-----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, KIlQ5gTK8XY0MsdAdx/dGmkCfjQV3gNuPv8wqwajaApq8FcWxpGDATW+4W8a1CJJ cBqdQ+zoNurm3ihAOm94NA== 0000940180-00-000220.txt : 20000229 0000940180-00-000220.hdr.sgml : 20000229 ACCESSION NUMBER: 0000940180-00-000220 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 20000228 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LINKSHARE CORP CENTRAL INDEX KEY: 0001103886 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 133967340 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-31262 FILM NUMBER: 555870 BUSINESS ADDRESS: STREET 1: 215 PARK AVENUE SOUTH STREET 2: 8TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10003 BUSINESS PHONE: 6466546000 MAIL ADDRESS: STREET 1: 215 PARK AVE SOUTH STREET 2: 8TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10003 S-1 1 REGISTRATION STATEMENT ON FORM S-1 As filed with the Securities and Exchange Commission on February 28, 2000 Registration No. 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- LINKSHARE CORPORATION (Exact name of registrant as specified in its charter) ---------------- Delaware 7374 13-3967340 (Primary Standard (I.R.S. Employer (State or other Industrial Identification Number) jurisdiction of Classification Code incorporation or Number) organization) LinkShare Corporation 215 Park Avenue South, 8th Floor New York, New York 10003 (646) 654-6000 (Address, including zip code, telephone number, including area code, of registrant's principal executive offices) Joseph E. Young Executive Vice President LinkShare Corporation 215 Park Avenue South, 8th Floor New York, New York 10003 (646) 654-6000 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copies to: Lee D. Charles, Esq. Stephen H. Cooper, Esq. Baker Botts L.L.P. Weil, Gotshal & Manges LLP 599 Lexington Avenue 767 Fifth Avenue New York, New York 10022 New York, New York 10153 Telephone: (212) 705-5000 Telephone: (212) 310-8000 Telecopy: (212) 705-5125 Telecopy: (212) 310-8007 Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date hereof. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box. [_] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. [_] CALCULATION OF REGISTRATION FEE - --------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------
Proposed Proposed Maximum Amount Maximum Aggregate Amount of Title of Each Class of to Be Offering Price Offering Registration Securities to Be Registered Registered Per Share Price(1) Fee - --------------------------------------------------------------------------------- Common Stock, $.001 par value..................... shares $ $57,500,000 $15,180 - --------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------
(1) Estimated solely for purposes of determining the registration fee pursuant to Rule 457(o) under the Securities Act. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +The information in this prospectus is not complete and may be changed. We may + +not sell these securities until the registration statement filed with the + +Securities and Exchange Commission is effective. This prospectus is not an + +offer to sell these securities and it is not soliciting an offer to buy these + +securities in any state where the offer or sale is not permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED FEBRUARY 28, 2000 Shares [LINKSHARE LOGO] Common Stock -------- Prior to this offering, there has been no public market for our common stock. The initial public offering price is expected to be between $ and $ per share. We have applied to list our common stock on The Nasdaq Stock Market's National Market under the symbol "LNKS." The underwriters have an option to purchase a maximum of additional shares to cover over-allotments of shares. Investing in our common stock involves risks. See "Risk Factors" on page .
Underwriting Discounts and Proceeds to Price to Public Commissions LinkShare --------------- ------------- ------------- Per Share.................................. $ $ $ Total...................................... $ $ $
Delivery of the shares of common stock will be made on or about , 2000. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Credit Suisse First Boston Deutsche Banc Alex. Brown Bear, Stearns & Co. Inc. The date of this prospectus is , 2000. ------------ TABLE OF CONTENTS
Page ---- Prospectus Summary....................................................... 1 Risk Factors............................................................. 5 Cautionary Note on Forward-Looking Statements............................ 13 Use of Proceeds.......................................................... 13 Dividend Policy.......................................................... 13 Capitalization........................................................... 14 Dilution................................................................. 15 Selected Financial Data.................................................. 16 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 18
Page ---- Our Business............................................................... 25 Management................................................................. 36 Certain Transactions....................................................... 42 Principal Stockholders..................................................... 44 Description of Capital Stock............................................... 45 Shares Eligible for Future Sale............................................ 49 Underwriting............................................................... 51 Notice to Canadian Residents............................................... 53 Experts.................................................................... 54 Legal Matters.............................................................. 54 Additional Information..................................................... 54 Index to Financial Statements.............................................. F-1
------------ You should rely only on the information contained in this document or to which we have referred you. We have not authorized anyone to provide you with information that is different. This document may only be used where it is legal to sell these securities. The information in this document may only be accurate on the date of this document. Dealer Prospectus Delivery Obligation Until , 2000 (25 days after the commencement of the offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions. i PROSPECTUS SUMMARY This summary highlights information contained in other parts of this prospectus. It is not complete and may not contain all of the information that you may consider important. You should read the entire prospectus carefully, including the financial statements and related notes. Unless otherwise indicated, all information in this prospectus: . assumes a - for-1 split of our currently outstanding common stock immediately before the closing of this offering; . reflects the conversion of all of our outstanding preferred stock and convertible notes into a total of shares of common stock upon the closing of this offering; and . assumes that the underwriters will not exercise their over-allotment option. LinkShare Our Company LinkShare creates and operates networks that enable businesses to form and manage online partnerships with thousands of independent Web sites for a variety of purposes. By combining the reach of our fast-growing networks with the capabilities of our patented LinkShare Synergy(R) technology, we enable online businesses to: . find the right Web sites for their business relationships; . negotiate the terms of their relationships with the publishers of those Web sites; and . evaluate the success of those relationships. Our first network, The LinkShare NetworkTM, enables online merchants to establish performance-based relationships with thousands of Web site publishers who seek to convert visitor traffic into revenues by becoming marketing "affiliates" of those merchants. By providing a quick and easy way to establish hyperlink promotions for merchant members of our network, we enable an affiliate Web site publisher to drive traffic from its site to the merchants' Web sites. If a visitor accesses a merchant's Web site through that hyperlink and takes a prescribed action, such as buying a product, the affiliate earns a fee payable by that merchant. We view The LinkShare NetworkTM as a model for additional networks and applications that we may develop as e-commerce grows. The LinkShare NetworkTM has facilitated more than three million marketing relationships among thousands of participating affiliates and more than 450 merchants, including leading companies like Dell, Toysrus.com, OfficeMax.com, L.L. Bean and CVS.com. In January 2000, we announced the creation of B2B LinkShareTM, a separate affiliate network designed to serve the growing business-to-business e-commerce market that we expect to launch by the end of March 2000. Our Sources of Revenue We receive substantially all of our revenues from fees that we collect from the merchant members of The LinkShare NetworkTM. Our merchant members pay us two types of fees: . licensing fees for the use of our software and access to our network; and . network fees, which are based on: . the volume and dollar amount of sales and other activities generated through their hyperlinks with marketing affiliates, and . charges for optional packages of enhanced software features, support services and back-office services. 1 Our revenue generating potential increases exponentially with the addition of each new member to one or more of our networks since each of our members has the ability to create thousands of online business relationships. Our Market Opportunity According to International Data Corporation, total e-commerce is expected to grow to over $1.6 trillion by 2003. This growth represents both an opportunity and a challenge for online merchants and advertisers seeking a cost-effective method of reaching target audiences dispersed over millions of Web sites. These businesses are expected to increasingly concentrate their online marketing efforts on those Web sites that are best able to reach their target audiences and charge only for results. Forrester Research, Inc. predicts that, by 2003, performance-based marketing will account for 50% of the estimated $17.2 billion of projected annual U.S. online advertising expenditures. The LinkShare NetworkTM provides an efficient, performance-based marketing solution that enables businesses to make better marketing decisions, reduce their customer acquisition costs and generate greater revenue. Our Strategy Our goal is to be the premier provider of open networks that facilitate online commercial activity. Key elements of our growth strategy include: . continuing to add quality merchants and affiliates to our existing networks; . introducing new affiliate networks tailored to meet the needs of identifiable business communities; . adapting our technology and network model to serve the needs of emerging online commercial activity; . continuing to expand and enhance the features and performance of our software and revenue-generating service offerings; and . introducing our network solutions into suitable international markets. Where to Find Us Our principal executive offices are located at 215 Park Avenue South, New York, New York 10003, and our telephone number is (646) 654-6000. Our corporate Web site is located at www.linkshare.com. The information on our Web site is not part of this prospectus. Trademarks and Brand Names LinkShare Synergy(R) is a registered trademark of LinkShare Corporation. We have filed trademark applications for The LinkShare NetworkTM , B2B LinkShareTM and TrafficShareTM. All other brand names appearing in this document are the property of the companies that own them. These companies are not involved with the offering of our common stock. Data Sources This document includes statistical data regarding commerce over the Web. We obtained or derived this data from publicly-available sources, including: . International Data Corporation, a provider of market information and strategic information for the information technology industry; . Forrester Research, Inc., an independent research firm that analyzes technological change and its impact on businesses, consumers and society; and . Nielson/Net Ratings, a provider of market research on Internet usage behavior. Although we believe that the data cited in this prospectus is generally correct, statistical information is inherently imprecise, and you should not place undue reliance on it. 2 The Offering Common stock we are offering...... shares. Common stock to be outstanding after this offering.............. shares. Use of Proceeds................... Working capital and other general corporate purposes. Proposed Nasdaq National Market Symbol........................... LNKS
The common stock to be outstanding after this offering is based on the number of shares outstanding at January 31, 2000, which excludes: . 1,625,399 shares issuable upon exercise of outstanding options at a weighted average exercise price of $9.29 per share; . 951,198 shares issuable upon exercise of options available for grant under our stock option plan; . 41,970 shares of common stock issuable upon the exercise of all of our outstanding warrants; and . shares subject to the underwriters' over-allotment option. 3 Summary Financial Data
Years Ended June Six Months Ended 30, December 31 -------------------- -------------------- 1998 1999 1998 1999 --------- --------- --------- --------- (In thousands, except share and per Statement of Operations Data share data) Licensing fees..................... $ 8 $ 221 $ 45 $ 612 Network fees....................... 39 494 94 2,001 --------- --------- --------- --------- Total revenues................... 47 715 139 2,613 Operating expenses................. 240 4,156 1,205 5,283 --------- --------- --------- --------- Loss from operations............... (193) (3,441) (1,066) (2,670) Interest income (expense), net..... -- 61 28 (531) Net loss attributable to common stockholders...................... $ (193) $ (3,381) $ (1,038) $ (3,201) ========= ========= ========= ========= Basic and diluted net loss per share............................. $ (0.05) $ (0.85) $ (0.26) $ (0.80) Shares used in computing basic and diluted net loss per share ........................ 4,000,000 4,000,000 4,000,000 4,000,000
Balance Sheet Data The following balance sheet data is presented on: . an actual basis; . a pro forma basis to reflect: . the automatic conversion of all outstanding shares of preferred stock into 3,242,148 shares of common stock upon the closing of this offering; . the issuance of convertible notes payable and advances from stockholders from January 1, 2000, through February 7, 2000, for net proceeds of $3,655,000; and . the automatic conversion of all outstanding notes into shares of common stock upon the closing of this offering; and . a pro forma as adjusted basis to reflect our receipt of the net proceeds from the sale of shares of common stock in this offering at an assumed initial offering price of $ per share, after deducting the underwriting discounts and commissions and our estimated offering expenses.
As of June 30, As of December 31, 1999 ------------- ------------------------------ Pro Forma 1998 1999 Actual Pro Forma as Adjusted ------ ------ ------- --------- ----------- (in thousands) Cash, cash equivalents and short-term investments......... $ 4 $ 637 $ 7 $3,662 Working capital (deficit)....... (183) (88) (4,248) 2,252 Total assets.................... 102 1,788 4,752 8,407 Advances from stockholders...... -- -- 345 -- -- Convertible notes payable....... -- -- 2,500 -- -- Total stockholders' equity (deficit)...................... (156) 563 (1,868) 4,632
4 RISK FACTORS An investment in the shares of our common stock offered by this prospectus involves a high degree of risk. This section describes some, but not all, of the risks associated with our business. You should carefully review the following risk factors as well as the other information set forth in this prospectus before making an investment. Risks Relating to Our Business Our limited operating history makes it difficult to evaluate our business and prospects. We launched The LinkShare NetworkTM, our initial and currently most significant service offering, in 1997. With such a limited operating history, our past results do not provide meaningful bases for evaluating an investment in our common stock, and you should not rely on them as indicators of our future performance. You should consider all the risks and difficulties we may encounter as an early stage company in our industry, including: . our ability to establish and maintain sustainable online affiliate networks that generate large and growing volumes of revenue producing transactions; . our ability to gain widespread acceptance of our network solutions by online businesses; and . the new and evolving nature of e-commerce in general. We have incurred substantial losses and anticipate continued losses. Since our inception, we have incurred substantial losses. Our losses were $193,428 for the fiscal year ended June 30, 1998, $3.4 million for the fiscal year ended June 30, 1999, and $3.2 million for the six months ended December 31, 1999. At December 31, 1999, we had an accumulated deficit of $6.8 million. We anticipate that expenditures to develop, market and support our products and services will increase substantially in the future. In particular, we expect to spend significantly on the following activities: . expanding and enhancing our networks and the capabilities of our software systems; . expanding and improving our sales and marketing operations; . broadening our customer support capabilities; . hiring additional management, technical and marketing personnel; and . introducing new networks in international markets and in additional online business communities. For the foreseeable future, we expect to experience additional losses. These additional losses will increase our accumulated deficit. Our future operating results are uncertain and are likely to fluctuate significantly. We expect that our revenues, gross margins and other operating results will fluctuate significantly from quarter to quarter, due to many factors, including: . the rate at which new merchants and marketing affiliates join our networks; . variations in transaction volume generated by new and existing members of our networks; . the volume of our sales of existing or planned products and services, including future versions of software and additional services we may provide to members of our networks; . the rate at which we introduce our networks in international markets and in additional online business communities; 5 . the growth or possible decline of online commerce; . the mix of revenues from our different sources, such as network fees and licensing fees; . changes in our, or our competitors', prices or pricing models; and . the extent to which our network members renew their software licenses and upgrade their support contracts. Although we have experienced revenue growth in recent periods, this growth may not be sustainable. As a result, we do not believe that our historical results of operations are necessarily indicative of future performance. If our results of operations in any period are below the expectations of securities analysts and investors, the trading price of our stock will likely decrease materially. Our success depends on market acceptance of online performance-based marketing. We expect that nearly all of our future revenues will be derived from fees generated by the transactions and other activities taking place over our networks, from sales of services that support those networks and from licensing fees. Our future financial performance depends on the acceptance and growth of our networks and the successful development, introduction and customer acceptance of new and enhanced products and services to support these networks. Failure of the market for online performance-based marketing to develop as we expect, or lack of customer acceptance of our networks, will have a material and adverse effect on our business, results of operations and financial condition. We face intense competition from many companies, some of which have significantly greater resources than we do. The market for online performance-based marketing is new, intensely competitive and rapidly evolving. We expect competition from existing competitors and new market entrants to continue to increase. We believe that our ability to compete depends on many factors both within and beyond our control, including the timing and market acceptance of our, and our competitors', products and services. We compete against companies of all sizes with respect to the products and services we provide, and we expect to face increased competition from some of these companies as they broaden the scope of their products and services. We compete with software/service providers, such as Be Free, Inc., that offer merchants software and services to operate their own private label affiliate marketing programs. These programs can serve as an alternative to the affiliate marketing programs conducted over our open networks. Private label providers, such as Be Free, aggressively market their programs to many of the online merchants that we may target. Be Free has substantially more financial resources than we do and a larger sales force. We also compete against other public network providers, such as Microsoft's LinkExchange and Commission Junction. To some extent, we may also compete against enterprise software providers, ad server companies and companies that have internally developed their own affiliate marketing solutions. Our planned international expansion may be expensive and may not succeed. We intend to expand our operations internationally in future periods by developing networks of online businesses located in foreign countries and by opening international offices and hiring sales, marketing and support personnel in those countries. We have little experience in marketing, selling and supporting our services in foreign countries. As a result, our international expansion may be more difficult or take longer than we anticipate, especially due to language barriers and the less advanced Internet infrastructure that exists in some of these countries. We will need to devote significant management and financial resources to our international efforts. 6 International operations are subject to a variety of additional risks that could seriously harm our financial condition and operating results, including: . currency exchange risks; . difficulties in complying with laws and regulations of different countries; . potentially adverse tax consequences; . tariffs and general export restrictions, including export controls relating to encryption technology; . difficulties in staffing and managing foreign operations; . political instability; . difficulties in enforcing contractual and intellectual property rights in some countries; . seasonal reductions in business activity during the summer months in Europe and certain other parts of the world; and . the impact of local economic conditions and practices. We may need to raise additional financing, which may not be available when we need it or on acceptable terms. We may need to raise more money following this offering. Our future capital requirements will depend on many factors, including, but not limited to: . the rate at which we develop and introduce additional products and services; . the market acceptance and competitive position of our products and services; . the level of promotion and advertising required to market our products and services and attain a competitive position in the marketplace; and . the response of competitors to our products and services. If we require additional funds, these funds might not be available in sufficient amounts or on terms favorable to us or our stockholders. If we raise additional funds through the issuance of common stock, we may issue shares at a price lower than the market price of our common stock at the time of the sale, which may adversely affect the market for our common stock. Risks Relating to Management Managing our rapid growth may be difficult. We are growing rapidly as we develop The LinkShare NetworkTM and our other affiliate networks, increase our product offerings and expand into new markets. Our rapid growth has placed, and will continue to place, a significant strain on our management. Our personnel, systems, procedures and controls may be inadequate to support our future operations. We will need to hire, train and retain additional management and support personnel. We will also need to implement improved billing and collection procedures and financial and management information systems. If we do not adequately address these needs or otherwise effectively manage our growth, it will have a material and adverse affect on our business, operating results and financial condition. We depend on the continued services of our founders and other key personnel, whose knowledge of our business and technical expertise would be difficult to replace. Our products and services are complex, and we are substantially dependent upon the continued services of our senior executives, especially our Chief Executive Officer, Stephen Messer, our President, Heidi Messer, and 7 our key marketing and technical personnel. The loss of any, or a group of, these individuals, particularly to a competitor, could materially and adversely affect our business, financial condition and operating results. We must attract and retain a growing number of skilled employees to develop our business. Our business depends on having highly trained account executives and software developers. We will need to continue hiring additional personnel as our business grows. Competition for personnel, particularly for employees with technical expertise, is intense and the costs of hiring and retaining such personnel are high. Our business, financial condition and operating results will be materially and adversely affected if we cannot hire and retain a sufficient number of suitable personnel. Our management team is new and, if they are unable to work together effectively, our business could be seriously harmed. Our business is highly dependent on the ability of our management team to work together effectively to meet the demands of our growth. We grew from three employees at June 30, 1998, to 97 employees at December 31, 1999. Of our current management team, only seven members were employed by us at June 30, 1999. These individuals have not previously worked together as a management team and have had only limited experience managing a rapidly growing company on either a public or private basis. If they are unable to effectively integrate themselves into our business or work together as a management team, we may not be able to manage our business effectively. Risks Relating to Technology Our rapid growth will place increasing demands on our technology that we may not be able to meet. As traffic over our networks continues to increase, we must expand and upgrade our technology, transaction processing systems and network hardware and software. We may not be able to accurately project the rate of growth of our networks. In addition, we may not be able to expand and upgrade our systems and network hardware and software capabilities at a sufficient pace to accommodate increased use of our networks. If we do not appropriately upgrade our systems and network hardware and software, our business, financial condition and operating results will be materially and adversely affected. Our success depends on our ability to develop new products and keep pace with rapid technological change. Our products are designed to operate on a variety of hardware and software platforms employed by our customers. We must continually modify and enhance our products to keep pace with changes in hardware and software platforms and database technology. As a result, uncertainties related to the timing and nature of new product announcements, introductions or modifications by third party vendors could materially and adversely affect our business, results of operations and financial condition. System failures and security breaches could cause us to lose clients and expose us to liability. Online merchants and their marketing affiliates that participate in our networks depend on us to accurately track, store and report the traffic and sales that are attributable to the links they establish. Software defects, system failures, natural disasters, human error and other factors could lead to inaccurate or lost information or the inability to access our networks. Although we have experienced almost no unplanned system outages in the past, we may experience outages in the future. In addition, members of our networks consider much of the transactional data that we collect and store to be highly sensitive. Our systems could be vulnerable to computer 8 viruses and physical and electronic break-ins, and third parties may attempt to breach our security. Our loss of information, our delivery of inaccurate information or a breach or failure of our security mechanisms that leads to unauthorized disclosure of information could lead to customer dissatisfaction, damage to our reputation and possible claims against us for damages. If we are not able to consistently deliver accurate information to our customers, maintain the security of their confidential information and maintain the availability of our networks, our business will be materially and adversely affected. Undetected defects in our technology could adversely affect our business. Technology as complex as ours may contain errors, defects or performance problems, commonly called "bugs." Although we regularly test our technology, we cannot assure you that our testing will detect every potential defect, error or performance problem. The discovery of a serious software defect, error or performance problem in our technology could result in: . the diversion of scarce resources away from customer service and product development; . lost revenues; . delays in customer acceptance of our products; and . damage to our reputation. Any such result could have a material and adverse effect on our business. Our customers and potential customers may be particularly sensitive to any post- release defects, errors or performance problems because a failure of our systems to accurately monitor an online relationship could result in lost or reduced revenue to the affiliate members of our networks, or overpayment by merchant members, during that failure. We may not be able to protect our intellectual property rights, and we may infringe the intellectual property rights of others. Intellectual property rights are important to our success and our competitive position. Although we seek to protect our intellectual property rights through patents, copyrights, trademark and service mark registration and other means, our actions may be inadequate to protect our technology and our intellectual property rights or to prevent others from claiming violations of their patents, copyrights, trademarks and other intellectual property rights. Patent, copyright and trademark protection may be unenforceable or limited in certain countries. We cannot be certain that any of our intellectual property rights would withstand challenge by a third party or will be of value in the future. The validity, enforceability and scope of protection of certain intellectual property rights in Internet-related industries is uncertain and still evolving. To date, we have not been notified that our technologies infringe the intellectual property rights of third parties, but there can be no assurance that third parties will not claim infringement by us of any past, current or future intellectual property rights. Any such claim, whether meritorious or not, could be time-consuming to defend, result in costly litigation, cause service upgrade delays or require us to enter into royalty or licensing agreements. The actions of the members of our affiliate networks may expose us to liability. We facilitate the formation of partnerships between online businesses and provide means for the delivery of advertisements, promotions and other communications by and between those businesses. We are not party to the contracts formed by these online partners, and we do not and cannot screen all of the communications generated by them or the content of their Web sites. However, because of our role in facilitating our members' online commerce activities, we may be subject to claims based on their actions and face potential liability for defamation, negligence, copyright, patent or trademark infringement and other claims based on their contractual relations or the materials generated by their promotions, displayed on their Web sites or included in their e-mail messages. Consequently, we may be involved in legal proceedings and disputes that we had no way of foreseeing or avoiding and that are costly to resolve regardless of their merit. 9 We depend on a limited number of hardware and software vendors for essential products. We buy and lease hardware, including our servers and storage arrays, from Sun Microsystems Inc. and MTI Corporation. We also license software, including operating systems, Web server technology, database technology, graphical user interface technology and encryption technology, primarily from Sun Microsystems and Oracle Corp. If these vendors change the terms of our lease or license arrangements such that it becomes uneconomical for us to continue using their hardware or software, or if they are unable or unwilling to supply us with the hardware or software we need in the amount and at the time required, our business may be materially and adversely affected until equivalent hardware or software can be identified, procured and integrated into our existing systems. Risks Relating to Our Industry We will not achieve our growth plans unless Internet usage grows and Internet performance is adequate. If electronic commerce does not grow or grows slower than we expect, our business will be adversely affected. Our long-term success depends on widespread market acceptance of electronic commerce, which is subject to a high level of uncertainty. A number of factors could prevent this acceptance, including the following: . Electronic commerce is at an early stage, and buyers may be unwilling to shift their purchasing from traditional vendors to online vendors. . The necessary network infrastructure for substantial growth in usage of the Internet may not be adequately developed. . Insufficient availability of or changes in telecommunication services could result in slower response times. . Adverse publicity and consumer concern about the security and privacy of online transactions could discourage the growth of e-commerce. . Companies may fail to meet their customers' expectations in delivering goods and services sold over the Internet. Governmental regulations and legal uncertainties may adversely affect our business. We are subject not only to regulations applicable to businesses generally, but also laws and regulations directly applicable to electronic commerce. Although there currently are few such laws and regulations, state, federal and foreign governments may adopt a number of laws and regulations that may govern or restrict any of the following issues: . user privacy; . the pricing and taxation of goods and services offered over the Internet; . the content of Web sites; . consumer protection; and . the characteristics and quality of products and services offered over the Internet. Any such legislation or regulation could dampen the growth of the Internet and decrease its acceptance as a commercial medium, in which event the need for our products and services would be reduced seriously and our business, financial condition and operating results would be materially and adversely affected. 10 Risks Relating to this Offering Our management has broad discretion as to how to use the proceeds from this offering. We intend to use the proceeds from this offering for general corporate purposes, including working capital and capital expenditures. Our management will have broad discretion over how we use these proceeds. You will not have the opportunity to evaluate the economic, financial or other information on which we base our decisions regarding how to use the proceeds from this offering, and we may spend these proceeds in ways with which you may disagree. Pending any of these uses, we plan to invest the proceeds of this offering in short-term, investment-grade, interest-bearing securities. We cannot predict whether these investments will yield a favorable return. Our common stock has never been publicly traded, and you may not be able to sell your shares at or above the initial offering price. There has not been a public market for our common stock prior to this offering. We cannot predict the extent to which a trading market will develop or how liquid that market might become. Further, the market price of our common stock may decline below the initial public offering price. The initial public offering price will be determined by negotiations between our management and representatives of the underwriters and may not be indicative of the price at which our common stock will trade in the public market. Internet-related stock prices are especially volatile, and this volatility may depress our stock price. We may be subject to lawsuits as a result of extreme fluctuations in our stock price. Notwithstanding the general volatility of the stock market, the market price of our common stock is likely to be highly volatile as the market for technology and Internet-related companies, in particular, has been highly volatile. Investors may not be able to resell their shares of our common stock following periods of high volatility in the event that trading of our common stock were to be suspended by the exchange on which it trades. The trading prices of shares of many technology and Internet-related companies have reached historical highs within the last 52 weeks. During the same period, prices for the shares of these companies have been highly volatile, and many have recorded lows well below their historical highs. We cannot assure you that our common stock will trade at the same levels of other Internet stocks or that Internet stocks in general will sustain their current market prices. Factors that could cause volatility in the market price of our common stock may include, among other things: . actual or anticipated variations in quarterly operating results; . announcements of technological innovations; . new sales formats or new products or services; . changes in financial estimates by securities analysts; . conditions or trends in the Internet industry; . changes in the market valuations of other Internet companies; . announcements by us or our competitors of significant acquisitions, strategic partnerships or joint ventures; . capital commitments; . additions or departures of key personnel; and . sales of additional shares of our common stock. Many of these factors are beyond our control and may materially and adversely affect the market price of our common stock, regardless of our operating performance. 11 Following a significant decline in the market price of a company's securities, securities class action litigation has often been instituted. If this were to happen to us, even if the claims had no merit, litigation would be expensive and would divert management's attention from the operation of our business. We are controlled by a few major stockholders whose interests may be different than yours. Following the closing of this offering, Stephen Messer and Heidi Messer will beneficially own % and %, respectively, of our outstanding common stock, and our officers and directors collectively will beneficially own %. In addition, Internet Capital Group, Inc. and Comcast Interactive Capital, LP will own % and % respectively. As a result, these stockholders will be able to determine the outcome of any matter requiring a stockholder vote and, as a result, our management and affairs. Matters that typically require stockholder approval include the following: . election of directors; . merger or consolidation with another company; and . sale of all or substantially all of our assets. Internet Capital Group has significant, in some cases controlling, interests in a growing number of businesses engaged in e-commerce. Some of these businesses may be or may in the future become competitors or strategic partners of LinkShare, and conflicts of interest may arise as a result of Internet Capital Group's investment in these or other businesses. An affiliate of Comcast is also a major stockholder of Internet Capital Group. Comcast and its affiliates also hold ownership interests in other businesses that are or may become competitors or strategic partners of LinkShare, which could lead to conflicts of interest. The investment objectives of Internet Capital Group and Comcast may differ from those of other stockholders, including our future public stockholders. The concentration of ownership of LinkShare stock may also delay, deter or prevent a change of control, which could reduce the market price of our common stock. You will experience an immediate and substantial dilution in the book value of your investment. The initial public offering price of our common stock is substantially higher than what the net tangible book value per share of the common stock will be immediately after this offering. If you purchase our common stock in this offering, you will incur immediate dilution of approximately $ in the net tangible book value per share of our common stock from the price you pay for our common stock, based upon an assumed initial public offering price of $ per share. The exercise of outstanding options may result in further dilution. The substantial number of shares that will be eligible for sale in the near future may cause the market price of our common stock to decline. A substantial number of shares of common stock will be available for sale in the public market following this offering, which could adversely affect the market price for our common stock. See "Shares Eligible for Future Sale" for a more detailed description of the eligibility of shares of our common stock for future sale. We have various mechanisms in place to discourage takeovers. Certain provisions of our restated certificate of incorporation and bylaws may discourage, delay or prevent a change in control of LinkShare that a stockholder may consider favorable. These provisions include the following: . authorizing the issuance of "blank check" preferred stock that could be issued by our board of directors to increase the number of outstanding shares and thwart a takeover attempt; . classifying our board of directors with staggered three-year terms, which may lengthen the time required to gain control of our board of directors; 12 . limiting who may call special meetings of stockholders; . prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of the stockholders; and . establishing advance notice requirements for nominations of candidates for election to the board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings. In addition, Section 203 of the Delaware General Corporation Law and our stock option plan may discourage, delay or prevent a change in control of LinkShare. CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements, which involve risks and uncertainties. These forward-looking statements are not historical facts but rather are based on current expectations, estimates and projections about our industry, our beliefs and assumptions. We use words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates" and variations of these words and similar expressions to identify forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. These risks and uncertainties include those described in "Risk Factors" and other parts of this prospectus. You should not place undue reliance on these forward-looking statements, which reflect our management's view only as of the date of this prospectus. USE OF PROCEEDS Our net proceeds from the sale of the shares of common stock in this offering will be approximately $ million, or approximately $ million if the underwriters' over-allotment option is exercised in full, at an assumed public offering price of $ per share and after deducting the underwriting discounts and commissions and our estimated offering expenses. The primary purposes of this offering are to obtain additional working capital, to create a public market for our common stock and to facilitate future access to public equity markets. Although we expect to use the proceeds for working capital, capital expenditures and other general corporate purposes, at the date of this prospectus, we have not allocated the net proceeds of this offering for specific uses. The actual amounts expended for these purposes will vary significantly depending on a number of factors, including revenue growth, if any, and the timing of any expansion of our business. Pending these uses, we will invest the net proceeds of this offering in short-term, investment-grade, interest-bearing securities. DIVIDEND POLICY We have never paid cash dividends on our capital stock. We expect to retain our future earnings, if any, to operate and expand our business, and we do not anticipate paying any cash dividends in the foreseeable future. As a result, our stockholders will need to sell their shares to realize any return on their investment. 13 CAPITALIZATION The following table sets forth our capitalization as of December 31, 1999, on: . an actual basis, . a pro forma basis that reflects: . a -for -1 split of our currently outstanding common stock immediately before the closing of this offering; and . the automatic conversion of all outstanding shares of preferred stock into 3,242,148 shares of common stock upon the closing of this offering; . the issuance of convertible notes payable and advances from stockholders from January 1, 2000, through February 7, 2000, for net proceeds of $3,655,000; and . the automatic conversion of all outstanding notes into shares of common stock upon the closing of this offering; and . a pro forma as adjusted basis that reflects our issuance and sale of shares of common stock in this offering at the initial public offering price of $ per share and our receipt and application of the estimated net proceeds from this offering, after deducting the underwriting discounts and commissions and our estimated offering expenses. Shares of common stock reflected by this table or in the calculation of stockholders' equity do not include: . 1,195,670 shares issuable upon exercise of outstanding options at December 31, 1999, at a weighted average exercise price of $5.69 per share; . 1,380,927 shares issuable at December 31, 1999, upon exercise of options that may be granted under our stock option plan; . 41,970 shares of common stock issuable upon the exercise of all of our outstanding warrants; and . shares subject to the underwriters' over-allotment option. We expect shares of common stock to be outstanding immediately after the closing of this offering. Please read this capitalization table together with the sections of this prospectus entitled "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" as well as the financial statements included in this prospectus.
As of December 31, 1999 ------------------------------ Pro Forma Actual Pro Forma as Adjusted ------- --------- ----------- (in thousands) Cash and cash equivalents....................... $ 7 $ 3,662 $ ======= ======= ======== Advances from stockholders...................... 345 -- -- Convertible notes payable....................... 2,500 -- -- Stockholders' equity (deficit): Preferred Stock, $.001 par value, 3,750,000 shares authorized: Series A convertible preferred stock, 3,250,000 shares authorized, 3,242,148 issued and outstanding actual, none issued pro forma and pro forma as adjusted (liquidation preference of $4 million at December 31, 1999 actual)...................................... 3 -- -- Common stock, $.001 par value, 10,000,000 shares authorized, 4,000,000 shares issued actual, shares issued pro forma and shares issued pro forma as adjusted.......... 4 7 -- Additional paid-in capital.................... 6,779 14,904 -- Deferred compensation......................... (1,879) (1,879) (1,879) Accumulated deficit........................... (6,775) (8,400) (8,400) ------- ------- -------- Total stockholders' equity (deficit).......... (1,868) 4,632 -- ------- ------- -------- Total capitalization............................ $ 977 $ 4,632 $ -- ======= ======= ========
14 DILUTION If you invest in our common stock, your interest will be diluted to the extent of the difference between the public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock. At December 31, 1999, the net tangible book value of our common stock was $4.6 million or $ per share of common stock, on a pro forma basis after giving effect to: . the automatic conversion of all outstanding shares of preferred stock into 3,242,148 shares of common stock upon the closing of this offering; . the issuance of convertible notes payable and advances from stockholders from January 1, 2000, through February 7, 2000, for net proceeds of $3,655,000; and . the automatic conversion of all outstanding notes into shares of common stock upon the closing of this offering. "Net tangible book value" per share represents the amount of our total tangible assets reduced by the amount of our total liabilities, divided by the number of shares of common stock outstanding. At December 31, 1999, the net tangible book value of our common stock, on a pro forma basis as adjusted for the sale of shares offered in this offering and the application of the estimated net proceeds from that sale of $ million, would have been approximately $ per share. This value is based on an assumed initial public offering price of $ per share and the deduction of underwriting discounts and commissions and our other estimated offering expenses. The difference between the pro forma and pro forma as adjusted net tangible book value of our common stock represents an immediate increase of $ per share to our existing stockholders and an immediate dilution of $ per share to new investors who purchase shares in this offering. The following table illustrates this per share dilution: Assumed initial public offering price per share................... $ ---- Pro forma net tangible book value per share as of December 31, 1999........................................................... $ --- Increase per share attributable to new investors................ --- Pro forma net tangible book value per share after the offering.... ---- Dilution per share to new investors............................... $ ====
The following table summarizes on a pro forma basis as of December 31, 1999, the differences between the amounts of the total consideration paid and the average price per share paid by our existing stockholders and amounts paid by the new investors in this offering, based on an assumed initial public offering price of $ per share:
Shares Total Purchased Consideration Average -------------- -------------- Price Per Number Percent Amount Percent Share ------ ------- ------ ------- --------- Existing stockholders................. New investors......................... --- --- --- --- --- Total............................... === === === === ===
After this offering, we may issue additional shares of common stock upon the exercise of options granted under our stock option plan. 15 SELECTED FINANCIAL DATA You should read the selected financial data set forth below in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and the related notes included elsewhere in this prospectus. The statements of operations data for the fiscal years ended June 30, 1998 and 1999 and the balance sheet data as of June 30, 1998 and 1999 are derived from our audited financial statements. The statements of operations data for the six-month periods ended December 31, 1998 and 1999 and the balance sheet data as of December 31, 1999 are derived from our unaudited financial statements. Our unaudited financial statements have been prepared on the same basis as our audited financial statements and, in our opinion, include all adjustments, consisting only of normal recurring adjustments that we consider necessary for a fair presentation of our results of operations and financial condition for the periods and at the date presented. Historical results are not necessarily indicative of results that may be expected for any future period. KPMG LLP, independent certified public accountants, audited our historical financial statements for the fiscal years ended June 30, 1998 and 1999. Their report appears in another part of this prospectus.
Years Ended Six Months Ended June 30, December 31, -------------------- -------------------- 1998 1999 1998 1999 --------- --------- --------- --------- (In thousands, except share and per share data) Statements of Operations Data: Revenues: Licensing fees................... $ 8 $ 221 $ 45 $ 612 Network fees..................... 39 494 94 2,001 --------- --------- --------- --------- Total revenues................. 47 715 139 2,613 --------- --------- --------- --------- Operating expenses: Cost of revenues................. 13 126 17 408 Sales and marketing.............. 41 1,795 430 2,776 Product development.............. 103 621 212 718 General and administrative....... 83 1,412 454 1,130 Noncash compensation............. -- 203 92 251 --------- --------- --------- --------- Total operating expenses....... 240 4,157 1,205 5,283 --------- --------- --------- --------- Loss from operations........... (193) (3,442) (1,066) (2,670) Interest income.................... -- 61 28 18 Interest expense................... -- -- -- (549) --------- --------- --------- --------- Net loss....................... $ (193) $ (3,381) $ (1,038) $ (3,201) ========= ========= ========= ========= Basic and diluted net loss per share............................. $ (0.05) $ (0.85) $ (0.26) $ (0.80) ========= ========= ========= ========= Shares used in computing basic and diluted net loss per share ............................ 4,000,000 4,000,000 4,000,000 4,000,000 ========= ========= ========= =========
16 The following balance sheet data is presented on: . an actual basis; . a pro forma basis to reflect: . the automatic conversion of all outstanding shares of preferred stock into 3,242,148 shares of common stock upon the closing of this offering; . the issuance of convertible notes payable and advances from stockholders from January 1, 2000, through February 7, 2000, for net proceeds of $3,655,000; and . the automatic conversion of all outstanding notes into shares of common stock upon the closing of this offering; and . a pro forma as adjusted basis to reflect our receipt of the net proceeds from the sale of shares of common stock in this offering at an assumed initial offering price of $ per share, after deducting the underwriting discounts and commissions and our estimated offering expenses.
As of June 30, As of December 31, 1999 ------------- ------------------------------ Pro Forma 1998 1999 Actual Pro Forma as Adjusted ----- ------ ------- --------- ----------- (in thousands) Balance Sheet Data: Cash, cash equivalents and short-term investments......... $ 4 $ 637 $ 7 $3,662 Working capital (deficit)....... (183) (88) (4,248) 2,252 Total assets.................... 102 1,788 4,752 8,407 Advances from stockholders...... -- -- 345 -- -- Convertible notes payable....... -- -- 2,500 -- -- Total stockholders' equity (deficit)...................... (156) 563 (1,868) 4,632
17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of our financial condition and results of operations should be read together with our financial statements and the related notes included in another part of this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward- looking statements as a result of certain factors, including, but not limited to, those set forth in the sections of this prospectus titled "Risk Factors" and "Our Business." Overview LinkShare enables the formation of performance-based online business relationships. Participants in our networks can find the right Web sites with which to partner, negotiate the terms of their partnerships and evaluate their success. Our first and largest network, The LinkShare Network(TM), enables online merchants to establish relationships with thousands of Web site publishers who seek to convert visitor traffic into revenues by linking their Web sites with the Web sites of those merchants. If a visitor accesses a merchant's Web site through that link and takes a prescribed action, such as buying a product, the affiliate earns a fee payable by that merchant. We were incorporated on July 1, 1997, and launched The LinkShare Network(TM) later that year. To date, nearly all of our revenues have been derived from the operation of The LinkShare Network(TM). In October 1999, we introduced TrafficShareTM as an additional feature available to members of The LinkShare Network(TM) whose primary goal is increasing traffic to their Web sites rather than generating sales. In January 2000, we announced the creation of B2B LinkShareTM, a separate affiliate network designed to serve the growing online business-to-business market that we expect to launch by the end of March 2000. Our fiscal year ends on June 30 of each year. All references to fiscal years 1998 and 1999 in the discussion that follows refer to the fiscal years ended June 30, 1998, and June 30, 1999, respectively. Sources of Revenue To date, substantially all of our revenues have been derived from two types of fees that we collect from the merchant members of The LinkShare Network(TM): . licensing fees for the use of our software and access to the network; and . network fees, which are based on: . the volume and dollar amount of sales and other activities generated through our merchant members' links with their affiliates, and . charges for optional packages of enhanced software features, support services and back-office services. Access to The LinkShare Network(TM) is free to affiliates, and we currently do not charge any fees for the services we provide to the affiliate members of that network. Merchants pay us an initial license fee upon first signing a contract for the use of our LinkShare Synergy(R) software and access to The LinkShare Network(TM). Merchants subsequently pay a lower renewal fee each year during the term of their respective contracts. Our contracts with merchants generally have terms of up to three years and renew automatically for successive terms of up to two years, unless either party gives notice not to extend. We typically bill each merchant once a month for fees based on the transactions or other activities generated by that merchant's links with its affiliates. We also provide optional support services, such as enhanced software packages, and back-office services, such as e-mail generation and distribution and check disbursement, for which merchants pay us additional fees. To date, these additional fees have represented a minimal portion of our revenue. 18 We defer revenue from licensing fees at the time of software shipment and billing and recognize revenue ratably over the related contractual period during which we provide the applicable merchant with access to our networks. We recognize revenue from network fees during the period in which they are earned or during the period in which the applicable service is provided. We have incurred significant net losses since the commencement of operations. Net losses totaled $193,428 for fiscal year 1998, $3.4 million for fiscal year 1999 and $3.2 million for the six months ended December 31, 1999. At December 31, 1999, we had an accumulated deficit of $6.8 million. We anticipate that we will spend significantly on developing, marketing and supporting our products and services in the future. As a result, we expect to experience additional losses that will increase our accumulated deficit. Comparison of Results of Operation for the Six-Month Periods Ended December 31, 1998 and 1999 Revenues Revenues increased by $2.5 million from $139,313 for the six months ended December 31, 1998, to $2.6 million for the six months ended December 31, 1999. This increase is primarily attributable to an increase in the number of merchants joining The LinkShare Network(TM) and an increase in the volume and dollar amount of sales and other activities generated over the network. At December 31, 1999, we had deferred revenue of $1.1 million relating primarily to licensing fees. Cost of Revenues Cost of revenues consists primarily of expenses incurred in operating The LinkShare Network(TM), including depreciation of servers and related software, Internet connectivity and technical support costs. Cost of revenues totaled $16,544 for the six months ended December 31,1998, compared to $407,826 for the six months ended December 31, 1999. These costs represented 12% of our revenues for the six months ended December 31, 1998, compared to 16% of our revenues for the six months ended December 31, 1999. This increase is attributable to an increase in technical support personnel costs, hosting costs and incremental depreciation associated with the additional computer hardware and software required by the increased activity over The LinkShare Network(TM). Sales and Marketing Sales and marketing expense consists primarily of salaries, commissions and benefits for client development and marketing personnel, and costs associated with participating in trade shows, hosting our symposia, public relations and promotional expenses. Sales and marketing expenses increased by $2.4 million from $430,161 for the six months ended December 31, 1998, to $2.8 million for the six months ended December 31, 1999. This increase is primarily attributable to personnel costs associated with a higher number of employees engaged in sales and marketing and, to a lesser extent, an increase in public relations, advertising and symposia costs. We expect these expenses to continue to increase substantially as we continue expanding our sales and marketing efforts. Product Development Product development expense consists primarily of salaries and benefits provided to employees engaged in our software and new product development. All product development costs have been expensed as incurred. Product development expenses increased by $506,222 from $212,354 for the six months ended December 31, 1998, to $718,576 for the six months ended December 31, 1999. This increase is primarily attributable to increased personnel engaged in product enhancement and new product development, including such new products as TrafficShare(TM) and our soon-to-be-launched B2B LinkShare(TM). We believe that continued investment in software and product development is critical to attaining our strategic objectives, and we therefore expect product development expenses to continue increasing. 19 General and Administrative General and administrative expense consists primarily of employee salaries and benefits for our executive, administrative, finance, human resource and business development personnel, professional fees and bad debt expense. General and administrative expenses increased by $676,216 from $453,724 for the six months ended December 31, 1998, to $1.1 million for the six months ended December 31, 1999. This increase is primarily attributable to increased personnel in our administrative, finance, human resources and business development departments, the addition of new members to our executive management team and the leasing of our additional New York City office space. We expect general and administrative expenses to increase as additional personnel are hired and additional administrative and managerial activities are undertaken consistent with the growth of our business. Noncash Compensation Noncash compensation charges relate to option grants to employees and represent the excess of the fair value of our common stock on the date of option grant over the applicable option's exercise price. The charge is recorded as deferred compensation and expensed over the vesting period of the option. Noncash compensation charges increased by $158,467 from $92,143 for the six months ended December 31, 1998, to $250,610 for the six months ended December 31, 1999. This increase is primarily attributable to the grant of 251,700 options to our employees during the six months ended December 31, 1999. Additional deferred compensation of $8.9 million, resulting from the grant of 471,636 options in January 2000, will be amortized over the applicable vesting period of the relevant options. Interest Income Interest income consists of interest earned on our cash, cash equivalents and short-term investments. Interest income decreased by $9,695 from $28,344 for the six months ended December 31, 1998, to $18,649 for the six months ended December 31, 1999. Interest Expense We had no interest expense for the six months ended December 31, 1998. Interest expense totaled $549,505 for the six months ended December 31, 1999. Interest expense consisted primarily of noncash charges of $519,505 related to the issuance of warrants for the purchase of our common stock, which were issued from August 1999 through December 1999 in connection with the issuance of certain convertible notes on August 23, 1999. The interest charge is equal to the fair value of the warrants at the time of their issuance. Comparison of the Results of Operation for the Fiscal Years Ended June 30, 1998 and 1999 Revenues Revenues increased by $667,207 from $47,494 for fiscal year 1998 to $714,701 for fiscal year 1999. This increase is primarily attributable to an increase in the number of merchants joining The LinkShare Network(TM) and an increase in the volume and dollar amount of sales and other activities generated over the network. Cost of Revenues Cost of revenues increased from $12,968 for fiscal year 1998 to $125,432 for fiscal year 1999. This increase is primarily attributable to an increase in hosting expense and, to a lesser extent, an increase in technical support personnel costs and incremental depreciation associated with the additional computer hardware and software required by the increased activity over The LinkShare Network(TM). These costs as a percentage of revenues decreased from 27% for fiscal year 1998 to 18% for fiscal year 1999. 20 Sales and Marketing Sales and marketing expense increased from $41,026 for fiscal year 1998 to $1.8 million for fiscal year 1999. This increase is attributable to personnel costs associated with a higher number of employees engaged in sales and marketing and increased expenditures for public relations, advertising and symposia. Product Development Product development expense increased by $517,001 from $103,520 for fiscal year 1998 to $620,521 for fiscal year 1999. The increase is primarily attributable to increased personnel engaged in product enhancement and new product development. General and Administrative General and administrative expense increased by $1.3 million from $83,408 for fiscal year 1998 to $1.4 million for fiscal year 1999. This increase is primarily attributable to increased personnel in our administrative, finance, human resources and business development departments and the addition of new members to our executive management team, an increase in professional fees and an increase in bad debt expense. Noncash Compensation We incurred no noncash compensation charges during fiscal year 1998. Noncash compensation charges related to employee stock option grants totaled $203,039 for fiscal year 1999. Interest Income We had no interest income during fiscal year 1998. Interest income totaled $61,102 for fiscal year 1999. Income Taxes We have made no provision for income taxes for the periods presented because we have incurred losses since our inception. At June 30, 1999, we had approximately $3.2 million of Federal net operating loss carryforwards. Our Federal net operating loss carryforwards begin expiring in 2018. 21 Quarterly Statement of Operations Data The following table sets forth statement of operations data for the six quarters ended December 31, 1999. The information for each quarter has been prepared on substantially the same basis as the audited financial statements included elsewhere in this prospectus and, in the opinion of management, includes all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of the results of operations for such periods. Historical results are not necessarily indicative of future results.
Three Months Ended ------------------------------------------------------------------------------------- Sept. 30, 1998 Dec. 31, 1998 Mar. 31, 1999 June 30, 1999 Sept. 30, 1999 Dec. 31, 1999 -------------- ------------- ------------- ------------- -------------- ------------- (in thousands) Revenues: Licensing Fees......... $ 10.1 $ 35.1 $ 65.4 $ 110.2 $ 231.5 $ 379.9 Network Fees .......... 28.1 65.9 110.2 289.7 620.6 1,380.6 -------- ------- ------- --------- --------- --------- Total Revenues........ 38.2 101.0 175.6 399.9 852.1 1,760.5 -------- ------- ------- --------- --------- --------- Operating Expenses: Cost of Revenues....... 4.7 11.9 34.9 74.0 147.3 260.6 Sales and Marketing.... 74.8 355.3 413.7 951.2 1,235.3 1,540.6 Product Development.... 94.2 118.2 179.6 228.6 282.1 436.5 General and Administrative........ 186.7 267.0 373.2 585.3 420.2 709.7 Noncash Compensation... 81.6 10.5 22.7 88.2 115.6 135.0 -------- ------- ------- --------- --------- --------- Total Operating Expenses............. 442.0 762.9 1,024.1 1,927.3 2,200.5 3,082.4 -------- ------- ------- --------- --------- --------- Loss From Operations.... (403.8) (661.9) (848.5) (1,527.4) (1,348.4) (1,321.9) -------- ------- ------- --------- --------- --------- Interest Income......... 14.0 14.3 9.0 23.8 13.0 5.7 -------- ------- ------- --------- --------- --------- Interest Expense........ -- -- -- -- (29.5) (520.0) -------- ------- ------- --------- --------- --------- Net Loss................ $ (389.8) $(647.6) $(839.5) $(1,503.6) $(1,364.9) $(1,836.2) ======== ======= ======= ========= ========= =========
Our operating results have varied on a quarterly basis during our short operating history and may fluctuate significantly in the future. The results of any quarter do not indicate results to be expected for a full fiscal year. Our annual or quarterly results of operations may be below the expectations of public market analysts or investors, in which case the market price of our common stock could be materially and adversely affected. Liquidity and Capital Resources We have financed our operations to date through the private issuance of convertible preferred stock, convertible notes and warrants to purchase our common stock. Through December 31, 1999, net proceeds from financing activities totaled $6.7 million. Net cash provided by operating activities totaled $4,680 for fiscal year 1998 and net cash used in operating activities totaled $2.6 million for fiscal year 1999 and $659,668 and $1.5 million for the six months ending December 31, 1998, and December 31, 1999, respectively. Cash used in operating activities for each period consisted primarily of the cash used to fund operating losses in those periods. Net cash used in investing activities totaled $680 for fiscal year 1998, $1.1 million for fiscal year 1999 and $168,682 and $1.5 million for the six months ending December 31, 1998, and December 31, 1999, respectively. Net cash used in investing activities in these periods consisted primarily of capital expenditures for computer hardware, software and other fixed assets. 22 Net cash provided by financing activities totaled $3.9 million for fiscal year 1999 and $3.9 million and $2.8 million for the six months ending December 31, 1998, and December 31, 1999, respectively. Cash provided by financing activities was obtained primarily through the private issuance of convertible preferred stock, convertible notes and warrants to purchase our common stock. We believe that the net proceeds from this offering, together with our existing cash and cash equivalents, will be sufficient to meet our working capital and capital expenditure requirements for at least the next 15 months. Thereafter, we may be required to raise additional funds. We may also be required to raise additional financing before that time. If additional funds are raised through the issuance of equity securities, our existing stockholders may experience significant dilution. Furthermore, additional financing may not be available when needed or may be available only on terms that are not favorable to us or our stockholders. If additional financing is not available when needed or is not available on acceptable terms, we may be unable to: . develop or enhance our products or services; . take advantage of business opportunities; or . respond to competitive pressures; which could have a material and adverse effect on our business, financial condition or results of operations. On February 7, 2000, we issued $6.5 million principal amount of new convertible promissory notes to our founders and the holders of our Series A Preferred Stock in exchange for (1) notes previously issued to them on August 23, 1999, and November 18, 1999, (2) a waiver of interest accrued on those notes and (3) cash advances made by them prior to and contemporaneously with the issuance of the new notes. Each of the February 2000 notes matures on July 31, 2000, and bears interest at the rate of 6.2% per year, payable upon maturity. Upon the closing of this offering, each of the notes we issued on February 7, 2000, will be converted into a number of shares of common stock determined by dividing the principal amount of those notes plus accrued interest by 80% of the per-share initial public offering price of our common stock. Year 2000 Compliance A critical component of our solutions is the accurate tracking and reporting of activity and transactions within our networks. We believe that all software that we have developed is Year 2000 compliant. We developed a test environment to simulate the change over to the Year 2000, and testing of the programs and procedures related to the processing of data began in March 1999. We tested all of our various operating systems and hardware platforms to ensure that the date change would be handled in a correct manner. We contacted all of our technology partners to insure Year 2000 compliance and tested our desktop computers and office equipment to ensure proper functioning relating to the Year 2000 date change. We developed a contingency plan and related tools to facilitate continued operations in the event of an unanticipated Year 2000 disruption. Our Year 2000 preparedness committee was composed of our Chairman, Chief Information Officer, Chief Technology Officer and Executive Vice President. The committee reviewed our compliance efforts and contingency plans. No significant disruptions were experienced in LinkShare's operations related to the Year 2000 date change. Quantitative and Qualitative Disclosures About Market Risk Our exposure to financial market risk, including changes in interest rates and marketable equity security prices, relates primarily to any investment portfolio we may hold after this offering. We do not plan to reduce or hedge our market exposure on any investment securities because, to the extent we invest in securities, we intend to invest mainly in fixed-rate, short-term securities. We do not intend to buy or sell any derivative securities. All of our outstanding indebtedness at December 31, 1999, was fixed-rate debt. 23 Recent Accounting Pronouncements In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including derivative instruments embedded in other contracts, and for hedging activities. Subsequently, SFAS No. 137 was issued, which deferred the effective date of SFAS No. 133 to all fiscal quarters of fiscal years beginning after June 15, 2000. SFAS No. 133 is not expected to affect LinkShare, as we do not have any derivative instruments or hedging activities. 24 OUR BUSINESS LinkShare creates and operates networks that enable businesses to form and manage online partnerships with thousands of independent Web sites for many purposes, including selling products and services, building brand-recognition and increasing Internet-user traffic. Our networks allow online businesses to find in one convenient, central marketplace a large variety of partners with whom they can link their Web sites. Our clients use our technology and services to create and manage their partnerships and track activities through those links with detailed reports that enable them to evaluate and optimize the performance of their partnerships. Our first network, The LinkShare NetworkTM, offers online merchants and Web site publishers a performance-based marketing solution that maximizes the revenue generating power of their Web sites. The LinkShare NetworkTM enables merchants that sell products or services to consumers over the Internet to select from thousands of other Web site publishers who seek to convert visitor traffic into revenues by becoming marketing "affiliates" of those merchants. A marketing affiliate directs visitor traffic from its own Web site to the merchant's Web site through a hyperlink promotion appearing on the affiliate's site. If a visitor who accesses a merchant's Web site through that hyperlink takes a prescribed action, such as purchasing a product, the affiliate earns a fee payable by the merchant. We view The LinkShare NetworkTM as a model for additional networks and applications that we may develop to take advantage of the growing opportunities offered by the Web. Today, The LinkShare NetworkTM has more than 450 participating merchants, including leading companies like Dell, Toysrus.com, OfficeMax.com, L.L. Bean and CVS.com, and thousands of independent Web sites that are potential marketing partners for those merchants. In January 2000, we announced the creation of B2B LinkShareTM, a separate affiliate network designed to serve the growing online business-to-business market that we expect to launch by the end of March 2000. Currently, online businesses use our networks to manage more than three million online marketing partnerships. Our clients pay us fees that typically are based on the volume and dollar amount of the transactions and other activities generated through these partnerships. Industry Background Growth of Online Commerce Business use of the Web is growing rapidly as new Web-based businesses and traditional businesses increasingly use the Internet as a medium to exchange information and enter into a variety of transactions with customers, suppliers and distributors. This marketplace consists of businesses selling their products and services to consumers, commonly referred to as business-to- consumer commerce, and businesses that use the Web for transactions with other businesses, commonly referred to as business-to-business commerce. In its February 2000 report, International Data Corporation predicted that: . business-to-consumer spending will grow from $58.6 billion in 2000 to $209.1 billion in 2003; and . business-to-business spending will grow from $210 billion in 2000 to $1.4 trillion in 2003. Expansion and Fragmentation of the Internet Marketplace As e-commerce grows, advertisers and direct marketers increasingly use the Web to locate customers, advertise and facilitate transactions. To a large degree, merchants' online marketing efforts are focused on increasing visitors to their Web sites, which is commonly referred to as Web site "traffic." As a result of the disaggregated nature of the Web, merchants face significant challenges in achieving that goal cost-effectively. The proliferation of easy-to-use, low-cost Web publishing tools has led to the creation of millions of Web sites of widely varying content. International Data estimates that the number of Web pages grew from 303.4 million in 1997 to 2.2 billion in 1999. Nielson/NetRatings estimates that, as of December 1999, the top ten major Web sites, such as AOL and Yahoo!, accounted for less than 22% of all page views. As a result, online 25 retailers and Web sites seeking to convert visitor traffic into revenues need a cost-efficient way to reach the vast majority of page views that are outside the major Web sites and dispersed over millions of Web sites. Early Online Marketing Early Web marketing relied primarily on the posting of merchants' banner ads on independent Web sites. A banner is a graphical rectangular box posted on a Web site containing advertising material and a hypertext link that permits a viewer to move from the Web site displaying the ad to the Web site of the advertiser by "clicking on" the banner. Advertisers generally pay Web sites carrying their banner ads fees based on the number of impressions, which is the number of times the Web page displaying the ad is viewed. These fees are usually fixed at a cost per-thousand (CPM) impressions. We believe that traditional banner advertising has proven to be an inefficient method for converting ad viewers into shoppers and, eventually, buyers. Only a few content Web sites attract sufficient traffic to generate significant advertising revenue on a CPM basis, and those few, high-traffic sites charge increasingly expensive rates for their advertising space. We believe that the relative effectiveness of traditional banner ads results from the lack of integration and relevance of traditional banner ads within the content of the Web sites where they are displayed. With the decreasing effectiveness of traditional CPM-based banner advertising, performance-based marketing methods that tie advertising fees to tangible results, such as click-throughs, purchases or registrations, represent the fastest growing segment of the online advertising market. In its August 1999 report, Forrester projects that online advertising spending in the United States will grow from $2.8 billion in 1999 to $17.2 billion in 2003. Forrester further projects that performance-based marketing will grow from 15% of all U.S. online advertising spending in 1999 to over 50% in 2003, creating significant opportunities for performance-based marketing techniques. Emergence of Affiliate Marketing "Affiliate marketing" is a performance-based marketing technique that has emerged in response to the ineffectiveness of early online marketing efforts. In an affiliate marketing program, a business seeking to attract more traffic to its Web site to sell goods or services or for other purposes, broadly referred to as a "merchant," links its Web site to multiple independent Web sites, usually called "affiliates" of that merchant. These links are embedded in an affiliate's site and can take the form of a textual mention, banner ad or other image promoting the merchant or its products. If a visitor to an affiliate site uses the link to move to the merchant's site and takes a prescribed action, such as making a purchase or completing a registration form, the merchant pays a fee to the affiliate. Affiliate marketing enables a merchant to promote itself across thousands of affiliate Web sites, while only paying for promotions that actually produce results. Affiliate marketing enables an affiliate to generate fees by linking its Web site to merchant sites with products or services likely to be of interest to the affiliate's visitors. For most merchants, internally implementing this type of program poses significant challenges. Developing and maintaining the software and systems that provide sophisticated linking, updating and tracking capabilities are expensive and require a high degree of technical expertise. Additionally, merchants must employ and train personnel to manage all aspects of their programs, including the identification and screening of potential affiliates, the negotiation of contracts with potential affiliates and the monitoring of performance. As a result, many merchants seek a cost-effective solution that enables them to reap the benefits of an affiliate marketing program without the costs of self-implementation. We recognized early on the opportunities and challenges facing businesses engaging in online commerce. Our approach was to develop a business model and the technology to facilitate the creation of link-based partnerships over open networks available to any individual, business or group with an address on the Web. Our 1997 launch of The LinkShare NetworkTM to serve the rapidly emerging business-to-consumer market represents the first application of our business model. 26 The LinkShare Solution LinkShare creates and operates open online networks that enable businesses to quickly and easily initiate and monitor multiple relationships through their Web sites. Our networks enable online businesses to: . find appropriate online partners with which to establish relationships; . negotiate a wide variety of relationships and customize their compensation arrangements; . establish links with thousands of Web sites and easily update, remove or replace those links; and . monitor the traffic through those links and promptly obtain comprehensive and detailed reports retrievable from anywhere the Web can be accessed. Our Network Model Our open or "public" network model provides a business that joins one of our networks immediate access to the existing members of the network with whom it can seek to form link-based relationships on mutually agreeable terms. As more businesses join a network, the costs of maintaining that network are spread over the growing pool of network members, and the growing pool of network members becomes an increasingly attractive source of potential business partners to businesses that have not yet joined. We believe our network model can be applied to virtually any situation in which a business has a need to manage relationships with multiple Web sites. We currently operate The LinkShare NetworkTM and expect to launch B2B LinkShareTM by the end of March 2000. The LinkShare NetworkTM is an affiliate marketing solution for businesses engaged in business-to-consumer commerce. B2B LinkShareTM will provide a similar solution for businesses engaged in business-to-business commerce. Within The LinkShare NetworkTM, we also operate TrafficShareTM, an affiliate marketing solution for content sites whose primary goal is increasing traffic to their sites, rather than making sales. Technology and Services Our LinkShare Synergy(R) technology forms the backbone of our network solution. It enables multiple Web sites to form links, track the activity through those links and analyze the results of that activity. Our technology is easy for our clients to implement, produces prompt and comprehensive tracking and reporting information and is highly scalable and flexible. We also have a highly trained staff that provides client support services which enable network members to optimize the benefits of participation in our networks. The LinkShare NetworkTM The LinkShare NetworkTM is the first and, to date, most significant application of our open network solution. It brings together online businesses that participate primarily in business-to-consumer commerce. Online merchants seeking to sell goods or services to consumers can establish promotional links across the thousands of affiliate Web sites that belong to The LinkShare NetworkTM. Both merchant and affiliate members of The LinkShare NetworkTM can easily find and establish relationships with suitable marketing partners and manage multiple link-based relationships using our LinkShare Synergy(R) software and a full suite of support services. Since its launch in 1997, The LinkShare NetworkTM has grown to over 450 merchants who, as of January 2000, had established more than three million link-based relationships with affiliate members of the network. The LinkShare NetworkTM was designed to address the needs of both merchants and affiliates: . Benefits to Merchants . Expansive reach of open networks. Merchants can quickly and easily access and establish cost-effective marketing partnerships with the thousands of eligible affiliates that belong to The LinkShare NetworkTM. . Performance-based compensation. Merchants only pay their affiliates for carrying a promotional link when that link produces a desired result. Our technology gives merchants the flexibility to negotiate a variety of performance-based compensation arrangements with their affiliates, including percentage-of-sales, CPM, per-form and "hybrid" arrangements combining any number of different compensation models. 27 . Low cost and ease of implementation. Merchants can cost-effectively manage multiple online relationships without incurring substantial infrastructure or personnel costs and can analyze the effectiveness of these relationships with prompt, reliable and comprehensive information which can be accessed through any Internet connection. . Flexibility and choice. Merchants can choose from among tiers of service offerings we provide. Our service offerings enable a merchant member of one of our networks to outsource management of its entire affiliate marketing program, only certain functions of its program or none at all. . Benefits to Affiliates . Ability to monetize traffic. Affiliates of all sizes can convert traffic on their Web sites into revenues, even when that traffic is insufficient to attract significant advertising. . One-stop access to quality merchants. Affiliates can quickly and easily access and establish relationships with hundreds of quality merchants in one open network. . Customized compensation arrangements. Affiliates can negotiate individualized compensation arrangements with their merchant partners based on their performance as marketing partners. . Centralized management and tracking. Affiliates can manage multiple online relationships with prompt, detailed information provided by a neutral third party and accessible from any Web connection. Merchants that are members of The LinkShare NetworkTM pay us fees based on the volume and dollar amount of the transactions and other activities generated through their links with their affiliates. They also pay us recurring licensing fees for access to the network and may pay us additional fees for optional software features and service packages that we offer. Participation in The LinkShare NetworkTM is free to affiliates. Our Strategy for Future Growth Our goal is to be the premier provider of open networks that facilitate online commercial activity. Key elements of our growth strategy include: . Attracting New Network Participants. We continually seek to attract additional businesses to our networks. As a network grows, transaction volume over the network increases, as does the pool of network members that can benefit from our products and services. As The LinkShare NetworkTM expands: . each new merchant that joins the network attracts new affiliates by its own brand recognition and individual marketing efforts; and . the growing pool of easy to identify affiliates becomes an increasingly attractive marketing opportunity for merchants not yet in the network. We believe that because of this self-reinforcing cycle, the addition of a single merchant or affiliate increases exponentially the number of new business relationships that may be formed on our affiliate networks. We have teams of employees dedicated to identifying and recruiting new merchants and affiliates to The LinkShare NetworkTM and to our soon-to- be-launched B2B LinkShareTM. These teams focus on those merchants with widely recognized brand names and high sales volumes and on those affiliates with the greatest potential for increasing traffic over our networks. . Introducing New Affiliate Marketing Networks. We intend to leverage the value of our open network model by introducing new affiliate networks catering to identifiable business communities. We may introduce these new networks specifically for a particular business community, as we will do with B2B 28 LinkShareTM, an affiliate network focused on business-to-business e- commerce. By making B2B LinkShareTM a separate network, we will make it easier for business-to-business merchants to find the right affiliates without having to screen out thousands of unrelated consumer-oriented sites. Alternatively, we may identify members of one of our existing networks that have particular business needs and introduce specific products or services to serve these needs. In October 1999, we introduced TrafficShareTM, an affiliate marketing solution for proprietors of advertising-based sites whose primary goal is to drive traffic to their sites in order to maintain or increase the rates they charge advertisers. TrafficShareTM is currently a feature available to all members of The LinkShare NetworkTM, but as the number of businesses using it increases it may become a separate network. Because each additional network or program that we create is modeled upon our existing networks, we can maximize the use of our existing infrastructure. Our technology and systems are highly scalable and can accommodate increased transactional volume that results from the introduction of new networks, products or services. . Adapting Our Technology and Network Model for New Uses. We believe that our patented technology and expertise in operating affiliate marketing networks can be useful in virtually any situation in which businesses need to create and manage link-based relationships among multiple Web sites, track activities through those links and receive detailed reports on the performance of partners in those relationships. As e-commerce continues to grow and evolve, we plan to pursue emerging opportunities to apply our technology and network model for other uses. . Expanding and Enhancing our Products and Services. We seek to develop new revenue opportunities by introducing premium software features and service packages to existing members of our networks for which we can charge additional fees. . Introducing Our Solution to International Markets. Just as we can introduce our network model to additional business communities, we can also introduce it to additional geographic markets. We intend to identify suitable international markets for expansion. Our strategy for each international market we enter may be different, depending on such factors as language, culture and local conditions. We may, for example: . directly operate affiliate networks in some markets; . form joint ventures with strategic local partners; or . license our solution to a third party to operate in a designated market. Products and Services Networks and Programs
Name Launch Date Focus ---- ------------ ----- The LinkShare NetworkTM... July 1997 A network of online businesses engaging primarily in business-to- consumer commerce. TrafficShareTM (currently part of The LinkShare October 1999 A program within The LinkShare NetworkTM)............... NetworkTM serving online businesses whose primary objective is to increase traffic to their Web sites, such as portals and large content sites that derive most of their revenue by selling advertising space on their sites. B2B LinkShareTM .......... March 2000 A network of online businesses (proposed) engaging primarily in business-to- business commerce.
29 Affiliate members of our networks can access and manage multiple merchant partnerships in all of the networks they join from a single password-protected Web site. Merchant members of one network can easily join another network without any new learning time or significant additional infrastructure costs, although we may charge them an additional licensing fee. We believe that our open network platform is superior for most merchants; however, as an adjunct to our open networks, we offer a private label option for merchants who prefer to manage some partnerships separately from their participation in the open network. Merchants using the private label option pay an additional fee to us for each affiliate recruited into their marketing program from the open network. Technology LinkShare Synergy(R). LinkShare Synergy(R) software is the platform on which we build all of our affiliate networks. We believe LinkShare Synergy(R) is the most secure, accurate and easy-to-use software available for affiliate marketing solutions. Use of LinkShare Synergy(R) is included in the network access fees we charge our merchants. Features of LinkShare Synergy(R) include: Web-Based Technology: . Network participants have immediate access to a full suite of services from any Internet connection. . It requires minimal infrastructure installation because most of the requisite software resides on our servers. . All upgrades occur automatically. . Merchants can update product displays, promote seasonal or limited-time-only offers and replace underperforming links across all affiliate sites with one-click updates. . Affiliates with multiple Web sites can track activity and update links across all sites through a single interface. Full Suite of Software Tools: . SmartReports. Network members can monitor the performance of their relationships online through detailed and aggregate data and automated reports that can be delivered by e- mail on specified days. . V-Link. Affiliates can include links to a merchant's site directly in e-mails and send them to potential customers. . Grouping. Merchants can segment or group their affiliate partners and target those segments or groups with individualized e-mails and special offers. . Team Meeting. Merchants can send and receive mail and distribute newsletters over our internal e-mail system or to external addresses, all from one centralized interface. . E-mail Thank You Notes. Automatic e-mailing capabilities allow affiliates to send thank you notes to customers who make purchases on the sites of merchant partners through the affiliate's link. Flexibility: . CustomComp. Merchants can reward or compensate different partners in different ways, such as percentage of sale, CPMs, click-throughs, completed forms, flat fees, return days, monthly minimums or any combination of models. . OpenServe Technology. Merchants can work with any ad-serving technology a merchant chooses, including LinkShare's, through a simple drop- down menu in the interface. 30 LinkShare Synergy Expert. We offer the LinkShare Synergy Expert software to our merchant members for a fixed monthly fee. This optional software package offers an expanded set of tools and features including: . SmartTarget. Merchants can recruit particular affiliates by sending targeted e-mails to affiliates within the network based on almost any criteria, such as site type, geographical region and key word. . Affiliate Content Spider. A "control spider" software feature patrols affiliate sites automatically, according to a merchant's instructions, to detect the use of prohibited words, such as a competitor's name or offensive language, or to notify the merchant if an affiliate frames the merchant's site without permission. . SmartChat. Merchants can schedule chat sessions with affiliates and potential affiliates over the network. Services and Support We work closely with the members of our networks to help them optimize the value of their affiliate marketing programs. Our members can contact us with their questions and problems via toll-free telephone number, e-mail and live online chat sessions. When new merchants join our networks, we provide them with four hours of free technical support and software training. Additional support or training is available at hourly rates to merchants that do not subscribe to one of our optional support packages described below. We also provide other back-office services, such as e-mail generation and distribution, check disbursement and 1099 form distribution, for which we charge fees on a per-message, per-check or per-form basis. Merchant members may subscribe to one of our tiered customer service packages: . AE Support. AE Support is designed to help merchants generate better response rates by providing analyses of their affiliate marketing programs and trends in marketing over the Web. Each merchant that subscribes to AE Support is assigned a dedicated account executive to assist with initial launch and marketing strategy and participate in weekly discussions and six-month formal reviews of the merchant's overall program. We provide AE Support free of charge to merchants who generate specified transaction volumes over our network, and for a fixed monthly fee in the case of merchants that do not achieve the monthly minimum. . Client Services. Our Client Services package provides subscribing merchants with more comprehensive and in-depth services designed to optimize the results of their affiliate marketing programs. This service package includes assistance with Web affiliate acquisition and approval, affiliate relationship development and management, product merchandising, cooperative advertising purchases and back-office services. Our Client Services package, when combined with our affiliate payment and other back-office service options, permits a merchant to outsource to us responsibility for managing virtually all aspects of its affiliate marketing program. We typically charge a fixed monthly fee for this package and require a subscription for a minimum number of months. We also provide services tailored to meet the needs of our affiliate members: . Signature Affiliates. Some of our network affiliates operate loyalty- building programs that permit visitors who make a purchase from LinkShare merchants with whom those affiliates have links to receive personal rewards or credits based on the amount of the purchase. Other affiliates make charitable contributions based on visitor purchases from linked merchants. Our technology permits us to track transactions through the links those affiliates have with our merchants down to the level of individual transactions, so that the appropriate amounts can be credited to visitors or contributed to the sponsored charity. . Best Practices. We continually consult with our affiliates to learn the best ways to make our networks work better for them. We organize online chat and person-to-person conferences among network participants, and we recently completed a comprehensive review of the affiliates in The LinkShare NetworkTM that generate high levels of sales or other compensated activities for their merchant partners to identify factors that contribute to their success. We are implementing programs that will permit other affiliates to institute the best practices we have identified as a result of that review. 31 Customers Our clients include: . businesses selling products and services to consumers and businesses over the Web; . portals and major content sites seeking to generate advertising revenue; and . Web publishers that partner with these businesses. Merchants in our networks include companies with high brand recognition and significant sales volumes both on and off the Web, as well as medium-sized and some small merchants. We devote particular attention to recruiting large online merchants or merchants that are recognized leaders in their industries. Our goal is to offer members of our networks a selection of potential online business partners that includes a variety of companies within each major product or service category. Currently, the vast majority of our clients are the merchant members of The LinkShare NetworkTM and their affiliate partners who are engaged primarily in business-to-consumer e-commerce. The table below lists some of the merchant members of The LinkShare NetworkTM. In addition, during February 2000, we signed agreements with several new merchants, including priceline.com and BlueLight.com (Kmart's online store). Borders.com Hallmark Outpost.com CarsDirect.com ibeauty.com Petopia.com CVS.com JCPenney SharperImage.com Dell L.L. Bean Sony Music Direct flooz.com Lands' End Toysrus.com FragranceNet.com OfficeMax.com Verio FreeShop.com OmahaSteaks.com WeddingChannel.com FTD.com OurHouse.com Wine.com
Typically, merchants in our networks enter into written agreements with us for terms of up to three years that renew automatically for successive terms of up to two years, unless either party gives notice not to extend. We generally provide limited warranties concerning our system performance and protection for our customers from infringement claims. Participating merchants agree to exclusively use our networks and technology for sales affiliate programs, but we sometimes permit merchants to maintain pre-existing relationships, to use their own internal tracking systems for limited purposes or to enter into business development deals with some Web affiliates. Participating affiliates in our networks can discontinue their participation at anytime. They agree to abide by standard terms of network membership by completing an online agreement when they register with us, either at our Web site or at the affiliate recruitment page of the Web site of one of our merchant members. Sales and Marketing Client Development Our merchant development teams, located in New York City, San Francisco, Chicago and Los Angeles, actively identify and recruit new merchants into our networks. Our Client Services team, located in Denver, and our account executives, located primarily in New York City, support our merchant development teams to market our tiered customer support offerings. We also have an affiliate development team, located in New York City, that actively identifies and recruits new affiliates. All affiliate members of our networks are affiliates of LinkShare, and we pay them commissions if they recruit qualified new affiliates into one of our networks. 32 LinkShare Symposia We sponsor periodic LinkShare Symposia in various locations in the United States and abroad to which we invite a broad spectrum of the e-commerce community as well as merchant and affiliate members of our networks. Prominent industry figures speak on topics of general interest, and we organize closed sessions at which our merchants and affiliates get special training and information that will help them optimize their use of our solutions and share the best practices that have been developed by the most successful members of our networks. These symposia enable us to market our solutions to potential clients and to strengthen our relationships with the members of our networks. Attendance has continued to increase since our first Symposium, with over 600 people attending our February 2000 Symposium in San Francisco. Advertising and Promotion We also market our networks and build awareness of the LinkShare brand through advertisements within trade and other publications, trade show participation and other media events and promotional activities. Technology Infrastructure Our Software and Patented Processes We have built scalable user interfaces and processing systems that are based on internally-developed proprietary LinkShare Synergy(R) software. Our network solutions are Web-based, and there is only a small amount of software for our merchants to install. The bulk of our software resides on our own servers, which minimizes both the amount of work and hardware needed by merchants and Web affiliates to use our solutions and reduces the risk of theft or other unauthorized copying of our software. To create links on their Web sites, Web affiliates log in to our systems and then simply "cut and paste" the necessary code into their Web sites. We work with our members to ensure that they successfully integrate our technology, and we perform tests to guarantee that the tracking mechanism is accurate and timely. In December 1999, LinkShare was granted U.S. Patent No. 5,991,740 covering "Data Processing System for Integrated Tracking and Management of Commerce Related Activities on a Public Access Network." The patent is directed to the system supporting our affiliate program. It claims a computer system linked to an array of network-based businesses so that commerce generated by these businesses may be properly tracked and quantified for reporting purposes. The patent covers an enhanced programming capability for creating network-based promotional arrangements and accurately tracking commerce governed by these promotional arrangements in a non-intrusive manner. While patents issued by the United States Patent & Trademark office enjoy a presumption of validity, we cannot assure you that our patent is valid. Our Computer Systems Our computer systems handle all aspects of our networks, including: . the maintenance of our Web site; . the formation of links; . the collection of new member registration information; and . the collection and processing of transaction data needed to furnish reports to merchants and affiliates. Our computer systems are built around industry standard architectures and are designed to reduce downtime in the event of outages or catastrophic occurrences. Over the past year, our systems have experienced minimal unplanned downtime. The servers for our networks provide 24 hour a day, seven day a week availability, subject to short maintenance periods. During maintenance of our administrative systems, our members are not able to run reports and perform other administrative functions, but all e-commerce activity continues to function normally. We are currently developing a solution that will allow us to perform routine maintenance on our administrative systems without disrupting our members' access to administrative functions. We expect this solution to be in place in the second quarter of 2000. 33 Scalability, Availability and Reliability Our system infrastructure has been engineered to provide maximum reliability and availability. We have divided our systems into two groups to make each group operate at the highest level of availability and to provide the infrastructure with scalability. The first group, which we refer to as the "front-end," is responsible for tracking and all related functions that link merchants with their affiliates. The second group, which we refer to as the "back-end," is responsible for all administrative tasks, including participant registrations, reporting and merchant and affiliate program maintenance. The front-end systems consist of multiple Intel-based computers running the Linux operating system. These systems are controlled by redundant geographical load balancing hardware, and are designed to handle excess loads placed on them. Since the front-end is designed to function independently of the back- end, any disruptions to the back-end will have no effect on the front-end. The back-end systems run on a combination of Sun Solaris-based systems and Intel-based multi-processor systems running the Linux operating system. Our systems allow for quick growth and scalability by enabling us to easily add additional servers on the back-end for reporting and other administrative purposes. Since our software is based on industry standards, we are able to take advantage of new advances in hardware and software in a timely and efficient manner. We are currently replicating our back-end data over multiple machines located in geographically dispersed data centers to provide a greater degree of redundancy in the event of disaster and to distribute the workload across multiple systems and improve network performance. Our system hardware is hosted at the Exodus Communications facility in Harborside, New Jersey. We also maintain servers at hosting facilities in Weehawken, New Jersey, New York City, New York, Santa Clara, California and London, England. Our use of two providers of hosting facilities and the dispersion of our servers over multiple sites in different regions is intended to provide redundancy in the event of a natural disaster or other event affecting any one facility or region. Our hosting facility providers are contractually obligated to maintain redundant high-capacity Internet connections, communications lines, emergency power backup, climate-control, fire protection, seismic reinforcement and continuous security surveillance. We regularly test and maintain the multiple connections between our servers, and regularly test the connections between our network data centers and the Internet. Our engineering and hosting center personnel monitor traffic patterns and congestion points and reroute traffic flows to reduce end-user response times. Competition The market for affiliate marketing solutions, which at present is our only line of business, is new, rapidly evolving and highly competitive. We compete against companies of all sizes with respect to the products and services we provide, and we expect to face increased competition from some of these companies as they broaden the scope of their products and services. We compete with software/service providers, such as Be Free, Inc., that offer merchants software and services to operate their own private label sales affiliate programs. These programs can serve as an alternative to the sales affiliate programs conducted over our networks. Private label providers, such as Be Free, aggressively market their programs to many of the online merchants that we may target. We believe that our network model is superior to private label programs, although some online merchants have expressed a preference for this structure. For those merchants, we offer a private label option as an adjunct to membership in our open networks. We also compete against other providers operating forms of open networks, such as Microsoft's LinkExchange and Commission Junction. We believe that LinkExchange currently focuses on providing exchange services for banner ads rather than full scale affiliate networks. We believe that Commission Junction provides its affiliate programs primarily to smaller and midsize merchants. 34 To some extent, we also compete with companies that have internally developed their own affiliate marketing solutions and with independent software solution providers. Users of third-party software solutions must develop and maintain databases and servers to track the performance of their marketing channels. We may also compete with companies that provide banner ad services, which may be considered an alternative marketing solution. However, participants in our networks are able to use any ad serving technology they choose. We believe that the principal competitive factors in our market include: . the ease of use of the system; . the flexibility and scalability of solutions; . technological features; and . the quality, comprehensiveness and value of available services. We compete with other affiliate marketing providers by: . emphasizing the benefits of using an open network model over a software/service model or private label program; . providing our network members with state-of-the-art technology, such as our individualized customer service; . providing increasingly comprehensive, cost-effective and easily managed solutions; and . requiring our merchant members to use LinkShare as their exclusive provider for affiliate networks and related technology. Employees At February 24, 2000, we had a total of 139 employees, none of whom are unionized. From time to time, we also employ independent contractors to supplement our development staff. We believe our relations with our employees are good. Facilities Our headquarters are located in 15,000 square feet of office space that we occupy in New York City under a lease expiring in December 2000. Some of our personnel are based in 2,370 square feet of separate office space in New York City that we use under a lease expiring in August 2001. Under a lease expiring in September 2003, we rent 5,800 square feet of office space in San Francisco, where we base regional sales and marketing staff. Our Client Services program is managed from our Denver office, which occupies 5,458 square feet of space under a lease expiring in December 2000. We have one sales person based in Chicago and one sales person based in Los Angeles, each of whom works in home office space. In the future, we may lease additional space as needed. Legal Proceedings From time to time, we may be involved in litigation incidental to the conduct of our business. We are not currently a party to any legal proceedings. 35 MANAGEMENT Executive Officers, Key Employees and Directors The following table sets forth our executive officers, key employees and directors, their ages and the positions they held at February 28, 2000, except in the case of Messrs. Gilligan and Pompadur, who have agreed to join our board of directors effective upon the closing of this offering:
Name Age Position ---- --- -------- Stephen D. Messer............ 28 Chairman of the Board, Chief Executive Officer and Director Heidi S. Messer.............. 30 President, Secretary and Director Bowers W. Espy............... 49 Senior Vice President, Chief Financial Officer and Treasurer Jianhao Meng................. 30 Senior Vice President and Chief Technology Officer Richard S. Okin.............. 42 Vice President and Chief Information Officer Joseph E. Young.............. 51 Executive Vice President, Business and Legal Affairs Pamela A. Codispoti.......... 34 Senior Vice President, Marketing and Communications Cheryl C. Ho................. 27 Senior Vice President, Product Development Jodi B. Brenner.............. 37 Vice President, Business Development Bruce R. Gilburne............ 37 Vice President, Sales Catherine L. McCall.......... 42 Vice President, Client Services Wendy N. Salomon............. 32 Vice President, Marketing Douglas A. Alexander......... 38 Director Edward P. Gilligan........... 40 Director I. Martin Pompadur........... 64 Director
Stephen D. Messer co-founded LinkShare and has been a director since our inception. He was our Chief Executive Officer from inception until April 1999 and resumed that position in July 1999. Prior to founding LinkShare, Mr. Messer was the Assistant Director of the Columbia University Institute of Tele- Information from May 1996 to May 1997. He continues to serve as an Affiliated Research Fellow at the Institute. Mr. Messer holds a J.D. from the Benjamin Cardozo School of Law at Yeshiva University in New York and a B.A. degree from Lafayette University in Pennsylvania. He is the brother of Heidi S. Messer. Heidi S. Messer co-founded LinkShare and has been a director and our President since our inception. From October 1995 to May 1997, Ms. Messer was associated with the law firm of Baker Botts L.L.P. Ms. Messer holds a J.D. from Harvard Law School and a B.A. from Brown University. Ms. Messer has served on the board of shop.org, a trade association focused on Internet retailing, since February 1999. She is the sister of Stephen D. Messer. Bowers W. Espy has served as a Senior Vice President and our Chief Financial Officer and Treasurer since January 2000. From 1983 to 1995, Mr. Espy served in various senior management positions at Merrill Lynch & Co., including Managing Director--Investment Banking, Co-head Depository Institutions--Mergers and Acquisitions. Prior to joining Merrill Lynch, from 1981 to 1983, he served as Deputy Director for Financial Analysis and Policy Research for the Federal Home Loan Bank Board in Washington, D.C. After departing Merrill Lynch in 1995 and until joining LinkShare, Mr. Espy was primarily retired, but served as a consultant to various Internet-related companies. Mr. Espy holds a M.A. in Economics and a B.S. in Business Administration from the University of Florida. Jianhao Meng co-founded LinkShare and has been our Chief Technology Officer since our inception. He became a Senior Vice President of LinkShare in January 2000. Mr. Meng was a graduate research assistant at the Center for Telecommunications Research at Columbia University from 1993 to August 1998. Previously, Mr. Meng worked as a programmer at Ernst & Young, LLP from 1992 to 1994 and a system engineer at Computers & Communications, Inc. from 1990 to 1992. Mr. Meng holds an M.S. in Electrical Engineering from Columbia University. He is currently pursuing his Ph.D. in Electrical Engineering from Columbia University. 36 Richard S. Okin has been our Chief Information Officer since February 1999. He became one of our Vice Presidents in January 2000. From January 1993 to February 1999, Mr. Okin was with TIR Securities, first as a consultant and then as Director of Software Development. Mr. Okin holds an A.B. from Vassar College and has completed graduate work at Sloan Kettering Memorial Cancer Center in the field of Biochemistry. Joseph E. Young has served as our Executive Vice President, Business and Legal Affairs since September 1999. Prior to joining LinkShare, Mr. Young was Of Counsel to the law firm of Baker Botts L.L.P from January 1995 to September 1999. Mr. Young spent over 14 years in private legal practice with a number of law firms, specializing in corporate and securities transactions. Mr. Young holds a J.D. from Harvard Law School and a B.A. from the University of Illinois. Pamela A. Codispoti has been our Senior Vice President, Marketing and Communications since January 2000. Prior to joining LinkShare, from 1993 until joining LinkShare, Ms. Codispoti worked for American Express Company, where she started as Senior Manager of the Strategic Planning Group and rose to Vice President of Marketing for the Corporate Services Division. Ms. Codispoti holds an M.B.A. from the Harvard Graduate School of Business Administration and a B.A. in Math and Social Science from Dartmouth College. Cheryl C. Ho co-founded LinkShare and has been with us since our inception. She was our Vice President of Marketing and Product Development from May 1997 until she assumed the office of Vice President, Product Development, in December 1998. She was promoted to Senior Vice President, Product Development in January 2000. Prior to joining LinkShare, Ms. Ho worked as a research assistant at the Columbia Institute for Tele-Information from September 1996 to May 1997. Ms. Ho, a licensed CPA, worked as an Audit Associate (Information Communications) for Coopers & Lybrand, L.L.P. from January 1994 to April 1996. Ms. Ho holds an M.B.A., with a concentration in Marketing and Management of Information and Communications, from the Columbia University School of Business, and a B.S. from New York University's Leonard N. Stern School of Business with majors in Accounting and International Business. Jodi B. Brenner has served as our Vice President, Business Development since October 1999. Before joining LinkShare, Ms. Brenner served as Associate General Counsel at NBC Cable Networks from February 1998 to October 1999. She also served as Vice President, Secretary and Counsel of Bell Atlantic Video Services and Bell Atlantic Internet Solutions from 1996 to 1998, and as Counsel, Entertainment, Video and Online Services at Bell Atlantic Network Solutions from 1993 to 1996. Ms. Brenner holds a J.D. from Columbia University Law School and a joint degree from the University of Pennsylvania: a B.S. in Communications Public Policy from the Annenberg School of Communication and a B.A. in English Literature from the College of Arts and Sciences. Bruce R. Gilburne has been our Vice President, Sales since July 1999. From August 1998 until being promoted to Vice President of Sales, Mr. Gilburne was a Sales Director for LinkShare. Prior to joining LinkShare, Mr. Gilburne was a senior sales executive at USN Communications, a large re-seller of telecom services, from May 1998 to August 1998. From August 1996 until May 1998, Mr. Gilburne was East Coast Sales Director with Northwest Molded Products. He served as a Sales Manager for Gary Plastics Packaging from March 1994 to August 1996. Mr. Gilburne holds a B.S. in Economics, Finance and Business Administration from the University of Hartford. Catherine L. McCall has been our Vice President, Client Services since August 1999. From December 1998 to August 1999, she was an Internet Marketing Consultant, providing services to clients that included U.S. West, Guild.com, Promark and Prima Capital. From March 1996 through December 1998, she was responsible for marketing and investor relations with Online System Services, a Denver-based broadband services, e-commerce and portal software company. From January 1995 to March 1996, Ms. McCall was a Marketing Consultant to OnPoint Technologies, an Internet software company. Prior to January 1995, she held a variety of senior marketing, sales and product development positions at Standard & Poor's Compustat. Ms. McCall is the co-author of The Complete Idiot's Guide to Online Marketing, published by Macmillan in 37 1999. Ms. McCall holds an M.B.A. from Keller Graduate School of Management and a B.A. from The Colorado College. Wendy N. Salomon has served as our Vice President, Marketing since April 1999. From September 1998 until being promoted to Vice President, Marketing, Ms. Salomon served as our Director, Brand Development. From July 1997 to July 1998, Ms. Salomon was Manager of Marketing for MTV Consumer Products at MTV: Music Television. From August 1991 to May 1994, Ms. Salomon worked in Account Management at Tatham EURO RSCG, a Chicago advertising agency. She was an Assistant Account Executive on Procter & Gamble brands from August 1991 to September 1992, when she was promoted to Account Executive for Ameritech Consumer Services. Ms. Salomon holds an M.B.A. from the Stanford University Graduate School of Business and a B.A. in History of Art and Architecture from Brown University. Douglas A. Alexander has served as a director since July 1998. Mr. Alexander is a Managing Director of Internet Capital Group, Inc. Prior to joining Internet Capital Group, Mr. Alexander co-founded Reality Online, Inc. in 1986 and later sold it to Reuters Group in 1994. Mr. Alexander continued to serve as President and Chief Executive Officer of Reality Online after its acquisition by Reuters Group until September 1997. Mr. Alexander is Chairman of the Board of VerticalNet, Inc. and serves as a director of Arbinet Communications, Inc., Blackboard Inc., ComputerJobs.com, Inc., Deja.com, Inc., eMerge Interactive, Inc., SageMaker, Inc., StarCite, Inc. and traffic.com, Inc. Edward P. Gilligan has agreed to join our board of directors upon the closing of this offering. Mr. Gilligan has served as President, Corporate Services for American Express Travel Related Services, since February 1996. From June 1995 to February 1996, Mr. Gilligan served as Executive Vice President of Travel Management Services for American Express Travel Related Services. Initially joining American Express in 1980, Mr. Gilligan has since held a number of key positions with that organization. Mr. Gilligan serves on the boards of American Express Incentive Solutions and Concur Technologies, Inc. I. Martin Pompadur has agreed to join our board of directors upon the closing of this offering. Mr. Pompadur has served as Chairman of News Corp. Europe since January 2000. Since June 1998, he has served as Executive Vice President of News Corp., President of News Corp. Eastern and Central Europe and a member of News Corp.'s Executive Management Committee. Since 1983, Mr. Pompadur has served as Chairman and Chief Executive Officer of RP Companies' various private and public limited partnerships, which operate television and radio stations and cable television systems. Mr. Pompadur serves on the boards of BSkyB, Fox Kids Europe, Stream, Metromedia International Group, Inc., StoryFirst Communications and Big Star Entertainment. Classes of the Board Upon the closing of this offering, the board of directors will be divided into three classes that serve staggered three-year terms as follows:
Class Expiration Member ----- ---------- ------ Class I 2001 Edward P. Gilligan and I. Martin Pompadur Class II 2002 Douglas A. Alexander Class III 2003 Heidi S. Messer and Stephen D. Messer
Board Committees Compensation Committee The compensation committee of our board of directors reviews and makes recommendations to the board regarding all forms of compensation provided to the executive officers and directors of LinkShare. In addition, the compensation committee reviews and makes recommendations on bonus and stock compensation arrangements for all of our employees. The compensation committee also administers our stock option plan. Effective upon the closing of this offering, the members of the compensation committee will consist of Heidi S. Messer and Edward P. Gilligan. 38 Audit Committee The audit committee of our board of directors reviews and monitors the corporate financial reporting and the internal and external audits of LinkShare. The committee's functions include: . recommending annually to our board of directors the appointment of our independent auditors; . discussing and reviewing in advance the scope and the fees of our annual audit and reviewing the results of our audits with our independent auditors; . reviewing and approving non-audit services of our independent auditors; . reviewing compliance with our existing major accounting and financial reporting policies; . reviewing the adequacy of major accounting and financial reporting policies; and . reviewing our management's procedures and policies relating to the adequacy of our internal accounting controls and compliance with applicable laws relating to accounting practices. After the closing of this offering, the committee's functions will also include: . reviewing compliance with applicable Securities and Exchange Commission and Nasdaq rules regarding audit committees; and . preparing a report for our annual proxy statement. Effective upon the closing of this offering, the members of the audit committee will consist of Douglas A. Alexander, Edward P. Gilligan and I. Martin Pompadur, each of whom will be an independent director as defined under the rules of the National Association of Securities Dealers, Inc. Director Compensation Our directors currently do not receive cash compensation for their service as directors. We do reimburse them for expenses they incur in attending meetings of the board and board committees. Non-employee directors are eligible to receive options to purchase common stock awarded under our stock option plan. See "--Stock Option Information--LinkShare Corporation Long-Term Incentive Plan." Upon the closing of this offering, we will grant to each of Edward P. Gilligan and I. Martin Pompadur, each of whom will be an independent director as defined under the rules of the National Association of Securities Dealers, options to purchase shares of our common stock at the initial public offering price of our common stock. We will grant these options under our stock option plan. These options will vest over three years. Compensation Committee Interlocks and Insider Participation Effective upon the closing of this offering, the compensation committee will consist of Heidi S. Messer and Edward P. Gilligan. No interlocking relationship exists between the board of directors or compensation committee and the board of directors or compensation committee of any other company, nor has any such interlocking relationship existed in the past. Employment Agreements On July 16, 1998, we entered into a two-year employment agreement with each of Stephen D. Messer and Heidi S. Messer that provides for an annual base salary and an annual merit bonus that may be granted at the discretion of the board of directors. Each agreement provides for payment to the officer of accrued and unpaid compensation plus a lump sum equal to six months salary if the officer's employment is terminated by LinkShare without "cause" or by the officer with "good cause," as each term is defined in the applicable agreement. 39 Change of Control Arrangements Shares subject to options or restricted stock awards granted under our stock option plan generally vest over four years, with 25% of the shares vesting after one year and the remaining shares vesting in equal monthly installments over the next 36 months. The option agreements under this plan generally provide accelerated vesting of 50% of the unvested shares subject to the option upon a change of control that occurs after the first and before the third anniversary of the award, and full acceleration upon a change of control that occurs on the termination of employment within two years after a change of control without "cause" or for "good reason" as defined in the agreement. In general terms, change of control would occur where any person acquires ownership of more than 50% of our voting shares or upon any merger or acquisition where our stockholders before the transaction hold less than a majority of the voting stock of the surviving entity outstanding after the transaction. We have issued shares of restricted stock or options to certain of our officers and employees that provide for accelerated vesting of those shares or options upon a change in control or upon the termination of employment without "cause" or for "good reason" as defined in the agreement under which those shares or options were issued. Executive Compensation The following table sets forth information for the fiscal year ended June 30, 1999, concerning compensation we paid to our Chief Executive Officer. No other executive officer received compensation in excess of $100,000 in the fiscal year ended June 30, 1999. Summary Compensation Table Annual Compensation
Fiscal Other Annual Name and Principal Position Year Salary Bonus Compensation Options --------------------------- ------ ------- ----- ------------ ------- Stephen D. Messer(1) Chief Executive Officer.......... 1999 $80,000 -- -- --
- -------- (1) Mr. Messer's annual salary during calendar year 2000 is $180,000. Stock Option Information LinkShare Corporation Long-Term Incentive Plan Our board of directors has adopted, and the stockholders have approved, the LinkShare Corporation Long-Term Incentive Plan in order to provide grants of options, stock appreciation rights, restricted stock and cash bonuses to our employees, directors and consultants. The plan authorizes the issuance of a maximum of 2,576,597 shares of common stock. As of January 31, 2000, options to purchase 1,625,399 shares had been issued under the plan. The compensation committee, which is designated by our board of directors, administers the plan. This committee has the power to: . interpret the plan and adopt any rules, regulations and guidelines for carrying out the plan that the committee feels are proper; . correct any defect or supply any omission or reconcile any inconsistency in the plan or related documents; 40 . determine the form and terms of the awards made under the plan, including persons eligible to receive the awards, whether awards have been earned and the number of shares or other consideration subject to awards; and . provide that option exercises may be paid in cash, common stock, a portion of any award or a combination thereof. The compensation committee may delegate to one or more of our senior officers some or all of its authority under the plan. However, the committee may not delegate its authority to grant awards under the plan or take other action with respect to our officers who are subject to Section 16 of the Securities Exchange Act of 1934. Options. Stock options entitle the holder to purchase a specified number of shares of our common stock at a specified exercise price, subject to the other terms and conditions in the option grant. Under present law, however, incentive stock options and options intended to qualify as performance-based compensation under Section 162(m) of the tax code may not be granted at an exercise price less than the fair market value of the common stock on the date of grant (or less than 110% of the fair market value in the case of incentive stock options granted to optionees holding more than 10% of the voting power of LinkShare). Also, incentive stock options may not be granted under the plan after July 16, 2008. Stock Appreciation Rights. Stock appreciation rights entitle the recipient to receive a payment in cash or in stock equal to the excess of the value of the stock on the day the right is exercised over the price specified in the grant. Stock Award. A stock award may be based on fair market value or other valuations set by the committee and the exercise of the award may be subject to conditions set forth in the award agreement, such as: . continuous service, . achievement of specific business objectives, . attaining certain growth rates, or . other requirements established by the committee. Cash Award. An award may be granted in cash with the amount of future payment subject to requirements and goals set by the committee. Awards Generally. The awards described above may be granted singly, in combination or in tandem. However, no participant may be granted stock options or stock appreciation rights exercisable for more than 25% of the shares of stock authorized under the plan. Non-Transferability of Awards. Awards granted under the plan are generally not transferable by the participant. Each award is exercisable during the lifetime of the participant only by the participant, and any elections regarding the awards may be made only by the participant. Except with respect to incentive stock options, the committee may allow a participant to transfer an award to certain parties specified by the committee. Amendment and Termination of the Plan. Our board of directors may at any time terminate or amend the plan or any related document, except that our board of directors may not make any amendments that would impair the rights of any participant under any award previously granted to the participant or that would require stockholder approval without obtaining it. Option Grants We did not grant options during fiscal year 1999 to our Chief Executive Officer or any executive officer whose compensation exceeded $100,000 during that fiscal year. 41 CERTAIN TRANSACTIONS Founder Stock Acquisitions Stephen D. Messer and Heidi S. Messer, two of our directors and executive officers, and Cheryl C. Ho and Jianhao Meng, two of our executive officers, were all involved in our founding and organization and may be considered our promoters. At the time of LinkShare's incorporation in July 1997, Mr. Messer, Ms. Messer and Mr. Meng acquired 2,000,000, 1,600,000 and 400,000 shares, respectively, of LinkShare's common stock for nominal cash consideration. Under our stock option plan, in July 1998, we issued Ms. Ho an option to purchase 68,085 shares of common stock at $0.13 per share. Effective in April 1999, Ms. Ho was granted an additional option under our stock option plan for 131,915 shares of common stock with an exercise price of $1.23375 per share. Internet Capital Group and Comcast Equity Investments In July 1998, we issued and sold 2,431,611 shares of our Series A Preferred Stock to Internet Capital Group, LLC at a purchase price of $1.23375 per share for an aggregate purchase price of $3 million. In February 1999, those shares were acquired by Internet Capital Group, Inc. as a result of a reorganization merger with Internet Capital Group, LLC. Douglas A. Alexander, one of our directors, is a managing director of Internet Capital Group, Inc. In August 1998, we issued and sold 810,537 shares of our Series A Preferred Stock at a purchase price of $1.23375 per share for an aggregate purchase price of $1 million to Comcast Internet Investments I, Inc., a wholly-owned subsidiary of Comcast Corporation. In November 1999, those shares were acquired by Comcast Interactive Capital, LP, which is controlled by Comcast Corporation. In February 2000, Comcast Interactive Capital, LP sold 400,000 shares of our Series A Preferred Stock to Internet Capital Group, Inc. for $50 per share. Registration Rights All of our existing stockholders have demand and "piggyback" registration rights with respect to their shares of common stock. For further information, please see the section of this prospectus titled "Description of Capital Stock--Registration Rights." Bridge Financings On August 23, 1999, and November 18, 1999, we sold an aggregate $2.5 million principal amount of convertible promissory notes to our founders and the holders of our Series A Preferred Stock for an equal amount of cash. On February 7, 2000, we issued $6.5 million principal amount of new convertible promissory notes to those persons in exchange for the notes previously issued to them, a waiver of interest accrued on those notes and additional cash advances made by them. Each of the February 2000 notes matures on July 31, 2000, and bears interest at the rate of 6.2% per year, payable upon maturity. The following table gives the names of the persons to whom we issued the new notes in February 2000, the principal amount of those notes held by each person and the consideration paid for each of those notes:
Principal Amount of February 2000 Note Name Issued to Named Person ---- ---------------------- Internet Capital Group, Inc........................ $2,805,638 Comcast Interactive Capital, LP.................... $ 657,880 Stephen D. Messer.................................. $1,518,242 Heidi S. Messer.................................... $1,215,394 Jianhao Meng....................................... $ 302,849
42 Upon the closing of this offering, each of the notes we issued on February 7, 2000, will be converted into the number of shares of common stock determined by dividing the principal amount plus accrued interest by 80% of the per-share initial public offering price of our common stock. Warrants In connection with the issuance of convertible notes to Comcast Interactive Capital, we issued to Comcast Interactive Capital warrants to buy shares of our common stock on the 23rd day of each month beginning on August 23, 1999, and ending on December 23, 1999. At the date of this prospectus, Comcast Interactive Capital holds warrants to purchase 41,970 shares of our common stock. Each of these warrants has a term of five years from the date of issuance and is exercisable at $1.00 per share. These warrants have a net exercise provision under which Comcast Interactive Capital may, in lieu of payment of the exercise price in cash, surrender the warrant and receive a net amount of shares, based on the fair market value of our common stock at the time of the exercise of the warrant, after deducting the aggregate exercise price. Employment Agreements LinkShare has entered into employment agreements with Stephen D. Messer and Heidi S. Messer. Please see the section of this prospectus titled "Management-- Employment Agreements." Patent Assignment In July 1998, Stephen D. Messer contributed and assigned to LinkShare all of his rights to the "Data Processing System for Integrated Tracking and Management of Commerce Related Activities on a Public Access Network" and any related patents that might be issued. Other Accent Maintenance Corp. is owned by the mother of Stephen D. Messer and Heidi S. Messer. In the second half of calendar 1999, Accent Maintenance Corp. performed moving, construction, renovation and other services related to the relocation of our principal offices in New York City. Accent Maintenance charged us approximately $863,000 for those services. In addition, since August 1998, we have used Accent Maintenance to provide janitorial, porter, maintenance and similar services at our New York offices for monthly charges of up to $6,000 plus the cost of supplies. 43 PRINCIPAL STOCKHOLDERS The following table sets forth information with respect to beneficial ownership of our common stock after the offering by: . each person who beneficially owns more than 5% of our common stock; . each of our executive officers and directors; and . all executive officers and directors as a group. We have determined beneficial ownership in accordance with the rules of the SEC. Unless otherwise indicated, the persons included in the table have sole voting and investment power with respect to all shares beneficially owned. Shares of common stock issuable under options, convertible securities or warrants that are currently exercisable or are exercisable within 60 days of February 28, 2000 are treated as outstanding and beneficially owned with respect to the person holding these options for the purpose of computing the percentage ownership of that person. However, these shares are not treated as outstanding for purposes of computing the percentage ownership of any other person. For purposes of this table, we have assumed the automatic conversion of all of our outstanding shares of preferred stock into 3,242,148 shares of common stock upon the closing of this offering. This table does not include the shares of common stock into which our outstanding convertible notes will be converted upon the closing of this offering. See "Certain Transactions--Bridge Financings."
Percent of Common Stock Beneficially Owned -------------------- Shares of Common Stock Before the After the Beneficially Owned Offering Offering ------------------ ---------- --------- Internet Capital Group, LLC #800 The Safeguard Bldg. 435 Devon Park Drive Wayne, PA 19087....................... 2,831,611 39.1% Comcast Interactive Capital, LP(1) 1500 Market Street Philadelphia, PA 19102................ 452,507 6.2% Stephen D. Messer..................... 2,000,000 27.6% Heidi S. Messer....................... 1,600,000 22.1% Jianhao Meng.......................... 400,000 5.5% Douglas A. Alexander(2)............... 0 0 0 All executive officers and directors as a group (10 persons)(3)........... 4,152,733 56.1%
- -------- * Less than 1%. (1) Includes 41,970 shares of common stock that may be purchased under certain warrants issued in connection with our August 23, 1999 convertible note financing. See "Certain Transactions--Warrants." (2) Mr. Alexander, a director of LinkShare, is a Managing Director of Internet Capital Group, Inc. and may be deemed to have beneficial ownership of the 2,831,611 shares beneficially owned by Internet Capital Group; however, Mr. Alexander disclaims beneficial ownership of these shares. (3) Includes 152,733 shares of common stock issuable under stock options that are exercisable within 60 days of February 28, 2000. 44 DESCRIPTION OF CAPITAL STOCK The following is a summary description of our capital stock. We refer you to our restated certificate of incorporation and bylaws, both of which have been filed as exhibits to the registration statement, and the applicable provisions of the Delaware General Corporation Law. Please see the section of this prospectus titled "Additional Information." General Upon the closing of this offering, our authorized capital stock will consist of shares of common stock and shares of preferred stock, both of which have a par value of $.001 per share. Assuming the underwriters do not exercise their over-allotment option, we will have shares of common stock and no shares of preferred stock outstanding after the closing of this offering. Common Stock Holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. Accordingly, holders of a majority of the shares of common stock entitled to vote in any election of directors may elect all of the directors standing for election. Holders of common stock are entitled to receive proportionately any dividends as may be declared by our board of directors, subject to any preferential dividend rights of outstanding preferred stock. Upon our liquidation, dissolution or winding up, the holders of common stock are entitled to receive proportionately our net assets available after the payment of all debts and other liabilities and subject to the prior rights of any outstanding preferred stock. Holders of common stock have no preemptive, subscription, redemption or conversion rights. Our outstanding shares of common stock are, and the shares offered by us in this offering will be, when issued and paid for, fully paid and nonassessable. The rights, preferences and privileges of holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock which we may designate and issue in the future. Preferred Stock The board of directors may issue preferred stock, without stockholder approval, in such series and with such designations, preferences, conversion or other rights, voting powers, qualifications, limitations, or restrictions as the board of directors deems appropriate. While the board of directors has no current intention of doing so, it could, without stockholder approval, issue preferred stock with voting and conversion rights which adversely affect the benefit of any voting power and the benefit of other rights of the holders of the common stock and which the board of directors could use as an anti-takeover measure without any further action by the holders of common stock. This may have the effect of delaying, deferring or preventing a change of control of LinkShare by increasing the number of shares necessary to gain control of the company. Except as described below, the board of directors has not authorized the issuance of any shares of preferred stock and we have no agreements or current plans for the issuance of any shares of preferred stock. Series A Preferred Stock As of January 31, 2000 we had issued and outstanding 3,242,148 shares of Series A Preferred Stock, par value $.001 per share, which will automatically convert into an aggregate of 3,242,148 shares of common stock upon the closing of this offering. Options As of January 31, 2000, options to purchase a total of 1,625,399 shares of common stock were outstanding. The total number of shares of common stock that may be subject to the granting of options under our stock option plan is equal to 2,576,597. Please see the sections of this prospectus titled "Management-- Stock Option Information--LinkShare Corporation Long-Term Incentive Plan" and "Shares Eligible for Future Sale." 45 We have outstanding a large number of stock options to purchase our common stock with exercise prices significantly below the price at which our common stock is being offered in this offering. The possible sale of a significant number of those shares by our option holders may have an adverse effect on the price of the common stock. For a discussion of our intentions with respect to the registration of the shares underlying these options, see "Shares Eligible for Future Sale." Warrants As of January 31, 2000, we had issued and outstanding warrants to purchase 41,970 shares of common stock, at an exercise price of $1.00 per share. Of those warrants, 8,394 will expire on the 23rd day of each month beginning August 23, 2004. Please see the sections of this prospectus titled "Certain Transactions-Warrants." Registration Rights Pursuant to the terms of the investor rights agreement that we entered into with our current stockholders in connection with the issuance and sale of their stock, as of January 31, 2000, the holders of shares of common stock are entitled to certain demand registration rights with respect to the registration of their shares under the Securities Act. The holders of a majority of these shares are entitled to demand that we register their shares under the Securities Act, subject to certain limitations. We are not required to effect more than two such registrations pursuant to such demand registration rights and not more than one in any 12 month period. In addition, pursuant to the terms of the investor rights agreement, the holders of approximately shares of common stock are entitled to certain piggyback registration rights with respect to the registration of such shares of common stock under the Securities Act, subject to certain limitations. Further, at any time after we become eligible to file a registration statement on Form S-3 certain holders may require us to file registration statements under the Securities Act on Form S-3 with respect to their shares of common stock. These registration rights are subject to certain conditions and limitations, including the right of the underwriters of an offering to limit the number of shares of common stock held by security holders with registration rights to be included in such registration. In addition, holders of these shares will be restricted from exercising their demand rights for a period of 180 days after the date of this prospectus. We are generally required to bear all of the expenses of all such registrations, except underwriting discounts and commissions. Registration of any of the shares of common stock held by security holders with registration rights would result in such shares becoming freely tradable without restriction under the Securities Act immediately upon effectiveness of such registration. Anti-takeover Effects of Certain Provisions of Delaware Law and Our Certificate of Incorporation and Bylaws We are subject to the provisions of Section 203 of the Delaware General Corporation Law, as amended from time to time (the DGCL). Subject to certain exceptions, Section 203 prohibits a publicly-held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the interested stockholder attained such status with the approval of the board of directors or unless the business combination is approved in a prescribed manner. A "business combination" includes mergers, asset sales and other transactions resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an "interested stockholder" is a person who, together with affiliates and associates, owns, or within three years did own, fifteen percent (15%) or more of the corporation's voting stock. This statute could prohibit or delay the accomplishment of mergers or other takeover or change in control attempts with respect to LinkShare and, accordingly, may discourage attempts to acquire LinkShare. In addition, certain provisions of the restated certificate of incorporation and bylaws, which provisions are summarized in the following paragraphs, may be deemed to have an anti-takeover effect and may delay, defer or prevent a tender offer or takeover attempt that a stockholder might consider in its best interest, including those attempts that might result in a premium over the market price for the shares held by stockholders. 46 Board of Directors Upon the closing of this offering, our board of directors will be divided into three classes of directors serving staggered three-year terms. As a result, approximately one-third of the board of directors will be elected each year. In addition, our restated certificate of incorporation provides that directors may be removed only for cause by the affirmative vote of the holders of two-thirds of our shares of capital stock entitled to vote. Our restated certificate of incorporation further provides that any vacancy on our board of directors, including a vacancy resulting from an enlargement of our board of directors, may only be filled by a vote of a majority of our directors then in office. The classification of our board of directors and the limitations on the removal of directors and filling of vacancies could make it more difficult for a third party to acquire, or discourage a third party from acquiring, control of LinkShare. Stockholder Action; Special Meeting of Stockholders Our restated certificate of incorporation provides that stockholders may not take action by written consent, but only at duly called annual or special meetings of stockholders. Special meetings of stockholders may be called only by the chairman of the board of directors or by a majority of the board of directors. Advance Notice Requirements for Stockholder Proposals and Director Nominations Our bylaws provide that stockholders seeking to bring business before an annual meeting of stockholders, or to nominate candidates for election as directors at an annual meeting of stockholders, must provide timely notice of their proposals to the board of directors in writing. To be timely, a stockholder's notice must be delivered to or mailed and received at our principal executive offices not less than 120 days nor more than 150 days prior to the first anniversary of the date of the notice of annual meeting we provided with respect to the previous year's annual meeting of stockholders. If no annual meeting of stockholders was held in the previous year or the date of the annual meeting of stockholders has been changed to be more than 30 calendar days earlier than or 60 calendar days after such anniversary, for notice by the stockholder to be timely, we must receive it not more than 90 days before nor later than the later of (1) 60 days prior to the annual meeting of stockholders or (2) the close of business on the 10th day following the date on which notice of the date of the meeting is given to stockholders or made public, whichever occurs first. LinkShare's bylaws also specify certain requirements as to the form and content of a stockholder's notice. These provisions could have the effect of delaying stockholders from bringing matters before an annual meeting of stockholders or from making nominations for directors at an annual meeting of stockholders. Authorized but Unissued Shares The authorized but unissued shares of common stock and preferred stock are available for future issuance without stockholder approval. We may use these additional shares for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. The existence of authorized but unissued shares of common stock and preferred stock could render more difficult or discourage an attempt to obtain control of LinkShare by means of a proxy contest, tender offer, merger or otherwise. The DGCL provides generally that the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a corporation's certificate of incorporation or bylaws, unless a corporation's certificate of incorporation or bylaws, as the case may be, requires a greater percentage. Limitation of Liability and Indemnification Matters The restated certificate of incorporation provides that, except to the extent prohibited by the DGCL, our directors shall not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duty as directors of LinkShare. Under the DGCL, the directors have a fiduciary duty to LinkShare which is not eliminated by this provision of the restated certificate of incorporation and, in appropriate 47 circumstances, equitable remedies such as injunctive or other forms of nonmonetary relief will remain available. In addition, each director will continue to be subject to liability under the DGCL for breach of the director's duty of loyalty to LinkShare, for acts or omissions which are found by a court of competent jurisdiction to be not in good faith or which involve intentional misconduct, or knowing violations of law, for actions leading to improper personal benefit to the director, and for payment of dividends or approval of stock repurchases or redemptions that are prohibited by the DGCL. This provision also does not affect the directors' responsibilities under any other laws, such as the Federal securities laws or state or Federal environmental laws. The DGCL provides further that the indemnification permitted thereunder shall not be deemed exclusive of any other rights to which the directors and officers may be entitled under the corporation's bylaws, any agreement, a vote of stockholders or otherwise. Our restated certificate of incorporation eliminates the personal liability of directors to the fullest extent permitted by Section 102(b)(7) of the DGCL and provides that LinkShare shall fully indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (whether civil, criminal, administrative or investigative) by reason of the fact that person: . is or was a director or officer of LinkShare, or . is or was serving at LinkShare's request as a director or officer of: . another corporation, . partnership, . joint venture, . trust, or . other enterprise, against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by that person in connection with the action, suit or proceeding. At present, there is no pending litigation or proceeding involving any director, officer, employee or agent as to which indemnification will be required or permitted under our restated certificate of incorporation. LinkShare is not aware of any threatened litigation or proceeding that may result in a claim for such indemnification. Transfer Agent and Registrar The transfer agent and registrar for our common stock is HSBC Bank USA. 48 SHARES ELIGIBLE FOR FUTURE SALE Before this offering, there has been no public market for our common stock. Future sales of substantial amounts of our common stock in the public market following this offering, including shares issued upon exercise of outstanding options or options that may be granted after this offering, could harm market prices and could impair our ability to raise capital through the sale of our equity securities. As described below, less than % of our shares currently outstanding will be available for sale immediately after this offering because of restrictions on resale. Sales of a substantial amount of our common stock in the public market after the restrictions lapse could adversely affect the prevailing market price of our common stock and our ability to raise equity capital in the future. Upon the closing of this offering and assuming that none of our outstanding options are exercised, we will have outstanding shares of common stock, or shares if the underwriters exercise their over-allotment option in full. Of these outstanding shares, shares, or shares if the underwriters exercise their over-allotment option in full, will be freely tradable without restriction under the Securities Act, except for shares purchased by our "affiliates," as that term is defined in Rule 144 under the Securities Act. Any shares purchased by our affiliates generally may be sold in compliance with Rule 144 as described below. The remaining shares outstanding are "restricted securities" within the meaning of Rule 144. Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144, 144(k) or 701 promulgated under the Securities Act, which are summarized below. Sales of the restricted securities in the public market, or the availability of these shares for sale, could adversely affect the market price of our common stock. At January 31, 2000, options for a total of 1,625,399 shares of common stock had been granted under our stock option plan. Approximately 210,252 of those options were vested and exercisable at such date. Of those vested shares, are subject to 180-day lock-up agreements described below. We anticipate that our current stockholders will enter into lock-up agreements or other contractual restrictions providing that they will not offer, sell, contract to sell or otherwise dispose of any shares of our common stock for a period of 180 days after the date of this prospectus, without the prior written consent of Credit Suisse First Boston Corporation. As a result of these lock-up agreements and other contractual restrictions, notwithstanding possible earlier eligibility for sale under the provisions of Rule 144, none of these shares will be resellable until 181 days after the date of this prospectus. Credit Suisse First Boston Corporation may, in its sole discretion and at any time without notice, release any portion of the securities subject to lock-up agreements or other contractual restrictions. In general, under Rule 144 as currently in effect, after the expiration of the lockup agreements, a person who has beneficially owned restricted shares for at least one year would be entitled to sell within any three-month period a number of shares that does not exceed the greater of: . 1% of the number of shares of our common stock then outstanding, which will equal approximately shares immediately after this offering; or . the average weekly trading volume of our common stock during the four calendar weeks preceding the sale. Sales under Rule 144 are also subject to manner of sale provisions, notice requirements and the availability of current public information about us. Under Rule 144(k), a person who is not deemed to have been an affiliate of ours at any time during the six months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, is entitled to sell such shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. 49 Rule 701 permits our employees, officers, directors or consultants who purchased shares pursuant to a written compensatory plan or contract to resell these shares in reliance upon Rule 144 but without compliance with specific restrictions. Rule 701 provides that affiliates may sell their Rule 701 shares under Rule 144 without complying with the holding period requirement and that non-affiliates may sell these shares in reliance on Rule 144 without complying with the holding period, public information, volume limitation or notice provisions of Rule 144. Following the closing of this offering, we will file a registration statement on Form S-8 to register shares of our common stock subject to outstanding options or reserved for future issuance under our stock option plan. As of January 31, 2000, options to purchase approximately 1,625,399 shares of our common stock were outstanding and approximately 951,198 shares of our common stock were reserved for future issuance under our stock option plan. This registration statement will automatically become effective upon filing. As a result, the common stock issued upon exercise of outstanding vested options, other than common stock issued to our affiliates, will be available for immediate resale in the open market, subject to any applicable lock-up agreement. 50 UNDERWRITING Under the terms and subject to the conditions contained in an underwriting agreement dated , 2000, we have agreed to sell to the underwriters named below, for whom Credit Suisse First Boston Corporation, Deutsche Bank Securities Inc, and Bear, Stearns & Co. Inc. are acting as representatives, the following respective numbers of shares of common stock:
Number of Underwriter Shares ----------- ------ Credit Suisse First Boston Corporation................................ Deutsche Bank Securities Inc. ........................................ Bear, Stearns & Co. Inc. ............................................. ----- Total............................................................. =====
The underwriting agreement provides that the underwriters are obligated to purchase all the shares of common stock in this offering if any are purchased, other than those shares covered by the over-allotment option described below. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may be increased or this offering of common stock may be terminated. We have granted to the underwriters a 30-day option to purchase on a pro rata basis up to additional shares from us at the initial public offering price less the underwriting discounts. The option may be exercised only to cover any over-allotments of common stock. The underwriters propose to offer the shares of common stock initially at the public offering price on the cover page of this prospectus and to selling group members at that price less a concession of $ per share. The underwriters and selling group members may allow a discount of $ per share on sales to other broker-dealers. After the initial public offering, the public offering price and concession and discount to broker-dealers may be changed by the representatives. The following table summarizes the compensation and estimated expenses we will pay:
Per Share Total ------------------- ------------------- Without With Without With Over- Over- Over- Over- allotment allotment allotment allotment --------- --------- --------- --------- Underwriting Discounts and Commissions paid by us........................... $ $ $ $ Expenses payable by us................ $ $ $ $
The underwriters have informed us that they do not expect discretionary sales to exceed 5% of the shares of common stock being offered. We, our officers, our directors and our stockholders have agreed that we and they will not offer, sell, contract to sell, announce an intention to sell, pledge or otherwise dispose of, directly or indirectly, or file with the SEC a registration statement under the Securities Act relating to any additional shares of our common stock or securities convertible into or exchangeable or exercisable for any of our common stock, or publicly disclose the intention to make any such offer, sale, pledge, disposition or filing, without the prior written consent of Credit Suisse First Boston Corporation for a period of 180 days after the date of this prospectus, except in our case for issuances pursuant to the exercise of employee stock options outstanding on the date hereof. 51 The underwriters have reserved for sale, at the initial public offering price up to shares of our common stock for employees, directors and several other persons associated with us who have expressed an interest in purchasing common stock in this offering. The number of shares available for sale to the general public in this offering will be reduced to the extent these persons purchase the reserved shares. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same terms as the other shares. We have agreed to indemnify the underwriters against liabilities under the Securities Act or contribute to payments which the underwriters may be required to make in that respect. We have applied to list our common stock on The Nasdaq Stock Market's National Market under the symbol "LNKS." Prior to this offering, there has been no public market for our common stock. The initial public offering price will be determined by negotiation between our management and representatives of the underwriters. The principal factors that will be considered in determining the public offering price include: . the information set forth in this prospectus and otherwise available to the underwriters; . the history and the prospects for the industry in which we will compete; . the ability of our management; . the prospects for our future earnings; . the present state of our development and our current financial condition; . the general condition of the securities markets at the time of this offering; and . the recent market prices of, and the demand for, publicly traded common stock of generally comparable companies. The representatives may engage in over-allotment, stabilizing transactions, syndicate covering transactions and penalty bids in accordance with Regulation M under the Securities Exchange Act of 1934. . Over-allotment involves syndicate sales in excess of this offering size, which creates a syndicate short position. . Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. . Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions. . Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a syndicate covering transaction to cover syndicate short positions. These stabilizing transactions, syndicate covering transactions and penalty bids may cause the price of the common stock to be higher than it would otherwise be in the absence of these transactions. These transactions may be effected on The Nasdaq National Market or otherwise and, if commenced, may be discontinued at any time. 52 NOTICE TO CANADIAN RESIDENTS Resale Restrictions The distribution of the common stock in Canada is being made only on a private placement basis exempt from the requirement that we prepare and file a prospectus with the securities regulatory authorities in each province where trades of common stock are effected. Accordingly, any resale of our common stock in Canada must be made in accordance with applicable securities laws which will vary depending on the relevant jurisdiction, and which may require resales to be made in accordance with available statutory exemptions or pursuant to a discretionary exemption granted by the applicable Canadian securities regulatory authority. Purchasers are advised to seek legal advice prior to any resale of the common stock. Representations of Purchasers Each purchaser of common stock in Canada who receives a purchase confirmation will be deemed to represent to us and the dealer from whom the purchase confirmation is received that (i) the purchaser is entitled under applicable provincial securities laws to purchase the common stock without the benefit of a prospectus qualified under Canadian securities laws; (ii) where required by law, that the purchaser is purchasing as principal and not as agent; and (iii) the purchaser has reviewed the text above under "Resale Restrictions." Rights of Action for Ontario Purchasers The securities being offered are those of a foreign issuer and Ontario purchasers will not receive the contractual right of action prescribed by Ontario securities law. As a result, Ontario purchasers must rely on other remedies that may be available, including common law rights of action for damages or rescission or rights of action under the civil liability provisions of the U.S. federal securities laws. Enforcement of Legal Rights All of the issuer's directors and officers as well as the experts named in this prospectus may be located outside of Canada and, as a result, it may not be possible for Canadian purchasers to effect service of process within Canada upon the issuer or those persons. All or a substantial portion of the assets of the issuer and those persons may be located outside of Canada and, as a result, it may not be possible to satisfy a judgment against the issuer or those persons in Canada or to enforce a judgment obtained in Canadian courts against the issuer or persons outside of Canada. Notice to British Columbia Residents A purchaser of common stock to whom the Securities Act (British Columbia) applies is advised that the purchaser is required to file with the British Columbia Securities Commission a report within ten days of the sale of any common stock acquired by the purchaser pursuant to this offering. The report must be in the form attached to British Columbia Securities Commission Blanket Order BOR #95/17, a copy of which may be obtained from us. Only one report must be filed in respect of common stock acquired on the same date and under the same prospectus exemption. Taxation and Eligibility for Investment Canadian purchasers of common stock should consult their own legal and tax advisors with respect to the tax consequences of an investment in our common stock in their particular circumstances and with respect to the eligibility of our common stock for investment by the purchaser under relevant Canadian legislation. 53 EXPERTS Our financial statements as of June 30, 1998 and 1999 and for the years then ended have been included in this prospectus and the registration statement in reliance upon the report of KPMG LLP, independent certified public accountants, appearing elsewhere in this prospectus, and upon the authority of such firm as experts in auditing and accounting. LEGAL MATTERS The validity of the common stock offered hereby will be passed upon for us by Baker Botts L.L.P., New York, New York. Certain legal matters in connection with the offering will be passed upon for the underwriters by Weil, Gotshal & Manges LLP, New York, New York. ADDITIONAL INFORMATION We have filed with the SEC a registration statement on Form S-1, including its exhibits and schedules, under the Securities Act with respect to the shares to be sold in this offering. This prospectus, which forms a part of the registration statement, does not contain all the information included in the registration statement. You should refer to the registration statement, including its exhibits and schedules, for further information about us or the shares to be sold in this offering. Statements contained in this prospectus as to the contents of any contract or other document referred to are not necessarily complete, and where any contract or other document is an exhibit to the registration statement, we refer you to that exhibit for a more complete description of the matter involved. We are not currently subject to the informational requirements of the Securities Exchange Act of 1934. However, as a result of this offering, we will become subject to the informational requirements of the Securities Exchange Act. Accordingly, following this offering, we will file reports and other information with the SEC. You may read and copy the registration statement or any reports, statements or other information we file with the SEC at the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800- SEC-0330 for further information on the public reference rooms. Our SEC filings, including the registration statement, are also available to you on the SEC Internet site (http://www.sec.gov). In addition, reports, proxy statements and other information concerning LinkShare may be inspected at the National Association of Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006. 54 LINKSHARE CORPORATION INDEX TO FINANCIAL STATEMENTS
Page ---- Independent Auditors' Report.............................................. F-2 Balance Sheets as of June 30, 1998 and 1999 and December 31, 1999 (unaudited).............................................................. F-3 Statements of Operations for the years ended June 30, 1998 and 1999, and for the six months ended December 31, 1998 (unaudited) and December 31, 1999 (unaudited)......................................................... F-4 Statements of Stockholders' Equity (Deficit) for the years ended June 30, 1998 and 1999, and for the six months ended December 31, 1999 (unaudited)....................... F-5 Statements of Cash Flows for the years ended June 30, 1998 and 1999, and for the six months ended December 31, 1998 (unaudited) and December 31, 1999 (unaudited)......................................................... F-6 Notes to Financial Statements............................................. F-7
F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors LinkShare Corporation: We have audited the accompanying balance sheets of LinkShare Corporation as of June 30, 1998 and 1999, and the related statements of operations, stockholders' equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of LinkShare Corporation as of June 30, 1998 and 1999, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. KPMG LLP New York, New York February 16, 2000 F-2 LINKSHARE CORPORATION BALANCE SHEETS
Pro Forma June 30, (Note 1) ---------------------- December 31, December 31, 1998 1999 1999 1999 --------- ----------- ------------ ------------ (unaudited) ASSETS Current assets: Cash and cash equivalents............................... $ 4,000 $ 238,666 $ 6,822 $ 3,661,822 Short-term investments.................................. -- 398,695 -- -- Accounts receivable, less allowance for doubtful accounts and returns of $0, $95,000 and $254,000 as of June 30, 1998, June 30, 1999 and December 31, 1999, respectively........................................... 2,847 479,880 2,344,941 2,344,941 Prepaid expenses and other current assets............... 67,475 20,327 19,840 19,840 --------- ----------- ----------- ----------- Total current assets.................................. 74,322 1,137,568 2,371,603 6,026,603 Property and equipment, net............................... 26,718 605,988 2,157,757 2,157,757 Other assets, net......................................... 680 44,602 222,162 222,162 --------- ----------- ----------- ----------- Total assets.......................................... $ 101,720 $ 1,788,158 $ 4,751,522 $ 8,406,522 ========= =========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable........................................ $ 103,987 $ 650,153 $ 2,190,812 $ 2,190,812 Accrued expenses........................................ 140,404 184,158 499,161 499,161 Deferred revenue........................................ 12,833 391,144 1,084,838 1,084,838 Advances from stockholders.............................. -- -- 345,000 -- Convertible notes payable............................... -- -- 2,500,000 -- --------- ----------- ----------- ----------- Total current liabilities............................. 257,224 1,225,455 6,619,811 3,774,811 Stockholders' equity (deficit): Preferred stock, $.001 par value; 3,750,000 shares authorized: Series A convertible preferred stock, 3,250,000 shares authorized, 0, 3,242,148 and 3,242,148 shares issued and outstanding as of June 30, 1998 and 1999 and December 31, 1999, respectively, none issued on a pro forma basis (liquidation preference of $4,000,000 at June 30, 1999)....................................... -- 3,242 3,242 -- Common stock, $.001 par value; 10,000,000 shares authorized, 4,000,000 shares issued and outstanding; shares issued on a pro forma basis................. 4,000 4,000 4,000 7,242 Additional paid-in capital.............................. 33,924 5,449,886 6,778,751 14,903,751 Deferred compensation................................... -- (1,320,485) (1,879,235) (1,879,235) Accumulated deficit..................................... (193,428) (3,573,940) (6,775,047) (8,400,047) --------- ----------- ----------- ----------- Total stockholders' equity (deficit).................. (155,504) 562,703 (1,868,289) 4,631,711 --------- ----------- ----------- ----------- Commitments and contingencies Total liabilities and stockholders' equity (deficit).. $ 101,720 $ 1,788,158 $ 4,751,522 $ 8,406,522 ========= =========== =========== ===========
See accompanying notes to financial statements. F-3 LINKSHARE CORPORATION STATEMENTS OF OPERATIONS
Six months ended Year ended June 30, December 31, ---------------------- ------------------------- 1998 1999 1998 1999 --------- ----------- ------------ ----------- (unaudited) Revenues: Licensing fees........... $ 8,167 $ 220,881 $ 45,275 $ 611,328 Network fees............. 39,327 493,820 94,038 2,001,297 --------- ----------- ------------ ----------- Total revenues......... 47,494 714,701 139,313 2,612,625 --------- ----------- ------------ ----------- Operating expenses: Cost of revenues......... 12,968 125,432 16,544 407,826 Sales and marketing...... 41,026 1,795,020 430,161 2,775,924 Product development...... 103,520 620,521 212,354 718,576 General and administrative.......... 83,408 1,412,303 453,724 1,129,940 Noncash compensation..... -- 203,039 92,143 250,610 --------- ----------- ------------ ----------- Total operating expenses.............. 240,922 4,156,315 1,204,926 5,282,876 --------- ----------- ------------ ----------- Loss from operations... (193,428) (3,441,614) (1,065,613) (2,670,251) Interest income............ -- 61,102 28,344 18,649 Interest expense........... -- -- -- (549,505) --------- ----------- ------------ ----------- Net loss............... $(193,428) $(3,380,512) $ (1,037,269) $(3,201,107) ========= =========== ============ =========== Basic and diluted net loss per share................. $ (0.05) $ (0.85) $ (0.26) $ (0.80) ========= =========== ============ =========== Shares used in computing basic and diluted net loss per share ................ 4,000,000 4,000,000 4,000,000 4,000,000 ========= =========== ============ ===========
See accompanying notes to financial statements. F-4 LINKSHARE CORPORATION STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) YEARS ENDED JUNE 30, 1998 AND 1999 AND SIX MONTHS ENDED DECEMBER 31, 1999
Series A Total Preferred Stock Common Stock Additional stockholders' ---------------- ---------------- paid-in Deferred Accumulated equity Shares Amount Shares Amount capital Compensation deficit (deficit) --------- ------ --------- ------ ---------- ------------ ----------- ------------- Balance at June 30, 1997................... -- $ -- -- $ -- $ -- $ -- $ -- $ -- Issuance of common stock to founders..... -- -- 4,000,000 4,000 33,924 -- -- 37,924 Net loss............... -- -- -- -- -- -- (193,428) (193,428) --------- ------ --------- ------ ---------- ----------- ----------- ----------- Balance at June 30, 1998................... -- -- 4,000,000 4,000 33,924 -- (193,428) (155,504) Issuance of Series A convertible preferred stock, net of $104,320 of issuance costs..... 3,242,148 3,242 -- -- 3,892,438 -- -- 3,895,680 Deferred compensation in connection with grant of stock options............... -- -- -- -- 1,523,524 (1,523,524) -- -- Amortization of deferred compensation.......... -- -- -- -- -- 203,039 -- 203,039 Net loss............... -- -- -- -- -- -- (3,380,512) (3,380,512) --------- ------ --------- ------ ---------- ----------- ----------- ----------- Balance at June 30, 1999................... 3,242,148 3,242 4,000,000 4,000 5,449,886 (1,320,485) (3,573,940) 562,703 Deferred compensation in connection with grant of stock options (unaudited)........... -- -- -- -- 809,360 (809,360) -- -- Amortization of deferred compensation (unaudited)........... -- -- -- -- -- 250,610 -- 250,610 Issuance of warrants in connection with convertible notes (unaudited)........... -- -- -- -- 519,505 -- -- 519,505 Net loss for the period (unaudited)........... -- -- -- -- -- -- (3,201,107) (3,201,107) --------- ------ --------- ------ ---------- ----------- ----------- ----------- Balance at December 31, 1999 (unaudited)....... 3,242,148 $3,242 4,000,000 $4,000 $6,778,751 $(1,879,235) $(6,775,047) $(1,868,289) ========= ====== ========= ====== ========== =========== =========== ===========
See accompanying notes to financial statements. F-5 LINKSHARE CORPORATION STATEMENTS OF CASH FLOWS
Six months Ended Year ended June 30, December 31, ---------------------- ------------------------ 1998 1999 1998 1999 --------- ----------- ----------- ----------- (unaudited) Cash flows from operating activities: Net loss.................... $(193,428) $(3,380,512) $(1,037,269) $(3,201,107) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization.............. 11,206 84,494 16,390 210,731 Noncash compensation....... -- 203,039 92,143 250,610 Noncash financing expense from issuance of warrants.................. -- -- -- 519,505 Provision for doubtful accounts.................. 25,000 261,000 -- 158,760 Changes in operating assets and liabilities: Accounts receivable....... (27,847) (738,033) (228,830) (2,023,821) Prepaid expenses and other current assets........... (67,475) 47,148 67,206 487 Accounts payable.......... 103,987 546,166 245,130 1,540,659 Accrued expenses.......... 140,404 43,754 (44,563) 315,003 Deferred revenue.......... 12,833 378,311 230,125 693,694 --------- ----------- ----------- ----------- Net cash (used in) provided by operating activities.............. 4,680 (2,554,633) (659,668) (1,535,479) --------- ----------- ----------- ----------- Cash flows from investing activities: Sale (purchase) of short- term investments........... -- (398,695) -- 398,695 Purchase of property and equipment.................. -- (657,286) (132,654) (1,759,097) Other assets................ (680) (50,400) (35,958) (180,963) --------- ----------- ----------- ----------- Net cash used in investing activities.... (680) (1,106,381) (168,682) (1,541,365) --------- ----------- ----------- ----------- Cash flows from financing activities: Net proceeds from issuance of convertible notes....... -- -- -- 2,500,000 Advances from stockholders.. -- -- -- 345,000 Net proceeds from issuance of Series A convertible preferred stock............ -- 3,895,680 3,895,680 -- --------- ----------- ----------- ----------- Net cash provided by financing activities.... -- 3,895,680 3,895,680 2,845,000 --------- ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents............. 4,000 234,666 3,067,400 (231,844) Cash and cash equivalents at beginning of year........... -- 4,000 4,000 238,666 --------- ----------- ----------- ----------- Cash and cash equivalents at the end of year............. $ 4,000 $ 238,666 $3,071,400 $ 6,822 ========= =========== =========== =========== Supplemental disclosure of noncash transactions: Issuance of common stock to founders in exchange for fixed assets............... $ 37,924 $ -- $ -- $ -- ========= =========== =========== ===========
See accompanying notes to financial statements. F-6 LINKSHARE CORPORATION NOTES TO FINANCIAL STATEMENTS JUNE 30, 1998 AND 1999 (All information subsequent to June 30, 1999 is unaudited) (1) Summary of Operations and Significant Accounting Policies (a) Summary of Operations LinkShare Corporation ("LinkShare" or the "Company") was incorporated on July 1, 1997. LinkShare enables the formation of cooperative, performance-based online business relationships. The Company's networks and technology enable online businesses to find the right Web sites for those business relationships, negotiate the terms of their relationships with the publishers of those Web sites, and evaluate the success of those relationships. The Company's first network is The LinkShare Network(TM), an affiliate marketing solution that enables online merchants to establish performance-based relationships with thousands of Web site publishers who seek to convert visitor traffic into revenues by becoming marketing "affiliates" of those merchants. The LinkShare Network(TM) provides affiliate Web sites a quick and easy way to establish hyperlink promotions with the merchant members of the network to drive traffic from its site to a merchant's Web site. If a visitor accesses a merchant's Web site through that hyperlink and takes a prescribed action, such as buying a product, the affiliate earns a fee payable by that merchant. Merchants pay LinkShare fees for access to the network and for tracking the activity that occurs through their links with their marketing affiliates. The Company operates in one segment, operating online networks and providing software and services to support those networks. (b) Unaudited Interim Financial Information The interim financial statements of the Company as of December 31, 1999, and for the six months ended December 31, 1998 and 1999, are unaudited. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") relating to interim financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the financial position, the results of operations and cash flows have been included in such unaudited financial statements. The results of operations for the six months ended December 31, 1999, are not necessarily indicative of the results to be expected for the entire year. (c) Use of Estimates The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (d) Cash and Cash Equivalents and Short Term Investments The Company considers all highly liquid securities, with original maturities of three months or less when acquired, to be cash equivalents. Cash equivalents, consisting of money market accounts, were approximately $0 and $418,000 at June 30, 1998 and 1999, respectively. Short-term investments at June 30, 1999, are comprised entirely of U.S. Treasury bills, which matured in July 1999. Such investments were classified as available for sale and are carried at amortized cost, which approximates fair value. (e) Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets, which is three years for computer F-7 LINKSHARE CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) equipment and software and seven years for office equipment. Leasehold improvements are amortized over the shorter of the related lease term or the asset's estimated useful life. (f) Other Assets At June 30, 1999, other assets include $49,650 of intangible assets, which are comprised of costs incurred for patents and trademarks related to the Company's networks and software. Amortization is provided using the straight- line method over five years. Accumulated amortization was $0 and $6,478 as of June 30, 1998 and 1999, respectively. (g) Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in results of operations in the period that the tax change occurs. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. (h) Revenue Recognition The Company's revenues are derived primarily from software and network access licensing fees and network fees for services provided to members of the Company's networks, generally calculated as a percentage of net sales, or fee per activity, generated through the networks, or from click-throughs, calculated at a cost per thousand click-throughs ("CPM"). Licensing fees are deferred at the time of software shipment and billing and recognized as revenue ratably over the related contractual period the Company provides network availability. The Company does not perform software installation and integration services. Network fees are recognized monthly, when earned or when the applicable service is provided. Cost of revenues primarily consists of the costs of operating the networks, including depreciation of servers and related software and Internet connectivity and technical support costs. (i) Product Development Costs Software development costs incurred subsequent to the establishment of technological feasibility through general release of products are capitalized and amortized over the estimated lives of the related products. Technological feasibility is established upon completion of a working model. To date, the timing of completion of a working model of the Company's products and general release have substantially coincided. As a result, the Company has not capitalized any software development costs since such costs have not been significant. All development costs have been charged to product development expense in the accompanying statements of operations. (j) Stock-Based Compensation Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant or to continue to apply the provisions of Accounting Principle Board ("APB") Opinion No. 25 and provide pro forma net earnings (loss) disclosures for employee stock option grants as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to apply the provisions of APB Opinion No. 25 and records compensation expense for employee stock options F-8 LINKSHARE CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) for the excess, if any, of the market price of the underlying stock on the date of grant over the exercise price, and provides the pro forma disclosures. (k) Advertising Costs The Company expenses the cost of advertising and promoting its services as incurred. (l) Financial Instruments and Concentration of Credit Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist of cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued expenses. At June 30, 1998 and 1999, the fair value of these instruments approximated their financial statement carrying amount because of the short-term maturity of these instruments. No single customer exceeded 10% of either revenue or accounts receivable for any period presented. (m) Long-Lived Assets The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to future net cash flows expected to be generated by the assets. If the assets are considered to be impaired, the impairment loss to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. (n) Basic and Diluted Net Loss Per Share Basic earnings per share ("EPS") excludes dilution for common stock equivalents and is computed by dividing income or loss available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS is computed based on the weighted average number of shares outstanding increased by the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Diluted net loss per share is equal to basic net loss per share for each of the periods presented since all common stock equivalents are anti-dilutive. Potential dilutive shares consist of stock options, convertible preferred stock, convertible notes payable and warrants. During the year ended June 30, 1998, there were no potentially dilutive common stock equivalents. As of June 30, 1999, there were outstanding preferred shares convertible into 3,242,148 shares of common stock and options to purchase 951,470 shares of common stock. As of December 31, 1999, there were outstanding preferred shares convertible into 3,242,148 shares of common stock and options and warrants to purchase 1,195,670 and 41,970 common shares, respectively. In addition, there were notes payable outstanding that, under differing circumstances, would be convertible into varying amounts of common stock (see note 9(a)). (o) Comprehensive Income (Loss) The Company has not presented separate statements of comprehensive income (loss) since, for all periods presented, comprehensive loss equaled net loss. (p) Recent Accounting Pronouncements In April 1998, Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up Activities", was issued which provides guidance on the financial reporting of start-up costs. SOP 98-5 requires costs of start-up activities and organization costs to be expensed as incurred. The Company adopted SOP 98-5 as of July 1, 1997. F-9 LINKSHARE CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including derivative instruments embedded in other contracts, and for hedging activities. Subsequently, SFAS No. 137 was issued, which deferred the effective date of SFAS No. 133 to all fiscal quarters of fiscal years beginning after June 15, 2000. SFAS No. 133 is not expected to affect the Company, as the Company does not have any derivative instruments or hedging activities. (q) Pro Forma Balance Sheet (unaudited) Upon the closing of the Company's planned initial public offering, all of the outstanding shares of Series A Convertible preferred stock will automatically convert on a 1-for-1 basis into 3,242,148 shares of common stock assuming an offering of at least $15 million and an offering price of at least $4.94 per share. Subsequent to December 31, 1999, the Company received $3,655,000 from the issuance of the 2000 Notes and stockholder advances and, on February 7, 2000, all outstanding notes and advances were exchanged for 2000 Notes (see note 9(a)). Upon the closing of the Company's planned initial public offering, all convertible notes payable will automatically convert into approximately shares of common stock, assuming an offering price of $ . The unaudited pro forma presentation of the balance sheet has been prepared assuming the issuance of the 2000 Notes, the recording of a charge for the related beneficial conversion feature and the conversion of the convertible preferred stock and convertible notes payable into common stock at December 31, 1999. (2) Property and Equipment Property and equipment is summarized as follows:
June 30, ---------------- December 31, 1998 1999 1999 ------- -------- ------------ Computer equipment and software.............. $35,924 $671,018 $1,430,485 Office equipment............................. 2,000 24,191 66,643 Leasehold improvements....................... -- -- 957,178 ------- -------- ---------- 37,924 695,209 2,454,306 Less accumulated depreciation and amortization................................ 11,206 89,221 296,549 ------- -------- ---------- $26,718 $605,988 $2,157,757 ======= ======== ==========
Depreciation and amortization expense was $11,206 and $78,016 for the years ended June 30, 1998 and 1999, respectively, and $14,086 and $207,328 for the six months ended December 31, 1998 and 1999, respectively. (3) Capitalization Common Stock At formation, 200,000 shares of common stock were issued to the Company's founders. In July 1998, coincidental with the sale of preferred stock, the Company declared a 20-for-1 common stock split, resulting in 4,000,000 shares of common stock outstanding. All references to the number of shares of common stock and per share amounts have been adjusted to reflect the stock split. In addition, stockholders' equity (deficit) has been restated to give retroactive recognition to the split in prior periods by reclassifying from additional paid-in capital to common stock the par value of the additional shares arising from the split. F-10 LINKSHARE CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) Preferred Stock In July and August 1998, the Company sold in a private placement an aggregate of 3,242,148 shares of Series A Convertible preferred stock ("Series A Preferred") at a purchase price of $1.23375 per share. Proceeds, net of offering costs of $104,320, amounted to $3,895,680. Each share of Series A Preferred is convertible into one share of common stock, subject to adjustment for certain events. Shares of Series A Preferred shall automatically be converted into shares of common stock upon the closing of an underwritten public offering resulting in gross proceeds to the Company equal to or greater than $15,000,000 at a price per share of at least $4.94. The Series A Preferred is not redeemable at the option of the holder or the Company and the purchase price exceeded the fair value of the Company's common stock on the date of issuance. The Series A Preferred shares have equal voting rights with the shares of the Company's common stock. (4) Stock Options In July 1998, the Company established its Long-Term Incentive Plan (the "Plan"), which provides for the grant of options and stock appreciation rights and awards to employees, consultants and directors to purchase up to 2,576,597 shares of common stock, as amended. The Plan provides for the granting of nonqualified and incentive stock options with a duration of ten years or less from the date of grant. The exercise price for all incentive stock options shall be no less than 100% of the fair value of common stock at the time of the grant. The Board of Directors may provide that option exercise prices may be paid in cash, common stock, or a portion of an award, or any combination thereof. The Company applies APB No. 25 in accounting for its stock options granted to employees and, accordingly, compensation expense has been recognized in the financial statements for those nonqualified options issued with exercise prices less than the fair value of the common stock at the date of grant. During fiscal 1999, certain of the options granted to employees had exercise prices less than the fair value of the common stock on the date of grant. Deferred compensation related to these options was $1,523,524, which is being amortized over the vesting periods. Compensation expense related to these options was $203,039 for the year ended June 30, 1999. Had the Company determined compensation expense based on the fair value at the date of grant for its stock options granted to employees under SFAS No. 123, the Company's net loss would have been adjusted to the pro forma amounts indicated below:
Year ended June 30, ---------------------- 1998 1999 --------- ----------- Net loss--as reported............................. $(193,428) $(3,380,512) ========= =========== Net loss--pro forma............................... $(193,428) $(3,387,786) ========= =========== Diluted loss per share--as reported............... $ (0.05) $ (0.85) ========= =========== Diluted loss per share--pro forma................. $ (0.05) $ (0.85) ========= ===========
During the year ended June 30, 1999, the per share weighted average fair value of stock options granted was $1.81 on the dates of grants using the Black Scholes option-pricing method with the following assumptions: expected dividend yield of 0%; risk-free interest rate of 5%; and an expected option life of four years. As permitted under the provisions of SFAS No. 123, and based on the lack of a historical public market for the Company's shares, no factor for volatility has been reflected in the option pricing calculation. F-11 LINKSHARE CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) A summary of the Company's stock option activity and weighted average exercise prices is as follows:
Weighted Number average of options exercise price ---------- -------------- Outstanding at June 30, 1998................... -- -- Granted........................................ 951,470 $ 1.01 Exercised...................................... -- -- Cancelled...................................... -- -- --------- Outstanding at June 30, 1999................... 951,470 1.01 Granted (unaudited)............................ 251,700 23.27 Exercised (unaudited).......................... -- -- Cancelled (unaudited).......................... (7,500) 1.23 --------- Outstanding at December 31, 1999 (unaudited)... 1,195,670 $ 5.69 ========= ====== Exercisable at June 30, 1999................... 114,869 ========= Options available for grant at June 30, 1999... 1,625,127 =========
The following table summarizes the information about stock options outstanding at June 30, 1999.
Options outstanding Options exercisable --------------------------------- ---------------------------- Range of Weighted average exercise Number remaining Weighted average Number Weighted average price outstanding contractual life exercise price outstanding exercise price -------- ----------- ---------------- ---------------- ----------- ---------------- $0.13 196,555 9 years $0.13 114,869 $0.13 $1.23 754,915 9.6 years $1.23 -- -- ------- ------- 951,470 114,869 ======= =======
(5) Income Taxes There has been no provision for U.S. Federal income taxes for all periods presented, since the Company has incurred losses since inception. Significant components of the Company's deferred tax assets for Federal and state income taxes at June 30, 1998 and 1999 are as follows:
1998 1999 -------- ----------- Deferred tax assets: Net operating loss carryforwards.................. $ 61,000 $ 1,296,000 Noncash compensation.............................. -- 81,000 Fixed assets depreciation......................... 16,400 7,000 Accounts receivable allowance..................... -- 38,000 -------- ----------- Total deferred tax assets....................... 77,400 1,422,000 Less valuation allowance............................ (77,400) (1,422,000) -------- ----------- Net deferred tax assets......................... $ -- $ -- ======== ===========
Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. The Company has recorded a full valuation allowance against its deferred tax assets due to the uncertainty of realization. F-12 LINKSHARE CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) As of June 30, 1999, the Company had net operating loss carryforwards for Federal income tax purposes of approximately $3,240,000, expiring in fiscal 2018 and 2019. There can be no assurance that the Company will realize the benefit of the net operating loss carryforwards. Due to the "change of ownership" provisions of Section 382 of the Internal Revenue Code, the availability of the Company's net operating loss carryforwards may be subject to an annual limitation against taxable income in future periods, which could substantially limit the eventual utilization of these carryforwards. (6) Commitments and Contingencies: The Company leases office space in several locations under agreements accounted for as operating leases. These leases generally require the Company to pay all executory costs such as maintenance and insurance. Rent expense for the years ended June 30, 1998 and 1999 and for the six months ended December 31, 1998 and 1999 was approximately $0, $33,000, $14,279 and $322,155, respectively. Future minimum lease payments under operating leases are as follows:
Year ending June 30, Amount -------------------- ---------- 2000........................................................... $ 667,376 2001........................................................... 680,138 2002........................................................... 702,383 2003........................................................... 714,642 2004........................................................... 499,875 Thereafter..................................................... 1,143,811 ---------- Total minimum lease payments................................. $4,408,225 ==========
(7) Valuation and Qualifying Accounts The changes in the allowance for doubtful accounts and returns is as follows:
Provision Balance at for Balance beginning doubtful Write- at end of period accounts offs of period ---------- --------- -------- --------- Year ended June 30, 1998........... $ -- $ 25,000 $ 25,000 $ -- Year ended June 30, 1999........... $ -- $261,000 $166,000 $ 95,000 Six months ended December 31, 1999 (unaudited)....................... $95,000 $159,000 -- $254,000
(8) Employment Agreements In July 1998, the Company entered into employment agreements with two of its executive officers. These agreements will be in effect for two years and may be terminated by the Company at any time without cause and by the executive officers under certain conditions. (9) Subsequent Events--Unaudited (a) Convertible Notes Payable On August 23, 1999 and November 18, 1999, the Company issued noninterest- bearing Convertible Promissory Notes (the "1999 Notes") to its common and Series A Preferred stockholders (collectively the "Lenders"), with an aggregate principal amount of $1,500,000 and $1,000,000, respectively. Upon the closing of a preferred stock financing with gross proceeds to the Company of at least $4 million, the 1999 Notes would F-13 LINKSHARE CORPORATION NOTES TO FINANCIAL STATEMENTS--(Continued) have automatically converted into preferred shares similar to those issued in the preferred stock financing, with the number of shares issued determined by dividing the principal balance by the price paid by third parties for the preferred stock. The 1999 Notes were payable on November 23, 1999 and December 31, 1999, respectively. The 1999 Notes were not repaid on their due dates. As a result, they were due on demand and, commencing from the due dates, began to accrue interest at 18% per annum. In connection with the issuance of the convertible notes in August 1999, the Company issued warrants to purchase an aggregate of 41,970 shares of common stock to one of the Lenders. The Company issued the warrants ratably on the 23rd day of each month from August to December 1999. The warrants can be exercised at $1 per share for five years from the date of issuance. The Company recorded the fair value of the warrants, amounting to $519,505, as financing expense for the six months ended December 31, 1999. From October 21, 1999 through January 6, 2000, certain of the Company's common and Series A Preferred stockholders advanced the Company an aggregate of $1,029,152, of which $345,000 was received by the Company as of December 31, 1999. On February 7, 2000 the Company issued Convertible Promissory Notes to the Lenders with an aggregate principal amount of $6,500,000 (the "2000 Notes"). The 2000 Notes in an aggregate principal amount of $2,500,000 were issued in exchange for the 1999 Notes, which were retired and $1,029,152 of the 2000 Notes were issued in exchange for the advances. In addition, the Lenders waived their right to receive any unpaid interest accrued under the 1999 Notes. The 2000 Notes are due on July 31, 2000 and bear interest at the rate of 6.2% per annum. If the Company closes an underwritten initial public offering of its common stock under the Securities Act of 1933, the 2000 Notes will automatically convert into that number of common shares determined by dividing the principal balance, plus accrued interest, by 80% of the price per share at which common stock is sold to the public. If earlier, upon the closing of a preferred stock financing with gross proceeds to the Company of at least $4,000,000, the 2000 Notes shall automatically convert into preferred shares similar to those issued in the preferred stock financing, with the number of shares issued determined by dividing the principal balance, plus accrued interest, by the price per share paid by third parties for the preferred stock. If the Company is acquired prior to the closing of either of these financings, the 2000 Notes will be due on demand, repayable at two times the principal balance. Based on the fair value of the common stock on February 7, 2000, the convertible notes payable had a beneficial conversion feature of $1,625,000, which will be allocated to additional paid-in-capital and recognized as interest expense upon the closing of an underwritten initial public offering of the Company's common stock. (b) Options During January 2000, the Company granted options to purchase an aggregate of 471,636 shares of the Company's common stock resulting in additional deferred compensation of $8.9 million, which will be expensed over the options' vesting periods. (c) Authorized Shares On February 4, 2000, the Company increased its authorized common shares to 13,000,000. F-14 PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Registration. The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by us in connection with the sale of securities being registered. All amounts are estimates except the registration fee, the NASD filing fee and the Nasdaq National Market entry and application fee. Registration fee................................................. $15,180 NASD filing fee.................................................. $ 6,250 Blue Sky/NASD fees and expenses (including legal fees)........... $ * Nasdaq National Market entry and application fee................. $ * Transfer agent and registrar fees................................ $ 4,500 Printing and engraving expenses.................................. $ * Other legal fees and expenses.................................... $ * Accounting fees and expenses..................................... $ * Miscellaneous.................................................... $ * ------- Total........................................................ $ * =======
- -------- * To be completed by amendment. Item 14. Indemnification of Directors and Officers. Section 145 of the Delaware General Corporation Law ("DGCL") provides, generally, that a corporation shall have the power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (except actions by or in the right of the corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the corporation against all expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. A corporation may similarly indemnify such person for expenses actually and reasonably incurred by such person in connection with the defense or settlement of any action or suit by or in the right of the corporation, provided such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, in the case of claims, issues and matters as to which such person shall have been adjudged liable to the corporation, provided that a court shall have determined, upon application, that, despite the adjudication of liability but in view of all of the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. Section 102(b)(7) of the DGCL provides, generally, that the certificate of incorporation may contain a provision eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that such provision may not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under section 174 of Title 8 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. No such provision may eliminate or limit the liability of a director for any act or omission occurring prior to the date when such provision became effective. II-1 Upon the closing of this offering, Article V, Section E of the Restated Certificate of Incorporation, as amended ("LinkShare charter"), of LinkShare Corporation, a Delaware corporation ("LinkShare"), will provide as follows: 1. Limitation on Liability To the fullest extent permitted by the DGCL as the same exists or may hereafter be amended, a director of LinkShare shall not be liable to LinkShare or any of its stockholders for monetary damages for breach of fiduciary duty as a director. Any repeal or modification of this subparagraph 1 shall be prospective only and shall not adversely affect any limitation, right or protection of a director of LinkShare existing at the time of such repeal or modification. 2. Indemnification (a) Right to Indemnification. LinkShare shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding") by reason of the fact that he, or a person for whom he is the legal representative, is or was a director or officer of LinkShare or is or was serving at the request of LinkShare as a director, officer, employee or agent of another corporation or of a partnership, limited liability company, joint venture, trust, enterprise or nonprofit entity, including service with respect, to employee benefit plans, against all liability and loss suffered and expenses (including attorneys' fees) reasonably incurred by such person. Such right of indemnification shall inure whether or not the claim asserted is based on matters which antedate the adoption of this Section E. LinkShare shall be required to indemnify a person in connection with a proceeding (or part thereof) initiated by such person only if the proceeding (or part thereof) was authorized by the Board of Directors of LinkShare. (b) Prepayment of Expenses. LinkShare shall pay the expenses (including attorneys' fees) incurred by a director or officer in defending any proceeding in advance of its final disposition, provided, however, that the payment of expenses incurred by a director or officer in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the director or officer to repay all amounts advanced if it should be ultimately determined that the director or officer is not entitled to be indemnified under this subparagraph 2 or otherwise. (c) Claims. If a claim for indemnification or payment of expenses under this subparagraph 2 is not paid in full within 60 days after a written claim therefor has been received by LinkShare, the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action LinkShare shall have the burden of proving that the claimant was not entitled to the requested indemnification or payment of expenses under applicable law. (d) Non-Exclusivity of Rights. The rights conferred on any person by this subparagraph 2 shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of this Certificate, the Bylaws, agreement, vote of stockholders or disinterested directors or otherwise. (e) Other Indemnification. LinkShare's obligation, if any, to indemnify any person who was or is serving at its request as a director, officer, employee or agent of another corporation, partnership, limited liability company, joint venture, trust, enterprise or nonprofit entity shall be reduced by any amount such person may collect as indemnification from such other corporation, partnership, limited liability company, joint venture, trust, enterprise or nonprofit entity. 3. Amendment or Repeal Any repeal or modification of the foregoing provisions of this Section E shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification." II-2 Item 15. Recent Sales of Unregistered Securities. (a) On July 18, 1997, LinkShare issued and sold an aggregate of 4,000,000 shares of its common stock to Stephen D. Messer, Heidi S. Messer and Jianhao Meng for an aggregate purchase price of $200 and fixed assets with a fair value of $37,924. (b) On July 16, 1998, LinkShare issued and sold 2,431,611 shares of Series A Preferred Stock to Internet Capital Group, LLC for $3,000,000. (c) On August 28, 1998, LinkShare issued and sold 810,537 shares of Series A Preferred Stock to Comcast Internet Investments I, Inc. for $1,000,000. (d) On August 23, 1999, LinkShare issued and sold (1) convertible notes having an aggregate face value of $1,500,000 to Stephen D. Messer, Heidi S. Messer, Jianhao Meng, Internet Capital Group, Inc. and Comcast Internet Investments I, Inc., for an aggregate purchase price of $1,500,000. Pursuant to the terms of the notes purchased by Comcast Internet Investments I, LinkShare issued warrants to purchase an aggregate of 41,970 shares of common stock at an exercise price of $1.00 per share to Comcast Interactive Capital, L.P., as successor in interest to Comcast Internet Investments I, Inc. The warrants were issued ratably on the 23rd day of each month from August to December 1999. (e) On November 18, 1999, LinkShare issued and sold convertible notes having an aggregate face value of $1,000,000 to Internet Capital Group, Inc. and Comcast Interactive Capital, LP. for an aggregate purchase price of $1,000,000. (f) On February 7, 2000, LinkShare issued and sold convertible notes having an aggregate face value of $6,500,000 to Stephen D. Messer, Heidi S. Messer, Jianhao Meng, Internet Capital Group, Inc. and Comcast Interactive Capital, LP. The consideration for those notes consisted of the surrender of the August 1999 and November 1999 convertible notes issued to such persons, waiver of interest accrued under those notes plus cash advances equal to the difference between the aggregate principal amount of the notes surrendered and the aggregate principal amount of the February 2000 notes. None of the foregoing transactions involved any underwriters, underwriting discounts or commissions, or any public offering, and LinkShare believes that each transaction was exempt from the registration requirements of the Securities Act by virtue of Section 4(2) thereof. The first transaction listed was the initial capitalization of LinkShare by its founders. In each other transaction the recipients of LinkShare securities represented to LinkShare that they were acquiring the securities for investment only and not with a view to the sale or distribution thereof. Appropriate legends were affixed to the share certificates or other instruments issued in each transaction. Each recipient of LinkShare securities had adequate access to information about LinkShare and the securities acquired through that recipient's relationship with LinkShare. Item 16. Exhibits and Financial Statement Schedules. (a) Exhibits. The following is a complete list of Exhibits filed as part of this Registration Statement.
Exhibit No. Document ----------- -------- 1.1 Form of Underwriting Agreement.* 3.1 Restated Certificate of Incorporation of the Registrant, as amended to date. 3.2 Form of Amended and Restated Certificate of Incorporation of the Registrant to be in effect upon the closing of this offering. 3.3 Bylaws of the Registrant, as amended to date. 3.4 Form of Amended and Restated Bylaws of the Registrant to be in effect upon the closing of this offering.
II-3
Exhibit No. Document ----------- -------- 4.1 Specimen certificate for shares of common stock, par value $.001 per share, of the Registrant. 4.2 Form of warrant to purchase common stock issued to Comcast Interactive Capital, L.P. 5.1 Form of Opinion of Baker Botts L.L.P. 10.1 Investor Rights Agreement, dated as of July 16, 1998. 10.2 LinkShare Corporation Long-Term Incentive Plan. 10.3 Lease Agreement and Sublease Agreement for 215 Park Avenue South, New York, New York. 10.4 Employment Agreement with Stephen D. Messer.* 10.5 Employment Agreement with Heidi S. Messer.* 23.1 Consent of KPMG LLP. 23.2 Form of Consent of Baker Botts L.L.P. (included in Exhibit 5.1). 24.1 Power of Attorney (included on page II-6).
- -------- * To be filed by amendment (b) Financial Statement Schedules. Schedules not listed above have been omitted because the information to be set forth therein is not material, not applicable or is shown in the financial statements or notes thereto. Item 17. Undertakings. (a) LinkShare hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser. (b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of LinkShare pursuant to the foregoing provisions, or otherwise, LinkShare has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by LinkShare of expenses incurred or paid by a director, officer or controlling person of LinkShare in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, LinkShare will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. (c) LinkShare hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on February 28, 2000. Linkshare Corporation By: /s/ Stephen D. Messer _______________________________ Name: Stephen D. Messer Title:Chairman of the Board and Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Joseph E. Young and Lee D. Charles, and each of them his true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign and file (1) any or all amendments (including post-effective amendments) to this Registration Statement, with all exhibits thereto, and other documents in connection therewith, and (2) a registration statement, and any and all exhibits thereto, relating to the offering covered hereby filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents and each of them full power and authority, to do and perform each and every act and thing requisite or necessary to be done in and about the premises, to all intents and purposes and as fully as they might or could do in person, hereby ratifying and confirming all that said attorneys- in-fact and agents or their substitutes may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated:
Signature Title Date --------- ----- ---- /s/ Stephen D. Messer Chairman of the Board, February 28, 2000 ______________________________________ Chief Executive Officer Stephen D. Messer and Director (Principal Executive Officer) /s/ Heidi S. Messer President and Director February 28, 2000 ______________________________________ Heidi S. Messer /s/ Douglas A. Alexander Director February 28, 2000 ______________________________________ Douglas A. Alexander /s/ Bowers W. Espy Treasurer and Chief February 28, 2000 ______________________________________ Financial Officer Bowers W. Espy (Principal Financial and Accounting Officer)
II-5 EXHIBIT INDEX
Exhibit No. Document ----------- -------- 1.1 Form of Underwriting Agreement.* 3.1 Restated Certificate of Incorporation of the Registrant, as amended to date. 3.2 Form of Amended and Restated Certificate of Incorporation of the Registrant to be in effect upon the closing of this offering. 3.3 Bylaws of the Registrant, as amended to date. 3.4 Form of Amended and Restated Bylaws of the Registrant to be in effect upon the closing of this offering. 4.1 Specimen certificate for shares of common stock, par value $.001 per share, of the Registrant. 4.2 Form of warrant to purchase common stock issued to Comcast Interactive Capital, LP. 5.1 Form of Opinion of Baker Botts L.L.P. 10.1 Investor Rights Agreement, dated as of July 16, 1998. 10.2 LinkShare Corporation Long-Term Incentive Plan. 10.3 Lease Agreement and Sublease Agreement for 215 Park Avenue South, New York, New York. 10.4 Employment Agreement with Stephen D. Messer.* 10.5 Employment Agreement with Heidi S. Messer.* 23.1 Consent of KPMG LLP. 23.2 Form of Consent of Baker Botts L.L.P. (included in Exhibit 5.1). 24.1 Power of Attorney (included on page II--6).
- -------- * To be filed by amendment. II-6 EX-3.1 2 CERTIFICATE OF INCORPORATION EXHIBIT 3.1 CERTIFICATE OF AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION OF LINKSHARE CORPORATION LINKSHARE CORPORATION, a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: (1) The name of the Corporation is LinkShare Corporation. The original Certificate of Incorporation of the Corporation was filed on July 1, 1997. The name under which the Corporation was originally incorporated is "LinkShare Technologies Corp." (2) This Certificate of Amendment amends the provisions of the Certificate of Incorporation of the Corporation, as previously amended and restated by a Restated Certificate of Incorporation dated July 16, 1998, to increase the number of authorized shares of Common Stock of the Corporation. (3) The Board of Directors of the Corporation duly adopted, by unanimous written consent in accordance with Section 141 of the Delaware General Corporation Law, resolutions that (i) set forth a proposed amendment of the Restated Certificate of Incorporation of the Corporation, (ii) declared said amendment to be advisable and in the best interests of the Corporation and (iii) directed that such amendment be submitted to the stockholders of the Corporation for consideration thereof. The text of the resolution setting forth the proposed amendment is as follows: RESOLVED, that Part A of Article IV of the Corporation's Restated Certificate of Incorporation shall, subject to requisite stockholder approval, be amended to read in its entirety as follows: "A. This Corporation is authorized to issue two classes of stock to be designated, respectively, 'Common Stock' and 'Preferred Stock.' The total number of shares which the Corporation is authorized to issue is Sixteen Million Seven Hundred Fifty Thousand (16,750,000) shares, Thirteen Million (13,000,000) shares of which shall be Common Stock (the "Common Stock"), and Three Million Seven Hundred Fifty Thousand (3,750,000) shares of which shall be Preferred Stock (the "Preferred Stock"). The Preferred Stock shall have a par value of $0.001 per share and the Common Stock shall have a par value of $0.001 per share." (4) Thereafter, pursuant to resolution of the Corporation's Board of Directors, the foregoing amendment to the Restated Certificate of Incorporation of the Corporation was submitted to and duly approved and adopted the stockholders of the Corporation by unanimous written consent in accordance with Section 228 of the Delaware General Corporation Law. (5) Such amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed by its Chairman and Chief Executive Officer this 25th day of February, 2000. LINKSHARE CORPORATION By: /s/ Stephen D. Messer ------------------------------------ Stephen D. Messer Chairman and Chief Executive Office RESTATED CERTIFICATE OF INCORPORATION OF LINKSHARE CORPORATION ONE: The name of this corporation is LinkShare Corporation. The original name of this corporation was LinkShare Technologies, Corp., and the date of filing the original Certificate of Incorporation of this corporation with the Secretary of State of the State of Delaware is July 1, 1997. The following amendment and restatement of the Certificate of Incorporation has been duly adopted in accordance with Sections 242 and 245 of the General Corporation Law of the State of Delaware by the Board of Directors and the stockholders of the Company. TWO: The Certificate of Incorporation of this corporation is hereby amended and restated to read as follows: I. The name of the corporation is LINKSHARE CORPORATION (the "Corporation" or the "Company"). II. The address of the registered office of the Corporation in the State of Delaware is: 1013 Centre Road City of Wilmington County of New Castle Delaware 19805 The name of the Corporation's registered agent at said address is Corporation Service Company. III. The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware. IV. A. This Corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares which the Corporation is authorized to issue is Thirteen Million Seven Hundred Fifty Thousand (13,750,000) shares, Ten Million (10,000,000) shares of which shall be Common Stock (the "Common Stock") and Three Million Seven Hundred Fifty Thousand (3,750,000) shares of which shall be Preferred Stock (the "Preferred Stock"). The Preferred Stock shall have a par value of $.001 per share and the Common Stock shall have a par value of $.001 per share. 1 B. Upon the effective date of this Amended and Restated Certificate of Incorporation each outstanding share of Common Stock shall be split and reconstituted into 20 shares of Common Stock. Each of such shares of Common Stock shall be fully paid and nonassessable. Effective as of such date, each stock certificate that, immediately prior to such split and reconstitution, evidenced any shares of the Corporation's Common Stock as then constituted (an "Existing Certificate") shall continue to be valid and shall evidence ownership of 20 times the number of shares of Common Stock enumerated thereon, and no surrender for any notation upon, change in or exchange, substitution or surrender of, any such certificate shall be required by virtue of such split or reconstitution. Each holder of an Existing Certificate, however, shall be entitled upon surrender of such Existing Certificate to the Corporation for cancellation to receive one or more new certificates that in the aggregate represent the full number of shares of Common Stock into which the issued and outstanding shares of Common Stock evidenced thereby have been split and reconstituted as provided herein. C. The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares of Common Stock then outstanding) by the affirmative vote of the holders of a majority of the stock of the Corporation (voting together on an as-if-converted basis). D. Three Million Two Hundred Fifty Thousand (3,250,000) of the authorized shares of Preferred Stock are hereby designated "Series A Preferred Stock" (the "Series Preferred"). E. The rights, preferences, privileges, restrictions and other matters relating to the Series Preferred are as follows: 1. DIVIDEND RIGHTS. a. Holders of Series Preferred, in preference to the holders of any other stock of the Company ("Junior Stock"), shall be entitled to receive, when, as and if declared by the Board of Directors, but only out of funds that are legally available therefor, cash dividends at the rate of eight percent (8%) of the "Original Issue Price" per annum on each outstanding share of Series Preferred (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares). The Original Issue Price of the Series Preferred shall be $1.23375 (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares). Such dividends shall be payable only when, as and if declared by the Board of Directors and shall be non-cumulative. b. So long as any shares of Series Preferred shall be outstanding, no dividend, whether in cash or property, shall be paid or declared, nor shall any other distribution be made, on any Junior Stock, nor shall any shares of any Junior Stock of the Company be purchased, redeemed, or otherwise acquired for value by the Company (except for acquisitions of Common Stock by the Company pursuant to agreements which permit the Company to repurchase such shares upon termination of services to the Company or in exercise of the Company's right of first refusal upon a proposed transfer) until all dividends (set forth in Section 1a above) on the Series Preferred shall have been paid or declared and set apart. In the event dividends are paid on any share of Common Stock, an additional dividend shall be paid with 2 respect to all outstanding shares of Series Preferred in an amount equal per share (on an as-if-converted to Common Stock basis) to the amount paid or set aside for each share of Common Stock. The provisions of this Section 1b shall not, however, apply to (i) a dividend payable in Common Stock, (ii) the acquisition of shares of any Junior Stock in exchange for shares of any other Junior Stock, or (iii) any repurchase of any outstanding securities of the Company that is unanimously approved by the Company's Board of Directors. 2. VOTING RIGHTS. a. General Rights. Except as otherwise provided herein or as required by law, the Series Preferred shall be voted equally with the shares of the Common Stock of the Company and not as a separate class, at any annual or special meeting of shareholders of the Company, and may act by written consent in the same manner as the Common Stock, in either case upon the following basis: each holder of shares of Series Preferred shall be entitled to such number of votes as shall be equal to the whole number of shares of Common Stock into which such holder's aggregate number of shares of Series Preferred are convertible (pursuant to Section 4 hereof) immediately after the close of business on the record date fixed for such meeting or the effective date of such written consent. b. Separate Vote of Series Preferred. For so long as at least Five Hundred Thousand (500,000) shares of Series Preferred (subject to adjustment for any stock split, reverse stock split or other similar event affecting the Series Preferred) remain outstanding, in addition to the vote or written consent of the holders of at least a majority of the Common Stock (as a separate class) or any other vote or consent required herein or by law, the vote or written consent of the holders of at least a majority of the outstanding Series Preferred shall be necessary for effecting or validating the following actions: (i) Any amendment, alteration, or repeal of any provision of the Certificate of Incorporation or the Bylaws of the Company (including any filing of a Certificate of Designation), that adversely alters or changes the voting powers, preferences, or other special rights or privileges, or restrictions of the Series Preferred; (ii) Any increase or decrease (other than by redemption or conversion) in the authorized number of shares of Preferred Stock; (iii) Any authorization or any designation, whether by reclassification or otherwise, of any new class or series of stock or any other securities convertible into equity securities of the Company having rights, preferences, or privileges ranking on a parity with or senior to the Series Preferred or any increase in the authorized or designated number of any such new class or series; (iv) Any redemption, repurchase or other distributions with respect to Junior Stock (except for acquisitions of Common Stock by the Company pursuant to agreements which permit the Company to repurchase such shares upon termination of services to the Company or in exercise of the Company's right of first refusal upon a proposed transfer); 3 (v) Any Asset Transfer or Acquisition (each as defined in Section 3d); (vi) The payment or declaration of a dividend on any shares of Common Stock or Preferred Stock; (vii) Any voluntary dissolution or liquidation of the Company; or (viii) Any increase or decrease in the authorized number of members of the Company's Board of Directors. c. Election of Board of Directors. For so long as at least Five Hundred Thousand (500,000) shares of Series Preferred remain outstanding (subject to adjustment for any stock split, reverse stock split or similar event affecting the Series Preferred), (i) the holders of Series Preferred, voting as a separate class, shall be entitled to elect two (2) members of the Company's Board of Directors at each meeting or pursuant to each consent of the Company's shareholders for the election of directors, and to remove from office such directors and to fill any vacancy caused by the resignation, death or removal of such directors; (ii) the holders of Common Stock, voting as a separate class, shall be entitled to elect two (2) members of the Board of Directors at each meeting or pursuant to each consent of the Company's shareholders for the election of directors, and to remove from office such directors and to fill any vacancy caused by the resignation, death or removal of such directors; and (iii) the holders of Common Stock and Series Preferred, voting together as a class, shall be entitled to elect all remaining members of the Board of Directors at each meeting or pursuant to each consent of the Company's shareholders for the election of directors, and to remove from office such directors and to fill any vacancy caused by the resignation, death or removal of such directors. As of the first date that the number of Series Preferred outstanding falls below the minimum required by the first sentence of this subsection, the right of the holders of the Series Preferred to nominate, appoint, vote for or vote in the election of any directors of the Company shall automatically terminate; the terms of office of the directors elected by the Series Preferred pursuant to Section 2(c) above then serving on the Company's Board of Directors shall automatically terminate; and the vacancies on the Board thereby created shall be filled by solely by the vote of the holders of the then outstanding Common Stock (without any separate vote on the part of the holders of the Series Preferred). Nothing contained in this Section is intended or shall be construed as preventing, impairing or otherwise affecting the right of any holders of the Common Stock from agreeing among themselves or with any holders of the Series Preferred as to the manner in which their respective shares of capital stock of the Company shall be voted with respect to the composition of the Company's Board of Directors, the nomination or election of directors or any other matter, which right is hereby confirmed. d. No Other Class Votes. Except as expressly provided in this Section 4 above and except as required by the Delaware General Corporation Law, the holders of the Series Preferred will not have any right to vote, give consents or otherwise take or approve 4 action as a separate class or series with respect to any matter coming before the stockholders of the Company. 3. LIQUIDATION RIGHTS. a. Upon any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, before any distribution or payment shall be made to the holders of any Junior Stock, the holders of Series Preferred shall be entitled to be paid out of the assets of the Company an amount per share of Series Preferred equal to the Original Issue Price plus all declared and unpaid dividends on the Series Preferred Stock (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) for each share of Series Preferred held by them. b. After the payment of the full liquidation preference of the Series Preferred as set forth in Section 3a above, the assets of the Company legally available for distribution, if any, shall be distributed ratably to the holders of the Common Stock and Series Preferred on an as-if-converted to Common Stock basis. c. If, upon any liquidation, distribution, or winding up, the assets of the Company shall be insufficient to make payment in full to all holders of Series Preferred of the liquidation preference set forth in Section 3a, then such assets shall be distributed among the holders of Series Preferred at the time outstanding, ratably in proportion to the full amounts to which they would otherwise be respectively entitled. d. The following events shall be considered a liquidation under this Section: (i) any consolidation or merger of the Company with or into any other corporation or other entity or person, or any other corporate reorganization, in which the stockholders of the Company immediately prior to such consolidation, merger or reorganization, own less than 50% of the Company's outstanding capital stock (on an as-converted to Common Stock basis) immediately after such consolidation, merger or reorganization, or any transaction or series of related transactions to which the Company is a party in which in excess of fifty percent (50%) of the Company's outstanding capital stock (on an as-converted to Common Stock basis) is transferred (an "Acquisition"); or (ii) a sale, lease or other disposition of all or substantially all of the assets of the Company (an "Asset Transfer"). e. In any of such liquidation events, if the consideration received by the Company is other than cash, its value will be deemed its fair market value as determined in good faith by the Board of Directors. Any securities shall be valued as follows: (i) Securities not subject to investment letter or other similar restrictions on free marketability covered by (ii) below: 5 (A) If traded on a securities exchange or through the Nasdaq National Market, the value shall be deemed to be the average of the closing prices of the securities on such quotation system over the thirty (30) day period ending three (3) days prior to the closing; (B) If actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the thirty (30) day period ending three (3) days prior to the closing; and (C) If there is no active public market, the value shall be the fair market value thereof, as determined by the Board of Directors. (ii) The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder's status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in (i) (A), (B) or (C) to reflect the approximate fair market value thereof, as determined by the Board of Directors. 4. CONVERSION RIGHTS. The holders of the Series Preferred shall have the following rights with respect to the conversion of the Series Preferred into shares of Common Stock (the "Conversion Rights"): a. Optional Conversion. Subject to and in compliance with the provisions of this Section 4, any shares of Series Preferred may, at the option of the holder, be converted at any time into fully-paid and nonassessable shares of Common Stock. The number of shares of Common Stock to which a holder of Series Preferred shall be entitled upon conversion shall be the product obtained by multiplying the "Series Preferred Conversion Rate" then in effect (determined as provided in Section 4b) by the number of shares of Series Preferred being converted. b. Series Preferred Conversion Rate. The conversion rate in effect at any time for conversion of the Series Preferred (the "Series Preferred Conversion Rate") shall be the quotient obtained by dividing the Original Issue Price of the Series Preferred by the "Series Preferred Conversion Price," calculated as provided in Section 4c. c. Series Preferred Conversion Price. The conversion price for the Series Preferred shall initially be the Original Issue Price of the Series Preferred (the "Series Preferred Conversion Price"). Such initial Series Preferred Conversion Price shall be adjusted from time to time in accordance with this Section 4. All references to the Series Preferred Conversion Price herein shall mean the Series Preferred Conversion Price as so adjusted. d. Mechanics of Conversion. Each holder of Series Preferred who desires to convert the same into shares of Common Stock pursuant to this Section 4 shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Company or 6 any transfer agent for the Series Preferred, and shall give written notice to the Company at such office that such holder elects to convert the same. Such notice shall state the number of shares of Series Preferred being converted. Thereupon, but subject the Section 4(t) below, the Company shall promptly issue and deliver at such office to such holder a certificate or certificates for the number of shares of Common Stock to which such holder is entitled and shall promptly pay in cash or, to the extent sufficient funds are not then legally available therefor, in Common Stock (at the Common Stock's fair market value determined by the Board of Directors as of the date of such conversion), any declared and unpaid dividends on the shares of Series Preferred being converted. Such conversion shall be deemed to have been made at the close of business on the date of such surrender of the certificates representing the shares of Series Preferred to be converted, and the person entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder of such shares of Common Stock on such date. e. Adjustment for Stock Splits and Combinations. If the Company shall at any time or from time to time after the date that the first share of Series Preferred is issued (the "Original Issue Date") effect a subdivision of the outstanding Common Stock without a corresponding subdivision of the Preferred Stock, the Series Preferred Conversion Price in effect immediately before that subdivision shall be proportionately decreased. Conversely, if the Company shall at any time or from time to time after the Original Issue Date combine the outstanding shares of Common Stock into a smaller number of shares without a corresponding combination of the Preferred Stock, the Series Preferred Conversion Price in effect immediately before the combination shall be proportionately increased. Any adjustment under this Section 4e shall become effective at the close of business on the date the subdivision or combination becomes effective. f. Adjustment for Common Stock Dividends and Distributions. If the Company at any time or from time to time after the Original Issue Date makes, or fixes a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, in each such event the Series Preferred Conversion Price that is then in effect shall be decreased as of the time of such issuance or, in the event such record date is fixed, as of the close of business on such record date, by multiplying the Series Preferred Conversion Price then in effect by a fraction (i) the numerator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and (ii) the denominator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided, however, that if such record date is fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Series Preferred Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter the Series Preferred Conversion Price shall be adjusted pursuant to this Section 4f to reflect the actual payment of such dividend or distribution. 7 g. Adjustments for Other Dividends and Distributions. If the Company at any time or from time to time after the Original Issue Date makes, or fixes a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Company other than shares of Common Stock, in each such event provision shall be made so that the holders of the Series Preferred shall be entitled to receive upon conversion thereof, in addition to the number of shares of Common Stock receivable thereupon, the amount of other securities of the Company which they would have received had their Series Preferred been converted into Common Stock on the date of such event and had they thereafter, during the period from the date of such event to and including the conversion date, retained such securities receivable by them as aforesaid during such period, subject to all other adjustments called for during such period under this Section 4 with respect to the rights of the holders of the Series Preferred or with respect to such other securities by their terms. h. Adjustment for Reclassification and Recapitalization. If at any time or from time to time after the Original Issue Date, the Common Stock issuable upon the conversion of the Series Preferred is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification or otherwise (other than an Acquisition or Asset Transfer as defined in Section 3d or a subdivision or combination of Common Stock or other dividend or distribution or a reorganization, merger, consolidation or sale of assets provided for elsewhere in this Section 4), in any such event, provision shall be made so that the holders of the Series Preferred shall thereafter be entitled to receive upon conversion of the Series Preferred the number of shares of stock or other securities or other property of the Company to which a holder of the number of shares of Common Stock deliverable upon conversion would have been entitled on such recapitalization, reclassification or change, all subject to further adjustment as provided herein or with respect to such other securities or property by the terms thereof. i. Reorganizations, Mergers, Consolidations or Sales of Assets. If at any time or from time to time after the Original Issue Date, there is a capital reorganization of the Common Stock (other than an Acquisition or Asset Transfer as defined in Section 3d or a subdivision or combination of Common Stock or other dividend or distribution, capitalization, subdivision, combination or reclassification of shares provided for elsewhere in this Section 4), as a part of such capital reorganization, provision shall be made so that the holders of the Series Preferred shall thereafter be entitled to receive upon conversion of the Series Preferred the number of shares of stock or other securities or property of the Company to which a holder of the number of shares of Common Stock deliverable upon conversion would have been entitled on such capital reorganization, subject to adjustment in respect of such stock or securities by the terms thereof. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 4 with respect to the rights of the holders of Series Preferred after the capital reorganization to the end that the provisions of this Section 4 (including adjustment of the Series Preferred Conversion Price then in effect and the number of shares issuable upon conversion of the Series Preferred) shall be applicable after that event and be as nearly equivalent as practicable. 8 j. Sale of Shares Below Series Preferred Conversion Price. (i) If at any time or from time to time after the Original Issue Date, the Company issues or sells, or is deemed by the express provisions of this subsection 4j to have issued or sold, Additional Shares of Common Stock (as defined in subsection 4j(iv) below), other than as a dividend or other distribution on any class of stock as provided in Section 4f above, and other than a subdivision or combination of shares of Common Stock as provided in Section 4e above, for an Effective Price (as defined in subsection 4j(iv) below) less than the then effective Series Preferred Conversion Price, then and in each such case the then existing Series Preferred Conversion Price shall be reduced, as of the opening of business on the date of such issue or sale, to a price determined by multiplying the Series Preferred Conversion Price by a fraction (i) the numerator of which shall be (A) the number of shares of Common Stock deemed outstanding (as defined below) immediately prior to such issue or sale, plus (B) the number of shares of Common Stock which the aggregate consideration received (as defined in subsection 4j(ii)) by the Company for the total number of Additional Shares of Common Stock so issued would purchase at such Series Preferred Conversion Price, and (ii) the denominator of which shall be the number of shares of Common Stock deemed outstanding (as defined below) immediately prior to such issue or sale plus the total number of Additional Shares of Common Stock so issued. For the purposes of the preceding sentence, the number of shares of Common Stock deemed to be outstanding as of a given date shall be the sum of (A) the number of shares of Common Stock actually outstanding, (B) the number of shares of Common Stock into which the then outstanding shares of Series Preferred could be converted if fully converted on the day immediately preceding the given date, and (C) the number of shares of Common Stock which could be obtained through the exercise or conversion of all other rights, options and convertible securities, including options granted pursuant to the Company's employee stock option plan, exercisable on the day immediately preceding the given date, which either were outstanding on the Original Issue Date or the issuance of which was approved by a majority of the Company's Board of Directors, which majority includes at least one director appointed by the Series Preferred. (ii) For the purpose of making any adjustment required under this Section 4j, the consideration received by the Company for any issue or sale of securities shall (A) to the extent it consists of cash, be computed at the net amount of cash received by the Company after deduction of any underwriting or similar commissions, compensation or concessions paid or allowed by the Company in connection with such issue or sale but without deduction of any expenses payable by the Company, (B) to the extent it consists of property other than cash, be computed at the fair value of that property as determined in good faith by the Board of Directors, and (C) if Additional Shares of Common Stock, Convertible Securities (as defined in subsection 4j(iii)) or rights or options to purchase either Additional Shares of Common Stock or Convertible Securities are issued or sold together with other stock or securities or other assets of the Company for a consideration which covers both, be computed as the portion of the consideration so received that may be reasonably determined in good faith by the Board of Directors to be allocable to such Additional Shares of Common Stock, Convertible Securities or rights or options. 9 (iii) For the purpose of the adjustment required under this Section 4j, if the Company issues or sells (A) stock or other securities convertible into Additional Shares of Common Stock (such convertible stock or securities being herein referred to as "Convertible Securities") or (B) rights or options for the purchase of Additional Shares of Common Stock or Convertible Securities and if the Effective Price of such Additional Shares of Common Stock is less than the Series Preferred Conversion Price, in each case the Company shall be deemed to have issued at the time of the issuance of such rights or options or Convertible Securities the maximum number of Additional Shares of Common Stock issuable upon exercise or conversion thereof and to have received as consideration for the issuance of such shares an amount equal to the total amount of the consideration, if any, received by the Company for the issuance of such rights or options or Convertible Securities, plus, in the case of such rights or options, the minimum amounts of consideration, if any, payable to the Company upon the exercise of such rights or options, plus, in the case of Convertible Securities, the minimum amounts of consideration, if any, payable to the Company (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities, except to the extent of the excess, if any, of the amount or value of the cash, securities or property that will be payable by the Company upon the maturity, redemption or other event triggering a payment obligation of the Company with respect to any such Convertible Securities, assuming none of them are converted, over the sum of the amount or value of the consideration received or deemed to be received by the Company for such Convertible Securities calculated as set forth in this sentence plus the amount or value of the cash, securities or other property, except shares of Common Stock, if any, that would be payable by the Company with respect to such Convertible Securities if it were assumed that all of them are fully converted) upon the conversion thereof; provided that (x) if in the case of Convertible Securities the minimum amounts of such consideration cannot be ascertained, but are a function of antidilution or similar protective clauses, the Company shall be deemed to have received the minimum amounts of consideration without reference to such clauses; (y) if the minimum amount of consideration payable to the Company upon the exercise or conversion of rights, options or Convertible Securities is reduced over time or on the occurrence or non-occurrence of specified events other than by reason of antidilution adjustments, the Effective Price shall be recalculated using the figure to which such minimum amount of consideration is reduced; and (z) if the minimum amount of consideration payable to the Company upon the exercise or conversion of such rights, options or Convertible Securities is subsequently increased, the Effective Price shall be again recalculated using the increased minimum amount of consideration payable to the Company upon the exercise or conversion of such rights, options or Convertible Securities. No further adjustment of the Series Preferred Conversion Price, as adjusted upon the issuance of such rights, options or Convertible Securities, shall be made as a result of the actual issuance of Additional Shares of Common Stock on the exercise of any such rights or options or the conversion of any such Convertible Securities. If any such rights or options or the conversion privilege represented by any such Convertible Securities shall expire without having been exercised, the Series Preferred Conversion Price as adjusted upon the issuance of such rights, options or Convertible Securities shall be readjusted to the Series Preferred Conversion Price which would have been in effect had an adjustment been made on the basis that the only Additional Shares of Common Stock so issued were the Additional Shares of Common Stock, if any, actually issued or sold on the exercise of such rights or options or rights of conversion of such Convertible Securities, and such Additional Shares of 10 Common Stock, if any, were issued or sold for the consideration actually received by the Company upon such exercise, plus the consideration, if any, actually received by the Company for the granting of all such rights or options, whether or not exercised, plus the consideration received for issuing or selling the Convertible Securities actually converted, plus the consideration, if any, actually received by the Company (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities, except to the extent of the excess, if any, of the amount or value of the cash, securities or property that, but for such conversion, would have been payable by the Company upon the maturity, redemption or other event triggering a payment obligation of the Company with respect to any such Convertible Securities over the sum of the amount or value of the consideration received or deemed to be received by the Company for such Convertible Securities calculated as set forth in this sentence plus the amount or value of the cash, securities or other property, except shares of Common Stock, if any, actually paid by the Company with respect to the Convertible Securities actually converted) on the conversion of such Convertible Securities, provided that such readjustment shall not apply to prior conversions of Series Preferred. (iv) "Additional Shares of Common Stock" shall mean all shares of Common Stock issued by the Company or deemed to be issued pursuant to this Section 4j, whether or not subsequently reacquired or retired by the Company other than (A) shares of Common Stock issued upon conversion of the Series Preferred, (B) shares of Common Stock and/or options, warrants or other Common Stock purchase rights, and the Common Stock issued pursuant to such options, warrants or other rights (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like) before, on or after the Original Issue Date to employees, officers or directors of, or consultants or advisors to the Company or any subsidiary pursuant to stock purchase or stock option plans or other arrangements that are approved by the Board and (C) shares of Common Stock issued pursuant to the exercise of options, warrants or convertible securities outstanding as of the Original Issue Date. The "Effective Price" of Additional Shares of Common Stock shall mean the quotient determined by dividing the total number of Additional Shares of Common Stock issued or sold, or deemed to have been issued or sold by the Company under this Section 4j, into the aggregate consideration received, or deemed to have been received by the Company for such issue under this Section 4j, for such Additional Shares of Common Stock. k. Certificate of Adjustment. In each case of an adjustment or readjustment of the Series Preferred Conversion Price for the number of shares of Common Stock or other securities issuable upon conversion of the Series Preferred, if the Series Preferred is then convertible pursuant to this Section 4, the Company, at its expense, shall compute such adjustment or readjustment in accordance with the provisions hereof and prepare a certificate showing such adjustment or readjustment, and shall mail such certificate, by first class mail, postage prepaid, to each registered holder of Series Preferred at the holder's address as shown in the Company's books. The certificate shall set forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (i) the consideration received or deemed to be received by the Company for any Additional Shares of 11 Common Stock issued or sold or deemed to have been issued or sold, (ii) the Series Preferred Conversion Price at the time in effect, (iii) the number of Additional Shares of Common Stock and (iv) the type and amount, if any, of other property which at the time would be received upon conversion of the Series Preferred. l. No Further Adjustments. Each adjustment pursuant to any provision of this Section 4 by reason of any event or circumstance shall be made without duplication and not under more than one subsection this Section 4. Notwithstanding any other provision of this Section 4, no adjustment shall be made or required (whether under subsection 4i or otherwise) by reason of any Acquisition or Asset Transfer that is or is deemed to be a liquidation under Section 3d above, by reason of any other liquidation, distribution or winding up of the Company or by reason of any payment or distribution to the holders of, or any change in, the Company's Common Stock or other capital stock. Any adjustment of the Series Preferred Conversion Price that would otherwise be required with respect to any share of Series Preferred Stock may be postponed (except in the case of a subdivision or combination of shares of the Common Stock) up to, but not beyond the date of conversion of such share, if such adjustment either by itself or with other adjustments not previously made adjusts the applicable Series Preferred Conversion price by less than $.01. m. Notices of Record Date. Upon (i) any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or (ii) any Acquisition (as defined in Section 3d) or other capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company, any merger or consolidation of the Company with or into any other corporation, or any Asset Transfer (as defined in Section 3c), or any voluntary or involuntary dissolution, liquidation or winding up of the Company, the Company shall mail to each holder of Series Preferred at least twenty (20) days prior to the record date specified therein a notice specifying (A) the date on which any such record is to be taken for the purpose of such dividend or distribution and a description of such dividend or distribution, (B) the date on which any such Acquisition, reorganization, reclassification, transfer, consolidation, merger, Asset Transfer, dissolution, liquidation or winding up is expected to become effective, and (C) the date, if any, that is to be fixed as to when the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares of Common Stock (or other securities) for securities or other property deliverable upon such Acquisition, reorganization, reclassification, transfer, consolidation, merger, Asset Transfer, dissolution, liquidation or winding up. n. Automatic Conversion. (i) Each share of Series Preferred shall automatically be converted into shares of Common Stock, based on the then-effective Series Preferred Conversion Price, (A) at any time upon the affirmative election of the holders of at least a majority of the outstanding shares of the Series Preferred, or (B) immediately upon the closing of a firmly underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock for the account of the Company in which (i) the per share price is at least four (4) times the Original Issue Price (as adjusted for stock splits, dividends, recapitalizations and the like), and (ii) the gross cash 12 proceeds to the Company (before underwriting discounts, commissions and fees) are at least Fifteen Million Dollars $15,000,000. Upon such automatic conversion, any declared and unpaid dividends shall be paid in accordance with the provisions of Section 4d. (ii) Upon the occurrence of the event specified in paragraph (A) above, the outstanding shares of Series Preferred shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Company or its transfer agent; provided, however, that the Company shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such conversion unless the certificates evidencing such shares of Series Preferred are either delivered to the Company or its transfer agent as provided below, or the holder notifies the Company or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with such certificates. Upon the occurrence of such automatic conversion of the Series Preferred, the holders of Series Preferred shall surrender the certificates representing such shares at the office of the Company or any transfer agent for the Series Preferred. Thereupon, there shall be issued and delivered to such holder promptly at such office and in its name as shown on such surrendered certificate or certificates, a certificate or certificates for the number of shares of Common Stock into which the shares of Series Preferred surrendered were convertible on the date on which such automatic conversion occurred, and any declared and unpaid dividends shall be paid in accordance with the provisions of Section 4d. o. Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of Series Preferred. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one share of Series Preferred by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the conversion would result in the issuance of any fractional share, the Company shall, in lieu of issuing any fractional share, pay cash equal to the product of such fraction multiplied by the Common Stock's fair market value (as determined by the Board of Directors) on the date of conversion. p. Reservation of Stock Issuable Upon Conversion. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series Preferred, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series Preferred. If at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series Preferred, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. q. Notices. Any notice required by the provisions of this Section 4 shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (iii) five (5) days after having been sent by 13 registered or certified mail, return receipt requested, postage prepaid, or (iv) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All notices shall be addressed to each holder of record at the address of such holder appearing on the books of the Company. r. Payment of Taxes. The Company will pay all United States taxes (other than taxes based upon income) and other United States governmental charges that may be imposed with respect to the issue or delivery of shares of Common Stock upon conversion of shares of Series Preferred, excluding any tax or other charge imposed in connection with any transfer involved in the issue and delivery of shares of Common Stock in a name other than that in which the shares of Series Preferred so converted were registered. s. No Dilution or Impairment. Without the consent of the holders of then outstanding Series Preferred as required under Section 2b, the Company shall not amend its Restated Certificate of Incorporation or participate in any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or take any other voluntary action, for the purpose of avoiding or seeking to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but shall at all times in good faith assist in carrying out all such action as may be reasonably necessary or appropriate in order to protect the conversion rights of the holders of the Series Preferred against dilution or other impairment. t. Listing Requirements. To the extent that delivery to any holder or any shares of Series Preferred of Common Stock or other securities or property upon the conversion of such shares requires, under any applicable law or rule of the Nasdaq Stock Market or any national securities exchange or interdealer quotation system, requires any registration, qualification, listing or approval before such Common Stock or other securities or property may be lawfully or properly issued, such holder shall cooperate in good faith with the Company in satisfying such requirement, and the conversion of such shares and the delivery of such Common Stock, securities or other property shall be postponed until such requirements is satisfied, whereupon such conversion shall be consummated (as of the date specified in Section 4d above) and such delivery shall be made as promptly as reasonably practicable. Unless otherwise set forth in any agreement relating to registration of such shares of Common Stock or other written agreement between or binding on such holder and the Company, each of the Company and such holder shall bear its own costs and expenses in connection with the foregoing. 5. REDEMPTION. The Series Preferred shall not be redeemable. 6. NO REISSUANCE OF SERIES PREFERRED. No share or shares of Series Preferred acquired by the Corporation by reason of redemption, purchase, conversion or otherwise shall be reissued. F. NO PREEMPTIVE RIGHTS. Stockholders shall have no preemptive rights except as granted by the Company pursuant to written agreements. 14 V. A. To the extent permitted by applicable law a director of the corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. To the extent permitted by applicable law if the Delaware General Corporation Law is amended after approval by the stockholders of this Article to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. B. Any repeal or modification of this Article V shall only be prospective and shall not effect the rights under this Article V in effect at the time of the alleged occurrence of any action or omission to act giving rise to liability. VI. For the management of the business and for the conduct of the affairs of the Corporation, and in further definition, limitation and regulation of the powers of the Corporation, of its directors and of its stockholders or any class thereof, as the case may be, it is further provided that: A. The management of the business and the conduct of the affairs of the Corporation shall be vested in its Board of Directors. The number of directors which shall constitute the whole Board of Directors shall be fixed by the Board of Directors in the manner provided in the Bylaws. B. The Board of Directors may from time to time make, amend, supplement or repeal the Bylaws; provided, however, that the stockholders may change or repeal any Bylaw adopted by the Board of Directors by the affirmative vote of the percentage of holders of capital stock as provided therein; and, provided further, that no amendment or supplement to the Bylaws adopted by the Board of Directors shall vary or conflict with any amendment or supplement thus adopted by the stockholders. C. The directors of the Corporation need not be elected by written ballot unless the Bylaws so provide. * * * * THREE: This Restated Certificate of Incorporation has been duly approved by the Board of Directors of this Corporation. 15 FOUR: This Restated Certificate of Incorporation has been duly adopted in accordance with the provisions of Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware by the Board of Directors and the stockholders of the Corporation. The total number of outstanding shares entitled to vote or act by written consent was 200,000 shares of Common Stock. All of the outstanding shares of Common Stock approved this Restated Certificate of Incorporation by written consent in accordance with Section 228 of the General Corporation Law of the State of Delaware. 16 IN WITNESS WHEREOF, Linkshare Corporation has caused this Restated Certificate of Incorporation to be signed by the Chief Executive Officer and the Secretary in New York, New York, this 1st day of July 1997. LINKSHARE CORPORATION By:/s/ Stephen D. Messer ----------------------------------- Stephen D. Messer Chief Executive Officer ATTEST: By:/s/ Heidi S. Messer --------------------------------- Heidi S. Messer Secretary 17 EX-3.2 3 FORM OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION IN WITNESS WHEREOF, LinkShare Corporation has caused this Restated Certificate of Incorporation to be signed by its Chairman of the Board and the Secretary this ____ day of ______, 2000. LINKSHARE CORPORATION By: ---------------------------------- Stephen D. Messer Chairman of the Board ATTEST: By: ------------------------------ Heidi S. Messer Secretary 21 EX-3.3 4 BYLAWS OF THE REGISTRANT EXHIBIT 3.3 BY-LAWS OF LINKSHARE CORPORATION ARTICLE I Offices Section 1.01 Principal Office. The principal office of LinkShare Corporation (the "Corporation") shall be where the Board of Directors of the Corporation (the "Board") determines from time to time or the business of the Corporation requires. Section 1.02 Other Offices. The Corporation also may have offices at such other places as the Board determines from time to time or the business of the Corporation requires. ARTICLE II Meetings of Stockholders Section 2.01 Place of Meetings, etc. Except as otherwise provided in these By-Laws, all meetings of the stockholders shall be held at such dates, times and places as shall be determined by the Board and as shall be stated in the notices of the meeting or in waivers of notice thereof. Section 2.02 Annual Meeting. The annual meeting of stockholders for the election of directors and the transaction of such other business as properly may be brought before the meeting shall be held on such date and at such time as shall be set by the Board. Section 2.03 Special Meetings. Special meetings of the stockholders, for any purpose or purposes, may be called by the Chairman, the Chief Executive Officer or the President and shall be called by the President or the Secretary upon the written request of a majority of the Board. The request shall state the date, time, place and purpose of the proposed meeting. Section 2.04 Notice of Meetings. Except as otherwise required or permitted by law, whenever the stockholders are required or permitted to take any action at a meeting, written notice thereof shall be given, stating the place, date and time of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. A copy of the notice of any meeting shall be delivered personally or shall be mailed, not less than ten (10) nor more than sixty (60) days before the date of the meeting, to each stockholder of record entitled to vote at the meeting. If mailed, the notice shall be given when deposited in the United States mail, postage prepaid, and shall be directed to each stockholder at his or her address as it appears on the record of stockholders, or to such other address which such stockholder may have furnished by written request to the Secretary of the Corporation. Notice of any meeting of stockholders shall be deemed waived by any stockholder who attends the meeting, except when the stockholder attends the meeting for the express purpose of objecting at the beginning thereof to the transaction of any business because the meeting is not lawfully called or convened. Notice need not be given to any stockholder who submits, either before or after the meeting, a signed waiver of notice. Unless the Board, after the adjournment of a meeting, shall fix a new record date for the adjourned meeting, or unless the adjournment is for more than thirty (30) days, notice of an adjourned meeting need not be given if the place, date and time to which the meeting shall be adjourned is announced at the meeting at which the adjournment is taken. Section 2.05 Quorum. Except as otherwise provided by statute or by the Certificate of Incorporation of the Corporation, at any meeting of stockholders, the presence, in person or by proxy, of the holders of a majority of the outstanding shares of the Corporation entitled to vote at such meeting shall be necessary and sufficient to constitute a quorum for the transaction of business. Whether or not a quorum shall be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or by proxy, shall have the power to adjourn the meeting. Section 2.06 Voting. At all meetings of the stockholders, every stockholder having the right to vote thereat shall be entitled to one vote for every share of stock registered in his or her name as of the record date and entitling him or her to so vote. A stockholder may vote in person or by proxy. Except as otherwise provided by statute or by the Certificate of Incorporation of the Corporation, any corporate action, other than the election of directors, which is to be taken by a vote of the stockholders at a meeting shall be authorized by not less than a majority of the votes cast in person or by proxy by stockholders entitled to vote thereon. Directors shall be elected as provided in Section 3.03 of Article III of these By-Laws. Written ballots shall not be required for voting on any matter unless ordered by the Chairman of the meeting. Section 2.07 Proxies. Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after 11 months from its date, unless the proxy provides for a longer period. Section 2.08 Conduct of Meetings. At each meeting of the stockholders the Chief Executive Officer shall act as chairman of the meeting. The President, or such other person as is appointed by the chairman of the meeting, shall act as Secretary of the meeting and shall keep the minutes thereof. The order of business at all meetings of the stockholders shall be as determined by the chairman of the meeting. Section 2.09 Consent of Stockholders in Lieu of Meeting. Any action which may be taken at any annual or special meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of all of the outstanding shares entitled to vote thereon. Section 2.10 Fixing of Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment 2 thereof, the Board shall fix a record date which shall not precede the date upon which the resolution fixing the record date is adopted by the Board and shall not be more than sixty (60) days nor less than ten (10) days before the date of such meeting. If the Board does not fix a record date for such purpose, the record date for such purpose shall be at the close of business on the day next preceding the day on which notice is given, or, if no notice is given, the day on which the meeting is held. ARTICLE III Board of Directors Section 3.01 Powers. The property, business and affairs of the Corporation shall be managed by the Board which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation of the Corporation or by these By-Laws directed or required to be exercised or done by the stockholders. Section 3.02 Number of Board Members. The number of directors which shall constitute the entire Board shall initially be three. The number of directors may be increased or decreased from time to time by the Board by resolution adopted by vote of a majority of the then authorized number of directors, except that the number of directors may not be decreased to less than two unless all the shares of the Corporation are owned beneficially and of record by less than two stockholders. When used in these By-Laws, the phrase "entire Board" means the total number of directors which the Corporation would have if there were no vacancies. Section 3.03 Election and Term. Except as otherwise provided by law or by these By-Laws, the Board shall be elected annually at the annual meeting of the stockholders and the persons receiving a plurality of the votes cast shall be so elected. Subject to his or her earlier death, resignation or removal as provided in Section 3.04 of this Article III, each director shall hold office until his or her successor shall have been duly elected and shall have qualified. Section 3.04 Removal. A director may be removed at any time, with or without cause, by the affirmative vote of the holders of a majority of the shares then entitled to vote at an election of directors. Section 3.05 Resignations. Any director may resign at any time by giving written notice of his or her resignation to the Corporation. A resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt, and, unless otherwise specified therein, the acceptance of a resignation shall not be necessarv to make it effective. Section 3.06 Vacancies. Any vacancy in the Board arising from an increase in the number of directors or otherwise may be filled by the vote of a majority of the directors then in office, though less than a quorum, or by a sole remaining director. Subject to his or her earlier death, resignation or removal as provided in Section 3.04 of this Article III, each director so 3 elected shall hold office until the next annual meeting of stockholders and until his or her successor shall have been duly elected and shall have qualified. Section 3.07 Chairman of the Board. The directors shall elect one of their members to be Chairman of the Board. The Chairman shall be subject to the control of and may be removed by the Board. The Chairman shall perform such duties as may from time to time be assigned by the Board. Section 3.08 Place of Meetings. Except as otherwise provided in these By-Laws, all meetings of the Board shall be held at such places as the Board determines from time to time. Section 3.09 Annual Meeting. The annual meeting of the Board shall be held either (a) without notice immediately after the annual meeting of stockholders and in the same place, or (b) as soon as practicable after the annual meeting of stockholders on such date and at such time and place as the Board determines. Section 3.10 Regular Meetings. Regular meetings of the Board shall be held on such dates and at such places and times as the Board determines. Notice of regular meetings need not be given, except as otherwise required by law. Section 3.11 Special Meetings. Special meetings of the Board may be called by or at the direction of the Chairman, the Chief Executive Officer or the President. The request shall state the date, time, place and purpose of the proposed meeting. Section 3.12 Notice of Meetings. Notices of special meetings of the Board (and of each annual meeting held pursuant to subdivision (b) of Section 3.08 of this Article III) if mailed, shall be mailed to each director addressed to him or her at his or her residence or usual place of business, not later than three (3) days before the meeting is scheduled to commence, or shall be sent to him or her at such place by telegraph, cable, facsimile, telex or any other form of recorded communication, or be delivered personally or by telephone, not later than the day before such day of the meeting. The notice may be given by the Chairman, the Chief Executive Officer, the President or the Secretary of the Corporation. Section 3.13 Quorum and Voting. At all meetings of the Board, the presence of a majority of the entire Board shall be necessary and sufficient to constitute a quorum for the transaction of business, and the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board. A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another place, date and time. Section 3.14 Conduct of Meetings. At each meeting of the Board, the Chairman or, in his or her absence, a director chosen by a majority of the directors present, shall act as chairman of the meeting. The President or, in his or her absence, any person appointed by the chairman of the meeting, shall act as Secretary of the meeting and keep the minutes thereof. The order of business at all meetings of the Board shall be as determined by the chairman of the meeting. 4 Section 3.15 Written Consent to Action in Lieu of a Meeting. Any action required or permitted to be taken at any meeting of the Board or of any committee may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. Section 3.16 Meetings Held Other Than in Person. Members of the Board or any committee may participate in a meeting of the Board or committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at the meeting. ARTICLE IV Officers Section 4.01 Executive Officers, etc. The Board shall elect as executive officers of the Corporation a Chief Executive Officer, a President and a Secretary. The Board also may elect one or more Vice Presidents (any of whom may be designated as Executive Vice Presidents or otherwise), a Treasurer and any other officers it deems necessary or desirable for the conduct of the business of the Corporation, each of whom shall have such powers and duties as the Board determines. Section 4.02 Duties. (a) The Chief Executive Officer. The Chief Executive Officer shall have overall responsibility for the management and direction of the business and affairs of the Corporation and shall exercise such duties as customarily pertain to the office of Chief Executive Officer and such other duties as may be prescribed from time to time by the Board of Directors. He shall be the senior officer of the Corporation and in case of the inability or failure of the President to perform his duties, he shall perform the duties of the President. He may appoint and terminate the appointment or election of officers, agents, or employees other than those appointed or elected by the Board. He may sign, execute and deliver, in the name of the Corporation, powers of attorney, contracts, bonds and other obligations which implement policies established by the Board. The Chief Executive Officer shall perform such other duties as may be prescribed from time to time by the Board or these Bylaws. (b) The President. The President of the Corporation shall be responsible for the active direction of the daily business of the Corporation and shall exercise such duties as customarily pertain to the office of President and such other duties as may be prescribed from time to time by the Board. The President may sign, execute and deliver, in the name of the Corporation, powers of attorney, contracts, bonds and other obligations which implement policies established by the Board. In the absence or disability of the Chief Executive Officer, the President shall perform the duties and exercise the powers of the Chief Executive Officer. 5 (c) Vice Presidents. Vice Presidents shall have such powers and perform such duties as may be assigned to them by the Chief Executive Officer, the President, the executive committee, if any, or the Board. A Vice President may sign and execute contracts and other obligations pertaining to the regular course of his duties which implement policies established by the Board. (d) The Secretary. The Secretary shall keep the minutes of all meetings of the stockholders and of the Board. The Secretary shall cause notice to be given of meetings of stockholders, of the Board, and of any committee appointed by the Board. He shall have custody of the corporate seal, minutes and records relating to the conduct and acts of the stockholders and Board, which shall, at all reasonable times, be open to the examination of any director. The Secretary or any Assistant Secretary may certify the record of proceedings of the meetings of the stockholders or of the Board or resolutions adopted at such meetings; may sign or attest certificates, statements or reports required to be filed with governmental bodies or officials; may sign acknowledgments of instruments; may give notices of meetings; and shall perform such other duties and have such other powers as the Board may from time to time prescribe. (e) The Treasurer. Subject to the control of the Board, the Treasurer shall have the care and custody of corporate funds and the books relating thereto; shall perform all other duties incident to the office of Treasurer; and shall have such other powers and duties as the Board, the Chief Executive Officer or the President assigns to him or her. In the absence or disability of the Treasurer or in the event there is no Treasurer, the Chief Executive Officer or the President, or such other person as is appointed by the Chief Executive Officer or President, shall perform the duties and exercise the powers of the Treasurer. Section 4.03 Election; Removal. Subject to his or her earlier death, resignation or removal as hereinafter provided, each officer shall hold his or her office until his or her successor shall have been duly elected and shall have qualified. Any officer may be removed at any time, with or without cause, by the Board. Section 4.04 Resignations. Any officer may resign at any time by giving written notice of his or her resignation to the Corporation. A resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt, and, unless otherwise specified therein, the acceptance of a resignation shall not be necessary to make it effective. Section 4.05 Vacancies. If an office becomes vacant for any reason, the Board shall fill the vacancy, and each officer so elected shall serve for the remainder of his or her predecessor's term. 6 ARTICLE V Provisions Relating to Stock Certificates and Stockholders Section 5.01 Certificates. Certificates for the Corporation's capital stock shall be in such form as required by law and as approved by the Board. Each certificate shall be signed in the name of the Corporation by (i) the Chief Executive Officer, the President or any Vice President and (ii) the Secretary, the Treasurer or any Assistant Secretary or any Assistant Treasurer and shall bear the seal of the Corporation or a facsimile thereof. If any certificate is countersigned by a transfer agent or registered by a registrar, other than the Corporation or its employees, the signature of any officer of the Corporation may be a facsimile signature. In case any officer, transfer agent or registrar who shall have signed or whose facsimile signature was placed on any certificate shall have ceased to be such officer, transfer agent or registrar before the certificate shall be issued, it may nevertheless be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue. Section 5.02 Lost Certificates, etc. The Board or any transfer agent of the Corporation may issue a new certificate for shares in place of any certificate theretofore issued by it, alleged to have been lost, mutilated, stolen or destroyed, and the Board (or any transfer agent of the Corporation authorized to do so by a resolution of the Board) may require the owner of the lost, mutilated, stolen or destroyed certificate, or his or her legal representatives, to make an affidavit of that fact and to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation on account of the alleged loss, mutilation, theft or destruction of the certificate or the issuance of a new certificate. Section 5.03 Transfers of Shares. Transfers of shares shall be registered on the books of the Corporation maintained for that purpose after due presentation of the stock certificates therefor appropriately endorsed or accompanied by proper evidence of succession, assignment or authority to transfer. ARTICLE VI General Provisions Section 6.01 Dividends, etc. To the extent permitted by law, the Board shall have full power and discretion, subject to the provisions of the Certificate of Incorporation of the Corporation and the terms of any other corporate document or instrument binding upon the Corporation, to determine what, if any, dividends or distributions shall be declared and paid or made. Section 6.02 Fixing of Record Date for Dividends and Other Action. The Board shall fix a record date for the purpose of determining the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights, or for the purpose of any other action. The record date fixed for such purpose shall not precede the date upon which the resolution fixing the record date is adopted and shall be no more than sixty (60) days prior to 7 such action. If the Board does not fix a record date, the record date for determining the stockholders for any such purpose shall be at the close of business on the date on which the Board adopts the resolution relating thereto. Section 6.03 Seal. The Corporation's seal shall be in such form as is required by law and as shall be approved by the Board. Section 6.04 Fiscal Year. The fiscal year of the Corporation shall be determined by the Board. ARTICLE VII Indemnification Section 7.01 Indemnification. (a) The Corporation shall indemnify to the fullest extent now or hereafter provided for or permitted by law each person involved in, or made or threatened to be made a party to, any action, suit, claim or proceeding, arbitration, alternative dispute resolution mechanism, investigation, administrative or legislative hearing or any other actual, threatened, pending or completed proceeding, whether civil or criminal, or whether formal or informal, and including an action by or in the right of the Corporation or any other corporation, or any partnership, joint venture, trust, employee benefit plan or other enterprise, whether profit or non-profit (any such entity, other than the Corporation, being hereinafter referred to as an "Enterprise"), and including appeals therein (any such process being hereinafter referred to as a "Proceeding"), by reason of the fact that such person, such person's testator or intestate (i) is or was a director or officer of the Corporation, or (ii) while serving as a director or officer of the Corporation, is or was serving, at the request of the Corporation, as a director, officer, or in any other capacity, any other Enterprise, against any and all judgments, fines, penalties, amounts paid in settlement, and expenses, including attorneys' fees, actually and reasonably incurred as a result of or in connection with any Proceeding, or any appeal therein, except as provided in Section 7.01 (b) of this Article VII. (b) No indemnification shall be made to or on behalf of any such person if a judgment or other final adjudication adverse to such person establishes that such person's acts were committed in bad faith or were the result of active and deliberate dishonesty and were material to the cause of action so adjudicated, or that such person personally gained in fact a financial profit or other advantage to which such person was not legally entitled. In addition, no indemnification shall be made with respect to any Proceeding initiated by any such person against the Corporation, or a director or officer of the Corporation, other than to enforce the terms of this Article VII, unless such Proceeding was authorized by the Board. Further, no indemnification shall be made with respect to any settlement or compromise of any Proceeding unless and until the Corporation has consented to such settlement or compromise. 8 Section 7.02 Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of the State of Delaware. ARTICLE VIII Amendments (a) The holders of shares entitled at the time to vote for the election of directors shall have power to adopt, amend, or repeal these By-Laws by vote of not less than a majority of such shares, and the Board of Directors by vote of not less than a majority of the entire Board shall have power equal in all respects to that of the stockholders to adopt, amend, or repeal these By-Laws. However, any By-Law adopted by the Board may be amended or repealed by vote of the holders of a majority of the shares entitled at the time to vote for the election of directors. (b) If any By-Law or By-laws regulating an impending election of directors is adopted, amended, or repealed by the Board, there shall be set forth in the notice of the next meeting of stockholders for the election of directors the By-Law or By-Laws so adopted, amended, or repealed, together with a concise statement of the changes made. 9 EX-3.4 5 FORM OF AMENDED AND RESTATED BYLAWS EXHIBIT 3.4 BY-LAWS OF LINKSHARE CORPORATION ARTICLE I Offices ------- Section 1.01. Principal Office. The principal office of LinkShare Corporation (the "Corporation") shall be where the Board of Directors of the Corporation (the "Board") determines from time to time or the business of the Corporation requires. Section 1.02. Other Offices. The Corporation also may have offices at such other places as the Board determines from time to time or the business of the Corporation requires. ARTICLE II Meetings of Stockholders ------------------------ Section 2.01. Place of Meetings, etc. Except as otherwise provided in these By-Laws, all meetings of the stockholders shall be held at such dates, times and places as shall be determined by the Board and as shall be stated in the notices of the meeting or in waivers of notice thereof. Section 2.02. Annual Meeting. The annual meeting of stockholders for the election of directors and the transaction of such other business as properly may be brought before the meeting shall be held on such date and at such time as shall be set by the Board. Section 2.03. Special Meetings. Special meetings of the stockholders, for any purpose or purposes, may be called by the Chairman of the Board or a majority of the Board. The Board or, in the absence of action by the Board, the Chairman of the Board, shall have the sole power to determine the date, time and place of any special meeting of stockholders. A special meeting of stockholders may be held at any place within or without the State of Delaware designated by the Board, or in the absence of action by the Board, the Chairman of the Board. Section 2.04. Notice of Meeting and Waiver of Notice. 2.04.1 Notice of Meeting. Except as provided for in Section 2.04.2 of these By-laws, the Chairman of the Board, the Chief Executive Officer, the President, any Vice-President, the Secretary or the Board shall cause to be delivered to each stockholder entitled to notice of or to vote at the meeting either personally or by mail, not less than ten (10) nor more than sixty (60) days before the meeting, written notice stating the date, time and place of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. 2.04.2. Delivery of Notice. If notice is mailed, it shall be deemed delivered when deposited in official government mail property addressed to the stockholder at its address as it appears on the stock transfer books of the Corporation with postage prepaid. 2.04.3. Waiver of Notice. (1) Whenever any notice is required to be given to any stockholder under the provisions of these By-Laws, the Restated Certificate of Incorporation (the "Certificate") or Delaware law, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. (2) The attendance of a stockholder at a meeting shall constitute a waiver of notice of such meeting, except when a stockholder attends a meeting for the express purpose of -2- objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Section 2.05. Advance Notice Requirements for Stockholder Nominations of Directors or Stockholder Proposed Business. 2.05.1 Advance Notice of Stockholder Nominations of Directors. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Corporation, except as may be otherwise provided in the Certificate with respect to the right of holders of preferred shares of the Corporation to nominate and elect a specified number of directors in certain circumstances. (a) Annual Meetings of Stockholders. (1) Nominations of persons for election to the Board of the Corporation may be made at an annual meeting of stockholders only (i) pursuant to the Corporation's notice of meeting (or any supplement thereto) delivered pursuant to Section 2.04 of these By-laws, (ii) by or at the direction of the Board (or any duly authorized committee thereof) or the Chairman of the Board or (iii) by any stockholder of the Corporation who was a stockholder of record of the Corporation at the time the notice provided for in this Section 2.05 is delivered to the Secretary of the Corporation, who is entitled to vote at the meeting and who complies with the notice procedures set forth in subparagraphs (2) and (3) of this paragraph (a) in this Section 2.05.1. (2) For nominations to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of paragraph (a)(1) of this Section 2.05.1, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. -3- To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not less than sixty (60) nor more than ninety (90) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or public disclosure of the date of the annual meeting was made, whichever first occurs. In no event shall the public announcement of an adjournment or postponement of an annual meeting of stockholders commence a new time period (or extend any time period) for the giving of a stockholder's notice as described above. The stockholder's notice shall contain, at a minimum, the information set forth in Section 2.05.1(c). (3) Notwithstanding anything in the second sentence of paragraph (a)(2) of this Section 2.05.1 to the contrary, in the event that the number of directors to be elected to the Board of the Corporation at an annual meeting is increased, and there is no public announcement by the Corporation naming all of the nominees for director or specifying the size of the increased Board at least one hundred (100) days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by this Section 2.05.1 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the tenth (10th) day following the day on which such public announcement is first made by the Corporation. -4- (b) Special Meetings of Stockholders. Only such business shall be conducted at a special meeting of stockholders as shall have been described in the Corporation's notice of meeting given pursuant to Section 2.04 of these By- laws. To the extent such business includes the election of directors, nominations of persons for election to the Board may be made at a special meeting of stockholders only (i) by or at the direction of the Board (or any duly authorized committee thereof) or the Chairman of the Board, or (ii) by any stockholder of the Corporation who is a stockholder of record at the time the notice provided for in this Section 2.05.1(b) is delivered to the Secretary of the Corporation, who is entitled to vote at the special meeting and who gives timely notice in writing by the Secretary of the Corporation. The stockholder's notice shall contain, at a minimum, the information set forth in Section 2.05.1(c). To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the tenth (10th) day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board to be elected at such meeting. In no event shall the public announcement of an adjournment or postponement of a special meeting commence a new time period (or extend any time period) for the giving of a stockholder's notice as described above. (c) Contents of Stockholder's Notice Any stockholder's notice required by this Section 2.05.1 shall set forth as to each person whom the stockholder proposes to nominate for election or reelection as a director (i) the name, age, business address and residence address of the person, (ii) the principal occupation and employment of the person, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by -5- the person and (iv) any other information relating to the person that would be required to be disclosed in a proxy statement or other filing required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder. Such stockholder's notice further shall set forth as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder and of such beneficial owner, as they appear on the Corporation's books, (ii) the class and number of shares of capital stock of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner, as to the stockholder giving the notice, (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (iv) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to nominate the person named in its notice, (v) a representation whether the stockholder or the beneficial owner, if any, intends or is part of a group which intends to (1) deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Corporation's outstanding capital stock required to elect the nominee and/or (2) otherwise solicit proxies from stockholders in support of such nomination, and (vi) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act, and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to -6- being named as a nominee and to serve as a director if elected. The Corporation may require any proposed nominee to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as a director of the Corporation. (d) Only such persons who are nominated in accordance with the procedures set forth in this Section 2.05.1 shall be eligible to be elected at an annual or special meeting of stockholders of the Corporation to serve as directors. Except as otherwise provided by law, the chair of the meeting shall have the power and duty to (i) determine whether a nomination to be brought before an annual or special meeting was made in accordance with the procedures set forth in this Section 2.05.1 and (ii) if any proposed nomination is not in compliance with this Section 2.05.1 (including whether the stockholder or beneficial owner, if any, on whose behalf the nomination is made solicits (or is part of a group which solicits), or fails to so solicit (as the case may be), proxies in support of such stockholder's nominee in compliance with such stockholder's representation as required by paragraph (c) of this Section 2.05.1), to declare that such nomination shall be disregarded. 2.05.2 Advance Notice of Stockholder Proposed Business. No business shall be transacted at a meeting of stockholders except in accordance with the following procedures. (a) Annual Meetings of Stockholders. (1) The proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders only (i) pursuant to the Corporation's notice of meeting (or any supplement thereto) delivered pursuant to Section 2.04 of these By-laws, (ii) by or at the direction of the Board (or any duly authorized committee thereof) or (iii) by any stockholder of the Corporation who was a stockholder of record of the -7- Corporation at the time the notice provided for in Section 2.04 is delivered to the Secretary of the Corporation, who is entitled to vote at the meeting and who complies with the notice procedures set forth in subparagraphs (2) and (3) of paragraph (a) of this Section 2.05.2. (2) For business to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of paragraph (a)(1) of this Section 2.4.2, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and such business must otherwise be a proper matter for stockholder action as determined by the Board. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not less than sixty (60) nor more than ninety (90) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or public disclosure of the date of the annual meeting was made, whichever first occurs. In no event shall the public announcement of an adjournment or postponement of an annual meeting of stockholders commence a new time period (or extend any time period) for the giving of a stockholder's notice as described above. The stockholder's notice shall contain, at a minimum, the information set forth in Section 2.05.2(c). -8- (b) Special Meetings of Stockholders. Only such business shall be conducted at a special meeting of stockholders as shall have been described in the Corporation's notice of meeting given pursuant to Section 2.04 of these By-laws. (c) Contents of Stockholder's Notice. Any stockholder's notice required by this Section 2.05.2 shall set forth for each item of business that the stockholder proposes for consideration (i) a description of the business desired to be brought before the stockholder meeting, (ii) the text of the proposal or business (including the text of any resolutions proposed for consideration and in the event that such business includes a proposal to amend the By-laws of the Corporation, the language of the proposed amendment), (iii) the reasons for conducting such business at the stockholder meeting, and (iv) any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (v) any other information relating to the stockholder, the beneficial owner or proposed business that would be required to be disclosed in a proxy statement or other filings in connection with solicitations of proxies relating to the proposed item of business pursuant to Section 14 of the Exchange Act, and the rules and regulations promulgated thereunder. Such stockholder's notice further shall set forth as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the proposal is made (i) the name and address of such stockholder, as they appear on the Corporation's books, and of such beneficial owner, (ii) the class and number of shares of capital stock of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner, (iii) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) pursuant to which the proposals are to be made by such -9- stockholder, (iv) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to propose the items of business set forth in the notice, (v) a representation whether the stockholder or the beneficial owner, if any, intends or is part of a group which intends to (1) deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Corporation's outstanding capital stock required to approve or adopt the proposal and/or (2) otherwise solicit proxies from stockholders in support of such proposal, and (vi) any other information relating to such stockholder, beneficial owner or proposed business that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies in support of such proposal pursuant to Section 14 of the Exchange Act, and the rules and regulations promulgated thereunder. The Corporation may require the stockholder to furnish such other information as it may reasonably require to determine whether each proposed item of business is a proper matter for stockholder action. (d) Except as otherwise provided by law, the chair of the meeting shall have the power and duty to (i) determine whether any business proposed to be brought before an annual or special meeting was proposed in accordance with the procedures set forth in this Section 2.05.2 and (ii) if any proposed business is not in compliance with this Section 2.05.2 (including whether the stockholder or beneficial owner, if any, on whose behalf the proposal is made solicits (or is part of a group which solicits), or fails to so solicit (as the case may be), proxies in support of such stockholder's proposal in compliance with such stockholder's representation as required by paragraph (c) of this Section 2.05.2), to declare that such proposed business shall not be transacted. -10- 2.05.3. General. (a) For purposes of this Section 2.05, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (b) Notwithstanding the foregoing provisions of this Section 2.05, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 2.05. Nothing in this Section 2.05 shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act. Section 2.06. Quorum. Except as otherwise provided by statute or by the Certificate, at any meeting of stockholders, the presence, in person or by proxy, of the holders of a majority in total voting power of the outstanding shares of the Corporation entitled to vote at such meeting shall be necessary and sufficient to constitute a quorum for the transaction of business. Section 2.07. Adjournment of Meetings. Any meeting of stockholders, annual or special, may be adjourned solely by the chair of the meeting from time to time to reconvene at the same or some other time, date and place. The stockholders present at a meeting shall not have authority to adjourn the meeting. Notice need not be given of any such adjourned meeting if the date, time and place thereof are announced at the meeting at which the adjournment is taken. If the date, time and place of the adjourned meeting are not announced at the meeting at which the adjournment is taken, then the Secretary of the Corporation shall give written notice of the date, time and place of the -11- adjourned meeting, either personally or by mail, not less than ten (10) days prior to the date of the adjourned meeting. Such notice shall be given to each stockholder present at the meeting at which the adjournment was taken. It is not required that notice be given to stockholders who were not present at the meeting at which the adjournment was taken. The provisions of Section 2.04.2 of these By-laws shall govern the delivery of such notice. At the adjourned meeting at which a quorum is present, the stockholders may transact any business which might have been transacted at the original meeting. Once a share is represented for any purpose at a meeting, it shall be present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for the adjourned meeting. A new record date must be set if the meeting is adjourned in a single adjournment to a date more than 120 days after the original date fixed for the meeting. If after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the adjourned meeting consistent with the new record date. Section 2.08. Postponement and Cancellation of Stockholder Meeting. Any previously scheduled annual or special meeting of the stockholders may be postponed, and any previously scheduled annual or special meeting of the stockholders called by the Board may be canceled, by resolution of the Board upon public notice given prior to the time previously scheduled for such meeting of stockholders. Section 2.09. Conduct of Meetings. Meetings of stockholders shall be presided over by the Chairman of the Board or by another chair designated by the Board. The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a -12- meeting shall be determined by the chair of the meeting and announced at the meeting. The Board may adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board, the chair of any meeting of stockholders shall have the exclusive right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chair, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board or prescribed by the chair of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to stockholders of record of the Corporation, their duly authorized and constituted proxies or such other persons as the chair of the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants. Unless and to the extent determined by the Board or the chair of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure. Section 2.10. Voting. At all meetings of the stockholders, every stockholder having the right to vote thereat shall be entitled to one vote for every share of stock registered in his or her name as of the record date and entitling him or her to so vote. A stockholder may vote in person or by proxy. Except as otherwise provided by statute or by the Certificate, any corporate action, other than the election of directors, which is to be taken by a vote of the stockholders at a meeting shall be -13- authorized by not less than a majority of the votes cast in person or by proxy by stockholders entitled to vote thereon. At any meeting called and held for the election of directors at which a quorum is present, directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Written ballots shall not be required for voting on any matter unless ordered by the chairman of the meeting. Section 2.11. Voting List. (a) A complete list of the stockholders of the Corporation entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number and class of shares registered in the name of each stockholder shall be prepared by the officer who has charge of the stock ledger of the Corporation at least ten (10) days before every meeting of stockholders. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. (b) Upon the willful neglect or refusal of the directors to produce such a list at any meeting for the election of directors, they shall be ineligible for election to any office at such meeting. -14- (c) The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by this Section or the books of the Corporation or to vote in person or by proxy at any meeting of stockholders. Section 2.12. Proxies. Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after 11 months from its date, unless the proxy provides for a longer period. Section 2.13. Stockholder Action Without a Meeting. Subject to the rights of the holders of any class or series of preferred stock, stockholder action may be taken only at an annual or special meeting. Except as otherwise provided in the terms of any class or series of preferred stock, no action required to be taken or which may be taken at any annual meeting or special meeting of stockholders may be taken without a meeting, and the power of stockholders to consent in writing, without a meeting, is specifically denied. Section 2.14. Fixing of Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board shall fix a record date which shall not precede the date upon which the resolution fixing the record date is adopted by the Board and shall not be more than sixty (60) days nor less than ten (10) days before the date of such meeting. If the Board does not fix a record date for such purpose, the record date for such purpose shall be at the close of business on the day next preceding the day on which notice is given, or, if no notice is given, the day on which the meeting is held. -15- ARTICLE III Board of Directors ------------------ Section 3.01. Powers. The property, business and affairs of the Corporation shall be managed by the Board which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate or by these By-Laws directed or required to be exercised or done by the stockholders. Section 3.02. Number of Board Members. The number of directors which shall constitute the entire Board shall initially be five. The number of directors may be increased or decreased from time to time by the Board by resolution adopted by vote of a majority of the then authorized number of directors, except that the number of directors may not be decreased to less than two unless all the shares of the Corporation are owned beneficially and of record by less than two stockholders. When used in these By-Laws, the phrase "entire Board" means the total number of directors which the Corporation would have if there were no vacancies. Section 3.03. Election and Term. The Board shall be divided into three classes: Class I, Class II and Class III. Each class shall consist, as nearly as possible, of a number of directors equal to one-third (33-1/3%) of the then authorized number of members of the Board. The term of office of the initial Class I directors shall expire at the annual meeting of stockholders in 2001; the term of office of the initial Class II directors shall expire at the annual meeting of stockholders in 2002; and the term of office of the initial Class III directors shall expire at the annual meeting of stockholders in 2003. At each annual meeting of stockholders of the Corporation, the successors of that class of directors whose term expires at that meeting shall be elected to hold office for a term -16- expiring at the annual meeting of stockholders held in the third year following the year of their election. The directors of each class will hold office until their respective successors are elected and qualified. Section 3.04. Removal. Subject to the rights of the holders of any class or series of preferred stock, directors may be removed from office only for cause (as hereinafter defined), but not without cause, upon the affirmative vote of the holders of at least 66-2/3% of the total voting power of the then outstanding capital stock of the Corporation entitled to vote thereon, voting together as a single class. Except as may otherwise be provided by law, "cause" for removal, for purposes of this Section, shall exist only if: (i) the director whose removal is proposed has been convicted of a felony, or has been granted immunity to testify in an action where another has been convicted of a felony, by a court of competent jurisdiction and such conviction is no longer subject to direct appeal; (ii) such director has become mentally incompetent, whether or not so adjudicated, which mental incompetence directly affects his ability as a director of the Corporation, as determined by at least 66-2/3% of the members of the Board then in office (other than such director); or (iii) such director's actions or failure to act have been determined by at least 66-2/3% of the members of the Board then in office (other than such director) to be in derogation of the director's duties. Section 3.05. Resignations. Any director may resign at any time by giving written notice of his or her resignation to the Corporation. A resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt, and, unless otherwise specified therein, the acceptance of a resignation shall not be necessary to make it effective. -17- Section 3.06. Vacancies. Any vacancy in the Board arising from an increase in the number of directors or otherwise may be filled by the vote of a majority of the directors then in office, though less than a quorum, or by a sole remaining director. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the vacancy occurred or to which the new directorship is apportioned, and until such director's successor shall have been elected and qualified. No decrease in the number of directors constituting the Board shall shorten the term of any incumbent director, except as may be provided in the terms of any class or series of preferred stock with respect to any additional director elected by the holders of such class or series of preferred stock. Section 3.07. Chairman of the Board. The directors shall elect one of their members to be Chairman of the Board. The Chairman shall be subject to the control of and may be removed by the Board. The Chairman shall perform such duties as may from time to time be assigned by the Board. Section 3.08. Place of Meetings. Except as otherwise provided in these By-Laws, all meetings of the Board shall be held at such places as the Board determines from time to time. Section 3.09. Annual Meeting. The annual meeting of the Board shall be held either (a) without notice immediately after the annual meeting of stockholders and in the same place, or (b) as soon as practicable after the annual meeting of stockholders on such date and at such time and place as the Board determines. Section 3.10. Regular Meetings. Regular meetings of the Board shall be held on such dates and at such places and times as the Board determines. Notice of regular meetings need not be given, -18- except as otherwise required by law. Meetings (regular or special) shall be held not less often than four times a year. Section 3.11. Special Meetings. Special meetings of the Board may be called by or at the direction of the Chairman, the Chief Executive Officer or a majority of the Board. The request shall state the date, time, place and purpose of the proposed meeting. Section 3.12. Notice of Meetings. Notices of special meetings of the Board (and of each annual meeting held pursuant to Section 3.09 of this Article III) if mailed, shall be mailed to each director addressed to him or her at his or her residence or usual place of business, not later than three (3) days before the meeting is scheduled to commence, or shall be sent to him or her at such place by telegraph, cable, facsimile, telex or any other form of recorded communication, or be delivered personally or by telephone, not later than the day before such day of the meeting. The notice may be given by the Chairman, the Chief Executive Officer, the President or the Secretary of the Corporation. Section 3.13. Quorum. A majority of the total number of directors fixed by or in the manner provided in these By-laws shall constitute a quorum for the transaction of business at any Board meeting but, if less than a majority are present at a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice and time. Section 3.14. Conduct of Meetings. At each meeting of the Board, the Chairman or, in his or her absence, a director chosen by a majority of the directors present, shall act as chairman of the meeting. The President or, in his or her absence, any person appointed by the chairman of the -19- meeting, shall act as Secretary of the meeting and keep the minutes thereof. The order of business at all meetings of the Board shall be as determined by the chairman of the meeting. Section 3.15. Written Consent to Action in Lieu of a Meeting. Any action required or permitted to be taken at any meeting of the Board or of any committee may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. Section 3.16. Meetings Held Other Than in Person. Members of the Board or any committee may participate in a meeting of the Board or committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at the meeting. Section 3.17. Committees of the Board of Directors. (a) The Board may by resolution establish committees and shall specify with particularity the powers and duties of any such committee. Subject to the limitations of the laws of the State of Delaware and the Certificate, any such committee shall exercise all powers and authority specifically granted to it by the Board, which powers may include, without limitation, (i) all the powers and authority of the Board in the management of the business and affairs of the Corporation or (ii) the authority to authorize the issuance of shares of common stock in an amount not in excess of the number of shares as shall be specifically authorized from time to time by the Board in respect of a particular transaction. Such committees shall serve at the pleasure of the Board, keep minutes -20- of their meetings and have such names as the Board by resolution may determine and shall be responsible to the Board for the conduct of the enterprises and affairs entrusted to them. (b) The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member of any meeting of such committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in place of any such absent or disqualified member. Each committee which may be established by the Board pursuant to these By-laws may fix its own rules and procedures. Notice of meetings of committees, other than of regular meetings provided for by such rules, shall be given to committee members. Section 3.18. Directors' Compensation. Directors shall receive such compensation for attendance at any meetings of the Board and any expenses incidental to the performance of their duties as the Board shall determine by resolution. Such compensation may be in addition to any compensation received by the members of the Board in any other capacity. ARTICLE IV Officers -------- Section 4.01. Executive Officers, etc. The Board shall elect from its own number, at its first meeting after each annual meeting of stockholders, a Chief Executive Officer and a President. The Board may also elect such Vice Presidents as in the opinion of the Board the business of the Corporation requires, a Treasurer and a Secretary, any of whom may or may not be directors. The Board may also elect, from time to time, such other or additional officers as in its opinion are -21- desirable for the conduct of business of the Corporation. Each officer shall hold office until the first meeting of the Board following the next annual meeting of stockholders following their respective election. Any person may hold at one time two or more offices. Section 4.02. Duties. (a) The Chief Executive Officer. The Chief Executive Officer shall have overall responsibility for the management and direction of the business and affairs of the Corporation and shall exercise such duties as customarily pertain to the office of Chief Executive Officer and such other duties as may be prescribed from time to time by the Board. He shall be the senior officer of the Corporation and in case of the inability or failure of the President to perform his duties, he shall perform the duties of the President. He may appoint and terminate the appointment or election of officers, agents or employees other than those appointed or elected by the Board. He may sign, execute and deliver, in the name of the Corporation, powers of attorney, contracts, bonds and other obligations which implement policies established by the Board. The Chief Executive Officer shall perform such other duties as may be prescribed from time to time by the Board or these By-laws. (b) The President. The President of the Corporation shall be responsible for the active direction of the daily business of the Corporation and shall exercise such duties as customarily pertain to the office of President and such other duties as may be prescribed from time to time by the Board. The President may sign, execute and deliver, in the name of the Corporation, powers of attorney, contracts, bonds and other obligations which implement policies established by the Board. In the absence or disability of the Chief Executive Officer, the President shall perform the duties and exercise the powers of the Chief Executive Officer. -22- (c) Vice Presidents. Vice Presidents shall have such powers and perform such duties as may be assigned to them by the Chief Executive Officer, the President, the executive committee, if any, or the Board. A Vice President may sign and execute contracts and other obligations pertaining to the regular course of his duties which implement policies established by the Board. (d) The Secretary. The Secretary shall keep the minutes of all meetings of the stockholders. The Secretary shall cause notice to be given of meetings of stockholders, of the Board, and of any committee appointed by the Board. He shall have custody of the corporate seal, minutes and records relating to the conduct and acts of the stockholders and Board, which shall, at all reasonable times, be open to the examination of any director. The Secretary or any Assistant Secre tary may certify the record of proceedings of the meetings of the stockholders or of the Board or resolutions adopted at such meetings; may sign or attest certificates, statements or reports required to be filed with governmental bodies or officials; may sign acknowledgments of instruments; may give notices of meetings; and shall perform such other duties and have such other powers as the Board may from time to time prescribe. (e) The Treasurer. Subject to the control of the Board, the Treasurer shall have the care and custody of corporate funds and the books relating thereto; shall perform all other duties incident to the office of Treasurer; and shall have such other powers and duties as the Board, the Chief Executive Officer or the President assigns to him or her. In the absence or disability of the Treasurer or in the event there is no Treasurer, the Chief Executive Officer or the President, or such -23- other person as is appointed by the Chief Executive Officer or President, shall perform the duties and exercise the powers of the Treasurer. Section 4.03. Election; Removal. Subject to his or her earlier death, resignation or removal as hereinafter provided, each officer shall hold his or her office until his or her successor shall have been duly elected and shall have qualified. Any officer may be removed at any time, with or without cause, by the Board. Section 4.04. Resignations. Any officer may resign at any time by giving written notice of his or her resignation to the Corporation. A resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt, and, unless otherwise specified therein, the acceptance of a resignation shall not be necessary to make it effective. Section 4.05. Vacancies. If an office becomes vacant for any reason, the Board shall fill the vacancy, and each officer so elected shall serve for the remainder of his or her predecessor's term. Section 4.06. Bank Accounts. In addition to such bank accounts as may be authorized in the usual manner by resolution of the Board, the Treasurer, with approval of the Chief Executive Officer or the President, may authorize such bank accounts to be opened or maintained in the name and on behalf of the Corporation as he may deem necessary or appropriate, provided payments from such bank accounts are to be made upon and according to the check of the Corporation, which may be signed jointly or singularly by either the manual or facsimile signature or signatures of such officers or bonded employees of the Corporation as shall be specified in the written instructions of -24- the Treasurer or Assistant Treasurer of the Corporation with the approval of the Chief Executive Officer or the President of the Corporation. Section 4.07. Proxies. Unless otherwise provided in the Certificate or directed by the Board, the Chief Executive Officer or the President or their designees shall have full power and authority on behalf of the Corporation to attend and to vote upon all matters and resolutions at any meeting of stockholders of any corporation in which this Corporation may hold stock, and may exercise on behalf of this Corporation any and all of the rights and powers incident to the ownership of such stock at any such meeting, whether regular or special, and at all adjournments thereof, and shall have power and authority to execute and deliver proxies and consents on behalf of this Corporation in connection with the exercise by this Corporation of the rights and powers incident to the ownership of such stock, with full power of substitution or revocation. ARTICLE V Capital Stock ------------- Section 5.01. Certificates. Certificates for the Corporation's capital stock shall be in such form as required by law and as approved by the Board. Each certificate shall be signed in the name of the Corporation by (i) the Chairman of the Board, the Chief Executive Officer, the President or any Vice President and (ii) the Secretary, the Treasurer or any Assistant Secretary or any Assistant Treasurer and shall bear the seal of the Corporation or a facsimile thereof. If any certificate is countersigned by a transfer agent or registered by a registrar, other than the Corporation or its employees, the signature of any officer of the Corporation may be a facsimile signature. In case any officer, transfer agent or registrar who shall have signed or whose facsimile signature was placed on -25- any certificate shall have ceased to be such officer, transfer agent or registrar before the certificate shall be issued, it may nevertheless be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue. Section 5.02. Lost Certificates, etc. The Board or any transfer agent of the Corporation may issue a new certificate for shares in place of any certificate theretofore issued by it, alleged to have been lost, mutilated, stolen or destroyed, and the Board (or any transfer agent of the Corporation authorized to do so by a resolution of the Board) may require the owner of the lost, mutilated, stolen or destroyed certificate, or his or her legal representatives, to make an affidavit of that fact and to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation on account of the alleged loss, mutilation, theft or destruction of the certificate or the issuance of a new certificate. Section 5.03. Transfers of Shares. Transfers of shares shall be registered on the books of the Corporation maintained for that purpose after due presentation of the stock certificates therefor appropriately endorsed or accompanied by proper evidence of succession, assignment or authority to transfer. The person in whose name shares of stock stand on the books of the Corporation shall be deemed by the Corporation to be the owner thereof for all purposes, and the Corporation shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the state of Delaware. -26- Section 5.04. Transfer Agent and Registrar. The Board may appoint one or more transfer agents and one or more registrars, any may require all certificates for shares to bear the manual or facsimile signature or signatures of any of them. Section 5.05. Regulations. The Board shall have power and authority to make all such rules and regulations as it may deem expedient concerning the issue, transfer, registration, cancellation and replacement of certificates representing stock of the Corporation. ARTICLE VI General Provisions ------------------ Section 6.01. Dividends, etc. To the extent permitted by law, the Board shall have full power and discretion, subject to the provisions of the Certificate and the terms of any other corporate document or instrument binding upon the Corporation, to determine what, if any, dividends or distributions shall be declared and paid or made. Section 6.02. Fixing of Record Date for Dividends and Other Action. The Board shall fix a record date for the purpose of determining the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights, or for the purpose of any other action. The record date fixed for such purpose shall not precede the date upon which the resolution fixing the record date is adopted and shall be no more than sixty (60) days prior to such action. If the Board does not fix a record date, the record date for determining the stockholders for any such purpose shall be at the close of business on the date on which the Board adopts the resolution relating thereto. -27- Section 6.03. Seal. The Corporation's seal shall be in such form as is required by law and as shall be approved by the Board. Section 6.04. Fiscal Year. The fiscal year of the Corporation shall be determined by the Board. Section 6.05. Notices and Waivers Thereof. Whenever any notice is required by law, the Certificate or these By-laws to be given to any stockholder, director or officer, such notice, except as otherwise provided by law, may be given personally, or by mail, or, in the case of directors or officers, by telegram, cable or facsimile transmission, addressed to such address as appears on the books of the Corporation. Any notice given by telegram, cable or facsimile transmission shall be deemed to have been given when it shall have been delivered for transmission and any notice given by mail shall be deemed to have been given three business days after it shall have been deposited in the United States mail with postage thereon prepaid. Whenever any notice is required to be given by law, the Certificate or these By-laws, a written waiver thereof, signed by the person entitled to such notice, whether before or after the meeting or the time stated therein, shall be deemed equivalent in all respects to such notice to the full extent permitted by law. Section 6.06. Saving Clause. These By-laws are subject to the provisions of the Certificate and applicable law. In the event any provision of these By-laws is inconsistent with the Certificate or the corporate laws of the State of Delaware, such provision shall be invalid to the extent only of such conflict, and such conflict shall not affect the validity of all other provisions of these By-laws. -28- ARTICLE VII Indemnification --------------- Section 7.01. Indemnification. (a) The Corporation shall indemnify to the fullest extent now or hereafter provided for or permitted by law each person involved in, or made or threatened to be made a party to, any action, suit, claim or proceeding, arbitration, alternative dispute resolution mechanism, investigation, administrative or legislative hearing or any other actual, threatened, pending or completed proceeding, whether civil or criminal, or whether formal or informal, and including an action by or in the right of the Corporation or any other corporation, or any partnership, joint venture, trust, employee benefit plan or other enterprise, whether profit or non-profit (any such entity, other than the Corporation, being hereinafter referred to as an "Enterprise"), and including appeals therein (any such process being hereinafter referred to as a "Proceeding"), by reason of the fact that such person, such person's testator or intestate (i) is or was a director or officer of the Corporation, or (ii) while serving as a director or officer of the Corporation, is or was serving, at the request of the Corporation, as a director, officer, or in any other capacity, any other Enterprise, against any and all judgments, fines, penalties, amounts paid in settlement, and expenses, including attorneys' fees, actually and reasonably incurred as a result of or in connection with any Proceeding, or any appeal therein, except as provided in Section 7.01(b) of this Article VII. (b) No indemnification shall be made to or on behalf of any such person if a judgment or other final adjudication adverse to such person establishes that such person's acts were committed in bad faith or were the result of active and deliberate dishonesty and were material to -29- the cause of action so adjudicated, or that such person personally gained in fact a financial profit or other advantage to which such person was not legally entitled. In addition, no indemnification shall be made with respect to any Proceeding initiated by any such person against the Corporation, or a director or officer of the Corporation, other than to enforce the terms of this Article VII, unless such Proceeding was authorized by the Board. Further, no indemnification shall be made with respect to any settlement or compromise of any Proceeding unless and until the Corporation has consented to such settlement or compromise. Section 7.02. Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of the State of Delaware. ARTICLE VIII Amendments ---------- (a) The holders of shares entitled at the time to vote for the election of directors shall have power to adopt, amend or repeal these By-Laws by vote of not less than a majority of such shares, and the Board by vote of not less than 75% of the members of the Board then in office shall have power equal in all respects to that of the stockholders to adopt, amend or repeal these By-Laws. However, any By-Law adopted by the Board may be amended or repealed by vote of the holders of a majority of the shares entitled at the time to vote for the election of directors. -30- (b) If any By-Law or By-laws regulating an impending election of directors is adopted, amended or repealed by the Board, there shall be set forth in the notice of the next meeting of stockholders for the election of directors the By-Law or By-Laws so adopted, amended, or repealed, together with a concise statement of the changes made. -31- EX-4.1 6 CERTIFICATE OF SHARES EXHIBIT 4.1 [SEAL] [LOGO OF LINKSHARE] [SEAL] NUMBER LINKSHARE CORPORATION SHARES __________ INCORPORATED UNDER THE LAWS __________ OF THE STATE OF DELAWARE CUSIP [ ] THIS CERTIFIES THAT is the owner of FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.001 PER SHARE, OF LINKSHARE CORPORATION (hereinafter, referred to as the "Corporation"), transferable on the books of the Corporation by the holder hereof in person or by duly authorized Attorney upon surrender of this Certificate properly endorsed. This Certificate and the shares represented hereby are issued and shall be held subject to all provisions of the Restated Certificate of Incorporation and By-Laws of the Corporation and any amendments thereto, to all of which the holder of this Certificate by acceptance hereof assents. This certificate is not valid until countersigned and registered by the Transfer Agent and Registrar. WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. Dated: /s/ [SEAL] /s/ SECRETARY CHAIRMAN and EXECUTIVE OFFICER COUNTERSIGNED AND REGISTERED: HSBC BANK USA TRANSFER AGENT AND REGISTRAR, BY: AUTHORIZED SIGNATURE LINKSHARE CORPORATION The Corporation will furnish without charge to each stockholder who so requests, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof of the Corporation and the qualifications, limitations, or restrictions of such preferences and/or rights. Such request may be made to the Corporation or the Transfer Agent. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations. TEN COM - as tenants in common TEN COM - as tenants by the entireties JT TEN - as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT -- ___________ Custodian __________ (Cust) (Minor) under Uniform Gifts to Minors Act ___________________ (State) Additional abbreviations may also be used though not in the above list. For value received, ______________________________________________________ hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ___________________________ ___________________________ ________________________________________________________________________________ (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) ________________________________________________________________________________ ________________________________________________________________________________ _________________________________________________________________________ shares of the Common Stock represented by the within Certificate, and does hereby irrevocably constitute and appoint _______________________________________________________________________ Attorney to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises. Dated____________________ ___________________________________ NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THIS CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. Signature(s) Guaranteed: ___________________________________________ THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO SEC RULE 17Ad-15. EX-4.2 7 FORM OF WARRANT TO PURCHASE COMMON STOCK EXHIBIT 4.2 THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED. LINKSHARE CORPORATION WARRANT TO PURCHASE COMMON STOCK Issue date: _______________, 2000 1. General. THIS CERTIFIES THAT, _________ (the "Holder") is entitled to ------- subscribe for and purchase up to ______ shares of fully paid and nonassessable common stock of LinkShare Corporation, a Delaware corporation (the "Company"), at a price of $1.00 per share (the "Exercise Price") subject to the provisions and upon the terms and conditions hereinafter set forth. This warrant (this "Warrant") is being issued to the Holder in connection with a promissory note issued by the Company to the Holder on February 7, 2000. 2. Exercise Period. This Warrant may be exercised by the Holder at any time --------------- and from time to time beginning the issue date above for a term of five (5) years. 3. Method of Exercise; Payment --------------------------- a. Cash Exercise. The Holder may exercise this Warrant in whole or in part, by ------------- surrendering this Warrant (with the notice of exercise form attached hereto as Exhibit A duly executed) at the principal office of the Company and by the - --------- payment to the Company, by certified, cashier's or other check acceptable to the Company, of an amount equal to the aggregate purchase price of the shares of common stock being purchased. b. Net Issue Exercise. In lieu of exercising this Warrant with cash, the ------------------ Holder may elect to receive shares equal to the value of this Warrant (or the portion thereof being canceled) by surrendering this Warrant at the principal office of the Company together with notice of such election, in which event the Company shall issue to the Holder a number of shares of common stock computed using the following formula: X = Y (A-B) ------- A where: X = the number of share of common stock to be issued to the Holder; Y = the number of share of common stock purchasable under this Warrant or, if only a portion of this Warrant is being exercised, the portion of this Warrant being canceled (at the date of such calculation); A = the Fair Market Value (as defined below) of a share of common (at the date of such calculation); and B = the Exercise Price (on the date of such calculation). c. Fair Market Value. The "Fair Market Value" of a share of common stock shall ----------------- be as follows: i. if the Company's common stock is traded on an exchange or is quoted on the Nasdaq National Market, the closing price of the business day immediately preceding the exercise date; or ii. otherwise, as determined in good faith by the Company's board of directors. d. Stock Certificates. In the event the Holder exercises any of the rights ------------------ represented by this Warrant to purchase the Company's common stock, the Company shall deliver to the Holder certificates representing such shares within a reasonable time and, unless the Holder has fully exercised this Warrant or the Warrant has expired, a new warrant representing the remaining shares underlying this Warrant. 4. Reservation of Shares. The Company covenants and agrees that all shares of --------------------- common stock which may be issued upon the exercise of this Warrant will, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, free from all preemptive rights of any shareholder and free from all taxes, liens and charges created by the Company with respect to the issue thereof. During the period within which the Holder may exercise this Warrant, the Company will at all times have authorized, and reserved for the purpose of issuance upon exercise of this Warrant, a sufficient number of shares of common stock to provide for the exercise of the rights represented by this Warrant. 5. Adjustment of Exercise Price and Number of Shares. The number and kind of ------------------------------------------------- securities purchasable upon the exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time upon the occurrence of certain events as follows: a. Reclassification or Merger. In case of any reclassification, change or -------------------------- conversion of securities of the class issuable upon exercise of this Warrant (other than a change in par value or as a result of a subdivision or combination), or in case of any merger of the Company with or into another company (other than (i) a merger effected solely for the purpose of changing the Company's jurisdiction of incorporation or (ii) a merger with another company in which the Company is the acquiring and surviving corporation and which does not result in any reclassification or change of outstanding securities issuable upon exercise of this Warrant), or in case of any sale of all or substantially all of the assets of the Company, the Company, or such successor or purchasing company, as the case may be, shall duly execute and deliver to the Holder a new warrant, so that the Holder shall have the right to receive, at a total purchase price not to exceed that payable upon the exercise of the unexercised portion of this Warrant, and in lieu of the common stock theretofore issuable upon exercise of this Warrant, the kind and amount of shares of stock, other securities, money and property receivable upon such reclassification, change or merger by a holder of the number of shares of common stock under this Warrant. Such new warrant shall provide for adjustments as nearly equivalent as may be practicable to the adjustments provided for in this section. The provisions of this subparagraph (a) shall similarly apply to successive reclassifications, changes, mergers, consolidations and transfers. b. Combination or Subdivision of Shares. If the Company at any time while this ------------------------------------ Warrant remains outstanding and unexpired shall combine its outstanding shares of common stock, the number of shares purchasable shall be proportionally decreased and the Exercise Price proportionally increased effective concurrently with such combination. In the case of a subdivision, the number of shares purchasable shall be proportionally increased and the Exercise Price proportionally decreased effective concurrently with such subdivision. c. Stock Dividends. If the Company at any time while this Warrant is --------------- outstanding and unexpired shall pay a dividend with respect to common stock in common stock, then the Exercise Price shall be adjusted, from and after the date of determination of shareholders entitled to receive such dividend or distribution, to that price determined by multiplying the Exercise Price in effect immediately prior to such date of determination by a fraction (i) the numerator of which shall be the total number of shares of common stock outstanding immediately prior to such dividend or distribution and (ii) the denominator of which shall be the total number of shares of common stock outstanding immediately after such dividend or distribution. 6. Fractional Shares. No fractional shares will be issued in connection with ----------------- any exercise hereunder, but in lieu of such fractional shares the Company shall make a cash payment therefor upon the basis of the Exercise Price then in effect. 7. Compliance with Securities Law. The Holder, by acceptance hereof, agrees ------------------------------ that the Holder is acquiring this Warrant, and the shares of common stock to be issued upon exercise hereof, for investment and will not offer, sell or otherwise dispose of this Warrant, or any shares of common stock to be issued upon exercise hereof, except under circumstances which will not result in a violation of the Securities Act of 1933 (the "Securities Act"). Upon exercise of this Warrant, unless the shares being acquired are registered under the Securities Act or an exemption from such registration is available, the holder hereof shall confirm in writing, by executing the form attached as Schedule 1 to ---------- Exhibit A hereto, that the common stock so acquired are being acquired for - --------- investment and not with a view towards distribution or resale. This Warrant and all shares of common stock issued upon exercise of this Warrant shall be stamped or imprinted with a legend in substantially the following form: "THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED." 8. Transferability. Subject to compliance with applicable federal and state --------------- securities laws, this Warrant and all rights hereunder are transferable, in whole or in part, without charge to the Holder hereof (except for transfer taxes), upon surrender of this Warrant properly endorsed. 9. Rights as Shareholders. No Holder, solely as such, shall be entitled to ---------------------- vote or receive dividends or be deemed a shareholder of the Company. 10. Modification and Waiver. This Warrant and any provision hereof may be ----------------------- changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought. 11. Notices of Change. ----------------- a. Promptly upon any adjustment in the number or class of shares subject to this Warrant and of the Exercise Price, the Company shall give written notice thereof to the Holder, setting forth in reasonable detail and certifying the calculation of such adjustment. b. The Company shall give written notice to the Holder at least ten (10) business days prior to the date on which the Company closes its books or takes a record for determining rights to receive any dividends or distributions. 12. Transfer Books. The Company will at no time close its transfer books -------------- against the transfer of this Warrant or of any shares of common stock issued or issuable upon the exercise of this Warrant in any manner which interferes with the timely exercise of this Warrant. 13. Loss, Theft, Destruction, or Mutilation. The Company represents and --------------------------------------- warrants to the Holder that, upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of this Warrant and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of this Warrant, the Company, at the Holder's expense, will make and deliver a new warrant of like tenor in lieu of the lost, stolen, destroyed or mutilated Warrant. 14. Notices. Any notice, request, communication or other document required or ------- permitted to be given or delivered to the Holder or the Company shall be delivered via overnight courier by certified or registered mail, postage prepaid, to the Holder's address as shown on the books of the Company or to the Company at the address indicated on the signature page of this Warrant. 15. Binding Effect on Successors. Except as otherwise set forth herein, this ---------------------------- Warrant shall be binding upon any company succeeding the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets. 16. Descriptive Headings. The descriptive headings of the several paragraphs -------------------- of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. 17. Governing Law. This Warrant shall be construed and enforced in accordance ------------- with, and the rights of the parties shall be governed by, the laws of the State of New York. 18. Acceptance. Receipt of this Warrant by the holder hereof shall constitute ---------- acceptance of and agreement to the foregoing terms and conditions. LinkShare Corporation 215 Park Avenue South 8th Floor New York, NY 10003 By: ---------------------------------- Name: ---------------------------------- Title: ---------------------------------- EXHIBIT A --------- NOTICE OF EXERCISE ------------------ TO: LinkShare Corporation 1. The undersigned hereby elects to purchase __________ shares of common stock of LinkShare Corporation pursuant to the terms of the attached Warrant. 2. Method of Exercise (Please initial the applicable blank.): ______The undersigned elects to exercise the attached Warrant by means of a cash payment, and tenders herewith payment in full for the purchase price of the shares being purchased, together with all applicable transfer taxes, if any. ______The undersigned elects to exercise the attached Warrant by means of the net exercise provisions of the Warrant. 3. Please issue a certificate or certificates representing said shares of common stock in the name of the undersigned or in such other name as is specified below: -------------------------------- (Name) -------------------------------- -------------------------------- -------------------------------- (Address) 4. The undersigned hereby represents and warrants that the aforesaid shares of common stock are being acquired for the account of the undersigned for investment and not with a view to or for resale in connection with the distribution thereof, and that the undersigned has no present intention of distributing or reselling such shares. The undersigned hereby delivers an Investment Representation Statement in the form attached to the Warrant as Schedule 1 to Exhibit A. - ---------- --------- Date: By: ------------------------ ---------------------------------- Name: ---------------------------------- Title: ---------------------------------- (if applicable) Schedule 1 ---------- INVESTMENT REPRESENTATION STATEMENT ----------------------------------- Purchaser: --------------------------- Security: Common stock Amount: --------------------------- Date: --------------------------- In connection with the purchase of the above-listed shares of common stock (the "Securities"), the undersigned (the "Purchaser") represents to LinkShare Corporation (the "Company") as follows: (a) The Purchaser is aware of the Company's business affairs and financial condition, and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Securities. The Purchaser is purchasing the Securities for its own account for investment purposes only and not with a view to, or for the resale in connection with, any "distribution" thereof for purposes of the Securities Act of 1933, as amended (the "Securities Act"). (b) The Purchaser understands that the Securities have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the Purchaser's investment intent as expressed herein. In this connection, the Purchaser understands that, in the view of the Securities and Exchange Commission (the "SEC"), the statutory basis for such exemption may be unavailable if the Purchaser's representation was predicated solely upon a present intention to hold these Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities, or for a period of one year or any other fixed period in the future. (c) The Purchaser further understands that the Securities must be held indefinitely unless subsequently registered under the Securities Act or unless an exemption from registration is otherwise available. Moreover, the Purchaser understands that the Company is under no obligation to register the Securities. In addition, the Purchaser understands that the certificate evidencing the Securities will be imprinted with the legend referred to in the Warrant under which the Securities are being purchased. (d) The Purchaser is aware of the provisions of Rule 144, promulgated under the Securities Act, which, in substance, permit limited public resale of "restricted securities" acquired, directly or indirectly, from the issuer thereof (or from an affiliate of such issuer), in a non-public offering subject to the satisfaction of certain conditions, if applicable, including, among other things: The availability of certain public information about the Company, the resale occurring not less than one year after the party has purchased and paid for the securities to be sold; the sale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934, as amended) and the amount of securities being sold during any three-month period not exceeding the specified limitations stated therein. (e) The Purchaser further understands that at the time it wishes to sell the Securities there may be no public market upon which to make such a sale, and that, even if such a public market then exists, the Company may not be satisfying the current public information requirements of Rule 144 and that, in such event, the Purchaser may be precluded from selling the Securities under Rule 144 even if the one-year minimum holding period had been satisfied. (f) The Purchaser further understands that in the event all of the requirements of Rule 144 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required, and that, notwithstanding the fact that Rule 144 is not exclusive, the SEC has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk. PURCHASER By: ---------------------------------- Name: ---------------------------------- Title: ---------------------------------- (if applicable) EX-5.1 8 FORM OF OPINION OF BAKER & BOTTS LLP EXHIBIT 5.1 [LETTERHEAD OF BAKER BOTTS LLP] [Date] LinkShare Corporation 215 Park Avenue, 8th Floor New York, New York 10003 Dear Sirs and Madames: As counsel for LinkShare Corporation, a Delaware corporation (the "Company"), we have examined and are familiar with the registration statement on Form S-1, File No. 333-_______ (the "Registration Statement"), which relates to the registration under the Securities Act of 1933, as amended, of _________ shares (the "Shares") of the Company's Common Stock, par value $.001 per share, to be issued and sold to the underwriters (the "Underwriters") named in the Registration Statement under the heading "Underwriting." In connection therewith, we have examined, among other things, originals, certified copies or copies otherwise identified to our satisfaction as being copies of originals, of the Certificate of Incorporation, as amended, and Bylaws of the Company, in the forms filed as Exhibits 3.1 and 3.3, respectively, to the Registration Statement; the proposed Restated Certificate of Incorporation (the "Restated Charter") and By-Laws of the Company, in the forms filed as Exhibits 3.2 and 3.4, respectively, to the Registration Statement; records of proceedings of the Company's Board of Directors, including committees thereof, with respect to the filing of the Registration Statement and related matters; the form of Underwriting Agreement, in the form filed as Exhibit 1.1 to the Registration Statement (the "Underwriting Agreement"); and such other documents, records, certificates of public officials and questions of law as we deemed necessary or appropriate for the purpose of this opinion. In rendering this opinion, we have relied, to the extent we deem such reliance appropriate, on certificates of officers of the Company as to factual matters. We have assumed the authenticity of all documents submitted to us as originals and the conformity to authentic original documents of all documents submitted to us as certified, conformed or reproduction copies. We have further assumed that there will be no changes in applicable law between the date of this opinion and the date of issuance and sale of the Shares to the Underwriters. Based upon the foregoing, we are of the opinion that when (i) the Restated Charter is accepted for filing by the Secretary of State of the State of Delaware, and (ii) the Shares are issued, signed by the transfer agent and delivered pursuant to the Underwriting Agreement and paid for by the Underwriters in accordance therewith, such Shares will be duly authorized, validly issued, fully paid and non-assessable. [LETTERHEAD OF BAKER BOTTS LLP] 2 We hereby consent to the filing of this opinion as Exhibit 5.1 to the Registration Statement and to the reference to us contained therein under the heading "Legal Matters." In giving the foregoing consent, we do not admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission promulgated thereunder. Very truly yours, BAKER BOTTS L.L.P. EX-10.1 9 INVESTOR RIGHTS AGREEMENT EXHIBIT 10.1 LINKSHARE CORPORATION INVESTOR RIGHTS AGREEMENT THIS INVESTOR RIGHTS AGREEMENT (the "Agreement") is entered into as of the 16th day of July 1998, by and among LINKSHARE CORPORATION, a Delaware corporation (the "Company"), Stephen Messer, Heidi Messer and Jianhao Meng (collectively, the "Initial Founders") and the purchasers of the Company's Series A Preferred Stock, par value $0.001 per share ("Series A Stock"), set forth on Exhibit A attached hereto. The purchasers of the Series A Stock shall be referred to hereinafter as the "Initial Investors" and each individually as an "Initial Investor." RECITALS WHEREAS, the Company proposes to sell and issue to the Initial Investors up to Three Million Two Hundred Forty-Two Thousand One Hundred Forty-Eight (3,242,148) shares of its Series A Stock pursuant to that certain Series A Preferred Stock Purchase Agreement of even date herewith ("the Purchase Agreement"); WHEREAS, as a condition of entering into the Purchase Agreement, the Investors have requested that the Company extend to them registration rights, information rights and other rights as set forth below; WHEREAS, the Company desires to grant such rights and impose certain restrictions on to the Investors; and WHEREAS, the Company and the Investors wish to grant certain rights to and impose certain restrictions on the Founders, as set forth below. NOW, THEREFORE, in consideration of the mutual promises, representations, warranties, covenants and conditions set forth in this Agreement and in the Purchase Agreement, the parties mutually agree as follows: SECTION 1. GENERAL 1.1 Definitions. As used in this Agreement the following terms shall have the following respective meanings: "Exchange Act" means the Securities Exchange Act of 1934, as amended. "First Refusal and Co-Sale Agreement" means the Right of First Refusal and Co-Sale Agreement, dated as of the date of this Agreement, among the Company, the Founders and the Investors, as the same may be amended from time to time in accordance with its terms. "Form S-3" means such form under the Securities Act as in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC. "Founders" means any and all of the Initial Founders and each Permitted Transferee (as defined in Section 2.10 hereof) of any Founder or Initial Founder, in each case so long as such Person continues to own any Registrable Securities. "Holder" means any Investor or Founder. "Initial Offering" means the Company's first firm commitment underwritten public offering of its Common Stock registered under the Securities Act. "Investors" means the Initial Investors and each Permitted Transferee (as defined in Section 2.10 hereof) of any Investor or Initial Investor, in each case so long as such Person continues to own any registrable securities. "Register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of effectiveness of such Registration Statement or document. "Registrable Securities" means, as of any time, (a) Common Stock of the Company issued upon conversion of any Shares and then outstanding (b) Common Stock of the Company then held by any of the Founders, including, without limitation, any shares of Common Stock issuable upon exercise of options or other rights or securities exercisable for or convertible into Common Stock held by any of the Founders and (c) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, any of such above-described securities. Notwithstanding the foregoing, Registrable Securities shall not include any securities sold by a person to the public either pursuant to a registration statement or Rule 144 or sold in a private transaction in which the transferor's rights under Section 2 of this Agreement are not assigned. "Registrable Securities then outstanding" shall be the number of shares determined by calculating the total number of shares of the Company's Common Stock that are Registrable Securities and either (a) are then issued and outstanding or (b) are issuable pursuant to then exercisable or convertible securities. "Registration Expenses" shall mean all expenses incurred by the Company in complying with Sections 2.2, 2.3 and 2.4 hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company, reasonable fees and disbursements not to exceed twenty-five thousand dollars ($25,000) of a single special counsel 2 for the Holders, blue sky fees and expenses and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company). "SEC" or "Commission" means the Securities and Exchange Commission. "Securities Act" shall mean the Securities Act of 1933, as amended. "Selling Expenses" shall mean all underwriting discounts and selling commissions applicable to a sale of Registrable Securities by the Holders participating in such sale. "Shares" shall mean the Company's Series A Stock issued pursuant to the Purchase Agreement and held by the Initial Investors and each Permitted Transferee (as defined in Section 2.10 hereof) of any Investor or Initial Investor. SECTION 2. REGISTRATION; RESTRICTIONS ON TRANSFER 2.1 Restrictions on Transfer. (a) In addition to the restrictions contained in the First Refusal and Co-Sale Agreement, each Holder agrees not to make any disposition of all or any portion of the Shares or Registrable Securities unless and until: (i) There is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or (ii) (A) The transferee has agreed in writing to be bound by the terms of this Agreement, (B) such Holder shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and (C) such disposition is exempt from the registration requirements of the Securities Act and (D) if reasonably requested by the Company, such Holder shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such shares under the Securities Act; provided that subclause (ii)(A) shall not apply to a transferee who acquires Registrable Securities in a transaction exempt from registration under Rule 144 under the Securities Act. (b) Each certificate representing Shares or Registrable Securities shall (unless otherwise permitted by the provisions of the Agreement) be stamped or otherwise imprinted with a legend substantially similar to the following (in addition to any legend required under applicable laws or contract): 3 THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. (c) The Company shall be obligated to reissue promptly certificates not bearing the foregoing legend at the request of any Holder thereof to the extent that the securities evidenced thereby that are proposed to be disposed of by such Holder have been registered for such disposition or the Holder shall have obtained an opinion of counsel (which counsel may be counsel to the Company) reasonably acceptable to the Company to the effect that the securities proposed to be disposed of may lawfully be so disposed of without registration under the Act or legend. (d) Any legend endorsed on an instrument pursuant to applicable state securities laws and the stop-transfer instructions with respect to such securities shall be removed upon receipt by the Company of an order of the appropriate blue sky authority authorizing such removal. 2.2 Demand Registration. (a) Subject to the conditions of this Section 2.2, if the Company shall receive a written request from either (i) the Investors holding a majority of the outstanding Registrable Securities held by all Investors (the "Initiating") or (ii) the Founders holding a majority of the outstanding Registrable Securities held by all Founders, that the Company file a registration statement under the Securities Act covering the registration of at least a majority of the Registrable Securities then outstanding (or a lesser percent if the anticipated aggregate offering price, net of underwriting discounts and commissions, would be equal to or greater than $1,000,000 (a "Qualified Public Offering")), then the Company shall, within thirty (30) days of the receipt thereof, give written notice of such request to all Holders, and subject to the limitations of this Section 2.2, use its best efforts to effect, as soon as practicable, the registration under the Securities Act of all Registrable Securities that the Holders request to be registered. (b) If the Initiating Investors or the Initiating Founders, respectively intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 2.2 or any request pursuant to Section 2.4 and the Company shall include such information in the written notice referred to in Section 2.2(a) or Section 2.4(a), as applicable. In such event, the right of any Holder to include its Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities 4 through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company (which underwriter or underwriters shall be reasonably acceptable to a majority in interest of the Initiating Holders). Notwithstanding any other provision of this Section 2.2 or Section 2.4, if the underwriter advises the Company that marketing factors require a limitation of the number of securities to be underwritten (including Registrable Securities) then the Company shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares that may be included in the underwriting shall be allocated to the Holders of such Registrable Securities on a pro rata basis based on the number of Registrable Securities held by all such Holders (including the Initiating Holders). Any Registrable Securities excluded or withdrawn from such underwriting shall be withdrawn from the registration. (c) The Company shall not be required to effect a registration pursuant to this Section 2.2: (i) prior to the earlier of (A) the second anniversary of the date of this Agreement or (B) one hundred eighty (180) days following the effective date of the registration statement pertaining to the Initial Offering; (ii) for the Initiating Investors after the Company has effected two (2) registrations pursuant to this Section 2.2, and for the Initiating Founders after the Company has effected two (2) registrations pursuant to this Section 2.2, and such registrations have been declared or ordered effective; (iii) either (A) during the period starting with the date of filing of, and ending on the date one hundred eighty (180) days following the effective date of the registration statement pertaining to the Initial Offering or (B) during the period starting with the date of filing of, and ending on the date ninety (90) days following the effective date of a registration statement other than the Initial Offering in which such Initiating Investors or Initiating Founders had the right to participate pursuant to Section 2.3, including a registration statement in which the underwriters reduced the Holders' participation pursuant to Section 2.3(a); provided that the Company makes reasonable good faith efforts to cause such registration statement to become effective; (iv) if within thirty (30) days of receipt of a written request from Initiating Holders pursuant to Section 2.2(a), the Company gives notice to the Holders of the Company's intention to make an offering described in (A) or (B) of clause (iii) within ninety (90) days; (v) if the Company shall furnish to Holders requesting a registration statement pursuant to this Section 2.2, a certificate signed by the Chairman of the Board stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such registration statement to be effected at such time, in which event the Company shall have the right to defer such filing for a period of not more than ninety (90) days after receipt of the request of the Initiating Holders; provided that such right 5 to delay a request shall be exercised by the Company not more than once in any twelve (12) month period; or (vi) if the Initiating Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Section 2.4 below or such shares may be sold without volume limitations under Rule 144 under the Securities Act. 2.3 Piggyback Registrations. The Company shall notify all Holders of Registrable Securities in writing at least thirty (30) days prior to the filing of any registration statement under the Securities Act for purposes of a public offering of securities of the Company (including, but not limited to, registration statements relating to secondary offerings of securities of the Company, but excluding registration statements relating to employee benefit plans or with respect to corporate reorganizations or other transactions under Rule 145 of the Securities Act) and will afford each such Holder an opportunity to include in such registration statement all or part of such Registrable Securities held by such Holder. Each Holder desiring to include in any such registration statement all or any part of the Registrable Securities held by it shall, within fifteen (15) days after the above-described notice from the Company, so notify the Company in writing. Such notice shall state the intended method of disposition of the Registrable Securities by such Holder. If a Holder decides not to include all of its Registrable Securities in any registration statement thereafter filed by the Company, such Holder shall nevertheless continue to have the right to include any Registrable Securities in any subsequent registration statement or registration statements as may be filed by the Company with respect to offerings of its securities, all upon the terms and conditions set forth herein. (a) Underwriting. If the registration statement under which the Company gives notice under this Section 2.3 is for an underwritten offering, the Company shall so advise the Holders of Registrable Securities. In such event, the right of any such Holder to be included in a registration pursuant to this Section 2.3 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company. Notwithstanding any other provision of the Agreement, if the underwriter determines in good faith that marketing factors require a limitation of the number of shares to be underwritten, the number of shares that may be included in the underwriting shall be allocated, first, to the Company; second, to the Holders who have elected to participate in such underwriting on a pro rata basis based on the respective total numbers of Registrable Securities held by such Holders; and third, to any other shareholder of the Company based on the respective total number of shares of Common Stock held by such other stockholders on a pro rata basis. No such reduction shall reduce the securities being offered by the Company for its own account to be included in the registration and underwriting. In no event will shares of any other selling shareholder be included in such registration which would reduce the number of shares which may be included by Holders without the written consent of Holders of not less than sixty-six and two-thirds percent (66- 2/3%) of the Registrable Securities proposed to be sold in the offering. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw 6 therefrom by written notice to the Company and the underwriter, delivered at least ten (10) business days prior to the effective date of the registration statement. Any Registrable Securities excluded or withdrawn from such underwriting shall be excluded and withdrawn from the registration. (b) Right to Terminate Registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 2.3 prior to the effectiveness of such registration whether or not any Holder has elected to include securities in such registration. The Registration Expenses of such withdrawn registration shall be borne by the Company in accordance with Section 2.5 hereof. 2.4 Form S-3 Registration. In case the Company shall receive from any one or more Investors or Founders holding Registrable Securities a written request or requests that the Company effect a registration on Form S-3 (or any successor to Form S-3) or any similar shortform registration statement and any related qualification or compliance with applicable State Securities laws, if any, with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company will: (a) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders of Registrable Securities; and (b) as soon as reasonably practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder's or Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within fifteen (15) days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance pursuant to this Section 2.4: (i) if Form S-3 (or any successor or similar form) is not available for such offering by the Holders, or (ii) if the Holders, entitled to inclusion in such registration propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public of less than three million dollars ($3,000,000), or (iii) if the Company shall furnish to the Holders a certificate signed by the Chairman of the Board of Directors of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such Form S-3 registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than ninety (90) days after receipt of the request of the Holder or Holders under this Section 2.4; provided, that such right to delay a request shall be exercised by the Company not more than once in any twelve (12) month period, or 7 (iv) if the Company has, within the twelve (12) month period preceding the date of such request, already effected one (1) registration on Form S-3 for any of the Holders pursuant to this Section 2.4, or (v) in any particular jurisdiction in which the Company would be required to qualify to do business, to execute a general consent to service of process or become subject to taxation in effecting such registration, qualification or compliance. (c) Subject to the foregoing, the Company shall file a Form S-3 registration statement covering the Registrable Securities and other securities so requested to be registered as soon as reasonably practicable after receipt of the request or requests of the Holders. Registrations effected pursuant to this Section 2.4 shall not be counted as demands for registration or registrations effected pursuant to Sections 2.2 or 2.3, respectively. 2.5 Expenses of Registration. Except as specifically provided herein, all Registration Expenses incurred in connection with any registration, qualification or compliance pursuant to Section 2.2 or any registration under Section 2.3 or Section 2.4 herein shall be borne by the Company. All Selling Expenses incurred in connection with any registrations hereunder, shall be borne by the holders of the securities so registered pro rata on the basis of the number of shares so registered. The Company shall not, however, be required to pay for any Registration Expenses of any registration proceeding begun pursuant to Section 2.2 or 2.4, the request of which has been subsequently withdrawn by the Holders participating therein unless (a) the withdrawal is based upon material adverse information concerning the Company of which the Holders initiating such registration were not aware at the time of such request or (b) if the Initiating Holders were any Investors or Founders, one or more Investors holding a majority of Registrable Securities held by the Investors or one or more Founders holding a majority of the Registrable Securities held by the Founders, respectively, agree to forfeit their right to one requested registration pursuant to Section 2.2 or Section 2.4, as applicable (in which event such right shall be forfeited by all Investors or Founders, respectively). If the Holders participating therein are required to pay the Registration Expenses, such expenses shall be borne by the Holders participating therein in proportion to the number of shares for which registration was requested. If the Company is required to pay the Registration Expenses of a withdrawn offering pursuant to clause (a) above, then the Holders shall not forfeit their rights pursuant to Section 2.2 or Section 2.4 to a demand registration. 2.6 Obligations of the Company. Whenever required to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: (a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use all reasonable efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for up to ninety (90) days or, if earlier, until the Holder or Holders have completed the distribution related thereto. The Company shall not be required to file, cause to become effective or maintain the effectiveness of any registration statement 8 that contemplates a distribution of securities on a delayed or continuous basis pursuant to Rule 415 under the Securities Act. (b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement for the period set forth in paragraph (a) above. (c) Furnish to the Holders such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (d) Use its reasonable best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders; provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter(s) of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. (f) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (g) Use its best efforts to furnish, on the date that such Registrable Securities are delivered to the underwriters for sale, if such securities are being sold through underwriters, (i) an opinion, dated as of such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and (ii) a letter dated as of such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering addressed to the underwriters. 2.7 Termination of Registration Rights. All registration rights granted under this Section 2 shall terminate and be of no further force and effect five (5) years after the date of the Company's Initial Offering. In addition, a Holder's registration rights shall expire if (a) the 9 Company has completed its Initial Offering and is subject to the provisions of Section 13 or 15(d) of the Exchange Act, (b) such Holder (together with its affiliates, partners and former partners) holds less than 1% of the Company's outstanding Common Stock (treating all share of convertible Preferred Stock on an as converted basis) and (c) all Registrable Securities held by and issuable to such Holder (and its affiliates, partners, former partners, members and former members) may be sold under Rule 144 without any volume limitations. 2.8 Delay of Registration; Furnishing Information. (a) No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 2. (b) It shall be a condition precedent to the obligations of the Company to take any action pursuant to Section 2.2, 2.3 or 2.4 that the selling Holders shall furnish to the Company such information regarding themselves, the Registrable Securities held by them and the intended method of disposition of such securities as shall be required to effect the registration of their Registrable Securities. (c) The Company shall have no obligation with respect to any registration requested pursuant to Section 2.2 or Section 2.4 if, due to the operation of Subsection 2.2 (b) or due to the withdrawal of such request by one or more Holders, the number of shares or the anticipated aggregate offering price of the Registrable Securities to be included in the registration does not equal or exceed the number of shares or the anticipated aggregate offering price required to originally trigger the Company's obligation to initiate such registration as specified in Section 2.2 or Section 2.4, whichever is applicable, but no event due to the operation of Section 2.2 (b) shall result in the loss of any of the demand registrations allowed under Section 2.2 (a). 2.9 Indemnification. In the event any Registrable Securities are included in a registration statement under Sections 2.2, 2.3 or 2.4: (a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the partners, officers and directors of each Holder, any underwriter (as defined in the Securities Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation") by the Company: (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged 10 violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law in connection with the offering covered by such registration statement; and the Company will pay as incurred to each such Holder, partner, officer, director, underwriter or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided however, that the indemnity agreement contained in this Section 2.9(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Holder, partner, officer, director, underwriter or controlling person of such Holder. (b) To the extent permitted by law, each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration qualifications or compliance is being effected, indemnify and hold harmless the Company, each of its directors, its officers, any underwriter (as defined in the Securities Act) for the Company and each person, if any, who controls the Company or underwriter within the meaning of the Securities Act, and any other Holder selling securities under such registration statement or any of such other Holder's partners, directors or officers or any person who controls such Holder, against any losses, claims, damages or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Holder, partner, officer, director, underwriter or controlling person of such Holder and each such Holder will pay as incurred any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, underwriter or other Holder, or partner, officer, director or controlling person of such other Holder in connection with investigating or defending any such loss, claim, damage, liability or action if it is judicially determined that there was such a Violation; provided, however, that the indemnity agreement contained in this Section 2.9(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided further, that in no event shall any indemnity under this Section 2.9 exceed the proceeds from the offering received by such Holder. (c) Promptly after receipt by an indemnified party under this Section 2.9 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 2.9, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof 11 with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if materially prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 2.9, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 2.9. (d) If the indemnification provided for in this Section 2.9 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any losses, claims, damages or liabilities referred to herein, the indemnifying party, in lieu of indemnifying such indemnified party thereunder, shall to the extent permitted by applicable law contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the Violation(s) that resulted in such loss, claim, damage or liability, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by a court of law by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; provided, that in no event shall any contribution by a Holder hereunder exceed the proceeds from the offering received by such Holder. (e) The obligations of the Company and Holders under this Section 2.9 shall survive completion of any offering of Registrable Securities in a registration statement and the termination of this agreement. No indemnifying party, in the defense of any such claim or litigation, shall, except with the consent of each indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. (f) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with any public offering in which any Holders are participating are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control. 2.10 Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to this Section 2 may be assigned to by a Holder to a transferee or assignee of Registrable Securities, pursuant to a prior contractual obligation and with no additional 12 consideration paid in the case of clauses (b) and (f) below, which (a) is a subsidiary or parent, (b) is a general partner, limited partner, retired partner, member or retired member of a Holder, (c) is a Holder's family member or trust for the benefit of an individual Holder or such Holder's family members or custodian for the benefit of a Holder's children, (d) is already a party to this Agreement, (e) is the estate or legal representative of such Holder upon such Holder's death or adjudication of incompetency (f) is a stockholder, officer or director of the Company, or (g) acquires at least two hundred fifty thousand (250,000) shares of Registrable Securities (as adjusted for stock splits and combinations); provided, however, (i) the transferor shall, within ten (10) days after such transfer, furnish to the Company written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned and (ii) such transferee shall agree to be subject to all restrictions set forth in this Agreement; and provided further that, in the case of any transferee specified in this Section 2.10, that (i) such transferee is not a competitor and (ii) the transfer of Registrable Securities to such transferee is permitted by and made in accordance with the applicable provisions of the First Refusal and Co-Sale Agreement. 2.11 Amendment of Registration Rights. Any provision of this Section 2 may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Holders of at least sixty-six and two-thirds percent (66-2/3%) of the Registrable Securities then outstanding. Any amendment or waiver effected in accordance with this Section 2.11 shall be binding upon each Holder and the Company. By acceptance of any benefits under this Section 2, Holders of Registrable Securities hereby agree to be bound by the provisions hereunder. 2.12 Limitation on Subsequent Registration Rights. After the date of this Agreement, the Company shall not, without the prior written consent of the Holders of sixty-six and two-thirds percent (66-2/3%) of the Registrable Securities then outstanding, enter into any agreement with any holder or prospective holder of any securities of the Company that would grant such holder registration rights pari passu or senior to those granted to the Holders hereunder. 2.13 "Market Stand-Off" Agreement; Agreement to Furnish Information. Each Holder hereby agrees that such Holder shall not sell or otherwise transfer or dispose of any Common Stock (or other securities) of the Company held by such Holder (other than those included in the registration) for a period specified by the representative of the underwriters of Common Stock (or other securities) of the Company not to exceed one hundred eighty (180) days following the effective date of a registration statement of the Company filed under the Securities Act for a public offering of the Company's securities; provided that all officers and directors of the Company and holders of at least ten percent (10%) of the Company's voting securities enter into similar agreements. Each Holder agrees to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriter which are consistent with the foregoing or which are necessary to give further effect thereto. In addition, if requested by the Company or the representative of the underwriters of Common Stock (or other securities) of the Company, each Holder shall provide, within fifteen (15) days of such request, such information as may be required 13 by the Company or such representative in connection with the completion of any public offering of the Company's securities pursuant to a registration statement filed under the Securities Act. The obligations described in this Section 2.13 shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8 or similar forms that may be promulgated in the future, or a registration relating solely to a Commission Rule 145 transaction on Form S-4 or similar forms that may be promulgated in the future. The Company may impose stop-transfer instructions with respect to the shares of Common Stock (or other securities) subject to the foregoing restriction until the end of said one hundred eighty (180) day period. 2.14 Rule 144 Reporting. With a view to making available to the Holders the benefits of certain rules and regulations of the SEC which may permit the sale of the Registrable Securities to the public without registration, the Company agrees to use its best efforts to: (a) Make and keep public information available, as those terms are understood and defined in SEC Rule 144 or any similar or analogous rule promulgated under the Securities Act, at all times after the effective date of Initial Offering and while the Company continues to be subject to the reporting requirements of Section 15(d) or Section 13 of the Exchange Act; (b) File with the SEC, in a timely manner, all reports and other documents required of the Company under the Exchange Act; and (c) So long as a Holder owns any Registrable Securities, furnish to such Holder forthwith upon request: a written statement by the Company as to its compliance with the reporting requirements of said Rule 144 of the Securities Act, and of the Exchange Act (at any time after it has become subject to such reporting requirements); a copy of the most recent annual or quarterly report of the Company filed with the SEC; and such other publicly available reports and documents as a Holder may reasonably request in availing itself of any rule or regulation of the SEC allowing it to sell any such securities without registration. SECTION 3. COVENANTS OF THE COMPANY 3.1 Basic Financial Information and Reporting. (a) The Company will maintain true books and records of account in which full and correct entries will be made of all its business transactions pursuant to a system of accounting established and administered in accordance with generally accepted accounting principles consistently applied, and will set aside on its books all such proper accruals and reserves as shall be required under generally accepted accounting principles consistently applied. (b) As soon as practicable after the end of each fiscal year of the Company, and in any event within ninety (90) days thereafter, the Company will furnish each Holder a balance sheet of the Company, as at the end of such fiscal year, and a statement of income and a statement of cash flows of the Company, for such year, all prepared in accordance with generally accepted 14 accounting principles consistently applied and setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail. Such financial statements shall be accompanied by a report and opinion thereon by independent public accountants of national standing selected by the Company's Board of Directors. (c) So long as any Holder (with its affiliates) shall own not less than two hundred fifty thousand (250,000) shares of Registrable Securities (as adjusted for stock splits and combinations) (a "Major Holder"), the Company will furnish each such Major Holder, as soon as practicable after the end of the first, second and third quarterly accounting periods in each fiscal year of the Company, and in any event within forty-five (45) days thereafter, a balance sheet of the Company as of the end of each such quarterly period, and a statement of income and a statement of cash flows of the Company for such period and for the current fiscal year to date, prepared in accordance with generally accepted accounting principles, with the exception that no notes need be attached to such statements and year-end audit adjustments may not have been made. (d) The Company will furnish each such Major Holder (i) at least thirty (30) days prior to the beginning of each fiscal year an annual budget and operating plans for such fiscal year (and as soon as available, any subsequent revisions thereto); and (ii) as soon as practicable after the end of each month, and in any event within twenty (20) days thereafter, a balance sheet of the Company as of the end of each such month, and a statement of income and a statement of cash flows of the Company for such month and for the current fiscal year to date, including a comparison to plan figures for such period, prepared in accordance with generally accepted accounting principles consistently applied, with the exception that no notes need be attached to such statements and year-end audit adjustments may not have been made. 3.2 Inspection Rights. Each such Major Holder shall have the right to visit and inspect any of the properties of the Company or any of its subsidiaries, and to discuss the affairs, finances and accounts of the Company or any of its subsidiaries with its officers, and to review such information as is reasonably requested all at such reasonable times and as often as may be reasonably requested; provided, however, that the Company shall not be obligated under this Section 3.2 with respect to a competitor of the Company or with respect to information which the Board of Directors determines in good faith is confidential and should not, therefore, be disclosed. 3.3 Confidentiality of Records. (a) Each Holder agrees to use, and to use its best efforts to insure that its authorized representatives use, the same degree of care as such Holder uses to protect its own confidential information to keep confidential any information furnished to it which the Company identifies as being confidential or proprietary (so long as such information is not in the public domain), except that such Holder may disclose such proprietary or confidential information to any partner, subsidiary, parent or agent of such Holder for the purpose of evaluating its investment in the Company as long as such partner, subsidiary, parent or agent is advised of the confidentiality 15 provisions of this Section 3.3 and any Confidentiality Agreement between the Company and such Holder. (b) Notwithstanding any provision of this Section 3 or any other provision of this Agreement actually or apparently to the contrary, the Company shall not be required to, and shall not provide any Investor with any non-public information or any access or inspection rights under Section 3.2 or otherwise if the Company reasonably believes that such Investor (or any of its affiliates) is a competitor (unless such Investor furnishes the Company with reasonable evidence that it and its affiliates are not competitors) or unless such Investor executes and delivers or previously has executed and delivered to the Company a confidentiality agreement in substantially the form of the Initial Investor Confidentiality Agreement. The provisions of this Section 3.3 are supplemental to and do not supersede, terminate or amend the terms of the Initial Investor Confidentiality Agreement or any other confidentiality agreement which any Investor may enter into with the Company. (c) The Investors hereby acknowledge and agree that (i) by reason of such Investor being furnished or granted access to material non-public information regarding the Company as provided herein, such Investor may be prohibited from purchasing or selling securities of the Company unless and until such information is disclosed to the public generally or to the persons with whom such Investor effects such purchases or sales, (ii) the Company has and will have no obligation to make such disclosure and (iii) such Investor is and will be prohibited by the confidentiality provisions of this Agreement and any separate confidentiality agreement which such Investor has or shall enter into with the Company from making such disclosure. 3.4 Reservation of Common Stock. The Company will at all times reserve and keep available, solely for issuance and delivery upon the conversion of the Preferred Stock, all Common Stock issuable from time to time upon such conversion. 3.5 Stock Vesting. Unless otherwise determined by a majority of the Board of Directors, which majority shall include at least one of the Directors designated or elected by the Investors and at least one of the Directors designated or elected by the Founders, all stock options and other stock equivalents issued after the date of this Agreement to employees, directors, consultants and other service providers shall be subject to vesting as follows: (a) twenty-five percent (25%) of such stock shall vest at the end of the first year following the earlier of the date of issuance or such person's services commencement date with the Company, and (b) seventy-five percent (75%) of such stock shall vest over the remaining three (3) years. With respect to any shares of stock purchased by any such person, the Company's repurchase option shall provide that upon such person's termination of employment or service with the Company, with or without cause, the Company or its assignee (to the extent permissible under applicable securities laws and other laws) shall have the option to purchase at cost any unvested shares of stock held by such person. 3.6 Key Man Insurance. Unless otherwise determined by a majority of the Board of Directors, which majority shall include at least one of the Directors designated or elected by the 16 Investors and at least one of Directors designated or elected by the Founders, the Board of Directors, the Company will use its best efforts to obtain and maintain in full force and effect term life insurance in the amount of one million ($1,000,000) dollars on the lives of each of Stephen Messer, Heidi Messer and Jianhao Meng naming the Company as beneficiary. 3.7 Proprietary Information and Inventions Agreement. Unless otherwise determined by a majority of the Board of Directors, which majority shall include at least one of the Directors designated or elected by the Investors and at least one of Directors designated or elected by the Founders, the Company shall require all employees and consultants to execute and deliver a Proprietary Information and Inventions Agreement in the form attached to the Purchase Agreement. 3.8 Approval. The Company shall not without the approval of a majority of the Board of Directors, which majority shall include at least one of the Directors designated by the Investors and at least one of the Directors designated or elected by the Founders, authorize, approve, agree to take or take any of the following actions: (i) approval of annual budgets and business plans; (ii) disposition, pledge or encumbrance assets otherwise than pursuant to a budget in effect or in the ordinary course of business; (iii) acquisitions of assets otherwise than pursuant to a budget in effect or in the ordinary course of business; (iv) investments (other than temporary investments in working capital), formations of subsidiaries and participation in joint ventures; (v) appointment, employment, powers and duties, compensation, termination or removal of the chief executive officer, chief operating officer, chief financial officer or chief technical officer; (vi) the payment, or agreement by the Company to pay, cash compensation to any other officer or employee of the Company whose aggregate annual cash compensation exceeds, or would exceed by reason of a contemplated increase, $75,000 (except to the Initial Founders pursuant to their employment agreements with the Company). (vii) decisions to enter into, amend, terminate, or exercise, waive or release or not exercise any Company rights or remedies of the Company under any significant contract or license including, without limitation, this Agreement, the Stock Purchase Agreement and the First Refusal and Co-Sale Agreement; (viii) deviations from any budget outside of limits to be determined; 17 (ix) loans to or guarantees of liabilities for obligations of any Person, other than in the ordinary course of business; (x) incurrence of indebtedness for borrowed money other than in accordance with a budget or within limits to be established by the Board of Directors pursuant to this Section 3.7; (xi) changes in the Company's accountants or attorneys; (xii) institution or settlement legal proceedings; (xiii) changes in any significant tax or accounting practice or principles or making of any significant tax or accounting election; (xiv) the sale or other disposition of or the granting of any license or other right to use any technology, intellectual property or proprietary rights, except in the ordinary course of business; (xv) merger, consolidation or other business combination; (xvi) dissolution and winding up; (xvii) any action that would make it impossible to carry on ordinary business of the Company; (xviii) any filing under any bankruptcy, insolvency or similar law; (xix) amendment of Certificate of Incorporation, By-laws, any resolution of the Board of Directors designating any capital stock or authorizing the execution and delivery of any documents in connection with sale or issuance of securities of the Company; (xx) issuance, redemption or repurchase of securities, including issuances of options under any option plan of the Company, any private placement or Rule 144A, public or other offering of preferred or common stock or debt securities; (xxi) dividends or other distributions; (xxii) terminating or changing the terms of any employee benefit plan, program or arrangement in any significant respect adverse to the Company's employees (including officers); (xxiii) increase the size of the Board of Directors to more than five (5) members, except that if the Company hires a new chief executive officer, the size of the Board of 18 Directors shall increase to six (6) members and the new chief executive officer shall be appointed to the vacant seat. (xxiv) entry into new lines of business; or (xxv) any other transaction or action not in the ordinary course of business. If the Company acquires or forms any subsidiary, the composition of the board of directors or comparable body will mirror that of the Company's board and transactions of the types listed above will be subject to the same approval requirements. 3.9 Termination of Covenants. All covenants of the Company contained in Section 3 of this Agreement except the covenant contained in Section 3.3 shall expire and terminate upon the earlier of (i) the effective date of the registration statement pertaining to the Initial Offering or (ii) upon (a) the acquisition of all or substantially all of the assets of the Company or (b) an acquisition of the Company by another corporation or entity by consolidation, merger or other reorganization in which the holders of the Company's outstanding voting stock immediately prior to such transaction own, immediately after such transaction, securities representing less than fifty percent (50%) of the voting power of the corporation or other entity surviving such transaction (a "Change in Control"). In addition, Sections 3.1(c), Section 3.1(d) and Section 3.2 shall no longer apply to a Holder who is no longer a Major Holder. SECTION 4. RIGHTS OF FIRST REFUSAL 4.1 Subsequent Offerings. Each Major Investor and Founder (each a "Right Holder") shall have a right of first refusal to purchase its pro rata share of all Equity Securities, as defined below, that the Company may, from time to time, propose to sell and issue after the date of this Agreement, other than the Equity Securities excluded by Section 4.7 hereof. Each Right Holder's pro rata share is equal to the ratio of (a) the number of shares of the Company's Common Stock (including all shares of Common Stock issued or issuable upon conversion of the Shares) which such Right Holder is deemed to be a holder immediately prior to the issuance of such Equity Securities to (b) the total number of shares of the Company's outstanding Common Stock (including all shares of Common Stock issued or issuable upon conversion of the Shares or upon the exercise of any outstanding warrants, options or other rights) immediately prior to the issuance of the Equity Securities. The term "Equity Securities" shall mean (i) any capital stock of the Company, (ii) any security convertible, with or without consideration, into capital stock of the Company (including any option to purchase such a convertible security), (iii) any security carrying any warrant or right to subscribe to or purchase any capital stock of the Company or (iv) any such warrant or right. 4.2 Exercise of Rights. If the Company proposes to issue any Equity Securities, it shall give each Right Holder written notice of its intention, describing the Equity Securities, the price and the terms and conditions upon which the Company proposes to issue the same. Each Right Holder shall have fifteen (15) days from the giving of such notice to agree to purchase its pro rata share of 19 the Equity Securities for the price and upon the terms and conditions specified in the notice by giving written notice to the Company and stating therein the quantity of Equity Securities to be purchased. Notwithstanding the foregoing, the Company shall not be required to offer or sell such Equity Securities to any Right Holder who would cause the Company to be in violation of applicable federal securities laws by virtue of such offer or sale. 4.3 Issuance of Equity Securities to Other Right Holders. If not all of the Right Holders elect to purchase their pro rata share of the Equity Securities, then the Company shall first promptly notify in writing the Right Holders who do so elect and shall offer such Right Holders the right to acquire such unsubscribed shares. The fully participating Right Holders shall have five (5) days after receipt of such notice to notify the Company of its election to purchase all or a portion thereof of the unsubscribed shares. If the Right Holders as a group, fail to exercise in full the rights of first refusal, the Company shall have ninety (90) days thereafter to sell the Equity Securities in respect of which the Right Holders' rights were not exercised, at a price and upon general terms and conditions materially no more favorable to the purchasers thereof than specified in the Company's notice to the Right Holders pursuant to Section 4.2 hereof. If the Company has not sold such Equity Securities within ninety (90) days of the notice provided pursuant to Section 4.2, the Company shall not thereafter issue or sell any Equity Securities, without first offering such securities to the Rights Holders in the manner provided above. 4.4 Sale Without Notice. In lieu of giving notice to the Right Holders prior to the issuance of Equity Securities as provided in Section 4.2, the Company may elect to give notice to the Right Holders within thirty (30) days after the issuance of Equity Securities. Such notice shall describe the type, price and terms of the Equity Securities. Each Right Holders shall have twenty (20) days from the date of receipt of such notice to elect to purchase its pro rata share of Equity Securities (as defined in Section 4.1, and calculated before giving effect to the sale of the Equity Securities to the purchasers thereof). Subject to Section 5.12, the closing of such sale shall occur within sixty (60) days after the date of notice to the Right Holders. 4.5 Termination and Waiver of Rights of First Refusal. The rights of first refusal established by this Section 4 shall not apply to, and shall terminate upon the earlier of (i) effective date of the registration statement pertaining to the Company's Initial Offering or (ii) a Change in Control. The rights of first refusal established by this Section 4 may be amended, or any provision waived with the written consent of the Company and the Right Holders holding at least two-thirds (66-2/3%) of the Registrable Securities held by all Right Holders, or as permitted by Section 5.6. 4.6 Transfer of Rights of First Refusal. The rights of first refusal of each Right Holder under this Section 4 may be transferred to the same parties, subject to the same restrictions and conditions as any transfer of registration rights pursuant to Section 2.10. 4.7 Excluded Securities. The rights of first refusal established by this Section 4 shall have no application to any of the following Equity Securities: 20 (a) shares of Common Stock (and/or options, warrants or other Common Stock purchase rights issued pursuant to such options, warrants or other rights) issued or to be issued to employees, officers or directors of, or consultants or advisors to the Company or any subsidiary, pursuant to stock purchase or stock option plans or other arrangements that are approved by the Board of Directors including at least one director designated by each of the Investors and Founders. (b) stock issued pursuant to any rights or agreements outstanding as of the date of this Agreement, options and warrants outstanding as of the date of this Agreement; and stock issued pursuant to any such rights or agreements granted after the date of this Agreement; provided that the rights of first refusal established by this Section 4 applied with respect to the initial sale or grant by the Company of such rights or agreements; (c) any Equity Securities issued for consideration other than cash pursuant to a merger, consolidation, acquisition or similar business combination that is approved by the Board of Directors; (d) shares of Common Stock issued in connection with any stock split, stock dividend or recapitalization by the Company; (e) shares of Common Stock issued upon conversion of the Shares; (f) any Equity Securities issued pursuant to any equipment leasing arrangement, or debt financing from a bank or similar financial institution; and (g) any Equity Securities that are issued by the Company pursuant to a registration statement filed under the Securities Act. SECTION 5. MISCELLANEOUS 5.1 Governing Law. This Agreement shall be governed by and construed under the laws of the State of New York as applied to agreements among New York residents entered into and to be performed entirely within New York, including Section 5-401 of the General Obligations Law of the State of New York. 5.2 Survival. The representations, warranties, covenants, and agreements made herein shall survive any investigation made by any Holder and the closing of the transactions contemplated hereby. All statements as to factual matters contained in any certificate or other instrument delivered by or on behalf of the Company pursuant hereto in connection with the transactions contemplated hereby shall be deemed to be representations and warranties by the Company hereunder solely as of the date of such certificate or instrument. 5.3 Successors and Assigns. Subject to Section 2.1, except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the 21 successors, permitted assigns, heirs, executors, and administrators of the parties hereto and shall inure to the benefit of and be enforceable by each person who shall be a Holder from time to time; provided, however, that prior to the receipt by the Company of adequate written notice of the transfer of any Registrable Securities specifying the full name and address of the transferee, the Company may deem and treat the person listed as the holder of such shares in its records as the absolute owner and holder of such shares for all purposes, including the payment of dividends or any redemption price. No party may assign this Agreement or its rights or obligations hereunder without the prior written consent of the Company, one or more Founders holding a majority of all Registrable Securities held by the Founders and one or more Investors holding a majority of all Registrable Securities held by the Investors, except for a proportionate assignment of rights and obligations hereunder to a transferee of Registrable Securities in a transfer permitted by this Agreement and the First Refusal and Co-Sale Agreement. 5.4 Entire Agreement. This Agreement, the Exhibits and Schedules hereto, the Purchase Agreement and the other documents delivered pursuant thereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof and no party shall be liable or bound to any other in any manner by any prior representations, warranties, covenants and agreements except as specifically set forth herein and therein. This Agreement shall not supersede, merge, terminate or amend the terms of the Initial Investor Confidentiality Agreement, which shall remain in full force and effect and is hereby ratified, confirmed and approved by the Company and the Initial Investor. 5.5 Severability. In case any provision of the Agreement shall be invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 5.6 Amendment and Waiver. (a) Except as otherwise expressly provided, this Agreement may be amended or modified only upon the written consent of the Company and the holders of at least two-thirds (66-2/3%) of the Registrable Securities. (b) Except as otherwise expressly provided, the obligations of the Company and the rights of the Holders under this Agreement may be waived only with the written consent of the holders of at least two-thirds (66-2/3%) of the Registrable Securities. (c) Notwithstanding the foregoing, this Agreement shall be amended to include additional purchasers of Shares as parties hereto and "Investors" or "Holders," as applicable herewith, such amendment to be conclusively evidenced by the delivery of an executed signature page to this Agreement or a joinder agreement by such additional purchasers and the issuance by the Company of stock certificates representing such purchased Shares. 22 5.7 Delays or Omissions. It is agreed that no delay or omission to exercise any right, power, or remedy accruing to any party, upon any breach, default or noncompliance of another party under this Agreement shall impair any such right, power, or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of any similar breach, default or noncompliance thereafter occurring. It is further agreed that any waiver, permit, consent, or approval of any kind or character on any party's part of any breach, default or noncompliance under the Agreement or any waiver on such party's part of any provisions or conditions of this Agreement must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement, by law, or otherwise afforded to any party, shall be cumulative and not alternative. 5.8 Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the party to be notified at the address as set forth on the signature pages hereof or Exhibit A hereto or at such other address as such party may designate by ten (10) days advance written notice to the other parties hereto. 5.9 Attorneys' Fees. In the event that any dispute among the parties to this Agreement should result in litigation, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Agreement, including without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals. 5.10 Titles and Subtitles. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 5.11 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. 5.12 Government Consents. All time periods specified in this Agreement for the closing of any sale or purchase of securities pursuant to this Agreement shall be extended to the tenth business day following the receipt by the Company or the Holders of all material governmental approvals which may be required, and the expiration of all applicable waiting periods under applicable laws or regulations, in connection with such transaction. [THIS SPACE INTENTIONALLY LEFT BLANK] 23 IN WITNESS WHEREOF, the parties hereto have executed this INVESTOR RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof. COMPANY: INVESTORS: LINKSHARE CORPORATION INTERNET CAPITAL GROUP, LLC By: By: ----------------------------------- ----------------------------------- Name: Name: --------------------------------- --------------------------------- Title: Title: -------------------------------- -------------------------------- FOUNDERS - -------------------------------- Stephen Messer - -------------------------------- Heidi Messer - -------------------------------- Jianhao Meng INVESTOR RIGHTS AGREEMENT SIGNATURE PAGE EXHIBIT A SCHEDULE OF INVESTORS Name and Address Shares Shares Internet Capital Group, LLC .............................. 2,431,611 44 Montgomery Street Suite 3705 San Francisco, CA 94104 Total 2,431,611 EX-10.2 10 LONG-TERM INCENTIVE PLAN EXHIBIT 10.2 LINKSHARE CORPORATION LONG-TERM INCENTIVE PLAN 1. Objectives. The LinkShare Corporation Long-Term Incentive Plan (the "Plan") is designed to retain selected employees of LinkShare Corporation (the "Company") and its Subsidiaries and reward them for making significant contributions to the success of the Company and its Subsidiaries. These objectives are to be accomplished by making awards under the Plan and thereby providing Participants with a proprietary interest in the growth and performance of the Company and its Subsidiaries. 2. Definitions. As used herein, the terms set forth below shall have the following respective meanings: "Award" means the grant of any form of ISO, Nonqualified Option, stock appreciation right, stock award or cash award, whether granted singly, in combination or in tandem, to a Participant pursuant to any applicable terms, conditions and limitations as the Committee may establish in order to fulfill the objectives of the Plan. "Award Agreement" means a written agreement between the Company and a Participant that sets forth the terms, conditions and limitations applicable to an Award. "Board" means the Board of Directors of the Company. "Change of Control" means (i) any sale by the Company of substantially all of its assets or (ii) the acquisition by any "person," including a "group" as determined in accordance with Section 13(d)(3) of the Exchange Act, of beneficial ownership, directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company's then-outstanding securities; provided, however, that no Change of Control shall be deemed to occur if beneficial ownership in the Company's then-outstanding securities is acquired pursuant to any reorganization of the Company or recapitalization, spinoff or other transaction if, after giving effect to such transaction, however structured, at least 50% of the outstanding voting securities with the ultimate parent entity corporation are beneficially owned in the aggregate, directly or indirectly through one or more intermediaries, by the former shareholders of the Company. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Committee" means such committee of the Board as is designated by the Board to administer the Plan. The Committee shall be constituted to permit the Plan to comply with Rule 16b-3. "Common Stock" means the Common Stock, par value $0.001 per share, of the Company. "Director" means an individual serving as a member of the Board. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time. "Fair Market Value" means, as of a particular date, (a) if the shares of Common Stock are listed on a national securities exchange, the mean between the highest and lowest sales price per share of Common Stock on the consolidated transaction reporting system for the principal such national securities exchange on that date, or, if there shall have been no such sale so reported on that date, on the last preceding date on which such a sale was so reported, (b) if the shares of Common Stock are not so listed but are quoted on the Nasdaq National Market, the mean between the highest and lowest sales price per share of Common Stock on the Nasdaq National Market on that date, or, if there shall have been no such sale so reported on that date, on the last preceding date on which such a sale was so reported, (c) if the Common Stock is not so listed or quoted, the mean between the closing bid and asked price on that date, or, if there are no quotations available for such date, on the last preceding date on which such quotations shall be available, as reported by Nasdaq, or, if not reported by Nasdaq, by the National Quotation Bureau, Inc. or (d) if none of the above is applicable, such amount as may be determined by the Board (or an Independent Third Party, should the Board elect in its sole discretion to instead utilize an Independent Third Party for this purpose), in good faith, to be the fair market value per share of Common Stock. "Independent Third Party" means an individual or entity independent of the Company (and any transferor or transferee of Common Stock acquired upon the exercise of an option under the Plan, if applicable) with experience in providing investment banking appraisal or valuation services and with expertise generally in the valuation of securities or other property of the type at issue, that is chosen by the Board, in its sole discretion, to value securities or other property for purposes of this Plan. The Company's independent accountants shall be deemed to satisfy the criteria for an Independent Third Party if selected by the Board for that purpose. The Board may utilize one or more Independent Third Parties. "ISO" means an incentive stock option within the meaning of Code Section 422. "Nonqualified Option" means a nonqualified stock option within the meaning of Code Section 83. "Participant" means an employee or consultant of the Company or any of its Subsidiaries or a non-employee Director to whom an Award has been made under this Plan. "Restricted Stock" means Common Stock that is restricted or subject to forfeiture provisions. "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act, or any successor rule. -2- "Subsidiary" means (i) with respect to grants of ISOs, any subsidiary within the meaning of Section 424(f) of the Code or any successor provision, and (ii) with respect to all Awards other than ISOs, any corporation, limited liability company or similar entity of which the Company directly or indirectly owns shares representing more than 50% of the voting power of all classes or series of capital stock of such corporation which have the right to vote generally on matters submitted to a vote of the shareholders of such corporation. 3. Eligibility. All employees, consultants and Directors of the Company and its Subsidiaries are eligible for Awards under this Plan. The Committee shall select the Participants in the Plan from time to time by the grant of Awards under the Plan. 4. Common Stock Available for Awards. There shall be available for Awards granted wholly or partly in Common Stock (including rights or options which may be exercised for or settled in Common Stock) during the term of this Plan an aggregate of 1,001,956 shares of Common Stock, subject to adjustment as provided in Paragraph 14. The Board and the appropriate officers of the Company shall from time to time take whatever actions are necessary to file required documents with governmental authorities and stock exchanges and transaction reporting systems to make shares of Common Stock available for issuance pursuant to Awards. Common Stock related to Awards that are forfeited or terminated, expire unexercised, are settled in cash in lieu of Common Stock or in a manner such that all or some of the shares covered by an Award are not issued to a Participant, or are exchanged for Awards that do not involve Common Stock, shall immediately become available for Awards hereunder. 5. Administration. This Plan shall be administered by the Committee, which shall have full and exclusive power to interpret this Plan and to adopt such rules, regulations and guidelines for carrying out this Plan as it may deem necessary or proper, all of which powers shall be exercised in the best interests of the Company and in keeping with the objectives of this Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in this Plan or in any Award in the manner and to the extent the Committee deems necessary or desirable to carry it into effect. Any decision of the Committee in the interpretation and administration of this Plan shall lie within its sole and absolute discretion and shall be final, conclusive and binding on all parties concerned. No member of the Committee or officer of the Company to whom it has delegated authority in accordance with the provisions of Paragraph 6 of this Plan shall be liable for anything done or omitted to be done by him or her, by any member of the Committee or by any officer of the Company in connection with the performance of any duties under this Plan, except for his or her own willful misconduct or as expressly provided by statute. 6. Delegation of Authority. The Committee may delegate to the senior officers of the Company its duties under this Plan pursuant to such conditions or limitations as the Committee may establish, except that the Committee may not delegate to any person the authority to grant Awards to, or take other action with respect to, Participants who are subject to Section 16 of the Exchange Act. 7. Awards. The Board or the Committee shall determine the type or types of Awards to be made to each Participant under this Plan. Each Award made hereunder shall be -3- embodied in an Award Agreement, which shall contain such terms, conditions and limitations as shall be determined by the Committee in its sole discretion and shall be signed by the Participant and by a senior officer of the Company to whom the Committee has delegated such authority for and on behalf of the Company. An Award Agreement may include provisions for the repurchase by the Company of Common Stock acquired pursuant to the Plan and the repurchase of a Participant's option rights under the Plan. Awards may consist of those listed in this Paragraph 7 and may be granted singly, in combination or in tandem. Awards may also be made in combination or in tandem with, in replacement of, or as alternatives to grants or rights (a) under this Plan or any other employee plan of the Company or any of its Subsidiaries, including the plan of any acquired entity, or (b) made to any Company or Subsidiary employee by the Company or any Subsidiary. An Award may provide for the granting or issuance of additional, replacement or alternative Awards upon the occurrence of specified events, including the exercise of the original Award. An Award Agreement may include provisions for acceleration of the vesting and exercisability of and lapse of restrictions with respect to Awards upon a Change of Control. Notwithstanding anything herein to the contrary, no Participant may be granted Awards consisting of stock options or stock appreciation rights exercisable for more than 25% of the shares of Common Stock originally authorized for Awards under this Plan, subject to adjustment as provided in Paragraph 14. In the event of an increase in the number of shares authorized under the Plan, the 25% limitation will apply to the number of shares authorized. (i) Stock Option. An Award may consist of a right to purchase a specified number of shares of Common Stock at a price specified by the Committee in the Award Agreement or otherwise. A stock option may be in the form of an incentive stock option ("ISO") which, in addition to being subject to applicable terms, conditions and limitations established by the Committee, complies with Section 422 of the Code, or in the form of a Nonqualified Option. Notwithstanding the foregoing, no ISO can be granted under the Plan more than ten years following the Effective Date of the Plan. (ii) Stock Appreciation Right. An Award may consist of a right to receive a payment, in cash or Common Stock, equal to the excess of the Fair Market Value or other specified valuation of a specified number of shares of Common Stock on the date the stock appreciation right ("SAR") is exercised over a specified strike price as set forth in the applicable Award Agreement. -4- (iii) Stock Award. An Award may consist of Common Stock or may be denominated in units of Common Stock. All or part of any stock Award may be subject to conditions established by the Committee and set forth in the Award Agreement, which conditions may include, but are not limited to, continuous service with the Company and its Subsidiaries, achievement of specific business objectives, increases in specified indices, attaining specified growth rates and other comparable measurements of performance. Such Awards may be based on Fair Market Value or other specified valuations. The certificates evidencing shares of Common Stock issued in connection with a Stock Award shall contain appropriate legends and restrictions describing the terms and conditions of the restrictions applicable thereto. (iv) Cash Award. An Award may be denominated in cash with the amount of the eventual payment subject to future service and such other restrictions and conditions as may be established by the Committee and set forth in the Award Agreement, including, but not limited to, continuous service with the Company and its Subsidiaries, achievement of specific business objectives, increases in specified indices, attaining specified growth rates and other comparable measurements of performance. 8. Payment of Awards. (a) General. Payment of Awards may be made in the form of cash or Common Stock or combinations thereof and may include such restrictions as the Committee shall determine including, in the case of Common Stock, restrictions on transfer and forfeiture provisions. (b) Deferral. The Committee may, in its discretion, (i) permit selected Participants to elect to defer payments of some or all types of Awards in accordance with procedures established by the Committee or (ii) provide for the deferral of an Award in an Award Agreement or otherwise. Any such deferral may be in the form of installment payments or a future lump sum payment. Any deferred payment, whether elected by the Participant or specified by the Award Agreement or by the Committee, may be forfeited if and to the extent that the Award Agreement so provides. (c) Dividends and Interest. Dividends or dividend equivalent rights may be extended to and made part of any Award denominated in Common Stock or units of Common Stock, subject to such terms, conditions and restrictions as the Committee may establish. The Committee may also establish rules and procedures for the crediting of interest on deferred cash payments and dividend equivalents for deferred payment denominated in Common Stock or units of Common Stock. (d) Substitution of Awards. At the discretion of the Committee, a Participant may be offered an election to substitute an Award for another Award or Awards of the same or different type. -5- 9. Stock Option Exercise. The price at which shares of Common Stock may be purchased under a stock option shall be paid in full at the time of exercise in cash or, if permitted by the Committee, by means of tendering Common Stock or surrendering all or part of that or any other Award, including Restricted Stock, valued at Fair Market Value on the date of exercise, or any combination thereof. The Committee shall determine acceptable methods for tendering Common Stock or Awards to exercise a stock option as it deems appropriate. If permitted by the Committee, payment may be made by successive exercises by the Participant. The Committee may provide for procedures to permit the exercise or purchase of Awards by (a) loans from the Company or (b) use of the proceeds to be received from the sale of Common Stock issuable pursuant to an Award. Unless otherwise provided in the applicable Award Agreement, in the event shares of Restricted Stock are tendered as consideration for the exercise of a stock option, a number of the shares issued upon the exercise of the stock option, equal to the number of shares of Restricted Stock used as consideration therefor, shall be subject to the same restrictions as the Restricted Stock so submitted as well as any additional restrictions that may be imposed by the Committee. 10. Tax Withholding. The Company shall have the right to deduct applicable taxes from any Award payment and withhold, at the time of delivery or vesting of cash or shares of Common Stock under this Plan, an appropriate amount of cash or number of shares of Common Stock or a combination thereof for payment of taxes required by law or to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for withholding of such taxes. The Committee may also permit withholding to be satisfied by the transfer to the Company of shares of Common Stock theretofore owned by the holder of the Award with respect to which withholding is required. If shares of Common Stock are used to satisfy tax withholding, such shares shall be valued based on the Fair Market Value when the tax withholding is required to be made. 11. Amendment, Modification, Suspension or Termination. The Board may amend, modify, suspend or terminate this Plan for the purpose of meeting or addressing any changes in legal requirements or for any other purpose permitted by law except that (a) no amendment or alteration that would impair the rights of any Participant under any Award previously granted to such Participant shall be made without such Participant's consent and (b) no amendment or alteration shall be effective prior to approval by the Company's shareholders to the extent such approval is then required pursuant to Rule 16b-3 in order to preserve the applicability of any exemption provided by such rule to any Award then outstanding (unless the holder of such Award consents) or to the extent shareholder approval is otherwise required by applicable legal requirements. 12. Termination of Employment or Service on the Board. Upon either the termination of employment or the termination of service as a Director by a Participant, any unexercised, deferred or unpaid Awards shall be treated as provided in the specific Award Agreement evidencing the Award. Unless otherwise specifically provided in the Award Agreement, each Award granted pursuant to this Plan which is a stock option shall provide that if the Participant ceases to be employed by the Company or its affiliates or, in the case of a non-employee Director, to serve on the Board for any reason whatsoever, the option shall immediately terminate to the extent the option is not vested (or does not become vested as a result of such termination) on the date the Participant terminates employment or service on the Board. -6- 13. Assignability. Except as otherwise provided herein, no Award granted under this Plan shall be sold, transferred, pledged, assigned or otherwise alienated or hypothecated by a Participant other than by will or the laws of descent and distribution, and during the lifetime of a Participant, any Award shall be exercisable only by the Participant, or, in the case of a Participant who is mentally incapacitated, the Award shall be exercisable by the Participant's guardian or legal representative. The Committee may prescribe and include in applicable Award Agreements other restrictions on transfer. Any attempted assignment or transfer in violation of this Paragraph 13 shall be null and void. Upon the Participant's death, the personal representative or other person entitled to succeed to the rights of the Participant (the "Successor Participant") may exercise such rights. A Successor Participant must furnish proof satisfactory to the Company of his or her right to exercise the Award under the Participant's will or under the applicable laws of descent and distribution. Subject to approval by the Committee in its sole discretion, all or a portion of the Awards granted to a Participant under the Plan which are not intended to be ISOs may be transferable by the Participant, to the extent and only to the extent specified in such approval, to (i) the spouse, parent, brother, sister, children or grandchildren of the Participant ("Immediate Family Members"), (ii) a trust or trusts for the exclusive benefit of such Immediate Family Members ("Immediate Family Member Trusts"), or (iii) a partnership or partnerships in which such Immediate Family Members have at least 99% of the equity, profit and loss interests ("Immediate Family Member Partnerships"); provided that the Award Agreement pursuant to which such Awards are granted (or an amendment thereto) must expressly provide for transferability in a manner consistent with this Section. Subsequent transfers of transferred Awards shall be prohibited except by will or the laws of descent and distribution, unless such transfers are made to the original Participant or a person to whom the original Participant could have made a transfer in the manner described herein. No transfer shall be effective unless and until written notice of such transfer is provided to the Committee, in the form and manner prescribed by the Committee. Following transfer, any such Awards shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer, and, except as otherwise provided herein, the term 'Participant' shall be deemed to refer to the transferee. The events of termination of service in Paragraph 12 shall continue to be applied with respect to the original Participant, following which the Awards shall be exercisable by the transferee only to the extent and for the periods specified in this Plan and the Award Agreement. 14. Adjustments. (a) The existence of outstanding Awards shall not affect in any manner the right or power of the Company or its shareholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the capital stock of the Company or its business or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stock (whether or not such issue is prior to, on a parity with or junior to the Common Stock) or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding of any kind, whether or not of a character similar to that of the acts or proceedings enumerated above. -7- (b) In the event of any subdivision or consolidation of outstanding shares of Common Stock or declaration of a dividend payable in shares of Common Stock or capital reorganization or reclassification or other transaction involving an increase or reduction in the number of outstanding shares of Common Stock, the Committee may adjust proportionally (i) the number of shares of Common Stock reserved under this Plan and covered by outstanding Awards denominated in Common Stock or units of Common Stock; (ii) the exercise or other price in respect of such Awards; and (iii) the appropriate Fair Market Value and other price determinations for such Awards. In the event of any consolidation or merger of the Company with another corporation or entity or the adoption by the Company of a plan of exchange affecting the Common Stock or any distribution to holders of Common Stock of securities or property (other than normal cash dividends or dividends payable in Common Stock), the Committee shall make such adjustments or other provisions as it may deem equitable, including adjustments to avoid fractional shares, to give proper effect to such event. In the event of a corporate merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation, the Committee shall be authorized, in its discretion, (i) to issue or assume stock options, regardless of whether in a transaction to which Section 424(a) of the Code applies, by means of substitution of new options for previously issued options or an assumption of previously issued options, (ii) to make provision, prior to the transaction, for the acceleration of the vesting and exercisability of, or lapse of restrictions with respect to, Awards (to the extent not otherwise provided under paragraph 7) and the termination of options that remain unexercised at the time of such transaction or (iii) to provide for the acceleration of the vesting and exercisability of the options and SARs and the cancellation thereof (to the extent not otherwise provided under paragraph 7) in exchange for such payment as shall be mutually agreeable to the Participant and the Committee. 15. Restrictions. No Common Stock or other form of payment shall be issued with respect to any Award unless the Company shall be satisfied based on the advice of its counsel that such issuance will be in compliance with applicable federal and state securities laws. It is the intent of the Company that this Plan comply with Rule 16b-3 with respect to persons subject to Section 16 of the Exchange Act unless otherwise provided herein or in an Award Agreement, that any ambiguities or inconsistencies in the construction of this Plan be interpreted to give effect to such intention and that, if any provision of this Plan is found not to be in compliance with Rule 16b-3, such provision shall be null and void to the extent required to permit this Plan to comply with Rule 16b-3. Certificates evidencing shares of Common Stock delivered under this Plan may be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any securities exchange or transaction reporting system upon which the Common Stock is then listed and any applicable federal and state securities law. The Committee may cause a legend or legends to be placed upon any such certificates to make appropriate reference to such restrictions. 16. Unfunded Plan. Insofar as it provides for Awards of cash, Common Stock or rights thereto, this Plan shall be unfunded. Although bookkeeping accounts may be established with respect to Participants who are entitled to cash, Common Stock or rights thereto under this Plan, any such accounts shall be used merely as a bookkeeping convenience. The Company shall not be required to segregate any assets that may at any time be represented by cash, Common Stock or rights thereto, nor shall this Plan be construed as providing for such segregation, nor shall the -8- Company, the Board or the Committee be deemed to be a trustee of any cash, Common Stock or rights thereto to be granted under this Plan. Any liability or obligation of the Company to any Participant with respect to a grant of cash, Common Stock or rights thereto under this Plan shall be based solely upon any contractual obligations that may be created by this Plan and any Award Agreement, and no such liability or obligation of the Company shall be deemed to be secured by any pledge or other encumbrance on any property of the Company. None of the Company, the Board or the Committee shall be required to give any security or bond for the performance of any obligation that may be created by this Plan. 17. Parachute Payment Limitation. Notwithstanding any contrary provision of the Plan, the Committee may provide in the Award Agreement for a limitation on the acceleration of vesting and exercisability of unmatured Awards to the extent necessary to avoid or mitigate the impact of the golden parachute excise tax under Section 4999 of the Code on the Participant or may provide for a supplemental payment to be made to the Participant as necessary to offset or mitigate the impact of the golden parachute excise tax on the Participant. In the event the Award Agreement does not contain any contrary provision regarding the method of avoiding or mitigating the impact of the golden parachute excise tax under Section 4999 of the Code on the Participant, then notwithstanding any contrary provision of this Plan, the aggregate present value of all parachute payments payable to or for the benefit of a Participant, whether payable pursuant to this Plan or otherwise, shall be limited to three times the Participant's base amount less one dollar and, to the extent necessary, the exercisability of an unmatured Award shall be reduced in order that this limitation not be exceeded. For purposes of this Section 17, the terms "parachute payment," "base amount" and "present value" shall have the meanings assigned thereto under Section 280G of the Code. It is the intention of this Section 17 to avoid excise taxes on the Participant under Section 4999 of the Code or the disallowance of a deduction to the Company pursuant to Section 280G of the Code. 18. Governing Law. This Plan and all determinations made and actions taken pursuant hereto, to the extent not otherwise governed by mandatory provisions of the Code or the securities laws of the United States, shall be governed by and construed in accordance with the laws of the State of New York. 19. Effective Date of Plan. This Plan shall be effective as of the date (the "Effective Date") it is approved by the Board of Directors of the Company. Notwithstanding the foregoing, the adoption of this Plan is expressly conditioned upon the approval by written consent of the holders of a majority of shares of outstanding shares of Common Stock on or before the first -9- anniversary of the Effective Date. If the shareholders of the Company should fail so to approve this Plan prior to such date, this Plan shall terminate and cease to be of any further force or effect and all grants of Awards hereunder shall be null and void. Attested to by the Secretary of LinkShare Corporation as adopted by the Board of Directors and Shareholders of LinkShare Corporation effective as of the 16th day of July, 1998 (the "Effective Date"). /s/ ----------------------------------------- Secretary -10- EX-10.3 11 LEASE AGREEMENT EXHIBIT 10.3 LEASE THIS LEASE (the "Lease") is made and entered into as of the 6th day of July 1999, by and between HV 645 Harrison, Inc., a California corporation (the "Landlord"), and Linkshare Corporation, a Delaware corporation (the "Tenant"). 1. Premises (a) Subject to and upon the terms, covenants and conditions hereinafter set forth, Landlord leases to Tenant and Tenant rents from Landlord those certain premises as set forth in the Basic Lease Information attached hereto and as approximately shown on the plan attached hereto as Exhibit A (the "Premises") on the ground floor of the building located at 645 Harrison Street, San Francisco, California (the "Building"). (b) Tenant shall accept the Premises and the Building in their "as-is" condition; provided, however, Landlord shall deliver the Premises in a broom clean condition with the lighting, electrical and plumbing in good operating condition. In addition Landlord shall repaint and recarpet the Premises with paint and carpet mutually agreeable; provided the cost shall not exceed $17,400. All alterations shall be performed in accordance with the terms of Section 9 below. Landlord acknowledges that Tenant is planning on demolishing non-load bearing walls in the Premises as part of its initial construction of improvements; and that Landlord shall not require the restoration of such walls at the end of the term of this Lease. 2. Term This Lease shall be for the term commencing on the Commencement Date (provided Tenant shall have the right of access to the Premises upon the full execution of this Lease, which access shall be governed by the terms of this Lease, except the obligation to pay Base Rental) and expiring on the date that is 48 and 1/2 months following the Commencement Date, unless sooner terminated as provided herein (the "Term"). If Landlord, for any reason whatsoever, cannot deliver possession of the Premises to Tenant on the date specified herein as the Commencement Date, this Lease shall not be void or voidable, nor shall Landlord be liable to Tenant for any loss or damage resulting therefrom. In that event, however, Tenant shall not be liable for any Base Rental or Additional Charges (as hereinafter defined) until Landlord delivers possession of the Premises to Tenant. 3. Rent (a) Tenant shall pay to Landlord "Base Rental" throughout the Term in monthly installments as set forth in the Basic Lease Information attached hereto, due and payable upon the first day of each and every month during the Term, without any further notice from, or demand by Landlord and without any offset or deduction whatsoever, in lawful money of the United States of America, at the address set forth in the Basic Lease Information attached hereto or elsewhere as designated from time to time by Landlord's written notice to Tenant. Tenant shall also pay to Landlord all charges and other amounts whatsoever as provided in this Lease ("Additional Charges"); and such Additional Charges shall be payable to Landlord at the place where the Base Rental is payable and Landlord shall have the same remedies for a default in the payment of Additional Charges as for a default in the payment of Base Rental. If the Commencement Date should occur on a day other than the first day of a calendar month, or the Expiration Date should occur on a day other than the last day of a calendar month, then the Base Rental and Additional Charges for such fractional month shall be prorated on a daily basis. (b) Tenant recognizes that late payment of any Base Rental or Additional Charges will result in additional administrative expense to Landlord and will impair Landlord's ability to meet its obligations with respect to the Building and otherwise, the exact extent of which additional expense and impairment will be extremely difficult or impractical to determine. Tenant therefore agrees that if any Base Rental or Additional Charges remain unpaid for a period of five (5) days after the date the same is due, the amount of such unpaid Base Rental or Additional Charges shall be increased by a late charge to be paid to Landlord by Tenant in an amount equal to ten percent (10%) of the amount of the past due Base Rental and/or Additional Charges. The amount of the late charge to be paid to Landlord by Tenant on any delinquent Base Rental and/or Additional Charges shall be reassessed and added to Tenant's obligation for each successive monthly period accruing after the date on which the late charge is initially imposed until such late charge and all delinquent Base Rental and Additional Charges have been paid in full by Tenant. Tenant agrees that such amount is a reasonable estimate of the loss and expense to be suffered by Landlord as a result of any such late payment by Tenant. The provisions of this Paragraph 3(b) in no way relieve Tenant of the obligation to pay Base Rental or Additional Charges on or before the date on which they are due, nor do the terms of this Paragraph 3(b) in any way affect Landlord's remedies pursuant to Paragraph 18 in the event any Base Rental or Additional Charges are unpaid after the date due. 4. Additional Charges. For purposes of this Paragraph 4, the following terms shall have the meanings hereinafter set forth: (i) "Base Year" shall mean the calendar year 2000. (ii) "Taxes" shall mean all impositions, taxes, assessments (special or otherwise), and other governmental liens or charges of any kind or nature whatsoever, ordinary and extraordinary, foreseen and unforeseen, and any substitute therefor, including all taxes attributable in any manner to the Premises, the land on which the Premises is located or the rents (however the term may be defined) receivable therefrom or any charge or other payment required to be paid to any governmental authority, whether or not any of the foregoing shall be designated "real estate tax", "sales tax", "rental tax", "excise tax", "business tax", or designated in any other manner (except only those taxes of the following categories: any inheritance, estate succession, transfer or gift taxes imposed upon Landlord or any income taxes specifically payable by Landlord as a separate tax paying entity without regard to Landlord's income source as arising from or out of the Premises and/or the land on which it is located). Taxes shall also include reasonable legal fees, costs, and disbursements incurred in connection with proceedings to contest, determine, or reduce such Taxes. 2 (iii) "Operating Costs" shall mean all costs incurred by Landlord in connection with owning, operating and maintaining the Building. Operating Costs shall not include capital costs incurred by Landlord that are not required to be made to the Building by law or for the health and safety of the occupants of the Building. (iv) "Tenant's Share" shall mean 4.3%. (a) Commencing upon January 1, 2001, tenant shall pay to Landlord as Additional Charges, each month, an amount equal to Tenant's Share of any increase in Taxes and Operating Costs from the Base Year. (b) Tenant shall pay, prior to delinquency, all taxes assessed against and levied upon trade fixtures, furnishings, equipment and all other personal property of Tenant contained in the Premises or elsewhere. When possible, Tenant shall cause said trade fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Landlord. If any of Tenant's said personal property shall be assessed with Landlord's real property, Tenant shall pay Landlord the taxes attributable to Tenant within 10 days after receipt of a written statement setting forth the taxes applicable to Tenant's property. 5. Security Deposit and Letter of Credit Tenant concurrently with the execution of this Lease, has deposited with Landlord the sum set forth in the Basic Lease Information attached hereto, the receipt of which is hereby acknowledged by Landlord as security for the faithful performance by Tenant of all terms, covenants and conditions of this Lease. Tenant agrees that Landlord may apply the security deposit, after the lapse of any applicable cure period, to remedy any failure by Tenant to repair or maintain the Premises or to perform any other terms, covenants and conditions contained herein or make any payment owing hereunder. If Tenant has kept and performed all terms, covenants and conditions of this Lease during the Term, Landlord will, within thirty (30) days after the expiration hereof, promptly return the security deposit to Tenant or the last permitted assignee of Tenant's interest hereunder. Should Landlord use any portion of the security deposit to cure any default by Tenant hereunder, Tenant shall forthwith replenish the security deposit to the original amount. Landlord shall not be required to keep the security deposit separate from its general funds, and Tenant shall not be entitled to interest on any such deposit. Upon the occurrence of any Events of Default (as defined in Paragraph 18 of this Lease) the security deposit shall become due and payable to Landlord to the extent required to compensate Landlord for damages incurred, or to reimburse Landlord as provided herein, in connection with any such Event of Default. 6. Use and Compliance with Laws (a) Tenant shall use and occupy the Premises for general office and for no other use or purpose. 3 (b) Tenant shall not use the Premises or permit anything to be done in or about the Premises that will in any way conflict with any law, statute, ordinance or governmental rule or regulation now in force or which may hereafter be enacted or promulgated. Tenant shall not do or permit anything to be done in or about the Premises or bring or keep anything therein which will in any way increase the rate of any insurance upon the Building or any of its contents or cause a cancellation of such insurance or otherwise affect such insurance in any manner, and Tenant shall at its sole cost and expense promptly comply with all laws, statutes, ordinances and governmental rules, regulations or requirements now in force or which may hereafter be in force and with the requirements of any board of fire underwriters or other similar body now or hereafter constituted relating to or affecting the condition, use or occupancy of the Premises, excluding structural changes not related to or affected by alterations or improvements made by Tenant or Tenant's use of the Premises. 7. Hazardous Substances Except for Hazardous Substances on or in the Premises as of the Commencement Date, Tenant will not cause, suffer or permit any Hazardous Substance (as hereinafter defined) to be brought, kept or stored within the Premises, and Tenant will not engage in or permit any other person to engage in any activity, operation or business upon the Premises that involves the generation, manufacture, refining, transportation, treatment, storage, handling or disposal of any Hazardous Substance that would or could result in Tenant, Landlord, the Premises, or the Building to be subject to any law, statute, ordinance, or regulation or rule of common law pertaining to health, industrial hygiene, or the environment. Tenant shall be responsible for any violation of this Article 7 by any subtenant or other occupant of the Premises. The term "Hazardous Substance" shall include, without limitation those substances, materials and wastes that are or become regulated under applicable local, state or federal law, or the United States government, or which are classified as hazardous or toxic under federal, state, or local laws or regulations. 8. Utilities and Janitorial Tenant shall pay for all water, gas, heat, light, power, telephone and other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered to Tenant, Tenant shall pay a reasonable proportion to be determined by Landlord of all charges jointly metered with other premises based upon estimated usage of each tenant. Tenant, at Tenant's sole cost, shall be responsible for providing janitorial services to the Premises. 9. Alterations Tenant shall not make any alternations, additions or improvements (collectively, "Alterations") in or to the Premises without the prior written consent of Landlord, which shall not be unreasonably withheld, but may be predicated upon but not limited to Tenant's use of contractors who are reasonably acceptable to Landlord; and any Alterations, except for Tenant's movable furniture and equipment, at Landlord's election, shall immediately become Landlord's property and, 4 at the end of the Term, shall remain on the Premises without compensation to Tenant or, if Landlord shall elect, be removed by Tenant prior to the expiration date of this Lease. All Alterations shall be completed in compliance with all laws, codes, rules, and ordinances in effect at the time of such Alterations. In the event the making of any Alterations triggers any additional work to be performed to the Premises or the Building, such additional work shall be performed at Tenant's sole cost and expense. In the event Tenant fails to remove any Alterations required by Landlord to be removed, Landlord may remove such Alterations and Tenant shall be obligated to immediately reimburse Landlord for the cost therefor. In the event Landlord consents to the making of any Alterations by Tenant, the same shall be made by Tenant, at Tenant's sole cost and expense, in accordance with plans and specifications approved by Landlord, and any contractor or person selected by Tenant to make the same must first be approved in writing by Landlord, such approval not to be unreasonably withheld or delayed. Upon the expiration or sooner termination of the Term, Tenant shall upon written demand by Landlord (to be provided at the time such approval for Alterations is requested) and at Tenant's sole cost and expense, promptly remove any Alterations made by or for the account of Tenant that are designated by Landlord to be removed, and Tenant shall at its sole cost and expense, promptly repair and restore the Premises to its original condition. 10. Repair (a) Tenant shall take good care of the Premises and, at Tenant's cost and expense, shall make all repairs and replacements to preserve the Premises in good working order and condition normal wear and tear and damage due to casualty excepting, except that Tenant shall not be required to make any such structural repairs or structural replacements unless necessitated or occasioned by the acts, omissions or negligence of Tenant, or any of its employees, contractors, agents or invitees, or by the manner of Tenant's use or occupancy of the Premises. Landlord shall not be liable for and there shall be no abatement of Base Rental or Additional Charges with respect to any injury to or interference with Tenant's business arising from any repairs, maintenance, alteration or improvement in or to any portion of the Building, including the Premises, or in or to the fixtures, appurtenances and equipment therein. Landlord shall use its reasonable effort to perform any repairs, maintenance, alterations or improvements of things and in a manner so as to minimize any disturbance to Tenant. Tenant hereby waives and releases its right to make repairs at Landlord's expense under Sections 1941 and 1942 of the California Civil Code or under any similar law, statute or ordinance now or hereafter in effect. In addition, Tenant hereby waives and releases its right to terminate this Lease under Section 1932(1) of the California Civil Code or under any similar law, statute or ordinance now or hereafter in effect. (b) All repairs and replacements made by or on behalf of Tenant or any person claiming through or under Tenant shall be made and performed (i) at Tenant's sole cost and expense and at such time and in such manner as Landlord may reasonably designate, (ii) by contractors or mechanics reasonably approved by Landlord, (iii) so that same shall be at least equal in quality, value, and utility to the original work or installation, (iv) in accordance with the reasonable rules and regulations for the Building adopted by Landlord from time to time, and (v) in accordance with all applicable laws and regulations of governmental authorities having jurisdiction over the Premises. 5 11. Liens Tenant shall keep the Premises free from any liens arising out of any work performed, material furnished or obligations incurred by Tenant. In the event that Tenant shall not, within ten (10) days following the imposition of any such lien, cause the same to be released of record by payment or posting of a proper bond, Landlord shall have, in addition to all other remedies provided herein and by law, the right, but not the obligation, to cause the same to be released by such means as it shall deem proper, including payment of the claim giving rise to such lien. All such sums paid by Landlord and all expenses incurred by it in connection therewith shall be considered Additional Charges and shall be payable to it by Tenant on demand with interest at the maximum rate permitted by law. Landlord shall have the right at all times to post and keep posted on the Premises any notices permitted or required by law, or which Landlord shall deem proper, for the protection of Landlord, the Premises and the Building from mechanics' and materialmen's liens, and Tenant shall give to Landlord at least five (5) business days' prior notice of commencement of any construction in the Premises. 12. Assignment and Subletting (a) Tenant shall not directly or indirectly, voluntarily or by operation of law, sell, assign, encumber, pledge or otherwise transfer or hypothecate all or any part of the Premises or Tenant's leasehold estate hereunder (collectively, "Assignment"), or permit the Premises to be occupied by anyone other than Tenant or sublet the Premises or any portion thereof (collectively, "Sublease") without Landlord's prior written consent in each instance, which consent may not be unreasonably withheld by Landlord. (b) Without limiting the other instances in which it may be reasonable for Landlord to withhold its consent to an Assignment or Sublease, Landlord and Tenant acknowledge that it shall be reasonable for Landlord to withhold its consent in, the following instances: (i) if at the time consent is requested or at any time prior to the granting of consent, Tenant is in default under this Lease or would be in default under this Lease but for the pendency of any grace or cure period under Paragraph 18 below; (ii) if the proposed assignee or sublessee is a governmental agency; (iii) if, in Landlord's judgment, the use of the Premises by the proposed assignee or sublessee would not be compatible to the types of use by other tenants in the Building, would entail any alterations which would lessen the value of the leasehold improvements in the Premises, would result in more than a reasonable number of occupants per floor, would require unreasonable increased services by Landlord or would conflict with any so-called "exclusive" or percentage lease then in favor of another tenant of the Building; 6 (iv) if, in Landlord's reasonable judgment, the financial strength of the proposed assignee or sublessee does not meet the credit standards applied by Landlord for other tenants under leases with comparable terms, or the character, reputation, or business of the proposed assignee or sublessee is not consistent with the quality of the other tenancies in the Building; (v) if the Sublease would result in the division of the Premises into three or more units; or (vi) if the proposed assignee or sublessee is an existing tenant of the Building or Landlord is currently marketing space in the Building to such proposed assignee or sublessee. (c) If Tenant desires at any time to enter into an Assignment or Sublease, it shall first give written notice ("Tenant's Notice") to Landlord of its desire to do so, which notice shall contain (i) the name of the proposed assignee or subtenant, (ii) the terms and provisions of the proposed Assignment or Sublease, and (iii) such financial information as Landlord may reasonably request concerning the proposed assignee or subtenant. (d) If Landlord consents by delivery a written notice to Tenant, to an Assignment or a Sublease within fifteen (15) days of receipt of Tenant's Notice, Tenant may thereafter, within ninety (90) days after Landlord's consent, but not later than the expiration of said ninety (90) days, enter into such Assignment or Sublease, upon the terms and conditions set forth in the notice furnished by Tenant to Landlord pursuant to Paragraph 12(c). (e) In the case of an Assignment, fifty percent (50%) of any sums or other, economic consideration received by Tenant as a result of such Assignment shall be paid to Landlord, after deducting the cost to Tenant of any improvements made for such Assignment and the cost to Tenant of any broker fees in connection with such Assignment. In the case of a Sublease, fifty percent (50%) of any sums or economic consideration received by Tenant as a result of such Sublease shall be paid to Landlord after first deducting the rental due hereunder and after deducting the cost to Tenant of any improvements made for such Assignment and the cost to Tenant of any broker fees in connection with such Assignment, prorated to reflect only rental allocable to the sublet portion of the Premises. (f) Notwithstanding any of the above provisions of this Section to the contrary, if Tenant notifies Landlord that it desires to enter into a Transfer, Landlord, in lieu of consenting to such Assignment or Sublease, may elect (x) in the case of an assignment or a sublease of the entire Premises, to terminate this Lease, or (y) in the case of a sublease of less than the entire Premises, to terminate this Lease as it relates to the space proposed to be subleased by Tenant. In such event, this Lease will terminate (or the space proposed to be subleased will be removed from the Premises subject to this Lease and the Base Rent and Tenant's Share under this Lease shall be proportionately reduced) on the date the Transfer was proposed to be effective, and Landlord may lease such space to any party, including the prospective Transferee identified by Tenant. 7 (g) No consent by Landlord to any Assignment or Sublease by Tenant shall relieve Tenant of any obligation to be performed by Tenant under this Lease, whether arising before or after the Assignment or Sublease. The consent by Landlord to any Assignment or Sublease shall not relieve Tenant from the obligation to obtain Landlord's express written consent to any other Assignment or Sublease. Any Assignment or Sublease that is not in compliance with this Paragraph 12 shall be void and, at the option of Landlord, shall constitute a material default by Tenant under this Lease. The acceptance of Base Rental or Additional Charges by Landlord from a proposed assignee or sublessee shall not constitute the consent to such Assignment or Sublease by Landlord. (h) Any sale or other transfer, including by consolidation, merger or reorganization of a majority of the voting stock of Tenant, if Tenant is a corporation, shall not be an Assignment for purposes of this Paragraph 12. (i) Each assignee of this Lease shall assume all obligations of Tenant under this Lease and shall be and remain liable jointly and severally with Tenant for the payment of Base Rental and Additional Charges, and for the performance of all the terms, covenants and conditions herein contained on Tenant's part to be performed. No Assignment shall be binding on Landlord unless the assignee or Tenant shall deliver to Landlord a counterpart of the Assignment and an instrument in recordable form that contains a covenant of assumption by the assignee satisfactory in substance and form to Landlord, but the failure or refusal of the assignee to execute such instrument of assumption shall not release or discharge the assignee from its liability as set forth above. 13. Insurance and Indemnification (a) Except to the extent caused by the gross negligence of Landlord, Tenant agrees to defend, protect and indemnify Landlord against and save Landlord harmless from any and all loss, cost, liability, damage and expense, including without limitation, penalties, fines and reasonable counsel fees and disbursements, incurred in connection with or arising from any cause whatsoever in, on or about the Premises, including without limiting the generality of the foregoing: (i) any default by Tenant in the observance or performance of any of the terms, covenants or conditions of this Lease on Tenant's part to be observed or performed, or (ii) the use or occupancy or manner of use or occupancy of the Premises by Tenant or any person or entity claiming through or under Tenant, or (iii) the condition of the Premises or any occurrence or happening on the Premises from any cause whatsoever, or (iv) any sots, omissions or negligence of Tenant or any person or entity claiming through or under Tenant, or of the contractors, agents, servants, employees, visitors or licensees of Tenant or any such person or entity, in, on or about the Premises or the Building, either prior to the commencement of, during, or after the expiration of the Term, including without limitation any acts, omissions or negligence in making or performing any Alterations. In the event any action or proceeding is brought against Landlord for any claim against which Tenant is obligated to indemnify Landlord hereunder, Tenant upon notice from Landlord shall defend such action or proceeding at Tenant's sole expense by counsel selected by Landlord. The provisions of this 8 Paragraph 13 shall survive the expiration or termination of this Lease with respect to any claims or liability occurring prior to such expiration or termination. (b) Tenant shall procure at its cost and expense and keep in effect during the Term commercial general liability insurance including contractual liability with a minimum combined single limit of liability of Two Million Dollars ($2,000,000.00) or such greater amount as Landlord may reasonably specify from time to time by written notice to Tenant. Such insurance shall name Landlord and the current property manager of the Building as additional insured, shall specifically include the liability assumed hereunder by Tenant (provided that the amount of such insurance shall not be construed to limit the liability of Tenant hereunder), and shall provide that it is primary insurance, and not excess over or contributory with any other valid, existing and applicable insurance in force for or on behalf of Landlord, and shall provide that Landlord shall receive thirty (30) days' written notice from the insurer prior to any cancellation or change of coverage. Tenant shall deliver policies of such insurance or certificates thereof to Landlord on or before the Commencement Date, and thereafter at least thirty (30) days before the expiration dates of expiring policies; and, in the event Tenant shall fail to procure such insurance, or to deliver such policies or certificates, Landlord may, at its option, procure the same for the account of Tenant, and the cost thereof shall be paid to Landlord as Additional Charges within five (5) days after delivery to Tenant of bills therefor. Tenant's compliance with the provisions of this Paragraph 13(b) shall in no way limit Tenant's liability under any of the other provisions of this Paragraph 13. (c) Landlord shall procure and keep in effect during the Term casualty insurance insuring the Building, excluding any improvements or Alterations made by Tenant, and Tenant shall pay Tenant's Share of the annual cost within thirty days after receipt of an invoice from Landlord. 14. Waiver of Subrogation Landlord and Tenant shall each obtain from their respective insurers under all policies of fire, theft, public liability, workers' compensation and other insurance maintained by either of them at any time during the Term insuring or covering the Building or any portion thereof or operations therein, a waiver of all rights of subrogation which the insurer of one party might otherwise have against the other party, and Landlord and Tenant shall each indemnify the other against any loss or expense, including reasonable attorneys' fees, resulting from the failure to obtain such waiver. 15. Damage and Destruction If the Premises or the Building are damaged by fire or other casualty, Landlord shall forthwith repair the same, provided that such repairs can be made within ninety (90) days after the date of such damage under the laws and regulations of the federal, state and local governmental authorities having jurisdiction thereof. In such event, this Lease shall remain in full force end effect except that Tenant shall be entitled to a proportionate reduction of Base Rental based upon the extent to which such damage and the making of such repairs by Landlord shall interfere with the business carried on by Tenant in the Premises. Within twenty (20) days after the date of such damage, 9 Landlord shall notify Tenant whether or not such repairs can be made within ninety (90) days after the date of such damage. If such repairs cannot be made within ninety (90) days from the date of such damage, Landlord and Tenant shall each have the option within thirty (30) days after the date of such damage to terminate this Lease as of a date specified in such notice, which date shall be not less than thirty (30) nor more than sixty (60) days after notice is given. In case of termination, the Base Rental shall be reduced by a proportionate amount based upon the extent to which such damage interfered with the business carried on by Tenant in the Premises, and Tenant shall pay such reduced Base Rental up to the date of termination. The repairs to be made hereunder by Landlord shall not include, and Landlord shall not be required to repair, any damage to the property of Tenant. Tenant hereby waives the provisions of Section 1932, subdivision 2, and Section 1933, subdivision 4, of the Civil Code of California. 16. Eminent Domain If any part of the Premises shall be taken or appropriated under the power of eminent domain such that the balance of the Premises is rendered unsuitable for its intended use, either party shall have the right to terminate this Lease at its option. If any part of the Building shall be taken or appropriated under power of eminent domain, Landlord may terminate this Lease at its option upon at least thirty (30) days notice to Tenant. In either of such events, Landlord shall receive (and Tenant shall assign to Landlord upon demand from Landlord) any income, rent, award or any interest therein which may be paid in connection with the exercise of such power of eminent domain provided, however, that Tenant may receive the portion of the sum paid by virtue of such proceedings to Tenant in its own right for relocation expenses and damage to Tenant's personal property. If a part of the Premises shall be so taken or appropriated and such taking or appropriation does not render the balances of the Premises unsuitable for its intended use or neither party hereto elects to terminate this Lease, and if the Premises have been damaged as a consequence of such partial taking or appropriation, Landlord shall restore the Premises continuing under this Lease at Landlord's cost and expense. Thereafter, the Base Rental to be paid under this Lease for the remainder of the term shall be proportionately reduced, such reduction to be based upon the extent to which the partial taking or appropriation shall interfere with the business carried on by Tenant in the Premises. Notwithstanding anything to the contrary contained in this Paragraph 16, in the case of any temporary taking of any part of the Premises during the Term, this Lease shall be and remain unaffected by such temporary taking and Tenant shall continue to pay in full the Base Rental payable hereunder, and Tenant shall be entitled to receive that portion of any award which represents compensation for the use of or occupancy of the Premises during the Term, and Landlord shall be entitled to receive that portion of any award which represents the cost of restoration of the Premises and the use and occupancy of the Premises after the end of the Term. 17. Right of Entry Landlord, or any of its agents, shall have the right to enter the Premises during all reasonable hours to examine the same or to make such repairs, additions or alterations as may be deemed 10 necessary for the safety, comfort, or preservation thereof, or of the Building, or to exhibit the Premises at any time within one hundred eight (180) days before the expiration of this Lease. 18. Events of Default and Remedies (a) The occurrence of any one or more of the following events ("Event of Default") shall constitute a breach of this Lease by Tenant: (i) Tenant fails to pay any Base Rental under this Lease as and when such rent becomes due and payable and such failure continues for more than five (5) days after Landlord gives written notice thereof to Tenant; provided, however, that after the second such failure in a calendar year, only the passage of time, but no further notice, shall be required to establish an Event of Default in the same calendar year; or (ii) Tenant fails to pay any Additional Charges or other amount of money or charge payable by Tenant hereunder as and when such Additional Charges or amount or charge becomes due and payable and such failure continues for more than ten (10) days after Landlord gives written notice thereof to Tenant; provided, however, that after the second such failure in a calendar year, only the passage of time, but no further notice, shall be required to establish an Event of Default in the same calendar year; or (iii) Tenant fails to perform or breaches any other agreement or covenant of this Lease to be performed or observed by Tenant as and when performance or observance is due and such failure or breach continues for more than ten (10) days after Landlord gives written notice thereof to Tenant; provided, however, that if, by the nature of such agreement or covenant, such failure or breach cannot reasonably be cured within such period of ten (10) days, an Event of Default shall not exist as long as Tenant commences with due diligence and dispatch the curing of such failure or breach within such period of ten (10) days and, having so commenced, thereafter prosecutes with diligence and dispatch and completes the curing of such failure or broach; or (iv) Tenant (A) files, or consents by answer or otherwise to the filing against it of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy or for liquidation or to take advantage of any bankruptcy, insolvency or other debtors' relief law of any jurisdiction, (B) makes an assignment for the benefit of its creditors, (C) consents to the appointment of a custodian, receiver, trustee or other officer with similar powers of Tenant or of any substantial part of Tenant's property, or (D) takes action for the purpose of any of the foregoing; or (v) Without consent by Tenant, a court or government authority enters an order, and such order is not vacated within thirty (30) days, (A) appointing a custodian, receiver, trustee or other officer with similar powers with respect to Tenant or with respect to any substantial part of Tenant's property, or (B) constituting an order for relief or approving a petition for relief or reorganization or arrangement or any other petition in bankruptcy or for liquidation or to take 11 advantage of any bankruptcy, insolvency or other debtors' relief law of any jurisdiction, or (C) ordering the dissolution, winding-up or liquidation of Tenant; or (vi) This Lease or any estate of Tenant hereunder is levied upon under any attachment or execution and such attachment or execution is not vacated within thirty (30) days; or (vii) Tenant intentionally abandons the Premises. (b) If an Event of Default occurs, Landlord shall have the right at any time to give a written termination notice to Tenant and, on the date specified in such notice, Tenant's right to possession shall terminate and this Lease shall terminate. Upon such termination, Landlord shall have the right to recover from Tenant: (i) The worth at the time of award of all unpaid rent which had been earned at the time of termination; (ii) The worth at the time of award of the amount by which all unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; (iii) The worth at the time of award of the amount by which all unpaid rent for the balance of the term of this Lease after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; and (iv) All other amounts necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform all of Tenant's obligations under this Lease or which in the ordinary course of things would be likely to result therefrom. The "worth at the time of award" of the amounts referred to in clauses (i) and (ii) above shall be computed by allowing interest at the maximum annual interest rate allowed by law for business loans (not primarily for personal, family or household purposes) not exempt from the usury law at the time of termination or, if there is no such maximum annual interest rate, at the rate of eighteen percent (18%) per annum. The "worth at the time of award" of the amount referred to in clause (iii) above shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). For the purpose of determining unpaid rent under clauses (i), (ii) and (iii) above, the rent reserved in this Lease shall be deemed to be the total rent payable by Tenant under Paragraphs 3 and 4 hereof. (c) Notwithstanding the occurrence of an Event of Default, pursuant to California Civil Code ss. 1954.1, or any successor statute thereof, this Lease shall continue in effect for so long as Landlord does not terminate Tenant's right to possession, and Landlord shall have the right to enforce all its rights and remedies under this Lease, including the right to recover all rent as it becomes due under this Lease. Acts of maintenance or preservation or efforts to relet the Premises or the appointment of a receiver upon initiative of Landlord to protect Landlord's interest under this 12 Lease shall not constitute a termination of Tenant's right to possession unless written notice of termination is given by Landlord to Tenant. (d) The remedies provided for in this Lease are in addition to all other remedies available to Landlord at law or in equity by statute or otherwise. (e) All agreements and covenants to be performed or observed by Tenant under this Lease shall be at Tenant's sole cost and expense and without any abatement of Base Rental and Additional Charges. If Tenant fails to pay any sum of money to be paid by Tenant or to perform any other act to be performed by Tenant under this Lease, Landlord shall have the right, but shall not be obligated, and without waiving or releasing Tenant from any obligations of Tenant, to make any such payment or to perform any such other act on behalf of Tenant in accordance with this Lease. All sums so paid by Landlord and all necessary incidental costs shall be deemed Additional Charges hereunder and shall be payable by Tenant to Landlord on demand, together with interest on all such sums from the date of expenditure by Landlord to the date of repayment by Tenant at the maximum annual interest rate allowed by law for business loans (not primarily for personal, family or household purposes) not exempt from the usury law at the date of expenditure or, if there is no such maximum annual interest rate, at the rate of eighteen percent (18%) per annum. Landlord shall have, in addition to all other rights and remedies of Landlord, the same rights and remedies in the event of the nonpayment of such sums plus interest by Tenant as in the case of default by Tenant in the payment of Base Rental. (f) If Tenant abandons or surrenders the Premises, or is dispossessed by process of law or otherwise, any movable furniture, equipment, trade fixtures or personal property belonging to Tenant and left in the Premises shall be deemed to be abandoned, at the option of Landlord, and Landlord shall have the right to sell or otherwise dispose of such personal property in any commercially reasonable manner. 19. Right of Landlord to Perform All covenants and agreements to be performed by Tenant under any of the terms of this Lease shall be performed by Tenant at Tenant's sole cost and expense and without any abatement of Base Rental or Additional Charges. If Tenant shall fail to pay any sum of money, other than Base Rental or Additional Charges, required to be paid by it hereunder or shall fail to perform any other act on its part to be performed hereunder, and such failure shall continue for ten (10) days after notice thereof by Landlord, Landlord may, but shall not be obligated to do so, and without waiving or releasing Tenant from any obligations of Tenant, make any such payment or perform any such act on Tenant's part to be made or performed as provided in this Lease. All sums so paid by Landlord and all necessary incidental costs together with interest thereon at the maximum rate permitted by law, from the date of such payment by Landlord shall be payable as Additional Charges to Landlord on demand. 13 20. Notices Any notices under this Lease shall be effective only if given in writing, sent by certified mail or delivered personally, (a) to Tenant (i) at the address designated for such notices in the Basic Lease Information attached hereto, if sent prior to Tenant's taking possession of the Premises, or (ii) at the Premises if sent subsequent to Tenant's taking possession of the Premises, or (iii) at any place where Tenant may be found if sent subsequent to Tenant's vacating, deserting, abandoning or surrendering the Premises, and (b) to Landlord at the address set forth in the Basic Lease Information, or (c) to such other address as either Landlord or Tenant may designate as its new address for such purpose by notice given to the other in accordance with the provisions of this Paragraph 20. Any notice shall be deemed to have been given two (2) days after the date when it shall have been mailed or upon the date personal delivery is made. If Tenant is notified of the identity and address of any mortgagee, Tenant shall give to such mortgagee notice of any default by Landlord under the terms of this Lease in writing sent by certified mail, and such mortgagee shall be given a reasonable opportunity to cure such default prior to Tenant's exercising any remedy available to it. 21. Quiet Enjoyment Upon the payment by Tenant of all Base Rental and Additional Charges due hereunder, and upon performance by Tenant of all of the terms, covenants and conditions on Tenant's part to be observed and performed, Tenant shall peaceably and quietly hold and enjoy the Premises for the Term hereby demised, subject to all of the terms, covenants and conditions of this Lease. 22. Subordination and Attornment (a) This Lease shall be subject and subordinate at all times to the lien of all mortgages and deeds of trust securing any amount or amounts whatsoever which may now exist or hereafter be placed on or against the Building or on or against Landlord's interest or estate therein, all without the necessity of having further instruments executed by Tenant to effect such subordination. Notwithstanding the foregoing, in the event of a foreclosure of any such mortgage or deed of trust or of any other action or proceeding for the enforcement thereof, or of any sale thereunder, this Lease shall not be terminated or extinguished, nor shall the rights and possession of Tenant hereunder be disturbed, if no Event of Default then exists under this Lease, and Tenant shall attorn to the person or entity that acquires Landlord's interest hereunder through any such mortgage or deed of trust. Tenant agrees to execute, acknowledge and deliver upon demand such further instruments evidencing such subordination of this Lease to the lien of all such mortgages and deeds of trust as may reasonably be required by Landlord. Landlord shall use its reasonable efforts to obtain a non-disturbance agreement from any current lender. (b) The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation thereof, shall not work a merger and shall, at the option of Landlord, terminate all or any existing subleases or subtenancies or operate as an assignment to Landlord of any or all such subleases or subtenancies. 14 (c) If the original Landlord hereunder, or any successor owner of the Building, sells or conveys the Building, all liabilities and obligations on the part of the original Landlord, or such successor owner, under this Lease accruing after such sale or conveyance shall terminate and the original Landlord, or such successor owner, shall automatically be released therefrom, and thereupon all such liabilities and obligations shall be binding upon the new owner. Tenant agrees to attorn to such new owner. 23. Tenant's Certificates From time to time upon not less than ten (10) days' prior written notice from Landlord, Tenant will execute and deliver to Landlord a certificate of Tenant stating: (a) that Tenant has accepted the Premises (or, if Tenant has not done so, that Tenant has not accepted the Premises and specifying the reasons therefor), (b) the Commencement and Expiration Dates of this Lease, (c) that this Lease is unmodified and in full force and effect (or, that there have been modifications), (d) whether or not there are then existing any defenses against the enforcement of any of the obligations of Tenant under this Lease (and, if so specifying same), (e) whether or not there are then existing any defaults by Landlord in the performance of its obligations under this Lease (and, if so, specifying same), (f) the dates, if any, to which the Base Rental and Additional Charges under this Lease have been paid, and (g) any other information that may reasonably be required by Landlord. It is intended that any such certificate of Tenant delivered pursuant to this Paragraph 23 may be relied upon by Landlord and any prospective purchaser or mortgagee of the Building or any portion thereof. Tenant's failure to execute and deliver such certificate to Landlord within ten (10) days of Landlord's written notice shall constitute a certification by Tenant (i) that Tenant has accepted the Premises, (ii) that there are no existing defenses against the enforcement of the obligations of Tenant under the Lease, and (iii) that there are no existing defaults by Landlord in the performance of its obligations under the Lease. In addition, Tenant's failure to execute and deliver such certificate to Landlord with ten (10) days of Landlord's written notice shall constitute a certification by Tenant that the information required in (b), (c), (f) and (g) of this Paragraph 23 to be included in the certificate of Tenant is as indicated by Landlord in writing to any prospective purchaser or mortgagee of any part of the Building or the land upon which the Building is located, if such a writing is provided by Landlord as a result of Tenant's failure to timely provide a tenant's certificate pursuant to this Paragraph 23. 24. Successors and Assigns Subject to the provisions of Paragraph 12, the terms, covenants and conditions contained in this Lease shall be binding upon and inure to the benefit of the parties hereto and their respective legal and personal representatives, successors and assigns. 25. Attorneys' Fees If either party defaults in the performance of any of the terms, covenants and conditions of this Lease and by reason thereof the other party employs the services of an attorney to enforce 15 performance of the covenants, or to perform any service based upon defaults, then in any of said events the prevailing party shall be entitled to reasonable attorneys' fees and all expenses and costs incurred by the prevailing party pertaining thereto (including costs and fees relating to any appeal) and in enforcement of any remedy. 26. Waiver If either Landlord or Tenant waives the performance of any term, covenant or condition contained in this Lease, such waiver shall not be deemed to be a waiver of any subsequent breach of the same or any other term, covenant or condition contained herein. Furthermore, the acceptance of Base Rental or Additional Charges by Landlord shall not constitute a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, regardless of Landlord's knowledge of such preceding breach at the time Landlord accepted such Base Rental or Additional Charges. Failure by Landlord to enforce any of the terms, covenants or conditions of this Lease for any length of time shall not be deemed to waive or to decrease the right of Landlord to insist thereafter upon strict performance by Tenant. Waiver by Landlord of any term, covenant or condition contained in this Lease may only be made by a written document signed by Landlord. 27. Surrender of Premises At the end of the Term or sooner termination of this Lease, Tenant will peaceably deliver to Landlord possession of the Premises, together with all improvements or additions upon or belonging to same, by whomsoever made, in the same condition as received or first installed, damage by fire, earthquake, Act of God, or the elements alone excepted. Upon the termination of this Lease, Tenant shall repair any damage caused by such removal. Property not so removed shall be deemed abandoned by Tenant, and title to the same shall thereupon pass to Landlord. 28. Holding Over Any holding over after the expiration of the Term with the consent of Landlord shall be construed to be a tenancy from month to month at a monthly Base Rental equal to two hundred percent (200%) of the Base Rental for last month of the Term of this Lease, and shall otherwise be on the terms and conditions herein specified so far as applicable. Any holding over without Landlord's consent shall constitute an Event of Default and entitle Landlord to recover possession of the Premises in accordance with applicable law. 29. Limitation of Liability Tenant agrees to look only to the equity of Landlord in the Premises and not to Landlord personally with respect to any obligations or payments due or which may become due from Landlord hereunder, and no other property or assets of Landlord or any partner, joint venturer, officer, director, shareholder, agent, or employee of Landlord, disclosed or undisclosed, shall be subject to levy, execution or other enforcement procedure for the satisfaction of Tenant's claims under or with 16 respect to this Lease, and no partner, officer, director, agent or employee of Landlord shall be personally liable in any manner or to any extent under or in connection with this Lease. If at any time the holder of Landlord's interest hereunder is a partnership or joint venture, a deficit in the capital account of any partner or joint venturer shall not be considered an asset of such partnership or joint venture. 30. Brokerage Tenant and Landlord each represents and warrants to the other that it has dealt with no broker, agent or other person in connection with this transaction and that no broker, agent or other person brought about this transaction, other than the brokers set forth in the Basic Lease Information attached hereto and Tenant and Landlord agree to indemnify and hold the other harmless from and against any claims by any other broker, agent or other person claiming a commission or other form of compensation by virtue of having dealt with the indemnifying party with regard to this leasing transaction. The provisions of this paragraph shall survive the expiration or termination of this Lease. 31. Invalidity of Provision If any term, provision, covenant or condition of this Lease or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease or the application of such term, provision, covenant or condition to persons or circumstances other than those as to which it is held invalid or unenforceable shall not be affected thereby and each term, provision, covenant or condition of this Lease shall be valid and be enforceable to the fullest extent permitted by law. This Lease shall be construed in accordance with the laws of the State of California. 32. Time of Essence It is understood and agreed between the parties that time is of the essence of all the terms, provisions, covenants and conditions of this Lease. 33. Entire Agreement This Lease contains the entire agreement between the parties hereto and all previous negotiations leading thereto, and it may be modified only by an agreement in writing signed by Landlord and Tenant. No surrender of the Premises shall be valid unless accepted by Landlord in writing. Tenant acknowledges and agrees that Tenant has not relied upon any statement, representation, prior written or prior or contemporaneous oral promises, agreements or warranties except such as are expressed herein. IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the date first above written. 17 LANDLORD: TENANT: HV 645 HARRISON, INC., LINKSHARE CORPORATION a California corporation a Delaware corporation By: By: ----------------------------------- -------------------------------- Its: Its: ---------------------------------- ------------------------------- 18 645 HARRISON STREET LEASE Basic Lease Information Date: July 6, 1999 LANDLORD: HV 645 Harrison, Inc. Address: 433 California Street, 7th Floor San Francisco, California 94104 TENANT: Linkshare Corporation 645 Harrison Street San Francisco, California 94107 ................................................................................ Paragraph 1 Premises Rentable Area of Premises: Approximately 5,800 rentable square feet Paragraph 2 Term Fifty (50) and 1/2 months Commencement Date: July 15, 1999 Expiration Date: September 30, 2003 Paragraph 3 Base Rental: July 15, 1999 - July 31, 1999: $5,800.00 - ----------- ----------- August 1, 1999 - June 30, 2000: $11,600.00 per month July 1, 2000 - June 30, 2001: $12,064.00 per month July 1, 2001 - June 30, 2002: $12,546.56 per month July 1, 2002 - September 30, 2003: $13,048.42 per month Paragraph 5 Security Deposit: $11,600.00 - ----------- ---------------- Paragraph 31 Broker: Landlord: HC&M Commercial Properties, Inc. - ------------ ------ Tenant: Cushman & Wakefield The foregoing Basic Lease Information is incorporated into and made a part of this Lease. Each reference in this Lease to any of the Basic Lease Information shall mean the respective information set forth above and shall be construed to incorporate all of the terms provided under the particular Lease paragraph pertaining to such information. In the event of a conflict between any Basic Lease Information and the Lease, the Lease shall control. 19 LANDLORD: TENANT: HV 645 HARRISON, INC., LINKSHARE CORPORATION a California corporation a Delaware corporation By: By: ---------------------------------- -------------------------------- Its: Its: --------------------------------- ------------------------------- 20 SUBLEASE THIS SUBLEASE made as of the 13th day of July, 1999 between Wolf Shevack, Inc. d/b/a Partners & Shevack, a New York corporation, having an office at 101 West 40th Street, New York, New York 10018 ("Landlord"), and Linkshare Corporation, a Delaware Corporation, having an office at 215 Park Avenue South, New York, New York 10003, ("Tenant"). WITNESSETH 1. Landlord hereby leases to Tenant and Tenant hereby hires from Landlord the entire rentable portion of the eighth floor (the "Demised Premises"), in the building known as 215 Park Avenue South, New York, New York 10003 (the "Building"), for a term (the "Term") to commence on July 1, 1999, subject to obtaining the consent of the Prime Landlord pursuant to Article 16, and to end on December 30, 2006 (the "Expiration Date") unless sooner terminated as hereinafter provided at an annual base rental rate ("Fixed Rent") of Three Hundred Ninety Thousand ($390,000.00) Dollars, Thirty-Two Thousand Five Hundred ($32,500.00) Dollars per month, from the Commencement Date to December 31, 2002, and Four Hundred Twenty Thousand ($420,000.00) Dollars, Thirty Five Thousand ($35,000.00) Dollars per month, from January 1, 2003 to December 30, 2006. If the Commencement Date shall occur on other than the first day of a month rent for that month shall be prorated. The Fixed Rent shall be paid in equal consecutive monthly installments as set forth above in advance on the first day of each calendar month during the Term, at Landlord's office hereinabove set forth or at such other place designated in writing by Landlord. The Fixed Rent is exclusive of electrical service charges which shall be provided by sub-meter. Simultaneously with the execution of this Sublease, Tenant has paid to Landlord the first monthly installment of Fixed Rent, receipt of which, subject to collection, is hereby acknowledged. Notwithstanding the foregoing if the Tenant is not in material default of its obligations hereunder beyond applicable notice and grace periods, it shall be entitled to a rental abatement of Fixed Rental from the Commencement Date until November 30, 1999. 2. (a) This Sublease is a sublease with respect to the Demised Premises and is subject and subordinate to all of the terms, covenants and conditions of that certain Agreement of Lease ("Prime Lease") made as of October 8, 1998 between 215 Park Avenue South Associates L.P. as Landlord ("Prime Landlord") and Landlord, as tenant, a copy of which has been provided to Tenant, and which Tenant acknowledges receipt of. Except as specifically provided in, and to the extent not inconsistent with, the provisions of this Sublease, all of the terms, covenants and conditions of the Prime Lease, except Articles 24, 32, 42, 43, 45, and 48 thereof, shall be deemed incorporated herein. Notwithstanding the foregoing the following Articles shall be incorporated as modified: Article 49(A), Paragraph (ii) and all references to the ninth floor are deleted. Article 50(A)(3) - The multiplication factor shall be 15,000. Article 51(A)(2) - The percentage shall be 5.17 percent and the base year shall be the New York City 1999/2000 Tax Year. 21 Article 52(A)(vii) - The Tenant's share shall be 5.17 percent. As used in the Prime Lease, the term "Landlord" shall refer to Landlord hereunder and the term "Tenant" shall refer to Tenant hereunder. Landlord represents to Tenant that (i) the Prime Lease is in full force and effect and has not been amended; (ii) the redacted copy of the Prime Lease presented to the Tenant is a true copy of the original, except for the deleted portions; (iii) to the best of Landlord's knowledge, neither Landlord or Tenant is in default under the Prime Lease, and no condition exists to which with the giving of notice or the passage of time, or both, would constitute a default under the Prime Lease; and (iv) to the best of Landlord's knowledge, there are no New York City Building Department violations or conditions which would give rise with the passage of time to become such violations, encumbrances or liens affecting the Demised Premises. (b) Tenant acknowledges that it has read and examined the Prime Lease as redacted and is fully familiar with all of the terms, covenants and conditions on the tenant's part to be performed thereunder. Tenant covenants and agrees that, except for the payment of Fixed Rent and Additional Rent (as such terms are defined in the Prime Lease), it will perform and observe all of the terms, covenants and conditions contained in the redacted Prime Lease to be performed and observed on the part of the "Tenant" thereunder during the term of this Sublease insofar as they relate to the Demised Premises, other than the redacted portions hereof, and any default by Tenant in the performance or observance of such terms, covenants and conditions of the Prime Lease shall be deemed a default under this Sublease. Tenant will and does hereby indemnify and hold Landlord harmless from and against any and all actions, claims, demands, damages, liabilities and expenses (including, without limitation, reasonable attorney's fees) based upon, or incurred on account of, any violation of such terms, covenants and conditions caused suffered or permitted by Tenant, its agents, servants, employees or invitees. Landlord hereby agrees to pay the Fixed Rent and Additional Rent, if any, when due and otherwise comply with the provisions of the Prime Lease which are not the Tenant's obligations under this Sublease. A failure of the Landlord hereunder to make any payment of fixed rent or additional rent due the Prime Landlord under the Prime Lease shall be deemed a breach hereunder, and the Tenant shall be allowed to make the appropriate payments to the Prime Landlord. If any payment made to the Prime Landlord by Tenant exceeds the payments due hereunder, Landlord shall reimburse Tenant within ten (10) business days of the demand for payment by Tenant. Tenant shall be further entitled to cure Landlord's non-monetary defaults under the Prime Lease. Landlord hereby agrees to indemnify Tenant against all cost, expenses and claims, including reasonable attorneys fees, with reference to any claims by the Manhattan Studio Architect & Design, P.C. with references to professional services provided by them to Landlord regarding either the eighth or ninth floors of the Building. 3. Tenant shall use and occupy the Demised Premises for general executive and administrative offices in connection with Tenant's business and for no other purpose. 4. (a) Simultaneously with the execution of this Sublease, Tenant shall deposit with Landlord the sum of $135,000.00, as security for the full and faithful performance and 22 observance by Tenant of the terms, provisions, covenants and conditions of this Sublease on Tenant's part to be performed and observed. In the event the Tenant is not in default of any of its obligations hereunder on January 1, 2003, after any applicable notice and cure periods, Tenant shall be entitled to refund of $65,000.00 of the security deposit, and one half of the accrued interest, or to replace the existing letter of credit, as hereinafter provided, with a letter of credit in the sum of $70,000.00. (b) Landlord shall deposit such funds in an interest bearing account for the benefit of Tenant, with accrued interest to be retained with the security deposit for the benefit of the Tenant, provided however Landlord shall be entitled to retain one (1%) one percent of the security deposit annually as an administrative fee. (c) In lieu of maintaining a cash deposit as previously described Tenant may establish and maintain during the term hereof an clean, unconditional, irrevocable letter of credit in the amount specified. The letter of credit shall be issued by a New York Clearing House Bank and shall be in a form reasonably acceptable to Landlord for a period extending thirty (30) days after the conclusion of the term hereof. Such letter of credit shall provide, among other provisions, that it shall be drawable, either in partial draws or in a single draw for the full amount, at the same time(s) and the same amount(s) as the cash deposit might be applied by Landlord pursuant to the provisions of this Article. If at any time the total of the undrawn amount(s) of the letter of credit and any cash deposits then held by Landlord shall be less than the amount specified in Article 4 (a) hereof, then Tenant shall immediately deposit with the Landlord an additional letter of credit or an additional cash deposit equal to such deficiency. Said letter shall be for successive terms of not less than one year and shall be automatically be renewed unless the issuing bank shall give Landlord notice thereof not less than thirty (30) days before the expiration of the then current term. In the event Landlord receives notice of non-renewal of the letter of credit it shall be entitled to draw and retain as a cash security deposit the entire then current balance. (d) Landlord may use, apply or retain the whole or any part of the security deposit to the extent required for the payment of any Fixed Rent or any other sum as to which Tenant is in default, after any applicable notice and cure periods, or for any sum which Landlord may expend or may be required to expend by reason of Tenant's default in respect of any of the terms, provisions, covenants and conditions of this Sublease, including, but not limited to, any damages or deficiency in the reletting of the Demised Premises, whether such damages or deficiency accrued before or after summary proceedings or other re-entry of Landlord. In the event that Tenant shall fully and faithfully comply with all of the terms, provisions, covenants and conditions of this Sublease, the security deposit, or so much thereof as shall not have been applied by Landlord as aforesaid, shall be returned to Tenant promptly after the Expiration Date (or earlier termination date) and after delivery of entire possession of the Demised Premises to Landlord. In the event of an assignment by Landlord of its interest under the Prime Lease, Landlord shall have the right to transfer the security deposit to the assignee and Landlord shall thereupon be released by Tenant from all liability for the return of such security deposit provided that the Assignee shall assume the obligation to maintain the Security Deposit in accordance with 23 the terms and conditions of this Sublease. In such event, Tenant shall look solely to the new landlord or any subsequent transferee for the return of said security deposit. Tenant further covenants that it will not assign or encumber or attempt to assign or encumber the security deposit and that neither Landlord nor it successors or assigns shall be bound by any such assignment, encumbrance, attempted assignment or attempted encumbrance. 5. In the event that Tenant shall default in the full performance of any of the terms, provisions, covenants and conditions on its part to be performed under this Sublease following the notice and any applicable grace procedures in the Prime Lease, then Landlord shall have the same rights and remedies with respect to such default as are given to the Prime Landlord under the Prime Lease with respect to defaults by the "Tenant" under the Prime Lease, all with the same force and effect as though the provisions of the Prime Lease with respect to defaults and the rights and remedies under the Prime Lease in the event thereof were set forth at length herein. Notwithstanding anything to the contrary contained in the Prime Lease and without limiting the generality of the preceding sentence, if Tenant fails to surrender possession of the Demised Premises on the Expiration Date or such earlier date as this Lease may be terminated, (i) Landlord shall be entitled to all of the rights and remedies which are available to a landlord against a tenant holding over after the expiration of a term and to such other rights and remedies as may be provided for in this Sublease, the Prime Lease, at law or in equity and (ii) Tenant, at Landlord's option, shall be deemed to be occupying the Demised Premises as a tenant from month to month, at a monthly rental equal to the greater of (a) two times (2x) the Fixed Rent and Additional Rent payable during the last full calendar month immediately preceding the expiration or termination of this Sublease or (b) all loss, cost, liability and expense (including actual attorneys fees and disbursements) suffered or incurred by Landlord, as a result of Tenant's occupancy of the Demised Premises after the Expiration Date and including, without limitation, damages or costs of any kind paid or payable by Landlord to Prime Landlord or any third party, with respect to the entire premises of which the Demised Premises are a part but excluding any loss caused solely by the holding over of any other subtenant or assignee in the balance of Landlord's space. 6. (a) Tenant shall have and enjoy the same rights to have facilities and services furnished by Prime Landlord as Landlord possesses under the provisions of the Prime Lease. Landlord agrees that if at any time during the Term such facilities or services are not furnished or are improperly furnished to Tenant, then, upon receipt of written notice from Tenant specifying such failure, Landlord shall use its reasonable efforts to cause such facilities and/or services to be resumed or properly furnished or performed by Prime Landlord insofar as the same apply to or affect the Demised Premises, provided that Prime Landlord's failure to furnish and/or perform such facilities or service does not result from anything done or permitted to be done by Tenant which would excuse Prime Landlord from the furnishing or performance thereof. If Landlord shall commence litigation in order to obtain any such work, facilities, services or duties for Tenant, which litigation Tenant may join, and whether or not it so joins, Tenant shall pay all reasonable costs and expenses (including attorney's fees) incurred in connection therewith. No such litigation shall be commenced without Tenant's prior written approval. The failure of Landlord to cause any such facilities and/or services to be resumed or properly furnished or 24 performed shall in no event (unless Prime Landlord's failure is a result of Landlord's default under the Prime Lease) excuse Tenant from the full performance of all of the terms, provisions, covenants and conditions of this Lease on the part of Tenant to be performed, including, without limitation, Tenant's obligation to pay Fixed Rent and Additional Rent. Notwithstanding the foregoing, if Landlord is entitled to an abatement of rent from the Prime Landlord due to the failure of the Prime Landlord supply facilities and/or services, then Tenant shall be entitled to a prorata abatement of Fixed and Additional Rent due hereunder. (b) Notwithstanding anything, in the Prime Lease or this Sublease to the contrary, Tenant covenants and agrees that Landlord shall not be obligated to perform any services of any nature whatsoever (including, without limitation, the furnishing of heat, electrical energy, water, air cooling or air conditioning, elevator service, window washing or rubbish removal services), nor shall Landlord be obligated to make any repairs, alterations or improvements in and about the Demised Premises, other than as expressly set forth in this Sublease, or to comply with any violations of law in respect thereto, nor shall Landlord be required to restore the Demised Premises following the occurrence of a fire or other casualty, or to perform any other duty respecting the Demised Premises which Prime Landlord is required to perform under the Prime Lease, nor shall Landlord be liable to Tenant under any representation or warranty made by the Prime Landlord in the Prime Lease, it being understood, and Tenant hereby so agrees, that Tenant shall look solely to Prime Landlord, for the performance of any and all such services or work, the making of repairs, alterations or improvements, elimination or correction of violations of law, the restoration of the Demised Premises following fire or other casualty, the performance of other duties of Prime Landlord and compliance with all such representations and warranties, subject in each case to the terms of the Prime Lease and this Sublease. Landlord agrees to cooperate with Tenant, in the event that Tenant wishes to assert a claim against Prime Landlord in Tenant's name or in Landlord's name, it being understood and agreed that Tenant shall have the right to make such a claim on Landlord's behalf, provided, however that Tenant shall reimburse Landlord for any reasonable expenses Landlord may incur, and further provided, that Tenant shall submit copies of all documents regarding any claim to Landlord for its approval before sending the same to Prime Landlord. Landlord's approval will not be unreasonably withheld or delayed. 7. Tenant has made a thorough inspection of the Demised Premises and is familiar with the condition thereof. Tenant agrees that neither Landlord nor any agent, representative or employee of Landlord has made any representations or warranties whatsoever with respect to the Demised Premises other than as contained herein. Tenant agrees to accept the Demised Premises "as is" without requiring any alterations, improvements, repairs or decorations to be made by Landlord or at Landlord's expense, either at the time possession is given to Tenant or any other time during the term of this Sublease, provided however that Landlord represents that the air conditioning units servicing the Premises will be in good working at the commencement of the lease term and prior to the commencement of the Lease Term, Landlord will supply Tenant with an ACP-5 Certificate regarding asbestos in the Premises. Tenant may not make any physical alterations to the Premises without the prior written consent of the Prime Landlord, as provided for in the Prime Lease. Tenant shall submit any request for approval to an alteration to the 25 Landlord, who shall immediately forward the request to the Prime Landlord. A consent by the Prime Landlord to a proposed alteration shall be deemed to be a consent by the Landlord. 8. Notwithstanding anything to the contrary contained in the Prime Lease or this Sublease, Tenant shall not assign, mortgage or encumber this Sublease or any of its rights or interest hereunder, nor sublet the Demised Premises or any part thereof without the Landlord's prior written consent which consent may not be unreasonably withheld. Tenant shall not permit the Demised Premises or any part thereof to be used or occupied by anyone other than the officers, directors and employees of Tenant without such consent. Where required under the Prime Lease, Prime Landlord's consent shall be obtained. 9. Any notice, demand, request, consent or other communication ("Notice") rendered or given under this Sublease shall be in writing and shall not be effective for any purpose unless delivered in person or sent by United States registered or certified mail, postage prepaid, return receipt requested, addressed as follows: To Landlord: Partners & Shevack Attention: Felix Yang 101 West Fortieth Street New York, New York 10018 To Tenant: Linkshare Corporation Attention: President 215 Park Avenue South New York, New York 10003 or such other or additional address as may be assigned by either party by like Notice. Notices shall be effective upon personal delivery or deposit in a mail depository maintained by the United States Postal Service, as the case may be. 10. No waiver by Landlord or Tenant of any breach or any agreement or provision herein contained shall be deemed a waiver of any preceding or succeeding breach thereof or of any other agreement or provision herein contained. No extension by Landlord of time for performance of any obligations or acts shall be deemed an extension of time for performance of any other obligations or acts. 11. Landlord and Tenant each warrant and represent that it has not dealt with or through any broker, other than Newmark & Company Real Estate, Inc. and S.L. Green Leasing, Inc., in connection with this Sublease. Landlord and Tenant hereby indemnify and agree to hold the other harmless from and against any liability or expense, including, but not limited to, reasonable attorney's fees, incurred by the other because of any claim for commissions or fees in connection with this Sublease as a result of the acts of the indemnifying party, other than those payable to Newmark & Company Real Estate, Inc. and S.L. Green Leasing, Inc. Landlord agrees, upon obtaining the consent of the Prime Landlord to this Sublease, to pay Newmark & 26 Company Real Estate, Inc. and S.L. Green Real Leasing, Inc. its commissions and fees in accordance with separate letter agreements and to indemnify Tenant against any claims of said brokers. 12. Upon the expiration or earlier termination of the term of this Sublease, Tenant shall quit and surrender to Landlord the Demised Premises, broom clean, in as good order and condition as at the commencement of the Term. Tenant will be obligated to remove any Tenant alterations only if the Landlord is required to remove the same by the Prime Landlord. 13. In the event that the Landlord shall receive an acceptable bona fide written offer to rent the ninth floor of the building containing the Premises the Tenant shall have the right to rent the ninth floor on the same terms and conditions as are contained in the acceptable bona fide offer. Landlord shall give Tenant written notice of the receipt of the acceptable bona fide offer with a written certification of the terms contained in the written offer by an attorney duly admitted to practice in the State of New York, and Tenant shall have seven (7) days from the receipt of said notice to elect to rent the ninth floor upon said terms and conditions. Tenant must give Landlord written notice of said acceptance within the aforesaid seven (7) day period along with certified checks for the security deposit and first months rent. Tenant shall not be required to make the aforesaid election for ninety (90) days from the commencement of the sublease term. 14. The provisions of this Sublease shall be binding upon and inure to the benefit of the parties hereto and, their respective successors and assigns. 15. This Sublease shall be governed by and construed in accordance with the laws applicable to contracts executed and wholly to be performed in the State of New York. 16. Promptly after execution hereof, Landlord shall submit this Sublease to the Prime Landlord for its approval. Landlord shall, at its expense, use reasonable efforts to obtain that approval. This Sublease is conditioned on obtaining the written approval of the Prime Landlord of this Sublease and the delivery of possession to Tenant on or before three weeks from the date a fully executed copy of this Sublease is submitted to the Prime Landlord. Landlord shall furnish Tenant with a copy of any documentation confirming the date of submission of the executed Sublease to the Prime Landlord. Landlord shall notify Tenant of such approval, immediately upon receipt, and promptly send a copy of such approval to Tenant by facsimile. If the written consent is not received and possession provided on or before three weeks from the date a fully executed copy of this Sublease is submitted to the Prime Landlord, Landlord shall promptly return the first month's Fixed Rent and Security Deposit to Tenant and this Sublease shall be null and void. The consent shall contain an acknowledgment by the Prime Landlord that the use by Tenant of the Premises as general executive and administrative offices for an internet company is not a violation of the use clause of the Prime Lease. Tenant represents and warrants that it is not a governmental body, or a subsidiary or agency of a governmental body, and no right or privilege to claim sovereign immunity. Tenant acknowledges that the foregoing representation and warranty is a material inducement to Landlord entering into this Sublease and Landlord is relying on said representation and warranty. 27 17. This Sublease contains the entire agreement between the parties with respect to the matters set forth herein and all prior negotiations and agreements are merged into this Sublease. This Sublease may not be changed, modified, terminated or discharged, in whole or in part, nor any of its provisions waived except by a written instrument which expressly refers to this Sublease, is executed by the party against whom enforcement of the change, modification, termination, discharge or waiver is sought and is permissible under the Prime Lease. 18. Submission by the Landlord of this Sublease for execution by the Tenant shall confer no rights, nor impose any obligations on either Landlord or Tenant unless and until both Landlord and Tenant have executed the Sublease and executed originals thereof shall have been delivered to the respective parties. 19. In the event of a default under any underlying lease of all or any portion of the Demised Premises hereby which results in the termination of such lease, the Tenant hereunder shall, at the option of the lessor under such lease, attorn to and recognize such lessor as Landlord hereunder and shall, promptly upon such lessor's request, execute and deliver all instruments necessary or appropriate to confirm such attornment and recognition. The Tenant hereunder hereby waives all rights under present or future law to elect, by reason of the termination of such underlying lease, to terminate this Sublease or surrender possession of the Demised Premises. IN WITNESS WHEREOF, Landlord and Tenant have respectively signed and sealed this Sublease as of the day and year first above written. WOLF SHEVACK, INC. d/b/a Partners & Shevack By: ---------------------------------------------- As its: ------------------------------------------ LINKSHARE CORPORATION By: ---------------------------------------------- As its: ------------------------------------------ 28 EX-23.1 12 CONSENT OF KPMG LLP EXHIBIT 23.1 The Board of Directors LinkShare Corporation: We consent to the use of our reports included herein (Form S-1) and to the references to our firm under the headings "Selected Financial Data" and "Experts" in the prospectus. KPMG LLP New York, New York February 28, 2000 -----END PRIVACY-ENHANCED MESSAGE-----