Landlord as a separate tax paying entity
without regard to Landlord's income source as arising from or out of
the Premises and/or the land on which it is located). Taxes shall also
include reasonable legal fees, costs, and disbursements incurred in
connection with proceedings to contest, determine, or reduce such
Taxes.
2
<PAGE>
(iii) "Operating Costs" shall mean all costs incurred by
Landlord in connection with owning, operating and maintaining the
Building. Operating Costs shall not include capital costs incurred by
Landlord that are not required to be made to the Building by law or for
the health and safety of the occupants of the Building.
(iv) "Tenant's Share" shall mean 4.3%.
(a) Commencing upon January 1, 2001, tenant shall pay to Landlord as
Additional Charges, each month, an amount equal to Tenant's Share of any
increase in Taxes and Operating Costs from the Base Year.
(b) Tenant shall pay, prior to delinquency, all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Tenant contained in the Premises or elsewhere. When possible, Tenant
shall cause said trade fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of
Landlord. If any of Tenant's said personal property shall be assessed with
Landlord's real property, Tenant shall pay Landlord the taxes attributable to
Tenant within 10 days after receipt of a written statement setting forth the
taxes applicable to Tenant's property.
5. Security Deposit and Letter of Credit
Tenant concurrently with the execution of this Lease, has deposited
with Landlord the sum set forth in the Basic Lease Information attached hereto,
the receipt of which is hereby acknowledged by Landlord as security for the
faithful performance by Tenant of all terms, covenants and conditions of this
Lease. Tenant agrees that Landlord may apply the security deposit, after the
lapse of any applicable cure period, to remedy any failure by Tenant to repair
or maintain the Premises or to perform any other terms, covenants and conditions
contained herein or make any payment owing hereunder. If Tenant has kept and
performed all terms, covenants and conditions of this Lease during the Term,
Landlord will, within thirty (30) days after the expiration hereof, promptly
return the security deposit to Tenant or the last permitted assignee of Tenant's
interest hereunder. Should Landlord use any portion of the security deposit to
cure any default by Tenant hereunder, Tenant shall forthwith replenish the
security deposit to the original amount. Landlord shall not be required to keep
the security deposit separate from its general funds, and Tenant shall not be
entitled to interest on any such deposit. Upon the occurrence of any Events of
Default (as defined in Paragraph 18 of this Lease) the security deposit shall
become due and payable to Landlord to the extent required to compensate Landlord
for damages incurred, or to reimburse Landlord as provided herein, in connection
with any such Event of Default.
6. Use and Compliance with Laws
(a) Tenant shall use and occupy the Premises for general office and for
no other use or purpose.
3
<PAGE>
(b) Tenant shall not use the Premises or permit anything to be done in
or about the Premises that will in any way conflict with any law, statute,
ordinance or governmental rule or regulation now in force or which may hereafter
be enacted or promulgated. Tenant shall not do or permit anything to be done in
or about the Premises or bring or keep anything therein which will in any way
increase the rate of any insurance upon the Building or any of its contents or
cause a cancellation of such insurance or otherwise affect such insurance in any
manner, and Tenant shall at its sole cost and expense promptly comply with all
laws, statutes, ordinances and governmental rules, regulations or requirements
now in force or which may hereafter be in force and with the requirements of any
board of fire underwriters or other similar body now or hereafter constituted
relating to or affecting the condition, use or occupancy of the Premises,
excluding structural changes not related to or affected by alterations or
improvements made by Tenant or Tenant's use of the Premises.
7. Hazardous Substances
Except for Hazardous Substances on or in the Premises as of the
Commencement Date, Tenant will not cause, suffer or permit any Hazardous
Substance (as hereinafter defined) to be brought, kept or stored within the
Premises, and Tenant will not engage in or permit any other person to engage in
any activity, operation or business upon the Premises that involves the
generation, manufacture, refining, transportation, treatment, storage, handling
or disposal of any Hazardous Substance that would or could result in Tenant,
Landlord, the Premises, or the Building to be subject to any law, statute,
ordinance, or regulation or rule of common law pertaining to health, industrial
hygiene, or the environment. Tenant shall be responsible for any violation of
this Article 7 by any subtenant or other occupant of the Premises. The term
"Hazardous Substance" shall include, without limitation those substances,
materials and wastes that are or become regulated under applicable local, state
or federal law, or the United States government, or which are classified as
hazardous or toxic under federal, state, or local laws or regulations.
8. Utilities and Janitorial
Tenant shall pay for all water, gas, heat, light, power, telephone and
other utilities and services supplied to the Premises, together with any taxes
thereon. If any such services are not separately metered to Tenant, Tenant shall
pay a reasonable proportion to be determined by Landlord of all charges jointly
metered with other premises based upon estimated usage of each tenant. Tenant,
at Tenant's sole cost, shall be responsible for providing janitorial services to
the Premises.
9. Alterations
Tenant shall not make any alternations, additions or improvements
(collectively, "Alterations") in or to the Premises without the prior written
consent of Landlord, which shall not be unreasonably withheld, but may be
predicated upon but not limited to Tenant's use of contractors who are
reasonably acceptable to Landlord; and any Alterations, except for Tenant's
movable furniture and equipment, at Landlord's election, shall immediately
become Landlord's property and,
4
<PAGE>
at the end of the Term, shall remain on the Premises without compensation to
Tenant or, if Landlord shall elect, be removed by Tenant prior to the expiration
date of this Lease. All Alterations shall be completed in compliance with all
laws, codes, rules, and ordinances in effect at the time of such Alterations. In
the event the making of any Alterations triggers any additional work to be
performed to the Premises or the Building, such additional work shall be
performed at Tenant's sole cost and expense. In the event Tenant fails to remove
any Alterations required by Landlord to be removed, Landlord may remove such
Alterations and Tenant shall be obligated to immediately reimburse Landlord for
the cost therefor. In the event Landlord consents to the making of any
Alterations by Tenant, the same shall be made by Tenant, at Tenant's sole cost
and expense, in accordance with plans and specifications approved by Landlord,
and any contractor or person selected by Tenant to make the same must first be
approved in writing by Landlord, such approval not to be unreasonably withheld
or delayed. Upon the expiration or sooner termination of the Term, Tenant shall
upon written demand by Landlord (to be provided at the time such approval for
Alterations is requested) and at Tenant's sole cost and expense, promptly remove
any Alterations made by or for the account of Tenant that are designated by
Landlord to be removed, and Tenant shall at its sole cost and expense, promptly
repair and restore the Premises to its original condition.
10. Repair
(a) Tenant shall take good care of the Premises and, at Tenant's cost
and expense, shall make all repairs and replacements to preserve the Premises in
good working order and condition normal wear and tear and damage due to casualty
excepting, except that Tenant shall not be required to make any such structural
repairs or structural replacements unless necessitated or occasioned by the
acts, omissions or negligence of Tenant, or any of its employees, contractors,
agents or invitees, or by the manner of Tenant's use or occupancy of the
Premises. Landlord shall not be liable for and there shall be no abatement of
Base Rental or Additional Charges with respect to any injury to or interference
with Tenant's business arising from any repairs, maintenance, alteration or
improvement in or to any portion of the Building, including the Premises, or in
or to the fixtures, appurtenances and equipment therein. Landlord shall use its
reasonable effort to perform any repairs, maintenance, alterations or
improvements of things and in a manner so as to minimize any disturbance to
Tenant. Tenant hereby waives and releases its right to make repairs at
Landlord's expense under Sections 1941 and 1942 of the California Civil Code or
under any similar law, statute or ordinance now or hereafter in effect. In
addition, Tenant hereby waives and releases its right to terminate this Lease
under Section 1932(1) of the California Civil Code or under any similar law,
statute or ordinance now or hereafter in effect.
(b) All repairs and replacements made by or on behalf of Tenant or any
person claiming through or under Tenant shall be made and performed (i) at
Tenant's sole cost and expense and at such time and in such manner as Landlord
may reasonably designate, (ii) by contractors or mechanics reasonably approved
by Landlord, (iii) so that same shall be at least equal in quality, value, and
utility to the original work or installation, (iv) in accordance with the
reasonable rules and regulations for the Building adopted by Landlord from time
to time, and (v) in accordance with all applicable laws and regulations of
governmental authorities having jurisdiction over the Premises.
5
<PAGE>
11. Liens
Tenant shall keep the Premises free from any liens arising out of any
work performed, material furnished or obligations incurred by Tenant. In the
event that Tenant shall not, within ten (10) days following the imposition of
any such lien, cause the same to be released of record by payment or posting of
a proper bond, Landlord shall have, in addition to all other remedies provided
herein and by law, the right, but not the obligation, to cause the same to be
released by such means as it shall deem proper, including payment of the claim
giving rise to such lien. All such sums paid by Landlord and all expenses
incurred by it in connection therewith shall be considered Additional Charges
and shall be payable to it by Tenant on demand with interest at the maximum rate
permitted by law. Landlord shall have the right at all times to post and keep
posted on the Premises any notices permitted or required by law, or which
Landlord shall deem proper, for the protection of Landlord, the Premises and the
Building from mechanics' and materialmen's liens, and Tenant shall give to
Landlord at least five (5) business days' prior notice of commencement of any
construction in the Premises.
12. Assignment and Subletting
(a) Tenant shall not directly or indirectly, voluntarily or by
operation of law, sell, assign, encumber, pledge or otherwise transfer or
hypothecate all or any part of the Premises or Tenant's leasehold estate
hereunder (collectively, "Assignment"), or permit the Premises to be occupied by
anyone other than Tenant or sublet the Premises or any portion thereof
(collectively, "Sublease") without Landlord's prior written consent in each
instance, which consent may not be unreasonably withheld by Landlord.
(b) Without limiting the other instances in which it may be reasonable
for Landlord to withhold its consent to an Assignment or Sublease, Landlord and
Tenant acknowledge that it shall be reasonable for Landlord to withhold its
consent in, the following instances:
(i) if at the time consent is requested or at any time prior
to the granting of consent, Tenant is in default under this Lease or
would be in default under this Lease but for the pendency of any grace
or cure period under Paragraph 18 below;
(ii) if the proposed assignee or sublessee is a governmental
agency;
(iii) if, in Landlord's judgment, the use of the Premises by
the proposed assignee or sublessee would not be compatible to the types
of use by other tenants in the Building, would entail any alterations
which would lessen the value of the leasehold improvements in the
Premises, would result in more than a reasonable number of occupants
per floor, would require unreasonable increased services by Landlord or
would conflict with any so-called "exclusive" or percentage lease then
in favor of another tenant of the Building;
6
<PAGE>
(iv) if, in Landlord's reasonable judgment, the financial
strength of the proposed assignee or sublessee does not meet the credit
standards applied by Landlord for other tenants under leases with
comparable terms, or the character, reputation, or business of the
proposed assignee or sublessee is not consistent with the quality of
the other tenancies in the Building;
(v) if the Sublease would result in the division of the
Premises into three or more units; or
(vi) if the proposed assignee or sublessee is an existing
tenant of the Building or Landlord is currently marketing space in the
Building to such proposed assignee or sublessee.
(c) If Tenant desires at any time to enter into an Assignment or
Sublease, it shall first give written notice ("Tenant's Notice") to Landlord of
its desire to do so, which notice shall contain (i) the name of the proposed
assignee or subtenant, (ii) the terms and provisions of the proposed Assignment
or Sublease, and (iii) such financial information as Landlord may reasonably
request concerning the proposed assignee or subtenant.
(d) If Landlord consents by delivery a written notice to Tenant, to an
Assignment or a Sublease within fifteen (15) days of receipt of Tenant's Notice,
Tenant may thereafter, within ninety (90) days after Landlord's consent, but not
later than the expiration of said ninety (90) days, enter into such Assignment
or Sublease, upon the terms and conditions set forth in the notice furnished by
Tenant to Landlord pursuant to Paragraph 12(c).
(e) In the case of an Assignment, fifty percent (50%) of any sums or
other, economic consideration received by Tenant as a result of such Assignment
shall be paid to Landlord, after deducting the cost to Tenant of any
improvements made for such Assignment and the cost to Tenant of any broker fees
in connection with such Assignment. In the case of a Sublease, fifty percent
(50%) of any sums or economic consideration received by Tenant as a result of
such Sublease shall be paid to Landlord after first deducting the rental due
hereunder and after deducting the cost to Tenant of any improvements made for
such Assignment and the cost to Tenant of any broker fees in connection with
such Assignment, prorated to reflect only rental allocable to the sublet portion
of the Premises.
(f) Notwithstanding any of the above provisions of this Section to the
contrary, if Tenant notifies Landlord that it desires to enter into a Transfer,
Landlord, in lieu of consenting to such Assignment or Sublease, may elect (x) in
the case of an assignment or a sublease of the entire Premises, to terminate
this Lease, or (y) in the case of a sublease of less than the entire Premises,
to terminate this Lease as it relates to the space proposed to be subleased by
Tenant. In such event, this Lease will terminate (or the space proposed to be
subleased will be removed from the Premises subject to this Lease and the Base
Rent and Tenant's Share under this Lease shall be proportionately reduced) on
the date the Transfer was proposed to be effective, and Landlord may lease such
space to any party, including the prospective Transferee identified by Tenant.
7
<PAGE>
(g) No consent by Landlord to any Assignment or Sublease by Tenant
shall relieve Tenant of any obligation to be performed by Tenant under this
Lease, whether arising before or after the Assignment or Sublease. The consent
by Landlord to any Assignment or Sublease shall not relieve Tenant from the
obligation to obtain Landlord's express written consent to any other Assignment
or Sublease. Any Assignment or Sublease that is not in compliance with this
Paragraph 12 shall be void and, at the option of Landlord, shall constitute a
material default by Tenant under this Lease. The acceptance of Base Rental or
Additional Charges by Landlord from a proposed assignee or sublessee shall not
constitute the consent to such Assignment or Sublease by Landlord.
(h) Any sale or other transfer, including by consolidation, merger or
reorganization of a majority of the voting stock of Tenant, if Tenant is a
corporation, shall not be an Assignment for purposes of this Paragraph 12.
(i) Each assignee of this Lease shall assume all obligations of Tenant
under this Lease and shall be and remain liable jointly and severally with
Tenant for the payment of Base Rental and Additional Charges, and for the
performance of all the terms, covenants and conditions herein contained on
Tenant's part to be performed. No Assignment shall be binding on Landlord unless
the assignee or Tenant shall deliver to Landlord a counterpart of the Assignment
and an instrument in recordable form that contains a covenant of assumption by
the assignee satisfactory in substance and form to Landlord, but the failure or
refusal of the assignee to execute such instrument of assumption shall not
release or discharge the assignee from its liability as set forth above.
13. Insurance and Indemnification
(a) Except to the extent caused by the gross negligence of Landlord,
Tenant agrees to defend, protect and indemnify Landlord against and save
Landlord harmless from any and all loss, cost, liability, damage and expense,
including without limitation, penalties, fines and reasonable counsel fees and
disbursements, incurred in connection with or arising from any cause whatsoever
in, on or about the Premises, including without limiting the generality of the
foregoing: (i) any default by Tenant in the observance or performance of any of
the terms, covenants or conditions of this Lease on Tenant's part to be observed
or performed, or (ii) the use or occupancy or manner of use or occupancy of the
Premises by Tenant or any person or entity claiming through or under Tenant, or
(iii) the condition of the Premises or any occurrence or happening on the
Premises from any cause whatsoever, or (iv) any sots, omissions or negligence of
Tenant or any person or entity claiming through or under Tenant, or of the
contractors, agents, servants, employees, visitors or licensees of Tenant or any
such person or entity, in, on or about the Premises or the Building, either
prior to the commencement of, during, or after the expiration of the Term,
including without limitation any acts, omissions or negligence in making or
performing any Alterations. In the event any action or proceeding is brought
against Landlord for any claim against which Tenant is obligated to indemnify
Landlord hereunder, Tenant upon notice from Landlord shall defend such action or
proceeding at Tenant's sole expense by counsel selected by Landlord. The
provisions of this
8
<PAGE>
Paragraph 13 shall survive the expiration or termination of this Lease with
respect to any claims or liability occurring prior to such expiration or
termination.
(b) Tenant shall procure at its cost and expense and keep in effect
during the Term commercial general liability insurance including contractual
liability with a minimum combined single limit of liability of Two Million
Dollars ($2,000,000.00) or such greater amount as Landlord may reasonably
specify from time to time by written notice to Tenant. Such insurance shall name
Landlord and the current property manager of the Building as additional insured,
shall specifically include the liability assumed hereunder by Tenant (provided
that the amount of such insurance shall not be construed to limit the liability
of Tenant hereunder), and shall provide that it is primary insurance, and not
excess over or contributory with any other valid, existing and applicable
insurance in force for or on behalf of Landlord, and shall provide that Landlord
shall receive thirty (30) days' written notice from the insurer prior to any
cancellation or change of coverage. Tenant shall deliver policies of such
insurance or certificates thereof to Landlord on or before the Commencement
Date, and thereafter at least thirty (30) days before the expiration dates of
expiring policies; and, in the event Tenant shall fail to procure such
insurance, or to deliver such policies or certificates, Landlord may, at its
option, procure the same for the account of Tenant, and the cost thereof shall
be paid to Landlord as Additional Charges within five (5) days after delivery to
Tenant of bills therefor. Tenant's compliance with the provisions of this
Paragraph 13(b) shall in no way limit Tenant's liability under any of the other
provisions of this Paragraph 13.
(c) Landlord shall procure and keep in effect during the Term casualty
insurance insuring the Building, excluding any improvements or Alterations made
by Tenant, and Tenant shall pay Tenant's Share of the annual cost within thirty
days after receipt of an invoice from Landlord.
14. Waiver of Subrogation
Landlord and Tenant shall each obtain from their respective insurers
under all policies of fire, theft, public liability, workers' compensation and
other insurance maintained by either of them at any time during the Term
insuring or covering the Building or any portion thereof or operations therein,
a waiver of all rights of subrogation which the insurer of one party might
otherwise have against the other party, and Landlord and Tenant shall each
indemnify the other against any loss or expense, including reasonable attorneys'
fees, resulting from the failure to obtain such waiver.
15. Damage and Destruction
If the Premises or the Building are damaged by fire or other casualty,
Landlord shall forthwith repair the same, provided that such repairs can be made
within ninety (90) days after the date of such damage under the laws and
regulations of the federal, state and local governmental authorities having
jurisdiction thereof. In such event, this Lease shall remain in full force end
effect except that Tenant shall be entitled to a proportionate reduction of Base
Rental based upon the extent to which such damage and the making of such repairs
by Landlord shall interfere with the business carried on by Tenant in the
Premises. Within twenty (20) days after the date of such damage,
9
<PAGE>
Landlord shall notify Tenant whether or not such repairs can be made within
ninety (90) days after the date of such damage. If such repairs cannot be made
within ninety (90) days from the date of such damage, Landlord and Tenant shall
each have the option within thirty (30) days after the date of such damage to
terminate this Lease as of a date specified in such notice, which date shall be
not less than thirty (30) nor more than sixty (60) days after notice is given.
In case of termination, the Base Rental shall be reduced by a proportionate
amount based upon the extent to which such damage interfered with the business
carried on by Tenant in the Premises, and Tenant shall pay such reduced Base
Rental up to the date of termination. The repairs to be made hereunder by
Landlord shall not include, and Landlord shall not be required to repair, any
damage to the property of Tenant. Tenant hereby waives the provisions of Section
1932, subdivision 2, and Section 1933, subdivision 4, of the Civil Code of
California.
16. Eminent Domain
If any part of the Premises shall be taken or appropriated under the
power of eminent domain such that the balance of the Premises is rendered
unsuitable for its intended use, either party shall have the right to terminate
this Lease at its option. If any part of the Building shall be taken or
appropriated under power of eminent domain, Landlord may terminate this Lease at
its option upon at least thirty (30) days notice to Tenant. In either of such
events, Landlord shall receive (and Tenant shall assign to Landlord upon demand
from Landlord) any income, rent, award or any interest therein which may be paid
in connection with the exercise of such power of eminent domain provided,
however, that Tenant may receive the portion of the sum paid by virtue of such
proceedings to Tenant in its own right for relocation expenses and damage to
Tenant's personal property. If a part of the Premises shall be so taken or
appropriated and such taking or appropriation does not render the balances of
the Premises unsuitable for its intended use or neither party hereto elects to
terminate this Lease, and if the Premises have been damaged as a consequence of
such partial taking or appropriation, Landlord shall restore the Premises
continuing under this Lease at Landlord's cost and expense. Thereafter, the Base
Rental to be paid under this Lease for the remainder of the term shall be
proportionately reduced, such reduction to be based upon the extent to which the
partial taking or appropriation shall interfere with the business carried on by
Tenant in the Premises. Notwithstanding anything to the contrary contained in
this Paragraph 16, in the case of any temporary taking of any part of the
Premises during the Term, this Lease shall be and remain unaffected by such
temporary taking and Tenant shall continue to pay in full the Base Rental
payable hereunder, and Tenant shall be entitled to receive that portion of any
award which represents compensation for the use of or occupancy of the Premises
during the Term, and Landlord shall be entitled to receive that portion of any
award which represents the cost of restoration of the Premises and the use and
occupancy of the Premises after the end of the Term.
17. Right of Entry
Landlord, or any of its agents, shall have the right to enter the
Premises during all reasonable hours to examine the same or to make such
repairs, additions or alterations as may be deemed
10
<PAGE>
necessary for the safety, comfort, or preservation thereof, or of the Building,
or to exhibit the Premises at any time within one hundred eight (180) days
before the expiration of this Lease.
18. Events of Default and Remedies
(a) The occurrence of any one or more of the following events ("Event
of Default") shall constitute a breach of this Lease by Tenant:
(i) Tenant fails to pay any Base Rental under this Lease as
and when such rent becomes due and payable and such failure continues
for more than five (5) days after Landlord gives written notice thereof
to Tenant; provided, however, that after the second such failure in a
calendar year, only the passage of time, but no further notice, shall
be required to establish an Event of Default in the same calendar year;
or
(ii) Tenant fails to pay any Additional Charges or other
amount of money or charge payable by Tenant hereunder as and when such
Additional Charges or amount or charge becomes due and payable and such
failure continues for more than ten (10) days after Landlord gives
written notice thereof to Tenant; provided, however, that after the
second such failure in a calendar year, only the passage of time, but
no further notice, shall be required to establish an Event of Default
in the same calendar year; or
(iii) Tenant fails to perform or breaches any other agreement
or covenant of this Lease to be performed or observed by Tenant as and
when performance or observance is due and such failure or breach
continues for more than ten (10) days after Landlord gives written
notice thereof to Tenant; provided, however, that if, by the nature of
such agreement or covenant, such failure or breach cannot reasonably be
cured within such period of ten (10) days, an Event of Default shall
not exist as long as Tenant commences with due diligence and dispatch
the curing of such failure or breach within such period of ten (10)
days and, having so commenced, thereafter prosecutes with diligence and
dispatch and completes the curing of such failure or broach; or
(iv) Tenant (A) files, or consents by answer or otherwise to
the filing against it of, a petition for relief or reorganization or
arrangement or any other petition in bankruptcy or for liquidation or
to take advantage of any bankruptcy, insolvency or other debtors'
relief law of any jurisdiction, (B) makes an assignment for the benefit
of its creditors, (C) consents to the appointment of a custodian,
receiver, trustee or other officer with similar powers of Tenant or of
any substantial part of Tenant's property, or (D) takes action for the
purpose of any of the foregoing; or
(v) Without consent by Tenant, a court or government authority
enters an order, and such order is not vacated within thirty (30) days,
(A) appointing a custodian, receiver, trustee or other officer with
similar powers with respect to Tenant or with respect to any
substantial part of Tenant's property, or (B) constituting an order for
relief or approving a petition for relief or reorganization or
arrangement or any other petition in bankruptcy or for liquidation or
to take
11
<PAGE>
advantage of any bankruptcy, insolvency or other debtors' relief law of
any jurisdiction, or (C) ordering the dissolution, winding-up or
liquidation of Tenant; or
(vi) This Lease or any estate of Tenant hereunder is levied
upon under any attachment or execution and such attachment or execution
is not vacated within thirty (30) days; or
(vii) Tenant intentionally abandons the Premises.
(b) If an Event of Default occurs, Landlord shall have the right at any
time to give a written termination notice to Tenant and, on the date specified
in such notice, Tenant's right to possession shall terminate and this Lease
shall terminate. Upon such termination, Landlord shall have the right to recover
from Tenant:
(i) The worth at the time of award of all unpaid rent which
had been earned at the time of termination;
(ii) The worth at the time of award of the amount by which all
unpaid rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss that Tenant proves
could have been reasonably avoided;
(iii) The worth at the time of award of the amount by which
all unpaid rent for the balance of the term of this Lease after the
time of award exceeds the amount of such rental loss that Tenant proves
could be reasonably avoided; and
(iv) All other amounts necessary to compensate Landlord for
all the detriment proximately caused by Tenant's failure to perform all
of Tenant's obligations under this Lease or which in the ordinary
course of things would be likely to result therefrom. The "worth at the
time of award" of the amounts referred to in clauses (i) and (ii) above
shall be computed by allowing interest at the maximum annual interest
rate allowed by law for business loans (not primarily for personal,
family or household purposes) not exempt from the usury law at the time
of termination or, if there is no such maximum annual interest rate, at
the rate of eighteen percent (18%) per annum. The "worth at the time of
award" of the amount referred to in clause (iii) above shall be
computed by discounting such amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of award plus one percent
(1%). For the purpose of determining unpaid rent under clauses (i),
(ii) and (iii) above, the rent reserved in this Lease shall be deemed
to be the total rent payable by Tenant under Paragraphs 3 and 4 hereof.
(c) Notwithstanding the occurrence of an Event of Default, pursuant to
California Civil Code ss. 1954.1, or any successor statute thereof, this Lease
shall continue in effect for so long as Landlord does not terminate Tenant's
right to possession, and Landlord shall have the right to enforce all its rights
and remedies under this Lease, including the right to recover all rent as it
becomes due under this Lease. Acts of maintenance or preservation or efforts to
relet the Premises or the appointment of a receiver upon initiative of Landlord
to protect Landlord's interest under this
12
<PAGE>
Lease shall not constitute a termination of Tenant's right to possession unless
written notice of termination is given by Landlord to Tenant.
(d) The remedies provided for in this Lease are in addition to all
other remedies available to Landlord at law or in equity by statute or
otherwise.
(e) All agreements and covenants to be performed or observed by Tenant
under this Lease shall be at Tenant's sole cost and expense and without any
abatement of Base Rental and Additional Charges. If Tenant fails to pay any sum
of money to be paid by Tenant or to perform any other act to be performed by
Tenant under this Lease, Landlord shall have the right, but shall not be
obligated, and without waiving or releasing Tenant from any obligations of
Tenant, to make any such payment or to perform any such other act on behalf of
Tenant in accordance with this Lease. All sums so paid by Landlord and all
necessary incidental costs shall be deemed Additional Charges hereunder and
shall be payable by Tenant to Landlord on demand, together with interest on all
such sums from the date of expenditure by Landlord to the date of repayment by
Tenant at the maximum annual interest rate allowed by law for business loans
(not primarily for personal, family or household purposes) not exempt from the
usury law at the date of expenditure or, if there is no such maximum annual
interest rate, at the rate of eighteen percent (18%) per annum. Landlord shall
have, in addition to all other rights and remedies of Landlord, the same rights
and remedies in the event of the nonpayment of such sums plus interest by Tenant
as in the case of default by Tenant in the payment of Base Rental.
(f) If Tenant abandons or surrenders the Premises, or is dispossessed
by process of law or otherwise, any movable furniture, equipment, trade fixtures
or personal property belonging to Tenant and left in the Premises shall be
deemed to be abandoned, at the option of Landlord, and Landlord shall have the
right to sell or otherwise dispose of such personal property in any commercially
reasonable manner.
19. Right of Landlord to Perform
All covenants and agreements to be performed by Tenant under any of the
terms of this Lease shall be performed by Tenant at Tenant's sole cost and
expense and without any abatement of Base Rental or Additional Charges. If
Tenant shall fail to pay any sum of money, other than Base Rental or Additional
Charges, required to be paid by it hereunder or shall fail to perform any other
act on its part to be performed hereunder, and such failure shall continue for
ten (10) days after notice thereof by Landlord, Landlord may, but shall not be
obligated to do so, and without waiving or releasing Tenant from any obligations
of Tenant, make any such payment or perform any such act on Tenant's part to be
made or performed as provided in this Lease. All sums so paid by Landlord and
all necessary incidental costs together with interest thereon at the maximum
rate permitted by law, from the date of such payment by Landlord shall be
payable as Additional Charges to Landlord on demand.
13
<PAGE>
20. Notices
Any notices under this Lease shall be effective only if given in
writing, sent by certified mail or delivered personally, (a) to Tenant (i) at
the address designated for such notices in the Basic Lease Information attached
hereto, if sent prior to Tenant's taking possession of the Premises, or (ii) at
the Premises if sent subsequent to Tenant's taking possession of the Premises,
or (iii) at any place where Tenant may be found if sent subsequent to Tenant's
vacating, deserting, abandoning or surrendering the Premises, and (b) to
Landlord at the address set forth in the Basic Lease Information, or (c) to such
other address as either Landlord or Tenant may designate as its new address for
such purpose by notice given to the other in accordance with the provisions of
this Paragraph 20. Any notice shall be deemed to have been given two (2) days
after the date when it shall have been mailed or upon the date personal delivery
is made. If Tenant is notified of the identity and address of any mortgagee,
Tenant shall give to such mortgagee notice of any default by Landlord under the
terms of this Lease in writing sent by certified mail, and such mortgagee shall
be given a reasonable opportunity to cure such default prior to Tenant's
exercising any remedy available to it.
21. Quiet Enjoyment
Upon the payment by Tenant of all Base Rental and Additional Charges
due hereunder, and upon performance by Tenant of all of the terms, covenants and
conditions on Tenant's part to be observed and performed, Tenant shall peaceably
and quietly hold and enjoy the Premises for the Term hereby demised, subject to
all of the terms, covenants and conditions of this Lease.
22. Subordination and Attornment
(a) This Lease shall be subject and subordinate at all times to the
lien of all mortgages and deeds of trust securing any amount or amounts
whatsoever which may now exist or hereafter be placed on or against the Building
or on or against Landlord's interest or estate therein, all without the
necessity of having further instruments executed by Tenant to effect such
subordination. Notwithstanding the foregoing, in the event of a foreclosure of
any such mortgage or deed of trust or of any other action or proceeding for the
enforcement thereof, or of any sale thereunder, this Lease shall not be
terminated or extinguished, nor shall the rights and possession of Tenant
hereunder be disturbed, if no Event of Default then exists under this Lease, and
Tenant shall attorn to the person or entity that acquires Landlord's interest
hereunder through any such mortgage or deed of trust. Tenant agrees to execute,
acknowledge and deliver upon demand such further instruments evidencing such
subordination of this Lease to the lien of all such mortgages and deeds of trust
as may reasonably be required by Landlord. Landlord shall use its reasonable
efforts to obtain a non-disturbance agreement from any current lender.
(b) The voluntary or other surrender of this Lease by Tenant, or a
mutual cancellation thereof, shall not work a merger and shall, at the option of
Landlord, terminate all or any existing subleases or subtenancies or operate as
an assignment to Landlord of any or all such subleases or subtenancies.
14
<PAGE>
(c) If the original Landlord hereunder, or any successor owner of the
Building, sells or conveys the Building, all liabilities and obligations on the
part of the original Landlord, or such successor owner, under this Lease
accruing after such sale or conveyance shall terminate and the original
Landlord, or such successor owner, shall automatically be released therefrom,
and thereupon all such liabilities and obligations shall be binding upon the new
owner. Tenant agrees to attorn to such new owner.
23. Tenant's Certificates
From time to time upon not less than ten (10) days' prior written
notice from Landlord, Tenant will execute and deliver to Landlord a certificate
of Tenant stating: (a) that Tenant has accepted the Premises (or, if Tenant has
not done so, that Tenant has not accepted the Premises and specifying the
reasons therefor), (b) the Commencement and Expiration Dates of this Lease, (c)
that this Lease is unmodified and in full force and effect (or, that there have
been modifications), (d) whether or not there are then existing any defenses
against the enforcement of any of the obligations of Tenant under this Lease
(and, if so specifying same), (e) whether or not there are then existing any
defaults by Landlord in the performance of its obligations under this Lease
(and, if so, specifying same), (f) the dates, if any, to which the Base Rental
and Additional Charges under this Lease have been paid, and (g) any other
information that may reasonably be required by Landlord. It is intended that any
such certificate of Tenant delivered pursuant to this Paragraph 23 may be relied
upon by Landlord and any prospective purchaser or mortgagee of the Building or
any portion thereof. Tenant's failure to execute and deliver such certificate to
Landlord within ten (10) days of Landlord's written notice shall constitute a
certification by Tenant (i) that Tenant has accepted the Premises, (ii) that
there are no existing defenses against the enforcement of the obligations of
Tenant under the Lease, and (iii) that there are no existing defaults by
Landlord in the performance of its obligations under the Lease. In addition,
Tenant's failure to execute and deliver such certificate to Landlord with ten
(10) days of Landlord's written notice shall constitute a certification by
Tenant that the information required in (b), (c), (f) and (g) of this Paragraph
23 to be included in the certificate of Tenant is as indicated by Landlord in
writing to any prospective purchaser or mortgagee of any part of the Building or
the land upon which the Building is located, if such a writing is provided by
Landlord as a result of Tenant's failure to timely provide a tenant's
certificate pursuant to this Paragraph 23.
24. Successors and Assigns
Subject to the provisions of Paragraph 12, the terms, covenants and
conditions contained in this Lease shall be binding upon and inure to the
benefit of the parties hereto and their respective legal and personal
representatives, successors and assigns.
25. Attorneys' Fees
If either party defaults in the performance of any of the terms,
covenants and conditions of this Lease and by reason thereof the other party
employs the services of an attorney to enforce
15
<PAGE>
performance of the covenants, or to perform any service based upon defaults,
then in any of said events the prevailing party shall be entitled to reasonable
attorneys' fees and all expenses and costs incurred by the prevailing party
pertaining thereto (including costs and fees relating to any appeal) and in
enforcement of any remedy.
26. Waiver
If either Landlord or Tenant waives the performance of any term,
covenant or condition contained in this Lease, such waiver shall not be deemed
to be a waiver of any subsequent breach of the same or any other term, covenant
or condition contained herein. Furthermore, the acceptance of Base Rental or
Additional Charges by Landlord shall not constitute a waiver of any preceding
breach by Tenant of any term, covenant or condition of this Lease, regardless of
Landlord's knowledge of such preceding breach at the time Landlord accepted such
Base Rental or Additional Charges. Failure by Landlord to enforce any of the
terms, covenants or conditions of this Lease for any length of time shall not be
deemed to waive or to decrease the right of Landlord to insist thereafter upon
strict performance by Tenant. Waiver by Landlord of any term, covenant or
condition contained in this Lease may only be made by a written document signed
by Landlord.
27. Surrender of Premises
At the end of the Term or sooner termination of this Lease, Tenant will
peaceably deliver to Landlord possession of the Premises, together with all
improvements or additions upon or belonging to same, by whomsoever made, in the
same condition as received or first installed, damage by fire, earthquake, Act
of God, or the elements alone excepted. Upon the termination of this Lease,
Tenant shall repair any damage caused by such removal. Property not so removed
shall be deemed abandoned by Tenant, and title to the same shall thereupon pass
to Landlord.
28. Holding Over
Any holding over after the expiration of the Term with the consent of
Landlord shall be construed to be a tenancy from month to month at a monthly
Base Rental equal to two hundred percent (200%) of the Base Rental for last
month of the Term of this Lease, and shall otherwise be on the terms and
conditions herein specified so far as applicable. Any holding over without
Landlord's consent shall constitute an Event of Default and entitle Landlord to
recover possession of the Premises in accordance with applicable law.
29. Limitation of Liability
Tenant agrees to look only to the equity of Landlord in the Premises
and not to Landlord personally with respect to any obligations or payments due
or which may become due from Landlord hereunder, and no other property or assets
of Landlord or any partner, joint venturer, officer, director, shareholder,
agent, or employee of Landlord, disclosed or undisclosed, shall be subject to
levy, execution or other enforcement procedure for the satisfaction of Tenant's
claims under or with
16
<PAGE>
respect to this Lease, and no partner, officer, director, agent or employee of
Landlord shall be personally liable in any manner or to any extent under or in
connection with this Lease. If at any time the holder of Landlord's interest
hereunder is a partnership or joint venture, a deficit in the capital account of
any partner or joint venturer shall not be considered an asset of such
partnership or joint venture.
30. Brokerage
Tenant and Landlord each represents and warrants to the other that it
has dealt with no broker, agent or other person in connection with this
transaction and that no broker, agent or other person brought about this
transaction, other than the brokers set forth in the Basic Lease Information
attached hereto and Tenant and Landlord agree to indemnify and hold the other
harmless from and against any claims by any other broker, agent or other person
claiming a commission or other form of compensation by virtue of having dealt
with the indemnifying party with regard to this leasing transaction. The
provisions of this paragraph shall survive the expiration or termination of this
Lease.
31. Invalidity of Provision
If any term, provision, covenant or condition of this Lease or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Lease or the application of such
term, provision, covenant or condition to persons or circumstances other than
those as to which it is held invalid or unenforceable shall not be affected
thereby and each term, provision, covenant or condition of this Lease shall be
valid and be enforceable to the fullest extent permitted by law. This Lease
shall be construed in accordance with the laws of the State of California.
32. Time of Essence
It is understood and agreed between the parties that time is of the
essence of all the terms, provisions, covenants and conditions of this Lease.
33. Entire Agreement
This Lease contains the entire agreement between the parties hereto and
all previous negotiations leading thereto, and it may be modified only by an
agreement in writing signed by Landlord and Tenant. No surrender of the Premises
shall be valid unless accepted by Landlord in writing. Tenant acknowledges and
agrees that Tenant has not relied upon any statement, representation, prior
written or prior or contemporaneous oral promises, agreements or warranties
except such as are expressed herein.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of
the date first above written.
17
<PAGE>
LANDLORD: TENANT:
HV 645 HARRISON, INC., LINKSHARE CORPORATION
a California corporation a Delaware corporation
By: By:
----------------------------------- --------------------------------
Its: Its:
---------------------------------- -------------------------------
18
<PAGE>
645 HARRISON STREET
LEASE
Basic Lease Information
Date: July 6, 1999
LANDLORD: HV 645 Harrison, Inc.
Address: 433 California Street, 7th Floor
San Francisco, California 94104
TENANT: Linkshare Corporation
645 Harrison Street
San Francisco, California 94107
................................................................................
Paragraph 1 Premises
Rentable Area of Premises: Approximately 5,800 rentable square
feet
Paragraph 2 Term
Fifty (50) and 1/2 months
Commencement Date: July 15, 1999
Expiration Date: September 30, 2003
Paragraph 3 Base Rental: July 15, 1999 - July 31, 1999: $5,800.00
- ----------- -----------
August 1, 1999 - June 30, 2000: $11,600.00 per month
July 1, 2000 - June 30, 2001: $12,064.00 per month
July 1, 2001 - June 30, 2002: $12,546.56 per month
July 1, 2002 - September 30, 2003: $13,048.42 per month
Paragraph 5 Security Deposit: $11,600.00
- ----------- ----------------
Paragraph 31 Broker: Landlord: HC&M Commercial Properties, Inc.
- ------------ ------
Tenant: Cushman & Wakefield
The foregoing Basic Lease Information is incorporated into and made a
part of this Lease. Each reference in this Lease to any of the Basic Lease
Information shall mean the respective information set forth above and shall be
construed to incorporate all of the terms provided under the particular Lease
paragraph pertaining to such information. In the event of a conflict between any
Basic Lease Information and the Lease, the Lease shall control.
19
<PAGE>
LANDLORD: TENANT:
HV 645 HARRISON, INC., LINKSHARE CORPORATION
a California corporation a Delaware corporation
By: By:
---------------------------------- --------------------------------
Its: Its:
--------------------------------- -------------------------------
20
<PAGE>
SUBLEASE
THIS SUBLEASE made as of the 13th day of July, 1999 between Wolf
Shevack, Inc. d/b/a Partners & Shevack, a New York corporation, having an office
at 101 West 40th Street, New York, New York 10018 ("Landlord"), and Linkshare
Corporation, a Delaware Corporation, having an office at 215 Park Avenue South,
New York, New York 10003, ("Tenant").
WITNESSETH
1. Landlord hereby leases to Tenant and Tenant hereby hires from
Landlord the entire rentable portion of the eighth floor (the "Demised
Premises"), in the building known as 215 Park Avenue South, New York, New York
10003 (the "Building"), for a term (the "Term") to commence on July 1, 1999,
subject to obtaining the consent of the Prime Landlord pursuant to Article 16,
and to end on December 30, 2006 (the "Expiration Date") unless sooner terminated
as hereinafter provided at an annual base rental rate ("Fixed Rent") of Three
Hundred Ninety Thousand ($390,000.00) Dollars, Thirty-Two Thousand Five Hundred
($32,500.00) Dollars per month, from the Commencement Date to December 31, 2002,
and Four Hundred Twenty Thousand ($420,000.00) Dollars, Thirty Five Thousand
($35,000.00) Dollars per month, from January 1, 2003 to December 30, 2006. If
the Commencement Date shall occur on other than the first day of a month rent
for that month shall be prorated. The Fixed Rent shall be paid in equal
consecutive monthly installments as set forth above in advance on the first day
of each calendar month during the Term, at Landlord's office hereinabove set
forth or at such other place designated in writing by Landlord. The Fixed Rent
is exclusive of electrical service charges which shall be provided by sub-meter.
Simultaneously with the execution of this Sublease, Tenant has paid to Landlord
the first monthly installment of Fixed Rent, receipt of which, subject to
collection, is hereby acknowledged. Notwithstanding the foregoing if the Tenant
is not in material default of its obligations hereunder beyond applicable notice
and grace periods, it shall be entitled to a rental abatement of Fixed Rental
from the Commencement Date until November 30, 1999.
2. (a) This Sublease is a sublease with respect to the Demised Premises
and is subject and subordinate to all of the terms, covenants and conditions of
that certain Agreement of Lease ("Prime Lease") made as of October 8, 1998
between 215 Park Avenue South Associates L.P. as Landlord ("Prime Landlord") and
Landlord, as tenant, a copy of which has been provided to Tenant, and which
Tenant acknowledges receipt of. Except as specifically provided in, and to the
extent not inconsistent with, the provisions of this Sublease, all of the terms,
covenants and conditions of the Prime Lease, except Articles 24, 32, 42, 43, 45,
and 48 thereof, shall be deemed incorporated herein. Notwithstanding the
foregoing the following Articles shall be incorporated as modified:
Article 49(A), Paragraph (ii) and all references to the ninth
floor are deleted.
Article 50(A)(3) - The multiplication factor shall be 15,000.
Article 51(A)(2) - The percentage shall be 5.17 percent and
the base year shall be the New York City 1999/2000 Tax Year.
21
<PAGE>
Article 52(A)(vii) - The Tenant's share shall be 5.17 percent.
As used in the Prime Lease, the term "Landlord" shall refer to Landlord
hereunder and the term "Tenant" shall refer to Tenant hereunder. Landlord
represents to Tenant that (i) the Prime Lease is in full force and effect and
has not been amended; (ii) the redacted copy of the Prime Lease presented to the
Tenant is a true copy of the original, except for the deleted portions; (iii) to
the best of Landlord's knowledge, neither Landlord or Tenant is in default under
the Prime Lease, and no condition exists to which with the giving of notice or
the passage of time, or both, would constitute a default under the Prime Lease;
and (iv) to the best of Landlord's knowledge, there are no New York City
Building Department violations or conditions which would give rise with the
passage of time to become such violations, encumbrances or liens affecting the
Demised Premises.
(b) Tenant acknowledges that it has read and examined the Prime Lease
as redacted and is fully familiar with all of the terms, covenants and
conditions on the tenant's part to be performed thereunder. Tenant covenants and
agrees that, except for the payment of Fixed Rent and Additional Rent (as such
terms are defined in the Prime Lease), it will perform and observe all of the
terms, covenants and conditions contained in the redacted Prime Lease to be
performed and observed on the part of the "Tenant" thereunder during the term of
this Sublease insofar as they relate to the Demised Premises, other than the
redacted portions hereof, and any default by Tenant in the performance or
observance of such terms, covenants and conditions of the Prime Lease shall be
deemed a default under this Sublease. Tenant will and does hereby indemnify and
hold Landlord harmless from and against any and all actions, claims, demands,
damages, liabilities and expenses (including, without limitation, reasonable
attorney's fees) based upon, or incurred on account of, any violation of such
terms, covenants and conditions caused suffered or permitted by Tenant, its
agents, servants, employees or invitees. Landlord hereby agrees to pay the Fixed
Rent and Additional Rent, if any, when due and otherwise comply with the
provisions of the Prime Lease which are not the Tenant's obligations under this
Sublease. A failure of the Landlord hereunder to make any payment of fixed rent
or additional rent due the Prime Landlord under the Prime Lease shall be deemed
a breach hereunder, and the Tenant shall be allowed to make the appropriate
payments to the Prime Landlord. If any payment made to the Prime Landlord by
Tenant exceeds the payments due hereunder, Landlord shall reimburse Tenant
within ten (10) business days of the demand for payment by Tenant. Tenant shall
be further entitled to cure Landlord's non-monetary defaults under the Prime
Lease. Landlord hereby agrees to indemnify Tenant against all cost, expenses and
claims, including reasonable attorneys fees, with reference to any claims by the
Manhattan Studio Architect & Design, P.C. with references to professional
services provided by them to Landlord regarding either the eighth or ninth
floors of the Building.
3. Tenant shall use and occupy the Demised Premises for general
executive and administrative offices in connection with Tenant's business and
for no other purpose.
4. (a) Simultaneously with the execution of this Sublease, Tenant shall
deposit with Landlord the sum of $135,000.00, as security for the full and
faithful performance and
22
<PAGE>
observance by Tenant of the terms, provisions, covenants and conditions of this
Sublease on Tenant's part to be performed and observed. In the event the Tenant
is not in default of any of its obligations hereunder on January 1, 2003, after
any applicable notice and cure periods, Tenant shall be entitled to refund of
$65,000.00 of the security deposit, and one half of the accrued interest, or to
replace the existing letter of credit, as hereinafter provided, with a letter of
credit in the sum of $70,000.00.
(b) Landlord shall deposit such funds in an interest bearing
account for the benefit of Tenant, with accrued interest to be retained with the
security deposit for the benefit of the Tenant, provided however Landlord shall
be entitled to retain one (1%) one percent of the security deposit annually as
an administrative fee.
(c) In lieu of maintaining a cash deposit as previously
described Tenant may establish and maintain during the term hereof an clean,
unconditional, irrevocable letter of credit in the amount specified. The letter
of credit shall be issued by a New York Clearing House Bank and shall be in a
form reasonably acceptable to Landlord for a period extending thirty (30) days
after the conclusion of the term hereof. Such letter of credit shall provide,
among other provisions, that it shall be drawable, either in partial draws or in
a single draw for the full amount, at the same time(s) and the same amount(s) as
the cash deposit might be applied by Landlord pursuant to the provisions of this
Article. If at any time the total of the undrawn amount(s) of the letter of
credit and any cash deposits then held by Landlord shall be less than the amount
specified in Article 4 (a) hereof, then Tenant shall immediately deposit with
the Landlord an additional letter of credit or an additional cash deposit equal
to such deficiency. Said letter shall be for successive terms of not less than
one year and shall be automatically be renewed unless the issuing bank shall
give Landlord notice thereof not less than thirty (30) days before the
expiration of the then current term. In the event Landlord receives notice of
non-renewal of the letter of credit it shall be entitled to draw and retain as a
cash security deposit the entire then current balance.
(d) Landlord may use, apply or retain the whole or any part of
the security deposit to the extent required for the payment of any Fixed Rent or
any other sum as to which Tenant is in default, after any applicable notice and
cure periods, or for any sum which Landlord may expend or may be required to
expend by reason of Tenant's default in respect of any of the terms, provisions,
covenants and conditions of this Sublease, including, but not limited to, any
damages or deficiency in the reletting of the Demised Premises, whether such
damages or deficiency accrued before or after summary proceedings or other
re-entry of Landlord. In the event that Tenant shall fully and faithfully comply
with all of the terms, provisions, covenants and conditions of this Sublease,
the security deposit, or so much thereof as shall not have been applied by
Landlord as aforesaid, shall be returned to Tenant promptly after the Expiration
Date (or earlier termination date) and after delivery of entire possession of
the Demised Premises to Landlord. In the event of an assignment by Landlord of
its interest under the Prime Lease, Landlord shall have the right to transfer
the security deposit to the assignee and Landlord shall thereupon be released by
Tenant from all liability for the return of such security deposit provided that
the Assignee shall assume the obligation to maintain the Security Deposit in
accordance with
23
<PAGE>
the terms and conditions of this Sublease. In such event, Tenant shall look
solely to the new landlord or any subsequent transferee for the return of said
security deposit. Tenant further covenants that it will not assign or encumber
or attempt to assign or encumber the security deposit and that neither Landlord
nor it successors or assigns shall be bound by any such assignment, encumbrance,
attempted assignment or attempted encumbrance.
5. In the event that Tenant shall default in the full performance of
any of the terms, provisions, covenants and conditions on its part to be
performed under this Sublease following the notice and any applicable grace
procedures in the Prime Lease, then Landlord shall have the same rights and
remedies with respect to such default as are given to the Prime Landlord under
the Prime Lease with respect to defaults by the "Tenant" under the Prime Lease,
all with the same force and effect as though the provisions of the Prime Lease
with respect to defaults and the rights and remedies under the Prime Lease in
the event thereof were set forth at length herein. Notwithstanding anything to
the contrary contained in the Prime Lease and without limiting the generality of
the preceding sentence, if Tenant fails to surrender possession of the Demised
Premises on the Expiration Date or such earlier date as this Lease may be
terminated, (i) Landlord shall be entitled to all of the rights and remedies
which are available to a landlord against a tenant holding over after the
expiration of a term and to such other rights and remedies as may be provided
for in this Sublease, the Prime Lease, at law or in equity and (ii) Tenant, at
Landlord's option, shall be deemed to be occupying the Demised Premises as a
tenant from month to month, at a monthly rental equal to the greater of (a) two
times (2x) the Fixed Rent and Additional Rent payable during the last full
calendar month immediately preceding the expiration or termination of this
Sublease or (b) all loss, cost, liability and expense (including actual
attorneys fees and disbursements) suffered or incurred by Landlord, as a result
of Tenant's occupancy of the Demised Premises after the Expiration Date and
including, without limitation, damages or costs of any kind paid or payable by
Landlord to Prime Landlord or any third party, with respect to the entire
premises of which the Demised Premises are a part but excluding any loss caused
solely by the holding over of any other subtenant or assignee in the balance of
Landlord's space.
6. (a) Tenant shall have and enjoy the same rights to have facilities
and services furnished by Prime Landlord as Landlord possesses under the
provisions of the Prime Lease. Landlord agrees that if at any time during the
Term such facilities or services are not furnished or are improperly furnished
to Tenant, then, upon receipt of written notice from Tenant specifying such
failure, Landlord shall use its reasonable efforts to cause such facilities
and/or services to be resumed or properly furnished or performed by Prime
Landlord insofar as the same apply to or affect the Demised Premises, provided
that Prime Landlord's failure to furnish and/or perform such facilities or
service does not result from anything done or permitted to be done by Tenant
which would excuse Prime Landlord from the furnishing or performance thereof. If
Landlord shall commence litigation in order to obtain any such work, facilities,
services or duties for Tenant, which litigation Tenant may join, and whether or
not it so joins, Tenant shall pay all reasonable costs and expenses (including
attorney's fees) incurred in connection therewith. No such litigation shall be
commenced without Tenant's prior written approval. The failure of Landlord to
cause any such facilities and/or services to be resumed or properly furnished or
24
<PAGE>
performed shall in no event (unless Prime Landlord's failure is a result of
Landlord's default under the Prime Lease) excuse Tenant from the full
performance of all of the terms, provisions, covenants and conditions of this
Lease on the part of Tenant to be performed, including, without limitation,
Tenant's obligation to pay Fixed Rent and Additional Rent. Notwithstanding the
foregoing, if Landlord is entitled to an abatement of rent from the Prime
Landlord due to the failure of the Prime Landlord supply facilities and/or
services, then Tenant shall be entitled to a prorata abatement of Fixed and
Additional Rent due hereunder.
(b) Notwithstanding anything, in the Prime Lease or this
Sublease to the contrary, Tenant covenants and agrees that Landlord shall not be
obligated to perform any services of any nature whatsoever (including, without
limitation, the furnishing of heat, electrical energy, water, air cooling or air
conditioning, elevator service, window washing or rubbish removal services), nor
shall Landlord be obligated to make any repairs, alterations or improvements in
and about the Demised Premises, other than as expressly set forth in this
Sublease, or to comply with any violations of law in respect thereto, nor shall
Landlord be required to restore the Demised Premises following the occurrence of
a fire or other casualty, or to perform any other duty respecting the Demised
Premises which Prime Landlord is required to perform under the Prime Lease, nor
shall Landlord be liable to Tenant under any representation or warranty made by
the Prime Landlord in the Prime Lease, it being understood, and Tenant hereby so
agrees, that Tenant shall look solely to Prime Landlord, for the performance of
any and all such services or work, the making of repairs, alterations or
improvements, elimination or correction of violations of law, the restoration of
the Demised Premises following fire or other casualty, the performance of other
duties of Prime Landlord and compliance with all such representations and
warranties, subject in each case to the terms of the Prime Lease and this
Sublease. Landlord agrees to cooperate with Tenant, in the event that Tenant
wishes to assert a claim against Prime Landlord in Tenant's name or in
Landlord's name, it being understood and agreed that Tenant shall have the right
to make such a claim on Landlord's behalf, provided, however that Tenant shall
reimburse Landlord for any reasonable expenses Landlord may incur, and further
provided, that Tenant shall submit copies of all documents regarding any claim
to Landlord for its approval before sending the same to Prime Landlord.
Landlord's approval will not be unreasonably withheld or delayed.
7. Tenant has made a thorough inspection of the Demised Premises and is
familiar with the condition thereof. Tenant agrees that neither Landlord nor any
agent, representative or employee of Landlord has made any representations or
warranties whatsoever with respect to the Demised Premises other than as
contained herein. Tenant agrees to accept the Demised Premises "as is" without
requiring any alterations, improvements, repairs or decorations to be made by
Landlord or at Landlord's expense, either at the time possession is given to
Tenant or any other time during the term of this Sublease, provided however that
Landlord represents that the air conditioning units servicing the Premises will
be in good working at the commencement of the lease term and prior to the
commencement of the Lease Term, Landlord will supply Tenant with an ACP-5
Certificate regarding asbestos in the Premises. Tenant may not make any physical
alterations to the Premises without the prior written consent of the Prime
Landlord, as provided for in the Prime Lease. Tenant shall submit any request
for approval to an alteration to the
25
<PAGE>
Landlord, who shall immediately forward the request to the Prime Landlord. A
consent by the Prime Landlord to a proposed alteration shall be deemed to be a
consent by the Landlord.
8. Notwithstanding anything to the contrary contained in the Prime
Lease or this Sublease, Tenant shall not assign, mortgage or encumber this
Sublease or any of its rights or interest hereunder, nor sublet the Demised
Premises or any part thereof without the Landlord's prior written consent which
consent may not be unreasonably withheld. Tenant shall not permit the Demised
Premises or any part thereof to be used or occupied by anyone other than the
officers, directors and employees of Tenant without such consent. Where required
under the Prime Lease, Prime Landlord's consent shall be obtained.
9. Any notice, demand, request, consent or other communication
("Notice") rendered or given under this Sublease shall be in writing and shall
not be effective for any purpose unless delivered in person or sent by United
States registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:
To Landlord: Partners & Shevack
Attention: Felix Yang
101 West Fortieth Street
New York, New York 10018
To Tenant: Linkshare Corporation
Attention: President
215 Park Avenue South
New York, New York 10003
or such other or additional address as may be assigned by either party by like
Notice. Notices shall be effective upon personal delivery or deposit in a mail
depository maintained by the United States Postal Service, as the case may be.
10. No waiver by Landlord or Tenant of any breach or any agreement or
provision herein contained shall be deemed a waiver of any preceding or
succeeding breach thereof or of any other agreement or provision herein
contained. No extension by Landlord of time for performance of any obligations
or acts shall be deemed an extension of time for performance of any other
obligations or acts.
11. Landlord and Tenant each warrant and represent that it has not
dealt with or through any broker, other than Newmark & Company Real Estate, Inc.
and S.L. Green Leasing, Inc., in connection with this Sublease. Landlord and
Tenant hereby indemnify and agree to hold the other harmless from and against
any liability or expense, including, but not limited to, reasonable attorney's
fees, incurred by the other because of any claim for commissions or fees in
connection with this Sublease as a result of the acts of the indemnifying party,
other than those payable to Newmark & Company Real Estate, Inc. and S.L. Green
Leasing, Inc. Landlord agrees, upon obtaining the consent of the Prime Landlord
to this Sublease, to pay Newmark &
26
<PAGE>
Company Real Estate, Inc. and S.L. Green Real Leasing, Inc. its commissions and
fees in accordance with separate letter agreements and to indemnify Tenant
against any claims of said brokers.
12. Upon the expiration or earlier termination of the term of this
Sublease, Tenant shall quit and surrender to Landlord the Demised Premises,
broom clean, in as good order and condition as at the commencement of the Term.
Tenant will be obligated to remove any Tenant alterations only if the Landlord
is required to remove the same by the Prime Landlord.
13. In the event that the Landlord shall receive an acceptable bona
fide written offer to rent the ninth floor of the building containing the
Premises the Tenant shall have the right to rent the ninth floor on the same
terms and conditions as are contained in the acceptable bona fide offer.
Landlord shall give Tenant written notice of the receipt of the acceptable bona
fide offer with a written certification of the terms contained in the written
offer by an attorney duly admitted to practice in the State of New York, and
Tenant shall have seven (7) days from the receipt of said notice to elect to
rent the ninth floor upon said terms and conditions. Tenant must give Landlord
written notice of said acceptance within the aforesaid seven (7) day period
along with certified checks for the security deposit and first months rent.
Tenant shall not be required to make the aforesaid election for ninety (90) days
from the commencement of the sublease term.
14. The provisions of this Sublease shall be binding upon and inure to
the benefit of the parties hereto and, their respective successors and assigns.
15. This Sublease shall be governed by and construed in accordance with
the laws applicable to contracts executed and wholly to be performed in the
State of New York.
16. Promptly after execution hereof, Landlord shall submit this
Sublease to the Prime Landlord for its approval. Landlord shall, at its expense,
use reasonable efforts to obtain that approval. This Sublease is conditioned on
obtaining the written approval of the Prime Landlord of this Sublease and the
delivery of possession to Tenant on or before three weeks from the date a fully
executed copy of this Sublease is submitted to the Prime Landlord. Landlord
shall furnish Tenant with a copy of any documentation confirming the date of
submission of the executed Sublease to the Prime Landlord. Landlord shall notify
Tenant of such approval, immediately upon receipt, and promptly send a copy of
such approval to Tenant by facsimile. If the written consent is not received and
possession provided on or before three weeks from the date a fully executed copy
of this Sublease is submitted to the Prime Landlord, Landlord shall promptly
return the first month's Fixed Rent and Security Deposit to Tenant and this
Sublease shall be null and void. The consent shall contain an acknowledgment by
the Prime Landlord that the use by Tenant of the Premises as general executive
and administrative offices for an internet company is not a violation of the use
clause of the Prime Lease. Tenant represents and warrants that it is not a
governmental body, or a subsidiary or agency of a governmental body, and no
right or privilege to claim sovereign immunity. Tenant acknowledges that the
foregoing representation and warranty is a material inducement to Landlord
entering into this Sublease and Landlord is relying on said representation and
warranty.
27
<PAGE>
17. This Sublease contains the entire agreement between the parties
with respect to the matters set forth herein and all prior negotiations and
agreements are merged into this Sublease. This Sublease may not be changed,
modified, terminated or discharged, in whole or in part, nor any of its
provisions waived except by a written instrument which expressly refers to this
Sublease, is executed by the party against whom enforcement of the change,
modification, termination, discharge or waiver is sought and is permissible
under the Prime Lease.
18. Submission by the Landlord of this Sublease for execution by the
Tenant shall confer no rights, nor impose any obligations on either Landlord or
Tenant unless and until both Landlord and Tenant have executed the Sublease and
executed originals thereof shall have been delivered to the respective parties.
19. In the event of a default under any underlying lease of all or any
portion of the Demised Premises hereby which results in the termination of such
lease, the Tenant hereunder shall, at the option of the lessor under such lease,
attorn to and recognize such lessor as Landlord hereunder and shall, promptly
upon such lessor's request, execute and deliver all instruments necessary or
appropriate to confirm such attornment and recognition. The Tenant hereunder
hereby waives all rights under present or future law to elect, by reason of the
termination of such underlying lease, to terminate this Sublease or surrender
possession of the Demised Premises.
IN WITNESS WHEREOF, Landlord and Tenant have respectively signed and
sealed this Sublease as of the day and year first above written.
WOLF SHEVACK, INC. d/b/a
Partners & Shevack
By:
----------------------------------------------
As its:
------------------------------------------
LINKSHARE CORPORATION
By:
----------------------------------------------
As its:
------------------------------------------
28
<PAGE>
EXHIBIT 23.1
The Board of Directors
LinkShare Corporation:
We consent to the use of our reports included herein (Form S-1) and to the
references to our firm under the headings "Selected Financial Data" and
"Experts" in the prospectus.
KPMG LLP
New York, New York
February 28, 2000
