-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OWbHMSdpQePfTnW5d1bdebwsg5HYg6rQjf2WH9MX0ksikT+ASGRr5R4gOFwxQW54 DdxRtjedOeNO1U9c4KNrCQ== 0000891618-99-002599.txt : 19990608 0000891618-99-002599.hdr.sgml : 19990608 ACCESSION NUMBER: 0000891618-99-002599 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 17 FILED AS OF DATE: 19990607 FILER: COMPANY DATA: COMPANY CONFORMED NAME: YESMAIL COM INC CENTRAL INDEX KEY: 0001087943 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-80137 FILM NUMBER: 99641640 BUSINESS ADDRESS: STREET 1: 565 LAKEVIEW PARKWAY STREET 2: SUITE 135 CITY: VERNON HILLS STATE: IL ZIP: 60061 BUSINESS PHONE: 8479189292 S-1 1 FORM S-1 1 As filed with the Securities and Exchange Commission on June 7, 1999 Registration No. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ YESMAIL.COM, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ------------------------ DELAWARE 7319 36-4020286 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
565 LAKEVIEW PARKWAY, SUITE 135 VERNON HILLS, ILLINOIS 60061 (847) 918-9292 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ DAVID M. TOLMIE CHIEF EXECUTIVE OFFICER YESMAIL.COM, INC. 565 LAKEVIEW PARKWAY, SUITE 135 VERNON HILLS, ILLINOIS 60061 (847) 918-9292 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ COPIES TO: JEFFREY D. SAPER, ESQ. MICHAEL J. HALLORAN, ESQ. J. ROBERT SUFFOLETTA, ESQ. KAREN A. DEMPSEY, ESQ. JEREMY D. ROSSEN, ESQ. WILLIAM A. HINES, ESQ. WILSON SONSINI GOODRICH & ROSATI PILLSBURY MADISON & SUTRO LLP PROFESSIONAL CORPORATION 235 MONTGOMERY STREET 650 PAGE MILL ROAD SAN FRANCISCO, CA 94104 PALO ALTO, CALIFORNIA 94304-1050 (415) 983-1000 (650) 493-9300
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement is declared effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ] If this Form is to register additional securities for an offering pursuant to rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] ------------------------ CALCULATION OF REGISTRATION FEE - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- TITLE OF EACH CLASS OF AMOUNT TO BE AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED(1) REGISTRATION FEE - ---------------------------------------------------------------------------------------------------------------------- Common Stock, par value $0.0001 per share........... $46,000,000 $12,800 - ---------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the amount of the registration fee, in accordance with to Rule 457(o) promulgated under the Securities Act of 1933. ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted. SUBJECT TO COMPLETION JUNE 7, 1999 SHARES [LOGO] COMMON STOCK ------------------------ This is the initial public offering of yesmail.com, inc. and we are offering shares of our common stock. We anticipate the initial public offering price will be between $ and $ per share. We have applied to list our common stock on the Nasdaq National Market under the symbol "YESM." INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 6.
PER SHARE TOTAL --------- ---------- Public Offering Price....................................... $ $ Underwriting Discounts and Commissions...................... $ $ Proceeds to yesmail.com..................................... $ $
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. We have granted the underwriters the right to purchase up to additional shares to cover any over-allotments. DEUTSCHE BANC ALEX. BROWN THOMAS WEISEL PARTNERS LLC VOLPE BROWN WHELAN & COMPANY , 1999 3 PROSPECTUS SUMMARY You should read the following summary together with the more detailed information, financial statements and notes to financial statements appearing elsewhere in this prospectus. YESMAIL.COM We are a leading provider of comprehensive permission email direct marketing solutions. We deliver direct email marketing messages to targeted individuals who have given their permission to receive promotional messages from direct marketers. Through our network, we can direct promotional campaigns to a targeted audience of over five million self-selected individuals. In the quarter ended March 31, 1999, we delivered over 1.3 million permission email messages for over 90 clients. The growth of the Internet has spurred traditional businesses and e-commerce companies to devote larger portions of their marketing budgets to the Internet. The Internet is particularly well suited as a direct marketing medium because of the ability to target consumers, receive immediate response, direct consumers to a precise point of sale and provide a measurable return on investment. However, to date, Internet direct marketing has been primarily confined to mass-mailing of unsolicited email messages, known as 'spam,' which has met with negative consumer reaction and low response rates. In addition, banner advertising has proven to be less effective as a direct marketing medium than as a branding vehicle, with response rates averaging 0.7% according to Forrester Research. Permission email direct marketing response rates, according to Jupiter Communications, are three to ten times higher than traditional direct mail or banner advertising. In addition, the cost to deliver permission email messages is 75% to 90% lower than direct mail, according to the Gartner Group. We believe that the combination of substantially higher response rates and lower costs will result in an increasing portion of the $160 billion spent in the United States on direct marketing shifting to permission email. The Direct Marketing Association estimates that spending on Internet direct marketing will increase from $600 million in 1998 to $5.3 billion in 2003. We work with direct marketers to reach a targeted audience to promote their products or services. Our direct marketer clients have included eToys, Fingerhut, Hewlett Packard, McDonalds, MotherNature.com, Office Max and Verio. Once a direct marketing campaign is created, we deliver promotional email messages to those consumers who have given their prior permission by saying 'yes' to us or our network affiliates. We use our proprietary targeting and tracking technology and our direct marketing expertise to help our clients achieve response rates of up to 15% and maximize their return on investment. Our network affiliates are list providers who are typically Web sites that have begun to develop permission based lists. We enable our network affiliates to generate additional revenues from their Web site visitors and customers by providing access to direct marketers, without the costs and challenges associated with building and maintaining their own direct marketing sales forces and email direct marketing technologies. Our network affiliates also benefit from our proprietary technology that tracks the responses of their list members, thereby enhancing the value of their lists to direct marketers. Network affiliates also benefit from the scale and reach of our network and the organization of all network members into categories of interest and response rate histories. We believe that consumers will benefit from the ability to control the flow of email marketing messages they receive. Our proprietary product, My.YesMail, is designed to give consumers the tools necessary to organize their email subscriptions and permission lists, filter undesired promotional messages and control message frequency. We intend to create a trusted brand name which facilitates positive interactions between direct marketers and consumers. 3 4 Our objective is to be the leading provider of permission email direct marketing. We intend to achieve this objective by: - Providing effective email direct marketing programs to enable marketers to maximize their return on investment. - Increasing our targeted reach through a permission based network that currently exceeds five million self-selected individuals. - Expanding our sales, marketing and client services to grow our business while providing a high level of customer support. - Leveraging our proprietary technology and current and planned products for marketers, network affiliates and consumers, including eTrack, eTarget, ePredict, eCampaign, eManage and My.YesMail. - Building a leading brand that establishes YesMail as the trusted leader in quality permission email programs. We believe that permission email direct marketing represents an opportunity to more fully realize the Internet's viability as an effective direct marketing medium due to its substantially higher response rates and lower delivery costs, and that we are well positioned to take advantage of this opportunity. ------------------------- Unless otherwise noted, the information in this prospectus assumes: - the effectiveness of a -for-one reverse split of the outstanding shares of common stock prior to the closing of this offering; - the conversion of each outstanding share of preferred stock into common stock, which will occur upon the closing of this offering; and - no exercise of the underwriters' over-allotment option. 4 5 THE OFFERING Common stock offered by yesmail.com................... shares Common stock to be outstanding after the offering..... shares(1) Use of proceeds....................................... For general corporate purposes, including working capital Proposed Nasdaq National Market symbol................ YESM
SUMMARY CONSOLIDATED FINANCIAL DATA See Note 3 of Notes to Consolidated Financial Statements for a description of the method that we used to compute our net loss per share and an explanation of the determination of the number of shares used in computing per share data. The pro forma financial data below assumes that the following transactions had occurred on January 1, 1998: - the effectiveness of a -for-one reverse split of the outstanding shares of common stock prior to the closing of this offering; - the conversion of each outstanding share of preferred stock into common stock, which will occur upon the closing of this offering; - the issuance of 6,385,455 shares of common stock in May 1999; and - the issuance of 13,745,460 shares of series A preferred stock in May 1999. The pro forma as adjusted financial data below reflects the sale of the shares of common stock that we are offering in this prospectus at an assumed public offering price of $ per share and after deducting the estimated underwriting discounts and commissions and our estimated offering expenses.
THREE MONTHS YEAR ENDED ENDED DECEMBER 31, MARCH 31, --------------------------- ----------------- 1996 1997 1998 1998 1999 ------- ------- ------- ------- ------- (IN THOUSANDS EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues................................... $ 935 $ 2,468 $ 4,583 $ 873 $ 1,389 Gross profit............................... 642 1,378 1,880 497 731 Loss from operations....................... (85) (405) (1,401) (183) (1,074) Net loss................................... $ (80) $ (414) $(1,706) $ (192) $(1,151) ======= ======= ======= ======= ======= Basic and diluted net loss per share....... $ (0.01) $ (0.02) $ (0.08) $ (0.01) $ (0.06) ======= ======= ======= ======= ======= Weighted-average shares outstanding used in computing basic and diluted net loss per share.......................... 15,363 20,399 20,363 20,895 20,333 ======= ======= ======= ======= ======= Pro forma basic and diluted net loss per share (unaudited)....................... $ (0.04) $ (0.00) $ (0.03) ======= ======= ======= Shares used in computing pro forma basic and diluted net loss per share (unaudited)............................. 40,493 41,025 40,463 ======= ======= =======
MARCH 31, 1999 --------------------------------- PRO FORMA ACTUAL PRO FORMA AS ADJUSTED ------- --------- ----------- (IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents................................. $ 84 $ 7,444 $ Working capital (deficit)................................. (3,489) 5,471 Total assets.............................................. 980 8,340 Capital lease obligations less current portion............ 324 324 Stockholders' equity (deficit)............................ (3,204) 5,796
- --------------- (1) Based on the number of shares of common stock outstanding as of May 31, 1999. Excludes shares reserved for issuance under our stock option and stock purchase plans, of which 2,160,000 shares were subject to outstanding options as of May 31, 1999. See "Management -- Compensation Plans" and "Description of Capital Stock." 5 6 RISK FACTORS This offering involves a high degree of risk. You should carefully consider the risks described below and the other information in this prospectus before deciding to purchase shares of our common stock. OUR BUSINESS IS DIFFICULT TO EVALUATE BECAUSE OUR OPERATING HISTORY IS LIMITED. We were founded in 1995 as a supplier of a broad range of Internet marketing services and in late 1998 redirected our strategic focus to permission email. Through March 31, 1999, permission email marketing services represented less than half of our revenue. Accordingly, our operating results since the end of 1998 are not comparable to our results for prior periods. Therefore, an investor must consider the risks and difficulties frequently encountered by early-stage companies in new, unestablished and rapidly evolving markets. We cannot be certain that our business strategy will be successful or that we will adequately address these risks. WE HAVE A HISTORY OF LOSSES AND WE EXPECT FUTURE LOSSES. We incurred net losses of $2.2 million from our inception through December 31, 1998 and $1.2 million for the three months ended March 31, 1999. As of March 31, 1999, we had an accumulated deficit of $3.4 million. We expect to continue to incur net losses for the foreseeable future and negative cash flow from operations through at least the year 2000. We expect to significantly increase our operating expenses as a result of expanding our sales and marketing, product development and administrative operations and developing new strategic relationships to promote our future growth. As a result, we will need to generate significant revenues to meet these increased expenses and to achieve profitability. If we do achieve profitability, we cannot be certain that we can sustain or increase profitability in the future. OUR FUTURE OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY AND REMAIN UNCERTAIN. Our operating results are difficult to predict. Our future quarterly operating results may fluctuate significantly and may not meet the expectations of securities analysts or investors. If this occurs, the price of our common stock would likely decline, perhaps substantially. Factors that may cause fluctuations of our operating results include the following: - the level of market acceptance of our products and services; - delays we may encounter in introducing new products and services; - competitive developments; - demand for advertising on the Internet; and - changes in pricing policies and resulting margins. We expect that an increasing portion of our future revenues will be derived from permission email marketing products and services. The volume and timing of orders are difficult to predict because the market for our products is in its infancy and the sales cycle may vary substantially from customer to customer. Currently, our customer contracts are only for a limited period of time, which makes revenues in any quarter substantially dependent upon contracts entered into in that quarter. Moreover, our sales are expected to fluctuate due to seasonal or cyclical marketing campaigns. We expect that revenue growth in the first and third quarters of each year may be lower than revenue growth in the second and fourth quarters of that and the preceding year. We believe this trend may occur as a result of our customers' annual budgetary, purchasing and sales cycles. To the extent significant revenues occur earlier than expected, our operating results for later quarters may not compare favorably with operating results from earlier quarters. 6 7 OUR SUCCESS DEPENDS UPON BROAD MARKET ACCEPTANCE OF PERMISSION EMAIL MARKETING SERVICES AND WE ARE UNCERTAIN IF OR WHEN SUCH MARKET ACCEPTANCE WILL OCCUR. We do not know if our products and services will be successful. The growth of the Internet remains fairly recent and advertising on the Internet even more so. The market for permission email marketing services is in its infancy, and we are not certain whether our target customers will widely adopt and deploy this technology. Even if they do so, they may not choose our products for technical, cost, support or other reasons. Adoption of permission email marketing services, particularly by those entities that have historically relied upon traditional means of direct marketing, such as telemarketing and direct mail, requires the broad acceptance of a new and substantially different approach to direct marketing. We believe that the promotion of the concept of permission email marketing will require us to engage in an intensive marketing and sales effort to educate prospective customers regarding the uses and benefits of our products and services. Enterprises that have already invested substantial resources in other advertising methods may be reluctant or slow to adopt our new approach. Our future growth also depends on the commercial success of our YesMail Network and the products that comprise our network, such as eTrack and eCampaign, and the products we plan to introduce by the end of the third quarter of 1999, such as eTarget, ePredict and eManage. If our customers do not widely adopt and purchase our products, our business will suffer. SEVERAL KEY MEMBERS OF OUR MANAGEMENT TEAM HAVE ONLY RECENTLY JOINED US AND IF THEY ARE UNABLE TO EFFECTIVELY INTEGRATE THEMSELVES INTO OUR BUSINESS OR WORK TOGETHER AS A MANAGEMENT TEAM, OUR BUSINESS WILL SUFFER. Several key members of our management team have joined us since January 1, 1999, including David M. Tolmie, our Chief Executive Officer and President, David B. Menzel, our Chief Financial Officer and Vice President, Finance and Administration, Peder Jungck, our Chief Technology Officer, Michael R. Mooradian, our Vice President, Sales and Anthony Priore, our Vice President, Marketing. If these key employees cannot effectively integrate themselves into our business or work together as a management team to enable us to carry out our permission email strategy, our business will suffer. WE RELY ON SHORT-TERM CONTRACTS FOR SUBSTANTIALLY ALL OF OUR PERMISSION EMAIL CUSTOMERS AND IF WE DO NOT SECURE NEW CONTRACTS FROM EXISTING OR NEW CUSTOMERS, OUR BUSINESS WILL SUFFER. Substantially all of our direct marketing customers purchase our permission email services under short-term contracts. Customers can therefore terminate these contracts on short notice without penalty. Our revenues would suffer if we are unable to secure new contracts from existing customers or obtain new customers. We expect to continue to derive a substantial majority of our revenues from short-term contracts such as these. OUR UNPREDICTABLE SALES CYCLE DEPENDS ON FACTORS OUTSIDE OUR CONTROL AND MAY CAUSE OUR REVENUES TO VARY SIGNIFICANTLY. Our sales cycle has varied considerably from customer to customer and several customers have taken many months to evaluate our products before making their purchase decisions. The unpredictable sales cycles for our products may cause our revenues and operating results to vary significantly from period to period. We spend a lot of time educating and providing information to our prospective customers regarding the use and benefits of our products. We believe that our sales cycle will continue to vary until there is broader market acceptance of permission email marketing services. 7 8 COMPETITION IN THE MARKET FOR INTERNET ADVERTISING AND DIRECT MARKETING IS INTENSE AND COULD ADVERSELY AFFECT OUR BUSINESS. The market for Internet advertising and direct marketing is intensely competitive, rapidly changing and highly fragmented. We expect that competition will increase significantly in the near-term because of the attention the Internet has received as a means of advertising and direct marketing and because there are no significant barriers to entry. Our primary long-term competitors may not have entered the market yet because our market is new. Competition could result in price reductions, changes in the way services are priced, reduced gross margin and loss of market share, any of which could cause our business to suffer. Many of our current and potential competitors have greater name recognition, longer operating histories, larger customer bases and significantly greater financial, technical, marketing, public relations, sales, distribution and other resources than we do. Some of our potential competitors are among the largest and most well-capitalized companies in the world. In addition, some of our competitors may include Web site owners who own permission email lists. We expect to face competition from these and other competitors, including Internet portals, traditional list brokers, banner advertising managers, independent list managers, incentive-based subscriber lists and customer management and retention service companies. For a more detailed discussion of our competition, please see "Business -- Competition." OUR FAILURE TO DEVELOP OUR SALES, MARKETING AND SUPPORT ORGANIZATION WOULD LIMIT OUR GROWTH. If we fail to substantially expand our direct and indirect sales and marketing operations, our growth will be limited. Our products and services require a sales effort targeted at several people within our prospective customers. We have recently expanded our direct sales force and plan to hire additional sales personnel. We might not be able to hire, train or retain the kind and number of sales and marketing personnel we are targeting because competition for qualified sales and marketing personnel is intense. In addition, we will increasingly rely on advertising agencies and direct marketers to resell our products and services. If we do not effectively manage or grow this indirect sales and marketing channel, our business could suffer. FAILURE TO DEVELOP ADDITIONAL RELATIONSHIPS WITH NETWORK AFFILIATES WOULD LIMIT OUR GROWTH. We believe that our success in penetrating our target markets and increasing our revenues depends on our ability to develop and maintain relationships with our network affiliates who provide us with access to permission email lists. We believe these relationships are important to facilitate market acceptance of our products and enhance our sales, marketing and distribution capabilities. If we fail to develop these relationships, our growth would be limited. In addition, we rely on third parties to assist us in computer programming, product development and subscriber list management. Reliance on third parties for these services exposes us to risks outside of our control, including the timing of new product introduction and customer relationships in the event these third parties do not meet deadlines or fail to appropriately manage data. WE MAY EXPERIENCE DIFFICULTIES MANAGING OUR EXPECTED GROWTH. Our ability to successfully offer our products and services and implement our business plan in the rapidly evolving market for permission email marketing services requires an effective planning and management process. We continue to increase the scope of our operations and have grown our headcount substantially. In addition, we have only recently engaged several key members of our executive management team. These factors have placed, and our anticipated future operations will continue to place, a significant strain on our management systems and 8 9 resources. We expect that we will need to continue to improve our operational and financial and managerial controls and reporting systems and procedures, and will need to continue to expand, train and manage our work force. WE RUN THE RISK OF SYSTEM FAILURE THAT COULD ADVERSELY AFFECT OUR BUSINESS. The continuing and uninterrupted performance of our network is critical to our success. Customers may become dissatisfied by any system failure that interrupts our ability to provide our services to them, including failures affecting the ability to deliver marketing messages quickly and accurately to the targeted audience. Sustained or repeated system failures would reduce significantly the attractiveness of our solutions to our customers. Our business would suffer by any damage or failure that interrupts or delays our operations. We rely on third-party service providers to provide access to the Internet and to support our operations. Our support arrangements with these providers are short-term and may be cancelled on short notice. In the event these arrangements are terminated, we may not be able to find alternative service providers on a timely basis or on terms acceptable to us, or at all, which in turn would harm our business. Our operations depend on our ability to protect our computer systems against damage from a variety of sources, including telecommunications failures, malicious human acts and natural disasters. Substantially all of our operations and computer systems are located at a single facility leased by us in Vernon Hills, Illinois. The occurrence of any of the above factors affecting our ability to maintain uninterrupted system performance would harm our business. Despite network security measures, our servers are vulnerable to computer viruses and disruptions from unauthorized tampering with our computer systems. We do not carry business interruption insurance to compensate for losses that may occur as a result of any of these events. Despite precautions, unanticipated problems affecting our systems could cause interruptions in the delivery of our solutions in the future. Our data storage centers incorporate redundant systems, consisting of additional servers, but the primary system does not switch over to the backup system automatically. In addition, if our products and services or our customers are affected by problems associated with inaccurate calculations with respect to the Year 2000, or if we experience reduced sales as potential customers divert resources to effect their own Year 2000 compliance, our business will suffer. For a further discussion of Year 2000 issues, please see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Year 2000 Readiness Disclosure." PROTECTION OF OUR INTELLECTUAL PROPERTY IS LIMITED. Our ability to successfully compete is substantially dependent upon our internally developed technology, which we protect through a combination of copyright, trade secret and trademark law. We have no issued patents or patent applications pending. However, we may not be able to adequately protect our proprietary rights which may harm our business. Unauthorized parties may attempt to copy or otherwise obtain and use our products or technology. Policing unauthorized use of our products is difficult, and we cannot be certain that the steps we have taken will prevent misappropriation of our technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States. For a more detailed description of the protection of our intellectual property, please see "Business -- Intellectual Property Rights." 9 10 OUR PROPRIETARY TECHNOLOGY MAY BE SUBJECT TO INFRINGEMENT CLAIMS. There is a substantial risk of litigation regarding intellectual property rights in our industry. A successful claim of product infringement against us and our failure or inability to license the infringed or similar technology could harm our business. We expect that our products may be increasingly subject to third-party infringement claims as the number of our competitors grows. We cannot be certain that third parties will not make a claim of infringement against us with respect to our products and technology. Any claims, with or without merit, could: - be time-consuming to defend; - result in costly litigation; - divert management's attention and resources; - cause delays in delivering products and services; - require the payment of monetary damages which may be tripled if the infringement is found to be willful; - result in an injunction which would prohibit us from offering a particular product or service; or - require us to enter into royalty or licensing agreements. Royalty or licensing agreements, if required, may not be available on acceptable terms, if at all. For additional information, please see "Business -- Intellectual Property Rights." RAPID TECHNOLOGICAL CHANGES COULD CAUSE OUR PRODUCTS TO BECOME OBSOLETE OR REQUIRE US TO REDESIGN OUR PRODUCTS. The market for Internet advertising and permission email marketing services is characterized by rapid technological change, frequent new product introductions, changes in customer requirements and evolving industry standards. If we are unable to develop and introduce products or enhancements in a timely manner to meet these technological changes, we may not be able to successfully compete. Moreover, our products may become obsolete in which event we may not be a viable business. In addition, we may experience delays in releasing new products and product enhancements in the future. Material delays in introducing new products and enhancements may cause customers to forego purchases of our products and purchase those of our competitors. WE MUST BE ABLE TO SUCCESSFULLY INTEGRATE ACQUISITIONS BECAUSE WE MAY ACQUIRE COMPANIES OR SUBSCRIBER LISTS. From time to time, we expect to evaluate opportunities to grow through acquisitions of or investments in complementary companies, products or technologies. If we acquire a company, we could have difficulty in assimilating that company's personnel, operations, products or technology. In addition, the key personnel of the acquired company may decide not to work for us. If we make acquisitions of products or technology, we could have difficulty in assimilating the acquired technology or products into our operations. These difficulties could disrupt our ongoing business, distract our management and employees and increase our expenses. Moreover, our profitability may suffer because of acquisition-related costs or amortization costs for acquired goodwill and other intangible assets. Furthermore, we may have to incur debt or issue equity securities to pay for any future acquisitions, the issuance of which could be dilutive to us or our existing stockholders. If we are unable to successfully address any of these risks, our business could be harmed. 10 11 OUR BUSINESS COULD SUFFER IF WE LOSE THE SERVICES OF KEY PERSONNEL OR ARE UNABLE TO HIRE ADDITIONAL PERSONNEL. We need to hire a significant number of additional sales, support, marketing and product development personnel to expand our business. If we fail to attract qualified personnel or retain current employees, our revenues may not increase and could decline. Competition for these individuals is intense, and we may not be able to attract, assimilate or retain additional highly qualified personnel in the future. Our future success also depends upon the continued service of our executive officers and other key sales, marketing and support personnel. In addition, our products and technologies are complex and we are substantially dependent upon the continued service of our existing engineering personnel. Not all of our officers or key employees are bound by an employment agreement. Our relationships with these officers and key employees are at will. Moreover, we do not have "key person" life insurance policies covering any of our employees. THE FAILURE OF THIRD PARTIES TO TIMELY AND EFFICIENTLY COMPLETE REQUIRED DEVELOPMENT WORK COULD HARM OUR BUSINESS. Our business is dependent on third parties for Web programming and product development. In the event these third parties do not complete this development work pursuant to our schedule, cost and capability expectations, our business could suffer. THE LOSS OF OUR RIGHT TO USE SOFTWARE LICENSED TO US BY THIRD PARTIES COULD HARM OUR BUSINESS. We license technology that is incorporated into our products from third parties. Any interruption in the supply or support of any licensed software could disrupt our operations and delay our sales, unless and until we can replace the functionality provided by this licensed software. Because our products incorporate software developed and maintained by third parties, we depend on these third parties to deliver and support reliable products, enhance their current products, develop new products on a timely and cost-effective basis and respond to emerging industry standards and other technological changes. OUR BUSINESS WILL SUFFER IF OUR TARGET CUSTOMERS DO NOT ACCEPT INTERNET SOLUTIONS. Our future revenues and profits, if any, depend upon the widespread acceptance and growth of commerce using the Internet. Rapid growth in the use of the Internet has emerged relatively recently. As a result, the growth of e-commerce may not continue to develop at historical rates, and a sufficiently broad base of consumers may not adopt, and continue to use, the Internet and other online services as a medium of commerce. In addition, the Internet may not be accepted as a viable long-term commercial marketplace and medium of commerce for a number of reasons, including potentially inadequate development of the necessary network infrastructure or delayed development of enabling technologies and performance improvements. Our success will depend upon third parties maintaining the Internet infrastructure to provide a reliable network backbone with the necessary speed, data capacity, security and hardware necessary for reliable Internet access and services. To the extent that the Internet continues to experience increased numbers of users, frequency of use or increased bandwidth requirements of users, the Internet infrastructure may not be able to support the demands placed on it and the performance or reliability of the Internet could suffer. The Internet could lose its viability due to delays in the development or adoption of new standards and protocols required to handle increased levels of Internet activity and traffic, or due to increased governmental regulation. Further, critical issues concerning the Internet, including security, reliability, privacy, data corruption, cost, ease of use, accessibility, quality and speed of service, remain unresolved and could negatively affect the use of the Internet for business 11 12 applications. Changes in or insufficient availability of telecommunications services that support the Internet also could result in slower response times and negatively affect the use of the Internet generally. OUR PRODUCTS AND SERVICES MAY BE SUBJECT TO PRIVACY CONCERNS THAT LIMIT OUR SUCCESS. Our technology collects and utilizes data derived from user activity in the YesMail Network. Our network enables the use of personal profiles, in addition to other mechanisms, to deliver targeted marketing materials, to help compile demographic information and to limit the frequency with which an advertisement is shown to the user. The effectiveness of our technology and the success of our business could be limited by any reduction or limitation in the use of personal profiles. These personal profiles contain bits of information keyed to a specific server, file pathway or directory location that are stored in the user's hard drive. Personal profiles are placed on the user's hard drive without the user's knowledge or consent, but can be removed by the user at any time through the modification of the user's browser settings. In addition, currently available applications can be configured to prevent personal profiles from being stored on their hard drive. Some commentators, privacy advocates and governmental bodies have suggested limiting or eliminating the use of personal profiles. In the event this occurs, our business would likely suffer. WE ARE SUBJECT TO GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES OF DOING BUSINESS ON THE INTERNET. Laws and regulations that apply to Internet communications, commerce and advertising are becoming more prevalent. These regulations could affect the cost of communicating on the Internet and negatively affect the demand for our direct marketing solutions or otherwise harm our business. Recently, the United States Congress enacted Internet legislation regarding children's privacy, copyright and taxation. A number of other laws and regulations may be adopted covering issues such as user privacy, pricing, acceptable content, taxation and quality of products and services. This legislation could hinder growth in the use of the Internet generally and decrease the acceptance of the Internet as a communications, commercial and direct marketing medium. In addition, the growing use of the Internet has burdened the existing telecommunications infrastructure and has caused interruptions in telephone service. Telephone carriers have petitioned the government to regulate and impose fees on Internet service providers and online service providers in a manner similar to long distance carriers. The European Union recently adopted a directive addressing data privacy that may result in limits on the collection and use of user information. The laws governing the Internet remain largely unsettled, even in areas where there has been some legislative action. It may take years to determine whether and how existing laws including those governing intellectual property, privacy, libel and taxation apply to the Internet and Internet advertising. In addition, the growth and development of the market for Internet commerce may prompt calls for more stringent consumer protection laws, both in the United States and abroad, that may impose additional burdens on companies conducting business over the Internet. Our business could suffer with the adoption or modification of laws or regulations relating to the Internet, or the application of existing laws to the Internet. For additional discussion of potential governmental intervention, please see "Business -- Government Regulation." 12 13 WE MAY FACE CLAIMS FOR CERTAIN ACTIVITIES OF OUR CUSTOMERS. Our customers' promotion of their products and services may not comply with federal, state and local laws. A wide variety of laws and regulations govern the content of advertisements and regulate the sale of products and services. There is also uncertainty as to the application of these laws to the emerging world of advertising on the Internet. We cannot predict whether our role in facilitating these marketing activities would expose us to liability under these laws. We may face civil or criminal liability for unlawful advertising or other activities of our customers. If we are exposed to this kind of liability, we could be required to pay substantial fines or penalties, redesign our business methods, discontinue some of our services or otherwise expend resources to avoid liability. Any costs incurred as a result of that liability or asserted liability could harm our business. THE PRICE OF OUR COMMON STOCK IS EXPECTED TO BE VOLATILE. You may not be able to resell your shares at or above the initial public offering price due to a number of factors, including: - actual or anticipated quarterly variations in our operating results; - changes in expectations of future financial performance or changes in estimates of securities analysts; - announcements of technological innovations by us or our competitors; - departures of key personnel; - future sales of our common stock; - announcement of significant claims or legal proceedings; and - conditions affecting the Internet industry. The trading price of our common stock may be volatile. The market for technology and Internet-related companies has experienced extreme volatility that often has been unrelated to the operating performance of particular companies. These fluctuations may negatively affect the trading price of our common stock, regardless of our actual operating performance. OUR OFFICERS, DIRECTORS AND AFFILIATED ENTITIES WILL HAVE SIGNIFICANT CONTROL OF US. We anticipate that our executive officers, directors and entities affiliated with them will, in the aggregate, beneficially own approximately % of our outstanding common stock following the completion of this offering. These stockholders, if acting together, would be able to significantly influence all matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other business combination transactions. WE HAVE ANTI-TAKEOVER DEFENSES THAT COULD PREVENT US FROM BEING ACQUIRED. Provisions of our Certificate of Incorporation, our Bylaws, and Delaware law could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. For additional information on these anti-takeover provisions, please see "Description of Capital Stock." FUTURE SALES OF COMMON STOCK MAY DEPRESS OUR STOCK PRICE. If our stockholders sell substantial amounts of our common stock, including common stock issued upon the exercise of outstanding options, in the public market following this offering, the market price of our common stock could fall dramatically. Such sales also might make it more 13 14 difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate. The number of shares of common stock available for sale in the public market is limited by restrictions under federal securities law and by certain "lock-up" agreements that our stockholders have entered into with the underwriters. The lock-up agreements restrict our stockholders from selling or otherwise disposing of any of their shares for a period of 180 days after the date of this prospectus without the prior written consent of Deutsche Bank Securities Inc. Deutsche Bank Securities Inc. may, however, in its sole discretion and without notice, release all or any portion of the shares from the restrictions in the lock-up agreements. For additional information on future sales of our common stock, please see "Shares Eligible for Future Sale." SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS AND INDUSTRY DATA We have made forward looking statements in this prospectus that are subject to risks and uncertainties. Forward looking statements include information concerning our possible or assumed results of operations. In addition, when we use such words as "believes," "expects," "plans," "future," "intends," "anticipates" or similar expressions, we are making forward looking statements. You should note that an investment in our securities involves risks and uncertainties that could affect future financial results. You should not place undue reliance on these forward looking statements, which apply only as of the date of this prospectus. Our actual results could differ materially from those anticipated in these forward looking statements as a result of factors, including those set forth in "Risk Factors" and elsewhere in this prospectus. This prospectus contains statistical data regarding Internet usage and the advertising and marketing industry that we obtained from industry publications, including reports generated by the Direct Marketing Association, Forrester Research, the Gartner Group and Jupiter Communications. These industry publications generally indicate that they have obtained their information from sources believed to be reliable, but do not guarantee the accuracy and completeness of their information. While we believe that these publications are reliable, we have not independently verified their data. 14 15 USE OF PROCEEDS Our net proceeds from the sale of the shares of common stock we are offering in this prospectus at an assumed public offering price of $ per share, are estimated to be $ , or $ if the underwriters' over-allotment option is exercised in full and after deducting the underwriting discounts and commissions and estimated offering expenses. We expect to use the net proceeds from this offering for general corporate purposes, including working capital. Pending use of the net proceeds of this offering, we intend to invest the net proceeds in short-term, interest-bearing, investment-grade securities. DIVIDEND POLICY We have never declared or paid cash dividends to our stockholders. We currently intend to retain all available funds and any future earnings for use in the operation of our business and we do not anticipate declaring or paying cash dividends for the foreseeable future. CORPORATE INFORMATION Superhighway Consulting, Inc. was incorporated in Illinois in April 1995, and we were incorporated in Delaware in October 1998. We merged with Superhighway in March 1999. Our principal executive offices are located at 565 Lakeview Parkway, Suite 135, Vernon Hills, Illinois 60061. Our telephone number at that location is (847) 918-9292. We also maintain a Web site which is located at www.yesmail.com. Information contained in our Web site does not constitute a part of this prospectus. WebPromote is our registered trademark. This prospectus also contains other trademarks of ours including, yesmail, eCampaign, eConnect, eManage, ePredict, eTarget, eTrack, yesmail.com and YesMail Network. All other trademarks or trade names used in this prospectus are the property of their respective owners. 15 16 CAPITALIZATION The actual column in the following table sets forth our actual capitalization as of March 31, 1999. The pro forma column in the following table reflects: - the effectiveness of a -for-one reverse split of the outstanding shares of common stock prior to the closing of this offering; - the conversion of each outstanding share of preferred stock into common stock, which will occur upon the closing of this offering; - the issuance of 6,385,455 shares of common stock in May 1999; and - the issuance of 13,745,460 shares of series A preferred stock in May 1999. The pro forma as adjusted column in the following table gives effect to the receipt of the net proceeds from the sale of the shares of common stock that we are offering in this prospectus at an assumed initial public offering price of $ per share and after deducting estimated underwriting discounts and estimated offering expenses. Please see "Use of Proceeds." The following table does not include shares of common stock reserved for issuance under our stock option and stock purchase plans, of which 2,160,000 shares were subject to outstanding options as of May 31, 1999. See "Management -- Compensation Plans" and Note 11 of Notes to Consolidated Financial Statements.
MARCH 31, 1999 ---------------------------------------- PRO FORMA ACTUAL PRO FORMA AS ADJUSTED ------- -------------- ----------- (IN THOUSANDS) Capital lease obligations, less current portion...... $ 324 $ 324 $ ------- ------- Stockholders' equity (deficit): Preferred Stock, $0.0001 par value, 15,000,000 shares authorized, no shares issued and outstanding actual and pro forma; shares authorized, no shares issued and outstanding pro forma as adjusted............... -- -- Common stock, $0.0001 par value, 60,000,000 shares authorized, 25,000,000 shares issued and outstanding actual; 60,000,000 shares authorized, 45,130,915 shares issued and outstanding pro forma; shares authorized, shares issued and outstanding pro forma as adjusted............... 3 5 Notes receivable from stockholders................... -- (3,831) Additional paid-in capital........................... 158 12,987 ------- ------- Accumulated deficit.................................. (3,365) (3,365) Total stockholders' equity (deficit)................. (3,204) 5,796 ------- ------- ------ Total capitalization................................. $(2,880) $ 6,120 $ ======= ======= ======
16 17 DILUTION Our pro forma net tangible book value as of March 31, 1999 was $5.8 million or approximately $0.13 per share of common stock. "Net tangible book value" per share represents the amount of our total tangible assets reduced by the amount of our total liabilities and divided by the total number of shares of common stock outstanding. After giving effect to the sale of the shares of common stock that we are offering in this prospectus at an assumed initial public offering price of $ per share and after deducting the underwriting discounts and commissions and estimated offering expenses payable, our pro forma net tangible book value as of March 31, 1999 would have been $ or approximately $ per share of common stock. This represents an immediate increase in net tangible book value of $ per share to existing stockholders and an immediate dilution in net tangible book value of $ per share to new investors in this offering. The following table illustrates this dilution on a per share basis: Assumed public offering price per share..................... $ Pro forma net tangible book value per share as of March 31, 1999............................................... $ Increase per share attributable to new investors.......... ------ Net tangible book value per share after the offering........ ------ Dilution in net tangible book value per share to new investors................................................. $ ======
The following table summarizes on a pro forma basis, as of May 31, 1999, the differences between the existing stockholders and new investors with respect to number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid.
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE ----------------------- ------------------------ PRICE NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE ---------- ---------- ----------- ---------- --------- Existing stockholders........ 45,130,915 % $12,832,573 % $0.28 New investors................ $ ---------- --- ----------- --- ----- Total................... 100% $ 100% ========== === =========== ===
The foregoing discussion and tables are based upon the number of shares actually outstanding as of May 31, 1999 and exclude shares of common stock reserved for issuance under our stock option and stock purchase plans, of which 2,160,000 shares of common stock were subject to outstanding options as of May 31, 1999. Please see "Capitalization," "Management -- Compensation Plans" and "Description of Capital Stock." 17 18 SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated statement of operations data for the period from April 7, 1995 through December 31, 1995 and the selected consolidated balance sheet data as of December 31, 1995 have been derived from our unaudited financial statements. The selected consolidated statement of operations data set forth below for the periods from January 1, 1996 to December 31, 1998 and the selected consolidated balance sheet data as of December 31, 1998 have been derived from our audited financial statements included elsewhere in this prospectus. The selected consolidated results of operations data for the three months ended March 31, 1998 and 1999 and the selected consolidated balance sheet data as of March 31, 1998 and 1999 are derived from unaudited consolidated financial statements included elsewhere in this prospectus that have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, contain all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of our consolidated operating results for such periods and its financial condition as of such date. The historical results are not necessarily indicative of results to be expected for any future period. The data has been derived from financial statements that have been prepared in accordance with generally accepted accounting principles and should be read in conjunction with the Consolidated Financial Statements and the Notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus.
PERIOD FROM INCEPTION THREE MONTHS (APRIL 7, ENDED 1995) THROUGH YEAR ENDED DECEMBER 31, MARCH 31, DECEMBER 31, --------------------------- ----------------- 1995 1996 1997 1998 1998 1999 ------------- ------- ------- ------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Revenues...................................... $ 13 $ 935 $ 2,468 $ 4,583 $ 873 $ 1,389 Cost of revenues.............................. -- 293 1,090 2,703 376 657 ------- ------- ------- ------- ------- ------- Gross profit.................................. 13 642 1,378 1,880 497 732 Operating expenses: Sales and marketing......................... -- 292 960 1,751 386 902 General and administrative.................. 26 237 466 929 143 669 Research and development.................... -- 198 357 601 150 234 ------- ------- ------- ------- ------- ------- Total operating expenses................ 26 727 1,783 3,281 679 1,805 ------- ------- ------- ------- ------- ------- Loss from operations.......................... (13) (85) (405) (1,401) (182) (1,073) Interest expense.............................. -- (4) (18) (45) (8) (55) Other expense................................. -- -- -- (250) -- -- Minority interest............................. -- 9 9 (10) (2) (23) ------- ------- ------- ------- ------- ------- Net loss...................................... $ (13) $ (80) $ (414) $(1,706) $ (192) $(1,151) ======= ======= ======= ======= ======= ======= Basic and diluted net loss per share(1)....... $ 0.00 $ (0.01) $ (0.02) $ (0.08) $ (0.01) $ (0.06) ======= ======= ======= ======= ======= ======= Shares used in computing basic and diluted net loss per share(1)........................... 12,346 15,363 20,399 20,363 20,895 20,333 ======= ======= ======= ======= ======= ======= Pro forma basic and diluted net loss per share (unaudited)(1)(2)........................... $ (0.04) $ 0.00 $ (0.03) ======= ======= ======= Shares used in computing pro forma basic and diluted net loss per share (unaudited)(1)(2)........................... 40,493 41,025 40,463 ======= ======= =======
DECEMBER 31, MARCH 31, ------------------------------------- ----------------- 1995 1996 1997 1998 1998 1999 ------- ------- ------- ------- ------- ------- (IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equivalents.......................... $ 10 $ 9 $ 2 $ 26 $ 89 $ 84 Working capital (deficit).......................... 4 (52) (448) (2,263) (635) (3,489) Total assets....................................... 27 200 284 643 351 980 Capital lease obligations, less current portion.... -- 12 18 153 16 324 Stockholders' deficit.............................. (13) (38) (347) (2,053) (539) (3,204)
- --------------- (1) Computed by dividing loss attributable to common stockholders by shares used in basic and diluted net loss per share. See Note 3 of Notes to Consolidated Financial Statements for an explanation of the determination of the number of shares used in computing basic and diluted net loss per share. (2) Pro forma basic and diluted net loss per share gives effect to the assumed conversion of all outstanding shares of preferred stock into common stock and the issuance of common stock subject to repurchase as if the conversion and issuance had occurred on January 1, 1998 or, if later, the date of original issuance. 18 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Except for historical information, the discussion in this prospectus contains forward-looking statements that involve risks and uncertainties. These forward-looking statements include, among others, those statements including the words, "expects," "anticipates," "intends," "believes" and similar language. Our actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to the risks discussed in the section titled "Risk Factors" in this prospectus. OVERVIEW We provide permission email direct marketing services. We were founded in 1995 as Superhighway Consulting and were originally focused on providing a wide array of Internet marketing services. From 1995 through 1997, the majority of our revenue was derived from directory submission Internet services and business advertising on the Internet. After identifying the opportunity for permission email direct marketing, we began to refocus our strategy towards permission email in 1998. To implement our permission email strategy, we engaged a new executive management team in late 1998 and early 1999. As a result of our new focus, we have built a network of over 5 million self-selected individuals, who have given express permission to receive promotional messages via email on specific categories of interest. Our current strategy is to focus our resources on our permission email business by continuing to build our network of subscribers and our customer base. Our change in business focus has resulted in permission email growing from approximately 5% of revenue in the first quarter of 1998 to approximately 40% of revenue in the first quarter of 1999. We expect permission email to represent an increasing portion of our revenue in future periods. Due to the change in our business focus, we do not believe that our results of operations for periods prior to the first quarter of 1999 are comparable to future periods. We derive revenue by providing Internet marketing services including charging fees for sending permission email, placing advertising on Web sites and providing services to Web site owners. Revenue is recognized when emails are sent to subscribers, when advertisements are placed on Web sites and when services are performed. Our customers are primarily companies developing Internet marketing strategies and their interactive advertising agencies. We expect to derive an increasing proportion of our revenue from permission email. We deliver email messages to members of our YesMail Network, which consists of our own permission email list and those of our network affiliates. Our network affiliates receive either a fixed fee for or a percentage of revenue derived from the delivery of email messages to consumers on the lists they provide. Substantially all of our direct marketing customers purchase our permission email services under short-term contracts. Customers can therefore terminate these contracts on short notice without penalty. Our revenues would suffer if we are unable to secure new contracts from existing customers or obtain new customers. We expect to continue to derive a substantial majority of our revenues from short-term contracts. Gross margins from permission email are lower than gross margins from the other Internet marketing services we provide due to the higher costs associated with acquiring and managing permission email lists. As a result of our change in focus to permission email, our gross margin declined significantly in the first quarter of 1999 compared to 1998. For the next several quarters, we expect our gross margins to continue to decline as permission email becomes a higher percentage of total revenue. We do not believe that our gross margins for 1999 are comparable to our gross margins for prior periods because revenue from permission email did not represent a significant portion of our revenue in prior periods. 19 20 We have incurred significant losses since inception and as of March 31, 1999, we had an accumulated deficit of $3.4 million. We expect to increase spending on sales and marketing as we expand our sales force, increase our subscriber base and promote awareness of our brand. We also expect substantially higher general and administrative and research and development expenses as we expand our infrastructure to support our expected growth and as we continue to develop new products and enhancements to our existing products. As a result of these increases, we expect to incur significant losses for the foreseeable future. In view of the rapidly evolving nature of our business, our limited operating history and our recent focus on permission email, we believe that period-to-period comparisons of our revenue and operating results, including our gross margin and operating expenses as a percentage of total revenues, are not meaningful and should not be relied upon as an indication of future performance. We do not believe that our historical growth rates are indicative of future results. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1998 AND 1999 Revenues. Our revenues consist of fees from providing Internet marketing services, including the delivery of permission email direct marketing messages to individual members in our network, as well as banner advertising and other Internet marketing services. Total revenues were $873,000 and $1.4 million for the three months ended March 31, 1998 and 1999, respectively. The increase in revenues was primarily due to the increased number of permission email messages we sent in addition to an increase in the number of advertising clients to whom we provided permission email services. Cost of Revenues. Cost of revenues consists of expenses related to providing Internet marketing services and includes payments made to our network affiliates, fees paid to Web site owners or their representatives and personnel costs associated with our Internet marketing services. Cost of revenues were $376,000 and $657,000 for the three months ended March 31, 1998 and 1999, respectively. The increase in cost of revenues was primarily due to the increase in sales volume. Gross margins decreased from 57% for the three months ended March 31, 1998 to 53% for the three months ended March 31, 1999. This decrease was primarily the result of increased revenues associated with our permission email strategy because payments we make to network affiliates are greater as a percentage of revenues than other costs of revenues. We expect our cost of revenues to increase in both absolute dollars and as a percentage of revenue as we continue to focus on permission email. Sales and Marketing. Sales and marketing expenses consist of personnel and related costs for our direct sales force and marketing staff and marketing programs, including trade shows, advertising and public relations. Sales and marketing expenses were $386,000 and $902,000 for the three months ended March 31, 1998 and 1999, respectively. The increase was primarily due to increases in the number of direct sales personnel and increased marketing expenditures targeted at building our permission email list. We expect sales and marketing expenses will increase substantially in absolute dollars over the next year as we hire additional sales and marketing personnel and initiate additional marketing programs. Research and Development. Research and development expenses consist primarily of personnel and related costs for our development and technical support efforts. To date, all research and development costs have been expensed as incurred. Research and development expenses were $150,000 and $234,000 for the three months ended March 31, 1998 and 1999, respectively. The increase was primarily due to increased research and development personnel and consulting costs associated with the development of our Web site and the building of our permission email strategy. We believe significant investment in research and development is 20 21 essential to our future success and expect that research and development expenses will increase in absolute dollars in future periods. General and Administrative. General and administrative expenses consist primarily of personnel and related costs for general corporate functions, including finance, accounting, human resources, facilities and legal. General and administrative expenses were $143,000 and $669,000 for the three months ended March 31, 1998 and 1999, respectively. The increase was due primarily to an increase in the number of general and administrative personnel and increased legal and accounting costs associated with our growth. We expect general and administrative expenses to increase in absolute dollars in future periods as we hire additional personnel and incur additional costs related to the growth of our business and our operations as a public company. Interest Expense. Interest expense consists of interest paid on capital lease and debt obligations. Interest expense was $8,000 and $55,000 for the three months ended March 31, 1998 and 1999, respectively. The increase was the result of increased borrowings, primarily from a $1.0 million bridge loan issued in January 1999. Minority Interest. Minority interest consists of the third party ownership interest in our 70% owned subsidiary, Starting Point, LLC. Income Taxes. No provision for federal and state income taxes was recorded as we incurred net operating losses from inception through March 31, 1999. As of March 31, 1999, we had approximately $1.4 million of federal and state net operating loss carryforwards which expire in varying amounts beginning in 2010. As a result of various equity transactions during 1999, we believe that we may have undergone an "ownership change" as defined in section 382 of the Internal Revenue Code. Accordingly, the utilization of a portion of the net operating loss carryforwards may be limited. Due to the uncertainty regarding the ultimate utilization of the net operating loss carryforwards, we have not recorded any benefit for losses and a valuation allowance has been recorded for the entire amount of the net deferred tax asset. In addition, sales of our stock, including shares sold in this offering, may further restrict our ability to utilize our net operating loss carryforwards. YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 Revenues. Total revenues were $935,000, $2.5 million and $4.6 million for the years ended December 31, 1996, 1997 and 1998, respectively. The increase in revenues in 1998 compared to 1997 was primarily due to increases in the number of advertising clients and the increased number of permission email messages we sent. The increase in revenues in 1997 compared to 1996 was primarily attributable to increases in the number of advertising clients partially offset by decreases in the number of Web development projects. Cost of Revenues. Cost of revenues were $293,000, $1.1 million, and $2.7 million for the years ended December 31, 1996, 1997 and 1998, respectively. The increase in 1998 compared to 1997 primarily resulted from increased sales volumes, including payments to our network affiliates. The increase in cost of revenues in 1997 compared to 1996 was primarily due to the increase in personnel costs. Sales and Marketing. Sales and marketing expenses were $292,000, $960,000 and $1.8 million in 1996, 1997 and 1998, respectively. These increases were primarily due to increases in the number of direct sales personnel and increased marketing expenditures targeted at building our permission email strategy. Research and Development. Research and development expenses were $199,000, $357,000 and $601,000 in 1996, 1997 and 1998, respectively. The increase in research and development expenses from 1997 to 1998 was primarily due to increased personnel and consulting costs associated with the development of our Web site and the building of our permission email 21 22 strategy. The increase in research and development expenses from 1996 to 1997 was primarily due to increased personnel and consulting costs associated with our banner advertising services. General and Administrative. General and administrative expenses were $237,000, $466,000 and $929,000 in 1996, 1997 and 1998, respectively. These increases were due primarily to an increase in the number of general and administrative personnel and increased legal and accounting costs. Interest Expense. Interest expense was approximately $4,000, $18,000 and $45,000 in 1996, 1997 and 1998, respectively. These increases were the result of increased borrowings to fund our working capital needs. Other Expense. Other expense of $250,000 for the year ended December 31, 1998 consists of the accrual of the costs related to a claim by a former employee. In May 1999, this claim was settled for approximately $250,000. Income Taxes. No provision for federal and state income taxes was recorded as we incurred net operating losses from inception through December 31, 1998. As of December 31, 1998, we had approximately $1.4 million of federal and state net operating loss carryforwards which expire in varying amounts beginning in 2010. As a result of various equity transactions during 1999, we believe that we may have undergone an "ownership change" as defined in section 382 of the Internal Revenue Code. Accordingly, the utilization of a portion of the net operating loss carryforwards may be limited. Due to the uncertainty regarding the ultimate utilization of the net operating loss carryforwards, we have not recorded any benefit for losses and a valuation allowance has been recorded for the entire amount of the net deferred tax asset. In addition, sales of our stock, including shares sold in this offering, may further restrict our ability to utilize our net operating loss carryforwards. 22 23 QUARTERLY OPERATING RESULTS The following table presents our historical unaudited quarterly results of operations for our most recent five quarters. This data is unaudited and derived from our audited annual Consolidated Financial Statements and Notes thereto appearing elsewhere in this prospectus. In the opinion of management, such quarterly financial information has been prepared on the same basis as our annual financial statements and includes all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial results set forth therein. Such statement of operations data should be read in conjunction with the Consolidated Financial Statements and related Notes thereto in this prospectus. Our results of operations have fluctuated and are likely to continue to fluctuate significantly from quarter to quarter. Results of operations for any previous periods are not necessarily comparable to future periods.
THREE MONTHS ENDED ---------------------------------------------------- MAR. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31, 1998 1998 1998 1998 1999 -------- -------- -------- -------- -------- (IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Revenues............................................. $ 873 $ 1,173 $ 1,126 $ 1,411 $ 1,389 Cost of revenues..................................... 376 766 782 779 657 ------- ------- ------- ------- ------- Gross profit......................................... 497 407 344 632 732 Operating expenses Sales and marketing................................ 387 291 342 732 902 General and administrative......................... 143 240 195 351 669 Research and development........................... 150 126 122 202 234 ------- ------- ------- ------- ------- Total operating expenses............................. 680 657 659 1,285 1,805 ------- ------- ------- ------- ------- Loss from operations................................. (183) (250) (315) (653) (1,073) Interest expense..................................... (8) (10) (8) (19) (55) Other expense........................................ -- -- -- (250) -- ------- ------- ------- ------- ------- Net loss before taxes................................ (191) (260) (323) (922) (1,128) Minority interest.................................... (2) (7) (11) 10 (23) ------- ------- ------- ------- ------- Net loss............................................. $ (193) $ (268) $ (334) $ (912) $(1,151) ======= ======= ======= ======= =======
THREE MONTHS ENDED ---------------------------------------------------- MAR. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31, 1998 1998 1998 1998 1999 -------- -------- -------- -------- -------- AS A PERCENTAGE OF NET SALES: Revenues............................................. 100% 100% 100% 100% 100% Cost of revenues..................................... 43 65 70 55 47 ------- ------- ------- ------- ------- Gross profit......................................... 57 35 30 45 53 Operating expenses Sales and marketing................................ 44 25 30 52 65 General and administrative......................... 17 20 17 25 48 Research and development........................... 17 11 11 14 17 ------- ------- ------- ------- ------- Total operating expenses............................. 78 56 58 91 130 ------- ------- ------- ------- ------- Loss from operations................................. (21) (21) (28) (46) (77) Interest expense..................................... (1) (1) (1) (1) (4) Other expense........................................ -- -- -- (18) -- ------- ------- ------- ------- ------- Net loss before taxes................................ (22) (22) (29) (65) (81) Minority interest.................................... -- (1) (1) 1 (2) ------- ------- ------- ------- ------- Net loss............................................. (22)% (23)% (30)% (64)% (83)% ======= ======= ======= ======= =======
23 24 Our operating results are expected to fluctuate significantly in the future as a result of a variety of factors, many of which are outside of our control. These factors may include: - seasonality of direct marketing expenditures which are typically higher in the second and fourth quarters and lower in the first and third quarters; - the level of market acceptance of our products and services; - delays we may encounter in introducing new products and services; - competitive developments; - demand for advertising on the Internet; - changes in pricing policies and resulting margins; - changes in the growth rate of Internet usage; - the growth rate of our network affiliates; - changes in the mix of products and services sold; - changes in the mix of sales channels through which products and services are sold; - costs related to acquisitions of technology or businesses; and - economic conditions generally as well as those specific to the Internet and related industries. As a strategic response to a changing competitive environment, we may from time to time make certain pricing, service, marketing or acquisition decisions that could harm our business. In addition, we expect that our revenue will be subject to seasonal fluctuations because direct marketers typically run fewer campaigns during the first and third calendar quarters of each year. In addition, expenditures by marketers tend to be cyclical, reflecting overall economic conditions as well as budgeting and buying patterns. LIQUIDITY AND CAPITAL RESOURCES From inception to January 1999, we have primarily funded our growth through short-term borrowings and capital leases. In January 1999, we completed a $1.0 million bridge financing, which was convertible into series A preferred stock at the lender's option. In March 1999, we received $600,000 in advances from three of our stockholders. In May 1999, we completed a financing and issued approximately 13.7 million shares of series A preferred stock, including shares issuable upon conversion of the bridge loan and shares issued in exchange for the cancellation of the $600,000 in advances from our stockholders, for gross proceeds of $9.0 million. As of May 31, 1999, we had $6.2 million in cash and cash equivalents and had borrowed $320,000 under credit lines. Net cash used in operating activities was $21,000 and $65,000 for the years ended December 31, 1996 and 1997, respectively, primarily the result of net losses of $80,000 and $414,000, which were partially offset by increases in accounts payable and accrued expenses. Net cash provided by operating activities was $935 for the year ended December 31, 1998, the result of a net loss of $1.7 million, which was offset by increases in accounts payable and accrued expenses. Net cash used in operating activities was $1.4 million for the three months ended March 31, 1999 primarily the result of the net loss of $1.2 million. Net cash used in investing activities was $45,000, $70,000 and $102,000 for the years ended December 31, 1996, 1997 and 1998 respectively and $49,000 for the three months ended March 31, 1999. Cash used in investing activities was primarily related to purchases of property and equipment. Net cash provided by financing activities was, $65,000, $127,000 and $126,000 for the years ended December 31, 1996, 1997 and 1998, respectively, and $1.5 million for the three months 24 25 ended March 31, 1999. Cash provided by financing activities in 1997 and 1998 resulted from borrowings of short-term debt, and was partially offset by payments of capital leases. Cash provided from financing activities for the three months ended March 31, 1999 resulted from borrowings under the $1.0 million bridge loan and advances of $600,000 from related parties. We do not have any material commitments for capital expenditures. We currently plan to incur approximately $2.0 million in capital expenditures during 1999. We believe that the net proceeds from this offering, together with our cash resources and available credit facilities, will be sufficient to meet our anticipated cash needs for working capital, repayment of debt and capital expenditures for at least the next twelve months. After that time, we may need additional capital. However, we may need to raise additional funds sooner to fund our planned expansion, to develop new or enhanced products or services, to respond to competitive pressures or to make acquisitions. We cannot be certain that additional financing will be available to us on favorable terms. If adequate funds are not available on acceptable terms, we may not be able to continue or expand our business. YEAR 2000 READINESS DISCLOSURE Many currently installed computer systems and software products are coded to accept or recognize only two digit entries in the date code field. These systems and software products will need to accept four digit entries to distinguish 21st century dates from 20th century dates. This could result in system failures or miscalculations causing disruption of operations for any company using such computer programs or hardware, including, among other things, a temporary inability to process transactions, send or receive email messages, send invoices or engage in normal business activities. As a result, many companies' computer systems may need to be upgraded or replaced in order to avoid "Year 2000" issues. We are a comparatively new enterprise, and, accordingly, the majority of software and hardware we use to manage our business has all been purchased or developed by us within the last 24 months. While this does not uniformly protect us against Year 2000 exposure, we believe our exposure is limited because the information technology, or IT, we use to mange our business is not based upon legacy hardware and software systems. Generally, hardware and software design within the current decade and the past several years in particular has given greater consideration to Year 2000 issues. All of the software code we have internally developed to manage our network and infrastructure, is written with four digits to define the applicable year. We are in the process of testing our internal IT and non-IT systems. The testing we have completed has primarily been performed internally and, to date, we have not retained any outside service or consultants to test or review our systems for Year 2000 compliance. Based on the testing we have performed, we believe that our software is Year 2000 compliant. We are testing our systems for Year 2000 compliance and will continue to test these systems as development of these systems progress. In addition, we rely on software and hardware developed by third parties both for our network and internal information systems and third party network infrastructure providers to gain access to the Internet. To date, we have not done any testing of third-party software or hardware to determine Year 2000 compliance. We have, however, reviewed certifications from our key suppliers of hardware and networking equipment for our data centers that this hardware and networking equipment are Year 2000 compliant. Additionally, we have reviewed certifications from the providers of key software applications for our internal operations that their software is Year 2000 compliant. Based upon an initial evaluation of our broader list of software and hardware providers, we believe that all of these providers are in the process of reviewing and implementing their own Year 2000 compliance programs. We intend to work with these providers to address the Year 2000 issue and continue to seek assurances from them that their products are Year 2000 compliant. 25 26 We have not incurred any significant expenses to date, and we do not anticipate that any future costs associated with our Year 2000 remediation efforts will be material. However, if we, third party providers of hardware and software or our third party network providers fail to remedy any Year 2000 issues, the result could be lost revenues, increased operating costs, the loss of customers and other business interruptions, any of which could harm our business. Moreover, the failure to adequately address Year 2000 compliance issues in our products and systems could result in claims of mismanagement, misrepresentation or breach of contract and related litigation, which could be costly and time consuming to defend. We have engaged in an ongoing Year 2000 assessment, but have not yet developed any contingency plans. The results of our testing and the responses received from third party vendors and service providers will be taken into account in determining the nature and extent of any contingency plans. RECENT ACCOUNTING PRONOUNCEMENTS See Note 3 of Notes to Consolidated Financial Statements for recently adopted and recently issued accounting standards. 26 27 BUSINESS OVERVIEW We are a leading provider of comprehensive permission email direct marketing solutions. We deliver direct email marketing messages to targeted individuals who have given their permission to receive promotional messages from direct marketers. Through our network, we can direct promotional campaigns to a targeted audience of over five million self-selected individuals. In the quarter ended March 31, 1999, we delivered over 1.3 million permission email messages for over 90 clients. INDUSTRY BACKGROUND EMERGENCE OF THE INTERNET AND E-COMMERCE The Internet has emerged as an important tool for commerce and communications. Jupiter Communications estimates that at the end of 1998 there were over 77 million online users in the United States and that by the end of 2002 this number will increase to over 131 million. Email is one of the most popular Internet applications and has broadened from a simple personal messaging device to a powerful and cost-effective business tool. According to Jupiter Communications, approximately 90 billion email messages were sent in the United States in 1998. The growing use of the Internet has led businesses to develop e-commerce strategies to drive traffic to their Web sites, attract customers and facilitate transactions. The Internet provides businesses with the ability to reach a global audience, realize economies of scale, reduce overhead and operate with minimal infrastructure, while providing consumers with increased buying power, broad selections of goods and services and convenience. Forrester Research estimates that purchases of goods and services in the United States over the Internet will increase from $51 billion in 1998 to $919 billion in 2002. BRAND ADVERTISING VERSUS DIRECT MARKETING Within the advertising industry, there are two widely-recognized types of advertising, brand advertising and direct marketing. Brand advertising is intended to generate brand awareness and create a specific image for a particular brand. Direct marketing is intended to generate a specific consumer response or action, generally the trial of a product or service. The direct marketer attempts to maximize the number of desired responses per marketing dollar invested, thereby achieving a high return on investment. According to the Direct Marketing Association, or the DMA, of the estimated $285 billion spent on total advertising in the United States in 1998, 57% was invested in direct marketing compared to 43% spent on brand advertising. BRAND ADVERTISING ON THE INTERNET The Internet is evolving into an important medium for advertisers due to its interactive nature, global reach, rapidly growing audience and the significant increases in e-commerce. Current methods of Internet advertising, principally banner advertising, provide advertisers with the ability to reach broad audiences and help advertisers establish brand awareness. Jupiter Communications estimates that spending on Internet advertising will grow from $1.9 billion in 1998 to $7.7 billion in 2002. However, response rates, or click-throughs, to banner advertisements averaged approximately 0.7% as reported by Forrester Research in March 1999, indicating that this form of Internet marketing is generally ineffective for purposes of direct marketing, which requires a high rate of consumer response and trial. 27 28 DIRECT MARKETING ON THE INTERNET Direct marketing has traditionally been conducted through a variety of media, including direct mail. The Internet is particularly well suited as a direct marketing medium because of its ability to target consumers, receive immediate response, direct consumers to a precise point of sale and provide measurable response information and return on investment per marketing dollar. The Internet has the potential to enable direct marketers to increase consumer response rates and decrease costs-per-transaction by targeting and delivering direct marketing campaigns to particular consumers based on their profile, self-selected interests and online behavioral characteristics. Jupiter Communications reports that response rates for direct email campaigns targeted to permission-based audiences are three to ten times greater than the response rates of traditional direct mail methods and at least five times greater than the response rates to banner advertising. The following chart illustrates the average response rates for banner advertisements, traditional direct mail and permission email: [Bar graph depicting average response rates of banner advertisements, traditional direct mail and permission email.] Sending promotional messages electronically is 75% to 90% less expensive than traditional direct mail through the U.S. Post Office, according to the Gartner Group. By providing a more cost-effective method to reach target customers, email direct marketing can improve the direct marketer's return on investment. Because direct marketers can achieve higher response rates and lower costs through direct email marketing, a significant portion of the amount spent on direct response marketing is expected to shift to the Internet. In 1998, the DMA estimates that over $160 billion was spent on direct response marketing in the United States and that by 2003, $5.3 billion will be spent on Internet direct marketing in the United States. To date, Internet direct marketing practices have primarily focused on mass mailing of promotional email messages. Although this method has been a low cost direct marketing vehicle, the unsolicited and untargeted nature of the mailings, commonly known as "spam," has resulted in negative consumer reaction, the recent introduction of regulatory legislation and very low response rates. OPPORTUNITIES FOR PERMISSION EMAIL DIRECT MARKETING The limitations of traditional direct mail and the negative issues associated with mass unsolicited emailing or "spam" has created a need for a cost-effective solution that enables Internet marketers to use the Internet as an efficient and effective means of direct marketing. This need is beginning to be satisfied by an email direct marketing method that involves transmitting email messages that are targeted to consumers who have expressed a prior interest in receiving email messages on specific topics. This approach is being referred to as permission email direct marketing. Permission email direct marketing: - provides direct marketers with a targeted means of reaching a highly responsive audience at a lower cost and higher response rate than traditional direct mail or banner advertising; - permits reliable and real-time tracking of the effectiveness of campaigns and return on investment feedback for direct marketers; and - enables the consumer to control the marketing messages they receive by sending promotional email messages only after receiving the consumer's permission. THE YESMAIL SOLUTION We provide a comprehensive solution for permission email direct marketing through our YesMail Network. Through our network of direct marketers, network affiliates and consumers we 28 29 can direct a campaign to a targeted audience currently consisting of over 5 million self-selected individuals. We link each of the three constituencies within our network with proprietary technology to target, track and manage direct marketing campaigns over the Internet. Benefits to Direct Marketers. We provide direct marketers with access to a broad reach of Internet users who have given their permission to receive promotional information in specific categories of interest. We enable direct marketers to optimize the performance of their direct marketing campaigns by reaching targeted audiences based on specific profiles and response behaviors. In addition, we provide direct marketers with comprehensive real-time tracking and reporting services to monitor the effectiveness of their campaign. Our proprietary products and services enable direct marketers to deliver the right information to the right people at the right time, resulting in a direct marketing campaign with a high return on investment for the direct marketer. Benefits to Network Affiliates. Our network affiliates are primarily Web sites that have developed permission-based email lists. We enable our network affiliates to generate additional revenues from their Web site visitors and customers by providing access to direct marketers, without the costs and challenges associated with building and maintaining their own direct marketing sales forces and email direct marketing technologies. Our network affiliates benefit from our proprietary technology that tracks the responses of their list members, thereby enhancing the value of their lists to direct marketers. Network affiliates also benefit from the scale and reach of our network and the organization of all network members into categories of interest and response rate histories. Benefits to Consumers. Membership in My.YesMail enables consumers to control the flow of subscription information they receive via email. Our consumers benefit by receiving messages from merchandisers that are targeted to their specific interests. These messages inform our consumers about matters such as new product offerings and special pricing promotions. We also provide consumers with the tools necessary to organize their email subscriptions and permission lists, filter undesired promotional materials and control message frequency. We believe that our ability to create a trusted brand name for permission email messages will enable consumers to have greater confidence in the messages they receive. YESMAIL STRATEGY Our objective is to be the leading provider of permission email direct marketing. The key elements of our strategy are as follows: Provide Effective Email Direct Marketing Programs. By combining proprietary technology with our YesMail Network, we strive to enable direct marketers to maximize the return on their investment. We intend to continue to improve our ability to provide effective direct email campaigns to highly targeted and responsive audiences. We provide a comprehensive permission email direct marketing solution that enables marketers to cost-effectively target an audience that has expressed a prior interest in receiving promotional email messages on specific topics. Maximize Targeted Reach Through a Permission-Based Network. We plan to continue to expand our network of consumers who are permission-based, direct email recipients because we believe that major marketers value broad reach through a single provider. We intend to expand our YesMail Network through a variety of relationships with our network affiliates for whom we provide services, including permission list building, management and reselling, and through an increase in the number of individuals in our own proprietary list. We also intend to improve the depth and breadth of the information we manage with respect to these individuals, principally in the area of compiling response histories. Expand Sales, Marketing and Client Services. We believe that effective selling, marketing and client service are essential to expanding our business. We plan to significantly increase the 29 30 size of our direct sales force, broaden our network affiliate development efforts and expand our advertising to direct marketer clients and their advertising agencies. We intend to continue to build on our expertise to provide permission email direct marketing services to our clients by leveraging our experienced direct marketing staff. We also plan to continue to enhance our Web site as a tool for marketing, customer service and campaign reporting. Leverage Proprietary Technology. We intend to continue to develop, acquire or license proprietary products and technology in such areas as message targeting, response tracking, advanced messaging techniques, predictive buying behavior and permission network development. We also plan to continue using technology to deliver innovative products and services to our network affiliate partners and to individual consumers. Build a Leading Brand. We believe that consumers will increasingly seek to obtain more control over the marketing messages they receive. We plan on leveraging our leadership position by closely associating the YesMail brand with consumer authorized messaging. We intend to implement our strategy through a program that includes maintaining strict standards for permission and privacy, supporting relevant industry initiatives and offering consumer oriented products for filtering and controlling their messages. We believe that by providing individual consumers with products and services that help them control and manage the messages they receive, we will build a positive relationship with the consumer and a leading brand. PRODUCTS AND SERVICES THE YESMAIL NETWORK The YesMail Network is a comprehensive permission email marketing program, comprised of three constituencies: direct marketers, network affiliates and individual consumers. We provide proprietary products, technology, direct marketing expertise and a direct sales force to meet the needs of these constituencies to effectively deliver permission email marketing campaigns to a targeted audience. In the quarter ended March 31, 1999, we sent over 1.3 million permission email messages for over 90 direct marketers. The following diagram illustrates the components of our YesMail Network: [Graphic depicting direct marketers, network affiliates and consumers with a description of the direction of flow of messages and responses, with a list of our enabling products and technology.] Direct Marketers. Our customers include direct marketers whose objective is to generate product sales from marketing campaigns that result in a high return on investment. Since January 1, 1999, our largest customers have included the following: - - Allaire Corporation - MinderSoft - - AT&T Interactive Communication - MotherNature.com - - BeFree - NewHomeNetwork - - eShare - Office Max.com - - eToys - Refer-It.com - - Fatbrain.com - Shopguide.com - - Fingerhut - SomaMarketNet - - GoTo.com - Swiss Colony - - Hewlett Packard - The Thomas Publishing Co. - - Infointeractive - Value America - - McDonald's - Verio
We initiate relationships with direct marketers principally through our direct sales force and often work in conjunction with the direct marketers' advertising or promotional agencies. We assign a marketing account executive to assist our clients in executing permission email 30 31 campaigns and use our proprietary products to provide targeting, tracking and reporting services. Our pricing is currently based on a cost per thousand emails for each direct marketing message delivered. In the future, our pricing practices may include performance-based measures such as cost per response or revenue sharing. Our permission email campaigns are developed and executed quickly, often within one week. Permission email direct marketing response time is very rapid compared to traditional direct marketing. Our clients frequently receive 75% of their responses within 48 to 72 hours of delivery. We provide our clients with relevant information required to measure the results of their campaigns, including consumer response, consumer activity on their Web sites, conversion to purchase and campaign return on investment. Our current proprietary products as well as products under development for direct marketers include: - eTrack is a proprietary email response tracking, reporting and analysis program which direct marketers can readily and transparently incorporate into their Web pages to track individual responses from click through to as many as ten levels of response, including product purchase. Response rates and return on investment calculations are reported real time to our clients through secure access to our Web site. Historical responses to all campaigns are recorded in order to build individual response data files for each permission list member. - eCampaign is used to design and execute multi-tier direct marketing campaigns with targeted promotional messages based on individual responses to prior messages. - eTarget is being designed to provide selection and sampling technology to match our direct marketer client's message with the best targeted audience from the YesMail Network. eTarget will also schedule the delivery of email messages, collect payment information and automatically generate notices of messaging status. - ePredict is being designed to utilize the database of individual response histories developed in eTrack to enable improved targeting and modeling of predictive selling. Direct marketers will benefit from the ability to target the most frequent responders within specific interest categories. Our eTrack and eCampaign products were launched in April 1999. We expect to introduce eTarget and ePredict by the end of the third quarter of 1999. Network Affiliates. The YesMail Network provides access to over 5 million individuals who have given their permission to receive direct marketing messages in specific categories of interest to them. We provide direct marketers access to these individuals through our own proprietary list and those of our network affiliates, primarily Web sites that have developed their own permission email lists. Our relationships with our network affiliates are primarily established through re-seller agreements as well as contractual management agreements. All network affiliates must meet our YesMail consumer permission policy requirements, which mandate that each consumer has given their prior permission to receive promotional messages and has the ongoing opportunity to retract their permission. 31 32 As of May 15, 1999, our YesMail Network provided access to the following number of individuals by interest category. The major interest categories below are further divided into over 250 subcategories. The information in the table reflects the fact that each individual may be included in multiple interest categories and may have more than one email address.
INTEREST CATEGORY NUMBER OF INDIVIDUALS ----------------- --------------------- Arts and Humanities.................................... 1,106,000 Automotive............................................. 192,000 Business............................................... 1,364,000 Careers................................................ 165,000 Computers.............................................. 4,292,000 Cooking, Food and Wine................................. 414,000 Education.............................................. 1,312,000 Electronics............................................ 293,000 Entertainment and Games................................ 1,175,000 Health................................................. 1,032,000 Home and Family........................................ 1,335,000 Internet............................................... 3,330,000 Investing and Finance.................................. 830,000 Kids................................................... 216,000 Music.................................................. 1,139,000 News................................................... 439,000 Real Estate............................................ 32,000 Reference.............................................. 315,000 Science and Technology................................. 442,000 Shopping............................................... 2,912,000 Society and Culture.................................... 1,232,000 Sports and Recreation.................................. 2,512,000 Travel................................................. 391,000
Our network affiliates use our products and services to generate additional revenue from their existing customer relationships, but only with respect to their customers who have given their prior permission to receive emails. Our ePredict product is being designed to enable our network affiliates to receive further revenues for those list members who have a demonstrated history of responsiveness. Our network affiliates share the revenues we receive when we send promotional email messages to persons on their permission lists. In the first quarter of 1999, we began to enter into managed relationships with network affiliates. We are developing our eManage product to provide subscriber acquisition and tracking capabilities with analysis of cost per member acquired. Our network affiliates can also use eManage to email messages to their current customer base using our eTarget and eTrack products. We provide our network affiliates with proprietary products and services that enable them to: - build and manage permission network subscribers; - maintain permission lists; - convert general lists to permission email lists; - track historical responses; - build databases on each permission list member; and - report and analyze network usage. 32 33 Participation in the YesMail Network provides our network affiliates with the reach and visibility that are important to direct marketers. By combining their permission email lists with those of other network affiliates in our YesMail Network, network affiliates can benefit from increased reach, targeting and segmentation. YesMail Members. The individuals, or YesMail members, who receive emails from our direct marketers also benefit from the YesMail Network because we enable them to control the email messages they receive. We believe that by giving email recipients more control over their email boxes we can establish a beneficial relationship for all of the YesMail Network constituents. In May 1999, we introduced two applications, My.Interests and My.Profile, as part of the My.YesMail suite of online applications, and in the third quarter of 1999, we plan to introduce two more applications, My.Subscriptions and My.Events. These applications will provide our YesMail members with tools, to control the emails they receive, such as: - My.Interests allows members to select from over 20 categories and over 250 subcategories. The My.Interests profile quickly and easily helps members define what messages they do and do not want to receive. - My.Profile is an application that enables our members to select and edit the information categories and subcategories that suit their particular interests. Members can control where information relating to each category is sent, allowing them to receive emails related to their jobs at their office email address and emails related to their hobbies at home. - My.Subscriptions is being designed to assist members in managing the lists, newsletters and sites to which they subscribe. My.Subscriptions software also is being designed to help members process subscription cancellations. - My.Events is being designed to remind members of birthdays, anniversaries, holidays, business meetings or other events. Additionally, after the member has set up their My.Events profile, our software is being designed to automatically send them an email reminder of the event and include some suggestions that might compliment their event. For example, a birthday reminder might include a link to an online flower or greeting card merchant. SALES AND MARKETING We sell our services to direct marketers principally through our direct sales force. As of March 31, 1999, we had 15 direct sales professionals in Chicago, Atlanta, Cincinnati, Los Angeles and San Francisco. We plan to significantly increase the size of our sales force and open additional offices over the next 12 months. Our direct sales force consists of internal representatives and field sales account executives. Our sales and marketing teams work together to target prospective clients, focusing initially on industry sectors, individuals and advertising agencies that are active users of Internet advertising and/or direct marketing programs. A sales representative, in conjunction with a marketing account executive, typically works with the key decision-makers and advertising agencies for the prospective client. Our sales and marketing personnel receive special training in direct marketing, interactive advertising, direct response marketing and Internet advertising techniques. Our marketing program is designed to build and promote our brand and to generate qualified leads for our sales team. We do this through an integrated business to business marketing program that includes print advertising in marketing and Internet trade publications, permission direct email, direct mail and banner advertising. We also promote our business through trade show participation, speaking engagements, our weekly newsletter, WebPromote Weekly and other public relations programs. 33 34 We have implemented a program to build our brand name with individual consumers. Our goal is to establish our brand as the recognized and trusted provider of permission-based information direct to consumers' email boxes. We are building our brand and our relationships with consumers through special products, including My.YesMail, which is distributed for free through our yesmail.com Web site and our network affiliate partners. We reinforce our brand name by having our name appear in the "from" line in most of the permission direct email messages we send for our direct marketer clients. We plan additional consumer marketing programs later this year. TECHNOLOGY In offering permission email delivery services, we employ advanced custom software and hardware, combining internal expertise with industry-standard technology to create a proprietary infrastructure. EMAIL TECHNOLOGY We have developed a scalable proprietary email solution that can create and deliver personalized emails to our targeted recipients in multiple email formats such as plain text, HTML and AOL-specific. We can also personalize the content of the message specifically to each individual. In addition to supporting high levels of email output, we also employ sophisticated automatic routing of email we receive. Inbound traffic could include reports of undeliverable email and confirmations of customer requests to be included or excluded from an information service. Our solution allows for monitoring of all stages of an email campaign as well as the recording of key statistics regarding the campaign. TRACKING Tracking is the mechanism by which we record a history of events that a consumer performs in response to our permission email campaign and subsequent visits to the advertiser's Web site. Because the email we send can be personalized, we are able to embed unique elements in an email message that allows our tracking technology to identify individuals even before they click- through to the advertiser. We can record each action that the individual performs on an advertiser's Web site and are able to use this information to help predict the behavior of those individuals with regard to new advertising campaigns. SNIFFING Sniffing is the mechanism by which we gather additional data on an individual through recording freely available user information, from sources such as their browser, during viewing sessions of an advertiser's Web site. With this technology, we are able to gain additional information to help target individuals, as well as improve the success rates of our campaigns. We use sniffing to learn what email client is being used, for identifying email format capabilities such as plain text or HTML and identifying a consumer's location. This is accomplished by looking up the Internet address assigned when they connected to the Internet. We may also take this information and cross-reference it with other databases, including third-party Internet resources, and record the additional information in our databases for future targeting. SECURITY Information recorded about individuals is not released to external parties. Internally, the security and privacy of this information is guarded in several ways. Our employees are on a network that is physically separate from the network that sends the emails. Access to our databases and security control points is limited to select members of our information technology group. Each action by the consumer to request to be included or excluded from an information 34 35 service, to change list memberships, or to request pricing or other key data points is tracked and maintained to provide an audit trail for individuals, network affiliates and marketers in order to protect privacy and choice. Our Web-based products utilize industry-standard secure user authentication, and each function that is performed re-verifies security rights each time it is employed. We employ a proprietary user account security system to provide an additional level of security. DATA CENTERS AND NETWORK ACCESS Our computer servers are grouped into three task areas: emailing, tracking and Web serving, and corporate email and connectivity. Each area is independently connected to the Internet through separate CheckPoint Firewall-1 servers. This architecture ensures that our corporate functions remain separate from mission-critical applications and Web server traffic, while still providing backup options in case of system failure. Our data centers use Compaq Proliant servers running Windows NT and Sun servers running the Solaris operating system. We use Microsoft SQL Server 7.0 for our transaction databases and Oracle for our financial databases. Our products are built on three tiers of functionality: user interface, execution of program code and access to stored database functions and data. By separating these tiers, each element becomes reusable and scalable to support growth. Our Internet connectivity solution allows us to deliver emails to several of the top email recipients at a fraction of the normal delay of traditional Internet connections without having to ever go through the backbone of the Internet. We accomplish this through multiple T-1 Internet connections provided by Qwest Communications Corporation and Advanced Information Systems, Inc. We employ sophisticated monitoring technology to tract the status of our network, connectivity and throughput of our own network in addition to those through which we connect. All of our systems are backed up on a regular schedule with onsite copies in fireproof storage. Backups are regularly rotated to offsite secure storage. We seek to ensure the maximum uptime of our network through backup electrical power systems, continuously updated and available backup hard drive systems, computer parts that can be replaced without shutdown and separate physical sites that can take over in the case of catastrophic failure. COMPETITION We compete in the market for Internet advertising and email direct marketing, which is intensely competitive and rapidly changing. This market is highly fragmented with the largest companies accounting for only a small portion of the market in 1998. We expect that competition will increase significantly in the near-term because of the attention the Internet has received as a means of advertising and direct marketing and because there are no significant barriers of entry into the market. Our primary long-term competitors may not have entered the market yet because our market is new. Competition could result in price reductions, changes in the way services are priced, reduced gross margin and loss of market share, any of which could materially adversely affect our business. Many of our current and potential competitors have greater name recognition, longer operating histories, larger customer bases and significantly greater financial, technical, marketing, public relations, sales, distribution and other resources. Some of our potential competitors are among the largest and most well-capitalized companies in the world. In addition, some of our competitors may include Web site owners who choose to manage their own permission email lists. We expect to face competition from these and other competitors, including: - Internet portals who offer direct email services to their email lists such as Excite and Yahoo!; - traditional list brokers such as American List Counsel and Venture Communications; 35 36 - banner advertising managers such as DoubleClick, 24/7 Media and Flycast Communications; - independent list managers; - incentive-based subscriber lists such as Bonus Mail; and - customer management and retention service companies such as Digital Impact and Post Communications. If one or more of our current or future competitors were to achieve leading positions in the industry or if they were to expand relationships with significantly larger companies through mergers, acquisitions or otherwise, our business could be seriously harmed. In addition, potential competitors may bundle or incorporate the functionality of our products into their products in a manner that eliminates the need for our products or discourages users from purchasing our products. INTELLECTUAL PROPERTY RIGHTS Our success and ability to compete are substantially dependent upon our technology and intellectual property. While we rely on copyright, trade secret and trademark law to protect our technology and intellectual property, we believe that factors such as the technological and creative skills of our personnel, new product and service developments, frequent product and service enhancements and reliable product and service maintenance are more essential to establishing and maintaining an intellectual property leadership position. We have no patents or patent applications pending. Others may develop products and services that are similar or superior to ours. We generally enter into confidentiality or license agreements with our employees, consultants and corporate partners and generally control access to and distribution of our products, documentation and other proprietary information. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our products, services or technology. Policing unauthorized use of our proprietary information is difficult, and the steps we have taken might not prevent misappropriation of our technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as do the laws of the United States. Our products and services operate in part by collecting and utilizing data derived from user activity on the YesMail Network. This information is used to target marketing materials and to predict the performance of these materials. This creates the potential for claims to be made against us, either directly or through contractual indemnification provisions with customers, including negligence, copyright or trademark infringement, personal injury, invasion of privacy or other legal theories. In addition, others may claim rights to this information. It is also possible that if any such information contains errors, third parties could make claims against us for losses incurred in reliance on such information. Although we carry general liability insurance, our insurance may not cover potential claims of this type or may not be adequate to indemnify us for all liability that may be imposed. Substantial litigation regarding intellectual property rights exists in the technology industry and we expect that our products and services may be increasingly subject to third-party infringement claims as the number of competitors in our industry segments grows and the functionality of products in different industry segments overlaps. In addition, we believe that many of our competitors have filed or intend to file patent applications covering aspects of their technology that they may claim our intellectual property infringes. Any third party claims, with or without merit, could be time-consuming to defend, result in costly litigation, divert management's attention and resources, cause product shipment delays or require us to enter into royalty or licensing agreements. Such royalty or licensing agreements, if required, may not be available 36 37 on terms acceptable to us, if at all. A successful claim of product infringement against us could harm our business. GOVERNMENT REGULATION There is a growing body of laws and regulations applicable to access to or commerce on the Internet. Due to the increasing popularity and use of the Internet, it is likely that a growing number of laws and regulations will be adopted at the international, federal, state and local level with respect to the Internet or email direct marketing services covering issues such as user privacy, pricing, content, copyrights, distribution, antitrust and characteristics and quality of products and services. Further, the growth and development of the market for email direct marketing may prompt calls for more stringent consumer protection laws that may impose additional burdens on those companies conducting business online. The adoption of any additional laws or regulations may impair the growth of the Internet or email direct marketing, which could, in turn, decrease the demand for our products and services and increase our cost of doing business, or otherwise harm our business. Moreover, the applicability to the Internet of existing laws in various jurisdictions governing issues such as property ownership, sales and other taxes, libel and personal privacy is uncertain and may take years to resolve. Any such new legislation or regulation, the application of laws and regulations from jurisdictions whose laws do not currently apply to our business or the application of existing laws and regulations to the Internet could harm our business. Legislation has recently been enacted in several states relating to the sending of unsolicited emails, a practice commonly referred to as "spamming." The federal government and several states, including New York, are considering, or have considered, similar legislation. Although the provisions of these current and contemplated laws vary, they generally limit or prohibit both the transmission of unsolicited emails and the use of familiar spamming techniques such as the use of forged or fraudulent routing and header information. Some states, including California, require that unsolicited emails include opt-out instructions and that senders of such emails honor any opt-out requests, a requirement that is consistent with our own permission email policies. We believe that our permission email system will not be affected by such legislation because we do not send unsolicited messages and because our current practices are intended to comply with current and proposed legislation. However, there can be no assurance that such legislation or similar legislation will not also affect permission email marketing in a way that could force us to change our business practices, particularly in light of the rapidly evolving state of the law in this area. In such event, our business could suffer. EMPLOYEES As of March 31, 1999, we had 53 employees, including 23 in sales and marketing, 13 in general and administrative functions, 11 in operations and 6 in research and development. We are not subject to any collective bargaining agreements and believe that our employee relations are good. Competition for employees in our industry is intense and our future success depends on our ability to attract, retain and motivate highly-skilled employees. FACILITIES Our principal executive offices are located in Vernon Hills, Illinois, where we lease approximately 8,700 square feet under the terms of a lease that expires in October 2003. We intend to open a business and sales office in the San Francisco, California and New York areas in the third quarter of 1999. We are currently seeking additional space in the Chicago area to meet our needs and believe it will be available on commercially reasonable terms. 37 38 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS Our executive officers and directors and their ages as of May 15, 1999, are as follows:
NAME AGE POSITION(S) ---- --- ----------- David M. Tolmie...................... 43 Chief Executive Officer, President and Director David B. Menzel...................... 37 Chief Financial Officer and Vice President, Finance and Administration Mark D. Boyce........................ 41 Vice President, Product Management and Operations Peder J. Jungck...................... 32 Chief Technology Officer Michael R. Mooradian................. 41 Vice President, Sales Anthony Priore....................... 41 Vice President, Marketing John G. Vandegrift................... 32 List Partner Program Advisor and Director Kenneth D. Wruk...................... 31 Vice President, Strategic Alliances and Chairman of the Board of Directors Gian M. Fulgoni(1)(2)................ 51 Director Alexander F. Hern(1)................. 35 Director Michael A. Santer(1)(2).............. 33 Director Robert W. Shaw(2).................... 51 Director
- --------------- (1) Member of Audit Committee (2) Member of Compensation Committee David M. Tolmie has served as Chief Executive Officer and President since joining yesmail.com on January 1, 1999 and has been a member of the Board of Directors since May 1999. From September 1997 until January 1999, Mr. Tolmie was with Platinum Venture Partners, where he served as Chief Executive Officer in Residence of their e-commerce and Internet services group. From December 1993 until September 1997, Mr. Tolmie was Senior Vice President of Operations at Bally Total Fitness, Inc., a nationwide health and fitness company. From September 1990 until December 1993, Mr. Tolmie was President of Foundation Properties, a real estate development, sales and marketing company. From December 1985 until September 1990, Mr. Tolmie was a Corporate Vice President at Bally Total Fitness, Inc. From December 1983 until November 1985, Mr. Tolmie was a consultant at McKinsey & Co., an international management consulting firm. From August 1980 to December 1983, Mr. Tolmie was a Marketing Manager with General Mills, Inc., a consumer products company. Mr. Tolmie holds a B.A. with distinction in economics from the University of Virginia and an M.B.A. from Harvard University. David B. Menzel has served as Chief Financial Officer and Vice President, Finance and Administration since joining us in April 1999. From August 1994 until April 1999, Mr. Menzel was the Chief Financial Officer of Campbell Software, an enterprise application software company. From January 1984 until July 1994, Mr. Menzel was in the Audit and Financial Consulting division of Arthur Andersen. Mr. Menzel holds a B.S. in accounting and a Masters in accountancy, both from Florida State University. Mark D. Boyce joined us in December 1998 as Vice President, Product Management and Operations. From September 1996 until October 1998, Mr. Boyce was head of the Internet division for the Aberdeen Group, an information services company. From January 1993 until August 1996, Mr. Boyce was President of Synthesis, an Internet services company. From 1987 until January 1993, Mr. Boyce was a Vice President of Marketing for Anixter, Inc., an international distributor of networking products. Mr. Boyce holds a B.A. in economics from Colgate University and an M.B.A. from Dartmouth College. 38 39 Peder J. Jungck has served as Chief Technology Officer since joining us in February 1999. From March 1997 until February 1999, Mr. Jungck was Chief Information Officer of Remington Associates, Ltd., an Internet consulting firm. From June 1994 until March 1997, Mr. Jungck was Vice President of Production and Engineering at TerraGlyph Interactive Studios, L.P., a multimedia entertainment company. Mr. Jungck holds a B.A. in mathematics and computer science from Beloit College. Michael R. Mooradian has served as Vice President, Sales since joining us in May 1999. From August 1996 until May 1999, Mr. Mooradian was Vice President of Worldwide Sales for the Giga Information Group, an information technology research company. From January 1996 until July 1996, Mr. Mooradian was Vice President of Sales for Timeline, Inc., a financial reporting software company. From July 1991 until January 1996, Mr. Mooradian was a Regional Director at Comshare, Inc., an enterprise software company. Mr. Mooradian holds a B.S. in business administration from DePaul University. Anthony Priore joined us in March 1999 as Vice President, Marketing. From May 1998 to December 1998, Mr. Priore was Executive Vice President and Managing Director at Chicago Creative Partnership, an advertising agency. From September 1995 until May 1998, Mr. Priore was Vice President of Marketing at Peapod, Inc., an e-commerce grocery delivery company. From September 1991 to September 1994, Mr. Priore was Vice President at Leo Burnett, an international advertising agency. Mr. Priore holds a B.S. in journalism and an M.S.A., from Northwestern University. John G. Vandegrift has served as List Partner Program Advisor since April 1999 and as a member of our Board of Directors since July 1997. From January 1999 until March 1999, Mr. Vandegrift was the Interim Chief Executive Officer of Frictionless Commerce, Inc., an Internet software company. From December 1997 until December 1998, Mr. Vandegrift was Marketing Senior Executive with Compaq Computer Corp. From May 1993 to July 1998, Mr. Vandegrift was Executive Vice President of Marketing and Business Development and then President of TAC Systems, a communications company. Mr. Vandegrift holds a B.S. from Texas A&M University and a M.S. from the University of Alabama. Kenneth D. Wruk is one of our co-founders and has served as Chairman of the Board of Directors since our inception in November 1995. From December 1992 until November 1995, Mr. Wruk was a lead software engineer at Safeco Corporation, a cellular communication company. Mr. Wruk holds a B.S. in electrical engineering and an M.B.A., from Northern Illinois University. Gian M. Fulgoni has served as a member of our Board of Directors since March 1999. Since November 1998, Mr. Fulgoni has been Chief Executive Officer of Lancaster Enterprises, LLC, an investment firm. From 1986 until November 1998, Mr. Fulgoni was Chief Executive Officer of Information Resources, Inc., a market research company. Mr. Fulgoni continues to serve as a member of the board of directors of Information Resources, Inc., a position that he has held since 1981. Mr. Fulgoni has also served as a member of the board of directors of Platinum Technology, Inc., a software company, since 1990. Mr. Fulgoni holds a B.S. with honors, in physics from Manchester University and a M.A. in marketing from Lancaster University. Alexander F. Hern has been a member of our Board of Directors since February 1999. Mr. Hern is the founder and general partner of Strategic Acquisition Ventures, Ltd., a venture capital firm. Mr. Hern was a co-founder of Inktomi Corporation, a publicly traded company. From 1996 until January 1998, Mr. Hern served as Chairman of the Board and Chief Executive Officer of Military Commercial Technologies, Inc., a military technology company. Michael A. Santer has been a member of our Board of Directors since February 1999. Mr. Santer is a co-founder and has been a general partner of Platinum Venture Partners, a venture capital firm, since its inception in February 1992. Mr. Santer holds a B.S. in management information systems from the University of Dayton and a Masters of Management from the J.L. Kellogg School of Management at Northwestern University. 39 40 Robert W. Shaw served as a member of our Board of Directors since April 1999. Since November 1998, Mr. Shaw has been a member of the board of directors and Chief Executive Officer of USWeb/ CKS, an internet marketing services company. From May 1992 until August 1998, Mr. Shaw was Executive Vice President at Oracle Corporation, a software company. From 1989 until 1992, Mr. Shaw was a partner at Booz Allen & Hamilton, a global management and consulting firm. From 1985 until 1989, Mr. Shaw was the Managing Partner of the information technology practice at Coopers & Lybrand (currently PricewaterhouseCoopers LLP), an international accounting firm. Mr. Shaw holds a B.A. in business administration from the University of Texas. BOARD COMPOSITION We currently have authorized seven directors. Each director is elected at the annual general meeting of our stockholders, by a vote of the holders of a plurality of the voting power represented at such meeting. Each director holds office until the annual general meeting of our stockholders and until his or her successor has been elected. The executive officers serve at the discretion of the Board. There are no family relationships among any of our directors or executive officers. BOARD COMMITTEES Our Audit Committee reviews, acts on and reports to our Board of Directors with respect to various auditing and accounting matters, including the selection of our independent accountants, the scope of our annual audits, fees to be paid to the independent accountants, the performance of our independent accountants and our accounting practices. Messrs. Fulgoni, Hern and Santer are the members of our Audit Committee. Our Compensation Committee establishes salaries, incentives and other forms of compensation for officers and other employees. This Committee also administers our incentive compensation and benefit plans. Messrs. Fulgoni, Santer and Shaw are the members of the Compensation Committee. DIRECTOR COMPENSATION Except for reimbursement of reasonable expenses incurred in connection with serving as a director and the grant of stock options, directors are not compensated for their service as directors. In May 1999, we granted each of Messrs. Fulgoni and Shaw, non-employee directors of ours, an option to purchase 200,000 shares of common stock. These options vest quarterly over a period of two years. At the discretion of our Board of Directors, we may issue additional options to our directors at 100% of the fair market value of our common stock, as reported on the Nasdaq National Market, at the close of trading on the date of the grant. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION None of the members of our Compensation Committee is an officer or employee of yesmail.com. No interlocking relationship exists between our Board of Directors or Compensation Committee and the board of directors or compensation committee of any other company, nor has such an interlocking relationship existed in the past. EMPLOYMENT CONTRACTS Mr. Tolmie is party to an employment agreement dated March 12, 1999, effective as of January 1, 1999. Under the agreement, we agreed to pay Mr. Tolmie an annual salary of $150,000 and a performance bonus of up to $50,000. Mr. Tolmie also purchased 900,000 shares and 2,400,000 shares of our common stock pursuant to two restricted stock purchase agreements. These shares are subject to repurchase by us until vested. The 900,000 purchased shares shall vest, pro rata, semi-annually over four years, commencing May 18, 2000. The 2,400,000 purchased shares shall vest as to 900,000 shares on January 1, 2000, and 300,000 of the shares shall vest at the end of each six month period thereafter, provided, however, all 2,400,000 shares shall vest 40 41 seven months from the day our stock begins trading on the Nasdaq National Market. In the event Mr. Tolmie is terminated without cause he will be entitled to receive a severance of $100,000. Mr. Menzel is party to an employment agreement with us, dated April 2, 1999. Under the agreement, we agreed to pay Mr. Menzel an annual salary of $140,000, a performance bonus of $50,000 and a discretionary bonus of up to $50,000, and Mr. Menzel purchased 650,000 shares of our common stock pursuant to a restricted stock purchase agreement. The purchased shares shall vest, pro rata, semi-annually over four years, commencing October 26, 1999. These shares are subject to repurchase by us until vested. We have also agreed to pay Mr. Menzel a special bonus of $150,000 in three equal installments on the six month, twelve month, and eighteenth month anniversary of his date of hire; provided, however, Mr. Menzel may be required to repay all or a part of this special bonus in some circumstances. In the event Mr. Menzel is terminated without cause, he will be entitled to receive severance equal to six months of his base salary and any unpaid amounts pursuant to the special bonus. Mr. Boyce is party to an employment agreement, dated May 27, 1999. Under the agreement, we agreed to pay Mr. Boyce an annual salary of $150,000 and a performance bonus of up to $37,500, and Mr. Boyce purchased 650,000 shares of our common stock pursuant to a restricted stock purchase agreement. The purchased shares shall vest, pro rata, semi-annually over four years, commencing July 1, 1999. The shares remain subject to repurchase by us until vested. In the event that Mr. Boyce is terminated without cause, he will be entitled to receive severance equal to six months of his base salary. Mr. Jungck is party to an employment agreement, dated February 15, 1999. Under the agreement, we agreed to pay Mr. Jungck an annual salary of $140,000 and a performance bonus of up to $30,000, and Mr. Jungck purchased 650,000 shares of our common stock pursuant to a restricted stock purchase agreement. The purchased shares shall vest, pro rata, semi-annually over four years, commencing August 15, 1999. In the event that Mr. Jungck is terminated without cause, he will be entitled to receive severance equal to six months of his base salary. Mr. Mooradian is party to an employment agreement, dated April 17, 1999. Under the agreement, we agreed to pay Mr. Mooradian an annual salary of $150,000 and a performance bonus of up to $150,000, and Mr. Mooradian was granted an option to purchase 650,000 shares of our common stock, at an exercise price of $0.60 per share, pursuant to our stock option plan. The option shall vest, pro rata, semi-annually over four years. In the event that Mr. Mooradian is terminated without cause, he will be entitled to receive severance equal to six months of his base salary. Mr. Priore is party to an employment agreement, dated March 3, 1999. Under the agreement, we agreed to pay Mr. Priore an annual salary of $150,000 and a performance bonus of $30,000, and Mr. Priore purchased 650,000 shares of our common stock pursuant to a restricted stock purchase agreement. The purchased shares shall vest, pro rata, semi-annually over four years, commencing September 8, 1999. The shares remain subject to repurchase by us until vested. In the event that Mr. Priore is terminated without cause, he will be entitled to receive severance equal to six months of his base salary. Mr. Vandegrift is party to an employment agreement, dated March 31, 1999. Under the agreement, we agreed to pay Mr. Vandegrift an annual salary of $144,000 and a quarterly performance bonus of up to $36,000, and Mr. Vandegrift purchased 300,982 shares and 184,473 shares of our common stock pursuant to two restricted stock purchase agreements. The 300,982 purchased shares vested on March 25, 1999. As to the 184,473 purchased shares, 11,530 shares shall vest monthly, commencing April 30, 1999 and 30,745 shall vest at the end of each three months if Mr. Vandegrift meets pre-defined incentive goals. These 184,473 shares are subject to repurchase by us until vested. Mr. Vandegrift is also entitled to receive up to $1,000 per month for nine months as reimbursement for relocation and temporary living expenses. In the event Mr. Vandegrift is terminated without cause, he will be entitled to receive severance equal to one month salary and two months expense reimbursement. 41 42 EXECUTIVE COMPENSATION The following table sets forth the compensation earned for services rendered to us in all capacities for fiscal 1998, by our former Chief Executive Officer and President. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION ------------ NAME AND PRINCIPAL POSITIONS YEAR SALARY BONUS ---------------------------- ---- ------------ ------- Kenneth D. Wruk(1).......................................... 1998 $34,382 $46,470 Former Chief Executive Officer and President
- --------------- (1) Mr. Wruk resigned from his position as Chief Executive Officer and President in January 1999. Messrs. Tolmie, Menzel, Boyce, Jungck, Mooradian, Priore and Vandegrift were hired as executive officers subsequent to December 1, 1998 and are compensated at annual rates of $150,000, $140,000, $150,000, $140,000, $150,000, $150,000 and $144,000, respectively. Please see "-- Employment Contracts." OPTION GRANTS IN LAST FISCAL YEAR We did not grant options to any of our executive officers in fiscal 1998. However, in May 1999 we issued shares of our common stock to six of our executive officers pursuant to restricted stock purchase agreements, and we granted Mr. Mooradian an option to purchase our common stock pursuant to our stock option plan. Please see "Related Party Transactions" and "-- Employment Contracts." COMPENSATION PLANS 1999 STOCK OPTION PLAN. Our 1999 Stock Option Plan provides for the grant of incentive stock options to employees and nonstatutory stock options and share purchase rights to employees, directors and consultants. A total of shares of common stock have been reserved for issuance under our 1999 Stock Option Plan, of which options to purchase 2,160,000 shares of common stock were outstanding as of May 31, 1999. The number of shares of common stock reserved for issuance under this plan will be subject to an annual increase on each anniversary beginning equal to the lesser of (a) shares, (b) % of the outstanding shares on such date or (c) an amount determined by the Board. The 1999 Stock Option Plan is currently administered by the Board of Directors, although the Board may designate certain committees to administer the 1999 Stock Option Plan with respect to different groups of service providers. Options and shares purchase rights granted under the 1999 Stock Option Plan will vest as determined by the relevant administrator, and if not assumed or substituted by a successor corporation will accelerate and become fully vested in the event we are acquired. The exercise price of options and share purchase rights granted under the 1999 Stock Option Plan will be as determined by the relevant administrator, although the exercise price of incentive stock options must be at least equal to the fair market value of our common stock on the date of grant. Options granted under the 1999 Stock Option Plan generally vest over a four-year period. The Board of Directors may amend, modify or terminate the 1999 Stock Option Plan at any time as long as 42 43 such amendment, modification or termination does not impair vesting rights of plan participants. The 1999 Stock Option Plan will terminate in 2009, unless terminated earlier by the Board of Directors. 1999 EMPLOYEE STOCK PURCHASE PLAN. Our 1999 Employee Stock Purchase Plan, or the Purchase Plan, provides our employees with an opportunity to purchase our common stock through accumulated payroll deductions. This plan will become effective upon the closing of this offering. A total of shares of common stock have been reserved for issuance under the Purchase Plan, none of which have been issued. The number of shares reserved for issuance under the Purchase Plan will be subject to an annual increase on each anniversary beginning equal to the lesser of (a) shares, (b) % of the outstanding shares on such date or (c) an amount determined by the Board. The Purchase Plan will be administered by the Board of Directors or by a committee appointed by the Board. The Purchase Plan permits eligible employees to purchase common stock through payroll deductions of up to % of an employee's compensation, up to a maximum of $ for all purchases ending within the same calendar year. Employees are eligible to participate if they are employed by us for at least 20 hours per week and more than five months in any calendar year. Unless the Board of Directors or its committee determines otherwise, each offering period will run for six months. The first offering period will commence on the date of this prospectus, and new offering periods will commence every six months thereafter. In the event we are acquired, each outstanding option shall be assumed or an equivalent option substituted by the successor corporation. In the event that the successor corporation refuses to assume or substitute for the option, the offering period then in progress will be shortened by setting a new exercise date. The price at which common stock will be purchased under the Purchase Plan is equal to 85% of the fair market value of the common stock on the first or last day of the applicable offering period, whichever is lower. Employees may end their participation in the offering period at any time, and participation automatically ends on termination of employment. Generally, the Board of Directors may amend, modify or terminate the Purchase Plan at any time as long as such amendment, modification or termination does not impair the rights of plan participants. The Purchase Plan will terminate at 2009, unless terminated earlier in accordance with its provisions. INDEMNIFICATION OF DIRECTORS AND OFFICERS Our Certificate of Incorporation limits the liability of directors to the maximum extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except liability for (i) any breach of their duty of loyalty to the corporation or its stockholders, (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) unlawful payments of dividends or unlawful stock repurchases or redemption, or (iv) any transaction from which the director derived an improper personal benefit. Such limitation of liability does not apply to liabilities arising under the federal securities laws and does not affect the availability of equitable remedies such as injunctive relief or rescission. Our Certificate of Incorporation and Bylaws provide that we shall indemnify our directors and executive officers and may indemnify other officers and employees and our agents to the fullest extent permitted by law. We believe that indemnification under our Bylaws covers at least negligence and gross negligence on the part of indemnified parties. Our Bylaws also permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in such capacity, regardless of whether the Bylaws would permit indemnification. We have entered into agreements to indemnify our directors and executive officers, in addition to indemnification provided for in our Bylaws. These agreements, among other things, 43 44 provide for indemnification of our directors and executive officers for certain expenses (including attorneys' fees), judgments, fines and settlement amounts incurred by any such person in any action or proceeding, including any action by or in the right of yesmail.com, arising out of such person's services as a director or executive officer of ours, any subsidiary of ours or any other company or enterprise to which the person provides services at our request. We believe that these provisions and agreements are necessary to attract and retain qualified persons as directors and executive officers. RELATED PARTY TRANSACTIONS LOAN FROM DIRECTOR In December 1998, we borrowed $1.0 million from Alexander F. Hern pursuant to a promissory note. In connection with this transaction, we issued Mr. Hern a warrant to purchase shares of our common stock in the event we did not comply with the terms of the transaction. On May 18, 1999, Mr. Hern terminated the promissory note and the warrant in exchange for an aggregate of 1,527,273 shares of our series A preferred stock. ACQUISITION OF SUPERHIGHWAY CONSULTING Under an Agreement and Plan of Merger, dated March 29, 1999, Superhighway Consulting, Inc. was merged with and into us. Upon consummation of the merger, we issued an aggregate of 20,000,000 shares of our common stock to the former shareholders of Superhighway Consulting, Inc. These former shareholders of Superhighway Consulting, Inc. included the following officers and directors:
NAME SHARES ISSUED ---- ------------- Kenneth D. Wruk............................................. 5,740,741 Kevin Manley................................................ 5,740,741 Keith Speer................................................. 3,888,888 John Weiss.................................................. 3,888,888
In connection with the merger, some of our stockholders were granted registration rights. Please see "Description of Capital Stock -- Registration Rights." OPTION AMONG STOCKHOLDERS Pursuant to an agreement among our founding stockholders in March 1999, Messrs. Tolmie, Hern and Santer are obligated to transfer shares of our common stock to other founding stockholders, including Messrs. Wruk, Manley, Speer and Weiss. For additional information regarding this option among stockholders, please see "Principal Stockholders" and Note 1 to Notes to Consolidated Financial Statements. ADVANCES FROM RELATED PARTIES In March 1999, we borrowed an aggregate of $600,000 from three individuals, including $300,000 from David M. Tolmie and $200,000 from Alexander F. Hern. On May 18, 1999, the advances were exchanged for an aggregate of 916,364 shares of our series A preferred stock. 44 45 RESTRICTED STOCK ISSUANCES In May 1999, we sold an aggregate of 6,385,455 shares of our common stock to 6 employees at a price of $0.60 per share pursuant to restricted stock purchase agreements. Our employees purchased these shares in exchange for notes issued to us, which are secured by the shares purchased. The notes also provide for full recourse against the borrower as to 75% of the amount of the note. The notes bear interest at 5.22% per annum and are due and payable on the earlier of the sale of the underlying common stock, May 2008 or termination of employment. These shares of common stock are subject to repurchase options granted to us by the holders of the shares. For additional information regarding the repurchase options, please see "Management -- Employment Contracts." The purchasers of these shares are listed in the following table:
NAME SHARES PURCHASED ---- ---------------- David M. Tolmie............................................. 3,300,000 David B. Menzel............................................. 650,000 Mark D. Boyce............................................... 650,000 Peder J. Jungck............................................. 650,000 Anthony Priore.............................................. 650,000 John G. Vandegrift.......................................... 485,455
SERIES A PREFERRED STOCK FINANCING On May 18, 1999, we issued and sold an aggregate of 13,745,460 shares of our series A preferred stock to investors at a per share price of approximately $0.65. Upon the closing of this offering, each share of series A preferred stock will automatically convert into one share of common stock. The investors in the financing included the following officers, directors and principal stockholders and their immediate family members and related entities:
NAME SHARES PURCHASED ---- ---------------- Platinum Ventures II (Michael A. Santer is a general partner).................................................. 3,054,546 Alexander F. Hern........................................... 534,546 David M. Tolmie............................................. 381,818 Gian Fulgoni................................................ 381,818 Webco and Co. (Michael A. Santer is a general partner)...... 305,455 Donald Boyce (Mark D. Boyce's father)....................... 153,000 John G. Vandegrift.......................................... 152,727 John Tolmie (David M. Tolmie's brother)..................... 152,727 Robert W. Shaw.............................................. 152,727 Paul Tolmie (David M. Tolmie's brother)..................... 76,364 Joann Tolmie (David M. Tolmie's mother)..................... 76,364 Anthony Priore.............................................. 76,364 Michael R. Mooradian........................................ 38,182 David B. Menzel............................................. 27,927
45 46 PRINCIPAL STOCKHOLDERS The following table sets forth certain information regarding beneficial ownership of our common stock as of May 31, 1999, by - each person known by us to be the beneficial owner of more than 5% of the outstanding common stock; - our former Chief Executive Officer; - each of our directors; and - all of our executive officers and directors as a group. Except as otherwise noted, the address of each person listed in the table is c/o yesmail.com, Inc., 565 Lakeview Parkway, Suite 135, Vernon Hills, Illinois 60061. The table includes all shares of common stock issuable within 60 days of May 31, 1999 upon the exercise of options and other rights beneficially owned by the indicated stockholders on that date. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and includes voting and investment power with respect to the shares. To our knowledge, except under applicable community property laws or as otherwise indicated, the person named in the table have sole voting and sole investment control with respect to all shares beneficially owned. The applicable percentage of ownership for each stockholder is based on 45,130,915 shares of common stock outstanding as of May 31, 1999, together with applicable options for that stockholder. Shares of common stock issuable upon exercise of options and other rights beneficially owned are deemed outstanding for the purpose of computing the percentage ownership of the person holding those options and other rights, but are not deemed outstanding for computing the percentage ownership of any other person.
SHARES BENEFICIALLY PERCENTAGE OWNED BENEFICIALLY OWNED ------------------- -------------------- PRIOR TO AFTER OWNER NUMBER OFFERING OFFERING ----- ------------------- -------- -------- Kenneth D. Wruk(1)................................... 5,740,741 12.7 Kevin Manley(1)...................................... 5,740,741 12.7 Michael A. Santer(2)(3)(4)........................... 4,830,001 10.7 Keith Speer(1)....................................... 3,888,888 8.6 John Weiss(1)........................................ 3,888,888 8.6 David M. Tolmie(2)(5)................................ 3,881,818 8.6 Platinum Ventures II(6).............................. 3,054,546 6.8 David Brewer(7)...................................... 2,710,910 6.0 John G. Vandegrift(8)................................ 638,182 1.4 Gian Fulgoni(9)(10).................................. 406,818 * Alexander F. Hern(2)(11)............................. 2,004,546 4.4 Robert W. Shaw(12)(13)............................... 177,727 * All executive officers and directors as a group (12 persons)(14)....................................... 20,422,306 45.2
46 47 - --------------- * Less than 1% of the outstanding shares of common stock. (1) Messrs. Wruk, Manley, Speer and Weiss are our founders. Includes the following shares which the stockholder has the right to purchase from other stockholders at the time of the public offering pursuant to a founders agreement dated March 29, 1999, assuming a $ price per share at the close of the first day our shares of common stock are publicly traded. See "Related Party Transactions" and Note 1 to Notes to Consolidated Financial Statements.
NAME SHARES SUBJECT TO OPTIONS ---- ------------------------- Kenneth D. Wruk...................................... Kevin Manley......................................... Keith Speer.......................................... John Weiss...........................................
(2) Includes the following shares which the stockholder is obligated to transfer to other stockholders at the time of the public offering pursuant to a founders agreement dated March 29, 1999 assuming a $ price per share at the close of the first day our shares of common stock are publicly traded. See "Related Party Transactions" and Note 1 to Notes to Consolidated Financial Statements.
NAME SHARES SUBJECT TO OPTIONS ---- ------------------------- Michael A. Santer.................................... David M. Tolmie...................................... Alexander F. Hern....................................
(3) Mr. Santer's address is c/o Platinum Venture Partners, 555 Twin Dolphin Drive, Suite 400, Redwood City, California 94065. (4) Includes 3,054,546 shares held by Platinum Ventures II and 305,455 shares held by Webco and Co. Mr. Santer is a general partner of both Platinum Ventures II and Webco and Co. and disclaims beneficial ownership of the shares held by these entities except with respect to his pecuniary interest. (5) Includes 3,300,000 shares subject to yesmail.com's right of repurchase during a vesting period of four years and accelerated vesting in some circumstances. (6) Platinum Ventures II's address is 555 Twin Dolphin Drive, Suite 400, Redwood City, California 94065. (7) Mr. Brewer's address is 301 University Avenue, Suite 440, Palo Alto, California 94301. (8) Includes 485,455 shares subject to yesmail.com's right of repurchase during a vesting period of four years and accelerated vesting in some circumstances. (9) Mr. Fulgoni's address is c/o Lancaster Enterprises, 65 E. Bellevue, Chicago, Illinois 60611. (10) Includes 25,000 shares subject to options which are exercisable within 60 days of May 31, 1999. (11) Mr. Hern's address is 4350 W. Cypress, Suite 440, Tampa, Florida 33607. (12) Mr. Shaw's address is c/o US Web Corporation, #2 Harrison Street, Top Floor, San Francisco, California 94105. (13) Includes 25,000 shares subject to options which are exercisable within 60 days of May 31, 1999. (14) Includes 6,385,455 shares subject to yesmail.com's right of repurchase during a vesting period of four years and accelerated vesting in some circumstances. Also includes 50,000 shares subject to options which are exercisable within 60 days of May 31, 1999. 47 48 DESCRIPTION OF CAPITAL STOCK GENERAL Upon the completion of this offering, we will be authorized to issue 60,000,000 shares of common stock, $0.0001 par value, and shares of undesignated preferred stock, $0.0001 par value. The following description of our capital stock does not purport to be complete and is subject to and qualified in its entirety by our Certificate of Incorporation and Bylaws, which are included as exhibits to the Registration Statement of which this Prospectus forms a part, and by the provisions of applicable Delaware law. COMMON STOCK As of May 31, 1999, there were 45,130,915 shares of common stock outstanding which were held of record by 88 stockholders. The holders of common stock are entitled to one vote per share on all matters to be voted upon by the stockholders. Subject to preferences that may be applicable to any outstanding preferred stock, the holders of common stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the Board of Directors out of funds legally available for that purpose. See "Dividend Policy." In the event of a liquidation, dissolution or winding up of yesmail.com, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights of preferred stock, if any, then outstanding. The holders of common stock have no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are fully paid and nonassessable, and the shares of common stock to be issued upon the closing of this offering will be fully paid and nonassessable. PREFERRED STOCK The Board of Directors has the authority, without action by the stockholders, to designate and issue preferred stock in one or more series and to designate the rights, preferences and privileges of each series, any or all of which may be greater than the rights of the common stock. It is not possible to state the actual effect of the issuance of any shares of preferred stock upon the rights of holders of the common stock until the Board of Directors determines the specific rights of the holders of such preferred stock. However, the effects might include, among other things, restricting dividends on the common stock, diluting the voting power of the common stock, impairing the liquidation rights of the common stock and delaying or preventing a change in control without further action by the stockholders. Immediately prior to the closing no shares of preferred stock will be outstanding, and we have no present plans to issue any shares of preferred stock. REGISTRATION RIGHTS As of May 31, 1999, the holders of 38,745,460 shares of our common stock or their transferees are entitled to rights with respect to the registration of these shares under the Securities Act. These rights are provided under the terms of agreements between us and the holders of these securities. Subject to limitations in agreements, if we register any of our common stock either for our own account or for the account of other security holders, these holders are entitled to include their shares of common stock in that registration, subject to the ability of the underwriters to limit the number of shares included in the offering. We will be responsible for paying all registration expenses, and the holders selling their shares will be responsible for paying all selling expenses. 48 49 DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS Certain provisions of Delaware law and our Certificate of Incorporation and Bylaws could make more difficult our acquisition by means of a tender offer, a proxy contest or otherwise and the removal of incumbent officers and directors. These provisions, summarized below, are expected to discourage certain types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control to first negotiate with us. We believe that the benefits of increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweighs the disadvantages of discouraging such proposals because, among other things, negotiation of such proposals could result in an improvement of their terms. STOCKHOLDER MEETINGS. Under our Restated Certificate of Incorporation and Restated Bylaws, the Board of Directors, the Chairman of the Board and the President may call special meetings of stockholders but the stockholders may not call a special meeting. REQUIREMENTS FOR ADVANCE NOTIFICATION OF STOCKHOLDER NOMINATIONS AND PROPOSALS. Our Restated Bylaws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of the Board of Directors or a committee thereof. DELAWARE ANTI-TAKEOVER LAW. We are subject to Section 203 of the Delaware General Corporation Law, an anti-takeover law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years following the date the person became an interested stockholder, unless (with certain exceptions) the "business combination" or the transaction in which the person became an interested stockholder is approved in a prescribed manner. Generally, a "business combination" includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. Generally, an "interested stockholder" is a person who, together with affiliates and associates, owns (or within three years prior to the determination of interested stockholder status, did own) 15% or more of a corporation's voting stock. The existence of this provision would be expected to have an anti-takeover effect with respect to transactions not approved in advance by the Board of Directors, including discouraging attempts that might result in a premium over the market price for the shares of common stock held by stockholders. UNDESIGNATED PREFERRED STOCK. The authorization of undesignated preferred stock makes it possible for the Board of Directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of yesmail.com. These and other provisions may have the effect of deferring hostile takeovers or delaying changes in control or management. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the common stock is . NASDAQ NATIONAL MARKET LISTING We have applied to list our common stock on The Nasdaq National Market under the symbol "YESM." 49 50 SHARES ELIGIBLE FOR FUTURE SALE If our stockholders sell substantial amounts of our common stock (including shares issued upon the exercise of outstanding options) in the public market following this offering, the market price of our common stock could fall dramatically. These sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate. The number of shares of common stock available for sale in the public market is limited by restrictions under federal securities law and by certain "lock-up" agreements that our stockholders have entered into with the underwriters. The lock-up agreements restrict our stockholders from selling or otherwise disposing of any of their shares for a period of 180 days after the date of this prospectus without the prior written consent of Deutsche Bank Securities Inc. Deutsche Bank Securities Inc. may, however, in its sole discretion and without notice, release all or any portion of the shares from the restrictions in the lock-up agreements. Upon completion of this offering, we will have outstanding shares of common stock (based upon shares outstanding as of May 31, 1999), assuming no exercise of the underwriters' over-allotment option and no exercise of outstanding options after May 15, 1999. Taking into account the lock-up agreements and assuming Deutsche Bank Securities Inc. does not release stockholders from these agreements, the following shares will be eligible for sale in the public market at the following times: - beginning on the effective date of the offering, only the shares sold in the offering will be immediately available for sale in the public market; - beginning 180 days after the effective date of the offering, approximately 6,385,455 shares will be eligible for sale pursuant to Rules 144 and 701 of the Securities Act; - an additional 25,000,000 shares will become eligible for sale pursuant to Rule 144 beginning in March 2000; - an additional 13,745,460 shares will become eligible for sale pursuant to Rule 144 beginning in May 2000. Any common stock that has been purchased or may be purchased in this offering by our "affiliates," as defined in Rule 144 of the Securities Act, will be subject to the volume and other selling limitations under Rule 144 of the Securities Act. All of the shares eligible for sale at the 180th day after the date of this prospectus or afterward will be subject initially to certain volume and other limitations under Rule 144 of the Securities Act. On or prior to the 180th day following the date of this prospectus, we intend to register for resale an additional shares of common stock reserved for issuance under our employee stock plans based upon the number of shares reserved for issuance as of May 31, 1999. In addition, the holders of approximately 38,745,460 shares of common stock have the right to require us to register their shares for sale to the public. If these holders cause a large number of shares to be registered and sold in the public market, our stock price could fall materially. 50 51 UNDERWRITING Subject to the terms and conditions of the underwriting agreement dated the date hereof, the underwriters named below, through their representatives Deutsche Bank Securities Inc., Thomas Weisel Partners LLC and Volpe Brown Whelan & Company, LLC have severally agreed to purchase from yesmail.com the following respective numbers of shares of common stock at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus.
NUMBER OF UNDERWRITER SHARES ----------- --------- Deutsche Bank Securities Inc................................ Thomas Weisel Partners LLC.................................. Volpe Brown Whelan & Company, LLC........................... --------- Total =========
The underwriting agreement provides that the obligations of the several underwriters to purchase the shares of common stock offered hereby are subject to conditions. The underwriters are obligated to purchase all of the shares of common stock offered hereby, other than those covered by the over-allotment option described below, if any of these shares are purchased. The underwriters propose to offer the shares of common stock to the public at the public offering price set forth on the cover page of this prospectus and to dealers at a price that represents a concession not in excess of $ per share under the public offering price. The underwriters may allow, and these dealers may re-allow, a concession not in excess of $ per share to other dealers. After the initial public offering, the offering price and other selling terms may be changed by the representatives of the underwriters. We have granted to the underwriters an option, exercisable not later than 30 days after the date of this prospectus, to purchase up to additional shares of common stock at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus. The underwriters may exercise this option only to cover over-allotments made in connection with the sale of the common stock offered hereby. To the extent that the underwriters exercise the option, each of the underwriters will become obligated, subject to conditions, to purchase approximately the same percentage of additional shares of common stock as the number of shares of common stock to be purchased by it in the above table bears to . We will be obligated, pursuant to the option, to sell these shares to the underwriters to the extent the option is exercised. If any additional shares of common stock are purchased, the underwriters will offer additional shares on the same terms as those on which the shares are being offered. We have agreed to indemnify the underwriters against some specified types of liabilities, including liabilities under the Securities Act. Each of our officers, directors and stockholders has agreed not to offer, sell, contract to sell or otherwise dispose of, or enter into any transaction that is designed to, or could be expected to, result in the disposition of any portion of, any common stock for a period of 180 days after the effective date of the registration statement of which this prospectus is a part without the prior written consent of Deutsche Bank Securities Inc. This consent may be given at any time without public notice. We have entered into a similar agreement. 51 52 The representatives of the underwriters have advised us that the underwriters do not intend to confirm sales to any account over which they exercise discretionary authority. In order to facilitate the offering of the common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the market price of the common stock. Specifically, the underwriters may over-allot shares of the common stock in connection with this offering, thus creating a short position in the common stock for their own account. Additionally, to cover these over-allotments or to stabilize the market price of the common stock, the underwriters may bid for, and purchase, shares of the common stock in the open market. Finally, the representatives, on behalf of the underwriters, also may reclaim selling concessions allowed to an underwriter or dealer if the underwriting syndicate repurchases shares distributed by that underwriter or dealer. Any of these activities may maintain the market price of the common stock at a level above that which might otherwise prevail in the open market. The underwriters are not required to engage in these activities and, if commenced, may end any of these activities at any time. Eight individuals affiliated with Deutsche Bank Securities Inc. are the beneficial owners of 208,527 shares of our common stock and Volpe Brown Whelan & Company, LLC and one individual affiliated with Volpe Brown Whelan & Company, LLC are the beneficial owners of 76,364 shares of our common stock. Pursuant to the rules of the National Association of Securities Dealers, Inc., their interest in these shares is presumed to be underwriting compensation. Accordingly these shares cannot be sold, transferred, assigned, pledged or hypothecated by any person for a period of one year after the effective date of this offering, except to officers or partners of the underwriters and members of the selling group and their officers or partners. Thomas Weisel Partners LLC, one of the representatives of the underwriters, was organized and registered as a broker-dealer in December 1998. Since December 1998, Thomas Weisel Partners LLC has been named as a lead or co-manager on 37 filed public offerings of equity securities, of which 16 have been completed, and has acted as a syndicate member in an additional 14 public offerings of equity securities. Thomas Weisel Partners LLC does not have any material relationship with us or any of our officers, directors or other controlling persons, except with respect to its contractual relationship with us pursuant to the underwriting agreement entered into in connection with this offering. At our request, the underwriters have reserved for sale, at the initial public offering price, up to shares for our vendors, employees, family members of employees and other third parties. The number of shares of common stock available for sale to the general public will be reduced to the extent these reserved shares are purchased. Any reserved shares that are not purchased will be offered by the underwriters to the general public on the same basis as the other shares offered by this prospectus. We estimate that our share of the total expenses of the offering, excluding underwriting discounts and commissions, will be approximately $ . PRICING OF THIS OFFERING Prior to this offering, there has been no public market for our common stock. Consequently, the initial public offering price for our common stock will be determined by negotiation among yesmail.com and the representatives of the underwriters. Among the factors to be considered in determining the public offering price will be: - prevailing market conditions; - our results of operations in recent periods; - the present stage of our development; 52 53 - the market capitalizations and stages of development of other companies that yesmail.com and the representatives of the underwriters believe to be comparable to yesmail.com; and - estimates of yesmail.com's business potential. LEGAL MATTERS The validity of our common stock offered hereby will be passed upon by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California. Pillsbury Madison & Sutro LLP, San Francisco, California, is acting as counsel for the underwriters in connection with legal matters relating to the shares of common stock offered hereby. Jeffrey D. Saper, a member of Wilson Sonsini Goodrich & Rosati, Professional Corporation, is Secretary of the Company. As of the date of this prospectus, members of Wilson Sonsini Goodrich & Rosati, Professional Corporation, own 305,454 shares of our common stock, and an investment partnership associated with Wilson Sonsini Goodrich & Rosati, Professional Corporation owns 152,728 shares of our common stock. EXPERTS Arthur Andersen LLP, independent auditors, have audited our consolidated financial statements at December 31, 1997 and 1998, and for each of the years in the three-year period ended December 31, 1998 as set forth in their report. We have included our financial statements in the prospectus and elsewhere in the registration statement in reliance on Arthur Andersen LLP's report, given upon the authority of such firm as experts in accounting and auditing. WHERE YOU CAN FIND MORE INFORMATION We have has filed with the Securities and Exchange Commission a registration statement on Form S-1 under the Securities Act with respect to the common stock offered hereby. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement and the exhibits filed as a part thereof, certain parts of which are omitted in accordance with the rules and regulations of the SEC. For further information with respect to us and the common stock offered hereby, reference is made to the registration statement and to the exhibits filed as a part thereof. Statements contained in this prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete and are qualified in their entirety by reference to each such contract, agreement or other document which is filed as an exhibit to the registration statement. The registration statement, including the exhibits and schedules thereto, may be inspected without charge at the principal office of the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, or at the Regional Offices of the SEC at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, Suite 1300, New York, New York 10048. Our SEC filings are also available to the public from the SEC's Web site at www.sec.gov. In addition, such material will be available for inspection at the offices of The Nasdaq Stock Market, Inc., at 1735 K Street, N.W., Washington D.C. 20006. Copies of such material may be obtained by mail from the Public Reference Branch of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. 53 54 YESMAIL.COM, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Independent Public Accountants.................... F-2 Consolidated Financial Statements: Consolidated Statements of Operations for the Years Ended December 31, 1996, 1997 and 1998, and for the three months ended March 31, 1998 and 1999 (unaudited)....... F-3 Consolidated Balance Sheets as of December 31, 1997 and 1998, and as of March 31, 1999 (unaudited)............. F-4 Consolidated Statements of Stockholders' Deficit for the Years Ended December 31, 1995 1996, 1997 and 1998, and for the three months ended March 31, 1999 (unaudited)............................................ F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1997 and 1998, and for the three months ended March 31, 1998 and 1999 (unaudited)....... F-6 Notes to Consolidated Financial Statements.................. F-7
F-1 55 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of yesmail.com, inc.: We have audited the accompanying consolidated balance sheets of yesmail.com, inc. (a Delaware corporation) as of December 31, 1997 and 1998, and the related consolidated statements of operations, stockholders' deficit and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of yesmail.com, inc. as of December 31, 1997 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Chicago, Illinois June 4, 1999 F-2 56 YESMAIL.COM, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS YEARS ENDED DECEMBER 31, ENDED MARCH 31, --------------------------------------- ------------------------- 1996 1997 1998 1998 1999 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) Revenues.................. $ 934,856 $ 2,468,022 $ 4,583,354 $ 873,069 $ 1,388,842 Cost of revenues.......... 292,776 1,089,585 2,702,872 375,998 657,398 ----------- ----------- ----------- ----------- ----------- Gross margin.... 642,080 1,378,437 1,880,482 497,071 731,444 ----------- ----------- ----------- ----------- ----------- Operating expenses: Sales and marketing expenses............. 291,999 959,813 1,751,208 386,361 901,559 General and administrative expenses............. 236,761 466,208 929,209 143,360 669,148 Research and development costs................ 198,548 357,068 600,848 150,112 234,479 ----------- ----------- ----------- ----------- ----------- Total operating expenses...... 727,308 1,783,089 3,281,265 679,833 1,805,186 ----------- ----------- ----------- ----------- ----------- Operating loss............ (85,228) (404,652) (1,400,783) (182,762) (1,073,742) Other expense: Interest expense........ (3,590) (18,098) (45,075) (8,025) (54,616) Other................... -- -- (250,000) -- -- ----------- ----------- ----------- ----------- ----------- Total other expense....... (3,590) (18,098) (295,075) (8,025) (54,616) ----------- ----------- ----------- ----------- ----------- Net loss before minority interest...... (88,818) (422,750) (1,695,858) (190,787) (1,128,358) Minority interest......... 8,821 8,716 (10,547) (1,707) (22,818) ----------- ----------- ----------- ----------- ----------- Net loss........ $ (79,997) $ (414,034) $(1,706,405) $ (192,494) $(1,151,176) =========== =========== =========== =========== =========== Net loss per share: Basic and diluted....... $ (0.01) $ (0.02) $ (0.08) $ (0.01) $ (0.06) Weighted average shares -- basic and diluted.............. 15,362,760 20,398,613 20,362,929 20,895,062 20,333,333 =========== =========== =========== =========== ===========
The accompanying notes to consolidated financial statements are an integral part of these statements. F-3 57 YESMAIL.COM, INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ----------------------- MARCH 31, 1997 1998 1999 --------- ----------- ------------- (UNAUDITED) Current assets: Cash............................................... $ 1,841 $ 26,212 $ 83,765 Accounts receivable, net of allowance of $26,000, $56,000 and $106,000............................ 176,259 242,757 260,453 Deposits and prepaid expenses...................... 3,786 19,348 11,182 --------- ----------- ----------- Total current assets....................... 181,886 288,317 355,400 --------- ----------- ----------- Property and equipment, net.......................... 101,640 353,871 607,435 --------- ----------- ----------- Other assets......................................... 750 750 16,788 --------- ----------- ----------- Total assets............................... $ 284,276 $ 642,938 $ 979,623 ========= =========== =========== Current liabilities: Accounts payable................................... $ 185,353 $ 1,391,509 $ 1,047,777 Short-term debt.................................... 149,241 342,870 365,505 Note payable to shareholder........................ -- -- 1,000,000 Due to related parties............................. 76,721 56,788 600,000 Obligations under capital leases, current portion......................................... 17,647 87,165 145,245 Accrued payroll and payroll related expenses....... 74,043 213,291 226,984 Deferred revenue................................... 119,021 114,301 51,187 Accrued legal settlement........................... -- 250,000 250,000 Other current liabilities.......................... 8,216 94,602 156,810 --------- ----------- ----------- Total current liabilities.................. 630,242 2,550,526 3,843,508 --------- ----------- ----------- Obligations under capital leases, less current portion............................................ 18,079 152,743 324,304 --------- ----------- ----------- Minority interest.................................... (17,537) (6,990) 15,828 Stockholders' deficit: Series A convertible preferred stock, $.0001 par value; 15,000,000 shares authorized; no shares issued and outstanding.......................... -- -- -- Common stock, $.0001 par value; 60,000,000 shares authorized; 22,222,222, 22,222,222, and 25,000,000 shares issued........................ 2,222 2,222 2,500 Common stock in treasury, 1,327,160, 2,222,222, and no shares at cost............................... (602) (1,030) -- Additional paid-in capital......................... 159,260 159,260 158,452 Accumulated deficit................................ (507,388) (2,213,793) (3,364,969) --------- ----------- ----------- Total stockholders' deficit................ (346,508) (2,053,341) (3,204,017) --------- ----------- ----------- Total liabilities and stockholders' deficit.................................. $ 284,276 $ 642,938 $ 979,623 ========= =========== ===========
The accompanying notes to consolidated financial statements are an integral part of these statements. F-4 58 YESMAIL.COM, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
PREFERRED STOCK COMMON STOCK TREASURY STOCK ADDITIONAL --------------- ------------------- ------------------- PAID IN ACCUMULATED SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL ------ ------ ---------- ------ ---------- ------ ---------- ----------- ----------- Balance at December 31, 1995...................... -- -- 12,345,679 $1,235 -- -- $ (235) $ (13,357) $ (12,357) Stock awarded to employees for services............ -- -- 9,876,543 987 -- -- 54,013 -- 55,000 Treasury stock purchase... -- -- -- -- (2,469,136) (1,120) -- -- (1,120) Net loss.................. -- -- -- -- -- -- -- (79,997) (79,997) -- -- ---------- ------ ---------- ------ -------- ----------- ----------- Balance at December 31, 1996...................... -- -- 22,222,222 2,222 (2,469,136) (1,120) 53,778 (93,354) (38,474) Stock awarded to employees by principal stockholders............ -- -- -- -- -- -- 39,000 -- 39,000 Treasury stock awarded to employees for services................ -- -- -- -- 1,141,976 518 66,482 -- 67,000 Net loss.................. -- -- -- -- -- -- -- (414,034) (414,034) -- -- ---------- ------ ---------- ------ -------- ----------- ----------- Balance at December 31, 1997...................... -- -- 22,222,222 2,222 (1,327,160) (602) 159,260 (507,388) (346,508) Treasury stock purchase... -- -- -- -- (895,062) (428) -- -- (428) Net loss.................. -- -- -- -- -- -- -- (1,706,405) (1,706,405) -- -- ---------- ------ ---------- ------ -------- ----------- ----------- Balance at December 31, 1998...................... -- -- 22,222,222 2,222 (2,222,222) (1,030) 159,260 (2,213,793) (2,053,341) Treasury stock retired (unaudited)............. -- -- (2,222,222) (222) 2,222,222 1,030 (808) -- -- Issuance of common stock for cash (unaudited).... -- -- 5,000,000 500 -- -- -- -- 500 Net loss (unaudited)............. -- -- -- -- -- -- -- (1,151,176) (1,151,176) -- -- ---------- ------ ---------- ------ -------- ----------- ----------- Balance at March 31, 1999 (unaudited)............... -- -- 25,000,000 $2,500 -- -- $158,452 $(3,364,969) $(3,204,017) == == ========== ====== ========== ====== ======== =========== ===========
The accompanying notes to consolidated financial statements are an integral part of these statements. F-5 59 YESMAIL.COM, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS YEARS ENDED DECEMBER 31, ENDED MARCH 31, ----------------------------------- ----------------------- 1996 1997 1998 1998 1999 --------- --------- ----------- --------- ----------- (UNAUDITED) Cash Flows from Operating Activities: Net loss.............................. $ (79,997) $(414,034) $(1,706,405) $(192,494) $(1,151,176) Adjustments to reconcile net loss to net cash provided by (used in) operating activities -- Depreciation....................... 16,015 49,443 101,783 16,632 57,329 Stock issuance for compensation.... 55,000 106,000 -- -- -- Minority interest.................. (8,821) (8,716) 10,547 1,707 22,818 Changes in operating assets and liabilities -- Accounts receivable.............. (119,176) (48,142) (66,498) 14,141 (17,696) Deposits and prepaid expenses.... (4,469) 668 (15,562) 416 (7,872) Accounts payable and accrued expenses...................... 108,125 143,123 1,681,790 238,867 (267,831) Deferred revenue................. 12,517 106,504 (4,720) (2,296) (63,114) --------- --------- ----------- --------- ----------- Net cash provided by (used in) operating activities........ (20,806) (65,154) 935 76,973 (1,427,542) --------- --------- ----------- --------- ----------- Cash Flows from Investing Activities: Purchases of property and equipment... (45,040) (69,639) (102,232) -- (49,348) --------- --------- ----------- --------- ----------- Net cash used in investing activities.................. (45,040) (69,639) (102,232) -- (49,348) --------- --------- ----------- --------- ----------- Cash Flows from Financing Activities: Borrowings from related parties....... 66,110 -- -- -- 543,212 Payment to related parties............ -- (12,878) (19,933) (10,900) -- Proceeds from issuance of note to shareholder........................ -- -- -- -- 1,000,000 Borrowings of short term debt......... -- 263,561 312,259 62,259 50,000 Repayments of short term debt......... -- (114,320) (118,630) (36,192) (27,365) Repurchase of stock................... (1,120) -- (428) -- -- Proceeds from issuance of common stock.............................. -- -- -- -- 500 Principal payments under capital lease obligations........................ (403) (8,935) (47,600) (5,179) (31,904) --------- --------- ----------- --------- ----------- Net cash provided by (used in) financing activities........ 64,587 127,428 125,668 9,988 1,534,443 --------- --------- ----------- --------- ----------- Net Increase (Decrease) in Cash......... (1,259) (7,365) 24,371 86,961 57,553 Cash, beginning of year................. 10,465 9,206 1,841 1,841 26,212 --------- --------- ----------- --------- ----------- Cash, end of year....................... $ 9,206 $ 1,841 $ 26,212 $ 88,802 $ 83,765 ========= ========= =========== ========= =========== Supplemental Disclosure of Cash Flow Information: Cash paid during the period for interest........................... $ 3,590 $ 18,098 $ 45,075 $ 8,025 $ 30,258 ========= ========= =========== ========= =========== Noncash Transactions: Equipment acquired under capital leases............................. $ 12,237 $ 32,827 $ 251,782 $ 10,760 $ 261,545 ========= ========= =========== ========= ===========
The accompanying notes to consolidated financial statements are an integral part of these statements. F-6 60 YESMAIL.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION RELATING TO MARCH 31, 1998 AND 1999 IS UNAUDITED) 1. THE COMPANY AND DESCRIPTION OF BUSINESS yesmail.com, inc. (the "Company") provides Internet marketing services to companies that conduct part or all of their business through e-commerce. The Company's services include targeted direct email campaigns to specific members in the YesMail Network who have given express permission to receive direct marketing messages in specific categories of interest. The Company also offers a variety of services focused on delivering Internet users to a particular Web site. Superhighway Consulting, Inc. ("SCI", doing business as WebPromote) was founded in 1995 and was merged with WP Holding, Inc. ("WP Holding") on March 29, 1999, in a stock for stock transaction (the "Merger"), with the SCI stockholders receiving 80% of the outstanding shares of WP Holding. WP Holding had no operations prior to the Merger, and therefore, for accounting purposes the Merger is viewed as a 30.86 for one stock split by the Company on March 29, 1999. In connection with the Merger, SCI and certain stockholders of WP Holding entered into a Founders' Agreement, which, among other things, gives the former SCI stockholders the right to retain the first $16 million in value of the Company upon subsequent sale, merger or initial public offering. The $16 million represented the negotiated value of SCI as of the date of the Merger. The financial statements reflect the historical accounts of SCI, with the number of SCI shares retroactively adjusted to reflect the stock split referred to above. On May 10, 1999, WP Holding changed its name to yesmail.com, inc. Starting Point, L.L.C. ("Starting Point"), which is 70% owned by the Company, manages and operates an Internet directory and search resource. Starting Point owns a list of permission e-mail addresses and sells Web site banner advertisements for its Web site. 2. LIQUIDITY AND FINANCING CONSIDERATIONS The Company has sustained net losses since its inception. The Company's ability to meet its obligations in the ordinary course of business is dependent upon its ability to establish profitable operations or to obtain additional funding through public or private equity financing, collaborative or other arrangements with corporate sources, and, ultimately, to establish profitable operations. The Company's operating plan is to rapidly expand its sales and marketing, product development and administrative operations and to develop new strategic relationships to promote the Company's future growth. This will likely result in negative cash flow from operations at least through the year 2000. The Company raised $9 million of equity capital in May 1999 (see Note 11), but will likely need to raise additional capital prior to the end of 1999. As discussed in Note 11, the Company is preparing for an initial public offering of stock. In the opinion of management, alternative financing from new or existing investors will be available to the Company if the initial public offering is delayed or canceled. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its subsidiary. All significant intercompany balances and transactions have been eliminated in the consolidation process. F-7 61 YESMAIL.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION RELATING TO MARCH 31, 1998 AND 1999 IS UNAUDITED) INTERIM FINANCIAL STATEMENTS (UNAUDITED) In the opinion of the Company's management, the March 31, 1998 and 1999 unaudited interim consolidated financial statements include all adjustments, consisting of normal recurring adjustments necessary for a fair presentation of such financial statements. The results of operations for the three months ended March 31, 1999 are not necessarily indicative of the results to be expected for the entire year. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets or, for leasehold improvements, the shorter of the lease term or the estimated useful life of the asset, as follows: Computer equipment................................. 1 - 2 years Computer software.................................. 1 - 2 years Telephone equipment................................ 2 - 5 years Furniture and fixtures............................. 5 - 7 years Leasehold improvements............................. 1 - 5 years
Maintenance and repairs are charged to expense as incurred and improvements and betterments are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in the consolidated statement of operations for the period in which it is realized. INCOME TAXES The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred tax assets and liabilities are determined based on temporary differences between the financial statement and tax bases of assets and liabilities and net operating loss and credit carryforwards using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. A provision for income tax expense is recognized for income taxes payable for the current period, plus the net changes in deferred tax amounts. REVENUE RECOGNITION The Company earns revenues from its customers by (i) charging fees for sending targeted email to its owned and represented subscribers, (ii) placing advertisements on Web sites and (iii) providing services to Web site owners. Revenue is recognized when emails are transmitted to subscribers, as advertisements are placed on Web sites, and when services are performed. F-8 62 YESMAIL.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION RELATING TO MARCH 31, 1998 AND 1999 IS UNAUDITED) Deferred revenue represents liabilities for services not yet rendered or for advertisements not yet placed. The Company becomes obligated to make payments to third-party Web sites, which have contracted with the Company to be part of the YesMail Network, in the period the email messages are delivered. Such expenses are classified as cost of revenues in the consolidated statements of operations. RESEARCH AND DEVELOPMENT COSTS Costs incurred in the development of its Web site, products, and related applications to be used in connection with the Company's services have been expensed to operations as incurred through the year ended December 31, 1998. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") No. 98-1, "Software for Internal Use," which provides guidance on accounting for the cost of computer software developed or obtained for internal use. The Company adopted SOP No. 98-1 on January 1, 1999. As a result, the Company has continued to expense its development costs as incurred as the rapid pace of technological change results in an estimated useful life of such software of one year or less. ADVERTISING COSTS The Company expenses the cost of advertising and promoting its services as incurred. Such costs are included in sales and marketing on the consolidated statement of operations and totaled approximately $199,000, $571,000, $699,000, $163,000, and $259,000 for the years ended December 31, 1996, 1997 and 1998 and for the three months ended March 31, 1998 and 1999, respectively. FINANCIAL INSTRUMENTS AND CONCENTRATION OF RISK Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, accounts receivable, accounts payable, short-term debt, obligations under capital leases and accrued liabilities. At December 31, 1997 and 1998, the fair market value of these instruments approximated their financial statement carrying amount because of the short term maturity of these instruments. The Company does not require collateral for accounts receivable, but does evaluate customer creditworthiness and establish allowances as necessary based on management estimates of collectibility. IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF 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 comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. STOCK-BASED COMPENSATION The Company accounts for stock-based compensation arrangements with employees in accordance with provisions of Accounting Principles Board ("APB"), Opinion No. 25, "Accounting for Stock Issued to Employees," and complies with the disclosure provisions of F-9 63 YESMAIL.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION RELATING TO MARCH 31, 1998 AND 1999 IS UNAUDITED) SFAS No. 123, "Accounting for Stock-Based Compensation." Under APB No. 25, compensation expense is based on the difference, if any, on the measurement date, between the estimated fair value of the Company's stock and the exercise price of options to purchase that stock or price paid for shares of stock. For directors and consultants receiving stock-based compensation, the Company complies with the provisions of SFAS No. 123. NET LOSS PER SHARE The Company computes net loss per share in accordance with SFAS No. 128, "Earnings per Share." Under the provisions of SFAS No. 128, basic net loss per share is computed by dividing the net loss for the period by the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing the net loss for the period by the weighted average number of common and common equivalent shares outstanding during the period. However, as the Company generated net losses in all periods presented, common equivalents shares, composed of incremental common shares issuable upon the exercise of warrants are not reflected in diluted net loss per share because such shares are anti-dilutive. OTHER COMPREHENSIVE INCOME Effective January 1, 1998, the Company adopted the provisions of SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting comprehensive income and its components in financial statements. Other comprehensive income, as defined, includes all changes in equity (net assets) during a period from nonowner sources. To date, the Company has not had any transactions that are required to be reported in comprehensive income. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standard Board ("FASB") issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for the way companies report information about operating segments in annual financial statements. It also establishes standards for related disclosures about products and services, geographic areas and major customers. The disclosures prescribed in SFAS No. 131 are effective for the year ended December 31, 1998. The Company has determined that it does not have any separately reportable business segments. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which defines derivatives, requires that all derivatives be carried at fair value, and provides for hedge accounting when certain conditions are met. SFAS No. 133 is effective for the Company in 2001. Although the Company has not fully assessed the implications of SFAS No. 133, the Company does not believe that the adoption of this statement will have a material impact on the Company's financial position or results of operations. 4. RELATED-PARTY TRANSACTIONS The Company had amounts payable to certain stockholders for expenses incurred on behalf of the Company in the amounts of $76,721 and $56,788 as of December 31, 1997 and 1998, respectively. These amounts were fully paid by January 1999. Subsequent to December 31, 1998, the Company obtained advances from certain stockholders totaling $600,000. These advances have been classified as due to related parties in the F-10 64 YESMAIL.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION RELATING TO MARCH 31, 1998 AND 1999 IS UNAUDITED) accompanying consolidated balance sheet. All advances were converted to series A preferred stock on May 18, 1999 as described further in Note 11. Starting Point pays a management fee to its minority member for services related to operating and managing the business. Management fees paid to the minority member were $5,000, $22,500, $81,000, $23,000 and $18,000 for the years ended December 31, 1996, 1997 and 1998 and for the three months ended March 31, 1998 and 1999, respectively. 5. PROPERTY AND EQUIPMENT Property and equipment are summarized as follows:
DECEMBER 31, --------------------- MARCH 31, 1997 1998 1999 -------- --------- --------- Computer equipment.................................... $117,029 $ 268,384 $ 537,911 Computer software..................................... 24,793 126,147 153,666 Telephone equipment................................... 16,851 57,528 57,528 Furniture and fixtures................................ 10,878 10,878 10,878 Leasehold improvements................................ -- 60,628 74,475 -------- --------- --------- 169,551 523,565 834,458 Accumulated depreciation.............................. (67,911) (169,694) (227,023) -------- --------- --------- $101,640 $ 353,871 $ 607,435 ======== ========= =========
6. SHORT-TERM DEBT The Company has lines of credit with two banks, providing for maximum borrowings of $370,000 as of both December 31, 1998 and March 31, 1999. Interest rates ranged from 9.25% to 14.75%, with a weighted average rate of 9.37% as of December 31,1998. One line of credit matures on July 15, 1999 and the other line of credit has no expiration date. Outstanding borrowings under the lines of credit were $149,241, $298,955 and $322,972, as of December 31, 1997 and 1998 and March 31, 1999. Borrowings are personally guaranteed by certain stockholders. On March 12, 1998 the Company borrowed $50,000 from a bank at an interest rate of 10.0% that matures on July 15, 1999. The balance of the note was $43,915 and $42,533 as of December 31, 1998 and March 31, 1999. The loan is collateralized by all of the assets and property of the Company. 7. 401(k) SAVINGS PLAN In September 1997, the Company established a 401(k) Savings Plan (the "Plan") that covers substantially all employees. Under the Plan, employees are permitted to contribute a portion of gross compensation not to exceed standard limitations provided by the Internal Revenue Service. The Company maintains the right to match employee contributions, but for the years ended December 31, 1997 and 1998 and for the three months ended March 31, 1999, no Company matching contributions were made. F-11 65 YESMAIL.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION RELATING TO MARCH 31, 1998 AND 1999 IS UNAUDITED) 8. COMMITMENTS AND CONTINGENCIES LEASES The Company leases office space and equipment under noncancelable operating and capital leases with various expiration dates through the year 2003. Rent expense amounted to approximately, $19,000, $51,000, $86,000, $17,000 and $43,000 for the years ended December 31, 1996, 1997 and 1998 and for the three months ended March 31, 1998 and 1999, respectively. Future minimum lease payments under noncancelable capital leases and operating leases as of December 31, 1998 are as follows:
CAPITAL OPERATING LEASES LEASES -------- --------- 1999........................................................ $112,683 $102,850 2000........................................................ 74,916 105,935 2001........................................................ 42,440 109,113 2002........................................................ 39,601 103,091 2003........................................................ 24,295 86,172 -------- -------- Total minimum lease payments................................ $293,935 $507,161 ======== Less -- Amount representing interest........................ (54,027) -------- Present value of capital lease obligations.................. 239,908 Less -- Current portion..................................... (87,165) -------- Long-term portion........................................... $152,743 ========
LITIGATION In connection with the termination of employment of a stockholder, the Company exercised its right to repurchase the stockholder's shares in accordance with the Shareholders' Agreement described in Note 9. The former stockholder has filed a lawsuit contesting the repurchase amount. During 1998, the Company recorded a reserve of $250,000 in other expense in the accompanying financial statements. Subsequent to year end, the case was settled for approximately $250,000. Additionally, the Company is, at times, subject to pending and threatened legal actions and proceedings. After reviewing pending and threatened actions and proceedings with counsel, management believes that the outcome of such actions or proceedings is not expected to have a material adverse effect on the financial position or results of operations of the Company. 9. COMMON STOCK In June 1997, the Company's Board of Directors authorized a four for one stock split. In January 1998, the Board of Directors authorized a five hundred for one stock split. In connection with the Merger, the financial statements reflect a 30.86 for one stock split on March 29, 1999. The consolidated financial statements have been restated to reflect these stock splits. During June 1997, two principal stockholders awarded shares from their holdings of common stock of the Company to employees. Additionally, the Company granted stock awards from treasury stock to several employees in lieu of cash compensation. In both instances, compensation expense was recorded for the entire amount of the awards based upon the estimated fair value of the stock at the time of the issuance. F-12 66 YESMAIL.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION RELATING TO MARCH 31, 1998 AND 1999 IS UNAUDITED) In February 1999, the Company retired all treasury shares outstanding. The stock of SCI, prior to the Merger, was subject to a Shareholders' Agreement which gave SCI the right to repurchase the stock, at a formula price, from stockholders who terminated employment with SCI. The Shareholders' Agreement also gave SCI the right of first refusal to repurchase shares offered to a third party. The Shareholders' Agreement was terminated in connection with the Merger with WP Holding. 10. INCOME TAXES As of December 31, 1998, the Company had net operating loss carryforwards of approximately $1,423,000, which begin to expire in the year 2010. As a result of various equity transactions during 1999, the Company believes that it may have undergone an "ownership change" as defined in section 382 of the Internal Revenue Code. Accordingly, the utilization of a portion of the net operating loss carryforwards may be limited. Due to the uncertainty regarding the ultimate utilization of the net operating carryforwards, the Company has not recorded any benefit for losses and a valuation allowance has been recorded for the entire amount of the net deferred tax asset. In addition, sales of the Company's stock, including shares sold in the Company's initial public offering, may further restrict its ability to utilize its net operating loss carryforwards. The difference between the income tax benefit at the federal statutory rate of 34% and the Company's effective tax rate is due primarily to recognition of a full valuation allowance to offset the deferred tax assets. The estimated tax effects of significant temporary difference and carryforwards that give rise to deferred income tax assets as of December 31, 1998, are as follows: Deferred income tax assets -- Net operating loss carryforwards.......................... $ 554,787 Accrued liabilities and other............................. 453,448 ---------- Gross deferred income tax assets.................. 1,008,235 Less: valuation allowance................................... (839,316) ---------- Deferred income tax liabilities -- Deferred revenue.......................................... (156,629) Depreciation on property and equipment.................... (12,290) ---------- Gross deferred income tax liabilities............. (168,919) ---------- Net deferred tax assets........................... $ -- ==========
The Company has recorded a valuation allowance against gross deferred tax assets due to uncertainties surrounding their realization. The amount of net deferred tax assets considered realizable, however, could be increased in the future if estimates of future taxable income are increased. 11. SUBSEQUENT EVENTS BRIDGE LOAN/WARRANT On December 28, 1998, the Company agreed to issue a warrant to an individual in connection with a loan of $1.0 million ("Bridge Loan"), which was to be converted into series A F-13 67 YESMAIL.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION RELATING TO MARCH 31, 1998 AND 1999 IS UNAUDITED) convertible preferred stock at the option of the holder. The warrant was only exercisable upon an event of default. No value was ascribed to the warrant. The proceeds from the loan were received and the warrant was issued in January 1999. On May 18, 1999, the loan was converted into 1,527,273 shares of series A convertible preferred stock in connection with the Company's private equity placement (see Note 11) and the warrant was canceled. STOCK OPTION PLAN On April 1, 1999, the Company adopted the 1999 Stock Plan (the "Stock Plan") which provides for the grant of up to 8,600,000 incentive or non-statutory stock options or shares of restricted stock to employees, directors and consultants ("Optionee") of the Company. On May 17, 1999, the Board of Directors increased the number of authorized options to 9,800,000. Options granted under the Stock Plan generally vest ratably over a period of four years and expire ten years from the date of grant. If an Optionee ceases employment with or service to the Company ("Termination"), the Optionee may exercise any vested option at the time of Termination within such period of time specified in the option agreement. In the absence of a specified time in the option agreement, the option remains exercisable for three months following the Optionee's Termination. Unvested options revert to the Stock Plan at the date of the Termination. If, after Termination, the Optionee does not exercise the options within the time specified, the Option shall terminate and the shares revert to the Stock Plan. In May, 1999, the Company issued an aggregate of 6,385,455 shares of restricted common stock to officers for $0.60 per share. In the event of a change of control (as defined in the Restricted Stock Purchase Agreement), 25% of the shares purchased vest (in addition to any shares vested at such time). In connection with such issuance, the officers paid for the stock by issuing notes payable to the Company that are secured by the shares of the Company's common stock purchased. The secured notes receivable bear interest at 5.22% per annum with the entire principal balance of the note, together with all accrued and unpaid interest, due and payable on the earlier of (a) the sale of the underlying common stock, (b) May 10, 2008 or (c) termination of employment. The Company has recourse against the signers of the notes for 75% of the principal and all accrued interest. The notes receivable from the stockholders will be classified as a reduction of equity. The shares generally vest over a four-year period; however, 2,400,000 shares vest seven months from the occurrence of an initial public offering. The stock is restricted in that any unvested shares are subject to repurchase rights by the Company upon the occurrence of certain events or conditions, such as employment termination, at the original purchase price. During April and May 1999, the Company issued 650,000 incentive stock options and 1,510,000 non-qualified stock options with an exercise price of $0.60 per share, which vest over two to four years. CONVERTIBLE PREFERRED STOCK On May 18, 1999, the Company issued 13,745,460 shares of $.0001 par value series A convertible preferred stock at $.6548 per share ("Subscription Price") for gross proceeds of $9.0 million, including the $1 million Bridge Loan and the $600,000 of stockholder advances previously received. The Bridge Loan and stockholder advances were converted to 2,443,637 shares of preferred stock. F-14 68 YESMAIL.COM, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION RELATING TO MARCH 31, 1998 AND 1999 IS UNAUDITED) Each share of preferred stock is non-voting and convertible to common stock at any time, at the option of the holder and mandatorily upon an initial public offering that exceeds a threshold, or sale of the business. Dividends on the preferred stock are earned at a rate of $0.05 per share per annum (approximating an 8% yield), and are only payable upon certain dividend accrual events, such as a sale. Holders of the preferred stock are entitled to a liquidation preference in the event of any liquidation and such holders have the right to approve certain transactions. INITIAL PUBLIC OFFERING On June 4, 1999, the Company's Board of Directors authorized the Company to file a registration statement with the Securities and Exchange Commission for the purpose of an initial public offering of the Company's common stock. Upon the completion of this offering, if requirements set forth in its Certificate of Incorporation are met, the Company's preferred stock will be converted into 13,745,460 shares of common stock, and all outstanding shares of preferred stock will be canceled and retired. F-15 69 [ON INSIDE COVER Photograph of peoples' hands raised to indicate that they are saying "yes" to receiving permission email messages. A brief description of the YesMail Network is provided. As an inset to the page is a chart which shows the comparative response rates, documented by 3rd party sources, for permission email, direct mail and banner advertising.] [ON FOLD OUT FLAP INSIDE THE COVER Chart which diagrams the flow of direct marketing messages from direct marketers, through the YesMail Network, to consumers with arrows showing the direction of messages and resulting responses. The YesMail Network, technology and products are listed to illustrate their roles in enabling the process of targeting, delivering and tracking permission email messages.] [ON INSIDE BACK COVER A case study of a real permission email campaign, with illustration/photo of client Web site/logo. In summary form, the case study explains the campaign objectives, implementation and results. On the right hand border of the page is a panel with logos of some companies with whom yesmail.com works.] 70 - --------------------------------------------------------- - --------------------------------------------------------- YOU MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN THE PROSPECTUS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR SALE OF COMMON STOCK MEANS THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AFTER THE DATE OF THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY THESE SHARES IN ANY CIRCUMSTANCES UNDER WHICH THE OFFER OR SOLICITATION IS UNLAWFUL. ------------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary...................... 3 Risk Factors............................ 6 Special Note Regarding Forward-Looking Statements............................ 14 Use of Proceeds......................... 15 Dividend Policy......................... 15 Corporate Information................... 15 Capitalization.......................... 16 Dilution................................ 17 Selected Consolidated Financial Data.... 18 Management's Discussion and Analysis of Financial Condition and Results Operations............................ 19 Business................................ 27 Management.............................. 38 Related Party Transactions.............. 44 Principal Stockholders.................. 46 Description of Capital Stock............ 48 Shares Eligible for Future Sale......... 50 Underwriting............................ 51 Legal Matters........................... 53 Experts................................. 53 Where You Can Find More Information..... 53 Index to Financial Statements........... F-1
------------------------ UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS THAT BUY, SELL OR TRADE IN THESE SHARES OF COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. DEALERS ARE ALSO OBLIGATED TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. - --------------------------------------------------------- - --------------------------------------------------------- - --------------------------------------------------------- - --------------------------------------------------------- SHARES [LOGO] COMMON STOCK --------------------- PROSPECTUS --------------------- DEUTSCHE BANC ALEX. BROWN THOMAS WEISEL PARTNERS LLC VOLPE BROWN WHELAN & COMPANY , 1999 - --------------------------------------------------------- - --------------------------------------------------------- 71 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth all expenses, other than the underwriting discounts and commissions, payable by the Registrant in connection with the sale of the securities being registered. All amounts shown are estimates except for the SEC registration fee and the NASD filing fee. SEC registration fee........................................ $12,800 NASD filing fee............................................. 5,100 NASDAQ National Market Fees................................. * Blue Sky qualification fees and expenses.................... * Printing and engraving expenses............................. * Accountant's fees and expenses.............................. * Legal fees and expenses..................................... * Miscellaneous............................................... $ * ------- Total............................................. * =======
- ------------------------- * To be completed by amendment. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the Delaware General Corporation Law permits a corporation to include in its charter documents, and in agreements between the corporation and its directors and officers, provisions expanding the scope of indemnification beyond that specifically provided by the current law. Article 8 of the Registrant's Restated Certificate of Incorporation provides for the indemnification of directors to the fullest extent permissible under Delaware law. Article 6 of the Registrant's Bylaws provides for the indemnification of officers, directors and third parties acting on behalf of the Registrant if such person acted in good faith and in a manner reasonably believed to be in and not opposed to the best interest of the Registrant, and, with respect to any criminal action or proceeding, the indemnified party had no reason to believe his or her conduct was unlawful. The Registrant has entered into indemnification agreements with its directors and executive officers, in addition to indemnification provided for in the Registrant's Bylaws, and intends to enter into indemnification agreements with any new directors and executive officers in the future. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. On May 10, 1999, the Registrant sold an aggregate of 6,385,455 shares of its common stock to 6 employees in exchange for cash and notes in an aggregate amount of approximately $3.8 million pursuant to restricted stock purchase agreements. On May 18, 1999, the Registrant sold an aggregate of 13,745,460 shares of its series A preferred stock to an aggregate of 72 persons in exchange for an aggregate of $9.0 million, including $7.4 million in cash and $1.6 million of conversion of indebtedness. On March 29, 1999, the Registrant issued 20,000,000 shares of its common stock to an aggregate of 7 persons pursuant to the terms of an agreement and plan of merger. II-1 72 On March 25, 1999, the Registrant issued 5,000,000 shares of its common stock to an aggregate of 5 persons pursuant to the terms of a subscription agreement for an aggregate of $500. None of the foregoing transactions involved any underwriters, underwriting discounts or commissions, or any public offering, and the Registrant believes that each transaction was exempt from the registration requirements of the Securities Act by virtue of Section 4(2) thereof, Regulation D promulgated thereunder or Rule 701 pursuant to compensatory benefit plans and contracts relating to compensation as provided under such Rule 701. The recipients in such transaction represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were affixed to the share certificates and instruments issued in such transactions. All recipients had adequate access, through their relationships with the Registrant, to information about the Registrant. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits.
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------- ----------------------- 1.1* Form of Underwriting Agreement 3.1 Third Amended and Restated Certificate of Incorporation of yesmail.com, inc., dated May 20, 1999 3.2* Form of Amended and Restated Certificate of Incorporation of the Registrant to be filed upon the closing of the offering 3.3 Restated Bylaws of the Registrant 4.1* Specimen Common Stock Certificate 4.2 Registration Rights Agreements dated May 18, 1999 5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation 10.1 Form of Indemnification Agreement between the Registrant and each of its directors and officers 10.2 Form of Restricted Stock Purchase Agreement 10.3* 1999 Stock Option Plan and form of agreements thereunder 10.4* 1999 Employee Stock Purchase Plan 10.5 Office/Service Center Lease dated May 12, 1998 10.6 Software License Agreement between the Registrant and Revnet dated June 4, 1999 10.7 Employment Agreement dated March 12, 1999, for David M. Tolmie 10.8 Employment Agreement dated April 2, 1999, for David B. Menzel 10.9 Employment Agreement dated May 27, 1999, for Mark D. Boyce 10.10 Employment Agreement dated February 15, 1999, for Peder J. Jungck 10.11 Employment Agreement dated April 17, 1999, for Michael R. Mooradian 10.12 Employment Agreement dated March 3, 1999, for Anthony Priore 10.13 Employment Agreement dated March 31, 1999, for John G. Vandegrift 23.1 Consent of Arthur Andersen LLP, Independent Public Accountants 23.2 Consent of Counsel (see Exhibit 5.1) 24.1 Power of Attorney (see page II-6) 27.1 Financial Data Schedule
- ------------------------- * To be filed by amendment (b) Financial Statement Schedules. II-2 73 Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto. ITEM 17. UNDERTAKINGS. The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 74 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-1 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto, duly authorized, in the City of Vernon Hills, Illinois, on June 7, 1999. yesmail.com, inc. By: /s/ DAVID M. TOLMIE ------------------------------------ David M. Tolmie Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints David Tolmie and David Menzel, and each of them his attorney-in-fact, with the power of substitution, for him in any and all capacities, to sign any amendment or post-effective amendment to this Registration Statement on Form S-1 or abbreviated registration statement (including, without limitation, any additional registration filed pursuant to Rule 462 under the Securities Act of 1933) with respect hereto and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ DAVID M. TOLMIE Chief Executive Officer June 7, 1999 - ----------------------------------------------------- and Director David M. Tolmie (Principal Executive Officer) /s/ DAVID B. MENZEL Chief Financial Officer June 7, 1999 - ----------------------------------------------------- (Principal Financial and David B. Menzel Accounting Officer) /s/ KENNETH D. WRUK Chairman of the Board June 7, 1999 - ----------------------------------------------------- of Directors Kenneth D. Wruk /s/ GIAN FULGONI Director June 7, 1999 - ----------------------------------------------------- Gian Fulgoni /s/ ALEXANDER HERN Director June 7, 1999 - ----------------------------------------------------- Alexander Hern /s/ MICHAEL A. SANTER Director June 7, 1999 - ----------------------------------------------------- Michael A. Santer /s/ ROBERT W. SHAW Director June 7, 1999 - ----------------------------------------------------- Robert W. Shaw /s/ JOHN VANDEGRIFT Director June 7, 1999 - ----------------------------------------------------- John Vandegrift
II-4 75 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of yesmail.com, inc.: We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements of yesmail.com, inc. included in this Form S-1 and issued our report thereon dated June 4, 1999. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The Rule 12-09 Valuation Reserve schedule is presented for purposes of complying with the Securities and Exchange Commission's rules and is not a part of the basic financial statements. This schedule has been subject to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. Arthur Andersen LLP Chicago, Illinois June 4, 1999 S-1 76 YESMAIL.COM INC. SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND FOR THE QUARTERS ENDED MARCH 31, 1998 AND 1999 ALLOWANCE FOR DOUBTFUL ACCOUNTS
THREE MONTHS YEARS ENDED DECEMBER 31, ENDED MARCH 31, ----------------------------- ------------------ 1996 1997 1998 1998 1999 ------- ------- ------- ------- ------- Beginning Balance.................... 3,981 25,707 25,707 25,707 55,871 Provisions for allowance............. 44,845 87,513 60,076 29,292 49,999 Write offs against the allowance..... (23,119) (87,513) (29,912) (14,384) -- Ending Balance....................... 25,707 25,707 55,871 40,615 105,870
S-2 77 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------- ----------------------- 1.1* Form of Underwriting Agreement.............................. 3.1 Third Amended and Restated Certificate of Incorporation of yesmail.com, inc., dated May 20, 1999....................... 3.2* Form of Amended and Restated Certificate of Incorporation of the Registrant to be filed upon the closing of the offering.................................................... 3.3 Restated Bylaws of the Registrant........................... 4.1* Specimen Common Stock Certificate........................... 4.2 Registration Rights Agreements dated May 18, 1999........... 5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation................................................. 10.1 Form of Indemnification Agreement between the Registrant and each of its directors and officers.......................... 10.2 Form of Restricted Stock Purchase Agreement 10.3* 1999 Stock Option Plan and form of agreements thereunder.... 10.4* 1999 Employee Stock Purchase Plan........................... 10.5 Office/Service Center Lease dated May 12, 1998.............. 10.6 Software License Agreement between the Registrant and Revnet dated June 4, 1999.......................................... 10.7 Employment Agreement dated March 12, 1999, for David M. Tolmie...................................................... 10.8 Employment Agreement dated April 2, 1999, for David B. Menzel...................................................... 10.9 Employment Agreement dated May 27, 1999, for Mark D. Boyce....................................................... 10.10 Employment Agreement dated February 15, 1999, for Peder Jungck 10.11 Employment Agreement dated April 17, 1999, for Michael R. Mooradian................................................... 10.12 Employment Agreement dated March 3, 1999, for Tony Priore 10.13 Employment Agreement dated March 31, 1999, for John G. Vandegrift.................................................. 23.1 Consent of Arthur Andersen, LLP, Independent Public Accountants................................................. 23.2* Consent of Counsel (see Exhibit 5.1)........................ 24.1 Power of Attorney (see page II-6)........................... 27.1 Financial Data Schedules....................................
- ------------------------- * To be filed by amendment EX-3.1 2 THIRD AMENDED AND RESTATED CERTIFICATE OF INCORP. 1 EXHIBIT 3.1 3RD AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF YESMAIL.COM, INC., FORMERLY KNOWN AS WP HOLDING, INC. yesmail.com, inc., formerly known as WP Holding, Inc., a corporation organized on October 26, 1998 and existing under and by virtue of the General Corporation Law of the State of Delaware ("GCL"), pursuant to Sections 242 and 245, DOES HEREBY CERTIFY: FIRST: The name of the corporation is: yesmail.com, inc. SECOND:The address of its registered office in the State of Delaware is 1013 Centre Road, Wilmington, New Castle County, Delaware 19805. The name of its registered agent at such address is Corporation Service Company. THIRD: The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the GCL. FOURTH: I. Authorized Shares and Par Value. The total number of shares of all classes of stock which the corporation shall have authority to issue is seventy five million (75,000,000) shares, of which sixty million (60,000,000) shares shall be common stock, each with a par value of $.0001 and fifteen million (15,000,000) shares shall be preferred stock, each with a par value of $.0001. II. Common Stock. Each holder of common stock shall be entitled to one vote for each share of common stock held on all matters as to which holders of common stock shall be entitled to vote. Except for and subject to those preferences, rights, and privileges expressly granted to the holders of preferred stock, and except as may be provided by the laws of the State of Delaware, the holders of common stock shall have exclusively all other rights of stockholders of the Corporation, including, but not by any way of limitation, (i) the right to receive dividends, when and as declared by the board of directors out of assets lawfully available therefore, and (ii) in the event of any distribution of assets upon the dissolution and liquidation of the Corporation, the right to receive ratably and equally all of the assets of the Corporation, remaining after the payment to the holders of preferred stock of the specific amounts, if any, which they are entitled to receive as may be provided herein or pursuant hereto. III. Preferred Stock. The board of directors of the Corporation is authorized, subject to limitations prescribed by law, to provide by resolution or resolutions for the issuance of the shares of preferred stock as a class or in series, and, by filing a certificate of designations pursuant to the Delaware General Corporation Law setting 2 forth a copy of such resolution or resolutions, to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences, and rights of the shares of the class or of each such series and the qualifications, limitations, and restrictions thereof. The authority of the board of directors with respect to the class or each series shall include, but not be limited to, determination of the following: (i) The number of shares constituting any series and the distinctive designation of that series; (ii) The dividend rate on the shares of the class or of any series, whether dividends shall be cumulative, and, if so, from which date or dates, and the relative rights or priority, if any, of payment of dividends on shares of the class or of that series; (iii) Whether the class or any series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; (iv) Whether the class or any series shall have conversion privileges, and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the board of directors shall determine; (v) Whether or not the shares of the class or of any series shall be redeemable, and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; (vi) Whether the class or any series shall have a sinking fund for the redemption or purchase of shares of the class or of that series, and, if so, the terms and amount of such sinking fund; (vii) The rights of the shares of the class or of any series in the event of voluntary or involuntary dissolution or winding up of the Corporation, and the relative rights of priority, if any, of payment of shares of the class or of that series; (viii) Any other powers, preferences, rights, qualifications, limitations, and restrictions of the class or of any series. FIFTH: The name and mailing address of the incorporator is Bartly J. Loethen, c/o Burke, Warren, MacKay & Serritella, P.C., 330 N. Wabash Avenue, 22nd Floor, Chicago, Illinois 60611. SIXTH: In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter or repeal the by-laws of the corporation. 3 SEVENTH: The election of directors need not be by written ballot. EIGHTH: Indemnification. (a) Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter, a "Proceeding"), by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was a director or officer of the corporation or is or was serving at the request of the corporation as a director, officer or trustee of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such Proceeding is alleged action or inaction in an official capacity as a director, officer or trustee or in any other capacity while serving as a director, officer or trustee, shall be indemnified and held harmless by the corporation to the fullest extent authorized by the GCL, as the same exists as of the date hereof or as may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than said law permitted the corporation to provide both prior to such amendment and as of the date hereof), against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) actually and reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer or trustee and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that, except as provided in paragraph (b) hereof, the corporation shall indemnify any such person seeking indemnification in connection with a Proceeding (or part thereof) initiated by such person only if such Proceeding (or part thereof) was authorized by the Board. The right to indemnification conferred in this ARTICLE EIGHTH shall be a contract right and shall include the right to be paid by the corporation the expenses incurred in connection with any such Proceeding in advance of its final disposition; provided, however, that, if the GCL requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a Proceeding, shall be made only upon delivery to the corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this ARTICLE EIGHTH or otherwise. The corporation may, by action of the Board, provide indemnification to employees and agents of the corporation with the same scope and effect as the foregoing indemnification of directors, officers and trustees. (b) Right of Claimant to Bring Suit. If a claim under paragraph (a) of this ARTICLE EIGHTH is not paid in full by the corporation within thirty days after written notice thereof has been received by the corporation, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any Proceeding in advance of its final disposition where the required undertaking, if any is 4 required, has been tendered to the corporation, and as to any such other action as to which it shall not be a defense) that the claimant has not met the standards of conduct which make it permissible under the GCL for the corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the corporation. Neither the failure of the corporation (including the Board, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct under the GCL, nor an actual determination by the corporation (including the Board, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. (c) Non-Exclusivity of Rights. The rights to indemnification and the payment of expenses incurred in connection with a Proceeding in advance of its final disposition conferred in this ARTICLE EIGHTH shall not be (and they shall not be deemed to be) exclusive of any other right which any person may have or hereafter acquire under any statute, provision of this Certificate of Incorporation, by-law, agreement, vote of stockholders or disinterested directors or otherwise. (d) Insurance. The corporation may purchase and maintain insurance, at its expense, to protect itself and any director, officer, trustee, employee or agent of the corporation or another corporation, or of a partnership, joint venture, trust or other enterprise against any expense, liability or loss (as such terms are used in this ARTICLE EIGHTH), whether or not the corporation would have the power to indemnify such person against such expense, liability or loss under the GCL. (e) Impairment of Existing Rights. Any repeal or modification of this ARTICLE EIGHTH shall not impair or otherwise affect any rights, or obligations then existing with respect to any state of facts then or theretofore existing or any action, suit or proceeding theretofore or thereafter brought based in whole or in part upon any such state of facts. (f) Construction and Presumption. This ARTICLE EIGHTH shall be liberally construed in favor of indemnification and the payment of expenses incurred in connection with a Proceeding in advance of its final disposition and there shall be a rebuttable presumption that a claimant under this ARTICLE EIGHTH is entitled to such indemnification and the corporation shall bear the burden of proving by a preponderance of the evidence that such claimant is not so entitled to indemnification. (g) Confidentiality. Any finding that a person asserting a claim for indemnification pursuant to this ARTICLE EIGHTH is not entitled to such indemnification, and any information which may support such finding, shall be held in confidence to the extent permitted by law and shall not be disclosed to any third party. (h) Severability. If any provision of this ARTICLE EIGHTH shall be deemed invalid or unenforceable, the corporation shall remain obligated to indemnification and advance expenses subject to all those provisions of this ARTICLE EIGHTH which are not invalid or unenforceable. 5 NINTH: No director of the corporation shall be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however, that this ARTICLE NINTH shall 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 the GCL, or (iv) for any transaction from which the director derived an improper personal benefit. No amendment to or repeal of this ARTICLE NINTH shall apply to or have any effect on the liability or alleged liability of any director of the corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. THE UNDERSIGNED, being the authorized officer of the Company pursuant to the GCL, does hereunto set his hand and seal this 14th day of May, 1999. David M. Tolmie, President EX-3.3 3 RESTATED BYLAWS OF THE REGISTRANT 1 EXHIBIT 3.3 AMENDED AND RESTATED BYLAWS OF YESMAIL.COM, INC. (A DELAWARE CORPORATION) 2 TABLE OF CONTENTS
PAGE ---- ARTICLE I CORPORATE OFFICES 1 1.1 Registered Office 1 1.2 Other Offices 1 ARTICLE II MEETINGS OF STOCKHOLDERS 1 2.1 Place of Meetings 1 2.2 Annual Meeting 1 2.3 Special Meetings 1 2.4 Notice of Stockholders' Meetings 2 2.5 Advance Notice of Stockholder Nominees and Stockholder Business 2 2.6 Manner of Giving Notice; Affidavit of Notice 3 2.7 Quorum 3 2.8 Adjourned Meeting; Notice 4 2.9 Voting 4 2.10 Waiver of Notice 4 2.11 Stockholder Action by Written Consent Without a Meeting 4 2.12 Record Date for Stockholder Notice; Voting; Giving Consents 5 2.13 Proxies 5 2.14 List of Stockholders Entitled to Vote 5 2.15 Conduct of Business 6 ARTICLE III DIRECTORS 6 3.1 Powers 6 3.2 Number of Directors 6 3.3 Election Qualification and Term of Office of Directors 6 3.4 Resignation and Vacancies 6 3.5 Place of Meetings; Meetings By Telephone 7 3.6 First Meetings 7 3.7 Regular Meetings 8 3.8 Special Meetings; Notice 8 3.9 Quorum 8 3.10 Waiver of Notice 8 3.11 Adjourned Meeting; Notice 10 3.12 Conduct of Business 10 3.13 Board Action by Written Consent Without A Meeting 10 3.14 Fees and Compensation of Directors 10 3.15 Approval of Loans to Officers 10 3.16 Removal of Directors 10 3.17 Advisory Directors 11 ARTICLE IV COMMITTEES 11 4.1 Committees of Directors 11 4.2 Committee Minutes 12
-1- 3 TABLE OF CONTENTS (CONTINUED)
PAGE ---- 4.3 Meetings and Action of Committees 12 ARTICLE V OFFICERS 12 5.1 Officers 12 5.2 Election of Officers 12 5.3 Removal and Resignation of Officers 12 5.4 Chairman of the Board 13 5.5 Chief Executive Officer 13 5.6 President 13 5.7 Vice Presidents 13 5.8 Secretary 13 5.9 Chief Financial Officer 14 ARTICLE VI INDEMNITY 14 6.1 Indemnification of Directors and Officers 14 6.2 Indemnification of Others 15 6.3 Insurance 15 6.4 Payment of Expenses in Advance 15 6.5 Indemnity Not Exclusive 15 6.6 Conflicts 15 ARTICLE VII RECORDS AND REPORTS 16 7.1 Maintenance and Inspection of Records 16 7.2 Inspection by Directors 16 7.3 Representation of Shares of Other Corporations 16 7.4 Subsidiary Corporations 17 ARTICLE VIII GENERAL MATTERS 17 8.1 Stock Certificates; Partly Paid Shares 17 8.2 Lost Certificates 17 8.3 Construction; Definitions 18 8.4 Dividends 18 8.5 Fiscal Year 18 8.6 Seal 18 8.7 Transfer of Stock 18 8.8 Stock Transfer Agreements 18 8.9 Registered Stockholders 18 8.10 Execution of Contracts 19 ARTICLE IX AMENDMENTS 19 ARTICLE X DISSOLUTION 19
-2- 4 TABLE OF CONTENTS (CONTINUED)
PAGE ---- ARTICLE XI CUSTODIAN 20 11.1 Appointment of a Custodian in Certain Cases 20 11.2 Duties of Custodian 20
-3- 5 AMENDED AND RESTATED BYLAWS OF YESMAIL.COM, INC. ARTICLE I CORPORATE OFFICES 1.1 REGISTERED OFFICE The registered office of the corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle, State of Delaware. The name of the registered agent of the corporation at such location is Corporation Service Company. 1.2 OTHER OFFICES The Board of Directors may at any time establish other offices at any place or places where the corporation is qualified to do business. ARTICLE II MEETINGS OF STOCKHOLDERS 2.1 PLACE OF MEETINGS Meetings of stockholders shall be held at the principal executive office of the corporation, within or outside the State of Delaware, unless some other appropriate and convenient location be designated for that purpose from time to time by the Board of Directors. 2.2 ANNUAL MEETING Annual meetings of the stockholders shall be held, each year, at the time and on the day so designated by resolution of the Board of Directors. At the annual meeting, the stockholders shall elect a Board of Directors, consider reports of the affairs of the corporation and transact such other business as may be properly brought before the meeting. 2.3 SPECIAL MEETINGS -4- 6 A special meeting of the stockholders may be called at any time by the Board of Directors, the Chairman of the Board or the President. Except as next provided, notice shall be given as for the annual meeting. Upon receipt of a written request addressed to the Chairman, President, or Secretary, mailed or delivered personally to such officer by any person (other than the Board) entitled to call a special meeting of stockholders, such officer shall cause notice to be given, to the stockholders entitled to vote, that a meeting will be held at a time requested by the person or persons calling the meeting, not less than ten (10) nor more than sixty (60) days after the receipt of such request. 2.4 NOTICE OF STOCKHOLDERS' MEETINGS All notices of meetings with stockholders shall be in writing and shall be sent or otherwise given in accordance with Section 2.6 of these bylaws not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting. The notice shall specify the place, date, and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Notice of meetings, annual or special shall be given in writing not less than ten (10) nor more than sixty (60) days before the date of the meeting, to stockholders entitled to vote thereat by the Secretary or an assistant secretary, or if there be no such officer, or in the case of his neglect or refusal, by any director or stockholder. Such notices or any reports shall be given personally or by mail or other means of written communication and shall be sent to the stockholder's address appearing on the books of the corporation, or supplied by him to the corporation for the purpose of notice. Notice of any meeting of stockholders shall specify the place, the day and the hour of meeting, and (1) in case of a special meeting, the general nature of the business to be transacted and no other business may be transacted, or (2) in the case of an annual meeting, those matters which the Board at date of mailing, intends to present for action by the stockholders. At any meetings where directors are to be elected, notice shall include the names of the nominees, if any, intended at date of Notice to be presented by management for election. If a shareholder supplies no address, notice shall be deemed to have been given to him if mailed to the place where the principal executive office of the Company, inside or outside the State of Delaware, is situated, or published at least once in some newspaper of general circulation in the County of said principal office. 2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS To be properly brought before an annual meeting or special meeting, nominations for the election of -5- 7 director or other business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a stockholder. For such nominations or other business to be considered properly brought before the meeting by a stockholder such stockholder must have given timely notice and in proper form of his intent to bring such business before such meeting. To be timely, such stockholder's notice must be delivered to or mailed and received by the Secretary of the corporation not less than ninety (90) days prior to the meeting; provided, however, that in the event that less than one-hundred (100) days notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. To be in proper form, a stockholder's notice to the secretary shall set forth: (a) the name and address of the stockholder who intends to make the nominations or propose the business and, as the case may be, the name and address of the person or persons to be nominated or the nature of the business to be proposed; (b) a representation that the stockholder is a holder of record of stock of the corporation entitled to vote at such meeting and, if applicable, intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice or introduce the business specified in the notice; (c) if applicable, a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (d) such other information regarding each nominee or each matter of business to be proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had the nominee been nominated, or intended to be nominated, or the matter been proposed or intended to be proposed by the Board of Directors; and (e) if applicable, the consent of each nominee to serve as director of the corporation if so elected. The chairman of the meeting may refuse to acknowledge the nomination of any person or the proposal of any business not made in compliance with the foregoing procedure. 2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE Written notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the -6- 8 corporation. An affidavit of the Secretary or an assistant secretary or of the transfer agent of the corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. 2.7 QUORUM The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum is not present or represented at any meeting of the stockholders, then the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed. If a quorum be initially present, the stockholders may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum, if any action taken is approved by a majority of the stockholders required initially to constitute a quorum. When a quorum is present or represented at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which, by express provisions of the statutes or of the certificate of incorporation, a different vote is required, in which case such express provision shall govern and control the decision of the question. 2.8 ADJOURNED MEETING; NOTICE When a meeting is adjourned to another time or place, unless these bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than forty-five (45) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 2.9 VOTING The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.12 and Section 2.14 of these bylaws, subject to the provisions of Sections 217 and 218 of the General Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgers and joint owners of stock and to voting trusts and other voting agreements). Except as may otherwise be provided in the certificate of incorporation, each stockholder shall be -7- 9 entitled to one vote for each share of capital stock held by such stockholder. 2.10 WAIVER OF NOTICE Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice unless so required by the certificate of incorporation or these bylaws. 2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING Any action required or permitted to 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 outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Such consents shall be delivered to the corporation by delivery to its registered office in the state of Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. 2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS 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 or entitled to express consent or dissent to corporate action in writing without a meeting (if otherwise permitted by these bylaws and the corporation's certificate of incorporation), or entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall be not more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. If the Board of Directors does not so fix a record date, the fixing of such record date shall be governed by the provisions of Section 213 of the General Corporation Law of Delaware. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. -8- 10 2.13 PROXIES Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for him by a written proxy, signed by the stockholder and filed with the Secretary, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. A proxy shall be deemed signed if the stockholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the stockholder or the stockholder's attorney-in-fact. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(e) of the General Corporation Law of Delaware. 2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. 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. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list of stockholders or the books of the corporation, or to vote in person or by proxy at any meeting of stockholders and of the number of shares held by each such stockholder. 2.15 CONDUCT OF BUSINESS Meetings of stockholders shall be presided over by the Chairman of the Board, if any, or in his absence by the president, or in his absence by a vice president, or in the absence of the foregoing persons by a chairman designated by the Board of Directors, or in the absence of such designation by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting. The chairman of any meeting of stockholders shall determine the order of business and the procedures at the meeting, including such matters as the regulation of the manner of voting and conduct of business. ARTICLE III DIRECTORS 3.1 POWERS -9- 11 Subject to the provisions of the General Corporation Law of Delaware and any limitations in the certificate of incorporation or these bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors. Each director shall exercise such powers and otherwise perform such duties in good faith, in the manner such director believes to be in the best interests of the corporation, and with such care, including reasonable inquiry, using ordinary prudence, as a person in a like position would use under similar circumstances. 3.2 NUMBER OF DIRECTORS The number of directors which constitute the whole Board of Directors shall be fixed exclusively by one or more resolutions adopted from time to time by the Board of Directors. No reduction of the authorized number of directors shall have the effect of removing any director before that directors term of office expires. 3.3 ELECTION QUALIFICATION AND TERM OF OFFICE OF DIRECTORS Except as provided in Section 3.4 of these bylaws or the certificate of incorporation, at each annual meeting of stockholders, directors of the corporation shall be elected to hold office until their respective successors have been duly elected and qualified. Directors need not be stockholders unless so required by the certificate of incorporation or these bylaws, wherein other qualifications for directors may be prescribed. Election of directors need not be by written ballot unless a stockholder demands election by written ballot at the meeting and before voting begins. 3.4 RESIGNATION AND VACANCIES Any director may resign at any time upon written notice to the corporation. Stockholders may remove directors with cause. Any vacancy occurring in the Board of Directors because of resignation or death of a director may be filled by a majority of the remain members of the Board of Directors, although such majority is less than a quorum, or by a sole remaining director, and each director so elected shall hold office until his successor is elected at the next succeeding annual meeting of stockholders or at a special meeting called for that purpose. Unless otherwise provided in the certificate of incorporation or these bylaws: (a) Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, although less than a quorum or by a sole remaining director. (b) Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the certificate of incorporation, vacancies and -10- 12 newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. If at any time, by reason of death or resignation or other cause, the corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the General Corporation Law of Delaware. If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole board (as constituted immediately prior to any such increase), then the Court of Chancery may upon application of any stockholder or stockholders holding at least ten (10) percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the General Corporation Law of Delaware as far as applicable. 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE The Board of Directors of the corporation may hold meetings, both regular and special, either within or outside the State of Delaware, at such place as is designated in the notice of the meeting. Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, 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 in a meeting shall constitute presence in person at the meeting. Accurate minutes of any meeting of the Board of Directors or any committee thereof shall be maintained by the Secretary or other office designated for that purpose. 3.6 FIRST MEETINGS The first meeting of each newly elected Board of Directors shall be held immediately following the adjournment of the annual meetings of the stockholders. 3.7 REGULAR MEETINGS Regular meetings of the Board of Directors may be held without notice at the corporate offices or such other place, within or without the State of Delaware, at such time and place as the Board designates. 3.8 SPECIAL MEETINGS; NOTICE -11- 13 Special meetings of the Board may be called at any time by the Chief Executive Officer or the President or, if he or they are absent or unable or refuse to act, by any vice president or the Secretary or by any two directors, or by one director if only one is provided. At least twenty-four (24) hours notice of the time and place of special meetings shall be delivered personally to the directors or personally communicated to them by a corporate officer by telephone, facsimile or telegraph. If the notice is sent to a director by letter, it shall be addressed to him at his address as it is shown upon the records of the corporation (or if it is not so shown on such records or is not readily ascertainable, at the place in which the meetings of the directors are regularly held). In case such notice is sent by letter, it shall be sent by courier at least two (2) days prior to the time of the holding of the meeting. Such mailing, telegraphing, telephoning or delivery as above provided shall be due, legal and personal notice to such director. When all of the directors are present at any directors' meeting, however called or noticed, and either (i) sign a written consent thereto on the records of such meeting, or (ii) if a majority of the directors is present and if those not present sign a waiver of notice of such meeting or a consent to holding the meeting or an approval of the minutes thereof, whether prior to or after the holding of such meeting, which said waiver, consent or approval shall be filed with the Secretary of the corporation or (iii) if a director attends a meeting without notice, but without protesting, prior thereto or at its commencement, the lack of notice to him, then the transactions thereof are as valid as if had at a meeting regularly called and noticed. 3.9 QUORUM A majority of the number of directors as fixed by the certificate of incorporation or bylaws, shall be necessary to constitute a quorum for the transaction of business, and the action of a majority of the directors present at any meeting at which there is a quorum, when duly assembled, is valid as a corporate act; provided that a minority of the directors, in the absence of a quorum, may adjourn from time to time, but may not transact any business. A meeting at which a quorum is initially present may continue to transact business, notwithstanding the withdrawal of directors, if any action taken is approved by a majority of the required quorum for such meeting. 3.10 WAIVER OF NOTICE Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice unless so required by the certificate of incorporation or these bylaws. -12- 14 3.11 ADJOURNED MEETING; NOTICE Notice of the time and place of holding an adjourned meeting need not be given to absent directors if the time and place be fixed at the meeting adjourned and held within twenty-four (24) hours, but if adjourned more than twenty-four (24) hours, notice shall be given to all directors not present at the time of the adjournment. 3.12 CONDUCT OF BUSINESS Meetings of the Board of Directors shall be presided over by the Chairman of the Board, if any, or in his absence by the Chief Executive Officer, if any, or in their absence by the President, or in their absence by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting. The chairman of any meeting shall determine the order of business and the procedures at the meeting. 3.13 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, 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. 3.14 FEES AND COMPENSATION OF DIRECTORS Directors, as such, shall not receive any stated salary for their services, but by resolution of the Board, a fixed sum and expense of attendance, if any, may be allowed for attendance at each regular and special meeting of the Board, provided that nothing herein contained shall be construed to preclude any director from serving the Company in any other capacity and receiving compensation therefor. 3.15 APPROVAL OF LOANS TO OFFICERS The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiary, including any officer or employee who is a director of the corporation or its subsidiary, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in this section shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. 3.16 REMOVAL OF DIRECTORS Unless otherwise restricted by statute, by the certificate of incorporation or by these bylaws, any -13- 15 director or the entire Board of Directors may be removed with or without cause by the holders of a majority of the shares then entitled to vote at an election of directors; provided however, that, if the stockholders of the corporation are entitled to cumulative voting, no individual director maybe removed (unless the entire board is removed) if the number of votes cast against such removal would be sufficient to elect the director if then cumulatively voted at an election of the class of directors of which the director is a part. A vacancy created by the removal of a director may be filled only by the approval of the stockholders. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director's term of office. 3.17 ADVISORY DIRECTORS The Board of Directors from time to time may elect one or more persons to be Advisory Directors who shall not by such appointment be members of the Board of Directors. Advisory Directors shall be available from time to time to perform special assignments specified by the Chief Executive Officer or the President, to attend meetings of the Board of Directors upon invitation and to furnish consultation to the Board. The period during which the title shall be held may be prescribed by the Board of Directors. If no period is prescribed, the title shall be held at the pleasure of the Board. ARTICLE IV COMMITTEES 4.1 COMMITTEES OF DIRECTORS The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, with each committee to consist of one or more of the directors of the corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the 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 of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors or in the bylaws of the corporation, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority to (i) amend the certificate of incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors as provided in Section 151(a) of the General Corporation Law of Delaware, fix any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series -14- 16 of the same or any other class or classes of stock of the corporation), (ii) adopt an agreement of merger or consolidation under Sections 251 or 252 of the General Corporation Law of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets (iv) recommend to the stockholders a dissolution of the corporation or a revocation of a dissolution, or (v) amend the bylaws of the corporation; and, unless the board resolution establishing the committee, the bylaws or the certificate of incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of Delaware. 4.2 COMMITTEE MINUTES Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. 4.3 MEETINGS AND ACTION OF COMMITTEES Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these bylaws, Section 3.5 (place of meetings and meetings by telephone), Section 3.7 (regular meetings), Section 3.8 (special meetings and notice), Section 3.9 (quorum), Section 3.10 (waiver of notice), Section 3.11 (adjournment and notice of adjournment), Section 3.12 (conduct of business) and Section 3.13 (action without a meeting), with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the Board of Directors and its members; provided, however, that the time of regular meetings of committees may also be called by resolution of the Board of Directors and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The Board of Directors may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws. ARTICLE V OFFICERS 5.1 OFFICERS The officers of the corporation shall be chairman of the board or a president or both, a secretary, and a chief financial officer. The corporation may also have, at the discretion of the Board of Directors, a chief executive officer, one or more vice presidents, one or more assistant secretaries, and any such other officers as may be appointed in accordance with the provisions of Section 5.2 of these bylaws. Any number of offices may be held by the same person. -15- 17 5.2 ELECTION OF OFFICERS Except as otherwise provided in this Section 5.2, the officers of the corporation shall be chosen annually by the Board of Directors, and each shall hold his office until he shall resign or shall be removed or otherwise disqualified to serve, or his successor shall be elected and qualified. The Board of Directors may appoint such officers and agents of the business as the corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the Board of Directors may from time to time determine. Any vacancy occurring in any office of the corporation shall be filled in the manner prescribed in the Bylaws for regular appointments to such office. 5.3 REMOVAL AND RESIGNATION OF OFFICERS Any officer may be removed, either with or without cause, by an affirmative vote of the majority of the Board of Directors at any regular or special meeting of the Board or, except in the case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors or, in the case of an officer appointed by the Chief Executive Officer or the President, by the Chief Executive Officer or the President, as the case may be. Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. 5.4 CHAIRMAN OF THE BOARD The Chairman of the Board, if such an officer be elected, shall if present, preside at meetings of the Board of Directors and exercise and perform such other powers and duties as may from time to time be assigned to him by the Board of Directors or as may be prescribed by these bylaws. 5.5 CHIEF EXECUTIVE OFFICER The Chief Executive Officer of the corporation shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and the officers of the corporation. He shall preside at all meetings of the stockholders and, in the absence or nonexistence of a Chairman of the Board, at all meetings of the Board of Directors. He shall have the general powers and duties of management usually vested in the chief executive officer of a corporation and shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws. 5.6 PRESIDENT Subject to such supervisory powers, if any, as may be given by the Board of Directors to the -16- 18 Chairman of the Board, if there be such an officer, and the Chief Executive Officer, if there be such an officer, the President shall, subject to the control of the Board of Directors, have general supervision, direction, and control of the business and the officers of the corporation. He shall preside at all meetings of the stockholders and, in the absence or nonexistence of a Chairman of the Board and the Chief Executive Officer, at all meetings of the Board of Directors. He shall have the general powers and duties of management usually vested in the office of president of a corporation and shall have such other powers and duties as may be prescribed by the Board of Directors or these bylaws. 5.7 VICE PRESIDENTS In the absence or disability of the President, the Vice Presidents, if any, in order of their rank as fixed by the Board of Directors or, if not ranked, a Vice President designated by the Board of Directors, shall perform all the duties of the President and when so acting shall have all the powers of, and be subject to all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors, these bylaws, the Chief Executive Officer, the President or the Chairman of the Board. 5.8 SECRETARY The Secretary shall keep or cause to be kept, at the principal executive office of the corporation or other place as the Board of Directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and stockholders. The minutes shall show the time and place of each meeting, whether regular or special (and, if special, how authorized and the notice given), the names of those present at directors' meetings or committee meetings, the number of shares present or represented at stockholders' meetings, and the proceedings thereof. The Secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the Board of Directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors required to be given by law or by these bylaws. He shall keep the seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by these bylaws. 5.9 CHIEF FINANCIAL OFFICER The Chief Financial Officer shall keep and maintain, or cause to be kept and maintained in accordance with generally accepted accounting principles, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, -17- 19 liabilities, receipts, disbursements, gains, losses, capital retained earnings and shares. The books of account shall at all reasonable times be open to inspection by any director. The Chief Financial Officer shall deposit all monies and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the Board of Directors. He shall disburse the funds of the corporation as may be ordered by the Board of Directors, shall render to the Chief Executive Officer, the President and the directors, whenever they request it, an account of all of his transactions as Chief Financial Officer and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or these bylaws. ARTICLE VI INDEMNITY 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS The corporation shall, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware, indemnify each of its directors and officers against expenses (including attorneys' fees), judgments, fines, settlements, and other amounts, actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.1 a "director" or "officer" of the corporation includes any person (i) who is or was a director or officer of the corporation, (ii) who is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, including, without limitation, any direct or indirect subsidiary of the corporation, or (iii) who was a director or officer of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.2 INDEMNIFICATION OF OTHERS The corporation shall have the power, to the extent and in the manner permitted by the General Corporation Law of Delaware, to indemnify each of its employees and agents (other than directors and officers) against expenses (including attorneys' fees), judgments, fines settlements, and other amounts actually and reasonably incurred in connection with any proceeding arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.2, an "employee" or "agent" of the corporation (other than a director or officer) includes any person (i) who is or was an employee or agent of the corporation, (ii) who is or was serving at the request of the corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including, without limitation, any direct or indirect subsidiary of the corporation, or (iii) who was an employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor -18- 20 corporation. 6.3 INSURANCE The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of the General Corporation Law of Delaware and this Section 6. 6.4 PAYMENT OF EXPENSES IN ADVANCE Expenses incurred in defending any civil or criminal action or proceeding for which indemnification is required pursuant to Section 6.1, or for which indemnification is permitted pursuant to Section 6.2 following authorization thereof by the Board of Directors, may be paid by the corporation in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of the indemnified party to repay such amount if it shall ultimately be determined that the indemnified party is not entitled to be indemnified as authorized in this Section 6. 6.5 INDEMNITY NOT EXCLUSIVE The indemnification provided by this Section 6 shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office, to the extent that such additional rights to indemnification are authorized in the certificate of incorporation. 6.6 CONFLICTS No indemnification or advance shall be made under this Section 6, except where such indemnification or advance is mandated by law or the order, judgment or decree of any court of competent jurisdiction, in any circumstance where it appears: (a) That it would be inconsistent with a provision of the certificate of incorporation, these bylaws, a resolution of the stockholders or an agreement in effect at the time of the accrual of the alleged cause of the action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or (b) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement. -19- 21 ARTICLE VII RECORDS AND REPORTS 7.1 MAINTENANCE AND INSPECTION OF RECORDS The corporation shall, either at its principal executive office or at such place or places as designated by the Board of Directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these bylaws as amended to date, accounting books, and other records. Any stockholder of record, in person or by attorney or other agent, shall upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in Delaware or at its principal place of business. 7.2 INSPECTION BY DIRECTORS Any director shall have the right to examine the corporation's stock ledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper. 7.3 REPRESENTATION OF SHARES OF OTHER CORPORATIONS The Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Chief Financial Officer, the Secretary, or any other person authorized by the Board of Directors or the Chief Executive Officer, the President or a Vice President, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority. 7.4 SUBSIDIARY CORPORATIONS -20- 22 Shares of this corporation owned by a subsidiary shall not be entitled to vote on any matter. A subsidiary for these purposes is defined as a corporation, the shares of which possessing more than 25% of the total combined voting power of all classes of shares entitled to vote, are owned directly or indirectly through one or more subsidiaries. ARTICLE VIII GENERAL MATTERS 8.1 STOCK CERTIFICATES; PARTLY PAID SHARES The shares of a corporation shall be represented by certificates, provided that the Board of Directors of the corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Notwithstanding the adoption of such a resolution by the Board of Directors, every holder of stock represented by certificates and, upon request, every holder of uncertificated shares, shall be entitled to have a certificate signed by, or in the name of the corporation by the Chairman of the Board of Directors, or the Chief Executive Officer, the President or a Vice President, and by the Chief Financial Officer or the secretary of such corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. The corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, or upon the books and records of the corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the corporation shall a dividend upon partly paid shares of the same class but only upon the basis of the percentage of the consideration actually paid thereon. 8.2 LOST CERTIFICATES Except as provided in this Section 8.2, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and cancelled at the same time. The corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the -21- 23 owner of the lost, stolen or destroyed certificate, or his legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares. 8.3 CONSTRUCTION; DEFINITIONS Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Delaware General Corporation Law shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. 8.4 DIVIDENDS The directors of the corporation, subject to any restrictions contained in the certificate of incorporation, may declare and pay dividends upon the shares of its capital stock pursuant to the General Corporation Law of Delaware. Dividends may be paid in cash, in property, or in shares of the corporation's capital stock. The directors of the corporation may set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. 8.5 FISCAL YEAR The fiscal year of the corporation shall be fixed by resolution of the Board of Directors and may be changed by the Board of Directors. 8.6 SEAL The corporation may adopt a corporate seal, which may be altered at its pleasure, and may use the same by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. 8.7 TRANSFER OF STOCK Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction in its books. 8.8 STOCK TRANSFER AGREEMENTS The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by -22- 24 the General Corporation Law of Delaware. 8.9 REGISTERED STOCKHOLDERS The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. 8.10 EXECUTION OF CONTRACTS The Board of Directors, except as the Bylaws may otherwise provide, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation. Such authority may be general or confined to specific instances. Unless so authorized by the Board of Directors, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or agreement, or to pledge its credit, or to render it liable for any purpose or to any amount, except as provided in Section 142 of Delaware General Corporation Law. ARTICLE IX AMENDMENTS The original or other bylaws of the corporation may be adopted, amended or repealed by a majority of the stockholders entitled to vote: provided, however, that the corporation may, in its certificate of incorporation, confer the power to adopt, amend or repeal bylaws upon the directors. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal these bylaws. Whenever an amendment or new bylaw is adopted, it shall be copied in the book of bylaws with the original bylaws, in the appropriate place. If any bylaw is repealed, the fact of repeal with the date of the meeting at which the repeal was enacted or written assent was filed shall be stated in said book. ARTICLE X DISSOLUTION -23- 25 If it should be deemed advisable in the judgment of the Board of Directors of the corporation that the corporation should be dissolved, the Board, after the adoption of a resolution to that effect by a majority of the whole Board at any meeting called for that purpose, shall cause notice to be mailed to each stockholder entitled to vote thereon of the adoption of the resolution and of a meeting of stockholders to take action upon the resolution. At the meeting a vote shall be taken for and against the proposed dissolution. If a majority of the outstanding stock of the corporation entitled to vote thereon votes for the proposed dissolution, then a certificate stating that the dissolution has been authorized in accordance with the provisions of Section 275 of the General Corporation Law of Delaware and setting forth the names and residences of the directors and officers shall be executed, acknowledged, and filed and shall become effective in accordance with Section 103 of the General Corporation Law of Delaware. Upon such certificate's becoming effective in accordance with Section 103 of the General Corporation Law of Delaware, the corporation shall be dissolved. ARTICLE XI CUSTODIAN 11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES The Court of Chancery, upon application of any stockholder, may appoint one or more persons to be custodians and, if the corporation is insolvent, to be receivers, of and for the corporation when: (a) at any meeting held for the election of directors the stockholders are so divided that they have failed to elect successors to directors whose terms have expired or would have expired upon qualification of their successors; or (b) the business of the corporation is suffering or is threatened with irreparable injury because the directors are so divided respecting the management of the affairs of the corporation that the required vote for action by the Board of Directors cannot be obtained and the stockholders are unable to terminate this division; or (c) the corporation has abandoned its business and has failed within a reasonable time to take steps to dissolve, liquidate or distribute its assets. 11.2 DUTIES OF CUSTODIAN The custodian shall have all the powers and title of a receiver appointed under Section 291 of the General Corporation Law of Delaware, but the authority of the custodian shall be to continue the business of -24- 26 the corporation and not to liquidate its affairs and distribute its assets, except when the Court of Chancery otherwise orders and except in cases arising under Sections 226(a)(3) or 352(a)(2) of the General Corporation Law of Delaware. XXXXXXXXXXXX -25- EX-4.2 4 REGISTRATION RIGHTS AGREEMENTS DATED MAY 18, 1999 1 EXHIBIT 4.2 REGISTRATION RIGHTS AGREEMENT THIS AGREEMENT is entered into this 18th day of May, 1999, by and among WP HOLDING, INC., a Delaware corporation (the "Company") and the investors in the Company's Series A Convertible Preferred Stock, par value $.0001 per share that are signatories hereto (the "Investors"); WHEREAS, pursuant to that certain Subscription Agreement dated on an even date herewith by and between the Company and the Investors, the Investors have agreed to purchase collectively 13,745,455 shares of the Company's Series A Convertible Preferred Stock, par value $.0001 per share (the "Preferred Shares"). WHEREAS, the Preferred Shares are automatically convertible into shares of the Company's common stock, par value $.0001 per share (the "Common Stock"), on a one-for-one basis (subject to adjustment in certain events) upon the occurrence of a Conversion Event (as defined below). WHEREAS, as a condition to their willingness to purchase the Preferred Shares, Investors desire that the Company grant to them certain registration rights with respect to the common stock of the Company which they may acquire upon a Conversion Event. NOW, THEREFORE, in consideration of the mutual premises and covenants herein contained, the Investors and the Company hereby agree as follows: 1. Definitions. As used herein: (a) The term "Conversion Event" shall mean any of the following events in which the Preferred Stock is converted into Common Stock: (i) consummation of an underwritten initial public offering of the Company's Common Stock, yielding gross proceeds to the Company of at least $15,000,000 at a per share price of not less than two (2) times the Subscription Price, (ii) a sale of all or substantially all of the capital stock or assets of the Company or (iii) conversion at the request of the Holder of the Preferred Stock to convert such Preferred Stock into Common Stock. (b) The term "Exchange Act" means the Securities Exchange Act of 1934, as amended. (c) The term "Holder" means the holder or holders of Registrable Securities or any person who will hold Registrable Securities upon a Conversion Event. (d) The terms "register," "registered," and "registration" refer to a registration 2 effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement. (e) The term "Person" shall have the meaning set forth in Section 2(2) of the Securities Act. (f) The term "Prospectus" shall have the meaning set forth in Section 2(10) of the Securities Act. (g) The term "Registrable Percentage" shall have the meaning set forth in Section 2. (h) The term "Registrable Securities" means all of the Company's Common Stock which was or will be converted from Preferred Stock upon a Conversion Event. (i) The term "Registration Expenses" shall mean any and all expenses incident to the performance of or compliance by the Company with this Agreement, including without limitation: (i) all SEC or National Association of Securities Dealers, Inc. (the "NASD") registration and filing fees, including, if applicable, the fees and expenses of any "qualified independent underwriter" (and its counsel) that is required to be retained by any Holder of Registrable Securities in accordance with the rules and regulations of the NASD, (ii) all fees and expenses incurred in connection with compliance with state securities or blue sky laws (including reasonable fees and disbursements of one counsel for any underwriters or Holder in connection with blue sky qualification of any of the Registrable Securities) and compliance with the rules of the NASD, (iii) all expenses of any Persons in preparing or assisting in preparing, word processing, printing and distributing any Registration Statement, any Prospectus and any amendments or supplements thereto, and in preparing or assisting in preparing, printing and distributing any underwriting agreements, securities sales agreements and other documents relating to the performance of and compliance with this Agreement, (iv) all rating agency fees, (v) the fees and disbursements of counsel for the Company and of the independent certified public accountants of the Company, including the expenses of any "cold comfort" letters required by or incident to such performance and compliance, (vi) the fees and expenses of any exchange agent or custodian, (vii) all fees and expenses incurred in connection with the listing, if any, of any of the Registrable Securities on any securities exchange or exchanges, and (viii) the reasonable fees and expenses of any special experts retained by the Company in connection with any Registration Statement. (j) The term "Registration Statement" shall mean any registration statement of the Company that covers any of the Registrable Securities pursuant to the provisions of this Agreement, and all amendments and supplements to any such Registration Statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. 3 (k) The term "Securities Act" means the Securities Act of 1933, as amended. (l) The term "SEC" means the Securities and Exchange Commission. (m) The term "Subscription Price" means the purchase price of $0.6547618 per share of Preferred Stock. 2. Company Registration. If at any time or from time to time, the Company shall determine to register any of its Common Stock under the Securities Act, the Company will: (a) promptly give to the Holder written notice thereof (which shall include a list of the jurisdictions in which the Company intends to attempt to qualify its Common Stock under the applicable blue sky or other state securities laws); and (b) include in such registration (and any related qualification under blue sky laws or other compliance) and in any underwriting involved therein, all the Registrable Securities specified in a written request made within thirty days after receipt of such written notice from the Company by the Holders; except that if, in connection with any offering involving an underwriting of Common Stock to be issued by the Company, the managing underwriter shall impose a limitation on the number of shares of Common Stock which may be included in the Registration Statement because, in its judgment, such limitation is necessary to effect an orderly public distribution, then the Company shall be only obligated to include in such Registration Statement the Registrable Percentage (as defined below) of the Registrable Securities. "Registrable Percentage" shall be a percentage equal to the following: (i) the total maximum number of shares of Common Stock outstanding prior to the filing of the Registration Statement that the managing underwriter determines may be included in the Registration Statement, (ii) divided by the sum of the total number of shares of Registrable Securities that the Holders request to be registered in the Registration Statement, plus the total number of shares of Common Stock outstanding prior to the filing of the Registration Statement (which are not Registrable Securities) that the Company desires to register under the Registration Statement, and (iii) multiplied by one hundred percent (100%). To the extent that the Registrable Percentage is less than one hundred percent (100%), then only the Registrable Percentage of Registrable Securities shall, concurrent with the registration of Common Stock, be registered and such registration of Registrable Securities shall be on a pro rata basis among the Holders, who have requested that their Registrable Securities be registered, based on their percentage of ownership of such Registrable Securities. 3. Effectiveness. A Registration Statement pursuant to which any Registrable Securities are being offered will not be deemed to have become effective unless it has been declared effective by 4 the SEC; provided, however, that if, after it has been declared effective, the offering of the Registrable Securities pursuant to such registration statement is interfered with by any stop order, injunction or other order or requirement of the SEC or any other governmental agency or court, such registration statement will be deemed not to have been effective during the period of such interference, until the offering of Registrable Securities pursuant to such registration statement may legally resume. The Company will be deemed not to have used best efforts to cause the Registration Statement to become, or to remain, effective during the requisite period if it voluntarily takes any action that would result in any such registration statement not being declared effective or that would result in the Holder not being able to offer and sell the Registrable Securities during that period unless such action is required by applicable laws and regulations or currently prevailing interpretations of the staff of the SEC. The Company shall use best efforts to maintain the effectiveness for up to one hundred twenty (120) days (or such shorter period of time as the underwriters need to complete the distribution of the registered offering) of any Registration Statement pursuant to which any of the Registrable Securities are being offered, and from time to time will amend or supplement such Registration Statement and the Prospectus contained therein to the extent necessary to comply with the Securities Act and any applicable state securities laws or regulations. The Company shall also provide the Holder with as many copies of the Prospectus contained in any such Registration Statement as the Holder may reasonably request. 4. Expenses of Registration. All Registration Expenses incurred in connection with any registration, qualification or compliance pursuant to this Agreement shall be borne by the Company. Except as provided herein, the Holder shall pay all fees and expenses of its legal counsel, underwriters' fees, discounts or commissions or transfer taxes, if any, relating to the sale or disposition of the Holder's Registrable Securities. 5. Registration Procedures. In the case of each registration, qualification, or compliance effected by the Company pursuant to this Agreement, the Company will keep the Holder advised in writing as to the initiation of each registration, qualification and compliance and as to the completion thereof. At its expense, the Company will: (a) Prepare and file with the SEC a Registration Statement with respect to such Registrable Securities as described in Section 2 and use its best efforts to cause such Registration Statement to become effective and to remain effective in accordance with Section 3 (provided that before filing a Registration Statement or Prospectus or any amendments or supplements thereto, the Company will furnish to the counsel selected by the Holder copies of all such documents proposed to be filed, which documents will be subject 5 to the review of such counsel); (b) Prepare and file with the SEC such amendments and supplements to such Registration Statement and the Prospectus used in connection therewith as may be necessary to keep such Registration Statement effective and current for a period of not less than one hundred twenty (120) days and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement during such period in accordance with the intended methods of disposition by the sellers thereof as set forth in such Registration Statement; (c) (i) Furnish to the Holder, and to each underwriter, if any, without charge, such number of copies of such Registration Statement, each amendment and supplement thereto, the Prospectus included in such Registration Statement (including each preliminary Prospectus), and such other documents as the Holder or underwriters may reasonably request in order to facilitate the disposition of the Registrable Securities owned by the Holder; and (ii) consent to the use of the Prospectus or any amendment or supplement thereto by the Holder of Registrable Securities included in the Registration Statement in connection with the offering and sale of the Registrable Securities covered by the Prospectus or any amendment or supplement thereto; (d) Use its best efforts to register or qualify such Registrable Securities under all applicable securities or blue sky laws of such jurisdictions of the United States by the time the applicable Registration Statement is declared effective by the SEC as the Holder and any underwriters reasonably request in writing and do any other related acts which may be reasonably necessary or advisable to enable the Holder and underwriters to consummate the disposition in such jurisdictions of the Registrable Securities; provided, however, that the Company shall not be required to (i) qualify as a foreign corporation or as a dealer in securities in any jurisdiction where it would not otherwise be required to qualify but for this Section 5(d), (ii) file any general consent to service of process in any jurisdiction where it would not otherwise be subject to such service of process or (iii) subject itself to taxation in any such jurisdiction if it is not then so subject; (e) Notify the Holder, its counsel, and the managing underwriters, if any, promptly, and promptly confirm such notice in writing, (i) 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, or the fact that, the Prospectus included in such Registration Statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading, and, at the reasonable request of a majority of the Holders, the Company will prepare a supplement or amendment to such Prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such Prospectus will not contain any untrue statement of a material fact or omit to state any fact necessary to make 6 the statements therein not misleading; (ii) when a Registration Statement has become effective and when any post-effective amendments and supplements thereto become effective, (iii) of any request by the SEC or any state securities authority for amendments and supplements to a Registration Statement or Prospectus or for additional information after the Registration Statement has become effective, (iv) of the issuance by the SEC or any state securities authority of any stop order suspending the effectiveness of a Registration Statement or the qualification of the Registrable Securities or the initiation of any proceedings for that purpose, (v) if, between the effective date of a Registration Statement and the closing of any sale of Registrable Securities covered thereby, the representations and warranties of the Company contained in any purchase agreement, securities sales agreement or other similar agreement, if any, cease to be true and correct in all material respects, and (vi) the Company's reasonable determination that a post-effective amendment to the Registration Statement would be appropriate; (f) If applicable, use its best efforts to cause all such Registrable Securities to be listed or quoted on each securities exchange or interdealer quotation system on which similar securities issued by the Company are then listed or quoted; (g) Provide a transfer agent for all such Registrable Securities not later than the effective date of such Registration Statement; (h) Enter into such customary agreements (including underwriting agreements on customary terms) and take all such other actions as the underwriters, if any, reasonably requests in order to expedite or facilitate the disposition of such Registrable Securities; (i) Obtain for delivery to the Company and the managing underwriters, if any, with copies to the Holders of the Registrable Securities being registered, a comfort letter from the Company's independent public accountants in customary form and covering such matters of the type customarily covered by comfort letters as the Holders shall reasonably request, dated the effective date of the Registration Statement and brought down to the closing; (j) If necessary, obtain a CUSIP number for the Registrable Securities not later than the effective date of the Registration Statement; and (k) Make available for inspection by the Holder, any underwriter participating in any disposition pursuant to such Registration Statement and any attorney, accountant or any other agent retained by the Investor or any such underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all information reasonably requested by the Holder, any such underwriter, attorney, accountant or agent in connection with such Registration Statement. 7 (l) Cooperate with the Holder to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legends and registered in such names as the Holder or the underwriters may reasonably request at least two Business Days prior to the closing of any sale of Registrable Securities pursuant to such Registration Statement; (m) Cooperate with the Holder to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legends and registered in such names as the Holder or the underwriters may reasonably request at least two Business Days prior to the closing of any sale of Registrable Securities pursuant to such Registration Statement; (n) upon the occurrence of any circumstance contemplated by Section 5(e)(iii), 5(e)(iv), or 5(e)(v) hereof, use best efforts to prepare a supplement or post-effective amendment to such Registration Statement or the related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities, such Prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and to notify the Holder to suspend use of the Prospectus as promptly as practicable after the occurrence of such an event, and the Holder hereby agrees to suspend use of the Prospectus until the Company has amended or supplemented the Prospectus to correct such misstatement or omission; (n) cooperate with each seller of Registrable Securities covered by any Registration Statement and each underwriter, if any, participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the NASD; and (o) use best efforts to take all other steps necessary to effect the registration of the Registrable Securities covered by a Registration Statement contemplated hereby. 6. Indemnification and Contribution. (a) In connection with any Registration Statement, the Company shall indemnify and hold harmless the Holder and each underwriter who participates in an offering of the Registrable Securities, each Person, if any, who controls any of such parties within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act and each of their respective directors, officers, employees and agents, as follows: (i) from and against any and all loss, liability, claim, damage and 8 expense whatsoever, joint or several, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment thereto) covering Registrable Securities, including all documents incorporated therein by reference, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact contained in any Prospectus (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) from and against any and all loss, liability, claim, damage and expense whatsoever, joint or several, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any court or governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, if such settlement is effected with the prior written consent of the Company; and (iii) from and against any and all expenses whatsoever, as incurred (including reasonable fees and disbursements of counsel chosen by Holder or any underwriter (except to the extent otherwise expressly provided in Section 6(c) hereof)), incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any court or governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under subparagraph (i) or (ii) of this Section 6(a); provided, however, that (i) this indemnity does not apply to any loss, liability, claim, damage or expense to the extent arising out of an untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished in writing to the Company by the Holder, or any underwriter with respect to the Holder, or any underwriter, as the case may be, expressly for use in a Registration Statement (or any amendment thereto) or any Prospectus (or any amendment or supplement thereto) and (ii) the Company shall not be liable to the Holder, any underwriter or controlling Person, with respect to any untrue statement or alleged untrue statement or omission or alleged omission in any preliminary Prospectus to the extent that any such loss, liability, claim, damage or expense of the Holder, any underwriter or controlling Person results from the fact that the Holder or any underwriter, sold Registrable Securities to a Person to whom there was not sent or given, at or prior to the written confirmation of such sale, a copy of the final Prospectus as then amended or supplemented if the Company had previously furnished copies thereof to the Holder or any underwriter or controlling Person and the loss, liability, 9 claim, damage or expense of the Holder or underwriter, or controlling Person results from an untrue statement or omission of a material fact contained in the preliminary Prospectus which was corrected in the final Prospectus. Any amounts advanced by the Company to an indemnified party pursuant to this Section 6 as a result of such losses shall be returned to the Company if it shall be finally determined by such a court in a judgment not subject to appeal or final review that such indemnified party was not entitled to indemnification by the Company. (b) A selling Holder agrees to indemnify and hold harmless the Company, any underwriter and each of their respective directors, officers (including each officer of the Company who signed the Registration Statement), employees and agents, any underwriter or any other selling Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all loss, liability, claim, damage and expense whatsoever described in the indemnity contained in Section 6(a) hereof, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in a Registration Statement or any Prospectus in reliance upon and in conformity with written information furnished to the Company by such selling Holder with respect to such Holder expressly for use in such Registration Statement, or any such Prospectus; 10 (c) Each indemnified party shall give prompt notice to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, enclosing a copy of all papers properly served on such indemnified party, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability which it may have under this Section 6, except to the extent that it is materially prejudiced by such failure. An indemnifying party may participate at its own expense in the defense of such action, or, if it so elects within a reasonable time after receipt of such notice, assume the defense of any suit brought to enforce any such claim; but if it so elects to assume the defense, such defense shall be conducted by counsel chosen by it and approved by the indemnified party or parties, which approval shall not be unreasonably withheld. In the event that an indemnifying party elects to assume the defense of any such suit and retain such counsel, the indemnified party or parties shall bear the fees and expenses of any additional counsel thereafter retained by such indemnified party or parties; provided, however, that the indemnified party or parties shall have the right to employ counsel (in addition to local counsel) to represent the indemnified party or parties who may be subject to liability arising out of any action in respect of which indemnity may be sought against the indemnifying party if, in the reasonable judgment of counsel for the indemnified party or parties, there may be legal defenses available to such indemnified party or parties which are different from or in addition to those available to the indemnifying party, in which event the fees and expenses of appropriate separate counsel shall be borne by the indemnifying party. In no event shall the indemnifying parties be liable for the fees and expenses of more than one counsel (in addition to local counsel), separate from its own counsel, for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 6 (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release in form and substance satisfactory to the indemnified parties of each indemnified party from ail liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (d) In order to provide for just and equitable contribution in circumstances under which any of the indemnity provisions set forth in this Section 6 is for any reason held to be unavailable to the indemnified parties although applicable in accordance with its terms, the Company and the Holder shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by such indemnity agreement incurred by the Company and the Holder, as incurred; provided that no Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled 11 to contribution from any Person that was not guilty of such fraudulent misrepresentation. As between the Company and the Holder, such parties shall contribute to such aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by such indemnity agreement in such proportion as shall be appropriate to reflect the relative fault of the Company, on the one hand, and the Holder, on the other hand, with respect to the statements or omissions which resulted in such loss, liability, claim, damage or expense, or action in respect thereof, as well as any other relevant equitable considerations. The relative fault of the Company, on the one hand, and of the Holder, on the other hand, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, on the one hand, or by or on behalf of the Holder, on the other, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Holder agree that it would not be just and equitable if contribution pursuant to this Section 6 were to be determined by pro rata allocation or by any other method of allocation that does not take into account the relevant equitable considerations. For purposes of this Section 6, each affiliate of the Holder, and each director, officer, employee, agent and Person, if any, who controls a Holder or such affiliate within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act shall have the same rights to contribution as the Holder, and each director of the Company, each officer of the Company who signed the Registration Statement, and each Person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act shall have the same rights to contribution as the Company. 7. Information by Holder. The Holder or Holders of Registrable Securities included in any registration shall furnish to the Company such written information regarding such Holder or Holders and the distribution proposed by such Holder or Holders as the Company may reasonably request in writing and as shall be required in connection with any registration, qualification, or compliance referred to in this paragraph. 8. Transfer of Registration Rights. The rights to cause the Company to register the Registrable Securities granted to the Holder by the Company under Section 2 may be assigned by a Holder to a transferee or assignee of any of such Holder's Registrable Securities (or Preferred Stock), provided, that the Company is given written notice by such Holder at the time of, or within a reasonable time after, said transfer, stating the name and address of said transferee or assignee and identifying the securities with respect to which such registration rights are being assigned. 12 9. No Preferred Stock Registration Rights. Nothing in this Agreement shall be construed to impose on the Company any obligations or duties as to the registration of Preferred Stock nor grant any holder of Preferred Stock any registration rights enforceable against the Company with respect to the Preferred Stock prior to such Preferred Stock being converted to Common Stock upon a Conversion Event. 10. Holding Period for Preferred Stock. Upon the consummation of the event set forth in subclause 1(a)(i) to the definition of Conversion Event, the Investors (and any subsequent holder) of Preferred Stock agree that upon the reasonable request of the managing underwriter selected for the IPO the Holders will allow for restrictions on sales of their shares pursuant to the Registration Statement for the period selected by the managing underwriter. 11. No Inconsistent Agreements. The Company has not entered into nor will the Company on or after the date of this Agreement enter into any agreement which is inconsistent with the rights granted to the Investor with respect to the Shares in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Investor hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Company's other issued and outstanding securities under any such agreements. 12. Assignability. This Agreement shall be binding upon and inure to the benefit of the respective heirs, successors and assigns of the parties hereto. 13. Changes in Capital Stock. If, and as often as, there is any change in the Preferred Stock or Common Stock by way of a stock split, stock dividend, combination or reclassification, or through a merger, consolidation, reorganization or recapitalization, or by any other means, appropriate adjustment shall be made in the provisions hereof so that the rights and privileges granted hereby shall continue with respect to the Shares as so changed. 14. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of Delaware, without regard to the conflict of laws provisions thereof. 13 15. Amendment. Any modification, amendment or waiver of this Agreement or any provision hereof shall be in writing and executed by Holders of not less than 66-2/3 percent of the Registrable Securities; provided, however, that no such modification, amendment or waiver shall reduce the aforesaid percentage of Registrable Securities without the consent of the record or beneficial holders of no less than 90 percent of the Registrable Securities. 16. Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. 17. Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors, assigns and transferees of the Investor, including, without limitation and without the need for an express assignment, subsequent Holders. If any transferee of the Investor shall acquire Registrable Securities or Preferred Stock, in any manner, whether by operation of law or otherwise, such Registrable Securities or Preferred Stock shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities or Preferred Stock, such Person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement and such Person shall be entitled to receive the benefits hereof. 18. Entire Agreement. This Agreement and the other writings referred to herein contain the entire understandings among the parties with respect to its subject matter. This Agreement supersedes all prior agreements and understandings among the parties with respect to its subject matter. 19. Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 20. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall 14 be an original, but all of which together shall constitute one instrument. IN WITNESS WHEREOF, the undersigned holder of securities and the Company have executed this Agreement on the day and year first above written. COMPANY: WP HOLDING, INC. By: /s/ --------------------------------- Name: David M. Tolmie Title: CEO Address for Notices: INVESTORS: INVESTOR IN SERIES A CONVERTIBLE PREFERRED STOCK By: --------------------------------- Name: Title (if applicable): Address for Notices: EX-10.1 5 FORM OF INDEMNIFICATION AGREEMENT 1 EXHIBIT 10.1 YESMAIL.COM, INC. INDEMNIFICATION AGREEMENT This INDEMNIFICATION AGREEMENT (the "Agreement") is made as of the ____________, by and between yesmail.com, inc., a Delaware corporation (the "Company"), and ______________ ("Indemnitee"). RECITALS A. The Company desires to attract and retain qualified directors, officers, employees and other agents, and to provide them with protection against liability and expenses incurred while acting in that capacity; B. The Certificate of Incorporation and Bylaws of the Company contain provisions for indemnifying directors and officers of the Company, and the Bylaws and Delaware law contemplate that separate contracts may be entered into between the Company and its directors and officers, employees and other agents with respect to their indemnification by the Company, which contracts may provide greater protection than is afforded by the Certificate of Incorporation and Bylaws; C. The Company understands that Indemnitee has reservations about serving or continuing to serve the Company without adequate protection against personal liability arising from such service, and that it is also of critical importance to Indemnitee that adequate provision be made for advancing costs and expenses of legal defense; and D. The Board of Directors and the stockholders of the Company have approved as being in the best interests of the Company indemnity contracts substantially in the form of this Agreement for directors and officers of the Company and its subsidiaries and for certain other employees and agents of the Company designated by the Board of Directors. NOW, THEREFORE, in order to induce Indemnitee to serve or to continue to serve as a director and/or officer of the Company, and in consideration of Indemnitee's service to the Company, the parties agree as follows: 1. Contractual Indemnity. In addition to the indemnification provisions of the Bylaws of the Company, the Company hereby agrees, subject to the limitations of Sections 2 and 5 hereof: (a) To indemnify, defend and hold Indemnitee harmless to the greatest extent possible under applicable law from and against any and all judgments, fines, penalties, amounts paid in settlement and any other amounts reasonably incurred or suffered by Indemnitee (including attorneys' fees) in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the Company, to which Indemnitee is, was or at any time becomes a party, or is threatened to be made a party, by reason of the fact that Indemnitee is, was or at any time becomes a director, officer, employee or agent of the Company or is or was serving or at any time serves at the request of the Company as a director, officer, employee or agent of another corporation, -1- 2 partnership, joint venture, trust or other enterprise (collectively referred to hereafter as a "Claim"), whether or not arising prior to the date of this Agreement. (b) To pay any and all expenses reasonably incurred by Indemnitee in defending any Claim or Claims (including reasonable attorneys' fees and other reasonable costs of investigation and defense), as the same are incurred and in advance of the final disposition of any such Claim or Claims, upon receipt of an undertaking by or on behalf of Indemnitee to reimburse such amounts if it shall be ultimately determined that Indemnitee (i) is not entitled to be indemnified by the Company under this Agreement, and (ii) is not entitled to be indemnified by the Company under the Certificate of Incorporation or the Bylaws of the Company. The termination of any action or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that (i) Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in the best interests of the Company, or (ii) with respect to any criminal action or proceeding, Indemnitee had reasonable cause to believe that Indemnitee's conduct was unlawful. 2. Limitations on Contractual Indemnity. Indemnitee shall not be entitled to indemnification or advancement of expenses under Section 1: (a) if a court of competent jurisdiction, by final judgment or decree, shall determine that (i) the Claim or Claims in respect of which indemnity is sought arise from Indemnitee's fraudulent, dishonest or willful misconduct, or (ii) such indemnity is not permitted under applicable law; or (b) on account of any suit in which judgment is rendered for an accounting of profits made from the purchase or sale by Indemnitee of securities of the Company in violation of the provisions of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law; or (c) for any acts or omissions or transactions from which a director may not be relieved of liability under the Delaware General Corporation Law; or (d) with respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except (i) with respect to proceedings brought in good faith to establish or enforce a right to indemnification under this Agreement or any other statute or law, or (ii) at the Company's discretion, in specific cases if the Board of Directors of the Company has approved the initiation or bringing of such suit; or (e) for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) which have been paid directly to Indemnitee by an insurance carrier under a policy of directors' and officers' liability insurance maintained by the Company; or (f) on account of any suit brought against Indemnitee for misuse or misappropriation of non-public information, or otherwise involving Indemnitee's status as an "insider" of the Company, in -2- 3 connection with any purchase or sale by Indemnitee of securities of the Company. 3. Continuation of Contractual Indemnity. Subject to the termination provisions of Section 11, all agreements and obligations of the Company contained herein shall continue for so long as Indemnitee shall be subject to any possible action, suit, proceeding or other assertion of a Claim or Claims. 4. Expenses; Indemnification Procedure. The Company shall advance all expenses incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any civil or criminal action or proceeding referenced in Section 1 hereof (but not amounts actually paid in settlement of any such action or proceeding). Indemnitee hereby undertakes to repay such amounts advanced if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized hereby. The advances to be made hereunder shall be paid by the Company to Indemnitee within twenty (20) days following delivery of a written request therefor by Indemnitee to the Company. 5. Notification and Defense of Claim. If any action, suit, proceeding or other Claim is brought against Indemnitee in respect of which indemnity may be sought under this Agreement: (a) Indemnitee will promptly notify the Company in writing of the commencement thereof, and the Company and any other indemnifying party similarly notified will be entitled to participate therein at its own expense or to assume the defense thereof and to employ counsel reasonably satisfactory to Indemnitee. Notice to the Company shall be directed to the Chief Executive Officer of the Company at the address shown on the signature page of this Agreement (or such other address as the Company shall designate in writing to Indemnitee). Notice shall be deemed received three (3) business days after the date postmarked if sent by domestic certified or registered mail, properly addressed; otherwise notice shall be deemed received when such notice shall actually be received by the Company. Indemnitee shall have the right to employ its own counsel in connection with any such Claim and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of Indemnitee unless (i) the Company shall not have assumed the defense of the Claim and employed counsel for such defense, or (ii) the named parties to any such action (including any impleaded parties) include both Indemnitee and the Company, and Indemnitee shall have reasonably concluded that joint representation is inappropriate under applicable standards of professional conduct due to a material conflict of interest between Indemnitee and the Company, in either of which events the reasonable fees and expenses of such counsel to the Indemnitee shall be borne by the Company upon delivery to the Company of the undertaking referred to in subparagraph (b) of Section 1. However, in no event will the Company be obligated to pay the fees or expenses of more than one firm of attorneys representing Indemnitee and any other agents of the Company in connection with any one Claim or separate but substantially similar or related Claims in the same jurisdiction arising out of the same general allegations or circumstances. (b) The Company shall not be liable to indemnify Indemnitee for any amounts paid in settlement of any Claim effected without the Company's written consent, and the Company shall not settle any Claim in a manner which would impose any penalty or limitation on Indemnitee without Indemnitee's written consent; provided, however, that neither the Company nor Indemnitee will unreasonably withhold its consent to any proposed settlement and, provided further, that if a claim is settled by the Indemnitee with the Company's written consent, or if there be a final judgment or decree for the plaintiff in connection with the Claim by a court of competent jurisdiction, the Company shall indemnify and hold harmless Indemnitee from and against any and all losses, costs, expenses and liabilities incurred by reason of such settlement or -3- 4 judgment. (c) Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee's power. (d) Any indemnification provided for in Section 1 shall be made no later than forty-five (45) days after receipt of the written request of Indemnitee. If a Claim under this Agreement, under any statute, or under any provision of the Company's Certificate of Incorporation or Bylaws providing for indemnification, is not paid in full by the Company within forty-five (45) days after a written request for payment thereof has first been received by the Company, Indemnitee may, but need not, at any time thereafter bring an action against the Company to recover the unpaid amount of the claim and, subject to Section 13 of this Agreement, Indemnitee shall also be entitled to be reimbursed for the expenses (including attorneys' fees) of bringing such action. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any action or proceeding in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed but the burden of proving such defense shall be on the Company, and Indemnitee shall be entitled to receive interim payments of expenses pursuant to Subsection 4 unless and until such defense may be finally adjudicated by court order or judgment from which no further right of appeal exists. It is the parties' intention that if the Company contests Indemnitee's right to indemnification, the question of Indemnitee's right to indemnification shall be for the court to decide, and neither the failure of the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its stockholders) to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct required by applicable law, nor an actual determination by the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its stockholders) that Indemnitee has not met such applicable standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable standard of conduct. (e) If, at the time of the receipt of a notice of a Claim, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies. 6. Scope. Notwithstanding any other provision of this Agreement, the Company hereby agrees to indemnify the Indemnitee against any Claim to the full est extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's Certificate of Incorporation, the Company's Bylaws or by statute. In the event of any change, after the date of this Agreement, in any applicable law, statute or rule which expands the right of a Delaware corporation to indemnify a member of its board of directors, an officer or other corporate agent, such changes shall be, ipso facto, within the purview of Indemnitee's rights and Company's obligations, under this Agreement. In the event of any change in any applicable law, statute, or rule which narrows the right of a Delaware corporation to indemnify a member of its Board of Directors, an officer, or other corporate agent, such changes, to the extent not otherwise required by applicable law to be applied to this Agreement, shall have no effect on this Agreement or the parties' rights and obligations hereunder. -4- 5 7. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines or penalties actually or reasonably incurred by him in the investigation, defense, appeal or settlement of any civil or criminal action or proceeding, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines or penalties to which Indemnitee is entitled. 8. Public Policy. Both the Company and Indemnitee acknowledge that in certain instances, Federal law or applicable public policy may prohibit the Company from indemnifying its directors and officers under this Agreement or otherwise. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee. 9. Insurance . Although the Company may from time to time maintain insurance for the purpose of indemnifying Indemnitee and other agents of the Company against personal liability, including costs of legal defense, nothing in this Agreement shall obligate the Company to do so. 10. No Restrictions. The rights and remedies of Indemnitee under this Agreement shall not be deemed to exclude or impair any other rights or remedies to which Indemnitee may be entitled under the Certificate of Incorporation or Bylaws of the Company, or under any other agreement, provision of law or otherwise, nor shall anything contained herein restrict the right of the Company to indemnify Indemnitee in any proper case even though not specifically provided for in this Agreement, nor shall anything contained herein restrict Indemnitee's right to contribution as may be available under applicable law. 11. Termination. The Company may terminate this Agreement at any time upon 90 days written notice, but any such termination will not affect Claims relating to events occurring prior to the effective date of termination. 12. Severability. Each of the provisions of this Agreement is a separate and distinct agreement and independent of the others, so that if any provision hereof shall be held to be invalid or unenforceable for any reason, such invalidity or unenforceability shall not affect the validity or enforceability of the other provisions hereof. 13. Attorneys' Fees. In the event of any litigation or other action or proceeding to enforce or interpret this Agreement, the prevailing party as determined by the court shall be entitled to an award of its reasonable attorneys' fees and other costs, in addition to such relief as may be awarded by a court or other tribunal. 14. Further Assurances. The parties will do, execute and deliver, or will cause to be done, executed and delivered, all such further acts, documents and things as may be reasonably required for the purpose of giving effect to this Agreement and the transactions contemplated hereby. 15. Acknowledgment. The Company expressly acknowledges that it has entered into this Agreement and assumed the obligations imposed on the Company hereunder in order to induce Indemnitee to serve or to continue to serve as an agent of the Company, and acknowledges that Indemnitee is relying on -5- 6 this Agreement in serving or continuing to serve in such capacity. 16. Construction of Certain Phrases. (a) "Company": For purposes of this Agreement, references to the "Company" shall also include, in addition to the resulting corporation in any consolidation or merger to which the Company is a party, any constituent corporation (including any constituent of a constituent) absorbed in consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents, so that if Indemnitee is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued. (b) Benefit Plans: References to "fines" contained in this Agreement shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants, or beneficiaries. 17. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original. 18. Notice. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and receipted for by the party addressee, on the date of such receipt, or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice. 19. Governing Law; Binding Effect; Amendment. (a) This Agreement shall be interpreted and enforced in accordance with the laws of the State of Delaware applicable to contracts entered into in Delaware. (b) This Agreement shall be binding upon Indemnitee and the Company, their successors and assigns, and shall inure to the benefit of Indemnitee, his heirs, personal representatives and assigns and to the benefit of the Company, its successors and assigns. (c) No amendment, modification, termination or cancellation of this Agreement shall be effective unless in writing signed by both parties hereto. -6- 7 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. "COMPANY" yesmail.com, inc. a Delaware corporation 565 Lakeview Parkway, Suite 135 Vernon Hills, Illinois 60061 By: Title: "INDEMNITEE" _____________________________ Address: (Signature) -7- EX-10.2 6 FORM OF RESTRICTED STOCK PURCHASE AGREEMENT 1 EXHIBIT 10.2 YESMAIL.COM 1999 STOCK PLAN RESTRICTED STOCK PURCHASE AGREEMENT THIS AGREEMENT is made as of May 10, 1999, at Vernon Hills, Illinois, between yesmail.com, a Delaware corporation (the "Company"), and _____________________ (the "Purchaser"). WHEREAS in order to give the Purchaser an opportunity to acquire an equity interest in the Company as an incentive for the Purchaser to participate in the affairs of the Company, the Company is willing to sell to the Purchaser and the Purchaser desires to purchase shares of Common Stock according to the terms and conditions contained in the Company's 1999 Restricted Stock Purchase Plan (the "Plan") and herein. THEREFORE, the parties agree as follows: 1. Sale of Stock. The Company hereby agrees to sell to the Purchaser and the Purchaser hereby agrees to purchase an aggregate of 650,000 shares of the Company's Common Stock (the "Shares"), at the price of $0.60 per share for an aggregate purchase price of $390,000. 2. Payment of Purchase Price. (a) The purchase price for the Shares may be paid by delivery to the Company at the time of execution of this Agreement of cash, check, duly executed promissory note in the form attached hereto as Exhibit A (the "Note"), or any combination thereof. (b) With respect to the Note, the parties agree to the following: (i) The Note shall become payable in full upon the earlier of ten (10) years from the date of this Agreement, sixty (60) days following termination of Purchaser's employment with or services to the Company except for death or disability, or one (1) year following termination as a result of death or disability. (ii) The Purchaser shall deliver to an escrow holder designated by the Company (the "Escrow Holder") all certificates representing the Shares and two executed blank stock assignments, in the form attached hereto as Exhibit B, for use in transferring all or a portion of said Shares to the Company, as required under this Section 2(b) or under any other provision of this Agreement including Section 3, and shall enter into a set of Joint Escrow Instructions in the form attached hereto as Exhibit C. (iii) As security for the payment of the Note and any renewal, extension or modification thereof, the Purchaser hereby grants to the Company, pursuant to the Security Agreement attached hereto as Exhibit D, a security interest in and pledges with and delivers to the Company the certificate or certificates representing the Shares. 2 (iv) In the event of any foreclosure of the security interest, the Company may sell the Shares at a private sale or may itself repurchase any or all of the Shares. The parties acknowledge that, prior to the establishment of a public market for the Shares of the Company, the securities laws applicable to the sale of the Shares make a public sale of the Shares commercially unreasonable. The parties agree that the repurchasing of said Shares by the Company, or by any person to whom the Company may have assigned its rights hereunder, is commercially reasonable if made at any of the following prices: (i) a price determined by the Board in its discretion, fairly exercised, representing what would be the fair market value of the Shares diminished by any limitation on transferability, whether due to the size of the block of Shares or the restrictions of applicable securities laws, or (ii) the book value per Share as recorded on the Company's books at the end of the last fiscal quarter prior to the date of sale of the Shares upon foreclosure (whether or not such book value per share is unaudited and subject to adjustment), or (iii) with respect to Unvested Shares only, the price at which the Shares were originally purchased by the Purchaser. (v) In the event of default in payment when due of any indebtedness under the Note, the Company may elect then, or at any time thereafter, to exercise all rights available to a secured party under the Illinois Commercial Code, including the right to sell the Shares at a private or public sale or repurchase the Shares as provided above. The proceeds of any sale shall be applied in the following order: (1) To pay all reasonable expenses of the Company in enforcing this Agreement, including without limitation reasonable attorneys' fees and legal expenses incurred by the Company. (2) In satisfaction of the remaining indebtedness under the Note. (3) To the Purchaser, any remaining proceeds. (vi) Upon full payment by the Purchaser of all amounts due on Purchaser's Note, the Escrow Holder shall deliver to the Purchaser the certificate or certificates representing the Shares in the Escrow Holder's possession belonging to the Purchaser, the blank stock assignment and the executed original of the Note marked "canceled" by the Company, and the Escrow Holder shall be discharged of all further obligations hereunder; provided, however, that the Escrow Holder shall nevertheless retain said certificate or certificates and stock assignment as escrow agent if so required pursuant to other restrictions imposed pursuant to this Agreement. 3. Repurchase Option. In the event of any voluntary or involuntary termination of the Purchaser's employment by or services to the Company for any or no reason (including death or disability) before all of the Shares are released from the Company's repurchase option (see Section 4), the Company shall, upon the date of such termination (as reasonably fixed and determined by the Company) have an irrevocable, exclusive option for a period of ninety (90) days from such date to repurchase all (but not less than all) of the Shares that shall constitute the Unreleased Shares (as defined in Section 4) at such time, at the original purchase price of $0.60 per share (the "Repurchase Price"). Such option shall be exercised by the Company by written notice to the Purchaser or the Purchaser's executor (with a copy to the Escrow Holder) and, at the Company's option, (i) by delivery to the Purchaser or the Purchaser's executor with such notice of a check in the -2- 3 amount of the purchase price for the Shares being repurchased, or (ii) by cancellation by the Company of an amount of the Purchaser's indebtedness to the Company equal to the purchase price for the Shares being repurchased, or (iii) by a combination of (i) and (ii) so that the combined payment and cancellation of indebtedness equals the aggregate Repurchase Price. Upon delivery of such notice and the payment of the purchase price in any of the ways described above, the Company shall become the legal and beneficial owner of the Shares being repurchased and all rights and interests therein or relating thereto, and the Company shall have the right to retain and transfer to its own name the number of Shares being repurchased by the Company. 4. Release of Shares From Repurchase Option. (a) Shares shall be released from the Company's repurchase option as set forth in the Purchaser's Notice of Grant of Stock Purchase Right. (b) Any of the Shares which have not yet been released from the Company's repurchase option are referred to herein as "Unreleased Shares". (c) The Shares which (i) have been released from the Company's repurchase option, (ii) have been paid for in full, and (iii) no longer secure Shares not yet paid for in full, shall be delivered to the Purchaser at the Purchaser's request (see Section 6). 5. Restriction on Transfer. None of the Shares or any beneficial interest therein shall be transferred, encumbered or otherwise disposed of in any manner, except for the deposit of the Shares into escrow pursuant to Section 2 and 6 hereof or the release of the Shares to the Company pursuant to such provisions, until the release of such Shares from the Company's repurchase option in accordance with the provisions of this Agreement. 6. Escrow of Shares. The Shares issued under this Agreement shall be held by the Escrow Holder, along with a stock assignment executed by the Purchaser in blank in the form attached hereto as Exhibit B, pursuant to the terms of the Joint Escrow Instructions attached hereto as Exhibit C and the Security Agreement attached hereto as Exhibit D. 7. Company's Right of First Refusal. Before any Shares held by Optionee or any transferee (either being sometimes referred to herein as the "Holder") may be sold or otherwise transferred (including transfer by gift or operation of law), the Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and conditions set forth in this Section (the "Right of First Refusal"). (a) Notice of Proposed Transfer. The Holder of the Shares shall deliver to the Company a written notice (the "Notice") stating: (i) the Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the name of each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number of Shares to be transferred to each Proposed Transferee; and (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the Shares (the "Offered Price"), and the Holder shall offer the Shares at the Offered Price to the Company or its assignee(s). -3- 4 (b) Exercise of Right of First Refusal. At any time within thirty (30) days after receipt of the Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all, but not less than all, of the Shares proposed to be transferred to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (c) below. (c) Purchase Price. The purchase price ("Purchase Price") for the Shares purchased by the Company or its assignee(s) under this Section shall be (i) the Offered Price in the case of Shares that are Vested Shares, or (ii) in the case of Shares that are not Vested Shares, the lower of the Offered Price or the Repurchase Price as defined in subsection (c) hereof. Notwithstanding the foregoing, in the event the transfer is by gift or operation of law, the Purchase Price for the Vested Shares shall be the Fair Market Value of the Shares as determined by the Board. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Board of Directors of the Company in good faith. (d) Payment. Payment of the Purchase Price shall be made, at the option of the Company or its assignee(s), in cash (by check), by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), or by any combination thereof within thirty (30) days after receipt of the Notice or in the manner and at the times set forth in the Notice. (e) Holder's Right to Transfer. If all of the Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased by the Company and/or its assignee(s) as provided in this Section, then the Holder may sell or otherwise transfer such Shares to that Proposed Transferee at the Offered Price or at a higher price, provided that such sale or other transfer is consummated within 120 days after the date of the Notice and provided further that any such sale or other transfer is effected in accordance with any applicable securities laws and the Proposed Transferee agrees in writing that the provisions of this Section shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice are not transferred to the Proposed Transferee within such period, a new Notice shall be given to the Company, and the Company and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise transferred. (f) Exception for Certain Family Transfers. Anything to the contrary contained in this Section notwithstanding, the transfer of any or all of the Shares during the Optionee's lifetime or on the Optionee's death by will or intestacy to the Optionee's Family Members shall be exempt from the provisions of this Section. "Family Members" as used herein shall have the same meaning as such term has in Rule 701 of the Securities Act of 1933 ("Rule 701") and any transfer permissible under Rule 701 shall be permissible under this Section 7(f). In such case, the transferee or other recipient shall receive and hold the Shares so transferred subject to the provisions of this Section, and there shall be no further transfer of such Shares except in accordance with the terms of this Section. (g) Termination of Right of First Refusal. The Right of First Refusal shall terminate as to any Shares ninety (90) days after the first sale of Common Stock of the Company to -4- 5 the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the 1933 Act. 8. Investment Representations. In connection with the purchase of the Shares, the Purchaser represents to the Company the following: (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 these securities for investment for the Purchaser's own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning 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 by reason of 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 view of the Securities and Exchange Commission (the "Commission"), the statutory basis for such exemption may not be present if the Purchaser's representations meant that the Purchaser's present intention was to hold these securities for a minimum capital gains period under the tax statutes, for a deferred sale, for a market rise, for a sale if the market does not rise, or for a year or any other fixed period in the future. (c) The Purchaser further acknowledges and understands that the securities must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. The Purchaser further acknowledges and understands that the Company is under no obligation to register the securities. The Purchaser understands that the certificate evidencing the securities will be imprinted with a legend which prohibits the transfer of the securities unless they are registered or such registration is not required in the opinion of counsel satisfactory to the Company. 9. Merger. (a) Cause. "Cause" shall mean (i) any act of personal dishonesty taken by the Purchaser in connection with his responsibilities as a Purchaser and intended to result in substantial personal enrichment of the Purchaser, (ii) the conviction of a felony which the Board reasonably believes had or will have a material detrimental effect on the Company's reputation or business, (iii) a willful act by the Purchaser which constitutes gross misconduct and which is injurious to the Company, and (iv) continued violations by the Purchaser of the Purchaser's obligations which are demonstrably willful and deliberate on the Purchaser's part after there has been delivered to the Purchaser a written demand for performance from the Company which describes the basis for the Company's belief that the Purchaser has not substantially performed his duties. (b) Involuntary Termination. "Involuntary Termination" means (i) the failure of the Company to obtain the assumption of this Agreement by any successors in the event of a change of control; (ii) a reduction by the Company in the base salary of the Purchaser as in effect immediately prior to such reduction; (iii) without the Purchaser's express written consent, the -5- 6 relocation of the Purchaser to a facility or a location more than fifty 50 miles from the Purchaser's then present location; (iv) any purported termination of the Purchaser by the Company which is not effected for disability or for Cause, or any purported termination for which the grounds relied upon are not valid; or (v). (c) Change of Control. "Change of Control" means the occurrence of any of the following events: (i) Any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) becoming the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company's then outstanding voting securities except in connection with raising capital for the Company (in a venture capital financing initial public offering or otherwise). (ii) A change in the compensation of the Board occurring within a two-year period, as a result of which fewer than a majority of the directors are Incumbent Directors. "Incumbent Directors" shall mean directors who either (A) are directors of the Company as of the date hereof, or (B) are elected, or nominated for election, to the Board of the Company with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual not otherwise an Incumbent Director whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company); or (iii) The approval by shareholders of the Company of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the approval by the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets. 10. Stock Certificate Legends. The share certificate evidencing the Shares issued hereunder shall be endorsed with the following legends: (a) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933. (b) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT -6- 7 BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. (c) Any legend required by any applicable state securities laws. 11. Market Stand-Off Agreement. The Purchaser hereby agrees, if so requested by the managing underwriters in such offering, that, without the prior written consent of such managing underwriters, the Purchaser will not offer, sell, contract to sell, grant any option to purchase, make any short sale or otherwise dispose of or make a distribution of any capital stock of the Company held by or on behalf of the Purchaser or beneficially owned by the Purchaser in accordance with the rules and regulations of the Securities and Exchange Commission for a period of up to 180 days after the date of the final prospectus relating to the Company's initial public offering. 12. Adjustment for Stock Split. All references to the number of Shares and the purchase price of the Shares in this Agreement shall be appropriately adjusted to reflect any stock split, stock dividend or other change in the Shares which may be made by the Company after the date of this Agreement. 13. Tax Consequences. The Purchaser has reviewed with the Purchaser's own tax advisors the federal, state, local and foreign tax consequences of this investment and the transactions contemplated by this Agreement. The Purchaser is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. The Purchaser understands that the Purchaser (and not the Company) shall be responsible for the Purchaser's own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement. The Purchaser understands that Section 83 of the Code taxes as ordinary income both (i) the difference between the fair market value of the Shares when the Company granted the Purchaser the right to purchase the Shares and the fair market value of the Shares on the date of this Agreement, and (ii) the difference between the amount paid for the Shares and the fair market value of the Shares as of the date any restrictions on the Shares lapse. In this context, "restriction" includes the right of the Company to buy back the Shares pursuant to its repurchase option. In the event the Company has registered under the Exchange Act, "restriction" with respect to officers, directors and ten percent (10%) shareholders also means the period after the purchase of the Shares during which such officers, directors and 10% shareholders could be subject to suit under Section 16(b) of the Exchange Act. The Purchaser understands that the Purchaser may elect to be taxed at the time the Shares are purchased rather than when and as the Company's repurchase option or the Section 16(b) period expires by filing an election under Section 83(b) of the Code with the I.R.S. within thirty (30) days from the date of purchase. THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON THE PURCHASER'S BEHALF. 14. 1999 Stock Plan. This Agreement and the Purchasers' rights hereunder and with respect to the Shares shall be governed in all respects by the provisions of the Company's 1999 -7- 8 Stock Plan. All capitalized terms used herein and not otherwise defined herein shall have the respective meanings defined in the Plan. 15. General Provisions. (a) This Agreement shall be governed by the laws of the State of Illinois as they apply to contracts entered into and wholly to be performed in such state. This Agreement represents the entire agreement between the parties with respect to the purchase of Common Stock by the Purchaser and replaces and supersedes any other agreement with respect to the purchase of Common Stock by the Purchaser, including the employment agreement dated March 25, 1999 between the Purchaser and the Company. This Agreement may only be modified or amended in writing signed by both parties. (b) Any dispute, claim or controversy of any kind (including but not limited to tort, contract and statute) arising under, in connection with, or relating to this Agreement shall at the request of either party be resolved exclusively by binding arbitration in Vernon Hills, Illinois in accordance with the Commercial rules of the American Arbitration Association then in effect. The Purchaser and the Company agree to waive any objection to personal jurisdiction or venue in any forum located in Vernon Hills, Illinois. Judgment may be entered on the arbitrator's award in any court having jurisdiction. (c) Any notice, demand or request required or permitted to be given by either the Company or the Purchaser pursuant to the terms of this Agreement shall be in writing and shall be deemed given when delivered personally or deposited in the U.S. mail, First Class with postage prepaid, and addressed to the parties at the addresses of the parties set forth at the end of this Agreement or such other address as a party may request by notifying the other in writing. (d) The rights and benefits of the Company under this Agreement shall be transferable to any one or more persons or entities, and all covenants and agreements hereunder shall inure to the benefit of, and be enforceable by the Company's successors and assigns. The rights and obligations of the Purchaser under this Agreement may only be assigned with the prior written consent of the Company. (e) Either party's failure to enforce any provision or provisions of this Agreement shall not in any way be construed as a waiver of any such provision or provisions, nor prevent that party thereafter from enforcing each and every other provision of this Agreement. The rights granted both parties herein are cumulative and shall not constitute a waiver of either party's right to assert all other legal remedies available to it under the circumstances. (f) The Purchaser agrees upon request to execute any further documents or instruments necessary or desirable to carry out the purposes or intent of this Agreement. (g) PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO SECTION 4 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS AN EMPLOYEE OR CONSULTANT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED AT THIS DATE, AND NOT THROUGH -8- 9 PURCHASING SHARES HEREUNDER). PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS AN EMPLOYEE OR CONSULTANT FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH PURCHASER'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE PURCHASER'S EMPLOYMENT OR CONSULTING RELATIONSHIP AT ANY TIME, WITH OR WITHOUT CAUSE. (h) Purchaser has reviewed this Agreement in its entirety, has had an opportunity to obtain the advice of counsel prior to executing this Agreement and fully understands all provisions of this Agreement. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first set forth above. yesmail.com PURCHASER: a Delaware corporation By: _______________________________ ___________________________________ (Signature) Title: ____________________________ (Type or Print Name) ___________________________________ ___________________________________ (Address) -9- 10 EXHIBIT A PROMISSORY NOTE May 10, 1999 $390,000 For value received, the undersigned promises to pay to yesmail.com, a Delaware corporation (the "Company"), at its principal office the principal sum of $390,000 with interest thereof at the rate of 5.22% per annum, compounded annually, on the unpaid balance of the principal sum. Said principal and interest shall be due on the earlier to occur of the ninth anniversary of the date of this Note, thirty (30) days after the undersigned ceases to provide services to the Company (whether as an employee, director or consultant) other than for death or disability, or one year after termination of services for death or disability. This Note is subject to the terms of a Stock Purchase Agreement, dated as of May 10, 1999. This Note is secured by a pledge of the Company's Common Stock under the terms of a Security Agreement of even date herewith and is subject to all the provisions thereof. The holder of this Note shall have recourse against the undersigned personally for failure to pay the Note as and when due as to seventy-five percent (75%) of the principal sum and as to all accrued interest. The principal is payable in lawful money of the United States of America. The privilege is reserved to prepay any portion of the Note at any time without any premium or penalty. If the undersigned shall default in the payment of amounts hereunder when due, the holder of this Note shall be entitled to payment by the undersigned of all costs of collection, including, without limitation, reasonable attorneys' fees and costs incurred in connection with such collection efforts, whether or not suit on this Note is filed. The maker waives presentment for payment, protest, notice of protest and notice of non-payment of this Note. This Note shall be governed by the laws of the State of Illinois as they apply to contracts entered into and wholly to be performed within such state. ___________________________________ Signature of Borrower ___________________________________ Print Name of Borrower -10- 11 EXHIBIT B ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED I, __________________________, hereby sell, assign and transfer unto YesMail.com 650,000 shares of the Common Stock of yesmail.com standing in my name of the books of said corporation represented by Certificate No. _____ herewith and do hereby irrevocably constitute and appoint Wilson, Sonsini, Goodrich & Rosati, attorney, to transfer the said stock on the books of the within named corporation with full power of substitution in the premises. This Stock Assignment may be used only in accordance with the Restricted Stock Purchase Agreement between yesmail.com and the undersigned dated May 10, 1999. Dated: May 10, 1999 ___________________________________ (to be signed exactly as name is to appear on stock certificate) INSTRUCTIONS: Please do not fill in the blanks other than the signature line. The purpose of this assignment is to enable the Company to exercise its "repurchase option," as set forth in the Agreement, without requiring additional signatures on the part of the Purchaser. 12 EXHIBIT C JOINT ESCROW INSTRUCTIONS May 10, 1999 David B. Menzel Corporate Secretary yesmail.com 565 Lakeview Parkway, Suite 135 Vernon Hills, IL 60061 Dear Corporate Secretary: As Escrow Agent for both yesmail.com, a Delaware corporation (the "Company"), and the undersigned purchaser of stock of the Company (the "Purchaser"), you are hereby authorized and directed to hold the documents delivered to you pursuant to the terms of the Restricted Stock Purchase Agreement (the "Agreement") between the Company and the undersigned pursuant to the Company's 1999 Restricted Stock Purchase Plan (the "Plan"), in accordance with the following instructions: 1. In the event the Company and/or any assignee of the Company (referred to collectively for convenience herein as the "Company") exercises the Company's repurchase option set forth in the Agreement, the Company shall give to Purchaser and you a written notice specifying the number of shares of stock to be purchased, the purchase price and the time for a closing hereunder at the principal office of the Company. Purchaser and the Company hereby irrevocably authorize and direct you to close the transaction contemplated by such notice in accordance with the terms of said notice. 2. At the closing, you are directed (a) to date the stock assignments necessary for the transfer in question, (b) to fill in the number of shares being transferred, and (c) to deliver same, together with the certificate evidencing the shares of stock to be transferred, to the Company or its assignee, against the simultaneous delivery to you of the purchase price (by cash, a check, cancellation of indebtedness or some combination thereof) for the number of shares of stock being purchased pursuant to the exercise of the Company's repurchase option. 3. Purchaser irrevocably authorizes the Company to deposit with you any certificates evidencing shares of stock to be held by you hereunder and any additions and substitutions to said 13 shares as defined in the Agreement. Purchaser does hereby irrevocably constitute and appoint you as Purchaser's attorney-in-fact and agent for the term of this escrow to execute with respect to such securities all documents necessary or appropriate to make such securities negotiable and to complete any transaction herein contemplated, including but not limited to the filing with any applicable state blue sky authority of any required applications for consent to, or notice of transfer of, the securities. Subject to the provisions of this paragraph 3, Purchaser shall exercise all rights and privileges of a shareholder of the Company while the stock is held by you. 4. Upon written request of the Purchaser, but no more than once per calendar year, unless the Company's repurchase option has been exercised, you will deliver to Purchaser a certificate or certificates representing so many shares of stock as are not then subject to the Company's repurchase option, provided that such shares have been fully paid for and do not secure an unpaid promissory note or shares not fully paid for. Within ninety (90) days after cessation of Purchaser's continuous employment by the Company or any parent or subsidiary of the Company except for death or disability and within one (1) year after cessation for death or disability, you will deliver to Purchaser a certificate or certificates representing the aggregate number of shares held or issued pursuant to the Agreement and not purchased by the Company or its assignees pursuant to exercise of the Company's repurchase option. 5. If at the time of termination of this escrow you should have in your possession any documents, securities or other property belonging to Purchaser, you shall deliver all of the same to Purchaser and shall be discharged of all further obligations hereunder. 6. Your duties hereunder may be altered, amended, modified or revoked only by a writing signed by all of the parties hereto. 7. You shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by you to be genuine and to have been signed or presented by the proper party or parties. You shall not be personally liable for any act you may do or omit to do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith, and any act done or omitted by you pursuant to the advice of your own attorneys shall be conclusive evidence of such good faith. 8. You are hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of law and are hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case you obey or comply with any such order, judgment or decree, you shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction. 9. You shall not be liable in any respect on account of the identity, authorities or rights of the parties executing or delivering or purporting to execute or deliver the Agreement or any documents or papers deposited or called for hereunder. -2- 14 10. You shall not be liable for the outlawing of any rights under the Statute of Limitations with respect to these Joint Escrow Instructions or any documents deposited with you. 11. You shall be entitled to employ such legal counsel and other experts as you may deem necessary properly to advise you in connection with your obligations hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefor. 12. Your responsibilities as Escrow Agent hereunder shall terminate if you shall cease to be an officer or agent of the Company or if you shall resign by written notice to each party. In the event of any such termination, the Company shall appoint a successor Escrow Agent. 13. Any of your costs and expenses for this escrow arrangement shall be paid by the Company. The Company shall have the sole obligation for the costs of this escrow arrangement. 14. If you reasonably require other or further instruments in connection with these Joint Escrow Instructions or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments. 15. It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the securities held by you hereunder, you are authorized and directed to retain in your possession without liability to anyone all or any part of said securities until such disputes shall have been settled either by mutual written agreement of the parties concerned or by a final order, decree or judgment of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but you shall be under no duty whatsoever to institute or defend any such proceedings. 16. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail with postage and fees prepaid, addressed to each of the other parties thereunto entitled at the following addresses or at such other addresses as a party may designate by ten (10) days' advance written notice to each of the other parties hereto. COMPANY: yesmail.com 565 Lakeview Parkway, Suite 135 Vernon Hills, IL 60061 PURCHASER: ________________________________ ________________________________ ESCROW AGENT: yesmail.com 565 Lakeview Parkway, Suite 135 Vernon Hills, IL 60061 16. By signing these Joint Escrow Instructions, you become a party hereto only for the purpose of said Joint Escrow Instructions; you do not become a party to the Agreement. -3- 15 17. This instrument shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and permitted assigns. -4- 16 18. These Joint Escrow Instructions shall be governed by, and construed and enforced in accordance with, the laws of the State of Illinois. Very truly yours, yesmail.com By:________________________________ Title:_____________________________ PURCHASER ___________________________________ (Signature) ___________________________________ (Print or type name) ESCROW AGENT: ___________________________________ Corporate Secretary -5- 17 EXHIBIT D SECURITY AGREEMENT This Security Agreement is made as of May 10, 1999 between yesmail.com, a Delaware corporation ("Pledgee"), _________________________ ("Pledgor"), and David B. Menzel, Secretary of Pledgee, as the agent of Pledgee and holder of the Securities pledged hereunder ("Pledgeholder"). Recitals Pursuant to the Restricted Stock Purchase Agreement dated May 10, 1999 (the "Agreement"), between Pledgor and Pledgee under Pledgee's 1999 Stock Plan and Pledgor's election under the terms of the Agreement to pay for such shares with Pledgor's promissory note (the "Note"), Pledgor has purchased 650,000 shares of Pledgee's Common Stock (the "Shares") at a price of $0.60 per share, for a total purchase price of $390,000. The Note and the obligations thereunder are as set forth in Exhibit A to the Agreement. NOW, THEREFORE, it is agreed as follows: 1. Creation and Description of Security Interest. In consideration of the transfer of the Shares to Pledgor under the Agreement, Pledgor, pursuant to the Illinois Uniform Commercial Code, hereby pledges all of such Shares (herein sometimes referred to as the "Collateral") represented by certificate number ______, and herewith delivers said certificate to Pledgeholder, who shall hold said certificate on behalf of Pledgee subject to the terms and conditions of this Security Agreement. The Shares (together with an executed blank stock assignment or assignments) shall be held by Pledgeholder on behalf of Pledgee as security for the repayment of the Note, and any extensions or renewals thereof, to be executed by Pledgor pursuant to the terms of the Agreement, and Pledgeholder shall not encumber or dispose of such Shares except in accordance with the provisions of this Security Agreement. 2. Pledgor's Representations and Covenants. To induce Pledgee to enter into this Security Agreement, Pledgor represents and covenants to Pledgee, its successors and assigns, as follows: (a) Payment of Indebtedness. Pledgor will pay the principal sum of the Note secured hereby, and interest thereon, at the time and in the manner provided in the Note. (b) Encumbrances. The Shares are free of all other adverse claims, encumbrances, defenses and liens (other than restrictions on transfer imposed by applicable securities laws), except for (i) Pledgee's rights to repurchase Shares pursuant to Section 3 of the Agreement and (ii) the pledge of the Shares hereunder as security for payment of the Note, and Pledgor will not further encumber the Shares without the prior written consent of Pledgee. 18 (c) Margin Regulations. In the event that Pledgee's Common Stock is now or later becomes margin-listed by the Federal Reserve Board and Pledgee is classified as a "lender" within the meaning of the regulations under Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G"), Pledgor agrees to cooperate with Pledgee in making any amendments to the Note or providing any additional collateral as may be necessary to comply with such regulations. 3. Voting Rights. During the term of this pledge and so long as all payments of principal and interest are made as they become due under the terms of the Note, Pledgor shall have the right to vote all of the Shares pledged hereunder. 4. Stock Adjustments. In the event that during the term of the pledge any stock dividend, reclassification, readjustment or other changes are declared or made in the capital structure of Pledgee, all new, substituted and additional shares or other securities issued by reason of any such change shall be delivered to and held by the Pledgee under the terms of this Security Agreement in the same manner as the Shares originally pledged hereunder. In the event of substitution of such securities, Pledgor, Pledgee and Pledgeholder shall cooperate and execute such documents as are reasonable so as to provide for the substitution of such Collateral and, upon such substitution, references to "Shares" in this Security Agreement shall include the substituted shares of capital stock of Pledgor as a result thereof. 5. Options and Rights. In the event that, during the term of this pledge, subscription Options or other rights or options shall be issued in connection with the pledged Shares, such rights, Options and options shall be the property of Pledgor and, if exercised by Pledgor, all new stock or other securities so acquired by Pledgor as it relates to the pledged Shares then held by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under the terms of this Security Agreement in the same manner as the Shares pledged. 6. Default. Pledgor shall be deemed to be in default of the Note and of this Security Agreement in the event: (a) Payment of principal or interest on the Note shall be delinquent for a period of ten (10) days or more; or (b) Pledgor fails to perform any of the covenants set forth in the Agreement or contained in this Security Agreement for a period of 10 days after written notice thereof from Pledgee; or (c) A bankruptcy or insolvency proceeding is instituted by or against Pledgor, or if a receiver is appointed for the property of Pledgor; or (d) Pledgor makes an assignment for the benefit of creditors. In the case of a default, as set forth above, Pledgee shall have the right to accelerate payment of the [entire amount on the] Note, and Pledgee shall thereafter be entitled to pursue its remedies under the Illinois Uniform Commercial Code. -2- 19 7. Release of Collateral. Subject to any applicable contrary rules under Regulation G, there shall be released from this pledge a portion of the pledged Shares held by Pledgeholder hereunder upon payments of the principal of the Note. The number of the pledged Shares which shall be released shall be that number of full Shares which bears the same proportion to the initial number of Shares pledged hereunder as the payment of principal bears to the initial full principal amount of the Note. Notwithstanding the foregoing, upon any release of pledged Shares hereunder any such Shares which shall continue to constitute Unreleased Shares as defined in the Agreement shall continue to be held in escrow pursuant to Sections 3 and 6 of the Agreement. 8. Withdrawal or Substitution of Collateral. Pledgor shall not sell, withdraw, pledge, substitute or otherwise dispose of all or any part of the Collateral without the prior written consent of Pledgee. 9. Term. The within pledge of Shares shall continue until the payment of all indebtedness secured hereby, subject to the provisions for prior release of a portion of the Collateral as provided in paragraph 7 above. 10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency proceeding is instituted by or against it, or if a receiver is appointed for the property of Pledgor, or if Pledgor makes an assignment for the benefit of creditors, the entire amount unpaid on the Note shall become immediately due and payable, and Pledgee may proceed as provided in the case of default. 11. Pledgeholder Liability. (a) Pledgeholder shall not be liable to any party for any of his acts, or omissions to act, as Pledgeholder unless Pledgeholder is proved to have acted in bad faith. Any act done or omitted pursuant to the advice of legal counsel, other than an act or omission involving gross or willful negligence, shall be deemed to be done or omitted in good faith. (b) Pledgeholder shall be entitled to employ such legal counsel and other experts as Pledgeholder may deem necessary properly to advise Pledgeholder in connection with its obligations hereunder, and Pledgeholder may rely upon the advice of such counsel. Such counsel's reasonable fees and costs shall be borne fifty percent (50%) by Pledger and fifty percent (50%) by Pledgee. (c) It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the securities held by Pledgeholder hereunder, Pledgeholder is authorized and directed to retain in Pledgeholder's possession as agent of Pledgee without liability to anyone all or any part of said securities until such disputes shall have been settled either by mutual written agreement of the parties concerned or by a final order, decree or judgment of the arbitrator provided for in Section 13 of the Agreement or of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but Pledgeholder shall be under no duty whatsoever to institute or defend any such proceedings. In addition, upon any dispute Pledgeholder should be entitled to engage legal counsel, one-half of whose fees and expenses shall be borne by Pledgor and one-half by Pledgee. -3- 20 12. Invalidity of Particular Provisions. Pledgor and Pledgee agree that the enforceability or invalidity of any provision or provisions of this Security Agreement shall not render any other provision or provisions herein contained unenforceable or invalid. 13. Successors or Assigns. Pledgor and Pledgee agree that all of the terms of this Security Agreement shall be binding on their respective successors and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein shall be deemed to include, for all purposes, the respective designees, successors, assigns, heirs, executors and administrators. 14. Governing Law. This Security Agreement shall be interpreted and governed under the laws of the State of Illinois. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. "PLEDGOR" By:________________________________ ___________________________________ Print Name ___________________________________ ___________________________________ (Address) "PLEDGEE" yesmail.com a Delaware corporation By:________________________________ Title:_____________________________ "PLEDGEHOLDER" ___________________________________ Secretary of Pledgee -4- EX-10.5 7 OFFICE/SERVICE CENTER LEASE 1 EXHIBIT 10.5 OFFICE/SERVICE CENTER LEASE BETWEEN GREAT LAKES REIT, L.P., LANDLORD AND SUPERHIGHWAY CONSULTING, INC., TENANT 2 TABLE OF CONTENTS ARTICLE 1 - BASIC TERMS......................................................................5 1.01 Basic Terms:.........................................................................5 1.02 Effect of Reference to Basic Terms:..................................................6 ARTICLE 2 - QUIET ENJOYMENT..................................................................6 2.01 Quiet Enjoyment......................................................................6 ARTICLE 3 - GRANT, DELIVERY AND TERM.........................................................7 3.01 Grant of Premises....................................................................7 3.02 Conditions of Grant..................................................................7 3.03 Delivery and Acceptance of Premises..................................................7 3.04 Delay of Possession..................................................................7 3.05 Substitute Premises..................................................................7 ARTICLE 4 - SURRENDER AND HOLDING OVER.......................................................8 4.01 Surrender............................................................................8 4.02 Holdover.............................................................................9 ARTICLE 5 - SECURITY DEPOSIT.................................................................9 5.01 Security Deposit.....................................................................9 ARTICLE 6 - RENT............................................................................10 6.01 Base Rent...........................................................................10 6.02 Additional Rent.....................................................................10 6.03 Basic Costs.........................................................................10 6.04 Taxes...............................................................................11 6.05 Insurance Premiums..................................................................11 6.06 Operating Expenses..................................................................11 6.07 Estimates of Expenses during Vacancy and Services to Part of Building...............12 6.08 Estimates of Additional Rent........................................................12 6.09 Audit of Additional Rent............................................................13 6.10 Service Charge......................................................................13 ARTICLE 7 - UTILITY SERVICES................................................................13 7.01 Water Service.......................................................................13 7.02 Electricity/Phone Service...........................................................14 7.03 Utility Payments....................................................................14 7.04 Service Interruption................................................................14 ARTICLE 8 - USE, MAINTENANCE AND COMPLIANCE WITH LAWS.......................................14 8.01 General Use.........................................................................14 8.02 Maintenance and Repair by Tenant....................................................15 8.03 Compliance with Laws................................................................16 8.04 Signs...............................................................................16 8.05 Hazardous Materials.................................................................16 ARTICLE 9 - COMMON AREAS....................................................................17 9.01 Definition..........................................................................17 9.02 Outside Storage and Parking.........................................................17 ARTICLE 10 - TENANT'S FIXTURES, ALTERATIONS, AND LIENS......................................17
2 3 10.01 Tenant's Fixtures..................................................................17 10.02 Leasehold Improvements.............................................................17 10.03 Mechanics' Liens...................................................................18 ARTICLE 11 - SERVICE AND MAINTENANCE BY LANDLORD AND RESERVATIONS...........................19 11.01 Specific Reservations..............................................................19 11.02 Building Alterations By Landlord...................................................19 11.03 Maintenance and Repair by Landlord.................................................19 11.04 Additional Services................................................................20 ARTICLE 12 - LANDLORD'S RIGHTS..............................................................21 12.01 Rights Reserved....................................................................21 ARTICLE 13 - LANDLORD'S INABILITY TO PERFORM................................................22 13.01 Landlord's Inability to Perform....................................................22 13.02 Limit of Landlord's Liability......................................................22 ARTICLE 14 - INSURANCE/INDEMNIFICATION......................................................22 14.01 Tenant's Insurance.................................................................22 14.02 Landlord's Approval................................................................23 14.03 Building Insurance Coverage........................................................23 14.04 Landlord's Liability/Property Damage or Loss.......................................24 14.05 Indemnification of Landlord/Third Party Claims.....................................24 14.06 Waiver of Subrogation..............................................................24 ARTICLE 15 - DAMAGE OR DESTRUCTION..........................................................25 15.01 Reconstruction Following Damage....................................................25 15.02 Excessive Damage...................................................................25 15.03 Damage or Destruction at End of Term...............................................25 15.04 Rent Abatement.....................................................................25 ARTICLE 16 - ASSIGNMENT AND SUBLETTING......................................................26 16.01 Assignment and Subletting Generally................................................26 16.02 Sale of Interest in Tenant.........................................................28 16.03 Mergers, Consolidations and Tenant Affiliates......................................29 ARTICLE 17 - ASSIGNMENT BY LANDLORD.........................................................29 17.01 Assignment by Landlord.............................................................29 ARTICLE 18 - MORTGAGE AND TRANSFER..........................................................29 18.01 Right to Transfer..................................................................29 18.02 Estoppel Letter....................................................................31 18.03 Delivery of Transfer Documents.....................................................31 ARTICLE 19 - EMINENT DOMAIN.................................................................31 19.01 Eminent Domain.....................................................................31 ARTICLE 20 - DEFAULT AND REMEDIES...........................................................32 20.01 Default Generally..................................................................32 20.02 Landlord's Remedies................................................................33 20.03 Damages............................................................................34 20.04 No Reinstatement...................................................................36 20.05 Waiver.............................................................................36 ARTICLE 21 - MISCELLANEOUS..................................................................36
3 4 21.01 No Option..........................................................................36 21.02 Brokers............................................................................36 21.03 Accord and Satisfaction............................................................36 21.04 Financial Statements...............................................................37 21.05 Notice.............................................................................37 21.06 Exhibits...........................................................................37 21.07 Survival...........................................................................37 21.08 Tenant's Authority.................................................................37 21.09 Persons Bound......................................................................37 21.10 Partial Invalidity.................................................................37 21.11 Captions...........................................................................38 21.12 Applicable Law.....................................................................38 21.13 Rights Cumulative..................................................................38 21.14 Entire Agreement...................................................................38 21.15 Waiver of Jury.....................................................................38 ARTICLE 22 - OPTION TO TERMINATE............................................................38 ARTICLE 23 - OPTION TO RENEW................................................................39
4 5 OFFICE/SERVICE CENTER LEASE THIS LEASE is made as of the 12th day of May, 1998, by and between Great Lakes REIT, L.P., a Delaware limited partnership, hereinafter called "Landlord" and Superhighway Consulting, Inc., an Illinois corporation, hereinafter called "Tenant", together hereinafter called the "Parties". ARTICLE 1 - BASIC TERMS 1.01. Basic Terms: A. Landlord's Address for Notices: Great Lakes REIT, Inc. 823 Commerce Drive, Suite 300 Oak Brook, IL 60523 Landlord's Address For Great Lakes REIT, Inc. Rent Payments: Department 77-6085 Chicago, Illinois 60678-6085 B. Tenant's Address for Notices: Superhighway Consulting, Inc. 565 Lakeview Parkway Vernon Hills, Illinois C. Building: The land and improvements commonly known as 565 Lakeview Parkway, Vernon Hills, Illinois, together with any parking areas, walkways, landscaped areas and other improvements appurtenant thereto. D. Premises: Those certain premises in the Building as shown on Exhibit A attached hereto and known as Suite 135. E. Schedule of Base Rent:
Period Annual Base Rent Monthly Base Rent ------ ---------------- ----------------- 10/1/98 - 9/30/99 $102,084.00 $8,507.00 10/1/99 - 9/30/00 $105,146.52 $8,762.21 10/1/01 - 9/30/01 $108,300.91 $9,025.08 10/1/01 - 9/30/02 $111,549.93 $9,295.83 10/1/02 - 9/30/03 $114,896.42 $9,574.70
5 6 F. Rentable Area of the Building: 84,804 Square Feet G. Rentable Area of the Premises: 8,688 Square Feet H. Tenant's Proportionate Share: Ten and 24/100 percent (10.24%) (The percentage calculated by dividing the Rentable Area of the Premises by the Rentable Area of the Building). I. Target Commencement Date: October 1, 1998 J. Lease Term: The period of time commencing on the Commencement Date and expiring sixty (60) months after the Commencement Date (except that if the expiration date would not be the last day of a calendar month the term shall extend until the last day of the calendar month with Rent payable for the balance of such month at the rate for the last monthly period during the term), unless sooner terminated or extended as may be herein provided. K. Security Deposit: $50,000.00 (subject to adjustment as provided in Article 5) L. Permitted Uses: General office purposes M. Brokers: The John Buck Company and CB Commercial Real Estate Group, Inc. N. Exhibits: A. Plan of Premises B. Rules and Regulations C. Construction Rider D. Confirmation of Commencement Date
1.02 Effect of Reference to Basic Terms: Each reference in this Lease to any of the Basic Terms contained in Paragraph 1.01 shall be construed to incorporate into such reference the definition thereof as set forth in Paragraph 1.01. ARTICLE 2 - QUIET ENJOYMENT 2.01 Quiet Enjoyment Landlord covenants that Tenant, on paying the Rent herein provided and keeping, performing and observing each and every term, covenant, and condition herein required of Tenant, shall peaceably and quietly hold and enjoy the Premises without hindrance or molestation by Landlord for the Lease Term, subject to the terms of this Lease and 6 7 any encumbrances, easements, rights, covenants, conditions and restrictions of record existing as of the date of this Lease or placed on the Building hereafter. ARTICLE 3 - GRANT, DELIVERY AND TERM 3.01 Grant of Premises In consideration of the rents, terms, covenants, and conditions hereinafter provided to be paid, kept, performed and observed, Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the Premises. 3.02 Conditions of Grant Tenant shall have and hold the Premises for and during the Lease Term, subject to the payment of the Rent and to the full and timely performance by Tenant of all of the covenants and conditions hereinafter set forth. 3.03 Delivery and Acceptance of Premises Landlord shall make a good faith effort to make the Premises Ready for Occupancy ("Ready for Occupancy" having the meaning as defined in Exhibit C, Construction Rider) by the Target Commencement Date. However the actual commencement date shall be the "Commencement Date" defined in Exhibit C. Promptly following the Commencement Date, Tenant shall execute and deliver to Landlord a confirmation of the Commencement Date on the form attached hereto as Exhibit D. No promise of Landlord to alter, remodel, decorate, clean or improve the Premises or the Building and no representation respecting the condition of the Premises or the Building has been made by Landlord to Tenant, unless the same is contained herein or in the Construction Rider. Tenant's taking possession of the Premises or any part thereof shall be conclusive evidence against Tenant that the portion of the Premises taken possession of was then in good order and satisfactory condition, except for punch list items as provided in Exhibit C. 3.04 Delay of Possession If Landlord fails to give possession of the Premises on the Target Commencement Date for any reason, Landlord shall not be subject to any liability whatsoever for such failure. Under such circumstances, neither the Lease Term nor Tenant's obligation to pay Rent shall commence until the Commencement Date. If such a delay is caused by a Tenant Delay (as defined in Exhibit C), then Tenant's obligation to pay Rent shall commence on the date that the Premises would have been Ready for Occupancy but for such Tenant Delay. No failure to give possession on the Target Commencement Date shall affect or impair the validity of this Lease or the obligations of Tenant, except as set forth above in this Paragraph 3.04. Tenant agrees to accept the suspension or abatement of Rent noted above in full settlement of all claims which Tenant might otherwise have due to such delay. Notwithstanding the above, if Landlord is unable to deliver possession of the Premises within ninety (90) days after the Target Commencement Date, Tenant shall have the option, as its sole remedy, to terminate this Lease within ten (10) days thereafter and receive a return of all monies, deposits and other advances previously paid to Landlord, unless said delay is as a result of Tenant Delays as defined in Exhibit C. 3.05 Substitute Premises At any time hereafter, Landlord may substitute for the Premises other premises (herein referred to as the "New Premises") provided: 7 8 A. The New Premises shall be located in the Building, be similar to the Premises in area and have a separate entrance similar to the Premises; B. Landlord shall pay the reasonable out-of-pocket expenses of Tenant for moving from the Premises to the New Premises, for improving the New Premises so that they are substantially similar to the Premises, and for the relocation of Tenant's office equipment including, but not limited to, telephone and computer systems; provided, however, instead of paying the expenses of moving Tenant's property, Landlord may elect to move Tenant's property under the reasonable direction of Tenant; C. Such move shall be made during evenings, weekends, or otherwise so as to incur the least inconvenience to Tenant as reasonably possible; D. Landlord shall give Tenant at least thirty (30) days notice before making such a substitution. The substitution date may be changed from time to time thereafter upon at least seven (7) days further notice by Landlord. On the date specified in such notice, Tenant shall vacate the Premises as if the Lease Term expired on such date and comply with the requirements of this Lease imposed on Tenant upon the expiration of the Lease. If Landlord shall exercise its right hereunder, the New Premises shall thereafter be deemed for the purposes of the Lease to be the Premises; and E. Tenant shall not be entitled to any compensation for any inconvenience or interference with Tenant's business, nor to any abatement or reduction in Rent, nor shall Tenant's obligations under this Lease be otherwise affected as a result of the substitution. However, Base Rent and Additional Rent shall be adjusted on a per square foot basis to reflect any decrease in rentable square footage of the New Premises as compared to the Premises (but Tenant shall not be required to pay more if the New Premises are larger). Such adjustment shall be set forth in writing by Landlord and considered an amendment to this Lease. Tenant agrees to cooperate with Landlord so as to facilitate the prompt completion by Landlord of its obligations under this Paragraph 3.05. Without limiting the generality of the preceding sentence, Tenant agrees to promptly provide to Landlord such approvals, instructions, plans, specifications or other information as may be reasonably requested by Landlord. ARTICLE 4 - SURRENDER AND HOLDING OVER 4.01 Surrender Upon the expiration of the Lease Term or upon the termination of Tenant's right of possession, whether by lapse of time or at the option of Landlord as herein provided, Tenant shall promptly surrender the Premises to Landlord in good order, repair and condition, ordinary wear and casualty damage excepted. Prior thereto, Tenant shall remove its office furniture, trade fixtures, office equipment and all other items of personal property on the Premises not belonging to Landlord. Tenant shall pay to Landlord upon demand the actual cost of repairing any damage to the Premises and the Building caused by such removal. If Tenant shall fail or refuse to remove any such property from the Premises, Tenant shall be conclusively presumed to have abandoned the same, and title thereto shall thereupon pass to Landlord without 8 9 any cost by set-off, credit, allowance or otherwise, and Landlord may at its option, accept the title to such property, and, whether or not Landlord accepts such title, Landlord may at Tenant's expense: (i) remove the same or any part in any manner that Landlord shall choose, repairing any damage to the Premises caused by such removal; and (ii) store or otherwise dispose of the same without incurring liability to Tenant or any other person. If Landlord incurs any storage or other costs by reason of Tenant's failure to remove any property which Tenant is obligated to remove under this paragraph, Tenant upon demand shall pay to Landlord the actual amount of costs so incurred. 4.02 Holdover If Tenant shall not immediately surrender the Premises on the expiration of the Lease Term or the earlier termination of the Lease as provided herein, Tenant shall be deemed a tenant only by the month at one hundred fifty percent (150%) of the Rent in effect during the last month of the Lease Term for each month or part thereof during which Tenant shall retain possession of the Premises or any part thereof thereafter. In addition, Tenant shall also pay all damages, consequential and direct, if any, incurred by Landlord on account of such holding over. Nevertheless, neither the provisions of this paragraph, the acceptance of any Rent, nor any other act in apparent affirmance of tenancy (other than a written waiver) shall be held as a waiver by Landlord of any right of re-entry or any other rights or remedies of Landlord provided herein or at law or equity. ARTICLE 5 - SECURITY DEPOSIT 5.01 Security Deposit Tenant shall deposit the Security Deposit in the form of cash or a letter of credit with Landlord upon the execution of this Lease. Said sum shall be held by Landlord as security for the faithful performance by Tenant of all the terms, covenants and conditions of this Lease to be kept and performed by Tenant and not as an advance rental deposit or as a measure of Landlord's damage in case of Tenant's default. If Tenant defaults with respect to any provision of this Lease, Landlord may use any part of the Security Deposit (or draw such amount under the letter of credit) for the payment of any rent or any other sum in default, or for the payment of any amount which Landlord may spend or become obligated to spend by reason of Tenant's default, or to compensate Landlord for any other loss or damage which Landlord may suffer by reason of Tenant's default. If any portion is so used, Tenant shall within five (5) days after written demand therefor, deposit with Landlord an amount sufficient to restore the Security Deposit to its original amount (or restore the balance of the letter of credit) and Tenant's failure to do so shall be a material breach of this Lease. Except to such extent, if any, as shall be required by law, Landlord shall not be required to keep the Security Deposit separate from its general funds, and Tenant shall not be entitled to interest on such deposit. If Tenant shall fully and faithfully perform every provision of this Lease to be performed by it, the Security Deposit or any balance thereof shall be returned to Tenant at such time after termination of this Lease when Landlord shall have determined that all of Tenant's obligations under this Lease have been fulfilled. Any letter of credit shall be issued by a bank reasonably acceptable to Landlord, shall be drawable by Landlord solely upon presentation of a statement from Landlord that the amount drawn is due and payable under the Lease, shall allow for partial draws, and shall otherwise be in 9 10 form and substance reasonably acceptable to Landlord. The letter of credit shall have an expiry date not earlier than one month after the Termination Date of the Lease or shall be replaced by Tenant not less than thirty (30) days prior to its expiry date with another letter having an expiry date at least one year later (except that any initial letter of credit shall have a term expiring not earlier than thirteen months after the Commencement Date). If Tenant fails to replace an expiring letter of credit or restore the letter of credit to its full amount following a draw by Landlord, Landlord may draw the full amount of the letter of credit and treat such amount as a cash Security Deposit. In the event of a transfer of Landlord's interest in the Lease, Tenant will promptly deposit a replacement letter of credit drawable by Landlord's successor and if Tenant shall fail to do so within ten (10) days of Landlord's request, Landlord may draw the full amount of the letter of credit and treat such amount as a cash Security Deposit. Notwithstanding the above, if Tenant shall fully and faithfully perform every provision of this Lease to be performed by it as of the third anniversary of the Commencement Date, the Security Deposit shall be returned to Tenant. ARTICLE 6 - RENT 6.01 Base Rent Tenant covenants to pay to Landlord, without notice, deduction, set-off or abatement, the Base Rent in lawful money of the United States in consecutive monthly installments in advance commencing on the Commencement Date and thereafter on the first day of each month during the Lease Term. Base Rent, Additional Rent defined below, and all other amounts due from Tenant under this Lease shall collectively be referred to as "Rent". Rent shall be payable to Landlord at Landlord's address shown at Paragraph 1.01 or such other place as Landlord may designate from time to time in writing. Anything to the contrary contained in this Lease notwithstanding, if the Commencement Date is other than the first day of a calendar month, the Base Rent and Additional Rent for such month shall be prorated on a per diem basis and the prorated Rent for such month, as well as the first full calendar month's Rent, shall be paid on the first day of the first full calendar month of the Lease Term. The obligation to pay Rent hereunder, is independent of each and every other term, covenant, and condition contained in this Lease. 6.02 Additional Rent Tenant shall pay as Additional Rent Tenant's Proportionate Share of each component of Basic Costs incurred in each calendar year. Tenant covenants to pay to Landlord, without notice, deduction, set-off or abatement, the Additional Rent in lawful money of the United States. Except as otherwise noted herein, Tenant shall pay Landlord the Additional Rent in the same manner as Base Rent, on the first day of each calendar month during the Lease Term. Tenant's obligation to pay Additional Rent shall survive the expiration or termination of the Lease Term. 6.03 Basic Costs "Basic Costs" shall mean Taxes and Operating Expenses, determined in accordance with generally accepted accounting principles consistently applied unless otherwise noted herein. 10 11 6.04 Taxes "Taxes" shall mean the following described taxes or assessments payable during a calendar year, whether imposed, levied, or assessed pursuant to provisions now or at anytime hereafter in effect, and regardless of the period of time for or to which such Taxes apply: (i) all taxes, assessments, and charges, general or special, imposed, levied, or assessed with respect to the Building, exclusive of interest and penalties; (ii) ad valorem taxes assessed or imposed upon personal property owned by Landlord or its agents and used in the management, operation, maintenance or repair of the Building; (iii) transit taxes; (iv) occupational taxes or excise taxes levied on rentals derived from the operation of the Building or the privilege of leasing property; (v) all taxes, assessments, or charges of any kind imposed, levied, or assessed on account of Rent hereunder or of Landlord's interest under this Lease; (vi) any taxes which shall be levied to supplement, in addition to or in lieu of any item described in (i), (ii), (iii), (iv), or (v) above; and (vii) the expense of protesting, negotiating or contesting the amount or validity of any such taxes, charges or assessments, including, but not limited to, reasonable attorney's fees, whether or not any reduction or limitation is obtained. Taxes shall not include any federal or state net income tax or franchise taxes payable by Landlord. 6.05 Insurance Premiums "Insurance Premiums" shall mean the premium for Landlord's insurance coverage described in Article 14. 6.06 Operating Expenses "Operating Expenses" shall mean and include those costs and expenses paid or incurred by or on behalf of Landlord in owning, managing, maintaining, operating and repairing the Building and the personal property used in conjunction therewith, including, but not limited to, (i) the cost of security and security devices and systems; snow and ice and trash removal, cleaning and sweeping; maintenance, repair and replacement of utility systems, electricity, water, sewers, lighting, and window cleaning; (ii) the cost of painting, uniforms, management fees, supplies, sundries and sales or use taxes on supplies or services; (iii) the cost of planting and replacing decorations, flowers and landscaping; (iv) the cost of wages and salaries of all persons (at the level or building manager or below) engaged in the operation, management, maintenance and repair of the Building, and so-called fringe benefits (including, but not limited to, social security taxes, unemployment insurance taxes, cost for providing coverage for disability benefits, cost of any pensions, hospitalization welfare or retirement plans, or any other similar or like expenses incurred under the provisions of any collective bargaining agreement, or any other cost or expense which Landlord pays or incurs to provide benefits for employees so engaged in the operation, management, maintenance and repair of the Building); (v) the charges of any independent contractor who, under contract with Landlord or its representatives, does any of the work of operating, managing, maintaining or repairing the Building; (vi) legal and accounting expenses; (vii) Insurance Premiums; and (viii) any other expense or charge, whether or not hereinbefore mentioned, which, in accordance with generally accepted accounting principles and management principles, would be considered as an expense of owning, managing, operating, maintaining or repairing the Building except as hereinafter provided. Operating Expenses shall not include costs or other items included within the meaning of the term "Taxes", costs of alterations of the premises of tenants of the Building, advertising and other expenses incurred in procuring tenants, legal expenses incurred in the enforcement of leases, costs of capital improvements to the Building, depreciation charges, interest and principal payments on mortgages, ground rental payments and real estate leasing and brokerage 11 12 commissions, the cost of any special service rendered to any tenant that is not rendered to tenants generally, costs relating to the maintenance of Landlord's existence as a legal entity, fines or penalties resulting from violations of laws, the amount of any judgements rendered against Landlord, and any expenditure for which Landlord has been reimbursed (other than pursuant to rent escalation or tax and operating expense reimbursement provisions in leases), except as hereinafter provided. Notwithstanding anything contained herein to the contrary, Operating Expenses shall include the cost of any capital improvements to the Building made after the date of this Lease which are intended to reduce Operating Expenses or which are required under any governmental laws, regulations or ordinances which were not applicable to the Building at the time it was constructed, amortized over such reasonable period as Landlord shall reasonably determine, together with interest on the unamortized cost of any such improvements (at the prevailing construction loan rate available to Landlord on the date the cost of such improvements was incurred). Operating Expenses shall be net of all cash discounts, trade discounts, or quantity discounts received by Landlord in the purchase of any goods, utilities, or services in connection with the operation of the Building. 6.07 Estimates of Expenses during Vacancy and Services to Part of Building If the Building is not at least ninety-five percent (95%) occupied by tenants during all or a portion of any calendar year, Landlord may make appropriate adjustment for such year in the components of Basic Costs which vary depending upon the occupancy level of the Building (such as trash removal, recycling and window washing), employing generally accepted accounting and management principles. Any such adjustments shall also be deemed expenses paid or incurred by Landlord and included in Basic Costs for such calendar year, as if the Building had been ninety-five percent (95%) occupied and Landlord had actually paid or incurred such expenses, to the end that the actual amounts of such variable components of Basic Costs be fairly borne by tenants occupying the Building, and provided that no such adjustment shall include any profit to Landlord in connection with such variable cost. At any time when a service is furnished to, or an item of Operating Expense is incurred with respect to only a part of the Building, the cost of such service or the amount of such item of Operating Expense may, if in Landlord's judgement it is appropriate to do so, be allocated entirely to such part of the Building and Tenant's Proportionate Share of such Operating Expenses shall be adjusted accordingly. 6.08 Estimates of Additional Rent A. Landlord may give Tenant, from time to time, written notice of its estimate of Additional Rent due in a calendar year. Tenant shall pay to Landlord, commencing on the first day of the calendar month following the month in which Landlord notifies Tenant of the estimated Additional Rent, one-twelfth (1/12) of the Additional Rent due in any said calendar year as estimated by Landlord. If at any time during any calendar year it appears to Landlord that the Additional Rent due for any calendar year will vary from its estimate thereof by more than ten percent (10%), Landlord may, by written notice to Tenant, revise its estimate for such year. Subsequent Additional Rent deposits by Tenant for such year shall be based on the revised estimate. Tenant shall make monthly payments of Additional Rent based on Landlord's most recent estimate thereof until Landlord notifies Tenant of a revision of such estimate. Tenant acknowledges that 12 13 Landlord has not made and does not hereby make any representation or warranty whatsoever to Tenant as to the amount of Additional Rent or any component thereof which may become payable during the Lease Term. B. Following the end of each calendar year and after Landlord shall have determined the actual amounts of Basic Costs for such calendar year, Landlord shall notify Tenant in writing. If Tenant's obligation for Additional Rent exceeds the deposits paid by Tenant, Landlord shall bill Tenant for the excess amount and Tenant shall pay to Landlord said amount within thirty (30) days of billing. If Tenant's obligation for actual Additional Rent is less than the deposits paid by Tenant, Tenant shall, at Landlord's option, either be given a credit for the excess amount against the next Additional Rent payments due, or a refund of the excess so paid by Tenant. Delay in computing any item of Basic Costs shall neither be deemed a default by Landlord nor a waiver of the right to collect any item of Basic Costs. 6.09 Audit of Additional Rent Tenant shall have the right to conduct an audit of Landlord's accounting records concerning Additional Rent. Any such audit shall be conducted at Landlord's offices following not less than ten (10) business days prior written notice and shall not unreasonably disrupt Landlord's business operations. The cost of such audit shall be paid by Tenant except in the event the audit reveals an error by Landlord which resulted in an overcharge of actual (as distinguished from estimated) Additional Rent in excess of three percent (3%) of the total, in which event Landlord shall pay the reasonable cost of the audit. Any undercharge or overcharge shall be paid, credited or refunded, as applicable, as provided in Paragraph 6.08. Unless Tenant shall, by written notice to Landlord, take exception to any item in any annual statement of Additional Rent within one hundred eighty (180) days after the furnishing of said statement, such statement shall be conclusively binding upon Tenant. Any amount shown by such statement to be due to Landlord, whether or not written exception is taken to such statement, shall be paid by Tenant as provided in Paragraph 6.08(B) above, without prejudice to any such written exception. 6.10 Service Charge Tenant recognizes that late payment of Rent will result in administrative expense to Landlord, the extent of which additional expense is extremely difficult and economically impractical to ascertain. Tenant therefore agrees that if Rent is not paid when due and payable pursuant to this Lease, a late charge shall be imposed in an amount equal to five percent (5%) per month of the unpaid Rent. The amount of the late charge to be paid by Tenant shall be reassessed and added to Tenant's obligation for each successive monthly period until paid. The provisions of this Paragraph 6.10 in no way relieve Tenant of the obligation to pay Rent on or before the date on which they are due, nor do the terms of this Paragraph 6.10 in any way affect Landlord's remedies pursuant to this Lease in the event Rent is unpaid after the date due. ARTICLE 7 - UTILITY SERVICES 7.01 Water Service Landlord shall provide hot and cold water from the municipal mains for drinking, lavatory and toilet purposes drawn through fixtures installed by Landlord, or by Tenant 13 14 in the Premises with Landlord's written consent. Tenant shall not waste or permit the waste of water. 7.02 Electricity/Phone Service Tenant shall arrange and pay for all phone service installation and utilization costs in the Premises. Electricity shall not be furnished by Landlord, but shall be furnished by an approved electric utility company serving the area. Landlord shall permit Tenant to receive such service direct from such utility company at Tenant's cost and shall permit, at no cost to Tenant, Landlord's wire and conduits, to the extent available, suitable and safely capable, to be used for such purposes. Tenant shall make all necessary arrangements with the utility company for separately metering and paying for electric current furnished by it to the Premises and Tenant shall pay for all charges for electric current consumed on the Premises during Tenant's occupancy thereof. The electricity used during the making of alterations or repairs in the Premises shall be paid for by Tenant. Tenant shall make no alterations or additions to the electric equipment or appliances without the prior written consent of Landlord in each instance, which consent shall not be unreasonably withheld, delayed or conditioned. Tenant also agrees to purchase from Landlord at commercially reasonable rates all lamps, bulbs, ballasts and starters, with the exception of free standing light fixtures, used in the Premises during the Lease Term. Tenant covenants and agrees that at all times its use of electric current shall never exceed the capacity of the feeders to the Building or the risers or wiring installed thereon. 7.03 Utility Payments Tenant shall pay each respective utility company directly for any utilities which are metered to the Premises. The cost of all utilities supplied to the Premises which are not directly metered to the Premises shall be included in Basic Costs. 7.04 Service Interruption Landlord does not warrant against and shall not be liable to Tenant for any loss, injury or damage to property or otherwise caused by or resulting from any variation, interruption, or failure of any utility services due to any cause whatsoever, or from failure to make any repairs or replacements or perform any maintenance. No interruption, variation, or failure of such services incident to the making of repairs, alterations, or improvements, or due to accident, strike, or conditions or events beyond Landlord's control or any other reason shall be deemed an eviction of Tenant or relieve Tenant from any Tenant's obligations hereunder. Notwithstanding the above, if there is an interruption of services which renders the Premises unusable for its intended purpose for more than five (5) consecutive business days and such interruption is a result of factors within the reasonable control of Landlord, then Rent shall abate from the sixth day until such services are restored; and if there is such an interruption of services which renders the Premises unusable for its intended purpose for more than thirty (30) consecutive days (other than as a result of Tenant's negligence or misconduct), then Tenant may terminate this Lease by written notice to Landlord delivered while such interruption continues. ARTICLE 8 - USE, MAINTENANCE AND COMPLIANCE WITH LAWS 8.01 General Use The Premises hereby leased shall be used by Tenant only for the Permitted Uses and for no other purposes. Throughout the Lease Term Tenant shall, at Tenant's expense, promptly comply with the Rules and Regulations set out in Exhibit B, and all applicable 14 15 governmental statutes, ordinances, rules, regulations, orders and requirements in effect regulating the use of the Premises. Tenant shall not use or permit the use of the Premises in any manner that will tend to create waste or a nuisance, or will tend to unreasonably disturb other tenants in the Building. Landlord may hereafter from time to time promulgate additional reasonable rules and regulations regarding the Premises and the Building, and Tenant shall comply with such rules and regulations, so long as such regulations do not conflict with the Permitted Uses of the Premises by Tenant or reduce Tenant's rights hereunder. 8.02 Maintenance and Repair by Tenant A. Tenant shall be responsible for all necessary or appropriate maintenance, repair, and replacement to the Premises of every kind or nature not hereinafter set forth specifically as the obligation of Landlord, including the heating and air conditioning ("HVAC") systems and equipment serving the Premises. Tenant shall take good care of the Premises, and keep them in good repair and free from filth, overloading, danger of fire or any pest or nuisance, and, under the supervision or subject to the approval of Landlord and within a reasonable period of time specified by Landlord, Tenant shall repair or replace any damage or breakage to the Premises or the Building caused by Tenant or Tenant's agents, employees, licensees, contractors, or invitees, or by Tenant's equipment or installations. At the end of the Lease Term or any renewal or extension hereof, Tenant shall quit and surrender the Premises in a condition as good as when received by Tenant, normal wear and casualty damage excepted. In the event Tenant fails to maintain, repair or replace any damage or breakage to the Premises as provided for herein, Landlord shall have the right, but not the obligation, to perform such maintenance, repair or replacement in which event Tenant shall promptly reimburse Landlord for its actual costs in providing such maintenance, repair or replacements together with a ten percent (10%) charge for Landlord's incidental costs and expenses. Such amounts charged to Tenant shall be deemed Rent under this Lease, payable upon demand. Notwithstanding the above, if an entire HVAC unit (as opposed to any component part) requires replacement, Landlord shall perform such replacement and Tenant shall reimburse Landlord on demand for an amount equal to the cost thereof multiplied by a fraction the numerator of which is the number of months remaining in the Lease Term (at the time the unit was replaced) and the denominator of which is the useful life of the unit (as reasonably determined by Landlord). B. Tenant shall, at its own cost and expense, enter into a regularly scheduled preventive maintenance/service contract with a maintenance contractor approved by Landlord for servicing all HVAC systems and equipment serving the Premises (and a copy thereof shall be furnished to Landlord). The service contract must include all services suggested by the equipment manufacturer in the operation/maintenance manual (but not fewer than two servicings annually) and must become effective within thirty (30) days of the date Tenant takes possession of the Premises. Landlord may, upon notice to Tenant, elect to enter into such a maintenance/service contract on behalf of Tenant, or to perform the work and in either case, charge Tenant the cost thereof along with a reasonable amount for Landlord's overhead. 15 16 8.03 Compliance with Laws Tenant covenants to promptly comply throughout the Lease Term, at Tenant's sole cost and expense, with all laws, ordinances, rules, regulations, and orders of any governmental bodies having jurisdiction over the Premises and to make all repairs, replacements, installations or additions required thereby, foreseen or unforeseen, ordinary as well as extraordinary. After the Commencement Date, Tenant will reimburse Landlord for all expenditures made by Landlord which are required by municipal, state or other governmental bodies due to the type or extent of Tenant's use of the Premises. Tenant will likewise observe and comply with the requirements of all policies of public liability, fire and other insurance at any time in force with respect to the Building or the Premises and the personal property thereof. 8.04 Signs Tenant shall not place upon nor permit to be placed upon any part of the Premises or the Building, any signs, billboards or advertisements in any location or in any form without the prior written consent of Landlord. Tenant shall be permitted one line for its name on the Building monument sign and an identification sign with Tenant's logo on the door to its Premises, subject to Landlord's reasonable approval. The cost of producing, maintaining and removing said signs shall be paid by Tenant. 8.05 Hazardous Materials Tenant shall not, and shall not direct, suffer or permit any of its agents, contractors, employees, licensees or invitees to at any time handle, use, manufacture, store or dispose of in or about the Premises or the Building any (collectively "Hazardous Materials") flammables, explosives, radioactive materials, hazardous wastes or materials, toxic wastes or materials, or other similar substances, petroleum products or derivatives or any substance subject to regulation by or under any federal, state and local laws and ordinances relating to the protection of the environment or the keeping, use or disposition of environmentally hazardous materials, substances, or wastes, presently in effect or hereafter adopted, all amendments to any of them, and all rules and regulations issued pursuant to any of such laws or ordinances (collectively "Environmental Laws"), nor shall Tenant suffer or permit any Hazardous Materials to be used in any manner not fully in compliance with all Environmental Laws, in the Premises or the Building and appurtenant land or allow the environment to become contaminated with any Hazardous Materials. Notwithstanding the foregoing, and subject to Landlord's prior consent, Tenant may handle, store, use or dispose of products containing small quantities of Hazardous Materials (such as aerosol cans containing insecticides, toner for copiers, paints, paint remover and the like) to the extent customary and necessary for the use of the Premises for general office purposes; provided that Tenant shall always handle, store, use, and dispose of any such Hazardous Materials in a safe and lawful manner and never allow such Hazardous Materials to contaminate the Premises, Building and appurtenant land or the environment. Tenant shall protect, defend, indemnify and hold Landlord harmless from and against any and all loss, claims, liability or costs (including court costs and attorney's fees) incurred by reason of any actual or asserted failure of Tenant to fully comply with all applicable Environmental Laws, or the presence, handling, use or disposition in or from the Premises of any Hazardous Materials (even though permissible under all applicable Environmental Laws or the provisions of this Lease), or by reason of any actual or asserted failure of Tenant to keep, observe, or perform any provision of this Paragraph 8.05. The indemnity obligations of Tenant under this paragraph shall survive any termination of the Lease. 16 17 ARTICLE 9 - COMMON AREAS 9.01 Definition The term "Common Areas" means all areas and facilities of the Building not intended for lease to individual tenants, and which are instead designed for the common use and benefit of Landlord and all or substantially all of the tenants, their employees, agents, customers and invitees and which shall be operated and maintained by Landlord. The Common Areas include, but not by way of limitation, the roof, exterior walls, all parking lots, landscaped and vacant areas, driveways, walks and curbs with facilities appurtenant to each as such areas may exist from time to time. Landlord hereby grants to Tenant the non-exclusive use of the Common Areas (except the roof and any reserved or designated parking) by Tenant, Tenant's employees, agents, customers, and invitees, which use shall be subject at all times to the terms and conditions of this Lease and the Rules and Regulations attached as Exhibit B and such additional rules and regulations as Landlord may make pursuant to the terms hereof. 9.02 Outside Storage and Parking Tenant shall not use any part of the Building exterior to the Premises for outside storage. No trash, crates, pallets or refuse shall be placed anywhere outside the Premises by Tenant except in enclosed metal containers to be located as directed by Landlord. Except as hereinabove set forth, Tenant shall not park or permit parking of vehicles overnight anywhere about the Building's parking areas without the prior written consent of Landlord, unless Tenant is working in the Premises during such hours. ARTICLE 10 - TENANT'S FIXTURES, ALTERATIONS, AND LIENS 10.01 Tenant's Fixtures Tenant, at Tenant's sole expense, may install in or affix to the Premises necessary trade fixtures, personal property, equipment and furniture, provided that such items are installed and are removable without damage to the Building, and that such items do not exceed the weight bearing capacity of the Premises or place any unusual demands on the utility services to the Premises. Prior to the installation of such trade fixtures Tenant will provide Landlord plans for their installation. Landlord may require that Tenant, and Tenant upon demand shall, provide data regarding the weight and operating characteristics of such trade fixtures and other property, and may deny approval for such trade fixtures or other property if Landlord, acting reasonably, determines that such trade fixtures will exceed Building capacities or place unusual demands on the utility services to the Premises. 10.02 Leasehold Improvements Except as noted in Paragraph 10.01 Tenant shall not make any alterations, improvements, or additions ("Leasehold Improvements") to the Premises without the prior written consent of Landlord which consent shall not be unreasonably withheld. Prior to Landlord's final approval of any such Leasehold Improvements, Tenant must provide Landlord for Landlord's review and approval; (i) acceptable construction plans and specifications, (ii) the construction agreements between Tenant and a reputable contractor and subcontractors (each reasonably satisfactory to Landlord), (iii) satisfactory evidence (including, but not limited to, certificates of insurance against all liability which may arise out of the Leasehold Improvements) that all contractors and subcontractors will be properly insured, (iv) copies of necessary permits and governmental authorizations, and (v) security for the payment of all costs to be incurred in connection with the Leasehold Improvements. Landlord may require that such insurance 17 18 policies include Landlord as an additional insured. All work shall be required to be done promptly and in a good workmanlike manner using only good grades of materials and Tenant shall promptly pay the cost of all such Leasehold Improvements. In addition, Tenant shall reimburse Landlord for all reasonable sums expended for examination and approval of the architectural and working plans and specifications for the work and for its inspection and supervision of the work. Tenant shall also indemnify, defend and hold Landlord harmless from any and all liabilities and costs of every kind and description, including reasonable attorneys' fees, which may arise out of or be connected in any way with the Leasehold Improvements or any work performed by Tenant. Upon completing any Leasehold Improvements, Tenant shall furnish Landlord with contractors' affidavits and full and final waivers of lien, and all other supporting documentation as Landlord may reasonably require, all in form satisfactory to Landlord. All Leasehold Improvements shall comply with all insurance requirements and with all ordinances and regulations of any applicable governmental authority. At all times, Tenant shall cause contractors and others performing Leasehold Improvements for Tenant to work in harmony with the contractors, agents and employees performing work in the Building for Landlord or others, if any. All Leasehold Improvements, except movable furniture, equipment and trade fixtures placed in the Premises at the expense of Tenant, shall become the property of Landlord and at the election of Landlord, shall either remain upon and be surrendered with the Premises to Landlord as a part thereof at the termination of this Lease or shall be removed at the sole cost and expense of Tenant. In the event damage to the Premises or the Building shall be caused by moving Tenant's furniture, equipment, trade fixtures or personal property in or out of the Premises, said damage shall be promptly repaired at the cost of Tenant. In the event that Tenant should fail to remove Tenant's furniture, equipment and trade fixtures as required by Landlord, Landlord shall have the option, in addition to its other remedies under the Lease, to declare that such furniture, equipment and trade fixtures are the property of Landlord and to thereafter dispose of such trade fixtures in a commercially reasonable manner and retain any proceeds of disposition as security for any liabilities or obligations Tenant may have to Landlord under the terms of this Lease. Notwithstanding the preceding provisions of Section 10.02, Tenant may, without Landlord's consent, make interior, non-structural Leasehold Improvements which do not affect Building systems (such as HVAC, electric, etc.) such as installation of trade fixtures, decorating, painting (using Building standard colors), carpeting and other similar work and which do not cost more than Five Thousand Dollars ($5,000). 10.03 Mechanics' Liens Tenant has no authority or power to and shall not cause or permit any mechanics' liens or other liens to be placed upon the Building or any portion or component thereof or Landlord's interest therein whether created by act or inaction of Tenant, operation of law, or otherwise, and in case of the filing of any such lien or encumbrances or claim therefor, Tenant shall promptly discharge same; provided, however, that Tenant shall have the right to contest the validity or amount of any mechanics lien upon its prior posting of security with Landlord, which security, in Landlord's reasonable judgement, must be adequate to pay and discharge any such lien in full in addition to any applicable interest, penalties and Landlord's reasonable estimate of its legal fees. Tenant agrees to indemnify and hold Landlord harmless against any and all liabilities, reasonable legal fees and other costs whatsoever incurred by 18 19 Landlord because of any mechanics' or other liens attributable to Tenant being placed upon the Premises or the Building. Any mechanic's lien or claim for a mechanic's lien which Tenant desires to contest as herein provided shall be contested only in good faith, by appropriate proceedings diligently pursued, and, in any event, such lien or claim for lien shall be released or removed within six (6) months of the date such claim or lien first attached. If the lien is not so contested and released or removed, Landlord, at its sole option and in additional to any other available rights or remedies, may take any and all action necessary to release and remove such lien or claim of lien (it being agreed by Tenant that Landlord shall have no duty to investigate the validity thereof) and Tenant shall promptly upon five (5) days written notice reimburse Landlord for all sums, costs and expenses (including but not limited to attorneys' fees) incurred by Landlord in connection with the removal or release of any such lien or claim. ARTICLE 11 - SERVICE AND MAINTENANCE BY LANDLORD AND RESERVATIONS 11.01 Specific Reservations The Premises shall not include the roof, exterior walls, foundation of the Building, or any of the Common Areas, or any other area outside, above or below the Premises. In addition, so long as such activities do not unreasonably interfere with Tenant's use of the Premises and reasonable advance notice is given Tenant prior to their commencement, Landlord reserves the right to: place, install, maintain, carry through, repair and replace such utility lines, pipes, wires, appliances, tunneling and the like in, over, through, under and upon the Premises as may be reasonably necessary or advisable for the servicing of the Premises or any other portions of the Building; for such purposes, to reasonably enter upon the Premises; and during the continuance of any of said work, to temporarily close doors, entryways, public space and corridors to or in the Building and to interrupt or temporarily suspend services or use of facilities, all without affecting any of Tenant's obligations hereunder. Landlord will use reasonable efforts not to unreasonably interfere with Tenant's normal business activities. 11.02 Building Alterations By Landlord Notwithstanding any provision in this Lease to the contrary, Landlord reserves the right at any time and from time to time, with five (5) days notice except in the case of emergencies, and without liability to Tenant for damage or injury to property, person, or business and without constituting an eviction or disturbance of Tenant's use or possession of the Premises or giving rise to any claim for set-off or abatement of Rent: (i) to make alterations, changes and additions to the Building (including the Common Areas), (ii) to add additional areas to the Building and/or to exclude areas therefrom, (iii) to construct additional buildings and other improvements on the land occupied by the Building, (iv) to remove or relocate a part of the Building, and (v) to relocate any other tenant in the Building, provided in each case such changes shall not unreasonably interfere with the Permitted Uses. 11.03 Maintenance and Repair by Landlord A. Landlord shall maintain, and repair the following: (i) The Building (other than the Premises and premises of other tenants) including landscaped areas, parking areas, and the exterior portions (including windows, doors, foundations and roofs) of all buildings and structures from time 19 20 to time forming part of the Building and affecting its general appearance; the systems provided for bringing utilities to the Common Areas and the Premises; and the other facilities from time to time provided for use in common by Tenant and other tenants of the Building; (ii) The major components of the HVAC system serving the Premises if any such component requires replacement (but Tenant shall be responsible for all normal servicing and repairs); and (iii) Defects in standard demising walls or in structural elements, suspended ceiling, electrical and mechanical installations standard to the Building installed by Landlord in the Premises (if and to the extent that such defects are sufficient to impair Tenant's use of the Premises) and casualty damage pursuant to Article 15. B. Landlord shall not be liable for any failure to make repairs that are Landlord's responsibility herein until and unless Landlord is actually aware of the problem requiring repair and Landlord shall have had a reasonable time thereafter to make such repairs. Landlord reserves the right to the exclusive use of the roof and exterior walls of the Building. If any portion of the Premises which Landlord is obligated to maintain or repair is damaged by the negligence or willful actions or omissions of Tenant, its agents, employees, contractors, or invitees, then repairs or replacements necessitated by or appropriate because of such damage shall be paid for by Tenant as additional rent upon demand by Landlord. Landlord shall in no event be required to make repairs to Leasehold Improvements made by Tenant, or by Landlord on behalf of Tenant. 11.04 Additional Services Upon request by Tenant, Landlord may (but shall not be obligated to) supply services or materials to the Premises and the Building which are not provided for under this Lease ("Additional Services"), including, without limitation: A. Window blinds or drapery cleaning; B. Carpet shampooing; C. Locksmithing; D. Removal of bulk garbage; E. Picture hanging; and F. Special security arrangements. The cost of Additional Services supplied or furnished by Landlord to Tenant shall not be included in Common Area Expenses but rather shall be billed separately by Landlord to Tenant. Such amounts charged to Tenant shall be deemed Rent under this Lease, payable upon within ten (10) days after billing. In the event Landlord shall elect not to supply or furnish any Additional Services, Tenant may obtain such services from a person selected by Tenant and approved in 20 21 writing by Landlord (which approval shall not be unreasonably withheld). The supplying and furnishing of such services shall be subject to the reasonable rules fixed by Landlord and Tenant undertakes to cause compliance with such rules by its contractors. ARTICLE 12 - LANDLORD'S RIGHTS 12.01 Rights Reserved Landlord reserves the following rights: A. To change the name of the Building without notice or liability to Tenant; B. To establish and change from time to time a security control and/or locking system with respect to entry to and exit from the Building. Landlord shall not be liable for any error with respect to admission to or eviction from the Building of any person; C. Following at least twenty-four (24) hours notice to Tenant, to exhibit the Premises to others at reasonable hours, and to decorate, remodel, repair, alter or otherwise prepare the Premises for re-occupancy at any time in the event Tenant abandons the Premises; D. To assign certain parking spaces and parking areas on the Land now existing or hereafter constructed; to remove abandoned or unlicensed vehicles and vehicles that are unreasonably interfering with the use of the parking lot by others and to charge the responsible tenant for the expense of removing said vehicles; and to generally regulate the flow of automobile and truck traffic using the Building's facilities; E. To take any and all reasonable measures, including making inspections, repairs, alterations, additions and improvements to the Premises or to the Building as may be necessary or desirable in the operation thereof and the monitoring of the covenants and obligations of this Lease; F. To close temporarily any of the Common Areas as reasonably necessary for maintenance and repair purposes; G. To designate any part of the Building outside the Premises to be part of the Common Areas without the necessity of an amendment or modification to this Lease; H. To use Common Areas as reasonably necessary while engaged in making alterations, additions or repairs to the Premises or the Building; I. To retain a pass key to the Premises (for emergency and incidental purposes); J. To lease the remainder of the Building to any other entity approved in Landlord's sole and exclusive discretion; K. To participate in any petition for the inclusion of the Building and Premises in any local improvement districts providing for assessment of the Building and Premises for the benefits received. Tenant agrees to cooperate with Landlord in the foregoing and to 21 22 execute any documents or instruments which, in Landlord's opinion, are necessary or desirable to effectuate the same; L. To enter upon the Premises at any reasonable time for the purpose of exercising any or all of the foregoing rights hereby reserved without being deemed guilty of an eviction or disturbance of Tenant's use or possession and without being liable in any manner to Tenant. Prior to any such entry except that required in an emergency or for the provision of normal Landlord services, Landlord shall provide Tenant reasonable notice thereof; and M. To enforce the Rules and Regulations attached as Exhibit B in a manner which does not unfairly discriminate against Tenant. ARTICLE 13 - LANDLORD'S INABILITY TO PERFORM 13.01 Landlord's Inability to Perform If by reason of inability to obtain suitable labor, materials or supplies; circumstances directly or indirectly the result of fire, weather, a state of war or national or local emergency; or any other cause beyond the reasonable control of Landlord (any of the foregoing being referred to herein as "Force Majeure"), Landlord shall be unable to perform or shall be delayed in the performance of any covenant or obligation hereunder, such nonperformance or delay in performance shall not render Landlord liable in any respect to Tenant, its employees, invitees or licensees for damages to either person or property, constitute a total or partial eviction, constructive or otherwise, work an abatement of rent or relieve Tenant from the fulfillment of any covenant or agreement contained in this Lease. 13.02 Limit of Landlord's Liability It is expressly understood and agreed by Tenant that none of Landlord's covenants, undertakings, or agreements are made or intended as personal covenants, undertakings, or agreements by Landlord or its partners, officers, directors, agents, employees, legal representatives, successors or assigns. Any liability for damage or breach or non-performance by Landlord shall be collectible only from Landlord's interest in the Building and no personal liability is assumed by, nor at any time may be asserted against, Landlord, its partners, officers, directors, agents, employees, legal representatives, successors or assigns. ARTICLE 14 - INSURANCE/INDEMNIFICATION 14.01 Tenant's Insurance A. Tenant covenants and agrees to maintain at all times during the Lease Term, or any renewal thereof, a policy or policies of general liability insurance against claims for personal injury, death or property damage (on an occurrence basis) with respect to the business carried on by Tenant in or from the Premises and Tenant's use and occupancy of the Premises and any other part of the Building, with coverage of not less than $2,000,000.00 combined single limit in respect to personal injury and/or death and/or property damage, or any other amount which Landlord may reasonably require. Such insurance shall include Landlord (and any other party requested by Landlord) as an 22 23 additional insured and shall protect Landlord with respect to any claims as if Landlord were separately insured. B. Tenant covenants and agrees to maintain at all times during the Lease Term, or any renewal or extension thereof, insurance protection against "all risk of direct physical loss", as defined by Causes of Loss Special Form (CP 1030 or its equivalent), for the full replacement cost of all Leasehold Improvements and of all office furniture, trade fixtures, office equipment, merchandise and all other items of Tenant's property on the Premises which insurance shall insure both Tenant and Landlord, as their interests may appear. C. Tenant shall procure insurance against other perils and in such amount (consistent with the standards of other similar landlords of similar properties) as Landlord may reasonably require upon not less than ninety (90) days prior written notice, such requirement to be made on the basis that the required insurance is customary at the time for prudent tenants of properties similar to the Building. 14.02 Landlord's Approval All insurance required to be maintained by Tenant shall be on terms, with deductibles and with insurers reasonably satisfactory to Landlord, which approval shall not be unreasonably withheld. Each policy shall contain an undertaking by the insurer so that no material change adverse to Landlord will be made, and the policy will not lapse or be canceled, except after not less than thirty (30) days' prior written notice to Landlord of the intended change, lapse or cancellation. Whenever Landlord requests, Tenant shall furnish Landlord, certificates or other evidences acceptable to Landlord regarding the insurance required to be effected by Tenant hereunder. If Tenant shall fail to take out, renew or keep in force such insurance, or if the evidences submitted to Landlord are unacceptable to Landlord (or no such evidences are submitted within a reasonable period after request therefor by Landlord), then Landlord may give to Tenant written notice requiring compliance with this paragraph and specifying the respects in which Tenant is not then in compliance. If Tenant does not within forty-eight (48) hours provide appropriate evidence of compliance with this paragraph, Landlord may (but shall not be obligated to) obtain some or all of the additional coverage or other insurance which Tenant shall have failed to obtain, without prejudice to any other rights of Landlord under this Lease or otherwise, and Tenant shall pay all premiums and other reasonable expenses incurred by Landlord to Landlord as additional rent on demand. 14.03 Building Insurance Coverage Landlord shall maintain throughout the Lease Term, or any extension thereof, fire and extended coverage insurance on the Building and the property owned by Landlord located in and about the Building in an amount equivalent to the full replacement cost thereof (excluding foundation, grading and excavation costs) and with such deductibles as Landlord shall reasonably determine. Landlord shall not in any way or manner insure any property of Tenant or any property that may be in the Premises but not owned by Landlord. Landlord shall keep the Building insured for the benefit of Landlord against loss or damage by fire and such other risk or risks of a similar or dissimilar nature as are now, or may in the future be, customarily covered with respect to buildings and improvements similar in construction, general location, use, occupancy and design to the Building, including, but without limiting the generality of the foregoing, windstorms, hail, explosion, vandalism, malicious mischief, civil 23 24 commotion, provided coverage is obtainable. Landlord shall also maintain, for its benefit and the benefit of its managing agent, general liability insurance against claims for personal injury, death or property damage occurring upon, in or about the Building, and any other insurance that Landlord deems appropriate and is customarily carried with respect to buildings and improvements similar in construction, general location, use, occupancy and design to the Building, including loss of rents coverage 14.04 Landlord's Liability/Property Damage or Loss Tenant agrees, to the extent not expressly prohibited by law, that Landlord, its officers, directors, employees, legal representatives, agents and servants shall not be liable for, and Tenant hereby waives all claims for, damage or loss to property and business sustained during the Lease Term by Tenant occurring in or about the Building or the Premises, resulting directly or indirectly from any existing or future condition, defect, matter or thing in, or on, or about the Building or the Premises, or from equipment or appurtenances becoming out of repair or from accident, or from any occurrence or act or omission of Landlord, its agents, employees or servants, or another tenant or occupant of the Building or any other person. This paragraph shall apply especially, but not exclusively, to damage caused as aforesaid or by flooding, sprinkler leakage, snow, frost, steam, excessive heat or cold, falling plaster, broken glass, sewage, gas, odors or noise, or the bursting or leaking of pipes or plumbing fixtures, and shall apply equally, whether any such damage or loss results from the act or omission of other tenants or occupants in the Building or any other persons. Tenant agrees to look exclusively to Tenant's insurance coverage in the event of such loss. 14.05 Indemnification of Landlord/Third Party Claims A. To the extent not expressly prohibited by law, and except for damage to the Building covered by the insurance noted in Paragraph 14.03, Tenant shall indemnify and defend Landlord, its subsidiaries, directors, officers, employees, legal representatives, servants and agents and save them harmless from and against any and all loss (including loss of rents payable by Tenant or other tenants) and against all claims, actions, damages, liability and expense brought by any person(s), firm(s), or corporation(s) in connection with loss of life, bodily and personal injury or property damage arising from (i) any occurrence in, upon or at the Premises, (ii) any occurrence in, upon or at the Building occasioned wholly or in part by any act or omission of Tenant, its agents, contractors, employees, servants, licensees, concessionaires or invitees or by anyone permitted to be on the Premises by Tenant, or (iii) Tenant's negligent performance of or failure to perform any of its obligations under this Lease. B. Anything herein to the contrary notwithstanding, in the event any damage to the Building arising wholly or in part out of any act or omission of Tenant, its agent, employees, contractors, or invitees, and all or any portion of Landlord's loss is "deductible" under Landlord's insurance policies, Tenant shall pay to Landlord on demand the amount of such deductible loss as additional rent. 14.06 Waiver of Subrogation Tenant and Landlord release each other and waive any right of recovery, whether direct or by way of subrogation, against each other, their agents, officers 24 25 and employees, for any loss of or damage to their respective property, which occurs in or about the Building or Premises (regardless of the cause or origin, including negligence of either party, or their agents, officers or employees) to the extent that such loss or damage is recovered under the insurance required hereunder. The parties agree to immediately give each insurance company providing insurance relating to this Lease, notice of the terms of these mutual waivers, and, if necessary, to have the insurance policies properly endorsed, so as to prevent the invalidation of the insurance coverages by reason of the mutual waivers contained in this paragraph. ARTICLE 15 - DAMAGE OR DESTRUCTION 15.01 Reconstruction Following Damage Except as noted below, if the Premises or Building are damaged or destroyed during the Lease Term, Landlord shall diligently repair or rebuild the Premises, in compliance with all applicable laws ordinances and regulations, to substantially the same condition in which it existed as of the Commencement Date. Landlord shall be under no obligation to restore any Leasehold Improvements made by Tenant after the Commencement Date. Tenant acknowledges that Landlord shall be entitled to the full proceeds of any insurance coverage, whether carried by Landlord or Tenant, for damage to those items provided by Landlord either directly or through an allowance to Tenant, which Landlord is obligated to or elects to restore as herein provided. Landlord shall not be obligated to expend in restoration an amount in excess of the proceeds of insurance recovered by Landlord with respect to such damage and which are usable by Landlord for such restoration as permitted by any mortgagee. If Landlord fails within one hundred eighty (180) days after such damage occurs to substantially restore the Premises or eliminate any substantial interference with Tenant's use of the Premises, Tenant may terminate this Lease as of the end of said one hundred eighty (180) days by providing written notice to Landlord no later than five (5) days after expiration of said one hundred eighty (180) day period. Such one hundred eighty (180) day period shall be extended for reasonable delay caused by adjustment of insurance loss or Force Majeure. Landlord shall notify Tenant promptly of any delay caused by adjustment of insurance loss or Force Majeure. 15.02 Excessive Damage If the Building or Premises is damaged or destroyed to the extent that the Premises or Building cannot, in Landlord's sole judgement, be fully repaired or restored by Landlord within one hundred eighty (180) days after the date of the damage or destruction, Landlord may terminate this Lease by providing Tenant written notice of Landlord's election within sixty (60) days after the damage or destruction. 15.03 Damage or Destruction at End of Term If the Building or the Premises is damaged or destroyed during the last twelve (12) months of the Lease Term, and the Premises or the Building cannot, in Landlord's sole judgement, be fully repaired or restored by Landlord within sixty (60) days after the damage or destruction, either Landlord or Tenant may terminate this Lease upon written notice to the other. 15.04 Rent Abatement If the Premises are rendered untenantable but this Lease is not terminated, all Rent shall abate from the date of the damage or destruction until the restoration of the Premises is substantially completed. If only a portion of the Premises is untenantable, Rent 25 26 shall be prorated on a per diem basis and apportioned in accordance with the portion of the Premises which is usable by Tenant until the restoration of the Premises is substantially completed. ARTICLE 16 - ASSIGNMENT AND SUBLETTING 16.01 Assignment and Subletting Generally A. Except as noted hereafter, Tenant shall not permit or suffer to exist any assignment, transfer, mortgage, encumbrance, conveyance, lien or hypothecation of this Lease, voluntarily or by operation of law, nor sublet or otherwise transfer its interest in all or any part of the Premises or permit the use of the Premises by any parties other than Tenant or its employees without the prior written consent of Landlord, which consent shall not be unreasonably withheld, delayed or conditioned. Any action by Tenant in violation of this Paragraph 16.01 shall be void and of no effect. B. If Tenant wishes to assign this Lease or sublet all or any part of the Premises it shall first give notice in writing in the manner required under this Lease of such intention to Landlord, furnishing Landlord with a copy of the proposed assignment or sublease document and full information as to the identity and financial status of the proposed assignee or subtenant. Thereupon, Landlord shall have, within fifteen (15) days of receipt of such notice and documents and information, the right to (i) terminate this Lease, or so much thereof as Tenant proposes to sublease, or (ii) approve or reject such assignment or subletting by written notice to Tenant. If no such response is given, Landlord shall be deemed to have elected to approve the assignment or subletting. If Landlord elects to terminate this Lease as set forth herein, Tenant may notify Landlord within five (5) days after Landlord notifies Tenant of such election that Tenant no longer wishes to assign the Lease or sublease such space, in which case this Lease shall continue as if Tenant's request to assign or sublease has never been made. Notwithstanding any assignment or sublease, Tenant shall remain liable hereunder and shall not be released without the express written agreement of Landlord to such release. The consent by Landlord to any assignment or subletting shall not constitute a waiver of the necessity for such consent to any subsequent assignment or subletting. C. If Tenant's notice covers all of the Premises and if Landlord exercises its right to terminate this Lease as to such space, then the Lease Term shall expire and end on the date stated in Tenant's notice for the commencement of the proposed assignment or sublease as fully and completely as if that date had been the expiration date. If, however, Tenant's notice covers less than all of the Premises, and if Landlord exercises its right to terminate this Lease with respect to such space described in Tenant's notice, then as of the date stated in Tenant's notice for the commencement of the proposed sublease, (i) the Base Rent and Tenant's Proportionate Share shall be adjusted on the basis of the number of rentable square feet retained by Tenant, (ii) Tenant shall on demand by Landlord pay to Landlord as additional rent the reasonable cost to physically divide and separate the parts of the Premises, (iii) upon demand pay to Landlord as additional rent ten percent (10%) of the amount payable under clause (ii) above to reimburse Landlord for all 26 27 overhead, general conditions, fees and other costs and expenses arising from Landlord's involvement in such work, and (iv) execute and deliver to Landlord such amendments to this Lease as Landlord may reasonably require to evidence the partial termination of this Lease and this Lease as so amended shall continue thereafter in full force and effect. D. Landlord shall not be deemed to have unreasonably withheld its consent to any assignment or sublease if its consent is withheld because (a) Tenant is then in default under this Lease or a notice of termination of this Lease or Tenant's right to possession hereunder shall have been given; (b) in the case of a sublease, the division of the Premises would result in a violation of any applicable law, ordinance, code or governmental rule or regulation; (c) in the reasonable judgment of Landlord, the proposed subtenant or assignee is of a character or is engaged in a business which would be deleterious to the reputation of Landlord or of the Building; (d) the proposed assignee or subtenant is not sufficiently responsible to perform its obligations under this Lease or the proposed sublease, as the case may be; or (e) the proposed assignee or subtenant is a tenant or occupant of the Building or is actively negotiating with Landlord or an agent of Landlord for space in the Building; provided, however, that the foregoing are merely examples of reasons for which Landlord may reasonably withhold its consent and shall not be deemed exclusive of any permitted reasons for reasonably withholding consent, whether similar or dissimilar to the foregoing examples. E. If a subletting or assignment is so approved and the rents under such a sublease or assignment are greater than the rents provided for herein, then Tenant shall pay to Landlord as additional rent fifty percent (50%) of the excess rents as and when received. Tenant shall furnish Landlord with a sworn statement, certified by an officer of Tenant or an independent certified public accountant, setting forth in detail the computation of excess rents, and Landlord, or its representatives, shall have access to the books, records and papers of Tenant in relation thereto, and the right to make copies thereof. If a part of the consideration for such sublease or assignment shall be payable other than in cash, the payment to Landlord shall be payable in such form as is reasonably satisfactory to Landlord. For purposes of this Paragraph 16.01(E), the term "excess rents" shall mean the excess, if any, of (i) all amounts received or to be received in the form of cash, cash equivalents, and non-cash consideration by Tenant from any assignee or sublessee over (ii) the sum of the Rent payable to Landlord hereunder (or, in the case of a sublease of a portion of the Premises, the portion of the Rent which is allocable on a per square foot basis to the space sublet), plus the amount of any reasonable advertising expenses, brokers' commissions, attorneys' fees, costs of tenant improvements and other actual, out-of-pocket expenses incurred by Tenant in connection with such assignment or sublease, all of which shall be, in the case of a sublease, amortized over the term of the sublease for the purpose of calculating the amounts of the periodic payments due to Landlord hereunder. F. In no event shall Tenant assign this Lease or enter into any sublease, license, concession or other agreement for use, occupancy or utilization of any part of the Premises which provides for a rental or other payment for such use, occupancy or 27 28 utilization based in whole or in part on the income or profits derived by any person from the Premises leased, used, occupied or utilized, and Tenant agrees that all assignments, subleases, licenses, concessions or other agreements for use, occupancy or utilization of any part of the Premises shall provide that the person having an interest in the possession, use, occupancy or utilization of the Premises shall not enter into any lease, sublease, license, concession or other agreement for use, occupancy or utilization of space in the Premises which provides for a rental or other payment for such use, occupancy or utilization based in whole or in part on the income or profits derived by any person from the Premises leased, used, occupied or utilized and any such purported assignment, sublease, license, concession or other agreement shall be absolutely void and ineffective as a conveyance of any right or interest in the possession, use, occupancy or utilization of any part of the Premises. In addition, in no event shall Tenant assign this Lease or enter into any sublease, license, concession or other agreement for use, occupancy or utilization of any part of the Premises which provides to a tenant of the Premises services other than those usually or customarily rendered in connection with the rental of space for occupancy only. G. Tenant shall pay to Landlord upon demand by Landlord, notwithstanding that Landlord may have withheld its consent to any transfer contemplated by this Article 16, an amount sufficient to reimburse Landlord for all reasonable costs and expenses incurred by it, including but not limited to reasonable attorney's fees, in determining whether to grant or withhold any consent contemplated by this Article or otherwise in connection with any assignment, subletting or other transfer of Tenant's interest in this Lease, or any attempt to do any of the foregoing. H. Any assignment or subletting by Tenant pursuant of all or any portion of the Premises shall automatically operate to terminate each and every special right, option, or election, if any exist, belonging to Tenant, including by way of illustration, but not limitation, any option to expand its Premises, to extend or renew the Lease Term for all or any portion of the Premises, or to terminate as to all or any portion of the Premises - i.e. such rights and options shall cease as to both space sublet or assigned and as to any portion of the original Premises retained by Tenant. 16.02 Sale of Interest in Tenant The transfer of a majority of the issued and outstanding capital stock or membership interests, or sale or transfer of substantially all of the assets of any corporate or limited liability company tenant or subtenant of this Lease (including without limitation by way of any merger, consolidation or other reorganization of Tenant, or any issuance, sale, gift, transfer or redemption of any capital stock or membership interest, whether voluntary, involuntary, or by operation of law, or any combination of any of the foregoing transactions) or a majority of the total interest in the profits, losses, and capital of any partnership tenant or subtenant (including without limitation by way of any withdrawal or admittance of a partner or any change in any partners interest in Tenant, whether voluntary, involuntary or by operation of law, or any combination of any of the foregoing transactions), however accomplished, and whether in a single transaction or a series or related or unrelated transactions, shall be deemed an assignment of this Lease or of such sublease. 28 29 16.03 Mergers, Consolidations and Tenant Affiliates The foregoing notwithstanding, Tenant may, without Landlord's consent (but only after notice to Landlord), assign this Lease to any corporation resulting from a sale, merger, or consolidation of Tenant upon the following conditions: (i) that the total assets and net worth of such assignee shall be equal to or more than that of Tenant immediately prior to such sale, consolidation, or merger; (ii) that Tenant is not at such time in default hereunder; and (iii) that such successor shall execute an instrument in writing in form and substance acceptable to Landlord fully assuming all of the obligations and liabilities imposed upon Tenant hereunder and shall deliver the same to Landlord. Tenant shall not be relieved of its obligations in the event of such assignment. ARTICLE 17 - ASSIGNMENT BY LANDLORD 17.01 Assignment by Landlord The term "Landlord" as used in this Lease, so far as covenants or obligations on part of Landlord are concerned, shall be limited to mean and include only the owner or owners at the time in question of the fee of the Premises, and in the event of any transfer or transfers of the title to such fee, Landlord herein named (and in case of any subsequent transfers or conveyances, the then grantor) shall be automatically freed and relieved, from and after the date of such transfer or conveyance, of all liability as respects the performance of any covenants or obligations on the part of Landlord contained in this Lease thereafter to be performed; provided that any funds in the hands of such Landlord or the then grantor at the time of such transfer, in which Tenant has an interest, shall be turned over or credited to the grantee, and any obligation then due and payable to Tenant by Landlord or the then grantor under any provisions of this Lease, shall be paid to Tenant or assumed by the grantee. ARTICLE 18 - MORTGAGE AND TRANSFER 18.01 Right to Transfer A. Landlord shall have the right to transfer, mortgage, pledge or otherwise encumber, assign, sell, sell and leaseback, lease (such lease being hereinafter referred to as a "Ground Lease" and the lessor thereunder as a "Ground Lessor") and convey, in whole or in part, the Premises, the Building, this Lease, and all or any part of the rights now or thereafter existing and all rents and amounts payable to Landlord under the provisions hereof. Nothing herein contained shall limit or restrict any such rights, and the rights of Tenant under this Lease shall be subject and subordinate to all instruments executed and to be executed in connection with the exercise of any such rights, including, but not limited to, the lien of any mortgage, deed of trust, or security agreement now or hereafter placed upon Landlord's interest in the Premises (such mortgage, deed of trust or security interest being hereinafter referred to as a "Mortgage" and the obligee thereunder as a "Mortgagee"). This paragraph shall be self-operative. However, Tenant covenants and agrees to execute and deliver upon demand such further instruments subordinating this Lease to the lien of any such Mortgage as shall be reasonably requested by Landlord and/or proposed Mortgagee, provided such Mortgagee shall agree not to interfere with Tenant's use and possession of the Premises pursuant to the terms hereof so long as Tenant is not in default hereunder. Upon the request of Tenant, Landlord shall obtain a 29 30 non-disturbance agreement from its Mortgagee for Tenant's benefit; the cost of obtaining such non-disturbance agreement shall be paid by Tenant. If any Mortgage is foreclosed or Landlord's interest under this Lease is conveyed or transferred in lieu of foreclosure, or if any Ground Lease is terminated: (i) No person or entity which, as the result of any of the foregoing has succeeded to the interest of Landlord in this Lease (any such person or entity being hereafter called a "Successor") shall be liable for any default by Landlord or any other matter which occurred prior to the date such Successor succeeded to Landlord's interest in this Lease nor shall such Successor be bound by or subject to any offsets or defenses which Tenant may have against Landlord or any other predecessor in interest to such Successor; (ii) Upon request of any Successor, Tenant will attorn, as Tenant under this Lease, subject to the provisions of this Paragraph 18.01 to each Successor and will execute and deliver such instruments as may be necessary or appropriate to evidence such attornment within ten (10) days after receipt of a written request to do so; and (iii) No Successor shall be bound to recognize any prepayment of Rent by more than thirty (30) days. B. Notwithstanding anything to the contrary contained herein, any Mortgagee or Ground Lessor may subordinate, in whole or in part, its Mortgage or Ground Lease (as the case may be) to this Lease by sending Tenant notice in writing subordinating such Mortgage or Ground Lease to this Lease, and Tenant agrees to execute and deliver to such Mortgagee or Ground Lessor such further instruments consenting to or confirming the subordination of such Mortgage or Ground Lease to this Lease and containing such other provisions which may be requested in writing by such Mortgagee or Ground Lessor within ten (10) days after notice to Tenant of such request. C. Whether or not any Mortgage is foreclosed or any Ground Lease is terminated or any Successor succeeds to any interest of Landlord under this Lease, no Mortgagee, Ground Lessor, Successor or other successor of Landlord's interest in this Lease shall have any liability to Tenant for any security deposit paid to Landlord by Tenant hereunder, unless such security deposit has actually been received by such person. D. Should any prospective Mortgagee or Ground Lessor require a modification or modifications of this Lease, which modification or modifications will not cause an increased cost or expense to Tenant or in any other way materially or adversely change the rights and obligations of Tenant hereunder, or diminish the duties or liabilities of Landlord, then and in such event, Tenant agrees that this Lease may be so modified and agrees to execute whatever documents are reasonably required therefor and deliver the same to Landlord within ten (10) days following the request therefor. Should any prospective Mortgagee or Ground Lessor require execution of a short form of Lease for 30 31 recording (containing, among other customary provisions, the names of the parties, a description of the Premises and the Lease Term), Tenant agrees to execute such short form of Lease and deliver the same to Landlord within ten (10) days following the request therefor. E. Tenant agrees that the provisions of this paragraph shall remain in full force and effect, notwithstanding that any Mortgagee or Ground Lessor may directly or indirectly own or have an interest in Landlord, or in the Building in addition to its interest as Mortgagee or Ground Lessor. 18.02 Estoppel Letter Tenant covenants and agrees to execute and deliver to Landlord within ten (10) days of written request from Landlord, estoppel letters setting forth: (i) the date of this Lease and any amendments thereto, the Commencement Date, and any rights or options to extend or renew this Lease or the Lease Term or to purchase or of first refusal or offer with respect to the Premises or the Building, (ii) the date through which rents have been paid hereunder, (iii) the amount of any security deposit held by Landlord, (iv) whether Tenant is in occupancy of the Premises and the improvements and space required to be furnished by Landlord with the Premises and the Building have been completed and paid for in all respects as required by this Lease, (v) whether the Lease is in full force and effect, (vi) whether Landlord or Tenant is in default under the Lease and whether there are defenses or offsets against the enforcement thereof, and setting forth such defaults, defenses or offsets claimed by Tenant, (vii) whether Tenant is subject to any bankruptcy, insolvency or similar proceedings in any Federal, state or other court or jurisdiction, and (viii) any other information which Landlord or its mortgagee or prospective mortgagee or purchaser may reasonably require relating to the Lease, which may include Tenant financial statements. 18.03 Delivery of Transfer Documents If Tenant shall fail to deliver any subordination document, attornment document, or estoppel letter that may be submitted to Tenant under this Article 18 within ten (10) days after the request by Landlord or any other permitted party, as the case may be, Tenant shall pay Landlord, as additional rent, a $100 per day penalty from the end of the initial ten (10) day period until the date such documents are signed and returned to Landlord. ARTICLE 19 - EMINENT DOMAIN 19.01 Eminent Domain If the Premises, the Building, or such a substantial part thereof, which in Landlord's reasonable judgment renders the remainder unfit for the intended uses, shall be taken by any competent authority under the power of the eminent domain or be acquired for any public or quasi-public uses or purpose, the Lease Term shall cease and terminate upon the effective date of the taking and Tenant shall have no claim against Landlord for the value of any unexpired Lease Term. If any part of the Building is taken by any competent authority under the power of eminent domain or is acquired for any public or quasi-public uses or purpose, or if the configuration or grade of any street or alley or other improvement or structure adjacent to the Building is changed and such taking, or acquisition, or change of grade or configuration makes it necessary or desirable in Landlord's judgment to remodel the Building to conform to the taking, 31 32 acquisition, or changed grade or configuration, Landlord shall have the right to terminate this Lease after having given written notice of termination to Tenant not less than ninety (90) days prior to the date of termination designated in the notice. In either of said events, Rent at the then current rate shall be apportioned as of the date of the termination. No money or other consideration shall be payable by Landlord to Tenant for the right of termination and Tenant shall have no right to share in the condemnation award or in any judgment for damages caused by the taking or the change of grade. However, nothing in this paragraph shall preclude Tenant from independently seeking an award from the authority for any damages or relocation benefits which Tenant is entitled to under governing law, provided that such separate award shall not reduce the award or judgment recoverable by Landlord. ARTICLE 20 - DEFAULT AND REMEDIES 20.01 Default Generally Tenant shall be deemed in default under the terms of this Lease if any of the following events occur: A. Tenant shall have failed to pay an installment of Base Rent, Additional Rent or any other amount payable hereunder, and such failure shall be continuing for a period of more than ten (10) days after written notice to Tenant that such amount was due on the first occasion in any twelve (12) month period or within five (5) days after written notice to Tenant that such amount was due on the second and subsequent occasions within any twelve (12) month period; B. There shall be a default under any term, condition, covenant, or other obligation on the part of Tenant to be kept, observed or performed hereunder (other than a condition, covenant, agreement or other obligation to pay Base Rent, Additional Rent or any other amount of money) and such default shall be continuing for a period of more than fifteen (15) days after written notice to Tenant; provided, however, if such default may not be practicably cured by Tenant within such fifteen (15) day period, and provided further Tenant shall commence to cure the default within the fifteen (15) day period, the fact that the default is not cured within the fifteen (15) day period shall not constitute a breach of the Lease so long as Tenant diligently proceeds to cure the default and such default is cured within a reasonable period thereafter. Notwithstanding the fifteen (15) day period for cure noted above, if the default creates a hazardous situation or involves disturbance of the quiet enjoyment of other Building tenants, Tenant must cure the default immediately upon notice; C. If any policy of insurance upon the Building or any part thereof shall be canceled or threatened with cancellation by the insurer by reason of the use or occupation of the Premises by Tenant, or any assignee, sub-tenant or licensee of Tenant, or anyone permitted by Tenant to be upon the Premises, and Tenant after receipt of written notice from Landlord shall have failed to take such immediate steps with respect to such use or occupation as shall enable Landlord to reinstate or avoid cancellation (as the case may be) of such policy of insurance; 32 33 D. The Premises shall be abandoned, or remain unoccupied for fifteen (15) consecutive days or more while capable of being occupied, unless Tenant has provided Landlord prior written notice of its intent to vacate or abandon the Premises; E. The balance of the Lease Term or any other interest of Tenant in this Lease or any of the goods and chattels of Tenant shall at any time be seized or levied in execution, attachment or other legal process; or F. Any of the following shall be done or suffered to be done: (i) Tenant shall make any assignment for the benefit of creditors; (ii) Tenant shall become the subject of commencement of an involuntary case under the Federal bankruptcy law as now or hereafter constituted, or of a petition against Tenant seeking reorganization, arrangement, adjustment or composition of or in respect of Tenant under the Federal bankruptcy law as now or hereafter constituted, or under any other applicable Federal or state bankruptcy, insolvency, reorganization or other similar law, or seeking the appointment of a receiver, liquidator, or assignee, custodian, trustee, sequestrator (or similar official) of Tenant or any substantial part of its property, or seeking the winding-up or liquidation of its affairs and such involuntary case or petition is not dismissed within sixty (60) days after the filing thereof; (iii) Tenant shall commence a voluntary case or institutes proceedings to be adjudicated a bankrupt or insolvent, or consents to the institution of bankruptcy or insolvency proceedings against it, under the Federal bankruptcy laws as now or hereafter constituted or any other applicable Federal or state bankruptcy or insolvency or other similar law, or consents to the appointment of or taking possession by a receiver or liquidator or assignee, trustee, custodian, sequestrator (or other similar official) of Tenant or of any substantial part of its property, or admits in writing its inability to pay its debts generally as they become due; (iv) Tenant, its stockholders or its governing Board of Directors, Managers, or Partners, or any committee thereof takes any action contemplating, in preparation for or in furtherance of any of the occurrences, steps or proceedings in items (ii) or (iii) above; (v) Tenant, if a corporation, shall take any steps or suffer any order to be made for its winding-up or termination of its corporate existence, not approved by Landlord. 20.02 Landlord's Remedies Landlord shall have the following rights and remedies, all of which are cumulative and not alternative and not to the exclusion of any other or additional rights and remedies in law or equity available to Landlord by statute or otherwise: A. to remedy or attempt to remedy any default of Tenant, and in doing so to make any payments due or alleged to be due by Tenant to third parties and to enter upon Premises to do any work or other things therein (without such entry being in any way deemed a repossession of the Premises or a termination of this Lease), and in such event all reasonable expenses of Landlord in remedying or attempting to remedy such default shall be payable by Tenant to Landlord on demand; B. to terminate this Lease forthwith by leaving upon the Premises or by affixing to an entrance door to the Premises or otherwise delivering notice to Tenant a notice 33 34 terminating the Lease, in which event the Lease Term and all right, title and interest of Tenant hereunder shall end on the date stated in the notice; C. to terminate the right of Tenant to possession of the Premises without terminating this Lease, whereupon the right of Tenant to possession of the Premises or any part thereof shall cease on the date stated in such notice; D. to enforce the provisions of this Lease and to enforce and protect the rights of Landlord hereunder by a suit or suits in equity and/or at law for the specific performance of any covenant or agreement contained herein, and for the enforcement of any other appropriate legal or equitable remedy, including without limitation (i) injunctive relief, (ii) recovery of all monies due or to become due from Tenant under any of the provisions of the Lease, and (iii) any other damages incurred by Landlord by reason of Tenant's default under this Lease. 20.03 Damages A. If Landlord exercises any of the remedies provided for in subparagraph 20.02(B) or (C) above, Tenant shall surrender possession of and vacate the Premises and immediately deliver possession thereof to Landlord, and Landlord may re-enter and take complete and peaceful possession of the Premises. B. If Landlord terminates the right of Tenant to possession of the Premises without terminating this Lease, such termination of possession shall not release Tenant, in whole or in part, from Tenant's obligation to pay Rent hereunder for the full Lease Term. Furthermore the present value (such present value to be computed on the basis of a per annum discount rate equal to seven percent (7%)) of the aggregate amount of Rent for the period from the date stated in the notice terminating possession to the date of the expiration of the Lease Term absent such termination shall, at the option of Landlord, be immediately due and payable by Tenant to Landlord, together with any other monies due hereunder, and Landlord shall have the right to immediate recovery of all such amounts. In the alternative, Landlord shall have the right from time to time to recover from Tenant (without the need to commence new process), and Tenant shall remain liable for, all Rent not theretofore accelerated and paid pursuant to the foregoing sentence, as well as for any other sums thereafter accruing as they become due under this Lease during the period from the date of such notice of termination of possession to the date the Lease Term would expire if not terminated early. In any such case, Landlord may, but shall be under no obligation to (except to the extent required by law), relet the Premises or any part thereof for the account of Tenant for such rent, for such time (which may be for a term extending beyond the Lease Term) and upon such terms as Landlord in Landlord's sole discretion shall determine, and Landlord shall not be required to accept any tenant offered by Tenant or to observe any instructions given by Tenant relative to such reletting; provided, however, that any Rent received by reason of such reletting shall be applied as described below. Also, in any such case, Landlord may change the locks or other entry devices of the Premises and make repairs, alterations and additions in or to the Premises 34 35 and redecorate the same to the extent deemed by Landlord necessary or desirable and Tenant shall upon written demand pay the cost thereof together with Landlord's expenses of reletting, including, without limitation, brokerage commissions payable to Landlord or Landlord's agent or to others. Landlord may collect the rents from any such reletting and apply the same first to the payment of the expenses of reentry, redecoration, repair and alterations and the expenses of reletting and second to the payment of Rent, and any excess or residue shall operate only as an offsetting credit to reduce the amount of Rent due and owing or paid as a result of acceleration or as the same thereafter becomes due and payable hereunder; provided that the use of such offsetting credit to reduce the amount of Rent due Landlord, if any, shall not be deemed to give Tenant any right, title or interest in or to such excess or residue and any such excess or residue shall belong to Landlord solely. No such reentry, repossession, repairs, alterations, additions, or reletting shall be construed as an eviction or ouster of Tenant or as an election on Landlord's part to terminate this Lease, or shall operate to release Tenant in whole or in part from any of Tenant's obligations hereunder unless a written notice of such intention is given to Tenant, and Landlord may, at any time and from time to time sue and recover judgment for any deficiencies from time to time remaining after the application from time to time of the proceeds of any such reletting. C. In the event of the termination of this Lease by Landlord as provided for by subparagraph 20.02(B) above, Landlord shall be entitled to recover from Tenant all damages and other sums which Landlord is entitled to recover under any provision of this Lease or at law or equity, including, but not limited to, all the fixed dollar amounts of Rent accrued and unpaid for the period up to any including such termination date, as well as all other additional sums payable by Tenant, or for which Tenant is liable or in respect of which Tenant has agreed to indemnify Landlord under any of the provisions of this Lease, which may be then owing and unpaid, and all costs and expenses, including without limitation court costs and attorneys' fees incurred by Landlord in the enforcement of its rights and remedies hereunder and, in addition, any damages provable by Landlord as a matter of law including, without limitation, an amount equal to the excess of the Rent provided to be paid for the remainder of the Lease Term over the fair market rental value of the Premises (determined at the date of termination of this Lease) after deduction of all anticipated expenses of reletting. D. All amounts owed by Tenant to Landlord under this Lease shall be deemed additional rent and unless otherwise provided, and (other than the Base Rent and Additional Rent which shall be due as provided) shall be paid within ten (10) days from the date Landlord renders a statement of account therefor to Tenant. All such amounts (including Base Rent and Additional Rent) shall bear interest from the date due until the date paid at the annual rate of eighteen percent (18%) or at the then maximum legal rate of interest, if any, whichever is lower. Tenant shall pay all of Landlord's costs, charges and expenses, including without limitation, court costs and attorneys' fees, incurred in enforcing Tenant's obligations under this Lease or incurred by Landlord in any litigation, negotiation or transaction in which Tenant causes Landlord, without Landlord's fault, to become involved or concerned. 35 36 E. If Tenant shall file for protection under the United States Bankruptcy Code now or hereafter in effect, or a trustee in bankruptcy shall be appointed for Tenant, Landlord and Tenant agree, to the extent permitted by law, to request that the debtor-in-possession or trustee-in-bankruptcy, if one shall have been appointed, either assume or reject this Lease within sixty (60) days after such appointment. 20.04 No Reinstatement No receipt of money by Landlord from Tenant after the expiration or termination of this Lease or after the service of any notice or after the commencement of any suit, or after final judgement for possession of the Premises, shall reinstate, continue or extend the Lease Term or affect any such notice, demand or suit unless expressly agreed to in writing by Landlord. 20.05 Waiver No waiver by Landlord of any default or breach of any covenant by Tenant hereunder shall be inferred from any omission by Landlord to take action on account of such default, and no express waiver shall affect any default other than the default specified in the waiver and then said waiver shall be operative only for the time and to the extent therein stated. The consent or approval of Landlord to any act of Tenant shall not be deemed to waive or render unnecessary Landlord's consent or approval to any subsequent similar acts. No waiver by Landlord of any provision under this Lease shall be effective unless in writing and signed by Landlord. Landlord's acceptance of full or partial payment of Rent during the continuance of any breach of this Lease shall not constitute a waiver of any such breach of this Lease. Efforts by Landlord to mitigate damages caused by Tenant's breach of this Lease shall not be construed as a waiver of Landlord's right to recover damages. ARTICLE 21 - MISCELLANEOUS 21.01 No Option Submission of this instrument for examination does not constitute a reservation of or option for the Premises. The instrument does not become effective as a lease or otherwise until execution and delivery by both Landlord and Tenant. 21.02 Brokers Tenant and Landlord each hereby represents to the other that it has dealt directly with and only with the broker or brokers set forth in Paragraph 1.01 and that it does not know of another broker who negotiated this Lease or is entitled to any commission in connection herewith. Tenant and Landlord hereby agree to indemnify, defend (with counsel reasonably acceptable to the other) and hold the other harmless from and against all losses, damages, claims, liens, liabilities, costs and expense (including without limitation reasonable attorneys' fees) arising from any claims or demands of any other broker or brokers or finders for any commission or other compensation alleged to be due such broker or brokers or finders in connection with its participating in the negotiation of this Lease or in exhibiting the Premises on behalf of the indemnifying party. 21.03 Accord and Satisfaction No payment by Tenant of a lesser amount than the Rent nor any endorsement on any check or letter accompanying any check or payment as Rent shall be deemed an accord and satisfaction of full payment of Rent, and Landlord may accept such 36 37 payment without prejudice to Landlord's right to recover the balance of such Rent or to pursue other remedies. 21.04 Financial Statements In the event of a proposed sale or other transfer, financing or refinancing by Landlord of the Building, where the proposed lender or purchaser requests tenant financial statements, within ten (10) days after Landlord's request, Tenant shall deliver to Landlord the most current year-end financial statements of Tenant and any guarantor of this Lease, which statements shall have been reviewed or audited by an independent certified public accountant. 21.05 Notice Except as otherwise herein provided, whenever by the terms of this Lease notice shall or may be given either to Landlord or to Tenant, such notice shall be in writing and shall be deemed to have been properly served only if sent via certified mail return receipt requested, hand-delivery, or by overnight courier, to the appropriate address set forth in Paragraph 1.01, provided, however, that either Landlord or Tenant may change the location at which it receives notices, to another location within the United States of America, upon not less than ten (10) days notice. Communications delivered by hand or overnight courier shall be deemed to have been served on the date of receipt. Mailed communications shall be deemed to have been served at the time the same were posted plus three (3) business days. Notwithstanding the foregoing, notices served with respect to emergency matters may be communicated in person or by telephone. 21.06 Exhibits Reference is made to the Exhibits listed in Paragraph 1.01, which exhibits are attached hereto and incorporated herein by reference. 21.07 Survival Tenant agrees that its obligations pursuant to Paragraphs 4.02, 8.03, 8.05, 10.02, 10.03, 14.05, 21.02, 21.09, Article 20, and any other provision intended to survive, shall survive the termination of this Lease. 21.08 Tenant's Authority If Tenant signs as a corporation or partnership, each of the persons executing this Lease on behalf of Tenant does hereby covenant and warrant that Tenant is a duly authorized and existing entity, that Tenant has and is qualified to do business in the state in which the Premises are located, that Tenant has full right and authority to enter into this Lease, and that each and every person signing on behalf of Tenant is authorized to do so. Upon Landlord's request, Tenant shall provide Landlord with evidence reasonably satisfactory to Landlord confirming the foregoing covenants and warranties. 21.09 Persons Bound The agreements, covenants and conditions of this Lease shall be binding upon and inure to the benefit of the successors and assigns of each of the Parties, except that no assignment, encumbrance or subletting by Tenant, unless permitted by the provisions of this Lease, shall vest any right in the assignee, encumbrancer or subtenant under such assignment, encumbrance or subletting. 21.10 Partial Invalidity If any term, covenant, condition or provision of this Lease, or the application thereof to any person or circumstance, shall to any extent be declared invalid, unenforceable or in violation of a party's legal rights, then such term, covenant, condition or 37 38 provision shall be deemed to be null and void and unenforceable. However, all other provisions of this Lease, or the application of such term or provision to persons or circumstances other than those to which are held invalid, unenforceable or violative of legal rights, shall not be affected thereby, and each and every other term, condition, covenant the provision of this Lease shall be valid and be enforced to the fullest extend permitted by law. 21.11 Captions The headings and captions used throughout this Lease are for convenience and reference only and shall in no way be held to explain, modify, amplify, or aid in the interpretation, construction or meaning of any provisions in this Lease. The words "Landlord" and "Tenant" wherever used in this lease shall be construed to mean plural where necessary, and the necessary grammatical changes required to make the provisions hereof apply to corporations, limited liability companies, partnerships, or individuals, men and women, shall in all cases be assumed as though in each case fully expressed. 21.12 Applicable Law This Lease, its interpretation and enforcement shall be governed by the internal laws of the state in which the Premises are located, without resort to the choice or conflicts of law provisions of that or any other state. 21.13 Rights Cumulative All rights and remedies of Landlord under this Lease shall be cumulative and none shall exclude any other rights and remedies allowed by law. 21.14 Entire Agreement This Lease contains the entire agreement between the Parties and no modification of this Lease shall be binding upon the Parties unless evidenced by an agreement in writing signed by Landlord and Tenant after the date hereof. If there be more than one party comprising Tenant, the provisions of this Lease shall be applicable to and binding upon all such tenants jointly and severally. 21.15 Waiver of Jury Landlord and Tenant agree that, to the extent permitted by law, each shall and hereby does waive trial by jury in any action, proceeding or counterclaim brought by either against the other on any matter whatsoever arising out of or in any way connected with this Lease. ARTICLE 22 - OPTION TO TERMINATE. Provided (a) the Lease is in full force and effect, and (b) Tenant is not in default hereunder at the time of notification or termination, Tenant shall have one (1) option to terminate the Lease as of the third anniversary of the Commencement Date, by notice in writing delivered to Landlord not later than nine (9) months prior to the third anniversary of the Commencement Date. To be effective, Tenant's notice of termination must be accompanied by a termination payment equal to the sum of (x) the unamortized cost (as of the termination date) of tenant improvements, leasing commissions and tenant concessions paid for by Landlord amortized with interest at ten percent (10%) per annum and (y) $27,887.49. For purposes of such determination, the unamortized portion of such costs shall be the amount that bears the same ratio to all such costs as the amount of Base Rent due after the termination date bears to the total amount of Base Rent due over the stated term set forth on the Schedule. Landlord will provide the calculation 38 39 and amount of the termination fee within thirty (30) days of any termination and Tenant shall have thirty (30) days to review and object to such amount and the calculation thereof. ARTICLE 23 - OPTION TO RENEW. Provided (a) the Lease is in full force and effect, (b) Tenant is not in default hereunder at the time of notification or commencement, (c) neither the Premises nor any part thereof have been sublet, (d) the Lease has not been assigned, (e) Tenant is an occupant of the Building under this Lease and intends to continue to use the Premises itself, and (f) that both at the time of notification and commencement there has been no material adverse change in the financial condition of the Tenant as reasonably determined by Landlord, Tenant shall have one (1) option to renew the Lease for five (5) years (the "Renewal Term") by notice in writing delivered to Landlord not less than nine (9) months prior to the expiration of the then current term of the Lease. All of the covenants, conditions and provisions of the Lease shall be applicable to the Renewal Term, except that the Annual and Monthly Base Rent shall be adjusted to reflect the current fair market rental for the Premises as of the date the Renewal Term is to commence. Landlord shall advise Tenant of the new monthly rental for the Renewal Term within thirty (30) days after a request therefor from Tenant; Landlord's notification of the new rental may include an escalation to provide for a change in the fair market rental between the time of notification and the commencement of the Renewal Term. In no event shall the Annual and Monthly Base Rent be subject to determination or modification by any person, entity, court or authority other than as expressly set forth herein and in no event shall the Annual and Monthly Base Rent for the Renewal Term be less than the monthly rental during the last year of the then expiring term. IN WITNESS WHEREOF, the parties have signed triplicate counterparts hereof as of the date and year hereinabove set forth. TENANT: Superhighway Consulting, Inc. LANDLORD: Great Lakes REIT, L.P. By: Great Lakes REIT, Inc., its general partner By: By: ---------------------------------- ----------------------------------- Title: Title: ------------------------------- -------------------------------- Date: , 1998 Date: , 1998 -------------------------- ----------------------- ATTEST: ATTEST: By: By: ----------------------------------- ----------------------------------- 39 40 EXHIBIT A PLAN OF THE PREMISES 40 41 EXHIBIT B RULES AND REGULATIONS 1. The sidewalks, entrances, passages, courts, vestibules, or other parts of the Building not occupied by Tenant shall not be obstructed or encumbered by Tenant or used for any purpose other than ingress and egress to and from the Premises. Landlord shall have the right to control and operate the public portions of the Building, and the facilities furnished for the common use of the all of the Building tenants, in such manner as Landlord deems best for the benefit of the tenants generally. Tenant shall not invite people to visit the Building or the Premises in such numbers or under such conditions as to interfere with the use and enjoyment by other tenants of the entrances, corridors, and other public portions or facilities of the Building. 2. Canvassing, soliciting and peddling in the Building are prohibited and Tenant shall cooperate to prevent the same. 3. No hand trucks except those equipped with rubber tires and side guards shall be used in any space, either by Tenant, its employees, subcontractors, agents or invitees. 4. No bicycles, vehicles or animals, birds or pets of any kind shall be brought into or kept in or about the Building or the Premises, except that bicycles may be kept in bicycle racks located at the Building, if Landlord, at its sole discretion chooses to provide such bicycle racks for the tenants' use. 5. Mats, trash or other objects shall not be placed in the public corridors. 6. No additional locks or bolts of any kind shall be placed upon any of the doors or windows by Tenant, nor shall any changes be made in existing locks or the mechanism thereof. Tenant shall not make or permit to be made any keys for any door to the Premises or the Building other than those provided by Landlord, and if more than two keys for one lock are desired by Tenant, Landlord may provide the same upon payment by Tenant. Tenant shall, upon the termination of this tenancy, restore to Landlord all keys furnished to Tenant, and in the event of the loss of any keys, so furnished, Tenant shall pay to Landlord the cost thereof. 7. Awnings, projections, curtains, blinds, shades, screens or other fixtures shall not be attached within the Premises or hung in the Premises without the prior written consent of Landlord. Such items must be of a quality, type, design and color, and attached in the manner approved by Landlord. 8. Tenant shall not install antennae, or aerial wires inside or outside the Premises or the Building without the prior written consent of Landlord. The use thereof, if permitted, shall be subject to control by Landlord to the end that others shall not be disturbed or annoyed. 9. If Tenant desires telegraphic, telephonic, burglar alarm or signal service, Landlord will direct electricians as to where and how telephone and telegraph wires are to be introduced. No boring or cutting for wires will be allowed without the consent of Landlord. The locations of 41 42 telephones, call boxes and other office equipment affixed to the Premises shall be subject to the approval of Landlord. Tenant shall not construct, maintain, use or operate within the Premises or elsewhere within or on the outside of the Building, any electrical device or apparatus in connection with any sound system. 10. Unless Landlord gives prior written consent, Tenant shall not install or operate any machinery, refrigerating or heating device or air conditioning apparatus in or about the Premises or carry on any mechanical business therein. Tenant shall not install in the Premises any equipment which uses a substantial amount of electricity without the prior written consent of Landlord. Tenant shall ascertain from Landlord the maximum amount of electrical current which can safely be used in the Premises, taking into account the capacity of the electric wiring in the Building and the Premises and the needs of other tenants in the Building and shall not use more than the safe capacity. Landlord's consent to the installation of electric equipment shall not relieve Tenant from the obligation not to use more electricity than such safe capacity. 11. Tenant shall not waste water by tying, wedging or otherwise fastening open any faucet. The toilet rooms, urinals, wash bowls and other plumbing fixtures shall not be used for any purposes other than those for which they were constructed, and no sweepings, rubbish rags, or other substances shall be thrown therein. The cost of all damages resulting from any misuse of the fixtures shall be borne by Tenant if its servants, employees, agents, visitors or licensees, shall have caused the same. 12. Any person employed by Tenant to do janitor work within the Premises must obtain Landlord's consent and such person shall, when in the Building and outside of said Premises, comply with all instructions issued by Landlord. 13. Except as provided in Section 8.05, no inflammable, combustible or explosive fluid, chemical or substance shall be brought or kept upon the Premises. 14. Landlord shall have the right, exercisable with reasonable advance notice and without liability to Tenant, to change the name and street address of the Building of which the Premises are a part. 15. Tenant shall not make, or permit to be made, any unseemly or disturbing noises or odors or disturb or interfere with other occupants of the Building or neighboring Buildings whether by the use of any musical instrument, radio, talking machine, unmusical noise, whistling, singing, or in any other way. 16. No sign, advertisement or notice shall be inscribed, painted, affixed or displayed on any part of the outside or the inside of the Building except on the directories and the doors of offices, and then only in such place, number, size, color and style as is approved by Landlord. If any such sign, advertisement or notice is exhibited without Landlord's approval by Tenant, Landlord shall have the right to remove the same and Tenant shall be liable for any and all expenses incurred by Landlord by said removal. Any such permitted use, including directories and name plates, shall be at the sole expense and cost of Tenant. 42 43 17. Tenant shall not use the name of the Building for any purpose other than as the business address of Tenant and shall not use any pictures or likeness of the Building in any circulars, notices, advertisements or correspondence without Landlord's prior written consent. 18. Tenant and Tenant's employees, agents and patients shall park their cars only in those portions of the parking area located on the Building as may be designated for that purpose from time to time by Landlord. 19. Except such machines to be used exclusively by Tenant's employees, no vending machine or machines of any description shall be installed, maintained or operated upon the Premises without the prior written consent of Landlord. The Premises shall not be used for the storage of merchandise, for washing clothes, for lodging, or for any improper, objectionable or immoral purposes. Tenant shall not cause or permit any unusual or objectionable odors to be produced upon or permeate the Premises or the Building. 20. The requirements of Tenant will be attended to only upon application at the office of Landlord. Employees or agents of Landlord shall not perform any work or do anything outside of their regular duties unless under special instruction from Landlord. 21. Tenant shall comply with all rules and regulations established by Landlord regarding the disposition of all trash and waste materials in and about the Premises including "Special Medical Wastes" described in any local, state, or federal statutes, and will indemnify and hold harmless Landlord for any claim of damages brought by any party as a result of Tenant's failure to follow such regulations. 22. Landlord may, upon request by any tenant, waive the compliance by such tenant of any of the foregoing rules and regulations, provided that (i) no waiver shall be effective unless signed by Landlord or Landlord's authorized agent, (ii) any such waiver shall not relieve such tenant from the obligation to comply with such rule or regulation in the future unless expressly consented to be Landlord, and (iii) no waiver granted to any tenant shall relieve any other tenant from the obligation of complying with the foregoing rules and regulations unless such other tenant has received a similar waiver in writing from Landlord. Landlord shall not be liable to Tenant for violation of such rules and regulations by, or for Landlord's failure to enforce the same against, any other tenant, its subtenants and occupants and its and their agents, employees, invitees or licensees, nor shall any such violation or failure constitute or be treated as contributing to an eviction, actual or constructive, or affect Tenant's covenants and obligations hereunder, or allow Tenant to reduce, abate or offset the payment of any Base Rent or other sum under this Lease. 23. Violation of these rules and regulations, or any amendments thereto, shall be a default of Tenant under the terms of the Lease and shall be sufficient cause for termination of this Lease at the option of Landlord or the exercise of any other right or remedy, in accordance with the terms of Article 20 thereof. 43 44 EXHIBIT C CONSTRUCTION RIDER (LANDLORD RESPONSIBLE FOR WORK) 1. Landlord's Work. Landlord shall perform the work and make the installations on the Premises, if any, substantially as set forth below ("Landlord's Work"). Other than as provided in this Construction Rider Landlord has no obligation to improve, alter or remodel the Premises. Unless otherwise provided herein, all such installations shall remain the property of Landlord. A. Landlord shall enter into a contract with a licensed general contractor ("GC"), for completion of the work necessary to finish the Premises as shown in the "Working Drawings" (hereinafter defined) to be agreed upon by Landlord and Tenant in accordance with Paragraph 1(B) below. All materials and finishing shall be in accordance with the Building Standard as established by Landlord in accordance with the Working Drawings. Any changes or additions to the Working Drawings shall require written approval by Landlord, which approval shall not constitute approval of any municipality or other authority having jurisdiction. Working Drawings shall mean, collectively, the space plan dated _______________________ prepared by ________________ , (the "Space Plan"), the final plans and specifications for the Premises (the "Construction Drawings"), including all plans prepared by ________ (the "Architect") and ___________________ (the "Engineer"), including but not limited to details of partitions, doors, electrical and telephone outlets, ceilings, finishes, sprinklers, heating, ventilating, sound attenuation, air conditioning, plumbing, and electrical systems, finishes, paint, millwork, cabinetry and floor and wall coverings in the Premises. B. Landlord has caused or shall cause to be prepared Working Drawings for the Premises. Landlord and Tenant and their respective consultants shall review and discuss the Working Drawings, revise them as appropriate, and reach agreement on the final Working Drawings. Landlord and Tenant, or their authorized representatives, shall sign two sets of the Working Drawings and one signed set shall be delivered to each party. The cost of the Working Drawings shall be paid for initially by Landlord but shall be included as a part of the "Tenant's Allowance" hereinafter specified. C. Upon completion of the Working Drawings, Landlord shall immediately make application to the appropriate regulatory authorities for the required permits and approvals. D. Upon receipt of a copy of the Working Drawings approved and signed by Landlord, and receipt of necessary permits Landlord will cause GC to commence construction. E. Landlord shall pay the cost of Landlord's Work up to but not in excess of an amount equal to $23.50 per square foot of Rentable Area in the Premises ("Tenant's Allowance"). Tenant's Allowance was based on the construction proposals solicited by Landlord from its contractor in good faith but does not constitute a guaranty of the actual cost of Landlord's work. Such costs shall include all construction costs, and all architect's, space planner's, and construction management fees incurred by Landlord. In the event that the cost of Landlord's Work exceeds the amount of the Tenant's Allowance, Tenant shall pay to Landlord 44 45 said excess amount within thirty (30) days of Tenant's receipt of Landlord's statement of such excess costs. F. Landlord's Work shall be completed in a good and workmanlike manner in accordance with applicable laws. G. Landlord shall make a good faith effort to make the Premises Ready for Occupancy (as defined below) not later than the Target Commencement Date set forth in Paragraph 1.01(J) of the Lease; provided, however, that the Commencement Date shall be extended for a period equal to the period of any delay encountered by Landlord because of Force Majeure (as defined in the Lease), which shall include, in addition to other named events, Tenant Delays. Landlord's obligation to complete Landlord's Work shall not require Landlord to incur overtime costs and expenses, except to the extent the same are reimbursed by Tenant to Landlord. 2. Tenant's Work. Tenant, at its sole cost and expense, shall perform all work (other than Landlord's Work) in accordance with the terms of this Rider as required to put the Premises in a condition to permit the conduct of Tenant's business therein and in accordance with the requirements of this Lease. A. When Landlord's Work has proceeded to the point where the work described in the Working Drawings to be performed by Tenant and the installation of Tenant's trade fixtures and equipment in the Premises (collectively "Tenant's Work") can, in the opinion of Landlord, be commenced in accordance with good construction practice, Landlord shall notify Tenant to that effect. After such notice, Tenant shall have the right to occupy the Premises for the purpose of performing Tenant's Work so far as its occupancy is not inconsistent with Landlord's Work or any work to be done in the Building by Landlord, subject to all the terms and condition of this Lease, except that the payment of Rent by Tenant shall not commence until the Premises are Ready for Occupancy. All work by Tenant shall be performed in accordance with and be subject to the terms and conditions of Article 10 of the Lease. B. Tenant acknowledges that entry onto the Premises when the Premises are not Ready for Occupancy entails a risk of personal injury, death, or damage, destruction, loss or misappropriation of property. To the extent not expressly prohibited by law, Tenant hereby assumes all such risks for entry onto the Premises, and agrees to defend and hold harmless Landlord (its agents, contractors, employees and any lessor under any ground or underlying lease) against all costs and expenses, including reasonable attorneys' fees in connection therewith, arising out of any personal injury, death, or damage, destruction, loss or misappropriation of property related to entry onto the Premises by Tenant or its agents, employees, contractors, invitees or subtenants prior to such time as the Premises are Ready for Occupancy, except to the extent such costs or expenses arise out of the negligence or willful misconduct of Landlord, its employees, agents or representatives (it being expressly understood that for purposes of this Lease, Landlord's contractors, subcontractors and their employees shall not be considered employees, agents or representatives of Landlord). 45 46 C. Tenant shall be solely responsible to determine at the site all dimensions of the Premises and the Building which affect any work to be performed by Tenant hereunder. D. Neither review nor approval by Landlord of any plans or specifications for Tenant's Work or any other work to be performed by Tenant shall constitute a representation or warranty by Landlord that any of such plans or specifications either (i) are complete or suitable for their intended purpose, or (ii) comply with applicable laws, ordinances, codes and regulations, it being expressly agreed by Tenant that Landlord assumes no responsibility or liability whatsoever to Tenant or to any other person or entity for such completeness, suitability, or compliance. E. Once approved by Landlord, Tenant shall not make any changes, modifications or additions to the any plans and specifications submitted to Landlord for Tenant's Work or any other Leasehold Improvements without the prior written consent of Landlord. 3. Punch List. Upon substantial completion of Landlord's Work, Landlord shall notify Tenant that the Premises are ready for inspection. Tenant agrees to inspect the Premises and to deliver to Landlord, within three (3) business days after such notification, a written "Punch List" of any of Landlord's Work which does not conform with the Working Drawings or which are otherwise reasonably unsatisfactory to Tenant, including a specific reference to any conditions which would materially affect the appearance or functioning of the Premises. Upon receipt of the Punch List, Landlord agrees to diligently pursue the correction of all Punch List items. The failure of Tenant to inspect the Premises, or to prepare a written Punch List within the aforesaid period of time, shall be deemed in acceptance of Landlord's Work and an acknowledgment that the Premises are Ready for Occupancy by Tenant. After Tenant has taken possession of the Premises, Landlord, its agents, contractors, mechanics and workmen shall have the right to enter the Premises at any time to complete Punch List items. Such entry by Landlord, its agents, contractors mechanics or workmen for such purpose shall not constitute an actual or constructive eviction in whole or in part, nor shall it entitle Tenant to any abatement or diminution of Rent, nor shall it relieve Tenant from any of its obligations under the Lease, nor shall it impose any liability upon Landlord. 4. Commencement Date. Notwithstanding anything to the contrary stated in this Lease, the obligations of the Tenant to pay Rent to Landlord as otherwise provided in this Lease shall not begin or commence until the "Commencement Date" which for purposes of this Lease shall be the earlier of dates noted below: A. The date upon which the Premises shall be "Ready for Occupancy", which shall be the date when: (i) Landlord's Work is substantially completed; (ii) Landlord has obtained all permits and governmental certificates (if any) necessary for Tenant to fully occupy the Premises; and (iii) Landlord has notified Tenant of (i) and (ii) above. The Premises shall be deemed Ready for Occupancy notwithstanding Tenant Delays or a requirement to complete minor corrective work or the fact that portions of the Building and Common Areas may not be completed. In the 46 47 event of any dispute as to whether the Premises are Ready for Occupancy, the decision of Landlord's architect shall be final and binding on Landlord and Tenant. B. The date on which the Premises would have been Ready for Occupancy but for Tenant Delays. For this purpose "Tenant Delays" shall include, but not be limited to delays caused in whole or in part by: (i) Tenant's failure to approve plans or specifications as required in this Construction Rider; or (ii) due to special work, changes, alterations or additions required or made by Tenant in the layout or finish of the Premises or any part thereof following the approval of the Construction Documents; or (iii) Tenant's delay in approving plans or materials (e.g. carpet or paint), giving authorizations; or (iv) delay in the completion of Tenant's Work; or (v) any other delay and/or default on the part of Tenant. 5. Miscellaneous. This Construction Rider is expressly made a part of the Lease and is subject to each and every term and condition thereof, including, without limitation, the limitations on liability set forth therein. 47 48 EXHIBIT D CONFIRMATION OF COMMENCEMENT DATE THIS CONFIRMATION OF COMMENCEMENT DATE is made as of this day of ________, 199_, by and between GREAT LAKES REIT, INC., a Maryland corporation ("Landlord") and _________________________ , a _______________________ ("Tenant"). WITNESSETH: WHEREAS, Landlord and Tenant entered into a written lease dated ______________ , _____ , (the "Lease") for Suite ______ , at ___________________ ; and WHEREAS, the Premises have now been delivered to Tenant; and WHEREAS, Landlord and Tenant now desire to confirm the actual Commencement Date [and correct the Schedule of Base Rent to reflect the actual Commencement Date]. NOW, THEREFORE, in consideration of the mutual covenants and conditions hereinafter contained, Landlord and Tenant hereby agree as follows: 1. Commencement Date. The Commencement Date of the Lease is _______________ , 19__ . [2. Base Rent. Tenant shall pay as Base Rent for the Lease Term the following amounts: Period Annual Base Rent Monthly Base Rent] 3. Terms of Lease. Capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Lease. 4. Incorporation of the Lease. Except as otherwise modified hereby, the terms and covenants of the Lease remain in full force and effect. IN WITNESS WHEREOF, Landlord and Tenant have executed this Confirmation as of the day and year first above written. LANDLORD: GREAT LAKES REIT, INC. By: ------------------------------- Its: ------------------------------- 48 49 TENANT: By: ------------------------------- Its: ------------------------------- 49 EX-10.6 8 SOFTWARE LICENSE AGREEMENT 1 Exhibit 10.6 SOFTWARE LICENSE AGREEMENT This SOFTWARE LICENSE AGREEMENT (this "Agreement") effective as of the 31st day of March, 1999, by and between PREVENT SYSTEMS, INC., an Alabama corporation ("Licensor"), and Yesmail.com, a Delaware corporation ("Customer"). 1. LIMITED LICENSE 1.1 GRANT. Licensor grants to Customer a personal, non-transferable, non-exclusive, unlimited-scope site license to use, in accordance with and for the duration of this Agreement, Licensor's proprietary applications Software identified on Schedule A to this Agreement ("Software") and the related documentation listed on Schedule A ("Documentation"), as the Software and Documentation may be modified, revised and updated in accordance with this Agreement. 1.2 DESIGNATED COMPUTER(S) AND LOCATION(S). The Software may be installed and used only at the Customer location(s) listed on Schedule B to this Agreement ("Designated Location(s)") and on any computer(s) operated by Customer at the listed locations, except that: (a) Customer may change a Designated Location to another Customer location by giving prompt written notice to Licensor (in accordance with Section 9.1) stating the address of the new location and certifying that there are no copies of the software in operation at the replaced location. (b) If Customer transfers a Designated Location or control over the operation thereof, then Customer shall change the Designated Location in accordance with Section 1.2(a). (c) Customer may use the Software for disaster recovery testing or production purposes provided that Customer requires its disaster recovery vendor to comply with the provisions of Section 7. Customer shall be fully liable for any breach of this Agreement by its disaster recovery vendor. 1.3 SCOPE. Customer may use the Software and Documentation only in the ordinary course of its business operations and for its own business purposes. Customer shall use the Software only in accordance with the Documentation. 1.4 COPIES. Customer may use only the copies of the Software and Documentation that are provided by Licensor, except that Customer may copy the Software and Documentation to the extent reasonably necessary for routine backup and disaster recovery purposes. 2. INSTALLATION, ACCEPTANCE AND TRAINING 2.1 INITIAL INSTALLATION. Subject to Customer's performance of its obligations in Section 4, Licensor shall provide and Customer shall accept the Minimum Installation Support described on Schedule C. This shall include delivery to Customer of the Initial Copy of the 2 Software and Documentation (as defined in Schedule A), installation of the Software on or before the Installation Date (as defined in Schedule A) at the Initial Installation Site(s) (defined on Schedule B), and assistance with any other implementation or related activities described on Schedule C. Subject to the availability of Licensor's personnel and at Licensor's then standard rates, Licensor shall provide to Customer additional installation support services reasonably requested by Customer. After delivery, Customer shall bear all risk of loss or damage to all copies of the Software and Documentation reasonably requested by Customer. 2.2 ACCEPTANCE. Licensor shall given written notice to Customer (in accordance with Section 9.1) certifying that installation of the Software at the Installation Site(s) is completed. Customer shall be deemed to have accepted the Software thirty (30) days after receiving Licensor's notice, unless both, during that period, the Software fails to perform in accordance with the Documentation in some material respect that precludes acceptance of the Software by Customer, and, by the end of that 30-day period, Customer gives written notice of nonacceptance to Licensor (in accordance with Section 9.1) describing the material failure in reasonable detail and explaining why the failure precludes acceptance of the Software by Customer. If Customer gives a proper notice of nonacceptance to Licensor, then: (a) Licensor shall investigate the reported failure. Customer shall provide to Licensor reasonably detailed documentation and explanation, together with underlying data, to substantiate the failure and to assist Licensor in its efforts to diagnose and correct the failure. (b) If Licensor determines, reasonably and in good faith, that there was no material failure to perform or that the failure to perform was not attributable to a defect in the Software or an act or omission of Licensor, then Licensor shall given written notice to Customer (in accordance with Section 9.1) explaining that determination in reasonable detail, and Customer shall be deemed to have accepted the Software as of the date of Licensor's notice. (c) If Licensor determines that there was a material failure to perform that was attributable to a defect in the Software or an act or omission of Licensor, and if Licensor cannot, correct the failure within thirty (30) days (or such longer period as may be reasonable under the circumstances) after receipt of Customer's notice of nonacceptance, then Customer shall promptly return to Licensor all copies of the Software and Documentation and any other items delivered to Customer by Licensor, and Licensor shall then refund to Customer the unused pro-rata portion of the Annual License Fee paid by Customer in accordance with Section 5.1. If, within such period, Licensor does correct the failure, then Licensor shall give written notice to Customer (in accordance with Section 9.1) certifying that the failure has been corrected, and another thirty (30) day acceptance period shall begin in accordance with this Section 2.2. 2.3 TRAINING. Licensor shall provide and Customer shall accept the Minimum Training described on Schedule C. This shall include basic training in the use of the Software for the number of Customer's employees set forth on Schedule C. Subject to the availability of -2- 3 Licensor's personnel, Licensor shall provide to Customer additional training services reasonably requested by Customer at Licensor's then current rates. 3. LICENSOR'S OTHER OBLIGATIONS 3.1 ONGOING SUPPORT SERVICES. Customer shall pay Licensor an annual software maintenance fee of $75,000.00 (the "Annual Maintenance Fee"). Licensor shall provide to Customer all updates, upgrades, refinements, fixes, improvements, enhancements, and new versions to the Software that Licensor incorporates generally into the Software without additional charge. 3.2 CONSULTING AND CUSTOM DEVELOPMENT. At Customer's option, Licensor will preform custom development work in accordance with mutually agreed upon terms and conditions to be set forth in a separate contract. If Customer elects to contract with Licensor to perform custom development work, Customer will pay Licensor at fair market rates for each incident of custom work required. Fair market rates for custom development work will typically be $1,500.00 per man-day, for normally scheduled work; however, this figure is an estimate only and will be mutually agreed upon in the separate contract. "Rush" projects will be bid at a higher rate, depending on programmer availability at the time of Customer's request. Upon receipt of Customer's requirements, Licensor will provide a good faith estimate of the work to be performed and the estimated total cost to perform the custom development work Payment for any custom development work shall be paid 50% upon commencement of the work and 50% upon Customer's acceptance (to be more specifically detailed by separate contract). Licensor will retain ownership of the Software, as customized, and will continue to maintain the software, for the duration of the agreement, at no additional cost to Customer. 3.3 INITIAL DEVELOPMENT WORK. Licensor shall perform an initial modification (the "Initial Modification") to the Software for the sum of $35,000.00 (the "Initial Modification Fee"). 4. CUSTOMER'S OTHER OBLIGATIONS 4.1 PROCUREMENT OF HARDWARE. Customer shall be responsible, at its expense, for procuring and maintaining the computer hardware, systems software and other items which comprise the Specified Configuration (defined in Schedule A), and for updating the Specified Configuration in accordance with Licensor's published updates to Schedule A. If not yet completed, Customer shall complete its procurement and installation of the Specified Configuration(s) for the Initial Installation Site(s) at least fifteen (15) days before the Installation Date. 4.2 ACCESS TO FACILITIES AND EMPLOYEES. Customer shall provide to Licensor access to the Designated Location(s) and Customer's equipment and employees, and shall otherwise cooperate with Licensor, as reasonably necessary for Licensor to perform its installation, training, and other obligations under this Agreement. Customer shall devote all equipment, facilities, personnel and other resources reasonably necessary to install the Software and begin using the Software in production or in the ordinary course of its business on a timely basis as contemplated by this Agreement. -3- 4 4.3 CERTAIN LEGAL REQUIREMENTS. Customer shall be responsible, at its expense, for complying with all applicable laws and regulations of each jurisdiction where there is a Designated Location of the Software, including without limitation laws and regulations pertaining to (a) exports or imports of software and related property, (b) use or remote use of software and related property, or (c) registration of this Agreement. Customer shall indemnify, save and hold harmless Licensor (and its affiliates, and the respective directors, officers, employees and agents of Licensor and its affiliates) from and against all actions, claims, damages or liabilities (including reasonable attorneys' fees), at law or in equity, arising out of any violation by Customer of any such laws or regulations. 4.4 MANAGEMENT, CONTROL AND IMPLEMENTATION. Customer is responsible for the adequacy of the Customer's intended application and use. Licensor will provide assistance to Customer for implementation and installation in accordance with the terms of this Agreement; however, Customer shall be responsible for the management, internal control, and implementation of the Software, including acquiring adequate computer hardware, insuring proper machine configuration and program installation. Licensor recommends as part of the implementation of the Software that Customer operate the Software in parallel with the Customer's existing methods and systems until Customer has completed the implementation. 5. PAYMENTS 5.1 ANNUAL LICENSE FEE. Customer shall pay to Licensor an annual fee (the "Annual License Fee") in the amount stated on Schedule C, in accordance with the payment terms stated on Schedule C. 5.2 SERVICE FEES. Customer shall pay to Licensor the service fees stated on Schedule C for Annual Maintenance and Initial Modification. In each case where service fees are not specified on Schedule C, then the fees for such services shall be based upon Licensor's then standard professional fee rates. Licensor's standard professional fee rates in effect on the date of this Agreement are stated on Schedule C and are subject to increase in the ordinary course of business. 5.3 EXPENSE REIMBURSEMENTS. Whenever any services are provided by Licensor at a Customer location or any other location requested by Customer other than one of Licensor's locations, Customer shall reimburse Licensor for its reasonable travel, lodging, meal and related expenses incurred by Licensor's personnel in providing such services. 5.4 OTHER FEES. If Customer requires replacement or additional copies of the Software or Documentation, or if Customer assigns or otherwise transfers this Agreement with Licensor's consent (in accordance with Section 9.3), then Customer shall pay to Licensor the corresponding fees stated on Schedule C. 5.5 TAXES. The fees and other amounts payable by Customer to Licensor under this Agreement do not include any taxes of any jurisdiction that may be assessed or imposed upon the copies of the Software and Documentation delivered to Customer, the license granted under this Agreement or the services provided under this Agreement, or otherwise assessed or imposed in connection with the transactions contemplated by this Agreement, including sales, use, -4- 5 excise, value added, personal property, export, import and withholding taxes, excluding only taxes based upon Licensor's net income. Customer shall directly pay any such taxes assessed against it or the transactions contemplated herein, and Customer shall promptly reimburse Licensor for any such taxes payable or collectable by Licensor. 5.6 PAYMENT TERMS. Monthly license fees shall be invoiced by Licensor monthly in advance as per Schedule C. All other fees and all expense reimbursements shall be invoiced by Licensor as and when incurred. All invoices shall be sent to Customer's address for invoices stated on schedule B. Customer's payments shall be due within thirty (30) days after receipt of invoice. Interest at the rate of eighteen percent (18%) per annum (or, if lower, the maximum rate permitted by applicable law) shall accrue on any amount not paid by Customer to Licensor when due under this Agreement, and shall be payable by Customer to Licensor on demand. Except as provided in Section 2.2(c) and 6.2(c), all fees and other amounts paid by Customer under this Agreement are non-refundable. 5.7 CERTAIN REMEDIES FOR NONPAYMENT. If Customer fails to pay to Licensor, within ten (10) days after Licensor makes written demand thereof, any past-due amount payable under this Agreement (including interest thereon) that is not the subject of a good faith dispute as to which Customer has given written notice to Licensor (in accordance with Section 9.1) explaining its position in reasonable detail, then, in addition to all other rights and remedies which Licensor may have at law or in equity, Licensor may, in its sole discretion and without further notice to Customer, suspend performance of any or all of its obligations under this Agreement (including its ongoing support services under Section 3.1), and/or activate internal controls in the Software that are designed to disable the normal operation of the Software, until all past due amounts are paid in full. 5.8 LIMITED AVAILABILITY. For 180 days from the effective date of this Agreement (the "Limited Availability Period"), Licensor shall not sell the Software to the following direct competitors (the "Direct Competitors") of Customer: (a) NetCreations, Inc. (PostMaster Direct); (b) American List Council; (c) Excite (Matchlogic, DeliverE, Website Postoffice); (d) Sift; (e) Email Channel; (F) Digital Impact; (G) Topica; (h) Popular Demand; (i) Edirect; (j) World Data; and (k) EKG (John Funk). After the Limited Availability Period expires, Licensor shall be free to sell the Software to a Direct Competitor but Licensor shall notify Customer in writing (in accordance with Section 9.1) if Licensor is seriously considering a sale to a Director Competitor. 6. WARRANTIES AND LIMITATIONS 6.1 PERFORMANCE. Licensor warrants to Customer that the Software, in the form delivered to Customer by Licensor and when properly used for the purpose and in the manner specifically authorized by this Agreement, will perform as described in the Documentation in all material respects. Licensor's only obligation under this warranty is to comply with the provisions of Section 2.2 with respect to any material failure to perform described in a notice of nonacceptance given by Customer to Licensor in accordance with Section 2.2. 6.2 RIGHT TO LICENSE; NO INFRINGEMENT. Licensor warrants to Customer that to the best of its knowledge, except for any third-party products for which Licensor acts as licensing agent, it has the full legal right to grant to Customer the license granted under this Agreement, and -5- 6 that the Software and Documentation, in the form delivered to Customer by Licensor and when properly used for the purpose and in the manner specifically authorized by this Agreement, do not infringe in any material respect upon any United State patent or copyright or any trade secret or other proprietary right of any person. Licensor shall have no liability under this Section 6.2 unless Customer gives written notice to Licensor (in accordance with Section 9.1) within ten (10) days after any applicable infringement claim is initiated against Customer and allows Licensor to have sole control of the defense or settlement of the claim. If any applicable infringement claim is initiated, or in Licensor's sole opinion is likely to be initiated, then Customer's sole and exclusive remedy for a breach or alleged breach of Licensor's warranty in this Section 6.2 shall be that Licensor shall, at its sole option and expense, either: (a) modify or replace all or the infringing part of the Software or Documentation so that it is no longer infringing, provided that the Software functionality does not change in any material adverse respect; or (b) procure for Customer the right to continue using the infringing part of the Software or Documentation; or (c) remove all or the infringing part of the Software or Documentation, and refund to Customer the pro-rata unused portion of the Annual License Fee paid by Customer to Licensor under Section 5.1, in which case this Agreement shall terminate with respect to the Software or part thereof removed. 6.3 EXCLUSION FOR UNAUTHORIZED ACTIONS. Licensor shall have no liability under any provision of this Agreement with respect to any performance problem, claim of infringement or other matter to the extent attributable to any unauthorized or improper use or modification of the Software, any combination of the Software with other software, any use of any version of the Software other than the latest release of the Software that is then generally available to Licensor's customer base, or any breach of this Agreement by Customer. 6.4 FORCE MAJEURE. Licensor shall not be liable for, nor shall Licensor be considered in breach of this Agreement due to, any failure to perform its obligations under this Agreement as a result of a cause beyond its control, including any act of God or a public enemy, act of any military, civil or regulatory authority, change in any law or regulation, fire, flood, earthquake, storm or other like event, disruption or outage of communications, power or other utility, labor problem, unavailability of supplies, or any other cause, whether similar or dissimilar to any of the foregoing, which could not have been prevented by Licensor with reasonable care. 6.5 DISCLAIMER AND EXCLUSION. EXCEPT AS EXPRESSLY STATED IN THIS AGREEMENT, LICENSOR MAKES NO REPRESENTATIONS OR WARRANTIES, ORAL OR WRITTEN, EXPRESS OR IMPLIED, INCLUDING IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, REGARDING THE SOFTWARE OR ANY OTHER MATTER PERTAINING TO THIS AGREEMENT. LICENSOR'S TOTAL LIABILITY UNDER THIS AGREEMENT SHALL UNDER NO CIRCUMSTANCES EXCEED THE INITIAL LICENSE FEE ACTUALLY PAID BY CUSTOMER TO LICENSOR -6- 7 UNDER THIS AGREEMENT, UNDER NO CIRCUMSTANCES SHALL LICENSOR BE LIABLE TO CUSTOMER OR ANY OTHER PERSON FOR LOST REVENUES, SPECIAL DAMAGES, EXEMPLARY DAMAGES, OR CONSEQUENTIAL DAMAGES OF ANY NATURE, WHETHER OR NOT FORESEEABLE. 6.6 OTHER LIMITATIONS. The warranties made by Licensor in this Agreement, and the obligations of Licensor under this Agreement, run only to Customer and not to its affiliates, as customers or any other persons. Under no circumstances shall any other person be considered a third party beneficiary of this Agreement or otherwise entitled to any rights or remedies under this Agreement. Customer shall have no rights or remedies against Licensor except as specifically provided in this Agreement. No action or claim of any type relating to this Agreement may be brought or made by Customer more than one (1) year after Customer first has knowledge of the basis for the action or claim. 6.7 SIZING. Sizing is the process of estimating the amount of computer equipment and types of hardware and software features needed to execute the Software on the designated Computer under particular circumstances and to achieve certain performance goals. Customer acknowledges that Licensor will perform a sizing only upon Customer's request and using the Customer's own data and estimates. Customer acknowledges that Customer has all, and that Licensor in no way has any responsibility for the choice of the Designated Computer, its features, and the use of the Software to achieve any performance goals. EXCEPT AS MAY BE EXPRESSLY PROVIDED HEREIN, LICENSOR MAKES NO WARRANTY AS TO THE ADEQUACY OR CAPACITY OF THE DESIGNATED COMPUTER OR THE PERFORMANCE OF THE SOFTWARE ON THE DESIGNATED COMPUTER. 7. CONFIDENTIALITY, OWNERSHIP AND RESTRICTIVE COVENANTS 7.1 CONFIDENTIAL INFORMATION. All business information disclosed by one party to the other in connection with this Agreement shall be treated as confidential information (the "Confidential Information") unless it is or later becomes publicly available through no fault of the other party or it was or later is rightfully developed or obtained by the other party from independent sources free from any duty of confidentiality. Each party's confidential information shall be held in strict confidence by the other party, using, at a minimum, the same standard of care as it uses to protect its own confidential information, and shall not be used or disclosed by the other party for any purpose except as necessary to implement or perform this Agreement, or except as required by law provided that the other party is given a reasonable opportunity to obtain a protective order. Without limiting the generality of the foregoing, such confidential information shall include Customer's data and details of Customer's computer operations and the terms and pricing of this Agreement. 7.2 LICENSOR'S PROPRIETARY ITEMS. Customer acknowledges that the Software and Documentation, the object code and the source code for the Software, the visual expressions, data formats, screen formats, report formats and other design features of the Software, all ideas, methods, algorithms, formulae and concepts used in developing and/or incorporated into the Software and Documentation, all future modifications, revisions, updates, releases, refinements, improvements and enhancements of the Software or Documentation, all derivative works based upon any of the foregoing, and all copies of the foregoing (referred to, collectively, as "Proprietary Items") are trade secrets and proprietary property solely of -7- 8 Licensor, having great commercial value to Licensor. Customer acknowledges that the restrictions in this Agreements are reasonable and necessary to protect Licensor's legitimate business interests. If Licensor declares bankruptcy or otherwise ceases to do business, Customer shall have the right to gain access to the latest version of the Software's source code, including modifications made for customer and related documentation, for the sole purpose of fulfilling its rights under this Agreement; however, the title to the Software's source code shall neither transfer nor pass to Customer under this or any other circumstance. 7.3 OWNERSHIP RIGHTS. All Proprietary Items provided to Customer under this Agreement are being provided on a strictly confidential and limited use basis. Title to all Proprietary Items and all related patent, copyright, trademark, trade secret, intellectual property and other ownership rights shall remain exclusively with Licensor, even with respect to such items that were created by Licensor specifically for or on behalf of Customer. This Agreement is not an agreement of sale, and no title, patent, copyright, trademark, trade secret, intellectual property or other ownership rights to any Proprietary Items are transferred to Customer by virtue of this Agreement. All copies of Proprietary Items in Customer's possession shall remain the exclusive property of Licensor and shall be deemed to be on loan to Customer during the term of this Agreement. 7.4 DISCLOSURE RESTRICTIONS. All Confidential Information and Proprietary Items in Customer's possession, whether or not authorized, shall be held in strict confidence by Customer, and Customer shall take all steps reasonably necessary to preserve the confidentiality thereof throughout the term of this Agreement and for five (5) years following the expiration or termination of this Agreement. Customer shall not, directly or indirectly, communicate, publish, display, loan, give or otherwise disclose any Proprietary Item to any person, or permit any person to have access to Proprietary Items other than those of its employees whose responsibilities require such use or access. Customer shall advise all such employees, before they receive access to or possession of any Proprietary Items, of the confidential nature of the Proprietary Items and require them to sign a nondisclosure agreement containing the terms of this Section 7. Customer shall be liable for any breach of this Agreement by any of its employees and any other person who obtains access to or possession of any Proprietary Item from or through Customer. 7.5 USE RESTRICTIONS. Customer shall not do, nor shall it permit any other person to do, any of the following: (a) use any Proprietary Item for any purpose, at any location or in any manner not specifically authorized by this Agreement; (b) make or retain any copy of any Proprietary Item except as specifically authorized by this Agreement; or (c) create or recreate the source code for the Software, or re-engineer, reverse engineer, decompile or disassemble the Software; or (d) modify, adapt, translate or create derivative works based upon the Software or Documentation, or combine or merge any part of the Software or Documentation -8- 9 with or into any other software or documentation, except as mutually agreed upon and as contemplated in this Agreement; or (e) refer to or otherwise use any Proprietary Item as part of any effort to develop a program having any functional attributes, visual expressions or other features similar to those of the Software or to compete with Licensor; or (f) remove, erase or tamper with any copyright or other proprietary notice printed or stamped on, affixed to, or encoded or recorded in any Proprietary Item, or fail to preserve all copyright and other proprietary notices in any copy of any Proprietary Item made by Customer; or (g) sell, market, license, sublicense, distribute or otherwise grant to any persons, including any outsourcer, vendor, consultant or partner, any right to use any Proprietary Item, whether on Customer's behalf or otherwise; or (h) aside from Customer's authorized employees at the Designated Location, use the Software to conduct any type of service bureau or time-sharing operation or to provide remote processing, network processing, network telecommunications or similar services to any person, whether on a fee basis or otherwise; or (i) attempt to do any of the foregoing. 7.6 NOTICE AND REMEDY OF BREACHES. Customer shall promptly give written notice to Licensor (in accordance with Section 9.1) of any actual or suspected breach by Customer of any of the provisions of this Section 7, whether or not intentional, and Customer shall, at its expense, take all steps reasonably requested by Licensor to prevent or remedy the breach. 7.7 AUDIT. Licensor may, at its expense and by giving reasonably advance written notice to Customer (in accordance with Section 9.1), enter Customer locations during normal business hours and audit the Customer's compliance with the provisions of this Section 7. If Licensor discovers Customer is not in compliance with the provisions of this Section 7 in any material respect, then Customer shall reimburse Licensor for the expenses incurred by Licensor in conducting the audit. 7.8 ENFORCEMENT. Customer acknowledges that any breach of any of the provisions of this Section 7 shall result in irreparable injury to Licensor for which money damages could not adequately compensate. If there is a breach, then Licensor shall be entitled, in addition to all other rights and remedies which Licensor may have at law or in equity, to have a decree of specific performance or an injunction issued by an competent court, requiring the breach to be cured or enjoining all person involved from continuing the breach. The existence of any claim or cause of action which Customer or any other person may have against Licensor shall not constitute a defense or bar to the enforcement of any of the provisions of this Section 7. 8. TERMINATION -9- 10 8.1 TERMINATION. The initial term of this Agreement shall be two (2) years beginning on the effective date of this Agreement. This Agreement shall automatically, and without further action by the parties, renew for subsequent and additional one (1) year terms (the "Renewal Terms"). Either Customer or Licensor may terminate this Agreement by notifying the other party in writing (in accordance with Section 9.1) at least sixty (60) days before any Renewal Term. 8.2 TERMINATION BY CUSTOMER. Licensor will provide written notice (in accordance with Section 9.1) if it decides to license the Software to a Direct Competitor of Customer as listed in Section 5.8. After the first ten (10) months of this Agreement, upon receipt of Licensor's notice, Customer will have the option to terminate this Agreement by providing written notice (in accordance with Section 9.1) to Licensor. Upon Customer's termination in accordance with this Section 8.2, Customer shall pay Licensor a termination penalty equal to two (2) months of the prorated Annual License Fee. 8.3 TERMINATION BY LICENSOR. Licensor may immediately terminate this Agreement, by giving written notice of termination to Customer (in accordance with Section 9.1), upon the occurrence of any of the following events: (a) Customer fails to pay to Licensor, within ten (10) days after Licensor makes written demand thereof, any past-due amount payable under this Agreement (including interest thereon) that is not the subject of a good faith dispute as to which Customer has given written notice to Licensor (in accordance with Section 9.1) explaining its position in reasonable detail. (b) Customer breaches, in any material respect, any of the provisions of Section 7 or Section 9.3. (c) Customer breaches any of its other obligations under this Agreement and does not cure the breach within thirty (30) days after Licensor gives written notice to Customer (in accordance with Section 9.1) describing the breach in reasonable detail. (d) Customer dissolves or liquidates or otherwise discontinues all or a significant part of its business operations. 8.4 EXPIRATION OF TERM. Unless terminated earlier pursuant to Section 8.1 or 8.2 hereof, this Agreement shall automatically terminate at the end of twenty (20) years after the Acceptance Date. 8.5 EFFECT OF TERMINATION. Upon a termination of this Agreement, whether under this Section 8 or otherwise, Customer shall discontinue all use of the Software and Documentation, Customer shall promptly return to Licensor all copies of the Software, the Documentation and any other Proprietary Items then in Customer's possession, and Customer shall give written notice to Licensor (in accordance with Section 9.1) certifying that all copies of the Software have been permanently deleted from its computers. Customers shall remain liable for all payments due to Licensor with respect to the period ending on the date of -10- 11 termination. The provisions of Sections 5, 6, (excluding 6.1) and 7 shall survive any termination of this Agreement, whether under this Section 8 or otherwise. 9. OTHER PROVISIONS 9.1 NOTICE. All notices, consents and other communications under or regarding this Agreement shall be in writing and shall be deemed to have been received on the earlier of the date of actual receipt, the third business day after being mailed by first class certified mail, or the first business day after being sent by a reputable overnight delivery service. Any notice may be given by facsimile, provided that a signed written original is sent by one of the preceding methods within twenty-four (24) hours thereafter. Customer's address for notices is stated on Schedule B. Licensor's address for notices is Revnet Systems, Inc., Attn: Stuart Obermann, CEO, 3304 Westmill Drive, Huntsville, Alabama 35805. Either party may change its address for notices by giving written notice of the new address to the other party in accordance with this Section 9.1. 9.2 DEFINED TERMS. As used in this Agreement, the following terms have the following meanings: (a) "affiliate" means, with respect to a specified person, any person which directly or indirectly controls, is controlled by, or is under common control with the specified person as of the date of this Agreement, for as long as such relationship remains in effect. (b) "copy" means any paper, disk, tape, film, memory device, or other material or object on or in which any words, object code, source code or other symbols are written, recorded or encoded, whether permanent or transitory. (c) "including" means including but not limited to. (d) "person" means any individual, sole proprietorship, joint venture, partnership, corporation, company, firm, bank, association, cooperative, trust, estate, government, governmental agency, regulatory authority, or other entity of any nature. 9.3 PARTIES IN INTEREST. The Agreement shall bind, benefit and be enforceable by and against Licensor and Customer and, to the extent permitted hereby, their respective successors and assigns. Customer shall not assign this Agreement or any of its rights hereunder, nor delegate any of its obligations hereunder, without Licensor's prior written consent. Licensor's consent shall not be unreasonably withheld in the case of a proposed assignment to a purchaser of a successor to substantially all of Customer's business, or to an affiliate of Customer, provided that the scope of the license granted hereunder does not change and Customer guarantees the obligations of the assignee. Any change in control of Customer, and any assignment by merger or otherwise by operation of law, shall constitute an assignment to this Agreement by Customer for purposes of this Section 9.3. If Licensor merges with another entity or sells substantially all of its business to another entity (the other entity being referred to as the "Acquiring Entity"), Licensor's rights and obligations assigned in this Agreement will transfer to the Acquiring Entity and Customer will be -11- 12 entitled to continue asserting its rights and obligations under this Agreement against the Acquiring Party. 9.4 RELATIONSHIP. The relationship between the parties created by this Agreement is that of independent contractors and not partners, joint ventures or agents. 9.5 ENTIRE UNDERSTANDING. This Agreement, which includes and incorporates the Schedules referred to herein, states the entire understanding between the parties with respect to its subject matter, and supersedes all prior proposals, marketing material, negotiations and other written or oral communications between the parties with respect to the subject matter of this Agreement. Any written, printed or other materials which Licensor provides to Customer that are not included in the Documentation are provided on an "as is" basis, without warranty, and solely as an accommodation to Customer. 9.6 MODIFICATION AND WAIVER. No modification of this Agreement, and no waiver of any breach of this Agreement, shall be effective unless in writing and signed by an authorized representative of the party against whom enforcement is sought. No waiver of any breach of this Agreement, and no course of dealing between the parties, shall be construed as a waiver of any subsequent breach of this Agreement. 9.7 SEVERABILITY. A determination that any provision of this Agreement is invalid or unenforceable shall not affect the other provisions of this Agreement. 9.8 HEADINGS. Section headings are for convenience or reference only and shall not affect the interpretation of this Agreement. 9.9 JURISDICTION AND PROCESS. In any action relating to this Agreement, (a) each of the parties irrevocably consents to the exclusive jurisdiction and venue of the federal and state courts located in the State of Alabama, (b) each of the parties irrevocably waives the right to trial by jury, (c) each of the parties irrevocably consents to service of process by first class certified mail, return receipt requested, postage prepaid, to the address at which the party is to receive notice in accordance with Section, and (d) the prevailing party shall be entitled to recover its reasonable attorney's fees (including, if applicable, charges for in-house counsel), court costs and other legal expenses from the other party. 9.10 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ALABAMA EXCLUDING CHOICE OF LAW. [SIGNATURE PAGE TO FOLLOW] -12- 13 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed on their behalf on the 4th day of June 1999. REVNET SYSTEMS, INC., an Alabama corporation "LICENSOR" By: [Signature Illegible] ------------------------------------ Its: CEO ------------------------------------ ??????? By: [Signature Illegible] ------------------------------ Its: VP Marketing ------------------------------ YESMAIL.COM, a Delaware corporation "CUSTOMER" By: [Signature Illegible] ------------------------------------ Its: ??? ----------------------------------- ??????? By: [Signature Illegible] ------------------------------ Its: VP ------------------------------ -13- 14 SCHEDULE A TO SOFTWARE LICENSE AGREEMENT DATED AS OF MARCH 31, 1999 - -------------------------------------------------------------------------------- SOFTWARE AND RELATED INFORMATION - -------------------------------------------------------------------------------- SOFTWARE: UnityMail, including UnityPost and API DOCUMENTATION: To be delivered after completion of installation. SPECIFIED CONFIGURATION: n/a - -------------------------------------------- Customer's Name: Yesmail.com --------------------------- -14- EX-10.7 9 EMPLOYMENT AGREEMENT (DAVID M. TOLMIE) 1 EXHIBIT 10.7 Superhighway Consulting, Inc. Employment Agreement Superhighway Consulting, Inc. referred to as EMPLOYER, and David M. Tolmie, referred to as EMPLOYEE, do this 12th day of March, 1999, effective as of January 1, 1999, for and in consideration of the mutual covenants contained herein, the adequacy and sufficiency of which is hereby acknowledged, agree as follows: 1. Title. EMPLOYEE is engaged to act as Chief Executive Officer for Superhighway Consulting, Inc. beginning the date first written above. 2. Employee Manual. As to those items not specified herein, the relationship between the parties shall be governed by the general employment manual, dated December 1, 1998, and any additions and replacements thereto. 3. Compensation. EMPLOYEE's compensation will be comprised of three (3) parts: a. SALARY. As compensation for EMPLOYEE's services herein, EMPLOYEE shall receive an salaried rate of $150,000 per annum. Said salaried rate shall be paid semi-monthly or in consistent compliance with the Superhighway Consulting, Inc. salary compensation policy. b. BONUS. As additional compensation, EMPLOYEE shall be eligible for a bonus based upon performance, of approximately Fifty Thousand and 00/100 Dollars ($50,000.00) annually. The bonus shall be payable in four (4) installments, quarterly, and the payment of such bonus shall be at the discretion of the board of directors of EMPLOYER. c. EQUITY. EMPLOYEE acknowledges EMPLOYER is negotiating to merge with WP Holding, Inc., a Delaware corporation. Upon completion of that merger and upon EMPLOYEE being named permanent Chief Executive Officer of said new company, as further compensation, EMPLOYER will grant EMPLOYEE options to purchase stock in the new company in an approximate amount of 5.54% of the total equity of the new company, as it is then capitalized (and after the close of the contemplated Six Million Dollar equity funding at a Twenty Million Dollar "pre-money" valuation and reservation of additional shares for the employee plan-note if additional capital is raised, the above-referenced percentage will be adjusted pro-rata with other equity interests in the company). The options shall be issued pursuant to the employee option plan of the new company and pursuant to a formal grant letter or option agreement under such plan. Said options shall be qualified options to the extent possible, and otherwise shall be granted in the manner reasonably calculated by EMPLOYER to benefit EMPLOYEE's income tax situation, and without causing detriment to the option plan or EMPLOYER, as a whole. Said options shall be subject to a vesting schedule, whereby options representing two percent (2%) of the new company stock shall vest on December 2 31, 1999 and the remainder shall vest, pro-rata, on the semi-annual vesting dates for thirty (30) additional months (i.e. one-fifth of options vest every six (6) months until full vested June 30, 2002). Notwithstanding the foregoing in the event of a sale of EMPLOYER or substantially all of its assets, EMPLOYEE's options shall vest immediately and in the event of an Initial Public Offering of EMPLOYER's stock, EMPLOYEE's options shall vest seven (7) months after the day EMPLOYER's stock begins trading on a nationally recognized public exchange. All such vesting provisions shall be effective so long as the other conditions pursuant to such stock option plan are met by EMPLOYEE. d. BENEFITS. As additional compensation, EMPLOYEE shall be permitted to participate in the various group benefit plans as EMPLOYER may from time to time adopt to the same extent other employees of EMPLOYER may participate, but subject to income limitations and restrictions, and any other limitations or restrictions based upon EMPLOYEE's particular circumstances, imposed by state, federal or local statute or regulation for participation in such plans. 4. Severance. Upon making EMPLOYEE permanent chief executive officer of the new company, if EMPLOYEE is terminated for a reason other than cause, EMPLOYEE shall receive One Hundred Thousand and 00/100 Dollars ($100,000.00) as severance pay upon such termination. [For the purposes hereof, termination for refusing to transfer to a location more than fifty (50) miles from EMPLOYER's current offices shall not be termination for cause.] 5. Confidentiality. EMPLOYER may from time to time during the course of EMPLOYEES service reveal certain confidential trade secret or proprietary information to EMPLOYEE. EMPLOYEE shall not, in any case, reveal any confidential/trade secret or proprietary information to any other parties. 6. Full Time Employment. EMPLOYEE agrees that the duties herein shall be full time. EMPLOYEE shall not engage in other business ventures or employment deemed direct competitors by the EMPLOYER without the prior approval of EMPLOYER. 7. Intellectual Property of Employer. EMPLOYEE agrees to promptly disclose to EMPLOYER any inventions or processes discovered by the EMPLOYEE which are made at the behest or in connection with the duties of EMPLOYEE, or which are reasonably related to the business of EMPLOYER during the term of employment, and hereby assigns any and all rights in said inventions or processes to EMPLOYER. 8. Execution of Documents. EMPLOYEE shall execute any documents reasonably requested by EMPLOYER for patents or other legal steps which EMPLOYER may desire to take to perfect its rights in any inventions. 9. At-Will Employee. This agreement clarifies certain rights and duties of EMPLOYER and EMPLOYEE. This agreement may be terminated at any time by EMPLOYER, in 3 EMPLOYER's sole discretion. EMPLOYEE recognizes he is employed as an "at-will" employee and that this agreement may be terminated at any time and at EMPLOYER's sole discretion. 10. Non-Competition Provision. EMPLOYEE agrees to refrain from accepting employment, for a period of two months, after termination of this agreement, from firms in direct competition with WebPromote (with exception of banner advertising). 11. Return of Employer Property. Upon termination of this agreement, EMPLOYEE shall return all materials belonging to EMPLOYER. 12. Arbitration. Any disputes under this agreement, including those relating to non-competition shall be submitted to arbitration with a single arbitrator under the rules of the American Arbitration Association. Any ruling made by the arbitrators shall be final and may be entered as a judgment in any court of competent jurisdiction. 13. Non-Solicitation OF CUSTOMERS. EMPLOYEE shall not solicit any customer of the EMPLOYER, including any past customers of the EMPLOYER who have done business with the EMPLOYER during the past three years, to purchase any product or service which could be supplied by the EMPLOYER. 14. Non-Solicitation of Employees. EMPLOYEE shall not solicit any employees of the EMPLOYER to perform any act in contravention of this Agreement or to terminate their employment with the EMPLOYER. 15. Non-Interference. EMPLOYEE shall not take any action to harm the EMPLOYER or its products and shall not take any action, at any time, which is designed to hamper the productivity of the EMPLOYER. 16. Injunctive Relief for Employer. In the event of a breach or threatened breach of this Agreement by EMPLOYEE, the EMPLOYER shall be entitled, in addition to any other relief provided at law or equity, an injunction restraining EMPLOYEE from disclosing confidential information, or soliciting customers or employees. Agreed to and accepted on this 12th day of March 1999. /s/ DAVID M. TOLMIE - ------------------------------------------------ David M. Tolmie /s/ KENNETH D. WRUK - ------------------------------------------------- Superhighway Consulting, Inc., by Kenneth D. Wruk EX-10.8 10 EMPLOYMENT AGREEMENT (DAVID B. MENZEL) 1 EXHIBIT 10.8 WP Holding, Inc. Employment Agreement WP Holding Inc., referred to as EMPLOYER, and David Menzel, referred to as EMPLOYEE, do this 2nd day of April, 1999, for and in consideration of the mutual covenants contained herein, the adequacy and sufficiency of which is hereby acknowledged, agree as follows: 1. Title. EMPLOYEE is engaged to act as Chief Financial Officer, Vice President of Finance and Administration for WP Holding, Inc. (Company) beginning April 26, 1999. 2. Compensation. EMPLOYEE's compensation will be comprised of five (5) parts: a. SALARY. As compensation for EMPLOYEE's services herein, EMPLOYEE shall receive an annual salary at the rate of $140,000 per annum. Said salary rate shall be paid semi-monthly or in consistent compliance with the WP Holding, Inc. salary compensation policy. b. QUARTERLY BONUS. As additional compensation, EMPLOYEE shall be eligible for a bonus, based upon performance, of up to $12,500 per quarter. This bonus shall be payable at the conclusion of each calendar quarter, at the discretion of the Company's Chief Executive Office. This bonus shall be guaranteed for the first four quarters of Employee's employment. c. ANNUAL BONUS. As additional compensation, EMPLOYEE shall be eligible for an annual bonus paid at the discretion of EMPLOYER'S Board of Directors, based on total Company performance. The target range for this bonus in the first year of employment is $20,000 to $50,000, but is not guaranteed. d. EQUITY: EMPLOYER will grant EMPLOYEE Incentive Stock Options to purchase approximately 650,000 shares of common stock, at fair market value on the date of grant (which shall be the earlier of the date of hire or the date of plan established; fair market value shall be subject to approval by the Company's Board of Directors) These options shall represent approximately 1.42% of the fully diluted capital structure of the Company after completion of its proposed $8.0 million financing. The options shall be issued pursuant to the employee stock option plan which shall be documented in a formal grant letter or option agreement under such plan, so long as the other conditions pursuant to such stock option plan are met by EMPLOYEE. e. SPECIAL BONUS. EMPLOYEE shall receive $150,000 to be paid in three equal installments on (1) six months from date of hire, (2) 12 months from date of hire, and (3) 18 months from date of hire. This special bonus shall be paid back to the Company, without interest, to the extent that EMPLOYEE's cash proceeds (less 2 exercise price) from stock options exceeds $500,000, or to the extent that EMPLOYEE recovers severance payments from former employer, up to $150,000, immediately upon EMPLOYEE's receipt of such severance payments. f. BENEFITS. As additional compensation, EMPLOYEE shall be permitted to participate in the various group benefit plans as EMPLOYER may from time to time adopt to the same extent other employees of EMPLOYER may participate, but subject to income limitations and restrictions, and other any other limitations or restrictions based upon EMPLOYEE's particular circumstances, imposed by state, federal or local statute or regulation for participation in such plans. 4. Severance. If EMPLOYEE is terminated "Without Cause", EMPLOYEE shall receive as severance, paid in a lump sum payment, six months Salary and any unpaid amounts pursuant to the Special Bonus. Without Cause shall be interpreted as any reason, including general performance, but shall not include willful misconduct, fraud, gross negligence, or unlawful conduct in the course of carrying out business responsibilities. 5. Confidentiality. EMPLOYER may from time to time during the course of EMPLOYEE's service reveal certain confidential/trade secret or proprietary information to EMPLOYEE. EMPLOYEE shall not, in any case, reveal any confidential/trade secret or proprietary information to any other parties. 6. Full Time Employment. EMPLOYEE agrees that the duties herein shall be full time. EMPLOYEE shall not engage in other business ventures or employment deemed direct competitors by the EMPLOYER without the prior approval of EMPLOYER. 7. Intellectual Property of Employer. EMPLOYEE agrees to prompt disclose to EMPLOYER any inventions or processes discovered by the EMPLOYEE which are made at the behest or in connection with the duties of EMPLOYEE, or which are reasonably related to the business of EMPLOYER during the term of employment, and hereby assigns any and all rights in said inventions or processes to EMPLOYER. 8. Execution of Documents. EMPLOYEE shall execute any documents reasonably requested by EMPLOYER for patents or other legal steps which EMPLOYER may desire to take to perfect its rights in any inventions. 9. At-Will Employee. This agreement clarifies certain rights and duties of EMPLOYER and EMPLOYEE. This agreement may be terminated at any time by EMPLOYER, in EMPLOYER's sole discretion. EMPLOYEE recognizes he is employed as an "at-will" employee and that this agreement may be terminated at any time and at EMPLOYER's sole discretion. 10. Non-Competition Provision. EMPLOYEE agrees to refrain from accepting employment, for a period of two months, after termination of this agreement, from firms in direct competition with WebPromote (with exception of banner advertising). 3 11. Return of Employer Property. Upon termination of this agreement, EMPLOYEE shall return all materials belonging to EMPLOYER. 12. Arbitration. Any disputes under this agreement, including those relating to non-competition shall be submitted to arbitration with a single arbitrator under the rules of the American Arbitration Association. Any ruling made by the arbitrators shall be final and may be entered as a judgment in any court of competent jurisdiction. 13. Non-Solicitation of Customers. EMPLOYEE shall not solicit any customer of the EMPLOYER, including any past customers of the EMPLOYER who have done business with the EMPLOYER during the past three years, to purchase any product or service which could be supplied by the EMPLOYER. 14. Non-Solicitation of Employees. EMPLOYEE shall not solicit any employees of the EMPLOYER to perform any act in contravention of this Agreement or to terminate their employment with the EMPLOYER. 15. Non-Interference. EMPLOYEE shall not take any action to harm the EMPLOYER or its products and shall not take any action, at any time, which is designed to hamper the productivity of the EMPLOYER. 16. Injunctive Relief for Employer. In the event of a breach or threatened breach of this Agreement by EMPLOYEE, the EMPLOYER shall be entitled, in addition to any other relief provided at law or equity, an injunction restraining EMPLOYEE from disclosing confidential information, or soliciting customers or employees. Agreed to and accepted on this the 2nd day of April, 1999. /s/ DAVID MENZEL - ----------------------------- David Menzel /s/ DAVID M. TOLMIE - ----------------------------- WP Holding, Inc. David M. Tolmie, CEO EX-10.9 11 EMPLOYMENT AGREEMENT (MARK D. BOYCE) 1 EXHIBIT 10.9 yesmail.com, inc. Employment Agreement yesmail.com, inc., referred to as EMPLOYER, and EMPLOYEE, referred to as Mark Boyce, do this 27th day of May, 1999, for and in consideration of the mutual covenants contained herein, the adequacy and sufficiency of which is hereby acknowledged, agree as follows: 1. Title. EMPLOYEE is engaged to act as Vice President of Product Management and Operations for yesmail.com, inc. beginning the date first written above. 2. Employee Manual. As to those items not specified herein, the relationship between the parties shall be governed by the general employment manual, dated December 1, 1998, and any additions and replacements thereto. 3. Compensation. EMPLOYEE's compensation will be comprised of three (3) parts: a. SALARY. As compensation for EMPLOYEE's services herein, EMPLOYEE shall receive a salaried rate of $150,000 per annum. Said salaried rate shall be paid semi-monthly or in consistent compliance with the yesmail.com, inc. salary compensation policy. b. BONUS. As additional compensation, EMPLOYEE shall be eligible for a bonus based upon performance, of 25% annually. The bonus shall be based on performance criteria which will be established by the CEO. c. EQUITY. EMPLOYEE acknowledges EMPLOYER is negotiating to merge with WP Holding, Inc., a Delaware corporation. Upon completion of that merger, as further compensation, EMPLOYER will grant EMPLOYEE options to purchase stock in the new company in an amount of 650,000 shares. The options shall be issued pursuant to the employee option plan of the new company and pursuant to a formal grant letter or option agreement under such plan, so long as the other conditions pursuant to such stock option plan are met by EMPLOYEE. d. BENEFITS. As additional compensation, EMPLOYEE shall be permitted to participate in the various group benefit plans as EMPLOYER may from time to time adopt to the same extent other employee's of EMPLOYER may participate, but subject to income limitations and restrictions, and other any other limitations or restrictions based upon EMPLOYEE's particular circumstances, imposed by state, federal or local statute or regulation for participation in such plans. 4. Severance. If EMPLOYEE is terminated for a reason other than cause, EMPLOYEE shall receive six (6) months compensation as severance pay upon such termination. 5. Confidentiality. EMPLOYER may from time to time during the course of EMPLOYEES service reveal certain confidential/trade secret or proprietary information to EMPLOYEE. 2 EMPLOYEE shall not, in any case, reveal any confidential/trade secret or proprietary information to any other parties. 6. Full Time Employment. EMPLOYEE agrees that the duties herein shall be full time. EMPLOYEE shall not engage in other business ventures or employment deemed direct competitors by the EMPLOYER without the prior approval of EMPLOYER. 7. Intellectual Property of Employer. EMPLOYEE agrees to promptly disclose to EMPLOYER any inventions or processes discovered by the EMPLOYEE which are made at the behest or in connection with the duties of EMPLOYEE, or which are reasonably related to the business of EMPLOYER during the term of employment, and hereby assigns any and all rights in said inventions or processes to EMPLOYER. 8. Execution of Documents. EMPLOYEE shall execute any documents reasonably requested by EMPLOYER for patents or other legal steps which EMPLOYER may desire to take to perfect its rights in any inventions. 9. At-Will Employee. This agreement clarifies certain rights and duties of EMPLOYER and EMPLOYEE. This agreement may be terminated at any time by EMPLOYER, in EMPLOYER's sole discretion. EMPLOYEE recognizes he is employed as an "at-will" employee and that this agreement may be terminated at any time and at EMPLOYER's sole discretion. 10. Non-Competition Provision. EMPLOYEE agrees to refrain from accepting employment, for a period of (12) months, after termination of this agreement, from firms in direct competition with yesmail.com, inc. 11. Return of Employer Property. Upon termination of this agreement, EMPLOYEE shall return all materials belonging to EMPLOYER. 12. Arbitration. Any disputes under this agreement, including those relating to non-competition shall be submitted to arbitration with a single arbitrator under the rules of the American Arbitration Association. Any ruling made by the arbitrators shall be final and may be entered as a judgment in any court of competent jurisdiction. 13. Non-Solicitation of Customers. EMPLOYEE shall not solicit any customer of the EMPLOYER, including any past customers of the EMPLOYER who have done business with the EMPLOYER during the past three years, to purchase any product or service which could be supplied by the EMPLOYER for a period of (12) months following separation. 14. Non-Solicitation of Employees. EMPLOYEE shall not solicit any employees of the EMPLOYER to perform any act in contravention of this Agreement or to terminate their employment with the EMPLOYER for (6) months following separation. 3 15. Non-Interference. EMPLOYEE shall not take any action to harm the EMPLOYER or its products and shall not take any action, at any time, which is designed to hamper the productivity of the EMPLOYER. 16. Injunctive Relief for Employer. In the event of a breach or threatened breach of this Agreement by EMPLOYEE, the EMPLOYER shall be entitled, in addition to any other relief provided at law or equity, an injunction restraining EMPLOYEE from disclosing confidential information, or soliciting customers or employees. Agreed to and accepted on this the 4 day of June, 1999. /s/ MARK BOYCE - ------------------------------------------- Mark Boyce /s/ DAVID M. TOLMIE - ------------------------------------------- yesmail.com, inc., by David M. Tolmie, its Chief Executive Officer EX-10.10 12 EMPLOYMENT AGREEMENT (PEDER JUNGCK) 1 EXHIBIT 10.10 yesmail.com, inc. Employment Agreement yesmail.com, inc., referred to as EMPLOYER, and EMPLOYEE, referred to Peder Jungck, do this 15th day of February, 1999, for and in consideration of the mutual covenants contained herein, the adequacy and sufficiency of which is hereby acknowledged, agree as follows: 1. Title. EMPLOYEE is engaged to act as Chief Technology Officer for yesmail.com, inc. beginning on the above listed date. 2. Employee Manual. As to those items not specified herein, the relationship between the parties shall be governed by the general employment manual, dated December 1, 1998, and any additions and replacements thereto. 3. Compensation. EMPLOYEE's compensation will be comprised of three (3) parts: a. SALARY. As compensation for EMPLOYEE's services herein, EMPLOYEE shall receive a salaried rate of $140,000 per annum. Said salaried rate shall be paid semi-monthly or in consistent compliance with the yesmail.com, inc. salary compensation policy. b. BONUS. As additional compensation, EMPLOYEE shall be eligible for a bonus based upon performance, $7,500 quarterly. The bonus shall be based on performance criteria which will be established by the Chief Executive Officer. c. EQUITY. As further compensation, EMPLOYER will grant EMPLOYEE options to purchase stock in yesmail.com, inc. in an amount of 650,000 shares. The options shall be issued pursuant to the employee option plan of yesmail.com, inc. and pursuant to a formal grant letter or option agreement under such plan, so long as the other conditions pursuant to such stock option plan are met by EMPLOYEE. d. BENEFITS. As additional compensation, EMPLOYEE shall be permitted to participate in the various group benefit plans as EMPLOYER may from time to time adopt to the same extent other employee's of EMPLOYER may participate, but subject to income limitations and restrictions, and other any other limitations or restrictions based upon EMPLOYEE's particular circumstances, imposed by state, federal or local statute or regulation for participation in such plans. 4. Severance. If EMPLOYEE is terminated for a reason other than cause, EMPLOYEE shall receive six (6) months compensation as severance pay upon such termination. 5. Confidentiality. EMPLOYER may from time to time during the course of EMPLOYEES service reveal certain confidential/trade secret or proprietary information to EMPLOYEE. EMPLOYEE shall not, in any case, reveal any confidential/trade secret or proprietary 2 information to any other parties. 6. Full Time Employment. EMPLOYEE agrees that the duties herein shall be full time. EMPLOYEE shall not engage in other business ventures or employment deemed direct competitors by the EMPLOYER without the prior approval of EMPLOYER. 7. Intellectual Property of Employer. EMPLOYEE agrees to promptly disclose to EMPLOYER any inventions or processes discovered by the EMPLOYEE which are made at the behest or in connection with the duties of EMPLOYEE, or which are reasonably related to the business of EMPLOYER during the term of employment, and hereby assigns any and all rights in said inventions or processes to EMPLOYER. 8. Execution of Documents. EMPLOYEE shall execute any documents reasonably requested by EMPLOYER for patents or other legal steps which EMPLOYER may desire to take to perfect its rights in any inventions. 9. At-Will Employee. This agreement clarifies certain rights and duties of EMPLOYER and EMPLOYEE. This agreement may be terminated at any time by EMPLOYER, in EMPLOYER's sole discretion. EMPLOYEE recognizes he is employed as an "at-will" employee and that this agreement may be terminated at any time and at EMPLOYER's sole discretion. 10. Non-Competition Provision. EMPLOYEE agrees to refrain from accepting employment, for a period of (12) months, after termination of this agreement, from firms in direct competition with yesmail.com, inc. 11. Return of Employer Property. Upon termination of this agreement, EMPLOYEE shall return all materials belonging to EMPLOYER. 12. Arbitration. Any disputes under this agreement, including those relating to non-competition shall be submitted to arbitration with a single arbitrator under the rules of the American Arbitration Association. Any ruling made by the arbitrators shall be final and may be entered as a judgment in any court of competent jurisdiction. 13. Non-Solicitation of Customers. EMPLOYEE shall not solicit any customer of the EMPLOYER, including any past customers of the EMPLOYER who have done business with the EMPLOYER during the past three years, to purchase any product or service which could be supplied by the EMPLOYER for a period of (12) months following separation. 14. Non-Solicitation of Employees. EMPLOYEE shall not solicit any employees of the EMPLOYER to perform any act in contravention of this Agreement or to terminate their employment with the EMPLOYER for (6) months following separation. 15. Non-Interference. EMPLOYEE shall not take any action to harm the EMPLOYER or its 3 products and shall not take any action, at any time, which is designed to hamper the productivity of the EMPLOYER. 16. Injunctive Relief for Employer. In the event of a breach or threatened breach of this Agreement by EMPLOYEE, the EMPLOYER shall be entitled, in addition to any other relief provided at law or equity, an injunction restraining EMPLOYEE from disclosing confidential information, or soliciting customers or employees. Agreed to and accepted on this the 4th day of June, 1999. /s/ PEDER JUNGCK - ------------------------------------------- Peder Jungck /s/ DAVID M. TOLMIE - ------------------------------------------- yesmail.com, inc., by David M. Tolmie, its Chief Executive Officer EX-10.11 13 EMPLOYMENT AGREEMENT (MICHAEL R. MOORADIAN) 1 EXHIBIT 10.11 WP HOLDING, INC. EMPLOYMENT AGREEMENT WP Holding Inc., referred to as EMPLOYER or Company, and Michael Mooradian, referred to as EMPLOYEE, do this 17th day of April, 1999, for and in consideration of the mutual covenants contained herein, the adequacy and sufficiency of which is hereby acknowledged, agree as follows: 1. Title. EMPLOYEE is engaged to act as Vice President of Sales for WP Holding, Inc. (Company) beginning May 3, 1999. EMPLOYEE shall report to EMPLOYER'S Chief Executive Officer. 2. Compensation. EMPLOYEE's compensation will be comprised of three (3) parts: a. BASE SALARY. As compensation for EMPLOYEE's services herein, EMPLOYEE shall receive an annual base salary at the rate of $150,000 per annum. Said salaried rate shall be paid semi-monthly or in consistent compliance with the WP Holding, Inc. salary compensation policy. b. INCENTIVE BONUS. As additional compensation, EMPLOYEE shall be paid an incentive bonus, based upon achieving Company quarterly sales revenue goals. The incentive bonus program shall include the elements outlined in Exhibit A to this Agreement, with full details and documentation of the plan to be developed jointly by EMPLOYEE and the Company's CEO. The annual target amount paid under the Incentive Bonus for achieving various internal sales goals shall be a maximum of $150,000 as described in Exhibit A. c. EQUITY. EMPLOYER will grant EMPLOYEE Stock Options to purchase approximately 650,000 shares of common stock, at fair market value on the date of the grant (which shall be the earlier of the date of hire or the date of plan established; fair market value shall be subject to approval by the Company's Board of Directors). These options shall represent approximately 1.42% of the fully diluted capital structure of the Company after completion of its proposed $8.0 million financing. The options shall be issued pursuant to the employee stock option plan which shall be documented in a formal grant letter or option agreement under such plan, so long as the other conditions pursuant to such stock option plan are met by EMPLOYEE. EMPLOYER represents that Stock Option plan will have a vesting schedule of 4 years (with semi-annual vesting) and a strike price of no greater than $0.66 per share. d. BENEFITS. As additional compensation, EMPLOYEE shall be permitted to participate in the various group benefit plans as EMPLOYER may from time to time adopt to the same extent other employees of EMPLOYER of similar position within the Company may participate. Such benefit plans include health insurance, 2 dental insurance, 401K plan, which may be modified from time to time. All plans are subject to income limitations and restrictions, and any other limitations or restrictions based upon EMPLOYEE's particular circumstances, imposed by state, federal or local statute or regulation for participation in such plans. Vacation of three (3) weeks per year shall be permitted, with caryover of up to one week permitted with prior approval of CEO. 4. Severance. If EMPLOYEE is terminated "Without Cause", EMPLOYEE shall receive as severance, paid in accordance with Company's payroll schedule, six months Base Salary and continued participation in the Company's insurance plans. EMPLOYEE shall be eligible to participate in insurance plans under COBRA or other similar program which may be applicable at that time. "Without Cause" shall be interpreted as any reason, including general performance, but shall not include willful misconduct, fraud, gross negligence, or unlawful conduct in the course of carrying out business responsibilities. 5. Confidentiality. EMPLOYER may from time to time during the course of EMPLOYEES service reveal certain confidential/trade secret or proprietary information to EMPLOYEE. EMPLOYEE shall not, in any case, reveal any confidential/trade secret or proprietary information to any other parties either during his employment or for a period of one year following termination. 6. Full Time Employment. EMPLOYEE agrees that the duties herein shall be full time. EMPLOYEE shall not engage in other business ventures, activities, or investments in direct competitors which may be determined by EMPLOYER to materially affect EMPLOYEE'S ability to complete his responsibilities, without the prior approval of EMPLOYER. This provision shall not preclude EMPLOYEE from making personal investments in stocks, bonds, and other instruments which are not competitive with the Company's line of business. 7. Intellectual Property of Employer. EMPLOYEE agrees to promptly disclose to EMPLOYER any inventions or processes discovered by the EMPLOYEE which are made at the behest or in connection with the duties of EMPLOYEE, or which are reasonably related to the business of EMPLOYER during the term of employment, and hereby assigns any and all rights in said inventions or processes to EMPLOYER. 8. Execution of Documents. EMPLOYEE shall execute any documents reasonably requested by EMPLOYER for patents or other legal steps which EMPLOYER may desire to take to perfect its rights in any inventions. 9. At-Will Employee. This agreement clarifies certain rights and duties of EMPLOYER and EMPLOYEE. This agreement may be terminated at any time by EMPLOYER, in EMPLOYER's sole discretion. EMPLOYEE recognizes he is employed as an "at-will" employee and that this agreement may be terminated at any time and at EMPLOYEE's sole discretion. Notwithstanding EMPLOYEE'S at-will status, EMPLOYER will pay severance as herein defined upon termination. 3 10. Non-Competition Provision. EMPLOYEE agrees to refrain from accepting employment, for a period of one year, after termination of this agreement, from any employer which is deemed to be in competition with the Company. 11. Corporate Opportunities. EMPLOYEE agrees that any and all corporate opportunities developed EMPLOYEE during his employment by EMPLOYER are deemed confidential information and are the property of EMPLOYER, and shall be relinquished to employer immediately upon termination. 12. Return of Employer Property. Upon termination of employment or otherwise as requested by EMPLOYER, EMPLOYEE shall immediately return all materials belonging to EMPLOYER. 13. Arbitration. Any disputes under this agreement, including those relating to non-competition shall be submitted to arbitration with a single arbitrator under the rules of the American Arbitration Association. Any ruling made by the arbitrators shall be final and may be entered as a judgment in any court of competent jurisdiction. 14. Non-Solicitation of Customers. During employment and for a period of one year after termination, EMPLOYEE shall not solicit any customer of EMPLOYER, including any past customers of the EMPLOYER who have done business with the EMPLOYER during the prior one year, to purchase any product or service which could be supplied by the EMPLOYER. 15. Non-Solicitation of Employees. EMPLOYEE shall not solicit any employees of the EMPLOYER for hire to any other employer, to perform any act in contravention of this Agreement, or to terminate their employment with the EMPLOYER for a period of one year following termination. 16. Non-Interference. EMPLOYEE shall not take any action to harm the EMPLOYER or its products and shall not take any action, at any time, which is designed to hamper the productivity of the EMPLOYER. 17. Injunctive Relief for Employer. In the event of a breach or threatened breach of this Agreement by EMPLOYEE, the EMPLOYER shall be entitled, in addition to any other relief provided at law or equity, an injunction restraining EMPLOYEE from disclosing confidential information, or soliciting customers or employees. Agreed to and accepted on this the 17th day of April, 1999. /s/ DAVID M. TOLMIE /s/ MICHAEL MOORADIAN - ------------------------ ---------------------------- WP Holding, Inc. Michael Mooradian David M. Tolmie, CEO 4 EXHIBIT A OUTLINE OF TERMS FOR INCENTIVE BONUS PLAN As agreed in the Employment Agreement, Michael Mooradian and David Tolmie, CEO, will jointly develop the detailed plan and budget which shall comprise EMPLOYEE'S Incentive Bonus Plan. EMPLOYEE and EMPLOYER agree that the Plan shall include, but not be limited to, the following elements: - EMPLOYEE shall receive Incentive Bonus for meeting quarterly sales revenue budgets. These budgets shall be set to be 25% greater than the Company's financial plan reported to analysts and investors. - EMPLOYEE may be eligible for an additional bonus if Sales Force Targets are substantially exceeded, as may be determined and approved by EMPLOYER'S Board of Directors in its sole discretion. - Incentive Bonus earned shall be determined on a sliding scale which shall be mutually agreeable to EMPLOYEE and EMPLOYER. Unless otherwise agreed to, the scales shall be as follows:
% of Sales Budget Achieved % of Quarterly Bonus Earned -------------------------- --------------------------- 100%- 100% 90-99% 80% 85-89% 65% 80-84% 50% 70-79% 20% 60-69% 10%
- Incentive Bonus shall be earned quarterly (with each Quarter weighed equally as one-fourth of the Annual Incentive Bonus) and paid at the conclusion of each of the Company's fiscal quarters and final quarterly internal accounting for quarterly sales revenues. - Sales revenue targets may be adjusted by EMPLOYER to reasonably account for revenues associated with acquisitions made by the Company and for mix of sales by product type which reflect the Company's strategic emphasis. (For example, a minimum mix of permission email sales revenues as a percentage of total sales shall be established, consistent with the Company's financial plan). - EMPLOYEE understands that his responsibility as Vice President Sales includes 5 using all reasonable efforts to achieve EMPLOYER'S objectives. Although the Incentive Bonus Plan is tied to meeting sales revenue targets, EMPLOYER'S expectations for EMPLOYEE also include the following: operating within approved budget guidelines; building effective sales management, personnel and sales systems for inside and field sales; and working to achieve a positive morale within the sales team and with other executives and employees of the Company. EX-10.12 14 EMPLOYMENT AGREEMENT (TONY PRIORE) 1 EXHIBIT 10.12 yesmail.com, inc. Employment Agreement yesmail.com, inc., referred to as EMPLOYER, and EMPLOYEE, referred to as Tony Priore, do this 3rd day of March, 1999, for and in consideration of the mutual covenants contained herein, the adequacy and sufficiency of which is hereby acknowledged, agree as follows: 1. Title. EMPLOYEE is engaged to act as Vice President of Marketing for yesmail.com, inc. beginning on the above listed date. 2. Employee Manual. As to those items not specified herein, the relationship between the parties shall be governed by the general employment manual, dated December 1, 1998, and any additions and replacements thereto. 3. Compensation. EMPLOYEE's compensation will be comprised of three (3) parts: a. SALARY. As compensation for EMPLOYEE's services herein, EMPLOYEE shall receive a salaried rate of $150,000 per annum. Said salaried rate shall be paid semi-monthly or in consistent compliance with the yesmail.com, inc. salary compensation policy. b. BONUS. As additional compensation, EMPLOYEE shall be eligible for a bonus based upon performance, of 20% annually. The bonus shall be based on performance criteria which will be established by the Chief Executive Officer. c. EQUITY. As further compensation, EMPLOYER will grant EMPLOYEE options to purchase stock in yesmail.com, inc. in an amount of 650,000 shares. The options shall be issued pursuant to the employee option plan of yesmail.com, inc. and pursuant to a formal grant letter or option agreement under such plan, so long as the other conditions pursuant to such stock option plan are met by EMPLOYEE. d. BENEFITS. As additional compensation, EMPLOYEE shall be permitted to participate in the various group benefit plans as EMPLOYER may from time to time adopt to the same extent other employee's of EMPLOYER may participate, but subject to income limitations and restrictions, and other any other limitations or restrictions based upon EMPLOYEE's particular circumstances, imposed by state, federal or local statute or regulation for participation in such plans. 4. Severance. If EMPLOYEE is terminated for a reason other than cause, EMPLOYEE shall receive six (6) months compensation as severance pay upon such termination. 5. Confidentiality. EMPLOYER may from time to time during the course of EMPLOYEES service reveal certain confidential/trade secret or proprietary information to EMPLOYEE. EMPLOYEE shall not, in any case, reveal any confidential/trade secret or proprietary information to any other parties. 2 6. Full Time Employment. EMPLOYEE agrees that the duties herein shall be full time. EMPLOYEE shall not engage in other business ventures or employment deemed direct competitors by the EMPLOYER without the prior approval of EMPLOYER. 7. Intellectual Property of Employer. EMPLOYEE agrees to promptly disclose to EMPLOYER any inventions or processes discovered by the EMPLOYEE which are made at the behest or in connection with the duties of EMPLOYEE, or which are reasonably related to the business of EMPLOYER during the term of employment, and hereby assigns any and all rights in said inventions or processes to EMPLOYER. 8. Execution of Documents. EMPLOYEE shall execute any documents reasonably requested by EMPLOYER for patents or other legal steps which EMPLOYER may desire to take to perfect its rights in any inventions. 9. At-Will Employee. This agreement clarifies certain rights and duties of EMPLOYER and EMPLOYEE. This agreement may be terminated at any time by EMPLOYER, in EMPLOYER's sole discretion. EMPLOYEE recognizes he is employed as an "at-will" employee and that this agreement may be terminated at any time and at EMPLOYER's sole discretion. 10. Non-Competition Provision. EMPLOYEE agrees to refrain from accepting employment, for a period of (12) months, after termination of this agreement, from firms in direct competition with yesmail.com, inc. 11. Return of Employer Property. Upon termination of this agreement, EMPLOYEE shall return all materials belonging to EMPLOYER. 12. Arbitration. Any disputes under this agreement, including those relating to non-competition shall be submitted to arbitration with a single arbitrator under the rules of the American Arbitration Association. Any ruling made by the arbitrators shall be final and may be entered as a judgment in any court of competent jurisdiction. 13. Non-Solicitation of Customers. EMPLOYEE shall not solicit any customer of the EMPLOYER, including any past customers of the EMPLOYER who have done business with the EMPLOYER during the past three years, to purchase any product or service which could be supplied by the EMPLOYER for a period of (12) months following separation. 14. Non-Solicitation of Employees. EMPLOYEE shall not solicit any employees of the EMPLOYER to perform any act in contravention of this Agreement or to terminate their employment with the EMPLOYER for a period of (6) months following separation. 15. Non-Interference. EMPLOYEE shall not take any action to harm the EMPLOYER or its products and shall not take any action, at any time, which is designed to hamper the 3 productivity of the EMPLOYER. 16. Injunctive Relief for Employer. In the event of a breach or threatened breach of this Agreement by EMPLOYEE, the EMPLOYER shall be entitled, in addition to any other relief provided at law or equity, an injunction restraining EMPLOYEE from disclosing confidential information, or soliciting customers or employees. Agreed to and accepted on this the 4th day of June, 1999. /s/ TONY PRIORE - ------------------------------------------- Tony Priore /s/ DAVID M. TOLMIE - ------------------------------------------- yesmail.com, inc., by David M. Tolmie, its Chief Executive Officer EX-10.13 15 EMPLOYMENT AGREEMENT (JOHN G. VANDEGRIFT) 1 EXHIBIT 10.13 EMPLOYMENT AGREEMENT JOHN G. VANDEGRIFT This is an agreement, effective during the period of March 24, 1999 through December 31, 1999, between John G. Vandegrift, an individual residing at 36 Brook Street, Wellesley, Massachusetts 02482, ("Employee") and WP Holding, Inc., of 565 Lake View Parkway, Suite 135, Vernon Hills, IL 60061 ("Company" or "Employer"). 1. Services. Employer wishes to retain the services of Employee to act as a member of its Board of Directors and to perform other duties, including, but not limited to, advising and consulting Employer in strategic and business development matters relative to the Company's List Partner Program, and Employee is willing to provide such services. Employee agrees that during the term of this Agreement, he will render to Employer such services as Employer may request relating to list partner program creation, subscriber acquisition, strategic marketing and business development. 2. Payment to Employee. (a) Base Salary. Employer agrees to pay Employee for such services a base salary of $12,000 for each month of work, which payments shall be made semi-monthly. Subject to the provisions of Section 7 hereof, Employee and Company contemplate this agreement shall expire December 31, 1999. (b) Bonus. Employee shall be eligible for a bonus of up to twenty five percent (25%) of the base salary earned during any calendar quarter for meeting goals which will be reasonably established on or before April 15, 1999 by the Company (the "Defined Goals") for the 2nd (March 24-June 30), 3rd (July 1-Sept. 30) and 4th (Oct. 1-Dec. 31) calendar quarters of 1999. Said goals shall be related to the number of List Management and related agreements, and the number of list subscribers within these agreements. (c) Reimbursement of Costs. Upon adequate substantiation, Employer will reimburse Employee for all travel and related expenses incurred by Employee on Employer's behalf. During the course of rendering services to the Company, it is anticipated that Employee will attend major industry shows, to be approved in advance by Employer, such as PC forum, Internet World, Agenda, and Camp Interactive, which shall be reimbursable expenses. In addition, Employee shall be reimbursed for relocation travel and temporary living expenses incurred in Employee's temporary housing in Chicago, Illinois in an amount of up to $1,000 per month for up to nine (9) months. Employee will be responsible for additional apartment costs, security deposits, insurance, taxes, cable television, local phone and other living type expenses. Employee will provide local transportation (leased vehicle) and be responsible for all operating expenses including lease, fuel, insurance, taxes and additional local 2 transportation charges tolls. (c) Equity. For prior services as a member of the Company's predecessor Board of Directors, Employee will be granted certain options to purchase shares of Common Stock of the Company, or its successor, through the Company's 1999 Stock Option Plan (the "Plan"). For services under this Agreement, Employee will be granted additional options to purchase shares of Common Stock of the Company through the Plan equal to 0.38% of the Company's Common Stock after the proposed Series A Preferred financing. These options will be granted through a grant letter which will be on terms and conditions consistent with other employees and consultants, as determined by the Board of Directors. One half of such options shall vest monthly on a straight-line basis over the term of the Agreement. The remaining one half of such options shall vest, if at all, quarterly if Employee reaches the Defined Goals, on a cumulative basis, for the applicable quarter. In case of a Change of Control of the Company (as defined below), the options shall accelerate in full and become immediately exercisable. The term "Change of Control" shall mean and include any of the following: (i) a merger or consolidation of the Company with or into any other corporation or other business entity in which the Company is the surviving corporation (except one in which the holders of capital stock of the Company immediately prior to such merger or consolidation continue to hold at least a majority of the outstanding securities having the right to vote in an election of the Board of Directors ("Voting Stock") of the Company), or any such merger or consolidation in which the Company is not the surviving corporation; (ii) a sale, lease, exchange or other transfer (in one transaction or a related series of transactions) of all or substantially all of the Company's assets; (iii) the acquisition by any person or any group of persons (other than the Company, any of its direct or indirect subsidiaries, or any trustee, fiduciary or other person or entity holding securities under any employee benefit plan or trust of the Company or any of its direct or indirect subsidiaries) acting together in any transaction or related series of transactions, of such number of shares of the Company's Voting Stock as causes such person, or group of persons, to own beneficially, directly or indirectly, as of the time immediately after such transaction or series of transactions, 50% or more of the combined voting power of the Voting Stock of the Company other than as a result of an acquisition of securities directly from the Company, or solely as a result of an acquisition of securities by the Company which by reducing the number of shares of the Voting Stock outstanding increases the proportionate voting power represented by the voting Stock owned by any such person to 50% or more of the combined voting power of such Voting Stock; (iv) a change in the composition of the Company's Board of Directors following a tender offer or proxy contest, as a result of which persons who, immediately prior to a tender offer or proxy contest, constituted the Company's Board of Directors shall cease to constitute at least a majority of the members of the Board of Directors; and (v) any liquidation, dissolution or winding up of the Company (whether voluntary or involuntary). 3 (d) Benefits. Employee shall be eligible to participate in any health, dental, disability, profit sharing and retirement plans of the Company, established from time to time, in accordance with the rules of such plans and consistent with other employees of the Company, except as limited or restricted due to Employee's salary. 3. IPO Process Involvement. Employer agrees to use its reasonable efforts to include Employee in the Company's activities which are directly related to the process of initiating and completing, if any, the Company's Initial Public Offering. The list of activities and terms under which Employer agrees to include Employee, as practicable and at Employer's sole discretion, is provided on Exhibit A. Employee shall be included in the IPO Process, as provided on Exhibit A, for a period through April 30, 2000, or upon earlier termination of this Agreement as provided elsewhere in the Agreement. 4. Binding Authority. Employee shall have no authority to bind Employer or incur other obligations on behalf of Employer. 5. Intellectual Property. Employee will promptly disclose to Employer each discovery which he reasonably believes may be new or patentable, conceived by him in carrying out the services contracted for herein. Employer shall have the right to file a patent, trade mark or any other application relevant to the intellectual property, at Employer's expense, on each discovery, and Employee agrees to cooperate with Employer and to execute all proper documents at the expense of Employer to enable Employer to obtain patent protection in the United States and foreign countries. 6. Confidentiality In the event Employer discloses information to Employee that Employer considers to be secret or proprietary and so notifies Employee or if Employee reasonably believes such information to be proprietary information, Employee agrees to hold the proprietary information in confidence and to treat such proprietary information with at least the same degree of care and safeguards that he takes with his own proprietary information. Proprietary information shall be used by Employee only in connection with services rendered under this Agreement. Proprietary information shall not be deemed to include information that (a) is in or becomes in the public domain without violation of this Agreement by Employee or (b) is rightfully received from a third entity having no obligation to Employer and without violation of this Agreement by Employee. Employee agrees to return to Company all Proprietary information upon termination of this Agreement. 7. Representations and Warranties of Employee. Employee warrants that he is under no obligation to any other entity that in any way conflicts with this Agreement, that he is free to enter into this Agreement, and is under no obligation to consult for others in matters related to Internet marketing. Employee shall not, during the term of this Agreement, 4 perform services for others in the field of Internet marketing. 8. At-Will Employee. This agreement clarifies certain rights and duties of Employer and Employee. Notwithstanding anything else contained herein, this agreement may be terminated at any time by Employer, in Employer's sole discretion. Employee recognizes that he is employed as an "at-will" employee and that this agreement may be terminated at any time and at Employer's sole discretion. In the event that Employee is terminated for reason other than cause, Employee shall receive 30 days severance of Base Salary and 60 days reimbursement of $1000 per month temporary living expenses. In addition, if David Tolmie ceases to be Company CEO, or if Company determines that it will not pursue List Partner management relationships (which decision shall represent a specific change in Company strategy), Employee shall have the option to terminate this Employment Agreement and receive Base Salary and $1000/month temporary housing allowance for the balance of the term of the Agreement (through 12/31/99). 9. Assignment. This Agreement is not assignable by either party without the consent of the other. 10. Arbitration. Any disputes under this agreement, including those relating to non-competition shall be submitted to arbitration with a single arbitrator under the rules of the American Arbitration Association. Any ruling made by the arbitrators shall be final and may be entered as a judgment in any court of competent jurisdiction. 11. Non-Solicitation of Customers. Employee shall not solicit any customer of the Company, including any past customers of the Company who have done business with the Company during the past three years, to purchase any product or service which could be supplied by the Company. 12. Non-Solicitation of Employees. Employee shall not solicit any employees of the Company to perform any act in contravention of this Agreement or to terminate their employment with the Company. 13. Non-Interference. Employee shall not take any action to harm the Company or its products and shall not take any action, at any time, which is designed to hamper the productivity of the Company. 14. Injunctive Relief for Company. In the event of a breach or threatened breach of this Agreement by Employee, the Company shall be entitled, in addition to any other relief provided at law or equity, an injunction restraining Employee from disclosing confidential information, or soliciting customers or employees. 15. Survival. The provisions of Sections 5, 6 and 9 through 15 hereof shall survive any termination of this Agreement for a period of three (3) years after such termination. Agreed to and accepted on this the 31st day of March, 1999. EX-23.1 16 CONSENT OF ARTHUR ANDERSEN, LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS As independent certified public accountants, we hereby consent to the use of our report (and to all references to our Firm) included in or made part of this registration statement. ARTHUR ANDERSEN LLP Chicago, Illinois June 4, 1999 EX-27.1 17 FINANCIAL DATA SCHEDULES
5 YEAR 3-MOS DEC-31-1998 DEC-31-1999 JAN-01-1998 JAN-01-1999 DEC-31-1998 MAR-31-1999 26,212 83,765 0 0 298,628 366,323 55,871 105,870 0 0 288,317 355,400 523,565 834,458 169,694 227,023 642,938 979,623 2,550,526 3,843,508 639,566 2,435,054 0 0 0 0 2,222 2,500 (2,055,563) (3,206,517) 642,938 979,623 4,583,354 1,388,842 4,583,354 1,388,842 2,702,872 657,398 2,702,872 657,398 0 0 60,076 49,999 45,075 54,616 (1,706,405) (1,151,176) 0 0 (1,706,405) (1,151,176) 0 0 0 0 0 0 (1,706,405) (1,151,176) (0.08) (0.06) (0.08) (0.06)
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