<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 30, 1998
REGISTRATION NO. 333-67459
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
ALAN P. BLAUSTEIN, ESQ. JEFFREY A. STEIN, 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 THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE 462(D)
UNDER THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES ACT
REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION STATEMENT
FOR THE SAME OFFERING. / /
IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE 434,
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 NOVEMBER 30, 1998
The information in this preliminary prospectus is not complete and may be
changed. These securities may not be sold until the registration statement filed
with the Securities and Exchange Commission is effective. This preliminary
prospectus in not an offer to sell nor does it seek an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted.
<PAGE>
2,500,000 Shares
[LOGO]
Common Stock
-------------
DoubleClick Inc. is offering 2,500,000 shares to be sold in the offering.
DoubleClick's Common Stock is traded on the Nasdaq National Market under the
symbol "DCLK." On November 27, 1998, the last reported sale price for the Common
Stock on the Nasdaq National Market was $53.375 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 5 TO READ ABOUT CERTAIN FACTORS YOU
SHOULD CONSIDER BEFORE BUYING SHARES OF THE COMMON STOCK.
------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------
<TABLE>
<CAPTION>
Per Share Total
--------------- ---------------
<S> <C> <C>
Public offering price............................. $ $
Underwriting discount............................. $ $
Proceeds, before expenses, to DoubleClick......... $ $
</TABLE>
The underwriters may, under certain circumstances, purchase up to an
additional 375,000 shares from DoubleClick at the public offering price less the
underwriting discount.
------------------
The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares against payment in New York, New York
on , 1998.
GOLDMAN, SACHS & CO.
BT ALEX. BROWN
DONALDSON, LUFKIN & JENRETTE
SALOMON SMITH BARNEY
------------------
Prospectus dated , 1998.
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES TO THOSE
STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS BASED ON OUR CURRENT
EXPECTATIONS, ASSUMPTIONS, ESTIMATES AND PROJECTIONS ABOUT DOUBLECLICK AND OUR
INDUSTRY. THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES.
DOUBLECLICK'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN
THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, AS MORE FULLY
DESCRIBED IN THE "RISK FACTORS" SECTION AND ELSEWHERE IN THIS PROSPECTUS.
DOUBLECLICK UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING
STATEMENTS FOR ANY REASON, EVEN IF NEW INFORMATION BECOMES AVAILABLE OR OTHER
EVENTS OCCUR IN THE FUTURE.
DOUBLECLICK INC.
We are a leading provider of comprehensive Internet advertising solutions
for advertisers and Web publishers worldwide. Our technology and media expertise
enable us to deliver highly targeted, measurable and cost-effective Internet
advertising for advertisers and ad agencies, and to increase ad sales and
improve ad space inventory management for Web publishers. We currently have two
principal lines of business:
- THE DOUBLECLICK NETWORK (AD SALES). The DoubleClick Network provides
fully-outsourced ad sales, delivery and related services to publishers of
highly-trafficked Web sites, including AltaVista, The Dilbert Zone,
Macromedia and U.S. News Online. The DoubleClick Network focuses on
meeting the advertising needs of Internet advertisers who target users on
a national, international and/or local basis.
- DART SERVICE (AD SERVING). Our DART Service provides Web publishers,
advertisers and ad agencies with the ability to control the targeting,
delivery, measurement and analysis of their online marketing campaigns on
a real-time basis.
Our proprietary DART technology, which dynamically matches and delivers ads to
the target audience within milliseconds, provides the basis for both of our
principal lines of business.
In September 1998, we received over 3.2 billion requests for the delivery of
ads (impressions) generated by an aggregate of approximately 4,200 Web sites or
440 Web publishers which used our solutions. We estimate that more than 44
million users worldwide visited Web sites within the DoubleClick Network during
September 1998. According to Media Metrix, 38.7% of Internet users in the United
States visited Web sites within the DoubleClick Network during the same month.
We believe that the number of Web users worldwide will increase from
approximately 69 million at the end of 1997 to 320 million by the end of 2002.
We also believe that the dollar value of Internet advertising in the United
States will increase from approximately $551 million in 1997 to $4.0 billion in
2001. During the first nine months of 1998, we managed approximately 36,000
Internet advertisements for over 2,700 advertisers.
Our principal executive offices are located at 41 Madison Avenue, 32nd
Floor, New York, New York 10010. Our telephone number is (212) 683-0001.
3
<PAGE>
THE OFFERING
The following information assumes that the underwriters do not exercise the
option granted by DoubleClick to purchase additional shares in the offering. See
"Underwriting".
<TABLE>
<S> <C>
Shares offered by DoubleClick... 2,500,000
Shares to be outstanding after
the offering(1)............... 19,126,919
Nasdaq National Market symbol... "DCLK"
Use of proceeds..... For general corporate
purposes, including
working capital,
expansion of
international
operations and sales
and marketing
capabilities, product
development, and
possible acquisitions.
See "Use of Proceeds".
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
JANUARY 23, 1996
(INCEPTION) YEAR NINE MONTHS ENDED
THROUGH ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, ----------------------
1996 1997 1997 1998
----------------- -------------- ---------- ----------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues............................................. $ 6,514 $ 30,597 $ 19,657 $ 51,074
Cost of revenues..................................... 3,780 20,628 13,048 34,539
Gross profit......................................... 2,734 9,969 6,609 16,535
Operating expenses................................... 5,842 18,434 11,228 32,298
Loss from operations................................. (3,108) (8,465) (4,619) (15,763)
Net interest income (expense)........................ (84) 109 7 1,948
Net loss............................................. $ (3,192) $ (8,356) $ (4,612) $ (13,815)
-------- -------------- ---------- ----------
-------- -------------- ---------- ----------
Basic and diluted net loss per share (2)............. $ (0.28) $ (0.73) $ (0.40) $ (0.88)
-------- -------------- ---------- ----------
-------- -------------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
--------------------------------
ACTUAL AS ADJUSTED(3)
------------- -----------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents, and short-term investments.......................... $ 49,913 $ 176,032
Working capital................................................................ 50,547 176,666
Total assets................................................................... 80,202 206,321
Total stockholders' equity..................................................... 58,774 184,893
</TABLE>
- ------------------------------
(1) This information is based on shares of Common Stock outstanding on September
30, 1998. It excludes 2,281,054 shares of Common Stock issuable upon the
exercise of stock options outstanding at September 30, 1998, with a weighted
average exercise price of $6.81 per share. See "Capitalization", "Management
-- 1997 Stock Incentive Plan", "Description of Securities" and Note 5 of
Notes to Consolidated Financial Statements.
(2) Basic and diluted net loss per share computations have been restated to give
effect to the conversion of shares of DoubleClick's convertible preferred
stock into Common Stock on February 25, 1998. See Note 1 of Notes to
Consolidated Financial Statements.
(3) As adjusted to reflect the application of the net proceeds from the sale of
the shares in this offering at an assumed public offering price of $53.375
per share and after deducting the estimated underwriting discount and
offering expenses. See "Use of Proceeds".
4
<PAGE>
RISK FACTORS
YOU SHOULD CONSIDER CAREFULLY THE FOLLOWING RISKS BEFORE YOU DECIDE TO BUY
OUR COMMON STOCK. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY
ONES FACING OUR COMPANY. ADDITIONAL RISKS AND UNCERTAINTIES MAY ALSO ADVERSELY
IMPAIR OUR BUSINESS OPERATIONS. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR,
OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS WOULD LIKELY SUFFER.
IN SUCH CASE, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY
LOSE ALL OR PART OF THE MONEY YOU PAID TO BUY OUR COMMON STOCK.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS BASED ON OUR CURRENT
EXPECTATIONS, ASSUMPTIONS, ESTIMATES AND PROJECTIONS ABOUT DOUBLECLICK AND OUR
INDUSTRY. THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES.
DOUBLECLICK'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN
SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, AS MORE FULLY
DESCRIBED IN THIS SECTION AND ELSEWHERE IN THIS PROSPECTUS. DOUBLECLICK
UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS FOR
ANY REASON, EVEN IF NEW INFORMATION BECOMES AVAILABLE OR OTHER EVENTS OCCUR IN
THE FUTURE.
LIMITED OPERATING HISTORY
We were incorporated in January 1996 and have a limited operating history.
An investor in our Common Stock must consider the risks and difficulties
frequently encountered by early stage companies in new and rapidly evolving
markets, including the Internet advertising market. These risks include our:
- ability to sustain historical revenue growth rates;
- dependence on a continuing relationship with AltaVista;
- reliance on the DoubleClick Network;
- need to manage our expanding operations;
- competition;
- ability to attract, retain and motivate qualified personnel;
- ability to maintain our current, and develop new, strategic relationships
with Web publishers;
- ability to anticipate and adapt to the changing Internet market; and
- ability to attract and retain a large number of advertisers from a variety
of industries.
We also depend on the growing use of the Internet for advertising, commerce
and communication, and on general economic conditions. We cannot assure you that
our business strategy will be successful or that we will successfully address
these risks. Please see "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for detailed information on our limited
operating history.
HISTORY OF LOSSES AND ANTICIPATION OF
CONTINUED LOSSES
We incurred net losses of $3.2 million for the period from January 23, 1996
(inception) through December 31, 1996, $8.4 million for the year ended December
31, 1997, and $13.8 million for the nine months ended September 30, 1998. As of
September 30, 1998, our accumulated deficit was $50.3 million. We have not
achieved profitability and expect to continue to incur operating losses at least
into the year 2000. We expect to continue to incur significant operating and
capital expenditures and, as a result, we will need to generate significant
revenues to achieve and maintain profitability. Although our revenues have grown
in recent quarters, we cannot assure you that we will achieve sufficient
revenues for profitability. Even if we do achieve profitability, we cannot
assure you that we can sustain or increase profitability on a quarterly or
annual basis in the future. If revenues grow slower than we anticipate, or if
operating expenses exceed our expectations or cannot be adjusted accordingly,
our business, results of operations and financial condition will be materially
and adversely affected. Please see "Selected Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations"
5
<PAGE>
for detailed information on our history of losses and anticipation of continued
losses.
OUR DEPENDENCE ON ALTAVISTA
Approximately 47.8% of our revenues for the nine months ended September 30,
1998 and approximately 44.7% of our revenues for the year ended December 31,
1997 resulted from revenues from advertisements delivered on or through the
AltaVista Web site. Approximately 50.9%, 49.4% and 44.4% of our revenues
resulted from advertisements delivered on or through the AltaVista Web site
during each of the first three quarters of 1998. We currently have an agreement
with Compaq (AltaVista's corporate parent) to be the exclusive third-party
provider of advertising services on specified pages within the AltaVista Web
site. Although this agreement extends through December 1999, either Compaq or
DoubleClick may terminate the agreement without cause upon 90 days' prior
written notice. We have ongoing discussions with Compaq regarding the agreement
and our relationship, but we cannot predict the timing or outcome of such
discussions. Compaq may elect, or it may notify us of its intention to elect, to
terminate the agreement or to demand changes to the terms of the agreement that
are less favorable to us than the terms of the existing agreement. The loss of
AltaVista as part of the DoubleClick Network, any changes to the existing
agreement that are less favorable to us, or any significant reduction in traffic
on or through the AltaVista Web site would materially and adversely affect our
business, results of operations and financial condition.
Compaq may also choose to change or limit the type of advertisers and
advertisements that are acceptable for the AltaVista Web site. Any such change
could adversely impact our advertising revenues. In addition, our relationship
with AltaVista could be negatively affected by business or financial
developments impacting AltaVista, including any consequences of Compaq's recent
acquisition of AltaVista, the sale of AltaVista to a third party, or AltaVista's
establishment of a strategic relationship with a third party with a dedicated ad
sales force. Please see "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for detailed information on our dependence
on AltaVista.
WEB PUBLISHER CONCENTRATION
We derive a substantial portion of our DoubleClick Network revenues from ads
we deliver on the Web sites of a limited number of Web publishers. Approximately
60.3% of our revenues for the nine months ended September 30, 1998 and
approximately 61.2% of our revenues for the year ended December 31, 1997
resulted from ads delivered on the Web sites of the top four Web publishers on
the DoubleClick Network. Of the 60.3% for the nine months ended September 30,
1998, approximately 47.8% of our revenues related to AltaVista and an aggregate
of approximately 12.5% of our revenues related to the Web sites of the next
three top Web publishers on the DoubleClick Network. Our business, results of
operations and financial condition could be materially and adversely affected by
the loss of one or more of the Web publishers which account for a significant
portion of our DoubleClick Network revenues or any significant reduction in
traffic on such Web publisher's Web sites. In addition, advertisers or Web
publishers may leave the DoubleClick Network because of such a loss, which could
materially and adversely affect our business, results of operations and
financial condition. Typically we enter into short-term contracts with Web
publishers for inclusion of their Web sites in the DoubleClick Network. Since
these contracts are short-term, we will have to negotiate new contracts or
renewals in the future which may have terms that are not as favorable to us as
the terms of the existing contracts. Our business, results of operations and
financial condition could be materially and adversely affected by such new
contracts or renewals. Please see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for detailed information on our
Web publisher concentration.
6
<PAGE>
OUR RELIANCE ON THE DOUBLECLICK NETWORK
Since the third quarter of 1996, we have derived substantially all of our
revenues from advertisements we deliver to Web sites on the DoubleClick Network.
We expect that the DoubleClick Network will continue to account for a
substantial portion of our revenues for the foreseeable future. The DoubleClick
Network consists of Web sites of a limited number of Web publishers with which
we have short-term contracts. We cannot assure you that such Web publishers will
remain associated with the DoubleClick Network, that any DoubleClick Network Web
site will maintain consistent or increasing levels of traffic over time, or that
we 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. Our failure to successfully market the DoubleClick Network, the
loss of one or more of the Web publishers which account for a significant
portion of our revenues from the DoubleClick Network, or the failure of the Web
sites on the DoubleClick Network to maintain consistent or increasing levels of
traffic would materially and adversely affect our business, results of
operations and financial condition. Please see "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for detailed
information on our reliance on the DoubleClick Network.
QUARTERLY OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS
Our revenues and operating results may vary significantly from quarter to
quarter due to a number of factors, not all of which are in our control. These
factors include:
- advertiser and Web publisher demand for our solutions;
- user traffic levels and the number of available impressions on the
DoubleClick Network's Web sites;
- seasonal fluctuations in revenue;
- changes in service fees we pay to Web publishers;
- changes in the growth rate of Internet usage;
- the commitment of advertising budgets to Internet advertising;
- the mix of revenues from our various Internet advertising solutions;
- the timing and amount of costs relating to the expansion of our
operations;
- changes in our pricing policies or those of our competitors;
- the introduction of new solutions by us or our competitors;
- the mix of domestic and international sales;
- costs related to acquisitions of technology or businesses; and
- general economic and market conditions.
Our revenues for the foreseeable future will remain dependent on user
traffic levels and advertising activity on the DoubleClick Network. Such future
revenues are difficult to forecast. In addition, we plan to significantly
increase our operating expenses to increase our sales and marketing operations,
to continue our international expansion, to upgrade and enhance our DART
technology and to market and support our solutions. We may be unable to adjust
spending quickly enough to offset any unexpected revenue shortfall. If we have a
shortfall in revenues in relation to our expenses, or if our expenses precede
increased revenues, then our business, results of operations and financial
condition would be materially and adversely affected. This would likely affect
the market price of our Common Stock in a manner which may be unrelated to our
long-term operating performance.
We believe that advertising sales in traditional media, such as television
and radio, generally are lower in the first calendar quarter of each year. If
our market makes the transition from an emerging to a more developed medium,
seasonal and cyclical patterns may develop in our industry. Our revenues may
also be affected by seasonal and cyclical patterns in Internet advertising
spending if they emerge.
Due to all of the foregoing factors and the other risks discussed in this
section, you
7
<PAGE>
should not rely on quarter-to-quarter comparisons of our results of operations
as an indication of future performance. It is possible that in some future
periods our results of operations may be below the expectations of public market
analysts and investors. In this event, the price of our Common Stock may fall.
Please see "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Sales and Marketing" for detailed
information on our quarterly operating results.
NEED TO MANAGE GROWTH
To successfully implement our business plan in the rapidly evolving market
for Internet advertising requires an effective planning and management process.
We continue to increase the scope of our operations both domestically and
internationally, and we have grown our workforce substantially. As of March 31,
1996, we had a total of 13 employees and, as of September 30, 1998, we had a
total of 373 employees. In addition, we plan to continue to expand our sales and
marketing, customer support and engineering organizations both domestically and
internationally. This growth has placed, and our anticipated future growth in
our operations will continue to place, a significant strain on our management
systems and resources. We expect that we will need to continue to improve our
financial and managerial controls and reporting systems and procedures, and will
need to continue to expand, train and manage our workforce. Our future
performance may also depend on the effective integration of acquired businesses.
Such integration, even if successful, may take a significant period of time and
expense, and may place a significant strain on our resources. We are also
considering relocating our data operations from our executive offices into a new
facility in the New York metropolitan area. Our business, results of operations
and financial condition will be materially and adversely affected if we are
unable to effectively manage our expanding operations or the relocation of our
data operations.
RECENT DEVELOPMENT OF THE INTERNET
ADVERTISING MARKET AND UNPROVEN
ACCEPTANCE AND EFFECTIVENESS OF
WEB ADVERTISING
Our future success is highly dependent on an increase in the use of the
Internet as an advertising medium. The Internet advertising market is new and
rapidly evolving, and it cannot yet be compared with traditional advertising
media to gauge its effectiveness. As a result, demand and market acceptance for
Internet advertising solutions is uncertain. Most of our current or potential
advertising customers have little or no experience using the Internet for
advertising purposes and they have allocated only a limited portion of their
advertising budgets to Internet advertising. 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, exchanging information and advertising products and
services. Such customers may find Internet advertising to be less effective for
promoting their products and services relative to traditional advertising media.
In addition, most of our current and potential Web publisher customers have
little or no experience in generating revenues from the sale of advertising
space on their Web sites. We cannot assure you that the market for Internet
advertising will continue to emerge or become sustainable. If the market for
Internet advertising fails to develop or develops more slowly than we expect,
then our business, results of operations and financial condition could be
materially and adversely affected.
There are currently no standards for the measurement of the effectiveness of
Internet advertising and standard measurements may need to be developed to
support and promote Internet advertising as a significant advertising medium.
Our advertising customers may challenge or refuse to accept our or third-party
measurements of advertisement delivery requests from the Web sites of Web
publishers using our solutions, and our customers may not accept any errors in
such measurements. In addition, the accuracy of database information used to
target advertisements is
8
<PAGE>
essential to the effectiveness of Internet advertising that may be developed in
the future. The information in our database, like any database, may contain
inaccuracies which our customers may not accept.
Substantially all of our revenues are derived from the delivery of banner
advertisements. If advertisers determine that banner advertising is an
ineffective or unattractive advertising medium, we cannot assure you that we
will be able to effectively make the transition to any other form of Internet
advertising. Also, there are "filter" software programs that limit or prevent
advertising from being delivered to a user's computer. The commercial viability
of Internet advertising, and our business, results of operations and financial
condition, would be materially and adversely affected by Web users' widespread
adoption of such software.
PRIVACY CONCERNS
Web sites typically place certain information ("cookies") on a user's hard
drive without the user's knowledge or consent. Web sites use cookies for a
variety of reasons. Our DART technology uses cookies to limit the frequency with
which the user is shown a particular ad. Certain currently available Internet
browsers allow users to modify their browser settings to remove cookies at any
time or to prevent cookies from being stored on their hard drive. In addition,
some Internet commentators, privacy advocates and governmental bodies have
suggested limiting or eliminating the use of cookies. The effectiveness of our
DART technology could be limited by any reduction or limitation in the use of
cookies.
The European Union has recently adopted a directive addressing data privacy
that may result in limitations on the collection and use of certain information
regarding Internet users. These limitations may limit our ability to target
advertising or collect and use information in certain European countries. Since
implementing regulations have not been adopted at this time, we cannot yet
determine the impact of the directive on us.
UNPROVEN BUSINESS MODEL
Our business model is to generate revenues solely by providing Internet
advertising solutions to advertisers, ad agencies and Web publishers. The profit
potential for our business model is unproven. To be successful, both Internet
advertising and our solutions will need to achieve broad market acceptance by
advertisers, ad agencies and Web publishers. Our ability to generate significant
revenues from advertisers will depend, in part, on our ability to contract with
Web publishers that have Web sites with adequate available ad space inventory.
Further, these Web sites must generate sufficient user traffic with demographic
characteristics attractive to our advertisers. The intense competition among
Internet advertising sellers has led to the creation of a number of pricing
alternatives for Internet advertising. These alternatives make it difficult for
us to project future levels of advertising revenues and applicable gross margin
that can be sustained by us or the Internet advertising industry in general.
Market acceptance of our new solutions, including DoubleClick Local and the
Closed Loop Marketing Solutions suite of products, will depend on the continued
emergence of Internet commerce, communication and advertising, and market demand
for our solutions. We cannot assure you that the market for our new solutions
will develop or that demand for our new solutions will emerge or become
sustainable.
YEAR 2000 RISKS
Many currently installed computer systems and software products are coded to
accept or recognize only two digit entries in the date code field. These systems
and software products will need to accept four digit entries to distinguish 21st
century dates from 20th century dates. As a result, computer systems and/or
software used by many companies and governmental agencies may need to be
upgraded to comply with such Year 2000 requirements or risk system failure or
miscalculations causing disruptions of normal business activities.
9
<PAGE>
We have made a preliminary assessment of our Year 2000 readiness. We plan to
perform a Year 2000 simulation on our software during the first quarter of 1999.
We are also in the process of contacting certain third-party vendors, licensors
and providers of software, hardware and services regarding their Year 2000
readiness. Following this testing and after contacting these vendors and
licensors, we will be better able to make a complete evaluation of our Year 2000
readiness, to determine what costs will be necessary to be Year 2000 compliant,
and to determine whether contingency plans need to be developed. Please see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000 Compliance" for detailed information on our state of
readiness, potential risks and contingency plans regarding the Year 2000 issue.
RISK OF SYSTEM FAILURE
Our DART technology resides on a computer system located at our New York
City office. This system's continuing and uninterrupted performance is critical
to our success. Customers may become dissatisfied by any system failure that
interrupts our ability to provide our services to them, including failures
affecting our ability to deliver advertisements accurately to the targeted
audience and without significant delay to the viewer. Sustained or repeated
system failures would reduce the attractiveness of our solutions to advertisers,
ad agencies and Web publishers. Slower response time or system failures may also
result from straining the capacity of our deployed software or hardware due to
an increase in the volume of advertising delivered through our servers. To the
extent that we do not effectively address any capacity constraints or system
failures, our business, results of operations and financial condition would be
materially and adversely affected.
Our operations are dependent on our ability to protect our computer systems
against damage from fire, power loss, water damage, telecommunications failures,
vandalism and other malicious acts, and similar unexpected adverse events. In
addition, interruptions in our solutions could result from the failure of our
telecommunications providers to provide the necessary data communications
capacity in the time frame we require. Despite precautions we have taken,
unanticipated problems affecting our systems have from time to time in the past
caused, and in the future could cause, interruptions in the delivery of our
solutions. DoubleClick's ad serving capabilities, operational information and
data storage are presently redundant, as well as archived. We expect all of our
back-end systems for disaster recovery to be fully redundant by the second
quarter of 1999. Our business, results of operations and financial condition
could be materially and adversely affected by any damage or failure that
interrupts or delays our operations.
OUR MARKETS ARE HIGHLY COMPETITIVE
Our markets, namely Internet advertising and related products and services,
are intensely competitive. We expect such competition to continue to increase
because our markets pose no substantial barriers to entry. Competition may also
increase as a result of industry consolidation. We believe that our ability to
compete depends upon many factors both within and beyond our control, including
the following:
- the timing and market acceptance of new solutions and enhancements to
existing solutions developed either by us or our competitors;
- customer service and support efforts;
- sales and marketing efforts; and
- the ease of use, performance, price and reliability of solutions developed
either by DoubleClick or its competitors.
We compete for Internet advertising revenues with large Web publishers and
Web search engine companies, such as America Online, Excite, Lycos, Microsoft,
Infoseek and Yahoo!. Further, our DoubleClick Network competes with a variety of
Internet advertising networks, including 24/7 Media. In marketing our
DoubleClick Network and DART Service to Web publishers, we also compete with
10
<PAGE>
providers of ad servers and related services, including NetGravity and AdForce.
We also encounter 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 our 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 we do. This may allow them to respond more quickly than we can to
new or emerging technologies and changes in customer requirements. It may also
allow them to devote greater resources than we can to the development, promotion
and sale of their products and services. Such competitors may also engage in
more extensive research and development, undertake more far-reaching marketing
campaigns, adopt more aggressive pricing policies and make more attractive
offers to existing and potential employees, strategic partners, advertisers and
Web publishers. We cannot assure you that our competitors will not develop
products or services that are equal or superior to our solutions or that achieve
greater market acceptance than our solutions. 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 to address the needs of our prospective advertising, ad agency and Web
publisher customers. As a result, it is possible that new 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. We
cannot assure you that we will be able to compete successfully or that
competitive pressures will not materially and adversely affect our business,
results of operations or financial condition.
Companies doing business on the Internet, including ours, must also compete
with television, radio, cable and print (traditional advertising media) for a
share of advertisers' total advertising budgets. Advertisers may be reluctant to
devote a significant portion of their advertising budget to Internet advertising
if they perceive the Internet to be a limited or ineffective advertising medium.
Please see "Business -- Competition" for detailed information about our
competition.
RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS OR INVESTMENTS
We may acquire or make investments in complementary businesses, products,
services or technologies. From time to time we have had discussions with
companies regarding our acquiring, or investing in, their businesses, products,
services or technologies. However, we have no present understanding or agreement
relating to any such acquisition or investment. We cannot assure you that we
will be able to identify suitable acquisition or investment candidates. Even if
we do identify suitable candidates, we cannot assure you that we will be able to
make such acquisitions or investments on commercially acceptable terms. If we
buy a company, we could have difficulty in assimilating that company's personnel
and operations. In addition, the key personnel of the acquired company may
decide not to work for us. If we make other types of acquisitions, we could have
difficulty in assimilating the acquired products, services or technologies into
our operations. These difficulties could disrupt our ongoing business, distract
our management and employees, increase our expenses and adversely affect our
results of operations due to accounting requirements such as goodwill.
Furthermore, we may incur debt or issue equity securities to pay for any future
acquisitions. The issuance of equity securities could be dilutive to our
existing stockholders.
DEPENDENCE ON KEY PERSONNEL
Our future success depends to a significant extent on the continued service
of our key technical, sales and senior management personnel, in particular,
Kevin J. O'Connor, our Chief Executive Officer and Chairman of the Board of
Directors, Kevin P. Ryan, our President and Chief Operating
11
<PAGE>
Officer, and Dwight A. Merriman, our Chief Technical Officer. We have no
employment agreements with any of these executives. The loss of the services of
Messrs. O'Connor, Ryan or Merriman, or certain other key employees, would likely
have a material adverse effect on our business, results of operations and
financial condition. Our future success also depends on our continuing to
attract, retain and motivate highly skilled employees. Competition for employees
in our industry is intense. We may be unable to retain our key employees or
attract, assimilate or retain other highly qualified employees in the future. We
have from time to time in the past experienced, and we expect to continue to
experience in the future, difficulty in hiring and retaining highly skilled
employees with appropriate qualifications. Please see "Management" for detailed
information on our key personnel.
DEPENDENCE ON THE WEB INFRASTRUCTURE
Our 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. We cannot assure you that the Web infrastructure will continue to
effectively support the demands placed on it as the Web continues to experience
increased numbers of users, frequency of use or increased bandwidth requirements
of users. Even if the necessary infrastructure or technologies are developed, we
may have to spend considerable amounts to adapt our solutions accordingly.
Furthermore, the Web has experienced a variety of outages and other delays due
to damage to portions of its infrastructure. Any future outages or delays could
impact the Web sites of Web publishers using our solutions and the level of user
traffic on Web sites on the DoubleClick Network.
DEPENDENCE ON PROPRIETARY RIGHTS AND RISK OF INFRINGEMENT
Our success and ability to compete are substantially dependent on our
internally developed technologies and trademarks, which we protect through a
combination of patent, copyright, trade secret and trademark law. We have filed
three patent applications in the United States and one patent application
internationally. In addition, we apply to register our trademarks in the United
States and internationally (we own the registration for the DoubleClick
trademark in the United States). We cannot assure you that any of our patent
applications or trademark registrations will be approved. Even if they are
approved, such patents or trademarks may be successfully challenged by others or
invalidated. If our trademark registrations are not approved because third
parties own such trademarks, our use of such trademarks will be restricted
unless we enter into arrangements with such third parties which may be
unavailable on commercially reasonable terms.
We generally enter into confidentiality or license agreements with our
employees, consultants and corporate partners, and generally control access to
and distribution of our technologies, documentation and other proprietary
information. Despite our efforts to protect our proprietary rights from
unauthorized use or disclosure, parties may attempt to disclose, obtain or use
our solutions or technologies. We cannot assure you that the steps we have taken
will prevent misappropriation of our solutions or technologies, particularly in
foreign countries where laws or law enforcement practices may not protect our
proprietary rights as fully as in the United States.
Our DART technology collects and utilizes data derived from user activity on
the DoubleClick Network and the Web sites of Web publishers using our solutions.
This data is used for ad targeting and predicting ad performance. Although we
believe that we have the right to use such data and the compilation of such data
in our database, we cannot assure you that any trade secret, copyright or other
protection will be available for such information. In addition, others may claim
rights to such information. Further, pursuant to our contracts with Web
publishers using our solutions, we are obligated to keep
12
<PAGE>
certain information regarding each Web publisher confidential.
We have licensed, and we may license in the future, elements of our
trademarks, trade dress and similar proprietary rights to third parties. While
we attempt to ensure that the quality of our brand is maintained by these
business partners, such partners may take actions that could materially and
adversely affect the value of our proprietary rights or our reputation. In
addition, we currently license certain aspects of our predictive modeling
technologies from a third party. Our failure 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 our business, results of operations and
financial condition.
We cannot assure you that any of our proprietary rights will be viable or of
value in the future since the validity, enforceability and scope of protection
of certain proprietary rights in Internet-related industries is uncertain and
still evolving. Furthermore, third parties may assert infringement claims
against us. From time to time we have been, and we expect to continue to be,
subject to claims in the ordinary course of our business, including claims of
alleged infringement of the trademarks and other intellectual property rights of
third parties by us or the Web publishers with Web sites in the DoubleClick
Network. Although there has not been any litigation relating to such claims,
such claims and any resultant litigation, should it occur, could subject us to
significant liability for damages and could result in the invalidation of our
proprietary rights. In addition, even if we prevail, such litigation could be
time-consuming and expensive to defend, and could result in the diversion of our
time and attention, any of which could materially and adversely affect our
business, results of operations and financial condition. Any claims or
litigation from third parties may also result in limitations on our ability to
use the trademarks and other intellectual property subject to such claims or
litigations unless we enter into arrangements with the third parties responsible
for such claims or litigation which may be unavailable on commercially
reasonable terms.
RISKS ASSOCIATED WITH TECHNOLOGICAL CHANGE
The Internet and Internet advertising markets are characterized by rapidly
changing technologies, evolving industry standards, frequent new product and
service introductions, and changing customer demands. Our future success will
depend on our ability to adapt to rapidly changing technologies and to enhance
existing solutions and develop and introduce a variety of new solutions to
address our customers' changing demands. We may experience difficulties that
could delay or prevent the successful design, development, introduction or
marketing of our solutions. In addition, our new solutions or enhancements must
meet the requirements of our current and prospective customers and must achieve
significant market acceptance. Material delays in introducing new solutions and
enhancements may cause customers to forego purchases of our solutions and
purchase those of our competitors.
RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION
We have operations in a number of international markets. We intend to
continue to expand our international operations and international sales and
marketing efforts. To date, we have limited experience in developing localized
versions of our solutions and in marketing, selling and distributing our
solutions internationally. We have established DoubleClick Networks in
Australia, Canada, France, Germany and the United Kingdom. In Japan,
Iberoamerica (Spain, Portugal and Latin America), Italy and Scandinavia, we are
relying on our business partners to conduct operations, establish local
networks, aggregate Web publishers and coordinate sales and marketing efforts.
Our success in such markets is directly dependent on the success of our business
partners and their dedication of sufficient resources to our relationship.
International operations are subject to other inherent risks, including:
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<PAGE>
- the impact of recessions in economies outside the United States;
- changes in regulatory requirements;
- reduced protection for intellectual property rights in some countries;
- potentially adverse tax consequences;
- difficulties and costs of staffing and managing foreign operations;
- political and economic 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.
These risks may materially and adversely affect our business, results of
operations or financial condition.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
Laws and regulations directly applicable to Internet communications,
commerce and advertising are becoming more prevalent. The most recent session of
the United States Congress resulted in Internet laws regarding children's
privacy, copyrights and taxation. Such legislation could dampen the growth in
use of the Web generally and decrease the acceptance of the Web as a
communications, commercial and advertising medium. Although our transmissions
originate in New York, the governments of other states or foreign countries
might attempt to regulate our transmissions or levy sales or other taxes
relating to our activities. The European Union recently enacted its own privacy
regulations that may result in limits on the collection and use of certain user
information. The laws governing the Internet, however, remain largely unsettled,
even in areas where there has been some legislative action. It may take years to
determine whether and how existing laws such as those governing intellectual
property, privacy, libel and taxation apply to the Internet and Internet
advertising. In addition, the growth and development of the market for Internet
commerce may prompt calls for more stringent consumer protection laws, both in
the United States and abroad, that may impose additional burdens on companies
conducting business over the Internet. Our business, results of operations and
financial condition could be adversely affected by the adoption or modification
of laws or regulations relating to the Internet.
SHARES ELIGIBLE FOR FUTURE SALE
If our stockholders sell substantial amounts of our Common Stock (including
shares issued upon the exercise of outstanding options) in the public market
following this offering, the market price of our Common Stock could fall. Such
sales also might make it more difficult for us to sell equity or equity-related
securities in the future at a time and price that we deem appropriate. Upon
completion of this offering, we will have outstanding 19,126,919 shares of
Common Stock (based on the number of shares outstanding as of September 30, 1998
and assuming no exercise of outstanding options after September 30, 1998). Of
these shares, the 4,025,000 shares sold in our initial public offering in
February 1998, the 2,500,000 shares being offered hereby and 2,576,690 of the
shares that were either released from the initial public offering lock-up
agreements in August 1998 or have been sold pursuant to Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"), are freely tradeable.
This leaves 9,881,966 shares eligible for sale in the public market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
- ------------------------ ---------------------------
<S> <C>
6,297,337 At various times after the
date of this prospectus
pursuant to Rule 144
3,584,629 At various times after 90
days from the date of this
prospectus
</TABLE>
In addition, we have registered for resale the 3,000,000 shares of Common
Stock reserved for issuance under our 1997 Stock Incentive Plan (the "1997
Plan"). As of September 30, 1998, options to purchase 2,281,054 shares of Common
Stock were outstanding and will be eligible for sale in the
14
<PAGE>
public market from time to time subject to vesting and, in the case of certain
options, the expiration of lock-up agreements. These stock options generally
have exercise prices significantly below the current price of our Common Stock.
The possible sale of a significant number of these shares may cause the price of
our Common Stock to fall.
Certain stockholders, representing approximately 12,176,710 shares of Common
Stock, may have the right, subject to conditions, to include their shares in
certain registration statements relating to DoubleClick's securities. By
exercising their registration rights and causing a large number of shares to be
registered and sold in the public market, these holders may cause the price of
the Common Stock to fall. In addition, any demand to include such shares in
DoubleClick registration statements could have an adverse effect on our ability
to raise needed capital. See "Management -- 1997 Stock Incentive Plan",
"Principal Stockholders", "Description of Securities -- Registration Rights",
"Shares Eligible for Future Sale" and "Underwriting".
SUBSTANTIAL INFLUENCE BY OFFICERS AND DIRECTORS
We anticipate that the executive officers, directors and entities affiliated
with them will, in the aggregate, beneficially own approximately 33.7% of our
outstanding Common Stock following the completion of this offering. These
stockholders may be able to exercise substantial influence over all matters
requiring approval by our stockholders, including the election of directors and
approval of significant corporate transactions. This concentration of ownership
may also have the effect of delaying or preventing a change in control of
DoubleClick. See "Management" and "Principal Stockholders".
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of our Common Stock has fluctuated in the past and is
likely to continue to be highly volatile and could be subject to wide
fluctuations. In addition, the stock market has experienced extreme price and
volume fluctuations. The market prices of the securities of Internet-related
companies have been especially volatile. Investors may be unable to resell their
shares of our Common Stock at or above the offering price. In the past,
companies that have experienced volatility in the market price of their stock
have been the object of securities class action litigation. If we were the
object of securities class action litigation, it could result in substantial
costs and a diversion of management's attention and resources. See "Price Range
of Common Stock".
BROAD DISCRETION IN USE OF PROCEEDS
Our management can spend most of the proceeds from this offering in ways
with which the stockholders may not agree. See "Use of Proceeds".
ANTI-TAKEOVER PROVISIONS
Provisions of our Certificate of Incorporation, our Bylaws and Delaware law
could make it more difficult for a third party to acquire us, even if doing so
would be beneficial to our stockholders. See "Description of Securities".
DILUTION
Investors purchasing shares in the offering will incur immediate and
substantial dilution in net tangible book value per share. See "Dilution".
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<PAGE>
USE OF PROCEEDS
The net proceeds to DoubleClick from the sale of the 2,500,000 shares of
Common Stock offered by DoubleClick are estimated to be approximately $126.1
million ($145.1 million if the underwriters' over-allotment option is exercised
in full), at an assumed public offering price of $53.375 per share and after
deducting the estimated underwriting discount and offering expenses payable by
DoubleClick.
DoubleClick intends to use the net proceeds from this offering for general
corporate purposes, including working capital, for the expansion of its
international operations and sales and marketing capabilities, and for product
development. In addition, DoubleClick may use a portion of the net proceeds to
acquire or invest in complementary businesses, technologies, services or
products; however, DoubleClick currently has no commitments or agreements and it
is not involved in any negotiations with respect to any such transactions. As of
the date of this prospectus, DoubleClick cannot specify with certainty the
particular uses for the net proceeds to be received upon completion of the
offering. Accordingly, DoubleClick's management will have broad discretion in
the application of the net proceeds.
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.
PRICE RANGE OF COMMON STOCK
DoubleClick's Common Stock has been quoted on the Nasdaq National Market
under the symbol DCLK since DoubleClick's initial public offering on February
20, 1998. The following table sets forth, for the periods indicated, the high
and low sales prices per share of the Common Stock as reported on the Nasdaq
National Market:
<TABLE>
<CAPTION>
1998: HIGH LOW
--------- ---------
<S> <C> <C>
First Quarter (from February 20, 1998)............... $ 37.00 $ 26.13
Second Quarter....................................... 49.75 30.88
Third Quarter........................................ 77.13 18.19
Fourth Quarter (through November 27, 1998)........... 57.00 13.50
</TABLE>
On November 27, 1998, the last reported sale price of the Common Stock on
the Nasdaq National Market was $53.375. As of November 23, 1998, there were 682
holders of record of the Common Stock.
DIVIDEND POLICY
DoubleClick has never declared or paid any cash dividends on its capital
stock. DoubleClick currently intends to retain future earnings, if any, to
finance the expansion of its business and does not expect to pay any cash
dividends for the foreseeable future.
CORPORATE INFORMATION
DoubleClick was incorporated in Delaware on January 23, 1996 as DoubleClick
Incorporated and changed its name to DoubleClick Inc. on May 14, 1996.
References in this prospectus to "DoubleClick", "we", "our", and "us" refer to
DoubleClick Inc., a Delaware corporation.
DoubleClick'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. Information contained on DoubleClick's Web site does not
constitute part of this prospectus.
"DoubleClick" is a registered trademark of DoubleClick. DART, DoubleClick
Network, DoubleClick Local, DoubleClick Direct, Dart Service, Closed Loop
Marketing Solutions and the DoubleClick logo are trademarks of DoubleClick. Each
trademark, trade name or service mark of any other company appearing in this
prospectus belongs to its holder.
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<PAGE>
CAPITALIZATION
The following table sets forth DoubleClick's capitalization as of September 30,
1998 on an actual basis and on an as adjusted basis to give effect to the
receipt by DoubleClick of the estimated net proceeds from the sale of 2,500,000
shares of Common Stock offered by DoubleClick hereby at an assumed public
offering price of $53.375. You should read this information together with
DoubleClick's consolidated financial statements and the notes to those
statements appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
-------------------------
ACTUAL AS ADJUSTED
----------- ------------
<S> <C> <C>
(IN THOUSANDS)
(UNAUDITED)
Stockholders' equity:
Preferred Stock, $.001 par value, 5,000,000 shares authorized; no shares issued and
outstanding on an actual, or as adjusted basis..................................... $ -- $ --
Common Stock, $.001 par value, 60,000,000 shares authorized; 16,626,919 shares issued
and outstanding on an actual basis; and 19,126,919 shares issued and outstanding on
an as adjusted basis(1)............................................................ 17 19
Additional paid-in capital............................................................. 109,615 235,732
Other comprehensive income............................................................. 56 56
Deferred compensation.................................................................. (554) (554)
Accumulated deficit(2)................................................................. (50,360) (50,360)
----------- ------------
Total stockholders' equity............................................................. 58,774 184,893
----------- ------------
Total capitalization................................................................. $ 58,774 $ 184,893
----------- ------------
----------- ------------
</TABLE>
- ------------------------
(1) Excludes (a) 2,281,054 shares of Common Stock issuable upon the exercise of
stock options outstanding at September 30, 1998, with a weighted average
exercise price of $6.81 per share, of which options to purchase 601,953
shares were then exercisable, and (b) 264,120 shares reserved for issuance
under the Company's 1997 Plan. See "Management -- 1997 Stock Incentive
Plan", "Description of Securities" and Note 5 of Notes to Consolidated
Financial Statements.
(2) Consists of $25.3 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 DoubleClick that occurred
simultaneously with the completion of a private placement of DoubleClick's
securities in June 1997. See "Certain Transactions" and Note 5 of Notes to
Consolidated Financial Statements.
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<PAGE>
DILUTION
The net tangible book value of DoubleClick as of September 30, 1998 was
$58.8 million, or $3.53 per share of Common Stock. Net tangible book value per
share represents the amount of DoubleClick's total tangible assets less total
liabilities, divided by the number of shares of Common Stock outstanding. After
giving effect to the sale of the 2,500,000 shares of Common Stock offered by
DoubleClick hereby at an assumed public offering price of $53.375 per share and
the application of the estimated net proceeds, the net tangible book value of
DoubleClick as of September 30, 1998 would have been $184.9 million, or $9.66
per share of Common Stock. This represents an immediate increase in the net
tangible book value of $6.13 per share to existing stockholders and an immediate
dilution in the net tangible book value of $43.72 per share to new investors of
Common Stock in this offering. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share.................................... $ 53.375
Net tangible book value per share as of September 30, 1998............. $ 3.53
Increase per share attributable to new investors....................... 6.13
---------
Net tangible book value per share after the offering....................... 9.66
---------
Dilution per share to new investors........................................ $ 43.72
---------
---------
</TABLE>
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below with respect to
DoubleClick's Consolidated Statement of Operations for the period from January
23, 1996 (inception) through December 31, 1996 and for the year ended December
31, 1997, and with respect to DoubleClick's Consolidated Balance Sheet as of
December 31, 1996 and 1997, are derived from the audited consolidated financial
statements of DoubleClick which are included elsewhere in this prospectus. The
selected consolidated financial data as of September 30, 1998 and for the
nine-month periods ended September 30, 1997 and 1998 are unaudited and include
all adjustments, consisting only of normal, recurring adjustments, that
DoubleClick considers necessary for a fair presentation of the consolidated
financial position and the consolidated results of operations for those periods.
Operating results for the nine-month period ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 1998. 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 notes to those
statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
JANUARY 23, 1996
(INCEPTION) YEAR
THROUGH ENDED
DECEMBER 31, DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
------------------- --------------------- -------------------------------------------
1996 1997 1997 1998
------------------- --------------------- --------------------- --------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues...................... $ 6,514 $ 30,597 $ 19,657 $ 51,074
Cost of revenues.............. 3,780 20,628 13,048 34,539
------- -------- -------- --------
Gross profit................ 2,734 9,969 6,609 16,535
Operating expenses:
Sales and marketing......... 3,079 10,710 6,606 20,117
General and
administrative............ 2,145 6,326 3,607 7,825
Product development......... 618 1,398 1,016 4,356
------- -------- -------- --------
Total operating
expenses................ 5,842 18,434 11,228 32,298
------- -------- -------- --------
Loss from operations.......... (3,108) (8,465) (4,619) (15,763)
Net interest income (expense) (84) 109 7 1,948
------- -------- -------- --------
Net loss...................... $ (3,192) $ (8,356) $ (4,612) $ (13,815)
------- -------- -------- --------
------- -------- -------- --------
Basic and diluted net loss per
share (1)................... $ (0.28) $ (0.73) $ (0.40) $ (0.88)
------- -------- -------- --------
------- -------- -------- --------
Weighted average shares used
in basic and diluted net
loss per share calculation
(1)......................... 11,397 11,449 11,431 15,751
------- -------- -------- --------
------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1996 1997 1998
------------------- --------------------- --------------
<S> <C> <C> <C>
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents, and short-term investments... $ -- $ 8,546 $ 49,913
Working capital (deficit)............................... (3,038) 7,512 50,547
Total assets............................................ 4,526 21,742 80,202
Total stockholders' (deficit) equity.................... (2,592) 9,400 58,774
</TABLE>
- ------------------------
(1) Basic and diluted net loss per share computations have been restated to give
effect to the conversion of shares of DoubleClick's convertible preferred
stock into Common Stock on February 25, 1998. See Note 1 of Notes to
Consolidated Financial Statements.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF DOUBLECLICK TOGETHER WITH THE CONSOLIDATED FINANCIAL
STATEMENTS AND THE NOTES TO SUCH STATEMENTS INCLUDED ELSEWHERE IN THIS
PROSPECTUS. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS BASED ON OUR
CURRENT EXPECTATIONS, ASSUMPTIONS, ESTIMATES AND PROJECTIONS ABOUT DOUBLECLICK
AND OUR INDUSTRY. THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND
UNCERTAINTIES. DOUBLECLICK'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
AS MORE FULLY DESCRIBED IN THE "RISK FACTORS" SECTION AND ELSEWHERE IN THIS
PROSPECTUS. WE UNDERTAKE NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING
STATEMENTS FOR ANY REASON, EVEN IF NEW INFORMATION BECOMES AVAILABLE OR OTHER
EVENTS OCCUR IN THE FUTURE.
OVERVIEW
DoubleClick is a leading provider of comprehensive Internet advertising
solutions for advertisers and Web publishers worldwide. DoubleClick currently
has two principal lines of business. The DoubleClick Network (ad sales) provides
fully-outsourced ad sales, delivery and related services to publishers of
highly-trafficked Web sites, including AltaVista, The Dilbert Zone, Macromedia
and U.S. News Online. The DoubleClick Network focuses on meeting the needs of
Internet advertisers who target users on a national, international and/or local
basis. DoubleClick's DART Service (ad serving), consisting of DART for Web
publishers and the recently introduced Closed Loop Marketing Solutions suite of
products for advertisers and ad agencies, provides Web publishers, advertisers
and ad agencies with the ability to control the targeting, delivery, measurement
and analysis of their online marketing campaigns on a real-time basis. The
DoubleClick Network and DART Service lines of business are available to Web
publishers and advertisers in international markets. DoubleClick's proprietary
DART technology, which dynamically matches and delivers ads to the target
audience within milliseconds, is the platform for all of DoubleClick's
solutions.
DoubleClick completed its initial public offering on February 25, 1998 and
received net proceeds of approximately $62.5 million. The net proceeds were
added to DoubleClick's working capital and, pending their use, DoubleClick has
invested such funds in short-term, interest bearing investment grade
obligations.
DoubleClick was founded in January 1996 by Kevin J. O'Connor, DoubleClick's
Chief Executive Officer, Dwight A. Merriman, DoubleClick's Chief Technical
Officer, and Poppe Tyson, Inc. DoubleClick has grown from 13 employees as of
March 31, 1996 to 373 employees as of September 30, 1998.
From January 23, 1996 (inception) through May 1996, DoubleClick's operating
activities related primarily to developing the DART technology and the
DoubleClick Network, and recruiting personnel. During the same period,
substantially all of DoubleClick'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 DoubleClick'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. DoubleClick no longer
arranges for the placement of advertisements on a commission basis.
Since the fourth quarter of 1996, DoubleClick has derived substantially all
of its revenues from the DoubleClick Network. DoubleClick offers advertising on
the DoubleClick Network to third party advertisers with pricing generally
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 DoubleClick are
typically sold pursuant to purchase order agreements, which are subject to
cancellation.
20
<PAGE>
DoubleClick's revenues from the DoubleClick Network are received from the
advertiser that orders the ad, and DoubleClick pays the Web publisher (on whose
Web site such advertisement is delivered) a service fee. This service fee is
calculated as a percentage of such advertising revenues, which amount is
included in cost of revenues. DoubleClick 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, DoubleClick earns service
fees for providing the DART Service to Web publishers and the Closed Loop
Marketing Solutions suite of products to Internet advertisers and ad agencies.
To date, revenues from DoubleClick's DART Service 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. DoubleClick also sells sponsorship
advertising, which involves a greater degree of integration among DoubleClick,
the advertiser and the Web sites on the DoubleClick Network. These sponsorships
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. As part of the DoubleClick
Network, DoubleClick also offers DoubleClick Direct, an Internet advertising
solution for direct marketers. DoubleClick Direct advertising is priced on a
"cost-per-click", "cost-per-lead" and "cost-per-sale or download" basis, rather
than a CPM basis.
DoubleClick expects the DoubleClick Network will continue to account for a
substantial portion of DoubleClick's revenues for the foreseeable future.
Moreover, ads delivered on the Web sites of the top four Web publishers on the
DoubleClick Network, including AltaVista, accounted for approximately 60.3% of
DoubleClick's revenues for the nine months ended September 30, 1998, and 61.2%
of DoubleClick's revenues for the year ended December 31, 1997. Of the 60.3% for
the nine months ended September 30, 1998, approximately 47.8% of DoubleClick's
revenues related to AltaVista and an aggregate of approximately 12.5% of
DoubleClick's revenues related to the Web sites of the next three top
DoubleClick publishers on the DoubleClick Network. DoubleClick typically enters
into short-term contracts with DoubleClick 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 DoubleClick's revenues from the DoubleClick Network, or
any significant reduction in traffic on such Web sites could have a material
adverse effect on DoubleClick's business, results of operations and financial
condition.
To take advantage of the global reach of the Internet, DoubleClick has
established DoubleClick Networks in Europe, Asia and other international
markets. DoubleClick currently has operations in Australia, Canada, France,
Germany and the United Kingdom, and through its business partners, in Japan,
Iberoamerica, Italy and Scandinavia. DoubleClick expects to continue to invest
in building its international operations.
In December 1996, DoubleClick entered into an agreement with Digital
Equipment Corporation (acquired by Compaq in June 1998) to be the exclusive
third-party provider of advertising services on specified pages within the
AltaVista Web site. Although this agreement extends through December 1999,
either Compaq or DoubleClick may terminate the agreement without cause upon 90
days' prior written notice. DoubleClick has ongoing discussions with Compaq
regarding the agreement and DoubleClick's relationship with AltaVista.
DoubleClick cannot predict the timing or outcome of such discussions. Compaq may
elect, or notify DoubleClick of its intention to elect, to terminate the
agreement or demand changes to the terms of the agreement that are less
favorable to DoubleClick than the terms of the existing agreement. The loss of
AltaVista as part of the DoubleClick Network, any changes to the existing
agreement that are less favorable to DoubleClick, or any significant
21
<PAGE>
reduction in traffic on or through the AltaVista Web site, would materially and
adversely affect DoubleClick's business, results of operations and financial
condition. Compaq may also choose to change or limit the type of advertisers or
advertisements that are acceptable for the AltaVista Web site. Any such change
could adversely impact our advertising revenues. In addition, DoubleClick's
relationship with AltaVista could be negatively affected by any development
materially affecting the business or financial AltaVista, including any
consequences Compaq's recent acquisition of AltaVista, the sale of AltaVista to
a third party, or AltaVista's establishment of a strategic relationship with a
third party with a dedicated ad sales force.
DoubleClick pays AltaVista a service fee calculated as a percentage of the
revenues derived from delivery of advertisements on or through the AltaVista Web
site. Revenues from advertisements delivered on or through the AltaVista Web
site were $13.7 million, or 44.7% of DoubleClick's revenues for the year ended
December 31, 1997, and $24.4 million or 47.8% of DoubleClick's revenues for the
nine months ended September 30, 1998. No other Web site or DoubleClick publisher
accounted for more than 10% of DoubleClick's revenue for the nine months ended
September 30, 1998.
DoubleClick has incurred significant losses since its inception, and as of
September 30, 1998 had an accumulated deficit of $50.3 million, of which $25.3
million related to cumulative losses and $25.0 million related to the redemption
of shares of Common Stock from certain stockholders in connection with
DoubleClick's recapitalization that occurred simultaneously with the completion
of a private placement of DoubleClick's securities in June 1997. In addition,
during the year ended December 31, 1997, DoubleClick recorded deferred
compensation of $1.5 million, which represents the difference between the
exercise price and the fair market value of Common Stock issuable upon the
exercise of certain stock options granted to employees. The deferred
compensation is being amortized over the vesting periods of the related options.
Of the total deferred compensation amount, approximately $0.9 million had been
amortized as of September 30, 1998. DoubleClick believes that quarter-to-quarter
comparisons of its results of operations are not meaningful and that the results
for any quarter should not be relied upon as an indication of future
performance. DoubleClick plans to significantly increase its operating expenses
to increase its sales and marketing operations, to continue its international
expansion, to upgrade and enhance its DART technology and to market and support
its solutions. DoubleClick may be unable to adjust spending quickly enough to
offset any unexpected revenue shortfall. If DoubleClick has a shortfall in
revenues in relation to its expenses, or if DoubleClick's expenses precede
increased revenues, then DoubleClick's business, results of operations and
financial condition would be materially and adversely affected. As a result of
these factors, there can be no assurance that DoubleClick 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 the consolidated results of operations of
DoubleClick expressed as a percentage of revenues:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 23, 1996
(INCEPTION) YEAR NINE MONTHS
THROUGH ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
----------------- ----------------- -----------------
1996 1997 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues.................................................. 100.0% 100.0% %100.0
Cost of revenues.......................................... 58.0 67.4 66.4
----- ----- -------
Gross profit............................................ 42.0 32.6 33.6
Operating expenses:
Sales and marketing..................................... 47.3 35.0 33.6
General and administrative.............................. 32.9 20.7 18.3
Product development..................................... 9.5 4.6 5.2
----- ----- -------
Total operating expenses.............................. 89.7 60.3 57.1
----- ----- -------
Loss from operations...................................... (47.7) (27.7) )(23.5
Interest income (expense), net............................ (1.3) 0.4 0.0
----- ----- -------
Net loss.................................................. (49.0)% (27.3)% )(23.5%
----- ----- -------
----- ----- -------
<CAPTION>
1998
-----------------
<S> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues.................................................. %100.0
Cost of revenues.......................................... 67.6
-------
Gross profit............................................ 32.4
Operating expenses:
Sales and marketing..................................... 39.4
General and administrative.............................. 15.3
Product development..................................... 8.5
-------
Total operating expenses.............................. 63.2
-------
Loss from operations...................................... )(30.8
Interest income (expense), net............................ 3.8
-------
Net loss.................................................. )(27.0%
-------
-------
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998
REVENUES
DoubleClick's revenues are derived primarily from the delivery of
advertisements on the Web sites of Web publishers on the DoubleClick Network.
Revenues increased 159.8% from $19.7 million for the nine months ended September
30, 1997 to $51.1 million for the nine months ended September 30, 1998. The
increase in revenues was due primarily to an increase in the number of
advertisers and ads delivered on the DoubleClick Network, particularly ads
delivered on or through the AltaVista Web site. Revenues earned from
advertisements delivered on or through the AltaVista Web site were $8.4 million,
or 42.8% of revenues for the nine months ended September 30, 1997, compared to
$24.4 million, or 47.8% of revenues for the nine months ended September 30,
1998. Approximately $3.0 million of revenues for the nine months ended September
30, 1998 resulted from sales of inventory on the AltaVista Web site which was
derived from an arrangement between AltaVista and another search engine that
expired on June 30, 1998, and was therefore non-recurring. AltaVista is a
significant part of the DoubleClick Network. No other Web site accounted for
more than 10.0% of revenues for the nine months ended September 30, 1998, and no
one advertiser accounted for more than 10% of revenues during the same period.
During such period, DoubleClick did not derive significant revenues from its
DART Service.
COST OF REVENUES
Cost of revenues consists primarily of service fees paid to Web publishers
for 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 margin was 33.6% and
32.4% for the nine months ended September 30, 1997 and 1998, respectively. Gross
margin decreased for the nine months
23
<PAGE>
ended September 30, 1998 compared to September 30, 1997 primarily due to a
decrease in DoubleClick's sales of advertisements on a commission basis as a
percentage of DoubleClick's total revenue. To the extent revenues from its DART
Services increase as a percentage of total revenues, DoubleClick anticipates
that gross margin will increase.
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 $6.6 million and $20.1 million for the nine months ended September
30, 1997 and 1998, respectively, or 33.6% and 39.4% of revenues, respectively.
The increase in absolute dollars was primarily attributable to the increase in
sales personnel, commissions associated with the increase in revenues, costs
associated with expanding international operations, and costs related to the
continued development and implementation of DoubleClick's marketing and branding
campaigns. The increase in sales and marketing expenses as a percentage of
revenues resulted from such expenses increasing more rapidly than revenues as
DoubleClick continued to build its sales and marketing infrastructure.
DoubleClick expects sales and marketing expenses to increase on an absolute
dollar basis but decrease as a percentage of revenues as DoubleClick hires
additional personnel, expands into new markets and continues to promote the
DoubleClick brand.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of compensation and professional services fees and related supplies
and materials. General and administrative expenses were $3.6 million and $7.8
million for the nine months ended September 30, 1997 and 1998, respectively, or
18.3% and 15.3% of revenues, respectively. The increase in absolute dollars was
primarily the result of expenses related to increased personnel and professional
service fees. DoubleClick expects general and administrative expenses to
increase on an absolute dollar basis but decrease as a percentage of revenues as
DoubleClick 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 enhancements to the DART technology. To
date, all product development costs have been expensed as incurred. Product
development expenses were $1.0 million and $4.4 million for the nine months
ended September 30, 1997 and 1998, respectively, or 5.2% and 8.5% of revenues,
respectively. The increase in absolute dollars was due primarily to increases in
product development personnel and consulting expenses. The increase in product
development expenses as a percentage of revenues resulted from such expenses
increasing more rapidly than revenues as DoubleClick continued the development
of its DART technology and its solutions. DoubleClick believes that continued
investment in product development is critical to attaining its strategic
objectives and, as a result, expects product development expenses to increase on
an absolute dollar basis but to remain relatively constant as a percentage of
revenues.
LOSS FROM OPERATIONS
DoubleClick's loss from operations was $4.6 million and $15.8 million for
the nine months ended September 30, 1997 and 1998, respectively. The increase in
the loss from operations was primarily due to the hiring of additional
personnel, particularly in sales and marketing, and product development.
DoubleClick expects to hire additional personnel and increase its spending for
sales and marketing, upgrade and enhance DoubleClick's DART technology and
continue international expansion. However, DoubleClick expects that the loss
from operations may decrease both on an absolute dollar basis and as a
percentage of revenues in the future.
24
<PAGE>
INTEREST INCOME (EXPENSE)
Net interest income was $1.9 million for the nine months ended September 30,
1998. Interest income was attributable to cash, cash equivalents and short-term
investments as a result of the net proceeds received by DoubleClick from its
initial public offering of Common Stock in February 1998. Interest income in
future periods may fluctuate as a result of fluctuations in average cash
balances maintained by DoubleClick and changes in the market rate of its
investments.
PERIOD FROM JANUARY 23, 1996 (INCEPTION) THROUGH DECEMBER 31, 1996 COMPARED TO
YEAR ENDED DECEMBER 31, 1997
REVENUES
Revenues increased from $6.5 million for the period from January 23, 1996
(inception) through December 31, 1996 to $30.6 million for the year ended
December 31, 1997. During the period from January 23, 1996 (inception) through
December 31, 1996, $1.1 million of DoubleClick'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 year
ended December 31, 1997 were not material and DoubleClick 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 year ended
December 31, 1997 from advertisements delivered on or through the AltaVista Web
site were $13.7 million, or 44.7% of revenues. AltaVista is a significant part
of the DoubleClick Network. For the year ended December 31, 1997, no one
advertiser accounted for more than 10% of DoubleClick's revenues. Through
December 31, 1997, DoubleClick had not derived significant revenues from its
DART Service.
COST OF REVENUES
Gross margin was 42.0% and 32.6% for the period from January 23, 1996
(inception) through December 31, 1996 and for the year ended December 31, 1997,
respectively. Gross margin decreased in 1997 due to the shift in DoubleClick's
revenue mix away from the sale of advertisements on a commission basis.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses were $3.1 million and
$10.7 million for the period from January 23, 1996 (inception) through December
31, 1996 and for the year ended December 31, 1997, respectively, or 47.3% and
35.0% 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 DoubleClick's marketing and
branding campaigns.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were $2.1
million and $6.3 million for the period from January 23, 1996 (inception)
through December 31, 1996 and for the year ended December 31, 1997,
respectively, or 32.9% and 20.7% 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
DoubleClick's domestic and international growth.
PRODUCT DEVELOPMENT. Product development expenses were $0.6 million and
$1.4 million for the period from January 23, 1996 (inception) through December
31, 1996 and for the year ended December 31, 1997, respectively, or 9.5% and
4.6% 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 year ended December 31, 1997
were primarily related to enhancements to the DART technology and the
development of DoubleClick Direct.
25
<PAGE>
LOSS FROM OPERATIONS
DoubleClick's loss from operations was $3.1 million for the period from
January 23, 1996 (inception) through December 31, 1996 and $8.5 million for the
year ended December 31, 1997. The increase in the loss from operations was
primarily due to the hiring of additional personnel in all areas of DoubleClick
as it continued to build its infrastructure, expand its markets and increase its
brand awareness.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited consolidated quarterly
statement of operations data for the seven quarters ended September 30, 1998.
This information is unaudited, but in the opinion of management, it 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 DoubleClick
and the notes to such statements 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, SEPT. 30,
1997 1997 1997 1997 1998 1998 1998
-------- -------- --------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues................................ $ 5,329 $ 6,138 $ 8,190 $10,940 $ 13,004 $ 17,293 $20,777
Cost of revenues........................ 3,394 4,094 5,560 7,580 8,845 11,724 13,970
-------- -------- --------- -------- ---------- ---------- ---------
Gross profit.......................... 1,935 2,044 2,630 3,360 4,159 5,569 6,807
-------- -------- --------- -------- ---------- ---------- ---------
Operating expenses:
Sales and marketing................... 2,120 1,924 2,562 4,104 5,624 6,885 7,608
General and administrative............ 752 1,019 1,836 2,718 2,349 2,621 2,855
Product development................... 233 280 502 384 1,026 1,554 1,778
-------- -------- --------- -------- ---------- ---------- ---------
Total operating expenses............ 3,105 3,223 4,900 7,206 8,999 11,060 12,241
-------- -------- --------- -------- ---------- ---------- ---------
Loss from operations.................... $(1,170) $(1,179) $(2,270) $(3,846) $ (4,840) $ (5,491) $(5,434)
-------- -------- --------- -------- ---------- ---------- ---------
-------- -------- --------- -------- ---------- ---------- ---------
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1997 1997 1997 1997 1998 1998 1998
-------- -------- --------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues................................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues........................ 63.7 66.7 67.9 69.3 68.0 67.8 67.2
-------- -------- --------- -------- ---------- ---------- ---------
Gross profit.......................... 36.3 33.3 32.1 30.7 32.0 32.2 32.8
-------- -------- --------- -------- ---------- ---------- ---------
Operating expenses:
Sales and marketing................... 39.8 31.3 31.3 37.5 43.2 39.8 36.6
General and administrative............ 14.1 16.6 22.4 24.8 18.1 15.2 13.7
Product development................... 4.4 4.6 6.1 3.5 7.9 9.0 8.6
-------- -------- --------- -------- ---------- ---------- ---------
Total operating expenses............ 58.3 52.5 59.8 65.8 69.2 64.0 58.9
-------- -------- --------- -------- ---------- ---------- ---------
Loss from operations.................... (22.0)% (19.2)% (27.7)% (35.1)% (37.2)% (31.8)% (26.1)%
-------- -------- --------- -------- ---------- ---------- ---------
-------- -------- --------- -------- ---------- ---------- ---------
</TABLE>
DoubleClick'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, DoubleClick 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.
Gross margin generally decreased throughout 1997. The decrease was
attributable to a shift in DoubleClick's revenue mix away from selling
advertisements on behalf of third-party Web sites to delivering advertisements
across the DoubleClick
26
<PAGE>
Network. DoubleClick no longer arranges for the placement of advertisements, nor
does it expect to recognize any future revenues, on a commission basis. Over the
past four quarters, gross margin has increased as revenues from the DART Service
have increased as a percentage of total revenues. To date, revenues from in the
DART Service have not been significant. To the extent revenues from its DART
Service increase as a percentage of total revenues, DoubleClick anticipates that
gross margin will increase.
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. DoubleClick's sales and marketing
organization has grown from 8 employees as of June 30, 1996 to 236 employees as
of September 30, 1998. The increase in general and administrative expenses was
due primarily to additional personnel, professional fees, facilities costs and
costs associated with operating as a public company. In the third and fourth
quarters of 1997, general and administrative expenses increased due in part to
legal costs associated with DoubleClick's international expansion and litigation
costs relating to DoubleClick'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 generally increased as a
result of continued enhancements to the DART technology and development of new
solutions such as the DART Service, DoubleClick Direct, DoubleClick Local and
DoubleClick's Closed Loop Marketing Solutions suite of products.
DoubleClick's results of operations may fluctuate significantly in the
future as a result of a variety of factors, many of which are beyond
DoubleClick's control. See "Risk Factors -- Quarterly Operating Results are
Subject to Significant Fluctuations".
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, DoubleClick has financed its operations primarily
through the private placement of equity securities, borrowings from a related
party, and its initial public offering. In June 1997, DoubleClick 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. On December 30, 1997, $5,000,000 in
borrowings from a related party pursuant to a convertible promissory note were
converted to 779,302 shares of Common Stock. In February 1998, DoubleClick
received net proceeds of approximately $62.5 million from the initial public
offering of 4,025,000 shares of Common Stock at a price of $17.00 per share.
Net cash used in operating activities was $2.1 million and $14.0 million for
the nine months ended September 30, 1997 and 1998, respectively. Cash used in
operating activities for the nine months ended September 30, 1998 resulted from
net operating losses and an increase in accounts receivable and other current
assets, which were partially offset by increases in accounts payable, accrued
expenses and deferred revenues.
Net cash used in investing activities was $9.8 million and $12.8 million for
the nine months ended September 30, 1997 and 1998, respectively. Cash used in
investing activities for the nine months ended September 30, 1998 resulted from
purchases of property and equipment, investments, and purchases, sales and
maturities of short-term investments, net.
Net cash provided by financing activities was $16.5 million and $62.6
million for the nine months ended September 30, 1997 and 1998, respectively.
Cash provided by financing activities for the nine months ended September 30,
1998 consisted primarily of net proceeds received by DoubleClick in connection
with the closing of its initial public offering in February 1998.
As of September 30, 1998, DoubleClick had $38.6 million of cash and cash
equivalents and $11.3 million in short-term investments. As of September 30,
1998, DoubleClick's principal commitments consisted of obligations under
operating and capital leases.
27
<PAGE>
Although DoubleClick 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. DoubleClick 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 DoubleClick's cash resources. DoubleClick 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.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept or recognize only two digit entries in the date code field. These systems
and software products will need to accept four digit entries to distinguish 21st
century dates from 20th century dates. As a result, computer systems and/or
software used by many companies and governmental agencies may need to be
upgraded to comply with such Year 2000 requirements or risk system failure or
miscalculations causing disruptions of normal business activities.
STATE OF READINESS. DoubleClick has made a preliminary assessment of the
Year 2000 readiness of its information technology ("IT") systems, including the
hardware and software that enable DoubleClick to provide and deliver its
solutions, and its non-IT systems. DoubleClick's assessment plan consists of (i)
quality assurance testing of its internally developed proprietary software
incorporated in its solutions ("Solutions Software"); (ii) contacting
third-party vendors and licensors of material hardware, software and services
that are both directly and indirectly related to the delivery of DoubleClick's
solutions to its Web publisher and advertiser customers; (iii) contacting
vendors of material non-IT systems; (iv) assessment of repair or replacement
requirements; (v) repair or replacement; (vi) implementation; and (vii) creation
of contingency plans in the event of Year 2000 failures. DoubleClick plans to
perform a Year 2000 simulation on its Solutions Software during the first
quarter of 1999 to test system readiness. Based on the results of its Year 2000
simulation test, DoubleClick intends to revise the code of its Solutions
Software as necessary to improve the Year 2000 compliance of its Solutions
Software. DoubleClick has been informed by many of its vendors of material
hardware and software components of its IT systems that the products used by
DoubleClick are currently Year 2000 compliant. DoubleClick will require vendors
of its other material hardware and software components of its IT systems to
provide assurances of their Year 2000 compliance. DoubleClick plans to complete
this process during the first half of 1999. DoubleClick is currently assessing
the materiality of its non-IT systems and will seek assurances of Year 2000
compliance from providers of material non-IT systems. Until such testing is
complete and such vendors and providers are contacted, DoubleClick will not be
able to completely evaluate whether its IT systems or non-IT systems will need
to be revised or replaced.
COSTS. To date, DoubleClick has not incurred any material expenditures in
connection with identifying or evaluating Year 2000 compliance issues. Most of
its expenses have related to, and are expected to continue to relate to, the
operating costs associated with time spent by employees in the evaluation
process and Year 2000 compliance matters generally. At this time, DoubleClick
does not possess the information necessary to estimate the potential costs of
revisions to its Solutions Software should such revisions be required or the
replacement of third-party software, hardware or services that are determined
not to be Year 2000 compliant. Although DoubleClick does not anticipate that
such expenses will be material, such expenses, if higher than anticipated, could
have a material
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adverse effect on DoubleClick's business, results of operations and financial
condition.
RISKS. DoubleClick is not currently aware of any Year 2000 compliance
problems relating to Solutions Software or its IT or non-IT systems that would
have a material adverse effect on DoubleClick's business, results of operations
and financial condition, without taking into account DoubleClick's efforts to
avoid or fix such problems. There can be no assurance that DoubleClick will not
discover Year 2000 compliance problems in our Solutions Software that will
require substantial revisions. In addition, there can be no assurance that
third-party software, hardware or services incorporated into DoubleClick's
material IT and non-IT systems will not need to be revised or replaced, all of
which could be time consuming and expensive. The failure of DoubleClick to fix
its Solutions Software or to fix or replace third-party software, hardware or
services on a timely basis could result in lost revenues, increased operating
costs, the loss of customers and other business interruptions, any of which
could have a material adverse effect on DoubleClick's business, results of
operations and financial condition. Moreover, the failure to adequately address
Year 2000 compliance issues in its Software Solutions, and its IT and non-IT
systems could result in claims of mismanagement, misrepresentation or breach of
contract and related litigation, which could be costly and time-consuming to
defend.
In addition, there can be no assurance that governmental agencies, utility
companies, Internet access companies, third-party service providers and others
outside DoubleClick's control will be Year 2000 compliant. The failure by such
entities to be Year 2000 compliant could result in a systemic failure beyond the
control of DoubleClick, such as a prolonged Internet, telecommunications or
electrical failure, which could also prevent DoubleClick from delivering its
services to its customers, decrease the use of the Internet or prevent users
from accessing the Web sites of its Web publisher customers, which could have a
material adverse effect on DoubleClick's business, results of operations and
financial condition.
CONTINGENCY PLAN. As discussed above, DoubleClick is engaged in an ongoing
Year 2000 assessment and has not yet developed any contingency plans. The
results of DoubleClick's Year 2000 simulation testing and the responses received
from third-party vendors and service providers will be taken into account in
determining the nature and extent of any contingency plans.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 1 of Notes to Consolidated Financial Statements for recently
adopted and recently issued accounting standards.
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BUSINESS
DOUBLECLICK
DoubleClick is a leading provider of comprehensive Internet advertising
solutions for advertisers and Web publishers worldwide. DoubleClick's technology
and media expertise enable DoubleClick to deliver highly targeted, measurable
and cost-effective Internet advertising for advertisers and ad agencies, and to
increase ad sales and improve ad space inventory management for Web publishers.
DoubleClick currently has two principal lines of business: DoubleClick Network
and DART Service.
- THE DOUBLECLICK NETWORK (AD SALES). The DoubleClick Network provides
fully-outsourced ad sales, delivery and related services to publishers of
highly-trafficked Web sites, including AltaVista, The Dilbert Zone,
Macromedia and U.S. News Online. The DoubleClick Network focuses on
meeting the advertising needs of Internet advertisers who target users on
a national, international and/or local basis.
- DART SERVICE (AD SERVING). Our DART Service provides Web publishers,
advertisers and ad agencies with the ability to control the targeting,
delivery, measurement and analysis of their online marketing campaigns on
a real-time basis.
DoubleClick's proprietary DART technology provides the platform for
DoubleClick'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 that
utilize DoubleClick'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 September 1998, we received over 3.2 billion requests for the delivery of
ads (impressions) generated by an aggregate of approximately 4,200 Web sites of
440 Web publishers which used our solutions. We estimate that more than 44
million users worldwide visited Web sites within the Doubleclick Network during
September 1998. According to Media Metrix, 38.7% of Internet users in the United
States visited Web sites within the DoubleClick Network during the same month.
We believe that the number of Web users worldwide will increase from
approximately 69 million at the end of 1997 to 320 million by the end of 2002.
We also believe that the dollar value of Internet advertising in the United
States will increase from approximately $551 million in 1997 to $4.0 billion in
2001. During the first nine months of 1998, we managed approximately 36,000
Internet advertisements for over 2,700 advertisers.
INDUSTRY BACKGROUND
THE INTERNET AND THE WEB
The Internet and the Web have enjoyed unprecedented growth in recent years.
DoubleClick believes that the number of Web users is expected to increase from
an estimated 69 million worldwide at the end of 1997 to 320 million worldwide by
the end of 2002. The growth in the number of Web users 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.
As electronic commerce increases, advertisers and direct marketers are
increasingly using the Web to locate customers, advertise and facilitate
transactions. Online transactions can be faster, less expensive and more
convenient than
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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. DoubleClick believes that over 20%
of Internet users in North America have made a purchase over the Web.
DoubleClick believes that purchases of goods and services over the Internet are
expected to increase from $2.6 billion in 1996 to $220 billion in 2001.
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. DoubleClick believes that, as of May
1998, an estimated 30% of Internet users had college degrees, 72% were under 45
years of age and their mean household income was approximately $55,000. 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,
localities 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, DoubleClick 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. DoubleClick believes that
the dollar value of Internet advertising in the United States will increase from
an estimated $551 million in 1997 to $4.0 billion in 2001, representing a 64%
compounded annual growth rate. In comparison, DoubleClick believes that $175
billion was spent in 1997 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 DoubleClick believes that Internet
advertising will become an increasing component of their total advertising
budgets.
In addition to amounts spent on traditional media advertising, DoubleClick
believes that an estimated $153 billion was spent in 1997 on direct marketing in
the United States. DoubleClick 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 over the Internet.
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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 DoubleClick
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 NATIONAL, INTERNATIONAL 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 DoubleClick believes that an
estimated 35% of Internet usage is outside of the United States, DoubleClick
believes that 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 to the
campaign 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, DoubleClick 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 can result 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. DoubleClick has developed DART, a
proprietary technology that, through its dynamic ad matching, targeting and
delivery 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. DoubleClick currently has two principal lines of
business that offer distinct Internet ad sales and ad serving solutions. Each of
DoubleClick's solutions has been designed and developed to address and meet the
needs of both advertisers and Web publishers.
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THE DOUBLECLICK NETWORK
The DoubleClick Network consists of highly-trafficked Web sites grouped
together by DoubleClick in defined categories of interest. 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 categories of interest, on specific Web sites, or by targeting
based on a variety of factors, including user interest, organization type,
keyword choice and user geographical location. To capitalize on the global reach
of the Internet, DoubleClick has established and is continuing to establish,
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 to fully outsource
their ad sales, delivery and related services needs. These Web publishers do not
need to establish an internal ad 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. In addition, Web publishers with internal ad
sales organizations can make use of DoubleClick's sales organization for their
international and/or local inventory. Further, 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.
The DoubleClick Network has been enhanced by the development and
introduction of several additional solutions:
- DOUBLECLICK LOCAL. DoubleClick's recently introduced DoubleClick Local is
designed to provide highly-targeted advertisements to regional and local
audiences over a variety of Web sites, including those within the DoubleClick
Network. The flexibility and reach of DoubleClick Local allows advertisers to
target their advertisements by city, state or region with one purchase.
DoubleClick believes that online local display advertising will reach $1.5
billion by the year 2002. DoubleClick believes that geographic targeting of ads
will expand Web advertising opportunities that were previously limited to local
content sites, such as online classifieds, local television sites and city
guides.
- DOUBLECLICK DIRECT. DoubleClick Direct 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. These cost-per-action ads are placed on the available ad
space inventory on the Web sites of participating of Web publishers, thereby
providing such Web publishers with an additional source of advertising revenue.
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 was introduced in the fourth quarter of 1997.
DART SERVICE
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.
DART SERVICE FOR WEB PUBLISHERS. DoubleClick offers its DART Service to Web
publishers with internal ad sales organizations seeking a comprehensive turnkey
ad management solution with ad targeting and
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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 DoubleClick's extensive database of Web user targeting
information as well as DoubleClick's predictive modeling capabilities to more
effectively target ads.
CLOSED LOOP MARKETING SOLUTIONS. DoubleClick recently introduced the Closed
Loop Marketing Solutions suite of products, which is designed to provide
Internet advertisers and ad agencies with the ability to control targeting,
delivery, measurement and analysis of their online marketing campaigns on a
real-time basis, and to adapt future Internet advertising to increase
effectiveness.
STRATEGY
DoubleClick's objective is to be the leading provider of Internet
advertising solutions. The following are the key elements of DoubleClick's
strategy:
PROVIDE THE MOST COMPREHENSIVE INTERNET ADVERTISING SOLUTIONS. DoubleClick
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, DoubleClick intends to add new
features and functionality to its DART technology, including its recently
introduced Closed Loop Marketing Solutions suite of products, to meet the
evolving needs of the Internet advertising market.
ENHANCE AND EXPAND THE DOUBLECLICK NETWORK. By enhancing and expanding the
DoubleClick Network, DoubleClick believes that the DoubleClick Network will
become a leading choice for Web advertisers and Web publishers worldwide.
DoubleClick intends to expand the DoubleClick Network by continuously adding
additional Web publishers and new categories of interest. Any such additions
will be required to meet the strict inclusion and maintenance criteria in order
to ensure that they will continue to provide the desired audiences for
advertisers. DoubleClick also plans to continue to enhance the DoubleClick
Network by introducing solutions such as DoubleClick Local and DoubleClick
Direct. DoubleClick Local was introduced in July 1998 and DoubleClick is seeking
to build market awareness of its local and regional ad targeting capabilities.
EXPAND DART SERVICE. DoubleClick provides ad management services to Web
publishers that have internal ad sales forces yet desire to utilize DART's ad
targeting, tracking, reporting and inventory management capabilities.
DoubleClick's Closed Loop Marketing Solutions suite of products was introduced
in the fourth quarter of 1998 to meet the needs of advertisers and ad agencies
which desire the ability to control targeting, delivery, measurement and
analysis of their online marketing campaigns on a real-time basis. DoubleClick
intends to continue to focus on identifying appropriate Web publishers,
advertisers and ad agencies that may be interested in utilizing its DART Service
for Web publishers and its Closed Loop Marketing Solutions suite of products.
EXPAND SALES AND MARKETING. DoubleClick believes that a strong sales and
marketing organization is essential to effectively sell and market Internet
advertising solutions. DoubleClick intends to continue to expand its sales and
marketing efforts. DoubleClick believes that brand awareness of DoubleClick and
its solutions is critical to its success given the emerging nature of the
Internet advertising market. As a result, DoubleClick is targeting its efforts
to advertisers and advertising agencies in order
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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.
From January 1, 1998 to September 30, 1998, DoubleClick's sales and marketing
organization increased from 124 people to 236 people.
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, DoubleClick has developed and
continues to develop DoubleClick Networks and is providing its other solutions
in a number of countries. DoubleClick has established and is expanding
DoubleClick Networks in Australia, Canada, France, Germany and the United
Kingdom, and through its business partners, in Japan, Iberoamerica (Spain,
Portugal and Latin America), Italy and Scandinavia. To support this initiative,
DoubleClick has opened sales offices offering all of the Company's solutions in
Australia, Canada, France, Germany and the United Kingdom, and intends to
establish sales offices in additional countries in the future.
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TECHNOLOGY OVERVIEW
DoubleClick's proprietary DART (Dynamic Advertising Reporting and Targeting)
technology serves as the enabling platform for all of DoubleClick's solutions.
This centralized ad management technology, resident on DoubleClick's server, is
linked to a Web publisher's and/or advertiser's server and completes the dynamic
ad matching, targeting and delivering functions within milliseconds. In
addition, 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 the DART Service for Web
publishers:
[LOGO]
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In the first nine months of 1998, DoubleClick's DART technology delivered
approximately 20 billion ads worldwide. DART's dynamic matching, targeting and
delivery 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, DoubleClick offers the ability to match geographic location of the
user's server and organization revenue, if known, 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 forth above. DART delivers advertising
content developed using most leading Web tools and technologies, including Java,
JavaScript, 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.
PRINCIPAL LINES OF BUSINESS
DOUBLECLICK NETWORK
Utilizing DoubleClick's proprietary DART technology, the DoubleClick Network
provides effective Internet advertising solutions to both advertisers and Web
publishers. The DoubleClick Network consists of highly-trafficked Web sites
grouped together by DoubleClick in defined categories of interest. In September
1998, approximately 1.6 billion ads were delivered on the DoubleClick Network.
DoubleClick 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, DoubleClick 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, DoubleClick 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, DoubleClick 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.
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DoubleClick intends to continuously target Web publishers of high quality
directories, search engines and premium Web sites for addition to the existing
categories of interest in the DoubleClick Network and to expand into
additional categories of interest based on advertisers' targeting needs. The
following table identifies the DoubleClick Network's categories of interest and
a representative sample of their respective Web sites as of November 17, 1998:
PREMIUM SITES
AltaVista Search
Billboard Online
Fast Company
Macromedia
The Dilbert Zone
U.S. News Online
SEARCH, DIRECTORIES & ISPS
AltaVista Search
Copernic
GTE Internet
GTE SuperPages
Internet Address Finder
MindSpring
Northern Light Research Engine
Open Text's Business Search
Supernews
NEWS, INFORMATION & CULTURE
A&E
A&E's Mysteries.com
Atlantic Unbound
Biography
New York Daily News
PBS Online
The History Channel
U.S. News Online
USA TODAY Selected
Marketplace
COLLEGE
Animalhouse.com
JOBTRAK
U.S. News Edu Online
BUSINESS & FINANCE
BigCharts
ClearStation
Companies Online
EDGAR ONLINE
Fast Company
Individual Investor Online
Money Talks
Multex Investor Network
StockMaster
USA TODAY/Lipper
Worth Online
TRAVEL
easySABRE
TheTrip.com
Travelocity
Travelon
TravelWeb
AUTOMOTIVE
Autobytel.com
Automobile Magazine
Kelley Blue Book
Popular Mechanics: PM Zone
ENTERTAINMENT
Billboard Online
Sega Online
The WebStakes Network
United Media's ComicZone
Vibe Online
SPORTS
Major League Baseball
One on One Sports
USA TODAY Sportscores
Whitbread Round-the-World Race
WOMEN & FAMILY
Essence Online
Fashion Net
Home & Garden Television
Modern Bride.com
Parent Partners.com
Snoopy.com
The CyberMom
The Food Network
Top Secret Recipes
HEALTH
Intelihealth
Ivanhoe Broadcast News
WEB MD
TECHNOLOGY
Cosmo Software (VRML)
Diamond Multimedia Systems
Egghead
FilePile
Macromedia
MFC Programmers' Source Book
My Desktop Network
Network Associates
PC Win Resource Center
ShockRave
Softseek
The Dilbert Zone
WITI (Women in Technology
International)
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Over 2,700 advertisers from a variety of industries utilized the DoubleClick
Network during the first nine months of 1998, 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, DoubleClick maintains relationships with, and
focuses its sales and marketing efforts on, both advertisers and advertising
agencies. Set forth below is a representative list of advertisers that have
delivered advertisements on the DoubleClick Network:
<TABLE>
<S> <C>
Amazon.com Hewlett Packard
AT&T IBM
Bell South Intel
CDNow Microsoft
Charles Schwab MonsterBoard
Datek Online Quick & Reilly
Discover 3Com
Brokerage Volvo
General Motors Ziff Davis
GTE Interactive
</TABLE>
To take advantage of the global reach of the Internet, DoubleClick has
established and is continuing to establish DoubleClick Networks in Europe, Asia
and other international markets. DoubleClick currently has operations in
Australia, Canada, France, Germany and the United Kingdom, and through its
business partners, in Japan, Iberoamerica, Italy and Scandinavia. DoubleClick'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, DoubleClick is seeking to facilitate
the rapid delivery of Internet advertising in international markets.
DOUBLECLICK LOCAL. Introduced in July 1998, DoubleClick Local combines the
targeting abilities of DART with the Web sites on the DoubleClick Network.
DoubleClick Local is designed to allow advertisers to target their
advertisements to users in a particular city, state or region with one purchase.
To date, DoubleClick has not received significant revenues from DoubleClick
Local.
DOUBLECLICK DIRECT. Launched on a limited basis in the fourth quarter of
1997, DoubleClick Direct 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. DoubleClick
expects direct marketers to utilize DoubleClick Direct pursuant to short-term
contracts. DoubleClick Direct has been marketed to selected direct marketers on
a limited basis. To date, DoubleClick has not received significant revenues from
sales of DoubleClick Direct.
DART SERVICE
DART SERVICE FOR WEB PUBLISHERS. 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
DoubleClick'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 DoubleClick'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
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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
September 30, 1998, there were 174 Web publishers using the DART Service,
including Bloomberg, NBC, iName, THE WALL STREET JOURNAL INTERACTIVE EDITION,
Intuit, MonsterBoard, and IDGNet. To date, DoubleClick has not received
significant revenues from the DART Service for Web publishers.
CLOSED LOOP MARKETING SOLUTIONS. Introduced in the fourth quarter of 1998,
the Closed Loop Marketing Solutions suite of products is designed to provide
Internet advertisers and ad agencies with the ability to control targeting,
delivery, measurement and analysis of their online marketing campaigns on a
real-time basis. This suite of products enables advertisers and ad agencies to
control the delivery of their ad campaigns, including the ability to change
creative, targeting criteria, frequency and other marketplace variables in
real-time. To date, DoubleClick has not received significant revenues from the
Closed Loop Marketing Solutions suite of products.
SALES AND MARKETING
UNITED STATES
DoubleClick sells its solutions in the United States through a sales and
marketing organization which consisted of an aggregate of 187 employees as of
September 30, 1998. These employees are located at DoubleClick's headquarters in
New York, and in DoubleClick's offices in Atlanta, Boston, Chicago, Detroit,
Dallas, Los Angeles and Silicon Valley. The sales organization is divided into
dedicated groups focused on sales of advertisements to be delivered on the
DoubleClick Network and sales of the DART Service. In addition, the ad sales
group employs an internal telesales force to solicit leads obtained from, and to
respond to inbound inquiries stimulated by, DoubleClick's marketing efforts.
DoubleClick has created business development subgroups for each of the
DoubleClick Network's categories of interest to recruit Web publishers with high
quality Web sites for inclusion in the DoubleClick Network. Business development
salespeople are assigned to a particular category of interest in order to
develop an in-depth understanding of the evolving needs of a particular category
of interest and the Web publishers with Web sites within such category of
interest. This expertise allows DoubleClick to more effectively manage existing
categories of interest and take advantage of opportunities to expand into
additional categories of interest.
To support its direct sales efforts and to actively promote the DoubleClick
brand, DoubleClick 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
DoubleClick has expanded its operations into Australia, Canada, France,
Germany and the United Kingdom through the creation of a direct sales
organization in each such location. In addition, DoubleClick has entered into
business relationships in Japan, Iberoamerica, Italy and Scandinavia to take
advantage of the local marketplace knowledge of its business partners. As it
continues to expand internationally, DoubleClick 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.
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COMPETITION
DoubleClick's markets, namely Internet advertising and related products and
services, are intensely competitive. DoubleClick expects such competition to
continue to increase because its markets pose no substantial barriers to entry.
Competition may also increase as a result of industry consolidation. DoubleClick
believes that its ability to compete depends on many factors both within and
beyond its control, including the following:
- the timing and market acceptance of new solutions and enhancements to
existing solutions developed by either DoubleClick or its competitors;
- customer service and support efforts;
- sales and marketing efforts; and
- the ease of use, performance, price and reliability of solutions developed
either by DoubleClick or its competitors.
DoubleClick competes for Internet advertising revenues with large Web
publishers and Web search engine companies, such as America Online, Excite,
Lycos, Microsoft, Infoseek and Yahoo! Further, the DoubleClick Network competes
with a variety of Internet advertising networks, including 24/7 Media. In
marketing the DoubleClick Network and DART Service to Web publishers,
DoubleClick also competes with providers of ad servers and related services,
including NetGravity and AdForce. DoubleClick 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 DoubleClick'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 DoubleClick does. This may allow them to respond more
quickly than DoubleClick can to new or emerging technologies and changes in
customer requirements. It may also allow them to devote greater resources than
DoubleClick can to the development, promotion and sale of their products and
services. Such competitors may also engage in more extensive research and
development, undertake more far-reaching marketing campaigns, adopt more
aggressive pricing policies and make more attractive offers to existing and
potential employees, strategic partners, advertisers and Web publishers. It is
possible that DoubleClick's competitors will develop products or services that
are equal or superior to DoubleClick's solutions or that achieve greater market
acceptance than DoubleClick's solutions. 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 to address the needs of DoubleClick's prospective advertising and Web
publisher customers. As a result, it is possible that new 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. It
is possible that DoubleClick will not be able to compete successfully or that
competitive pressures will not materially and adversely affect its results of
operations or financial condition.
Companies doing business on the Internet, including DoubleClick, must also
compete with television, radio, cable and print (traditional advertising media)
for a share of advertisers' total advertising budgets. Advertisers may be
reluctant to devote a significant portion of their advertising budget to
Internet advertising if they perceive the Internet to be a limited or
ineffective advertising medium.
PROPRIETARY RIGHTS AND
RISK OF INFRINGEMENT
DoubleClick's success and ability to compete are substantially dependent on
its internally developed technologies and trademarks, which it protects through
a combination of patent, copyright, trade secret and trademark law. DoubleClick
has filed three patent applications in the United States and one patent
application internationally. In
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addition, DoubleClick applies to register its trademarks in the United States
and internationally (DoubleClick owns the registration for the DOUBLECLICK
trademark in the United States). There can be no assurance that any of
DoubleClick's patent applications or trademark registrations will be approved.
Even if they are approved, such patents or trademarks may be successfully
challenged by others or invalidated. If DoubleClick's trademark registrations
are not approved because third parties own such trademarks, its use of the
trademarks will be restricted unless it enters into arrangements with such third
parties which may be unavailable on commercially reasonable terms.
DoubleClick generally enters into confidentiality or license agreements with
its employees, consultants and corporate partners, and generally control access
to and distribution of DoubleClick's technologies, documentation and other
proprietary information. Despite its efforts to protect its proprietary rights
from unauthorized use or disclosure, parties may attempt to disclose, obtain or
use DoubleClick's solutions or technologies. DoubleClick cannot be certain that
the steps it has taken will prevent misappropriation of its solutions or
technologies, particularly in foreign countries where the laws or law
enforcement may not protect its proprietary rights as fully as in the United
States.
DoubleClick's DART technology collects and utilizes data derived from user
activity on the DoubleClick Network and the Web sites of Web publishers using
its solutions. This data is used for ad targeting and predicting ad performance.
Although DoubleClick believes that it has the right to use such data and the
compilation of such data in its database, there can be no assurance that any
trade secret, copyright or other protection will be available for such
information. In addition, others may claim rights to such information. Further,
pursuant to its contracts with Web publishers using its solutions, DoubleClick
is obligated to keep certain information regarding each Web publisher
confidential.
DoubleClick has licensed, and it may license in the future, elements of its
trademarks, trade dress and similar proprietary rights to third parties. While
DoubleClick attempts to ensure that the quality of its brand is maintained by
such business partners, such partners may take actions that could materially and
adversely affect the value of DoubleClick's proprietary rights or its
reputation. In addition, DoubleClick currently licenses certain aspects of its
predictive modeling technologies from a third party. DoubleClick's failure 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 its business,
results of operations and financial condition.
DoubleClick cannot be certain that any of its proprietary rights will be
viable or of value in the future since the validity, enforceability and scope of
protection of certain proprietary rights in Internet-related industries is
uncertain and still evolving. Furthermore, third parties may assert infringement
claims against DoubleClick. From time to time it has been, and it 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 it or the Web publishers with
Web sites in the DoubleClick Network. Although there has not been any litigation
relating to such claims, such claims and any resultant litigation, should it
occur, could subject DoubleClick to significant liability for damages and could
result in the invalidation of its proprietary rights. In addition, even if
DoubleClick wins the litigation, such litigation could be time-consuming and
expensive to defend, and could result in the diversion of DoubleClicks's time
and attention, any of which could materially and adversely affect its business,
results of operations and financial condition. Any claims or litigation may also
result in limitations on our ability to use such trademarks and other
intellectual property unless we enter into arrangements with such third parties
which may be unavailable on commercially reasonable terms.
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EMPLOYEES
As of September 30, 1998, DoubleClick employed 373 persons, including 236 in
sales, marketing and customer support (49 of whom serve the international
marketplace), 60 in engineering and product development, and 77 in accounting,
human resources, business operations and administration. DoubleClick is not
subject to any collective bargaining agreements and believes that its
relationship with its employees is good.
FACILITIES
DoubleClick's principal executive offices are currently located in two
separate facilities in New York, New York. Consisting of an aggregate of
approximately 60,000 square feet, these facilities are currently leased to
DoubleClick under leases which expire at various times through 2002. DoubleClick
also leases space for its sales and marketing efforts in California, Georgia,
Illinois, Massachusetts, Michigan and Texas, as well as in Australia, Canada,
France, Germany, Ireland and the United Kingdom. DoubleClick is continually
evaluating its facilities requirements. DoubleClick believes that suitable
additional space will be available in the future on commercially reasonable
terms.
LEGAL PROCEEDINGS
DoubleClick is not a party to any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
AND OTHER KEY EMPLOYEES
The executive officers and directors and other key employees of DoubleClick,
and their ages and positions are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- ----- -----------------------------------------------------
<S> <C> <C>
Kevin J. O'Connor.................................... 37 Chief Executive Officer and Chairman of the Board of
Directors
Kevin P. Ryan........................................ 35 President and Chief Operating Officer
Dwight A. Merriman................................... 30 Chief Technical Officer and Director
Jeffrey E. Epstein................................... 42 Chief Financial Officer
Wenda Harris Millard................................. 44 Executive Vice President, Marketing and Sales
Barry M. Salzman..................................... 35 Vice President, International
Jonathan D. Shapiro.................................. 35 Vice President of Business Development
John Sabella......................................... 36 Vice President of Engineering
Robert N. Linsky..................................... 40 Vice President of MIS/Operations
David N. Strohm(1)................................... 50 Director
Mark E. Nunnelly(1).................................. 39 Director
W. Grant Gregory(1).................................. 57 Director
Donald Peppers....................................... 47 Director
Thomas S. Murphy..................................... 73 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 DoubleClick's Chief Executive Officer and
Chairman of the Board of Directors since 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 serves as a director of ISS Security, Inc., an Internet security
development company. Mr. O'Connor received his B.S. in Electrical Engineering
from the University of Michigan.
KEVIN P. RYAN has served as DoubleClick's Chief Operating Officer since
April 1998 and as President since July 1997. From June 1996 to April 1998, Mr.
Ryan served as DoubleClick's Chief Financial Officer. From January 1994 to June
1996, Mr. Ryan served as Senior Vice President, Business and Finance for United
Media, a licensing and syndication company. 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.
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DWIGHT A. MERRIMAN has served as DoubleClick's Chief Technical Officer since
February 1996, and served as its Vice President, Engineering from January 1996
until February 1996. Mr. Merriman has served as a Director of DoubleClick 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.
JEFFREY E. EPSTEIN has served as DoubleClick's Chief Financial Officer since
March 1998. From May 1997 to February 1998, Mr. Epstein served as Chief
Financial Officer of Trans National Group Inc., a consumer services company.
From January 1995 to March 1997, Mr. Epstein served as Senior Vice President of
CUC International Inc., a membership based consumer services company. From
February 1988 to December 1994, Mr. Epstein served as Chief Financial Officer of
King World Productions, Inc., a television production company. Mr. Epstein
received his B.A. in Economics and Political Science from Yale University and
his M.B.A. from Stanford University.
WENDA HARRIS MILLARD has served as DoubleClick's Executive Vice President,
Marketing and Sales since October 1997, and served as DoubleClick's Executive
Vice President, Marketing and Programming from July 1996 to October 1997. From
August 1994 to July 1996, Ms. Harris Millard served 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.
BARRY M. SALZMAN has served as DoubleClick'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
("McKinsey & Co."). Mr. Salzman received his B.S. in Business from the
University of Cape Town and his M.B.A. from Harvard University.
JONATHAN D. SHAPIRO has served as DoubleClick's Vice President of Business
Development since February 1998. From April 1997 to February 1998, Mr. Shapiro
served as an interactive multimedia specialist for McKinsey & Co. From January
1995 to April 1997, Mr. Shapiro served as Vice President, Corporate Development
of United Media, a newspaper syndicate and independent licensing company. From
October 1992 to January 1995, Mr. Shapiro served as an associate for McKinsey &
Co. Mr. Shapiro received his B.S. in Economics from the Wharton School and his
M.B.A. from Stanford University.
JOHN SABELLA has served as DoubleClick's Vice President of Engineering since
April 1998. From May 1997 to April 1998, Mr. Sabella served as Vice President,
Technology for Lehman Brothers, Inc., a financial services company. From October
1995 to May 1997, Mr. Sabella served as Executive Vice President of Interactive
Entertainment Technologies, Inc., an interactive media company. From May 1993 to
October 1995, Mr. Sabella served as a Partner for Open Architecture System
Integration Services, Inc., a financial services consulting company. Mr. Sabella
received his B.S. in Computer Science from Columbia University.
ROBERT N. LINSKY has served as DoubleClick's Vice President of
MIS/Operations since February 1998. From February 1995 to January 1998, Mr.
Linsky served as Vice President, Internet Business Development/ Internet
Services for the American Express Corporation, a financial and travel related
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services company. From December 1989 to February 1995, Mr. Linsky served as Vice
President, Distribution and Payments Systems Strategies and a Division Executive
for Chase Manhattan Bank, N.A., a financial services company. Mr. Linsky
received his B.S. in Biomedical Engineering, his M.S. in Computer Engineering
and his M.B.A., all from Boston University.
DAVID N. STROHM has served as a Director of DoubleClick 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,
Legato Systems, Inc., a data storage management software company, and ISS Group,
Inc., an Internet security software company. Mr. Strohm received his B.A. from
Dartmouth and his M.B.A. from Harvard University. Mr. Strohm was originally
named to the Board of Directors pursuant to an agreement which terminated upon
the closing of DoubleClick's initial public offering.
MARK E. NUNNELLY has served as a Director of DoubleClick 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
originally named to the Board of Directors pursuant to an agreement which
terminated upon the closing of DoubleClick's initial public offering.
W. GRANT GREGORY has served as a Director of DoubleClick 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, True
North Communications, an advertising holding company, and Inacom Corporation, a
technology management services company. Mr. Gregory received his bachelor's
degree in Business Administration from the University of Nebraska.
DONALD PEPPERS has served as a Director of DoubleClick since January 1998.
Since January 1992, Mr. Peppers has served as Chief Executive Officer of
Marketing 1 to 1/Peppers and Rogers Group, a marketing consulting firm. Mr.
Peppers received his B.S. in Astronautical Engineering from the United States
Air Force Academy.
THOMAS S. MURPHY has served as a Director of DoubleClick since March 1998.
From 1966 until 1990, Mr. Murphy served as Chief Executive Officer and Chairman
of the Board of Capital Cities ABC, Inc., a major media company. From 1990 until
1994, Mr. Murphy relinquished the title of Chief Executive Officer but resumed
this title again from 1994 until 1996. Since February 1996, Mr. Murphy has been
retired. Mr. Murphy currently serves on the Board of Directors of The Walt
Disney Company, a motion picture and television production, amusement park, land
management and consumer products company.
CLASSES OF DIRECTORS
In accordance with the terms of DoubleClick's Certificate of Incorporation,
the Board of Directors has been divided into three classes, denominated Class I,
Class II and Class III, with members of each class holding office for staggered
three-year terms. At each annual meeting of DoubleClick's stockholders
commencing in 1998, the successors to the directors whose terms expire at such
meeting are elected to serve from the time of their election following their
election and qualification until the third annual meeting of
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stockholders following their election or until a successor has been duly elected
and qualified. Messrs. Kevin J. O'Connor, Mark E. Nunnelly and Thomas S. Murphy
are Class I Directors whose terms expire at the 1998 annual meeting of
stockholders (in all cases subject to the election and qualification of their
successors or to their earlier death, resignation or removal). Messrs. David N.
Strohm and Dwight A. Merriman are Class II Directors whose terms expire at the
1999 annual meeting of stockholders (in all cases subject to the election and
qualification of their successors or to their earlier death, resignation or
removal). Messrs. Donald Peppers and W. Grant Gregory are Class III Directors
whose terms expire at the 2000 annual meeting of stockholders (in all cases
subject to the election and qualification of their successors or to their
earlier death, resignation or removal).
EXECUTIVE OFFICERS
DoubleClick's executive officers 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
DoubleClick's auditors, the scope of the annual audits, fees to be paid to the
auditors, the performance of DoubleClick's independent auditors and
DoubleClick's accounting practices.
The Compensation Committee of the Board of Directors was established in
February 1996 to administer DoubleClick's stock option plans and to administer
certain of its other benefit plans. The Compensation Committee also provides
recommendations to the Chief Executive Officer and the Board of Directors
concerning the salaries and incentive compensation of DoubleClick's executive
officers and its other employees and consultants.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
DoubleClick's Compensation Committee consists of Messrs. Strohm, Nunnelly
and Gregory, none of whom has been an officer or employee of DoubleClick at any
time since DoubleClick's inception. No executive officer of DoubleClick 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 DoubleClick's
Board of Directors or Compensation Committee. During 1996 and prior to the
expansion of the delegated duties of the Compensation Committee to include
advising the Chief Executive Officer and the Board of Directors on matters
concerning the salaries and incentive compensation of DoubleClick's executive
officers, the Board of Directors as a whole made decisions relating to
compensation of DoubleClick's executive officers. Mr. O'Connor, DoubleClick's
Chief Executive Officer, and Mr. Merriman, DoubleClick's Chief Technical
Officer, participated in all such discussions and decisions concerning the
compensation of DoubleClick's executive officers, except that Messrs. O'Connor
and Merriman were excluded from discussions regarding their own compensation.
COMPENSATION OF DIRECTORS
DoubleClick 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 DoubleClick's
1997 Plan, each individual who was serving as a non-employee member of the Board
of Directors on February 19, 1998 (the date that the underwriting agreement
relating to DoubleClick's initial public offering was executed) automatically
received an option grant on that date for 5,000 shares of Common Stock. Each
individual who was or is first elected or appointed as a non-employee member of
the Board of Directors at any time
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after February 19, 1998 or will be automatically granted, on the date of such
initial election or appointment, a non-statutory stock option to purchase 25,000
shares of Common Stock, provided such individual has not previously been in the
employ of DoubleClick or any parent or subsidiary of DoubleClick. 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 " -- 1997 Stock
Incentive Plan".
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EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the compensation
received by DoubleClick's Chief Executive Officer and by the other four
executive officers of DoubleClick
whose salary exceeded $100,000 in 1997 (the "Named Executive Officers") for
services rendered in all capacities to DoubleClick 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 Operating Officer................... 152,500 220,000 --
Wenda Harris Millard
Executive Vice President, Marketing
and Sales............................................... 180,000 -- --
Barry M. Salzman
Vice President, International........................... 105,136 100,000 --
John L. Heider
Vice President of Engineering........................... 101,280 39,000 --
</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.
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OPTION GRANTS IN LAST YEAR
The following table sets forth certain information regarding options granted
to the Named Executive Officers during 1997. DoubleClick 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 21.2% $ 1.16 $ 4.00 7/31/07 $ 624,800 $ 1,178,227
Wenda Harris Millard.... -- -- -- -- -- -- --
Barry M. Salzman........ 47,500 4.6 0.28 0.50 2/28/07 10,450 25,413
52,500 5.1 3.00 6.16 9/10/07 165,900 692,685
John L. Heider.......... 10,000 1.0 0.28 0.50 2/28/07 2,200 5,350
29,000 2.8 3.00 6.16 9/10/07 91,640 204,183
<CAPTION>
NAME 10%
- ------------------------ ------------
<S> <C>
Kevin J. O'Connor....... --
Kevin P. Ryan........... $ 2,024,000
Wenda Harris Millard.... --
Barry M. Salzman........ 48,213
680,106
John L. Heider.......... 10,150
375,678
</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 DoubleClick'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
DoubleClick is not the surviving corporation or upon the sale of
substantially all of DoubleClick's assets. See "--1997 Stock Incentive
Plan".
(2) During 1997, DoubleClick granted employees options to purchase an aggregate
of 1,038,725 shares of Common Stock.
(3) Potential realizable values are net of exercise price, but before the
payment of taxes associated with exercise. 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 DoubleClick's estimate or projection of DoubleClick's
future Common Stock prices. These amounts represent certain assumed rates of
appreciation in the value of the 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.
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<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 $ 3,113,166 $ 2,223,673
Kevin P. Ryan.............. 20,000 $ 100,396 -- 280,000 -- 4,496,388
Wenda Harris Millard....... 30,000 150,594 -- 90,000 -- 1,517,382
Barry M. Salzman........... -- -- -- 100,000 -- 1,529,200
John L. Heider............. 9,000 52,853 -- 66,000 -- 1,028,760
</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
initial public offering price of $17.00 per share, less the applicable
exercise price per share, multiplied by the number of shares underlying such
options.
1997 STOCK INCENTIVE PLAN
DoubleClick's 1997 Plan is the successor equity incentive program to
DoubleClick's 1996 Stock Option Plan (the "Predecessor Plan"). The 1997 Plan was
adopted by the Board on November 7, 1997 and was 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 1997 Plan (the "Plan Effective Date"). The automatic option grant program
became effective on February 19, 1998.
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 1,150,000 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 DoubleClick, 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's administrator (the
"Plan Administrator") elects to extend one
52
<PAGE>
or more features of the 1997 Plan to those options. 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.
On March 19, 1998, DoubleClick filed a registration statement with the
Commission pursuant to which it registered the 3,000,000 shares of Common Stock
issued or issuable upon the exercise of options granted under the 1997 Plan.
Such registration statement became immediately effective upon filing. The
possible sale of a significant number of such shares by the holders thereof may
have an adverse effect on the price of the Common Stock.
The 1997 Plan is divided into three separate components: (i) a discretionary
option grant program under which eligible individuals in DoubleClick'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 have been and 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 are
being administered by the Compensation Committee. The Compensation Committee as
Plan Administrator has 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 is 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 has 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 DoubleClick 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 DoubleClick's outstanding securities, each outstanding option
under the discretionary option grant program which is not to be assumed by the
successor corporation or is
53
<PAGE>
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 DoubleClick's repurchase rights with respect to those
shares are assigned to the successor corporation or are otherwise to continue in
effect. The Plan Administrator has 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 DoubleClick, 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 terms and conditions. The options
incorporated from the Predecessor Plan will terminate upon an acquisition of
DoubleClick 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 was serving as
a non-employee member of the Board of Directors on February 19, 1998 (the date
the underwriting agreement for DoubleClick's initial public offering was
executed) automatically received an option grant on that date for 5,000 shares
of Common Stock. Each individual who has become or first becomes a non-employee
member of the Board of Directors at any time thereafter has received or 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 in the employ of
DoubleClick or any parent or subsidiary of DoubleClick. In addition, on the date
of each annual stockholders' meeting, beginning with the annual meeting to be
held in 1999, 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
has 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 DoubleClick, 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
DoubleClick 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 DoubleClick.
54
<PAGE>
CERTAIN TRANSACTIONS
At the time of DoubleClick's formation in January 1996, DoubleClick issued
(i) 539,000 shares of its common stock, par value $.01 per share (the "Original
Common Stock"), to Poppe Tyson, Inc., a subsidiary of Bozell, Jacobs, Kenyon &
Eckhardt, Inc. ("BJK&E") in exchange for $500,000, and (ii) 366,912 shares of
Original Common Stock to Kevin J. O'Connor and Dwight A. Merriman (the "IAN
Stockholders") in exchange for $75,000 in cash and fixed assets having an
approximate value of $25,000 distributed to them by IAN. Poppe Tyson
subsequently distributed its shares to BJK&E.
On August 28, 1996, DoubleClick 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 June 4, 1997, DoubleClick consummated the transactions contemplated by
that certain Agreement and Plan of Merger (the "Merger Agreement") with
DoubleClick Acquisition Corp. ("Newco"), BJK&E, all holders of DoubleClick'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 DoubleClick's convertible preferred stock. All of
the shares of convertible preferred stock converted into shares of Common Stock
upon the closing of DoubleClick's initial public offering in February 1998.
Immediately prior to the closing of the Merger, DoubleClick 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 DoubleClick. On December 30, 1997, BJK&E converted the convertible promissory
note into 779,302 shares of Common Stock.
To induce the Initial Investors to enter into the Merger Agreement,
concurrently with the closing of the Merger, DoubleClick undertook a
recapitalization whereby each share of Class A Stock was converted into one
share of DoubleClick's Common Stock, each share of Class B Stock was converted
into 0.28 shares of DoubleClick'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 DoubleClick'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 DoubleClick an aggregate of 3,333 shares of DoubleClick's
convertible preferred stock in consideration for $3,333,000.
On February 19, 1998, DoubleClick granted non-qualified stock options to
purchase an aggregate of 115,000 shares of Common Stock to Mr. Jeffrey E.
Epstein, DoubleClick's Chief Financial Officer, with an exercise price of $14.00
per share.
For additional information regarding the grant of stock options to executive
officers and directors, see "Management -- Compensation of Directors", "--
Executive Compensation", "-- 1997 Stock Incentive Plan" and "Principal
Stockholders".
55
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of October 31, 1998, and as adjusted
to reflect the sale of the shares offered hereby: (i) by each person (or group
of affiliated persons) who is known by DoubleClick to beneficially own five
percent or more of the Common Stock, (ii) by each director and Named Executive
Officer of DoubleClick, and (iii) by all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK SHARES OF COMMON STOCK
BENEFICIALLY OWNED BEFORE BENEFICIALLY OWNED AFTER THE
THE OFFERING(1) OFFERING(1)
----------------------------- ------------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENTAGE NUMBER PERCENTAGE(2)
- ------------------------------------------------- -------------- ------------- ----------- -----------------
<S> <C> <C> <C> <C>
Kevin J. O'Connor(3)............................. 2,707,506 15.9% 2,707,506 13.9%
Bain Funds(4).................................... 2,182,060 13.0 2,182,060 11.4
Dwight A. Merriman(5)............................ 1,278,900 7.6 1,278,900 6.6
David N. Strohm(6)............................... 1,256,884 7.5 1,256,884 6.5
ABS Capital Partners II, L.P.(7)................. 1,111,883 6.6 1,111,883 5.8
W. Grant Gregory(8).............................. 644,778 3.8 644,778 3.3
Mark E. Nunnelly(9).............................. 564,552 3.3 564,552 2.9
Kevin P. Ryan(10)................................ 75,000 * 75,000 *
Wenda Harris Millard(11)......................... 62,500 * 62,500 *
Barry M. Salzman(12)............................. 25,000 * 25,000 *
John L. Heider(13)............................... 20,500 * 20,000 *
Donald Peppers(14)............................... 4,500 * 4,500 *
Thomas S. Murphy(15)............................. -- * -- *
All directors and executive officers as a group
(14 persons)(16)............................... 6,618,686 38.6 6,618,686 33.7
</TABLE>
- ------------------------
* Less than one percent.
(1) Gives effect to the shares of Common Stock issuable within 60 days of
October 31, 1998 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.
Shares of Common Stock beneficially owned before and after the offering are
calculated based on 16,669,287 shares of Common Stock outstanding as of
October 31, 1998 and 19,169,287 shares of Common Stock outstanding after the
offering.
(2) Assumes that the underwriters' over-allotment option is not exercised.
(3) Includes (i) 263,783 shares of Common Stock issuable upon the exercise of
stock options, (ii) 3,920 shares of Common Stock held by Nancy O'Connor, Mr.
O'Connor's wife, and (iii) 71,249 shares of Common Stock held by the KN
Trust, of which Nancy O'Connor is a trustee. Does not include 52,757 shares
of Common Stock issuable upon exercise of stock options that do not vest
within 60 days of October 31, 1998.
(4) Consists of (i) 368,766 shares of Common Stock held by Bain Capital Fund V,
LP, whose sole general partner is Bain Capital Partners V, L.P., whose sole
general partner is Bain Capital Investors V, Inc., a Delaware corporation
wholly owned by W. Mitt Romney, (ii) 960,256 shares of Common Stock held by
Bain Capital Fund V-B, LP, whose sole general partner is Bain Capital
Partners V, L.P., whose sole general partner is Bain Capital Investors V,
Inc., a Delaware corporation wholly owned by W. Mitt Romney, (iii) 268,548
shares of Common Stock held by
56
<PAGE>
BCIP Associates, a Delaware general partnership of which W. Mitt Romney is a
general partner and a member of the management committee (iv) 286,004 shares
of Common Stock held by BCIP Trust Associates, LP, a Delaware limited
partnership of which W. Mitt Romney is a general partner and a member of the
management committee, (v) 225,998 shares of Common Stock held by Brookside
Capital Partners, LP, whose sole general partner is Brookside Capital
Investors, L.P., whose sole general partner is Brookside Capital Investors
Inc., a Delaware corporation wholly owned by W. Mitt Romney, and (vi) 72,488
shares of Common Stock held by various persons and entities associated with
Thomas H. Lee Company, over which such 72,488 shares Bain Capital, Inc. has
voting power. The address of these entities is Two Copley Place, 7th Floor,
Boston, Massachusetts 02116.
(5) Includes 118,416 shares of Common Stock issuable upon the exercise of stock
options. Does not include 23,683 shares of Common Stock issuable upon the
exercise of stock options that do not vest within 60 days of October 31,
1998.
(6) Includes (i) 10,000 shares of Common Stock held by a revocable trust, of
which Mr. Strohm is the trustee; (ii) 623,442 shares of Common Stock held by
Greylock Equity Limited Partnership, whose general partner is Greylock
Equity GP Limited Partnership ("Greylock Equity GP"), of which Mr. Strohm is
a general partner, and (iii) 623,442 shares of Common Stock held by Greylock
IX Limited Partnership, whose general partner is Greylock IX GP Limited
Partnership ("Greylock IX GP"), of which Mr. Strohm is a general partner.
Mr. Strohm, together with the other general partners of Greylock Equity GP
and Greylock IX GP, shares voting and investment power with respect to the
shares owned by Greylock Equity GP and Greylock IX GP, respectively. Mr.
Strohm disclaims beneficial ownership of the shares held by Greylock Equity
Limited Partnership and Greylock IX Limited Partnership, except to the
extent of his pecuniary interest therein. The address of Greylock Equity
Limited Partnership and Greylock IX Limited Partnership is One Federal
Street, Boston, Massachusetts 02110. Does not include 5,000 shares of Common
Stock issuable upon the exercise of stock options that do not vest within 60
days of October 31, 1998.
(7) 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.
(8) 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 True North, of which BJK&E is a
subsidiary, and disclaims beneficial ownership of the 150,802 shares of
Common Stock beneficially owned by BJK&E. See "Certain Transactions". Does
not include 5,000 shares of Common Stock issuable upon the exercise of stock
options that do not vest within 60 days of October 31, 1998.
(9) Consists of 268,548 shares of Common Stock held by BCIP Associates, a
Delaware general partnership of which Mr. Nunnelly is a general partner, and
286,004 shares of Common Stock held by BCIP Trust Associates, LP, a Delaware
limited partnership of which Mr. Nunnelly is a general partner. Mr. Nunnelly
disclaims beneficial ownership of such shares except to the extent of his
pecuniary interest therein. Does not include 5,000 shares of Common Stock
issuable upon the exercise of stock options that do not vest within 60 days
of October 31, 1998.
(10) Includes (i) 10,000 shares of Common Stock held by Pascaline
Servan-Schreiber, Mr. Ryan's wife, and (ii) 55,000 shares of Common Stock
issuable upon the exercise of stock options. Does not include 205,000 shares
of Common Stock issuable upon the exercise of stock options that do not vest
within 60 days of October 31, 1998.
57
<PAGE>
(11) Includes 30,000 shares of Common Stock issuable upon the exercise of stock
options. Does not include 30,000 shares of Common Stock issuable upon the
exercise of stock options that do not vest within 60 days of October 31,
1998.
(12) Includes 13,125 shares of Common Stock issuable upon the exercise of stock
options. Does not include 75,000 shares of Common Stock issuable upon the
exercise of stock options that do not vest within 60 days of October 31,
1998.
(13) Includes 7,250 shares of Common Stock issuable upon the exercise of stock
options. Does not include 47,250 shares of Common Stock issuable upon the
exercise of stock options that do not vest within 60 days of October 31,
1998.
(14) Does not include 25,000 shares of Common Stock issuable upon the exercise
of stock options that do not vest within 60 days of October 31, 1998.
(15) Does not include 25,000 shares of Common Stock issuable upon the exercise
of stock options that do not vest within 60 days of October 31, 1998.
(16) Includes 380,999 shares of Common Stock issuable upon the exercise of stock
options that vest within 60 days of October 31, 1998. See notes 3 through
15.
58
<PAGE>
DESCRIPTION OF SECURITIES
The following description of DoubleClick's securities and certain provisions
DoubleClick's Certificate of Incorporation (the "Certificate"), and the Bylaws
are summaries thereof and are qualified by reference to the Certificate and the
Bylaws, copies of which have been filed with the Commission as exhibits to
DoubleClick's Registration Statement, of which this prospectus forms a part.
DoubleClick's authorized capital stock 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 October 31, 1998, there were 16,669,287 shares of Common Stock
outstanding and held of record by 514 stockholders. Based upon the number of
shares outstanding as of that date and giving effect to the issuance of the
2,500,000 shares of Common Stock offered hereby, there will be 19,169,287 shares
of Common Stock outstanding upon the closing of the Offerings.
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 DoubleClick, the holders of Common Stock are entitled to receive ratably the
net assets of DoubleClick 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 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
DoubleClick may designate and issue in the future. Upon the closing of the
offering, there will be no shares of Preferred Stock outstanding.
UNDESIGNATED PREFERRED STOCK
The Board of Directors is 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. DoubleClick 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, 1998, options to purchase a total of 2,281,054 shares
("Option Shares") of Common Stock were outstanding. 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
59
<PAGE>
(iv) the number of shares of Common Stock that are surrendered in payment of any
options or any tax withholding requirements. See "Management -- 1997 Stock
Incentive Plan" and "Shares Eligible for Future Sale".
On March 19, 1998, DoubleClick filed a registration statement with the
Commission pursuant to which it registered the 3,000,000 shares of Common Stock
issued or issuable upon the exercise of options granted under the 1997 Plan.
Such registration statement became immediately effective upon filing.
DoubleClick has outstanding a large number of stock options to purchase
DoubleClick's Common Stock with exercise prices significantly below the current
market price of the Common Stock. The possible sale of a significant number of
such shares by the holders thereof may have an adverse effect on the price of
the Common Stock.
REGISTRATION RIGHTS
Pursuant to the terms of the stockholders agreement entered into by and
between DoubleClick and certain stockholders in connection with DoubleClick's
private placement in June 1997 (the "Stockholders Agreement"), the holders of
6,234,434 shares of Common Stock are 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
DoubleClick register their shares under the Securities Act, subject to certain
limitations. DoubleClick 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, the holders of approximately 12,176,710 shares of Common Stock are
entitled to certain piggyback registration rights with respect to the
registration of such shares of Common Stock under the Securities Act, subject to
certain limitations. Further, at any time after DoubleClick becomes eligible to
file a registration statement on Form S-3 certain holders may require
DoubleClick 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. DoubleClick 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
DoubleClick 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 other takeover or change in control attempts with
respect to DoubleClick and, accordingly, may discourage attempts to acquire
DoubleClick.
In addition, certain provisions of the Certificate and Bylaws, which
provisions are summarized in the following paragraphs, may
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<PAGE>
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. DoubleClick's Board of Directors is 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 DoubleClick 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 DoubleClick's principal executive offices not less than
120 days nor more than 150 days prior to the first anniversary of the date of
DoubleClick'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 days 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 before 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 DoubleClick 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 the DGCL,
DoubleClick's directors shall not be personally liable to DoubleClick or its
stockholders for monetary damages for any breach of fiduciary duty as directors
of DoubleClick. Under the DGCL, the directors have a fiduciary duty to
DoubleClick which is not eliminated by this provision of the
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<PAGE>
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 DoubleClick, 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 the DGCL. This provision also does not affect the directors'
responsibilities under any other laws, such as the Federal securities laws or
state or Federal environmental laws. DoubleClick 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 DoubleClick 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 DoubleClick, or is or was serving at DoubleClick's request 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. DoubleClick 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, DoubleClick will have an aggregate of
19,126,919 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 4,025,000 shares sold in our initial public offering in
February 1998, the 2,500,000 shares being offered hereby and 2,576,690 shares
that either were released from the initial public offering lock-up agreements in
August 1998 or have been sold in accordance with Rule 144 are freely tradeable.
Of the remaining outstanding shares of DoubleClick's Common Stock, (i)
approximately 3,584,629 shares are subject to 90-day lock-up agreements,
approximately 3,505,354 of which are also "restricted securities" as that term
is defined under Rule 144, and (ii) approximately 6,297,337 shares are
"restricted securities" as that term is defined under Rule 144. The 3,584,629
shares that are subject to 90-day lock-up agreements will be eligible for
immediate sale in the public market without restriction on their expiration
except that the 3,505,354 shares which are also held by "affiliates" of
DoubleClick may only be sold in compliance with the volume and other limitations
of Rule 144.
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 191,269 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 DoubleClick 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 DoubleClick, such affiliates' holding period for the purpose of
effecting a sale under Rule 144 commences on the date of transfer from the
affiliate.
On March 19, 1998, DoubleClick filed a registration statement with the
Commission pursuant to which it registered the 3,000,000 shares of Common Stock
issued or issuable upon the exercise of options granted under the 1997 Plan.
Such registration statement became immediately effective upon filing. As of
September 30, 1998, there were outstanding options to purchase 2,281,054 shares
of Common Stock which will be eligible for sale in the public market from time
to time subject to vesting and, in the case of certain options, the expiration
of lock-up agreements. These stock options generally have exercise prices
significantly below the current market price of the Common Stock. The possible
sale of a significant number of such shares by the holders thereof may have an
adverse affect on the price of the Common Stock.
The market price of our Common Stock has fluctuated in the past and is
likely to continue to be highly volatile and could be subject to wide
fluctuations. In addition, the stock market has experienced extreme price and
volume fluctuations. The market prices of the securities of Internet-related
companies have been especially volatile. Investors may be unable to resell their
shares of our Common Stock at or above the offering price. In the past,
companies that have experienced volatility in the market price of their stock
have been the object of securities class action litigation. If we were the
object of securities class action litigation, it could result in substantial
costs and a diversion of management's attention and resources.
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<PAGE>
DoubleClick has agreed not to sell or otherwise dispose of any shares of
Common Stock during the 90-day period following the date of the prospectus,
except DoubleClick may issue, and grant options to purchase, shares of Common
Stock under the 1997 Plan. In addition, DoubleClick 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 90-day period referenced in the preceding sentence. See "Risk
Factors-- Shares Eligible for Future Sale" and "Description of Securities --
Registration Rights".
ADDITIONAL INFORMATION
DoubleClick has filed with the Commission a Registration Statement on Form
S-1 (including the exhibits and schedules thereto) under the Securities Act with
respect to the shares to be sold in the offering. This prospectus does not
contain all the information set forth in the Registration Statement. For further
information with respect to DoubleClick and the shares to be sold in the
offering, reference is made to the Registration Statement. Statements contained
in this prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete, and in each instance
reference is made to the copy of such contract, agreement or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. In addition, DoubleClick files
annual, quarterly and current reports, proxy statements and other information
with the Commission.
You may read and copy all or any portion of the Registration Statement or
any reports, statements or other information DoubleClick files at the
Commission's public reference room at 450 Fifth Street, N.W., Washington, D.C.
20549. You can request copies of these documents, upon payment of a duplicating
fee, by writing to the Commission. Please call the Commission at 1-800-SEC-0330
for further information on the operation of the public reference rooms.
DoubleClick's Commission filings, including the Registration Statement, are also
available to you on the Commission Internet site (http://www.sec.gov). In
addition, reports, proxy statements and other information concerning DoubleClick
may be inspected at the National Association of Securities Dealers, Inc. at 1735
K Street, N.W., Washington, D.C. 20006.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
DoubleClick 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. A member of Brobeck
Phleger & Harrison LLP owns 1,000 shares of DoubleClick's Common Stock.
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EXPERTS
The consolidated financial statements of DoubleClick as of December 31, 1996
and 1997, and for the period from January 23, 1996 (inception) through December
31, 1996 and for the year ended December 31, 1997 included in this prospectus
have been included in reliance on the report of PricewaterhouseCoopers LLP,
DoubleClick'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
PricewaterhouseCoopers LLP (formerly 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 PricewaterhouseCoopers 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 and for the period from January 1, 1997 through July
24, 1997, 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.
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DOUBLECLICK INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of PricewaterhouseCoopers LLP, Independent Accountants........................ F-2
Consolidated Balance Sheet as of December 31, 1996 and 1997, and September 30, 1998
(unaudited)........................................................................ F-3
Consolidated Statement of Operations for the period from January 23, 1996 (inception)
to December 31, 1996, the year ended December 31, 1997, and for the nine months
ended September 30, 1997 and 1998 (unaudited)...................................... F-4
Consolidated Statement of Changes in Stockholders' (Deficit) Equity for the period
from January 23, 1996 (inception) to December 31, 1996, the year ended December 31,
1997, and for the nine months ended September 30, 1998 (unaudited)................. F-5
Consolidated Statement of Cash Flows for the period from January 23, 1996 (inception)
to December 31, 1996, the year ended December 31, 1997, and for the nine months
ended September 30, 1997 and 1998 (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)
equity and of cash flows present fairly, in all material respects, the financial
position of DoubleClick Inc. and its subsidiaries at December 31, 1996 and 1997,
and the results of their operations and their cash flows for the period from
January 23, 1996 (inception) to December 31, 1996 and for the year ended
December 31, 1997, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these 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 audits provide a reasonable basis for the opinion expressed
above.
/S/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
NEW YORK, NEW YORK
FEBRUARY 10, 1998, EXCEPT AS TO THE COMPUTATION OF BASIC AND DILUTED NET LOSS
PER SHARE DESCRIBED IN NOTE 1, WHICH IS AS OF FEBRUARY 25, 1998.
F-2
<PAGE>
DOUBLECLICK INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
-------------- -------------- SEPTEMBER 30,
1998
--------------
(UNAUDITED)
<S> <C> <C> <C>
<CAPTION>
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents....................................... $ -- $ 2,671,845 $ 38,587,883
Short-term investments.......................................... -- 5,874,229 11,325,133
Accounts receivable, less allowances of $150,000 at December 31,
1996 and $1,292,143 at December 31, 1997 and $2,511,709 at
September 30, 1998............................................ 4,078,837 9,909,188 20,932,059
Prepaid expenses and other current assets....................... -- 355,841 635,177
-------------- -------------- --------------
Total current assets........................................ 4,078,837 18,811,103 71,480,252
Property and equipment, net..................................... 445,794 1,997,326 7,578,772
Investments, at cost............................................ -- 254,926 632,651
Other assets.................................................... 900 98,574 510,682
-------------- -------------- --------------
Total assets................................................ $ 4,525,531 $ 21,161,929 $ 80,202,357
-------------- -------------- --------------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable................................................ $ 1,948,714 $ 8,142,429 $ 13,110,387
Accrued expenses................................................ 1,097,418 2,828,474 6,256,678
Deferred revenues............................................... 733,433 91,061 1,145,050
Deferred license and service fees............................... -- 237,500 420,833
Due to related party............................................ 3,337,736 -- --
-------------- -------------- --------------
Total current liabilities................................... 7,117,301 11,299,464 20,932,948
Deferred license and service fees............................... -- 462,500 238,542
Capital lease obligations....................................... -- -- 256,813
STOCKHOLDERS' (DEFICIT) EQUITY:
Convertible preferred stock, par value $.001; 40,000 shares
authorized; issued and outstanding; 40,000 at December 31,
1997; none at September 30, 1998.............................. -- 40 --
Common stock, par value $.001; 40,000,000 shares authorized at
December 31, 1996 and 1997; 60,000,000 at September 30, 1998;
issued and outstanding 9,059,120 shares at December 31, 1996;
6,118,972 at December 31, 1997; 16,626,919 at September 30,
1998.......................................................... 9,059 6,119 16,627
Additional paid-in capital...................................... 590,941 46,996,328 109,615,615
Deferred compensation........................................... -- (1,056,773) (554,301)
Accumulated deficit............................................. (3,191,770) (36,544,478) (50,359,931)
Other comprehensive income...................................... -- (1,271) 56,044
-------------- -------------- --------------
Total stockholders' (deficit) equity........................ (2,591,770) 9,399,965 58,774,054
-------------- -------------- --------------
--------------
Commitments (Note 8)
Total liabilities and stockholders' (deficit) equity........ $ 4,525,531 $ 21,161,929 $ 80,202,357
-------------- -------------- --------------
-------------- -------------- --------------
</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
JANUARY 23, 1996 YEAR
(INCEPTION) THROUGH ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31, ------------------------------------------
1996 1997 SEPTEMBER 30, 1997 SEPTEMBER 30, 1998
-------------------- -------------- -------------------- --------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues....................... $ 6,514,087 $ 30,597,031 $ 19,657,224 $ 51,073,631
Cost of revenues............... 3,780,133 20,627,724 13,047,902 34,538,696
-------------------- -------------- -------------------- --------------------
Gross profit................. 2,733,954 9,969,307 6,609,322 16,534,935
-------------------- -------------- -------------------- --------------------
Operating expenses
Sales and marketing.......... 3,079,305 10,710,418 6,606,236 20,116,962
General and administrative... 2,144,312 6,325,666 3,607,248 7,824,934
Product development.......... 618,251 1,398,313 1,014,792 4,356,883
-------------------- -------------- -------------------- --------------------
Total operating expenses... 5,841,868 18,434,397 11,228,276 32,298,779
-------------------- -------------- -------------------- --------------------
Loss from operations........... (3,107,914) (8,465,090) (4,618,954) (15,763,844)
Interest income................ 7,234 449,618 130,149 1,996,851
Interest expense............... (91,090) (340,789) (123,638) (48,460)
-------------------- -------------- -------------------- --------------------
Net loss....................... $ (3,191,770) $ (8,356,261) $ (4,612,443) $(13,815,453)
-------------------- -------------- -------------------- --------------------
-------------------- -------------- -------------------- --------------------
Basic and diluted net loss per
share........................ $ (0.28) $ (0.73) $ (0.40) $ (0.88)
-------------------- -------------- -------------------- --------------------
-------------------- -------------- -------------------- --------------------
Weighted average shares used in
basic and diluted net loss
per share calculation........ 11,397,417 11,449,296 11,430,500 15,750,739
-------------------- -------------- -------------------- --------------------
-------------------- -------------- -------------------- --------------------
</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
<TABLE>
<CAPTION>
CLASS C COMMON
CLASS A COMMON CLASS B COMMON
------------------------ ------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Capitalization at inception.................... 9,059,120 $ 9,059
Net loss.......................................
Comprehensive income (loss)..................
Exchange of Class A shares for Class B and
Class C shares............................... (5,118,230) (5,118) 5,118,228 $ 5,117 2 $ 1
----------- ----------- ------------ ----------- ----- -----
Balance at December 31, 1996................... 3,940,890 3,941 5,118,228 5,117 2 1
Net loss.......................................
Cumulative foreign currency translation........
Comprehensive income (loss)..................
Deferred compensation..........................
Amortization of deferred compensation..........
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)
Class B and C shares redeemed.................. (3,896,137) (3,895) (1) (1)
Common shares issued for stock options.........
Issuance of Common Stock upon conversion of
convertible note payable to related party....
----------- ----------- ------------ ----------- ----- -----
Balance at December 31, 1997................... -- -- -- -- -- --
Net Loss.......................................
Cumulative foreign currency translation........
Unrealized gain on marketable securities.......
Comprehensive income (loss)(1)...............
Amortization of deferred compensation..........
Conversion of Preferred Stock..................
Initial Public Offering........................
Common Shares issued for stock options.........
----------- ----------- ------------ ----------- ----- -----
Balance at September 30, 1998 (unaudited)...... -- $ -- -- $ -- -- $ --
----------- ----------- ------------ ----------- ----- -----
----------- ----------- ------------ ----------- ----- -----
<CAPTION>
CONVERTIBLE
COMMON STOCK PREFERRED STOCK
------------------------ ------------------------ ADDITIONAL
SHARES AMOUNT SHARES AMOUNT PAID-IN CAPITAL
----------- ----------- --------- ------------- ----------------
<S> <C> <C> <C> <C>
Capitalization at inception.................... $ 590,941
Net loss.......................................
Comprehensive income (loss)..................
Exchange of Class A shares for Class B and
Class C shares...............................
----------- ----------- --------- --- ----------------
Balance at December 31, 1996................... -- $ -- -- $ -- 590,941
Net loss.......................................
Cumulative foreign currency translation........
Comprehensive income (loss)..................
Deferred compensation.......................... 1,547,072
Amortization of deferred compensation..........
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................................ 5,191,732 5,192
Class B and C shares redeemed..................
Common shares issued for stock options......... 147,938 148 23,503
Issuance of Common Stock upon conversion of
convertible note payable to related party.... 779,302 779 4,999,221
----------- ----------- --------- --- ----------------
Balance at December 31, 1997................... 6,118,972 6,119 40,000 40 46,996,328
Net Loss.......................................
Cumulative foreign currency translation........
Unrealized gain on marketable securities.......
Comprehensive income (loss)(1)...............
Amortization of deferred compensation..........
Conversion of Preferred Stock.................. 6,234,434 6,234 (40,000) (40) (6,194)
Initial Public Offering........................ 4,025,000 4,025 62,556,196
Common Shares issued for stock options......... 248,513 249 69,285
----------- ----------- --------- --- ----------------
Balance at September 30, 1998 (unaudited)...... 16,626,919 $ 16,627 -- $ -- $ 109,615,615
----------- ----------- --------- --- ----------------
----------- ----------- --------- --- ----------------
<CAPTION>
OTHER
DEFERRED ACCUMULATED COMPREHENSIVE
COMPENSATION DEFICIT INCOME TOTAL
--------------- -------------- ----------------- ----------------
Capitalization at inception.................... $ 600,000
Net loss....................................... $ (3,191,770) (3,191,770)
-------------- ----------------
Comprehensive income (loss).................. (3,191,770) (3,191,770)
Exchange of Class A shares for Class B and
Class C shares...............................
--------------- -------------- ----------------- ----------------
Balance at December 31, 1996................... $ -- (3,191,770) $ -- (2,591,770)
Net loss....................................... (8,356,261) (8,356,261)
Cumulative foreign currency translation........ (1,271) (1,271)
-------------- ----------------- ----------------
Comprehensive income (loss).................. (8,356,261) (1,271) (8,357,532)
Deferred compensation.......................... (1,547,072) --
Amortization of deferred compensation.......... 490,299 490,299
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.................. (24,996,447) (25,000,343)
Common shares issued for stock options......... 23,651
Issuance of Common Stock upon conversion of
convertible note payable to related party.... 5,000,000
--------------- -------------- ----------------- ----------------
Balance at December 31, 1997................... (1,056,773) (36,544,478) (1,271) 9,399,965
Net Loss....................................... (13,815,453) (13,815,453)
Cumulative foreign currency translation........ 58,920 58,920
Unrealized gain on marketable securities....... (1,605) (1,605)
-------------- ----------------- ----------------
Comprehensive income (loss)(1)............... (13,815,453) 57,315 (13,758,138)
Amortization of deferred compensation.......... 502,472 502,472
Conversion of Preferred Stock.................. --
Initial Public Offering........................ 62,560,221
Common Shares issued for stock options......... 69,534
--------------- -------------- ----------------- ----------------
Balance at September 30, 1998 (unaudited)...... $ (554,301) $(50,359,931) $ 56,044 $ 58,774,054
--------------- -------------- ----------------- ----------------
--------------- -------------- ----------------- ----------------
</TABLE>
(1) For the three month period ended September 30, 1998 and 1997, comprehensive
income (loss) was $(4,612,721) and $(2,140,270), respectively.
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
JANUARY 23, 1996 YEAR NINE MONTHS ENDED
(INCEPTION) THROUGH ENDED ------------------------------
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1997 1998
-------------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Cash Flows from Operating Activities
Net loss................................ $ (3,191,770) $ (8,356,261) $ (4,612,443) $(13,815,453)
Adjustments to reconcile net loss to
cash used in operating activities:
Depreciation and amortization....... 45,932 388,815 236,320 1,334,173
Amortization of deferred
compensation expense.............. -- 490,299 197,999 502,472
Provision for bad debts and
advertiser rebates................ 150,000 562,075 633,607 1,219,566
Changes in operating assets and
liabilities:
Accounts receivable............... (4,228,837) (6,972,494) (3,631,215) (12,242,437)
Prepaid expenses and other current
assets.......................... (900) (453,515) (109,640) (414,695)
Accounts payable.................. 1,948,714 6,193,715 3,587,883 4,967,958
Accrued expenses.................. 1,097,418 2,311,124 1,051,548 3,428,204
Deferred revenues................. 733,433 57,628 580,909 1,013,364
-------------------- -------------- -------------- --------------
Net cash used in operating
activities.................... (3,446,010) (5,778,614) (2,065,032) (14,006,848)
-------------------- -------------- -------------- --------------
Cash Flows from Investing Activities
Purchases, sales and maturities of
short-term investments, net........... -- (5,874,229) (8,099,686) (5,449,427)
Investments............................. -- (254,926) (254,926) (377,725)
Other assets............................ -- -- -- (279,831)
Purchases of property and equipment..... (491,726) (1,940,347) (1,451,129) (6,646,055)
-------------------- -------------- -------------- --------------
Net cash used in investing
activities.................... (491,726) (8,069,502) (9,805,741) (12,753,038)
-------------------- -------------- -------------- --------------
Cash Flows from Financing Activities
Proceeds from issuance of common stock.. 600,000 -- -- 62,560,222
Proceeds from exercise of common stock
options............................... -- 27,317 16,599 69,533
Proceeds from issuance of preferred
stock, net............................ -- 39,831,994 39,831,994 --
Redemption of common stock.............. -- (25,000,343) (25,000,343) --
Advances from related party............. 3,337,736 3,048,096 3,048,096 --
Payments under capital lease
obligation............................ -- -- -- (12,751)
Repayment of advances to related
party................................. -- (1,385,832) (1,385,832) --
-------------------- -------------- -------------- --------------
Net cash provided by financing
activities.................... 3,937,736 16,521,232 16,510,514 62,617,004
-------------------- -------------- -------------- --------------
Effect of exchange rate changes on cash... -- (1,271) -- 58,920
-------------------- -------------- -------------- --------------
Net increase in cash and cash
equivalents............................. -- 2,671,845 4,639,741 35,916,038
Cash and cash equivalents at beginning of
period.................................. -- -- -- 2,671,845
-------------------- -------------- -------------- --------------
Cash and cash equivalents at end of
period.................................. $ -- $ 2,671,845 $ 4,639,741 $ 38,587,883
-------------------- -------------- -------------- --------------
-------------------- -------------- -------------- --------------
</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 NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998)
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
SUMMARY OF OPERATIONS
DoubleClick Inc. together with its subsidiaries, (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 subsidiaries. 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, 1997 and 1998
unaudited interim consolidated financial statements include all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of
such financial statements. The results of operations for the nine months ended
September 30, 1998 are not necessarily indicative of the results to be expected
for the entire year.
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 seven months, are carried at fair value. At December 31,
1997, the fair value of such securities approximated cost and there were no
unrealized holding gains or losses.
F-7
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998)
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 their estimated useful lives, or the term of the
leases, whichever is shorter.
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 year ended December 31, 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 $137,064 for the year ended December 31,
1997, and such amounts 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 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, $712,172 for the year ended December
31, 1997.
FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF RISK
The Company's financial instruments consist of cash and cash equivalents,
short-term investments, accounts receivable, accounts payable, and accrued
expenses. At December 31, 1996 and 1997 the fair value of these instruments
approximated their financial statement carrying amount.
F-8
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998)
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 74 days at December 31, 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 ("Digital") (subsequently acquired by Compaq
Computer Corp. ("Compaq")) to be the exclusive third-party provider of
advertising services on specified pages within the AltaVista Web site. The
Agreement was amended on January 7, 1998 to extend the term of the Agreement
through December 1999, and to provide that the Agreement would survive a change
in control of AltaVista or Digital provided that, notwithstanding either such
provision, either party may terminate the Agreement, after July 1998, upon 90
days' prior written notice. In June 1998, Digital was acquired by Compaq.
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. In addition, any development
materially affecting the business or financial condition of AltaVista, including
any decisions made by Compaq during the completion of the acquisition of Digital
by Compaq, could have a material adverse effect on AltaVista's business or the
Company's relationship with AltaVista. Net revenues derived from advertising
impressions delivered to users of the AltaVista Web site represented 44.7% of
the Company's total revenues for the period ended December 31, 1997. 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 total
revenues, are as follows:
<TABLE>
<CAPTION>
JANUARY 23,
1996 (INCEPTION) YEAR
THROUGH ENDED
DECEMBER 31, DECEMBER 31,
CUSTOMER 1996 1997
- ---------- ------------------- -------------------
<S> <C> <C>
A 10% --
</TABLE>
F-9
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998)
Accounts receivable regarding significant customers, as a percentage of total
accounts receivable, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
CUSTOMER 1996 1997
- ---------- ------------------- -------------------
<S> <C> <C> <C>
A 10% --
B 5 12%
</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.
FOREIGN CURRENCY
The functional currencies of the Company's subsidiaries are the local
currencies. The financial statements of these subsidiaries are translated to
United States dollars using period-end rates of exchange for assets and
liabilities and average rates during the period for revenues, cost of revenues
and expenses. Translation gains and losses are deferred and accumulated as a
component of stockholders' equity. Net gains and losses resulting from foreign
exchange transactions are included in the consolidated statements of operations
and were not significant during the periods presented.
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.
F-10
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998)
BASIC AND DILUTED NET LOSS PER SHARE
In February 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 128, Earnings Per Share (Statement 128). The Company adopted Statement
128 as of December 31, 1997. Statement 128 requires dual presentation of Basic
earnings per share (EPS) and Diluted EPS.
Basic and diluted net loss per share have been restated to give effect to
the conversion of the Convertible Preferred Stock which occurred simultaneous
with the closing of the Company's initial public offering on February 25, 1998.
Basic net loss per share is computed by dividing the net loss by the sum of
the weighted average number of shares of common stock including the shares
resulting from the conversion of Convertible Preferred Stock as though such
conversion occurred at the beginning of the earliest period presented, less
shares assumed to have been redeemed in connection with the recapitalization
described in Note 5, as though such redemption also occurred at the beginning of
the earliest period presented.
Diluted EPS is based on the potential dilution that would occur on exercise
or conversion of securities into common stock. At December 31, 1997, outstanding
options to purchase 2,020,167 shares of common stock, with exercise prices
ranging from $.14 to $11.00, could potentially dilute basic earnings per share
in the future and have not been included in the computation of diluted net loss
per share because to do so would have been antidilutive for the periods
presented. As a result, the basic and diluted per share amounts are identical
for all periods presented.
NEW ACCOUNTING PRONOUNCEMENTS
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.
RECLASSIFICATIONS
Certain prior year amounts have been reclassfied to conform to current
period presentation.
(2) PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
USEFUL LIFE 1996 1997 1998
----------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Computer equipment and purchased software................. 1-3 years $ 471,366 $ 1,768,509 $ 7,176,080
Furniture and fixtures.................................... 5 years 20,360 273,856 928,016
Leasehold improvements.................................... 1-5 years -- 389,708 1,297,351
-------------- -------------- --------------
491,726 2,432,073 9,401,447
Less accumulated depreciation and amortization............ (45,932) (434,747) (1,822,675)
-------------- -------------- --------------
$ 445,794 $ 1,997,326 $ 7,578,772
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
F-11
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998)
(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. During the nine months
ended September 30, 1998, the Company purchased 10% voting interest in
Advertising on Internet in Scandinavia AB, doing business as DoubleClick
Scandinavia, for $377,725. These business partners were formed to 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 December 31, 1997 and September 30,
1998 the Company had received $700,000 and $1,025,000, respectively from its
business partners. Such amounts are 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.
(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,
1997, the Company had approximately $8,750,000 of federal net operating loss
carryforwards available to offset future taxable income; such carryforwards
expire in various years through 2012. 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 carryforwards that
give rise to significant portions of federal deferred tax assets (liabilities)
are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
-------------- --------------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards...................................... $ 989,000 $ 2,974,000
Deferred revenues, license and service fees........................... -- 238,000
Other................................................................. 96,000 525,000
-------------- --------------
Gross deferred tax assets............................................... 1,085,000 3,737,000
Valuation allowance..................................................... 1,085,000 3,737,000
-------------- --------------
Net deferred tax assets................................................. $ -- $ --
-------------- --------------
-------------- --------------
</TABLE>
F-12
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998)
(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.
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.
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.
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.
F-13
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998)
In February 1998, the Company completed an initial public offering of
4,025,000 shares of the Company's Common stock. Proceeds to the Company from
this initial public offering totaled approximately $62.5 million net of offering
costs of $1.1 million. Upon the closing of the initial public offering, the
Company's convertible preferred stock converted into 6,234,434 shares of Common
stock.
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 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.
F-14
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998)
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............................................... 1,038,725 3.41
Options exercised............................................. (176,688) 0.16
Options canceled.............................................. (203,250) 0.66
-------------- -------
Balance at December 31, 1997.................................. 2,020,167 1.78
-------------- -------
Options granted............................................... 687,425 19.21
Options exercised............................................. (278,138) .37
Options cancelled............................................. (148,400) 7.90
-------------- -------
Balance at September 30, 1998................................. [2,281,054] 6.81
-------------- -------
Exercisable at September 30, 1998............................. 601,953 $ 0.54
-------------- -------
-------------- -------
</TABLE>
During the year ended December 31, 1997, deferred compensation of $1,547,072
was recorded for options granted of which $490,299 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 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 YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
----------------- ---------------
<S> <C> <C>
Net loss:
As reported................................................................ $ 3,191,770 $ 8,356,261
Pro forma per SFAS 123..................................................... 3,201,393 8,929,654
Net loss per share:
As reported................................................................ $ (0.28) $ (0.73)
Pro forma per SFAS 123..................................................... (0.28) (0.78)
</TABLE>
F-15
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998)
The per share weighted average fair value of options granted during the
period from inception to December 31, 1996 and for the year ended December 31,
1997 was $0.03 and $2.21, respectively, on the date with the following weighted
average assumptions:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 23, 1996
(INCEPTION)
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
----------------- --------------
<S> <C> <C>
Expected dividend yield........................................................ 0% 0%
Risk-free interest rate........................................................ 5.6% 6.0%
Expected life.................................................................. 4 years 4 years
</TABLE>
(6) RELATED PARTY TRANSACTIONS
During the period from January 23, 1996 (inception) through March 31, 1997,
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 December 31, 1997.............................. $ --
-----------
-----------
</TABLE>
Effective April 1, 1997 the related party ceased providing such
administrative and support services to the Company.
On June 4, 1997, the Company converted advances from the related party into
a $5,000,000, convertible note. Principal was payable, with any and all accrued
and unpaid interest, on June 4, 2000. The note accrued interest at a per annum
rate equal to the "Federal Short Term Rate". On December 30, 1997 at the option
of the holder, the convertible note was converted into 779,302 shares of the
Company's common stock at a conversion price of $6.42.
F-16
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998)
(7) SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosure of cash flow information:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 23,
1996
(INCEPTION)
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
-------------- --------------
<S> <C> <C>
Cash paid for interest: $ 91,090 $ 338,570
-------------- --------------
-------------- --------------
</TABLE>
Non-cash investing activities: During the nine months ended September 30,
1998, the Company acquired $269,564 under capital leases.
Non-cash financing activities: On June 4, 1997, the Company converted $5.0
million of advances from the related party into a $5.0 million convertible note.
On December 30, 1997, the convertible note was converted into 779,302 shares of
the Company's common stock.
(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>
1998............................................................................................ $ 701,964
1999............................................................................................ 527,237
2000............................................................................................ 427,856
2001............................................................................................ 382,949
2002 and thereafter............................................................................. 287,212
</TABLE>
Rent expense totaled approximately $163,195 for the period from January 23,
1996 (inception) to December 31, 1996, and $489,944 for the year ended December
31, 1997, respectively.
F-17
<PAGE>
UNDERWRITING
DoubleClick and the underwriters for the offering (the "Underwriters") named
below, for whom Goldman, Sachs & Co., BT Alex. Brown Incorporated, Donaldson,
Lufkin & Jenrette Securities Corporation and Salomon Smith Barney Inc. are
acting as representatives (collectively, the "Representatives"), have entered
into an underwriting agreement with respect to the shares being offered. Subject
to certain conditions, each Underwriter has severally agreed to purchase the
number of shares indicated in the following table:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------------------------------------------------------------------- -------------------
<S> <C>
Goldman, Sachs & Co......................................................
BT Alex. Brown Incorporated..............................................
Donaldson, Lufkin & Jenrette Securities Corporation......................
Salomon Smith Barney Inc.................................................
----------
Total................................................................ 2,500,000
----------
----------
</TABLE>
If the Underwriters sell more shares than the total number set forth in the
table above, the Underwriters have an option to buy up to an additional 375,000
shares from DoubleClick to cover such sales. They may exercise that option for
30 days. If any shares are purchased pursuant to this option, the Underwriters
will severally purchase shares in approximately the same proportion as set forth
in the table above.
The following tables show the per share and total underwriting discounts and
commissions to be paid to the Underwriters by DoubleClick. Such amounts are
shown assuming both no exercise and full exercise of the Underwriters' option to
purchase additional shares.
PAID TO THE UNDERWRITERS
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
--------------- ----------------
<S> <C> <C>
Per Share..... $ $
Total......... $ $
</TABLE>
Shares sold by the Underwriters to the public will initially be offered at
the public offering price set forth on the cover of this prospectus. Any shares
sold by the Underwriters to securities dealers may be sold at a discount of up
to $ per share from the public offering price. Any such securities dealers
may resell any shares purchased from the Underwriters to certain other brokers
or dealers at a discount of up to $ per share from the public offering
price. If all the shares are not sold at the offering price, the Representatives
may change the offering price and the other selling terms.
DoubleClick, and its directors and officers have agreed with the
Underwriters not to dispose of or hedge any of their Common Stock or securities
convertible into or exchangeable for shares of Common Stock during the period
from the date of this prospectus continuing through the date 90 days after the
date of this prospectus, except with the prior written consent of the
Representatives. This agreement does not apply to any existing employee benefit
plans. See "Shares Eligible for Future Sale" for a discussion of certain
transfer restrictions.
In connection with the offering, the Underwriters may purchase and sell
shares of Common Stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the Underwriters of a greater
number of shares than they are required to purchase in the offering. Stabilizing
transactions consist of certain bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the Common Stock while
the offering is in progress.
The Underwriters also may impose a penalty bid. This occurs when a
particular Underwriter repays to the Underwriters a
U-1
<PAGE>
portion of the underwriting discount received by it because the Representatives
have repurchased shares sold by or for the account of such Underwriter in
stabilizing or short covering transactions.
These activities by the Underwriters may stabilize, maintain or otherwise
affect the market pace of the Common Stock. As a result, the price of the Common
Stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
Underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
As permitted by Rule 103 under the Exchange Act, certain Underwriters (and
selling group members, if any) that are market makers ("passive market makers")
in the Common Stock may make bids for or purchases of the Common Stock in the
Nasdaq National Market until such time, if any, when a stabilizing bid for such
securities has been made. Rule 103 generally provides that (i) a passive market
maker's net daily purchases of the Common Stock may not exceed 30% of its
average daily trading volume in such securities for the two full consecutive
calendar months (or any 60 consecutive days ending within the 10 days)
immediately preceding the filing date of the registration statement of which
this prospectus forms a part, (2) a passive market maker may not effect
transactions or display bids for the Common Stock at a price that exceeds the
highest independent bid for the Common Stock by persons who are not passive
market makers and (3) bids made by passive market makers must be identified as
such.
Under Rule 2720 of the National Association of Securities Dealers, Inc. (the
"NASD"), DoubleClick may be deemed to be an affiliate of BT Alex. Brown
Incorporated. For a description of certain relationships between BT Alex. Brown
Incorporated and its affiliates and DoubleClick, see "Certain Transactions". The
offering is being conducted in accordance with Rule 2720.
DoubleClick estimates that its share of the total expenses of the offering,
excluding underwriting discounts and commissions, will be approximately
$646,875.
DoubleClick has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
U-2
<PAGE>
- ---------------------------------------------
---------------------------------------------
- ---------------------------------------------
---------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST
NOT RELY ON ANY UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS IS
AN OFFER TO SELL ONLY THE SHARES OFFERED HEREBY, BUT ONLY UNDER CIRCUMSTANCES
AND IN JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE INFORMATION CONTAINED IN
THIS PROSPECTUS IS CURRENT ONLY AS OF ITS DATE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Prospectus Summary................................ 3
Risk Factors...................................... 5
Use of Proceeds................................... 16
Price Range of Common Stock....................... 16
Dividend Policy................................... 16
Corporate Information............................. 16
Capitalization.................................... 17
Dilution.......................................... 18
Selected Consolidated Financial Data.............. 19
Management's Discussion and Analysis of Financial
Condition and Results of Operations............. 20
Business.......................................... 30
Management........................................ 45
Certain Transactions.............................. 55
Principal Stockholders............................ 56
Description of Securities......................... 59
Shares Eligible for Future Sale................... 63
Additional Information............................ 64
Legal Matters..................................... 64
Experts........................................... 65
Change in Accountants............................. 65
Index to Consolidated Financial Statements........ F-1
Underwriting...................................... U-1
</TABLE>
2,500,000 Shares
DOUBLECLICK INC.
Common Stock
---------------
[LOGO]
---------------
GOLDMAN, SACHS & CO.
BT ALEX. BROWN
DONALDSON, LUFKIN & JENRETTE
SALOMON SMITH BARNEY
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 and the NASD filing fees.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
-------------
<S> <C>
SEC registration fee........................................................... $ 27,625
NASD filing fee................................................................ 10,437
Nasdaq National Market listing fee............................................. 17,500
Printing and engraving......................................................... 200,000
Legal fees and expenses........................................................ 200,000
Accounting fees and expenses................................................... 75,000
Blue sky fees and expenses (including legal fees).............................. 10,000
Transfer agent fees............................................................ 20,000
Miscellaneous.................................................................. 86,313
-------------
Total...................................................................... $ 646,875
-------------
-------------
</TABLE>
The Company will bear all expenses shown above.
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
II-1
<PAGE>
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 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"), (i) to Poppe
Tyson, Inc. a subsidiary of Bozell, Jacobs, Kenyon & Eckhardt in exchange for
$500,000 in cash, and (ii) to Kevin J. O'Connor and Dwight A. Merriman in
exchange for $75,000 in cash and fixed assets having an approximate value of
$25,000. 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 an aggregate of 36,667 shares of its Convertible Preferred Stock, par
value $.001 per share, to the holders of common stock of Newco which consisted
of: 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., ABS Capital
Partners II, L.P., Greylock Equity Limited Partnership, Greylock IX Limited
Partnership, Canaan S.B.I.C., L.P., Canaan Equity, L.P., Canaan Capital Limited
Partnership, Canaan Capital Offshore Limited Partnership, C.V., Venrock
Associates and Venrock Associates II, L.P. Such shares of Convertible Preferred
Stock converted into an aggregate of 5,714,950 shares of Common Stock on the
closing of the Registrant's initial public offering. Such shares of Convertible
Preferred Stock were sold in reliance upon an exemption from registration under
the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof. 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 the following investors for $3,333,000: WPG Enterprise Fund
III, L.P., Weiss, Peck & Greer Venture Associates IV, L.P. and Weiss, Peck &
Greer Venture Associates IV Cayman, L.P. Such shares of Convertible Preferred
Stock converted into an aggregate of 519,484 shares of Common Stock on the
closing of the Registrant's initial public offering.
In December 1997, the Company issued 779,302 shares of Common Stock to
Bozell, Jacobs, Kenyon & Eckhardt, Inc. upon conversion of a Convertible
Promissory Note in the principal amount of $5,000,000. Such shares of Common
Stock were issued in reliance upon an exemption from registration under the
Securities Act of 1933 pursuant to Section 4(2).
II-2
<PAGE>
The Registrant from time to time has granted stock options to employees in
reliance upon an exemption under the Securities Act of 1933, as amended,
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 31, 1997............................. 1,038,725 0.28-13.00
</TABLE>
Between January 1, 1996 and December 31, 1997, an aggregate of 176,668
shares of Common Stock were issued to employees of the Registrant pursuant to
the exercise of options at a weighted average exercise price of $0.16 per share
in reliance on an exemption under the Securities Act of 1933, as amended,
pursuant to Rule 701 promulgated thereunder.
As indicated, 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 of 1933, as amended, as transactions not involving
any public offering, or (ii) Rule 701 under the Securities Act of 1933, as
amended. No underwriters were involved in connection with the sales of
securities referred to in this Item 15.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1** Amended and Restated Certificate of Incorporation.
3.2 Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.5 of the Registrant's
Registration Statement on Form S-1 ("Registration Statement No. 333-42323")).
4.1 Specimen Common Stock certificate (Incorporated by reference to Exhibit 4.1 of Registration Statement
No. 333-42323).
4.2 See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated Certificate of Incorporation and
Bylaws of the Registrant defining the rights of holders of Common Stock of the Registrant.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1 1996 Stock Option Plan (Incorporated by reference to Exhibit 10.1 of Registration Statement No.
333-42323).
10.2 1997 Stock Incentive Plan (Incorporated by reference to Exhibit 10.2 of Registration Statement No.
333-42323).
10.3 [Reserved]
10.4 Stockholders Agreement, dated as of June 4, 1997 (Incorporated by reference to Exhibit 10.4 of
Registration Statement No. 333-42323).
10.5 Sublease dated August 1996, between Martin, Marshall, Jaccoma & Mitchell Advertising, Inc. and the
Registrant (Incorporated by reference to Exhibit 10.5 of Registration Statement No. 333-42323).
10.6 Lease dated July 1997, between Investment Properties Associates and the Registrant (Incorporated by
reference to Exhibit 10.6 of Registration Statement No. 333-42323).
10.7+ Procurement and Trafficking Agreement, dated December 1996, by and between Registrant and Digital
Equipment Corporation (Incorporated by reference to Exhibit 10.7 of Registration Statement No.
333-42323).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.8 Amendment No. 1 to Procurement and Trafficking Agreement, dated January 1998, by and between
Registrant and Digital Equipment Corporation (Incorporated by reference to Exhibit 10.8 of
Registration Statement No. 333-42323).
11.1 Statement re: Computation of Basic and Diluted Net Loss Per Share.
16.1 Letter from KPMG Peat Marwick LLP (Incorporated by reference to Exhibit 16.1 of Registration
Statement No. 333-42323).
21.1** Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2* Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1).
24.1** Powers of Attorney.
27.1** Financial Data Schedule.
(b) Financial Statement Schedules.
</TABLE>
<TABLE>
<S> <C>
Schedule II Valuation and Qualifying Accounts.
</TABLE>
- ------------------------
* To be supplied by amendment.
** Previously filed.
+ Confidential treatment granted for certain portions of this Exhibit pursuant
to Rule 406 promulgated under the Securities Act.
ITEM 17. UNDERTAKINGS
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 30th day of November, 1998.
DOUBLECLICK INC.
By: /s/ KEVIN J. O'CONNOR
------------------------------------------
Kevin J. O'Connor
Chief Executive Officer
POWER OF ATTORNEY
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 November 30, 1998:
<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 Operating Officer
-------------------------------------------
Kevin P. Ryan
Chief Financial Officer (Principal Financial
* Officer and Principal Accounting Officer)
-------------------------------------------
Jeffrey E. Epstein
* Chief Technology Officer and Director
-------------------------------------------
Dwight A. Merriman
* Director
-------------------------------------------
David N. Strohm
* Director
-------------------------------------------
Mark E. Nunnelly
* Director
-------------------------------------------
W. Grant Gregory
* Director
-------------------------------------------
Donald Peppers
* Director
-------------------------------------------
Thomas S. Murphy
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ KEVIN J. O'CONNOR
-------------------------
Kevin J. O'Connor
Attorney-in-fact
</TABLE>
II-5
<PAGE>
DOUBLECLICK, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
PERIOD FROM JANUARY 23, 1996 (INCEPTION) TO DECEMBER 31, 1996
AND THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
BALANCE AT THE CHARGED TO BALANCE AT THE
BEGINNING OF COSTS AND END OF THE
DESCRIPTION THE PERIOD EXPENSES WRITE-OFFS YEAR
- -------------------------- --------------------- --------------- --------------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts:
Period from January 23,
1996
(inception) to December
31, 1996................. $ -- $ 150 $ -- $ 150
Year ended December 31,
1997..................... $ 150 $ 1,411 $ 269 $ 1,292
</TABLE>
S-1
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1** Amended and Restated Certificate of Incorporation.
3.2 Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.5 of the Registrant's
Registration Statement on Form S-1 ("Registration Statement No. 333-42323")).
4.1 Specimen Common Stock certificate (Incorporated by reference to Exhibit 4.1 of Registration Statement
No. 333-42323).
4.2 See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated Certificate of Incorporation and
Bylaws of the Registrant defining the rights of holders of Common Stock of the Registrant.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1 1996 Stock Option Plan (Incorporated by reference to Exhibit 10.1 of Registration Statement No.
333-42323).
10.2 1997 Stock Incentive Plan (Incorporated by reference to Exhibit 10.2 of Registration Statement No.
333-42323).
10.3 [Reserved]
10.4 Stockholders Agreement, dated as of June 4, 1997 (Incorporated by reference to Exhibit 10.4 of
Registration Statement No. 333-42323).
10.5 Sublease dated August 1996, between Martin, Marshall, Jaccoma & Mitchell Advertising, Inc. and the
Registrant (Incorporated by reference to Exhibit 10.5 of Registration Statement No. 333-42323).
10.6 Lease dated July 1997, between Investment Properties Associates and the Registrant (Incorporated by
reference to Exhibit 10.6 of Registration Statement No. 333-42323).
10.7+ Procurement and Trafficking Agreement, dated December 1996, by and between Registrant and Digital
Equipment Corporation (Incorporated by reference to Exhibit 10.7 of Registration Statement No.
333-42323).
10.8 Amendment No. 1 to Procurement and Trafficking Agreement, dated January 1998, by and between
Registrant and Digital Equipment Corporation (Incorporated by reference to Exhibit 10.8 of
Registration Statement No. 333-42323).
11.1 Statement re: Computation of Basic and Diluted Net Loss Per Share.
16.1 Letter from KPMG Peat Marwick LLP (Incorporated by reference to Exhibit 16.1 of Registration
Statement No. 333-42323).
21.1** Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2* Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1).
24.1** Powers of Attorney (See Signature Page on Page II-6).
27.1** Financial Data Schedule.
</TABLE>
- ------------------------
* To be supplied by amendment.
** Previously filed.
+ Confidential treatment granted for certain portions of this Exhibit pursuant
to Rule 406 promulgated under the Securities Act.
<PAGE>
EXHIBIT 11.1
DOUBLECLICK INC.
COMPUTATION OF BASIC AND DILUTED NET LOSS PER COMMON SHARE
<TABLE>
<CAPTION>
NUMBER OF
COMMON AND
COMMON WEIGHTED
EQUIVALENT DAYS AVERAGE
SHARES OUTSTANDING SHARES
----------------- --------------- ------------
<S> <C> <C> <C>
PERIOD FROM JANUARY 23, 1996 (INCEPTION) TO DECEMBER 31, 1996
Issuance of Class A common stock at inception, and exchange for
Class B and Class C common stock.............................. 9,059,120 251 6,629,269
3,940,890 92 1,057,032
Issuance of Class B common stock in exchange for Class A common
stock......................................................... 5,118,228 92 1,372,819
Issuance of Class C common stock in exchange for Class A common
stock......................................................... 2 92 1
Assumed issuance and conversion of convertible preferred stock
as of January 23, 1996........................................ 6,234,434 343 6,234,434
Assumed redemption of Class B and C common stock from proceeds
of assumed issuance and conversion of convertible preferred
stock......................................................... (3,896,137) 343 (3,896,138)
------------
Weighted average shares used in per share computation.......... 11,397,417
------------
------------
Net loss for the period from January 23, 1996 (inception) to
December 31, 1996............................................. $ (3,191,770)
------------
------------
Basic and diluted net loss per common share.................... $ (0.28)
------------
------------
YEAR ENDED DECEMBER 31, 1997
Class A common stock at January 1, 1997, and exchange for
Common Stock.................................................. 3,940,890 154 1,662,732
Stock options exercised.................................... 28,750 51 5,391
Class B common stock outstanding at January 1, 1997, and
exchange for Common Stock..................................... 5,118,228 154 2,159,472
Class C common stock outstanding at January 1, 1997, and
exchange for Common Stock..................................... 2 154 1
Issuance of Common Stock....................................... 5,191,732 210 2,987,024
Issuance of common stock upon conversion of convertible
note payable............................................. 779,302 1 2,135
Stock options exercised.................................... 147,938 Various 41,957
Assumed issuance and conversion of convertible preferred stock
as of January 1, 1997......................................... 6,234,434 365 6,234,434
Assumed redemption of Class B and C common stock from proceeds
of assumed issuance and conversion of convertible preferred
stock......................................................... (3,896,137) 154 (1,643,850)
------------
Weighted average shares used in basic and diluted net loss per
share computation............................................. 11,449,296
------------
------------
Net loss for the year ended December 31, 1997.................. $ (8,356,261)
------------
------------
Basic and diluted net loss per common share.................... $ (0.73)
------------
------------
</TABLE>
<PAGE>
DOUBLECLICK INC.
COMPUTATION OF BASIC AND DILUTED NET LOSS PER COMMON SHARE
<TABLE>
<CAPTION>
NUMBER OF
COMMON AND
COMMON WEIGHTED
EQUIVALENT DAYS AVERAGE
SHARES OUTSTANDING SHARES
----------------- --------------- ------------
<S> <C> <C> <C>
<CAPTION>
NUMBER OF
COMMON AND
COMMON WEIGHTED
EQUIVALENT DAYS AVERAGE
SHARES OUTSTANDING SHARES
----------------- --------------- ------------
<S> <C> <C> <C>
NINE MONTHS ENDED SEPTEMBER 30, 1997
Class A common stock outstanding at January 1, 1997, and
exchange for Common Stock..................................... 3,940,890 273 3,940,890
Class B common stock outstanding at January 1, 1997, and
exchange for Common Stock..................................... 5,118,228 273 5,118,228
Class C common stock outstanding at January 1, 1997, and
exchange for Common Stock..................................... 2 273 2
Stock options exercised........................................ 99,250 Various 33,083
Assumed issuance and conversion of convertible preferred stock
as of January 1, 1997......................................... 6,234,434 273 6,234,434
Assumed redemption of Class B and C Common Stock from assumed
proceeds and conversion of convertible preferred stock........ (3,896,137) 273 (3,896,137)
------------
Weighted average shares used in basic net loss per share
computation................................................... 11,430,500
------------
Net loss for the nine months ended September 30, 1997.......... $ (4,612,443)
------------
Basic and diluted net loss per share........................... $ (0.40)
------------
------------
NINE MONTHS ENDED SEPTEMBER 30, 1998
Common Stock outstanding at January 1, 1998.................... 6,118,972 273 6,118,972
Stock options exercised........................................ 248,513 Various 124,256
Issuance of Common Stock....................................... 4,025,000 222 3,273,077
Issuance of common stock upon conversion of convertible
preferred stock upon February 20, 1998 initial public
offering...................................................... 6,234,434 222 5,069,760
Assumed issuance of conversion of convertible preferred stock
for the period from January 1, 1998 through February 20,
1998.......................................................... 6,234,434 51 1,164,674
------------
Weighted average shares used in basic net loss per share
computation................................................... 15,750,739
------------
Net loss for the nine months ended September 30, 1998.......... $(13,815,453)
------------
Basic and diluted net loss per share........................... $ (0.88)
------------
------------
</TABLE>
<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 February 10, 1998, except
as to the computation of basic and diluted net loss per share described in Note
1, which is as of February 25, 1998, relating to the consolidated financial
statements of DoubleClick Inc., which appears in such Prospectus. We also
consent to the application of such report to the Financial Statement Schedules
for the period from January 23, 1996 (inception) to December 31, 1996 and for
the year ended December 31, 1997 listed under Item 16(b) of this Registration
Statement when such schedules are read in conjunction with the financial
statements referred to in our report. The audits referred to in such report also
included these schedules. We also consent to the reference to us under the
headings "Experts" in such Prospectus.
/s/ PricewaterhouseCoopers LLP
New York, New York
November 30, 1998
