<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 27, 1998
REGISTRATION NO. 333-42323
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
-------------------
DOUBLECLICK INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 7319 13-3870996
(State of (Primary Standard Industrial I.R.S. Employer
Incorporation) Classification Code) Identification Number)
</TABLE>
41 MADISON AVENUE, 32ND FLOOR
NEW YORK, NEW YORK 10010
(212) 683-0001
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
------------------------
KEVIN J. O'CONNOR
CHIEF EXECUTIVE OFFICER
DOUBLECLICK INC.
41 MADISON AVENUE, 32ND FLOOR
NEW YORK, NEW YORK 10010
(212) 683-0001
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
ALEXANDER D. LYNCH, ESQ. MARK G. BORDEN, ESQ.
BROBECK, PHLEGER & HARRISON LLP HALE AND DORR LLP
1633 BROADWAY, 47TH FLOOR 60 STATE STREET
NEW YORK, NEW YORK 10019 BOSTON, MASSACHUSETTS 02109
(212) 581-1600 (617) 526-6000
</TABLE>
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration
Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If 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. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE(2)(3)
<S> <C> <C>
Common Stock, par value $.001 per share............... $40,250,000 $11,874
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o).
(2) Calculated pursuant to Rule 457(a) based on an estimate of the proposed
maximum aggregate offering price.
(3) Previously paid.
------------------------
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 JANUARY 27, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
<PAGE>
2,500,000 SHARES
[LOGO]
COMMON STOCK
(PAR VALUE $.001 PER SHARE)
------------------
All of the 2,500,000 shares of Common Stock offered hereby are being sold by
the Company. Prior to the offering, there has been no public market for the
Common Stock. It is currently estimated that the initial public offering price
will be between $12.00 and $14.00 per share. For factors to be considered in
determining the initial public offering price, see "Underwriting".
Shares of Common Stock may be reserved for sale at the initial public
offering price to the Company's employees, directors and other persons with
direct business relationships with the Company. Such employees, directors and
other persons may purchase, in the aggregate, not more than 10% of the Common
Stock offered hereby. See "Underwriting".
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.
The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "DCLK", subject to official notice of issuance.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) COMPANY(2)
------------------ ------------------ ------------------
<S> <C> <C> <C>
Per Share.......................................... $ $ $
Total(3)........................................... $ $ $
</TABLE>
- --------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting".
(2) Before deducting estimated expenses of $750,000 payable by the Company.
(3) The Company has granted the Underwriters an option for 30 days to purchase
up to an additional 375,000 shares at the initial public offering price,
less the underwriting discount, solely to cover over-allotments. If such
option is exercised in full, the total initial public offering price,
underwriting discount and proceeds to Company will be $ , $
and $ , respectively. See "Underwriting".
------------------
The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that certificates
for the shares will be ready for delivery in New York, New York on or about
, 1998, against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO.
BT ALEX. BROWN
COWEN & COMPANY
------------
The date of this Prospectus is , 1998
<PAGE>
[DEPICTION OF THE COMPANY'S DART TECHNOLOGY AND THE COMPANY'S DOUBLECLICK
NETWORK,
DART SERVICE AND DOUBLECLICK DIRECT]
The Company intends to furnish its stockholders annual reports containing
audited consolidated financial statements and quarterly reports containing
unaudited consolidated financial information for the first three fiscal quarters
of each fiscal year of the Company.
------------------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING
TRANSACTIONS IN SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN
CONNECTION WITH THE OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING".
2
<PAGE>
PROSPECTUS SUMMARY
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THOSE SET FORTH IN RISK FACTORS AND ELSEWHERE IN THIS PROSPECTUS. THE
FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION
AND CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO APPEARING ELSEWHERE
IN THIS PROSPECTUS.
UNLESS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS (I) REFLECTS,
FOLLOWING RECEIPT OF THE REQUISITE STOCKHOLDER APPROVALS AND UPON THE CLOSING OF
THE OFFERING, THE FILING OF THE AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION OF THE COMPANY WHICH, AMONG OTHER THINGS, WILL AUTHORIZE 5,000,000
SHARES OF UNDESIGNATED PREFERRED STOCK; (II) REFLECTS, UPON THE CLOSING OF THE
OFFERING, THE AUTOMATIC CONVERSION OF ALL OUTSTANDING SHARES OF THE COMPANY'S
CONVERTIBLE PREFERRED STOCK INTO AN AGGREGATE OF 6,234,434 SHARES OF COMMON
STOCK (THE "PREFERRED STOCK CONVERSION"); AND (III) ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION.
THE COMPANY
DoubleClick is a leading provider of comprehensive Internet advertising
solutions for advertisers and Web publishers. The Company's technology and media
expertise enable it to dynamically deliver highly targeted, measurable and
cost-effective Internet advertising for advertisers and to increase ad sales and
improve ad space inventory management for Web publishers. DoubleClick offers
three distinct Internet advertising solutions: (i) the DoubleClick Network, a
leading Internet advertising network which provides ad delivery and related
services to over 60 Web sites, including AltaVista, The Dilbert Zone, Macromedia
and U.S. News and World Report; (ii) DoubleClick's DART (Dynamic Advertising
Reporting and Targeting) Service, an Internet advertising management solution
for Web publishers with internal ad sales forces, which is currently being
utilized by over 20 Web publishers, including NBC, THE WALL STREET JOURNAL
INTERACTIVE EDITION, RealNetworks and THE SPORTING NEWS; and (iii) DoubleClick
Direct, the Company's recently introduced advertising solution designed
specifically for direct marketers.
DoubleClick's proprietary DART technology provides the platform for the
Company's solutions. This technology enables advertisers to optimize ad
performance by dynamically targeting and delivering ads to Web users based on
pre-selected criteria. As a user visits the Web sites of Web publishers which
utilize the Company's solutions, DART collects information regarding the user
and his or her viewing activities and ad responses, and applies this data to
improve its ability to predict the user's reaction and enhance DART's ad
targeting capabilities. The sophisticated tracking and reporting functionality
incorporated into DART provides advertisers with accurate measurements of ad
performance based on selected criteria. In addition, DART provides Web
publishers with sophisticated ad space inventory management capabilities.
The Company estimates that in December 1997, more than 20 million users
visited the Web sites of Web publishers which utilized the Company's solutions,
resulting in an aggregate of over 900 million requests received by DoubleClick
for the delivery of ads (impressions). During the same period, DoubleClick
managed over 7,000 Internet advertisements for over 600 advertisers, and over
100 Web publishers representing an aggregate of approximately 350 Web sites
utilized the Company's Internet advertising solutions.
The Internet and the Web have enjoyed unprecedented growth in recent years.
Industry sources estimate that by the end of 1997 there will be over 29 million
Web users in the United States and over 50 million users worldwide, and the
number of Web users is expected to increase to 72 million in the United States
and 129 million worldwide by the end of 2000. According to industry sources, in
1997, an estimated 47% of Internet users had a college degree, 67% were between
the ages of 18 and 44 and their mean household income was $53,000. The Company
believes that advertisers will seek to take advantage of the attractive
demographics of Internet users. Industry sources estimate that the dollar
3
<PAGE>
value of Internet advertising in the United States will increase from $551
million in 1997 to $4.0 billion in 2001, representing a 64% compounded annual
growth rate. The Company believes that the Internet represents an attractive new
medium for direct marketing, which has traditionally been conducted through
direct mail and telemarketing, because highly targeted product offers can be
made to consumers at the point-of-sale. Industry sources estimate that revenues
from direct marketing over the Internet will exceed $1.3 billion in 2002.
As a medium for advertisers and advertising agencies, the Internet offers a
number of significant advantages over traditional media which the Company
believes will lead to significant increases in overall Internet advertising
spending. The Internet provides advertisers with the opportunity to reach highly
targeted audiences, aggregate ad purchasing, access international, national and
local markets, improve advertising accountability and performance, and provide
enhanced direct marketing capabilities. DoubleClick's solutions are designed to
enable advertisers to take advantage of these growing opportunities to realize
significant economic gain through Internet advertising.
Web publishers that attempt to support, or profit from, their Web sites by
selling Internet advertising are seeking advertising solutions that enable them
to increase Web advertising sales, manage Web advertising operations, and
effectively manage ad space inventory. DoubleClick provides Web publishers with
three distinct Internet advertising solutions which address these issues. By
joining the DoubleClick Network, Web publishers can take advantage of
DoubleClick's extensive and experienced ad sales organization and also benefit
from the dynamic ad targeting and reporting functionality provided by the DART
technology. For Web publishers with internal ad sales organizations seeking a
comprehensive turnkey ad management solution, DoubleClick offers its DART
Service. Using the recently launched DoubleClick Direct, Web publishers can sell
their Web sites' available ad space inventory on a cost-per-action basis to
direct marketers.
To provide U.S. and foreign advertisers with the ability to deliver their
ads in global markets and provide Web publishers in international markets with
the ability to outsource their ad sales, technical operations and ad space
inventory management, the Company is developing DoubleClick Networks in
Australia, Canada and the United Kingdom, and through its business partners, in
Japan, Iberoamerica (Spain, Portugal and Latin America) and Scandinavia. To
support this initiative, DoubleClick has recently opened sales offices in
Australia, Canada and the United Kingdom which offer all of the Company's
solutions.
The Company was incorporated in Delaware on January 23, 1996 as DoubleClick
Incorporated and changed its name to DoubleClick Inc. on May 14, 1996. The
Company's principal executive offices are located at 41 Madison Avenue, 32nd
Floor, New York, New York 10010, and its telephone number at that location is
(212) 683-0001.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.................. 2,500,000 shares
Common Stock to be outstanding after the offering.... 14,853,406 shares(1)
Use of proceeds...................................... For general corporate purposes,
including working capital, expansion
of international operations and
sales and marketing capabilities,
and possible acquisitions. See "Use
of Proceeds".
Proposed Nasdaq National Market symbol............... "DCLK"
</TABLE>
- ------------------------
(1) Based on the number of shares of Common Stock outstanding on December 31,
1997. Excludes 2,020,167 shares of Common Stock issuable upon the exercise
of stock options outstanding at December 31, 1997, with a weighted average
exercise price of $1.78 per share. See "Capitalization", "Management -- 1997
Stock Incentive Plan", "Description of Securities" and Note 5 of Notes to
Consolidated Financial Statements.
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JANUARY 23, 1996
(INCEPTION) YEAR
THROUGH ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
----------------- --------------
<S> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues....................................................................... $ 6,514 $ 30,597
Cost of revenues............................................................... 3,780 20,628
Gross profit................................................................... 2,734 9,969
Operating expenses............................................................. 5,842 18,434
Loss from operations........................................................... (3,108) (8,465)
Net loss....................................................................... $ (3,192) $ (8,356)
-------- --------------
-------- --------------
Pro forma basic and diluted net loss per share(1).............................. $ (0.24) $ (0.56)
-------- --------------
-------- --------------
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
--------------------------------
<S> <C> <C>
PRO FORMA
ACTUAL AS ADJUSTED(2)(3)
------------- -----------------
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents, and short-term investments.......................... $ 8,546 $ 38,021
Working capital................................................................ 7,512 36,987
Total assets................................................................... 21,742 51,217
Total stockholders' equity..................................................... 9,400 38,875
</TABLE>
- ------------------------
(1) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the method used to determine the number of shares used to compute pro
forma net loss per share.
(2) Pro forma to give effect to the Preferred Stock Conversion.
(3) Adjusted to reflect the sale of 2,500,000 shares of Common Stock offered by
the Company hereby at an assumed initial public offering price of $13.00 per
share after deducting the underwriting discount and the estimated offering
expenses payable by the Company. See "Use of Proceeds".
------------------------
DOUBLECLICK IS A REGISTERED TRADEMARK OF THE COMPANY. DART, DOUBLECLICK
NETWORK, DOUBLECLICK DIRECT AND THE DOUBLECLICK LOGO ARE TRADEMARKS OF THE
COMPANY. THIS PROSPECTUS CONTAINS OTHER PRODUCT NAMES, TRADE NAMES AND
TRADEMARKS OF THE COMPANY AND OF OTHER ORGANIZATIONS, ALL OF WHICH ARE THE
PROPERTY OF THEIR RESPECTIVE OWNERS.
5
<PAGE>
RISK FACTORS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS
PROSPECTUS. IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS,
THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE
COMPANY AND ITS BUSINESS BEFORE PURCHASING THE COMMON STOCK OFFERED BY THIS
PROSPECTUS.
EXTREMELY LIMITED OPERATING HISTORY; HISTORY OF LOSSES; ANTICIPATION OF
CONTINUED LOSSES
The Company was incorporated in January 1996 and its prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies with extremely limited operating histories,
particularly companies in the new and rapidly evolving markets for the Internet
and Internet services, including the Internet advertising market. There can be
no assurance that the Company will be successful in addressing such risks.
Although the Company has experienced revenue growth in recent periods,
historical growth rates may not be sustained and are not necessarily indicative
of future operating results. Given the level of planned operating and capital
expenditures, the Company anticipates that it will continue to incur operating
losses at least into 1999. There can be no assurance that operating losses will
not increase in the future or that the Company will ever achieve or sustain
profitability. To the extent that revenues do not grow at anticipated rates,
that increases in operating expenses precede or are not subsequently followed by
commensurate increases in revenues or that the Company is unable to adjust
operating expense levels accordingly, the Company's business, results of
operations and financial condition will be materially and adversely affected.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview".
WEB PUBLISHER CONCENTRATION; DEPENDENCE ON ALTAVISTA
Ads delivered on the Web sites of the top four Web publishers on the
DoubleClick Network accounted for approximately 61.2% of the Company's revenues
for the year ended December 31, 1997. The Company anticipates that a substantial
portion of the Company's future revenues will be derived from ads delivered on
the Web sites of a limited number of Web publishers. The Company typically
enters into short-term contracts with Web publishers for inclusion of their Web
sites in the DoubleClick Network. The loss of one or more of the Web sites which
account for a significant portion of the Company's revenues from the DoubleClick
Network or any reduction in traffic on such Web sites could have a material
adverse effect on the Company's business, results of operations and financial
condition. In addition, the loss of such Web sites may result in the loss of
advertisers or Web publishers from the DoubleClick Network, which could have a
material adverse effect on the Company's business, results of operations and
financial condition.
Revenues from advertisements delivered on the AltaVista Web site represented
44.7% of the Company's revenues for the year ended December 31, 1997. AltaVista,
a subsidiary of Digital Equipment Corporation, is a significant part of the
DoubleClick Network and the Company expects AltaVista to continue to account for
a significant portion of the Company's revenues for the next few years. In
December 1996, the Company entered into an agreement with Digital Equipment
Corporation to be the exclusive third-party provider of advertising services on
specified pages within the AltaVista Web site. The agreement was amended on
January 7, 1998 to extend the term through December 1999 and to provide that the
agreement survives a change of control of AltaVista or Digital Equipment
Corporation, provided that, notwithstanding either such provision, either party
may terminate the agreement after July 1998 upon 90 days prior written notice.
On January 26, 1998, Digital Equipment Corporation announced it had signed a
definitive merger agreement pursuant to which it would, upon satisfaction of
certain closing conditions, be acquired by Compaq Computer Corp. Any development
materially affecting the business or financial condition of AltaVista, including
the completion of the proposed acquisition of Digital Equipment Corporation by
Compaq Computer Corp., could have a material adverse effect on
6
<PAGE>
AltaVista's business or the Company's relationship with AltaVista. The loss of
AltaVista as part of the DoubleClick Network, any reduction in traffic on the
AltaVista Web site, or a termination of AltaVista's contract with the Company,
would have a material adverse effect on the Company's business, results of
operations and financial condition. In addition, given the short-term nature of
the AltaVista contract, as is the case with most of the Company's Web publisher
contracts, the Company will have to negotiate new contracts or renewals which
may have terms that are not as favorable to the Company as the existing
contracts, and such renegotiations could have a material adverse effect on the
Company's business, results of operations and financial condition.
RELIANCE ON THE DOUBLECLICK NETWORK
Since the third quarter of 1996, the Company's DoubleClick Network has
accounted for substantially all of the Company's revenues. Although the Company
recently began providing its DART Service to Web publishers and introduced
DoubleClick Direct, the Company expects that revenues generated from
advertisements delivered to Web sites on the DoubleClick Network will continue
to account for a substantial portion of the Company's revenues for the
foreseeable future. The DoubleClick Network consists of Web sites of a limited
number of Web publishers that have contracted for the Company's solutions
pursuant to short-term agreements. There can be no assurance that such Web
publishers will remain associated with the DoubleClick Network, that the Web
sites on the DoubleClick Network will maintain consistent or increasing levels
of traffic over time, or that the Company will be able to timely or effectively
replace any exiting DoubleClick Network Web site with other Web sites with
comparable traffic patterns and user demographics. The failure of the Company to
successfully market the DoubleClick Network or the failure of the Web sites on
the DoubleClick Network to maintain consistent or increasing levels of traffic
would have a material adverse effect on the Company's business, results of
operations and financial condition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
DEPENDENCE ON A LIMITED NUMBER OF ADVERTISERS
The Company's revenues to date have been derived from a limited number of
customers which advertise on the DoubleClick Network and the Company expects
that a limited number of advertisers will continue to account for a significant
percentage of the Company's revenues for the foreseeable future. In particular,
Microsoft accounted for 7.7% of the Company's revenues for the year ended
December 31, 1997 and the Company's top ten advertisers accounted for an
aggregate of 27.2% of the Company's revenues during the same period. Further,
advertisements delivered by the Company are typically sold pursuant to purchase
order agreements which are subject to cancellation. There can be no assurance
that current advertisers will continue to purchase advertising from the Company
or that the Company will be able to successfully attract additional advertisers.
The loss of one or more of the advertisers that represent a material portion of
the revenues generated on the DoubleClick Network could have a material adverse
effect on the Company's business, results of operations and financial condition.
In addition, the non-payment or late payment of amounts due by a significant
advertiser could have a material adverse effect on the Company's business,
results of operations and financial conditions. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; SEASONALITY
The Company's results of operations may fluctuate significantly in the
future as a result of a variety of factors, many of which are beyond the
Company's control. These factors include the addition or loss of advertisers or
Web publishers that utilize the Company's solutions, the level of user traffic
and number of available impressions on the Web sites on the DoubleClick Network,
changes in service fees payable by the Company to Web publishers, the
introduction of new Internet advertising solutions by the Company or its
competitors, the amount and timing of capital expenditures and other costs
relating to the expansion of the Company's operations, the timing and number of
new hires, the mix of solutions
7
<PAGE>
provided, the mix of domestic and international revenues, the incurrence of
costs relating to acquisitions, demand for, and market acceptance of, Internet
advertising, seasonal trends in Internet usage and advertising placements,
advertisers' budgeting cycles, the commitment of advertising budgets to Internet
advertising, changes in pricing models for Internet advertising, and general
economic conditions.
For the foreseeable future, the Company's revenues will be directly
contingent on the level of user traffic and advertising activity on the Web
sites on the DoubleClick Network in a given period. Accordingly, future revenues
and results of operations are difficult to forecast. The Company plans to
continue to significantly increase its operating expenses in order to increase
its sales and marketing operations, to continue to expand internationally, to
upgrade and enhance its DART technology and to market and support its solutions.
To the extent that such expenses precede or are not subsequently followed by
increased revenues, the Company's business, results of operations and financial
condition would be materially and adversely affected. The Company may be unable
to adjust spending in a timely manner to compensate for any unexpected revenue
shortfall, and any significant shortfall in revenues in relation to the
Company's expectations would have a material adverse effect on the Company's
business, results of operations and financial condition.
The Company has been, and expects in the future to be, subject to seasonal
fluctuations in the amount of Internet advertising revenues generated by the
Company, as advertisers historically spend less during the first calendar
quarter of each year. Further, additional seasonal patterns in Internet
advertising spending and other seasonal fluctuations may emerge as the market
matures.
Due to all of the foregoing factors, the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.
Furthermore it is possible that in some future quarters the Company's results of
operations may fall below the expectations of securities analysts and investors.
In such event, the trading price of the Company's Common Stock would likely be
materially and adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Quarterly Results of
Operations" and "Business -- Sales and Marketing".
DEVELOPING MARKET; UNPROVEN ACCEPTANCE AND EFFECTIVENESS OF WEB ADVERTISING
The market for Internet advertising has only recently begun to develop, is
rapidly evolving and is characterized by an increasing number of market
entrants. As is typical in the case of a new and rapidly evolving industry,
demand and market acceptance for recently introduced products and services are
subject to a high level of uncertainty. Since the Company expects to derive
substantially all of its revenues in the foreseeable future from Internet
advertising solutions, the future success of the Company is highly dependent on
the increased use of the Internet as an advertising medium. The Internet as an
advertising medium has not been available for a sufficient period of time to
gauge its effectiveness as compared with traditional advertising media. Most of
the Company's current or potential advertising customers have limited or no
experience using the Internet as an advertising medium, have not devoted a
significant portion of their advertising expenditures to Internet advertising
and may not find Internet advertising to be effective for promoting their
products and services relative to advertising on traditional media. The adoption
of Internet advertising, particularly by those entities that have historically
relied upon traditional media for advertising, requires the acceptance of a new
way of conducting business and exchanging information. In addition, most of the
Company's current and potential Web publisher customers have limited or no
experience in generating revenues from the sale of advertising space on their
Web sites. There can be no assurance that the market for Internet advertising
will continue to emerge or become sustainable. If the market fails to develop or
develops more slowly than expected, the Company's business, results of
operations and financial condition could be materially and adversely affected.
8
<PAGE>
There are no widely accepted standards for the measurement of the
effectiveness of Internet advertising, and there can be no assurance that such
standards will develop sufficiently to support Internet advertising as a
significant advertising medium. There also can be no assurance that the
Company's advertising customers will accept the Company's or other third-party
measurements of impressions on the Web sites of Web publishers utilizing the
Company's solutions, or that such measurements will not contain errors. In
addition, the effectiveness of Internet advertising is dependent upon the
accuracy of information contained in the databases used to target
advertisements. Like any database, there can be no assurance that the
information in the Company's database will be accurate or that advertisers will
be willing to have advertisements targeted by any database containing such
potential inaccuracies.
Further, there can be no assurance that advertisers will determine that
banner advertising, the delivery of which currently comprises substantially all
of the Company's revenues, is an effective or attractive advertising medium, and
there can be no assurance that the Company will effectively transition to any
other forms of Internet advertising should they develop and achieve market
acceptance. Moreover, "filter" software programs that limit or prevent
advertising from being delivered to a Web user's computer are available.
Widespread adoption of such software by users could have a material adverse
effect upon the commercial viability of Internet advertising, which would have a
material adverse effect on the Company's business, results of operations and
financial condition.
PRIVACY CONCERNS
The Company's DART technology uses cookies to limit the frequency with which
an ad is shown to the user. Cookies are bits of information keyed to a specific
server, file pathway or directory location that are stored on a user's hard
drive and passed to a Web site's server through the user's browser software.
Cookies are placed on the user's hard drive without the user's knowledge or
consent, but can be removed by the user at any time through the modification of
the user's browser settings. Due to privacy concerns, some Internet
commentators, advocates and governmental bodies have suggested that the use of
cookies be limited or eliminated. In addition, certain currently available
Internet browsers allow a user to delete cookies or prevent cookies from being
stored on the user's hard drive. Any reduction or limitation in the use of
cookies could limit the effectiveness of ad targeting by the Company's DART
technology.
UNPROVEN BUSINESS MODEL
The Company's business model is to generate revenues solely by providing
Internet advertising solutions to advertisers and Web publishers. The profit
potential of the Company's business model is unproven, and, to be successful,
the Company must, among other things, develop and market solutions that achieve
broad market acceptance by advertisers and Web publishers. There can be no
assurance that Internet advertising, in general, or the Company's solutions, in
particular, will achieve broad market acceptance. The Company's ability to
generate significant revenues from advertisers will depend, in part, on the
development of a large base of Web publishers that utilize the Company's
solutions and have Web sites with adequate available ad space inventory, and
whose Web sites generate sufficient user traffic with demographic
characteristics that are attractive to such advertisers. Furthermore, a variety
of related pricing models have developed in the Company's marketplace, making it
difficult to project future levels of advertising revenues and applicable gross
margins that can be sustained by the Company or the Internet advertising
industry in general. Accordingly, no assurance can be given that the Company's
business model will be successful or that it can sustain revenue growth and
maintain sufficient gross margins.
Market acceptance of DoubleClick Direct will depend, in large part, on the
adoption of the Internet as a direct marketing vehicle and the continued
emergence of Internet commerce. No assurance can be given that the Company's
cost-per-action pricing model for DoubleClick Direct will achieve market
acceptance by direct marketers, generate significant revenues, or provide
acceptable gross margins.
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RISK OF SYSTEM FAILURE
The Company's solutions utilize its DART technology, which resides on a
computer system located at the Company's headquarters in New York City. The
continuing and uninterrupted performance of such computer system is critical to
the success of the Company's business. Any system failure that causes
interruptions in the Company's ability to service its customers, including
failures that affect the ability of the Company to deliver advertisements
without significant delay to the viewer, could reduce customer satisfaction and,
if sustained or repeated, would reduce the attractiveness of the Company's
solutions to advertisers and Web publishers. An increase in the volume of
advertising delivered through the Company's servers could strain the capacity of
the software or hardware deployed by the Company, which could lead to slower
response time or system failures. To the extent that any capacity constraints
are not effectively addressed by the Company, such constraints would have a
material adverse effect on the Company's business, results of operations and
financial condition.
The Company's operations are dependent upon its ability to protect its
computer systems against damage from fire, power loss, telecommunications
failures, vandalism and other malicious acts, and similar unexpected adverse
events. In addition, failure of the Company's telecommunications providers to
provide the data communications capacity in the time frame required by the
Company for any reason could cause interruptions in the solutions provided by
the Company. Despite precautions taken by the Company, unanticipated problems
affecting the Company's systems have from time to time in the past caused, and
in the future could cause, interruptions in the delivery of the Company's
solutions. The Company is currently in the planning stages of acquiring and
implementing a back-up, off-site system capable of supporting its operations in
the event of a system failure at its headquarters. The Company plans to have
such system operational during the first half of 1998. Any damage or failure
that interrupts or delays the Company's operations could have a material adverse
effect on the Company's business, results of operations and financial condition.
COMPETITION
The markets for Internet advertising and related products and services are
intensely competitive and such competition is expected to continue to increase.
There are no substantial barriers to entry in this market and the Company
believes that its ability to compete depends upon many factors within and beyond
its control, including the timing and market acceptance of new solutions and
enhancements to existing solutions developed by the Company and its competitors,
customer service and support, sales and marketing efforts, and the ease of use,
performance, price and reliability of the Company's solutions.
The Company competes for Internet advertising revenues with large Web
publishers and Web search engine companies, such as America Online, Yahoo!,
Excite and Infoseek. Further, the DoubleClick Network competes with a variety of
Internet advertising networks, including 24/7 Media. In marketing the
DoubleClick Network and its DART Service to Web publishers, the Company also
competes with providers of ad servers and related services, including
NetGravity. The Company also encounters competition from a number of other
sources, including content aggregation companies, companies engaged in
advertising sales networks, advertising agencies, and other companies which
facilitate Internet advertising. Many of the Company's existing competitors, as
well as a number of potential new competitors, have longer operating histories,
greater name recognition, larger customer bases and significantly greater
financial, technical and marketing resources than the Company. As a result, they
may be able to respond more quickly to new or emerging technologies and changes
in customer requirements, or to devote greater resources to the development,
promotion and sale of their products and services than the Company. Such
competitors may be able to undertake more extensive marketing campaigns, adopt
more aggressive pricing policies and make more attractive offers to potential
employees, strategic partners, advertisers and Web publishers. Further, there
can be no assurance that the Company's competitors will not develop Internet
products or services that are equal or superior to the solutions developed by
the Company or that achieve greater market acceptance than
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the Company's solutions. The Company also expects that competition may increase
as a result of industry consolidation. In addition, current and potential
competitors have established or may establish cooperative relationships among
themselves or with third parties to increase the ability of their products or
services to address the needs of the Company's prospective advertising and Web
publisher customers. Accordingly, it is possible that new competitors or
alliances among existing or potential competitors may emerge and rapidly acquire
significant market share. Increased competition is likely to result in price
reductions, reduced gross margins and loss of market share, any of which would
have a material adverse effect on the Company's business, results of operations
and financial condition. There can be no assurance that the Company will be able
to compete successfully against existing or potential competitors or that
competitive pressures will not have a material adverse effect on the Company's
business, results of operations and financial condition.
The Internet, in general, and the Company, in particular, also must compete
for a share of advertisers' total advertising budgets with traditional
advertising media such as television, radio, cable and print. To the extent that
the Internet is perceived to be a limited or ineffective advertising medium,
advertisers may be reluctant to devote a significant portion of their
advertising budget to Internet advertising, which could limit the growth of
Internet advertising and would have a material adverse effect on the Company's
business, results of operations and financial condition. See "Business --
Competition".
MANAGEMENT OF GROWTH
The Company has experienced rapid growth in its operations. This rapid
growth has placed, and is expected to continue to place, a significant strain on
the Company's managerial, operational and financial resources. The Company has
grown from 13 employees as of March 31, 1996 to 185 employees as of December 31,
1997. The Company expects that the number of its employees will continue to
increase for the foreseeable future, including the hiring of a new Chief
Financial Officer and other additional officers. Furthermore, the Company must
continue to improve its financial and management controls, reporting systems and
procedures, and expand, train and manage its work force. There can be no
assurance that the Company's systems, procedures or controls will be adequate to
support the Company's expanding operations or that Company management will be
able to achieve the rapid execution necessary to successfully offer its
solutions and implement its business plan. The Company's future results of
operations will also depend on its ability to expand its sales and marketing and
customer support organizations both domestically and internationally. The
failure of the Company to manage its growth effectively would have a material
adverse effect on the Company's business, results of operations and financial
condition.
DEPENDENCE ON KEY PERSONNEL
The Company's future success depends, in significant part, upon the
continued service of its key technical, sales and senior management personnel,
particularly Kevin J. O'Connor, Chief Executive Officer and Chairman of the
Board of Directors, Kevin P. Ryan, President and Chief Financial Officer, Dwight
A. Merriman, Chief Technical Officer, Wenda Harris Millard, Executive Vice
President, Marketing and Sales, John L. Heider, Vice President of Engineering,
and Barry M. Salzman, Vice President, International, none of whom has entered
into an employment agreement with the Company. The loss of the services of one
or more of the Company's key personnel could have a material adverse effect on
the Company's business, results of operations and financial condition. The
Company's future success also depends on its continuing ability to attract and
retain highly qualified technical, sales and marketing, customer support,
financial and accounting, and managerial personnel. Competition for such
personnel in the Internet industry is intense, and there can be no assurance
that the Company will be able to retain its key personnel or that it can
attract, assimilate or retain other highly qualified personnel in the future.
The Company has from time to time in the past experienced, and expects to
continue to experience in the future, difficulty in hiring and retaining
candidates with appropriate qualifications. The failure by the
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<PAGE>
Company to successfully hire and retain candidates with appropriate
qualifications could have a material adverse effect on the Company's business,
results of operations and financial condition in the future. See "Management".
DEPENDENCE ON THE WEB INFRASTRUCTURE
The Company's success will depend, in large part, upon the maintenance of
the Web infrastructure, such as a reliable network backbone with the necessary
speed, data capacity and security, and timely development of enabling products
such as high speed modems, for providing reliable Web access and services and
improved content. To the extent that the Web continues to experience increased
numbers of users, frequency of use or increased bandwidth requirements of users,
there can be no assurance that the Web infrastructure will continue to be able
to support the demands placed on it or that the performance or reliability of
the Web will not be adversely affected. Furthermore, the Web has experienced a
variety of outages and other delays as a result of damage to portions of its
infrastructure, and such outages and delays, including outages and delays
resulting from the inability of certain computers or software to distinguish
dates in the 21st century from dates in the 20th century, could adversely affect
the Web sites of Web publishers utilizing the Company's solutions and the level
of traffic on such Web sites on the DoubleClick Network. In addition, the Web
could lose its viability as a form of media due to delays in the development or
adoption of new standards and protocols (for example, the next-generation
Internet protocol) that can handle increased levels of activity. There can be no
assurance that the infrastructure or complementary products or services
necessary to establish and maintain the Web as a viable commercial medium will
be developed, or, if they are developed, that the Web will become a viable
commercial medium for advertisers. If the necessary infrastructure, standards or
protocols or complementary products, services or facilities are not developed,
or if the Web does not become a viable commercial medium, the Company's
business, results of operations and financial condition will be materially and
adversely affected. Even if such infrastructure, standards or protocols or
complementary products, services or facilities are developed, there can be no
assurance that the Company will not be required to incur substantial
expenditures in order to adapt its solutions to changing or emerging
technologies, which could have a material adverse effect on the Company's
business, results of operations and financial condition. Moreover, critical
issues concerning the commercial use and government regulation of the Internet
(including security, cost, ease of use and access, intellectual property
ownership and other legal liability issues) remain unresolved and could
materially and adversely impact both the growth of the Internet and the
Company's business, results of operations and financial condition.
DEPENDENCE ON PROPRIETARY RIGHTS; RISK OF INFRINGEMENT
The Company regards its intellectual property as critical to its success,
and the Company relies upon patent, trademark, copyright and trade secret laws
in the United States and other jurisdictions to protect its proprietary rights.
The Company has filed one patent application with the United States Patent and
Trademark Office to protect certain aspects of its DART technology. The Company
pursues the protection of its trademarks by applying to register the trademarks
in the United States and (based upon anticipated use) internationally, and is
the owner of a registration for the DOUBLECLICK trademark in the United States.
There can be no assurance that any of the Company's trademark registrations or
patent applications will be approved or granted and, if they are granted, that
they will not be successfully challenged by others or invalidated through
administrative process or litigation. Further, if the Company's trademark
registrations are not approved or granted due to the prior issuance of
trademarks to third parties or for other reasons, there can be no assurance that
the Company would be able to enter into arrangements with such third parties on
commercially reasonable terms allowing the Company to continue to use such
trademarks. Patent, trademark, copyright and trade secret protection may not be
available in every country in which the Company's solutions are distributed or
made available. In
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<PAGE>
addition, the Company seeks to protect its proprietary rights through the use of
confidentiality agreements with employees, consultants, advisors and others.
There can be no assurance that such agreements will provide adequate protection
for the Company's proprietary rights in the event of any unauthorized use or
disclosure, that employees of the Company, consultants, advisors or others will
maintain the confidentiality of such proprietary information, or that such
proprietary information will not otherwise become known, or be independently
developed, by competitors. The Company's DART technology collects and utilizes
data derived from user activity on the DoubleClick Network and the Web sites of
Web publishers using the Company's solutions. This data is used for ad targeting
and predicting ad performance. Although the Company believes that it has the
right to use such data and the compilation of such data in the Company's
database, there can be no assurance that any trade secret, copyright or other
protection will be available for such information or that others will not claim
rights to such information. Further, pursuant to its contracts with Web
publishers using the Company's solutions, the Company is obligated to keep
certain information regarding Web publishers confidential.
The Company has licensed in the past, and expects that it may license in the
future, elements of its trademarks, trade dress and similar proprietary rights
to third parties, including in connection with the establishment of its
international business relationships which may be controlled operationally by
such third parties. While the Company attempts to ensure that the quality of its
brand is maintained by such business partners, no assurances can be given that
such partners will not take actions that could materially and adversely affect
the value of the Company's proprietary rights or the reputation of its solutions
and technologies. The Company currently licenses certain aspects of its
predictive modeling technologies from a third party. The failure by the Company
to maintain this license, or to find a replacement for such technology in a
timely and cost-effective manner, could have a material adverse effect on the
Company's business, results of operations and financial condition.
Legal standards relating to the validity, enforceability and scope of
protection of certain proprietary rights in Internet-related industries are
uncertain and still evolving, and no assurance can be given as to the future
viability or value of any proprietary rights of the Company or other companies
within the industry. There can be no assurance that the steps taken by the
Company to protect its proprietary rights will be adequate or that third parties
will not infringe or misappropriate the Company's proprietary rights. Any such
infringement or misappropriation, should it occur, could have a material adverse
effect on the Company's business, results of operations and financial condition.
Furthermore, there can be no assurance that the Company's business activities
will not infringe upon the proprietary rights of others, or that other parties
will not assert infringement claims against the Company. From time to time the
Company has been, and expects to continue to be, subject to claims in the
ordinary course of its business, including claims of alleged infringement of the
trademarks and other intellectual property rights of third parties by the
Company and its business partners. Although such claims have not resulted in
litigation or had a material adverse effect on the Company's business, results
of operations or financial condition, such claims and any resultant litigation,
should it occur, could subject the Company to significant liability for damages
and could result in invalidation of the Company's proprietary rights and, even
if not meritorious, could be time-consuming and expensive to defend, and could
result in the diversion of management time and attention, any of which could
have a material adverse effect on the Company's business, results of operations
and financial condition. See "Business -- Intellectual Property".
RISKS ASSOCIATED WITH TECHNOLOGICAL CHANGE
The market in which the Company competes is characterized by rapidly
changing technology, evolving industry standards, frequent new product and
service announcements, introductions and enhancements, and changing customer
demands. These market characteristics are heightened by the emerging nature of
the Web and Internet advertising. Accordingly, the Company's future success will
depend on its ability to adapt to rapidly changing technologies, its ability to
adapt its solutions to meet evolving industry standards and its ability to
continually improve the performance, features and reliability
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<PAGE>
of its solutions in response to both changing customer demands and competitive
product and service offerings. The failure of the Company to successfully adapt
to such changes in a timely manner could have a material adverse effect on the
Company's business, results of operations and financial condition. Furthermore,
there can be no assurance that the Company will not experience difficulties that
could delay or prevent the successful design, development, testing, introduction
or marketing of solutions, or that any new solutions or enhancements to existing
solutions will adequately meet the requirements of its current and prospective
customers and achieve any degree of significant market acceptance. If the
Company is unable, for technological or other reasons, to develop and introduce
new solutions or enhancements to existing solutions in a timely manner or in
response to changing market conditions or customer requirements, or if its
solutions or enhancements contain errors or do not achieve a significant degree
of market acceptance, the Company's business, results of operations and
financial condition would be materially and adversely affected.
RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION
The Company has recently commenced operations in a number of international
markets and a component of the Company's strategy is to continue to expand its
international operations and international sales and marketing efforts. To date,
the Company has limited experience in developing localized versions of its
solutions and in marketing, selling and distributing its solutions
internationally. There can be no assurance that the Company will be able to
successfully market, sell and deliver its solutions in these markets. In Japan,
Iberoamerica (Spain, Portugal and Latin America) and Scandinavia, the Company is
relying on its business partners for conducting operations, establishing local
networks, aggregating Web publishers and coordinating sales and marketing
efforts. The Company's agreements with its business partners have terms ranging
from two to four years. Accordingly, the Company's success in such markets is
directly dependent on the success of its business partners in such activities.
No assurance can be given that such business partners will be successful or that
such business partners will dedicate sufficient resources to the business
relationship. The failure of the Company's business partners to successfully
establish operations and sales and marketing efforts in such markets could have
a material adverse effect on the Company's business, results of operations and
financial condition.
There are certain risks inherent in doing business in international markets,
such as unexpected changes in regulatory requirements, potentially adverse tax
consequences, export restrictions, export controls relating to encryption
technology, tariffs and other trade barriers, difficulties in staffing and
managing foreign operations, political instability, fluctuations in currency
exchange rates, and seasonal reductions in business activity during the summer
months in Europe and certain other parts of the world, any of which could have a
material adverse effect on the success of the Company's international operations
and, consequently, on the Company's business, results of operations and
financial condition.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
Due to concerns arising in connection with the increasing popularity and use
of the Web, a number of laws and regulations may be adopted covering issues such
as user privacy, pricing, characteristics, acceptable content, taxation and
quality of products and services. Such legislation could dampen the growth in
use of the Web generally and decrease the acceptance of the Web as a
communications and commercial medium, which could have a material adverse effect
on the Company's business, results of operations and financial condition. In
addition, because the growing popularity and use of the Web has burdened the
existing telecommunications infrastructure and many areas with high Web use have
begun to experience interruptions in phone service, certain local telephone
carriers have petitioned governmental bodies to regulate Internet service
providers ("ISPs") and online service providers ("OSPs") in a manner similar to
long distance telephone carriers and to impose access fees on ISPs and OSPs. If
any of these petitions or the relief sought therein is granted, the costs of
communicating on the Web could increase substantially, potentially adversely
affecting the growth in use of the Web. Further,
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<PAGE>
due to the global nature of the Web, it is possible that, although transmissions
relating to the Company's solutions originate in the State of New York, the
governments of other states or foreign countries might attempt to regulate the
Company's transmissions or levy sales or other taxes relating to the Company's
activities. There can be no assurance that violations of local laws will not be
alleged or charged by state or foreign governments, that the Company might not
unintentionally violate such laws or that such laws will not be modified, or new
laws enacted, in the future. Any of the foregoing developments could have a
material adverse effect on the Company's business, results of operations and
financial condition.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of significant amounts of Common Stock in the public market after the
offering or the perception that such sales will occur could materially and
adversely affect the market price of the Common Stock or the future ability of
the Company to raise capital through an offering of its equity securities. Of
the 14,853,406 shares of Common Stock to be outstanding upon the closing of the
offering, the 2,500,000 shares offered hereby will be eligible for immediate
sale in the public market without restriction unless the shares are purchased by
"affiliates" of the Company within the meaning of Rule 144 promulgated under the
Securities Act of 1933, as amended (the "Securities Act"). The remaining
12,353,406 shares of Common Stock held by existing stockholders upon the closing
of the offering will be "restricted securities" as that term is defined in Rule
144 under the Securities Act. Restricted securities may be sold in the public
market only if registered or if they qualify for an exemption from registration
under Rules 144, 144(k) or 701 promulgated under the Securities Act. The
Company's directors and officers and certain of its stockholders have agreed
that they will not sell, directly or indirectly, any Common Stock without the
prior consent of the representatives of the Underwriters for a period of 180
days from the date of this Prospectus. Subject to these lock-up agreements and
the provisions of Rules 144, 144(k) and 701, additional shares will be available
for sale in the public market (subject in the case of shares held by affiliates
to compliance with certain volume restrictions) as follows: (i) 30,791 shares
will be eligible for sale 90 to 180 days after the date of this Prospectus and
(ii) 12,332,607 shares will be eligible for sale upon the expiration of lock-up
agreements 180 days after the date of this Prospectus. In addition, there are
outstanding options to purchase 2,020,167 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. In
addition, certain stockholders, representing approximately 12,353,398 shares of
Common Stock, and certain optionholders, with respect to an aggregate of
2,020,167 shares of Common Stock issuable upon the exercise of stock options,
have the right, subject to certain conditions, to include their shares in future
registration statements relating to the Company's securities and/or to cause the
Company to register certain shares of Common Stock owned by them.
After the date of this Prospectus, the Company intends to file a Form S-8
registration statement under the Securities Act to register all shares of Common
Stock issuable under the Company's 1997 Stock Incentive Plan. Such registration
statement is expected to become effective immediately upon filing, and shares
covered by that registration statement will thereupon be eligible for sale in
the public markets, subject to certain lock-up agreements and Rule 144
limitations applicable to affiliates. See "Management -- 1997 Stock Incentive
Plan", "Description of Securities -- Registration Rights", "Shares Eligible for
Future Sale" and "Underwriting".
NO PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the offering, there has been no public market for the Common Stock.
Accordingly, there can be no assurance that an active trading market for the
Common Stock will develop or be sustained upon the closing of the offering or
that the market price of the Common Stock will not decline below the initial
public offering price. The initial public offering price will be determined by
negotiations between the Company and the representatives of the Underwriters.
See "Underwriting".
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The trading price of the Company's Common Stock could be subject to wide
fluctuations in response to variations in quarterly results of operations, the
gain or loss of significant advertisers or Web publisher customers, changes in
earning estimates by analysts, announcements of technological innovations or new
solutions by the Company or its competitors, general conditions in
Internet-related industries and other events or factors, many of which are
beyond the Company's control. In addition, the stock market in general has
experienced extreme price and volume fluctuations which have affected the market
price for many companies in industries similar or related to that of the Company
and which have been unrelated to the operating performance of these companies.
These market fluctuations may have a material adverse effect on the market price
of the Company's Common Stock.
CONTROL BY PRINCIPAL STOCKHOLDERS, OFFICERS AND DIRECTORS
Upon the closing of the offering, the directors and executive officers and
their affiliates will beneficially own approximately 41.2% of the outstanding
Common Stock (40.2% if the Underwriters' over-allotment option is exercised in
full). As a result, these stockholders will be able to exercise control over all
matters requiring stockholder approval, including the election of directors and
approval of significant corporate transactions. This concentration of ownership
may have the effect of delaying or preventing a change in control of the
Company. See "Management" and "Principal Stockholders".
BROAD DISCRETION IN USE OF PROCEEDS
The net proceeds of the offering will be added to the Company's working
capital and will be available for general corporate purposes, including capital
expenditures. As of the date of this Prospectus, the Company cannot specify with
certainty the particular uses for the net proceeds to be received upon
completion of the offering. Accordingly, the Company's management will have
broad discretion in the application of the net proceeds. See "Use of Proceeds".
ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER, BYLAWS AND DELAWARE LAW PROVISIONS;
POSSIBLE ISSUANCE OF PREFERRED STOCK
Upon receipt of the requisite stockholder approval, and following the
closing of the offering, the Company's Board of Directors will have the
authority to issue up to 5,000,000 shares of Preferred Stock without any further
vote or action by the stockholders, and to determine the price, rights,
preferences, privileges and restrictions, including voting rights of such
shares. Since the Preferred Stock could be issued with voting, liquidation,
dividend and other rights superior to those of the Common Stock, the rights of
the holders of Common Stock will be subject to, and may be adversely affected
by, the rights of the holders of any such Preferred Stock. The issuance of
Preferred Stock could have the effect of making it more difficult for a third
party to acquire a majority of the outstanding voting stock of the Company.
Further, certain provisions of the Company's Certificate of Incorporation,
including provisions that create a classified Board of Directors, and certain
provisions of the Company's Bylaws and of Delaware law could have the effect of
delaying or preventing a change in control of the Company. See "Description of
Securities -- Anti-Takover Effects of Certain Provisions of Delaware Law and the
Company's Certificate of Incorporation and Bylaws".
DILUTION
Investors purchasing shares of Common Stock in the offering will incur
immediate and substantial dilution in net tangible book value per share. To the
extent outstanding options to purchase Common Stock are exercised, there will be
further dilution. See "Dilution".
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock offered pursuant to the offering are estimated to be approximately
$29.5 million ($34.0 million if the Underwriters' over-allotment option is
exercised in full), assuming an initial public offering price of $13.00 per
share and after deducting the underwriting discount and estimated offering
expenses payable by the Company. The primary purposes of the offering are to
create a public market for the Common Stock, to facilitate the Company's future
access to public equity markets and to obtain additional working capital.
The Company intends to use the net proceeds of the offering for general
corporate purposes, including working capital, and for the expansion of its
international operations and sales and marketing capabilities. In addition, the
Company may use a portion of the net proceeds of the offering to acquire or
invest in complementary businesses, technologies, services or products, although
there are no current agreements or negotiations with respect to any such
acquisitions, investments or other transactions. As of the date of this
Prospectus, the Company cannot specify with certainty the particular uses for
the net proceeds to be received upon completion of the offering. Accordingly,
the Company'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.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its capital stock
since inception and does not expect to pay any cash dividends for the
foreseeable future. The Company currently intends to retain future earnings, if
any, to finance the expansion of its business.
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CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1997, (i) on an actual basis, (ii) on a pro forma basis to reflect
the Preferred Stock Conversion and (iii) on a pro forma basis as adjusted to
give effect to the sale of 2,500,000 shares of Common Stock offered by the
Company hereby at an assumed initial public offering price of $13.00 per share
after deducting the underwriting discount and estimated offering expenses
payable by the Company. This information should be read in conjunction with the
Company's Consolidated Financial Statements and the related Notes thereto
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ----------- ------------
<S> <C> <C> <C>
(IN THOUSANDS)
Stockholders' equity:
Convertible Preferred Stock, $.001 par value, 40,000 shares authorized;
40,000 shares issued and outstanding on an actual basis; no shares
issued and outstanding on a pro forma or pro forma as adjusted
basis................................................................. $ -- $ -- $ --
Preferred Stock, $.001 par value, 5,000,000 shares authorized; no shares
issued and outstanding on an actual, pro forma or pro forma as
adjusted basis........................................................ -- -- --
Common Stock, $.001 par value, 60,000,000 shares authorized; 6,118,972
shares issued and
outstanding on an actual basis; 12,353,406 shares issued and
outstanding on a pro forma basis; and 14,853,406 shares issued and
outstanding on a pro forma as adjusted basis(1)....................... 6 12 15
Additional paid-in capital................................................ 46,996 46,990 76,462
Deferred compensation..................................................... (1,057) (1,057) (1,057)
Cumulative translation adjustment......................................... (1) (1) (1)
Accumulated deficit(2).................................................... (36,544) (36,544) (36,544)
---------- ----------- ------------
Total stockholders' equity................................................ 9,400 9,400 38,875
---------- ----------- ------------
Total capitalization.................................................... $ 9,400 $ 9,400 $ 38,875
---------- ----------- ------------
---------- ----------- ------------
</TABLE>
- ------------------------
(1) Excludes (a) 2,020,167 shares of Common Stock issuable upon the exercise of
stock options outstanding at December 31, 1997, with a weighted average
exercise price of $1.78 per share, of which options to purchase 408,024
shares were then exercisable, and (b) 803,145 shares reserved for issuance
under the Company's 1997 Stock Incentive Plan. See "Management -- 1997 Stock
Incentive Plan", "Description of Securities" and Note 5 of Notes to
Consolidated Financial Statements.
(2) Consists of $11.5 million of cumulative losses and $25.0 million related to
the redemption of shares of Common Stock from certain stockholders in
connection with the recapitalization of the Company that occurred
simultaneously with the issuance of Convertible Preferred Stock to new
investors in June 1997. See "Certain Transactions" and Note 5 of Notes to
Consolidated Financial Statements.
18
<PAGE>
DILUTION
The pro forma net tangible book value of the Company's Common Stock as of
December 31, 1997 was $9.4 million, or $0.76 per share of Common Stock, after
giving effect to the Preferred Stock Conversion. Pro forma net tangible book
value per share is equal to the amount of the Company's total tangible assets
less total liabilities, divided by the number of shares of Common Stock
outstanding as of December 31, 1997. Assuming the sale by the Company of
2,500,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $13.00 per share and the application of the estimated net
proceeds therefrom, the pro forma net tangible book value of the Company as of
December 31, 1997 would have been $38.9 million, or $2.62 per share of Common
Stock. This represents an immediate increase in pro forma net tangible book
value of $1.86 per share to existing stockholders and an immediate dilution in
pro forma net tangible book value of $10.38 per share to new investors. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............................. $ 13.00
Pro forma net tangible book value per share as of December 31, 1997..... $ 0.76
Pro forma increase per share attributable to new investors.............. 1.86
---------
Pro forma net tangible book value per share after the offering.............. 2.62
---------
Pro forma dilution per share to new investors............................... $ 10.38
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1997, after giving effect to the Preferred Stock Conversion, the total number of
shares of Common Stock purchased from the Company, the total consideration paid
to the Company and the average price per share paid by existing stockholders and
by new investors:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------------- --------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Existing stockholders (1)................. 12,353,406 83.2% $ 45,627,317(2) 58.4% $ 3.69
New investors............................. 2,500,000 16.8 32,500,000 41.6 13.00
------------- ----- -------------- ----- -------
Total................................. 14,853,406 100.0% $ 78,127,317 100.0% $ 5.26
------------- ----- -------------- ----- -------
------------- ----- -------------- ----- -------
</TABLE>
- ------------------------
(1) Excludes (a) 2,020,167 shares of Common Stock issuable upon the exercise of
stock options outstanding at December 31, 1997, having with a weighted
average exercise price of $1.78 per share, of which options to purchase
408,024 shares were then exercisable, and (b) 803,145 shares reserved for
issuance under the Company's 1997 Stock Incentive Plan. See "Management --
1997 Stock Incentive Plan", "Description of Securities" and Note 5 of Notes
to Consolidated Financial Statements.
(2) Includes $25,000,343 which was used to redeem shares of Common Stock held by
certain stockholders of the Company. See Note 5 of Notes to Consolidated
Financial Statements.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below with respect to the
Company's Consolidated Statement of Operations for the period from January 23,
1996 (inception) through December 31, 1996 and and for the year ended December
31, 1997 and with respect to the Company's Consolidated Balance Sheet as of
December 31, 1996 and 1997 are derived from the audited Consolidated Financial
Statements of the Company which are included elsewhere in this Prospectus and
are qualified by reference to such Consolidated Financial Statements and the
related Notes thereto. The selected consolidated financial data set forth below
is qualified in its entirety by, and should be read in conjunction with,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and the related Notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JANUARY 23, 1996
(INCEPTION) YEAR
THROUGH ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
------------------- ---------------------
<S> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues............................................................... $ 6,514 $ 30,597
Cost of revenues....................................................... 3,780 20,628
-------- --------
Gross profit......................................................... 2,734 9,969
Operating expenses:
Sales and marketing.................................................. 3,079 10,710
General and administrative........................................... 2,145 6,326
Product development.................................................. 618 1,398
-------- --------
Total operating expenses........................................... 5,842 18,434
-------- --------
Loss from operations................................................... (3,108) (8,465)
Net loss............................................................... $ (3,192) $ (8,356)
-------- --------
-------- --------
Pro forma basic and diluted net loss per share (1)..................... $ (0.24) $ (0.56)
-------- --------
-------- --------
Pro forma weighted average shares used in basic and diluted net loss
per share calculation(1)(2).......................................... 13,457 14,843
-------- --------
-------- --------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------------- ---------------------
<S> <C> <C>
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents, and short-term investments.................. $ -- $ 8,546
Working capital (deficit).............................................. (3,038) 7,512
Total assets........................................................... 4,526 21,742
Total stockholders' (deficit) equity................................... (2,592) 9,400
</TABLE>
- ------------------------
(1) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the method used to determine the number of shares used to compute pro
forma net loss per share.
(2) See Note 5 of Notes to Consolidated Financial Statements for a description
of the Company's recapitalization which occurred in June 1997.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND THE RELATED NOTES THERETO INCLUDED ELSEWHERE IN THIS
PROSPECTUS. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH UNDER "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
DoubleClick is a leading provider of comprehensive Internet advertising
solutions for advertisers and Web publishers. The Company offers three distinct
Internet advertising solutions: (i) the DoubleClick Network, launched in March
1996; (ii) DoubleClick's DART Service, marketed to Web publishers since January
1997; and (iii) DoubleClick Direct, an Internet-based direct marketing solution
introduced on a limited basis in September 1997. DoubleClick's proprietary DART
technology, which dynamically matches and delivers ads to a target audience
within milliseconds, is the platform for all of the Company's solutions.
The Company was founded in January 1996 by Kevin J. O'Connor, the Company's
Chief Executive Officer, Dwight A. Merriman, the Company's Chief Technical
Officer, and Poppe Tyson, Inc., a subsidiary of Bozell, Jacobs, Kenyon &
Eckhardt, Inc. The Company has grown from 13 employees as of March 31, 1996 to
185 employees as of December 31, 1997. From January 23, 1996 (inception) through
May 1996, the Company's operating activities related primarily to developing the
DART technology and the DoubleClick Network, and recruiting personnel. During
the same period, substantially all of the Company's revenues resulted from
Internet advertising sales on a commission basis on behalf of the Netscape and
Excite Web sites. For the period from January 23, 1996 (inception) through
December 31, 1996, such commissions constituted 16.5% of the Company's revenues.
All ads sold on behalf of the Netscape and Excite Web sites were delivered
directly by such entities, as their Web sites were not on the DoubleClick
Network. The Company no longer arranges for the placement of advertisements on a
commission basis.
Beginning in the fourth quarter of 1996, revenues from advertisements
delivered on the DoubleClick Network became a more significant portion of
revenues and, since the addition of the AltaVista Web site to the DoubleClick
Network in late December 1996, the Company has derived substantially all of its
revenues from the DoubleClick Network. The Company offers advertising on the
DoubleClick Network to third party advertisers with pricing determined on a CPM
(cost per thousand ads delivered) basis. Discounts are offered based on a
variety of factors, including the duration and gross dollar amount of
advertising campaigns. Advertisements delivered by the Company are typically
sold pursuant to purchase order agreements which are subject to cancellation.
The Company's revenues are received from the advertiser that orders the ad, and
the Company pays the Web publisher on whose Web site such advertisement is
delivered a service fee calculated as a percentage of such revenues, which
amount is included in cost of revenues. The Company is responsible for billing
and collecting for ads delivered on the DoubleClick Network and typically
assumes the risk of non-payment from advertisers. In addition, the Company earns
service fees for providing the DART Service to Web publishers. DoubleClick
Direct advertising is priced on a "cost-per-click", "cost-per-lead" and
"cost-per-sale or download" basis. To date, revenues from DoubleClick's DART
Service and DoubleClick Direct have not been significant.
Advertising revenues are recognized in the period that the advertisement is
delivered, provided that no significant obligations remain and collection of the
resulting receivable is probable. The Company has recently started to sell
sponsorship advertising, which involves a greater degree of integration among
the Company, the advertiser and the Web sites on the DoubleClick Network. These
sponsorships
21
<PAGE>
are typically priced based on the length of time that the sponsorship runs,
rather than a CPM basis. Revenues relating to sponsorship advertising are
recognized ratably over the sponsorship period.
The Company expects that revenues generated from the DoubleClick Network
will continue to account for a substantial portion of the Company's revenues for
the foreseeable future. Moreover, ads delivered on the Web sites of the top four
Web publishers on the DoubleClick Network accounted for approximately 61.2% of
the Company's revenues for the year ended December 31, 1997. The Company
typically enters into short-term contracts with Web publishers for inclusion of
their Web sites in the DoubleClick Network. The failure to successfully market
the DoubleClick Network, the loss of one or more of the Web sites which account
for a significant portion of the Company's revenues from the DoubleClick
Network, or any reduction in traffic on such Web sites could have a material
adverse effect on the Company's business, results of operations and financial
condition.
In December 1996, the Company entered into an agreement with Digital
Equipment Corporation to be the exclusive third-party provider of advertising
services on specified pages within the AltaVista Web site. The agreement was
amended on January 7, 1998 to extend the term through December 1999 and to
provide that the agreement survives a change of control of AltaVista or Digital
Equipment Corporation, although, notwithstanding either such provision, either
party may terminate the agreement after July 1998 upon 90 days prior written
notice. DoubleClick pays AltaVista a service fee calculated as a percentage of
the revenues derived from delivery of advertisements on the AltaVista Web site.
Revenues from advertisements delivered on the AltaVista Web site were $13.7
million, or 44.7% of the Company's revenues for the year ended December 31,
1997. AltaVista is a significant part of the DoubleClick Network and is expected
to continue to account for a significant portion of the Company's revenues for
the next few years. On January 26, 1998, Digital Equipment Corporation announced
it had signed a definitive merger agreement pursuant to which it would, upon
satisfaction of certain closing conditions, be acquired by Compaq Computer Corp.
Any development materially affecting the business or financial condition of
AltaVista, including the completion of the proposed acquisition of Digital
Equipment Corporation by Compaq Computer Corp., could have a material adverse
effect on AltaVista's business or the Company's relationship with AltaVista. The
loss of AltaVista as part of the DoubleClick Network, any reduction in traffic
on the AltaVista Web site, or a termination of AltaVista's contract with the
Company, would have a material adverse effect on the Company's business, results
of operations and financial condition.
The Company has incurred significant losses since its inception, and as of
December 31, 1997 had an accumulated deficit of $36.5 million, of which $11.5
million related to cumulative losses and $25.0 million related to the redemption
of shares of Common Stock from certain stockholders in connection with the
recapitalization of the Company that occurred simultaneously with the issuance
of Convertible Preferred Stock to new investors in June 1997. In addition, the
Company has recorded deferred compensation of $1.5 million, which represents the
difference between the exercise price and the fair market value of the Company's
Common Stock issuable upon the exercise of certain stock options granted to
employees. Of the total deferred compensation amount, $0.5 million was amortized
during the year ended December 31, 1997. The remaining deferred compensation
amount will be amortized over the remaining vesting periods of the related
options. The Company believes that period-to-period comparisons of its operating
results are not meaningful and that the results for any period should not be
relied upon as an indication of future performance. The Company currently
expects to significantly increase its operating expenses in order to expand its
sales and marketing operations, to continue to expand internationally, to
upgrade and enhance its DART technology and to market and support its solutions.
As a result of these factors, there can be no assurance that the Company will
not incur significant losses on a quarterly and annual basis for the foreseeable
future.
22
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth consolidated statement of operations data for
the periods indicated as a percentage of revenues:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 23, 1996
(INCEPTION) YEAR
THROUGH ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
--------------------- ---------------------
<S> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues................................................................ 100.0% 100.0%
Cost of revenues........................................................ 58.0 67.4
----- -----
Gross profit.......................................................... 42.0 32.6
Operating expenses:
Sales and marketing................................................... 47.3 35.0
General and administrative............................................ 32.9 20.7
Product development................................................... 9.5 4.6
----- -----
Total operating expenses............................................ 89.7 60.3
----- -----
Loss from operations.................................................... (47.7)% (27.7 )%
----- -----
----- -----
</TABLE>
REVENUES
The Company's revenues are derived primarily from the delivery of
advertisements on the Web sites of Web publishers on the DoubleClick Network.
Revenues increased from $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 the Company's revenues were derived from
commissions received from the sale of advertising that was placed on the Web
sites of Netscape and Excite. Revenues recognized from commissions for the year
ended December 31, 1997 were not material and the Company no longer expects to
recognize revenues on a commission basis. The increase in revenues was due
primarily to an increase in the number of advertisers and ads delivered on the
DoubleClick Network, and to the addition of the AltaVista Web site to the
DoubleClick Network in December 1996. Revenues earned during the year ended
December 31, 1997 from advertisements delivered on the AltaVista Web site were
$13.7 million, or 44.7% of revenues. AltaVista is a significant part of the
DoubleClick Network and is expected to continue to account for a significant
portion of the Company's revenues for the next few years. For the year ended
December 31, 1997, no advertiser accounted for more than 10% of the Company's
revenues. To date, the Company has not derived significant revenues from its
DART Service, DoubleClick Direct or international operations.
COST OF REVENUES
Cost of revenues consists primarily of service fees paid to Web publishers
calculated as a percentage of revenues resulting from ads delivered to the Web
sites on the DoubleClick Network. Cost of revenues also includes other costs of
delivering advertisements, including depreciation of the ad delivery system and
Internet access costs. Gross margins were 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 margins decreased in 1997 due to the
shift in the Company's revenue mix away from the sale of advertisements on a
commission basis on behalf of the Web sites of Netscape and Excite.
23
<PAGE>
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, commissions, advertising, maintenance of DoubleClick's Web site, trade
show expenses, seminars and costs of marketing materials. Sales and marketing
expenses were $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
the Company's marketing and branding campaigns. The Company expects sales and
marketing expenses to increase significantly on an absolute dollar basis but
remain relatively constant as a percentage of revenues as the Company hires
additional personnel, expands into new markets and continues to promote the
DoubleClick brand.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries and fees for professional services. General and
administrative expenses were $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 the Company's domestic and international growth. The Company expects
general and administrative expenses to increase on an absolute dollar basis but
decrease as a percentage of revenues as the Company hires additional personnel
and incurs additional costs related to the growth of its business and its
operations as a public company.
PRODUCT DEVELOPMENT. Product development expenses consist primarily of
compensation and consulting expenses and related supplies and materials. To
date, all product development costs have been expensed as incurred. Product
development expenses were $0.6 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.
The Company believes that continued investment in product development is
critical to attaining its strategic objectives and, as a result, expects product
development expenses to increase significantly on an absolute dollar basis but
remain generally constant as a percentage of revenues.
LOSS FROM OPERATIONS
The Company'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 the Company
as it continued to build its infrastructure, expand its markets and increase its
brand awareness. The Company expects to continue to hire additional personnel
and increase its spending for marketing and other infrastructure needs. As a
result, the Company expects that operating expenses and the loss from operations
may increase on an absolute dollar basis and decrease as a percentage of
revenues.
24
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited consolidated quarterly
statement of operations data for the eight quarters ended December 31, 1997. In
the opinion of management, this information has been prepared substantially on
the same basis as the audited Consolidated Financial Statements appearing
elsewhere in this Prospectus, and all necessary adjustments, consisting only of
normal recurring adjustments, have been included in the amounts stated below to
present fairly the unaudited consolidated quarterly results of operations. The
consolidated quarterly data should be read in conjunction with the audited
Consolidated Financial Statements of the Company and the Notes thereto appearing
elsewhere in this Prospectus. The results of operations for any quarter are not
necessarily indicative of the results of operations for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1996 1996 1996 1996 1997 1997 1997 1997
-------- -------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues................................ $ 410 $ 972 $ 1,283 $ 3,849 $ 5,329 $ 6,138 $ 8,190 $10,940
Cost of revenues........................ -- 349 830 2,601 3,394 4,094 5,560 7,580
-------- -------- --------- -------- -------- -------- --------- --------
Gross profit.......................... 410 623 453 1,248 1,935 2,044 2,630 3,360
-------- -------- --------- -------- -------- -------- --------- --------
Operating expenses:
Sales and marketing................... 226 427 820 1,606 2,120 1,924 2,562 4,104
General and administrative............ 96 459 573 1,017 752 1,019 1,836 2,718
Product development................... 34 78 225 281 233 280 502 384
-------- -------- --------- -------- -------- -------- --------- --------
Total operating expenses............ 356 964 1,618 2,904 3,105 3,223 4,900 7,206
-------- -------- --------- -------- -------- -------- --------- --------
Income (loss) from operations........... $ 54 $ (341) $(1,165) $(1,656) $(1,170) $(1,179) $(2,270) $(3,846)
-------- -------- --------- -------- -------- -------- --------- --------
-------- -------- --------- -------- -------- -------- --------- --------
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1996 1996 1996 1996 1997 1997 1997 1997
-------- -------- --------- -------- -------- -------- --------- --------
<S> <C> <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% 100.0%
Cost of revenues........................ -- 35.9 64.7 67.6 63.7 66.7 67.9 69.3
-------- -------- --------- -------- -------- -------- --------- --------
Gross profit.......................... 100.0 64.1 35.3 32.4 36.3 33.3 32.1 30.7
-------- -------- --------- -------- -------- -------- --------- --------
Operating expenses:
Sales and marketing................... 55.2 44.0 63.9 41.7 39.8 31.3 31.3 37.5
General and administrative............ 23.3 47.2 44.7 26.4 14.1 16.6 22.4 24.8
Product development................... 8.3 8.1 17.5 7.3 4.4 4.6 6.1 3.5
-------- -------- --------- -------- -------- -------- --------- --------
Total operating expenses............ 86.8 99.3 126.1 75.4 58.3 52.5 59.8 65.8
-------- -------- --------- -------- -------- -------- --------- --------
Income (loss) from operations........... 13.2% (35.2)% (90.8)% (43.0)% (22.0)% (19.2)% (27.7)% (35.1)%
-------- -------- --------- -------- -------- -------- --------- --------
-------- -------- --------- -------- -------- -------- --------- --------
</TABLE>
The Company's revenues have increased in all quarters presented as a result
of increased market acceptance of the DoubleClick Network after its launch in
March 1996. In December 1996, the Company added the AltaVista Web site to the
DoubleClick Network and revenues from delivery of advertisements on the
AltaVista Web site commenced in the first quarter of 1997. Cost of revenues as a
percentage of revenues increased throughout the quarters presented, except for
the first quarter of 1997, resulting from a shift in the Company's revenue mix
away from selling advertisements on behalf of third-party Web sites to
delivering advertisements across the DoubleClick Network. In the first quarter
of 1997, the Company recognized additional revenues from commissions relating to
the final delivery of ads that were ordered in 1996. The Company no longer
arranges for the placement of advertisements, nor does it expect to
25
<PAGE>
recognize any future revenues, on a commission basis. Gross margin is impacted
on a quarterly basis by service and customer mix.
Operating expenses have increased in each of the quarters presented. Sales
and marketing expenses have increased as a result of increased sales personnel
and commissions and advertising and promotion. The Company's sales and marketing
organization has grown from 8 employees as of March 31, 1996 to 123 employees as
of December 31, 1997. General and administrative expenses have increased due
primarily to additional personnel, professional fees and facilities costs. In
the third and fourth quarters of 1997, general and administrative fees increased
due in part to legal costs associated with the Company's international expansion
and litigation costs relating to the Company's lawsuit against two former
employees for misappropriation of trade secrets. This litigation was settled in
the fourth quarter of 1997. Product development expenses have generally
increased as a result of continued enhancements to the DART technology and
development of new solutions such as the DART Service and DoubleClick Direct.
The Company's results of operations may fluctuate significantly in the
future as a result of a variety of factors, many of which are beyond the
Company's control. See "Risk Factors -- Potential Fluctuations in Quarterly
Operating Results; Seasonality".
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations primarily
through the private placement of equity securities and borrowings from a related
party. In June 1997, the Company completed a private placement of equity
securities to new investors and received $39.8 million in net proceeds, of which
$25.0 million was used to redeem shares of Common Stock from certain
stockholders. On December 30, 1997, $5,000,000 in borrowings from a related
party pursuant to a Convertible Promissory Note (the "Convertible Note") were
converted to 779,302 shares of the Company's Common Stock.
Net cash used in operating activities was $3.4 million and $5.8 million for
the period from January 23, 1996 (inception) through December 31, 1996 and for
the year ended December 31, 1997, respectively. Cash used in operating
activities from January 23, 1996 (inception) through December 31, 1997 resulted
from net operating losses and increases in accounts receivable, which were
partially offset by increases in deferred revenues, accrued expenses and
accounts payable. In September 1997, the Company entered into an agreement to
establish DoubleClick Japan, Inc. for the purpose of forming a DoubleClick
Network in Japan. DoubleClick Japan, Inc. is a business relationship entered
into by the Company with Nippon Telegraph and Telephone Corporation, Trans
Cosmos, Inc., and NTT Advertising Inc. The Company received an initial payment
of $0.5 million for certain fees relating to the use of the DoubleClick
tradename and the right to access the Company's DART technology. The Company has
a 10% ownership position in this business relationship. As of December 31, 1997,
no revenues had been recognized related to DoubleClick Japan, Inc.
Net cash used in investing activities was $0.5 million and $8.1 million from
January 23, 1996 (inception) through December 31, 1996 and for the year ended
December 31, 1997, respectively. Cash used in investing activities was primarily
related to purchases of short-term investments, investments in business partners
and purchases of property and equipment.
Cash provided by financing activities of $3.9 million from January 23, 1996
(inception) through December 31, 1996 consisted primarily of $3.3 million in
borrowings from a related party and $0.6 million in proceeds from the issuance
of Common Stock at inception. Net cash provided by financing activities of $16.5
million for the year ended December 31, 1997 primarily consisted of net proceeds
from the sale of $39.8 million of Convertible Preferred Stock, of which $25.0
million was paid to redeem Common Stock held by certain stockholders, and
borrowings from a related party pursuant to the Convertible Note.
26
<PAGE>
As of December 31, 1997, the Company had $2.7 million of cash and cash
equivalents and $5.9 million in short-term investments. The Company's principal
commitments consisted of obligations under operating leases.
Although the Company has no material commitments for capital expenditures,
management anticipates that it will experience a substantial increase in its
capital expenditures and lease commitments consistent with its anticipated
growth in operations, infrastructure and personnel. In particular, the Company
anticipates incurring approximately $1.0 million in capital expenditures in
connection with its expansion of its New York facilities in the first half of
1998. The Company currently anticipates that it will continue to experience
significant growth in its operating expenses for the foreseeable future and that
its operating expenses will be a material use of the Company's cash resources.
The Company believes that the net proceeds of the offering, together with its
existing cash and cash equivalents and short-term investments, will be
sufficient to meet its anticipated cash needs for working capital and capital
expenditures for at least the next twelve months.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 1 of Notes to Consolidated Financial Statements for recently
adopted and recently issued accounting standards.
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<PAGE>
BUSINESS
THE COMPANY
DoubleClick is a leading provider of comprehensive Internet advertising
solutions for advertisers and Web publishers. The Company's technology and media
expertise enable it to dynamically deliver highly targeted, measurable and
cost-effective Internet advertising for advertisers and to increase ad sales and
improve ad space inventory management for Web publishers. DoubleClick offers
three distinct Internet advertising solutions: (i) the DoubleClick Network, a
leading Internet advertising network which provides ad delivery and related
services to over 60 Web sites, including AltaVista, The Dilbert Zone, Macromedia
and U.S. News and World Report; (ii) DoubleClick's DART (Dynamic Advertising
Reporting and Targeting) Service, an Internet advertising management solution
for Web publishers with internal ad sales forces, which is currently being
utilized by over 20 Web publishers, including NBC, THE WALL STREET JOURNAL
INTERACTIVE EDITION, RealNetworks and THE SPORTING NEWS; and (iii) DoubleClick
Direct, the Company's recently introduced advertising solution designed
specifically for direct marketers.
DoubleClick's proprietary DART technology provides the platform for the
Company's solutions. This technology enables advertisers to optimize ad
performance by dynamically targeting and delivering ads to Web users based on
pre-selected criteria. As a user visits the Web sites of Web publishers which
utilize the Company's solutions, DART collects information regarding the user
and his or her viewing activities and ad responses, and applies this data to
improve its ability to predict the user's reaction and enhance DART's ad
targeting capabilities. The sophisticated tracking and reporting functionality
incorporated into DART provides advertisers with accurate measurements of ad
performance based on selected criteria. In addition, DART provides Web
publishers with sophisticated ad space inventory management capabilities.
The Company estimates that in December 1997 more than 20 million users
visited the Web sites of Web publishers which utilized the Company's solutions,
resulting in an aggregate of over 900 million impressions. During the same
period, DoubleClick managed over 7,000 Internet advertisements for over 600
advertisers, and over 100 Web publishers representing an aggregate of
approximately 350 Web sites utilized the Company's Internet advertising
solutions.
INDUSTRY BACKGROUND
THE INTERNET AND THE WEB
The Internet and the Web have enjoyed unprecedented growth in recent years.
Industry sources estimate that by the end of 1997 there will be over 29 million
Web users in the United States and over 50 million users worldwide, and the
number of Web users is expected to increase to 72 million in the United States
and 129 million worldwide by the end of 2000. Web users are spending an
increasing amount of time on the Web, and according to a recent study, as of
April 1997, an estimated 51% of Internet users access the Internet for 10 or
more hours a week. The growth in the number of Web users and the amount of time
users spend on the Web is expected to continue as new technologies, such as
multimedia capabilities, are developed and adopted, as Web access and bandwidth
increase, and as Internet content improves and becomes more dynamic.
The Company believes that as electronic commerce increases, advertisers and
direct marketers will increasingly seek to use the Web to locate customers,
advertise and facilitate transactions. Online transactions can be faster, less
expensive and more convenient than transactions conducted via human interaction.
A growing number of users have transacted business over the Web, including
trading securities, buying goods, purchasing airline tickets and paying bills.
Over 20% of United States Internet users are estimated by industry sources to
have made a purchase over the Web. Industry sources estimate that purchases of
goods and services over the Internet are expected to increase from $2.6 billion
in 1996 to $220 billion in 2001.
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INTERNET ADVERTISING
The Web is emerging as an attractive new medium for advertisers due to the
growth in the number of Web users, the amount of time such users spend on the
Web, the increase in electronic commerce, the interactive nature of the Web, the
Web's global reach and a variety of other factors. Internet users generally have
demographic profiles advertisers desire. According to industry sources, in 1997,
an estimated 47% of Internet users had a college degree, 67% were between the
ages of 18 and 44 and their mean household income was $53,000. The interactive
nature of the Web gives advertisers the potential to establish dialogues and
one-to-one relationships with potential customers, receive direct feedback on
their advertising and adapt their advertising to respond to such feedback. The
Web also provides advertisers with the opportunity to reach broad, global
audiences, since Web sites can be accessed from anywhere in the world, and to
target their advertising to populations within specific regions or countries, to
users with desirable demographic characteristics, and to people with specific
interests. Internet advertising also has the potential to offer advertisers the
ability to measure the number of times that a particular advertisement has been
viewed, the responses to the advertisement and certain demographic
characteristics of the viewers of the advertisement. Accordingly, the Company
believes that Web advertising has the potential to be a cost-effective means of
reaching a significant number of users with desirable characteristics.
The unique characteristics of Internet advertising, combined with the growth
in the number of Internet users and their attractive demographic profiles, has
led to a significant increase in Internet advertising. Industry sources believe
that the dollar value of Internet advertising in the United States will increase
from $551 million in 1997 to $4.0 billion in 2001, representing a 64% compounded
annual growth rate. In comparison, industry sources estimate 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 the Company believes that Internet advertising will
become an increasing component of their total advertising budgets.
DIRECT MARKETING
The Company believes that the Internet represents an attractive new medium
for direct marketing, which has traditionally been conducted through direct mail
and telemarketing, because highly targeted product offers can be made to
consumers at the point-of-sale. The success of a direct marketing campaign is
generally based on a direct marketer's return on investment which is measured by
the response rate (e.g. number of leads, number of sales) and cost-per-response.
According to industry sources, an estimated $153 billion was spent in 1997 on
direct marketing in the United States. The Internet has the potential to provide
direct marketers with the ability to target and deliver direct marketing
campaigns to users with specific characteristics and interests. In addition,
unlike many of the traditional methods of direct marketing, the Internet
provides direct marketers with the opportunity to contact consumers at the
point-of-sale (i.e., their personal computers). Industry sources estimate that
revenues from direct marketing over the Internet will exceed $1.3 billion in
2002.
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THE MARKETS FOR INTERNET ADVERTISING SOLUTIONS
ADVERTISERS
As a medium for advertisers and advertising agencies, the Internet offers a
number of significant advantages over traditional media which the Company
believes will lead to significant increases in overall Internet advertising
spending. Advertising on the Internet provides advertisers with the opportunity
to:
REACH HIGHLY TARGETED AUDIENCES. The Internet has the unique capability to
provide advertisers with the ability to accurately and automatically target
their ads to users with specific interests and characteristics. Information
about the user's geographic location, ISP, browser type, operating system and
type and size of employer can be obtained through a user's interactions on the
Web, regardless of the type of Web site they are viewing, and this information
can be utilized by advertisers to target their ads. Web users specify their
interests by visiting Web sites with content focused on specific interests, such
as sports, travel, news, business and finance and entertainment. In addition,
these users visit and utilize search engines to find Web sites and information
on specific topics, further identifying their unique interests.
AGGREGATE AD PURCHASING. Large advertising campaigns are time-consuming,
difficult to manage, and can require media purchasers at advertising agencies to
contact large numbers of media outlets in order to place advertisements.
Networks of Web sites can provide centralized Internet ad purchasing and
alleviate the need to make a series of small ad purchases from numerous Web
publishers.
ACCESS INTERNATIONAL, NATIONAL AND LOCAL MARKETS. Traditional media
providers are constrained in their ability to provide advertisers with worldwide
access to consumers since most broadcasters and print publishers only operate in
their home countries or in limited geographic regions. Since the Internet is not
limited by geographical boundaries, and since, according to industry sources, an
estimated 35% of Internet usage is outside of the United States, the Internet
provides a significant media outlet for the global marketplace. Because of its
ability to target ads based on a user's geographic location, the Internet also
offers the ability to reach audiences across international, national and local
markets.
IMPROVE ADVERTISING ACCOUNTABILITY AND PERFORMANCE. Advertisers desire
accurate and timely tracking, measurement and reporting of ad performance. Since
ad performance on traditional media is measured through sampling and estimates,
accurate ad performance accountability is difficult. Unlike traditional forms of
media, the Internet offers the opportunity to accurately track each Web user
that is delivered an advertisement and to determine and record a broad range of
information about such user. The Web can also offer advertisers the analytical
tools required to evaluate and optimize ad effectiveness, as well as the ability
to promptly change ad placements and the creative content of advertisements.
PROVIDE ENHANCED DIRECT MARKETING CAPABILITIES. Direct marketers require
information about the recipients of an ad who respond with a specific action,
such as seeking further information or buying a product. In addition, direct
marketers are seeking to improve the return on their investment by adopting more
cost-effective methods to reach their target consumers. The Internet may be a
more cost-effective way to reach consumers than other direct marketing
approaches, including direct mail. As a media outlet, the Internet offers the
unique opportunity to advertise on a one-to-one basis at the point-of-sale. To
become an attractive medium for direct marketers, direct marketing campaigns on
the Internet must be targeted to users that are most likely to respond and a
method to accurately track direct marketing expenditures on a cost-per-action
basis must be available.
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WEB PUBLISHERS
As a result of the growth in the number of Web users, the advent of open,
easy-to-use authoring software and the anticipated increase in Internet
commerce, many businesses and organizations are establishing Web sites. A number
of these Web publishers are attempting to support, or profit from, their Web
sites by selling Internet advertising. Such Web publishers are seeking
advertising solutions that enable them to:
INCREASE WEB ADVERTISING SALES. Many Web publishers may not have the
experience or personnel to effectively sell ad space on their Web sites and are
unable to gain access to media buyers at large advertising agencies. Building an
internal ad sales force can be difficult and expensive due, in part, to the
increasing competition for experienced Internet ad sales personnel. Further, the
time and expense required to hire an internal ad sales force, commence ad sales
activities, and bill and collect ad sales revenues can have a significant impact
on the viability of a Web site. As a result, many Web publishers are seeking to
outsource their ad sales and delivery functions to Internet advertising
solutions providers with extensive, established sales organizations. By
outsourcing their ad sales and delivery functions, Web publishers can start
receiving ad revenues faster and can greatly reduce or eliminate related
expenditures. In addition, the Company believes that Web publishers with
effective national ad sales organizations may seek to outsource their
international or local sales functions to Internet solutions providers that are
knowledgeable about the target markets and that have the necessary critical mass
in such markets for a successful sales effort.
MANAGE WEB ADVERTISING OPERATIONS. Many Web publishers cannot afford, or do
not have the ability to operate and maintain, the servers and technology
necessary for targeted Web advertising. Installing an ad server can take several
months and results in significant out-of-pocket expenses. In addition, once an
ad server is purchased and installed, the Web publisher assumes responsibility
for the server's upgrades and maintenance. Most basic ad servers do not provide
ad targeting capabilities and do not offer sophisticated tracking, reporting and
billing functionality. Moreover, if a Web publisher operates an ad server
independently from a network of other Web sites, the amount of information
available to build an effective database regarding Web users and their response
patterns will be limited and may be insufficient for purposes of sophisticated
ad targeting. As a result, Web publishers may seek to outsource Web advertising
operations in order to reduce costs and enhance their ad targeting capabilities.
ENABLE EFFECTIVE AD SPACE INVENTORY MANAGEMENT. Many Web sites contain
multiple pages and handle thousands of page views every day, providing a large
inventory of Internet advertising space which is difficult for the Web publisher
to manage. By targeting advertising towards specific ad space within their Web
sites, Web publishers can increase the effectiveness of the ads delivered on
their Web sites, thereby increasing the value of their ad space. In order to
derive value from all of their available advertising space, Web publishers may
seek alternatives to selling their ad space such as providing their unsold
inventory to direct marketers who pay for ad space based on ad performance.
THE DOUBLECLICK SOLUTION
DoubleClick's solutions are designed to enable advertisers and Web
publishers to take advantage of the growing opportunities to realize significant
economic gain through Internet advertising. The Company has developed DART, a
proprietary technology that, through its dynamic ad matching, targeting and
delivering functionality and its ability to gather and continuously update
information on the rapidly increasing number of Web users, provides the platform
for DoubleClick's solutions, including: (i) the DoubleClick Network, a
collection of over 60 Web sites; (ii) the DART Service, which offers ad
targeting, tracking and reporting functionality to Web publishers with internal
sales organizations; and (iii) DoubleClick Direct, a recently introduced service
that offers direct marketers the ability to pay for
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<PAGE>
advertising on a cost-per-action basis. Each of the Company's solutions has been
designed and developed to address and meet the needs of both advertisers and Web
publishers.
DoubleClick's proprietary DART technology collects, and continually updates,
information on the characteristics and response patterns of individual Web
users. DART uses this information to dynamically match and deliver an Internet
ad to a Web user within milliseconds based on pre-selected criteria, including
time of day, user interests, geographic location of the user's server and
organization name, size, revenue or industry type. In addition, DART is a
powerful ad performance tracking tool which provides comprehensive reporting.
THE DOUBLECLICK NETWORK
The DoubleClick Network is designed to streamline the Internet advertising
purchasing process by providing a one-stop shop for advertisers to buy ads on
the Internet. The DoubleClick Network enables advertisers to benefit from the
dynamic ad matching, targeting and delivering functionality provided by the DART
technology. As a result, advertisers can customize their ad delivery on the
DoubleClick Network within specific content categories, on specific Web sites,
or by targeting based on a variety of factors, including user interest,
organization type and keyword choice. To capitalize on the global reach of the
Internet, DoubleClick is establishing DoubleClick Networks in Europe, Asia and
other international markets.
By joining the DoubleClick Network, Web publishers can take advantage of
DoubleClick's extensive and experienced ad sales organization. These Web
publishers do not need to establish an internal advertising sales capacity, are
relieved of the ad management requirements, including billing, tracking and
reporting, and do not incur the start-up and fixed costs associated with
establishing, maintaining, upgrading and operating ad servers. Additionally, Web
publishers can benefit from the DART ad targeting technology by improving the
effectiveness of the advertising on their Web sites which, in turn, increases
the value of their Web sites to advertisers.
DART SERVICE
DoubleClick offers its DART Service to Web publishers with internal ad sales
organizations seeking a comprehensive turnkey ad management solution with ad
targeting and delivering capabilities, and sophisticated tracking, reporting and
billing functionality. The DART Service also handles the difficult and
complicated task of ad space inventory management. By using the DART Service,
Web publishers can take advantage of the Company's extensive database of Web
user targeting information as well as the Company's predictive modeling
capabilities to more effectively target ads.
DOUBLECLICK DIRECT
DoubleClick Direct is a response oriented Internet-based direct advertising
solution that enables direct marketers to pay for advertising on a
cost-per-action (e.g. cost-per-sale, cost-per-lead or cost-per-click) basis.
Using DoubleClick Direct, direct marketers can place their cost-per-action ads
on the available ad space inventory on the Web sites of a variety of Web
publishers. DoubleClick's DART technology analyzes which ads receive the best
response on which Web sites and then selects the appropriate ad and delivers it
on the Web sites and pages within the Web sites where the ad is expected to
yield the best results. DoubleClick Direct provides Web publishers with an
additional source of advertising revenue since it utilizes ad space on their Web
sites that has not otherwise been sold. DoubleClick Direct was introduced in the
fourth quarter of 1997 on a limited basis to selected direct marketers and the
Company is developing additional features to meet the evolving needs of direct
marketers.
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STRATEGY
DoubleClick's objective is to be the leading provider of Internet
advertising solutions. The following are the key elements of the Company's
strategy:
PROVIDE THE MOST COMPREHENSIVE INTERNET ADVERTISING SOLUTIONS. The Company
intends to leverage the information aggregated from the millions of individual
users that visit the Web sites on the DoubleClick Network and the Web sites of
Web publishers using the DART Service to further enhance its existing solutions
and facilitate the development of additional solutions. DoubleClick believes
that its proprietary DART technology and the experience and knowledge gained
through the delivery of billions of Internet ads provide it with a significant
competitive advantage over other Internet advertising solutions providers.
DoubleClick intends to leverage its technology and media expertise to continue
to develop new solutions and technological capabilities that meet the needs of
advertisers and Web publishers. In addition, the Company intends to add new
features and functionality to its DART technology to meet the evolving needs of
the Internet advertising market.
ENHANCE AND EXPAND THE DOUBLECLICK NETWORK. By enhancing and expanding the
DoubleClick Network, the Company believes that the DoubleClick Network will
become a leading choice for Web advertisers. The Company intends to continuously
target Web publishers of high quality Web sites, directories and search engines
for addition to the existing content categories comprising the DoubleClick
Network. Any such additions will be required to meet strict inclusion and
maintenance criteria in order to ensure that they will continue to provide the
desired audiences of advertisers. In order to provide advertisers with
additional audiences, the Company also plans to add new content categories
comprised of high quality, high traffic Web sites to the DoubleClick Network.
EXPAND SALES AND MARKETING. The Company believes that a strong sales and
marketing organization is essential to effectively sell and market Internet
advertising solutions. The Company intends to continue to expand its sales and
marketing efforts. Specifically, DoubleClick plans to expand its DoubleClick
Network sales force and has established dedicated sales organizations for its
DART Service and DoubleClick Direct. DoubleClick believes that brand awareness
of the Company and its solutions is critical to its success given the emerging
nature of the Internet advertising market. As a result, the Company is targeting
its efforts to advertisers and advertising agencies in order to establish and
expand the recognition of its corporate identity and service offerings through
its Web site, advertisements within trade publications, direct mail, promotional
activities, trade show participation and other media events.
ESTABLISH DART SERVICE AND DOUBLECLICK DIRECT. The Company is offering ad
management services by providing its DART Service directly to Web publishers
which have internal ad sales forces yet desire to utilize DART's ad targeting,
tracking, reporting and inventory management capabilities. The Company intends
to continue to focus on identifying appropriate Web publishers that may be
interested in utilizing its DART Service to manage their ad space inventory. The
Company recently launched its DoubleClick Direct service on a limited basis and
is building its inventory of direct marketing advertisements and available ad
space. The Company intends to add features and functionality to the DoubleClick
Direct service to meet the evolving needs of direct marketers and to provide a
viable commercial opportunity for Web sites with significant unsold ad space
inventory.
EXTEND GLOBAL PRESENCE. To provide U.S. and foreign advertisers with the
ability to deliver their ads in global markets and to provide Web publishers in
international markets with the ability to outsource their ad sales, ad server
operations and ad space inventory management, the Company is developing
DoubleClick Networks and is providing its other solutions in a number of
countries. The Company is building DoubleClick Networks in Australia, Canada and
the United Kingdom, and through its business partners, in Japan, Iberoamerica
(Spain, Portugal and Latin America) and Scandinavia. To support this initiative,
DoubleClick has recently opened sales offices offering all of the Company's
solutions in Australia, Canada and the United Kingdom, and intends to establish
sales offices in additional countries in the future.
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TECHNOLOGY OVERVIEW
The Company's proprietary DART (Dynamic Advertising Reporting and Targeting)
technology serves as the enabling platform for all of the Company's solutions.
This centralized ad management technology, resident on the Company's server, is
linked to the Web publisher's server and completes the dynamic ad matching,
targeting and delivering functions within milliseconds. In addition, unlike
shrink-wrapped technology products, continuous enhancements to DART can be made
without the need for a Web publisher to upgrade or purchase new equipment or
software upgrades. The following diagram illustrates the architecture of DART:
[ILLUSTRATION DEPICTING DART TECHNOLOGY'S DYNAMIC AND MATCHING, TARGETING AND
DELIVERING ARCHITECTURE]
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To date, DoubleClick's DART technology has delivered over 6 billion ads
worldwide. DART's dynamic matching, targeting and delivering functions enable
Web advertisers to target their advertising based on a variety of factors,
including user interests, time of day, day of week, organization name and size,
domain type (i.e., commercial, government, education, network), operating
system, server type and version, and keywords. In addition, the Company offers
the ability to match geographic location of the user's server and organization
revenue through third-party databases. DART also manages the frequency and
distribution of ad placements to limit repetitive ad exposures that can reduce
ad effectiveness. Further, in order to deliver the advertisements on the pages
that are likely to result in the best response, DART improves its predictive
capabilities by continuously collecting information regarding the user and the
user's viewing activities and ad responses.
DART is a powerful ad performance tracking and reporting tool. Detailed
daily online performance reports allow advertisers and Web publishers to
actively monitor and react to the success of particular ads and marketing
campaigns and Web site traffic patterns, respectively. Such reports can be
further tailored to evaluate ad success based on the dynamic ad matching,
targeting and delivering factors set forth above. DART delivers advertising
content developed using most leading Web tools and technologies, including JAVA,
Java Script, RealAudio, RealVideo, Enliven and VRML. In addition, DART is
compatible with leading host servers, regardless of the Web publisher's hardware
or software. DART is designed to be highly reliable and operates 24 hours a day,
seven days a week with minimal downtime. Enhancements of the DART technology
have allowed for the development of additional features providing: (i)
advertisers with the ability to test the effectiveness of the creative content
of an advertisement before launching an ad campaign by comparing click-through
rates on alternative advertisements; (ii) advertisers with the opportunity to
track a user to the advertiser's own Web site to determine what actions a user
takes following a click-through; and (iii) Web publishers with the ability to
accurately manage and record advertising activity and track related revenue over
a network of affiliated Web sites.
SERVICES
DOUBLECLICK NETWORK
Utilizing the Company's proprietary DART technology, the DoubleClick Network
provides effective Internet advertising solutions to both advertisers and Web
publishers. As of December 31, 1997, the DoubleClick Network consisted of over
60 Web sites grouped together by the Company in defined content categories. In
December 1997, approximately 750 million ads were delivered on the DoubleClick
Network. The Company pays each Web publisher whose Web sites are on the
DoubleClick Network a service fee calculated as a percentage of the amount it
charges advertisers for delivering advertisements on the DoubleClick Network. In
addition, the Company is responsible for billing and collecting for ads
delivered on the DoubleClick Network and typically assumes the risk of
non-payment from advertisers. Since December 1996, the Company has derived
substantially all of its revenues from advertisements delivered on the
DoubleClick Network.
Web publishers seeking to add their Web sites to the DoubleClick Network
must meet defined inclusion and maintenance criteria based upon, among other
things, the demographics of the particular Web site's users, the Web site's
content quality and brand name recognition, the level of existing and projected
traffic on the Web site, and the opportunity to provide sponsorship
opportunities. By preserving the integrity of the DoubleClick Network through
the maintenance of such defined criteria, the Company enhances an advertiser's
ability to have its advertisements seen by the appropriate audience. In
addition, the DoubleClick Network provides greater efficiencies to advertisers
by allowing them to reach several different target audiences all through one ad
purchase and ad campaign.
The Company intends to continuously target Web publishers of high quality
directories, search engines and premium Web sites for addition to the existing
content categories in the DoubleClick Network and to expand into additional
content categories based on advertisers' targeting needs. The
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following table identifies the DoubleClick Network's content categories and
their respective Web sites as of December 31, 1997:
<TABLE>
<S> <C> <C>
PREMIUM SITES TECHNOLOGY & THE INTERNET SPORTS, TRAVEL & LEISURE
AltaVista Search AltaVista MarketSpace Just Sports For Women
Billboard Online Borland One-on-One Sports
Fast Company ChatPlanet Total Baseball
LookSmart Diamond Multimedia Systems Travelon
Macromedia FilePile TravelWeb
The Dilbert Zone GoNetwork USA Today Sports Scores
U.S. News Online Inquiry.com Whitbread
DIRECTORIES, SEARCH ENGINES & ISPS Macromedia ENTERTAINMENT
AltaVista Search PC Win Resource Center Billboard Online
Internet Address Finder Silicon Graphics' VRML.sgi.com Blockbuster Search
GTE Internet Solutions SoftSeek The DJ Network
GTE SuperPages The Dilbert Zone Sega Online
LookSmart Web Developer's Virtual Library United Media's ComicZone
MindSpring WebServer Vibe Online
NetShepherd BUSINESS & FINANCE WebStakes
Open Text Index BigCharts WOMEN & FAMILY
NEWS, INFORMATION & CULTURE CompaniesOnline Advancing Women
Atlantic Unbound EDGAR ONLINE Essence Online
Ivanhoe Medical Breakthroughs Fast Company Fashion Net
JobTrak Individual Investor Online OnCart
Kelley Blue Book StockMaster Snoopy.com
mostNEWYORK U.S.A. Today: DBC StarChefs
PBS Online Worth Online Top Secret Recipes
U.S. News Online Women's Connection Online
USA Today Selected Marketplace
</TABLE>
Over 1,000 advertisers from a variety of industries have utilized the
DoubleClick Network, including many of the leading Internet advertisers. In
certain instances, advertisers promote a number of products at one time. In
turn, there may be a number of advertising campaigns being run simultaneously
for each product, each with a number of advertisements. Further, many
advertisers use advertising agencies to strategically place their
advertisements. As a result, the Company maintains relationships with, and
focuses its sales and marketing efforts on, both advertisers and advertising
agencies. Set forth below is a representative list of those advertisers that
have delivered advertisements on the DoubleClick Network:
<TABLE>
<S> <C>
Amazon.com Inc. Intel
AT&T Microsoft
Bell South MonsterBoard
CD Now Netscape
Charles Schwab Prodigy
Datek Online Quick & Reilly
GTE 3Com
IBM Ziff Davis Interactive
</TABLE>
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To take advantage of the global reach of the Internet, DoubleClick is
establishing DoubleClick Networks in Europe, Asia and other international
markets. DoubleClick currently has operations in Australia, Canada, and the
United Kingdom, and through its business partners, in Japan, Iberoamerica and
Scandinavia. The Company's international operations allow advertisers to target
users in specific countries and worldwide and enables overseas advertisers to
focus their advertising in their own domestic market, the United States market
or globally. Further, by locating ad servers in foreign locations, the Company
is seeking to facilitate the rapid delivery of Internet advertising in
international markets.
DART SERVICE
Since January 1997, the DART Service has been provided as a comprehensive
turnkey advertising solution to those Web publishers with internal sales forces
that desire to take advantage of the Company's DART technology to facilitate and
support their Internet ad placements. By utilizing the DART Service, a Web
publisher is provided with all of the dynamic ad matching, targeting and
delivering features of the DART technology, including the predictive modeling
benefits enabled by the Company's continuous collection of information regarding
users of the Web sites in the DoubleClick Network and the Web sites of other
DART-enabled Web publishers. The DART Service acts as the Web publisher's ad
server and can be easily linked to the Web publisher's server. The DART Service
is generally offered to Web publishers pursuant to annual service contracts
terminable by either party on 30 days prior written notice. As of December 31,
1997, there were 20 Web publishers using the DART Service, including NBC, THE
WALL STREET JOURNAL INTERACTIVE EDITION, RealNetworks, THE SPORTING NEWS,
READER'S DIGEST, TEXAS MONTHLY and VARIETY. To date, the Company has not
received significant revenues from the DART Service.
DOUBLECLICK DIRECT
Launched on a limited basis in the fourth quarter of 1997, DoubleClick
Direct is a response-oriented Internet advertising service that provides direct
marketers with the opportunity to conduct targeted advertising on a
cost-per-action basis, paying only when users click on an ad placed on a Web
site, fill out a lead form, download software, or buy a product. Web publishers,
including those in the DoubleClick Network, may designate a selected portion of
their previously unsold inventory on a monthly basis for such direct marketers.
DoubleClick's DART technology analyzes which ads receive the best response on
which Web sites and then selects the appropriate ad and places it on the Web
sites and pages within the Web sites where the ad is expected to yield the best
results. Further, DoubleClick Direct tracks and audits transactions in real
time, while at the same time using the information to automatically enhance and
update DoubleClick Direct. The Company expects direct marketers to utilize
DoubleClick Direct pursuant to short-term contracts. DoubleClick Direct has
initially been marketed to selected direct marketers on a limited basis and the
Company is developing additional features to meet the evolving needs of direct
marketers. To date, the Company has not received significant revenues from sales
of DoubleClick Direct.
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The following illustration depicts DoubleClick Direct:
[ILLUSTRATION DEPICTING THE DOUBLECLICK DIRECT ARCHITECTURE]
SALES AND MARKETING
UNITED STATES
The Company sells its solutions in the United States through a sales and
marketing organization which consisted of an aggregate of 104 employees as of
December 31, 1997. These employees are located at the Company's headquarters in
New York, and in the Company's offices in Atlanta, Boston, Chicago, Dallas, Los
Angeles and Silicon Valley. The sales organization is divided into three
dedicated groups focused on sales of advertisements to be delivered on the
DoubleClick Network, sales of the
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DART Service to Web publishers, and sales of DoubleClick Direct to direct
marketers. Each of these groups employs an internal telesales force to solicit
leads obtained from, and to respond to inbound inquiries stimulated by, the
Company's marketing efforts.
The Company has created business development subgroups for each of the
DoubleClick Network's content categories to recruit Web publishers with high
quality Web sites for inclusion in the DoubleClick Network. Business development
salespeople are assigned to a particular content category in order to develop an
in-depth understanding of the evolving needs of a particular content category
and the Web publishers with Web sites within such content category. This
expertise allows the Company to more effectively manage existing content
categories and take advantage of opportunities to expand into additional content
categories.
To support its direct sales efforts and to actively promote the DoubleClick
brand, the Company conducts comprehensive marketing programs, including public
relations, print advertisements, online advertisements over the DoubleClick
Network and on the Web sites of Web publishers unaffiliated with the DoubleClick
Network, Web advertising seminars, trade shows and ongoing customer
communications programs.
INTERNATIONAL
The Company has expanded its operations into Australia, Canada and the
United Kingdom through the creation of a direct sales organization in each such
location. In addition, the Company has entered into business relationships in
Japan, Iberoamerica and Scandinavia to take advantage of the local marketplace
knowledge of its business partners. As it continues to expand internationally,
the Company intends to expand its direct sales and marketing capabilities to
create direct sales organizations in certain international markets and, in other
markets, to enter into business relationships with companies having knowledge of
the particular marketplace.
COMPETITION
The markets for Internet advertising and related products and services are
intensely competitive and such competition is expected to continue to increase.
There are no substantial barriers to entry in this market and the Company
believes that its ability to compete depends upon many factors within and beyond
its control, including the timing and market acceptance of new solutions and
enhancements to existing solutions developed by the Company and its competitors,
customer service and support, sales and marketing efforts, and the ease of use,
performance, price and reliability of the Company's solutions.
The Company competes for Internet advertising revenues with large Web
publishers and Web search engine companies, such as America Online, Yahoo!,
Excite and Infoseek. Further, the DoubleClick Network competes with a variety of
Internet advertising networks, including 24/7 Media. In marketing the
DoubleClick Network and its DART Service to Web publishers, the Company also
competes with providers of ad servers and related services, including
NetGravity. The Company also encounters competition from a number of other
sources, including content aggregation companies, companies engaged in
advertising sales networks, advertising agencies, and other companies which
facilitate Internet advertising. Many of the Company's existing competitors, as
well as a number of potential new competitors, have longer operating histories,
greater name recognition, larger customer bases and significantly greater
financial, technical and marketing resources than the Company. There can be no
assurance that the Company will be able to compete successfully against current
or future competitors or that competitive pressures will not have a material
adverse effect on the Company's business, results of operations and financial
condition. In addition, the Internet, in general, and the Company, specifically,
also must compete for a share of advertisers' total advertising budgets with
traditional advertising media, such as television, radio, cable and print. To
the extent that the Internet is
39
<PAGE>
perceived to be a limited or ineffective advertising medium, advertisers may be
reluctant to devote a significant portion of their advertising budget to
Internet advertising, which could limit the growth of Internet advertising and
would have a material adverse effect on the Company's business, results of
operations and financial condition. See "Risk Factors -- Competition".
INTELLECTUAL PROPERTY
The Company regards its intellectual property as critical to its success,
and the Company relies upon patent, trademark, copyright and trade secret laws
in the United States and other jurisdictions to protect its proprietary rights.
The Company has filed one patent application with the United States Patent and
Trademark Office to protect certain aspects of its DART technology. The Company
pursues the protection of its trademarks by applying to register the trademarks
in the United States and (based upon anticipated use) internationally, and is
the owner of a registration for the DOUBLECLICK trademark in the United States.
There can be no assurance that any of the Company's trademark registrations or
patent applications will be approved or granted and, if they are granted, that
they will not be successfully challenged by others or invalidated through
administrative process or litigation. Further, if the Company's trademark
registrations are not approved or granted due to the prior issuance of
trademarks to third parties or for other reasons, there can be no assurance that
the Company would be able to enter into arrangements with such third parties on
commercially reasonable terms to allow the Company to continue to use such
trademarks. Patent, trademark, copyright and trade secret protection may not be
available in every country in which the Company's solutions are distributed or
made available. In addition, the Company seeks to protect its proprietary rights
through the use of confidentiality agreements with employees, consultants,
advisors and others. There can be no assurance that such agreements will provide
adequate protection for the Company's proprietary rights in the event of any
unauthorized use or disclosure, that employees of the Company, consultants,
advisors or others will maintain the confidentiality of such proprietary
information, or that such proprietary information will not otherwise become
known, or be independently developed, by competitors. The Company's DART
technology collects and utilizes data derived from user activity on the
DoubleClick Network and the Web sites of Web publishers using the Company's
solutions. This data is used for ad targeting and predicting ad performance.
Although the Company believes that it has the right to use such data and the
compilation of such data in the Company's database, there can be no assurance
that any trade secret, copyright or other protection will be available for such
information or that others will not claim rights to such information. Further,
pursuant to its contracts with Web publishers using the Company's solutions, the
Company is obligated to keep certain information regarding the Web publisher
confidential.
The Company has licensed in the past, and expects that it may license in the
future, elements of its trademarks, trade dress and similar proprietary rights
to third parties, including in connection with the establishment of its
international business relationships which may be controlled operationally by
such third parties. While the Company attempts to ensure that the quality of its
brand is maintained by such business partners, no assurances can be given that
such partners will not take actions that could materially and adversely affect
the value of the Company's proprietary rights or the reputation of its solutions
and technologies. The Company currently licenses certain aspects of its
predictive modeling technologies from a third party. The failure by the Company
to maintain this license, or to find a replacement for such technology in a
timely and cost-effective manner, could have a material adverse effect on the
Company's business, results of operations and financial condition.
Legal standards relating to the validity, enforceability and scope of
protection of certain proprietary rights in Internet-related industries are
uncertain and still evolving, and no assurance can be given as to the future
viability or value of any proprietary rights of the Company or other companies
within the industry. There can be no assurance that the steps taken by the
Company to protect its proprietary rights will be adequate or that third parties
will not infringe or misappropriate the Company's proprietary rights. Any such
infringement or misappropriation, should it occur, could have a material adverse
effect on the
40
<PAGE>
Company's business, results of operations and financial condition. Furthermore,
there can be no assurance that the Company's business activities will not
infringe upon the proprietary rights of others, or that other parties will not
assert infringement claims against the Company. From time to time the Company
has been, and expects to continue to be, subject to claims in the ordinary
course of its business, including claims of alleged infringement of the
trademarks and other intellectual property rights of third parties by the
Company and its business partners. Although such claims have not resulted in
litigation or had a material adverse effect on the Company's business, results
of operations or financial condition, such claims and any resultant litigation,
should it occur, could subject the Company to significant liability for damages
and could result in invalidation of the Company's proprietary rights and, even
if not meritorious, could be time-consuming and expensive to defend, and could
result in the diversion of management time and attention, any of which could
have a material adverse effect on the Company's business, results of operations
and financial condition.
EMPLOYEES
As of December 31, 1997, the Company employed 185 persons, including 123 in
sales, marketing and customer support (19 of whom serve the international
marketplace), 26 in product development, and 36 in accounting, human resources
and administration. The Company is not subject to any collective bargaining
agreements and believes that its relationship with its employees is good.
FACILITIES
The Company's principal executive offices are currently located in two
separate facilities in New York, New York. Consisting of an aggregate of
approximately 25,000 square feet, these facilities are currently leased to the
Company under leases which expire in July 1999 and September 2002, respectively.
The Company also leases space for its sales and marketing efforts in California,
Georgia, Illinois, Massachusetts and Texas, as well as in Australia, Canada and
the United Kingdom. The Company plans to expand its New York facilities in the
first half of 1998. The Company believes that suitable additional space will be
available in the future on commercially reasonable terms.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
41
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS AND OTHER KEY EMPLOYEES
The executive officers and directors and other key employees of the Company,
and their ages and positions are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- ----- -----------------------------------------------------
<S> <C> <C>
Kevin J. O'Connor.................................... 36 Chief Executive Officer and Chairman of the Board of
Directors
Kevin P. Ryan........................................ 34 President and Chief Financial Officer
Dwight A. Merriman................................... 29 Chief Technical Officer and Director
Wenda Harris Millard................................. 43 Executive Vice President, Marketing and Sales
Stephen R. Collins................................... 32 Controller and Assistant Secretary
John L. Heider....................................... 40 Vice President of Engineering
Barry M. Salzman..................................... 34 Vice President, International
David N. Strohm(1)................................... 49 Director
Mark E. Nunnelly(1).................................. 39 Director
W. Grant Gregory(1).................................. 56 Director
Donald Peppers....................................... 37 Director
</TABLE>
- ------------------------
(1) Member of the Audit Committee and the Compensation Committee.
Set forth below is certain information regarding the business experience
during the past five years for each of the above-named persons.
KEVIN J. O'CONNOR has served as the Company's Chief Executive Officer and
Chairman of the Board of Directors since its inception in January 1996. From
December 1995 until January 1996, Mr. O'Connor served as Chief Executive Officer
of Internet Advertising Network ("IAN"), an Internet advertising company which
he founded. From September 1994 to December 1995, Mr. O'Connor served as
Director of Research for Digital Communications Associates, a data
communications company (now Attachmate Corporation), and from April 1992 to
September 1994, as its Chief Technical Officer and Vice President, Research.
From its inception in May 1983 until its sale in April 1992, Mr. O'Connor served
as Vice President, Research of Intercomputer Communications Corp., a software
development company. Mr. O'Connor received his B.S. in Electrical Engineering
from the University of Michigan.
KEVIN P. RYAN has served as the Company's Chief Financial Officer since June
1996 and as President since July 1997. From January 1994 to June 1996, Mr. Ryan
served as Senior Vice President, Business and Finance for United Media, a
licensing and syndication company representing comics, columnists and wire
services to over 2,000 newspapers around the world. From April 1991 to December
1993, Mr. Ryan served as Senior Manager, Finance for EuroDisney, and from August
1985 to September 1989, Mr. Ryan was an investment banker for Prudential
Investment Corporation in both the United States and the United Kingdom. Mr.
Ryan received his B.A. in Economics from Yale University and his M.B.A. from
Insead.
DWIGHT A. MERRIMAN has served as the Company's Chief Technical Officer since
February 1996, and served as its Vice President, Engineering from the Company's
inception in January 1996 until February 1996. Mr. Merriman has served as a
Director of the Company since its inception. From December 1990 until August
1995, Mr. Merriman was a software engineer for Attachmate Corporation. Mr.
Merriman received his B.S. in Systems Analysis from Miami (Ohio) University.
WENDA HARRIS MILLARD has served as the Company's Executive Vice President,
Marketing and Sales since October 1997, and served as the Company's Executive
Vice President, Marketing and
42
<PAGE>
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.
STEPHEN R. COLLINS has served as the Company's Controller since January 1997
and as Assistant Secretary since June 1997. From October 1992 to January 1997,
Mr. Collins served in a variety of financial positions for Colgate-Palmolive
Company, a consumer products company, most recently as Associate Financial
Director of Colgate-Palmolive Romania. From July 1988 to October 1992, Mr.
Collins was an auditor for Price Waterhouse LLP, a public accounting firm. Mr.
Collins received his B.S. in Accounting from the University of Alabama.
BARRY M. SALZMAN has served as the Company's Vice President, International
since February 1997. From August 1994 to January 1997, Mr. Salzman served as
President of BMS Associates, Inc., a consulting firm. From June 1993 to July
1994, Mr. Salzman served as an associate for AEA Investors, Inc., a principal
investment firm. From June 1989 to June 1993, Mr. Salzman served as an
Engagement Manager for McKinsey & Company, a management consulting firm. Mr.
Salzman received his B.S. in Business from the University of Cape Town and his
M.B.A. from Harvard University.
JOHN L. HEIDER has served as the Company's Vice President of Engineering
since March 1996. From June 1989 to March 1996, Mr. Heider served in various
engineering capacities, including Staff Engineer and Senior Engineer, for
Attachmate Corporation. Mr. Heider received his B.A. in Fine Arts from Wright
State University.
DAVID N. STROHM has served as a Director of the Company since June 1997.
Since 1980, Mr. Strohm has been an employee of Greylock Management Corporation,
a venture capital group ("Greylock"), and he is a general partner of several
venture capital funds affiliated with Greylock. Mr. Strohm currently serves as a
director of Banyan Systems, Inc., a software and computer peripherals company,
and Legato Systems, Inc., a data storage management software company. Mr. Strohm
received his B.A. from Dartmouth and his M.B.A. from Harvard University. Mr.
Strohm was named to the Board of Directors pursuant to an agreement which will
terminate upon the closing of the offering.
MARK E. NUNNELLY has served as a Director of the Company since June 1997.
Since 1990, Mr. Nunnelly has served as a Managing Director of Bain Capital, a
venture capital group. Mr. Nunnelly currently serves as a Director of Stream
International Inc., a computer software and technical support company, E-data
Systems, a digital commerce company, SR Research, a credit risk assessment
technology company, The Learning Company, an educational software company, and
Dade International, a health care company. Mr. Nunnelly received his B.A. from
Centre College and his M.B.A. from Harvard University. Mr. Nunnelly was named to
the Board of Directors pursuant to an agreement which will terminate upon the
closing of the offering.
W. GRANT GREGORY has served as a Director of the Company since its inception
in January 1996. Since 1988, Mr. Gregory has served as Chairman of Gregory &
Hoenemeyer, Inc., a merchant banking firm. In 1987, Mr. Gregory served as
Chairman of the Board of Touche Ross & Company, an accounting firm (now Deloitte
& Touche). Mr. Gregory currently serves as a director of AMBAC Financial Group,
a financial services company, HCIA Inc., a health care information company, True
North Communications, an advertising holding company ("True North"), and Inacom
Corporation, a technology management services company. Mr. Gregory received his
bachelor's degree in Business Administration from the University of Nebraska.
43
<PAGE>
DONALD PEPPERS has served as a Director of the Company since January 1998.
Since January 1992, Mr. Peppers has served as Chief Executive Officer of
Marketing 1:1, Inc., a marketing consulting firm. Mr. Peppers received his B.S.
in Astronautical Engineering from the United States Air Force Academy.
CLASSES OF DIRECTORS
Currently, all Directors hold office until the next annual meeting of
stockholders or until their successors have been duly elected and qualified.
Following the offering, the Board of Directors will be divided into three
classes, each of whose members will serve for a staggered three-year term. Upon
the expiration of the term of a class of directors, directors in such class will
be elected for three-year terms at the annual meeting of stockholders in the
year in which such term expires.
EXECUTIVE OFFICERS
Executive officers of the Company are elected by the Board of Directors on
an annual basis and serve until the next annual meeting of the Board of
Directors or until their successors have been duly elected and qualified.
BOARD COMMITTEES
The Audit Committee of the Board of Directors was established in July 1997
and reviews, acts on and reports to the Board of Directors with respect to
various auditing and accounting matters, including the selection of the
Company's auditors, the scope of the annual audits, fees to be paid to the
auditors, the performance of the Company's independent auditors and the
accounting practices of the Company.
The Compensation Committee of the Board of Directors was established in July
1997 and determines the salaries and incentive compensation of the officers of
the Company and provides recommendations for the salaries and incentive
compensation of the other employees and the consultants of the Company. The
Compensation Committee also administers the Company's various incentive
compensation, stock and benefit plans.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee consists of Messrs. Strohm, Nunnelly
and Gregory, none of whom has been an officer or employee of the Company at any
time since the Company's inception. No executive officer of the Company serves
as a member of the board of directors or compensation committee of any entity
that has one or more executive officers serving as a member of the Company's
Board of Directors or Compensation Committee. During 1996 and prior to the
formation of the Compensation Committee, the Board of Directors as a whole made
decisions relating to compensation of the Company's executive officers. Mr.
O'Connor, the Company's Chief Executive Officer, and Mr. Merriman, the Company's
Chief Technical Officer, participated in all such discussions and decisions
concerning the compensation of executive officers of the Company, except that
Messrs. O'Connor and Merriman were excluded from discussions regarding their own
compensation.
COMPENSATION OF DIRECTORS
The Company does not currently compensate its directors for attending Board
of Directors or committee meetings, but reimburses directors for their
reasonable travel expenses incurred in connection with attending meetings of the
Board of Directors or committees of the Board of Directors. Under the Company's
1997 Stock Incentive Plan, each individual who is serving as a non-employee
member of the Board of Directors on the date that the Underwriting Agreement
relating to the offering is executed will automatically receive an option grant
on that date for 5,000 shares of Common Stock. Each individual who first becomes
a non-employee member of the Board of Directors at any time thereafter will
receive
44
<PAGE>
an option to purchase 25,000 shares on the date such individual joins the Board
of Directors, provided such individual has not previously been an employee of
the Company or any parent or subsidiary corporation. In addition, on the date of
each annual stockholders' meeting beginning in 1999, each non-employee member of
the Board of Directors will automatically be granted an option to purchase 5,000
shares of Common Stock provided such individual has served on the Board of
Directors for at least six months. See "--1997 Stock Incentive Plan".
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the compensation
received by the Company's Chief Executive Officer and by the other four
executive officers of the Company whose salary exceeded $100,000 in 1997 (the
"Named Executive Officers") for services rendered in all capacities to the
Company during 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL AWARDS
COMPENSATION(2) ------------------
----------------- SHARES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION(1) SALARY OPTIONS COMPENSATION
- ---------------------------------------------------------- ----------------- ------------------ --------------
<S> <C> <C> <C>
Kevin J. O'Connor
Chief Executive Officer................................. $ 126,250 -- $ 30,000(3)
Kevin P. Ryan
President and Chief Financial Officer................... 152,500 220,000 --
Wenda Harris Millard
Executive Vice President, Marketing
and Sales............................................... 180,000 -- --
John L. Heider
Vice President of Engineering........................... 101,280 39,000 --
Barry M. Salzman
Vice President, International........................... 105,136 100,000 --
</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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<PAGE>
OPTION GRANTS IN LAST YEAR
The following table sets forth certain information regarding options granted
to the Named Executive Officers during 1997. The Company has not granted any
stock appreciation rights.
OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------------------- VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS OF STOCK APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM(3)
OPTIONS EMPLOYEES EXERCISE MARKET EXPIRATION ------------------------
NAME GRANTED(1) IN 1997(2) PRICE PRICE DATE 0% 5%
- ------------------------ ----------- --------------- ----------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Kevin J. O'Connor....... -- -- -- -- -- -- --
Kevin P. Ryan........... 220,000 21.2% $ 1.16 $ 4.00 7/31/07 $ 624,800 $ 1,178,227
Wenda Harris Millard.... -- -- -- -- -- -- --
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
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
<CAPTION>
NAME 10%
- ------------------------ ------------
<S> <C>
Kevin J. O'Connor....... --
Kevin P. Ryan........... $ 2,024,000
Wenda Harris Millard.... --
John L. Heider.......... 10,150
375,678
Barry M. Salzman........ 48,213
680,106
</TABLE>
- ------------------------
(1) Each option represents the right to purchase one share of Common Stock. The
options shown in this column are all incentive stock options granted
pursuant to the Company's stock plans. The options shown in this table
become exercisable in four equal annual installments commencing one year
after the date of grant. To the extent not already exercisable, certain of
these options may become exercisable in the event of a merger in which the
Company is not the surviving corporation or upon the sale of substantially
all of the Company's assets. See "--1997 Stock Incentive Plan".
(2) During 1997, the Company granted employees options to purchase an aggregate
of 1,038,725 shares of Common Stock.
(3) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. The 0%, 5%
and 10% assumed annual rates of compounded stock price appreciation are
mandated by rules of the Commission and do not represent the Company's
estimate or projection of the Company's future Common Stock prices. These
amounts represent certain assumed rates of appreciation in the value of the
Company's Common Stock from the fair market value on the date of grant.
Actual gains, if any, on stock option exercises are dependent on the future
performance of the Common Stock and overall stock market conditions. The
amounts reflected in the table may not necessarily be achieved.
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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 $ 2,374,574 $ 1,696,105
Kevin P. Ryan.............. 20,000 $ 100,396 -- 280,000 -- 3,376,388
Wenda Harris Millard....... 30,000 150,594 -- 90,000 -- 1,157,382
John L. Heider............. 9,000 52,853 -- 66,000 -- 764,760
Barry M. Salzman........... -- -- -- 100,000 -- 1,129,200
</TABLE>
- ------------------------
(1) There was no public trading market for the Common Stock as of December 31,
1997. Accordingly, these values have been calculated on the basis of the
assumed initial public offering price of $13.00 per share, less the
applicable exercise price per share, multiplied by the number of shares
underlying such options.
1997 STOCK INCENTIVE PLAN
The Company's 1997 Stock Incentive Plan (the "1997 Plan") is intended to
serve as the successor equity incentive program to the Company's 1996 Stock
Option Plan (the "Predecessor Plan"). The 1997 Plan was adopted by the Board on
November 7, 1997 and subsequently approved by the stockholders. The
discretionary option grant and stock issuance programs under the 1997 Plan
became effective immediately upon the Board of Directors' adoption of the Plan
(the "Plan Effective Date"). The automatic option grant program will become
effective on the date the Underwriting Agreement relating to the offering is
executed.
A total of 3,000,000 shares of Common Stock have been authorized for
issuance under the 1997 Plan. Such share reserve consists of (i) the number of
shares available for issuance under the Predecessor Plan on the Plan Effective
Date, including the shares subject to outstanding options, and (ii) an
additional 1,150,000 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 the Company, at the
exercise price or direct issue paid per share, in connection with the holder's
termination of service, those repurchased shares will be added to the reserve of
Common Stock available for issuance under the 1997 Plan. In no event, however,
may any one participant in the 1997 Plan receive option grants or direct stock
issuances for more than 375,000 shares of Common Stock in the aggregate per
calendar year.
On the Plan Effective Date, outstanding options under the Predecessor Plan
will be incorporated into the 1997 Plan, and no further option grants will be
made under the Predecessor Plan. The incorporated options will continue to be
governed by their existing terms, unless the 1997 Plan's administrator (the
"Plan Administrator") elects to extend one or more features of the 1997 Plan to
those options. 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.
47
<PAGE>
The 1997 Plan is divided into three separate components: (i) a discretionary
option grant program under which eligible individuals in the Company's employ or
service (including officers, non-employee members of the Board of Directors and
consultants) may, at the discretion of the Plan Administrator, be granted
options to purchase shares of Common Stock at an exercise price not less than
85% of the fair market value of the Common Stock on the grant date, (ii) a stock
issuance program under which such individuals may, at the Plan Administrator's
discretion, be issued shares of Common Stock directly, through the purchase of
such shares at a price not less than 100% of the fair market value at the time
of issuance or as a bonus tied to the performance of services or the attainment
of financial milestones, and (iii) an automatic option grant program under which
option grants will automatically be made at periodic intervals to eligible
non-employee members of the Board of Directors to purchase shares of Common
Stock at an exercise price equal to 100% of the fair market value of the Common
Stock on the grant date.
The discretionary option grant program and the stock issuance program will
be administered by the Compensation Committee. The Compensation Committee as
Plan Administrator will have complete discretion to determine which eligible
individuals are to receive option grants or stock issuances under those
programs, the time or times when such option grants or stock issuances are to be
made, the number of shares subject to each such grant or issuance, the status of
any granted option as either an incentive stock option or a non-statutory stock
option under the Federal tax laws, the vesting schedule to be in effect for the
option grant or stock issuance and the maximum term for which any granted option
is to remain outstanding. The automatic option grant program will be
self-executing in accordance with the terms of that program, and neither the
Compensation Committee nor the Board of Directors will exercise any
administrative discretion with respect to option grants under that program.
The exercise price for shares of Common Stock subject to option grants made
under the 1997 Plan may be paid in cash or in shares of Common Stock valued at
fair market value on the exercise date. The option may also be exercised through
a same-day sale program without any cash outlay by the optionee. In addition,
the Plan Administrator may provide financial assistance to one or more optionees
in the exercise of their outstanding options or the purchase of their unvested
shares by allowing such individuals to deliver a full-recourse, interest-bearing
promissory note in payment of the exercise or purchase price and any associated
withholding taxes incurred in connection with such exercise or purchase.
The Plan Administrator will have the authority to effect the cancellation of
outstanding options under the discretionary option grant program (including
options incorporated from the Predecessor Plan) in return for the grant of new
options for the same or different number of option shares with an exercise price
per share based upon the fair market value of the Common Stock on the new grant
date.
In the event that the Company is acquired by merger or sale of substantially
all of its assets or securities possessing more than 50% of the total combined
voting power of the Company's outstanding securities, each outstanding option
under the discretionary option grant program which is not to be assumed by the
successor corporation or is otherwise to continue in effect pursuant to the
express terms of the transaction will automatically accelerate in full, and all
unvested shares under the discretionary option grant program and stock issuance
program will immediately vest, except to the extent the Company's repurchase
rights with respect to those shares are assigned to the successor corporation or
are otherwise to continue in effect. The Plan Administrator will have complete
discretion to grant one or more options under the discretionary option grant
program which will become exercisable on an accelerated basis for all or part of
the option shares upon (i) an acquisition of the Company, whether or not those
options are assumed or continued in effect, or (ii) the termination of the
holder's service within a designated period following an acquisition in which
those options are assumed or continued in effect. The vesting of outstanding
shares under the stock issuance program may be accelerated upon similar terms
and conditions. The options incorporated from the Predecessor Plan will
terminate upon an acquisition of the Company by merger or asset sale, unless
those options are assumed by the successor
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entity. However, the Plan Administrator will have the discretion to extend the
acceleration provisions of the 1997 Plan to those options.
Under the automatic option grant program, each individual who is serving as
a non-employee member of the Board of Directors on the date the Underwriting
Agreement for the offering is executed, will automatically receive an option
grant on that date for 5,000 shares of Common Stock. Each individual who first
becomes a non-employee member of the Board of Directors at any time thereafter
will receive a 25,000-share option grant on the date such individual joins the
Board of Directors, provided such individual has not previously been an employee
of the Company or any parent or subsidiary corporation. In addition, on the date
of each annual stockholders' meeting, beginning with the annual meeting to be
held in the calendar year immediately following the execution date of the
Underwriting Agreement, each non-employee member of the Board of Directors who
is to continue to serve as non-employee member of the Board of Directors will
automatically be granted an option to purchase 5,000 shares of Common Stock,
provided such individual has served on the Board of Directors for at least six
months.
Each automatic grant for the non-employee members of the Board of Directors
will have a term of 10 years, subject to earlier termination following the
holder's cessation of Board of Directors service. Any unvested shares purchased
under the option will be subject to repurchase by the Company, at the exercise
price paid per share, should the holder cease Board of Directors service prior
to vesting in those shares. Each automatic option will be immediately
exercisable for all of the option shares. The shares subject to each
25,000-share automatic option grant will vest over a four-year period in
successive equal annual installments upon the holder's completion of each year
of Board of Directors service measured from the option grant date. Each
5,000-share automatic option grant will vest upon the holder's completion of
one-year of Board of Directors service measured from the grant date. However,
the shares subject to each automatic grant will immediately vest in full upon
certain changes in control or ownership of the Company or upon the holder's
death or disability while a member of the Board of Directors.
The Board of Directors may amend or modify the 1997 Plan at any time,
subject to any required stockholder approval. The 1997 Plan will terminate on
the earliest of (i) November 6, 2007, (ii) the date on which all shares
available for issuance under the 1997 Plan have been issued as fully-vested
shares, or (iii) the termination of all outstanding options in connection with
certain changes in control or ownership of the Company.
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CERTAIN TRANSACTIONS
At the time of the Company's formation in January 1996, the Company issued
(i) 539,000 shares of its common stock, par value $.01 per share (the "Original
Common Stock"), to Poppe Tyson, Inc., a subsidiary of Bozell, Jacobs, Kenyon &
Eckhardt, Inc. ("BJK&E") in exchange for $500,000 and certain other assets, and
(ii) 366,912 shares of Original Common Stock to Kevin J. O'Connor and Dwight A.
Merriman (the "IAN Stockholders") in exchange for certain assets distributed to
them by IAN, including $75,000 in cash. Poppe Tyson subsequently distributed its
shares to BJK&E.
On August 28, 1996, the Company amended its Certificate of Incorporation to
provide for four classes of common stock consisting of Original Common Stock,
Class A common stock (the "Class A Stock"), class B non-voting common stock (the
"Class B Stock") and class C common stock (the "Class C Stock"). At such time,
all outstanding shares of Original Common Stock were converted into an equal
number of shares of Class A Stock.
On May 14, 1997, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with DoubleClick Acquisition Corp. ("Newco"), BJK&E,
all holders of the Company's capital stock, and Bain Capital Fund V, L.P., Bain
Capital Fund V-B, L.P., BCIP Associates, BCIP Trust Associates, L.P., Brookside
Capital Partners Fund, L.P., Greylock Equity Limited Partnership, Greylock IX
Limited Partnership and ABS Capital Partners II, L.P. (collectively, the
"Initial Investors"). Canaan S.B.I.C., L.P., Canaan Equity, L.P., Canaan Capital
Limited Partnership, Canaan Offshore Limited Partnership, Venrock Associates and
Venrock Associates II, L.P. (collectively, the "Additional Investors")
subsequently joined as parties to the Merger Agreement. Immediately prior to the
Merger, the Initial Investors and the Additional Investors held all of the
36,667 shares of Newco common stock, par value $.001 per share (the "Newco
Common Stock"), and Newco had assets of $36,667,000 in cash. In the Merger, each
share of Newco Common Stock was converted into one share of the Company's
Convertible Preferred Stock.
Immediately prior to the closing of the Merger, the Company delivered to
BJK&E $1,385,832 and a convertible promissory note in the principal amount of
$5,000,000 in partial satisfaction of all working capital advances made by BJK&E
to the Company. On December 30, 1997, BJK&E converted the Convertible 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, the Company undertook a
recapitalization whereby each share of Class A Stock was converted into one
share of the Company's Common Stock, each share of Class B Stock was converted
into 0.28 shares of the Company's Common Stock plus cash in lieu of fractional
shares equal to $4.64 per share, and each share of Class C Stock was converted
into 0.28 shares of the Company's Common Stock plus cash in lieu of fractional
shares equal to $4.64 per share.
On June 10, 1997, WPG Enterprise Fund III, L.P., Weiss, Peck & Greer Venture
Associates IV, L.P. and Weiss, Peck & Greer Venture Associates IV Cayman, L.P.
purchased from the Company an aggregate of 3,333 shares of the Company's
Convertible Preferred Stock in consideration for $3,333,000.
For information regarding the grant of stock options to executive officers
and directors, see "Management -- Compensation of Directors", "-- Executive
Compensation", "-- Stock Plans" and "Principal Stockholders".
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of December 31, 1997 by (i) each
person (or group of affiliated persons) who is known by the Company to
beneficially own four percent or more of the Common Stock, (ii) each director
and Named Executive Officer of the Company, and (iii) all directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
PERCENT OF OWNERSHIP
----------------------------
VOTING SHARES PRIOR TO THE AFTER THE
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OFFERING OFFERING
- ----------------------------------------------------------------- --------------------- --------------- -----------
<S> <C> <C> <C>
Kevin J. O'Connor(2)............................................. 2,654,248 21.2% 17.7%
Bain Capital, Inc.(3)............................................ 2,182,060 17.7 14.7
Voting Trustee Committee(4)...................................... 1,493,854 12.1 10.1
Greylock Management Corp.(5)..................................... 1,246,884 10.1 8.4
David N. Strohm(6)............................................... 1,246,884 10.1 8.4
ABS Capital Partners II, L.P.(7)................................. 1,246,883 10.1 8.4
Dwight A. Merriman(8)............................................ 1,219,692 9.8 8.2
Bozell, Jacobs, Kenyon & Eckhardt, Inc.(9)....................... 779,302 6.3 5.2
Mark E. Nunnelly(10)............................................. 554,552 4.5 3.7
Canaan Partners(11).............................................. 519,640 4.2 3.5
Weiss, Peck & Greer, L.L.C.(12).................................. 519,484 4.2 3.5
Venrock Associates(13)........................................... 519,483 4.2 3.5
W. Grant Gregory(14)............................................. 494,949 4.0 3.3
Wenda Harris Millard(15)......................................... 30,000 * *
Kevin P. Ryan(16)................................................ 20,000 * *
John L. Heider(17)............................................... 9,000 * *
Barry M. Salzman(18)............................................. -- * *
Donald Peppers(19)............................................... -- * *
All directors and executive officers as a group (11
persons)(20)................................................... 6,229,325 49.4 41.2
</TABLE>
- ------------------------
* Less than one percent.
(1) Gives effect to the shares of Common Stock issuable within 60 days of
December 31, 1997 upon the exercise of all options and other rights
beneficially owned by the indicated stockholders on that date. Beneficial
ownership is determined in accordance with the rules of the Commission and
includes voting and investment power with respect to shares. Unless
otherwise indicated, the persons named in the table have sole voting and
sole investment control with respect to all shares beneficially owned.
(2) Includes (i) 184,648 shares of Common Stock issuable upon the exercise of
stock options and (ii) 3,920 shares of Common Stock held by Nancy O'Connor,
Mr. O'Connor's wife. Does not include 131,892 shares of Common Stock
issuable upon exercise of stock options that do not vest within 60 days of
December 31, 1997.
(3) 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 BCIP Associates, (iv) 286,004 shares of
Common Stock held by BCIP Trust Associates, LP, (v) 225,998 shares of Common
Stock
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<PAGE>
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.
(4) The Voting Trustee Committee (the "Trust") was established pursuant to the
Voting Trust Agreement, dated as of June 4, 1997, by and between the Company
and certain stockholders of the Company. The shares of Common Stock held of
record by the Trust are beneficially owned by approximately 180 individuals
and entities. The address of the Trust is c/o Bozell, Jacobs, Kenyon &
Eckhardt, Inc., 40 West 23rd Street, New York, New York 10010.
(5) Consists of (i) 623,442 shares of Common Stock held by Greylock Equity
Limited Partnership and (ii) 623,442 shares of Common Stock held by Greylock
IX Limited Partnership. The address of the entities associated with Greylock
Management Corp. is One Federal Street, Boston, Massachusetts 02110.
(6) Consists of 1,246,884 shares of Common Stock held by several entities
associated with Greylock Management Corp., of which Mr. Strohm is an
employee. Mr. Strohm disclaims beneficial ownership of such shares except to
the extent of his pecuniary interest therein.
(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 82,892 shares of Common Stock issuable upon the exercise of stock
options. Does not include 59,209 shares of Common Stock issuable upon the
exercise of stock options that do not vest within 60 days of December 31,
1997.
(9) The address of BJK&E is 40 West 23rd Street, New York, New York 10010. Mr.
W. Grant Gregory, a director of the Company, is also a director of True
North, of which BJK&E is a subsidiary. See "Certain Transactions".
(10) Consists of 268,548 shares of Common Stock held by BCIP Associates, a
Delaware limited partnership, and 286,004 shares of Common Stock held by
BCIP Trust Associates, LP, a Delaware limited partnership. Mr. Nunnelly
disclaims beneficial ownership of such shares except to the extent of his
pecuniary interest therein.
(11) Consists of (i) 246,883 shares of Common Stock held by Canaan, S.B.I.C.,
L.P., (ii) 259,820 shares of Common Stock held by Canaan Equity, L.P., (iii)
1,403 shares of Common Stock held by Canaan Capital Limited Partnership, and
(iv) 11,534 shares of Common Stock held by Canaan Capital Offshore Limited
Partnership, C.V. The address of the entities associated with Canaan
Partners is 2884 Sand Hill Road, Menlo Park, California 94025.
(12) Consists of (i) 230,362 shares of Common Stock held by WPG Enterprise Fund
III, L.P., (ii) 255,923 shares of Common Stock held by Weiss, Peck & Greer
Venture Associates IV, L.P., and (iii) 33,199 shares of Common Stock held by
Weiss, Peck & Greer Venture Associates IV Cayman, L.P. The address of the
entities associated with Weiss, Peck & Greer, L.L.C. is 555 California
Street, San Francisco, California 94104.
(13) Consists of (i) 223,348 shares of Common Stock held by Venrock Associates
and (ii) 296,135 shares of Common Stock held by Venrock Associates II, L.P.
The address of the entities associated with Venrock Associates is 755 Page
Mill Road, Suite A230, Palo Alto, California, 94304.
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<PAGE>
(14) Includes 493,796 shares of Common Stock beneficially owned by DC Investment
Corp, LLC, a Delaware limited liability company, of which Mr. Gregory is the
Manager. Mr. Gregory is a director of True North, of which BJK&E is a
subsidiary, and disclaims beneficial ownership of the 779,302 shares of
Common Stock issued to BJK&E upon conversion of the Convertible Note. See
"Certain Transactions."
(15) Does not include 90,000 shares of Common Stock issuable upon the exercise
of stock options that do not vest within 60 days of December 31, 1997.
(16) Does not include 280,000 shares of Common Stock issuable upon the exercise
of stock options that do not vest within 60 days of December 31, 1997.
(17) Does not include 66,000 shares of Common Stock issuable upon the exercise
of stock options that do not vest within 60 days of December 31, 1997.
(18) Does not include 100,000 shares of Common Stock issuable upon the exercise
of stock options that do not vest within 60 days of December 31, 1997.
(19) Does not include 25,000 shares of Common Stock issuable upon the exercise
of stock options that do not vest within 60 days of December 31, 1997.
(20) Includes 267,540 shares of Common Stock issuable upon the exercise of stock
options that vest within 60 days of December 31, 1997. See notes 2 through
19.
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<PAGE>
DESCRIPTION OF SECURITIES
The following description of the securities of the Company and certain
provisions of the Company'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 the Company's Registration Statement, of which this Prospectus
forms a part. The descriptions of the Common Stock and Preferred Stock reflect
changes to the Company's capital structure that will occur upon the receipt of
the requisite stockholder approval and upon the closing of the offering in
accordance with the terms of the Certificate.
The authorized capital stock of the Company consists of 60,000,000 shares of
Common Stock, par value $.001 per share, and 5,000,000 shares of Preferred
Stock, par value $.001 per share.
COMMON STOCK
As of December 31, 1997, there were 12,353,406 shares of Common Stock
outstanding and held of record by 54 stockholders. Based upon the number of
shares outstanding as of that date and giving effect to the issuance of the
2,500,000 shares of Common Stock offered by the Company hereby, there will be
14,853,406 shares of Common Stock outstanding upon the closing of the offering.
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights of
any outstanding Preferred Stock. Upon the liquidation, dissolution or winding up
of the Company, the holders of Common Stock are entitled to receive ratably the
net assets of the Company available after the payment of all debts and other
liabilities and subject to the prior rights of any outstanding Preferred Stock.
Holders of the Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
offered by the Company in the offering will be, when issued in consideration for
payment thereof, fully paid and nonassessable. The rights, preferences and
privileges of holders of Common Stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any series of Preferred
Stock which the Company may designate and issue in the future. Upon the closing
of the offering, there will be no shares of Preferred Stock outstanding.
PREFERRED STOCK
Upon the closing of the offering, the Board of Directors will be authorized,
without further stockholder approval, to issue from time to time up to an
aggregate of 5,000,000 shares of Preferred Stock in one or more series and to
fix or alter the designations, preferences, rights and any qualifications,
limitations or restrictions of the shares of each such series thereof, including
the dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption (including sinking fund provisions), redemption price or prices,
liquidation preferences and the number of shares constituting any series or
designations of such series. The Company has no present plans to issue any
shares of Preferred Stock. See " -- Anti-Takeover Effects of Certain Provisions
of Delaware Law and the Company's Certificate of Incorporation and Bylaws".
OPTIONS
As of December 31, 1997, options to purchase a total of 2,020,167 shares
("Option Shares") of Common Stock were outstanding, approximately 1,192,556 of
which are subject to lock-up agreements entered into with the Underwriters.
Beginning 90 days after the date of this Prospectus, approximately
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<PAGE>
827,611 Option Shares which are not subject to lock-up agreements will be
eligible for sale in reliance on Rule 701 promulgated under the Securities Act.
The total number of shares of Common Stock that may be subject to the granting
of options under the 1997 Plan shall be equal to: (i) 3,000,000 shares, plus
(ii) the number of shares with respect to options previously granted under the
1997 Plan that terminate without being exercised, expire, are forfeited or
canceled, (iii) an amount equal to, on the first trading day of each year, three
percent (3%) of the total number of shares of Common Stock outstanding on the
last trading day of the immediately preceding calendar year, and (iv) the number
of shares of Common Stock that are surrendered in payment of any options or any
tax withholding requirements. See "Management -- 1997 Stock Incentive Plan" and
"Shares Eligible for Future Sale".
REGISTRATION RIGHTS
Pursuant to the terms of the Stockholders Agreement, after the closing of
the offering the holders of 6,234,434 shares of Common Stock will be entitled to
certain demand registration rights with respect to the registration of such
shares under the Securities Act. The holders of 50% or more of such shares are
entitled to demand that the Company register their shares under the Securities
Act, subject to certain limitations. The Company is not required to effect more
than two such registrations pursuant to such demand registration rights and not
more than one in any 12 month period. In addition, pursuant to the terms of the
Stockholders Agreement, after the closing of the offering the holders of
12,332,607 shares of Common Stock will be entitled to certain piggyback
registration rights with respect to the registration of such shares of Common
Stock under the Securities Act. In addition, pursuant to the terms of the
Stockholders Agreement, the holders of 2,020,167 Option Shares will be entitled
to certain piggyback registration rights with respect to the registration of
such shares under the Securities Act. In the event that the Company proposes to
register any shares of Common Stock under the Securities Act, either for its
account or for the account of other security holders, the holders shares having
piggyback rights are entitled to receive notice of such registration and are
entitled to include their shares therein, subject to certain limitations.
Further, at any time after the Company becomes eligible to file a registration
statement on Form S-3 certain holders may require the Company to file
registration statements under the Securities Act on Form S-3 with respect to
their shares of Common Stock. These registration rights are subject to certain
conditions and limitations, among them the right of the underwriters of an
offering to limit the number of shares of Common Stock held by security holders
with registration rights to be included in such registration. The Company is
generally required to bear all of the expenses of all such registrations, except
underwriting discounts and commissions. Registration of any of the shares of
Common Stock held by security holders with registration rights would result in
such shares becoming freely tradable without restriction under the Securities
Act immediately upon effectiveness of such registration.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF DELAWARE LAW AND THE COMPANY'S
CERTIFICATE OF INCORPORATION AND BYLAWS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (as amended from time to time, the "DGCL"). Subject to
certain exceptions, Section 203 prohibits a publicly-held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the interested stockholder attained
such status with the approval of the board of directors or unless the business
combination is approved in a prescribed manner. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested stockholder. Subject to certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, fifteen percent (15%) or more
of the corporation's voting stock. This statute could prohibit or delay the
accomplishment of mergers or other takeover or change in control attempts with
respect to the Company and, accordingly, may discourage attempts to acquire the
Company.
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<PAGE>
In addition, certain provisions of the Certificate and Bylaws, which
provisions will be in effect upon the closing of the offering and are summarized
in the following paragraphs, may be deemed to have an anti-takeover effect and
may delay, defer or prevent a tender offer or takeover attempt that a
stockholder might consider in its best interest, including those attempts that
might result in a premium over the market price for the shares held by
stockholders.
CLASSIFIED BOARD OF DIRECTORS. The Company's Board of Directors will be
divided into three classes of directors serving staggered three-year terms. As a
result, approximately one-third of the Board of Directors will be elected each
year. These provisions, when coupled with the provision of the Certificate
authorizing the Board of Directors to fill vacant directorships or increase the
size of the Board of Directors, may deter a stockholder from removing incumbent
directors and simultaneously gaining control of the Board of Directors by
filling the vacancies created by such removal with its own nominees.
STOCKHOLDER ACTION; SPECIAL MEETING OF STOCKHOLDERS. The Certificate
provides that stockholders may not take action by written consent, but only at
duly called annual or special meetings of stockholders. The Certificate further
provides that special meetings of stockholders of the Company may be called only
by the Chairman of the Board of Directors or a majority of the Board of
Directors.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. The Bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for election
as directors at an annual meeting of stockholders, must provide timely notice
thereof in writing. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Company, not less
than 120 days nor more than 150 days prior to the first anniversary of the date
of the Company's notice of annual meeting provided with respect to the previous
year's annual meeting of stockholders; provided, that if no annual meeting of
stockholders was held in the previous year or the date of the annual meeting of
stockholders has been changed to be more than 30 calendar 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 nor later than the later of
(i) 60 days prior to the annual meeting of stockholders or (ii) the close of
business on the 10th day following the date on which notice of the date of the
meeting is given to stockholders or made public, whichever first occurs. The
Bylaws also specify certain requirements as to the form and content of a
stockholder's notice. These provisions may preclude stockholders from bringing
matters before an annual meeting of stockholders or from making nominations for
directors at an annual meeting of stockholders.
AUTHORIZED BUT UNISSUED SHARES. The authorized but unissued shares of
Common Stock and Preferred Stock are available for future issuance without
stockholder approval. These additional shares may be utilized for a variety of
corporate purposes, including future public offerings to raise additional
capital, corporate acquisitions and employee benefit plans. The existence of
authorized but unissued shares of Common Stock and Preferred Stock could render
more difficult or discourage an attempt to obtain control of the Company by
means of a proxy contest, tender offer, merger or otherwise.
The DGCL provides generally that the affirmative vote of a majority of the
shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or bylaws, unless a corporation's certificate of
incorporation or bylaws, as the case may be, requires a greater percentage.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Certificate provides that, except to the extent prohibited by DGCL, the
Company's directors shall not be personally liable to the Company or its
stockholders for monetary damages for any breach of fiduciary duty as directors
of the Company. Under the DGCL, the directors have a fiduciary duty to the
Company which is not eliminated by this provision of the Certificate and, in
appropriate circumstances, equitable remedies such as injunctive or other forms
of nonmonetary relief will remain available. In
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<PAGE>
addition, each director will continue to be subject to liability under the DGCL
for breach of the director's duty of loyalty to the Company, for acts or
omissions which are found by a court of competent jurisdiction to be not in good
faith or which involves intentional misconduct, or knowing violations of law,
for actions leading to improper personal benefit to the director, and for
payment of dividends or approval of stock repurchases or redemptions that are
prohibited by DGCL. This provision also does not affect the directors'
responsibilities under any other laws, such as the Federal securities laws or
state or Federal environmental laws. The Company has obtained liability
insurance for its officers and directors.
Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers, provided that this provision
shall not eliminate or limit the liability of a director: (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) arising under Section 174 of the DGCL, or (iv)
for any transaction from which the director derived an improper personal
benefit. The DGCL provides further that the indemnification permitted thereunder
shall not be deemed exclusive of any other rights to which the directors and
officers may be entitled under the corporation's bylaws, any agreement, a vote
of stockholders or otherwise. The Certificate eliminates the personal liability
of directors to the fullest extent permitted by Section 102(b)(7) of the DGCL
and provides that the Company shall fully indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding (whether civil, criminal, administrative or
investigative) by reason of the fact that such person is or was a director or
officer of the Company, or is or was serving at the request of the Company as a
director or officer of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under the Certificate. The Company is not aware of any
threatened litigation or proceeding that may result in a claim for such
indemnification.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer and Trust Company, New York, New York.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of the offering, the Company will have an aggregate of
14,853,406 shares of Common Stock outstanding, assuming no exercise of the
Underwriters' over-allotment option and no exercise of outstanding options to
purchase Common Stock. Of these shares, the 2,500,000 shares sold in the
offering will be freely tradable without restriction or further registration
under the Securities Act, except that any shares held by "affiliates" of the
Company, as that term is defined in Rule 144 promulgated under the Securities
Act, may generally only be sold in compliance with the limitations described
below.
The remaining 12,353,406 shares of Common Stock will be deemed "restricted
securities" as defined under Rule 144. Restricted securities may be sold in the
public market only if registered or if they qualify for an exemption from
registration under Rules 144, 144(k) or 701 promulgated under the Securities
Act, which rules are summarized below. Subject to the lock-up agreements
described below and the provisions of Rules 144, 144(k) and 701, additional
shares will be available for sale in the public market (subject in the case of
shares held by affiliates to compliance with certain volume restrictions) as
follows: (i) 30,791 shares will be eligible for sale 90 to 180 days after the
date of this Prospectus, and (ii) 12,332,607 shares will be eligible for sale
upon the expiration of lock-up agreements 180 days after the date of this
Prospectus. In addition, there are outstanding options to purchase 2,020,167
shares of Common Stock of which will be eligible for sale in the public market
from time to time subject to vesting and, in the case of certain options, to the
expiration of lock-up agreements.
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 148,534 shares immediately after the offering) or (ii) the
average weekly trading volume in the Common Stock during the four calendar weeks
preceding the date on which notice of such sale is filed, subject to certain
restrictions. In addition, a person who is not deemed to have been an affiliate
of the Company at any time during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years would
be entitled to sell such shares under Rule 144(k) without regard to the
requirements described above. To the extent that shares were acquired from an
affiliate of the Company, such affiliates' holding period for the purpose of
effecting a sale under Rule 144 commences on the date of transfer from the
affiliate.
Rule 701 promulgated under the Securities Act provides that shares of Common
Stock acquired pursuant to written plans such as the 1997 Plan may be resold by
persons other than affiliates, beginning 90 days after the date of this
Prospectus, subject only to the manner of sale provisions of Rule 144, and by
affiliates, beginning 90 days after the date of this Prospectus, subject to all
provisions of Rule 144 except its one-year minimum holding period.
After the date of this Prospectus, the Company intends to file a Form S-8
registration statement under the Securities Act to register all shares of Common
Stock issuable under the Stock Plans. Such registration statement is expected to
become effective immediately upon filing, and shares covered by that
registration statement will thereupon be eligible for sale in the public
markets, subject to certain lock-up agreements and Rule 144 limitations
applicable to affiliates. See "Management--Compensation of Directors" and
"--1997 Stock Incentive Plan".
Prior to the offering, there has not been any public market for the Common
Stock of the Company, and no prediction can be made as to the effect, if any,
that market sales of shares of Common Stock or the availability of shares for
sale will have on the market price of the Common Stock prevailing from time to
time. Nevertheless, sales of substantial amounts of Common Stock in the public
market could adversely affect the market price of the Common Stock and could
impair the Company's future ability to raise capital through the sale of its
equity securities.
58
<PAGE>
All directors and officers and certain stockholders of the Company (holding
an aggregate of approximately 12,322,607 shares of Common Stock) have agreed
that they will not, without the prior written consent of the representatives of
the Underwriters, sell or otherwise dispose of any shares of Common Stock or
options to acquire shares of Common Stock during the 180-day period following
the date of this Prospectus. See "Underwriting".
The Company has agreed not to sell or otherwise dispose of any shares of
Common Stock during the 180-day period following the date of the Prospectus,
except the Company may issue, and grant options to purchase, shares of Common
Stock under the Stock Plans. In addition, the Company may issue shares of Common
Stock in connection with any acquisition of another company if the terms of such
issuance provide that such Common Stock shall not be resold prior to the
expiration of the 180-day period referenced in the preceding sentence. See "Risk
Factors--Shares Eligible for Future Sale".
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Brobeck, Phleger & Harrison LLP, New York, New York. Certain legal
matters in connection with the offering will be passed upon for the Underwriters
by Hale and Dorr LLP, Boston, Massachusetts.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1996
and 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 Price Waterhouse LLP, the
Company's independent accountants, given on the authority of such firm as
experts in auditing and accounting.
CHANGE IN ACCOUNTANTS
On July 24, 1997, the Company dismissed KPMG Peat Marwick LLP and engaged
Price Waterhouse LLP as its independent accountants to audit its financial
statements as of, and for the period ended, December 31, 1996. The decision to
change independent accountants from KPMG Peat Marwick LLP to Price Waterhouse
LLP was approved by the Company's Board of Directors.
The Company believes, and has been advised by KPMG Peat Marwick LLP that it
concurs in such belief, that, for the period from January 23, 1996 (inception)
through December 31, 1996 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.
59
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission a registration statement on Form
S-1 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the offer and sale of
Common Stock pursuant to the Prospectus. This Prospectus, filed as part of the
Registration Statement, does not contain all the information set forth in the
Registration Statement or the exhibits thereto in accordance with the rules and
regulations of the Commission, and reference is hereby made to such omitted
information. Statements made in this Prospectus concerning the contents of any
contract, agreement or other document filed as an exhibit to the Registration
Statement are summaries of the terms of such contracts, agreements or documents
and are not necessarily complete. Reference is made to each such exhibit for a
more complete description of the matters involved, and such statements shall be
deemed qualified by such reference. The Registration Statement and the exhibits
thereto filed with the Commission may be inspected, without charge, and copies
may be obtained at prescribed rates, at the public reference facility maintained
by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549 and at the regional offices of the Commission located at 7 World Trade
Center, 13th Floor, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. The Registration Statement and other
information filed by the Company with the Commission also are available at the
Web site maintained by the Commission on the World Wide Web at
http://www.sec.gov. For further information pertaining to the Company and the
Common Stock offered by this Prospectus, reference is hereby made to the
Registration Statement.
60
<PAGE>
DOUBLECLICK INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Price Waterhouse LLP, Independent Accountants.............................. F-2
Consolidated Balance Sheet as of December 31, 1996 and 1997.......................... F-3
Consolidated Statement of Operations for the period from January 23, 1996 (inception)
to December 31, 1996 and for the year ended December 31, 1997...................... F-4
Consolidated Statement of Changes in Stockholders' (Deficit) Equity for the period
from January 23, 1996 (inception) to December 31, 1996 and for the year ended
December 31, 1997.................................................................. F-5
Consolidated Statement of Cash Flows for the period from January 23, 1996 (inception)
to December 31, 1996 and for the year ended December 31, 1997...................... 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/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
NEW YORK, NEW YORK
JANUARY 22, 1998
F-2
<PAGE>
DOUBLECLICK INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
-------------- -------------- PRO FORMA
CONVERSION OF
CONVERTIBLE
PREFERRED STOCK
(NOTE 1)
DECEMBER 31,
1997
--------------------
(UNAUDITED)
<S> <C> <C> <C>
<CAPTION>
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................................. $ -- $ 2,671,845
Short-term investments..................................... -- 5,874,229
Accounts receivable, less allowance for doubtful accounts
of $150,000 at December 31, 1996 and $712,075 at December
31, 1997................................................. 4,078,837 10,489,256
Prepaid expenses and other current assets.................. -- 355,841
-------------- --------------
Total current assets................................... 4,078,837 19,391,171
Property and equipment, net................................ 445,794 1,997,326
Investments, at cost....................................... -- 254,926
Other assets............................................... 900 98,574
-------------- --------------
Total assets........................................... $ 4,525,531 $ 21,741,997
-------------- --------------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable........................................... $ 1,948,714 $ 8,142,429
Accrued expenses........................................... 1,097,418 3,408,542
Deferred revenues.......................................... 733,433 91,061
Deferred license and service fees.......................... -- 237,500
Due to related party....................................... 3,337,736 --
-------------- --------------
Total current liabilities.............................. 7,117,301 11,879,532
Deferred license and service fees.......................... -- 462,500
STOCKHOLDERS' (DEFICIT) EQUITY:
Convertible preferred stock, par value $.001; 40,000 shares
authorized; issued and outstanding; 40,000 at December
31, 1997; none pro forma................................. -- 40 $ --
Common stock, par value $.001; 40,000,000 shares
authorized; issued and outstanding 9,059,120 shares at
December 31, 1996; 6,118,972 at December 31, 1997;
12,353,406 pro forma..................................... 9,059 6,119 12,353
Additional paid-in capital................................. 590,941 46,996,328 46,990,134
Cumulative translation adjustment.......................... -- (1,271) (1,271)
Deferred compensation...................................... -- (1,056,773) (1,056,773)
Accumulated deficit........................................ (3,191,770) (36,544,478) (36,544,478)
-------------- -------------- --------------------
Total stockholders' (deficit) equity................... (2,591,770) 9,399,965 $ 9,399,965
-------------- -------------- --------------------
--------------------
Commitments (Note 8)
Total liabilities and stockholders' (deficit) equity... $ 4,525,531 $ 21,741,997
-------------- --------------
-------------- --------------
</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
DECEMBER 31, DECEMBER 31,
1996 1997
-------------------- --------------
<S> <C> <C>
Revenues.................................................................... $ 6,514,087 30,597,031
Cost of revenues............................................................ 3,780,133 20,627,724
-------------------- --------------
Gross profit.............................................................. 2,733,954 9,969,307
-------------------- --------------
Operating expenses
Sales and marketing....................................................... 3,079,305 10,710,418
General and administrative................................................ 2,144,312 6,325,666
Product development....................................................... 618,251 1,398,313
-------------------- --------------
Total operating expenses................................................ 5,841,868 18,434,397
-------------------- --------------
Loss from operations........................................................ (3,107,914) (8,465,090)
Interest income............................................................. 7,234 449,618
Interest expense............................................................ (91,090) (340,789)
-------------------- --------------
Net loss.................................................................... $ (3,191,770) $ (8,356,261)
-------------------- --------------
-------------------- --------------
Pro forma basic and diluted net loss per share.............................. $ (0.24) $ (0.56)
-------------------- --------------
-------------------- --------------
Pro forma weighted average shares used in basic and diluted net loss per
share calculation......................................................... 13,457,048 14,843,574
-------------------- --------------
-------------------- --------------
</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 COMMON STOCK
----------------------- ------------------------ ------------------------ -----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ----------- ----------- ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capitalization at
inception.............. 9,059,120 $ 9,059
Exchange of Class A
shares for Class B and
Class C shares......... (5,118,230) (5,118) 5,118,228 $ 5,117 2 $ 1
Net loss.................
---------- ----------- ----------- ----------- ----- ----- ---------- -----------
Balance at December 31,
1996................... 3,940,890 3,941 5,118,228 5,117 2 1 -- $ --
Class A shares issued
upon excercise of stock
options................ 28,750 29
Issuance of Convertible
Preferred Stock, net of
issuance costs of
$168,006...............
Exchange of Class A
shares for Class B
shares................. (271,770) (272) 271,770 272
Exchange of Class A, B
and C shares for
Common shares.......... (3,697,870) (3,698) (1,493,861) (1,494) (1) 5,191,732 5,192
Class B and C shares
redeemed............... (3,896,137) (3,895) (1) (1)
Common shares issued for
stock options.......... 147,938 148
Deferred compensation....
Amortization of deferred
compensation...........
Issuance of Common Stock
upon conversion of
convertible note
payable to related
party.................. 779,302 779
Cumulative foreign
currency translation...
Net loss.................
---------- ----------- ----------- ----------- ----- ----- ---------- -----------
Balance at December 31,
1997................... -- $ -- -- $ -- -- $ -- 6,118,972 $ 6,119
---------- ----------- ----------- ----------- ----- ----- ---------- -----------
---------- ----------- ----------- ----------- ----- ----- ---------- -----------
<CAPTION>
CONVERTIBLE TOTAL
PREFERRED STOCK ADDITIONAL CUMULATIVE STOCKHOLDERS'
------------------------ PAID-IN DEFERRED ACCUMULATED TRANSLATION (DEFICIT)
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT ADJUSTMENT EQUITY
--------- ------------- -------------- -------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Capitalization at
inception.............. $ 590,941 $ 600,000
Exchange of Class A
shares for Class B and
Class C shares.........
Net loss................. $(3,191,770) (3,191,770)
--------- --- -------------- -------------- ------------- ------------- ---------------
Balance at December 31,
1996................... -- $ -- 590,941 $ -- (3,191,770) $ -- (2,591,770)
Class A shares issued
upon excercise of stock
options................ 3,637 3,666
Issuance of Convertible
Preferred Stock, net of
issuance costs of
$168,006............... 40,000 $ 40 39,831,954 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.......... 23,503 23,651
Deferred compensation.... 1,547,072 (1,547,072) --
Amortization of deferred
compensation........... 490,299 490,299
Issuance of Common Stock
upon conversion of
convertible note
payable to related
party.................. 4,999,221 5,000,000
Cumulative foreign
currency translation... (1,271) (1,271)
Net loss................. $(8,356,261) (8,356,261)
--------- --- -------------- -------------- ------------- ------------- ---------------
Balance at December 31,
1997................... 40,000 $ 40 $ 46,996,328 $ (1,056,773) $(36,544,478) $ (1,271) $ 9,399,965
--------- --- -------------- -------------- ------------- ------------- ---------------
--------- --- -------------- -------------- ------------- ------------- ---------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
DOUBLECLICK INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 23, 1996 YEAR
(INCEPTION) THROUGH ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
-------------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................................. $ (3,191,770) $ (8,356,261)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization......................................... 45,932 388,815
Amortization of deferred compensation expense......................... -- 490,299
Provision for bad debts............................................... 150,000 562,075
Changes in operating assets and liabilities:
Accounts receivable................................................. (4,228,837) (6,972,494)
Prepaid expenses and other current assets........................... (900) (453,515)
Accounts payable.................................................... 1,948,714 6,193,715
Accrued expenses.................................................... 1,097,418 2,311,124
Deferred revenues................................................... 733,433 57,628
-------------------- --------------
Net cash used in operating activities............................. (3,446,010) (5,778,614)
-------------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments....................................... -- (5,874,229)
Purchases of property and equipment....................................... (491,726) (1,940,347)
Investments............................................................... -- (254,926)
-------------------- --------------
Net cash used in investing activities............................. (491,726) (8,069,502)
-------------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock.................................... 600,000 --
Proceeds from exercise of common stock options............................ -- 27,317
Proceeds from issuance of preferred stock, net............................ -- 39,831,994
Redemption of common stock................................................ -- (25,000,343)
Advances from related party............................................... 3,337,736 3,048,096
Repayment of advances to related party.................................... -- (1,385,832)
-------------------- --------------
Net cash provided by financing activities......................... 3,937,736 16,521,232
-------------------- --------------
Effect of cumulative translation adjustment................................. -- (1,271)
-------------------- --------------
Net increase in cash and cash equivalents................................... -- 2,671,845
Cash and cash equivalents at beginning of period............................ -- --
-------------------- --------------
Cash and cash equivalents at end of period.................................. $ -- $ 2,671,845
-------------------- --------------
-------------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
SUMMARY OF OPERATIONS
DoubleClick Inc. (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, DoubleClick Canada Network Inc., DoubleClick
Europe Limited and DoubleClick Australia Pty Limited. 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.
PRO FORMA CONVERSION OF PREFERRED STOCK (UNAUDITED)
On November 7, 1997, the Board of Directors of the Company authorized
management to pursue an initial public offering of the Company's common stock.
Upon closing of the Company's proposed initial public offering, the Company's
Convertible Preferred Stock will automatically convert into 6,234,434 shares of
Common Stock. The pro forma effect of the conversion of the Convertible
Preferred Stock on stockholders' equity has been presented as a separate column
in the Company's consolidated balance sheet assuming the conversion had occurred
on December 31, 1997.
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.
F-7
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
F-8
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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"),
as amended on January 7, 1998, with Digital Equipment Corporation to deliver
advertising to users of the AltaVista Web site. Under the terms of the amended
Agreement, the Company is the exclusive representative for the delivery of
advertisements on certain pages within the AltaVista Web site, subject to
certain exceptions. The amended Agreement terminates in December 1999 and either
party may terminate the Agreement, after July 1998, upon 90 days' prior written
notice. AltaVista is a significant part of the Network and is expected to
account for a significant portion of the Company revenues for the next few
years. The loss of AltaVista as part of the Network, any reduction in traffic on
the AltaVista Web site, or a termination of AltaVista's contract with the
Company, would have a material adverse effect on the Company's business, results
of operations and financial condition. In addition, given the short-term nature
of the AltaVista contract, as is the case with most of the Company's advertiser
and Web publisher contracts, the Company will have to negotiate new contracts or
renewals which may have terms that are not as favorable to the Company as the
existing contracts, which could have a material adverse effect on the Company's
business, results of operations and financial condition. Net revenues derived
from advertising impressions delivered to users of the AltaVista Web site
represented 0% and 44.7% of the Company's total revenues for the periods ended
December 31, 1996 and 1997, respectively. No other Web site on the Network was
responsible for 10% or more of the Company's total revenues during the periods
presented in the consolidated statement of operations.
F-9
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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>
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 year-end rates of exchange for assets and
liabilities and average rates during the year 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
F-10
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
employee stock grants made in 1996 and future years as if the fair-value-based
method of accounting in SFAS No. 123 had been applied to these transactions.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the amount by which the carrying amount of the assets exceeds
the fair value of the assets.
PRO FORMA NET LOSS PER SHARE
Pro-forma 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 and the shares
resulting from the assumed conversion of all outstanding shares of Convertible
Preferred Stock. Pro forma diluted net loss per share is computed by dividing
the net loss by the sum of the weighted average number of shares of common stock
and common stock equivalents outstanding during each period and the shares
resulting from the assumed conversion of all outstanding shares of Convertible
Preferred Stock. Common stock equivalents include all stock options that would
have a dilutive effect, applying the treasury stock method. Common and common
equivalent shares issued during the twelve months preceding the initial filing
of the registration statement for the Company's initial public offering have
been included in the calculation of common and common equivalent shares as if
they were outstanding for all periods presented, including years where the
impact of incremental shares is antidilutive, using the treasury stock method
and an assumed initial public offering price of $13.00 per share. Due to the
significant impact of the assumed conversion of the Convertible Preferred Stock
upon closing of an initial public offering, historical net loss per share is not
meaningful, and therefore, is not presented.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 128, Earnings Per Share (Statement 128). Statement 128 establishes
standards for the computation, presentation and disclosure of earnings per share
(EPS), replacing the presentation of currently required Primary EPS with a
presentation of Basic EPS. It also requires dual presentation of Basic EPS and
Diluted EPS on the face of the income statement for entities with complex
capital structures. Basic EPS is based on the weighted average number of common
shares outstanding during the period. Diluted EPS is based on the potential
dilution that would occur on exercise or conversion of securities into common
stock using the treasury stock method. The Company adopted Statement 128 as of
December 31, 1997, which had no material impact to its reported EPS amounts.
In February 1997, the FASB issued SFAS No. 129, Disclosure of Information
about Capital Structure. This statement establishes standards for disclosing
information about an entity's capital structure. Adoption of SFAS No. 129 will
have no impact on the Company's existing disclosures.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income
(Statement 130). Statement 130 establishes standards for reporting and
disclosure of comprehensive income and its
F-11
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
components (revenues, expenses, gains, and losses) in a full set of
general-purpose financial statements. Statement 130, which is effective for
fiscal years beginning after December 15, 1997, requires reclassification of
financial statements for earlier periods to be provided for comparative
purposes. The Company anticipates that implementing the provisions of Statement
130 will not have a significant impact on the Company's existing disclosures.
In June 1997, the FASB issued SFAS No. 131, Disclosure About Segments of an
Enterprise and Related Information (Statement 131). Statement 131 establishes
standards for the way that public business enterprises report information about
operating segments. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. Statement 131 is
effective for fiscal years beginning after December 15, 1997. In the initial
year of application, comparative information for earlier years must be restated.
The Company anticipates that implementing the provisions of Statement 131 will
not have a significant impact on the Company's existing disclosures.
NOTE 2--PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31, DECEMBER 31,
USEFUL LIFE 1996 1997
----------- -------------- --------------
<S> <C> <C> <C>
Computer equipment................................................... 1-3 years $ 471,366 $ 1,768,509
Furniture and fixtures............................................... 5 years 20,360 273,856
Leasehold improvements............................................... 1-5 years -- 389,708
-------------- --------------
491,726 2,432,073
Less accumulated depreciation and amortization....................... 45,932 434,747
-------------- --------------
$ 445,794 $ 1,997,326
-------------- --------------
-------------- --------------
</TABLE>
NOTE 3--INVESTMENTS
In August 1997, the Company purchased 10% voting interests in each of
DoubleClick Japan Inc. and DoubleClick Iberoamerica, S.L. for $154,926 and
$100,000, respectively. The Company has the option to purchase an additional 12%
voting interest in DoubleClick Japan Inc. for the then current value as defined.
The Company also has the option to purchase a 39% voting interest in DoubleClick
Iberoamerica, S.L. at the adjusted book value as defined. These business
partners were formed to 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 the Company had
received $700,000 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.
F-12
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--INCOME TAXES
No provision for federal or state income taxes has been recorded as the
Company incurred net operating losses for all periods presented. At December 31,
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>
NOTE 5--STOCKHOLDERS' EQUITY
The Company's Certificate of Incorporation, as initially filed, authorized
40,000,000 shares of $.001 par value common stock designated as Class A, B, C,
or Common Stock. The rights and privileges of the Company's four classes of
common stock are generally similar, although Class C common stockholders have
certain super-voting privileges, and Class B shares are non-voting.
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
F-13
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--STOCKHOLDERS' EQUITY (CONTINUED)
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.
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.
F-14
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--STOCKHOLDERS' EQUITY (CONTINUED)
Generally, options granted under the Plan vest ratably over a period of
three to four years from the date of grant and expire 10 years from the date of
grant and terminate, to the extent not exercised, upon termination of
employment.
A summary of stock option activity from inception is as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
------------------------------
<S> <C> <C>
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
------------- ---------------
Options granted............................................... 1,363,380 $ 0.16
Options exercised............................................. -- --
Options canceled.............................................. (2,000) 0.12
------------- -----
Balance at December 31, 1996.................................. 1,361,380 0.16
Options granted............................................... 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
------------- -----
Exercisable at December 31, 1997.............................. 408,024 $ 0.14
------------- -----
------------- -----
</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
Pro forma net loss per share:
As reported................................................................ $ (0.24) $ (0.56)
Pro forma per SFAS 123..................................................... (0.24) (0.60)
</TABLE>
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>
F-15
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 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.
NOTE 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 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.
F-16
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--COMMITMENTS
LEASES
The Company leases facilities under operating lease agreements expiring
through 2002. Future minimum lease payments under these leases are as follows:
<TABLE>
<CAPTION>
Years ending December 31: FUTURE MINIMUM
LEASE PAYMENTS
----------------
<S> <C>
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
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below, and each of
such Underwriters, for whom Goldman, Sachs & Co., BT Alex. Brown Incorporated
and Cowen & Company are acting as representatives, has severally agreed to
purchase from the Company, the respective number of shares of Common Stock set
forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
- ------------------------------------------------------------------------- -------------------
<S> <C>
Goldman, Sachs & Co......................................................
BT Alex. Brown Incorporated..............................................
Cowen & Company..........................................................
----------
Total................................................................ 2,500,000
----------
----------
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.
The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at such
price less a concession of $ per share. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per share to certain
brokers and dealers. After the shares of Common Stock are released for sale to
the public, the initial public offering price and other selling terms may from
time to time be varied by the representatives.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of 375,000
additional shares of Common Stock to cover over-allotments, if any. If the
Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the 2,500,000 shares of Common
Stock offered.
The Company, its directors and officers, and certain of its stockholders
have agreed that, subject to certain exceptions, during the period beginning
from the date of this Prospectus and continuing to and including the date 180
days after the date of the Prospectus, they will not offer, sell, contract to
sell or otherwise dispose of any shares of Common Stock or of any other
securities of the Company (other than, in the case of the Company, pursuant to
stock incentive plans existing on the date of this Prospectus) which are
substantially similar to the shares of Common Stock or which are convertible or
exchangeable into securities which are substantially similar to the shares of
Common Stock without the prior written consent of the representatives, except
for the shares of Common Stock offered in connection with the offering. In
addition, the Company may issue shares of Common Stock in connection with any
acquisition of another company if the terms of such issuance provide that such
Common Stock shall not be resold prior to the expiration of the 180-day period
referenced in the preceding sentence.
Prior to the offering, there has been no public market for the shares of
Common Stock. The initial public offering price will be negotiated among the
Company and the representatives. Among the factors to be considered in
determining the initial public offering price of the Common Stock, in addition
to prevailing market conditions, will be the Company's historical performance,
estimates of the business potential and earnings prospects of the Company, an
assessment of the Company's management and the consideration of the above
factors in relation to market valuation of companies in related businesses.
U-1
<PAGE>
The representatives of the Underwriters have informed the Company that they
do not expect sales to accounts over which the Underwriters exercise
discretionary authority to exceed 5% of the total number of shares of Common
Stock offered by them.
In connection with the offering, the Underwriters may purchase and sell
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created by the Underwriters in connection with the offering. Stabilizing
transactions consist of certain bids or purchases for the purpose of preventing
or retarding a decline in the market price of the Common Stock; and syndicate
short positions created by the Underwriters involve the sale by the Underwriters
of a greater number of shares of Common Stock than they are required to purchase
from the Company in the offering. The Underwriters also may impose a penalty
bid, whereby selling concessions allowed to syndicate members or other
broker-dealers in respect of the securities sold in the offering for their
account may be reclaimed by the syndicate if such shares of Common Stock are
repurchased by the syndicate in stabilizing or covering transactions. These
activities may stabilize, maintain or otherwise affect the market price of the
Common Stock, which may be higher than the price that might otherwise prevail in
the open market. These transactions may be effected on the Nasdaq National
Market, in the over-the-counter market or otherwise, and these activities, if
commenced, may be discontinued at any time.
Up to 10% of the shares of Common Stock offered hereby may be reserved for
sale to the Company's employees, directors and other persons with direct
business relationships with the Company. Sales of shares to such persons will be
at the initial public offering price. The number of shares available for sale to
the general public will be reduced to the extent such persons purchase such
reserved shares. Any reserved shares not so purchased will be offered by the
Underwriters to the general public on the same terms as the other shares offered
hereby.
The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "DCLK", subject to official notice of issuance. The
Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act.
An affiliate of BT Alex. Brown Incorporated, one of the representatives of
the Underwriters in the offering, is a limited partner of ABS Capital Partners
II, L.P., a stockholder of the Company. In addition, another affiliate of BT
Alex. Brown Incorporated is a non-managing member of ABS Partners II, LLC, the
general partner of ABS Capital Partners II, L.P.
Under Rule 2720 of the National Association of Securities Dealers, Inc. (the
"NASD"), the Company 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 the Company, see "Certain Transactions" and
"Principal Stockholders". The offering is being conducted in accordance with
Rule 2720, which provides that, among other things, when an NASD member
participates in the underwriting of an affiliate's equity securities, the
initial public offering price can be no higher than that recommended by a
"qualified independent underwriter" meeting certain standards. In accordance
with this requirement, Goldman, Sachs & Co. will serve in such role and will
recommend a price in compliance with the requirements of Rule 2720. Goldman,
Sachs & Co. will receive compensation from the Company in the amount of $10,000
for serving in such role. In connection with the offering, Goldman, Sachs & Co.
in its role as qualified independent underwriter has performed due diligence
investigations and reviewed and participated in the preparation of this
Prospectus and the Registration Statement of which this Prospectus forms a part.
U-2
<PAGE>
[AN ILLUSTRATION NAMING THE WEB SITES CURRENTLY ON THE DOUBLECLICK NETWORK]
<PAGE>
- ---------------------------------------------
---------------------------------------------
- ---------------------------------------------
---------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary................................ 3
Risk Factors...................................... 6
Use of Proceeds................................... 17
Dividend Policy................................... 17
Capitalization.................................... 18
Dilution.......................................... 19
Selected Consolidated Financial Data.............. 20
Management's Discussion And Analysis Of Financial
Condition And Results Of Operations.............. 21
Business.......................................... 28
Management........................................ 42
Certain Transactions.............................. 50
Principal Stockholders............................ 51
Description of Securities......................... 54
Shares Eligible for Future Sale................... 58
Legal Matters..................................... 59
Experts........................................... 59
Change in Accountants............................. 59
Additional Information............................ 60
Index to Consolidated Financial Statements........ F-1
Underwriting...................................... U-1
</TABLE>
THROUGH AND INCLUDING , 1998 (THE 25TH DAY AFTER THE DATE OF
THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
2,500,000 SHARES
DOUBLECLICK INC.
COMMON STOCK
(PAR VALUE $.001 PER SHARE)
--------------------
[LOGO]
--------------------
GOLDMAN, SACHS & CO.
BT ALEX. BROWN
COWEN & COMPANY
REPRESENTATIVES OF THE UNDERWRITERS
- ---------------------------------------------
---------------------------------------------
- ---------------------------------------------
---------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting discount, payable by the Registrant in connection with the sale of
Common Stock being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fees and the Nasdaq National Market listing
fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
-------------
<S> <C>
SEC registration fee........................................................... $ 11,874
NASD filing fee................................................................ 4,525
Nasdaq National Market listing fee............................................. 50,000
Printing and engraving......................................................... 175,000
Legal fees and expenses........................................................ 300,000
Accounting fees and expenses................................................... 150,000
Blue sky fees and expenses (including legal fees).............................. 15,000
Transfer agent fees............................................................ 5,000
Miscellaneous.................................................................. 38,601
-------------
Total...................................................................... $ 750,000
-------------
-------------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Certificate of Incorporation (the "Certificate") provides
that, except to the extent prohibited by the Delaware General Corporation Law
(the "DGCL"), the Registrant's directors shall not be personally liable to the
Registrant or its stockholders for monetary damages for any breach of fiduciary
duty as directors of the Registrant. Under the DGCL, the directors have a
fiduciary duty to the Registrant which is not eliminated by this provision of
the Certificate and, in appropriate circumstances, equitable remedies such as
injunctive or other forms of nonmonetary relief will remain available. In
addition, each director will continue to be subject to liability under the DGCL
for breach of the director's duty of loyalty to the Registrant, for acts or
omissions which are found by a court of competent jurisdiction to be not in good
faith or involving intentional misconduct, for knowing violations of law, for
actions leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemptions that are prohibited by
DGCL. This provision also does not affect the directors' responsibilities under
any other laws, such as the Federal securities laws or state or Federal
environmental laws. The Registrant has obtained liability insurance for its
officers and directors.
Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers, provided that this provision
shall not eliminate or limit the liability of a director: (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) arising under Section 174 of the DGCL, or (iv)
for any transaction from which the director derived an improper personal
benefit. The DGCL provides further that the indemnification permitted thereunder
shall not be deemed exclusive of any other rights to which the directors and
officers may be entitled under the corporation's bylaws, any agreement, a vote
of stockholders or otherwise. The Certificate eliminates the personal liability
of directors to the fullest extent permitted by Section 102(b)(7) of the DGCL
and provides that the Registrant shall fully indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding (whether civil, criminal, administrative or
II-1
<PAGE>
investigative) by reason of the fact that such person is or was a director or
officer of the Registrant, or is or was serving at the request of the Registrant
as a director or officer of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under the Certificate. The Registrant is not aware of any
threatened litigation or proceeding that may result in a claim for such
indemnification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Registrant has sold and issued the following securities since January
23, 1996 (inception):
In January 1996, the Registrant issued an aggregate of 905,912 shares of its
common stock, par value $.01 per share ("Original Common Stock"), to Poppe
Tyson, Inc. a subsidiary of Bozell, Jacobs, Kenyon & Eckhardt, Kevin J. O'Connor
and Dwight A. Merriman in exchange for $575,000 in cash and certain other
assets. Such shares of Original Common Stock were sold in reliance upon an
exemption from registration under the Securities Act of 1933 pursuant to Section
4(2) thereof.
In August 1996, all outstanding shares of Original Common Stock were
converted into shares of class A common stock.
In June 1997, the DoubleClick Acquisition Corp. ("Newco") merged with and
into the Registrant (the "Merger"). As a result of the Merger, the Registrant
issued 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. 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 were sold in reliance upon an exemption from registration under the
Securities Act of 1933 pursuant to Section 4(2) thereof.
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).
The Registrant from time to time has granted stock options to employees in
reliance upon an exemption under the Securities Act of 1933 pursuant to Rule 701
promulgated thereunder. The following table sets forth certain information
regarding such grants:
<TABLE>
<CAPTION>
RANGE OF
NUMBER OF EXERCISE
SHARES PRICES
------------- -----------------
<S> <C> <C>
January 23, 1996 (inception) through December 31, 1996................ 1,363,380 $0.14- 0.28
January 1, 1997 through December 31, 1997............................. 1,038,725 0.28-13.00
</TABLE>
II-2
<PAGE>
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 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, as transactions not involving any public offering,
or (ii) Rule 701 under the Securities Act. No underwriters were involved in
connection with the sales of securities referred to in this Item 15.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1** Restated Certificate of Incorporation.
3.2** Amendment to Restated Certificate of Incorporation.
3.3* Form of Amended and Restated Certificate of Incorporation to be in effect upon the closing of the
initial public offering.
3.4** Bylaws.
3.5* Form of Amended and Restated Bylaws to be in effect upon the closing of the initial public offering.
4.1* Specimen Common Stock certificate.
4.2** See Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5 for provisions of the Certificate of Incorporation and Bylaws
of the Registrant defining the rights of holders of Common Stock of the Registrant.
4.3 Convertible Promissory Note held by Bozell, Jacobs, Kenyon & Eckhardt, Inc.
5.1 Opinion of Brobeck, Phleger & Harrison LLP.
10.1** 1996 Stock Option Plan.
10.2** 1997 Stock Incentive Plan.
10.3 [Reserved]
10.4 Stockholders Agreement, dated as of June 4, 1997.
10.5** Sublease dated August 1996, between Martin, Marshall, Jaccoma & Mitchell Advertising, Inc. and the
Registrant.
10.6** Lease dated July 1997, between Investment Properties Associates and the Registrant.
10.7+** Procurement and Trafficking Agreement, dated December 1996, by and between Registrant and Digital
Equipment Corporation.
10.8+ Amendment No. 1 to Procurement and Trafficking Agreement, dated January 1998, by and between
Registrant and Digital Equipment Corporation.
11.1 Statement re: Computation of Pro Forma Basic and Diluted Net Loss Per Common Share.
16.1** Letter from KPMG Peat Marwick LLP.
16.2 Additional Letter from KPMG Peat Marwick LLP.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1).
24.1** Powers of Attorney.
24.2 Power of Attorney of Donald Peppers.
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 to be requested for certain portions of this Exhibit
pursuant to Rule 406 promulgated under the Securities Act.
II-4
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriter
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Delaware General Corporation Law, the Certificate of
Incorporation of the Registrant, the Underwriting Agreement, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, the Registrant will,
unless in the opinion of counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the information
omitted from the form of Prospectus filed as part of this Registration Statement
in reliance upon Rule 430A and contained in a form of Prospectus filed by the
Registrant pursuant to Rule 424 (b) (1) or (4), or 497 (h) under the Act shall
be deemed to be part of this Registration Statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of Prospectus shall be deemed to
be a new Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 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 27th day of January, 1998.
DOUBLECLICK INC.
By: /s/ KEVIN J. O'CONNOR
------------------------------------------
Kevin J. O'Connor
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to the Registration Statement has been signed by the following
persons in the capacities indicated on January 27, 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 Financial Officer (Principal
* Financial Officer)
-------------------------------------------
Kevin P. Ryan
* Chief Technology Officer and Director
-------------------------------------------
Dwight A. Merriman
* Controller (Principal Accounting Officer)
-------------------------------------------
Stephen R. Collins
* Director
-------------------------------------------
David N. Strohm
* Director
-------------------------------------------
Mark E. Nunnelly
* Director
-------------------------------------------
W. Grant Gregory
* Director
-------------------------------------------
Donald Peppers
</TABLE>
*By: /s/ KEVIN J. O'CONNOR
-------------------------
Kevin J. O'Connor
ATTORNEY-IN-FACT
II-6
<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 $ 831 $ 269 $ 712
</TABLE>
S-1
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1** Restated Certificate of Incorporation.
3.2** Amendment to Restated Certificate of Incorporation.
3.3* Form of Amended and Restated Certificate of Incorporation to be in effect upon the closing of the
initial public offering.
3.4** Bylaws.
3.5* Form of Amended and Restated Bylaws to be in effect upon the closing of the initial public offering.
4.1* Specimen Common Stock certificate.
4.2** See Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5 for provisions of the Certificate of Incorporation and Bylaws of
the Registrant defining the rights of holders of Common Stock of the Registrant.
4.3 Convertible Promissory Note held by Bozell, Jacobs, Kenyon & Eckhardt, Inc.
5.1 Opinion of Brobeck, Phleger & Harrison LLP.
10.1** 1996 Stock Option Plan.
10.2** 1997 Stock Incentive Plan.
10.3 [Reserved]
10.4 Stockholders Agreement, dated as of June 4, 1997.
10.5** Sublease dated August 1996, between Martin, Marshall, Jaccoma & Mitchell Advertising, Inc. and the
Registrant.
10.6** Lease dated July 1997, between Investment Properties Associates and the Registrant.
10.7+** Procurement and Trafficking Agreement, dated December 1996, by and between Registrant and Digital
Equipment Corporation.
10.8+ Amendment No.1 to Procurement and Trafficking Agreement, dated January 1998, by and between Registrant
and Digital Equipment Corporation.
11.1 Statement re: Computation of Pro Forma Basic and Diluted Net Loss Per Common Share.
16.1** Letter from KPMG Peat Marwick LLP.
16.2 Additional Letter from KPMG Peat Marwick LLP.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1).
24.1** Powers of Attorney.
24.2 Power of Attorney of Donald Peppers.
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be supplied by amendment.
** Previously filed.
+ Confidential treatment to be requested for certain portions of this Exhibit
pursuant to Rule 406 promulgated under the Securities Act.
<PAGE>
EXHIBIT 1.1
Draft of 01/27/98
DOUBLECLICK INC.
COMMON STOCK, PAR VALUE $.001 PER SHARE
UNDERWRITING AGREEMENT
, 1998
Goldman, Sachs & Co.,
BT Alex. Brown Incorporated
Cowen & Company
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004.
Ladies and Gentlemen:
DoubleClick Inc., a Delaware corporation (the "Company"), proposes, subject
to the terms and conditions stated herein, to issue and sell to the Underwriters
named in Schedule I hereto (the "Underwriters") an aggregate of 2,500,000 shares
(the "Firm Shares") and, at the election of the Underwriters, up to 375,000
additional shares (the "Optional Shares") of Common Stock, par value $.001 per
share ("Stock"), of the Company (the Firm Shares and the Optional Shares that
the Underwriters elect to purchase pursuant to Section 2 hereof being
collectively called the "Shares").
1. The Company represents and warrants to, and agrees with, each of the
Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-42323) and all pre-
effective amendments thereto (the "Initial Registration Statement") in respect
of the Shares has been filed with the Securities and Exchange Commission (the
"Commission"); the Initial Registration Statement and any post-effective
amendment thereto, each in the form heretofore delivered to you, and, excluding
exhibits thereto, to you for each of the other Underwriters, have been declared
effective by the Commission in such form; other than a registration statement,
if any, increasing the size of the offering (a "Rule 462(b) Registration
Statement"), filed pursuant to Rule 462(b) under Securities Act of 1933, as
amended (the "Act"), which became effective upon filing, no other document with
respect to the Initial Registration Statement has heretofore been filed with the
Commission; and no stop order suspending the effectiveness of the Initial
Registration Statement, any post-effective amendment thereto or the Rule 462(b)
Registration Statement, if any, has been
1
<PAGE>
issued and no proceeding for that purpose has been initiated or threatened by
the Commission (any preliminary prospectus included in the Initial Registration
Statement and the Rule 462(b) Registration Statement, if any, or filed with the
Commission pursuant to Rule 424(a) of the rules and regulations of the
Commission under the Act, is hereinafter called a "Preliminary Prospectus"; the
various parts of the Initial Registration Statement and the Rule 462(b)
Registration Statement, if any, including all exhibits thereto and including the
information contained in the form of final prospectus filed with the Commission
pursuant to Rule 424(b) under the Act in accordance with Section 5(a) hereof and
deemed by virtue of Rule 430A under the Act to be part of the Initial
Registration Statement at the time it was declared effective, each as amended at
the time such part of the Initial Registration Statement became effective or
such part of the Rule 462(b) Registration Statement, if any, became or hereafter
becomes effective, are hereinafter collectively called the "Registration
Statement"; and such final prospectus, in the form first filed pursuant to Rule
424(b) under the Act, is hereinafter called the "Prospectus");
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary Prospectus,
at the time of filing thereof, conformed in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder, and did not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; PROVIDED, HOWEVER, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter through Goldman, Sachs & Co. expressly for use therein;
(c) The Registration Statement conforms, and any further amendments to the
Registration Statement will conform, in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder and do not and will not, as of the applicable effective date as to
the Registration Statement and any amendment thereto, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading. The
Prospectus conforms, and any further amendments or supplements to the Prospectus
will conform, in all material respects to the requirements of the Act and the
rules and regulations of the Commission thereunder and do not and will not, as
of the applicable filing date contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The representations and warranties in this paragraph (c)
shall not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter through Goldman, Sachs & Co. expressly for use therein;
(d) Neither the Company nor any of its subsidiaries (as defined in Rule
405 of the rules and regulations under the Act) has sustained since the date of
the latest audited financial statements included in the Prospectus any material
loss or interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as set forth or
contemplated in the Prospectus; and, since the respective dates as of which
information is given in the Registration Statement and the Prospectus, there has
not been any change in the capital stock or long-term debt of the Company or any
of its subsidiaries or any material adverse change, or any development
2
<PAGE>
which is reasonably likely to result in a prospective material adverse change,
in or affecting the general affairs, management, business, properties, financial
condition or results of operations of the Company and its subsidiaries taken as
a whole, otherwise than as set forth or contemplated in the Prospectus;
(e) The Company and its subsidiaries have good and marketable title to all
personal property owned by them, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Prospectus or such
as do not materially affect the value of such property and do not materially
interfere with the use made and proposed to be made of such property by the
Company and its subsidiaries; and any real property and buildings held under
lease by the Company and its subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not materially interfere with the use made and proposed to be made of such
property and buildings by the Company and its subsidiaries;
(f) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with power
and authority (corporate and other) to own its properties and conduct its
business as described in the Prospectus, and has been duly qualified as a
foreign corporation for the transaction of business and is in good standing
under the laws of New York and each other jurisdiction in which it owns or
leases properties or conducts any business so as to require such qualification,
except where the failure to so qualify would not have, or would not be
reasonably likely to have, a material adverse effect on the general affairs,
management, business, properties, financial condition or results of operations
of the Company and its subsidiaries taken as a whole (a "Material Adverse
Effect"); and each subsidiary of the Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation;
(g) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company have
been duly and validly authorized and issued, are fully paid and non-assessable
and conform to the description of the Stock contained in the Prospectus; and all
of the issued shares of capital stock of each subsidiary of the Company have
been duly and validly authorized and issued, are fully paid and non-assessable
and are owned directly or indirectly by the Company, free and clear of all
liens, encumbrances, equitable interests or claims (and no person has any
option, right or claim to acquire any stock of any subsidiary);
(h) The Shares to be issued and sold by the Company to the Underwriters
hereunder have been duly and validly authorized and, when issued and delivered
against payment therefor as provided herein, will be duly and validly issued and
fully paid and non-assessable and will conform to the description of the Stock
contained in the Prospectus;
(i) The issue and sale of the Shares by the Company and the compliance by
the Company with all of the provisions of this Agreement and the consummation of
the transactions herein contemplated will not conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries is bound or to which
any of the property or assets of the Company or any of its subsidiaries is
subject, nor will such action result in any violation of the provisions of the
Certificate of Incorporation or By-laws of the Company or any statute or any
order,
3
<PAGE>
rule or regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of their
properties; and no consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body is
required for the issue and sale of the Shares or the consummation by the Company
of the transactions contemplated by this Agreement, except the registration
under the Act of the Shares and such consents, approvals, authorizations,
registrations or qualifications as may be required by the National Association
of Securities Dealers, Inc., the Nasdaq National Market, or under state
securities or Blue Sky laws in connection with the purchase and distribution of
the Shares by the Underwriters;
(j) Neither the Company nor any of its subsidiaries is in violation of its
Certificate of Incorporation or By-laws (or other charter documents) or in
default in the performance or observance of any material obligation, agreement,
covenant or condition contained in any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which it is a party or by
which it or any of its properties may be bound, except where such default would
not have a Material Adverse Effect;
(k) The statements set forth in the Prospectus under the caption
"Description of Securities", insofar as they purport to constitute a summary of
the terms of the Stock, and under the caption "Underwriting", insofar as they
purport to describe the provisions of the laws and documents referred to
therein, are accurate, complete and fair;
(l) Other than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its subsidiaries
is a party or of which any property of the Company or any of its subsidiaries is
the subject which, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a Material Adverse
Effect; and, to the best of the Company's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened by others;
(m) The Company is not and, after giving effect to the offering and sale
of the Shares, will not be an "investment company" or an entity "controlled" by
an "investment company", as such terms are defined in the Investment Company Act
of 1940, as amended (the "Investment Company Act");
(n) Neither the Company nor any of its affiliates does business with the
government of Cuba or with any person or affiliate located in Cuba within the
meaning of Section 517.075, Florida Statutes;
(o) Price Waterhouse LLP, who have certified certain consolidated
financial statements of the Company and its subsidiaries, are independent public
accountants as required by the Act and the rules and regulations of the
Commission thereunder;
(p) Other than as set forth in the Prospectus, the Company and its
subsidiaries have sufficient interests in all patents, trademarks, servicemarks,
trade names, copyrights, trade secrets, information, proprietary rights and
processes ("Intellectual Property") necessary for their business as described in
the Prospectus and, to the Company's knowledge, necessary in connection with the
products and services under development, in each case, to the knowledge of the
Company after
4
<PAGE>
due inquiry, without any conflict with or infringement of the interests of
others, and have taken all reasonable steps necessary to secure interests in
such Intellectual Property from their contractors; except as set forth in the
Prospectus, the Company is not aware of outstanding options, licenses or
agreements of any kind relating to the Intellectual Property of the Company
which are required to be set forth in the Prospectus, and, except as set forth
in the Prospectus, neither the Company nor any of its subsidiaries is a party to
or bound by any options, licenses or agreements with respect to the Intellectual
Property of any other person or entity which are required to be set forth in the
Prospectus; none of the technology employed by the Company has been obtained or
is being used by the Company or its subsidiaries in violation of any contractual
fiduciary obligation binding on the Company or any of its subsidiaries or any of
its directors or executive officers or, to the Company's knowledge, any of its
employees or otherwise in violation of the rights of any persons; except as
disclosed in the Prospectus, neither the Company nor any of its subsidiaries has
received any written or, to the Company's knowledge, oral communications
alleging that the Company or any of its subsidiaries has violated, infringed or
conflicted with, or, by conducting its business as set forth in the Prospectus,
would violate, infringe or conflict with any of the Intellectual Property of any
other person or entity other than any such violation, infringement or conflict
which would not have a Material Adverse Effect; neither the execution nor
delivery of this Agreement, nor the operation of the Company's business by the
employees of the Company, nor the conduct of the Company's business as described
in the Prospectus or the business of any of its subsidiaries as described in the
Prospectus will result in any breach or violation of the terms, conditions or
provisions of, constitute a default under, any material contract, covenant or
instrument known to the Company under which any of such employees is now
obligated; and the Company and its subsidiaries have taken and will maintain
reasonable measures to prevent the unauthorized dissemination or publication of
their confidential information and, to the extent contractually required to do
so, the confidential information of third parties in their possession;
(q) The Company maintains insurance of the types and in the amounts
generally deemed adequate for its business, including, but not limited to,
insurance covering real and personal property owned or leased by the Company
against theft, damage, destruction, acts of vandalism and all other risks
customarily insured against, all of which insurance is in full force and effect;
(r) There are no contracts, other documents or other agreements required
to be described in the Registration Statement or to be filed as exhibits to the
Registration Statement by the Act or by the rules and regulations thereunder
which have not been described or filed as required; the contracts so described
in the Prospectus are in full force and effect on the date hereof; and neither
the Company nor, to the best of the Company's knowledge, any other party is in
breach of or default in any material respect under any of such contracts; and
(s) The Company has not been advised, and has no reason to believe, that
it is not conducting business in compliance with all applicable laws, rules and
regulations of the jurisdictions in which it is conducting business, including,
without limitation, all applicable local, state and federal environmental laws
and regulations, except where failure to be so in compliance would not have a
Material Adverse Effect.
2. Subject to the terms and conditions herein set forth, (a) the Company
agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly,
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to purchase from the Company, at a purchase price per share of
$................, the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule I hereto and (b) in the event and to the extent that the
Underwriters shall exercise the election to purchase Optional Shares as provided
below, the Company agrees to issue and sell to each of the Underwriters, and
each of the Underwriters agrees, severally and not jointly, to purchase from the
Company, at the purchase price per share set forth in clause (a) of this Section
2, that portion of the number of Optional Shares as to which such election shall
have been exercised (to be adjusted by you so as to eliminate fractional shares)
determined by multiplying such number of Optional Shares by a fraction, the
numerator of which is the maximum number of Optional Shares which such
Underwriter is entitled to purchase as set forth opposite the name of such
Underwriter in Schedule I hereto and the denominator of which is the maximum
number of Optional Shares that all of the Underwriters are entitled to purchase
hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to ................... Optional Shares, at the purchase price
per share set forth in the paragraph above, for the sole purpose of covering
overallotments in the sale of the Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from you to the Company,
given within a period of 30 calendar days after the date of this Agreement,
setting forth the aggregate number of Optional Shares to be purchased and the
date on which such Optional Shares are to be delivered, as determined by you but
in no event earlier than the First Time of Delivery (as defined in Section 4
hereof) or, unless you and the Company otherwise agree in writing, earlier than
two or later than ten business days after the date of such notice.
The Company hereby agrees, at the First Time of Delivery, to pay to
Goldman, Sachs & Co., in its capacity as Qualified Independent Underwriter, the
amount of $10,000.
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Company shall be delivered by or on behalf of the Company to
Goldman, Sachs & Co., through the facilities of the Depository Trust Company
("DTC"), for the account of such Underwriter, against payment by or on behalf of
such Underwriter of the purchase price therefor by wire transfer payable to the
order of the Company in same day funds. The Company will cause the certificates
representing the Shares to be made available for checking and packaging at least
twenty-four hours prior to the Time of Delivery (as defined below) with respect
thereto at the office of DTC or its designated custodian (the "Designated
Office"). The time and date of such delivery and payment shall be, with respect
to the Firm Shares, 9:30 a.m., New York City time, on ............., 1998 or
such other time and date as Goldman, Sachs & Co. and the Company may agree upon
in writing, and, with respect to the Optional Shares, 9:30 a.m., New York time,
on the date specified by Goldman, Sachs & Co. in the written notice given by
Goldman, Sachs & Co. of the Underwriters' election to purchase such Optional
Shares, or such other time and date as Goldman, Sachs & Co. and the Company may
agree upon in writing. Such time and date for delivery of the Firm Shares is
herein called the "First Time of Delivery", such time and date for delivery of
the Optional Shares, if not the First Time of Delivery, is herein called the
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"Second Time of Delivery", and each such time and date for delivery is herein
called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on behalf
of the parties hereto pursuant to Section 7 hereof, including the cross receipt
for the Shares and any additional documents requested by the Underwriters
pursuant to Section 7(j) hereof, will be delivered at the offices of Brobeck,
Phleger & Harrison LLP, 1633 Broadway, 47th Floor, New York, New York 10019
(the "Closing Location"), and the Shares will be delivered at the Designated
Office, all at such Time of Delivery. A meeting will be held at the Closing
Location at 2:00 p.m., New York City time, on the New York Business Day next
preceding such Time of Delivery, at which meeting the final drafts of the
documents to be delivered pursuant to the preceding sentence will be available
for review by the parties hereto. For the purposes of this Section 4, "New York
Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York are generally
authorized or obligated by law or executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file such
Prospectus pursuant to Rule 424(b) under the Act not later than the Commission's
close of business on the second business day following the execution and
delivery of this Agreement, or, if applicable, such earlier time as may be
required by Rule 430A(a)(3) under the Act; to make no further amendment or any
supplement to the Registration Statement or Prospectus which shall be
disapproved by you promptly after reasonable notice thereof; to advise you,
promptly after it receives notice thereof, of the time when any amendment to the
Registration Statement has been filed or becomes effective or any supplement to
the Prospectus or any amended Prospectus has been filed and to furnish you with
copies thereof; to advise you, promptly after it receives notice thereof, of the
issuance by the Commission of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus, of the
suspension of the qualification of the Shares for offering or sale in any
jurisdiction, of the initiation or threatening of any proceeding for any such
purpose, or of any request by the Commission for the amending or supplementing
of the Registration Statement or Prospectus or for additional information; and,
in the event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus or suspending any
such qualification, promptly to use its best efforts to obtain the withdrawal of
such order;
(b) Promptly from time to time to take such action as you may reasonably
request to qualify the Shares for offering and sale under the securities laws of
such jurisdictions as you may request and to comply with such laws so as to
permit the continuance of sales and dealings therein in such jurisdictions for
as long as may be necessary to complete the distribution of the Shares, provided
that in connection therewith the Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of process in any
jurisdiction;
(c) Prior to 10:00 a.m., New York City time, on the New York Business Day
next succeeding the date of this Agreement and from time to time, to furnish the
Underwriters with copies of the Prospectus in New York City in such quantities
as you may reasonably request, and, if the
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delivery of a prospectus is required at any time prior to the expiration of nine
months after the time of issue of the Prospectus in connection with the offering
or sale of the Shares and if at such time any event shall have occurred as a
result of which the Prospectus as then amended or supplemented would include an
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in the light of the circumstances under
which they were made when such Prospectus is delivered, not misleading, or, if
for any other reason it shall be necessary during such period to amend or
supplement the Prospectus in order to comply with the Act, to notify you and
upon your request to prepare and furnish without charge to each Underwriter and
to any dealer in securities as many copies as you may from time to time
reasonably request of an amended Prospectus or a supplement to the Prospectus
which will correct such statement or omission or effect such compliance, and in
case any Underwriter is required to deliver a prospectus in connection with
sales of any of the Shares at any time nine months or more after the time of
issue of the Prospectus, upon your request but at the expense of such
Underwriter, to prepare and deliver to such Underwriter as many copies as you
may request of an amended or supplemented Prospectus complying with Section
10(a)(3) of the Act;
(d) If the Company elects to rely upon Rule 462(b), the Company shall file
a Rule 462(b) Registration Statement with the Commission in compliance with Rule
462(b) by 10:00 P.M. Washington, D.C. time, on the date of this Agreement, and
the Company shall at the time of filing either pay to the Commission the filing
fee for the Rule 462(b) Registration Statement or give irrevocable instructions
for the payment of such fee pursuant to Rule 111(b) under the Act;
(e) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the effective
date of the Registration Statement (as defined in Rule 158(c) under the Act), an
earnings statement of the Company and its subsidiaries (which need not be
audited) complying with Section 11(a) of the Act and the rules and regulations
thereunder (including, at the option of the Company, Rule 158);
(f) During the period beginning from the date hereof and continuing to and
including the date 180 days after the date of the Prospectus, not to offer,
sell, contract to sell or otherwise dispose of, except as provided hereunder any
securities of the Company that are substantially similar to the Shares,
including but not limited to any securities that are convertible into or
exchangeable for, or that represent the right to receive, Stock or any such
substantially similar securities (other than pursuant to employee stock option
plans existing on, or upon the conversion or exchange of convertible or
exchangeable securities outstanding as of, the date of this Agreement), without
your prior written consent, except that the Company may issue such securities in
exchange for all of the equity or substantially all of the assets of a company
in connection with a merger or acquisition, provided that prior to any such
issuance the recipients of such securities shall have agreed with Goldman,
Sachs & Co. in writing to be bound by this provision for the remainder of the
180-day period;
(g) To furnish to its stockholders as soon as practicable after the end of
each fiscal year an annual report (including a balance sheet and statements of
income, stockholders' equity and cash flows of the Company and its consolidated
subsidiaries certified by independent public accountants) and, as soon as
practicable after the end of each of the first three quarters of each fiscal
year (beginning with the fiscal quarter ending after the effective date of the
Registration
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Statement), consolidated summary financial information of the Company and its
subsidiaries for such quarter in reasonable detail;
(h) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to deliver to
you (i) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any national securities
exchange on which any class of securities of the Company is listed; and (ii)
such additional information concerning the business and financial condition of
the Company as you may from time to time reasonably request (such financial
statements to be on a consolidated basis to the extent the accounts of the
Company and its subsidiaries are consolidated in reports furnished to its
stockholders generally or to the Commission);
(i) To use the net proceeds received by it from the sale of the Shares
pursuant to this Agreement in the manner specified in the Prospectus under the
caption "Use of Proceeds";
(j) To use its best efforts to list for quotation the Shares on the Nasdaq
National Market System ("NASDAQ"); and
(k) To file with the Commission such information on Form 10-Q or Form 10-K
as may be required by Rule 463 under the Act.
6. The Company covenants and agrees with the several Underwriters that
the Company will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or producing
any Agreement among Underwriters, this Agreement, the Blue Sky Memorandum,
closing documents (including any compilations thereof) and any other documents
in connection with the offering, purchase, sale and delivery of the Shares;
(iii) all expenses in connection with the qualification of the Shares for
offering and sale under state securities laws as provided in Section 5(b)
hereof, including the reasonable fees and disbursements of counsel for the
Underwriters in connection with such qualification and in connection with the
Blue Sky survey; (iv) all fees and expenses in connection with listing the
Shares on the NASDAQ; (v) the filing fees incident to, and the fees and
disbursements of counsel for the Underwriters in connection with, securing any
required review by the National Association of Securities Dealers, Inc. of the
terms of the sale of the Shares; (vi) the cost of preparing stock certificates;
(vii) the cost and charges of any transfer agent or registrar; and (viii) all
other costs and expenses incident to the performance of its obligations
hereunder which are not otherwise specifically provided for in this Section. It
is understood, however, that, except as provided in this Section, and Sections 8
and 11 hereof, the Underwriters will pay all of their own costs and expenses,
including the fees of their counsel, stock transfer taxes on resale of any of
the Shares by them, and any advertising expenses connected with any offers they
may make.
7. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations
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and warranties and other statements of the Company herein are, at and as of such
Time of Delivery, true and correct, the condition that the Company shall have
performed all of its obligations hereunder theretofore to be performed, and the
following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant to
Rule 424(b) within the applicable time period prescribed for such filing by the
rules and regulations under the Act and in accordance with Section 5(a) hereof;
if the Company has elected to rely upon Rule 462(b), the Rule 462(b)
Registration Statement shall have become effective by 10:00 P.M. Washington,
D.C. time, on the date of this Agreement; no stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have been
issued and no proceeding for that purpose shall have been initiated or
threatened by the Commission; and all requests for additional information on the
part of the Commission shall have been complied with to your reasonable
satisfaction;
(b) Hale and Dorr LLP, counsel for the Underwriters, shall have furnished
to you such written opinion (a draft of such opinion is attached as Annex II(a)
hereto), dated such Time of Delivery, with respect to the matters covered in
paragraphs (i), (ii), (vi) and (ix), and the second-to-last and third-to-last
paragraphs of subsection (c) below as well as such other related matters as you
may reasonably request, and such counsel shall have received such papers and
information as they may reasonably request to enable them to pass upon such
matters;
(c) Brobeck, Phleger & Harrison LLP, counsel for the Company, shall have
furnished to you their written opinion (a draft of such opinion is attached as
Annex II(b) hereto), dated such Time of Delivery, in form and substance
satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware, with
requisite corporate power and authority to own its properties and conduct its
business as described in the Prospectus;
(ii) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the Company
(including the Shares being delivered at such Time of Delivery) have been duly
and validly authorized and issued and upon payment for the Shares in accordance
with the terms of the Underwriting Agreement, all issued shares of the capital
stock of the Company will be fully paid and non-assessable; and the Shares
conform in all material respects as to legal matters to the description of the
Stock contained in the Prospectus;
(iii) The Company has been duly qualified as a foreign corporation
for the transaction of business and is in good standing under the laws of New
York and each other jurisdiction in which it owns or leases properties or
conducts any business so as to require such qualification, except where the
failure to so register or qualify would not have a Material Adverse Effect (such
counsel being entitled to rely in respect of the opinion in this clause upon
opinions of local counsel and in respect of matters of fact upon certificates of
officers of the Company, provided that such counsel shall state that they
believe that both you and they are justified in relying upon such opinions and
certificates);
(iv) Any real property and buildings held under lease by the
Company and its subsidiaries are held by them under valid, subsisting and
enforceable leases;
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(v) To such counsel's knowledge and other than as set forth in the
Prospectus, there are no legal or governmental proceedings pending to which the
Company or any of its subsidiaries is a party or of which any property of the
Company or any of its subsidiaries is the subject which, if determined adversely
to the Company or any of its subsidiaries, would individually or in the
aggregate have a Material Adverse Effect, and, to such counsel's knowledge, no
such proceedings are threatened or contemplated by governmental authorities or
threatened by others;
(vi) This Agreement has been duly authorized, executed and
delivered by the Company;
(vii) The issue and sale of the Shares being delivered at such Time
of Delivery by the Company and the compliance by the Company with all of the
provisions of this Agreement and the consummation of the transactions herein
contemplated will not (i) conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument known
to such counsel to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries is bound or to which any of the
property or assets of the Company or any of its subsidiaries is subject, or (ii)
result in any violation of the provisions of the Certificate of Incorporation or
By-laws of the Company, or (iii) result in any violation of any statute or any
order, rule or regulation known to such counsel of any court or governmental
agency or body having jurisdiction over the Company or any of its subsidiaries
or any of their properties;
(viii) No consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body is
required for the issue and sale of the Shares or the consummation by the Company
of the transactions contemplated by this Agreement, except the registration
under the Act and the Exchange Act of the Shares, and such consents, approvals,
authorizations, registrations or qualifications as may be required under state
securities or Blue Sky laws in connection with the purchase and distribution of
the Shares by the Underwriters;
(ix) The statements set forth in the Prospectus under the caption
"Description of Securities", insofar as they purport to constitute a summary of
the terms of the Stock and under the caption "Underwriting", insofar as they
purport to describe the provisions of the laws and documents referred to
therein, are accurate, complete and fair in all material respects; and
(x) The Company is not an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in the
Investment Company Act.
Such opinion letter shall also state that, although such counsel does not
assume any responsibility for the accuracy, completeness or fairness of the
statements in the Registration Statement, such counsel has participated in the
preparation of the Registration Statement and the Prospectus, including review
and discussion of the contents thereof with representatives of the Underwriters
and their counsel, officers and representatives of the Company, and
representatives of the independent certified public accountants of the Company,
and nothing has come to such counsel's attention that has caused it to believe
that the Registration Statement or any further amendment thereto, at the time
the Registration Statement or such amendment became effective,
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contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or that the Prospectus or any further amendment or supplement
thereto, as of its date or as of such Time of Delivery, contained an untrue
statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading (it being understood
that such counsel expresses no opinion with respect to the financial statements
and the notes thereto and the related financial schedules included in the
Registration Statement or the Prospectus).
Such opinion letter shall also state that the Registration Statement and
the Prospectus and any further amendments and supplements thereto made by the
Company prior to such Time of Delivery (other than the financial statements and
the notes thereto and related financial schedules therein, as to which such
counsel need express no opinion) comply as to form in all material respects with
the requirements of the Act and the rules and regulations thereunder, and that
such counsel does not know of any amendment to the Registration Statement
required to be filed or of any contracts or other documents of a character
required to be filed as an exhibit to the Registration Statement or required to
be described in the Registration Statement or the Prospectus which are not filed
or described as required.
As to matters of fact, such counsel may rely upon certificates of officers
of the Company and of public officials.
(d) On the date of the Prospectus at a time prior to the execution of this
Agreement, at 9:30 a.m., New York City time, on the effective date of any
post-effective amendment to the Registration Statement filed subsequent to the
date of this Agreement and also at each Time of Delivery, Price Waterhouse LLP
shall have furnished to you a letter or letters, dated the respective dates of
delivery thereof, in form and substance satisfactory to you, to the effect set
forth in Annex I hereto (the executed copy of the letter delivered prior to the
execution of this Agreement is attached as Annex I(a) hereto and a draft of the
form of letter to be delivered on the effective date of any post-effective
amendment to the Registration Statement and as of each Time and Delivery is
attached as Annex I(b) hereto);
(e) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements included in
the Prospectus any loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise than as set
forth or contemplated in the Prospectus, and (ii) since the respective dates as
of which information is given in the Prospectus there shall not have been any
change in the capital stock or long-term debt of the Company or any of its
subsidiaries or any change, or any development which is reasonably likely to
result in a prospective change, in or affecting the general affairs, management,
business, properties, financial condition or results of operations of the
Company and its subsidiaries taken as a whole, otherwise than as set forth or
contemplated in the Prospectus, the effect of which, in any such case described
in Clause (i) or (ii), is in the judgment of the Representatives so material and
adverse as to make it impracticable or inadvisable to proceed with the public
offering or the delivery of the Shares being delivered at such Time of Delivery
on the terms and in the manner contemplated in the Prospectus;
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(f) On or after the date hereof there shall not have occurred any of the
following: (i) a suspension or material limitation in trading in securities
generally on the New York Stock Exchange or NASDAQ; (ii) a suspension or
material limitation in trading in the Company's securities on NASDAQ; (iii) a
general moratorium on commercial banking activities declared by either Federal
or New York State authorities; or (iv) the outbreak or escalation of hostilities
involving the United States or the declaration by the United States of a
national emergency or war, if the effect of any such event specified in this
Clause (iv) in the judgment of the Representatives makes it impracticable or
inadvisable to proceed with the public offering or the delivery of the Shares
being delivered at such Time of Delivery on the terms and in the manner
contemplated in the Prospectus;
(g) The Shares to be sold at such Time of Delivery shall have been duly
listed for quotation on NASDAQ;
(h) The Company shall have obtained and delivered to the Underwriters
executed copies of an agreement from the stockholders and optionholders listed
on Annex III hereto, substantially to the effect that during the period
beginning from the date hereof and continuing to and including the date 180 days
after the date of the Prospectus, such stockholder or optionholder shall not
offer, sell, contract to sell or otherwise dispose of, except as provided
hereunder, any Stock, or any securities of the Company that are substantially
similar to the Shares, including but not limited to any securities that are
convertible into or exchangeable for, or that represent the right to receive,
Stock or any such substantially similar securities (other than pursuant to
employee stock option plans existing on the date of this Agreement), without
your prior written consent;
(i) The Company shall have complied with the provisions of Section 5(c)
hereof with respect to the furnishing of prospectuses on the New York Business
Day next succeeding the date of this Agreement; and
(j) The Company shall have furnished or caused to be furnished to you at
such Time of Delivery certificates of officers of the Company satisfactory to
you as to the accuracy of the representations and warranties of the Company
herein at and as of such Time of Delivery, as to the performance by the Company
of all of its obligations hereunder to be performed at or prior to such Time of
Delivery, as to the matters set forth in subsections (a) and (e) of this Section
and as to such other matters as you may reasonably request.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon (i) an untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (ii) an untrue statement or alleged untrue
statement of a material fact contained in any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, and will reimburse
each Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such
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action or claim as such expenses are incurred; PROVIDED, HOWEVER, that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by any Underwriter through Goldman, Sachs & Co.
expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company against
any losses, claims, damages or liabilities to which the Company may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through Goldman, Sachs & Co.
expressly for use therein; and will reimburse the Company for any legal or other
expenses reasonably incurred by the Company in connection with investigating or
defending any such action or claim as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection (a) or
(b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and,
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under such subsection for any legal expenses of
other counsel or any other expenses, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall, without the written
consent of the indemnified party, effect the settlement or compromise of, or
consent to the entry of any judgment with respect to, any pending or threatened
action or claim in respect of which indemnification or contribution may be
sought hereunder (whether or not the indemnified party is an actual or potential
party to such action or claim) unless such settlement, compromise or judgment
(i) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 8 is unavailable
to or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above in respect of any losses,
14
<PAGE>
claims, damages or liabilities (or actions in respect thereof) referred to
therein, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is appropriate
to reflect the relative benefits received by the Company on the one hand and the
Underwriters on the other from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law or if the indemnified party failed to give the notice required
under subsection (c) above, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other shall be deemed to be
in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company on the
one hand or the Underwriters on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Underwriters agree that it would not
be just and equitable if contributions pursuant to this subsection (d) were
determined by PRO RATA allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this
subsection (d). The amount paid or payable by an indemnified party as a result
of the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Shares underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company (including any
person who is named in the Registration Statement as about to become a director
of the Company) and to each person, if any, who controls the Company within the
meaning of the Act.
15
<PAGE>
8A. (a) The Company agrees to indemnify and hold harmless Goldman,
Sachs & Co., in its capacity as Qualified Independent Underwriter ("QIU"),
against any losses, claims, damages or liabilities, joint or several, to which
the QIU may become subject, under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon (i)(A) an untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (B) an untrue statement or alleged untrue
statement of a material fact contained in any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, or (ii) any claim,
action, suit or proceeding relating to or arising out of the initial offering
and sale of the Shares by the Underwriters, and will reimburse the QIU for any
legal or other expenses reasonably incurred by the QIU in connection with
investigating or defending any such action or claim as such expenses are
incurred.
(b) Promptly after receipt by the QIU under subsection (a) above of
notice of the commencement of any action, the QIU shall, if a claim in respect
thereof is to be made against the Company under such subsection, notify the
Company in writing of the commencement thereof; but the omission so to notify
the Company shall not relieve the Company from any liability that the Company
may have to the QIU otherwise than under such subsection. In case any such
action shall be brought against the QIU and the QIU shall notify the Company of
the commencement thereof, the Company shall be entitled to participate therein
and, to the extent that the Company shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to the QIU (who shall not, except with the consent of the
QIU, be counsel to the Company), and, after notice from the Company to the QIU
of its election so to assume the defense thereof, the Company shall not be
liable to the QIU under such subsection for any legal expenses of other counsel
or any other expenses, in each case subsequently incurred by the QIU, in
connection with the defense thereof other than reasonable costs of
investigation. The Company shall not, without the written consent of the QIU,
effect the settlement or compromise of, or consent to the entry of any judgment
with respect to, any pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder (whether or not the QIU
is an actual or potential party to such action or claim) unless such settlement,
compromise or judgment (i) includes an unconditional release of the QIU from all
liability arising out of such action or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act by or
on behalf of the QIU.
(c) If the indemnification provided for in this Section 8A is
unavailable to or insufficient to hold harmless Goldman, Sachs & Co., in its
capacity as QIU, under subsection (a) above in respect of any losses, claims,
damages or liabilities (or actions in respect thereof) referred to therein, then
the Company shall contribute to the amount paid or payable by the QIU as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) (i) in the case of subsection (a)(i), in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the QIU on the other from the offering of the Shares and (ii) in the
case of subsection (a)(ii), the Company shall contribute the entire amount by
which such indemnification is unavailable or insufficient, it being understood
and agreed that as between the
16
<PAGE>
Company on the one hand and the QIU on the other, the Company is the sole
beneficiary of the initial offering and sale of the Shares contemplated by the
Prospectus. If, however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law or if the QIU failed to give the
notice required under subsection (b) above, then the Company shall contribute to
such amount paid or payable by the QIU in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of the
Company on the one hand and the QIU on the other in connection with the
statements or omissions that resulted in such losses, claims, damages or
liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the QIU on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses) received
by the Company, as set forth in the table on the cover page of the Prospectus,
bear to the fee payable to the QIU pursuant to Section 2 hereof. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
on the one hand or the QIU on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct to prevent such
statement or omission. The Company and the QIU agree that it would not be just
and equitable if contribution pursuant to subsection (c)(i) were determined by
PRO RATA allocation or any other method of allocation that does not take account
of the equitable considerations referred to above in this subsection (c). The
amount paid or payable by the QIU as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above in this subsection
(c) shall be deemed to include any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action or claim. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
(d) The obligations of the Company under this Section 8A shall be in
addition to any liability that the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls the QIU
within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase
the Shares which it has agreed to purchase hereunder at a Time of Delivery, you
may in your discretion arrange for you or another party or other parties to
purchase such Shares on the terms contained herein. If within thirty-six hours
after such default by any Underwriter you do not arrange for the purchase of
such Shares, then the Company shall be entitled to a further period of
thirty-six hours within which to procure another party or other parties
satisfactory to you to purchase such Shares on such terms. In the event that,
within the respective prescribed periods, you notify the Company that you have
so arranged for the purchase of such Shares, or the Company notifies you that it
has so arranged for the purchase of such Shares, you or the Company shall have
the right to postpone such Time of Delivery for a period of not more than seven
days, in order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any amendments to the
Registration Statement or the Prospectus which in your opinion may thereby be
made necessary. The term "Underwriter" as used in this Agreement shall include
any person substituted under this Section with like effect as if such person had
originally been a party to this Agreement with respect to such Shares.
17
<PAGE>
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased does not exceed one-eleventh of the aggregate number of all
the Shares to be purchased at such Time of Delivery, then the Company shall have
the right to require each non-defaulting Underwriter to purchase the number of
shares which such Underwriter agreed to purchase hereunder at such Time of
Delivery and, in addition, to require each non-defaulting Underwriter to
purchase its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased exceeds one-eleventh of the aggregate number of all the
Shares to be purchased at such Time of Delivery, or if the Company shall not
exercise the right described in subsection (b) above to require non-defaulting
Underwriters to purchase Shares of a defaulting Underwriter or Underwriters,
then this Agreement (or, with respect to the Second Time of Delivery, the
obligations of the Underwriters to purchase and of the Company to sell the
Optional Shares) shall thereupon terminate, without liability on the part of any
non-defaulting Underwriter or the Company, except for the expenses to be borne
by the Company and the Underwriters as provided in Section 6 hereof and the
indemnity and contribution agreements in Section 8 hereof; but nothing herein
shall relieve a defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the several Underwriters, as set forth
in this Agreement or made by or on behalf of them, respectively, pursuant to
this Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person of any Underwriter, or the Company,
or any officer or director or controlling person of the Company, and shall
survive delivery of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
the Company shall not then be under any liability to any Underwriter except as
provided in Sections 6 and 8 hereof; but, if for any other reason, any Shares
are not delivered by or on behalf of the Company as provided herein, the Company
will reimburse the Underwriters through you for all out-of-pocket expenses
approved in writing by you, including fees and disbursements of counsel,
reasonably incurred by the Underwriters in making preparations for the purchase,
sale and delivery of the Shares not so delivered, but the Company shall then be
under no further liability to any Underwriter except as provided in Sections 6
and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives.
18
<PAGE>
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 85 Broad Street, New York, New York 10004, Attention: Registration
Department; and if to the Company shall be delivered or sent by mail to the
address of the Company set forth in the Registration Statement, Attention: CEO
(and a copy thereof shall be sent to Brobeck, Phleger & Harrison LLP, 1633
Broadway, 47th Floor, New York, New York 10019, Attention: Alexander D. Lynch,
Esq.); provided, however, that any notice to an Underwriter pursuant to Section
8(c) hereof shall be delivered or sent by mail, telex or facsimile transmission
to such Underwriter at its address set forth in its Underwriters' Questionnaire,
or telex constituting such Questionnaire, which address will be supplied to the
Company by you upon request. Any such statements, requests, notices or
agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and, to the extent provided in Sections 8 and
10 hereof, the officers and directors of the Company and each person who
controls the Company or any Underwriter, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Shares from any Underwriter shall be deemed a successor or assign by reason
merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
19
<PAGE>
If the foregoing is in accordance with your understanding, please sign and
return to us seven counterparts hereof, and upon the acceptance hereof by you,
on behalf of each of the Underwriters, this letter and such acceptance hereof
shall constitute a binding agreement among each of the Underwriters and the
Company. It is understood that your acceptance of this letter on behalf of each
of the Underwriters is pursuant to the authority set forth in a form of
Agreement among Underwriters, the form of which shall be submitted to the
Company for examination upon request, but without warranty on your part as to
the authority of the signers thereof.
Very truly yours,
DOUBLECLICK INC.
By:
---------------------------------
Name:
Title:
Accepted as of the date hereof at
New York, New York
Goldman, Sachs & Co.
BT Alex. Brown Incorporated
Cowen & Company
By:
--------------------------------
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
20
<PAGE>
SCHEDULE I
NUMBER OF OPTIONAL
SHARES TO BE
TOTAL NUMBER OF PURCHASED IF
FIRM SHARES OPTION
UNDERWRITER TO BE PURCHASED EXERCISED
Goldman, Sachs & Co. . . . . . . . . . . . . . . . . . . . . .
BT Alex. Brown Incorporated . . . . . . . . . . . . . . . . . .
Cowen & Company . . . . . . . . . . . . . . . . . . . . . . . .
------------------------ --------------
Total 2,500,000 375,000
21
<PAGE>
ANNEX I
COMFORT LETTER
22
<PAGE>
FORM OF ANNEX I DESCRIPTION OF COMFORT LETTER
FOR REGISTRATION STATEMENTS ON FORM S-1
Pursuant to Section 7(e) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect
to the Company and its subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules (and, if applicable,
financial forecasts and/or pro forma financial information) examined by
them and included in the Prospectus or the Registration Statement comply as
to form in all material respects with the applicable accounting
requirements of the Act and the related published rules and regulations
thereunder; and, if applicable, they have made a review in accordance with
standards established by the American Institute of Certified Public
Accountants of the unaudited consolidated interim financial statements,
selected financial data, pro forma financial information, financial
forecasts and/or condensed financial statements derived from audited
financial statements of the Company for the periods specified in such
letter, as indicated in their reports thereon, copies of which have been
specifically furnished to the representatives of the Underwriters (the
"Representatives") and are attached hereto;
(iii) They have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of
the unaudited condensed consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows included in the
Prospectus as indicated in their reports thereon copies of which have been
separately furnished to the Representatives and are attached hereto and on
the basis of specified procedures including inquiries of officials of the
Company who have responsibility for financial and accounting matters
regarding whether the unaudited condensed consolidated financial statements
referred to in paragraph (vi)(A)(i) below comply as to form in all material
respects with the applicable accounting requirements of the Act and the
23
<PAGE>
related published rules and regulations, nothing came to their attention
that cause them to believe that the unaudited condensed consolidated
financial statements do not comply as to form in all material respects with
the applicable accounting requirements of the Act and the related published
rules and regulations;
(iv) The unaudited selected financial information with respect to
the consolidated results of operations and financial position of the
Company for the five most recent fiscal years included in the Prospectus
agrees with the corresponding amounts (after restatements where applicable)
in the audited consolidated financial statements for such five fiscal years
which were included or incorporated by reference in the Company's Annual
Reports on Form 10-K for such fiscal years;
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K and on
the basis of limited procedures specified in such letter nothing came to
their attention as a result of the foregoing procedures that caused them to
believe that this information does not conform in all material respects
with the disclosure requirements of Items 301, 302, 402 and 503(d),
respectively, of Regulation S-K;
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available interim
financial statements of the Company and its subsidiaries, inspection of the
minute books of the Company and its subsidiaries since the date of the
latest audited financial statements included in the Prospectus, inquiries
of officials of the Company and its subsidiaries responsible for financial
and accounting matters and such other inquiries and procedures as may be
specified in such letter, nothing came to their attention that caused them
to believe that:
(A) (i) the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of the Act and
the related published rules and regulations, or (ii) any material
modifications should be made to the unaudited condensed consolidated
statements of income, consolidated balance sheets and consolidated
statements of cash flows included in the Prospectus for them to be in
conformity with generally accepted accounting principles;
(B) any other unaudited income statement data and balance
sheet items included in the Prospectus do not agree with the
corresponding items in the unaudited consolidated financial statements
from which such data and
24
<PAGE>
items were derived, and any such unaudited data and items were not
determined on a basis substantially consistent with the basis for the
corresponding amounts in the audited consolidated financial statements
included in the Prospectus;
(C) the unaudited financial statements which were not
included in the Prospectus but from which were derived any unaudited
condensed financial statements referred to in Clause (A) and any
unaudited income statement data and balance sheet items included in
the Prospectus and referred to in Clause (B) were not determined on a
basis substantially consistent with the basis for the audited
consolidated financial statements included in the Prospectus;
(D) any unaudited pro forma consolidated condensed
financial statements included in the Prospectus do not comply as to
form in all material respects with the applicable accounting
requirements of the Act and the published rules and regulations
thereunder or the pro forma adjustments have not been properly applied
to the historical amounts in the compilation of those statements;
(E) as of a specified date not more than five days prior to
the date of such letter, there have been any changes in the
consolidated capital stock (other than issuances of capital stock upon
exercise of options and stock appreciation rights, upon earn-outs of
performance shares and upon conversions of convertible securities, in
each case which were outstanding on the date of the latest financial
statements included in the Prospectus) or any increase in the
consolidated long-term debt of the Company and its subsidiaries, or
any decreases in consolidated net current assets or stockholders'
equity or other items specified by the Representatives, or any
increases in any items specified by the Representatives, in each case
as compared with amounts shown in the latest balance sheet included in
the Prospectus, except in each case for changes, increases or
decreases which the Prospectus discloses have occurred or may occur or
which are described in such letter; and
(F) for the period from the date of the latest financial
statements included in the Prospectus to the specified date referred
to in Clause (E) there were any decreases in consolidated net revenues
or operating profit or the total or per share amounts of consolidated
net income or other items specified by the Representatives, or any
increases in any items specified by the Representatives, in each case
as compared with the comparable period of the preceding year and with
any other period of corresponding length specified by the
Representatives, except in each case for decreases or
25
<PAGE>
increases which the Prospectus discloses have occurred or may occur or
which are described in such letter; and
(vii) In addition to the examination referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of minute
books, inquiries and other procedures referred to in paragraphs (iii) and
(vi) above, they have carried out certain specified procedures, not
constituting an examination in accordance with generally accepted auditing
standards, with respect to certain amounts, percentages and financial
information specified by the Representatives, which are derived from the
general accounting records of the Company and its subsidiaries, which
appear in the Prospectus, or in Part II of, or in exhibits and schedules
to, the Registration Statement specified by the Representatives, and have
compared certain of such amounts, percentages and financial information
with the accounting records of the Company and its subsidiaries and have
found them to be in agreement.
26
<PAGE>
ANNEX II(A)
OPINION OF HALE AND DORR LLP
27
<PAGE>
ANNEX II(B)
OPINION OF BROBECK, PHLEGER & HARRISON LLP
28
<PAGE>
ANNEX III
PERSONS SUBJECT TO LOCK-UP AGREEMENTS
29
<PAGE>
Exhibit 4.3
CONVERTIBLE PROMISSORY NOTE
$5,000,000 June 4, 1997
New York, New York
FOR VALUE RECEIVED, DoubleClick Inc., a Delaware corporation (the
"Maker"), promises to pay to the order of Bozell, Jacobs, Kenyon & Eckhardt,
Inc., a Delaware corporation (the "Holder"), the principal amount of FIVE
MILLION DOLLARS ($5,000,000) plus interest on such principal amount at the
interest rate, in the manner and at the times set forth below.
1. Interest Rate. The Maker hereby agrees to pay interest to the Holder in
respect of the unpaid principal balance of this Note at a per annum rate equal
to the "Federal Short-Term Rate" (as defined in Section 1274(d) of the Internal
Revenue Code of 1986, as amended from time to time, and as published from time
to time by the Department of the Treasury, Internal Revenue Service in the
Internal Revenue Bulletin) (the "Interest Rate"). Any change in the Interest
Rate resulting from a change in the Federal Short-Term Rate shall be
automatically effective on the effective date (rather than the publication date)
of each such change in the Federal Short-Term Rate. Such interest shall accrue
on the unpaid principal balance of this Note from and after the date hereof and
shall be payable quarterly with the first quarterly interest payment due on
September 30, 1997 and succeeding quarterly interest payments due on the last
Business Day of each December, March, June and September thereafter (each an
"Interest Payment Date"). All computations of interest hereunder shall be made
on the basis of a year of 360 days for the actual number of days (including the
first but excluding the last day) occurring in the period for which such
interest is payable.
2. Term. The term of this Note shall be three years from the date hereof.
All unpaid principal, together with any and all accrued and unpaid interest,
shall be due and payable on June 4, 2000 (the "Maturity Date").
3. Payment. Any payment hereunder shall be applied first to the payment of
costs and charges of collection, if any, then to accrued interest, and the
balance, if any, shall be then applied to reduction of principal. Principal and
interest are payable only in lawful money of the United States of America.
4. Late Payment. The Maker agrees that if for any reason it fails to pay
any amount due at any Interest Payment Date, at the Maturity Date or upon the
occurrence of an Event of Default, within five (5) business days after such
date, the Holder shall be entitled to damages for the detriment caused thereby,
the extent of which damages are extremely difficult and impractical to
ascertain. The Maker therefore agrees to pay default interest on such delinquent
amount at a per annum rate equal to the Federal Short Term Rate plus 1%.
<PAGE>
Acceptance of such default interest by the Holder shall in no event constitute a
waiver of the Makers' default with respect to such overdue amount nor prevent
the Holder from exercising any of the other rights and remedies granted
hereunder. Acceptance by the Holder of any payment under this Note after the
date that such payment is due shall not constitute a waiver of the right to
declare a default as herein provided for any failure to so pay.
5. Subordination. (a) The payment of principal of and interest under this
Note is subordinated, to the extent and in the manner hereinafter set forth, in
right of payment to the payment of all Senior Indebtedness. These subordination
provisions are made for the benefit of all parties who, in reliance upon such
provisions, are holders of, become holders of or continue to hold Senior
Indebtedness, and they or any of them may proceed to enforce such provisions
against the Holder without the necessity of joining the Maker as a party. The
Holder and any transferee of the Note agree to confirm in writing to any holder
of Senior Indebtedness or any prospective holder of Senior Indebtedness
identified to the Holder or such transferee by the Company the subordination
provisions set forth in this Section 5.
(b) The term "Senior Indebtedness" as used herein means and includes
indebtedness of the Maker, including interest and penalties thereon, for money
borrowed by the Maker from any commercial lender or institutional investor,
whether outstanding on the date hereof or thereafter created or incurred, which
is not by its terms subordinate and junior to or ranking pari passu with this
Note.
(c) In the event of any distribution of assets upon any dissolution,
winding up, liquidation, or reorganization of the Maker (whether in bankruptcy,
insolvency, or receivership proceedings), or upon any assignment for the benefit
of creditors, all Senior Indebtedness shall first be paid in full before any
payment shall be made by the Maker in respect of the principal of or interest
then owed under this Note. Any such payment or distribution which, but for the
provisions hereof, would be payable or deliverable in respect of the Note, shall
be paid or delivered directly to the holders of Senior Indebtedness or their
representatives, in the proportions in which they hold the same, until all
Senior Indebtedness shall have been paid in full, and the Holder and any
transferee of the Note by becoming a holder thereof shall be deemed to have
designated and appointed each holder or holders of Senior Indebtedness (and
their duly authorized representatives) as it agents and attorneys-in-fact to
file any necessary proof of claim not otherwise filed.
(d) During the periods specified below, no payment of principal, premium
or interest on the Note shall be made by the Maker or accepted by the Holder who
has received notice from a holder of Senior Indebtedness of a default under the
terms of such Senior Indebtedness: (i) for a 180-day period commencing upon
default in the payment of any principal or interest on the Senior Indebtedness
held by such holder, but any such period shall end earlier upon payment or the
curing or written waiver of the default or (ii) during any period which such
holder of Senior Indebtedness is prosecuting judicial proceedings to collect any
principal or interest on such Senior Indebtedness.
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(e) If in violation of the terms of this subordination, any Holder or
transferee of the Note receives payment before all Senior Indebtedness is paid
in full, such payment shall be held in trust for and paid ratably to the holder
of Senior Indebtedness or their representatives until all Senior Indebtedness
shall have been paid in full.
(f) Upon the payment in full of all Senior Indebtedness, the Holder or
transferee of the Note shall be subrogated to the rights of the holders of
Senior Indebtedness to receive payments or distributions of assets of the Maker
applicable to Senior Indebtedness. No such payments or distributions applicable
to the Senior Indebtedness shall, as between the Maker, its creditors (other
than holders of Senior Indebtedness) and the holder of the Note shall be deemed
to be a payment by the Maker to or on account of the Note.
6. Default/Acceleration. If any one or more of the following events shall
occur (hereinafter called an "Event of Default"), namely: (i) the Maker shall
become insolvent, or shall be unable to pay its debts as they mature; or shall
admit in writing its inability to pay its debts as they mature; or shall make an
assignment for the benefit of its creditors; or shall file or commence or have
filed or commenced against it any proceeding for any relief under any bankruptcy
or insolvency law or any law or laws relating to the relief of debtors which is
not dismissed or stayed within 60 days of the filing or commencement thereof,
readjustment of indebtedness, reorganizations, compositions or extensions, or a
receiver or trustee shall be appointed for the undersigned; (ii) the Maker shall
dissolve, or otherwise wind-up its affairs; or (iii) the Maker shall enter into
any transaction of merger or consolidation into or with another corporation,
THEN, upon the occurrence of any such Event of Default, or upon the expiration
of the term of this Note, the Holder at its election, and without presentment,
demand, notice of any kind, all of which are expressly waived by the Maker, may
declare the entire outstanding balance of principal and interest thereon
immediately due and payable, together with all costs of collection, including
attorneys' fees, or may exercise upon or enforce its rights, to the fullest
extent permitted by applicable law.
7. No Waiver By Holder. The acceptance by the Holder of any payment under
this Note after the date such payment is due, or the failure to declare an Event
of Default as herein provided, shall not constitute a waiver of any of the terms
of this Note or the right to require the prompt payment when due of future or
succeeding payments or to declare an Event of Default for any failure to so pay
or for any other default.
8. Attorney's Fees And Costs. In the event the Holder takes any action to
enforce any provision of this Note, either through legal proceedings or
otherwise, the Maker promises to immediately reimburse the Holder for reasonable
attorneys' fees and all other costs and expenses so incurred. The Maker shall
also reimburse Holder for all attorneys' fees and costs reasonably incurred in
the representation of the Holder in any bankruptcy, insolvency, reorganization
or other debtor-relief proceeding of or relating to the Maker, or for any action
to enforce any judgment rendered hereon or relating to enforcement hereof.
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9. Waivers. The Maker of this Note hereby waives diligence, demand,
presentment, notice of non-payment, protest and notice of protest and expressly
agrees that this Note, or any payment hereunder, may be renewed, modified or
extended from time to time and at any time, all without in any way affecting its
liability.
10. Prepayment. (a) The Maker may voluntarily prepay this Note in whole or
in part on any Prepayment Date without premium or penalty.
(b) Following the receipt by the Maker of cash proceeds referred to in
this subpart (b), the Maker shall prepay the principal amount of this Note in an
amount equal to 30% of the cash proceeds to the Maker from any sale or issuance
by the Maker of shares of its capital stock after the date hereof; provided,
that prepayment under this subpart (b) shall only be required if the product of
(i) the price per share of capital stock paid in consideration of such sale or
issuance and (ii) the number of shares of capital stock then outstanding on a
fully-diluted basis (assuming conversion of all convertible shares and exercise
of all options to purchase capital stock) is $70,000,000 or more. Any prepayment
pursuant to this subpart (b) must take place on a Prepayment Date.
(c) Following the date of any voluntary or involuntary liquidation,
dissolution or winding-up or sale of substantially all the assets or capital
stock of the Maker it shall prepay the principal amount of this Note in an
amount equal to any assets which are available for distribution to its holders
of capital stock to the extent such assets exceed $70,000,000. Any prepayment
pursuant to this subpart (c) must take place on a Prepayment Date.
(d) In no event shall the amount required to be prepaid under subparts (b)
and (c) above exceed an amount equal to the sum of (i) unpaid principal and
accrued and unpaid interest evidenced hereby and (ii) costs and charges payable
hereunder.
11. Conversion. (a) At any time prior to the Maturity Date, the unpaid
principal balance of this Note shall be convertible, at the option of the
Holder, and without payment of any additional consideration therefor, into that
number of fully paid and nonassessable shares of Common Stock as is determined
by dividing the unpaid principal balance of this Note by the Conversion Price in
effect at the time of such conversion. The "Conversion Price" shall initially be
$3.208 and shall be subject to adjustment (in order to adjust the number of
shares of Common Stock into which the unpaid principal balance of this Note is
convertible) as hereinafter provided.
(b) In order for the Holder to convert the unpaid principal balance of
this Note into shares of Common Stock, the Holder must surrender this Note to
the Maker, at the Maker's Notice Address, together with written notice that the
Holder elects to convert the unpaid principal balance of this Note into Common
Stock. Such notice shall state the Holder's name or the names of nominees as the
name or names in which the Holder wishes the certificate or certificates for
shares of Common Stock to be issued. If required by the Maker, upon surrender,
this Note shall be endorsed or accompanied by a written instrument or
instruments of transfer,
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in form reasonably satisfactory to the Maker, duly executed by the Holder or its
attorney duly authorized in writing. The date of receipt by the Maker of this
Note and above-described notice shall be the conversion date (the "Conversion
Date") and the conversion shall be deemed effective as of the close of business
on the Conversion Date. No fractional shares of Common Stock shall be issued
upon conversion of the unpaid principal balance of this Note. The Maker shall,
as soon as practicable, and no more than five Business Days, after the
Conversion Date, issue and deliver to the Holder, or to its nominees, a
certificate or certificates for the number of shares of Common Stock to which
the Holder shall be entitled, together with an amount of cash in lieu of any
fraction of a share (to which the Holder would otherwise be entitled but for the
preceding sentence) which shall be equal to the product of such fraction
multiplied by the Conversion Price. If Common Stock is to be issued to a person
other than the Holder, such person or the Holder shall pay all applicable stock
transfer taxes.
(c) The Maker shall at all times prior to the Maturity Date, reserve and
keep available out of its authorized but unissued stock, for the purpose of
effecting the conversion of this Note, such number of its duly authorized shares
of Common Stock as shall from time to time be sufficient to effect the
conversion of all this Note into Common Stock pursuant to this Section 11.
Before taking any action that would cause an adjustment reducing the Conversion
Price below the then-existing par value of the shares of Common Stock issuable
upon conversion of the Preferred Stock, the Maker shall take any corporate
action that may, in the opinion of its counsel, be necessary in order that the
Maker may validly and legally issue fully paid and nonassessable shares of
Common Stock at such adjusted Conversion Price.
(d) Upon surrender of this Note for conversion as herein provided, this
Note shall no longer be deemed to be outstanding and all rights of the Holder
with respect to this Note shall immediately cease and terminate at the close of
business on the Conversion Date (except the right of the Holder to receive (i)
shares of Common Stock in exchange therefor (ii) unpaid interest accrued prior
to conversion and (iii) any costs and charges payable hereunder).
(e) No adjustment shall be made in the Conversion Price as the result of
the issuance of Additional Shares of Common Stock or otherwise, unless the
consideration per share determined pursuant to subpart (h) of this Section 11
for an Additional Share of Common Stock issued or deemed to be issued by the
Maker is less than the Conversion Price in effect on the date of, and
immediately prior to, the issuance of such Additional Shares of Common Stock.
(f) If the Maker at any time or from time to time shall issue any Options
or Convertible Securities, or shall fix a record date for the determination of
holders of any class of securities entitled to receive any such Options or
Convertible Securities, then the maximum number of shares of Common Stock (as
set forth in the instrument relating thereto without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or, in the case of Convertible Securities and Options
therefor, the conversion or exchange of such Convertible Securities, shall be
deemed to be Additional Shares of Common Stock issued as of the time of such
issue or, in case such a record date shall have been fixed, as of the close of
business on such record date, provided, that Additional
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Shares of Common Stock shall not be deemed to have been issued unless the
consideration per share determined pursuant to subpart (h) of this Section 11 of
such Additional Shares of Common Stock would be less than the Conversion Price
in effect on the date of and immediately prior to such issue, or such record
date, as the case may be, and provided, further, that in any such case in which
Additional Shares of Common Stock are deemed to be issued:
(i) no further adjustment in the Conversion Price shall be
made upon the subsequent issue of Convertible Securities or shares
of Common Stock upon the exercise of such Options or conversion or
exchange of such Convertible Securities;
(ii) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in
the consideration payable to the Maker, or decrease in the number of
shares of Common Stock issuable, upon the exercise, conversion or
exchange thereof, the Conversion Price computed upon the original
issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon
any such increase or decrease becoming effective, be recomputed to
reflect such increase or decrease insofar as it affects such Options
or the right of conversion or exchange under such Convertible
Securities.
(iii) upon the expiration of any such Options or any rights of
conversion or exchange under such Convertible Securities which shall
not have been exercised, the Conversion Price computed upon the
original issue thereof (or upon the occurrence of a record date with
respect thereto) and any subsequent adjustments based thereon shall,
upon such expiration, be recomputed as if: (A) in the case of
Convertible Securities or Options for Common Stock, the only
Additional Shares of Common Stock issued were the shares of Common
Stock, if any, actually issued upon the exercise of such Options or
the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually
received by the Maker for the issue of all such Options, whether or
not exercised, plus the consideration actually received by the Maker
upon such exercise, or for the issue of all such Convertible
Securities which were actually converted or exchanged, plus the
additional consideration, if any, actually received by the Maker
upon such conversion or exchange and (B) in the case of Options for
Convertible Securities, only the Convertible Securities, if any,
actually issued upon the exercise thereof were issued at the time of
issue of such Options, and the consideration received by the Maker
for the Additional Shares of Common Stock deemed to have been then
issued was the consideration actually received by the Maker for the
issue of all such Options, whether or not exercised, plus the
consideration deemed to have been received by the Maker determined
pursuant to subpart (h) of this Section 11 upon the issue of the
Convertible Securities with respect to which such Options were
actually exercised;
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(iv) no recomputation pursuant to the preceding clauses (ii)
and (iii) shall have the effect of increasing the Conversion Price
to an amount that exceeds the lower of (x) the Conversion Price on
the original adjustment date with respect to the original issuance
of such Options or Convertible Securities, or (y) the Conversion
Price that would have resulted from any issuance of Additional
Shares of Common Stock between the original adjustment date with
respect to the original issuance of such Options or Convertible
Securities and such recomputation date;
(v) in the case of any Options which expire by their terms not
more than thirty (30) days after the date of issue thereof, no
adjustment of the Conversion Price shall be made until the
expiration or exercise of all such Options, whereupon such
adjustment shall be made in the same manner provided in clause (iii)
above; and
(vi) if such record date have been fixed and such Options or
Convertible Securities are not issued on the date fixed therefor,
the adjustment previously made in the Conversion Price which became
effective on such record date shall be canceled as of the close of
business on such record date, and thereafter the Conversion Price
shall be adjusted pursuant to this subpart (f) as of the actual date
of their issuance.
(g) In the event the Maker at any time or from time to time after the date
hereof shall declare or pay any dividend or make any other distribution on the
Common Stock payable in Common Stock, or effect a subdivision of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in Common Stock), then and in any such event, Additional Shares of
Common Stock shall be deemed to have been issued: (i) in the case of any such
dividend or distribution, immediately after the close of business on the record
date for the determination of holders of any class of securities entitled to
receive such dividend or distribution, or (ii) in the case of any such
subdivision, at the close of business on the date immediately prior to the date
upon which such corporate action becomes effective. If such record date shall
have been fixed and such dividend shall not have been fully paid on the date
fixed therefor, the adjustment previously made in the Conversion Price which
became effective on such record date shall be canceled as of the close of
business on such record date, and thereafter the Conversion Price shall be
adjusted pursuant to this subpart (g) as of the time of actual payment of such
dividend.
(h) If the Maker shall issue Additional Shares of Common Stock, including
Additional Shares of Common Stock deemed to be issued pursuant to subpart (f) of
this Section 11, but excluding Additional Shares of Common Stock issued pursuant
to subpart (g) of this Section 11, which event is dealt with in subpart (j) of
this Section 11, without consideration or for a consideration per share less
than the Conversion Price in effect on the date of and immediately prior to such
issuer, then and in such event, such Conversion Price shall be reduced,
concurrently with such issue in order to increase the number of shares of Common
Stock into
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which this Note is convertible, to a price (calculated to the nearest cent)
determined by multiplying such Conversion Price by a fraction (x) the numerator
of which shall be (A) the number of shares of Common Stock outstanding
immediately prior to such issue (including shares of Common Stock issuable upon
conversion of any outstanding Options or Convertible Securities), plus (B) the
number of shares of Common Stock which the aggregate consideration received by
the Maker for the total number of Additional Shares of Common Stock so issued
would purchase at such Conversion Price, and (y) the denominator of which shall
be (A) the number of shares of Common Stock outstanding immediately prior to
such issue (including shares of Common Stock issuable upon conversion of any
outstanding Options or Convertible Securities), plus (B) the number of such
Additional Shares of Common Stock so issued, provided that the Conversion Price
shall not be so reduced at such time if the amount of such reduction would be an
amount less than $.001, but any such amount shall be carried forward and
reduction with respect thereto made at the time of and together with any
subsequent reduction which, together with such amount and any other amounts so
carried forward, shall aggregate $.001 or more.
(i) For purposes of this subpart (i), the consideration received by the
Maker for the issue of any Additional Shares of Common Stock shall be computed
as follows:
(i) Such consideration shall: (A) insofar as it consists of
cash, be computed at the aggregate of cash received by the Maker,
excluding amounts paid or payable for accrued interest or accrued
dividends; (B) insofar as it consists of property other than cash,
be computed at the fair market value thereof at the time of such
issue, as determined in good faith by the Board of Directors of the
Maker; and (C) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets of
the Maker for consideration which covers both, be the proportion of
such consideration so received, computed as provided in the
foregoing clauses (A) and (B), as determined in good faith by the
Board of Directors of the Maker.
(ii) The consideration per share received by the Corporation
for Additional Shares of Common Stock deemed to have been issued
pursuant to Section subpart (f) of this Section 11, relating to
Options and Convertible Securities, shall be determined by dividing:
(A) the total amount, if any, received or receivable by the Maker as
consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent
adjustment of such consideration until such subsequent adjustment
occurs) payable to the Maker upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in the
case of Options for Convertible Securities and the conversion or
exchange of such Convertible Securities, or in the case of Options
for Convertible Securities, the exercise of such Options for
Convertible Securities and the conversion or exchange of such
Convertible Securities, by (B) the maximum
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number of shares of Common Stock (as set forth in the instruments
relating thereto, without regard to any provision contained therein
for a subsequent adjustment of such number until such subsequent
adjustment occurs) issuable upon the exercise of such Options or the
conversion or exchange of such Convertible Securities.
(j) In the event the outstanding shares of Common Stock shall be split,
subdivided, combined or consolidated, by reclassification or otherwise, into a
greater or lesser number of shares of Common Stock, and in the event that the
Maker shall issue shares of Common Stock by way of stock dividend or other
distribution to the holders of Common Stock, the Conversion Price in effect
immediately prior to such split, subdivision, stock dividend, combination or
consolidation shall, concurrently with the effectiveness of such split,
subdivision, stock dividend, combination or consolidation, be increased or
decreased proportionately.
(k) Upon the occurrence of each adjustment or readjustment of the
Conversion Price pursuant to this Section 11, the Maker at its expense shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and furnish to the Holder a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Maker shall, upon the written request at any time of
the Holder, furnish or cause to be furnished to the Holder a similar certificate
setting forth (i) such adjustments and readjustments, (ii) the Conversion Price
then in effect, and (iii) the number of shares of Common Stock and the amount,
if any, of other property that then would be received upon the conversion of
this Note.
(l) If at any time or from time to time there shall be a merger or
consolidation of the Maker with or into another corporation, or the sale of all
or substantially all of the assets of the Maker to any other corporation
(collectively, an "Acquisition"), then, as a part of such Acquisition, provision
shall be made so that the Holder shall thereafter be entitled to receive upon
conversion of this Note, the number of shares of stock or other securities or
property of the Maker, or of the successor corporation resulting from such
Acquisition, to which a holder of Common Stock issuable upon conversion would
have been entitled on such Acquisition. In any such case, appropriate adjustment
(as determined by the Board of Directors of the Maker) shall be made in the
application of the provisions of this Section 11 with respect to the rights and
interest thereafter of the Holder after the Acquisition to the end that the
provisions of this Section 11 (including adjustment of the Conversion Price then
in effect and the number of shares acquirable upon conversion of this Note)
shall be applicable after the Acquisition in as nearly equivalent a manner as
may be practicable. The Holder upon the occurrence of an Acquisition, shall have
the option of electing to exercise its rights under either this Section 11 or
Section 5, notice of which election shall be submitted in writing to the Maker
at the Maker's Notice Address no later than five days before the effective date
of such Acquisition.
(m) In the event that there occurs any of the following events:
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(i) the Maker declares a dividend (or any other distribution)
on its Common Stock payable in Common Stock or other securities of
the Maker;
(ii) the Maker subdivides or combines its outstanding shares
of Common Stock;
(iii) there occurs or is proposed to occur any
reclassification of the Common Stock of the Maker (other than a
subdivision or combination of its outstanding shares of Common Stock
or a stock dividend or stock distribution thereon), or of any
consolidation or merger of the Maker into or with another
corporation, or of the sale of all or substantially all of the
assets of the Maker; or
(iv) the involuntary or voluntary liquidation, dissolution, or
winding-up of the Maker.
then the Maker shall cause to be mailed to the Holder, at the Holder's Notice
Office, at least ten days prior to the record date specified in (A) below or
twenty days before the date specified in (B) below, a notice stating the
following information:
(A) the record date of such dividend, distribution, subdivision or
combination, or, if a record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such dividend,
distribution, subdivision, or combination are to be determined, or
(B) the date on which such reclassification, consolidation, merger,
sale, liquidation, dissolution, or winding-up is expected to become
effective, and the date as of which it is expected that holders of Common
Stock of record shall be entitled to exchange their shares of Common Stock
for securities or other property deliverable upon such reclassification,
consolidation, merger, sale, liquidation, dissolution, or winding-up.
(n) The Maker will not, by amendment of its Certification of Incorporation
or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Maker but will at all times in good faith assist
in the carrying out of all the provisions of this Section 11 and in the taking
of all such action as may be necessary or appropriate in order to protect the
conversion rights of the Holder against impairment.
(o) All shares of Common Stock received upon the conversion of this Note
shall be deemed "Group B Shares" under the Stockholders Agreement dated as of
June 4, 1997, among the Maker, the Holder and the stockholders of the Maker
party thereto (the "Stockholders Agreement"). If this Note is held by a party
other than the original Holder, no conversion of this Note into Common Stock
shall be effective until such party delivers to the Maker a written
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acknowledgement and agreement in form and substance reasonably satisfactory to
the Maker that any shares of Common Stock of the Maker received upon the
conversion of this Note shall be deemed "Group B Shares" and that such party
shall be deemed a "Group B Stockholder" under the Stockholders Agreement.
12. Cancellation of Note. Upon the consummation of a Liquidation Event (as
defined in the Maker's Amended and Restated Certificate of Incorporation) with a
Liquidation Event Value (as defined in the Maker's Amended and Restated
Certificate of Incorporation) of less than $70,000,000, this Note shall be
immediately cancelled and all of Maker's obligations hereunder extinguished.
13. Defined Terms. As used in this Note the following terms shall have the
following meanings (such meanings equally applicable to both the singular and
the plural forms of the terms so defined):
"Additional Shares of Common Stock" means, for purposes of Section
11 of this Note, all shares of Common Stock issued (or, pursuant to subpart (f)
of Section 11 of this Note, deemed to be issued) by the Maker after the date
hereof, other than shares of Common Stock issued or issuable: (A) upon
conversion of shares of this Note; (B) by reason of a dividend, stock split,
split-up or other distribution on shares of Common Stock; (C) upon the exercise
of options to employees, officers or directors excluded from the definition of
"Option" hereunder; or (D) upon the exercise, at any time from and after the
date hereof, of Options granted or issued on or before the date hereof.
"Business Day" shall mean a day other than a Saturday, Sunday or
other day on which commercial banks in New York City are authorized or required
by law to close.
"Common Stock" shall mean the Common Stock of the Maker, par value
$.001.
"Common Stock Deemed Outstanding" means, for purposes of Section 11
of this Note, at any given time, the number of shares of Common Stock actually
outstanding at such time, plus the number of shares of Common Stock issuable at
such time upon conversion of this Note, and any other Convertible Securities
then outstanding, plus the number of shares of Common Stock issuable at any time
upon the exercise of all then outstanding Options.
"Conversion Date" shall have the meaning provided in Section 1l(b)
of this Note.
"Conversion Price" shall have the meaning provided in Section 11 of
this Note.
"Convertible Securities" means, for purposes of Section 11 of this
Note, any evidences of indebtedness, shares (other than Common Stock), or other
securities directly or indirectly convertible into or exchangeable for Common
Stock.
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"Event of Default" shall have the meaning provided in Section 6 of
this Note.
"Federal Short Term Rate" shall have the meaning provided in Section
1 of this Note.
"Holder" shall have the meaning provided in the first paragraph of
this Note.
"Holder's Notice Address" shall mean the following address or such
other address as the Holder may from time to time designate in a written notice
to the Maker at the Maker's Notice Address:
Bozell, Jacobs, Kenyon & Eckhardt, Inc.
40 West 23rd Street
New York, New York 10010
Attention: Valentine Zammit
"Interest Payment Date" shall have the meaning provided in Section 1
of this Note.
"Interest Rate" shall have the meaning provided in Section 1 of this
Note.
"Maker" shall have the meaning provided in the first paragraph of
this Note.
"Maker's Notice Address" shall mean the address of the Maker set
forth opposite the Maker's signature line at the end of this Note or such other
address as the Maker may from time to time designate in a written notice to the
Holder at the Holder's Notice Address.
"Maturity Date" shall have the meaning provided in Section 2 of this
Note.
"Notice of Prepayment" shall mean prior written notice of any
prepayment to be made under subpart (a), (b) or (c) hereof which is mailed,
delivered by hand or delivered by overnight courier to the Holder at the
Holder's Notice Address. If mailed, a Notice of Prepayment shall be deemed to
have been given 3 Business Days after it is deposited in the mails, certified,
return receipt requested. If sent by overnight courier, a Notice of Prepayment
shall be deemed to have been given one Business Day following its delivery to
such overnight courier service. If hand delivered, a Notice of Prepayment shall
be deemed to have been given when delivered. A Notice of Prepayment shall
specify (i) the Prepayment Date on which such prepayment is to be made, (ii) the
amount of such prepayment, (iii) whether such prepayment is being made pursuant
to subpart (a), (b) or (c) hereof and (iv) with respect to any prepayment
pursuant to subpart (b) or (c) hereof, in reasonable detail, the facts giving
rise to such prepayment.
"Option" means, for purposes of Section 11 of this Note, any
outstanding right, option or warrant to subscribe for, purchase or otherwise
acquire Common Stock or Convertible
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Securities excluding rights, warrants and options granted on or after the date
hereof, to employees, officers, directors or consultants of the Maker or any
subsidiary thereof pursuant to any stock option plan or agreement adopted by the
Board of Directors of the Maker.
"Prepayment Date" shall mean any Business Day on which the Maker
makes a prepayment of all or any portion of this Note which shall be not less
than 10 and not more than 30 Business Days after the giving of a Notice of
Prepayment in connection therewith (excluding the date on such Notice of
Prepayment is given).
"Senior Indebtedness" shall have the meaning provided in Section
5(b) of this Note.
14. Right of Set-Off. This Note is made pursuant to the Agreement and Plan
of Merger dated as of May 14, 1997 (the "Merger Agreement") by and among (i) the
Maker, (ii) DoubleClick Acquisition Corp., a Delaware corporation, (iii) the
Holder, each holder of shares of Class C Common Stock of the Maker and each
other holder of capital stock of the Maker listed on the signature pages of the
Merger Agreement, and (iv) each of Bain Capital Fund V, L.P., a Delaware limited
partnership, Bain Capital Fund V-B, L.P., a Delaware limited partnership, BCIP
Associates, a Delaware general partnership, BCIP Trust Associates, L.P., a
Delaware limited partnership, Brookside Capital Partners Fund, L.P., a Delaware
limited partnership, Greylock Equity Limited Partnership, a Delaware limited
partnership, Greylock IX Limited Partnership, a Delaware limited partnership and
ABS Capital Partners II, L.P., a Delaware limited partnership, and is subject to
all rights the Maker has to set-off and withholding as set forth in Section 9.12
of the Merger Agreement. Any transferee of the Note or Common Stock issuable
upon conversion thereof shall be bound by the obligations of the Holder set
forth in Section 9.12 of the Merger Agreement.
15. Miscellaneous. The terms of this Note shall inure to the benefit of
and bind the parties hereto and their successors and assigns. The obligations of
this Note shall not be assignable by the Maker except to an affiliate of the
Maker with the prior written consent of the Holder.
16. Governing Law. This Note shall be governed by and construed under the
laws of the State of New York, without regard to the conflict of laws rules
thereof.
DOUBLECLICK INC.
DoubleClick Inc. By:
41 Madison Avenue /s/ Kevin O'Connor
32nd Floor --------------------
New York, New York 10010 Name: Kevin O'Connor
Attention: President Title: CEO
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<PAGE>
EXHIBIT 5.1
January 27, 1998
DoubleClick Inc.
41 Madison Avenue, 32nd Floor
New York, NY 10010
Ladies and Gentlemen:
We have assisted in the preparation and filing by DoubleClick Inc.
(the "Company") of a Registration Statement on Form S-1, as amended through
January 23, 1998 (the "Registration Statement"), with the Securities and
Exchange Commission, relating to the sale of up to 2,875,000 shares (the
"Shares") of Common Stock, $.001 par value (the "Common Stock"), of the
Company. A form of underwriting agreement (the "Underwriting Agreement") is
filed as an exhibit to the Registration Statement.
We have examined such records and documents and have made such
examination of laws as we considered necessary to form a basis for the
opinion set forth herein. In our examination, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to
us as originals, and the conformity with the originals of all documents
submitted to us as copies thereof.
Based upon and subject to the foregoing, we are of the opinion that
the Shares have been duly authorized and, when sold and paid for in
accordance with the terms of the Underwriting Agreement, will be validly
issued, fully paid and nonassessable.
We hereby consent to the use of our name in the Registration
Statement under the caption "Legal Matters" in the related Prospectus and
consent to the filing of this opinion as an exhibit thereto.
Very truly yours,
/S/ BROBECK, PHLEGER & HARRISON LLP
-----------------------------------
BROBECK, PHLEGER & HARRISON LLP
<PAGE>
EXHIBIT 10.4
EXECUTION COPY
- -------------------------------------------------------------------------------
DOUBLECLICK INC.
-------------
STOCKHOLDERS AGREEMENT
--------------
Dated as of June 4, 1997
- -------------------------------------------------------------------------------
<PAGE>
DOUBLECLICK INC.
Stockholders Agreement
June 4, 1997
INDEX
<TABLE>
Page
<S> <C>
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-1-
1.1. Certain Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . .-1-
1.2. Certain Matters of Construction. . . . . . . . . . . . . . . . . . . . .-6-
1.3. Cross Reference Table. . . . . . . . . . . . . . . . . . . . . . . . . .-6-
2. TERMINATION OF PRIOR STOCKHOLDERS AGREEMENT AND REGISTRATION RIGHTS
AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-7-
3. VOTING AGREEMENT; RIGHT TO ACCESS; CERTAIN ACTIVITIES . . . . . . . . . . . .-7-
3.1. Election of Directors. . . . . . . . . . . . . . . . . . . . . . . . .-7-
3.2. Nominating Committee . . . . . . . . . . . . . . . . . . . . . . . . .-8-
3.3. Removal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-8-
3.4. Vacancy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-8-
3.5. Voting Rights Upon Certain Liquidation Events. . . . . . . . . . . . .-8-
3.6. Access, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-9-
3.7. Certain Activities . . . . . . . . . . . . . . . . . . . . . . . . . .-9-
3.8. Voting Rights Upon Certain Liquidation Events. . . . . . . . . . . . .-9-
3.9. Access, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10-
3.10. Certain Activities . . . . . . . . . . . . . . . . . . . . . . . . . -10-
3.11. Certain Actions of the Board . . . . . . . . . . . . . . . . . . . . -12-
3.12. Changes in Company Strategy. . . . . . . . . . . . . . . . . . . . . -12-
3.13. Qualified Offerings. . . . . . . . . . . . . . . . . . . . . . . . . -13-
4. CERTAIN TRANSFER RIGHTS AND RESTRICTIONS. . . . . . . . . . . . . . . . . . -13-
4.1. Transfers of Management Shares and Group B Shares to Immediate
Family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
4.2. Transfer of Management Shares or Group B Shares Upon Death . . . . . -13-
4.3. Transfer Among Group B Stockholders. . . . . . . . . . . . . . . . . -14-
4.4. Transfer of Investor Shares. . . . . . . . . . . . . . . . . . . . . -14-
5. OPTIONS TO PURCHASE MANAGEMENT SHARES; GROUP B SHARES . . . . . . . . . . . -14-
5.1. Call Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
5.2. Closing; Assignability of Company Purchase Rights;
Related Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
5.3. Determination of Fair Market Value . . . . . . . . . . . . . . . . . -15-
5.4. Call Upon Certain Liquidation Events . . . . . . . . . . . . . . . . -15-
5.5. Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
6. "TAKE ALONG" RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
6.1. Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
6.2. Certain Legal Requirements . . . . . . . . . . . . . . . . . . . . . -15-
6.3. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . -16-
6.4. Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
7. CO-SALE RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
7.1. Tag Along. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
7.2. Excluded Transactions. . . . . . . . . . . . . . . . . . . . . . . . -18-
8. CERTAIN ISSUANCES AND TRANSFERS, ETC. . . . . . . . . . . . . . . . . . . . -19-
9. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
9.1. Piggyback Registration Rights. . . . . . . . . . . . . . . . . . . . -20-
9.2. Demand Registration Rights . . . . . . . . . . . . . . . . . . . . . -21-
9.3. Obligations of the Company . . . . . . . . . . . . . . . . . . . . . -22-
9.4. Indemnification and Contribution . . . . . . . . . . . . . . . . . . -24-
9.5. Selection of Underwriter . . . . . . . . . . . . . . . . . . . . . . -26-
9.6. Lock-up. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
9.7. Limitations on Other Registration Rights . . . . . . . . . . . . . . -27-
9.8. Availability of Information. . . . . . . . . . . . . . . . . . . . . -27-
10. REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -27-
10.1. Generally. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -27-
10.2. Deposit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -27-
11. LEGENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
12. AMENDMENT, TERMINATION, ETC.. . . . . . . . . . . . . . . . . . . . . . . . -29-
12.1. No Oral Modifications. . . . . . . . . . . . . . . . . . . . . . . . -29-
12.2. Written Modifications. . . . . . . . . . . . . . . . . . . . . . . . -29-
12.3. Automatic Partial Termination. . . . . . . . . . . . . . . . . . . . -29-
13. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29-
13.1. Authority: Effect. . . . . . . . . . . . . . . . . . . . . . . . . . -29-
13.2. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
13.3. Binding Effect etc . . . . . . . . . . . . . . . . . . . . . . . . . -33-
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
13.4. Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . -33-
13.5. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . -33-
13.6. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34-
13.7. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . -34-
EXHIBIT A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
EXHIBIT B. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
</TABLE>
iii
<PAGE>
STOCKHOLDERS AGREEMENT
This Stockholders Agreement (the "Agreement") is made as of
June 4, 1997 by and among (i) DoubleClick Inc., a Delaware corporation (the
"Company"), (ii) each of Bain Capital Fund V, L.P., a Delaware limited
partnership, Bain Capital Fund V-B, L.P., a Delaware limited partnership, BCIP
Associates, a Delaware general partnership, BCIP Trust Associates, L.P., a
Delaware limited partnership, Brookside Capital Partners Fund, L.P., a Delaware
limited partnership, Greylock Equity Limited Partnership, a Delaware limited
partnership, Greylock IX Limited Partnership, a Delaware limited partnership,
and ABS Capital Partners II, L.P., a Delaware limited partnership, any person or
entity who becomes a "Purchaser" under the Merger Agreement pursuant to Section
1.9 thereof (collectively, the "Initial Investors," and each an "Initial
Investor") and each of the other Additional Investors from time to time party
hereto, (iii) each Management Stockholder from time to time party hereto, (iv)
each of Bozell Jacobs, Kenyon & Eckhardt, Inc., a Delaware corporation
("Bozell") and each other Group B Stockholder from time to time party hereto and
(v) other stockholders from time to time party hereto. The Investors, the
Management Stockholders and the Group B Stockholders and such other stockholders
are sometimes referred to herein collectively as the "Stockholders". The parties
agree as follows:
1. DEFINITIONS. For purposes of this Agreement:
1.1. CERTAIN DEFINITIONS. The following terms shall have the following
meanings.
1.1.1. "AFFILIATE" shall mean, with respect to any specified
Person, any Person that, directly or indirectly, through one or more
intermediaries, controls, is controlled by or is under common control with,
the Person specified including effective control by virtue of a contractual
relationship such as a management agreement or a stockholder transfer or
designation or similar agreement other than a management or similar
agreement which does not, alone or together with related agreements, result
in control of such Person.
1.1.2. "AFFILIATED FUND" shall mean any limited partnership or
other Person formed for the purpose of investing in other companies or
businesses and for which (a) Bain Capital Fund V, L.P., a Delaware limited
partnership, Bain Capital Fund V-B, L.P., a Delaware limited partnership,
BCIP Associates, a Delaware general partnership, BCIP Trust Associates,
L.P., a Delaware limited partnership, Brookside Capital Partners Fund,
L.P., a Delaware limited partnership, Greylock Equity Limited Partnership,
a Delaware limited partnership, Greylock IX Limited Partnership, a Delaware
limited partnership, ABS Capital Partners II, L.P., a Delaware limited
partnership, any person or entity who becomes a '"Purchaser" under the
Merger Agreement pursuant to Section 1.9 thereof, or any "Affiliate" of any
of them, acts as a general partner or otherwise has the right to direct the
voting of shares of corporations in which such limited partnership or other
Person invests or (b) Bain Capital, Inc., Greylock Management Corporation,
Capital Partners Management Company, any person or entity who becomes a
<PAGE>
"Purchaser" under the Merger Agreement pursuant to Section 1.9 thereof, or
any of their respective Affiliates provides management services.
1.1.3. "BOARD" shall mean the Board of Directors of the Company.
1.1.4. "CAUSE" shall mean, in the context of termination of the
employment of any Management Stockholders, any of the following events or
conditions: (i) such person's willful and continued failure to perform
substantial duties and responsibilities to the Company which failure causes
material injury to the Company (other than any such failure resulting from
such person's incapacity due to physical or mental illness or injury and
other than any such failure after termination of such person's employment
without cause or after such person's resignation) after demand for
substantial performance is delivered in writing by the Company that
specifically identifies the manner in which the Company believes such
person has not substantially performed his or her duties, which demand is
not satisfied or failure cured within 14 days after receipt of such written
demand, or (ii) such person's conviction of, or plea of nolo contendere to,
any felony or any other crime involving willful fraud, dishonesty or moral
turpitude which causes criminal or material civil liabilities to the
Company or its Subsidiaries.
1.1.5. "COMMON STOCK" shall mean the Company's Common Stock, $.001
par value per share.
1.1.6. "COST" shall mean, in the context of the Cost of securities
subject to the provisions of Section 5, (i) in the case of Shares, the
amount (in the form of subscription price or exercise price or otherwise)
paid to the Company upon issuance of such Shares; PROVIDED, HOWEVER, that
if such Shares were issued in connection with the merger contemplated by
the Merger Agreement, "COST" shall mean the amount (in the form of
subscription price or exercise price or otherwise) paid to the Company upon
issuance of the shares of capital stock of the Company that were exchanged
in the merger "PRE-MERGER SHARES") for the Shares and, in the case of the
Class B Common Stock and Class C Common Stock, $2.319 in cash per each such
Pre-Merger Share, multiplied by 100% if such Pre-Merger Shares were Class A
Common Stock, by 27.715414% if such Pre-Merger Shares were Class B Common
Stock and by 27.715414% if such Pre-Merger Shares were Class C Common Stock
and (ii) in the case of Options, an amount equal to the value of the
consideration paid therefor as determined by the Board; in each case
adjusted appropriately to take account of any stock splits, stock
dividends, conversions or consolidations of stock or substantially similar
reorganizations of the Company's capital stock.
1.1.7. "EFFECTIVE TIME" shall mean the time of the Closing (as
defined in the Merger Agreement).
1.1.8. "EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as
-2-
<PAGE>
amended.
1.1.9. "FAIR MARKET VALUE" shall mean, as of any date, the fair
value of any Share as of the applicable date, as determined pursuant to
Section 5.3.
1.1.10. "FULLY DILUTED" shall mean at any time the amount adjusted
to reflect all Common Stock outstanding and all Options granted.
1.1.11. "GROUP B MAJORITY HOLDERS" shall mean, as of any date, the
holders of a majority of the Group B Shares outstanding on such date.
1.1.12. "GROUP B SHARES" shall mean all Shares originally issued to
(or issued upon conversion of or otherwise with respect to Shares
originally issued to) or held by the Group B Stockholders.
1.1.13. "GROUP B STOCKHOLDER" shall mean Bozell or any stockholder
of Bozell who currently holds, or who from time to time acquires, Shares
and becomes party to this Agreement by executing and delivering to the
Company an instrument in form satisfactory to the Company and the Investors
pursuant to which such stockholder agrees to be bound by the terms of this
Agreement applicable to Group B Stockholders.
1.1.14. "INVESTOR" shall mean (i) any Initial Investor and (ii) any
Affiliated Fund which, from time to time, acquires Shares and becomes party
to this Agreement by executing and delivering to the Company an instrument
in form satisfactory to the Company pursuant to which such stockholder
agrees to be bound by the terms of this Agreement to the same extent as a
Initial Investor.
1.1.15. "INVESTOR INITIAL SHARES" shall mean all Shares originally
issued to the Investors at the Effective Time.
1.1.16. "INVESTOR MAJORITY HOLDERS" shall mean, as of any date, the
holders of a majority of the Investor Shares outstanding on such date.
1.1.17. "INVESTOR SHARES" shall mean all Shares originally issued to
(or issued upon conversion of or otherwise with respect to Shares or
Options issued to) or held by the Investors whenever issued.
1.1.18. "MAJORITY STOCKHOLDERS" shall mean, as a of any date, the
holders of a majority of the Shares outstanding on such date.
1.1.19. "MANAGEMENT MAJORITY HOLDERS" shall mean, as of any date,
the holders of a majority of the Management Shares outstanding on such
date.
-3-
<PAGE>
1.1.20. "MANAGEMENT SHARES" shall mean all Shares originally issued
to (or issued upon conversion of or otherwise with respect to Shares
originally issued to) or held by the Management Stockholders, whenever
issued, including without limitation all Shares issued pursuant to the
exercise of any Options, whenever issued; it being understood that
Management Shares shall include any shares held by Members of the Immediate
Family of Kevin O'Connor on the date hereof.
1.1.21. "MANAGEMENT STOCKHOLDER" shall mean any officer or employee
of the Company or any of its subsidiaries who currently holds, or who from
time to time acquires, Shares or Options and becomes party to this
Agreement by executing and delivering to the Company an instrument in form
satisfactory to the Company and the Investors pursuant to which such
stockholder agrees to be bound by the terms of this Agreement applicable to
Management Stockholders.
1.1.22. "MEMBERS OF THE IMMEDIATE FAMILY" shall mean, with respect
to any individual, each spouse, parent, brother' sister or child of such
individual, each spouse of any such Person, each child of any of the
aforementioned Persons, each trust or family partnership created solely for
the benefit of one or more of the aforementioned Persons and each custodian
or guardian of any property of one or more of the aforementioned Persons in
his capacity as such custodian or guardian.
1.1.23. "MERGER "AGREEMENT" shall mean the Agreement and Plan of
Merger dated as of May 14, 1997 by and among the Company, DoubleClick
Acquisition Corp., a Delaware corporation, and certain other parties
thereto.
1.1.24. "OPTIONS" shall mean any options, warrants or similar rights
to subscribe for, purchase or otherwise acquire Shares, including, without
limitation, any and all options issued pursuant to the Company's 1996 Stock
Option Plan or any similar plan.
1.1.25. "PERMITTED TRANSFEREE" shall mean as to each Management
Share and Group B Share, a transferee of such Management Share or Group B
Share in compliance with Section 4.1, 4.2 or 4.3. Members of the Immediate
Family of Kevin O'Connor who hold Shares on the date hereof shall be deemed
Permitted Transferees of Kevin O'Connor with respect to such Shares.
1.1.26. "PERSON" shall mean any individual, partnership,
corporation, company, association, trust, joint venture, unincorporated
organization or other entity, or any government, department or agency or
political subdivision thereof.
1.1.27. "PREFERRED STOCK" shall mean the Company's Convertible
Preferred Stock, $.001 par value per share.
-4-
<PAGE>
1.1.28. "PUBLIC EVENT" shall mean any transaction or other event
(including, without limitation, a merger with a public company) after or in
connection with which shares of common stock of the Company or any
successor are registered under the Securities Act or listed on a "national
securities exchanger as defined in the Exchange Act or the subject of price
quotation through the Nasdaq National Market.
1.1.29. "PUBLIC OFFERING" shall mean the closing of an offering of
Shares of the Company registered under the Securities Act.
1.1.30. "QUALIFIED PUBLIC OFFERING" shall mean the closing of a
Public Offering meeting the following conditions: (i) the aggregate net
proceeds of the sale of Shares in such Public Offering by the Company and
any stockholder of the Company equals or exceeds $20,000,000; (ii) such
Public Offering is subject to a firm commitment underwriting conducted by a
nationally recognize underwriter selected by the Board and reasonably
acceptable to the Investors; and (iii) the price to the public per Share
multiplied by the number of Shares outstanding on an as-converted and Fully
Diluted basis (before giving effect to the securities to be issued by the
Company in the Public Offering or any related transaction) is at least
$100,000,000.
1.1.31. "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, and the rules and regulations of the Securities and Exchange
Commission promulgated thereunder, all as from time to time in effect.
1.1.32. "SHARES" shall mean all shares of any class of capital stock
of the Company, and all Shares of capital stock issued with respect to, in
exchange for or upon conversion of any such shares.
1.1.33. "TRANSFER" shall mean to sell, assign, pledge, grant a
participation interest in, encumber, or otherwise dispose of any Shares to
any other Person whether directly, indirectly, voluntarily, involuntarily,
by operation of law, pursuant to judicial process (including, without
limitation, divorce decree) or otherwise.
1.1.34. "UNDERLYING SHARES" shall mean the (i) Shares issuable upon
exercise of any Option, (ii) without duplication, any Shares issued upon
the conversion of such Shares referred to in clause (i) above and (iii) any
Shares issued or issuable with respect to the securities referred to in
clauses (i) or (ii) above by way of stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization. For purposes of this Agreement, any
Person who holds Options shall be deemed to be the holder of the Underlying
Shares obtainable upon exercise of the Options in connection with the
transfer thereof or otherwise regardless of any restriction or limitation
on the exercise of the Options. As to any particular Underlying Shares,
such shares shall cease to be Underlying Shares when they have been (a)
registered under the Securities Act and disposed of in accordance with the
registration
-5-
<PAGE>
statement covering them or (b) distributed to the public through a broker,
dealer or market maker pursuant to Rule 144 under the Securities Act or any
similar provision then in force as the requirements of which may be
modified by Rule 701 "RULE 144") in each case in compliance with any
applicable provisions of this Agreement.
1.2. CERTAIN MATTERS OF CONSTRUCTION. In addition to the definitions
referred to as set forth in Section 1.1:
(a) The words "hereof", "herein", "hereunder" and words of similar
import shall refer to this Agreement as a whole and not to any
particular Section or provision of this Agreement, and reference
to a particular Section of this Agreement shall include all
subsections thereof;
(b) Definitions shall be equally applicable to both the singular and
plural forms of the terms defined; and
(c) The masculine, feminine and neuter genders shall each include the
other.
1.3. CROSS REFERENCE TABLE. The following terms defined elsewhere in this
Agreement in the Sections set forth below shall have the respective meanings
therein defined:
TERM DEFINITION
"Agreement" Preamble
"Bozell" Preamble
"Callable Shares" Section 5.1.1
"Callable Options" Section 5.1.2
"Call Option" Section 5.1
"Call Stockholder Group" Section 5.1
"Come Along Notice" Section 6.1
"Company" Preamble
"Covered Person" Section 9.4
"Fair Market Value" Section 5.3
"Group B Director" Section 3.1
"Indemnified Party" Section 9.4
"Indemnifying Party" Section 9.4
"Initial Investor" Preamble
"Initiating Holders" Section 9.2
"Majority Requesting Holders" Section 9.2
"Management Directors" Section 3.1
"Non-Complying Stockholder" Section 10.2
-6-
<PAGE>
"Outside Directors" Section 3.1
"Participating Seller" Section 6.1; 7.1
"Preferred Directors"- Section 3.1
"Pre-Merger Shares" Section 1. 1.8
"Proposed Buyer" Section 6; 7.1
"Proposed Investor Seller" Section 6
"Proposed Seller" Section 7.1
"Public Offering" . Section 9.1
"Registrable Investor Securities" Section 9.2
"Registrable Securities" Section 9.2
"Rule 144" Section 1.1.34
"Sale" Section 6; 7.1
"Sale Percentage" Section 6; 7.1
"Stockholders" Preamble
"Tag Along Notice" Section 7.1
"Tag Along Offerees" Section 7.1
2. TERMINATION OF PRIOR STOCKHOLDERS AGREEMENT AND REGISTRATION RIGHTS
AGREEMENT. By the execution and delivery hereof by certain parties hereto, the
Securityholders Agreement dated January 26, 1996 among the Company and the
Securityholders (as defined therein), as amended by an Amendment dated as of
August 20, 1996, the Registration Rights Agreement dated as of August 27, 1996
between the Company and Bozell and any agreement to which any Stockholder hereto
is a party which provides for the right to register any securities of the
Company under the Securities Act and related rights, including without
limitation any preemptive rights, are terminated and superseded by this
Agreement.
3. VOTING AGREEMENT; RIGHT TO ACCESS; CERTAIN ACTIVITIES.
3.1. ELECTION OF DIRECTORS. At each annual meeting of the stockholders of
the Company, or at any special meeting of stockholders of the Company at which
directors are to be elected, and at any other time at which stockholders of the
Company have the right to vote for or give their written consent to the election
of directors, each Stockholder agrees (a) to vote its Shares to fix the number
of directors at seven and (b) to vote all Shares owned by such Stockholder to
elect and maintain in office as directors (i) two individuals who are designated
to serve on the Board by the chief executive officer of the Company (the
"MANAGEMENT DIRECTORS"), PROVIDED, HOWEVER, that if the chief executive officer
shall not be a "Management Stockholder after the date of this Agreement, then
the Management Director shall be designated by the Management Majority Holders;
(ii) for so long as the Investors hold equity securities of the Company
representing at least 20% of all outstanding Common Stock on a Fully Diluted and
as-converted basis, two individuals designated to serve on the Board by the
Investors (the "PREFERRED DIRECTORS"), or, if the Investors hold equity
securities of the Company representing between 10% and 20% of all outstanding
Common Stock on a Fully Diluted and as-converted basis, one such Preferred
Director; (iii) for so long as the Group B Stockholders collectively hold
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equity securities of the Company representing at least 10% of all outstanding
Common Stock on a Fully Diluted and as-converted basis, one-individual
designated to serve on the Board by Bozell (the "GROUP B DIRECTOR"); and (iv)
two individuals nominated by the Nominating Committee of the Board (the "OUTSIDE
DIRECTORS"), and approved by a majority of those directors who are not members
of the Nominating Committee, such approval not to be unreasonably withheld. For
so long as any Investor or Bozell holds equity securities of the Company and
such Investor or Bozell does not have a representative on the Board, such
investor or Bozell shall have the right to designate a representative to attend
all meetings of the Board in a non-voting observer capacity, to receive notice
of such meetings and to receive the information provided by the Company to the
Board; PROVIDED, HOWEVER, that the Company may require as a condition precedent
to the Investors' and Bozell's rights set forth in this sentence that each
person proposing to attend any meeting of the Board and each person to have
access to any of the information provided by the Company to the Board shall
agree to hold in confidence and trust and to act in a fiduciary manner with
respect to all information so received during such meetings or otherwise.
3.2. NOMINATING COMMITTEE. The Company agrees to cause the Nominating
Committee of the Board to consist initially of the Preferred Directors, and,
upon the election of Outside Directors, to consist of the Preferred Directors
and the Outside Directors. If, pursuant to Section 3.1, the number of Preferred
Directors shall be one, then one Management Director shall be added to the
Nominating Committee. If pursuant to Section 3.1, the number of Preferred
Directors shall be zero, the Nominating Committee shall be the Board.
3.3. REMOVAL. No Preferred Director may be removed without the consent of
the Investor Majority Holders. No Management Director may be removed without
the consent of the Management Majority Holders. No Group B Director may be
removed without the consent of the Group B Majority Holders.
3.4. VACANCY. Any vacancy in the Board of Directors shall be filled by the
nominee of the Persons who would be entitled to designate a director pursuant to
Section 3.1. Each holder of Shares shall, upon receipt of notice identifying
such nominee, promptly take all action necessary to cause the appointment of
such nominee to the Board of Directors pursuant to the Company's Restated
Certificate of Incorporation and By-laws.
3.5. VOTING RIGHTS UPON CERTAIN LIQUIDATION EVENTS. Each of Bozell and the
other Group B Stockholders hereby grants to the Investors an irrevocable proxy,
which is coupled with an interest, to vote all Shares held by such Stockholder
with respect to all matters as to which the holders of such Shares are entitled
to vote, from and after the occurrence of a Liquidation Event (as defined in the
Company's Restated Certificate of Incorporation) giving rise to a Liquidation
Event Value (as deemed in the Company's Restated Certificate of Incorporation)
of $70 million or less.
3.6. ACCESS. ETC. From time to time upon request of any partner, designee
or officer of any Investor so long as such Investor holds any equity securities
of the Company representing at
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least 50% of the Investor Initial Shares of the respective Investor, the Company
will furnish to such partner, designee or officer, and their representatives
(including without limitation their accountants and legal counsel), such
information regarding the business of the Company and its Subsidiaries
(including materials furnished to the directors of the Company and its
subsidiaries at or in connection with board meetings) as such partner, designee
or officer may reasonably request. Each such partner, designee or officer, and
their representatives (including without limitation their accountants and legal
counsel), shall have the right during normal business hours and upon reasonable
notice to make an independent examination of the books and records of the
Company and any of its subsidiaries, to make copies, notes and abstracts
therefrom, and to discuss their business, affairs and financial condition with
the officers and accountants of the Company. Each such representative will sign
a confidentiality agreement, in a form reasonably acceptable to the Investors,
if so requested by the Chief Executive Officer or the Board. Each such partner,
designee or officer shall have the right during normal business hours to consult
with the directors and executive officers of the Company and its subsidiaries
and to advise such directors and officers on corporate issues; PROVIDED,
HOWEVER, that no such partner, designee or officer shall thereby have any right
to direct the management or policies of the Company or any of its subsidiaries;
3.7. CERTAIN ACTIVITIES. Except as expressly provided herein or in the
Company's Restated Certificate of Incorporation or as required by law, for so
long as the Investors continue to hold any equity securities representing at
least 50% of the Investor Initial Shares, then without the approval by vote or
written consent of the Investor Majority Holders, the Company shall not, and
shall not permit any Subsidiary, to do any of the following:
(a) Redeem, purchase, or otherwise acquire for value (or pay into or set
aside for a sinking fund for such purchases) any capital stock of the
Company, and except for the repurchase of shares of Common Stock held
by employees, consultants, directors, or officers of the Company that
are subject to stock repurchase agreements and, if such repurchases
would exceed $100,000 for any such employee, consultant, director or
officer, that have been approved by the vote or written consent of the
Investor Majority Holders in the event of termination of employment or
the termination of the consorting relationship;
(b) Authorize or issue, or obligate itself to authorize or issue, (i) any
other equity security having any preference or priority over, or
ranking senior to or on parity with, the Preferred Stock with respect
to dividends or rights upon liquidation, dissolution, or winding-up,
(ii) other than (A) securities issuable on conversion of the Preferred
Stock or (B) Common Stock issuable pursuant to stock options permitted
to be granted by Company consistent with its contractual obligations,
any other equity security ranking junior to the Preferred Stock with
respect to dividends or rights upon liquidation, dissolution or
winding-up or (iii) any security convertible into a security described
in clauses (i) or (ii); PROVIDED that the Investors shall comply with
the requirements of Section 3.10 of this
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Agreement;
(c) Alter or change the powers, preferences or rights of the Preferred
Stock, or the qualifications, limitations or restrictions thereof;
(d) Increase or decrease (other than by conversion or as otherwise
required or permitted hereby) the total number of authorized shares of
Preferred Stock;
(e) Sell, assign, license, or otherwise dispose of or voluntarily part
with control of (or agree to do any of these) any of the Company's
material intellectual property rights to any other person, other than
in connection with ordinary customer sales, except as approved by the
Board;
Effect any merger, consolidation, recapitalization, reorganization,
amalgamation, liquidation, winding up, dissolution or sale, transfer
or other action otherwise disposing of or voluntarily parting with the
control of (whether in one transaction or a series of transactions) of
all or substantially all of the property, business or assets of the
Company or its subsidiaries other than (i) a merger or consolidation
of a subsidiary with the Company or any other subsidiary of the
Company provided that, in the case of any such merger or
consolidation, the person formed by such merger or consolidation shall
be a wholly owned subsidiary of the Company and (ii) any sale, lease,
assignment, pledge, transfer or other conveyance of all or a
substantial portion of the assets of the Company solely as security
for institutional indebtedness approved by the Board;
(g) Amend its Restated Certificate of Incorporation or by-laws;
(h) Declare or distribute any dividend (other than a stock dividend) in
respect of capital stock, return any capital to its stockholders as
such, make any distribution of assets, capital stock, warrants,
rights, options, obligations or securities to its stockholders as
such, or issue or sell any capital stock or any warrants, rights or
options to acquire such capital stock other than pursuant to stock
options issued pursuant to plans or agreements in an aggregate amount
not to exceed 4,488,827 shares of Common Stock (subject to appropriate
adjustment for any stock dividend, stock split, combination, or other
similar recapitalization affecting such shares);
(i) Enter into any agreement, contract, commitment or understanding with
any Person for the acquisition of any business or assets other than
acquisitions not in excess of $3,000,000 in any one year;
(j) Materially change the nature of its business, taken as a whole on a
consolidated
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basis as described in the principal business plan of the Company as
carried on at the date hereof and reasonable extensions thereof; or
(k) Enter into any transaction with any Affiliate or any officer, director
or holder of more than 5 % of the outstanding capital stock of the
Company which is not on terms comparable to an arms-length
transaction.
3.8. CERTAIN ACTIONS OF THE BOARD. The Company and the Stockholders agree
to cause the Company and the respective directors of the Company designated by
them to act in accordance with the determination of the Preferred Directors with
respect to any actions described by paragraphs (b) or (f) of Section 3.7 and,
where necessary, to recommend action by the Stockholders of the Company in
accordance with such determination, and the Stockholders hereby agree to vote in
favor of such actions. In addition, in the event that the Company does not meet
or exceed the projections for either 1997 or 1998 set forth in Exhibit A hereto,
the following items shall be added to the list of activities set forth in the
preceding sentence and as to which the Company, the directors of the Company and
the Shareholders shall act in accordance with the determination of the Preferred
Directors pursuant to this first sentence of this Section 3.8 until March 31,
1999:
(a) Retain or dismiss the services of the Chief Executive Officer or the
Chief Financial Officer of the Company (it being understood that the
mere fact of the failure to meet the projections set forth in Exhibit
A hereto shall not be a factor in the determination of whether such
termination of employment is termination of employment without cause
or termination of employment with cause and that such determination
shall be made solely by reference to the definition of "Cause" set
forth in Section 1.1.4 hereof);
(b) Approve budgets, capital expenditures, financial statements or
selection of accountants; or
(c) Approve business and strategic plans.
3.9. CHANGES IN COMPANY STRATEGY. In the event that the Company makes a
strategic change in the direction of its business, and its financial outlook is
likely to change as a result, the parties agree to negotiate in good faith any
appropriate modifications to the projections for 1997 and 1998 set forth in
EXHIBIT A and EXHIBIT B hereto, and such modified projections, upon their
approval by the Preferred Directors (which approval shall not be unreasonably
withheld), shall be the new EXHIBIT A and EXHIBIT B for purposes of this
Agreement and the Company's Restated Certificate of Incorporation, respectively.
3.10.QUALIFIED OFFERINGS. The Investors hereby agree to consider in good
faith any request by the Company to issue Common Stock notwithstanding the fact
that the proposed issuance would satisfy the valuation and proceeds requirements
for automatic conversion of
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Preferred Stock set forth in Section 2.6.8 of the Restated Certificate of
Incorporation of the Company dated as of June _, 1997.
4. CERTAIN TRANSFER RIGHTS AND RESTRICTIONS.
No holder of Management Shares or Group B Shares shall Transfer any of such
Shares to any other Person, except as permitted by Sections 4.1, 4.2, 4.3 and 7,
or as required by Sections 5 or 6. Any attempted Transfer of Management Shares
or Group B Shares not so permitted or required by such Sections shall be null
and void, and the Company shall not in any way give effect to any such
impermissible Transfer. All permitted transfers shall be further subject to the
requirements of Section 8. Notwithstanding any contrary provision of this
Agreement, any Management Stockholder or Group B Stockholder may Transfer any or
all Options or Shares held by such Stockholder: (i) to the Company or any
subsidiary of the Company in one or more transactions approved by the Board,
(ii) to any Investor, or (iii) on the terms and subject to the conditions of
Section 5, 6 or 7.
4.1. TRANSFERS OF MANAGEMENT SHARES AND GROUP B SHARES TO IMMEDIATE FAMILY.
Any holder of Management Shares or Group B Shares may Transfer any or all of
such Shares to a Member of the Immediate Family of such holder; PROVIDED,
HOWEVER, that no such Transfer shall be effective until such Member of the
Immediate Family has delivered to the Company a written acknowledgment and
agreement in form and substance reasonably satisfactory to the Company that such
Shares to be received by such Member of the Immediate Family are subject to all
the provisions of this Agreement applicable thereto prior to such Transfer and
that such Member of the Immediate Family is bound hereby and a party hereto to
the same extent as a Management Stockholder or Group B Stockholder, as the case
may be.
4.2. TRANSFER OF MANAGEMENT SHARES OR GROUP B SHARES UPON DEATH Upon the
death of any holder of Management Shares or Group B Shares such Shares held by
such holder may be distributed by will or other instrument taking effect at
death or by applicable laws of descent and distribution to such holder's estate,
executors, administrators and personal representatives, and then to such
holder's heirs, legatees or distributees, whether or not such recipients are
Members of the Immediate Family of such holder; provided, however, that no such
Transfer shall be effective until the recipient has delivered to the Company a
written acknowledgment and agreement in form and substance reasonably
satisfactory to the Company that such Shares to be received by such recipient
are subject to all the provisions of this Agreement applicable thereto prior to
such Transfer and that such recipient is bound hereby and a party hereto to the
same extent as a Management Stockholder or Group B Stockholder, as the case may
be.
4.3. TRANSFER AMONG GROUP B STOCKHOLDERS. Any holder of Group B Shares may
Transfer any or all of such Shares to any other holder of Group B Shares;
provided, however, that no such Transfer shall be at a price higher than Fair
Market Value as determined pursuant to Section 5.3 hereof; and provided further
that solely for the purposes of this Section 4.3, Valentine J. Zammit and David
Harkin shall be deemed to be holders of Group B Shares.
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4.4. TRANSFER OF INVESTOR SHARES. No Transfer of Investor Shares shall be
effective until the recipient has delivered to the Company a written
acknowledgment and agreement in form and substance reasonably satisfactory to
the Company that such Shares to be received by such recipient are subject to all
the provisions of this Agreement applicable thereto prior to such Transfer and
that such recipient is bound hereby and a party to the same extent as an
Investor.
5. OPTIONS TO PURCHASE MANAGEMENT SHARES; GROUP B SHARES.
5.1. CALL OPTIONS. Upon any termination of the employment by the Company,
or in the case of an employee of a subsidiary of the Company, termination by
such subsidiary of a holder of Management Shares, the Company (or its designee)
shall have the right to purchase Callable Shares (as defined in Section 5.1.1
hereof) held by such holder or originally issued to such holder but held by one
or more Permitted Transferees of such holder (collectively, the "Call
Stockholder Group") and Options held by the Call Stockholder Group and
exercisable at the time of such termination on the following terms (the "Call
Option"); it being understood that all Options not exercisable at the time of
such termination of employment will be terminated pursuant to the option plan
pursuant to which such Option was issued.
5.1.1. Callable Shares shall include:
(i) all Shares held by the Call Stockholder Group which were
originally issued to a Management Stockholder pursuant to
the exercise of any Options granted on or after the date
hereof, whenever issued; and
(ii) during the time periods as indicated below, and in the case
of termination for cause, termination without cause, or n
the case only of Kevin O'Connor or Dwight Merriman,
termination as a result of resignation as described below,
the following percentages of Shares (excluding those Shares
described in the foregoing clause (i) of this Section 5.1.1
and Shares issued pursuant to the exercise of any Options
prior to the date hereof, whenever issued) held by a
Management Stockholder or originally issued to a Management
Stockholder but held by a Permitted Transferee of such
holder:
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TIME PERIOD PERCENTAGE OF SHARES
TERMINATION FOR TERMINATION
CAUSE OR RESIGNATION WITHOUT CAUSE
June 4, 1997 to June 4, 1998 45% 0%
June 4, 1998 to June 4, 1999 30% 0%
June 4, 1999 to June 4, 2000 15% 0%
June 4, 2000 and thereafter 0% 0%
5.1.2 TERMINATION BY THE COMPANY WITHOUT CAUSE. If such termination is
the result of termination of such holder's employment by the Company or any
subsidiary thereof without Cause or as a result of the death or disability of
such holder, the Company (or its designee), upon written notice delivered within
90 days of termination, may purchase all or any portion of the Callable Shares
and Callable Options then held by the applicable Call Stockholder Group at a
price equal to the Fair Market Value of such securities. "CALLABLE OPTIONS"
means any Options granted on or after the date hereof.
5.1.3 TERMINATION BY COMPANY FOR CAUSE. If such termination is the
result of termination of such holder's employment by the Company, its
Subsidiaries or any Affiliate thereof for Cause, the Company (or its designee)
may, upon written notice delivered within 90 days of termination, purchase all
or any portion of the Callable Shares and Callable Options then held by the
applicable Call Stockholder Group at a price equal to the lower of the Cost
(without any rate of return) or the then Fair Market Value of such securities.
5.1.4 TERMINATION BY HOLDER THROUGH RESIGNATION. If such termination
is the result of holder's resignation, the Company (or its designee) may, upon
written notice delivered within 90 days of termination, purchase all or any
portion of the Callable Shares and Callable Options then held by the applicable
Call Stockholder Group at a price equal to the then Fair Market Value of such
securities.
5.2. CLOSING: ASSIGNABILITY COMPANY PURCHASE RIGHTS: RELATED MATTERS. The
closing of any purchase pursuant to the exercise of any Call Options pursuant to
this Section 5 shall take place as soon as reasonably practicable at the
principal office of the Company, or at such other time and location as the
parties to such purchase may mutually determine. Fair Market Value shall be
determined as of the date of the applicable date of termination. At the closing
of any purchase and sale pursuant to this Section 5, the holder of securities to
be sold shall deliver to the Company a certificate or certificates representing
the Shares and Options to be purchased by the Company duly endorsed, or with
stock powers or other appropriate instruments duly endorsed, for transfer with
signature guaranteed, free and clear of any lien or encumbrance, with any
necessary stock transfer tax stamps affixed, and the Company shall pay to such
holder by
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Company check or wire transfer of immediately available funds the purchase price
of the securities being purchased by the Company. The delivery of a certificate
or certificates for Shares or Options by any Person selling securities pursuant
to this Section 5 shall be deemed a representation and warranty by such Person
that: (i) such Person has full right, title and interest in and to such
securities; (ii) such Person has all necessary power and authority and has taken
all necessary action to sell such securities as contemplated; and (iii) such
securities are free and clear of any and all liens or encumbrances. The Company
shall have the right, but no obligation, to assign to any holder of Investor
Shares all or any portion of its right to purchase any securities pursuant to
this Section 5.
5.3. DETERMINATION OF FAIR MARKET VALUE. (a) For purposes of this Section
5, the term "Fair Market Value" shall mean, as of any date, the fair value of
any Share as of the applicable date on the basis of a sale of such Share in an
arms length private sale between a willing buyer and a willing seller, neither
acting under compulsion (or, in the case of an Option, the fair value of the
Shares that may then be purchased by the holder of such Option upon exercise
thereof, determined as described in this Section 5.3, minus the exercise price
applicable thereto), as determined by the Board; (b) at any time when more than
15 % of the Shares then outstanding has been offered and sold pursuant to one or
more Public Offerings, the Fair Market Value of any Share shall be equal to the
average of the sum of the closing prices of the Shares for the 30 trading days
immediately prior to the date on which Shares becomes subject to repurchase
under this Section 5. In determining Fair Market Value, the Board shall (a)
consider, in addition to other factors that it determines in good faith to be
relevant, the purchase price of the Shares in recent (i) arms-length sales of
Shares by the Company, (ii) transfers of Shares by a Stockholder in an
arms-length transaction and (b) not give effect to any discount which may
otherwise be attributable to the fact that such Shares which are the subject of
such valuation constitute less than a majority of the Shares outstanding.
5.4. CALL UPON CERTAIN LIQUIDATION EVENTS. In the event of the occurrence
of a Liquidation Event (as defined in the Company's Restated Certificate of
Incorporation) that results in a Liquidation Event Value (as defined in the
Company's Restated Certificate of Incorporation) of $70 million or less, the
Company (or its designee) shall have the right to purchase Shares held by Bozell
and any other Group B Stockholder or originally issued to any such holder but
held by one or more Permitted Transferees of such holder for an aggregate
purchase price of one dollar ($1.00), the closing of such purchase to take place
as soon as reasonably practicable at the principal office of the Company.
5.5 CONSTRUCTION. The foregoing provisions of this Section 5 are not
intended, and shall not be construed, to eliminate, waive or otherwise affect
the restrictions on transfer, vesting requirements or termination provisions
which may apply to any Share or Option by its terms or under provisions of the
Company's 1996 Stock Option Plan or other equity or option plan pursuant to
which such Share or Option was granted or other governing documentation.
6. "TAKE ALONG" RIGHTS. Each holder of Shares or Options hereby agrees, if
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requested by the Investor Majority Holders (which request shall be made to all
holders of shares), to Transfer for value (for purposes of this Section 6, a
"SALE") a specified percentage (for purposes of this Section 6, the "SALE
PERCENTAGE") of the securities then owned by such holder to a third party which
is not an Investor or an Affiliate of any Investor Majority Holder (for purposes
of this Section 6, the "PROPOSED BUYER") in the manner and on the terms set
forth in this Section 6 in connection with the Sale by such Investor
(collectively, the "PROPOSED INVESTOR SELLER") of the Sale Percentage of the
total number of Investor Shares held by all holders of Investor Shares on a
Fully Diluted basis to the Proposed Buyer, PROVIDED, however, that the Sale
Percentage shall be equal to or greater than 50%.
6.1. PROCEDURE. If the Investor Majority Holders elect to exercise their
rights under this Section 6, a notice (the "COME ALONG NOTICE") shall be
furnished by the Proposed Investor Seller to each holder of Shares and Options.
The Come Along Notice shall set forth the principal terms of the proposed Sale
insofar as it relates to the Shares, including the Sale Percentage and the
purchase price. If the Investor Majority Holders consummate the Sale referred
to in the Come Along Notice, each other holder of Shares or Options (each a
"PARTICIPATING SELLER") shall be bound and obligated to Sell the Sale Percentage
of the Shares and Options in the Sale on the same terms and conditions with
respect to each Share sold, as the Investor shall Sell each Investor Share in
the Sale, and, in the case of Options, have the opportunity to either (i)
exercise such Options (if then exercisable) and participate in such sale as
holders of Shares issuable upon such exercise or (ii) upon the consummation of
the Sale, receive in exchange for such Options (to the extent exercisable at the
time of such Sale) consideration equal to the amount determined by multiplying
(1) the same amount of consideration per Share received by the holders of the
Shares of the same class of common stock for which the Option is exercisable in
connection with the Sale less the exercise price per share of such Option by (2)
the number of Shares of such class represented by such rights. If at the end of
the one hundred twentieth (120) day following the date of the effectiveness of
the Come Along Notice the Proposed Investor Seller has not completed the Sale,
each Participating Seller shall be released from his obligation under the Come
Along Notice, the Come Along Notice shall be null and void, and it shall be
necessary for a separate Come Along Notice to have been furnished and the terms
and provisions of this Section 6 separately complied with, in order to
consummate such Sale pursuant to this Section 6, unless the failure to complete
such Sale resulted from any failure by any Participating Seller to comply in any
material respect with the terms of this Section 6.
6.2. CERTAIN LEGAL REQUIREMENTS. In the event the consideration to be paid
in exchange for Shares in the proposed Sale pursuant to Section 6.1 includes any
securities and the receipt thereof by any Stockholder as a Participating Seller
would require under applicable law (i) the registration or qualification of such
securities or of any person as a broker or dealer or agent with respect to such
securities or (ii) the provision to any participant in the Sale of any
information other than such information as would be required under Regulation D
of the Securities and Exchange Commission or similar rule then in effect in an
offering made pursuant to said Regulation D solely to "accredited investors" as
defined in said Regulation D, the Proposed Investor Seller may, but shall not be
obligated to, cause to be paid to such Participating
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Seller in lieu of such Securities, against surrender of the Shares and Options
(in accordance with Section 6.4 hereof) which would have otherwise been Sold by
such Participating Seller to the Proposed Buyer in the Sale, an amount in cash
equal to the fair market value of the securities which such Participating Seller
would otherwise receive, as determined in good faith by the Board. Any attempt
by the Proposed Investor Seller to permit a Participating Seller to receive such
securities may be conditioned on such Participating Seller executing such
documents and instruments, and taking such other actions (including without
limitation, if required by the Proposed Investor Seller, agreeing to be
represented during the course of such transaction by a "purchaser
representative" (as defined in Regulation D) in connection with evaluating the
merits and risks of the prospective investment and acknowledging that he was so
represented, provided, however, that any fees or expenses payable to a
"purchaser representative" shall be paid by the Proposed Investor Seller), as
the Proposed Investor Seller shall reasonably request in order to permit such
legal requirements to have been complied with.
6.3. FURTHER ASSURANCES. Each Participating Seller and each Stockholder to
whom the Shares held by such Participating Seller (or Options to purchase such
Shares) were originally issued, shall take or cause to be taken all such actions
as may be reasonably requested in order expeditiously to consummate each Sale
pursuant to Section 6.1. Each such Participating Seller or Stockholder agrees
(i) to vote all Shares with respect to which he holds power to vote in favor of
any proposal to stockholders in connection with the Sale which is approved by
the holders of majority of the outstanding Shares entitled to vote with respect
to such matter and (ii) to execute and deliver such agreements as may be
necessary for the Participating Seller to be subject to the same terms and
conditions with respect to the Sale as apply to the Proposed Investor Seller,
including without limitation, an agreement by such Participating Seller to be
subject to such purchase price escrow or adjustment provisions as may apply to
Stockholders generally and to be liable in respect of any individual
representations, warranties, agreements and indemnities to be given by selling
Stockholders in the Sale.
6.4. CLOSING. The closing of a Sale pursuant to Section 6.1 shall take
place at such time and place as the Investor Majority Holders shall specify by
notice to each Participating Seller. At the closing of any Sale under this
Section 6, each participating Seller shall deliver the certificates evidencing
the Shares or Options to be sold by such Participating Seller, duly endorsed, or
with stock powers or other appropriate instruments duly endorsed, for transfer
with signature guaranteed, free and clear of any liens or encumbrances, with any
stock transfer tax stamps affixed, against delivery of the applicable
consideration.
7. CO-SALE RIGHTS.
7.1. TAG ALONG. No holder or holders of Shares (for purposes of this
Section 7, collectively, the "PROPOSED SELLER") shall Transfer (for purposes of
this Section 7, a "Sale") any Shares to any other Person (the "PROPOSED BUYER")
except in the manner and on the terms set forth in this Section 7 and attempted
Transfers in violation of this Section 7 shall be null and void.
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7.1.1. OFFER. A written notice (the "TAG ALONG NOTICE") shall be
furnished by the Proposed Seller to each holder of Shares or Options
(collectively, the "TAG ALONG OFFEREES") at least 30 days prior to a
Transfer. The Tag Along Notice shall include:
(a) The principal terms of the proposed Sale insofar as it relates to
the Shares, including the percentage of the total number of
Shares held by all Proposed Seller holders of Shares which are
proposed to be sold (for purposes of this Section 7, the "Sale
Percentage") and the purchase price; and
(b) An offer by the Proposed Seller to include, at the option of each
Tag Along Offeree, in the Sale to the Proposed Buyer such number
of Shares and Underlying Shares (not in any event to exceed the
Sale Percentage of the total number of Shares and Underlying
Shares held by such Tag Along Offeree) owned by each Tag Along
Offeree, determined in accordance with Section 7.1.2 hereof, on
the same terms and conditions, with respect to each Share Sold,
as the Proposed Seller shall Sell each of his, her or its Shares.
7.1.2. EXERCISE. Each Tag Along Offeree, desiring to accept the
offer contained in the Tag Along Notice shall send a written commitment to
the Proposed Seller specifying the number of Shares and Underlying Shares
(not in any event to exceed the Sale Percentage of the total number of
Shares and Underlying Shares held by such Tag Along Offeree, which such Tag
Along Offeree desires to have included in the Sale within 30 days after the
effectiveness of the Tag Along Notice (each a "PARTICIPATING SELLER"). Each
Tag Along Offeree who has not so accepted such offer shall be deemed to
have waived all of his or her rights with respect to the Sale, and the
Proposed Seller and the Participating Sellers shall thereafter be free to
Sell to the Proposed Buyer, at a price no greater than 105% of the price
set forth in the Tag Along Notice and otherwise on terms not more favorable
in any material respect to them than those set forth in the Tag Along
Notice, without any further obligation to such non-accepting Tag Along
Offerees. If, prior to consummation, the terms of such proposed Sale shall
change with the result that the price shall be greater than 105% of the
price set forth in the Tag Along Notice or the other terms shall be more
favorable in any material respect hen as set forth in the Tag Along Notice,
it shall be necessary for a separate Tag Along Notice to have been
furnished, and the terms and provisions of this Section 7 separately
complied with, in order to consummate such proposed Sale pursuant to this
Section 7.
The acceptance of each Participating Seller shall be irrevocable
except as hereinafter provided, and each such Participating Seller shall be
bound and obligated to Sell in the Sale, on the same terms and conditions
specified in the Tag Along Notice with respect to each of the Shares to be
sold (including Underlying Shares), and on the same
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terms and conditions as apply to each of the Shares sold by the Proposed
Seller, such number of Shares (including any Underlying Shares) as such
Participating Seller shall have specified in such Participating Seller's
written commitment. In the event the Proposed Seller shall be unable
(otherwise than by reason of the circumstances described in Section 7.2) to
obtain the inclusion in the Sale of all Shares (including Underlying
Shares) which the Proposed Seller and each Participating Seller desires to
have included in the Sale (as evidenced in the case of the Proposed Seller
by the Tag Along Notice and in the case of each Participating Seller by
such Participating Seller's written commitment), the number of Shares
(including Underlying Shares) to be sold in the Sale by the Proposed Seller
and each Participating Seller shall be reduced on a pro rata basis
according to the proportion which the number of Shares (including
Underlying Shares) which each such Seller desires to have included in the
Sale bears to the total number of Shares desired (including Underlying
Shares) by all such Sellers to have included in the Sale.
If at the end of the 90th day following the date of the effectiveness
of the Tag Along Notice the Proposed Seller has not completed the Sale as
provided in the foregoing provisions of this Section 7.1, each
Participating Seller shall be released from his obligations under his
written commitment, the Tag Along Notice shall be null and void, and it
shall be necessary for a separate Tag Along Notice to have been furnished,
and the terms and provisions of this Section 7 separately complied with, in
order to consummate such Sale pursuant to this Section 7, unless the
failure to complete such Sale resulted from any failure by any Tag Along
Offeree to comply in any material respect with the terms of this Section 7.
7.2. EXCLUDED TRANSACTIONS. Notwithstanding the preceding provisions of
this Section 7 and subject to the provisions of Section 7 and Section 8 below,
the preceding provisions of this Section 7 shall not restrict any Transfer
pursuant to the provisions of Section 6 or 7 of this Agreement, and no holder of
Shares shall have pursuant to the provisions of this Section 7 any right of
participation or otherwise with respect to any Transfer of Shares:
(a) to an Investor;
(b) to an Affiliated Fund which either (i) is regularly engaged in
the business of investing in the equity of companies or (ii) is
reasonably acceptable to the Company;
(c) by an Investor or an Affiliated Fund: (i) to any director,
officer or employee of the Company or its principal subsidiary;
(ii) to any trust established for the benefit of its investors or
partners or pro rata to its investors or partners; (iii) to its
investors or partners in connection with any termination,
liquidation, dissolution, reorganization or winding up of such
Investor or any Affiliated Fund or (iv) up until the date which
is two
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months from the date hereof, to other persons or entities, as
selected by the Investors, which either (A) are regularly engaged
in the business of investing in the equity of companies and are
of creditworthiness comparable to that of such Investor or
Affiliated Fund or (B) are reasonably acceptable to the Company;
(d) in a Public Offering or other Public Event or to the public under
Rule 144;
(e) in a Transfer permitted by Section 4; or
(f) in a Transfer by a holder of Shares in one or more transactions
of an aggregate amount less than 1% of the aggregate capital
stock outstanding at such time;
PROVIDED (except with respect to Section 7.2(d)) that such transferee shall
have executed and delivered to the Company an agreement to be bound by this
Agreement to the same extent as the transferor and provided that no such
transfer shall result in the Company being required to register the
transfer of such Shares or other securities under the Securities Act or
Exchange Act or any similar state law.
8. CERTAIN ISSUANCES AND TRANSFERS, ETC. Each holder of Shares agrees that it
will not transfer any Shares to any Person unless the transferee has delivered
to the Company a written acknowledgment and agreement that the Shares to be
received by such transferee are subject to all of the provisions of this
Agreement (as Investor Shares in the case of a transfer from a holder of
Investor Shares, as Management Shares in the case of a transfer from a holder of
Management Shares, and as Group B Shares in the case of a transfer from a holder
of Group B Shares) and that such transferee is bound by and a party to this
Agreement to the same extent as if it were an original signatory hereto as a
Stockholder hereunder; provided, however, notwithstanding any other provision of
this Agreement, (i) Shares transferred pursuant to and in accordance with
Section 6 or 7 to any Proposed Buyer (as defined in such Sections) hereof or in
a Public Offering or to the public under Rule 144 shall be conclusively deemed
thereafter not to be Shares under this Agreement and not to be subject to any of
the provisions hereof or entitled to the benefit of any of the provisions
hereof, and (ii) any Shares acquired by a holder of Investor Shares shall upon
such acquisition be deemed to be Investor Shares for purposes of Sections 6, 9
and 10 hereof. Without limiting the generality of the foregoing, in the event
that an Investor transfers Shares, in accordance with the provisions of this
Section 8, to any Affiliated Fund. such Affiliated Fund shall be deemed for all
purposes hereunder to be an Investor with all of the rights and obligations of
an Initial Investor hereunder.
9. REGISTRATION RIGHTS. The Company will perform and comply, and cause each of
its subsidiaries to perform and comply, with such of following provisions as are
applicable to it. Each holder of Shares will perform and comply with such of the
following provisions as are applicable to such holder.
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9.1. PIGGYBACK REGISTRATION RIGHTS.
9.1.1. ELECTION. Whenever the Company proposes to register any
shares of its Common Stock for its own or others' account under the
Securities Act for a public offering (each a "PUBLIC OFFERING"), the
Company shall furnish each holder of Shares prompt written notice of its
intent to do so. Upon the request of any such holder given by notice in
writing to the Company within twenty (20) days after the effectiveness of
such notice from the Company setting forth the number of Shares proposed to
be included in such registration, the Company will use its reasonable
efforts to cause to be included in such registration all of the Shares
which such holder requests. Notwithstanding the foregoing provisions of
this Section 9.1.1, if the Company is advised in writing in good faith by
any managing underwriter of the securities being offered pursuant to any
Public Offering under this Section 9.1 (including, without limitation,
Sections 9.2.1 and 9.2.2) that the number of shares to be sold by Persons
other than the Company in such Public Offering is greater than the number
of such shares which can be included in such Public Offering without
adversely affecting such Public Offering, the Company may reduce pro rata
(based upon the number of Shares requested to be included by such Persons
other than the Company) the number of Shares offered for the accounts of
such Persons other than the Company to a number of Shares deemed
satisfactory by such managing underwriter; PROVIDED, HOWEVER, if the Board
determines in good faith that a Public Offering would not be in the best
interest of the Company, it may terminate or delay such offering as it sees
fit.
9.1.2. FURTHER ASSURANCES. Holders of Shares participating in any
Public Offering shall take all such actions and execute all such documents
and instruments that are reasonably requested by the Company to effect the
sale of their Shares in such Public Offering, including without limitation
being parties to the underwriting agreement entered into by the Company and
any other selling stockholders in connection therewith (and being liable in
respect of the representations and warranties made by such holder in
respect of its legal capacity or due organization, authority to sell Shares
being registered by such holder and ownership (free and clear of liens) of
such Shares), and any indemnification agreements or "lock-up" agreements
for the benefit of the underwriters in such underwriting agreement;
PROVIDED, HOWEVER, that the aggregate amount of such liability shall not
exceed the net proceeds to such holder from the disposition of such Shares.
9.1.3. EXPENSES. The Company shall pay all expenses of the holders
of Shares participating in any Public Offering pursuant to this Section
9.1, other than underwriting discounts and commissions, if any, applicable
transfer taxes, if any, and fees and charges of any attorneys or other
advisors (other than attorneys and advisors retained by the Company to
advise it in connection with such Public Offering) retained by any such
holders.
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9.1.4. EXCLUDED TRANSACTIONS. Notwithstanding the preceding
provisions of this Section 9.1, no holder of Shares shall have any right of
participation or otherwise with respect to the following Public Offerings:
(a) Any Public Offering relating to employee benefit plans on Form
S-8 or any similar form then in effect.
(b) Any Public Offering relating to the acquisition after the date
hereof by the Company or any of its subsidiaries of any
businesses.
9.2. DEMAND REGISTRATION RIGHTS.
9.2.1. REGISTRATION ON REQUEST OF HOLDERS OF INVESTOR SHARES. One
or more holders of Investor Shares that wish to register securities
representing at least fifty percent (50%) of the sum of the total number of
Investor Shares then outstanding requested to be registered pursuant to
this Section 9.2.1 ("INITIATING HOLDERS") may, by notice to the Company
specifying the intended method or methods of disposition, request that the
Company effect the registration under the Securities Act of all or a
specified part of the Registrable Securities held by such Initiating
Holders. For purposes of this Agreement, the term "REGISTRABLE SECURITIES"
shall mean, at any time, Shares that have not previously been sold in a
Public Offering or in a "brokers transaction" within the meaning of Rule
144 and "REGISTRABLE INVESTOR SECURITIES" shall mean Registrable Securities
constituting Investor Shares. The Company will then use its reasonable
efforts to effect the registration under the Securities Act of the
Registrable Securities which the Company has been requested to register by
such Initiating Holders.
9.2.2. FORM. Each registration requested pursuant to this Section
9.2 shall be effected by the filing of a registration statement on Form S-1
(or any other form which includes substantially the same information as
would be required to be included in a registration statement on such form
as currently constituted), unless the use of a different form has been
agreed to in writing by holders of at least a majority of the Registrable
Securities initially requesting such registration (the "MAJORITY REQUESTING
HOLDERS").
9.2.3. REGISTRATIONS PURSUANT TO SECTION 9.2. In the case of a
registration pursuant to Section 9.2 hereof, whenever the Majority
Requesting Holders shall request that such registration shall be effected
pursuant to an underwritten offering, such registration shall be so
effected, and all Registrable Investor Securities to be included in such
registration shall be included in such underwritten offering. If requested
by such underwriters, the Company will enter into an underwriting agreement
with such underwriters for such offering containing such representations
and warranties by the Company and such other terms and provisions as are
customarily contained in underwriting agreements with respect to secondary
distributions, including, without
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limitation, customary indemnity and contribution provisions.
9.2.4. NUMBER. The Company is obligated to effect only a total of
two such registrations pursuant to this Section 9.2 and no more than one
such registration in any twelve-month period.
9.3. OBLIGATIONS OF THE COMPANY. Whenever required under this Section 9 to
use its reasonable efforts to effect the registration of any Registrable
Securities, the Company shall, as expeditiously as reasonably possible: Prepare
and file with the SEC a registration statement with respect to such Registrable
Securities and use its reasonable efforts to cause such registration statement
to become effective, and, upon the request of the holders of a majority of the
Registrable Securities registered thereunder, keep such registration statement
effective until the Holders have informed the Company in writing that the
distribution of their securities has been completed, provided that the Company
shall not be required to keep any registration statement which is not a shelf
registration or similar registration (including any successor thereto such as a
Company registration) effective for a period of more than 30 days; and shall:
(a) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection
with such registration statement, and use its reasonable efforts
to cause each such amendment to become effective, as may be
necessary to comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such
registration statement.
(b) Furnish to the Holders such reasonable number of copies of a
prospectus, including a preliminary prospectus, in conformity
with the requirements of the Securities Act, and such other
documents as they may reasonably request in order to facilitate
the public offering of Registrable Securities owned by them.
(c) Use its reasonable efforts to register or qualify the securities
covered by such registration statement under such securities or
Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders provided that the Company shall not be
required to register in any jurisdictions which require it, in
connection therewith or as a condition thereto, to qualify to do
business or to file a general consent to service of process or to
subject itself to taxation in any such states or jurisdiction.
(d) In the event of any underwritten public offering, enter into and
perform its obligations under an Underwriting Agreement, in which
the Company addresses its representations and warranties to the
underwriters. Each Holder participating in such underwriting
shall also enter into and perform its obligations under such
Underwriting Agreement, including furnishing
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any opinion of counsel or entering into a lock-up and
indemnification agreement reasonably requested by the managing
underwriter.
(e) Notify each Holder of Registrable Securities covered by such
registration statement, at any time when a prospectus relating
thereto covered by such registration statement is required to be
delivered under the Securities Act, of the happening of any event
as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing and
promptly file such amendments and supplements which may be
required pursuant to subparagraph (b) of this Section 9.3 on
account of such event and use its reasonable efforts to cause
each such amendment and supplement to become effective.
(f) Furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Section 9, on the date
that such Registrable Securities are delivered to the
underwriters for sale in connection with a registration pursuant
to this Section 9, if such securities are being sold through
underwriters, or, if such securities are not being sold through
underwriters on the date that the registration statement with
respect to such securities becomes effective, (i) an opinion or
opinions, dated such date, of the counsel representing the
Company for the purposes of such registration, in form and
substance as is customarily given by company counsel to the
underwriters in an underwritten public offering, addressed to the
underwriters, if any, and (ii) a comfort letter dated such date,
from the independent certified public accountant of the Company,
in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten
public offering, addressed to the underwriters, if any.
(g) Apply for listing and use its reasonable efforts to list the
Registrable Securities being registered on any national
securities exchange on which a class of the Company's equity
securities is listed or, if the Company does not have a class of
equity securities listed on a national securities exchange, apply
for qualification and use its reasonable efforts to qualify the
Registrable Securities being registered for inclusion on the
Nasdaq National Market.
(h) Without in any way limiting the types of registrations to which
this Section 9 shall apply, in the event that the Company shall
effect a "shelf registration" under Rule 415 promulgated under
the Securities Act, the
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Company shall take all necessary action, including, without
limitation, the filing of post-effective amendments, to permit
the Holders, who have exercised their rights under Section 9.1,
to maintain the inclusion of their Registrable Securities in such
registration in accordance with the terms of this Section 9.
9.4. INDEMNIFICATION AND CONTRIBUTION.
9.4.1. INDEMNITIES OF THE COMPANY. In the event of any registration
of any Registrable Securities under the Securities Act pursuant to this
Section 9, and in connection with any registration statement or any other
disclosure document produced by or on behalf of the Company pursuant to
which securities of the Company are sold (whether or not for the account of
the Company), the Company will, and hereby does, indemnify and hold
harmless each seller of Registrable Securities, any other holder of
securities who is or might be deemed to be a controlling Person of the
Company within the meaning of Section 15 of the Securities Act, their
respective direct and indirect partners, advisory board members, directors,
officers and stockholders, and each other Person, if any, who controls any
such seller or any such holder within the meaning of Section 15 of the
Securities Act (each such person being referred to herein as a "COVERED
PERSON"). against any losses, claims, damages or liabilities, joint or
several, and reasonable expenses (including, without limitation, reasonable
legal and other fees and expenses incurred by any Covered Person in
defending or investigating any action or claim in respect-thereof) to which
such Covered Person may be or become subject under the Securities Act, any
other securities or other law of any jurisdiction, common law or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any
untrue statement or alleged untrue statement of any material fact contained
or incorporated by reference in any registration statement under the
Securities Act, any preliminary prospectus or final prospectus included
therein, or any related summary prospectus, or any amendment or supplement
thereto, or any document incorporated by reference therein, or any other
such disclosure document, or (ii) any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse such Covered
Person for any legal or any other expenses incurred by it in connection
with investigating or defending any such loss, claim, damage, liability,
action or proceeding; provided, however, that the Company shall not be
liable to any Covered Person in any such case to the extent that any such
loss, claim, damage, liability, action or proceeding arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement, any such preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement,
incorporated document or other such disclosure document in reliance upon
and in conformity with information furnished to the Company by such Covered
Person. The indemnities of the Company and of its subsidiaries contained in
this Section 9.4.1 shall remain in full force and effect regardless of any
investigation made by
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or on behalf of such Covered Person and shall survive any transfer of
securities.
9.4.2. INDEMNITIES TO THE COMPANY. The Company may require, as a
condition to including any securities in any registration statement filed
pursuant to this Section 9, that the Company shall have received an
undertaking satisfactory to it from each prospective seller of such
securities, to indemnify and hold harmless the Company, each director of
the Company, each officer of the Company who shall sign such registration
statement and each other Person (other than such seller), if any, who
controls the Company within the meaning of Section 15 of the Securities
Act, with respect to any statement in or omission from such registration
statement, any preliminary prospectus or final prospectus included therein,
or any amendment or supplement thereto; or any document incorporated
therein, if such statement or omission was made in reliance upon and in
conformity with written information furnished to the Company through an
instrument executed by such seller specifically stating that it is for use
in the preparation of such registration statement, preliminary prospectus,
final prospectus, summary prospectus, amendment or supplement, or
incorporated document. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Company or any
such director, officer or controlling Person and shall survive any transfer
of securities.
9.4.3. THIRD PARTY CLAIMS. Each party entitled to indemnification
under this Agreement (the "INDEMNIFIED PARTY") shall give notice to the
party required to provide indemnification (the "INDEMNIFYING PARTY")
promptly after such Indemnified Party has actual knowledge of any claim as
to which indemnity may be sought, and shall permit the Indemnifying Party
to assume the defense of any such claim or any litigation resulting
therefrom; PROVIDED, that counsel for the Indemnifying Party, who shall
conduct the defense of such claim or litigation, shall be approved by the
Indemnified Party (whose approval shall not be unreasonably withheld); and,
PROVIDED, FURTHER, that the failure of any Indemnified Party to give notice
as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 9. The Indemnified Party may participate in
such defense at such party's expense; PROVIDED, HOWEVER, that the
Indemnifying Party shall pay such expense if representation of such
Indemnified Party by the counsel retained by the Indemnifying Party would
be inappropriate due to actual or potential differing interests between the
Indemnified. Party and any other party represented by such counsel-in such
proceeding. The Indemnifying Party, in the defense of any such claim or
litigation shall, except with the consent of each Indemnified Party, shall
not consent to entry of any judgment or enter into any settlement which
does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all
liability in respect of such claim or litigation, and no Indemnified party
shall consent to entry of any judgment or settle such claim or litigation
without the prior written consent of the Indemnifying Party.
9.4.4. CONTRIBUTION. If the indemnity provided for in Sections
9.4.1 or 9.4.2 is available, each indemnified party will be indemnified
thereunder to the full extent
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provided in such section without regard to the relative fault of the
indemnifying party or the indemnified party or the other equitable
considerations referenced in this Section 9.4.4. If the indemnification
provided for in Sections 9.4.1 or 9.4.2 hereof is unavailable to a party
that would have been an indemnified party under any such Section in respect
of any losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) referred to therein, then each party that would have been
an indemnifying party thereunder shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such
proportion as is appropriate to reflect the relative fault of such
indemnifying party on the one hand and such indemnified party on the other
in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions or proceedings in
respect thereof). The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by such indemnifying party or such
indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. The parties agree that it would not be just or equitable if
contribution pursuant to this Section 9.4.4 were determined by pro rata
allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the preceding sentence. The
amount paid or payable by a contributing party as a result of the losses,
claims, damages or liabilities (or actions or proceedings in respect
thereof) referred to above in this Section 9.4.4 shall include any legal or
other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim. No Person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was
not gully of such fraudulent misrepresentation.
9.4.5. LIMITATION ON LIABILITY OF HOLDERS OF REGISTRABLE
SECURITIES. The liability of each holder of Registrable Securities in
respect of any indemnification or contribution obligation of such holder
arising under this Section 9.4 shall not in any event exceed an amount
equal to the net proceeds to such holder from the disposition of the
Registrable Securities disposed of by such holder pursuant to such
registration.
9.5. SELECTION OF UNDERWRITER. Any and all underwriters to be engaged in
connection with any public offering of Shares pursuant to a registration
effected pursuant to Section 9.2 shall be selected by the Board and shall be
reasonably acceptable to the Investors.
9.6. LOCK-UP. Each holder of Shares (including Underlying Shares) agrees
that upon the request of the underwriters managing any underwritten Public
Offering, it shall not Transfer any Shares (including Underlying Shares) for a
period beginning not more than seven days immediately preceding and ending not
more than 180 days following any Public Offering without the prior written
consent of the underwriters, if any, managing the offering.
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9.7. LIMITATIONS ON OTHER REGISTRATION RIGHTS. From and after the date of
this Agreement, the Company shall not, without the prior written consent of the
holders of a majority of the Investor Shares then outstanding, enter into any
agreement with any holder or prospective holder of any securities of the Company
relating to registration rights unless such agreement includes to the extent the
agreement would allow such holder or prospective holder to include such
securities in any registration filed under Section 9.1 or 9.2 hereof, a
provision that such holder or prospective holder may include such securities in
any such registration only to the extent that the inclusion of its securities
will not reduce the amount of the Registrable Securities, and the amount of the
Registrable Investor Securities of the Holders and the Investors which would
otherwise be included and does otherwise not diminish the rights provided in
this Section 9 above. In the event of any conflict between this Section 9 and
any agreement to which the Company or its subsidiaries is a party or by which
any of them are bound, the provisions of this Section 9 shall govern.
9.8. AVAILABILITY OF INFORMATION. If the Company shall have filed a
registration statement pursuant to the requirements of Section 12 of the
Exchange Act or a registration statement pursuant to the requirements of the
Securities Act, the Company shall comply with the reporting requirements of
Sections 13 and 15(d) of the Exchange Act and shall comply with all other public
information reporting requirements of the Commission (including Rule 144
promulgated by the Commission under the Securities Act) from time to time in
effect and relating to the availability of an exemption from the Securities Act
for the sale of any Shares. The Company shall also cooperate with each holder of
any Shares in supplying such information as may be necessary for such holder to
complete and file any information reporting forms presently or hereafter
required by the Commission as a condition to the availability of an exemption
from the Securities Act for the sale of any Shares.
10. REMEDIES.
10.1. GENERALLY. The Company, the holders of Investor Shares, the
holders of the Management Shares, the holders of Group B Shares and all other
Stockholders shall have all remedies available at law, in equity or otherwise in
the event of any breach or violation of this Agreement or any default hereunder
by the Company or any holder of Shares, Warrants or Options. The parties
acknowledge and agree that in the event of any breach of this Agreement, in
addition to any other remedies which may be available, each of the parties
hereto shall be entitled to specific performance of the obligations of the other
parties hereto and, in addition, to such other equitable remedies (including,
without limitation, preliminary or temporary relief) as may be appropriate in
the circumstances.
10.2. DEPOSIT. Without limiting the generality of Section 10.1 and to
the extent permitted by Delaware General Corporate Law, if any Stockholder (a
"NON-COMPLYING STOCKHOLDER") fails to deliver any certificate or certificates
evidencing Shares or Options that may be required to be sold pursuant to any
provision of this Agreement in accordance with the terms
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hereof, the Company or other Person entitled to purchase such securities may, at
its option, in addition to all other remedies it may have, deposit the purchase
price for such Shares with any national bank or trust company having combined
capital, surplus and undivided profits in excess of one hundred million dollars
($100,000,000) and which has agreed to act as escrow agent in the manner
contemplated by this Section 10.2 and shall furnish or make available to all
interested Persons satisfactory evidence of such deposit and thereupon the
Company shall cancel on its books the certificate or certificates representing
such securities and, in the case of any such purchase of securities by a Person
other than the Company issue, in lieu thereof and in the name of such Person, a
new certificate or certificates representing such securities, and thereupon all
of the Non-Complying Stockholder's rights in and to such securities shall
terminate. Thereafter, upon delivery to the Company by such Non-Complying
Stockholder the certificate or certificates evidencing such securities (duly
endorsed, or with stock powers or other appropriate instruments of transfer duly
endorsed, for transfer, with signature guaranteed, free and clear of any liens
or encumbrances, and with any stock transfer tax stamps affixed), the Company
shall instruct the escrow agent referred to above to deliver the purchase price
(without any interest from the date of the closing to the date of such delivery,
any such interest to accrue to the Person who deposited the purchase price for
such securities) to such Non-Complying Stockholder.
11. LEGENDS. Each certificate representing Shares shall have the following
legend endorsed conspicuously thereupon:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
PRIVATE PLACEMENT, WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, ASSIGNED, PLEDGED OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION UNDER THE ACT
COVERING THE TRANSFER OR AN OPINION OF COUNSEL, SATISFACTORY TO THE ISSUER,
THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED."
"THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFER AND REQUIREMENTS OF SALE AND VOTING SET FORTH IN
THE STOCKHOLDERS AGREEMENT DATED AS OF JUNE 4, 1997, AS AMENDED AND IN
EFFECT FROM TIME TO TIME. THE COMPANY WILL FURNISH A COPY OF SUCH AGREEMENT
TO THE HOLDER OF THIS CERTIFICATE WITHOUT CHARGE UPON WRITTEN REQUEST."
Each certificate representing Management Shares shall have the following
legend endorsed conspicuously thereupon:
"THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY
ISSUED TO, OR ISSUED WITH RESPECT TO SHARES ORIGINALLY ISSUED TO, THE
FOLLOWING MANAGEMENT STOCKHOLDERS: __________________."
Each certificate representing Group B Shares shall have the following
legend endorsed conspicuously thereupon:
-29-
<PAGE>
"THE SHARES OF STOCK REPRESENTED BY, THIS CERTIFICATE WERE ORIGINALLY
ISSUED TO, OR ISSUED WITH RESPECT TO SHARES ORIGINALLY ISSUED TO THE
FOLLOWING GROUP B STOCKHOLDER:___________________."
Any person who acquires Shares which are not subject to all or part of the
terms of this Agreement shall have the right to have such legends (or the
applicable portion thereof) removed from certificates representing such Shares.
The Company shall have the right to waive any requirement of delivery of a legal
opinion with respect to exemption from registration requirements under the
Securities Act.
12. AMENDMENT, TERMINATION, ETC.
12.1. NO ORAL MODIFICATIONS. Agreement may not be orally amended,
modified, extended or terminated, nor shall any oral waiver of any of its terms
be effective.
12.2. WRITTEN MODIFICATIONS. This Agreement may be amended, modified,
extended or terminated, and the provisions hereof may be waived, by an agreement
in writing signed by holders of a majority of all Shares then outstanding and
subject to this Agreement; and each such amendment, modification, extension,
termination and waiver shall be binding upon each party hereto and each holder
of Shares subject hereto; provided, however, that no such amendment,
modification, extension, termination or waiver which amends, modifies, extends,
term nates or waives any of the provisions of Sections S. 6, 7, 9 or 12 hereof
will be effective with respect to those holders of Shares other than the
Investors unless and until the consent of the a majority of the holders of such
Shares has been obtained. In addition, each party hereto and each holder of
Shares subject hereto may waive any of its rights hereunder by an instrument in
writing signed by such party or holder.
12.3. AUTOMATIC PARTIAL TERMINATION. The provisions of Sections 3, 4,
5, 6 and 7 of this Agreement shall terminate and be of no further force or
effect upon the closing of a Qualified Public Offering; provided, however, that
no such termination shall relieve any Person of liability for any breach of such
sections prior to such termination.
13. MISCELLANEOUS.
13.1. AUTHORITY: EFFECT. Each party hereto represents and warrants to
and agrees with each other party that the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized on behalf of such party and do not violate any agreement or
other instrument applicable to such party or by which its assets are bound. This
Agreement does not, and shall not be construed to, give rise to the creation of
a partnership among any of the parties hereto, or to constitute any of such
parties members of a joint venture or other association.
13.2. NOTICES. Notices and other communications provided for in this
Agreement shall be in writing and shall be effective (i) when one full day shall
have elapsed (exclusive of
-30-
<PAGE>
Saturdays, Sundays and banking holidays in the City of Boston or the city of New
York) from their deposit for overnight delivery with Federal Express or other
bonded courier (charges prepaid), addressed to the party or parties sought to be
charged with notice of the same at the respective addresses set forth or
referred to below, subject to written notice of change of address given by any
party to each other party, or (ii) if earlier, upon receipt.
-31-
<PAGE>
If to the Company, to it at:
DoubleClick Inc.
41 Madison Avenue
New York, NY 10010
Attention: President
with a copy to:
White & Case
1155 Avenue of the Americas
New York, NY 10036
Attention: Kevin Keogh, Esq.
If to Bozell, to it at:
Bozell, Jacobs, Kenyon & Eckhardt, Inc.
40 West 23rd Street
New York, NY 10010
Attention: Valentine Zammit
with a copy to:
Gregory & Hoenemeyer
666 Steamboat Road
Greenwich, CT 06830
Attention: W. Grant Gregory
If to the Initial Investors, to them at:
Bain Capital Fund V, L.P.
Bain Capital Fund V-B, L.P.
BCIP Trust Associates, L.P.
BCIP Associates
Brookside Capital Partners Fund, L.P.
c/o Bain Capital, Inc.
Two Copley Place, 7th Floor
Boston, MA 02116
Attention: Mark E. Nunnelly
and
-32-
<PAGE>
Greylock Equity Limited Partnership
Greylock IX Limited Partnership
c/o Greylock Management Corp.
One Federal Street
Boston, MA 02110
Attention: William W. Helman
and
Greylock Equity Limited Partnership
Greylock IX Limited Partnership
c/o Greylock Management Corp.
755 Page Mill Road
Building A, Suite 100
Palo Alto, CA 94304
Attention: David Strohm
and
ABS Capital Partners II, L.P.
1 South Street
Baltimore, MD 21202
Attention: Donald B. Hebb, Jr.
and
Venrock Associates
Venrock Associates II, L.P.
30 Rockefeller Plaza, Room 5508
New York, NY 10112
Attention: Ray Rothrock
and
WPG Enterprise Fund III, L.P.
Weiss, Peck & Greer, LLC
Weiss, Peck & Greer Venture Associates IV,
L.P.
555 California Street, Suite 3130
San Francisco, CA 94104
Attention: Peter Nieh
-33-
<PAGE>
Weiss, Peck & Greer Associates IV Cayman,
L.P.
c/o BankAmerica Trust & Banking Corporation
(Cayman) Limited
P.O. Box 1092
BankAmerica House, Fort Street
George Town, Grand Cayman
Cayman Islands, British West Indies
Attn: Mr. Patrick Keating
and
Canaan S.B.I.C., L.P.
Canaan Capital Limited Partnership
Canaan Capital Offshore Limited Partnership, C.V.
Canaan Equity, L.P.
c/o Deepak Kamra
Canaan Partners
2884 Sand Hill Road, Suite 115
Menlo Park, CA 94025
with a copy to:
Ropes & Gray
One International Place
Boston, MA 02110
Attention: David B. Walek, Esq.
If to a Stockholder other than an Initial Investor, to him or her
at the address set forth in the stock record book of the Company.
Notice to the holder of record of any shares of capital stock shall be
deemed to be notice to the holder of such shares for all purposes hereof.
13.3. BINDING EFFECT ETC. This Agreement constitutes the entire
agreement of the parties with respect to its subject matter, supersedes all
prior or contemporaneous oral or written agreements or discussions with respect
to such subject matter, and shall be binding upon and inure to the benefit of
the parties hereto and their respective heirs, representatives, successors and
assigns.
13.4. DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement
are for convenience of reference only, are not to be considered a part hereof
and shall not be construed to define or limit any of the terms or provisions
hereof.
13.5. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of
-34-
<PAGE>
which shall be deemed an original, but all of which taken together shall
constitute one instrument.
13.6. SEVERABILITY. If in any judicial proceedings a court shall refuse
to enforce any provision of this Agreement, then such unenforceable provision
shall be deemed eliminated from this Agreement for the purpose of such
proceedings to the extent necessary to permit the remaining provisions to be
enforced. To the full extent, however, that the provisions of any applicable law
may be waived, they are hereby waived to the end that this Agreement be deemed
to be valid and binding agreement enforceable in accordance with its terms, and
in the event that any provision hereof shall be found to be invalid or
unenforceable, such provision shall be construed by limiting it so as to be
valid and enforceable to the maximum extent consistent with and possible under
applicable law.
13.7. GOVERNING LAW. Except to the extent that any provision of this
Agreement is contrary to any mandatory provision of the General Corporation Law
of the State of Delaware (in which case such mandatory statutory provision shall
apply), this Agreement shall be governed by and construed in accordance with the
domestic substantive laws of the State of Delaware without giving effect to any
choice or conflict of laws provision or rule that would cause the application of
the domestic substantive laws of any other jurisdiction.
-35-
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has duly executed this
Agreement (or caused this Agreement to be executed on its behalf by its officer
or representative thereunto duly authorized) under seal as of the date first
above written.
THE COMPANY: DOUBLECLICK INC.
By: /s/ Kevin O'Connor
---------------------------
Title:
BOZELL: BOZELL, JACOBS, KENYON & ECKHARDT, INC.
By: /s/ (Signature Illegible)
----------------------------
Title:
-36-
<PAGE>
THE INITIAL INVESTORS: BAIN CAPITAL FUND V, L.P.
By Bain Capital Partners V, L.P.
By Bain Capital Investors V, Inc.
By: /s/ Mark Nunnelly
---------------------------
Managing Director
BAIN CAPITAL FUND V-B, L.P.
By Bain Capital Partners V, L.P.
By Bain Capital Investors V, |nc.
By: /s/ Mark Nunnelly
---------------------------
Managing Director
BCIP ASSOCIATES
By: /s/ Mark Nunnelly
---------------------------
Name:
Title:
BCIP TRUST ASSOCIATES, L.P.
By: /s/ Mark Nunnelly
---------------------------
Name:
Title:
BROOKSIDE CAPITAL PARTNERS FUND, L.P.
By Brookside Capital Investors, L.P.
By Brookside Capital Investors, Inc.
By: /s/ (Signature Illegible)
---------------------------
Title:
-37-
<PAGE>
GREYLOCK EQUITY LIMITED PARTNERSHIP
By: Greylock Equity GP Limited
Partnership,
its general partner
By: /s/ (Signature Illegible)
---------------------------
Title: General Partner
GREYLOCK IX LIMITED PARTNERSHIP
By: Greylock IX GP Limited
Partnership,
its general partner
By: /s/ (Signature Illegible)
---------------------------
Title: General Partner
ABS CAPITAL PARTNERS II, LAP.
By: ABS PARTNERS II, L.L.C.,
its general partner
By: /s/ Donald Hebb, Jr.
---------------------------
Title: Managing Member
-38-
<PAGE>
VENROCK ASSOCIATES
By: /s/ Ray Rothrock
---------------------------
Title: General Partner
VENROCK ASSOCIATES II, L.P.
By: /s/ Ray Rothrock
---------------------------
Title: General Partner
-39-
<PAGE>
CANAAN S.B.I.C., L.P.
BY: CANAAN SBIC PARTNERS, L.P.
By: /S/ DEEPAK KAMRA
---------------------------
CANAAN CAPITAL LIMITED PARTNERSHIP
By: Canaan Capital Management L.P.,
General Partner
By: Canaan Capital Partners L.P.,
General Partner
By: /S/ DEEPAK KAMRA
---------------------------
General Partner
CANAAN CAPITAL OFFSHORE
LIMITED PARTNERSHIP C.V.
By: Canaan Capital Management L.P.,
General Partner
By: Canaan Capital Partners L.P.
General Partner
By: /S/ DEEPAK KAMRA
---------------------------
General Partner
CANAAN EQUITY, L.P.
By: Canaan Equity Partners, L.L.C.
By: /S/ DEEPAK KAMRA
---------------------------
General Partner
-40-
<PAGE>
WPG ENTERPRISE FUND III, L.P.
By: WPG Venture Partners IV,
L.L.C.,
General Partner
By: /S/ PETER NIEH
---------------------------
Title: Managing Member
WEISS, PECK & GREER VENTURE
ASSOCIATES IV, L.P.
By: WPG Venture Partners IV,
L.L.C., General Partner
By: /S/ PETER NIEH
---------------------------
Title: Managing Member
WEISS, PECK & GREER VENTURE
ASSOCIATES IV CAYMAN, L.P.
By: WPG Venture Advisers, Ltd.,
Administrative General Partner
By: /S/ PETER NIEH
---------------------------
Title: Director
-41-
<PAGE>
MANAGEMENT STOCKHOLDERS:
/s/ Dwight Merriman
-------------------
Dwight Merriman
/s/ Kevin O'connor
-------------------
Kevin O'connor
/s/ Albert O'connor
-------------------
Albert O'connor
/s/ Joan O'connor
-------------------
Joan O'connor
/s/ Nancy O'connor
-------------------
Nancy O'connor
/s/ Scott Leonard
-------------------
Scott Leonard
/s/ David Nadel
-------------------
David Nadel
For the Group B Stockholders Party to
the Voting Trust Agreement:
By:
---------------------------
Leo Arthur Kelmenson,
as Voting Trustee
By:
---------------------------
Charles D. Peebler, Jr.
as Voting Trustee
By:
---------------------------
Valentine J. Zammit,
as Voting Trustee
-42-
<PAGE>
MANAGEMENT STOCKHOLDERS:
---------------------------
Kevin O'Connor
---------------------------
Albert O'Connor
---------------------------
Joan O'Connor
---------------------------
Nancy O'Connor
---------------------------
Scott Leonard
---------------------------
David Nadel
For the Group B Stockholders Party to
the Voting Trust Agreement:
By: /S/ LEO ARTHUR KELMENSON
---------------------------
Leo Arthur Kelmenson,
as Voting Trustee
By: /S/ CHARLES PEEBLER, JR.
---------------------------
Charles D. Peebler, Jr.
as Voting Trustee
By: /S/ VALENTINE ZAMMIT
---------------------------
Valentine J. Zammit,
as Voting Trustee
-43-
<PAGE>
GROUP B STOCKHOLDERS:
For the Group B Stockholders Party to
the Voting Trust Agreement
By:
---------------------------
Leo Arthur Kelmenson
as Voting Trustee
By:
---------------------------
Charles D. Peebler, Jr.
Voting Trustee
By: /s/ Valentine Zammit
---------------------------
Valentine J. Zammit
as Voting Trustee
-44-
<PAGE>
EXHIBIT A
PROJECTIONS FOR SECTION 3.8 OF THE STOCKHOLDERS AGREEMENT
Net Revenue Operating Profits
1997 $ 8,000,000 ($5,200,000)
1998 $15,400,000 $1,500,000
-45-
<PAGE>
EXHIBIT B
PROJECTIONS FOR SECTION 2.6.8 OF THE COMPANY'S
RESTATED CERTIFICATE OF INCORPORATION DATED JUNE _, 1997
Net Revenue Operating Profits
1997 $14,300,000 ($2,900,000)
1998 $27,700,000 $2,700,000
-46-
<PAGE>
EXHIBIT 10.8
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN PORTIONS OF THIS EXHIBIT
PURSUANT TO RULE 406 UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
AMENDMENT NO. 1
TO THE PROCUREMENT AND TRAFFICKING AGREEMENT
BY AND BETWEEN DIGITAL EQUIPMENT CORP. AND DOUBLECLICK INC.
DATED DECEMBER 16, 1996
Effective immediately DoubleClick will be Alta Vista's exclusive representative
(except as outlined below) for the sale and placement of banner advertising on
the Digital Web site (WWW.ALTAVISTA.DIGITAL.COM). The exception would be when
Digital has an agreement with another company that provides content for certain
co-branded pages that are liked to the Digital web site.
The term of the agreement will be extended to three years from the commencement
date (December 16, 1996), with the same provisions for early termination by
either party for any reason after six (6) months from the effective date of this
amendment or not less than ninety (90) days prior written notice to the other
party. The agreement shall be assumed by, and be binding upon, all successors
and assigns upon a Change in Control of Digital Equipment Corporation or the
Alta Vista web site or search engine ("Alta Vista"). The term "Change in
Control" shall mean any change in control by way of merger, consolidation,
reorganization, restructuring or the acquisition of all or substantially all of
the assets of Digital or Alta Vista or the sale or other transfer or disposition
of a majority of the equity of Digital or Alta Vista.
DoubleClick shall pay Digital, and Digital agrees to accept, * of the Net
Revenues generated on advertising banners delivered during the remaining term of
this agreement and DoubleClick shall retain * of the Net Revenues.
FOR: Digital Equipment Corporation FOR: DoubleClick Inc.
By: /s/ Robert E. Hult By: /s/ Kevin P. Ryan
------------------- ------------------
(Authorized Signatory) (Authorized Signatory)
Name: Robert E. Hult Name: Kevin Ryan
---------------- ----------------
Title: V.P. & General Manager Title: President
----------------------- -------------------
Date: 7/JAN/98 Date: 7/JAN/98
--------- ---------
* Represents material which has been redacted pursuant to a request for
confidential treatment pursuant to Rule 406 under the Securities Act of
1933, as amended.
<PAGE>
EXHIBIT 11.1
DOUBLECLICK INC.
COMPUTATION OF PRO FORMA BASIC AND DILUTED NET LOSS PER COMMON SHARE
<TABLE>
<CAPTION>
NUMBER OF
COMMON AND
COMMON WEIGHTED
EQUIVALENT DAYS AVERAGE
PERIOD ENDED DECEMBER 31, 1996 SHARES OUTSTANDING SHARES
- ------------------------------ ------------ ------------ --------
<S> <C> <C> <C>
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
------------ ------------
343 7,686,301
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
Cheap stock consideration for common stock, stock options,
convertible preferred stock, and convertible note payable
issued during the period from December 15, 1996 to
January 22, 1998............................................ 4,397,927 343 4,397,927
------------
Pro forma weighted average shares used in basic and diluted
net loss per share computation.............................. 13,457,048
------------
Net loss for the period from January 23, 1996 (inception) to
December 31, 1996........................................... $ (3,191,770)
Pro forma basic and diluted net loss per common share......... $ (0.24)
-------------
-------------
</TABLE>
<PAGE>
DOUBLECLICK INC.
COMPUTATION OF PRO FORMA BASIC AND DILUTED NET LOSS PER COMMON SHARE
<TABLE>
<CAPTION>
NUMBER OF
COMMON AND
COMMON WEIGHTED
EQUIVALENT DAYS AVERAGE
YEAR ENDED DECEMBER 31, 1997 SHARES OUTSTANDING SHARES
- ----------------------------- ------------ ----------- --------
<S> <C> <C> <C>
Issuance and assumed conversion of convertible
preferred stock............................................. 6,234,434 210 3,586,935
Class A common stock outstanding 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..................................... 1,625 168 748
500 153 210
20,000 152 8,329
500 148 203
5,500 145 2,185
4,500 139 1,714
30,000 131 10,767
23,000 116 7,310
3,500 110 1,055
1,000 107 293
1,875 104 534
3,500 102 978
500 97 133
4,875 97 1,296
1,250 91 312
3,750 90 925
9,000 90 2,219
500 85 116
3,500 61 585
500 61 84
5,000 55 753
500 47 64
1,625 31 138
15,688 19 817
1,750 12 58
1,125 12 37
1,250 12 41
1,625 12 53
------------ ------------
6,118,972 3,031,116
Cheap stock consideration for common stock, stock options,
convertible preferred stock, and convertible note payable
issued during the period from December 15, 1996 to
January 22, 1998............................................ 4,397,927 365 4,397,927
------------
Pro forma weighted average shares used in basic and diluted
net loss per share computation.............................. 14,843,574
------------
Net loss for the year ended December 31, 1997................. $ (8,356,261)
-------------
Pro forma net loss per common share........................... $ (0.56)
-------------
</TABLE>
<PAGE>
[KPMG PEAT MARWICK LETTERHEAD]
EXHIBIT 16.2
January 27, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
Re: DoubleClick Inc.
We have read the section titled "Change in Accountants" included
in DoubleClick Inc.'s Registration Statement on Form S-1, as amended on
January 27, 1998, and are in agreement with the statements contained in that
section therein.
Very truly yours,
/s/ KPMG PEAT MARWICK LLP
- -------------------------
KPMG Peat Marwick LLP
/jk
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
Australia: DoubleClick Australia Pty Limited
United Kingdom: DoubleClick Europe Limited
Canada: DoubleClick Canada Network Inc.
<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 January 22, 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 statement 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 heading "Experts" in such
Prospectus.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
New York, New York
January 22, 1998
<PAGE>
Exhibit 24.2
POWER OF ATTORNEY
I, the undersigned director of DoubleClick Inc. (the "Company"), hereby
constitute and appoint Kevin J. O'Connor, Chief Executive Officer, and Kevin P.
Ryan, President and Chief Financial Officer, and each of them individually, with
full powers of substitution and resubstitution, my true and lawful attorneys,
with full powers to them and each of them to sign for me, in my name and in the
capacity indicated below, the Registration Statement on Form S-1 filed with the
Securities and Exchange Commission, and any and all amendments to said
Registration Statement (including post-effective amendments), and any
registration statement filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended, in connection with the registration under the Securities Act
of 1933, as amended, of equity securities of the Company, and to file or cause
to be filed the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as each of them might or could
do in person, and hereby ratifying and confirming all that said attorneys, and
each of them, or their substitute or substitutes, shall do or cause to be done
by virtue of this Power of Attorney.
Dated: December 23, 1997
Signature Title(s)
--------- --------
By: /s/ Donald Peppers
--------------------------------
Donald Peppers Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-23-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 DEC-31-1997
<CASH> 0 2,671,845
<SECURITIES> 0 5,874,229
<RECEIVABLES> 4,228,837 11,201,331
<ALLOWANCES> (150,000) (712,075)
<INVENTORY> 0 0
<CURRENT-ASSETS> 4,078,837 13,391,171
<PP&E> 491,726 2,432,073
<DEPRECIATION> (45,932) (434,747)
<TOTAL-ASSETS> 4,525,531 21,741,997
<CURRENT-LIABILITIES> 7,117,301 11,879,532
<BONDS> 0 0
0 0
0 40
<COMMON> 9,059 6,119
<OTHER-SE> (2,600,829) 9,393,806
<TOTAL-LIABILITY-AND-EQUITY> 4,525,531 21,741,997
<SALES> 6,514,087 30,597,031
<TOTAL-REVENUES> 6,514,087 30,597,031
<CGS> 3,780,133 20,627,724
<TOTAL-COSTS> 3,780,133 20,627,724
<OTHER-EXPENSES> 5,841,868 18,434,397
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 91,090 340,789
<INCOME-PRETAX> (3,191,770) (8,356,261)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (3,191,770) (8,356,261)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,191,770) (8,356,261)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> (0.24) (0.56)
</TABLE>
