<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 24, 1997
REGISTRATION NO. 333-42323
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------
DOUBLECLICK INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 7319 13-3870996
(State of (Primary Standard Industrial I.R.S. Employer
Incorporation) Classification Code) Identification Number)
</TABLE>
41 MADISON AVENUE, 32ND FLOOR
NEW YORK, NEW YORK 10010
(212) 683-0001
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
------------------------------
KEVIN J. O'CONNOR
CHIEF EXECUTIVE OFFICER
DOUBLECLICK INC.
41 MADISON AVENUE, 32ND FLOOR
NEW YORK, NEW YORK 10010
(212) 683-0001
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
ALEXANDER D. LYNCH, ESQ. MARK G. BORDEN, ESQ.
BROBECK, PHLEGER & HARRISON LLP HALE AND DORR LLP
1633 BROADWAY, 47TH FLOOR 60 STATE STREET
NEW YORK, NEW YORK 10019 BOSTON, MASSACHUSETTS 02109
(212) 581-1600 (617) 526-6000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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 SUCH SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 24, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
<PAGE>
2,300,000 SHARES
[LOGO]
COMMON STOCK
(PAR VALUE $.001 PER SHARE)
------------------------
All of the 2,300,000 shares of Common Stock offered hereby are being sold by
the Company. Prior to the offering, there has been no public market for the
Common Stock. It is currently estimated that the initial public offering price
will be between $12.00 and $14.00 per share. For factors to be considered in
determining the initial public offering price, see "Underwriting".
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.
The Company has applied for quotation of the Common Stock on the Nasdaq
National Market under the symbol "DCLK".
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) COMPANY(2)
------------------ ------------------ ------------------
<S> <C> <C> <C>
Per Share.......................................... $ $ $
Total(3)........................................... $ $ $
</TABLE>
- ------------------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting".
(2) Before deducting estimated expenses of $750,000 payable by the Company.
(3) The Company has granted the Underwriters an option for 30 days to purchase
up to an additional 345,000 shares at the initial public offering price,
less the underwriting discount, solely to cover over-allotments. If such
option is exercised in full, the total initial public offering price,
underwriting discount and proceeds to Company will be $ , $
and $ , respectively. See "Underwriting".
------------------------
The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that certificates
for the shares will be ready for delivery in New York, New York on or about
, 1998, against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO.
BT ALEX. BROWN
COWEN & COMPANY
----------------
The date of this Prospectus is , 1998
<PAGE>
[DEPICTION OF THE COMPANY'S DART TECHNOLOGY AND THE COMPANY'S DOUBLECLICK
NETWORK,
DART SERVICE AND DOUBLECLICK DIRECT]
The Company intends to furnish its stockholders annual reports containing
audited consolidated financial statements and quarterly reports containing
unaudited consolidated financial information for the first three fiscal quarters
of each fiscal year of the Company.
------------------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING
TRANSACTIONS IN SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN
CONNECTION WITH THE OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING".
------------------------
DOUBLECLICK IS A REGISTERED TRADEMARK OF THE COMPANY. DART, DOUBLECLICK
NETWORK, DOUBLECLICK DIRECT AND THE DOUBLECLICK LOGO ARE TRADEMARKS OF THE
COMPANY. THIS PROSPECTUS CONTAINS OTHER PRODUCT NAMES, TRADE NAMES AND
TRADEMARKS OF THE COMPANY AND OF OTHER ORGANIZATIONS, ALL OF WHICH ARE THE
PROPERTY OF THEIR RESPECTIVE OWNERS.
2
<PAGE>
PROSPECTUS SUMMARY
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THOSE SET FORTH IN RISK FACTORS AND ELSEWHERE IN THIS PROSPECTUS. THE
FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION
AND CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO APPEARING ELSEWHERE
IN THIS PROSPECTUS.
UNLESS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS (I) REFLECTS,
FOLLOWING RECEIPT OF THE REQUISITE BOARD OF DIRECTORS AND STOCKHOLDER APPROVALS
AND UPON THE CLOSING OF THE OFFERING, THE FILING OF THE AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF THE COMPANY WHICH, AMONG OTHER THINGS, WILL
AUTHORIZE 5,000,000 SHARES OF UNDESIGNATED PREFERRED STOCK; (II) REFLECTS, UPON
THE CLOSING OF THE OFFERING, THE AUTOMATIC CONVERSION OF ALL OUTSTANDING SHARES
OF THE COMPANY'S CONVERTIBLE PREFERRED STOCK INTO AN AGGREGATE OF 6,234,434
SHARES OF COMMON STOCK (THE "PREFERRED STOCK CONVERSION"); (III) REFLECTS, UPON
THE CLOSING OF THE OFFERING, THE CONVERSION OF A CONVERTIBLE PROMISSORY NOTE
INTO AN AGGREGATE OF 779,302 SHARES OF COMMON STOCK (THE "NOTE CONVERSION"); AND
(IV) ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION. THE
INFORMATION IN THIS PROSPECTUS ALSO REFLECTS A 1-FOR-2 REVERSE STOCK SPLIT OF
THE COMMON STOCK EFFECTED ON DECEMBER 15, 1997 (THE "REVERSE SPLIT"). SEE
"DESCRIPTION OF SECURITIES" AND UNDERWRITING".
THE COMPANY
DoubleClick is a leading provider of comprehensive Internet advertising
solutions for advertisers and Web publishers. The Company's technology and media
expertise enable it to dynamically deliver highly targeted, measurable and
cost-effective Internet advertising for advertisers and to increase ad sales and
improve ad space inventory management for Web publishers. DoubleClick offers
three distinct Internet advertising solutions: (i) the DoubleClick Network, a
leading Internet advertising network which provides ad delivery and related
services to over 60 Web sites, including AltaVista, The Dilbert Zone, Macromedia
and U.S. News and World Report; (ii) DoubleClick's DART (Dynamic Advertising
Reporting and Targeting) Service, an Internet advertising management solution
for Web publishers with internal ad sales forces, which is currently being
utilized by over 20 Web publishers, including NBC, THE WALL STREET JOURNAL
INTERACTIVE EDITION, RealNetworks and THE SPORTING NEWS; and (iii) DoubleClick
Direct, the Company's recently introduced advertising solution designed
specifically for direct marketers.
DoubleClick's proprietary DART technology provides the platform for the
Company's solutions. This technology enables advertisers to optimize ad
performance by dynamically targeting and delivering ads to Web users based on
pre-selected criteria. As a user visits the Web sites of Web publishers which
utilize the Company's solutions, DART collects information regarding the user
and his or her viewing activities and ad responses, and applies this data to
improve its ability to predict the user's reaction and enhance DART's ad
targeting capabilities. The sophisticated tracking and reporting functionality
incorporated into DART provides advertisers with accurate measurements of ad
performance based on selected criteria. In addition, DART provides Web
publishers with sophisticated ad space inventory management capabilities.
In November 1997, the Company estimates that more than 20 million users
visited the Web sites of Web publishers which utilized the Company's solutions,
resulting in an aggregate of over 900 million requests received by DoubleClick
for the delivery of ads (impressions). During the same period, DoubleClick
managed approximately 7,000 Internet advertisements for over 600 advertisers,
and over 100 Web publishers representing an aggregate of approximately 350 Web
sites utilized the Company's Internet advertising solutions.
The Internet and the Web have enjoyed unprecedented growth in recent years.
International Data Corporation ("IDC") estimates that by the end of 1997 there
will be over 29 million Web users in the United States and over 50 million users
worldwide, and the number of Web users is expected to increase
3
<PAGE>
to 72 million in the United States and 129 million worldwide by the end of 2000.
According to the Georgia Institute of Technology, in 1997, an estimated 47% of
Internet users had a college degree, 67% were between the ages of 18 and 44 and
their mean household income was $53,000. The Company believes that advertisers
will seek to take advantage of the attractive demographics of Internet users.
IDC estimates that the dollar value of Internet advertising in the United States
will increase from $551 million in 1997 to $4.0 billion in 2001, representing a
64% compounded annual growth rate. In addition, the Company believes that the
Internet represents an attractive new medium for direct marketing, which has
traditionally been conducted through direct mail and telemarketing, because
highly targeted product offers can be made to consumers at the point-of-sale.
Jupiter Communications estimates that revenues from direct marketing over the
Internet will exceed $1.3 billion in 2002.
As a medium for advertisers and advertising agencies, the Internet offers a
number of significant advantages over traditional media which the Company
believes will lead to significant increases in overall Internet advertising
spending. The Internet provides advertisers with the opportunity to reach highly
targeted audiences, aggregate ad purchasing, access international, national and
local markets, improve advertising accountability and performance, and provide
enhanced direct marketing capabilities. DoubleClick's solutions are designed to
enable advertisers to take advantage of these growing opportunities to realize
significant economic gain through Internet advertising.
Web publishers that attempt to support, or profit from, their Web sites by
selling Internet advertising are seeking advertising solutions that enable them
to increase Web advertising sales, manage Web advertising operations, and
effectively manage ad space inventory. DoubleClick provides Web publishers with
three distinct Internet advertising solutions which address these issues. By
joining the DoubleClick Network, Web publishers can take advantage of
DoubleClick's extensive and experienced ad sales organization and also benefit
from the dynamic ad targeting and reporting functionality provided by the DART
technology. For Web publishers with internal ad sales organizations seeking a
comprehensive turnkey ad management solution, DoubleClick offers its DART
Service. Using the recently launched DoubleClick Direct, Web publishers can sell
their Web sites' available ad space inventory on a cost-per-action basis to
direct marketers.
To provide U.S. and foreign advertisers with the ability to deliver their
ads in global markets and provide Web publishers in international markets with
the ability to outsource their ad sales, technical operations and ad space
inventory management, the Company is developing DoubleClick Networks in
Australia, Canada and the United Kingdom, and through its business partners, in
Japan, Iberoamerica (Spain, Portugal and Latin America) and Scandinavia. To
support this initiative, DoubleClick has recently opened sales offices in
Australia, Canada and the United Kingdom which offer all of the Company's
solutions.
The Company was incorporated in Delaware on January 23, 1996 as DoubleClick
Incorporated and changed its name to DoubleClick Inc. on May 14, 1996. The
Company's principal executive offices are located at 41 Madison Avenue, 32nd
Floor, New York, New York 10010, and its telephone number at that location is
(212) 683-0001.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.................. 2,300,000 shares
Common Stock to be outstanding after the offering.... 14,606,343 shares(1)
Use of proceeds...................................... For general corporate purposes,
including working capital, expansion
of international operations and
sales and marketing capabilities,
and possible acquisitions. See "Use
of Proceeds".
Proposed Nasdaq National Market symbol............... "DCLK"
</TABLE>
- ------------------------
(1) Based on the number of shares of Common Stock outstanding on September 30,
1997. Excludes 1,813,155 shares of Common Stock issuable upon the exercise
of stock options outstanding at September 30, 1997, with a weighted average
exercise price of $0.66 per share. See "Capitalization", "Management --
Stock Plans", "Description of Securities" and Note 5 of Notes to
Consolidated Financial Statements.
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JANUARY 23, 1996 JANUARY 23, 1996
(INCEPTION) (INCEPTION) NINE MONTHS
THROUGH THROUGH ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1996 1996 1997
----------------- ----------------- --------------
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues................................................... $ 6,514 $ 2,665 $ 19,657
Cost of revenues........................................... 3,780 1,179 13,048
Gross profit............................................... 2,734 1,486 6,609
Operating expenses......................................... 5,842 2,937 11,228
Loss from operations....................................... (3,108) (1,451) (4,619)
Net loss................................................... $ (3,192) $ (1,491) $ (4,612)
-------- ------- --------------
-------- ------- --------------
Pro forma net loss per share(1)............................ $ (0.24) $ (0.32)
-------- --------------
-------- --------------
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
-------------------------------------------
<S> <C> <C> <C>
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(2)(3)
--------- ------------- -----------------
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents, and short-term investments.............. $ 12,739 $ 12,739 $ 39,796
Working capital.................................................... 11,199 11,199 38,256
Total assets....................................................... 22,263 22,263 49,320
Convertible note payable to related party.......................... 5,000 -- --
Total stockholders' equity......................................... 7,842 12,842 39,899
</TABLE>
- ------------------------
(1) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the method used to determine the number of shares used to compute pro
forma net loss per share.
(2) Pro forma to give effect to the Preferred Stock Conversion and the Note
Conversion.
(3) Adjusted to reflect the sale of 2,300,000 shares of Common Stock offered by
the Company hereby at an assumed initial public offering price of $13.00 per
share after deducting the underwriting discount and the estimated offering
expenses payable by the Company. See "Use of Proceeds".
5
<PAGE>
RISK FACTORS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS
PROSPECTUS. IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS,
THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE
COMPANY AND ITS BUSINESS BEFORE PURCHASING THE COMMON STOCK OFFERED BY THIS
PROSPECTUS.
EXTREMELY LIMITED OPERATING HISTORY; HISTORY OF LOSSES; ANTICIPATION OF
CONTINUED LOSSES
The Company was incorporated in January 1996 and its prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies with extremely limited operating histories,
particularly companies in the new and rapidly evolving markets for the Internet
and Internet services, including the Internet advertising market. There can be
no assurance that the Company will be successful in addressing such risks.
Although the Company has experienced revenue growth in recent periods,
historical growth rates may not be sustained and are not necessarily indicative
of future operating results. Given the level of planned operating and capital
expenditures, the Company anticipates that it will continue to incur operating
losses at least into 1999. There can be no assurance that operating losses will
not increase in the future or that the Company will ever achieve or sustain
profitability. To the extent that revenues do not grow at anticipated rates,
that increases in operating expenses precede or are not subsequently followed by
commensurate increases in revenues or that the Company is unable to adjust
operating expense levels accordingly, the Company's business, results of
operations and financial condition will be materially and adversely affected.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview".
WEB PUBLISHER CONCENTRATION; DEPENDENCE ON ALTAVISTA
Ads delivered on the Web sites of the top four Web publishers on the
DoubleClick Network accounted for approximately 60.0% of the Company's revenues
for the nine months ended September 30, 1997. The Company anticipates that a
substantial portion of the Company's future revenues will be derived from ads
delivered on the Web sites of a limited number of Web publishers. The Company
typically enters into short-term contracts with Web publishers for inclusion of
their Web sites in the DoubleClick Network. The loss of one or more of the Web
sites which account for a significant portion of the Company's revenues from the
DoubleClick Network or any reduction in traffic on such Web sites could have a
material adverse effect on the Company's business, results of operations and
financial condition. In addition, the loss of such Web sites may result in the
loss of advertisers or Web publishers from the DoubleClick Network, which could
have a material adverse effect on the Company's business, results of operations
and financial condition.
Revenues from advertisements delivered on the AltaVista Web site represented
42.8% of the Company's revenues for the nine months ended September 30, 1997.
AltaVista is a significant part of the DoubleClick Network and the Company
expects AltaVista to continue to account for a significant portion of the
Company's revenues for the next few years. While the stated term of the
Company's agreement with AltaVista expires in December 1998, either party may
terminate the agreement upon 90 days' prior written notice. Further, any
development materially affecting the business or financial condition of
AltaVista, including any change in control of AltaVista, a subsidiary of Digital
Equipment Corporation, could have a material adverse effect on the Company's
relationship with AltaVista. The loss of AltaVista as part of the DoubleClick
Network, any reduction in traffic on the AltaVista Web site, or a termination of
AltaVista's contract with the Company, would have a material adverse effect on
the Company's business, results of operations and financial condition. In
addition, given the short-term nature of the AltaVista contract, as is the case
with most of the Company's Web publisher contracts, the Company will have to
negotiate new contracts or renewals which may have terms that are not as
favorable to the
6
<PAGE>
Company as the existing contracts, and such renegotiations could have a material
adverse effect on the Company's business, results of operations and financial
condition.
RELIANCE ON THE DOUBLECLICK NETWORK
Since the third quarter of 1996, the Company's DoubleClick Network has
accounted for substantially all of the Company's revenues. Although the Company
recently began providing its DART Service to Web publishers and introduced
DoubleClick Direct, the Company expects that revenues generated from
advertisements delivered to Web sites on the DoubleClick Network will continue
to account for a substantial portion of the Company's revenues for the
foreseeable future. The DoubleClick Network consists of Web sites of a limited
number of Web publishers that have contracted for the Company's solutions
pursuant to short-term agreements. There can be no assurance that such Web
publishers will remain associated with the DoubleClick Network, that the Web
sites on the DoubleClick Network will maintain consistent or increasing levels
of traffic over time, or that the Company will be able to timely or effectively
replace any exiting DoubleClick Network Web site with other Web sites with
comparable traffic patterns and user demographics. The failure of the Company to
successfully market the DoubleClick Network or the failure of the Web sites on
the DoubleClick Network to maintain consistent or increasing levels of traffic
would have a material adverse effect on the Company's business, results of
operations and financial condition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
DEPENDENCE ON A LIMITED NUMBER OF ADVERTISERS
The Company's revenues to date have been derived from a limited number of
customers which advertise on the DoubleClick Network and the Company expects
that a limited number of advertisers will continue to account for a significant
percentage of the Company's revenues for the foreseeable future. In particular,
Microsoft accounted for 10.1% of the Company's revenues for the nine months
ended September 30, 1997 and the Company's top ten advertisers accounted for an
aggregate of 29.7% of the Company's revenues during the same period. Further,
advertisements delivered by the Company are typically sold pursuant to purchase
order agreements which are subject to cancellation. There can be no assurance
that current advertisers will continue to purchase advertising from the Company
or that the Company will be able to successfully attract additional advertisers.
The loss of one or more of the advertisers that represent a material portion of
the revenues generated on the DoubleClick Network could have a material adverse
effect on the Company's business, results of operations and financial condition.
In addition, the non-payment or late payment of amounts due by a significant
advertiser could have a material adverse effect on the Company's business,
results of operations and financial conditions. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; SEASONALITY
The Company's results of operations may fluctuate significantly in the
future as a result of a variety of factors, many of which are beyond the
Company's control. These factors include the addition or loss of advertisers or
Web publishers that utilize the Company's solutions, the level of user traffic
and number of available impressions on the Web sites on the DoubleClick Network,
changes in service fees payable by the Company to Web publishers, the
introduction of new Internet advertising solutions by the Company or its
competitors, the amount and timing of capital expenditures and other costs
relating to the expansion of the Company's operations, the timing and number of
new hires, the mix of solutions provided, the mix of domestic and international
revenues, the incurrence of costs relating to acquisitions, demand for, and
market acceptance of, Internet advertising, seasonal trends in Internet usage
and advertising placements, advertisers' budgeting cycles, the commitment of
advertising budgets to Internet advertising, changes in pricing models for
Internet advertising, and general economic conditions.
7
<PAGE>
For the foreseeable future, the Company's revenues will be directly
contingent on the level of user traffic and advertising activity on the Web
sites on the DoubleClick Network in a given period. Accordingly, future revenues
and results of operations are difficult to forecast. The Company plans to
continue to significantly increase its operating expenses in order to increase
its sales and marketing operations, to continue to expand internationally, to
upgrade and enhance its DART technology and to market and support its solutions.
To the extent that such expenses precede or are not subsequently followed by
increased revenues, the Company's business, results of operations and financial
condition would be materially and adversely affected. The Company may be unable
to adjust spending in a timely manner to compensate for any unexpected revenue
shortfall, and any significant shortfall in revenues in relation to the
Company's expectations would have a material adverse effect on the Company's
business, results of operations and financial condition.
The Company has been, and expects in the future to be, subject to seasonal
fluctuations in the amount of Internet advertising revenues generated by the
Company, as advertisers historically spend less during the first calendar
quarter of each year. Further, additional seasonal patterns in Internet
advertising spending and other seasonal fluctuations may emerge as the market
matures.
Due to all of the foregoing factors, the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.
Furthermore it is possible that in some future quarters the Company's results of
operations may fall below the expectations of securities analysts and investors.
In such event, the trading price of the Company's Common Stock would likely be
materially and adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Quarterly Results of
Operations" and "Business -- Sales and Marketing".
DEVELOPING MARKET; UNPROVEN ACCEPTANCE AND EFFECTIVENESS OF WEB ADVERTISING
The market for Internet advertising has only recently begun to develop, is
rapidly evolving and is characterized by an increasing number of market
entrants. As is typical in the case of a new and rapidly evolving industry,
demand and market acceptance for recently introduced products and services are
subject to a high level of uncertainty. Since the Company expects to derive
substantially all of its revenues in the foreseeable future from Internet
advertising solutions, the future success of the Company is highly dependent on
the increased use of the Internet as an advertising medium. The Internet as an
advertising medium has not been available for a sufficient period of time to
gauge its effectiveness as compared with traditional advertising media. Most of
the Company's current or potential advertising customers have limited or no
experience using the Internet as an advertising medium, have not devoted a
significant portion of their advertising expenditures to Internet advertising
and may not find Internet advertising to be effective for promoting their
products and services relative to advertising on traditional media. The adoption
of Internet advertising, particularly by those entities that have historically
relied upon traditional media for advertising, requires the acceptance of a new
way of conducting business and exchanging information. In addition, most of the
Company's current and potential Web publisher customers have limited or no
experience in generating revenues from the sale of advertising space on their
Web sites. There can be no assurance that the market for Internet advertising
will continue to emerge or become sustainable. If the market fails to develop or
develops more slowly than expected, the Company's business, results of
operations and financial condition could be materially and adversely affected.
There are no widely accepted standards for the measurement of the
effectiveness of Internet advertising, and there can be no assurance that such
standards will develop sufficiently to support Internet advertising as a
significant advertising medium. There also can be no assurance that the
Company's advertising customers will accept the Company's or other third-party
measurements of impressions on the Web sites of Web publishers utilizing the
Company's solutions, or that such measurements will not contain errors. In
addition, the effectiveness of Internet advertising is dependent upon
8
<PAGE>
the accuracy of information contained in the databases used to target
advertisements. Like any database, there can be no assurance that the
information in the Company's database will be accurate or that advertisers will
be willing to have advertisements targeted by any database containing such
potential inaccuracies.
The Company's DART technology uses cookies to limit the frequency with which
an ad is shown to the user. Cookies are bits of information keyed to a specific
server, file pathway or directory location that are stored on a user's hard
drive and passed to a Web site's server through the user's browser software.
Cookies are placed on the user's hard drive without the user's knowledge or
consent, but can be removed by the user at any time through the modification of
the user's browser settings. Due to privacy concerns, some Internet
commentators, advocates and governmental bodies have suggested that the use of
cookies be limited or eliminated. In addition, certain currently available
Internet browsers allow a user to delete cookies or prevent cookies from being
stored on the user's hard drive. Any reduction or limitation in the use of
cookies could limit the effectiveness of ad targeting by the Company's DART
technology.
Further, there can be no assurance that advertisers will determine that
banner advertising, the delivery of which currently comprises substantially all
of the Company's revenues, is an effective or attractive advertising medium, and
there can be no assurance that the Company will effectively transition to any
other forms of Internet advertising should they develop and achieve market
acceptance. Moreover, "filter" software programs that limit or prevent
advertising from being delivered to a Web user's computer are available.
Widespread adoption of such software by users could have a material adverse
effect upon the commercial viability of Internet advertising, which would have a
material adverse effect on the Company's business, results of operations and
financial condition.
UNPROVEN BUSINESS MODEL
The Company's business model is to generate revenues solely by providing
Internet advertising solutions to advertisers and Web publishers. The profit
potential of the Company's business model is unproven, and, to be successful,
the Company must, among other things, develop and market solutions that achieve
broad market acceptance by advertisers and Web publishers. There can be no
assurance that Internet advertising, in general, or the Company's solutions, in
particular, will achieve broad market acceptance. The Company's ability to
generate significant revenues from advertisers will depend, in part, on the
development of a large base of Web publishers that utilize the Company's
solutions and have Web sites with adequate available ad space inventory, and
whose Web sites generate sufficient user traffic with demographic
characteristics that are attractive to such advertisers. Furthermore, there is
intense competition among sellers of Internet advertising and a variety of
related pricing models have developed, making it difficult to project future
levels of advertising revenues and applicable gross margins that can be
sustained by the Company or the Internet advertising industry in general.
Accordingly, no assurance can be given that the Company's business model will be
successful or that it can sustain revenue growth and maintain sufficient gross
margins.
Market acceptance of DoubleClick Direct will depend, in large part, on the
adoption of the Internet as a direct marketing vehicle and the continued
emergence of Internet commerce. No assurance can be given that the Company's
cost-per-action pricing model for DoubleClick Direct will achieve market
acceptance by direct marketers, generate significant revenues, or provide
acceptable gross margins.
RISK OF SYSTEM FAILURE
The Company's solutions utilize its DART technology, which resides on a
computer system located at the Company's headquarters in New York City. The
continuing and uninterrupted performance of such computer system is critical to
the success of the Company's business. Any system failure that causes
interruptions in the Company's ability to service its customers, including
failures that affect the ability of
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the Company to deliver advertisements without significant delay to the viewer,
could reduce customer satisfaction and, if sustained or repeated, would reduce
the attractiveness of the Company's solutions to advertisers and Web publishers.
An increase in the volume of advertising delivered through the Company's servers
could strain the capacity of the software or hardware deployed by the Company,
which could lead to slower response time or system failures. To the extent that
any capacity constraints are not effectively addressed by the Company, such
constraints would have a material adverse effect on the Company's business,
results of operations and financial condition.
The Company's operations are dependent upon its ability to protect its
computer systems against damage from fire, power loss, telecommunications
failures, vandalism and other malicious acts, and similar unexpected adverse
events. In addition, failure of the Company's telecommunications providers to
provide the data communications capacity in the time frame required by the
Company for any reason could cause interruptions in the solutions provided by
the Company. Despite precautions taken by the Company, unanticipated problems
affecting the Company's systems have from time to time in the past caused, and
in the future could cause, interruptions in the delivery of the Company's
solutions. The Company is currently in the planning stages of acquiring and
implementing a back-up, off-site system capable of supporting its operations in
the event of a system failure at its headquarters. The Company plans to have
such system operational during the first half of 1998. Any damage or failure
that interrupts or delays the Company's operations could have a material adverse
effect on the Company's business, results of operations and financial condition.
COMPETITION
The markets for Internet advertising and related products and services are
intensely competitive and such competition is expected to continue to increase.
There are no substantial barriers to entry in this market and the Company
believes that its ability to compete depends upon many factors within and beyond
its control, including the timing and market acceptance of new solutions and
enhancements to existing solutions developed by the Company and its competitors,
customer service and support, sales and marketing efforts, and the ease of use,
performance, price and reliability of the Company's solutions.
The Company competes for Internet advertising revenues with large Web
publishers and Web search engine companies, such as America Online, Yahoo!,
Excite and Infoseek. Further, the DoubleClick Network competes with a variety of
Internet advertising networks. In marketing the DoubleClick Network and its DART
Service to Web publishers, the Company also competes with providers of ad
servers and related services, including NetGravity. The Company also encounters
competition from a number of other sources, including content aggregation
companies, companies engaged in advertising sales networks, advertising
agencies, and other companies which facilitate Internet advertising. Many of the
Company's existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources than the Company. As a result, they may be able to respond more
quickly to new or emerging technologies and changes in customer requirements, or
to devote greater resources to the development, promotion and sale of their
products and services than the Company. Such competitors may be able to
undertake more extensive marketing campaigns, adopt more aggressive pricing
policies and make more attractive offers to potential employees, strategic
partners, advertisers and Web publishers. Further, there can be no assurance
that the Company's competitors will not develop Internet products or services
that are equal or superior to the solutions developed by the Company or that
achieve greater market acceptance than the Company's solutions. The Company also
expects that competition may increase as a result of industry consolidation. In
addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to increase the
ability of their products or services
10
<PAGE>
to address the needs of the Company's prospective advertising and Web publisher
customers. Accordingly, it is possible that new competitors or alliances among
existing or potential competitors may emerge and rapidly acquire significant
market share. Increased competition is likely to result in price reductions,
reduced gross margins and loss of market share, any of which would have a
material adverse effect on the Company's business, results of operations and
financial condition. There can be no assurance that the Company will be able to
compete successfully against existing or potential competitors or that
competitive pressures will not have a material adverse effect on the Company's
business, results of operations and financial condition.
The Internet, in general, and the Company, in particular, also must compete
for a share of advertisers' total advertising budgets with traditional
advertising media such as television, radio, cable and print. To the extent that
the Internet is perceived to be a limited or ineffective advertising medium,
advertisers may be reluctant to devote a significant portion of their
advertising budget to Internet advertising, which could limit the growth of
Internet advertising and would have a material adverse effect on the Company's
business, results of operations and financial condition. See "Business --
Competition".
MANAGEMENT OF GROWTH
The Company has experienced rapid growth in its operations. This rapid
growth has placed, and is expected to continue to place, a significant strain on
the Company's managerial, operational and financial resources. The Company has
grown from 13 employees as of March 31, 1996 to 171 employees as of December 1,
1997. The Company expects that the number of its employees will continue to
increase for the foreseeable future, including the hiring of a new Chief
Financial Officer and other additional officers. Furthermore, the Company must
continue to improve its financial and management controls, reporting systems and
procedures, and expand, train and manage its work force. There can be no
assurance that the Company's systems, procedures or controls will be adequate to
support the Company's expanding operations or that Company management will be
able to achieve the rapid execution necessary to successfully offer its
solutions and implement its business plan. The Company's future results of
operations will also depend on its ability to expand its sales and marketing and
customer support organizations both domestically and internationally. The
failure of the Company to manage its growth effectively would have a material
adverse effect on the Company's business, results of operations and financial
condition.
DEPENDENCE ON KEY PERSONNEL
The Company's future success depends, in significant part, upon the
continued service of its key technical, sales and senior management personnel,
particularly Kevin J. O'Connor, Chief Executive Officer and Chairman of the
Board of Directors, Kevin P. Ryan, President and Chief Financial Officer, Dwight
A. Merriman, Chief Technical Officer, Wenda Harris Millard, Executive Vice
President, Marketing and Sales, John L. Heider, Vice President of Engineering,
and Barry M. Salzman, Vice President, International, none of whom has entered
into an employment agreement with the Company. The loss of the services of one
or more of the Company's key personnel could have a material adverse effect on
the Company's business, results of operations and financial condition. The
Company's future success also depends on its continuing ability to attract and
retain highly qualified technical, sales and marketing, customer support,
financial and accounting, and managerial personnel. Competition for such
personnel in the Internet industry is intense, and there can be no assurance
that the Company will be able to retain its key personnel or that it can
attract, assimilate or retain other highly qualified personnel in the future.
The Company has from time to time in the past experienced, and expects to
continue to experience in the future, difficulty in hiring and retaining
candidates with appropriate qualifications. See "Management".
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DEPENDENCE ON THE WEB INFRASTRUCTURE
The Company's success will depend, in large part, upon the maintenance of
the Web infrastructure, such as a reliable network backbone with the necessary
speed, data capacity and security, and timely development of enabling products
such as high speed modems, for providing reliable Web access and services and
improved content. To the extent that the Web continues to experience increased
numbers of users, frequency of use or increased bandwidth requirements of users,
there can be no assurance that the Web infrastructure will continue to be able
to support the demands placed on it or that the performance or reliability of
the Web will not be adversely affected. Furthermore, the Web has experienced a
variety of outages and other delays as a result of damage to portions of its
infrastructure, and such outages and delays could adversely affect the Web sites
of Web publishers utilizing the Company's solutions and the level of traffic on
such Web sites on the DoubleClick Network. In addition, the Web could lose its
viability as a form of media due to delays in the development or adoption of new
standards and protocols (for example, the next-generation Internet protocol)
that can handle increased levels of activity. There can be no assurance that the
infrastructure or complementary products or services necessary to establish and
maintain the Web as a viable commercial medium will be developed, or, if they
are developed, that the Web will become a viable commercial medium for
advertisers. If the necessary infrastructure, standards or protocols or
complementary products, services or facilities are not developed, or if the Web
does not become a viable commercial medium, the Company's business, results of
operations and financial condition will be materially and adversely affected.
Even if such infrastructure, standards or protocols or complementary products,
services or facilities are developed, there can be no assurance that the Company
will not be required to incur substantial expenditures in order to adapt its
solutions to changing or emerging technologies, which could have a material
adverse effect on the Company's business, results of operations and financial
condition. Moreover, critical issues concerning the commercial use and
government regulation of the Internet (including security, cost, ease of use and
access, intellectual property ownership and other legal liability issues) remain
unresolved and could materially and adversely impact both the growth of the
Internet and the Company's business, results of operations and financial
condition.
DEPENDENCE ON PROPRIETARY RIGHTS; RISK OF INFRINGEMENT
The Company regards its intellectual property as critical to its success,
and the Company relies upon patent, trademark, copyright and trade secret laws
in the United States and other jurisdictions to protect its proprietary rights.
The Company has filed one patent application with the United States Patent and
Trademark Office to protect certain aspects of its DART technology. The Company
pursues the protection of its trademarks by applying to register the trademarks
in the United States and (based upon anticipated use) internationally, and is
the owner of a registration for the DOUBLECLICK trademark in the United States.
There can be no assurance that any of the Company's trademark registrations or
patent applications will be approved or granted and, if they are granted, that
they will not be successfully challenged by others or invalidated through
administrative process or litigation. Further, if the Company's trademark
registrations are not approved or granted due to the prior issuance of
trademarks to third parties or for other reasons, there can be no assurance that
the Company would be able to enter into arrangements with such third parties on
commercially reasonable terms allowing the Company to continue to use such
trademarks. Patent, trademark, copyright and trade secret protection may not be
available in every country in which the Company's solutions are distributed or
made available. In addition, the Company seeks to protect its proprietary rights
through the use of confidentiality agreements with employees, consultants,
advisors and others. There can be no assurance that such agreements will provide
adequate protection for the Company's proprietary rights in the event of any
unauthorized use or disclosure, that employees of the Company, consultants,
advisors or others will maintain the confidentiality of such proprietary
information, or that such proprietary information will not otherwise become
known, or be independently developed, by competitors. The Company's DART
technology
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collects and utilizes data derived from user activity on the DoubleClick Network
and the Web sites of Web publishers using the Company's solutions. This data is
used for ad targeting and predicting ad performance. Although the Company
believes that it has the right to use such data and the compilation of such data
in the Company's database, there can be no assurance that any trade secret,
copyright or other protection will be available for such information or that
others will not claim rights to such information. Further, pursuant to its
contracts with Web publishers using the Company's solutions, the Company is
obligated to keep certain information regarding the Web publisher confidential.
The Company has licensed in the past, and expects that it may license in the
future, elements of its trademarks, trade dress and similar proprietary rights
to third parties, including in connection with the establishment of its
international business relationships which may be controlled operationally by
such third parties. While the Company attempts to ensure that the quality of its
brand is maintained by such business partners, no assurances can be given that
such partners will not take actions that could materially and adversely affect
the value of the Company's proprietary rights or the reputation of its solutions
and technologies. The Company currently licenses certain aspects of its
predictive modeling technologies from a third party. The failure by the Company
to maintain this license, or to find a replacement for such technology in a
timely and cost-effective manner, could have a material adverse effect on the
Company's business, results of operations and financial condition.
Legal standards relating to the validity, enforceability and scope of
protection of certain proprietary rights in Internet-related industries are
uncertain and still evolving, and no assurance can be given as to the future
viability or value of any proprietary rights of the Company or other companies
within the industry. There can be no assurance that the steps taken by the
Company to protect its proprietary rights will be adequate or that third parties
will not infringe or misappropriate the Company's proprietary rights. Any such
infringement or misappropriation, should it occur, could have a material adverse
effect on the Company's business, results of operations and financial condition.
Furthermore, there can be no assurance that the Company's business activities
will not infringe upon the proprietary rights of others, or that other parties
will not assert infringement claims against the Company. From time to time the
Company has been, and expects to continue to be, subject to claims in the
ordinary course of its business, including claims of alleged infringement of the
trademarks and other intellectual property rights of third parties by the
Company and its business partners. Although such claims have not resulted in
litigation or had a material adverse effect on the Company's business, results
of operations or financial condition, such claims and any resultant litigation,
should it occur, could subject the Company to significant liability for damages
and could result in invalidation of the Company's proprietary rights and, even
if not meritorious, could be time-consuming and expensive to defend, and could
result in the diversion of management time and attention, any of which could
have a material adverse effect on the Company's business, results of operations
and financial condition. See "Business -- Intellectual Property".
RISKS ASSOCIATED WITH TECHNOLOGICAL CHANGE
The market in which the Company competes is characterized by rapidly
changing technology, evolving industry standards, frequent new product and
service announcements, introductions and enhancements, and changing customer
demands. These market characteristics are heightened by the emerging nature of
the Web and Internet advertising. Accordingly, the Company's future success will
depend on its ability to adapt to rapidly changing technologies, its ability to
adapt its solutions to meet evolving industry standards and its ability to
continually improve the performance, features and reliability of its solutions
in response to both changing customer demands and competitive product and
service offerings. The failure of the Company to successfully adapt to such
changes in a timely manner could have a material adverse effect on the Company's
business, results of operations and financial condition. Furthermore, there can
be no assurance that the Company will not experience difficulties that could
delay or prevent the successful design, development, testing, introduction or
marketing of solutions, or
13
<PAGE>
that any new solutions or enhancements to existing solutions will adequately
meet the requirements of its current and prospective customers and achieve any
degree of significant market acceptance. If the Company is unable, for
technological or other reasons, to develop and introduce new solutions or
enhancements to existing solutions in a timely manner or in response to changing
market conditions or customer requirements, or if its solutions or enhancements
contain errors or do not achieve a significant degree of market acceptance, the
Company's business, results of operations and financial condition would be
materially and adversely affected.
RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION
The Company has recently commenced operations in a number of international
markets and a component of the Company's strategy is to continue to expand its
international operations and international sales and marketing efforts. To date,
the Company has limited experience in developing localized versions of its
solutions and in marketing, selling and distributing its solutions
internationally. There can be no assurance that the Company will be able to
successfully market, sell and deliver its solutions in these markets. In Japan,
Iberoamerica (Spain, Portugal and Latin America) and Scandinavia, the Company is
relying on its business partners for conducting operations, establishing local
networks, aggregating Web publishers and coordinating sales and marketing
efforts. The Company's agreements with its business partners have terms ranging
from two to four years. Accordingly, the Company's success in such markets is
directly dependent on the success of its business partners in such activities.
No assurance can be given that such business partners will be successful or that
such business partners will dedicate sufficient resources to the business
relationship. The failure of the Company's business partners to successfully
establish operations and sales and marketing efforts in such markets could have
a material adverse effect on the Company's business, results of operations and
financial condition.
There are certain risks inherent in doing business in international markets,
such as unexpected changes in regulatory requirements, potentially adverse tax
consequences, export restrictions, export controls relating to encryption
technology, tariffs and other trade barriers, difficulties in staffing and
managing foreign operations, political instability, fluctuations in currency
exchange rates, and seasonal reductions in business activity during the summer
months in Europe and certain other parts of the world, any of which could have a
material adverse effect on the success of the Company's international operations
and, consequently, on the Company's business, results of operations and
financial condition.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
Due to concerns arising in connection with the increasing popularity and use
of the Web, a number of laws and regulations may be adopted covering issues such
as user privacy, pricing, characteristics, acceptable content, taxation and
quality of products and services. Such legislation could dampen the growth in
use of the Web generally and decrease the acceptance of the Web as a
communications and commercial medium, which could have a material adverse effect
on the Company's business, results of operations and financial condition. In
addition, because the growing popularity and use of the Web has burdened the
existing telecommunications infrastructure and many areas with high Web use have
begun to experience interruptions in phone service, certain local telephone
carriers have petitioned governmental bodies to regulate Internet service
providers ("ISPs") and online service providers ("OSPs") in a manner similar to
long distance telephone carriers and to impose access fees on ISPs and OSPs. If
any of these petitions or the relief sought therein is granted, the costs of
communicating on the Web could increase substantially, potentially adversely
affecting the growth in use of the Web. Further, due to the global nature of the
Web, it is possible that, although transmissions relating to the Company's
solutions originate in the State of New York, the governments of other states or
foreign countries might attempt to regulate the Company's transmissions or levy
sales or other taxes relating to the Company's activities. There can be no
assurance that violations of local laws will not be alleged or charged by state
14
<PAGE>
or foreign governments, that the Company might not unintentionally violate such
laws or that such laws will not be modified, or new laws enacted, in the future.
Any of the foregoing developments could have a material adverse effect on the
Company's business, results of operations and financial condition.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of significant amounts of Common Stock in the public market after the
offering or the perception that such sales will occur could materially and
adversely affect the market price of the Common Stock or the future ability of
the Company to raise capital through an offering of its equity securities. Of
the 14,631,968 shares of Common Stock to be outstanding upon the closing of the
offering, the 2,300,000 shares offered hereby will be eligible for immediate
sale in the public market without restriction unless the shares are purchased by
"affiliates" of the Company within the meaning of Rule 144 promulgated under the
Securities Act of 1933, as amended (the "Securities Act"). The remaining
12,331,968 shares of Common Stock held by existing stockholders upon the closing
of the offering will be "restricted securities" as that term is defined in Rule
144 under the Securities Act. 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. The
Company's directors and officers and certain of its stockholders have agreed
that they will not sell, directly or indirectly, any Common Stock without the
prior consent of the representatives of the Underwriters for a period of 180
days from the date of this Prospectus. Subject to these lock-up agreements and
the provisions of Rules 144, 144(k) and 701, additional shares will be available
for sale in the public market (subject in the case of shares held by affiliates
to compliance with certain volume restrictions) as follows: (i) 155,250 shares
will be eligible for sale 90 days after the date of this Prospectus and (ii)
12,180,571 shares will be eligible for sale upon the expiration of lock-up
agreements 180 days after the date of this Prospectus, including 783,163 shares
issuable upon the exercise of outstanding stock options. The remaining shares
will be eligible for sale in the public market from time to time after the
expiration of the lock-up agreements. In addition, certain stockholders,
representing approximately 11,552,658 shares of Common Stock, and certain
optionholders, with respect to an aggregate of 2,048,105 shares of Common Stock
issuable upon the exercise of stock options, have the right, subject to certain
conditions, to include their shares in future registration statements relating
to the Company's securities and/or to cause the Company to register certain
shares of Common Stock owned by them.
After the date of this Prospectus, the Company intends to file a Form S-8
registration statement under the Securities Act to register all shares of Common
Stock issuable under the Company's 1997 Stock Incentive Plan. Such registration
statement is expected to become effective immediately upon filing, and shares
covered by that registration statement will thereupon be eligible for sale in
the public markets, subject to certain lock-up agreements and Rule 144
limitations applicable to affiliates. See "Management -- Stock Plans",
"Description of Securities -- Registration Rights", "Shares Eligible for Future
Sale" and "Underwriting".
NO PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the offering, there has been no public market for the Common Stock.
Accordingly, there can be no assurance that an active trading market for the
Common Stock will develop or be sustained upon the closing of the offering or
that the market price of the Common Stock will not decline below the initial
public offering price. The initial public offering price will be determined by
negotiations between the Company and the representatives of the Underwriters.
See "Underwriting".
The trading price of the Company's Common Stock could be subject to wide
fluctuations in response to variations in quarterly results of operations, the
gain or loss of significant advertisers or Web publisher customers, changes in
earning estimates by analysts, announcements of technological innovations or new
solutions by the Company or its competitors, general conditions in
Internet-related industries and other events or factors, many of which are
beyond the Company's control. In addition, the
15
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stock market in general has experienced extreme price and volume fluctuations
which have affected the market price for many companies in industries similar or
related to that of the Company and which have been unrelated to the operating
performance of these companies. These market fluctuations may have a material
adverse effect on the market price of the Company's Common Stock.
CONTROL BY PRINCIPAL STOCKHOLDERS, OFFICERS AND DIRECTORS
Upon the closing of the offering, the directors and executive officers and
their affiliates will beneficially own approximately 58.0% of the outstanding
Common Stock (56.7% if the Underwriters' over-allotment option is exercised in
full). As a result, these stockholders will be able to exercise control over all
matters requiring stockholder approval, including the election of directors and
approval of significant corporate transactions. This concentration of ownership
may have the effect of delaying or preventing a change in control of the
Company. See "Management" and "Principal Stockholders".
ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER, BYLAWS AND DELAWARE LAW PROVISIONS;
POSSIBLE ISSUANCE OF PREFERRED STOCK
Upon receipt of the requisite Board of Directors and stockholder approvals,
and following the closing of the offering, the Company's Board of Directors will
have the authority to issue up to 5,000,000 shares of Preferred Stock without
any further vote or action by the stockholders, and to determine the price,
rights, preferences, privileges and restrictions, including voting rights of
such shares. Since the Preferred Stock could be issued with voting, liquidation,
dividend and other rights superior to those of the Common Stock, the rights of
the holders of Common Stock will be subject to, and may be adversely affected
by, the rights of the holders of any such Preferred Stock. The issuance of
Preferred Stock could have the effect of making it more difficult for a third
party to acquire a majority of the outstanding voting stock of the Company.
Further, certain provisions of the Company's Certificate of Incorporation,
including provisions that create a classified Board of Directors, and certain
provisions of the Company's Bylaws and of Delaware law could have the effect of
delaying or preventing a change in control of the Company. See "Description of
Securities -- Anti-Takover Effects of Certain Provisions of Delaware Law and the
Company's Certificate of Incorporation and Bylaws".
DILUTION
Investors purchasing shares of Common Stock in the offering will incur
immediate and substantial dilution in net tangible book value per share. To the
extent outstanding options to purchase Common Stock are exercised, there will be
further dilution. See "Dilution".
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,300,000 shares of
Common Stock offered pursuant to the offering are estimated to be approximately
$27.1 million ($31.2 million if the Underwriters' over-allotment option is
exercised in full), assuming an initial public offering price of $13.00 per
share and after deducting the underwriting discount and estimated offering
expenses payable by the Company. The primary purposes of the offering are to
create a public market for the Common Stock, to facilitate the Company's future
access to public equity markets and to obtain additional working capital.
The Company intends to use the net proceeds of the offering for general
corporate purposes, including working capital, and for the expansion of its
international operations and sales and marketing capabilities. In addition, the
Company may use a portion of the net proceeds of the offering to acquire or
invest in complementary businesses, technologies, services or products, although
there are no current agreements or negotiations with respect to any such
acquisitions, investments or other transactions.
Pending such uses, the net proceeds will be invested in short-term,
investment grade instruments, certificates of deposit or direct or guaranteed
obligations of the United States.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its capital stock
since inception and does not expect to pay any cash dividends for the
foreseeable future. The Company currently intends to retain future earnings, if
any, to finance the expansion of its business.
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CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997, (i) on an actual basis, (ii) on a pro forma basis to reflect
the Preferred Stock Conversion and the Note Conversion, and (iii) on a pro forma
basis as adjusted to give effect to the sale of 2,300,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price of
$13.00 per share after deducting the underwriting discount and estimated
offering expenses payable by the Company. This information should be read in
conjunction with the Company's Consolidated Financial Statements and the related
Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ----------- ------------
<S> <C> <C> <C>
(IN THOUSANDS)
Convertible note payable to related party................................. $ 5,000 $ -- $ --
Stockholders' equity:
Convertible Preferred Stock, $.001 par value, 40,000 shares authorized;
40,000 shares issued and outstanding on an actual basis; no shares
issued and outstanding on a pro forma or pro forma as adjusted
basis................................................................. -- -- --
Preferred Stock, $.001 par value, 5,000,000 shares authorized; no shares
issued and outstanding on an actual, pro forma or pro forma as
adjusted basis........................................................ -- -- --
Common Stock, $.001 par value, 60,000,000 shares authorized; 5,292,607
shares issued and
outstanding on an actual basis; 12,306,343 shares issued and
outstanding on a pro forma basis; and 14,606,343 shares issued and
outstanding on a pro forma as adjusted basis(1)....................... 5 12 15
Additional paid-in capital................................................ 41,989 46,982 74,036
Deferred compensation..................................................... (1,351) (1,351) (1,351)
Accumulated deficit(2).................................................... (32,801) (32,801) (32,801)
---------- ----------- ------------
Total stockholders' equity................................................ 7,842 12,842 39,899
---------- ----------- ------------
Total capitalization.................................................... $ 12,842 $ 12,842 $ 39,899
---------- ----------- ------------
---------- ----------- ------------
</TABLE>
- ------------------------
(1) Excludes (a) 1,813,155 shares of Common Stock issuable upon the exercise of
stock options outstanding at September 30, 1997, with a weighted average
exercise price of $0.66 per share, of which options to purchase 348,147
shares were then exercisable, and (b) 1,186,845 shares reserved for issuance
under the Company's 1997 Stock Incentive Plan. See "Management -- Stock
Plans", "Description of Securities" and Note 5 of Notes to Consolidated
Financial Statements.
(2) Consists of $7.8 million of cumulative losses and $25.0 million related to
the redemption of shares of Common Stock from certain stockholders in
connection with the recapitalization of the Company that occurred
simultaneously with the issuance of Convertible Preferred Stock to new
investors in June 1997. See "Certain Transactions" and Note 5 of Notes to
Consolidated Financial Statements.
18
<PAGE>
DILUTION
The pro forma net tangible book value of the Company's Common Stock as of
September 30, 1997 was $12.8 million, or $1.04 per share of Common Stock, after
giving effect to the Preferred Stock Conversion and the Note Conversion. Pro
forma net tangible book value per share is equal to the amount of the Company's
total tangible assets less total liabilities, divided by the number of shares of
Common Stock outstanding as of September 30, 1997. Assuming the sale by the
Company of 2,300,000 shares of Common Stock offered hereby at an assumed initial
public offering price of $13.00 per share and the application of the estimated
net proceeds therefrom, the pro forma net tangible book value of the Company as
of September 30, 1997 would have been $39.9 million, or $2.73 per share of
Common Stock. This represents an immediate increase in pro forma net tangible
book value of $1.69 per share to existing stockholders and an immediate dilution
in pro forma net tangible book value of $10.27 per share to new investors. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............................. $ 13.00
Pro forma net tangible book value per share as of September 30, 1997.... $ 1.04
Pro forma increase per share attributable to new investors.............. 1.69
---------
Pro forma net tangible book value per share after the offering.............. 2.73
---------
Pro forma dilution per share to new investors............................... $ 10.27
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1997, after giving effect to the Preferred Stock Conversion and the Note
Conversion, the total number of shares of Common Stock purchased from the
Company, the total consideration paid to the Company and the average price per
share paid by existing stockholders and by new investors:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------------- --------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Existing stockholders (1).................... 12,306,343 84.3% $ 45,618,963 60.4% $ 3.71
New investors................................ 2,300,000 15.7 29,900,000 39.6 13.00
------------- ----- -------------- -----
Total.................................... 14,606,343 100.0% $ 75,518,963 100.0% $ 5.17
------------- ----- -------------- ----- -------
------------- ----- -------------- ----- -------
</TABLE>
- ------------------------
(1) Excludes (a) 1,813,155 shares of Common Stock issuable upon the exercise of
stock options outstanding at September 30, 1997, having with a weighted
average exercise price of $0.66 per share, of which options to purchase
348,147 shares were then exercisable, and (b) 1,186,845 shares reserved for
issuance under the Company's 1997 Stock Incentive Plan. See "Management --
Stock Plans", "Description of Securities" and Note 5 of Notes to
Consolidated Financial Statements.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below with respect to the
Company's Consolidated Statement of Operations for the period from January 23,
1996 (inception) through December 31, 1996 and with respect to the Company's
Consolidated Balance Sheet as of December 31, 1996 are derived from the audited
Consolidated Financial Statements of the Company which are included elsewhere in
this Prospectus and are qualified by reference to such Consolidated Financial
Statements and the related Notes thereto. The consolidated statement of
operations data for the nine months ended September 30, 1997 and the
consolidated balance sheet data as of September 30, 1997 are derived from
unaudited Consolidated Financial Statements included elsewhere in this
Prospectus. The selected consolidated statement of operations data for the
period from January 23, 1996 (inception) through September 30, 1996 are derived
from unaudited Consolidated Financial Statements not included elsewhere in this
Prospectus. The unaudited Consolidated Financial Statements include all
adjustments, consisting only of normal recurring adjustments, that the Company
considers necessary for the fair presentation of its consolidated financial
position and the consolidated results of its operations for those periods.
Results of operations for the nine months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the entire year
or for any future period. The selected consolidated financial data set forth
below is qualified in its entirety by, and should be read in conjunction with,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and the related Notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JANUARY 23, 1996 JANUARY 23, 1996
(INCEPTION) (INCEPTION) NINE MONTHS
THROUGH THROUGH ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1996 1996 1997
------------------- --------------------- ---------------------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues......................................... $ 6,514 $ 2,665 $ 19,657
Cost of revenues................................. 3,780 1,179 13,048
-------- ------- --------
Gross profit................................... 2,734 1,486 6,609
Operating expenses:
Sales and marketing............................ 3,079 1,473 6,606
General and administrative..................... 2,145 1,127 3,607
Product development............................ 618 337 1,015
-------- ------- --------
Total operating expenses..................... 5,842 2,937 11,228
-------- ------- --------
Loss from operations............................. (3,108) (1,451) (4,619)
Net loss......................................... $ (3,192) $ (1,491) $ (4,612)
-------- ------- --------
-------- ------- --------
Pro forma net loss per share (1)................. $ (0.24) $ (0.32)
-------- --------
-------- --------
Pro forma weighted average shares used in per
share calculation(1)(2)........................ 13,403 14,449
-------- --------
-------- --------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
--------------- ---------------
<S> <C> <C>
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents, and short-term investments............................ $ -- $ 12,739
Working capital (deficit)........................................................ (3,038) 11,199
Total assets..................................................................... 4,526 22,263
Convertible note payable to related party........................................ -- 5,000
Total stockholders' equity (deficit)............................................. (2,592) 7,842
</TABLE>
- ------------------------
(1) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the method used to determine the number of shares used to compute pro
forma net loss per share.
(2) See Note 5 of Notes to Consolidated Financial Statements for a description
of the Company's recapitalization which occurred in June 1997.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND THE RELATED NOTES THERETO INCLUDED ELSEWHERE IN THIS
PROSPECTUS. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. THE COMPANY'S 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 UNDER "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
DoubleClick is a leading provider of comprehensive Internet advertising
solutions for advertisers and Web publishers. The Company offers three distinct
Internet advertising solutions: (i) the DoubleClick Network, launched in March
1996; (ii) DoubleClick's DART Service, marketed to Web publishers since January
1997; and (iii) DoubleClick Direct, an Internet-based direct marketing solution
introduced on a limited basis in September 1997. DoubleClick's proprietary DART
technology, which dynamically matches and delivers ads to a target audience
within milliseconds, is the platform for all of the Company's solutions.
The Company was formed in January 1996 through the contribution of assets by
Kevin J. O'Connor, the Company's Chief Executive Officer, Dwight A. Merriman,
the Company's Chief Technical Officer, and the DoubleClick Division of Poppe
Tyson, a subsidiary of Bozell, Jacobs, Kenyon & Eckhardt, Inc. ("Poppe Tyson").
The Company has grown from 13 employees as of March 31, 1996 to 171 employees as
of December 1, 1997. From January 23, 1996 (inception) through May 1996, the
Company's operating activities related primarily to developing the DART
technology and the DoubleClick Network, and recruiting personnel. During the
same period, substantially all of the Company's revenues resulted from Internet
advertising sales on a commission basis on behalf of the Netscape and Excite Web
sites. For the period from January 23, 1996 (inception) through December 31,
1996, such commissions constituted 16.5% of the Company's revenues. All ads sold
on behalf of the Netscape and Excite Web sites were delivered directly by such
entities, as their Web sites were not on the DoubleClick Network. The Company no
longer arranges for the placement of advertisements on a commission basis.
Beginning in the fourth quarter of 1996, revenues from advertisements
delivered on the DoubleClick Network became a more significant portion of
revenues and, since the addition of the AltaVista Web site to the DoubleClick
Network in late December 1996, the Company has derived substantially all of its
revenues from the DoubleClick Network. The Company offers advertising on the
DoubleClick Network to third party advertisers with pricing determined on a CPM
(cost per thousand ads delivered) basis. Discounts are offered based on a
variety of factors, including the duration and gross dollar amount of
advertising campaigns. Advertisements delivered by the Company are typically
sold pursuant to purchase order agreements which are subject to cancellation.
The Company's revenues are received from the advertiser that orders the ad, and
the Company pays the Web publisher on whose Web site such advertisement is
delivered a service fee calculated as a percentage of such revenues, which
amount is included in cost of revenues. The Company is responsible for billing
and collecting for ads delivered on the DoubleClick Network and typically
assumes the risk of non-payment from advertisers. In addition, the Company earns
service fees for providing the DART Service to Web publishers. DoubleClick
Direct advertising is priced on a "cost-per-click", "cost-per-lead" and
"cost-per-sale or download" basis. To date, revenues from DoubleClick's DART
Service and DoubleClick Direct have not been significant.
Advertising revenues are recognized in the period that the advertisement is
delivered, provided that no significant obligations remain and collection of the
resulting receivable is probable. The Company has recently started to sell
sponsorship advertising, which involves a greater degree of integration among
the Company, the advertiser and the Web sites on the DoubleClick Network. These
sponsorships
21
<PAGE>
are typically priced based on the length of time that the sponsorship runs,
rather than a CPM basis. Revenues relating to sponsorship advertising are
recognized ratably over the sponsorship period.
The Company expects that revenues generated from the DoubleClick Network
will continue to account for a substantial portion of the Company's revenues for
the foreseeable future. Moreover, ads delivered on the Web sites of the top four
Web publishers on the DoubleClick Network accounted for approximately 60.0% of
the Company's revenues for the nine months ended September 30, 1997. The Company
typically enters into short-term contracts with Web publishers for inclusion of
their Web sites in the DoubleClick Network. The failure to successfully market
the DoubleClick Network, the loss of one or more of the Web sites which account
for a significant portion of the Company's revenues from the DoubleClick
Network, or any reduction in traffic on such Web sites could have a material
adverse effect on the Company's business, results of operations and financial
condition.
In December 1996, the Company entered into an agreement with Digital
Equipment Corporation to be the exclusive third-party provider of advertising
services on specified pages within the AltaVista Web site. While the stated term
of the agreement expires in December 1998, either party may terminate the
agreement upon 90 days' prior written notice. DoubleClick pays AltaVista a
service fee calculated as a percentage of the revenues derived from delivery of
advertisements on the AltaVista Web site, which percentage is subject to
adjustment from time to time based on the achievement of certain quarterly
revenue goals. Revenues from advertisements delivered on the AltaVista Web site
were $8.5 million, or 42.8% of the Company's revenues for the nine months ended
September 30, 1997. AltaVista is a significant part of the DoubleClick Network
and is expected to continue to account for a significant portion of the
Company's revenues for the next few years. The loss of AltaVista as part of the
DoubleClick Network, any reduction in traffic on the AltaVista Web site, or a
termination of AltaVista's contract with the Company, would have a material
adverse effect on the Company's business, results of operations and financial
condition.
The Company has incurred significant losses since its inception, and as of
September 30, 1997 had an accumulated deficit of $32.8 million, of which $7.8
million related to cumulative losses and $25.0 million related to the redemption
of shares of Common Stock from certain stockholders in connection with the
recapitalization of the Company that occurred simultaneously with the issuance
of Convertible Preferred Stock to new investors in June 1997. In addition, the
Company has recorded deferred compensation of $1.5 million, which represents the
difference between the exercise price and the fair market value of the Company's
Common Stock issuable upon the exercise of certain stock options granted to
employees. Of the total deferred compensation amount, $0.2 million was amortized
during the nine months ended September 30, 1997. The remaining deferred
compensation amount will be amortized over the remaining vesting periods of the
related options. The Company believes that period-to-period comparisons of its
operating results are not meaningful and that the results for any period should
not be relied upon as an indication of future performance. The Company currently
expects to significantly increase its operating expenses in order to expand its
sales and marketing operations, to continue to expand internationally, to
upgrade and enhance its DART technology and to market and support its solutions.
As a result of these factors, there can be no assurance that the Company will
not incur significant losses on a quarterly and annual basis for the foreseeable
future.
22
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth consolidated statement of operations data for
the periods indicated as a percentage of revenues:
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JANUARY 23, 1996 JANUARY 23, 1996
(INCEPTION) (INCEPTION) NINE MONTHS
THROUGH THROUGH ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1996 1996 1997
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues......................................... 100.0% 100.0% 100.0%
Cost of revenues................................. 58.0 44.2 66.4
----- ----- -----
Gross profit................................... 42.0 55.8 33.6
Operating expenses:
Sales and marketing............................ 47.3 55.3 33.6
General and administrative..................... 32.9 42.3 18.4
Product development............................ 9.5 12.6 5.2
----- ----- -----
Total operating expenses..................... 89.7 110.2 57.2
----- ----- -----
Loss from operations............................. (47.7)% (54.4 )% (23.6 )%
----- ----- -----
----- ----- -----
</TABLE>
REVENUES
The Company's revenues are derived primarily from the delivery of
advertisements on the Web sites of Web publishers on the DoubleClick Network.
Revenues increased from $2.7 million for the period from January 23, 1996
(inception) through September 30, 1996 to $19.7 million for the nine months
ended September 30, 1997. During the period from January 23, 1996 (inception)
through September 30, 1996, $1.0 million of the Company's revenues were derived
from commissions received from the sale of advertising that was placed on the
Web sites of Netscape and Excite. Revenues recognized from commissions for the
nine months ended September 30, 1997 were not material and the Company no longer
expects to recognize revenues on a commission basis. The increase in revenues
was due primarily to an increase in the number of advertisers and ads delivered
on the DoubleClick Network, and to the addition of the AltaVista Web site to the
DoubleClick Network in December 1996. Revenues earned during the nine months
ended September 30, 1997 from advertisements delivered on the AltaVista Web site
were $8.5 million, or 42.8% of revenues. AltaVista is a significant part of the
DoubleClick Network and is expected to continue to account for a significant
portion of the Company's revenues for the next few years. For the nine months
ended September 30, 1997, only one advertiser, Microsoft, accounted for
approximately 10.1% of revenues. To date, the Company has not derived
significant revenues from its DART Service, DoubleClick Direct or international
operations.
COST OF REVENUES
Cost of revenues consists primarily of service fees paid to Web publishers
calculated as a percentage of revenues resulting from ads delivered to the Web
sites on the DoubleClick Network. Cost of revenues also includes other costs of
delivering advertisements, including depreciation of the ad delivery system and
Internet access costs. Gross margins were 55.8% and 33.6% for the period from
January 23, 1996 (inception) through September 30, 1996 and for nine months
ended September 30, 1997, respectively. Gross margins decreased in 1997 due to
the shift in the Company's revenue mix away from the sale of advertisements on a
commission basis on behalf of the Web sites of Netscape and Excite.
23
<PAGE>
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, commissions, advertising, maintenance of DoubleClick's Web site, trade
show expenses, seminars and costs of marketing materials. Sales and marketing
expenses were $1.5 million and $6.6 million for the period from January 23, 1996
(inception) through September 30, 1996 and for the nine months ended September
30, 1997, respectively, or 55.3% and 33.6% of revenues, respectively. The
increase in absolute dollars was due primarily to the increase in sales
personnel, commissions and costs related to the continued development and
implementation of the Company's marketing and branding campaigns. The Company
expects sales and marketing expenses to increase significantly on an absolute
dollar basis but remain relatively constant as a percentage of revenues as the
Company hires additional personnel, expands into new markets and continues to
promote the DoubleClick brand.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries and fees for professional services. General and
administrative expenses were $1.1 million and $3.6 million for the period from
January 23, 1996 (inception) through September 30, 1996 and for the nine months
ended September 30, 1997, respectively, or 42.3% and 18.4% of revenues,
respectively. The increase in absolute dollars was primarily a result of
expenses related to increased personnel, professional service fees and facility
expenses necessary to support the Company's domestic and international growth.
The Company expects general and administrative expenses to increase on an
absolute dollar basis but decrease as a percentage of revenues as the Company
hires additional personnel and incurs additional costs related to the growth of
its business and its operations as a public company.
PRODUCT DEVELOPMENT. Product development expenses consist primarily of
compensation and consulting expenses and related supplies and materials. To
date, all product development costs have been expensed as incurred. Product
development expenses were $0.3 million and $1.0 million for the period from
January 23, 1996 (inception) through September 30, 1996 and for the nine months
ended September 30, 1997, respectively, or 12.6% and 5.2% of revenues,
respectively. The increase in absolute dollars was due primarily to increases in
product development personnel and consulting expenses. Product development
expenses incurred during the nine months ended September 30, 1997 were primarily
related to enhancements to the DART technology and the development of
DoubleClick Direct. The Company believes that continued investment in product
development is critical to attaining its strategic objectives and, as a result,
expects product development expenses to increase significantly on an absolute
dollar basis but remain relatively constant as a percentage of revenues.
LOSS FROM OPERATIONS
The Company's loss from operations was $1.5 million for the period from
January 23, 1996 (inception) through September 30, 1996 and $4.6 million for the
nine months ended September 30, 1997. The increase in the loss from operations
was primarily due to the hiring of additional personnel in all areas of the
Company as it continued to build its infrastructure, expand its markets and
increase its brand awareness. The Company expects to continue to hire additional
personnel and increase its spending for marketing and other infrastructure
needs. As a result, the Company expects that operating expenses and the loss
from operations may increase on an absolute dollar basis and decrease as a
percentage of revenues.
24
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited consolidated quarterly
statement of operations data for the seven quarters ended September 30, 1997. In
the opinion of management, this information has been prepared substantially on
the same basis as the audited Consolidated Financial Statements appearing
elsewhere in this Prospectus, and all necessary adjustments, consisting only of
normal recurring adjustments, have been included in the amounts stated below to
present fairly the unaudited consolidated quarterly results of operations. The
consolidated quarterly data should be read in conjunction with the audited
Consolidated Financial Statements of the Company and the Notes thereto appearing
elsewhere in this Prospectus. The results of operations for any quarter are not
necessarily indicative of the results of operations for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1996 1996 1996 1996 1997 1997
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues........................................ $ 410 $ 972 $ 1,283 $ 3,849 $ 5,329 $ 6,138
Cost of revenues................................ -- 349 830 2,601 3,394 4,094
----- ----------- ----------- ----------- ----------- -----------
Gross profit.................................. 410 623 453 1,248 1,935 2,044
----- ----------- ----------- ----------- ----------- -----------
Operating expenses:
Sales and marketing........................... 226 427 820 1,606 2,120 1,924
General and administrative.................... 96 459 573 1,017 752 1,019
Product development........................... 34 78 225 281 233 280
----- ----------- ----------- ----------- ----------- -----------
Total operating expenses.................... 356 964 1,618 2,904 3,105 3,223
----- ----------- ----------- ----------- ----------- -----------
Income (loss) from operations................... $ 54 $ (341) $ (1,165) $ (1,656) $ (1,170) $ (1,179)
----- ----------- ----------- ----------- ----------- -----------
----- ----------- ----------- ----------- ----------- -----------
<CAPTION>
SEPT. 30,
1997
-----------
<S> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues........................................ $ 8,190
Cost of revenues................................ 5,560
-----------
Gross profit.................................. 2,630
-----------
Operating expenses:
Sales and marketing........................... 2,562
General and administrative.................... 1,836
Product development........................... 502
-----------
Total operating expenses.................... 4,900
-----------
Income (loss) from operations................... $ (2,270)
-----------
-----------
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1996 1996 1996 1996 1997 1997
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues........................................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues................................ -- 35.9 64.7 67.6 63.7 66.7
----------- ----------- ----------- ----------- ----------- -----------
Gross profit.................................. 100.0 64.1 35.3 32.4 36.3 33.3
----------- ----------- ----------- ----------- ----------- -----------
Operating expenses:
Sales and marketing........................... 55.2 44.0 63.9 41.7 39.8 31.3
General and administrative.................... 23.3 47.2 44.7 26.4 14.1 16.6
Product development........................... 8.3 8.1 17.5 7.3 4.4 4.6
----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses.................... 86.8 99.3 126.1 75.4 58.3 52.5
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) from operations................... 13.2% (35.2)% (90.8 )% (43.0 )% (22.0 )% (19.2)%
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
SEPT. 30,
1997
-----------
<S> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues........................................ 100.0%
Cost of revenues................................ 67.9
-----------
Gross profit.................................. 32.1
-----------
Operating expenses:
Sales and marketing........................... 31.3
General and administrative.................... 22.4
Product development........................... 6.1
-----------
Total operating expenses.................... 59.8
-----------
Income (loss) from operations................... (27.7 )%
-----------
-----------
</TABLE>
The Company's revenues have increased in all quarters presented as a result
of increased market acceptance of the DoubleClick Network after its launch in
March 1996. In December 1996, the Company added the AltaVista Web site to the
DoubleClick Network and revenues from delivery of advertisements on the
AltaVista Web site commenced in the first quarter of 1997. Cost of revenues as a
percentage of revenues increased throughout the quarters presented, except for
the first quarter of 1997, resulting from a shift in the Company's revenue mix
away from selling advertisements on behalf of third-party Web sites to
delivering advertisements across the DoubleClick Network. In the first quarter
of 1997, the Company recognized additional revenues from commissions relating to
the final delivery of ads that were ordered in 1996. The Company no longer
arranges for the placement of advertisements, nor does it expect to recognize
any future revenues, on a commission basis.
25
<PAGE>
Operating expenses have increased in each of the quarters presented. Sales
and marketing expenses have increased as a result of increased sales personnel
and commissions and advertising and promotion. The Company's sales and marketing
organization has grown from 8 employees as of March 31, 1996 to 83 employees as
of September 30, 1997. General and administrative expenses have increased due
primarily to additional personnel, professional fees and facilities costs. In
the third quarter of 1997, general and administrative fees increased due in part
to legal costs associated with the Company's international expansion and
litigation costs relating to the Company's lawsuit against two former employees
for misappropriation of trade secrets. This litigation was settled in the fourth
quarter of 1997. Product development expenses have increased as a result of
continued enhancements to the DART technology and development of new solutions
such as the DART Service and DoubleClick Direct.
The Company's results of operations may fluctuate significantly in the
future as a result of a variety of factors, many of which are beyond the
Company's control. See "Risk Factors -- Potential Fluctuations in Quarterly
Operating Results; Seasonality".
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations primarily
through the private placement of equity securities and borrowings from a related
party. In June 1997, the Company completed a private placement of equity
securities to new investors and received $39.8 million in net proceeds, of which
$25.0 million was used to redeem shares of Common Stock from certain
stockholders. As of September 30, 1997, the Company had aggregate borrowings
from a related party of $5.0 million in the form of a Convertible Promissory
Note due June 4, 2000, bearing interest at the Federal Short-Term Rate, 5.8% as
of September 30, 1997 (the "Convertible Note"). See "Certain
Transactions--Convertible Note".
Net cash used in operating activities was $3.4 million and $2.1 million for
the period from January 23, 1996 (inception) through December 31, 1996 and for
the nine months ended September 30, 1997, respectively. Cash used in operating
activities from January 23, 1996 (inception) through September 30, 1997 resulted
from net operating losses and increases in accounts receivable, which were
partially offset by increases in deferred revenues, accrued expenses and
accounts payable. In September 1997, the Company entered into an agreement to
establish DoubleClick Japan, Inc. for the purpose of forming a DoubleClick
Network in Japan. DoubleClick Japan, Inc. is a business relationship entered
into by the Company with Nippon Telegraph and Telephone Corporation, Trans
Cosmos, Inc., and NTT Advertising Inc. The Company received an initial payment
of $0.5 million for certain fees relating to the use of the DoubleClick
tradename and the right to access the Company's DART technology. The Company has
a 10% ownership position in this business relationship. As of September 30,
1997, no revenues had been recognized related to DoubleClick Japan, Inc.
Net cash used in investing activities was $0.5 million and $9.8 million from
January 23, 1996 (inception) through December 31, 1996 and for the nine months
ended September 30, 1997, respectively. Cash used in investing activities was
primarily related to purchases of short-term investments, investments in
business partners and purchases of property and equipment.
Cash provided by financing activities of $3.9 million from January 23, 1996
(inception) through December 31, 1996 consisted primarily of $3.3 million in
borrowings from a related party and $0.6 million in proceeds from the issuance
of Common Stock at inception. Net cash provided by financing activities of $16.5
million for the nine months ended September 30, 1997 primarily consisted of net
proceeds from the sale of $39.8 million of Convertible Preferred Stock, of which
$25.0 million was paid to redeem Common Stock held by certain stockholders, and
borrowings from a related party pursuant to the Convertible Note.
26
<PAGE>
As of September 30, 1997, the Company had $4.6 million of cash and cash
equivalents and $8.1 million in short-term investments. The Company's principal
commitments consisted of obligations under the Convertible Note and obligations
under operating leases.
Although the Company has no material commitments for capital expenditures,
management anticipates that it will experience a substantial increase in its
capital expenditures and lease commitments consistent with its anticipated
growth in operations, infrastructure and personnel. The Company currently
anticipates that it will continue to experience significant growth in its
operating expenses for the foreseeable future and that its operating expenses
will be a material use of the Company's cash resources. The Company believes
that the net proceeds of the offering, together with its existing cash and cash
equivalents and short-term investments, will be sufficient to meet its
anticipated cash needs for working capital and capital expenditures for at least
the next twelve months.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 1 of Notes to Consolidated Financial Statements for recently
adopted and recently issued accounting standards.
27
<PAGE>
BUSINESS
THE COMPANY
DoubleClick is a leading provider of comprehensive Internet advertising
solutions for advertisers and Web publishers. The Company's technology and media
expertise enable it to dynamically deliver highly targeted, measurable and
cost-effective Internet advertising for advertisers and to increase ad sales and
improve ad space inventory management for Web publishers. DoubleClick offers
three distinct Internet advertising solutions: (i) the DoubleClick Network, a
leading Internet advertising network which provides ad delivery and related
services to over 60 Web sites, including AltaVista, The Dilbert Zone, Macromedia
and U.S. News and World Report; (ii) DoubleClick's DART (Dynamic Advertising
Reporting and Targeting) Service, an Internet advertising management solution
for Web publishers with internal ad sales forces, which is currently being
utilized by over 20 Web publishers, including NBC, THE WALL STREET JOURNAL
INTERACTIVE EDITION, RealNetworks and THE SPORTING NEWS; and (iii) DoubleClick
Direct, the Company's recently introduced advertising solution designed
specifically for direct marketers.
DoubleClick's proprietary DART technology provides the platform for the
Company's solutions. This technology enables advertisers to optimize ad
performance by dynamically targeting and delivering ads to Web users based on
pre-selected criteria. As a user visits the Web sites of Web publishers which
utilize the Company's solutions, DART collects information regarding the user
and his or her viewing activities and ad responses, and applies this data to
improve its ability to predict the user's reaction and enhance DART's ad
targeting capabilities. The sophisticated tracking and reporting functionality
incorporated into DART provides advertisers with accurate measurements of ad
performance based on selected criteria. In addition, DART provides Web
publishers with sophisticated ad space inventory management capabilities.
In November 1997, the Company estimates that more than 20 million users
visited the Web sites of Web publishers which utilized the Company's solutions,
resulting in an aggregate of over 900 million impressions. During the same
period, DoubleClick managed approximately 7,000 Internet advertisements for over
600 advertisers, and over 100 Web publishers representing an aggregate of
approximately 350 Web sites utilized the Company's Internet advertising
solutions.
INDUSTRY BACKGROUND
THE INTERNET AND THE WEB
The Internet and the Web have enjoyed unprecedented growth in recent years.
IDC estimates that by the end of 1997 there will be over 29 million Web users in
the United States and over 50 million users worldwide, and the number of Web
users is expected to increase to 72 million in the United States and 129 million
worldwide by the end of 2000. Web users are spending an increasing amount of
time on the Web, and according to a recent study by the Georgia Institute of
Technology, as of April 1997, an estimated 51% of Internet users access the
Internet for 10 or more hours a week. The growth in the number of Web users and
the amount of time users spend on the Web is expected to continue as new
technologies, such as multimedia capabilities, are developed and adopted, as Web
access and bandwidth increase, and as Internet content improves and becomes more
dynamic.
The Company believes that as electronic commerce increases, advertisers and
direct marketers will increasingly seek to use the Web to locate customers,
advertise and facilitate transactions. Online transactions can be faster, less
expensive and more convenient than transactions conducted via human interaction.
A growing number of users have transacted business over the Web, including
trading securities, buying goods, purchasing airline tickets and paying bills.
According to an A.C. Nielsen study, over 20% of United States Internet users
have made a purchase over the Web. IDC estimates that purchases of goods and
services over the Internet are expected to increase from $2.6 billion in 1996 to
$220 billion in 2001.
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INTERNET ADVERTISING
The Web is emerging as an attractive new medium for advertisers due to the
growth in the number of Web users, the amount of time such users spend on the
Web, the increase in electronic commerce, the interactive nature of the Web, the
Web's global reach and a variety of other factors. Internet users generally have
demographic profiles advertisers desire. According to the Georgia Institute of
Technology, in 1997, an estimated 47% of Internet users had a college degree,
67% were between the ages of 18 and 44 and their mean household income was
$53,000. The interactive nature of the Web gives advertisers the potential to
establish dialogues and one-to-one relationships with potential customers,
receive direct feedback on their advertising and adapt their advertising to
respond to such feedback. The Web also provides advertisers with the opportunity
to reach broad, global audiences, since Web sites can be accessed from anywhere
in the world, and to target their advertising to populations within specific
regions or countries, to users with desirable demographic characteristics, and
to people with specific interests. Internet advertising also has the potential
to offer advertisers the ability to measure the number of times that a
particular advertisement has been viewed, the responses to the advertisement and
certain demographic characteristics of the viewers of the advertisement.
Accordingly, the Company believes that Web advertising has the potential to be a
cost-effective means of reaching a significant number of users with desirable
characteristics.
The unique characteristics of Internet advertising, combined with the growth
in the number of Internet users and their attractive demographic profiles, has
led to a significant increase in Internet advertising. IDC estimates that the
dollar value of Internet advertising in the United States will increase from
$551 million in 1997 to $4.0 billion in 2001, representing a 64% compounded
annual growth rate. In comparison, in 1997, IDC estimates that $175 billion will
be spent on traditional media (television, radio, cable and print) advertising
in the United States. To date, the leading Internet advertisers have been
technology companies, search engines and Web publishers. However, many of the
largest advertisers on traditional media, including consumer products companies,
automobile manufacturers and others, have expanded their use of Internet
advertising, and the Company believes that Internet advertising will become an
increasing component of their total advertising budgets.
DIRECT MARKETING
The Company believes that the Internet represents an attractive new medium
for direct marketing, which has traditionally been conducted through direct mail
and telemarketing, because highly targeted product offers can be made to
consumers at the point-of-sale. The success of a direct marketing campaign is
generally based on a direct marketer's return on investment which is measured by
the response rate (e.g. number of leads, number of sales) and cost-per-response.
According to the Direct Marketing Association, in 1997, an estimated $153
billion will be spent on direct marketing in the United States. The Internet has
the potential to provide direct marketers with the ability to target and deliver
direct marketing campaigns to users with specific characteristics and interests.
In addition, unlike many of the traditional methods of direct marketing, the
Internet provides direct marketers with the opportunity to contact consumers at
the point-of-sale (i.e., their personal computers). Jupiter Communications
estimates that revenues from direct marketing over the Internet will exceed $1.3
billion in 2002.
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THE MARKETS FOR INTERNET ADVERTISING SOLUTIONS
ADVERTISERS
As a medium for advertisers and advertising agencies, the Internet offers a
number of significant advantages over traditional media which the Company
believes will lead to significant increases in overall Internet advertising
spending. Advertising on the Internet provides advertisers with the opportunity
to:
REACH HIGHLY TARGETED AUDIENCES. The Internet has the unique capability to
provide advertisers with the ability to accurately and automatically target
their ads to users with specific interests and characteristics. Information
about the user's geographic location, ISP, browser type, operating system and
type and size of employer can be obtained through a user's interactions on the
Web, regardless of the type of Web site they are viewing, and this information
can be utilized by advertisers to target their ads. Web users specify their
interests by visiting Web sites with content focused on specific interests, such
as sports, travel, news, business and finance and entertainment. In addition,
these users visit and utilize search engines to find Web sites and information
on specific topics, further identifying their unique interests.
AGGREGATE AD PURCHASING. Large advertising campaigns are time-consuming,
difficult to manage, and can require media purchasers at advertising agencies to
contact large numbers of media outlets in order to place advertisements.
Networks of Web sites can provide centralized Internet ad purchasing and
alleviate the need to make a series of small ad purchases from numerous Web
publishers.
ACCESS INTERNATIONAL, NATIONAL AND LOCAL MARKETS. Traditional media
providers are constrained in their ability to provide advertisers with worldwide
access to consumers since most broadcasters and print publishers only operate in
their home countries or in limited geographic regions. Since the Internet is not
limited by geographical boundaries, and since IDC estimates that 35% of Internet
usage is outside of the United States, the Internet provides a significant media
outlet for the global marketplace. Because of its ability to target ads based on
a user's geographic location, the Internet also offers the ability to reach
audiences across international, national and local markets.
IMPROVE ADVERTISING ACCOUNTABILITY AND PERFORMANCE. Advertisers desire
accurate and timely tracking, measurement and reporting of ad performance. Since
ad performance on traditional media is measured through sampling and estimates,
accurate ad performance accountability is difficult. Unlike traditional forms of
media, the Internet offers the opportunity to accurately track each Web user
that is delivered an advertisement and to determine and record a broad range of
information about such user. The Web can also offer advertisers the analytical
tools required to evaluate and optimize ad effectiveness, as well as the ability
to promptly change ad placements and the creative content of advertisements.
PROVIDE ENHANCED DIRECT MARKETING CAPABILITIES. Direct marketers require
information about the recipients of an ad who respond with a specific action,
such as seeking further information or buying a product. In addition, direct
marketers are seeking to improve the return on their investment by adopting more
cost-effective methods to reach their target consumers. The Internet may be a
more cost-effective way to reach consumers than other direct marketing
approaches, including direct mail. As a media outlet, the Internet offers the
unique opportunity to advertise on a one-to-one basis at the point-of-sale. To
become an attractive medium for direct marketers, direct marketing campaigns on
the Internet must be targeted to users that are most likely to respond and a
method to accurately track direct marketing expenditures on a cost-per-action
basis must be available.
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WEB PUBLISHERS
As a result of the growth in the number of Web users, the advent of open,
easy-to-use authoring software and the anticipated increase in Internet
commerce, many businesses and organizations are establishing Web sites. A number
of these Web publishers are attempting to support, or profit from, their Web
sites by selling Internet advertising. Such Web publishers are seeking
advertising solutions that enable them to:
INCREASE WEB ADVERTISING SALES. Many Web publishers may not have the
experience or personnel to effectively sell ad space on their Web sites and are
unable to gain access to media buyers at large advertising agencies. Building an
internal ad sales force can be difficult and expensive due, in part, to the
increasing competition for experienced Internet ad sales personnel. Further, the
time and expense required to hire an internal ad sales force, commence ad sales
activities, and bill and collect ad sales revenues can have a significant impact
on the viability of a Web site. As a result, many Web publishers are seeking to
outsource their ad sales and delivery functions to Internet advertising
solutions providers with extensive, established sales organizations. By
outsourcing their ad sales and delivery functions, Web publishers can start
receiving ad revenues faster and can greatly reduce or eliminate related
expenditures. In addition, the Company believes that Web publishers with
effective national ad sales organizations may seek to outsource their
international or local sales functions to Internet solutions providers that are
knowledgeable about the target markets and that have the necessary critical mass
in such markets for a successful sales effort.
MANAGE WEB ADVERTISING OPERATIONS. Many Web publishers cannot afford, or do
not have the ability to operate and maintain, the servers and technology
necessary for targeted Web advertising. Installing an ad server can take several
months and results in significant out-of-pocket expenses. In addition, once an
ad server is purchased and installed, the Web publisher assumes responsibility
for the server's upgrades and maintenance. Most basic ad servers do not provide
ad targeting capabilities and do not offer sophisticated tracking, reporting and
billing functionality. Moreover, if a Web publisher operates an ad server
independently from a network of other Web sites, the amount of information
available to build an effective database regarding Web users and their response
patterns will be limited and may be insufficient for purposes of sophisticated
ad targeting. As a result, Web publishers may seek to outsource Web advertising
operations in order to reduce costs and enhance their ad targeting capabilities.
ENABLE EFFECTIVE AD SPACE INVENTORY MANAGEMENT. Many Web sites contain
multiple pages and handle thousands of page views every day, providing a large
inventory of Internet advertising space which is difficult for the Web publisher
to manage. By targeting advertising towards specific ad space within their Web
sites, Web publishers can increase the effectiveness of the ads delivered on
their Web sites, thereby increasing the value of their ad space. In order to
derive value from all of their available advertising space, Web publishers may
seek alternatives to selling their ad space such as providing their unsold
inventory to direct marketers who pay for ad space based on ad performance.
THE DOUBLECLICK SOLUTION
DoubleClick's solutions are designed to enable advertisers and Web
publishers to take advantage of the growing opportunities to realize significant
economic gain through Internet advertising. The Company has developed DART, a
proprietary technology that, through its dynamic ad matching, targeting and
delivering functionality and its ability to gather and continuously update
information on the rapidly increasing number of Web users, provides the platform
for DoubleClick's solutions, including: (i) the DoubleClick Network, a
collection of over 60 Web sites; (ii) the DART Service, which offers ad
targeting, tracking and reporting functionality to Web publishers with internal
sales organizations; and (iii) DoubleClick Direct, a recently introduced service
that offers direct marketers the ability to pay for
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advertising on a cost-per-action basis. Each of the Company's solutions has been
designed and developed to address and meet the needs of both advertisers and Web
publishers.
DoubleClick's proprietary DART technology collects, and continually updates,
information on the characteristics and response patterns of individual Web
users. DART uses this information to dynamically match and deliver an Internet
ad to a Web user within milliseconds based on pre-selected criteria, including
time of day, user interests, geographic location of the user's server and
organization name, size, revenue or industry type. In addition, DART is a
powerful ad performance tracking tool which provides comprehensive reporting.
THE DOUBLECLICK NETWORK
The DoubleClick Network is designed to streamline the Internet advertising
purchasing process by providing a one-stop shop for advertisers to buy ads on
the Internet. The DoubleClick Network enables advertisers to benefit from the
dynamic ad matching, targeting and delivering functionality provided by the DART
technology. As a result, advertisers can customize their ad delivery on the
DoubleClick Network within specific content categories, on specific Web sites,
or by targeting based on a variety of factors, including user interest,
organization type and keyword choice. To capitalize on the global reach of the
Internet, DoubleClick is establishing DoubleClick Networks in Europe, Asia and
other international markets.
By joining the DoubleClick Network, Web publishers can take advantage of
DoubleClick's extensive and experienced ad sales organization. These Web
publishers do not need to establish an internal advertising sales capacity, are
relieved of the ad management requirements, including billing, tracking and
reporting, and do not incur the start-up and fixed costs associated with
establishing, maintaining, upgrading and operating ad servers. Additionally, Web
publishers can benefit from the DART ad targeting technology by improving the
effectiveness of the advertising on their Web sites which, in turn, increases
the value of their Web sites to advertisers.
DART SERVICE
DoubleClick offers its DART Service to Web publishers with internal ad sales
organizations seeking a comprehensive turnkey ad management solution with ad
targeting and delivering capabilities, and sophisticated tracking, reporting and
billing functionality. The DART Service also handles the difficult and
complicated task of ad space inventory management. By using the DART Service,
Web publishers can take advantage of the Company's extensive database of Web
user targeting information as well as the Company's predictive modeling
capabilities to more effectively target ads.
DOUBLECLICK DIRECT
DoubleClick Direct is a response oriented Internet-based direct advertising
solution that enables direct marketers to pay for advertising on a
cost-per-action (e.g. cost-per-sale, cost-per-lead or cost-per-click) basis.
Using DoubleClick Direct, direct marketers can place their cost-per-action ads
on the available ad space inventory on the Web sites of a variety of Web
publishers. DoubleClick's DART technology analyzes which ads receive the best
response on which Web sites and then selects the appropriate ad and delivers it
on the Web sites and pages within the Web sites where the ad is expected to
yield the best results. DoubleClick Direct provides Web publishers with an
additional source of advertising revenue since it utilizes ad space on their Web
sites that has not otherwise been sold. DoubleClick Direct was introduced in the
fourth quarter of 1997 on a limited basis to selected direct marketers and the
Company is developing additional features to meet the evolving needs of direct
marketers.
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STRATEGY
DoubleClick's objective is to be the leading provider of Internet
advertising solutions. The following are the key elements of the Company's
strategy:
PROVIDE THE MOST COMPREHENSIVE INTERNET ADVERTISING SOLUTIONS. The Company
intends to leverage the information aggregated from the millions of individual
users that visit the Web sites on the DoubleClick Network and the Web sites of
Web publishers using the DART Service to further enhance its existing solutions
and facilitate the development of additional solutions. DoubleClick believes
that its proprietary DART technology and the experience and knowledge gained
through the delivery of billions of Internet ads provide it with a significant
competitive advantage over other Internet advertising solutions providers.
DoubleClick intends to leverage its technology and media expertise to continue
to develop new solutions and technological capabilities that meet the needs of
advertisers and Web publishers. In addition, the Company intends to add new
features and functionality to its DART technology to meet the evolving needs of
the Internet advertising market.
ENHANCE AND EXPAND THE DOUBLECLICK NETWORK. By enhancing and expanding the
DoubleClick Network, the Company believes that the DoubleClick Network will
become a leading choice for Web advertisers. The Company intends to continuously
target Web publishers of high quality Web sites, directories and search engines
for addition to the existing content categories comprising the DoubleClick
Network. Any such additions will be required to meet strict inclusion and
maintenance criteria in order to ensure that they will continue to provide the
desired audiences of advertisers. In order to provide advertisers with
additional audiences, the Company also plans to add new content categories
comprised of high quality, high traffic Web sites to the DoubleClick Network.
EXPAND SALES AND MARKETING. The Company believes that a strong sales and
marketing organization is essential to effectively sell and market Internet
advertising solutions. The Company intends to continue to expand its sales and
marketing efforts. Specifically, DoubleClick plans to expand its DoubleClick
Network sales force and has established dedicated sales organizations for its
DART Service and DoubleClick Direct. DoubleClick believes that brand awareness
of the Company and its solutions is critical to its success given the emerging
nature of the Internet advertising market. As a result, the Company is targeting
its efforts to advertisers and advertising agencies in order to establish and
expand the recognition of its corporate identity and service offerings through
its Web site, advertisements within trade publications, direct mail, promotional
activities, trade show participation and other media events.
ESTABLISH DART SERVICE AND DOUBLECLICK DIRECT. The Company is offering ad
management services by providing its DART Service directly to Web publishers
which have internal ad sales forces yet desire to utilize DART's ad targeting,
tracking, reporting and inventory management capabilities. The Company intends
to continue to focus on identifying appropriate Web publishers that may be
interested in utilizing its DART Service to manage their ad space inventory. The
Company recently launched its DoubleClick Direct service on a limited basis and
is building its inventory of direct marketing advertisements and available ad
space. The Company intends to add features and functionality to the DoubleClick
Direct service to meet the evolving needs of direct marketers and to provide a
viable commercial opportunity for Web sites with significant unsold ad space
inventory.
EXTEND GLOBAL PRESENCE. To provide U.S. and foreign advertisers with the
ability to deliver their ads in global markets and to provide Web publishers in
international markets with the ability to outsource their ad sales, ad server
operations and ad space inventory management, the Company is developing
DoubleClick Networks and is providing its other solutions in a number of
countries. The Company is building DoubleClick Networks in Australia, Canada and
the United Kingdom, and through its business partners, in Japan, Iberoamerica
(Spain, Portugal and Latin America) and Scandinavia. To support this initiative,
DoubleClick has recently opened sales offices offering all of the Company's
solutions in Australia, Canada and the United Kingdom, and intends to establish
sales offices in additional countries in the future.
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TECHNOLOGY OVERVIEW
The Company's proprietary DART (Dynamic Advertising Reporting and Targeting)
technology serves as the enabling platform for all of the Company's solutions.
This centralized ad management technology, resident on the Company's server, is
linked to the Web publisher's server and completes the dynamic ad matching,
targeting and delivering functions within milliseconds. In addition, unlike
shrink-wrapped technology products, continuous enhancements to DART can be made
without the need for a Web publisher to upgrade or purchase new equipment or
software upgrades. The following diagram illustrates the architecture of DART:
[ILLUSTRATION DEPICTING DART TECHNOLOGY'S DYNAMIC AD MATCHING,
TARGETING AND DELIVERING ARCHITECTURE]
To date, DoubleClick's DART technology has delivered over 6 billion ads
worldwide. DART's dynamic matching, targeting and delivering functions enable
Web advertisers to target their advertising based on a variety of factors,
including user interests, time of day, day of week, organization name and size,
domain type (i.e., commercial, government, education, network), operating
system, server type and version, and keywords. In addition, the Company offers
the ability to match geographic location of the user's server and organization
revenue through third-party databases. DART also manages the frequency and
distribution of ad placements to limit repetitive ad exposures that can reduce
ad effectiveness. Further, in order to deliver the advertisements on the pages
that are likely to result in the best response, DART improves its predictive
capabilities by continuously collecting information regarding the user and the
user's viewing activities and ad responses.
DART is a powerful ad performance tracking and reporting tool. Detailed
daily online performance reports allow advertisers and Web publishers to
actively monitor and react to the success of particular ads and marketing
campaigns and Web site traffic patterns, respectively. Such reports can be
further tailored to evaluate ad success based on the dynamic ad matching,
targeting and delivering factors set
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forth above. DART delivers advertising content developed using most leading Web
tools and technologies, including JAVA, Java Script, RealAudio, RealVideo,
Enliven and VRML. In addition, DART is compatible with leading host servers,
regardless of the Web publisher's hardware or software. DART is designed to be
highly reliable and operates 24 hours a day, seven days a week with minimal
downtime. Enhancements of the DART technology have allowed for the development
of additional features providing: (i) advertisers with the ability to test the
effectiveness of the creative content of an advertisement before launching an ad
campaign by comparing click-through rates on alternative advertisements; (ii)
advertisers with the opportunity to track a user to the advertiser's own Web
site to determine what actions a user takes following a click-through; and (iii)
Web publishers with the ability to accurately manage and record advertising
activity and track related revenue over a network of affiliated Web sites.
SERVICES
DOUBLECLICK NETWORK
Utilizing the Company's proprietary DART technology, the DoubleClick Network
provides effective Internet advertising solutions to both advertisers and Web
publishers. As of December 15, 1997, the DoubleClick Network consisted of over
60 Web sites grouped together by the Company in defined content categories. In
November 1997, approximately 750 million ads were delivered on the DoubleClick
Network. The Company pays each Web publisher whose Web sites are on the
DoubleClick Network a service fee calculated as a percentage of the amount it
charges advertisers for delivering advertisements on the DoubleClick Network. In
addition, the Company is responsible for billing and collecting for ads
delivered on the DoubleClick Network and typically assumes the risk of
non-payment from advertisers. Since December 1996, the Company has derived
substantially all of its revenues from advertisements delivered on the
DoubleClick Network.
Web publishers seeking to add their Web sites to the DoubleClick Network
must meet defined inclusion and maintenance criteria based upon, among other
things, the demographics of the particular Web site's users, the Web site's
content quality and brand name recognition, the level of existing and projected
traffic on the Web site, and the opportunity to provide sponsorship
opportunities. By preserving the integrity of the DoubleClick Network through
the maintenance of such defined criteria, the Company enhances an advertiser's
ability to have its advertisements seen by the appropriate audience. In
addition, the DoubleClick Network provides greater efficiencies to advertisers
by allowing them to reach several different target audiences all through one ad
purchase and ad campaign.
The Company intends to continuously target Web publishers of high quality
directories, search engines and premium Web sites for addition to the existing
content categories in the DoubleClick Network and to expand into additional
content categories based on advertisers' targeting needs. The
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following table identifies the DoubleClick Network's content categories and
their respective Web sites as of December 15, 1997:
[LOGO]
Over 800 advertisers from a variety of industries have utilized the
DoubleClick Network, including many of the leading Internet advertisers. In
certain instances, advertisers promote a number of products at one time. In
turn, there may be a number of advertising campaigns being run simultaneously
for each product, each with a number of advertisements. Further, many
advertisers use advertising agencies to strategically place their
advertisements. As a result, the Company maintains relationships with, and
focuses its sales and marketing efforts on, both advertisers and advertising
agencies. Set forth below is a list of certain advertisers that have delivered
advertisements on the DoubleClick Network:
<TABLE>
<S> <C>
Amazon.com inc. Intel
AT&T Microsoft
Bell South MonsterBoard
CD Now Netscape
Charles Schwab Prodigy
Datek Online Quick & Reilly
GTE 3Com
IBM Ziff Davis Interactive
</TABLE>
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To take advantage of the global reach of the Internet, DoubleClick is
establishing DoubleClick Networks in Europe, Asia and other international
markets. DoubleClick currently has operations in Australia, Canada, and the
United Kingdom, and through its business partners, in Japan, Iberoamerica and
Scandinavia. The Company's international operations allow advertisers to target
users in specific countries and worldwide and enables overseas advertisers to
focus their advertising in their own domestic market, the United States market
or globally. Further, by locating ad servers in foreign locations, the Company
is seeking to facilitate the rapid delivery of Internet advertising in
international markets.
DART SERVICE
Since January 1997, the DART Service has been provided as a comprehensive
turnkey advertising solution to those Web publishers with internal sales forces
that desire to take advantage of the Company's DART technology to facilitate and
support their Internet ad placements. By utilizing the DART Service, a Web
publisher is provided with all of the dynamic ad matching, targeting and
delivering features of the DART technology, including the predictive modeling
benefits enabled by the Company's continuous collection of information regarding
users of the Web sites in the DoubleClick Network and the Web sites of other
DART-enabled Web publishers. The DART Service acts as the Web publisher's ad
server and can be easily linked to the Web publisher's server. The DART Service
is generally offered to Web publishers pursuant to annual service contracts
terminable by either party on 30 days prior written notice. As of November 1997,
there were 20 Web publishers using the DART Service, including NBC, THE WALL
STREET JOURNAL INTERACTIVE EDITION, RealNetworks, THE SPORTING NEWS, READER'S
DIGEST, TEXAS MONTHLY and VARIETY. To date, the Company has not received
significant revenues from the DART Service.
DOUBLECLICK DIRECT
Launched on a limited basis in the fourth quarter of 1997, DoubleClick
Direct is a response-oriented Internet advertising service that provides direct
marketers with the opportunity to conduct targeted advertising on a
cost-per-action basis, paying only when users click on an ad placed on a Web
site, fill out a lead form, download software, or buy a product. Web publishers,
including those in the DoubleClick Network, may designate a selected portion of
their previously unsold inventory on a monthly basis for such direct marketers.
DoubleClick's DART technology analyzes which ads receive the best response on
which Web sites and then selects the appropriate ad and places it on the Web
sites and pages within the Web sites where the ad is expected to yield the best
results. Further, DoubleClick Direct tracks and audits transactions in real
time, while at the same time using the information to automatically enhance and
update DoubleClick Direct. The Company expects direct marketers to utilize
DoubleClick Direct pursuant to short-term contracts. DoubleClick Direct has
initially been marketed to selected direct marketers on a limited basis and the
Company is developing additional features to meet the evolving needs of direct
marketers. To date, the Company has not received significant revenues from sales
of DoubleClick Direct.
The following illustration depicts DoubleClick Direct:
[ILLUSTRATION DEPICTING THE DOUBLECLICK DIRECT ARCHITECTURE]
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SALES AND MARKETING
UNITED STATES
The Company sells its solutions in the United States through a sales and
marketing organization which consisted of an aggregate of 99 employees as of
December 1, 1997. These employees are located at the Company's headquarters in
New York, and in the Company's offices in Atlanta, Boston, Chicago, Dallas, Los
Angeles and Silicon Valley. The sales organization is divided into three
dedicated groups focused on sales of advertisements to be delivered on the
DoubleClick Network, sales of the DART Service to Web publishers, and sales of
DoubleClick Direct to direct marketers. Each of these groups employs an internal
telesales force to solicit leads obtained from, and to respond to inbound
inquiries stimulated by, the Company's marketing efforts.
The Company has created business development subgroups for each of the
DoubleClick Network's content categories to recruit Web publishers with high
quality Web sites for inclusion in the DoubleClick Network. Business development
salespeople are assigned to a particular content category in order to develop an
in-depth understanding of the evolving needs of a particular content category
and the Web publishers with Web sites within such content category. This
expertise allows the Company to more effectively manage existing content
categories and take advantage of opportunities to expand into additional content
categories.
To support its direct sales efforts and to actively promote the DoubleClick
brand, the Company conducts comprehensive marketing programs, including public
relations, print advertisements, online advertisements over the DoubleClick
Network and on the Web sites of Web publishers unaffiliated with the DoubleClick
Network, Web advertising seminars, trade shows and ongoing customer
communications programs.
INTERNATIONAL
The Company has expanded its operations into Australia, Canada and the
United Kingdom through the creation of a direct sales organization in each such
location. In addition, the Company has entered into business relationships in
Japan, Iberoamerica and Scandinavia to take advantage of the local marketplace
knowledge of its business partners. As it continues to expand internationally,
the Company intends to expand its direct sales and marketing capabilities to
create direct sales organizations in certain international markets and, in other
markets, to enter into business relationships with companies having knowledge of
the particular marketplace.
COMPETITION
The markets for Internet advertising and related products and services are
intensely competitive and such competition is expected to continue to increase.
There are no substantial barriers to entry in this market and the Company
believes that its ability to compete depends upon many factors within and beyond
its control, including the timing and market acceptance of new solutions and
enhancements to existing solutions developed by the Company and its competitors,
customer service and support, sales and marketing efforts, and the ease of use,
performance, price and reliability of the Company's solutions.
The Company competes for Internet advertising revenues with large Web
publishers and Web search engine companies, such as America Online, Yahoo!,
Excite and Infoseek. Further, the DoubleClick Network competes with a variety of
Internet advertising networks. In marketing the DoubleClick Network and its DART
Service to Web publishers, the Company also competes with providers of ad
servers and related services, including NetGravity. The Company also encounters
competition from a number of other sources, including content aggregation
companies, companies engaged in advertising sales networks, advertising
agencies, and other companies which facilitate
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Internet advertising. Many of the Company's existing competitors, as well as a
number of potential new competitors, have longer operating histories, greater
name recognition, larger customer bases and significantly greater financial,
technical and marketing resources than the Company. There can be no assurance
that the Company will be able to compete successfully against current or future
competitors or that competitive pressures will not have a material adverse
effect on the Company's business, results of operations and financial condition.
In addition, the Internet, in general, and the Company, specifically, also must
compete for a share of advertisers' total advertising budgets with traditional
advertising media, such as television, radio, cable and print. To the extent
that the Internet is perceived to be a limited or ineffective advertising
medium, advertisers may be reluctant to devote a significant portion of their
advertising budget to Internet advertising, which could limit the growth of
Internet advertising and would have a material adverse effect on the Company's
business, results of operations and financial condition. See "Risk Factors --
Competition".
INTELLECTUAL PROPERTY
The Company regards its intellectual property as critical to its success,
and the Company relies upon patent, trademark, copyright and trade secret laws
in the United States and other jurisdictions to protect its proprietary rights.
The Company has filed one patent application with the United States Patent and
Trademark Office to protect certain aspects of its DART technology. The Company
pursues the protection of its trademarks by applying to register the trademarks
in the United States and (based upon anticipated use) internationally, and is
the owner of a registration for the DOUBLECLICK trademark in the United States.
There can be no assurance that any of the Company's trademark registrations or
patent applications will be approved or granted and, if they are granted, that
they will not be successfully challenged by others or invalidated through
administrative process or litigation. Further, if the Company's trademark
registrations are not approved or granted due to the prior issuance of
trademarks to third parties or for other reasons, there can be no assurance that
the Company would be able to enter into arrangements with such third parties on
commercially reasonable terms to allow the Company to continue to use such
trademarks. Patent, trademark, copyright and trade secret protection may not be
available in every country in which the Company's solutions are distributed or
made available. In addition, the Company seeks to protect its proprietary rights
through the use of confidentiality agreements with employees, consultants,
advisors and others. There can be no assurance that such agreements will provide
adequate protection for the Company's proprietary rights in the event of any
unauthorized use or disclosure, that employees of the Company, consultants,
advisors or others will maintain the confidentiality of such proprietary
information, or that such proprietary information will not otherwise become
known, or be independently developed, by competitors. The Company's DART
technology collects and utilizes data derived from user activity on the
DoubleClick Network and the Web sites of Web publishers using the Company's
solutions. This data is used for ad targeting and predicting ad performance.
Although the Company believes that it has the right to use such data and the
compilation of such data in the Company's database, there can be no assurance
that any trade secret, copyright or other protection will be available for such
information or that others will not claim rights to such information. Further,
pursuant to its contracts with Web publishers using the Company's solutions, the
Company is obligated to keep certain information regarding the Web publisher
confidential.
The Company has licensed in the past, and expects that it may license in the
future, elements of its trademarks, trade dress and similar proprietary rights
to third parties, including in connection with the establishment of its
international business relationships which may be controlled operationally by
such third parties. While the Company attempts to ensure that the quality of its
brand is maintained by such business partners, no assurances can be given that
such partners will not take actions that could materially and adversely affect
the value of the Company's proprietary rights or the reputation of its solutions
and technologies. The Company currently licenses certain aspects of its
predictive modeling technologies from a third party. The failure by the Company
to maintain this license, or to find a
39
<PAGE>
replacement for such technology in a timely and cost-effective manner, could
have a material adverse effect on the Company's business, results of operations
and financial condition.
Legal standards relating to the validity, enforceability and scope of
protection of certain proprietary rights in Internet-related industries are
uncertain and still evolving, and no assurance can be given as to the future
viability or value of any proprietary rights of the Company or other companies
within the industry. There can be no assurance that the steps taken by the
Company to protect its proprietary rights will be adequate or that third parties
will not infringe or misappropriate the Company's proprietary rights. Any such
infringement or misappropriation, should it occur, could have a material adverse
effect on the Company's business, results of operations and financial condition.
Furthermore, there can be no assurance that the Company's business activities
will not infringe upon the proprietary rights of others, or that other parties
will not assert infringement claims against the Company. From time to time the
Company has been, and expects to continue to be, subject to claims in the
ordinary course of its business, including claims of alleged infringement of the
trademarks and other intellectual property rights of third parties by the
Company and its business partners. Although such claims have not resulted in
litigation or had a material adverse effect on the Company's business, results
of operations or financial condition, such claims and any resultant litigation,
should it occur, could subject the Company to significant liability for damages
and could result in invalidation of the Company's proprietary rights and, even
if not meritorious, could be time-consuming and expensive to defend, and could
result in the diversion of management time and attention, any of which could
have a material adverse effect on the Company's business, results of operations
and financial condition.
EMPLOYEES
As of December 1, 1997, the Company employed 171 persons, including 115 in
sales, marketing and customer support (16 of whom serve the international
marketplace), 26 in product development, and 30 in accounting, finance and
administration. The Company is not subject to any collective bargaining
agreements and believes that its relationship with its employees is good.
FACILITIES
The Company's principal executive offices are currently located in two
separate facilities in New York, New York. Consisting of an aggregate of
approximately 25,000 square feet, these facilities are currently leased to the
Company under leases which expire in July 1999 and September 2002, respectively.
The Company also leases space for its sales and marketing efforts in California,
Georgia, Illinois, Massachusetts and Texas, as well as in Australia, Canada and
the United Kingdom. The Company is considering the expansion of its New York
facilities in the first half of 1998. The Company believes that suitable
additional space will be available in the future on commercially reasonable
terms.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
40
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS AND OTHER KEY EMPLOYEES
The executive officers and directors and other key employees of the Company,
and their ages and positions are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- ----- -----------------------------------------------------
<S> <C> <C>
Kevin J. O'Connor.................................... 36 Chief Executive Officer and Chairman of the Board of
Directors
Kevin P. Ryan........................................ 34 President and Chief Financial Officer
Dwight A. Merriman................................... 29 Chief Technical Officer and Director
Wenda Harris Millard................................. 43 Executive Vice President, Marketing and Sales
Stephen R. Collins................................... 32 Controller and Assistant Secretary
John L. Heider....................................... 40 Vice President of Engineering
Barry M. Salzman..................................... 34 Vice President, International
David N. Strohm(1)................................... 49 Director
Mark E. Nunnelly(1).................................. 39 Director
W. Grant Gregory(1).................................. 56 Director
</TABLE>
- ------------------------
(1) Member of the Audit Committee and the Compensation Committee.
Set forth below is certain information regarding the business experience
during the past five years for each of the above-named persons.
KEVIN J. O'CONNOR has served as the Company's Chief Executive Officer and
Chairman of the Board of Directors since its inception in January 1996. From
December 1995 until January 1996, Mr. O'Connor served as Chief Executive Officer
of Internet Advertising Network ("IAN"), an Internet advertising company which
he founded. From September 1994 to December 1995, Mr. O'Connor served as
Director of Research for Digital Communications Associates, a data
communications company (now Attachmate Corporation), and from April 1992 to
September 1994, as its Chief Technical Officer and Vice President, Research.
From its inception in May 1983 until its sale in April 1992, Mr. O'Connor served
as Vice President, Research of Intercomputer Communications Corp., a software
development company. Mr. O'Connor received his B.S. in Electrical Engineering
from the University of Michigan.
KEVIN P. RYAN has served as the Company's Chief Financial Officer since June
1996 and as President since July 1997. From January 1994 to June 1996, Mr. Ryan
served as Senior Vice President, Business and Finance for United Media, a
licensing and syndication company representing comics, columnists and wire
services to over 2,000 newspapers around the world. From April 1991 to December
1993, Mr. Ryan served as Senior Manager, Finance for EuroDisney, and from August
1985 to September 1989, Mr. Ryan was an investment banker for Prudential
Investment Corporation in both the United States and the United Kingdom. Mr.
Ryan received his B.A. in Economics from Yale University and his M.B.A. from
Insead.
DWIGHT A. MERRIMAN has served as the Company's Chief Technical Officer since
February 1996, and served as its Vice President, Engineering from the Company's
inception in January 1996 until February 1996. Mr. Merriman has served as a
Director of the Company since its inception. From December 1990 until August
1995, Mr. Merriman was a software engineer for Attachmate Corporation. Mr.
Merriman received his B.S. in Systems Analysis from Miami (Ohio) University.
WENDA HARRIS MILLARD has served as the Company's Executive Vice President,
Marketing and Sales since October 1997, and served as the Company's Executive
Vice President, Marketing and Programming from July 1996 to October 1997. From
August 1994 to July 1996, Ms. Harris Millard served
41
<PAGE>
as President and Group Publisher of SRDS, a marketing and media information
company. From July 1993 to July 1994, Ms. Harris Millard served as Senior Vice
President and Publisher of Family Circle Magazine. From June 1992 to July 1993,
Ms. Harris Millard served as Senior Vice President and Group Publisher of Adweek
Magazines, and from 1987 to June 1992, Ms. Harris Millard served as Publisher
for Adweek Magazine. Ms. Harris Millard received her B.A. in English from
Trinity College and her M.B.A. from Harvard University.
STEPHEN R. COLLINS has served as the Company's Controller since January 1997
and as Assistant Secretary since June 1997. From October 1992 to January 1997,
Mr. Collins served in a variety of financial positions for Colgate-Palmolive
Company, a consumer products company, most recently as Associate Financial
Director of Colgate-Palmolive Romania. From July 1988 to October 1992, Mr.
Collins was an auditor for Price Waterhouse LLP, a public accounting firm. Mr.
Collins received his B.S. in Accounting from the University of Alabama.
BARRY M. SALZMAN has served as the Company's Vice President, International
since February 1997. From August 1994 to January 1997, Mr. Salzman served as
President of BMS Associates, Inc., a consulting firm. From June 1993 to July
1994, Mr. Salzman served as an associate for AEA Investors, Inc., a principal
investment firm. From June 1989 to June 1993, Mr. Salzman served as an
Engagement Manager for McKinsey & Company, a management consulting firm. Mr.
Salzman received his B.S. in Business from the University of Cape Town and his
M.B.A. from Harvard University.
JOHN L. HEIDER has served as the Company's Vice President of Engineering
since March 1996. From June 1989 to March 1996, Mr. Heider served in various
engineering capacities, including Staff Engineer and Senior Engineer, for
Attachmate Corporation. Mr. Heider received his B.A. in Fine Arts from Wright
State University.
DAVID N. STROHM has served as a Director of the Company since June 1997.
Since 1980, Mr. Strohm has been an employee of Greylock Management Corporation,
a venture capital group ("Greylock"), and he is a general partner of several
venture capital funds affiliated with Greylock. Mr. Strohm currently serves as a
director of Banyan Systems, Inc., a software and computer peripherals company,
and Legato Systems, Inc., a data storage management software company. Mr. Strohm
received his B.A. from Dartmouth and his M.B.A. from Harvard University. Mr.
Strohm was named to the Board of Directors pursuant to an agreement which will
terminate upon the closing of the offering.
MARK E. NUNNELLY has served as a Director of the Company since June 1997.
Since 1990, Mr. Nunnelly has served as a Managing Director of Bain Capital, a
venture capital group. Mr. Nunnelly currently serves as a Director of Stream
International Inc., a computer software and technical support company, E-data
Systems, a digital commerce company, SR Research, a credit risk assessment
technology company, The Learning Company, an educational software company, and
Dade International, a health care company. Mr. Nunnelly received his B.A. from
Centre College and his M.B.A. from Harvard University. Mr. Nunnelly was named to
the Board of Directors pursuant to an agreement which will terminate upon the
closing of the offering.
W. GRANT GREGORY has served as a Director of the Company since its inception
in January 1996. Since 1988, Mr. Gregory has served as Chairman of Gregory &
Hoenemeyer, Inc., a merchant banking firm. In 1987, Mr. Gregory served as
Chairman of the Board of Touche Ross & Company, an accounting firm (now Deloitte
& Touche). Mr. Gregory currently serves as a director of AMBAC Financial Group,
a financial services company, HCIA Inc., a health care information company, and
Inacom Corporation, a technology management services company. Mr. Gregory
received his bachelor's degree in Business Administration from the University of
Nebraska.
42
<PAGE>
CLASSES OF DIRECTORS
Currently, all Directors hold office until the next annual meeting of
stockholders or until their successors have been duly elected and qualified.
Following the offering, the Board of Directors will be divided into three
classes, each of whose members will serve for a staggered three-year term. Upon
the expiration of the term of a class of directors, directors in such class will
be elected for three-year terms at the annual meeting of stockholders in the
year in which such term expires.
EXECUTIVE OFFICERS
Executive officers of the Company are elected by the Board of Directors on
an annual basis and serve until the next annual meeting of the Board of
Directors or until their successors have been duly elected and qualified.
BOARD COMMITTEES
The Audit Committee of the Board of Directors was established in July 1997
and reviews, acts on and reports to the Board of Directors with respect to
various auditing and accounting matters, including the selection of the
Company's auditors, the scope of the annual audits, fees to be paid to the
auditors, the performance of the Company's independent auditors and the
accounting practices of the Company.
The Compensation Committee of the Board of Directors was established in July
1997 and determines the salaries and incentive compensation of the officers of
the Company and provides recommendations for the salaries and incentive
compensation of the other employees and the consultants of the Company. The
Compensation Committee also administers the Company's various incentive
compensation, stock and benefit plans.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee consists of Messrs. Strohm, Nunnelly
and Gregory, none of whom has been an officer or employee of the Company at any
time since the Company's inception. No executive officer of the Company serves
as a member of the board of directors or compensation committee of any entity
that has one or more executive officers serving as a member of the Company's
Board of Directors or Compensation Committee. During 1996 and prior to the
formation of the Compensation Committee, the Board of Directors as a whole made
decisions relating to compensation of the Company's executive officers. Mr.
O'Connor, the Company's Chief Executive Officer, and Mr. Merriman, the Company's
Chief Technical Officer, participated in all such discussions and decisions
concerning the compensation of executive officers of the Company, except that
Messrs. O'Connor and Merriman were excluded from discussions regarding their own
compensation.
COMPENSATION OF DIRECTORS
The Company does not currently compensate its directors for attending Board
of Directors or committee meetings, but reimburses directors for their
reasonable travel expenses incurred in connection with attending meetings of the
Board of Directors or committees of the Board of Directors. Under the Company's
1997 Stock Incentive Plan, each individual who is serving as a non-employee
member of the Board of Directors on the date that the Underwriting Agreement
relating to the offering is executed will automatically receive an option grant
on that date for 5,000 shares of Common Stock. Each individual who first becomes
a non-employee member of the Board of Directors at any time thereafter will
receive an option to purchase 25,000 shares on the date such individual joins
the Board of Directors, provided such individual has not previously been an
employee of the Company or any parent or subsidiary corporation. In addition, on
the date of each annual stockholders' meeting beginning in 1999, each non-
employee member of the Board of Directors will automatically be granted an
option to purchase 5,000 shares of Common Stock provided such individual has
served on the Board of Directors for at least six months. See "--Stock Plans".
43
<PAGE>
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the compensation
received by the Company's Chief Executive Officer and by the other four
executive officers of the Company whose salary exceeded $100,000 in 1997 (the
"Named Executive Officers") for services rendered in all capacities to the
Company during 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL AWARDS
COMPENSATION(2) ------------------
----------------- SHARES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION(1) SALARY OPTIONS COMPENSATION
- ---------------------------------------------------------- ----------------- ------------------ --------------
<S> <C> <C> <C>
Kevin J. O'Connor
Chief Executive Officer................................. $ 126,250 -- $ 30,000(3)
Kevin P. Ryan
President and Chief Financial Officer................... 152,500 220,000 --
Wenda Harris Millard
Executive Vice President, Marketing
and Sales............................................... 180,000 -- --
John L. Heider
Vice President of Engineering........................... 101,280 29,000 --
Barry M. Salzman
Vice President, International........................... 105,136 52,500 --
</TABLE>
- ------------------------
(1) David Henderson served as the Company's Vice President, North American Sales
until September 1997 and is no longer employed by the Company. During 1997,
Mr. Henderson earned $139,920 in salary.
(2) In accordance with the rules of the Securities and Exchange Commission (the
"Commission"), other compensation in the form of perquisites and other
personal benefits has been omitted for each of the Named Executive Officers
because the aggregate amount of such perquisites and other personal benefits
constituted less than the lesser of $50,000 or 10% of the total of annual
salary and bonuses for each of such Named Executive Officers in 1997.
(3) Consists solely of reimbursement of certain relocation expenses.
44
<PAGE>
OPTION GRANTS IN LAST YEAR
The following table sets forth certain information regarding options granted
to the Named Executive Officers during 1997. The Company has not granted any
stock appreciation rights.
OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------------------- VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS OF STOCK APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM(3)
OPTIONS EMPLOYEES EXERCISE MARKET EXPIRATION ------------------------
NAME GRANTED(1) IN 1997(2) PRICE PRICE DATE 0% 5%
- ------------------------ ----------- --------------- ----------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Kevin J. O'Connor....... -- -- -- -- -- -- --
Kevin P. Ryan........... 220,000 19.7% $ 1.16 $ 4.00 7/31/07 $ 624,800 $ 2,058,227
Wenda Harris Millard.... -- -- -- -- -- -- --
John L. Heider.......... 10,000 0.9 0.28 0.50 2/28/07 2,200 10,345
29,000 2.5 3.00 6.16 9/10/07 91,640 382,626
Barry M. Salzman........ 47,500 4.3 0.28 0.50 2/28/07 10,450 49,136
52,500 4.7 3.00 6.16 9/10/07 165,900 692,685
<CAPTION>
NAME 10%
- ------------------------ ------------
<S> <C>
Kevin J. O'Connor....... --
Kevin P. Ryan........... $ 2,907,293
Wenda Harris Millard.... --
John L. Heider.......... 15,169
554,986
Barry M. Salzman........ 75,533
1,004,716
</TABLE>
- ------------------------
(1) Each option represents the right to purchase one share of Common Stock. The
options shown in this column are all incentive stock options granted
pursuant to the Company's stock plans. The options shown in this table
become exercisable in four equal annual installments commencing one year
after the date of grant. To the extent not already exercisable, certain of
these options may become exercisable in the event of a merger in which the
Company is not the surviving corporation or upon the sale of substantially
all of the Company's assets. See "--Stock Plans".
(2) During 1997, the Company granted employees options to purchase an aggregate
of 1,116,225 shares of Common Stock.
(3) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. The 0%, 5%
and 10% assumed annual rates of compounded stock price appreciation are
mandated by rules of the Commission and do not represent the Company's
estimate or projection of the Company's future Common Stock prices. These
amounts represent certain assumed rates of appreciation in the value of the
Company's Common Stock from the fair market value on the date of grant.
Actual gains, if any, on stock option exercises are dependent on the future
performance of the Common Stock and overall stock market conditions. The
amounts reflected in the table may not necessarily be achieved.
45
<PAGE>
OPTION EXERCISES AND YEAR-END VALUES
The following table sets forth certain information concerning options to
purchase Common Stock exercised by the Named Executive Officers during 1997 and
the number and value of unexercised options held by each of the Named Executive
Officers at December 31, 1997.
AGGREGATED OPTION EXERCISES IN THE YEAR ENDED DECEMBER 31, 1997
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED DECEMBER 31, 1997 DECEMBER 31, 1997(1)
ON VALUE ---------------------------- -----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- ----------- ----------- ------------ -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Kevin J. O'Connor.......... -- -- 184,648 131,892 $ 2,374,574 $ 1,696,105
Kevin P. Ryan.............. 20,000 $ 100,396 -- 280,000 -- 3,376,388
Wenda Harris Millard....... 30,000 150,594 -- 90,000 -- 1,157,382
John L. Heider............. 9,000 52,853 -- 66,000 -- 764,760
Barry M. Salzman........... -- -- -- 100,000 -- 1,129,200
</TABLE>
- ------------------------
(1) There was no public trading market for the Common Stock as of December 31,
1997. Accordingly, these values have been calculated on the basis of the
assumed initial public offering price of $13.00 per share, less the
applicable exercise price per share, multiplied by the number of shares
underlying such options.
STOCK PLANS
1997 STOCK INCENTIVE PLAN
The Company's 1997 Stock Incentive Plan (the "1997 Plan") is intended to
serve as the successor equity incentive program to the Company's 1996 Stock
Option Plan (the "Predecessor Plan"). The 1997 Plan was adopted by the Board on
November 7, 1997 and subsequently approved by the stockholders. The
discretionary option grant and stock issuance programs under the 1997 Plan
became effective immediately upon the Board of Directors' adoption of the Plan
(the "Plan Effective Date"). The automatic option grant program will become
effective on the date the Underwriting Agreement relating to the offering is
executed.
A total of 3,000,000 shares of Common Stock have been authorized for
issuance under the 1997 Plan. Such share reserve consists of (i) the number of
shares available for issuance under the Predecessor Plan on the Plan Effective
Date, including the shares subject to outstanding options, and (ii) an
additional 1,550,000 shares of Common Stock. In addition, the number of shares
of Common Stock reserved for issuance under the 1997 Plan will automatically
increase on the first trading day of each calendar year, beginning with the 1999
calendar year, by an amount equal to three percent (3%) of the total number of
shares of Common Stock outstanding on the last trading day of the immediately
preceding calendar year. To the extent any unvested shares of Common Stock
issued under the 1997 Plan are subsequently repurchased by the Company, at the
exercise price or direct issue paid per share, in connection with the holder's
termination of service, those repurchased shares will be added to the reserve of
Common Stock available for issuance under the 1997 Plan. In no event, however,
may any one participant in the 1997 Plan receive option grants or direct stock
issuances for more than 375,000 shares of Common Stock in the aggregate per
calendar year.
On the Plan Effective Date, outstanding options under the Predecessor Plan
will be incorporated into the 1997 Plan, and no further option grants will be
made under the Predecessor Plan. The incorporated options will continue to be
governed by their existing terms, unless the 1997 Plan's administrator (the
"Plan Administrator") elects to extend one or more features of the 1997 Plan to
those options.
46
<PAGE>
Except as otherwise noted below, the incorporated options have substantially the
same terms as will be in effect for grants made under the discretionary option
grant program of the 1997 Plan.
The 1997 Plan is divided into three separate components: (i) a discretionary
option grant program under which eligible individuals in the Company's employ or
service (including officers, non-employee members of the Board of Directors and
consultants) may, at the discretion of the Plan Administrator, be granted
options to purchase shares of Common Stock at an exercise price not less than
85% of the fair market value of the Common Stock on the grant date, (ii) a stock
issuance program under which such individuals may, at the Plan Administrator's
discretion, be issued shares of Common Stock directly, through the purchase of
such shares at a price not less than 100% of the fair market value at the time
of issuance or as a bonus tied to the performance of services or the attainment
of financial milestones, and (iii) an automatic option grant program under which
option grants will automatically be made at periodic intervals to eligible
non-employee members of the Board of Directors to purchase shares of Common
Stock at an exercise price equal to 100% of the fair market value of the Common
Stock on the grant date.
The discretionary option grant program and the stock issuance program will
be administered by the Compensation Committee. The Compensation Committee as
Plan Administrator will have complete discretion to determine which eligible
individuals are to receive option grants or stock issuances under those
programs, the time or times when such option grants or stock issuances are to be
made, the number of shares subject to each such grant or issuance, the status of
any granted option as either an incentive stock option or a non-statutory stock
option under the Federal tax laws, the vesting schedule to be in effect for the
option grant or stock issuance and the maximum term for which any granted option
is to remain outstanding. The automatic option grant program will be
self-executing in accordance with the terms of that program, and neither the
Compensation Committee nor the Board of Directors will exercise any
administrative discretion with respect to option grants under that program.
The exercise price for shares of Common Stock subject to option grants made
under the 1997 Plan may be paid in cash or in shares of Common Stock valued at
fair market value on the exercise date. The option may also be exercised through
a same-day sale program without any cash outlay by the optionee. In addition,
the Plan Administrator may provide financial assistance to one or more optionees
in the exercise of their outstanding options or the purchase of their unvested
shares by allowing such individuals to deliver a full-recourse, interest-bearing
promissory note in payment of the exercise or purchase price and any associated
withholding taxes incurred in connection with such exercise or purchase.
The Plan Administrator will have the authority to effect the cancellation of
outstanding options under the discretionary option grant program (including
options incorporated from the Predecessor Plan) in return for the grant of new
options for the same or different number of option shares with an exercise price
per share based upon the fair market value of the Common Stock on the new grant
date.
In the event that the Company is acquired by merger or sale of substantially
all of its assets or securities possessing more than 50% of the total combined
voting power of the Company's outstanding securities, each outstanding option
under the discretionary option grant program which is not to be assumed by the
successor corporation or is otherwise to continue in effect pursuant to the
express terms of the transaction will automatically accelerate in full, and all
unvested shares under the discretionary option grant program and stock issuance
program will immediately vest, except to the extent the Company's repurchase
rights with respect to those shares are assigned to the successor corporation or
are otherwise to continue in effect. The Plan Administrator will have complete
discretion to grant one or more options under the discretionary option grant
program which will become exercisable on an accelerated basis for all or part of
the option shares upon (i) an acquisition of the Company, whether or not those
options are assumed or continued in effect, or (ii) the termination of the
holder's service within a designated period following an acquisition in which
those options are assumed or continued in effect. The vesting of outstanding
shares under the stock issuance program may be accelerated upon similar
47
<PAGE>
terms and conditions. The options incorporated from the Predecessor Plan will
terminate upon an acquisition of the Company by merger or asset sale, unless
those options are assumed by the successor entity. However, the Plan
Administrator will have the discretion to extend the acceleration provisions of
the 1997 Plan to those options.
Under the automatic option grant program, each individual who is serving as
a non-employee member of the Board of Directors on the date the Underwriting
Agreement for the offering is executed, will automatically receive an option
grant on that date for 5,000 shares of Common Stock. Each individual who first
becomes a non-employee member of the Board of Directors at any time thereafter
will receive a 25,000-share option grant on the date such individual joins the
Board of Directors, provided such individual has not previously been an employee
of the Company or any parent or subsidiary corporation. In addition, on the date
of each annual stockholders' meeting, beginning with the annual meeting to be
held in the calendar year immediately following the execution date of the
Underwriting Agreement, each non-employee member of the Board of Directors who
is to continue to serve as non-employee member of the Board of Directors will
automatically be granted an option to purchase 5,000 shares of Common Stock,
provided such individual has served on the Board of Directors for at least six
months.
Each automatic grant for the non-employee members of the Board of Directors
will have a term of 10 years, subject to earlier termination following the
holder's cessation of Board of Directors service. Any unvested shares purchased
under the option will be subject to repurchase by the Company, at the exercise
price paid per share, should the holder cease Board of Directors service prior
to vesting in those shares. Each automatic option will be immediately
exercisable for all of the option shares. The shares subject to each
25,000-share automatic option grant will vest over a four-year period in
successive equal annual installments upon the holder's completion of each year
of Board of Directors service measured from the option grant date. Each
5,000-share automatic option grant will vest upon the holder's completion of
one-year of Board of Directors service measured from the grant date. However,
the shares subject to each automatic grant will immediately vest in full upon
certain changes in control or ownership of the Company or upon the holder's
death or disability while a member of the Board of Directors.
The Board of Directors may amend or modify the 1997 Plan at any time,
subject to any required stockholder approval. The 1997 Plan will terminate on
the earliest of (i) November 6, 2007, (ii) the date on which all shares
available for issuance under the 1997 Plan have been issued as fully-vested
shares, or (iii) the termination of all outstanding options in connection with
certain changes in control or ownership of the Company.
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CERTAIN TRANSACTIONS
At the time of the Company's formation in January 1996, the Company issued
(i) 539,000 shares of its common stock, par value $.01 per share (the "Original
Common Stock"), to Poppe Tyson in exchange for $500,000 and certain other
assets, and (ii) 366,912 shares of Original Common Stock to Kevin J. O'Connor
and Dwight A. Merriman (the "IAN Stockholders") in exchange for certain assets
distributed to them by IAN, including $75,000 in cash. Poppe Tyson subsequently
distributed its shares to Bozell, Jacobs, Kenyon & Eckhardt, Inc. ("BJK&E").
On August 28, 1996, the Company amended its Certificate of Incorporation to
provide for four classes of common stock consisting of Original Common Stock,
class A common stock (the "Class A Stock"), class B non-voting common stock (the
"Class B Stock") and class C common stock (the "Class C Stock"). At such time,
all outstanding shares of Original Common Stock were converted into an equal
number of shares of Class A Stock.
On May 14, 1997, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with DoubleClick Acquisition Corp. ("Newco"), BJK&E,
all holders of the Company's capital stock, and Bain Capital Fund V, L.P., Bain
Capital Fund V-B, L.P., BCIP Associates, BCIP Trust Associates, L.P., Brookside
Capital Partners Fund, L.P., Greylock Equity Limited Partnership, Greylock IX
Limited Partnership and ABS Capital Partners II, L.P. (collectively, the
"Initial Investors"). Canaan S.B.I.C., L.P., Canaan Equity, L.P., Canaan Capital
Limited Partnership, Canaan Offshore Limited Partnership, Venrock Associates and
Venrock Associates II, L.P. (collectively, the "Additional Investors")
subsequently joined as parties to the Merger Agreement. Immediately prior to the
Merger, the Initial Investors and the Additional Investors held all of the
36,667 shares of Newco common stock, par value $.001 per share (the "Newco
Common Stock"), and Newco had assets of $36,667,000 in cash. In the Merger, each
share of Newco Common Stock was converted into one share of the Company's
Convertible Preferred Stock.
Immediately prior to the closing of the Merger, the Company delivered to
BJK&E $1,385,832 and a convertible promissory note in the principal amount of
$5,000,000 in partial satisfaction of all working capital advances made by BJK&E
to the Company. The Convertible Note bears interest per annum at a rate equal to
the Federal Short-Term Rate. All unpaid principal, together with any and all
accrued and unpaid interest, is due on June 4, 2000. At any time prior to such
date, the Convertible Note is convertible, at the option of BJK&E, into such
number of shares of the Company's Common Stock as is determined by dividing the
unpaid principal balance by $6.42, subject to adjustment under certain
circumstances. It is currently anticipated that BJK&E will convert the
Convertible Note prior to the closing of the offering.
To induce the Initial Investors to enter into the Merger Agreement,
concurrently with the closing of the Merger, the Company undertook a
recapitalization whereby each share of Class A Stock was converted into one
share of the Company's Common Stock, each share of Class B Stock was converted
into 0.28 shares of the Company's Common Stock plus cash in lieu of fractional
shares equal to $4.64 per share, and each share of Class C Stock was converted
into 0.28 shares of the Company's Common Stock plus cash in lieu of fractional
shares equal to $4.64 per share.
On June 10, 1997, WPG Enterprise Fund III, L.P., Weiss, Peck & Greer Venture
Associates IV, L.P. and Weiss, Peck & Greer Venture Associates IV Cayman, L.P.
purchased from the Company an aggregate of 3,333 shares of the Company's
Convertible Preferred Stock in consideration for $3,333,000.
For information regarding the grant of stock options to executive officers
and directors, see "Management -- Compensation of Directors", "-- Executive
Compensation", "-- Stock Plans" and "Principal Stockholders".
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of December 15, 1997 by (i) each
person (or group of affiliated persons) who is known by the Company to
beneficially own four percent or more of the Common Stock, (ii) each director
and Named Executive Officer of the Company, and (iii) all directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
PERCENT OF OWNERSHIP
----------------------------
VOTING SHARES PRIOR TO THE AFTER THE
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OFFERING OFFERING
- ----------------------------------------------------------------- --------------------- --------------- -----------
<S> <C> <C> <C>
Kevin J. O'Connor(2)............................................. 2,654,248 21.2% 17.9%
Bain Capital, Inc.(3)............................................ 2,182,060 17.7 14.9
Mark E. Nunnelly(4).............................................. 2,182,060 17.7 14.9
Voting Trustee Committee(5)...................................... 1,493,854 12.1 10.2
Greylock Management Corp.(6)..................................... 1,246,884 10.1 8.5
David N. Strohm(7)............................................... 1,246,884 10.1 8.5
ABS Capital Partners II, L.P.(8)................................. 1,246,883 10.1 8.5
Dwight A. Merriman(9)............................................ 1,219,692 9.8 8.3
Bozell, Jacobs, Kenyon & Eckhardt, Inc.(10)...................... 779,302 6.3 5.3
Canaan Partners(11).............................................. 519,640 4.2 3.6
Weiss, Peck & Greer, L.L.C.(12).................................. 519,484 4.2 3.6
Venrock Associates(13)........................................... 519,483 4.2 3.6
W. Grant Gregory(14)............................................. 494,949 4.0 3.4
Wenda Harris Millard(15)......................................... 30,000 * *
Kevin P. Ryan(16)................................................ 20,000 * *
John L. Heider(17)............................................... 9,000 * *
Barry A. Salzman(18)............................................. -- * *
All directors and executive officers as a group (10
persons)(19)................................................... 8,563,647 68.0 57.5
</TABLE>
- ------------------------
* Less than one percent.
(1) Gives effect to the shares of Common Stock issuable within 60 days of
December 15, 1997 upon the exercise of all options and other rights
beneficially owned by the indicated stockholders on that date. Beneficial
ownership is determined in accordance with the rules of the Commission and
includes voting and investment power with respect to shares. Unless
otherwise indicated, the persons named in the table have sole voting and
sole investment control with respect to all shares beneficially owned.
(2) Includes (i) 184,648 shares of Common Stock issuable upon the exercise of
stock options and (ii) 3,920 shares of Common Stock held by Nancy O'Connor,
Mr. O'Connor's wife. Does not include 131,892 shares of Common Stock
issuable upon exercise of stock options that do not vest within 60 days of
December 15, 1997.
(3) Consists of (i) 368,766 shares of Common Stock held by Bain Capital Fund V,
LP, (ii) 960,256 shares of Common Stock held by Bain Capital Fund V-B, LP,
(iii) 268,548 shares of Common Stock held by BCIP Associates, (iv) 286,004
shares of Common Stock held by BCIP Trust Associates, LP, (v) 225,998 shares
of Common Stock held by Brookside Capital Partners, LP, and (vi) 72,488
shares of Common Stock held by various persons and entities associated with
Thomas M. Lee Company, over which shares Bain Capital, Inc. has voting
power. The address of the entities associated with Bain Capital, Inc. is Two
Copley Place, 7th Floor, Boston, Massachusetts 02116.
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<PAGE>
(4) Consists of 2,182,240 shares of Common Stock held by several entities
associated with Bain Capital, Inc., of which Mr. Nunnelly is a Managing
Director. Mr. Nunnelly disclaims beneficial ownership of such shares except
to the extent of his pecuniary interest therein.
(5) The Voting Trustee Committee (the "Trust") was established pursuant to the
Voting Trust Agreement, dated as of June 4, 1997, by and between the Company
and certain stockholders of the Company. The shares of Common Stock held of
record by the Trust are beneficially owned by approximately 180 individuals
and entities. The address of the Trust is c/o Bozell, Jacobs, Kenyon &
Eckhardt, Inc., 40 West 23rd Street, New York, New York 10010.
(6) Consists of (i) 623,442 shares of Common Stock held by Greylock Equity
Limited Partnership and (ii) 623,442 shares of Common Stock held by Greylock
IX Limited Partnership. The address of the entities associated with Greylock
Management Corp. is One Federal Street, Boston, Massachusetts 02110.
(7) Consists of 1,246,884 shares of Common Stock held by several entities
associated with Greylock Management Corp., of which Mr. Strohm is an
employee. Mr. Strohm disclaims beneficial ownership of such shares except to
the extent of his pecuniary interest therein.
(8) The address of ABS Capital Partners II, L.P. is 1 South Street, Baltimore,
Maryland 21202. An affiliate of BT Alex. Brown Incorporated, one of the
representatives of the Underwriters in the offering, is a limited partner of
ABS Capital Partners II, L.P. In addition, another affiliate of BT Alex.
Brown Incorporated is a non-managing member of ABS Partners II, LLC, the
general partner of ABS Capital Partners II, L.P.
(9) Includes 82,892 shares of Common Stock issuable upon the exercise of stock
options. Does not include 59,209 shares of Common Stock issuable upon the
exercise of stock options that do not vest within 60 days of December 15,
1997.
(10) Consists of 779,302 shares of Common Stock issuable upon the conversion of
the Convertible Note. The address of BJK&E is 40 West 23rd Street, New York,
New York 10010. Mr. W. Grant Gregory, a director of the Company, is also a
director of BJK&E. See "Certain Transactions".
(11) Consists of (i) 246,883 shares of Common Stock held by Canaan, S.B.I.C.,
L.P., (ii) 259,820 shares of Common Stock held by Canaan Equity, L.P., (iii)
1,403 shares of Common Stock held by Canaan Capital Limited Partnership, and
(iv) 11,534 shares of Common Stock held by Canaan Capital Offshore Limited
Partnership, C.V. The address of the entities associated with Canaan
Partners is 2884 Sand Hill Road, Menlo Park, California 94025.
(12) Consists of (i) 230,362 shares of Common Stock held by WPG Enterprise Fund
III, L.P., (ii) 255,923 shares of Common Stock held by Weiss, Peck & Greer
Venture Associates IV, L.P., and (iii) 33,199 shares of Common Stock held by
Weiss, Peck & Greer Venture Associates IV Cayman, L.P. The address of the
entities associated with Weiss, Peck & Greer, L.L.C. is 555 California
Street, San Francisco, California 94104.
(13) Consists of (i) 223,348 shares of Common Stock held by Venrock Associates
and (ii) 296,135 shares of Common Stock held by Venrock Associates II, L.P.
The address of the entities associated with Venrock Associates is 755 Page
Mill Road, Suite A230, Palo Alto, California, 94304.
(14) Includes 493,796 shares of Common Stock beneficially owned by DC Investment
Corp, LLC, a Delaware limited liability company, of which Mr. Gregory is the
Manager. Mr. Gregory is a director of BJK&E and disclaims beneficial
ownership of the 779,302 shares of Common Stock issuable to BJK&E upon
conversion of the Convertible Note. See "Certain Transactions."
(15) Does not include 90,000 shares of Common Stock issuable upon the exercise
of stock options that do not vest within 60 days of December 15, 1997.
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<PAGE>
(16) Does not include 280,000 shares of Common Stock issuable upon the exercise
of stock options that do not vest within 60 days of December 15, 1997.
(17) Does not include 66,000 shares of Common Stock issuable upon the exercise
of stock options that do not vest within 60 days of December 15, 1997.
(18) Does not include 100,000 shares of Common Stock issuable upon the exercise
of stock options that do not vest within 60 days of December 15, 1997.
(19) Includes 267,540 shares of Common Stock issuable upon the exercise of stock
options that vest within 60 days of December 15, 1997. See notes 2 through
18.
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DESCRIPTION OF SECURITIES
The following description of the securities of the Company and certain
provisions of the Company's Certificate of Incorporation (the "Certificate"),
the Bylaws and the Convertible Note are summaries thereof and are qualified by
reference to the Certificate, the Bylaws and the Convertible Note, copies of
which have been filed with the Commission as exhibits to the Company's
Registration Statement, of which this Prospectus forms a part. The descriptions
of the Common Stock and Preferred Stock reflect changes to the Company's capital
structure that will occur upon the receipt of the requisite Board of Directors
and stockholder approvals and upon the closing of the offering in accordance
with the terms of the Certificate.
The authorized capital stock of the Company consists of 60,000,000 shares of
Common Stock, par value $.001 per share, and 5,000,000 shares of Preferred
Stock, par value $.001 per share.
COMMON STOCK
As of September 30, 1997, there were 12,306,343 shares of Common Stock
outstanding and held of record by 54 stockholders. Based upon the number of
shares outstanding as of that date and giving effect to the issuance of the
2,300,000 shares of Common Stock offered by the Company hereby, there will be
14,606,343 shares of Common Stock outstanding upon the closing of the offering.
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 ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights of
any outstanding Preferred Stock. Upon the liquidation, dissolution or winding up
of the Company, the holders of Common Stock are entitled to receive ratably the
net assets of the Company available after the payment of all debts and other
liabilities and subject to the prior rights of any outstanding Preferred Stock.
Holders of the Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
offered by the Company in the offering will be, when issued in consideration for
payment thereof, 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 the Company may designate and issue in the future. Upon the closing
of the offering, there will be no shares of Preferred Stock outstanding.
PREFERRED STOCK
Upon the closing of the offering, the Board of Directors will be authorized,
without further stockholder approval, to issue from time to time up to an
aggregate of 5,000,000 shares of Preferred Stock in one or more series and to
fix or alter the designations, preferences, rights and any qualifications,
limitations or restrictions of the shares of each such series thereof, including
the dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption (including sinking fund provisions), redemption price or prices,
liquidation preferences and the number of shares constituting any series or
designations of such series. The Company has no present plans to issue any
shares of Preferred Stock. See " -- Anti-Takeover Effects of Certain Provisions
of Delaware Law and the Company's Certificate of Incorporation and Bylaws".
OPTIONS
As of September 30, 1997, options to purchase a total of 1,813,155 shares
("Option Shares") of Common Stock were outstanding, approximately 1,165,930 of
which are subject to lock-up agreements
53
<PAGE>
entered into with the Underwriters. Beginning 90 days after the date of this
Prospectus, approximately 268,313 Option Shares which are not subject to lock-up
agreements will be eligible for sale in reliance on Rule 701 promulgated under
the Securities Act. The total number of shares of Common Stock that may be
subject to the granting of options under the 1997 Plan shall be equal to: (i)
3,000,000 shares, plus (ii) the number of shares with respect to options
previously granted under the 1997 Plan that terminate without being exercised,
expire, are forfeited or canceled, (iii) an amount equal to, on the first
trading day of each year, three percent (3%) of the total number of shares of
Common Stock outstanding on the last trading day of the immediately preceding
calendar year, and (iv) the number of shares of Common Stock that are
surrendered in payment of any options or any tax withholding requirements. See
"Management -- Stock Plans" and "Shares Eligible for Future Sale".
REGISTRATION RIGHTS
Pursuant to the terms of the Stockholders Agreement, after the closing of
the offering the holders of 6,234,434 shares of Common Stock will be entitled to
certain demand registration rights with respect to the registration of such
shares under the Securities Act. The holders of 50% or more of such shares are
entitled to demand that the Company register their shares under the Securities
Act, subject to certain limitations. The Company is 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
Stockholders Agreement, after the closing of the offering the holders of
11,552,658 shares of Common Stock will be entitled to certain piggyback
registration rights with respect to the registration of such shares of Common
Stock under the Securities Act. In addition, pursuant to the terms of the
Stockholders Agreement, the holders of 2,048,105 Option Shares will be entitled
to certain piggyback registration rights with respect to the registration of
such shares under the Securities Act. In the event that the Company proposes to
register any shares of Common Stock under the Securities Act, either for its
account or for the account of other security holders, the holders shares having
piggyback rights are entitled to receive notice of such registration and are
entitled to include their shares therein, subject to certain limitations.
Further, at any time after the Company becomes eligible to file a registration
statement on Form S-3 certain holders may require the Company 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, among them 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. The Company is
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 THE COMPANY'S
CERTIFICATE OF INCORPORATION AND BYLAWS
The Company is 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
54
<PAGE>
other takeover or change in control attempts with respect to the Company and,
accordingly, may discourage attempts to acquire the Company.
In addition, certain provisions of the Certificate and Bylaws, which
provisions will be in effect upon the closing of the offering and 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.
CLASSIFIED BOARD OF DIRECTORS. The Company's 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. These provisions, when coupled with the provision of the Certificate
authorizing the Board of Directors to fill vacant directorships or increase the
size of the Board of Directors, may deter a stockholder from removing incumbent
directors and simultaneously gaining control of the Board of Directors by
filling the vacancies created by such removal with its own nominees.
STOCKHOLDER ACTION; SPECIAL MEETING OF STOCKHOLDERS. The Certificate
provides that stockholders may not take action by written consent, but only at
duly called annual or special meetings of stockholders. The Certificate further
provides that special meetings of stockholders of the Company may be called only
by the Chairman of the Board of Directors or a majority of the Board of
Directors.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. The 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
thereof in writing. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Company, not less
than 120 days nor more than 150 days prior to the first anniversary of the date
of the Company's notice of annual meeting provided with respect to the previous
year's annual meeting of stockholders; provided, that 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 day earlier than or 60
calendar days after such anniversary, notice by the stockholder, to be timely,
must be so received not more than 90 days nor later than the later of (i) 60
days prior to the annual meeting of stockholders or (ii) 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 first occurs. The Bylaws also
specify certain requirements as to the form and content of a stockholder's
notice. These provisions may preclude 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. These additional shares may be utilized 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 the Company 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 Certificate provides that, except to the extent prohibited by DGCL, the
Company's directors shall not be personally liable to the Company or its
stockholders for monetary damages for any breach of fiduciary duty as directors
of the Company. Under the DGCL, the directors have a fiduciary duty to the
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<PAGE>
Company which is not eliminated by this provision of the Certificate and, in
appropriate 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 the Company, for acts or omissions which are found by a court
of competent jurisdiction to be not in good faith or which involves 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 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
Company has obtained liability insurance for its officers and directors.
Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers, provided that this provision
shall not eliminate or limit the liability of a director: (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) arising under Section 174 of the DGCL, or (iv)
for any transaction from which the director derived an improper personal
benefit. 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. The Certificate eliminates the personal liability
of directors to the fullest extent permitted by Section 102(b)(7) of the DGCL
and provides that the Company 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 such person is or was a director or
officer of the Company, or is or was serving at the request of the Company as a
director or officer of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such 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 the Certificate. The Company 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 the Common Stock is American Stock
Transfer and Trust Company, New York, New York.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of the offering, the Company will have an aggregate of
14,631,968 shares of Common Stock outstanding, assuming no exercise of the
Underwriters' over-allotment option and no exercise of outstanding options to
purchase Common Stock. Of these shares, the 2,300,000 shares sold in the
offering will be freely tradable without restriction or further registration
under the Securities Act, except that any shares held by "affiliates" of the
Company, as that term is defined in Rule 144 promulgated under the Securities
Act, may generally only be sold in compliance with the limitations described
below.
The remaining 12,331,968 shares of Common Stock will be deemed "restricted
securities" as defined under 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 rules are summarized below. Subject to the lock-up agreements
described below and the provisions of Rules 144, 144(k) and 701, additional
shares will be available for sale in the public market (subject in the case of
shares held by affiliates to compliance with certain volume restrictions) as
follows: (i) 155,250 shares will be eligible for sale 90 days after the date of
this Prospectus, and (ii) 12,180,571 shares will be eligible for sale upon the
expiration of lock-up agreements 180 days after the date of this Prospectus,
including 783,163 shares issuable upon the exercise of outstanding stock
options.
In general, under Rule 144, a person (or persons whose shares are
aggregated), including an affiliate, who has beneficially owned shares for at
least one year is entitled to sell, within any three-month period commencing 90
days after the date of this Prospectus, a number of shares that does not exceed
the greater of (i) 1% of the then outstanding shares of Common Stock
(approximately 146,320 shares immediately after the offering) or (ii) the
average weekly trading volume in the Common Stock during the four calendar weeks
preceding the date on which notice of such sale is filed, subject to certain
restrictions. In addition, a person who is not deemed to have been an affiliate
of the Company at any time during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years would
be entitled to sell such shares under Rule 144(k) without regard to the
requirements described above. To the extent that shares were acquired from an
affiliate of the Company, such affiliates' holding period for the purpose of
effecting a sale under Rule 144 commences on the date of transfer from the
affiliate.
Rule 701 promulgated under the Securities Act provides that shares of Common
Stock acquired pursuant to written plans such as the 1997 Plan may be resold by
persons other than affiliates, beginning 90 days after the date of this
Prospectus, subject only to the manner of sale provisions of Rule 144, and by
affiliates, beginning 90 days after the date of this Prospectus, subject to all
provisions of Rule 144 except its one-year minimum holding period.
After the date of this Prospectus, the Company intends to file a Form S-8
registration statement under the Securities Act to register all shares of Common
Stock issuable under the Stock Plans. Such registration statement is expected to
become effective immediately upon filing, and shares covered by that
registration statement will thereupon be eligible for sale in the public
markets, subject to certain lock-up agreements and Rule 144 limitations
applicable to affiliates. See "Management--Compensation of Directors" and
"--Stock Plans".
Prior to the offering, there has not been any public market for the Common
Stock of the Company, and no prediction can be made as to the effect, if any,
that market sales of shares of Common Stock or the availability of shares for
sale will have on the market price of the Common Stock prevailing from time to
time. Nevertheless, sales of substantial amounts of Common Stock in the public
market could adversely affect the market price of the Common Stock and could
impair the Company's future ability to raise capital through the sale of its
equity securities.
57
<PAGE>
All directors and officers and certain stockholders of the Company (holding
an aggregate of 11,506,201 shares of Common Stock) have agreed that they will
not, without the prior written consent of the representatives of the
Underwriters, sell or otherwise dispose of any shares of Common Stock or options
to acquire shares of Common Stock during the 180-day period following the date
of this Prospectus. See "Underwriting".
The Company has agreed not to sell or otherwise dispose of any shares of
Common Stock during the 180-day period following the date of the Prospectus,
except the Company may issue, and grant options to purchase, shares of Common
Stock under the Stock Plans. In addition, the Company may issue shares of Common
Stock in connection with any acquisition of another company if the terms of such
issuance provide that such Common Stock shall not be resold prior to the
expiration of the 180-day period referenced in the preceding sentence. See "Risk
Factors--Shares Eligible for Future Sale".
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Brobeck, Phleger & Harrison LLP, New York, New York. Certain legal
matters in connection with the offering will be passed upon for the Underwriters
by Hale and Dorr LLP, Boston, Massachusetts.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1996
and for the period from January 23, 1996 (inception) through December 31, 1996
included in this Prospectus have been included in reliance on the report of
Price Waterhouse LLP, the Company's independent accountants, given on the
authority of such firm as experts in auditing and accounting.
CHANGE IN ACCOUNTANTS
On July 24, 1997, the Company dismissed KPMG Peat Marwick LLP and engaged
Price Waterhouse LLP as its independent accountants to audit its financial
statements as of, and for the period ended, December 31, 1996. The decision to
change independent accountants from KPMG Peat Marwick LLP to Price Waterhouse
LLP was approved by the Company's Board of Directors.
The Company believes, and has been advised by KPMG Peat Marwick LLP that it
concurs in such belief, that, for the period from January 23, 1996 (inception)
through December 31, 1996, the Company and KPMG Peat Marwick LLP did not have
any disagreement on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreement, if not
resolved to the satisfaction of KPMG Peat Marwick LLP would have caused it to
make reference in connection with its report on the Company's financial
statements to the subject matter of the disagreement.
The report of KPMG Peat Marwick LLP on the Company's financial statements
for the period from January 23, 1996 (inception) through December 31, 1996 did
not contain an adverse opinion or a disclaimer of opinion, and was not qualified
or modified as to uncertainty, audit scope or accounting principles. During that
year there were no "reportable events" within the meaning of Item 304(a)(1)(v)
of Regulation S-K promulgated under the Securities Act.
58
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission a registration statement on Form
S-1 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the offer and sale of
Common Stock pursuant to the Prospectus. This Prospectus, filed as part of the
Registration Statement, does not contain all the information set forth in the
Registration Statement or the exhibits thereto in accordance with the rules and
regulations of the Commission, and reference is hereby made to such omitted
information. Statements made in this Prospectus concerning the contents of any
contract, agreement or other document filed as an exhibit to the Registration
Statement are summaries of the terms of such contracts, agreements or documents
and are not necessarily complete. Reference is made to each such exhibit for a
more complete description of the matters involved, and such statements shall be
deemed qualified by such reference. The Registration Statement and the exhibits
thereto filed with the Commission may be inspected, without charge, and copies
may be obtained at prescribed rates, at the public reference facility maintained
by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549 and at the regional offices of the Commission located at 7 World Trade
Center, 13th Floor, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. The Registration Statement and other
information filed by the Company with the Commission also are available at the
Web site maintained by the Commission on the World Wide Web at
http://www.sec.gov. For further information pertaining to the Company and the
Common Stock offered by this Prospectus, reference is hereby made to the
Registration Statement.
59
<PAGE>
DOUBLECLICK INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Price Waterhouse LLP, Independent Accountants.............................. F-2
Consolidated Balance Sheet as of December 31, 1996 and September 30, 1997
(unaudited)........................................................................ F-3
Consolidated Statement of Operations for the period from January 23, 1996 (inception)
to December 31, 1996, for the period from January 23, 1996 (inception) to September
30, 1996 (unaudited), and for the nine months ended September 30, 1997
(unaudited)........................................................................ F-4
Consolidated Statement of Changes in Stockholders' (Deficit) Equity for the period
from January 23, 1996 (inception) to December 31, 1996, and for the nine months
ended September 30, 1997 (unaudited)............................................... F-5
Consolidated Statement of Cash Flows for the period from January 23, 1996 (inception)
to December 31, 1996, for the period from January 23, 1996 (inception) to September
30, 1996 (unaudited), and for the nine months ended September 30, 1997
(unaudited)........................................................................ F-6
Notes to Consolidated Financial Statements........................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
DoubleClick Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in stockholders' deficit and
of cash flows present fairly, in all material respects, the financial position
of DoubleClick Inc. and its subsidiary at December 31, 1996, and the results of
their operations and their cash flows for the period from January 23, 1996
(inception) to December 31, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
/S/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
NEW YORK, NEW YORK
DECEMBER 15, 1997
F-2
<PAGE>
DOUBLECLICK INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
PRO FORMA
CONVERSION OF
CONVERTIBLE
PREFERRED STOCK AND
CONVERTIBLE NOTE
PAYABLE (NOTE 1)
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1997
-------------- -------------- --------------------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
<CAPTION>
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................................. $ -- $ 4,639,741
Short-term investments..................................... -- 8,099,686
Accounts receivable, less allowance for doubtful accounts
of $150,000 at December 31, 1996 and $362,075 at
September 30, 1997....................................... 4,078,837 7,464,036
Prepaid expenses and other current assets.................. -- 79,026
-------------- --------------
Total current assets................................... 4,078,837 20,282,489
Property and equipment, net................................ 445,794 1,660,605
Investments, at cost....................................... -- 254,926
Other assets............................................... 900 65,455
-------------- --------------
Total assets........................................... $ 4,525,531 $ 22,263,475
-------------- --------------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable........................................... $ 1,948,714 $ 5,536,597
Accrued expenses........................................... 1,097,418 2,570,057
Deferred revenues.......................................... 733,433 864,342
Deferred license and service fees.......................... -- 112,500
Due to related party....................................... 3,337,736 --
-------------- --------------
Total current liabilities.............................. 7,117,301 9,083,496
Convertible note payable to related party.................. -- 5,000,000 $ --
Deferred license and service fees.......................... -- 337,500
STOCKHOLDERS' (DEFICIT) EQUITY:
Convertible preferred stock, par value $.001; 40,000 shares
authorized; issued and outstanding; 40,000 at September
30, 1997; none pro forma................................. -- 40 --
Common stock, par value $.001; 40,000,000 shares
authorized; issued and outstanding 9,059,120 shares at
December 31, 1996; 5,292,607 at September 30, 1997;
12,306,343 pro forma..................................... 9,059 5,293 12,306
Additional paid-in capital................................. 590,941 41,988,800 46,981,827
Deferred compensation...................................... -- (1,350,994) (1,350,994)
Accumulated deficit........................................ (3,191,770) (32,800,660) (32,800,660)
-------------- -------------- --------------------
Total stockholders' (deficit) equity................... (2,591,770) 7,842,479 $ 12,842,479
-------------- -------------- --------------------
--------------------
Commitments (Note 8)
Total liabilities and stockholders' (deficit) equity... $ 4,525,531 $ 22,263,475
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
DOUBLECLICK INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JANUARY 23, 1996 JANUARY 23, 1996 NINE MONTHS
(INCEPTION) THROUGH (INCEPTION) THROUGH ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1996 1996 1997
-------------------- -------------------- --------------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Revenues.............................................. $ 6,514,087 $ 2,664,549 $ 19,657,224
Cost of revenues...................................... 3,780,133 1,178,645 13,047,902
-------------------- -------------------- --------------
Gross profit........................................ 2,733,954 1,485,904 6,609,322
-------------------- -------------------- --------------
Operating expenses
Sales and marketing................................. 3,079,305 1,473,537 6,606,238
General and administrative.......................... 2,144,312 1,127,004 3,607,248
Product development................................. 618,251 336,858 1,014,792
-------------------- -------------------- --------------
Total operating expenses.......................... 5,841,868 2,937,399 11,228,278
-------------------- -------------------- --------------
Loss from operations.................................. (3,107,914) (1,451,495) (4,618,956)
Interest income....................................... 7,234 4,991 271,799
Interest expense...................................... (91,090) (44,720) (265,286)
-------------------- -------------------- --------------
Net loss.............................................. $ (3,191,770) $ (1,491,224) $ (4,612,443)
-------------------- -------------------- --------------
-------------------- -------------------- --------------
Pro forma net loss per share.......................... $ (0.24) $ (0.32)
-------------------- --------------
-------------------- --------------
Pro forma weighted average shares used in per share
calculation......................................... 13,403,048 14,449,177
-------------------- --------------
-------------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
DOUBLECLICK INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY
(UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1997)
<TABLE>
<CAPTION>
COMMON
CLASS A COMMON CLASS B COMMON CLASS C COMMON STOCK
------------------------ ------------------------- ------------------------ -----------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
----------- ----------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Capitalization at inception.... 9,059,120 $ 9,059
Exchange of Class A shares for
Class B and Class C shares... (5,118,230) (5,118) 5,118,228 $ 5,117 2 $ 1
Net loss.......................
----------- ----------- ------------ ----------- ----- ----- -----------
Balance at December 31, 1996... 3,940,890 3,941 5,118,228 5,117 2 1 --
Class A shares issued
upon excercise of stock
options...................... 28,750 29
Issuance of Convertible
Preferred Stock, net of
issuance costs of
$168,006.....................
Exchange of Class A shares for
Class B shares............... (271,770) (272) 271,770 272
Exchange of Class A, B
and C shares for
Common shares................ (3,697,870) (3,698) (1,493,861) (1,494) (1) 5,191,732
Class B and C shares
redeemed..................... (3,896,137) (3,895) (1) (1)
Common shares issued for stock
options...................... 100,875
Deferred compensation..........
Amortization of deferred
compensation.................
Net loss.......................
----------- ----------- ------------ ----------- ----- ----- -----------
Balance at September 30, 1997
(unaudited).................. -- $ -- -- $ -- -- $ -- 5,292,607
----------- ----------- ------------ ----------- ----- ----- -----------
----------- ----------- ------------ ----------- ----- ----- -----------
<CAPTION>
CONVERTIBLE
PREFERRED STOCK
------------------------ ADDITIONAL DEFERRED ACCUMULATED
AMOUNT SHARES AMOUNT PAID-IN CAPITAL COMPENSATION DEFICIT
----------- --------- ------------- --------------- --------------- --------------
<S> <C>
Capitalization at inception.... $ 590,941
Exchange of Class A shares for
Class B and Class C shares...
Net loss....................... $ (3,191,770)
----------- --------- --- --------------- --------------- --------------
Balance at December 31, 1996... $ -- -- $ -- 590,941 $ -- (3,191,770)
Class A shares issued
upon excercise of stock
options...................... 3,637
Issuance of Convertible
Preferred Stock, net of
issuance costs of
$168,006..................... 40,000 $ 40 39,831,954
Exchange of Class A shares for
Class B shares...............
Exchange of Class A, B
and C shares for
Common shares................ 5,192
Class B and C shares
redeemed..................... (24,996,447)
Common shares issued for stock
options...................... 101 15,196
Deferred compensation.......... 1,547,072 (1,547,072)
Amortization of deferred
compensation................. 196,078
Net loss....................... (4,612,443)
----------- --------- --- --------------- --------------- --------------
Balance at September 30, 1997
(unaudited).................. $ 5,293 40,000 $ 40 $ 41,988,800 $ (1,350,994) $(32,800,660)
----------- --------- --- --------------- --------------- --------------
----------- --------- --- --------------- --------------- --------------
<CAPTION>
TOTAL
STOCKHOLDERS'
(DEFICIT) EQUITY
----------------
Capitalization at inception.... $ 600,000
Exchange of Class A shares for
Class B and Class C shares...
Net loss....................... (3,191,770)
----------------
Balance at December 31, 1996... (2,591,770)
Class A shares issued
upon excercise of stock
options...................... 3,666
Issuance of Convertible
Preferred Stock, net of
issuance costs of
$168,006..................... 39,831,994
Exchange of Class A shares for
Class B shares...............
Exchange of Class A, B
and C shares for
Common shares................
Class B and C shares
redeemed..................... (25,000,343)
Common shares issued for stock
options...................... 15,297
Deferred compensation.......... --
Amortization of deferred
compensation................. 196,078
Net loss....................... (4,612,443)
----------------
Balance at September 30, 1997
(unaudited).................. $ 7,842,479
----------------
----------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
DOUBLECLICK INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JANUARY 23, 1996 JANUARY 23, 1996 NINE MONTHS
(INCEPTION) THROUGH (INCEPTION) THROUGH ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1996 1996 1997
-------------------- -------------------- --------------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss............................................ $ (3,191,770) $ (1,491,224) $ (4,612,443)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization................... 45,932 30,094 236,317
Amortization of deferred compensation expense... -- -- 196,078
Provision for bad debts......................... 150,000 150,000 212,075
Changes in operating assets and liabilities:
Accounts receivable........................... (4,228,837) (2,523,951) (3,597,273)
Prepaid expenses and other current assets..... (900) (45,236) (143,581)
Accounts payable.............................. 1,948,714 742,013 3,587,883
Accrued expenses.............................. 1,097,418 430,327 1,472,639
Deferred revenues............................. 733,433 308,520 580,909
-------------------- -------------------- --------------
Net cash used in operating activities....... (3,446,010) (2,399,457) (2,067,396)
-------------------- -------------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments................. -- -- (8,099,686)
Purchases of property and equipment................. (491,726) (314,023) (1,451,129)
Investments......................................... -- -- (254,926)
-------------------- -------------------- --------------
Net cash used in investing activities....... (491,726) (314,023) (9,805,741)
-------------------- -------------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock.............. 600,000 600,000 --
Proceeds from exercise of common stock options...... -- -- 18,963
Proceeds from issuance of preferred stock, net...... -- -- 39,831,994
Redemption of common stock.......................... -- -- (25,000,343)
Advances from related party......................... 3,337,736 2,113,480 3,048,096
Repayment of advances to related party.............. -- -- (1,385,832)
-------------------- -------------------- --------------
Net cash provided by financing activities... 3,937,736 2,713,480 16,512,878
-------------------- -------------------- --------------
Net increase in cash and cash equivalents............. -- -- 4,639,741
Cash and cash equivalents at beginning of period...... -- -- --
-------------------- -------------------- --------------
Cash and cash equivalents at end of period............ $ -- $ -- $ 4,639,741
-------------------- -------------------- --------------
-------------------- -------------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO THE PERIOD FROM JANUARY 23, 1996 (INCEPTION)
THROUGH SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997)
NOTE 1--SUMMARY OF OPERATIONS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SUMMARY OF OPERATIONS
DoubleClick Inc. and subsidiary (the "Company") is a leading provider of
comprehensive Internet advertising solutions for advertisers and Web publishers.
The Company's DART technology and media expertise enable it to dynamically
deliver highly targeted, measurable and cost-effective Internet advertising for
advertisers, increase ad sales and improve ad space inventory management for Web
publishers. The Company was organized as a Delaware corporation on January 23,
1996 and commenced operations on that date.
Inherent in the Company's business are various risks and uncertainties,
including its limited operating history, unproven business model and the limited
history of commerce on the Internet. The Company's success may depend in part
upon the emergence of the Internet as a communications medium, prospective
product development efforts, and the acceptance of the Company's solutions by
the marketplace.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, DoubleClick Canada Network Inc. All significant
intercompany transactions and balances have been eliminated. Investments in less
than 20% owned business partners, for which the Company does not have the
ability to exercise significant influence and there is not a readily
determinable market value, are accounted for using the cost method of
accounting. Dividends and other distributions of earnings from investees, if
any, are included in income when declared.
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
In the opinion of the Company's management, the September 30, 1996 and 1997
unaudited interim consolidated financial statements include all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation.
PRO FORMA CONVERSION OF PREFERRED STOCK AND CONVERTIBLE NOTE PAYABLE (UNAUDITED)
On November 7, 1997, the Board of Directors of the Company authorized
management to pursue an initial public offering of the Company's common stock.
Upon closing of the Company's proposed initial public offering, the Company's
Convertible Preferred Stock will automatically convert into 6,234,434 shares of
Common Stock. In addition, it is anticipated that, prior to the closing of the
Company's proposed initial public offering, the holder of the Convertible Note
Payable will exercise its conversion feature and receive 779,302 shares of
Common Stock upon conversion thereof. The pro forma effect of the conversion of
the Convertible Preferred Stock and the Convertible Note Payable on
stockholders' equity has been presented as a separate column in the Company's
consolidated balance sheet assuming the conversions had occurred on September
30, 1997.
F-7
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE PERIOD FROM JANUARY 23, 1996 (INCEPTION)
THROUGH SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997)
NOTE 1--SUMMARY OF OPERATIONS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
MANAGEMENT'S USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
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 may differ from those estimates.
CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all short-term investments with a remaining
contractual maturity at date of purchase of three months or less to be cash
equivalents.
The Company classifies its short-term investments as available-for-sale.
Accordingly, these investments, primarily corporate bonds with maturities
ranging from four to eight months, are carried at fair value. At September 30,
1997, the fair value of such securities approximated cost and there were no
unrealized holding gains or losses.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided using
the straight line method over the estimated useful life of the assets. Leasehold
improvements are amortized over the terms of the leases.
REVENUE RECOGNITION
Revenues are derived primarily from the delivery of advertising impressions
through third-party Web sites comprising the DoubleClick Network (the
"Network"). Revenues are recognized in the period the advertising impressions
are delivered provided collection of the resulting receivable is probable.
The Company becomes obligated to make payments to third-party Web sites,
which have contracted with the Company to be part of the Network, in the period
the advertising impressions are delivered. Such expenses are classified as cost
of revenues in the consolidated statement of operations.
From time-to-time during the period ended December 31, 1996, and to a lesser
extent during the period ended September 30, 1997, the Company arranged for the
placement of advertising on certain third-party Web sites for which it received
commissions and fees. For such transactions, the advertisers were responsible
for making payments directly to the Web sites. Commissions and fees derived from
such transactions totaled $1,073,745 for the period from January 23, 1996
(inception) to December 31, 1996 and $1,009,987 and $137,064 for the period from
January 23, 1996 (inception) to September 30, 1996 and for the nine months ended
September 30, 1997, respectively, and are classified as revenues in the
consolidated statement of operations.
Deferred license and service fees represent payments received in advance
from third parties or affiliated companies for use of the Company's trademarks,
access to the Company's proprietary technology, and certain personnel during
fixed periods of time which range from two to four years. Such fees will be
recognized as revenues ratably over the terms of the applicable agreements. The
Company is
F-8
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE PERIOD FROM JANUARY 23, 1996 (INCEPTION)
THROUGH SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997)
NOTE 1--SUMMARY OF OPERATIONS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
obligated to provide any enhancements or upgrades it develops and other support
over the term of the applicable agreements.
PRODUCT DEVELOPMENT COSTS
Product development costs and enhancements to existing products are charged
to operations as incurred. Software development costs are required to be
capitalized when a product's technological feasibility has been established by
completion of a working model of the product and ending when a product is
available for general release to customers. To date, 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.
ADVERTISING EXPENSES
The Company expenses the cost of advertising and promoting its services as
incurred. Such costs are included in sales and marketing on the consolidated
statement of operations and totaled $217,546 for the period from January 23,
1996 (inception) through December 31, 1996, and $12,138 and $453,080, for the
period from January 23, 1996 (inception) through September 30, 1996, and the
nine months ended September 30, 1997, respectively.
FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF RISK
The Company's financial instruments consist of cash and cash equivalents,
short-term investments, accounts receivable, accounts payable, accrued expenses
and a convertible note payable to a related party. At December 31, 1996 and
September 30, 1997 the fair value of these instruments approximated their
financial statement carrying amount. At September 30, 1997, the fair value of
the convertible note payable approximated its financial statement carrying
amount based on the variable nature of its interest rate and the estimated fair
value of the common stock issuable upon conversion of the note.
Credit is extended to customers based on an evaluation of their financial
condition, and collateral is not required. The Company performs ongoing credit
evaluations of its customers and maintains an allowance for doubtful accounts.
Revenues derived from customers outside the United States have not been
significant.
The Company is subject to concentrations of credit risk and interest rate
risk related to its short-term investments. The Company's credit risk is managed
by limiting the amount of investments placed with any one issuer, investing in
money market funds, short term commercial paper, and A1 rated corporate bonds
with an average days to maturity of 129 days at September 30, 1997.
During the periods presented in the consolidated statement of operations,
the Company derived substantially all of its revenues from the delivery of
advertisements on Web sites that are part of the Network. In December 1996, the
Company entered into a Procurement and Trafficking agreement (the "Agreement")
with Digital Equipment Corporation to deliver advertising to users of the
AltaVista Web site. Under the terms of the Agreement, the Company is the
exclusive representative for the delivery of advertisements on certain pages
within the AltaVista Web site, subject to certain exceptions. While the
agreement terminates in December 1998, either party may terminate the agreement
upon 90 days' prior
F-9
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE PERIOD FROM JANUARY 23, 1996 (INCEPTION)
THROUGH SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997)
NOTE 1--SUMMARY OF OPERATIONS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
written notice. AltaVista is a significant part of the Network and is expected
to account for a significant portion of the Company revenues for the next few
years. The loss of AltaVista as part of the Network, any reduction in traffic on
the AltaVista Web site, or a termination of AltaVista's contract with the
Company, would have a material adverse effect on the Company's business, results
of operations and financial condition. In addition, given the short-term nature
of the AltaVista contract, as is the case with most of the Company's advertiser
and Web publisher contracts, the Company will have to negotiate new contracts or
renewals which may have terms that are not as favorable to the Company as the
existing contracts, which could have a material adverse effect on the Company's
business, results of operations and financial condition. Net revenues derived
from advertising impressions delivered to users of the AltaVista Web site
represented 0% and 42.8% of the Company's total revenues for the periods ended
December 31, 1996 and September 30, 1997, respectively. No other Web site on the
Network was responsible for 10% or more of the Company's total revenues during
the periods presented in the consolidated statement of operations.
Revenues associated with major advertising customers, as a percentage of
revenues, are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
----------------------------------------
JANUARY 23, JANUARY 23,
1996 (INCEPTION) 1996 (INCEPTION) NINE MONTHS
THROUGH THROUGH ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
CUSTOMER 1996 1996 1997
- ---------- ------------------- ------------------- -------------------
<S> <C> <C> <C>
A 7% 7% 10%
B 9 19 --
C 10 24 --
</TABLE>
Accounts receivable regarding significant customers, as a percentage of total
accounts receivable, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
CUSTOMER 1996 1997
- ---------- ------------------- -------------------
<S> <C> <C> <C>
A 9% 11%
B 2 --
C 10 --
</TABLE>
INCOME TAXES
The Company uses the asset and liability method of accounting for income
taxes. Under this method, 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 to 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 includes the enactment date.
F-10
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE PERIOD FROM JANUARY 23, 1996 (INCEPTION)
THROUGH SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997)
NOTE 1--SUMMARY OF OPERATIONS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
EQUITY BASED COMPENSATION
The Company accounts for its employee stock option plans in accordance with
the provisions of Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. As such, compensation
expense related to employee stock options is recorded only if, on the date of
grant, the fair value of the underlying stock exceeds the exercise price. The
Company adopted the disclosure-only requirements of SFAS No. 123 Accounting for
Stock-Based Compensation, which allows entities to continue to apply the
provisions of APB Opinion No. 25 for transactions with employees and provide pro
forma net income and pro forma earnings per share disclosures for employee stock
grants made in 1996 and future years as if the fair-value-based method of
accounting in SFAS No. 123 had been applied to these transactions.
IMPAIRMENT OF 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 held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the amount by which the carrying amount of the assets exceeds
the fair value of the assets.
PRO FORMA NET LOSS PER SHARE
Pro forma net loss per share is computed by dividing the net loss by the sum
of the weighted average number of shares of common stock and common stock
equivalents outstanding during each period and the shares resulting from the
assumed conversion of all outstanding shares of Convertible Preferred Stock.
Common stock equivalents include all stock options that would have a dilutive
effect, applying the treasury stock method. Additionally, common and common
equivalent shares issued during the twelve months immediately preceding the
initial filing of a registration statement for the Company's initial public
offering have been included in the calculation of common and common equivalent
shares as if they were outstanding for all periods presented, including years
where the impact of incremental shares is antidilutive, using the treasury stock
method and an assumed initial public offering price of $13.00 per share. Due to
the significant impact of the assumed conversion of the Convertible Preferred
Stock upon closing of an initial public offering, historical net loss per share
is not meaningful, and therefore, is not presented.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 128, Earnings Per Share (Statement 128). Statement 128 establishes
standards for the computation, presentation and disclosure of earnings per share
(EPS), replacing the presentation of currently required Primary EPS with a
presentation of Basic EPS. It also requires dual presentation of Basic EPS and
Diluted EPS on the face of the income statement for entities with complex
capital structures. Basic EPS is based on the weighted average number of common
shares outstanding during the period. Diluted EPS is based on the potential
dilution that would occur on exercise or conversion of securities into common
stock using the treasury stock method. Statement 128 is effective for periods
ending after December 15, 1997,
F-11
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE PERIOD FROM JANUARY 23, 1996 (INCEPTION)
THROUGH SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997)
NOTE 1--SUMMARY OF OPERATIONS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
including interim periods; earlier application is not permitted. When adopted,
the Company will be required to restate its EPS for all periods presented. The
Company does not expect the impact of the adoption of Statement 128 to be
material to its reported EPS amounts.
In February 1997, the FASB issued SFAS No. 129, Disclosure of Information
about Capital Structure. This statement establishes standards for disclosing
information about an entity's capital structure. Adoption of SFAS No. 129 will
have no impact on the Company's existing disclosures.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income
(Statement 130). Statement 130 establishes standards for reporting and
disclosure of comprehensive income and its components (revenues, expenses,
gains, and losses) in a full set of general-purpose financial statements.
Statement 130, which is effective for fiscal years beginning after December 15,
1997, requires reclassification of financial statements for earlier periods to
be provided for comparative purposes. The Company anticipates that implementing
the provisions of Statement 130 will not have a significant impact on the
Company's existing disclosures.
In June 1997, the FASB issued SFAS No. 131, Disclosure About Segments of an
Enterprise and Related Information (Statement 131). Statement 131 establishes
standards for the way that public business enterprises report information about
operating segments. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. Statement 131 is
effective for fiscal years beginning after December 15, 1997. In the initial
year of application, comparative information for earlier years must be restated.
The Company anticipates that implementing the provisions of Statement 131 will
not have a significant impact on the Company's existing disclosures.
NOTE 2--PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31, SEPTEMBER 30,
USEFUL LIFE 1996 1997
----------- -------------- --------------
<S> <C> <C> <C>
Computer equipment.................................................. 1-3 years $ 471,366 $ 1,474,709
Furniture and fixtures.............................................. 5 years 20,360 148,003
Leasehold improvements.............................................. 1-5 years -- 320,142
-------------- --------------
491,726 1,942,854
Less accumulated depreciation and amortization...................... 45,932 282,249
-------------- --------------
$ 445,794 $ 1,660,605
-------------- --------------
-------------- --------------
</TABLE>
NOTE 3--INVESTMENTS
In August 1997, the Company purchased 10% voting interests in each of
DoubleClick Japan Inc. and DoubleClick Iberoamerica, S.L. for $154,926 and
$100,000, respectively. The Company has the option to purchase an additional 12%
voting interest in DoubleClick Japan Inc. for the then current value as defined.
The Company also has the option to purchase a 39% voting interest in DoubleClick
Iberoamerica, S.L. at the adjusted book value as defined. These business
partners were formed to
F-12
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE PERIOD FROM JANUARY 23, 1996 (INCEPTION)
THROUGH SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997)
NOTE 3--INVESTMENTS (CONTINUED)
establish networks similar to the Network and to provide comprehensive Internet
advertising solutions for advertisers, and has publishers in Japan, Spain and
Portugal, and all of Latin America.
The Company also entered into agreements to provide the business partners
with use of the Company's trademarks and the right to access the Company's
proprietary technology and certain personnel during the term of the agreements,
which range from two to four years. As of September 30, 1997, the Company had
received $450,000 from DoubleClick Japan Inc. which is presented in the
consolidated balance sheet as deferred license and service fees. The Company has
agreed to provide the business partners with any product enhancements and
upgrades it develops, technical support, and maintenance. Further, the Company
and the business partners have agreed to certain arrangements whereby each party
shall be paid a commission for the sale of advertising impressions to be
delivered on the other parties' networks.
NOTE 4--INCOME TAXES
No provision for federal or state income taxes has been recorded as the
Company incurred net operating losses for all periods presented. At December 31,
1996, the Company had approximately $2,900,000 of federal net operating loss
carryforwards available to offset future taxable income; such carryforwards
expire in 2011. The Company has recorded a full valuation allowance against its
deferred tax assets since management believes that, after considering all the
available objective evidence, both positive and negative, historical and
prospective, with greater weight given to historical evidence, it is not more
likely than not that these assets will be realized. No income tax benefit has
been recorded for all periods presented because of the valuation allowance.
The tax effects of temporary differences and tax loss and credit
carryforwards that give rise to significant portions of federal deferred tax
assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
-------------- --------------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards..................................... $ 989,000 $ 2,234,000
Deferred revenues, license and service fees.......................... -- 153,000
Other................................................................ 96,000 266,000
-------------- --------------
Gross deferred tax assets.............................................. 1,085,000 2,653,000
Valuation allowance.................................................... 1,085,000 2,653,000
-------------- --------------
Net deferred tax assets................................................ $ -- $ --
-------------- --------------
-------------- --------------
</TABLE>
NOTE 5--STOCKHOLDERS' EQUITY
The Company's Certificate of Incorporation, as initially filed, authorized
40,000,000 shares of $.001 par value common stock designated as Class A, B, C,
or Common Stock. The rights and privileges of the Company's four classes of
common stock are generally similar, although Class C common stockholders have
certain super-voting privileges, and Class B shares are non-voting.
F-13
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE PERIOD FROM JANUARY 23, 1996 (INCEPTION)
THROUGH SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997)
NOTE 5--STOCKHOLDERS' EQUITY (CONTINUED)
In September 1996, the Company exchanged 5,118,230 shares of Class A common
stock for 5,118,228 shares of Class B common stock and 2 shares of Class C
common stock. The exchanges were effected at par value.
In June 1997, the Company authorized and issued 40,000 shares, $.001 par
value, of Convertible Preferred Stock. The shares were issued for $1,000 per
share. The shares of Convertible Preferred Stock have certain rights,
preferences, and restrictions with respect to conversion, liquidation and voting
as follows:
- Each share of Convertible Preferred Stock is convertible, at the option of
the holder, at any time into 155.86 shares of Common Stock, subject to
certain antidilution provisions.
- Conversion of Convertible Preferred Stock into Common Stock is automatic
upon (i) the closing of a public or private offering of the Company's
common stock when at least $20,000,000 is raised, and the offering is
executed at a pre-money valuation of the Company of at least $100,000,000,
or (ii) the Company meets or exceeds 90% of agreed-upon projections for
each of 1997 and 1998.
- Upon dissolution, sale, or liquidation, as defined, the holders of
Convertible Preferred Stock are entitled to (i) a proportionate share of
proceeds, assuming all Convertible Preferred Stock is converted into
common stock if the value of the Company exceeds $70,000,000, (ii)
$40,000,000 if the value of Company is more than $50,000,000 and less than
$70,000,000, or (iii) 75% of the total proceeds to all stockholders if the
value of the Company is less than $50,000,000.
- The holders of Convertible Preferred Stock are entitled to vote on an as
converted basis with the holders of Common Stock.
Concurrent with the issuance of Convertible Preferred Stock, the Company
effected an exchange and redemption of its outstanding Class A, B, and C common
stock. Pursuant to the exchange, the stockholders of Class A, B, and C common
shares received 1, .28, and .28 shares, respectively, of newly issued Common
Stock for each share exchanged. Holders of the Class B and C common shares
redeemed their remaining shares for $4.64 per share, or $25,000,343 in the
aggregate.
Holders of Common Stock are subject to substantial restrictions on transfer
and also have certain "piggyback" and demand registration rights which, with
certain exceptions, require the Company to use its best efforts to include in
any of the Company's registration statements any shares requested to be so
included. Further, the Company will pay all expenses directly incurred on its
behalf in connection with such registration.
STOCK OPTION PLAN
The 1997 Stock Option Plan (the "1997 Plan") serves as the successor to the
Company's 1996 Stock Option Plan (the "Predecessor Plan"). The 1997 Plan was
adopted by the Board of Directors on November 7, 1997 and was subsequently
approved by the stockholders. The 1997 Plan became effective immediately upon
the Board of Directors' adoption of the Plan (the "Plan Effective Date"). Under
the 1997 Plan, 3,000,000 shares of Common Stock are reserved for the issuance of
incentive and nonqualified stock options. Such share reserve consists of (i) the
number of shares available for issuance under the Predecessor Plan on the Plan
Effective Date including the shares subject to outstanding options, and (ii) an
additional 1,550,000 shares of Common Stock. In addition, the number of shares
of Common Stock reserved for issuance under the 1997 Plan will automatically
increase on the
F-14
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE PERIOD FROM JANUARY 23, 1996 (INCEPTION)
THROUGH SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997)
NOTE 5--STOCKHOLDERS' EQUITY (CONTINUED)
first trading day of each calendar year, beginning with the 1999 calendar year,
by an amount equal to (3%) of the total number of shares of Common Stock
outstanding on the last trading day of the immediately preceding calendar year.
To the extent any unvested shares of Common Stock issued under the 1997 Plan are
subsequently repurchased by the Company, at the exercise price or direct issue
paid per share, in connection with the holder's termination of service, those
repurchased shares will be added to the reserve of Common Stock available for
issuance under the 1997 Plan. In no event, however, may any one participant in
the 1997 Plan receive option grants or direct stock issuances for more than
375,000 shares of Common Stock in the aggregate per calendar year.
On the Plan Effective Date, outstanding options under the Predecessor Plan
were incorporated into the 1997 Plan, and no further option grants will be made
under the Predecessor Plan. The incorporated options will continue to be
governed by their existing terms, unless the 1997 Plan Administrator elects to
extend one or more features of the 1997 Plan to those options. The options have
substantially the same terms as will be in effect for grants made under the 1997
Plan.
Generally, options granted under the Plan vest ratably over a period of
three to four years from the date of grant and expire 10 years from the date of
grant and terminate, to the extent not exercised, upon termination of
employment.
A summary of stock option activity from inception is as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
------------------------------
<S> <C> <C>
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
------------- ---------------
Options granted............................................... 1,363,380 $ 0.16
Options exercised............................................. -- --
Options canceled.............................................. (2,000) 0.12
------------- -----
Balance at December 31, 1996.................................. 1,361,380 0.16
Options granted............................................... 744,650 1.40
Options exercised............................................. (129,625) 0.14
Options canceled.............................................. (163,250) 0.18
------------- -----
Balance at September 30, 1997................................. 1,813,155 0.66
------------- -----
Exercisable at September 30, 1997............................. 348,147 $ 0.14
------------- -----
------------- -----
</TABLE>
During the nine months ended September 30, 1997, deferred compensation of
$1,547,072 was recorded for options granted of which $196,078 was amortized to
compensation expense. The remaining deferred compensation will be amortized over
the balance of the four year vesting period of the stock options.
Had the Company determined compensation cost of employee stock options based
on the minimum value of the stock options at the grant date, consistent with the
guidelines of SFAS 123 (which
F-15
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE PERIOD FROM JANUARY 23, 1996 (INCEPTION)
THROUGH SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997)
NOTE 5--STOCKHOLDERS' EQUITY (CONTINUED)
excludes any volatility factor), the Company's net loss would have been
increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 23, 1996
(INCEPTION)
THROUGH NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
----------------- --------------------
<S> <C> <C>
Net loss:
As reported............................................................ $ 3,191,770 $ 4,612,443
Pro forma per SFAS 123................................................. 3,201,393 4,833,481
Pro forma net loss per share:
As reported............................................................ $ (0.24) $ (0.32)
Pro forma per SFAS 123................................................. (0.24) (0.34)
</TABLE>
The per share weighted average fair value of options granted during the
period from inception to December 31, 1996 and for the nine months ended
September 30, 1997 was $0.03 and $2.39, respectively, on the date with the
following weighted average assumptions:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 23, 1996
(INCEPTION)
THROUGH NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
----------------- -------------------
<S> <C> <C>
Expected dividend yield.................................................. 0% 0%
Risk-free interest rate.................................................. 5.6% 6.1%
Expected life............................................................ 4 years 4 years
</TABLE>
NOTE 6--RELATED PARTY TRANSACTIONS
During the period from January 23, 1996 (inception) through March 31, 1997,
1996 the Company received certain administrative and support services from a
stockholder (the "related party"). The Company reimbursed the related party for
administrative and support services at amounts which approximated the fair
market value of such services. In addition, the related party advanced the
Company amounts required to fund operations and investing activities. The
advances were unsecured and bore interest at the 30-day LIBOR rate plus 2.5%
(8.3% at December 31, 1996). Amounts due to the related party reflect the
following activities:
<TABLE>
<S> <C>
Administrative and support services charges during 1996........................ $ 462,817
Cash advances during 1996...................................................... 2,874,919
-----------
Balance due to related party at December 31, 1996............................ 3,337,736
Cash advances during the three months ended March 31, 1997..................... 3,048,096
Repayment of advances.......................................................... (1,385,832)
Conversion of advances into convertible note payable........................... (5,000,000)
-----------
Balance due to related party at September 30, 1997............................. $ --
-----------
-----------
</TABLE>
Effective April 1, 1997 the related party ceased providing such
administrative and support services to the Company.
F-16
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE PERIOD FROM JANUARY 23, 1996 (INCEPTION)
THROUGH SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997)
NOTE 6--RELATED PARTY TRANSACTIONS (CONTINUED)
On June 4, 1997, the Company converted advances from the related party into
a $5,000,000, convertible note. Principal is payable, with any and all accrued
and unpaid interest, on June 4, 2000. The note bears interest at a per annum
rate equal to the "Federal Short Term Rate" (5.81% as of September 30, 1997) and
is payable quarterly. At the option of the holder, the note is convertible into
shares of the Company's common stock at a conversion price of $6.42 per share of
Common Stock. Such conversion price is subject to certain antidilution
provisions.
NOTE 7--SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosure of cash flow information:
<TABLE>
<CAPTION>
PERIOD FROM JANUARY 23, 1996
(INCEPTION) THROUGH
------------------------------ NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1996 1996 1997
-------------- -------------- -------------------
<S> <C> <C> <C>
Cash paid for interest: $ 91,090 $ 44,720 $ 72,339
-------------- -------------- --------
-------------- -------------- --------
</TABLE>
Non-cash financing activity: On June 4, 1997, the Company converted $5.0 million
of advances from the related party into a $5.0 million convertible note.
NOTE 8--COMMITMENTS
LEASES
The Company leases facilities under operating lease agreements expiring
through 2002. Future minimum lease payments under these leases are as follows:
<TABLE>
<CAPTION>
Years ending December 31: FUTURE MINIMUM
LEASE PAYMENTS
----------------
<S> <C>
1997............................................................................................ $ 381,000
1998............................................................................................ 451,000
1999............................................................................................ 360,000
2000............................................................................................ 318,000
2001 and thereafter............................................................................. 478,000
</TABLE>
Rent expense totaled approximately $163,195 for the period from January 23,
1996 (inception) to December 31, 1996, and $57,425 and $267,330 for the period
from January 23, 1996 (inception) to September 30, 1996, and for the nine months
ended September 30, 1997, respectively.
NOTE 9--SUBSEQUENT EVENT
On December 15, 1997, the Company's stockholders ratified a one-for-two
reverse stock split of all issued and outstanding Common Stock of the Company.
All share and per share amounts affecting net loss per share, weighted average
number of Common and Common equivalent shares outstanding, Common Stock issued
and outstanding, Additional paid-in capital and all other stock transactions
presented in these consolidated financial statements and related notes have been
restated to reflect the one-for-two reverse stock split.
F-17
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below, and each of
such Underwriters, for whom Goldman, Sachs & Co., BT Alex. Brown Incorporated
and Cowen & Company are acting as representatives, has severally agreed to
purchase from the Company, the respective number of shares of Common Stock set
forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
- ------------------------------------------------------------------------- -------------------
<S> <C>
Goldman, Sachs & Co......................................................
BT Alex. Brown Incorporated..............................................
Cowen & Company..........................................................
----------
Total................................................................ 2,300,000
----------
----------
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.
The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at such
price less a concession of $ per share. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per share to certain
brokers and dealers. After the shares of Common Stock are released for sale to
the public, the initial public offering price and other selling terms may from
time to time be varied by the representatives.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of 345,000
additional shares of Common Stock to cover over-allotments, if any. If the
Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the 2,300,000 shares of Common
Stock offered.
The Company, its directors and officers, and certain of its stockholders
have agreed that, subject to certain exceptions, during the period beginning
from the date of this Prospectus and continuing to and including the date 180
days after the date of the Prospectus, they will not offer, sell, contract to
sell or otherwise dispose of any shares of Common Stock or of any other
securities of the Company (other than, in the case of the Company, pursuant to
stock incentive plans existing on the date of this Prospectus) which are
substantially similar to the shares of Common Stock or which are convertible or
exchangeable into securities which are substantially similar to the shares of
Common Stock without the prior written consent of the representatives, except
for the shares of Common Stock offered in connection with the offering. In
addition, the Company may issue shares of Common Stock in connection with any
acquisition of another company if the terms of such issuance provide that such
Common Stock shall not be resold prior to the expiration of the 180-day period
referenced in the preceding sentence.
Prior to the offering, there has been no public market for the shares of
Common Stock. The initial public offering price will be negotiated among the
Company and the representatives. Among the factors to be considered in
determining the initial public offering price of the Common Stock, in addition
to prevailing market conditions, will be the Company's historical performance,
estimates of the business potential and earnings prospects of the Company, an
assessment of the Company's management and the consideration of the above
factors in relation to market valuation of companies in related businesses.
U-1
<PAGE>
The representatives of the Underwriters have informed the Company that they
do not expect sales to accounts over which the Underwriters exercise
discretionary authority to exceed 5% of the total number of shares of Common
Stock offered by them.
In connection with the offering, the Underwriters may purchase and sell
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created by the Underwriters in connection with the offering. Stabilizing
transactions consist of certain bids or purchases for the purpose of preventing
or retarding a decline in the market price of the Common Stock; and syndicate
short positions created by the Underwriters involve the sale by the Underwriters
of a greater number of shares of Common Stock than they are required to purchase
from the Company in the offering. The Underwriters also may impose a penalty
bid, whereby selling concessions allowed to syndicate members or other
broker-dealers in respect of the securities sold in the offering for their
account may be reclaimed by the syndicate if such shares of Common Stock are
repurchased by the syndicate in stabilizing or covering transactions. These
activities may stabilize, maintain or otherwise affect the market price of the
Common Stock, which may be higher than the price that might otherwise prevail in
the open market. These transactions may be effected on the Nasdaq National
Market, in the over-the-counter market or otherwise, and these activities, if
commenced, may be discontinued at any time.
The Company intends to apply for quotation of the Common Stock on the Nasdaq
National Market under the symbol "DCLK". The Company has agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act.
An affiliate of BT Alex. Brown Incorporated, one of the representatives of
the Underwriters in the offering, is a limited partner of ABS Capital Partners
II, L.P., a stockholder of the Company. In addition, another affiliate of BT
Alex. Brown Incorporated is a non-managing member of ABS Partners II, LLC, the
general partner of ABS Capital Partners II, L.P.
U-2
<PAGE>
[AN ILLUSTRATION NAMING THE WEB SITES CURRENTLY ON THE DOUBLECLICK NETWORK]
<PAGE>
- ---------------------------------------------
---------------------------------------------
- ---------------------------------------------
---------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary................................ 3
Risk Factors...................................... 6
Use of Proceeds................................... 17
Dividend Policy................................... 17
Capitalization.................................... 18
Dilution.......................................... 19
Selected Consolidated Financial Data.............. 20
Management's Discussion And Analysis Of Financial
Condition And Results Of Operations.............. 21
Business.......................................... 28
Management........................................ 41
Certain Transactions.............................. 49
Principal Stockholders............................ 50
Description of Securities......................... 53
Shares Eligible for Future Sale................... 57
Legal Matters..................................... 58
Experts........................................... 58
Change in Accountants............................. 58
Additional Information............................ 59
Index to Consolidated Financial Statements........ F-1
Underwriting...................................... U-1
</TABLE>
THROUGH AND INCLUDING , 1998 (THE 25TH DAY AFTER THE DATE OF
THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
2,300,000 SHARES
DOUBLECLICK INC.
COMMON STOCK
(PAR VALUE $.001 PER SHARE)
--------------
[LOGO]
--------------
GOLDMAN, SACHS & CO.
BT ALEX. BROWN
COWEN & COMPANY
REPRESENTATIVES OF THE UNDERWRITERS
- ---------------------------------------------
---------------------------------------------
- ---------------------------------------------
---------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting discount, payable by the Registrant in connection with the sale of
Common Stock being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fees and the Nasdaq National Market listing
fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
-------------
<S> <C>
SEC registration fee........................................................... $ 12,553
NASD filing fee................................................................ 4,203
Nasdaq National Market listing fee............................................. 50,000
Printing and engraving......................................................... 175,000
Legal fees and expenses........................................................ 300,000
Accounting fees and expenses................................................... 150,000
Blue sky fees and expenses (including legal fees).............................. 15,000
Transfer agent fees............................................................ 5,000
Miscellaneous.................................................................. 38,244
-------------
Total...................................................................... $ 750,000
-------------
-------------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Certificate of Incorporation (the "Certificate") provides
that, except to the extent prohibited by the Delaware General Corporation Law
(the "DGCL"), the Registrant's directors shall not be personally liable to the
Registrant or its stockholders for monetary damages for any breach of fiduciary
duty as directors of the Registrant. Under the DGCL, the directors have a
fiduciary duty to the Registrant which is not eliminated by this provision of
the Certificate and, in appropriate 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 the Registrant, for acts or
omissions which are found by a court of competent jurisdiction to be not in good
faith or involving intentional misconduct, for 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
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 Registrant has obtained liability insurance for its
officers and directors.
Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers, provided that this provision
shall not eliminate or limit the liability of a director: (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) arising under Section 174 of the DGCL, or (iv)
for any transaction from which the director derived an improper personal
benefit. 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. The Certificate eliminates the personal liability
of directors to the fullest extent permitted by Section 102(b)(7) of the DGCL
and provides that the Registrant 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
II-1
<PAGE>
investigative) by reason of the fact that such person is or was a director or
officer of the Registrant, or is or was serving at the request of the Registrant
as a director or officer of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such 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 the Certificate. The Registrant is not aware of any
threatened litigation or proceeding that may result in a claim for such
indemnification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Registrant has sold and issued the following securities since January
23, 1996 (inception):
In January 1996, the Registrant issued an aggregate of 905,912 shares of its
common stock, par value $.01 per share ("Original Common Stock"), to two
entities in exchange for $575,000 in cash and certain other assets. Such shares
of Original Common Stock were sold in reliance upon an exemption from
registration under the Securities Act of 1933 pursuant to Section 4(2) thereof.
In August 1996, all outstanding shares of Original Common Stock were
converted into shares of class A common stock.
In June 1997, the DoubleClick Acquisition Corp. ("Newco") merged with and
into the Registrant (the "Merger"). As a result of the Merger, the Registrant
issued 36,667 shares of its Convertible Preferred Stock, par value $.001 per
share, to the holders of common stock of Newco. In addition, as part of the
Registrant's recapitalization, 7,395,740 shares of class A common stock were
converted into 7,395,740 shares of Common Stock and 10,780,000 shares of class B
common stock were converted into 2,987,721 shares of Common Stock.
Also in June 1997, the Registrant sold 3,333 shares of its Convertible
Preferred Stock to certain investors for $3,333,000. Such shares of Convertible
Preferred Stock were sold in reliance upon an exemption from registration under
the Securities Act of 1933 pursuant to Section 4(2) thereof.
The Registrant from time to time has granted stock options to employees in
reliance upon an exemption under the Securities Act of 1933 pursuant to Rule 701
promulgated thereunder. The following table sets forth certain information
regarding such grants:
<TABLE>
<CAPTION>
RANGE OF
NUMBER OF EXERCISE
SHARES PRICES
------------- -----------------
<S> <C> <C>
January 23, 1996 (inception) through December 31, 1996................ 1,363,380 $0.14- 0.28
January 1, 1997 through December 15, 1997............................. 1,016,225 0.28-13.00
</TABLE>
The above securities were offered and sold by the Registrant in reliance
upon exemptions from registration pursuant to either (i) Section 4(2) of the
Securities Act, as transactions not involving any public offering, or (ii) Rule
701 under the Securities Act. No underwriters were involved in connection with
the sales of securities referred to in this Item 15.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1** Restated Certificate of Incorporation.
3.2** Amendment to Restated Certificate of Incorporation.
3.3* Form of Amended and Restated Certificate of Incorporation to be in effect upon the closing of the
initial public offering.
3.4** Bylaws.
3.5* Form of Amended and Restated Bylaws to be in effect upon the closing of the initial public offering.
4.1* Specimen Common Stock certificate.
4.2** See Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5 for provisions of the Certificate of Incorporation and Bylaws
of the Registrant defining the rights of holders of Common Stock of the Registrant.
4.3** Convertible Promissory Note held by Bozell, Jacobs, Kenyon & Eckhardt, Inc.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1** 1996 Stock Option Plan.
10.2** 1997 Stock Incentive Plan.
10.3 [Reserved]
10.4** Stockholders Agreement, dated as of June 4, 1997.
10.5** Sublease dated August 1996, between Martin, Marshall, Jaccoma & Mitchell Advertising, Inc. and the
Registrant.
10.6** Lease dated July 1997, between Investment Properties Associates and the Registrant.
10.7+** Procurement and Trafficking Agreement, dated December 1996, by and between Registrant and Digital
Equipment Corporation.
11.1** Statement re: Computation of Per Share Earnings.
16.1** Letter from KPMG Peat Marwick LLP.
21.1** Subsidiaries of the Registrant.
23.1 Consent of Price Waterhouse LLP.
23.2* Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1).
24.1** Powers of Attorney.
27.1** Financial Data Schedule.
</TABLE>
- ------------------------
* To be supplied by amendment.
** Previously filed.
+ Confidential treatment to be requested for certain portions of this Exhibit
pursuant to Rule 406 promulgated under the Securities Act.
(b) Financial Statement Schedules.
None.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriter
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Delaware General Corporation Law, the Certificate of
Incorporation of the Registrant, the Underwriting Agreement, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, the Registrant will,
unless in the opinion of 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 Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, 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 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 Act, each
post-effective amendment that contains a form of Prospectus shall be deemed to
be a new Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the 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 this 23rd day of December, 1997.
DOUBLECLICK INC.
By: /s/ KEVIN J. O'CONNOR
------------------------------------------
Kevin J. O'Connor
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to the Registration Statement has been signed by the following
persons in the capacities indicated on December 23, 1997:
<TABLE>
<CAPTION>
SIGNATURE TITLE(S)
------------------------------------------------------ --------------------------------------------------
<S> <C> <C>
Chief Executive Officer and Chairman of the Board
/s/ KEVIN J. O'CONNOR Directors (Principal Executive Officer)
-------------------------------------------
Kevin J. O'Connor
President and Chief Financial Officer (Principal
* Financial Officer)
-------------------------------------------
Kevin P. Ryan
* Chief Technology Officer and Director
-------------------------------------------
Dwight A. Merriman
* Controller (Principal Accounting Officer)
-------------------------------------------
Stephen R. Collins
* Director
-------------------------------------------
David N. Strohm
* Director
-------------------------------------------
Mark E. Nunnelly
* Director
-------------------------------------------
W. Grant Gregory
</TABLE>
*By: /s/ KEVIN J. O'CONNOR
-------------------------
Kevin J. O'Connor
ATTORNEY-IN-FACT
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1** Restated Certificate of Incorporation.
3.2** Amendment to Restated Certificate of Incorporation.
3.3* Form of Amended and Restated Certificate of Incorporation to be in effect upon the closing of the
initial public offering.
3.4** Bylaws.
3.5* Form of Amended and Restated Bylaws to be in effect upon the closing of the initial public offering.
4.1* Specimen Common Stock certificate.
4.2** See Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5 for provisions of the Certificate of Incorporation and Bylaws of
the Registrant defining the rights of holders of Common Stock of the Registrant.
4.3** Convertible Promissory Note held by Bozell, Jacobs, Kenyon & Eckhardt, Inc.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1** 1996 Stock Option Plan.
10.2** 1997 Stock Incentive Plan.
10.3* [Reserved]
10.4** Stockholders Agreement, dated as of June 4, 1997.
10.5** Sublease dated August 1996, between Martin, Marshall, Jaccoma & Mitchell Advertising, Inc. and the
Registrant.
10.6** Lease dated July 1997, between Investment Properties Associates and the Registrant.
10.7+** Procurement and Trafficking Agreement, dated December 1996, by and between Registrant and Digital
Equipment Corporation.
11.1** Statement re: Computation of Per Share Earnings.
16.1** Letter from KPMG Peat Marwick LLP.
21.1** Subsidiaries of the Registrant.
23.1 Consent of Price Waterhouse LLP.
23.2* Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1).
24.1** Powers of Attorney.
27.1** Financial Data Schedule.
</TABLE>
- ------------------------
* To be supplied by amendment.
** Previously filed.
+ Confidential treatment to be requested for certain portions of this Exhibit
pursuant to Rule 406 promulgated under the Securities Act.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated December 15, 1997,
relating to the consolidated financial statements of DoubleClick, Inc., which
appears in such Prospectus. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
New York, New York
December 23, 1997
