<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 12, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
VALUECLICK, INC.
(Exact Name of Registrant as Specified in its Charter)
--------------------------
<TABLE>
<S> <C> <C>
DELAWARE 7319 77-0495335
(State or Other Jurisdiction (Primary Standard Industry (I.R.S. Employer
of Incorporation or Classification Number) Identification Number)
Organization)
</TABLE>
--------------------------
6450 VIA REAL
CARPINTERIA, CALIFORNIA 93013
(805) 684-6060
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
--------------------------
JAMES R. ZARLEY
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
6450 VIA REAL
CARPINTERIA, CALIFORNIA 93013
(805) 684-6060
(Name, Address Including Zip Code, and Telephone Number Including
Area Code, of Agent for Service)
COPIES TO:
KENNETH R. BENDER, ESQ. TERRY M. KEE, ESQ.
ALLEN Z. SUSSMAN, ESQ. DAVID R. LAMARRE, ESQ.
RYAN S. HONG, ESQ. DAVID M. KOENINGER, ESQ.
MICHAEL W. CHOU, ESQ. DANIEL T. DASHIELL, ESQ.
BROBECK, PHLEGER & HARRISON LLP PILLSBURY MADISON & SUTRO LLP
550 SOUTH HOPE STREET P.O. BOX 7880
LOS ANGELES, CALIFORNIA 90071 SAN FRANCISCO, CALIFORNIA 94120
TELEPHONE: (213) 489-4060 TELEPHONE: (415) 983-1000
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, 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
<S> <C> <C>
Common Stock, $.001 par value per share $57,500,000 $15,985
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o) under the Securities Act.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 12, 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY CHANGE. WE MAY NOT
SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SEC IS
EFFECTIVE AND THIS PROSPECTUS IS DELIVERED IN FINAL FORM. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
<PAGE>
PROSPECTUS
SHARES
[LOGO]
COMMON STOCK
------------------
ValueClick, Inc. is offering shares of its common stock. This is our initial
public offering, and no public market currently exists for our shares. We
anticipate that the initial public offering price will be between $ and
$ per share of common stock.
------------------------
We intend to list our common stock on the Nasdaq National Market under the
symbol "VCLK."
PLEASE SEE "RISK FACTORS" BEGINNING ON PAGE 7 TO READ ABOUT THE RISKS YOU
SHOULD CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.
---------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
------------ ------------
<S> <C> <C>
Public offering price................................................. $ $
Underwriting discounts and commissions................................ $ $
Proceeds, before expenses, to ValueClick.............................. $ $
</TABLE>
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The underwriters have an option to purchase up to an additional
shares from us and up to an additional 250,000 shares from certain
selling stockholders at the initial public offering price less underwriting
discounts and commissions to cover over-allotments. We will not receive any of
the proceeds from the sale of the shares by the selling stockholders.
------------------------
VOLPE BROWN WHELAN & COMPANY
WILLIAM BLAIR & COMPANY
PRUDENTIAL SECURITIES
PRUDENTIALSECURITIES.COM
, 1999
<PAGE>
DESCRIPTION OF THE ARTWORK
INSIDE FRONT COVER
Artwork to come.
FRONT GATE FOLD
Artwork to come.
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS PROSPECTUS MAY ONLY BE USED WHERE IT IS
LEGAL TO SELL THESE SECURITIES. THE INFORMATION IN THIS PROSPECTUS MAY ONLY BE
ACCURATE ON THE DATE OF THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................................................... 3
Risk Factors.......................................................... 7
Forward-Looking Statements............................................ 19
Use of Proceeds....................................................... 19
Dividend Policy....................................................... 19
Capitalization........................................................ 20
Dilution.............................................................. 21
Selected Financial Data............................................... 22
Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 23
<CAPTION>
PAGE
----
<S> <C>
Business.............................................................. 31
Management............................................................ 40
Certain Transactions.................................................. 47
Principal and Selling Stockholders.................................... 49
Description of Capital Stock.......................................... 51
Shares Eligible for Future Sale....................................... 53
Underwriting.......................................................... 55
Legal Matters......................................................... 56
Experts............................................................... 56
Where You Can Find More Information................................... 57
Index to Financial Statements......................................... F-1
</TABLE>
We have registered the trademark "ValueClick" in the European Union and have
applied for registration of such trademark in the United States and Japan. This
prospectus also contains product names, trade names and trademarks that belong
to other organizations.
UNTIL , 2000 (25 DAYS 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
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS THE INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. BECAUSE THIS IS ONLY A SUMMARY, IT DOES NOT CONTAIN ALL OF THE
INFORMATION THAT MAY BE IMPORTANT TO YOU. YOU SHOULD READ THE ENTIRE PROSPECTUS
CAREFULLY, AND YOU SHOULD CONSIDER THE INFORMATION UNDER "RISK FACTORS" AND IN
THE FINANCIAL STATEMENTS AND NOTES, BEFORE DECIDING TO INVEST IN THE SHARES OF
OUR COMMON STOCK.
ValueClick is a leading global provider of Internet advertising solutions
for publishers of Web sites and online advertisers. We focus on a
performance-based Internet advertising solution, known as cost-per-click or CPC,
in which an advertiser only pays when an Internet user clicks on its banner
advertisement. This solution provides publishers of Web sites that have low to
moderate rates of traffic, also referred to as small- to medium-sized Web sites,
an opportunity to generate advertising revenue. We also provide publishers of
high-traffic Web sites the ability to capture additional revenue from their
unsold advertising inventory. As a leading aggregator of small- to medium-sized
Web sites, we provide our advertising customers, primarily direct marketing and
e-commerce companies, a cost-effective, low-risk, performance-based Internet
advertising solution.
The markets for Internet advertising and e-commerce transactions have grown
rapidly in recent years. Forrester Research estimates that in 1998, $1.5 billion
was spent on Internet advertising, and projects that this amount will grow to
$17.2 billion by 2003, a compound annual growth rate of 63%. Additionally, the
Yankee Group expects that e-commerce transactions will increase from $25 billion
in 1998 to $699 billion in 2002, a compound annual growth rate of 130%.
Historically, most Internet advertising campaigns have been priced based on
a cost-per-thousand impressions model, commonly referred to as CPM. Under the
CPM model, Internet advertisers are charged based on the number of times a
banner advertisement is displayed. This pricing model, which was adopted from
traditional media, is generally associated with advertising campaigns that are
designed to generate brand awareness through widespread exposure to
advertisements. Although CPM has historically been the predominant Internet
advertising model, we believe it has several inefficiencies:
- Underserves a large number of small- to medium-sized Web sites
- Frequently leaves unsold advertising inventory
- Difficulty in predicting effectiveness
We believe our CPC-based advertising model addresses these inefficiencies by
delivering to Web publishers and advertisers a cost-effective, performance-based
Internet advertising solution. Our solution provides publishers of small- to
medium-sized Web sites the opportunity to generate advertising revenue at little
or no added cost, while allowing publishers of high-traffic Web sites the
ability to capture additional revenue for excess advertising inventory that
would otherwise remain unsold. Our CPC solution also gives Internet advertisers
a convenient way to predict ad effectiveness, because they only pay for visitors
to their sites.
Our strategy is to be the leading provider of performance-based advertising
solutions by leveraging our position as the largest aggregator of advertising
inventory on small- to medium-sized Web sites and our reputation as the
"Pay-for-Results" advertising network. Key elements of our strategy include:
- Expand our network of Web sites
- Grow with our Web publishers
- Expand our sales and marketing efforts
- Grow with our Web advertisers
- Extend our global presence
- Provide superior customer service
3
<PAGE>
Our network of Web sites grew over 90% from July 1998 to July 1999, from
approximately 4,200 sites to approximately 8,200 sites, and included over 9,000
Web sites as of August 31, 1999. In August 1999, we delivered over 900 million
banner advertisements, and according to Media Metrix, we reached approximately
one-quarter of all Internet users.
Our Internet advertising business began in July 1997, as a line of business
within Web-Ignite Corporation. In May 1998, the Internet advertising business of
Web-Ignite was transferred to ValueClick, LLC, a newly-formed California limited
liability company controlled by Web-Ignite's sole stockholder. On December 31,
1998, ValueClick, LLC reorganized as ValueClick, Inc., a Delaware corporation.
Our principal executive offices are located at 6450 Via Real, Carpinteria,
California 93013. Our telephone number at that location is (805) 684-6060 and
our Web site is www.valueclick.com. Information contained on our Web site does
not constitute part of this prospectus.
------------------------
In this prospectus, "ValueClick," the "Company," "we," "us" and "our" refer
to ValueClick, Inc., our predecessor business and entities and, after August
1999, our Japanese subsidiary, ValueClick Japan. Unless otherwise indicated, all
information in this prospectus assumes that:
- the initial public offering price will be $ per share;
- each share of our preferred stock will be converted into four shares of
common stock upon the closing of this offering; and
- the underwriters will not exercise their over-allotment option and no
other person will exercise any other outstanding option.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Total common stock offered...................... shares
Outstanding common stock before the offering.... 31,065,152 shares
Outstanding common stock after the offering..... shares
Use of proceeds................................. For general corporate purposes including
expansion of sales and marketing
activities,
enhancement of our technology, possible
acquisitions and international
expansions.
See "Use of Proceeds."
Proposed Nasdaq symbol.......................... VCLK
</TABLE>
The number of shares of common stock to be outstanding after the offering is
based on the number of shares outstanding as of September 30, 1999. This number
does not include 5,489,200 shares subject to outstanding options under our 1999
Stock Option Plan with a weighted average exercise price of $0.42 per share and
590,800 shares of common stock reserved for future issuance under our 1999 Stock
Option Plan as of September 30, 1999. See "Management--Employee Benefit Plans"
and Notes 1 and 9 of Notes to Financial Statements.
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
(in thousands, except per share data)
The following tables set forth summary financial data for ValueClick to aid
investors in their analysis of this potential investment. The summary financial
data should be read in conjunction with our financial statements and the notes
to those financial statements appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
MAY 1, 1998 SIX MONTHS PRO FORMA
(INCEPTION) THROUGH COMBINED HISTORICAL ENDED JUNE SIX MONTHS
DECEMBER 31, SIX MONTHS ENDED 30, ENDED JUNE
1998 JUNE 30, 1998(3) 1999 30, 1999(4)
------------------- ------------------- ----------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................................... $ 2,053 $ 450 $ 4,867 $ 5,471
Gross profit................................... 948 269 2,432 2,689
(Loss) income from operations.................. (127) (10) 211 (108)
Net loss....................................... (128) (9) (38) (230)
Net loss per common share:
Basic and diluted(1)................... $ (0.01) -- $ -- --
Shares used to calculate basic
and diluted(1)....................... 19,824 -- 19,838 --
Pro forma basic and diluted net
loss per common share(2)(4).......... -- -- -- $ (0.01)
Shares used in pro forma basic
and diluted net loss per
common share calculation(2)(4)....... -- -- -- 29,668
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
-----------------------------------------------
ACTUAL PRO FORMA(2) AS ADJUSTED(5)
--------- ------------------- ---------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................... $ 2,411 $ 2,411 $
Working capital..................................................... 3,849 3,849
Total assets........................................................ 5,499 5,499
Deferred stock compensation......................................... (2,414) (2,414)
Total stockholders' equity.......................................... 4,406 4,406
</TABLE>
(1) See Notes 1 and 9 of Notes to Financial Statements for determination of
shares used in computing basic and diluted net loss per common share.
(2) Pro forma to give effect to the conversion of all issued and outstanding
shares of preferred stock into common stock but not giving effect to the
exercise of outstanding options to purchase 4,815,200 shares of common stock
as of June 30, 1999.
(3) Combined historical statement of operations data for the six months ended
June 30, 1998 reflects the combined historical operating results for
ValueClick for the period May 1, 1998 through June 30, 1998, and the
ValueClick line of business of Web-Ignite for the four months ended April
30, 1998.
(4) Pro forma statement of operations data for the six months ended June 30,
1999 reflects the acquisition of a controlling interest in ValueClick Japan
on August 6, 1999 for 640,000 shares of common stock.
(5) As adjusted to reflect the sale of shares of common stock offered
by us at an assumed initial public offering price of $ per common
share after deducting the underwriting discounts and estimated offering
expenses payable by ValueClick. See "Use of Proceeds" on page 19 for more
information on our intended use of proceeds from this offering and
"Capitalization" on page 20 for more information on our capital structure.
6
<PAGE>
RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CONSIDER CAREFULLY
THE RISKS AND UNCERTAINTIES DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS
PROSPECTUS BEFORE DECIDING WHETHER TO INVEST IN SHARES OF OUR COMMON STOCK. IF
ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, RESULTS OF OPERATIONS
AND FINANCIAL CONDITION COULD BE MATERIALLY AND ADVERSELY AFFECTED. THIS COULD
CAUSE THE TRADING PRICE OF OUR COMMON STOCK TO DECLINE, AND YOU MIGHT LOSE PART
OR ALL OF YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS
OUR SUCCESS DEPENDS ON THE FUTURE VIABILITY OF BANNER ADVERTISING ON THE
INTERNET AND ITS APPEAL TO DIRECT MARKETING COMPANIES.
We currently derive substantially all of our revenues by delivering banner
advertisements that generate clicks to our advertisers' Web sites. Sales of
clicks to direct marketing companies account for more than half of these
revenues. This business model may not continue to be effective in the future for
a number of reasons, including the following:
- click rates have always been low and may decline as the number of banner
advertisements on the Web increases;
- Internet users can install "filter" software programs which allow them to
prevent banner advertisements from appearing on their screens;
- banner advertisements are, by their nature, limited in content relative to
other media;
- direct marketing companies may be reluctant or slow to adopt banner
advertising that replaces, limits or competes with their existing direct
marketing efforts; and
- direct marketing companies may prefer other forms of Internet advertising,
including permission-based e-mail.
If the number of direct marketing companies who purchase banner clicks from us
does not continue to grow, our business, results of operations and financial
condition could be materially and adversely affected.
OUR UNPROVEN BUSINESS MODEL IS DIFFERENT FROM OTHER INTERNET ADVERTISING
NETWORKS AND HAS A LIMITED HISTORY.
We conduct substantially all of our business on a cost-per-click or CPC
pricing model. This business model is relatively new and much less common than
the cost-per-thousand impressions or CPM pricing model, which many other
Internet advertising companies use. Our ability to generate significant revenue
from advertisers will depend, in part, on our ability to:
- demonstrate the effectiveness of our CPC pricing model to Internet
advertisers, many of which may be more accustomed to the CPM pricing
model, and to Web publishers; and
- attract and retain advertisers and Web publishers by differentiating our
technology and services from those of our competitors.
A key component of our strategy is to enhance advertisers' ability to
measure their return on investment and track the performance and effectiveness
of their advertising campaigns. However, we have limited experience in
implementing our strategy. To date, few advertisers have taken advantage of the
most sophisticated tool we offer for tracking Internet users' activities after
they have reached advertisers' Web sites. We cannot assure you that our strategy
will succeed or that we will be able to achieve or maintain adequate margins.
7
<PAGE>
Intense competition among Web sites and Internet advertising services has
led to the proliferation of a number of alternative pricing models for Internet
advertising. These alternatives, and the likelihood that additional pricing
alternatives will be introduced, make it difficult for us to project the levels
of advertising revenue or the margins that we, or the Internet advertising
industry in general, will realize in the future. Moreover, an increase in the
amount of advertising on the Web may result in a decline in click rates. Since
we predominantly rely on a performance-based pricing model to generate revenue,
any decline in click rates may make our CPC pricing model a less viable or less
attractive solution for Web publishers and advertisers.
OUR ABILITY TO GROW DEPENDS ON EFFECTIVELY MANAGING OUR EXISTING ADVERTISING
SPACE AND ACQUIRING NEW ADVERTISING SPACE.
Our success depends in part on our ability to effectively manage our
existing advertising space. The Web sites that list their unsold advertising
space with us are not bound by contracts that ensure us a consistent supply of
advertising space, which we refer to as inventory. In addition, Web sites can
change the amount of inventory they make available to us at any time. If a Web
site publisher decides not to make advertising space from its Web sites
available to us, we may not be able to replace this advertising space with
advertising space from other Web sites that have comparable traffic patterns and
user demographics quickly enough to fulfill our advertisers' requests. This
could result in lost revenues. We expect that our customers' requirements will
become more sophisticated as the Web matures as an advertising medium. If we
fail to manage our existing advertising space effectively, our business, results
of operations and financial conditions could be materially and adversely
affected.
Our growth is limited by our ability to expand our advertising inventory. In
order to attract new customers, we must maintain a consistent supply of
attractive advertising space. We intend to expand our advertising inventory by
selectively adding to our network new Web sites that offer attractive
demographics, innovative and quality content and growing Web user traffic. Our
ability to attract new Web sites to the ValueClick network and to retain Web
sites currently in our network will depend on various factors, some of which are
beyond our control. These factors include our ability to introduce new and
innovative product lines and services, our ability to efficiently manage our
existing advertising inventory, our pricing policies and the cost-efficiency to
Web publishers of outsourcing their advertising sales. In addition, the number
of competing Internet advertising networks that purchase advertising inventory
from small- to medium-sized Web sites continues to increase. We cannot assure
you that the size of our inventory or the number of Web sites that list their
advertising space on the ValueClick network will increase or even remain
constant in the future.
WE MUST KEEP PACE WITH RAPIDLY CHANGING TECHNOLOGIES.
The Internet advertising market is characterized by rapidly changing
technologies, evolving industry standards, frequent new product and service
introductions and changing customer demands. The introduction of new products
and services embodying new technologies and the emergence of new industry
standards and practices can render existing products and services obsolete and
unmarketable or require unanticipated investments in research and development.
Our success will depend on our ability to adapt to rapidly changing
technologies, to enhance existing solutions and to develop and introduce a
variety of new solutions to address our customers' changing demands.
For example, advertisers are increasingly requiring Internet advertising
networks to have the ability to deliver advertisements utilizing new formats
that surpass stationary images and incorporate rich media, such as video and
audio, interactivity, and more precise consumer targeting techniques. Our system
does not support some types of advertising formats, such as video and audio, and
many of the Web sites in our network have not implemented systems to allow rich
media advertisements. In addition, an increase in the bandwidth of Internet
access resulting in faster data delivery may provide new products and services
that will take advantage of this expansion in delivery capability. If we fail to
8
<PAGE>
adapt successfully to developments such as these, our business, results of
operations and financial condition could be materially and adversely affected.
We purchase most of the software we use in our business from third parties.
We intend to continue to acquire technology necessary for us to conduct our
business from third parties. We cannot assure you that, in the future, these
technologies will be available on commercially reasonable terms, or at all.
We may also experience difficulties that could delay or prevent the
successful design, development, introduction or marketing of new solutions. Any
new solutions or enhancements we develop will need to meet the requirements of
our current and prospective customers and may not achieve significant market
acceptance. If we fail to keep pace with technological developments and the
introduction of new industry and technology standards on a cost-effective basis,
our business, results of operations and financial condition could be materially
and adversely affected.
THE TECHNOLOGY WE CURRENTLY USE TO TARGET THE DELIVERY OF BANNERS AND TO PREVENT
FRAUD ON OUR NETWORK IS CONTROVERSIAL.
Web sites typically place small files of information, commonly known as
"cookies," on an Internet user's hard drive, generally without the user's
knowledge or consent. Cookie information is passed to the Web site through the
Internet user's browser software. We currently use cookies to collect
information about an Internet user's movement through the advertiser's Web site
and to monitor and prevent potentially fraudulent activity on our network. Most
currently available Internet browsers allow Internet users to modify their
browser settings to prevent cookies from being stored on their hard drive, and
some users currently do so. Internet users can also delete cookies from their
hard drives at any time.
Some Internet commentators and privacy advocates have suggested limiting or
eliminating the use of cookies. The effectiveness of our technology could be
limited by any reduction or limitation in the use of cookies. If the use or
effectiveness of cookies is limited, we would have to switch to other
technologies in order to gather demographic and behavioral information. While
such technologies currently exist, they are substantially less effective than
cookies. We would also have to develop or acquire other technology to prevent
fraud. Replacement of cookies could require significant reengineering time and
resources, might not be completed in time to avoid negative consequences to our
business, results of operations or financial condition, and might not be
commercially feasible.
WE COULD LOSE CUSTOMERS OR ADVERTISING INVENTORY IF WE FAIL TO MEASURE CLICKS ON
BANNER ADVERTISEMENTS IN A MANNER THAT IS ACCEPTABLE TO OUR ADVERTISERS AND
WEB PUBLISHERS.
We earn advertising revenues and make payments to Web publishers based on
the number of clicks on advertisements delivered on our network. Advertisers'
and Web publishers' willingness to use our services and join our network will
depend on the extent to which they perceive our measurements of clicks to be
accurate and reliable. Advertisers and Web publishers often maintain their own
technologies and methodologies for counting clicks, and from time to time we
have had to resolve differences between our measurements and theirs. Any
significant dispute over the proper measurement of clicks or other user
responses to advertisements could cause us to lose customers or advertising
inventory.
WE FACE INTENSE COMPETITION FROM OTHER INTERNET ADVERTISING COMPANIES.
The market for Internet advertising and related services is intensely
competitive. We expect this competition to continue to increase because there
are no significant barriers to entry. Increased competition may result in price
reductions for advertising space, reduced margins and loss of our market share.
We currently compete with the following types of companies:
9
<PAGE>
- Internet advertising networks offered by several companies that focus on
the traditional CPM model, such as DoubleClick, 24/7 Media and Flycast;
- Internet advertising networks using a performance-based model, like us,
offered by several smaller companies, such as TeknoSurf and ClickAgents;
- providers of advertising inventory management products and related
services, such as NetGravity, Accipiter and AdForce;
- advertising, media agencies and other companies that facilitate Web
advertising, such as America Online, NBCi, Yahoo!, SmartAge, GoNetwork,
Excite@Home, Infoseek, Lycos and Microsoft;
- Internet navigational, Web search engine companies and informational
services and online service providers, such as America Online,
Excite@Home, Lycos, Microsoft, Yahoo!, and Infoseek; and
- traditional advertising and direct marketing media, such as radio, cable,
television, print and direct marketing.
We also compete with traditional advertising media, such as direct mail,
television, radio, cable and print, for a share of advertisers' total
advertising budgets.
Many of our current and potential competitors enjoy competitive advantages
over us, such as longer operating histories, greater name recognition, larger
customer bases, greater access to advertising space on high-traffic Web sites,
and significantly greater financial, technical and marketing resources. We may
not be able to compete successfully, and competitive pressures may materially
and adversely affect our business, results of operations and financial
condition.
WE MAY FACE COSTLY INTELLECTUAL PROPERTY DISPUTES.
We may be subject to disputes and legal actions alleging intellectual
property infringement, unfair competition or similar claims against us. As the
number of competitors in our industry grows and as Internet advertising
technologies change over time, we expect that we will be subject to increasing
risk of infringement claims and other intellectual property disputes. Third
parties may have or may in the future be granted patents that cover our
technology. One of our principal competitors, DoubleClick, was recently awarded
a patent on certain aspects of ad-delivery technology, including the ability to
target the delivery of ads over a network such as the Internet and the ability
to compile statistics on individual Web users and the use of those statistics to
target ads. The DoubleClick patent may cover the technology we use in our
advertising solutions. If our technology is not outside the scope of the
technology covered under the DoubleClick patent or if the DoubleClick patent is
not invalidated, we may be limited in our ability to use our technology, may be
sued by DoubleClick for infringement, or may be required to pay for a license to
DoubleClick's technology. We cannot assure you that we could enter into a
licensing agreement with DoubleClick on commercially reasonable terms. Our
failure to prevail in any litigation with DoubleClick or any other party
asserting patent infringement could result in:
- substantial monetary damages, including damages for past infringement,
which could be tripled if a court determines that the infringement was
willful;
- an injunction requiring us to stop offering our services in their current
form;
- the need to redesign our systems; or
- the need to pay significant license fees in order to use technology
belonging to third parties.
Furthermore, other third parties may have or may be granted patents or other
proprietary rights that cover our technology or services. We may be limited in
our ability to use our technology or conduct our
10
<PAGE>
business without obtaining licenses from these third parties, which may not be
available on commercially reasonable terms, or at all. See
"Business--Intellectual Property Rights" for more detailed information.
Any other intellectual property related lawsuit could also subject us to
significant liability for damages, substantial legal costs and business
disruption, and could result in the invalidation of our intellectual property
rights. Any claims or litigation from third parties may also result in
limitations on our ability to use the intellectual property without obtaining
licenses or making other arrangements with the third parties responsible for
those claims or litigation. Arrangements such as these may be unavailable on
commercially reasonable terms, if at all.
Defending our intellectual property rights, however, may require costly and
disruptive lawsuits and might result in invalidation of our rights. We cannot
assure you that any of our trademark applications will be approved. Even if our
applications are approved, our trademarks may be successfully challenged by
others, or may be invalidated. In addition, despite our efforts to protect our
intellectual property, unauthorized parties may attempt to copy aspects of our
services or to obtain and use information that we regard as proprietary. We may
not have adequate remedies for any breach of confidentiality agreements, and our
trade secrets may otherwise become known or independently developed by
competitors. We have not filed any patent applications to date. We cannot
guarantee that any of our intellectual property rights will be viable or
valuable in the future since the validity, enforceability and scope of
protection of proprietary rights in Internet-related industries is uncertain and
still evolving.
OUR MANAGEMENT IS NEW AND MAY NOT WORK TOGETHER SUCCESSFULLY.
Our future success depends on the ability of management to implement our
business plan. All executive officers other than Brian Coryat and James R.
Zarley have been directors or officers with us for less than a year. These
recently hired individuals have had limited experience working with the rest of
our management team. We cannot be certain that we will be able to integrate
these new executives into our organization effectively. In addition, our
executive officers may not be successful in carrying out their duties or making
strategic decisions quickly in a rapidly changing market. The failure to
integrate our new executives into our organization or the inability of our
management to respond quickly in the rapidly evolving Internet advertising
market could materially and adversely affect our business, results of operations
and financial condition.
WE DEPEND ON KEY PERSONNEL FOR OUR FUTURE SUCCESS.
Our future success is substantially dependent on the continued service of
our key senior management, technical and sales personnel and in particular our
Chairman and Chief Executive Officer, James R. Zarley, our President and Chief
Operating Officer, Brian Coryat, and our Vice Chairman and Chief Marketing
Officer Earle A. Malm II. Our employment agreements with our key personnel are
short term and on an at-will basis. We also do not have key-person insurance on
any of our employees, other than Brian Coryat, our President and Chief Operating
Officer. The loss of the services of any member of our management team, or of
any other key employees, could materially and adversely affect our business,
results of operations and financial condition. Our future success also depends
on our continuing ability to attract, retain and motivate highly skilled
employees. Competition for employees in our industry is intense. We may be
unable to retain our key employees or attract, assimilate or retain other highly
qualified employees in the future. We have experienced difficulty from time to
time in attracting the personnel necessary to support the growth of our
business, and we may experience similar difficulties in the future.
11
<PAGE>
OUR OFFICERS AND DIRECTORS WILL HAVE SUBSTANTIAL INFLUENCE OVER OUR OPERATIONS.
We anticipate that our executive officers and directors will beneficially
own approximately % of our common stock following the completion of this
offering, or % if the underwriters' over-allotment option is exercised in
full. Our executive officers and directors will have the ability to control all
matters requiring approval by our stockholders, including the election of
directors and approval of significant corporate transactions. These directors
and officers may have interests that are different from, or in addition to, your
interests. See "Principal and Selling Stockholders" for more detailed
information.
SYSTEM FAILURES COULD SIGNIFICANTLY DISRUPT OUR OPERATIONS.
Our success depends on the continuing and uninterrupted performance of our
systems. Sustained or repeated system failures that interrupt our ability to
provide our services to our customers, including failures affecting our ability
to deliver advertisements quickly and accurately and to process users' responses
to advertisements, would reduce significantly the attractiveness of our
solutions to advertisers and Web sites. Our business, results of operations and
financial condition could be materially and adversely affected by any damage or
failure that interrupts or delays our operations.
Our computer systems are vulnerable to damage from a variety of sources,
including telecommunications failures, malicious human acts and natural
disasters. We lease server space in Los Angeles, California, Boca Raton, Florida
and Tokyo, Japan. Therefore, any of the above factors affecting the Los Angeles,
Boca Raton or Tokyo areas would substantially harm our business. Moreover,
despite network security measures, our servers are potentially vulnerable to
physical or electronic break-ins, computer viruses and similar disruptive
problems in part because we cannot control the maintenance and operation of our
third-party data centers. Despite the precautions we have taken, unanticipated
problems affecting our systems could cause interruptions in the delivery of our
solutions in the future. Our data storage centers incorporate redundant systems,
consisting of additional servers, but our primary system does not switch over to
our backup system automatically. Our insurance policies may not adequately
compensate us for any losses that may occur due to any failures in our systems.
THE YEAR 2000 PROBLEM COULD CAUSE SIGNIFICANT HARM TO OUR OPERATIONS.
The Year 2000 problem is the result of many computer systems and software
programs having been designed to accept or recognize only two digits rather than
four digits to define the applicable year. Date sensitive hardware and software
may recognize a date using "00" as the year 1900 rather than the year 2000. As a
result, computer systems and software used by many organizations and
governmental agencies may need to be upgraded to comply with these Year 2000
requirements or risk system failure or miscalculations causing disruptions of
normal business activities.
The success of our CPC business model depends on our ability to serve a
large number of banner advertisements to our Web publishers and to provide a
large number of clicks to our advertisers. If the Web publishers in our network,
the Internet service providers, or ISPs, who provide access to those Web sites,
or the advertisers whose banner advertisements we serve experience disruptions
in their computer systems related to the Year 2000 problem, we may not be able
to deliver advertisements to our Web publishers or enable Web users to click to
our advertisers, and our business, results of operations and financial condition
could be materially and adversely affected.
We have completed an assessment of our Year 2000 readiness with respect to
our information and non-information technology systems. Based on the results of
this assessment, we are in the process of addressing any known Year 2000
problems and developing a contingency plan to deal with the Year 2000 problem.
We cannot assure you that we will be successful in our efforts to identify and
remedy by the end of this year all Year 2000 problems that may affect our
systems. Any unforeseen Year 2000
12
<PAGE>
problems may require us to upgrade or replace our systems at a substantial cost,
and may result in our inability to deliver our customers' advertisements to our
network. Our failure to address any unforeseen Year 2000 issue could have a
material and adverse effect on our business, prospects, financial condition and
results of operations. Please see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Year 2000 Compliance" for more
detailed information on our state of readiness, costs, risks and contingency
plans regarding the Year 2000 problem.
WE MAY EXPERIENCE CAPACITY CONSTRAINTS THAT COULD REDUCE OUR REVENUE.
Our future success depends in part on the efficient performance of our
software and technology, as well as the efficient performance of the systems of
third parties, such as our ISPs. As the numbers of Web pages and users increase,
our services and infrastructure may not be able to grow to meet the demand. A
sudden and unexpected increase in the volume of advertising delivered through
our servers or in click rates could strain the capacity of the software or
hardware that we have deployed. Any capacity constraints we experience could
lead to slower response times or system failures and adversely affect the
availability of advertisements, the number of advertising views delivered and
the level of user responses received, which would harm our revenues. To the
extent that we do not effectively address capacity constraints or system
failures, our business, results of operations and financial condition could be
harmed substantially. See "Business--Technology Platform" for more detailed
information.
We also depend on the ISPs that provide consumers with access to the Web
sites on which our customers' advertisements appear. Internet users have
occasionally experienced difficulties connecting to the Web due to failures of
their ISPs' systems. Any disruption in Internet access provided by ISPs or
failures by ISPs to handle the higher volumes of traffic expected in the future
could materially and adversely affect our business, results of operations and
financial condition.
IT MAY BE DIFFICULT FOR YOU TO EVALUATE OUR BUSINESS AND YOUR INVESTMENT BECAUSE
WE HAVE A LIMITED OPERATING HISTORY.
Because we have a limited operating history, it may be difficult to evaluate
our business and prospects. You should consider our prospects in light of the
risks, expenses and difficulties frequently encountered by early-stage companies
in the rapidly-changing Internet market. These risks include our ability to:
- maintain and increase our inventory of advertising space on Web sites;
- maintain and increase the number of advertisers that use our products and
services and offer banner advertisements that generate significant
response rates;
- continue to expand the number of products and services we offer and the
capacity of our systems;
- continue to increase the acceptance of the CPC pricing model; and
- adapt to changes in Web advertisers' promotional needs and policies, and
the technologies used to generate Web advertisements.
If we are unsuccessful in addressing these risks and uncertainties, our
business, results of operations and financial condition could be materially and
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for more detailed information.
IT MAY BE DIFFICULT TO PREDICT OUR FINANCIAL PERFORMANCE BECAUSE OUR QUARTERLY
OPERATING RESULTS MAY FLUCTUATE.
Our revenues and operating results may vary significantly from quarter to
quarter due to a variety of factors, many of which are beyond our control. You
should not rely on period-to-period comparisons
13
<PAGE>
of our results of operations as an indication of our future performance. Our
results of operations may fall below the expectations of market analysts and
investors in some future periods. If this happens, the market price of our
common stock may fall.
The factors that may affect our quarterly operating results include:
- fluctuations in demand for our advertising solutions;
- fluctuations in click rates;
- fluctuations in the amount of available advertising space, or views, on
Web sites in the ValueClick network;
- the timing and amount of sales and marketing expenses incurred to attract
new advertisers;
- fluctuations in sales of different types of advertising, for example, the
amount of advertising sold at higher rates rather than lower rates;
- changes in our pricing policies, the pricing policies of our competitors
or the pricing policies for advertising on the Internet generally;
- timing differences at the end of each quarter between our payments to Web
publishers for a given set of clicks and our collection of advertising
revenue for those clicks; and
- costs related to acquisitions of technology or businesses.
Expenditures by advertisers also tend to be cyclical, reflecting overall
economic conditions as well as budgeting and buying patterns. Any decline in the
economic prospects of advertisers or the economy generally may alter current or
prospective advertisers' spending priorities, or may increase the time it takes
us to close sales with advertisers, and could materially and adversely affect
our business, results of operations and financial condition.
WE MAY EXPERIENCE SEASONAL FLUCTUATIONS IN OUR REVENUES.
We believe that our revenues will be subject to seasonal fluctuations
because advertisers generally place fewer advertisements during the first and
third calendar quarters of each year. Additional seasonal patterns in Internet
advertisers' spending may emerge as the industry matures.
OUR FUTURE REVENUES AND OPERATING RESULTS ARE DIFFICULT TO FORECAST AND MANY OF
OUR EXPENSES ARE FIXED.
Our current and future expense estimates are based, in large part, on our
estimates of future revenues and on our investment plans. In particular, we plan
to increase our operating expenses significantly in order to:
- expand our sales and marketing operations;
- enhance our technology and software solutions;
- acquire additional advertising inventory;
- enhance our advertising management platform; and
- continue our international expansion.
Most of our expenses are fixed in the short term. We may be unable to reduce
spending if our revenues are lower than expected. Any significant shortfall in
revenues in relation to our expectations could materially and adversely affect
our business, results of operations and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
more detailed information.
14
<PAGE>
WE WILL NEED TO MANAGE OUR GROWTH EFFECTIVELY.
As we continue to increase the scope of our operations, we will need an
effective planning and management process to implement our business plan
successfully in the rapidly evolving Internet advertising market. Our business,
results of operations and financial condition will be substantially harmed if we
are unable to manage our expanding operations effectively. We commenced
operations, through joint ventures, in Japan in March 1998 and the United
Kingdom in August 1999. We have grown from six employees in July 1998 to 47
full- and part-time employees domestically in September 1999 and have grown to
16 full- and part-time employees in Japan in September 1999. We plan to continue
to expand our sales and marketing, customer support and research and development
organizations. Past growth has placed, and any future growth will continue to
place, a significant strain on our management systems and resources. We have
recently implemented a new financial reporting system and expect that we will
need to continue to improve our financial and managerial controls and our
reporting systems and procedures. In addition, we will need to expand, train and
manage our work force. Our failure to manage our growth effectively could
materially and adversely affect our business, results of operations and
financial condition.
OUR INTERNATIONAL STRATEGY WILL EXPOSE US TO RISKS.
We initiated operations, through joint ventures, in Japan in March 1998, and
in the United Kingdom in August 1999, and we expect to commence operations in
other selected international markets in 2000. For the six months ended June 30,
1999, international sales represented 12% of our revenues, on a pro forma basis.
Our Japanese operation subjects us to foreign currency exchange risks as it
denominates its transactions in Japanese Yen. Our international expansion will
subject us to additional foreign currency exchange risks and will require
management attention and resources. We expect to pursue expansion through a
number of international alliances and to rely extensively on these business
partners initially to conduct operations, establish local networks, register Web
sites as affiliates and coordinate sales and marketing efforts. Our success in
these markets will depend on the success of our business partners and their
willingness to dedicate sufficient resources to our relationships. We cannot
assure you that we will be successful in our efforts overseas. International
operations are subject to other inherent risks, including:
- the impact of recessions in economies outside the United States;
- changes in domestic regulatory requirements, as well as differences
between domestic and foreign regulatory requirements;
- export restrictions, including export controls relating to encryption
technology;
- reduced protection for intellectual property rights in some countries;
- potentially adverse tax consequences;
- difficulties and costs of staffing and managing foreign operations;
- political and economic instability;
- tariffs and other trade barriers; and
- seasonal reductions in business activity.
Our failure to address these risks adequately could materially and adversely
affect our business, results of operations and financial condition.
15
<PAGE>
RISKS RELATED TO OUR INDUSTRY
WE DEPEND ON THE CONTINUED GROWTH OF INTERNET USAGE AND INFRASTRUCTURE.
Our business and financial results depend on continued growth in the use of
the Internet. Internet usage may be inhibited for a number of reasons, such as:
- inadequate network infrastructure;
- security concerns;
- inconsistent quality of service; and
- unavailability of cost-effective, high-speed service.
If Internet usage grows, its infrastructure may not be able to support the
demands placed on it and its performance and reliability may decline. In
addition, Web sites have experienced interruptions in their service as a result
of outages and other delays occurring throughout the Internet network
infrastructure. The Internet could lose its viability as a commercial medium due
to delays in the development or adoption of new technology required to
accommodate increased levels of Internet activity. If use of the Internet does
not continue to grow, or if the Internet infrastructure does not effectively
support its growth, our business, results of operations and financial condition
could be materially and adversely affected.
OUR LONG-TERM SUCCESS MAY DEPEND ON THE DEVELOPMENT OF E-COMMERCE.
Because many of our customers' advertisements encourage online purchasing,
our long-term success may depend in part on the growth and market acceptance of
e-commerce. Our business would be adversely affected if the growth or acceptance
of e-commerce does not develop, or develops more slowly than expected. A number
of factors outside of our control could hinder the development of e-commerce,
including the following:
- the network infrastructure necessary for substantial growth in Internet
usage may not develop adequately or its performance and reliability may
decline;
- insufficient availability of telecommunication services or changes in
telecommunication services could result in inconsistent quality of service
or slower response times on the Internet; and
- negative publicity and consumer concern surrounding the security of
e-commerce could impede its acceptance and growth.
In particular, any well-publicized compromise of security involving Web-based
transactions could deter people from purchasing items on the Internet, clicking
on advertisements, or using the Internet generally, any of which could
materially and adversely affect our business, results of operations and
financial condition.
WE ARE SUBJECT TO GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES OF DOING
BUSINESS ON THE WEB.
Laws and regulations that apply to Internet communications, commerce and
advertising are becoming more prevalent. These regulations could affect the
costs of communicating on the Web and adversely affect the demand for our
advertising solutions or otherwise harm our business, results of operations and
financial condition. Recently, the United States Congress enacted Internet
legislation regarding children's privacy, copyrights and taxation. Other laws
and regulations may be adopted, and may address issues such as user privacy,
pricing, acceptable content, taxation and quality of products and services. This
legislation could hinder growth in the use of the Web generally and decrease the
acceptance of the Web as a communications, commercial and advertising medium. In
addition, the growing use of the Web has burdened the existing
telecommunications infrastructure and has, at times,
16
<PAGE>
caused interruptions in telephone service. Telephone carriers have petitioned
the government to regulate and impose fees on ISPs and online service providers
in a manner similar to long distance carriers.
Due to the global nature of the Web, it is possible that, although our
transmissions currently originate in California, Florida and Japan, the
governments of other states or foreign countries might attempt to regulate our
transmissions or levy sales or other taxes relating to our activities. The
European Union recently adopted a directive addressing data privacy that may
result in limits on the collection and use of user information. The laws
governing the Internet remain largely unsettled, even in areas where there has
been some legislative action. It may take years to determine whether and how
existing laws, including those governing intellectual property, privacy, libel
and taxation, apply to the Internet and Internet advertising. In addition, the
growth and development of the market for Internet commerce may prompt calls for
more stringent consumer protection laws, both in the United States and abroad,
that may impose additional burdens on companies conducting business over the
Internet. Our business, results of operations and financial condition could be
materially and adversely affected by the adoption or modification of laws or
regulations relating to the Internet, or the application of existing laws to the
Internet or Internet-based advertising.
WE MAY BE LIABLE FOR CONTENT DISPLAYED ON THE WEB SITES OF OUR PUBLISHERS.
We may be liable to third parties for content in the advertising we deliver
if the artwork, text or other content involved violates copyright, trademark, or
other intellectual property rights of third parties or if the content is
defamatory. Any claims or counterclaims could be time-consuming, result in
costly litigation or divert management's attention.
WE MAY BE LIABLE FOR OTHER ACTIVITIES OF OUR INTERNET ADVERTISERS.
A wide variety of laws govern the content of advertisements and regulate the
sale of goods and services. It is uncertain whether or how these laws may apply
to advertising or e-commerce. We cannot predict whether our role in delivering
advertisements will expose us to liability.
RISKS RELATED TO THIS OFFERING
VIRTUALLY ALL OF OUR SHARES WILL BE ELIGIBLE FOR SALE SHORTLY AFTER THIS
OFFERING, WHICH COULD RESULT IN A DECLINE IN OUR STOCK PRICE.
If our stockholders sell substantial amounts of common stock in the public
market following this offering, the market price of our common stock could fall.
These sales also might make it more difficult for us to sell equity or
equity-related securities in the future at a time and price that we deem
appropriate. Based on shares outstanding as of September 30, 1999, upon
completion of this offering, we will have shares of common stock
outstanding. Of these shares, the shares being offered hereby will be
freely tradable and the remaining shares will become eligible for sale in the
public market at various times after the date of this prospectus pursuant to
Rule 144. Substantially all of these remaining shares are subject to contractual
restrictions with the underwriters that prevent them from being sold until 180
days after the date of this prospectus without the consent of Volpe Brown Whelan
& Company, LLC.
In addition, upon the effective date of this offering, we expect to register
for sale 8,000,000 shares of common stock reserved for issuance under the 1999
Stock Option Plan. As of September 30, 1999, options to purchase 5,489,200
shares of common stock were outstanding. Shares acquired upon exercise of these
options will be eligible for sale in the public market from time to time subject
to vesting and the 180-day lockup restrictions that apply to the outstanding
stock. The exercise price of all of these stock options is lower than the
expected initial public offering price of our common stock. The sale of
17
<PAGE>
a significant number of these shares could cause the price of our common stock
to decline. See "Shares Eligible for Future Sale" for more detailed information.
WE EXPECT TO EXPERIENCE VOLATILITY IN OUR STOCK PRICE.
Prior to this offering, there has been no public market for our common
stock. Accordingly, we cannot assure you that an active trading market will
develop or be sustained or that the market price of our common stock will not
decline. The initial public offering price for the shares will be determined by
us and the representatives of the underwriters and may not be indicative of
prices that will prevail in the trading market. The price at which our common
stock will trade after this offering is likely to be highly volatile and may
fluctuate substantially due to factors such as:
- actual or anticipated fluctuations in our results of operations;
- changes in securities analysts' expectations, or our failure to meet those
expectations;
- announcements of technological innovations;
- introduction of new services by us or our competitors;
- developments with respect to intellectual property rights;
- conditions and trends in the Internet and other technology industries; and
- general market conditions.
In addition, the stock market has from time to time experienced significant
price and volume fluctuations that have affected the market prices for the
common stocks of technology companies, particularly Internet companies. In the
past, these broad market fluctuations have been unrelated or disproportionate to
the operating performance of these companies. Any significant fluctuations in
the future might result in a decline in the market price of our common stock. In
the past, following periods of volatility in the market price of a particular
company's securities, securities class action litigation has often been brought
against that company. We may become involved in this type of litigation in the
future. Litigation is often expensive and diverts management's attention and
resources, which could harm our business and operating results.
WE WILL HAVE BROAD DISCRETION IN USE OF THE PROCEEDS FROM THIS OFFERING.
We estimate that the net proceeds from this offering will be approximately
$ million. The net proceeds will be used for general corporate purposes and
none of the net proceeds have been designated for a particular purpose. Our
management can therefore spend most of the proceeds from this offering in ways
with which stockholders may not agree. See "Use of Proceeds" for more detailed
information.
WE HAVE ADOPTED ANTI-TAKEOVER PROVISIONS THAT COULD DELAY OR INHIBIT THE SALE OF
VALUECLICK.
Provisions of our Certificate of Incorporation, our Bylaws and Delaware law
could make it more difficult for a third party to acquire us, even if doing so
would be beneficial to our stockholders. See "Description of Capital
Stock--Delaware Anti-Takeover Law and Charter and Bylaw Provisions" for more
detailed information.
18
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. You should not rely on these forward-looking statements. We use
words such as "anticipates," "believes," "plans," "expects," "future," "intends"
and similar expressions to identify forward-looking statements. Our actual
results could differ materially from those anticipated in these forward-looking
statements for many reasons, including the risks faced by us and described in
the preceding "Risk Factors" section and elsewhere in this prospectus. This
prospectus also contains forward-looking statements attributed to third parties
relating to their estimates regarding the growth of Internet use, e-commerce and
Internet advertising. We have not attempted to verify the information provided
by third parties.
In evaluating our business, prospective investors should consider carefully
the factors presented in the "Risk Factors" section and the other information
contained in this prospectus.
USE OF PROCEEDS
The net proceeds to us from the sale of the shares being offered by us
at an assumed initial public offering price of $ per common share, after
deducting estimated underwriting discounts and commissions and estimated
offering expenses, are estimated to be $ , or $ if the underwriters'
over-allotment option is exercised in full. We expect to use the net proceeds of
the offering for general corporate purposes, including expansion of sales and
marketing activities, enhancement of our technology, possible acquisitions and
international expansions. Pending these uses, we intend to invest the net
proceeds in short-term, interest-bearing, investment grade securities.
DIVIDEND POLICY
We currently anticipate that we will retain any future earnings for use in
our business. As a result, we do not anticipate paying any cash dividends in the
foreseeable future. Any determination to pay dividends in the future will be at
the discretion of our board of directors and will depend upon, among other
factors, our results of operations, financial condition and capital
requirements.
19
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999 (a) on
an actual basis, (b) on a pro forma basis to reflect the automatic conversion of
all outstanding shares of preferred stock into shares of common stock upon the
closing of this offering and (c) the pro forma information on an as adjusted
basis to give effect to the receipt of the estimated net proceeds from the sale
of shares of common stock in this offering at an assumed initial public offering
price of $ per common share. The table does not include 4,815,200 options
outstanding as of June 30, 1999 with a weighted average exercise price of $0.35
per common share.
<TABLE>
<CAPTION>
JUNE 30, 1999
--------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
--------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................................................ $ 2,411 $ 2,411
--------- --------------
--------- --------------
Stockholders' equity
Preferred stock, $0.001 par value; 20,000,000 shares authorized:
Series A convertible preferred stock, 297,132 shares authorized;
297,132 shares issued and outstanding, actual; no shares issued and
outstanding, pro forma and pro forma as adjusted................... -- --
Series B convertible preferred stock, 1,047,804 shares authorized;
1,047,804 shares issued and outstanding, actual; no shares issued
and outstanding, pro forma and pro forma as adjusted............... 1 --
Series C convertible preferred stock, 1,400,000 shares authorized;
1,301,850 shares issued and outstanding, actual; no shares issued
and outstanding, pro forma and pro forma as adjusted............... 1 --
Common stock, par value $.001; 100,000,000 shares authorized;
19,838,008 shares issued and outstanding, actual; 30,425,152 shares
issued and outstanding, pro forma; shares issued and outstanding,
pro forma as adjusted................................................ 20 30
Deferred stock compensation.............................................. (2,414) (2,414)
Additional paid in capital............................................... 6,836 6,828
Accumulated deficit...................................................... (38) (38)
--------- --------------
Total stockholders' equity............................................. 4,406 4,406
--------- --------------
Total capitalization............................................... $ 4,406 $ 4,406
--------- --------------
--------- --------------
</TABLE>
20
<PAGE>
DILUTION
Our pro forma net tangible book value as of June 30, 1999 was approximately
$0.14 per share of common stock. Net tangible book value per share represents
the amount of our total tangible assets reduced by the amount of our total
liabilities and divided by the total number of shares of common stock
outstanding. After giving effect to the sale of the shares of common stock
offered by us at an assumed initial public offering price of $ per common
share after deducting estimated underwriting discounts and commissions and
estimated offering expenses, our pro forma net tangible book value as of June
30, 1999 would have been $ per common share of common stock. This represents
an immediate increase in net tangible book value of $ per common share to
existing stockholders and an immediate dilution of $ per share to new
investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share....................... $
Pro forma net tangible book value per share before the offering..... 0.14
Increase attributable to new investors..............................
---------
Pro forma net tangible book value after the offering..................
---------
Dilution per share to new investors................................... $
---------
---------
</TABLE>
The following table summarizes on a pro forma basis, as of June 30, 1999,
the differences between our existing stockholders and new investors with respect
to the number of shares of common stock purchased from us, the total
consideration paid to us and the average price per common share paid.
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION
------------------------- ------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders (1)................. 30,425,152 % $ 4,291,000 % $ 0.14
New investors............................. $
------------ --- ------------ ---
Totals................................ % $ % $
------------ --- ------------ ---
------------ --- ------------ ---
</TABLE>
The foregoing table assumes no exercise of the underwriters' over-allotment
option or issuance of shares underlying outstanding options. As of June 30,
1999, options to purchase 4,815,200 shares of common stock were outstanding at a
weighted average exercise price of $0.35 per share. To the extent that these
options are exercised, new investors will experience further dilution. See
"Description of Capital Stock" on page 50 and Notes 1 and 9 of the notes to our
financial statements for more information on our capital stock and further
dilution you may experience.
- ------------------------
(1) If the underwriters' over-allotment option is exercised in full, sales by
the selling stockholders in this offering will reduce the number of shares
of common stock held by existing stockholders to 30,175,152 or approximately
% of total shares of common stock outstanding after this offering.
21
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected financial data set forth below should be read in conjunction
with the financial statements, the notes to the financial statements and the
other information contained in this prospectus. The selected balance sheet data
as of December 31, 1997 and statement of operations data for the period July 1,
1997 through December 31, 1997 and the four months ended April 30, 1998 have
been derived from the audited financial statements of the ValueClick line of
business of Web-Ignite Corporation appearing elsewhere in this prospectus. The
selected balance sheet data as of December 31, 1998 and the selected statement
of operations data for the period from May 1, 1998 (inception) through December
31, 1998 have been derived from the audited financial statements of ValueClick,
Inc. appearing elsewhere in this prospectus. The selected balance sheet data as
of June 30, 1999 and the selected Statement of Operations Data for the six
months ended June 30, 1999 have been derived from the unaudited financial
statements of ValueClick, Inc. appearing elsewhere in this prospectus. The
combined historical selected financial data for the six months ended June 30,
1998 and the twelve months ended December 31, 1998 reflect the combined selected
financial data of ValueClick, Inc. for the period May 1, 1998 through June 30,
1998 and the ValueClick line of business of Web-Ignite Corporation for the four
months ended April 30, 1998 and ValueClick, Inc. for the period May 1, 1998
through December 31, 1998 and the ValueClick line of business of Web-Ignite
Corporation for the four months ended April 30, 1998. We believe that the
unaudited financial statements contain all adjustments necessary to present
fairly the information included in those statements, and that the adjustments
consist only of normal recurring adjustments. Operating results for the six
months ended June 30, 1999 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1999.
The pro forma selected balance sheet data as of June 30, 1999 and the pro
forma selected statement of operations data for the six months ended June 30,
1999 have been derived from the unaudited pro forma condensed consolidated
financial statements appearing elsewhere in this prospectus. The unaudited pro
forma information is presented to reflect the acquisition of a controlling
interest in ValueClick Japan on August 6, 1999.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
VALUECLICK LINE OF
BUSINESS OF WEB-IGNITE VALUECLICK, INC.
CORPORATION ---------------------------- COMBINED HISTORICAL
------------------------ PERIOD FROM ---------------------------- PRO FORMA
PERIOD FROM FOUR MAY 1, 1998 TWELVE --------------
JULY 1, 1997 MONTHS (INCEPTION) SIX MONTHS SIX MONTHS MONTHS SIX MONTHS
THROUGH ENDED THROUGH ENDED ENDED ENDED ENDED
DECEMBER 31, APRIL 30, DECEMBER 31, JUNE 30, JUNE 30, DECEMBER 31, JUNE 30,
1997 1998 1998 1999 1998 1998 1999
------------ ---------- ------------ -------------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues...................... $122 $253 $2,053 $4,867 $450 $2,306 $5,471
Cost of revenues.............. 37 88 1,105 2,435 181 1,193 2,782
------------ ---------- ------------ -------------- -------------- ------------ --------------
Gross profit.................. 85 165 948 2,432 269 1,113 2,689
Operating expenses:
Sales and marketing......... -- -- 516 648 55 516 683
General and
administrative............ 116 134 404 954 209 538 1,340
Technology enhancements..... -- -- 155 321 15 155 321
Stock-based compensation.... -- -- -- 298 -- -- 298
Amortization of
intangibles............... -- -- -- -- -- -- 155
------------ ---------- ------------ -------------- -------------- ------------ --------------
Total operating expenses...... 116 134 1,075 2,221 279 1,209 2,797
------------ ---------- ------------ -------------- -------------- ------------ --------------
(Loss) income from
operations.................. (31) 31 (127) 211 (10) (96) (108)
Equity in loss of ValueClick
Japan....................... -- -- (9) (52) -- (9) --
Interest income, net.......... -- -- 8 19 1 8 19
------------ ---------- ------------ -------------- -------------- ------------ --------------
(Loss) income before income
taxes....................... (31) 31 (128) 178 (9) (97) (89)
Provision for income taxes.... -- -- -- 216 -- -- 216
------------ ---------- ------------ -------------- -------------- ------------ --------------
Net (loss) income before
minority interest........... (31) 31 (128) (38) (9) (97) (305)
Minority interest............. -- -- -- -- -- -- (75)
------------ ---------- ------------ -------------- -------------- ------------ --------------
Net (loss) income............. $(31) $ 31 $ (128) $ (38) $ (9) $ (97) $ (230)
------------ ---------- ------------ -------------- -------------- ------------ --------------
------------ ---------- ------------ -------------- -------------- ------------ --------------
Net loss per share:
Basic and diluted net loss
per common share(1)..... -- -- $(0.01) $ -- -- -- --
Shares used to calculate
basic and diluted net
loss per share(1)....... -- -- 19,824 19,838 -- -- --
Pro forma basic and
diluted net loss per
common share(2)......... -- -- -- -- -- -- $(0.01)
Shares used in pro forma
basic and diluted net
loss per common
share(2)................ -- -- -- -- -- -- 29,668
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA AS
AS OF AS OF OF
BALANCE SHEET DATA: DECEMBER 31, 1998 JUNE 30, 1999 JUNE 30, 1999
----------------- ------------- -------------
<S> <C> <C> <C>
Cash and cash equivalents.................................................. $ 262 $ 2,411 $ 2,932
Working capital............................................................ 454 3,849 4,442
Total assets............................................................... 1,206 5,499 7,320
Deferred stock compensation................................................ -- (2,414) (2,414)
Total stockholders' equity................................................. 648 4,406 5,686
</TABLE>
- ------------------------------
1. See Notes 1 and 9 of Notes to Financial Statements for determination of
shares used in computing basic and diluted net loss per common share.
2. Pro forma to give effect to the conversion of all issued and outstanding
shares of preferred stock into common stock and the issuance of 640,000
shares of common stock to acquire a controlling interest in ValueClick
Japan, but not giving effect to the exercise of outstanding options to
purchase 4,815,200 shares of common stock.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH "SELECTED FINANCIAL
DATA" AND THE COMPANY'S FINANCIAL STATEMENTS AND THE RELATED NOTES THERETO. THIS
DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
HISTORICAL RESULTS OR ANTICIPATED RESULTS INCLUDING THOSE SET FORTH IN "RISK
FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We focus on a performance-based Internet advertising solution, known as
cost-per-click or CPC, in which an advertiser only pays when a user clicks on
the advertiser's banner advertisement. As an aggregator of over 9,000 small- to
medium-sized Web sites, we provide our advertising customers, primarily
e-commerce and direct marketing companies, a cost-effective, low-risk Internet
advertising solution. Our solution provides publishers of small- to medium-sized
Web sites the opportunity to generate advertising revenues. We also provide
publishers of large Web sites the ability to capture incremental revenues from
their unsold advertising inventory.
Our Internet advertising business began in July 1997, as a line of business
within Web-Ignite Corporation. In May 1998, the Internet advertising business of
Web-Ignite was transferred to ValueClick, LLC, a newly-formed California limited
liability company controlled by Web-Ignite's sole stockholder. On December 31,
1998, ValueClick, LLC reorganized as ValueClick, Inc., a Delaware C-corporation.
We generate revenues by delivering advertisements to Web sites in the
ValueClick network. Pricing of our advertising is on a cost-per-click basis and
varies depending on whether advertising is delivered across our entire network
or across targeted categories within our network. At this time, substantially
all of our revenues are derived from advertising delivered across our entire
network. We sell our services through our sales and marketing staff located in
Carpinteria, California and Tokyo, Japan. The advertisements we deliver are sold
under short-term agreements that are subject to cancellation. Advertising
revenue is recognized in the month that clicks on delivered advertisements
occur, provided that no significant obligations on our part remain and
collection of the related receivable is probable. To date, our agreements have
not required guaranteed minimum click-throughs. We pay each Web site in the
ValueClick network a price-per-click, which is based upon the volume of clicks
delivered by the Web site in a given month. These payments made to Web
publishers are included in the cost of revenues.
We expect to generate most of our revenues in the foreseeable future from
Internet banner advertising. Our ten largest advertisers accounted for 77% of
our revenues for the period from May 1, 1998 (inception) through December 31,
1998 and 45% of our revenues for the six months ended June 30, 1999. For the six
months ended June 30, 1999, no single advertiser accounted for more than 10% of
our revenues and no Web site contributed more than 10% of our advertising
inventory, as measured by the number of clicks generated by each Web site in the
ValueClick network.
In light of the rapidly evolving nature of our business and our limited
operating history, we believe that period-to-period comparisons of our operating
results are not meaningful and that the results for any period should not be
relied upon as an indication of future performance. We expect to increase
significantly our operating expenses in order to expand our sales and marketing
operations, to enhance our network technologies and to continue our
international expansion.
23
<PAGE>
ACQUISITION OF VALUECLICK JAPAN
Prior to August 6, 1999, we had a 32% ownership interest in ValueClick
Japan, which was accounted for using the equity method of accounting. On August
6, 1999, we purchased an additional 22% of ValueClick Japan stock in exchange
for 640,000 shares of our common stock, giving us a 54% controlling ownership
interest in ValueClick Japan. The acquisition will be accounted for using the
purchase method. The purchase price will be allocated to the estimated fair
value of assets acquired and liabilities assumed, to the extent acquired by us.
The remaining portion of the ValueClick Japan assets and liabilities will be
recorded at the historical cost basis of the minority stockholders.
RESULTS OF OPERATIONS
The following table sets forth statement of operations data for the periods
indicated as a percentage of revenues:
<TABLE>
<CAPTION>
PERIOD FROM MAY
1, 1998 COMBINED HISTORICAL(1)
(INCEPTION) -----------------------
THROUGH DECEMBER SIX MONTHS ENDED SIX MONTHS ENDED JUNE
31, 1998 JUNE 30, 1998 30, 1999
----------------- ----------------------- ---------------------
<S> <C> <C> <C>
Revenues.................................................. 100% 100% 100%
Costs of revenues......................................... 54 40 50
--- --- ---
Gross profit.............................................. 46 60 50
Operating expenses:
Sales and marketing..................................... 25 12 13
General and administrative.............................. 20 46 20
Technology enhancements................................. 8 4 7
Stock-based compensation................................ -- -- 6
--- --- ---
Total operating expenses................................ 52 62 46
--- --- ---
(Loss) income from operations............................. (6) (2) 4
Equity in loss of ValueClick Japan........................ -- -- (1)
Interest income, net...................................... -- -- --
--- --- ---
(Loss) income before income taxes......................... (6) (2) 3
Provision for income taxes................................ -- -- 4
--- --- ---
Net loss.................................................. (6)% (2)% (1)%
--- --- ---
--- --- ---
</TABLE>
- ------------------------------
(1) The combined historical statement of operations for the six months ended
June 30, 1998 reflects the combined results of our operations for the period
from May 1, 1998 through June 30, 1998 and the ValueClick line of business
of Web-Ignite for the four months ended April 30, 1998.
REVENUES
Our revenues are derived primarily from the sale of clicks on banner
advertisements delivered through the ValueClick network. We charge our
advertisers on a cost-per-click basis, when a consumer clicks on the
advertiser's banner ad. We had revenues of $2.1 million for the period from May
1, 1998 (inception) through December 31, 1998. Our revenues were $4.9 million
for the six months ended June 30, 1999 as compared to $450,000 for the combined
historical six months ended June 30, 1998. The increase was due to the growth of
the ValueClick network and our ability to serve a larger advertiser customer
base.
24
<PAGE>
COST OF REVENUES
Cost of revenues consists primarily of amounts we pay to Web sites on the
ValueClick network. We pay these Web sites on a cost-per-click basis. Cost of
revenues also includes depreciation costs of the advertising delivery system and
Internet access costs. Our cost of revenues was $1.1 million for the period from
May 1, 1998 (inception) through December 31, 1998. For the six months ended June
30, 1999 our cost of revenues was $2.4 million compared to $181,000 for the
combined historical six months ended June 30, 1998. The $2.2 million increase
was directly attributable to the increased delivery of banner advertisements and
clicks on banner advertisements.
SALES AND MARKETING
Sales and marketing expenses consist primarily of compensation (including
commissions), travel, advertising, trade show costs and costs of marketing
materials. Our sales and marketing expenses were $516,000 for the period from
May 1, 1998 (inception) through December 31, 1998. For the six months ended June
30, 1999 our sales and marketing expenses were $648,000 compared to $55,000 for
the combined historical six months ended June 30, 1998. Along with the
significant growth of the ValueClick network, we added sales and marketing
personnel to extend our sales reach. The increase in personnel and related sales
and marketing activity resulted in a significant increase in sales and marketing
expenses. We expect sales and marketing expenses to continue to increase in
future periods as we hire additional personnel in sales and marketing, open
additional sales offices in major domestic markets, expand into international
markets and continue to promote our advertising solutions.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of compensation and
professional service fees. We had general and administrative expenses of
$404,000 for the period from May 1, 1998 (inception) through December 31, 1998.
For the six months ended June 30, 1999 we had general and administrative
expenses of $954,000 compared to $208,000 for the combined historical six months
ended June 30, 1998. The $746,000 increase in the comparable periods was
primarily attributable to increased executive and administrative headcount. In
addition, we incurred related expenses associated with hiring additional
personnel, expanding our corporate offices to accommodate our increased
personnel and other professional service expenses that were not incurred in
1998. We expect general and administrative expenses to increase in future
periods as we hire additional personnel and incur additional costs related to
the growth of our business and our operations as a public company.
TECHNOLOGY ENHANCEMENTS
Technology enhancement costs include expenses for the development of new
technologies designed to enhance the performance of our service, including the
salaries and related expenses for our software engineering department, as well
as costs for contracted services, supplies and equipment. To date, all product
development costs have been expensed as incurred. We had technology enhancement
expenses of $155,000 for the period from May 1, 1998 (inception) through
December 31, 1998. For the six months ended June 30, 1999, we had technology
enhancement expenses of $321,000 compared to $15,000 on a combined historical
basis for the six months ended June 30, 1998. The increase was primarily
attributable to the hiring of additional software engineers. We believe that
continued investment in technology enhancement is critical to attaining our
strategic objectives and, as a result, we expect technology enhancement expenses
to increase in future periods.
STOCK-BASED COMPENSATION
In connection with the grant of stock options to employees during the six
months ended June 30, 1999, we recorded total deferred compensation of
approximately $2.7 million. This deferred
25
<PAGE>
compensation represented the difference between the deemed fair value of our
common stock for accounting purposes and the exercise price of these options at
the date of grant, resulting in an expense charge of $298,000 for the six months
ended June 30, 1999 related to amortization of this deferred compensation.
Deferred compensation is presented as a reduction of stockholders' equity and
amortized over the vesting period of applicable options, generally four years.
Annual amortization of deferred stock compensation for options granted as of
June 30, 1999 is estimated to be approximately $1,238,000 for the year ending
December 31, 1999, $1,023,000 for the year ending December 31, 2000, $326,000
for the year ending December 31, 2001, $109,000 for the year ending December 31,
2002, and $15,000 for the year ending December 31, 2003. In addition, certain
employees have options that have accelerated vesting upon certain events,
including the closing of this offering or the transfer of ownership of 50% or
more of our stock. Assuming the closing of this offering by December 31, 1999,
we believe that the amortization of deferred stock compensation for the years
listed above would not be significantly different than the amounts presented
above.
INTEREST INCOME (EXPENSE)
Interest income consists of interest earned on our cash and cash
equivalents. Interest expense consists of interest paid on capital lease and
debt obligations. Interest income was $8,000 for the period from May 1, 1998
(inception) through December 31, 1998 and $20,000 for the six months ended June
30, 1999. Interest expense was $0 for the period from May 1, 1998 (inception)
through December 31, 1998 and $1,000 for the six months ended June 30, 1999. No
interest expense was incurred for the combined historical six months ended June
30, 1998.
INCOME TAXES
For the period from May 1, 1998 (inception) through December 31, 1998, we
were a limited liability company, or LLC, and as such, were subject to the
provisions of Subchapter K of the Internal Revenue Code. Under those provisions,
we did not pay Federal income taxes on any taxable income. Instead, the members
of the LLC were liable for individual Federal income taxes on our taxable
income. Upon conversion to a C-corporation on December 31, 1998, we commenced
using the asset and liability method of accounting for income taxes. Our
conversion from an LLC to a C-corporation did not have a material impact on our
financial position or results of operations. Following the conversion, we have
been operating as a C-corporation and are subject to Federal and state income
taxes. For the six months ended June 30, 1999, our provision for Federal and
state income taxes amounted to $216,000. No provision has been recorded for the
combined historical six months ended June 30, 1998 as the predecessor entity was
taxed as an S-corporation and we were taxed as an LLC.
QUARTERLY RESULTS OF OPERATIONS
The following tables sets forth unaudited quarterly statement of operations
data and the percentages of revenue for the last three quarters of 1998 and the
first two quarters of 1999. The unaudited combined historical statement of
operations for the three months ended March 31, 1998 and June 30, 1998 reflect
the combined results of operations of the ValueClick line of business of Web-
Ignite for the three months ended March 31, 1998 and ValueClick for the period
from May 1, 1998 through June 30, 1998 and the ValueClick line of business of
Web-Ignite for the one month ended April 30, 1998. In the opinion of management,
this information has been prepared on the same basis as the audited 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 quarterly results of
operations. The quarterly data should be read in conjunction with our audited
financial statements and the notes to the financial statements appearing
26
<PAGE>
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>
COMBINED
HISTORICAL MAY 1,
THREE MONTHS 1998
ENDED (INCEPTION) THREE MONTHS ENDED
------------------------ THROUGH -----------------------------------------
MARCH 31, JUNE 30, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1998 1998 1998 1998 1998 1999
----------- ----------- ----------- --------------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................ $ 207 $ 243 $ 197 $ 588 $ 1,268 $ 1,968
Cost of revenues........................ 74 107 93 247 765 1,087
----- ----- ----- ----- ----------- -----------
Gross profit............................ 133 136 104 341 503 881
----- ----- ----- ----- ----------- -----------
Operating expenses:
Sales and marketing................... -- 55 55 178 283 257
General and administrative............ 101 108 75 149 180 342
Technology enhancements............... -- 15 15 70 70 108
Stock-based compensation.............. -- -- -- -- -- 33
----- ----- ----- ----- ----------- -----------
Total operating expenses............ 101 178 145 397 533 740
----- ----- ----- ----- ----------- -----------
Income (loss) from operations........... 32 (42) (41) (56) (30) 141
Equity in losses of ValueClick Japan.... -- -- -- -- (9) (42)
Interest income, net.................... -- 1 1 3 4 5
----- ----- ----- ----- ----------- -----------
Income (loss) before income taxes....... 32 (41) (40) (53) (35) 104
Provision for income taxes.............. -- -- -- -- -- (62)
----- ----- ----- ----- ----------- -----------
Net income (loss)....................... $ 32 $ (41) $ (40) $ (53) $ (35) $ 42
----- ----- ----- ----- ----------- -----------
----- ----- ----- ----- ----------- -----------
<CAPTION>
JUNE 30,
1999
-----------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................ $ 2,899
Cost of revenues........................ 1,348
-----------
Gross profit............................ 1,551
-----------
Operating expenses:
Sales and marketing................... 391
General and administrative............ 612
Technology enhancements............... 213
Stock-based compensation.............. 265
-----------
Total operating expenses............ 1,481
-----------
Income (loss) from operations........... 70
Equity in losses of ValueClick Japan.... (10)
Interest income, net.................... 14
-----------
Income (loss) before income taxes....... 74
Provision for income taxes.............. (154)
-----------
Net income (loss)....................... $ (80)
-----------
-----------
</TABLE>
<TABLE>
<CAPTION>
COMBINED
HISTORICAL MAY 1,
THREE MONTHS 1998
ENDED (INCEPTION) THREE MONTHS ENDED
------------------------ THROUGH -----------------------------------------
MARCH 31, JUNE 30, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1998 1998 1998 1998 1998 1999
----------- ----------- ----------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
As a Percentage of Revenues:
Revenues................................ 100% 100% 100% 100% 100% 100%
Cost of revenues........................ 36 44 47 42 60 55
----- ----- ----- ----- ----- -----
Gross profit............................ 64 56 53 58 40 45
----- ----- ----- ----- ----- -----
Operating expenses:
Sales and marketing................... -- 23 28 30 22 13
General and administrative............ 49 44 38 26 14 17
Technology enhancements............... -- 6 8 12 6 6
Stock-based compensation.............. -- -- -- -- -- 2
----- ----- ----- ----- ----- -----
Total operating expenses............ 49 73 74 68 42 38
----- ----- ----- ----- ----- -----
Income (loss) from operations........... 15 (17) (21) (10) (2) 7
Equity in losses of ValueClick Japan.... -- -- -- -- (1) (2)
Interest income, net.................... -- -- 1 1 -- --
----- ----- ----- ----- ----- -----
Income (loss) before income taxes....... 15 (17) (20) (9) (3) 5
Provision for income taxes.............. -- -- -- -- -- (3)
----- ----- ----- ----- ----- -----
Net income (loss)....................... 15% (17)% (20)% (9)% (3)% 2%
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
<CAPTION>
JUNE 30,
1999
-----------
<S> <C>
As a Percentage of Revenues:
Revenues................................ 100%
Cost of revenues........................ 47
-----
Gross profit............................ 53
-----
Operating expenses:
Sales and marketing................... 14
General and administrative............ 21
Technology enhancements............... 7
Stock-based compensation.............. 9
-----
Total operating expenses............ 51
-----
Income (loss) from operations........... 2
Equity in losses of ValueClick Japan.... (1)
Interest income, net.................... 1
-----
Income (loss) before income taxes....... 2
Provision for income taxes.............. (5)
-----
Net income (loss)....................... (3)%
-----
-----
</TABLE>
27
<PAGE>
Our revenues increased in each quarter presented due to an increase in the
number of advertisements delivered on the ValueClick network. Cost of revenues
as a percentage of revenues decreased in the last two quarters due to a greater
increase in the average cost-per-click charged to advertisers than the
cost-per-click paid to Web sites. Operating expenses increased in absolute
dollars but decreased as a percentage of revenues in each quarter in 1998 and
the first quarter of 1999. In the second quarter of 1999, operating expenses
increased as a percentage of revenues. Sales and marketing expenses increased as
a result of increased sales personnel and commissions and increased advertising
and promotion. Technology enhancement expenses increased as a result of the
hiring of additional software engineers and the continued development of
technology. General and administrative expenses increased primarily due to
additional personnel and professional fees.
We believe that our revenues will be subject to seasonal fluctuations
because advertisers generally place fewer advertisements during the first and
third calendar quarters of each year. In addition, expenditures by advertisers
tend to be cyclical, reflecting overall economic conditions as well as budgeting
and buying patterns. In addition, our results of operations may fluctuate
significantly in the future as a result of a variety of factors, many of which
are beyond our control. See "Risk Factors--It may be difficult to predict our
financial performance because our quarterly operating results may fluctuate" and
"--We may experience seasonal fluctuations in our revenues."
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations through working capital
generated from operations and private equity financings, raising $4.3 million
through June 30, 1999. Net cash used in operating activities was approximately
$717,000 for the six months ended June 30, 1999, which resulted principally from
increases in accounts receivable of $1.9 million partially offset by net income
and increases in income taxes payable and deferred revenue.
Net cash used in investing activities for the six months ended June 30, 1999
was $433,000 representing an additional equity investment of $263,000 in
ValueClick Japan and the purchase of $170,000 of fixed assets.
Net cash provided by financing activities during the six months ended June
30, 1999 represented the net proceeds from the sale of our Series C preferred
stock for $3.5 million.
We believe that our existing cash and cash equivalents combined with
proceeds from this offering will be sufficient to meet our anticipated cash
needs for working capital and capital expenditures for the next 12 months.
YEAR 2000 COMPLIANCE
Our business depends on our ability to serve a large number of banner
advertisements to our Web publishers and to provide a large number of clicks to
our advertisers. If the Web publishers in our network, the Internet service
providers, or ISPs, who provide access to those Web sites, or the advertisers
whose banner advertisements we serve experience disruptions in their computer
systems related to the Year 2000 problem, we may not be able to deliver
advertisements to our Web publishers or clicks to our advertisers, and our
business could be harmed substantially.
The Year 2000 problem results from computer programs and hardware designed
to use the last two digits rather than all four digits to define the applicable
year. As a result, these systems may recognize a date using "00" as the year
1900 rather than the year 2000. If these systems are not made Year 2000
compliant, they could create erroneous information causing us or our customers
or suppliers to become unable to process normal business transactions accurately
or at all.
28
<PAGE>
STATE OF READINESS. We have completed an assessment of our Year 2000
readiness and believe that all of our computer programs and hardware are Year
2000 compliant. Our Year 2000 readiness assessment included the following
overlapping phases:
- Identification--The identification of all of our internal hardware and
software systems as well as our key third party relationships that may be
affected by the Year 2000 issue (including advertisers, Web publishers,
suppliers, and co-location facilities among others).
- Analysis--An evaluation of the impact and magnitude of any potential Year
2000 problems for all of our previously identified items.
- Conversion and Implementation--The development and execution of a plan to
bring any identified non-Year 2000 compliant items into compliance,
including the conversion, upgrade or replacement of any non-Year 2000
compliant systems.
- Testing--The continuous testing of our systems to determine their Year
2000 compliance after any necessary Year 2000 remediations.
Based our Year 2000 readiness assessment, we believe that that all of our
non-information technology, including security and phone systems, upon which we
are materially dependent is Year 2000 compliant. We also believe that our
information technology systems, including our internally developed software, are
not sensitive to any Year 2000 risks. Although we have not discovered any
material Year 2000 problems with our internal information technology to date, we
may in the future.
We have sent out inquiries to our key external business partners and vendors
of hardware and software we use regarding their own Year 2000 readiness. Based
on their responses and based on our own internal testing of the third party
hardware and software we use, we believe that our key external business partners
and vendors are Year 2000 compliant. We cannot assure you, however, that we will
not experience unanticipated consequences, including material costs caused by
undetected errors or defects in the technology used in our internal systems.
COSTS TO ADDRESS OUR YEAR 2000 COMPLIANCE. To date, we have not incurred
any material expenditure in connection with identifying, evaluating, or
remediating any Year 2000 compliance issues. However, if we discover any Year
2000 issue, the costs of remediating the problem could be higher than
anticipated and could harm our business, results of operations and financial
condition.
RISKS. We are not currently aware of any additional significant Year 2000
compliance problems relating to our software, our information technology systems
or other systems that would materially harm our business, results of operations
or financial conditions. During our ongoing assessment, we may discover Year
2000 compliance problems that may require substantial repair or replacement
which could cause our business to suffer. In addition, our customers' ability to
deliver advertisements over our network may be disrupted if the software and
hardware products used by Web publishers, advertisers, governmental agencies,
public utilities, telecommunications companies and others are not Year 2000
compliant. We also depend on the uninterrupted availability of the Internet
infrastructure to conduct our business. Year 2000 problems affecting the
Internet could result in significant harm to our business, results of operations
and financial condition.
CONTINGENCY PLAN. We are currently in the process of developing a
contingency plan to deal with Year 2000 problems. We expect to complete our Year
2000 contingency plan by October 31, 1999. We intend to actively work with and
encourage our suppliers to minimize the risks of business disruptions resulting
from Year 2000 issues and develop contingency plans where necessary. If our
present efforts to become Year 2000 compliant are not successful, or if our Web
publishers, suppliers and other third parties do not successfully become Year
2000 compliant, our business, results of operations and financial condition
could be harmed.
29
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not hold any derivative instruments and do not engage in hedging
activities. Also, we do not hold any variable interest rate debt or lines of
credit and thus have minimal exposure to interest rate fluctuations.
Our equity investment in ValueClick Japan subjects us to foreign currency
exchange risks as ValueClick Japan denominates its transactions in the Japanese
Yen. Our exposure is limited to the extent of our equity investment in
ValueClick Japan, which represented 7.5% and 5.5% of our total assets at
December 31, 1998 and June 30, 1999, respectively. Historically, we have not
hedged our exposure to exchange rate fluctuations. Accordingly, we may
experience economic loss and a negative impact on earnings or equity as a result
of foreign currency exchange rate fluctuations.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1998, the Accounting Standards Executive Committee issued Statement
of Position No. 98-1, or SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," which provides guidance on
accounting for the cost of computer software developed or obtained for internal
use. SOP 98-1 is effective for financial software statements for fiscal years
beginning after December 15, 1998. Implementation of SOP 98-1 did not have a
significant impact on our financial position, results of operations or cash
flows.
In April 1998, the Accounting Standards Executive Committee issued Statement
of Position No. 98-5, or SOP 98-5, "Reporting on the Costs of Start-Up
Activities." This standard requires companies to expense the costs of start-up
activities and organization costs as incurred. In general, SOP 98-5 is effective
for fiscal years beginning after December 13, 1998. Adoption of SOP 98-5 did not
have a significant impact on our financial position, results of operations or
cash flows.
In June 1998, the Accounting Standards Executive Committee issued Statement
of Accounting Standards No. 133, or SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes new standards of
accounting and reporting for derivative instruments and hedging activities. SFAS
133 requires that all derivatives be recognized at fair value in the statement
of financial position, and that the corresponding gains and losses be reported
either in the statement of operations or as a component of comprehensive income,
depending on the type of hedging relationship that exists. SFAS 133 will be
effective for fiscal years beginning after June 15, 2000. We do not currently
hold derivative instruments or engage in hedging activities. Accordingly,
management believes the adoption of this statement will not have a significant
impact on our financial position, results of operations or cash flows.
30
<PAGE>
BUSINESS
OVERVIEW
ValueClick is a leading global provider of Internet advertising solutions
for publishers of Web sites and online advertisers. We focus on a
performance-based Internet advertising solution, known as cost-per-click or CPC,
in which an advertiser only pays when an Internet user clicks on its banner
advertisement. This solution provides publishers of Web sites that have low to
moderate rates of traffic, also referred to as small- to medium-sized Web sites,
an opportunity to generate advertising revenue. We also provide publishers of
high-traffic Web sites the ability to capture additional revenue from their
unsold advertising inventory. As the leading aggregator of small- to
medium-sized Web sites, we provide our advertising customers, primarily direct
marketing and e-commerce companies, a cost-effective, low risk Internet
advertising solution. In August 1999, we delivered in excess of 900 million Web
advertisements and our network consisted of more than 9,000 Web sites. According
to Media Metrix, we reached approximately one-quarter of all Internet users in
August 1999.
INDUSTRY BACKGROUND
THE INTERNET
The Internet has developed into a global medium for interactive content,
communications and commerce that has changed the face of business worldwide. In
recent years, the Internet has experienced substantial growth in the number of
users and Web sites, the volume of e-commerce transactions and the amount of
advertising dollars spent. Jupiter Communications estimates that in 1996, 15.1
million or 15.3% of U.S. households were Internet users, compared to 44.9
million or 44.1% in 1999, and projects that Internet use will grow to 67.6
million or 63.4% of U.S. households by 2003. The Yankee Group estimates that the
number of people using the Internet worldwide will grow from 140 million in 1998
to over 570 million by the end of 2003.
INTERNET ADVERTISING AND E-COMMERCE
The Internet has emerged as an attractive new medium for advertisers due to
its significant growth in number of users and volume of e-commerce transactions,
and also due to the unique characteristics of the Internet as compared with
other advertising media. These characteristics include the potential for
Internet advertisers to establish dialogues and direct relationships with
potential customers, receive immediate feedback on advertising campaigns and
adapt them quickly to respond to this feedback. As a result, Internet
advertising and e-commerce transactions have grown rapidly in recent years.
Forrester Research estimates that in 1998, $1.5 billion was spent on Internet
advertising, and projects that this amount will grow to $17.2 billion by 2003, a
compound annual growth rate of 63%. Additionally, the Yankee Group expects that
e-commerce transactions will increase from $25 billion in 1998 to $699 billion
in 2002, a compound annual growth rate of 130%.
THE EVOLUTION OF INTERNET ADVERTISING
Historically, most Internet advertising campaigns have been priced based on
a cost-per-thousand impressions model, commonly referred to as CPM. Under the
CPM model, Internet advertisers are charged based on the number of times a
banner advertisement is displayed. This pricing model, which was adopted from
traditional media, is generally associated with advertising campaigns that are
designed to generate brand awareness through widespread exposure to
advertisements.
Although CPM has historically been the predominant Internet advertising
model, we believe that the CPM model has several inefficiencies:
- UNDERSERVES A LARGE NUMBER OF SMALL- TO MEDIUM-SIZED WEB SITES. Because
small- to medium-sized Web sites typically serve more targeted audiences
than large Web sites, they individually cannot drive enough traffic to
appeal to CPM advertisers. These sites are often disregarded as an
31
<PAGE>
advertising outlet because it is not cost-effective for CPM advertisers to
manage a large number of small media buys and audit these sites for
traffic and appropriate content.
- FREQUENTLY LEAVES UNSOLD ADVERTISING INVENTORY. In order to support their
CPM pricing structure, high-traffic Web sites that attract CPM advertisers
are frequently left with large amounts of unsold inventory. This unsold
inventory represents an incremental revenue opportunity for large Web
sites, however, discounting rates to sell this inventory could lead to a
decline in CPM rates that publishers want to avoid.
- DIFFICULTY IN PREDICTING EFFECTIVENESS. With CPM, an advertiser pays each
time its banner is "loaded" or displayed without knowing whether the
displayed advertisement will generate responses or be converted into
sales. This uncertainty makes it difficult for advertisers to predict the
actual return on their Internet advertising dollars.
Due in part to these inefficiencies, we believe that Internet advertisers,
especially direct marketing and e-commerce based companies, are increasingly
seeking performance-based alternatives to the CPM model. Performance-based
advertising is intended to generate a specific or direct response or action from
a consumer and is designed to maximize the number of responses per advertising
dollar. These responses can include a simple electronic reply by the consumer,
registration of the consumer and actual purchases. Forrester Research projects
that performance-based advertising models will account for 50% of online
advertising budgets by 2003, up from 15% in 1999.
The Web is particularly well-suited for direct response advertising. Reading
and clicking on a Web advertisement is easier and more convenient for many
consumers than traditional direct response advertising mechanisms such as
toll-free numbers or business reply cards. Web advertisements also allow
consumers to respond immediately to advertising and interact directly with the
advertiser in real-time. Advertisers can also use this feedback to rapidly
adjust their advertising campaigns.
THE VALUECLICK SOLUTION
We believe our CPC-based advertising model delivers to Web publishers and
advertisers a cost-effective, performance-based Internet advertising solution.
Our solution provides publishers of small- to medium-sized Web sites the
opportunity to generate advertising revenue at little or no added cost while
allowing publishers of high-traffic Web sites the ability to capture additional
revenue for excess advertising inventory that would otherwise remain unsold. Our
CPC solution also gives Internet advertisers a convenient way to predict ad
effectiveness, because they only pay for visitors to their sites.
We have developed highly automated systems and processes which make it easy
for publishers of small- to medium-sized Web sites to join the ValueClick
network and an effective publisher referral program that facilitates growth and
retention of publishers. By cost-effectively aggregating this underutilized
inventory, we have developed a very low cost solution for advertisers to access
the visitors of these quality sites. Our network of Web sites grew over 90% from
July 1998 to July 1999 from approximately 4,300 sites to approximately 8,200
sites, and included over 9,000 Web sites as of August 31, 1999. In August 1999,
we delivered over 900 million banner advertisements.
BENEFITS FOR WEB PUBLISHERS
OUTSOURCED ADVERTISING SERVICES FOR PUBLISHERS OF SMALL- TO MEDIUM-SIZED WEB
SITES
Our outsourced solution provides small- to medium-sized Web sites the
technology for managing and delivering Internet advertising. Our solution allows
these sites to avoid the significant hardware, software and personnel costs
associated with building and maintaining their own ad serving technology and
sales force. In addition, small- to medium-sized Web sites on the ValueClick
network benefit from our experienced management team, our sales and marketing
organization and access to a large base of advertisers.
32
<PAGE>
ADVERTISING REVENUE OPPORTUNITIES FOR PUBLISHERS OF SMALL- TO MEDIUM-SIZED
WEB SITES
Advertisers paying CPM rates often impose traffic requirements that exclude
small- to medium-sized Web sites. By aggregating those sites, and providing the
built-in performance tracking of CPC, we offer a revenue opportunity for
publishers of small- to medium-sized Web sites that may not otherwise be
available. This has allowed us to develop a network of small- to medium-sized
Web sites which meet our screening standards. In addition, publishers can earn
referral commissions for introducing ValueClick to other publishers whose sites
are accepted into our network.
INCREMENTAL ADVERTISING REVENUE FROM UNSOLD INVENTORY FOR PUBLISHERS OF
HIGH-TRAFFIC WEB SITES
We offer publishers of high-traffic Web sites a stream of incremental
revenue for ad space that normally would remain unsold under the CPM model. Web
publishers that attract CPM rates rarely sell their entire stock of ad
inventory. By using our CPC solution, Web publishers have an opportunity to sell
a significant portion of their unsold inventory to response-oriented advertisers
through our advertising network without jeopardizing their published rate card
structure.
BENEFITS FOR ADVERTISERS
CPC GIVES ADVERTISERS A PERFORMANCE-BASED MODEL
Using CPC, Internet advertisers only pay if Web users click on their
advertisements, not each time an advertisement is displayed. For Internet
advertisers trying to attract visitors who are actively looking to make a
purchase or who want to learn more about a product, CPC is a more efficient and
cost-effective choice than CPM for predicting and calculating return on
advertising investment.
LEADING AGGREGATOR OF SMALL- TO MEDIUM-SIZED WEB SITES
We are the leading aggregator of small- to medium-sized Web sites with over
9,000 sites currently in our network. This extensive network provides
advertisers the opportunity to place large media buys across a broad collection
of sites as well as niche targeting opportunities that have otherwise been
difficult for advertisers to reach.
CONSUMER TRACKING DATA AFTER THE CLICK
Our proprietary tracking management software, VisiTrak, provides real-time
marketing data regarding banner effectiveness by tracking the consumers after
they click through to our advertiser's Web site. This tool provides useful
feedback to advertisers regarding banner ad success rates, allowing them to
maximize the effectiveness of their Internet marketing strategy.
OUR STRATEGY
Our strategy is to be the leading provider of performance-based advertising
solutions by leveraging our position as the largest aggregator of advertising
inventory of small- to medium-sized Web sites and our reputation as the
"Pay-for-Results" advertising network. Key elements of our strategy include:
EXPAND OUR NETWORK OF WEB SITES
We are the leading aggregator of Internet advertising inventory for small-to
medium-sized Web sites. Our highly automated proprietary software and focused
customer support allow us to manage a very large network of Web sites and a high
volume of advertising inventory. By leveraging these unique services, we expect
to continue to increase the number of small- to medium-sized Web sites in our
network and continue to attract publishers of high-traffic Web sites with
remnant inventory solutions.
33
<PAGE>
GROW WITH OUR WEB PUBLISHERS
We intend to maximize the revenue potential of every Web site on our network
by providing an opportunity to increase the quality of site content, increase
traffic to the site and by delivering new tools that generate advertising
revenue. We intend to grow with our Web publishers as their sites attract more
traffic by providing new and expanded services that position us as a one stop
advertising revenue solution.
EXPAND OUR SALES AND MARKETING EFFORTS
We intend to increase the size of our direct sales force and continue our
public relations and marketing efforts, including our e-mail and telemarketing
approaches. We believe that brand awareness of ValueClick and our CPC
"Pay-for-Results" solution is critical to our success, given the highly
competitive nature of the Internet advertising market.
GROW WITH OUR WEB ADVERTISERS
Our goal is to provide the highest quality and most cost-effective traffic
for online marketing programs. We intend to achieve this goal by working closely
with our advertisers and direct marketers to expand our services to target,
measure, optimize return on investment, and improve the quality of traffic
generated.
We seek to increase the efficiency, effectiveness and attractiveness of our
services to advertisers through the use of technology. Our proprietary VisiTrak
software facilitates the simultaneous tracking and management of advertising
transactions, enabling advertisers to track campaigns effectively and increase
response rates. We intend to continue to improve the performance and
capabilities of VisiTrak and other technologies.
EXTEND OUR GLOBAL PRESENCE
We plan to aggressively continue our international expansion. ValueClick
Japan, our majority-owned subsidiary launched in March 1998, delivered over 118
million banner ads in August 1999. In the same month, we commenced operations in
London and we are planning to offer services throughout continental Europe. We
believe that the scalability of our technology and business model will allow us
to continue to successfully develop our networks in these and other
international markets.
PROVIDE SUPERIOR CUSTOMER SERVICE
We believe that strong customer service is vital in generating repeat
business. Therefore, we intend to continue to hire, train and support a staff of
highly skilled customer service representatives who work effectively with both
advertisers and Web publishers. We also plan to continue enhancing our service
by providing on-demand, customized online statistical information that allows
advertisers and Web publishers to rapidly assess the efficiency and performance
of Web advertisements.
PRODUCTS AND SERVICES
We offer the following products and services for Web publishers:
REAL-TIME STATISTICAL REPORTING
Our proprietary Web-based tools for Web publishers provide them with
current, cumulative, historical and referral statistical information.
Information currently available includes the real-time tabulation of the current
day's click activity, relevant ratios, payment information, and amounts due.
Cumulative statistics show all-time impressions, clicks and click ratios.
Historical statistics highlight impressions and clicks in both daily and weekly
format and in either tabular or graphical format. Referral statistics detail the
amount owed the referring Web publisher.
34
<PAGE>
STREAMLINED VALUECLICK NETWORK APPLICATION PROCESS
As part of our strategy to simplify the advertising sales process for
publishers of small- to medium-sized Web sites, we allow Web publishers to join
our network online. After completing the application, the publisher receives an
immediate response indicating our receipt of the application, and our publisher
service department then reviews the application. Once approved to join the
network, we provide the Web publisher with software to install on each Web page
where an advertisement will be placed. This process provides the publisher with
a simple, turnkey solution for entering our advertising network.
PAYMENT MANAGEMENT
Our publisher payment policy reduces risks to Web publishers of advertiser
bad debts and late payment carrying costs. We pay our network of publishers
monthly regardless of whether an advertiser has paid us or not. In contrast,
most other major Web advertising networks pay their publishers only upon
collection from advertisers.
WEB SITE CATEGORIZATION CAPABILITY
Our categorization capability enables Web publishers to maximize the value
of their advertising inventory by delivering more targeted banner advertisements
for the advertiser. This capability allows a publisher to categorize not only
its entire Web site, but also each page of its Web site.
ABILITY TO VETO COMPETING ADVERTISER CAMPAIGN
We provide Web publishers with the tools to exclude any competing advertiser
campaign on our network from their site.
REFERRAL COMMISSION PROGRAM
We provide ValueClick Web publishers the opportunity to earn commissions on
clicks generated from Web sites of publishers they introduce to the ValueClick
network through a referral. The referral program is highly automated and a
referring publisher can monitor the activity of all referred sites online
through our real-time reporting tools.
We offer the following products and services for advertisers:
AD SERVING SOLUTIONS
Our proprietary system for ad serving and reporting is provided to
advertisers at no additional cost. Advertisers deliver Internet banner
advertisements to us in a form ready to be delivered on our servers. Our
proprietary software can determine how many banners are in circulation, which
banners are appropriately targeted for the consumer, and whether or not the Web
publisher has excluded any particular banners from its site. Our server then
delivers the banner to the Web publisher's site to be viewed by the consumer and
adds one impression to both the advertiser's and publisher's counter. If a user
clicks on the banner to visit the advertiser's Web site, our server registers
one click to both the advertiser's and the publisher's counter. If a user on our
network clicks on the same advertisement more than once in a six-hour period,
the click is only counted once. This feature more accurately counts the number
of "unique" users clicking on the advertiser's banner and also provides more
accurate marketing data. This entire process occurs within a matter of seconds.
35
<PAGE>
DISTRIBUTION OF ADVERTISEMENTS ON A COMPREHENSIVE OR TARGETED BASIS
We sell advertising on our network under two major categories: Comprehensive
Network or Targeted Categories. Our sales representatives work with advertisers
to select the appropriate product based on advertisers' requirements. The
following is a more detailed description of these two products:
Comprehensive Network: Comprehensive Network offers advertising
placements across our entire network without specifically targeting
individual Web sites. As the lowest-cost option offered by us, it
provides the greatest overall reach for advertisers.
Targeted Categories: Targeted Categories allows the advertiser to place
ads in one or more of 15 targeted categories within our network. The use
of these categories allows an advertiser or direct marketer to target a
particular audience. Currently we have the following 15 targeted
categories grouped by type of content:
<TABLE>
<S> <C>
- - Automotive - Games
- - Business & Finance - Health & Fitness
- - Careers - MIS & Information Technology
- - Consumer Technology - News & Culture
- - E-Commerce & Portals - Sports & Recreation
- - E-Commerce & Shopping - Travel
- - Entertainment - Youth & Students
- - Family & Lifestyles
</TABLE>
VISITRAK
Our proprietary VisiTrak software uses small data files residing on a
computer of a Web user, commonly known as cookies, to track users through an
advertiser's Web site. VisiTrak offers a powerful, automated solution for our
advertisers and direct marketers to enhance their Web site effectiveness. Using
VisiTrak, advertisers select the Web pages they wish to track. This feature
enables advertisers to determine the number of clicks, leads and sales each
banner has generated and allows them to tailor their Web marketing strategy
based on these results.
ANTI-FRAUD SOLUTIONS
Since the launch of our network we have made it a priority to detect and
investigate any fraudulent clicking activity on our advertisers' banner ads. Our
system incorporates sophisticated algorithms that detect any Web site within our
network that is receiving an abnormal click pattern during any period with the
goal of protecting advertisers from fraudulent clicking activity and improving
the accuracy of information conveyed to our advertising clients.
INTERNATIONAL OPERATIONS
We are actively pursuing an international expansion strategy. Our current
international expansion strategy involves the sharing of the risk of the
investment with local partners while providing the partners with support,
including a license to our software, training, technical support and local
copyright and trademark licenses.
In March 1998, we launched ValueClick Japan, a joint venture with a local
partner in Japan. Results of the joint venture have been very positive and we
believe they suggest growing acceptance of the CPC model in Japan. In August
1999, we acquired a majority interest in this joint venture, which has 14
full-time employees, of whom seven are direct salespersons and seven provide
general and administrative support. We have also commenced our operations in the
European market with
36
<PAGE>
ValueClick Europe, a joint venture in London formed in August 1999. Upon the
closing of this offering, we will have the option to acquire all of the
outstanding shares of ValueClick Japan. We also have an option to acquire all of
the outstanding shares of ValueClick Europe which will become exercisable in the
future. See "Certain Transactions" on page 47.
In addition, we are currently building a Web publisher network on a
country-by-country basis from our U.S. office. This network will provide an
operating base for establishing a local presence as each market develops and
provide for easier transition to local operations when appropriate local
partners are identified.
TECHNOLOGY PLATFORM
Our operating infrastructure, including our network of servers, has been
designed to provide maximum performance, reliability and scalability. We
maintain high tolerance and performance objectives for banner delivery response
time from our network. To ensure that these standards are met and to facilitate
our maintenance procedures, we keep standby hardware for each component at our
data center locations. Our internal maintenance group assures quick and complete
resolution of hardware concerns.
We currently serve advertisements from three third-party data center
facilities located in Los Angeles, California, Boca Raton, Florida and Tokyo,
Japan and we expect a new facility to come online in London before the end of
1999. Our U.S. locations also provide redundancy for each other. The entire
network is monitored both electronically and by system administrators and
escalation procedures are designed to resolve abnormalities quickly. All systems
are backed up daily and the data is stored off-site.
SALES, MARKETING AND CUSTOMER SERVICE
We market our products and services via direct marketing, print advertising,
online advertising, the ValueClick Web site, trade show participation and other
media events. In addition, we actively pursue public relations programs to
promote our brand, products and services to potential network Web publishers and
advertisers.
WEB PUBLISHERS
Our highly automated, online application process is supported by a team of
nine network development and customer service professionals. Their
responsibilities include screening and marketing to prospective Web publishers,
monitoring network quality, maintaining relationships and consulting with
publishers on additional revenue opportunities.
ADVERTISERS
We sell our products and services to online advertisers primarily through
our direct sales force, consisting of eight sales persons as of September 30,
1999. These employees are located at our headquarters in Carpinteria,
California. We make extensive use of telemarketing and e-marketing strategies.
Sales account executives have a turnkey relationship with each of the
advertisers they service. Each account executive assists advertisers, typically
direct marketing and e-commerce companies, with all aspects of media planning
and design of their advertising campaigns. These services include advertisement
purchasing and placement, assessment of results and optimization of performance.
We intend to add additional sales personnel in the Carpinteria office and to
open additional sales offices in the U.S. over the next 12 months.
37
<PAGE>
COMPETITION
We face intense competition in the Internet advertising market. We expect
that this competition will continue to intensify in the future as a result of
industry consolidations and the increasing number of advertising, media and
Internet companies. We compete with a diverse and large pool of advertising,
media and Internet companies.
Our ability to compete depends upon several factors, including the
following:
- our ability to aggregate a large network of small- to medium-sized Web
sites efficiently,
- the timing and market acceptance of new solutions and enhancements to
existing solutions developed by us,
- our customer service and support efforts,
- our sales and marketing efforts, and
- the ease of use, performance, price and reliability of solutions developed
by us.
Additional competitive factors include each competitor's reputation,
knowledge of the advertising market, financial controls, geographical coverage,
relationships with clients, technological capability and quality and breadth of
services. We expect that we will face additional competition from new entrants
into the market in the future.
Our principal competitors are other Internet advertising network that focus
on the traditional CPM model including DoubleClick, 24/7 Media and Flycast. In
addition, we also face competition from other smaller Internet advertising
networks that also use a performance-based model, such as TeknoSurf and
ClickAgents.
Competition for advertising placements among current and future suppliers of
Internet navigational and informational services, high-traffic Web sites and
ISPs, as well as competition with other media for advertising placements, could
result in significant price competition and reductions in advertising revenues.
In addition, as we expand the scope of our Web services, we may compete with a
greater number of Web publishers and other media companies across an increasing
range of different Web services, including in vertical markets where competitors
may have advantages in expertise, brand recognition and other areas. If existing
or future competitors develop or offer services that provide significant
performance, price, creative or other advantages over those offered by us, then
our business, result of operations and financial condition would be negatively
affected.
INTELLECTUAL PROPERTY RIGHTS
We currently rely on a combination of common law copyright and trademark
laws, trade secret protection, confidentiality and non-disclosure agreements and
contractual provisions with our employees and with third parties to establish
and protect our proprietary rights. We have registered the trademark
"ValueClick" in the European Union and have applied to register the trademark
"ValueClick" in the United States and Japan.
We intend to pursue the registration of our copyrights and trademarks in
other jurisdictions. We may not be able to secure copyright registration or
trademark registrations for all of our marks, in the United States or other
countries.
Owners of other registered or unregistered copyrights, trademarks or service
marks could bring copyright or trademark infringement claims against us. If a
court of law determines that our technology infringes on the rights of other
companies, we may be required to seek licenses from third parties. However, we
may not be able to do so on commercially reasonable terms, if at all. In
addition, we may
38
<PAGE>
also be subject to litigation to defend against claims of infringement of the
rights of others or to determine the scope and validity of the intellectual
property rights of others.
If our competitors prepare and file applications in the United States that
claim trademarks used or registered by us, we may oppose those applications and
be required to participate in proceedings before the United States Patent and
Trademark Office to determine priority of rights to the trademark, which could
result in substantial costs to us.
Actions could be brought by other third parties claiming that our products
or technology infringe patents or copyrights owned by others. In particular, the
Patent and Trademark Office recently granted a patent to DoubleClick claiming
targeting the delivery of advertisements through the Internet. The patent,
entitled "Method of Delivery, Targeting, and Measuring Advertising Over
Networks," claims the process of using linked advertising space and compiling
statistics on individual users in order to target advertisements. This patent
could limit, if not restrict, our ability to track a user's activities through
our VisiTrak software. Any litigation regarding this patent or any of our
proprietary rights could be costly and divert management's attention, result in
the loss of some of our proprietary rights, require us to seek licenses from
third parties and prevent us from selling our products and services. See "Risk
Factors--We may face costly intellectual property disputes."
EMPLOYEES
As of September 30, 1999, we had 42 full-time and five part-time employees
in the U.S. and 14 full-time and two part-time employees in Japan. None of these
employees are covered by collective bargaining agreements. Management believes
that our relations with our employees are good.
LEGAL PROCEEDINGS
We currently are not a party to any material litigation, nor are we aware of
any pending or threatened litigation that would have a material adverse effect
on our business, operating results or financial condition.
FACILITIES/PROPERTIES
Our principal executive offices are located in Carpinteria, California,
where we lease two properties with approximately 9,000 and 2,750 square feet of
space, respectively. Our two leases expire on December 31, 2000 and December 31,
2002, respectively. We also lease approximately 1,490 square feet of office
space in Tokyo, Japan for ValueClick Japan. We believe that our existing leased
space in California and Japan is more than adequate for our current operations,
and that suitable replacement and additional space will be available in the
future on commercially reasonable terms.
39
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Set forth below is information concerning the directors, executive officers
and other key employees of ValueClick as of September 30, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ----------------------------------------------------------------- --- ----------------------------------------
<S> <C> <C>
DIRECTORS, EXECUTIVE OFFICERS AND OTHER KEY EMPLOYEES
James R. Zarley.................................................. 55 Chairman of the Board and Chief
Executive Officer
Brian Coryat..................................................... 38 Director, President and Chief Operating
Officer
Kurt A. Johnson.................................................. 36 Chief Financial Officer and Secretary
Earle A. Malm II................................................. 50 Vice Chairman of the Board, Director and
Chief Marketing Officer
Robert P. Sherry................................................. 42 Senior Vice President of Sales
John H. Schwenk.................................................. 36 Chief Technical Officer
David S. Buzby................................................... 39 Director
Robert D. Leppo.................................................. 56 Director
Martin T. Hart................................................... 63 Director
Steven J. Umberger............................................... 38 Director
</TABLE>
JAMES R. ZARLEY
Mr. Zarley is the Chairman of the Board and Chief Executive Officer of
ValueClick. He has served as Chairman, and has been an advisor to ValueClick
since May 1998. In February 1999, Mr. Zarley joined ValueClick in a full-time
capacity and in May 1999 he became Chief Executive Officer. Prior to joining
ValueClick, from December 1996 to May 1998, Mr. Zarley was the Chairman and
Chief Executive Officer of Best Internet, until its recent merger with Verio,
and from May 1998 to January 1999 the Chief Operating Officer of Hiway
Technologies, a Web hosting company. Mr. Zarley has more than 30 years of
technology business experience as a senior executive.
BRIAN CORYAT
Mr. Coryat is the founder of ValueClick and has acted as its President and a
director since its inception. In May 1999, he became Chief Operating Officer of
ValueClick. Mr. Coryat's prior experience includes the formation, development
and direction of Web-Ignite Corporation, an Internet promotions company, from
May 1996 through December 1998. From September 1994 through May 1996, Mr. Coryat
served as Chief Executive Officer of AAA Internet Promotions, an Internet
directory listing service.
KURT A. JOHNSON
Mr. Johnson joined ValueClick as its Chief Financial Officer in May 1999 and
has also served as its Secretary since September 1999. Mr. Johnson brings over
13 years of financial management experience to the ValueClick team. From
February 1998 to May 1999, Mr. Johnson was an investment banker at Olympic
Capital Partners, specializing in mergers and acquisitions and Internet company
40
<PAGE>
investments. Mr. Johnson also served as Vice President of Investments for
Bozarth & Turner Securities from March 1995 through January 1998. He served as
Chief Financial Officer of HSD Corporation, a privately held industrial
automation company, from April 1994 to March 1995, and was a divisional
controller for Ogden Corporation from February 1990 to April 1994. Mr. Johnson
graduated with a B.A. from Eastern Washington University and an M.B.A. from
Gonzaga University and is also a Certified Management Accountant.
EARLE A. MALM II
Mr. Malm joined ValueClick in June 1999 as its Chief Marketing Officer and
became the Vice Chairman of the Board in July 1999. Prior to joining ValueClick,
Mr. Malm was the Chief Operating Officer for AIM Funds, an investment management
company in San Francisco from June 1998 to March 1999. From March 1990 to May
1998, Mr. Malm served in various capacities at GT Global, an investment
management company, including Senior Vice President of Institutional Marketing,
Executive Vice President of Business Development and Chief Operating Officer. In
addition, Mr. Malm has over 25 years of business experience in service
industries. Mr. Malm has held senior management positions in technology
businesses with GE and RCA which has given him a background of business
development in consumer, commercial, industrial and financial services sectors.
Mr. Malm graduated with a B.S. and B.A. from Bowling Green State University.
ROBERT P. SHERRY
Mr. Sherry joined ValueClick in September 1999 as Senior Vice President of
Sales. Prior to joining ValueClick, Mr. Sherry was with the Miller Publishing
Group as Vice President of Sales and Marketing from June 1998 to September 1999
for its magazine network. From March 1994 to March 1997, he was a regional sales
director at Reader's Digest. In addition, Mr. Sherry brings over 12 years of
publishing and advertising experience to ValueClick, having held sales and
management positions at Time Warner, McGraw-Hill, and Reader's Digest. Mr.
Sherry graduated with a B.A. from Georgetown University.
JOHN H. SCHWENK
Mr. Schwenk joined ValueClick as the Chief Technology Officer in April 1999.
Mr. Schwenk has been employed in the computer and technology field since 1985.
Prior to joining ValueClick, Mr. Schwenk was with Hiway Technologies from March
1997 to March 1999, initially serving as Director of Systems and Engineering and
most recently as Vice President of Information Systems. From 1989 to 1996, Mr.
Schwenk was Vice President of Systems Integration for BCR, a privately held
systems integration company.
DAVID S. BUZBY
Mr. Buzby has been a director since May 1999. Mr. Buzby is an investor and
operator of entrepreneurial companies, currently working at Inbar since June
1999 as Executive Vice President creating a business to business e-commerce
barter exchange. Previously, Mr. Buzby worked with Best Internet, a web hosting
company, from August 1994 to January 1999. Mr. Buzby held various positions at
Best Internet including Chief Financial Officer and Vice Chairman of the Board
and was a founding investor. Before joining Best Internet, Mr. Buzby founded,
acquired and reengineered recycling businesses in Northern California. Mr. Buzby
also serves on the Board of Directors of several private companies. Mr. Buzby
graduated with a B.A. from Middlebury College and an M.B.A. from Harvard
Business School.
41
<PAGE>
ROBERT D. LEPPO
Mr. Leppo has been a director of ValueClick since May 1998. Mr. Leppo has
been a private investor since 1977. He serves on the Board of Directors of
several private companies. Mr. Leppo graduated with a B.A. from Stanford
University and an M.B.A. from Harvard Business School.
MARTIN T. HART
Mr. Hart has been a director since March 1999 and has been a private
investor since 1969. Mr. Hart is also a director of PJ America, a foods service
company, MassMutual Corporate Investors, an investment company, MassMutual
Participation Investors, an investment company, Schuler Homes, a builder of
homes, Optical Securities, a manufacturer of security systems, T-Netix, a
communications company, Vail Banks, a multi-bank holding company, and Ardent
Software, a software company, and he continues to serve on the Board of
Directors of several private companies. Mr. Hart graduated with a B.A. from
Regis University and is a Certified Public Accountant.
STEVEN J. UMBERGER
Mr. Umberger has been a director since May 1998. Mr. Umberger has served as
the President and has been the controlling stockholder of ValueClick Europe,
Limited since August 1999. From April 1999 to June 1999, he was employed as the
Chief Marketing Officer of Hiway Technologies, a Web hosting company. Prior to
that, he served as Chief Executive Officer of IAAI, a computer reseller company
from March 1991 to March 1995. From March 1993 to June 1997, Mr. Umberger was
also the co-owner of Acme Barricades Company, a construction rental company. Mr.
Umberger graduated with a B.A. from the Virginia Military Institute and an
M.B.A. from the College of William and Mary.
BOARD OF DIRECTORS
Our Board is currently composed of seven members. Each director serves until
the next annual meeting or until his or her successor is duly elected and
qualified.
BOARD COMMITTEES
In March 1999, the Board established an audit committee and a compensation
and incentive plan committee. Mr. Leppo, Mr. Hart and Mr. Umberger serve on the
audit committee and Mr. Leppo and Mr. Buzby comprise the compensation and
incentive plan committee.
BOARD COMPENSATION
The directors of ValueClick do not currently receive salaries or fees for
serving as directors or for serving on committees of our Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No interlocking relationship exists between our Board of Directors and the
Board of Directors or compensation committee of any other company, nor has any
interlocking relationship existed in the past.
42
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
earned by our chief executive officer for services rendered in all capacities
during the period from May 1, 1998 (inception) through December 31, 1998:
EXECUTIVE COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION -----------------
----------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS/SAR COMPENSATION
- ------------------------------------------------------- --------- --------- ------------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
Brian Coryat........................................... $ 74,591 $ 0 $ 0 0 $ 9,039(2)
President, Chief Operating Officer and Secretary(1)
</TABLE>
- ------------------------------
(1) Mr. Coryat served as our Chief Executive Officer from May 1998 to May 1999.
(2) Represents 401(k) matching contributions paid by us of $8,252 and insurance
premiums paid on Mr. Coryat's behalf of $787.
In addition to the above named executive officer for the fiscal year ended
December 31, 1998, we currently employ certain other executive officers who we
anticipate will qualify as named executive officers in future years due to their
position or compensation level. Those executives include James R. Zarley,
Chairman and Chief Executive Officer; Kurt Johnson, Chief Financial Officer; and
Earle A. Malm II, Vice Chairman and Chief Marketing Officer. For information
about these officers' compensation, see "--Employment Agreements."
EMPLOYEE BENEFIT PLANS
1999 STOCK OPTION PLAN
In May 1999, the Board of Directors adopted and the stockholders
approved our 1999 Stock Option Plan. Under the 1999 plan, the Board, or its
designated administrators, have the flexibility to determine the type and amount
of awards to be granted to eligible participants.
PURPOSE, STRUCTURE, AWARDS AND ELIGIBILITY. The plan is intended to secure
for us and our stockholders the benefits arising from ownership of common stock
by individuals employed or retained by us who will be responsible for our future
growth. The plan is intended to strengthen us and our subsidiaries by attracting
and retaining competent directors, officers and employees by giving them an
incentive to contribute to our success.
The plan administrators may grant incentive stock options or
non-statutory stock options under the 1999 plan. The options may be awarded
under the 1999 plan for any term not to exceed ten years from the date the
option is granted, except for the case of incentive stock options granted to
principal stockholders holding 10% of our outstanding common stock in which case
the term shall be no longer than five years from the date the option is granted.
Directors, officers, and all full-time salaried employees or consultants
of us or our subsidiaries who contribute to the growth and success of the
business are eligible to be selected by the plan administrators to participate
in the 1999 plan. Our employees, including employee officers and directors, of
us or our subsidiaries may be granted either incentive stock options or
non-statutory stock options, while consultants, including non-employee officers
and directors, may only be granted non-statutory stock options.
43
<PAGE>
SHARES SUBJECT TO 1999 STOCK OPTION PLAN. We have authorized and reserved
for issuance an aggregate of 8,000,000 shares of our common stock under the 1999
plan. The shares of common stock issuable under the 1999 plan may be authorized
but unissued shares, shares issued and reacquired by us or shares purchased by
us on the open market. If any of the awards granted under the 1999 plan expire,
terminate or are forfeited for any reason before they have been exercised,
vested or issued in full, the unused shares subject to those expired, terminated
or forfeited awards will again be available for purposes of the 1999 plan.
EFFECTIVE DATE AND DURATION. The 1999 plan became effective upon its
adoption by the Board of Directors in May 1999. The plan will continue in effect
for ten years from the date of its adoption unless sooner terminated by the
Board of Directors. In the event of a merger or consolidation in which
ValueClick is not the surviving corporation, and such surviving corporation
refuses to assume a substitute option as provided in the plan, such options
shall become fully exercisable for a period of 15 days of the date of notice
from the Board.
ADMINISTRATION. The 1999 plan is administered by the full Board of
Directors or at the discretion of the Board by a Stock Option Committee
appointed by the Board. The Stock Option Committee shall consist of no less than
two members of the Board who are:
- non-employee directors within the meaning of the Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, so long as non-employee
director administration is required under Rule 16b-3; and
- outside directors as defined in section 162(m) of the Internal Revenue
Code of 1986, so long as outside directors are required by the Code.
Subject to the above limitations, the Board of Directors may from time to
time remove members from the committee and fill all vacancies on the committee,
however caused. The program administrators may hold meetings when and where they
determine, will keep minutes of their meetings, and may interpret, prescribe,
amend, and rescind rules and regulations in accordance with the terms of the
1999 plan.
401(K) RETIREMENT PLAN
We adopted an amended 401(k) defined contribution retirement plan in May
1999 which became effective in July 1999. The plan covers all full-time
employees. Employees become eligible to participate in the plan after they have
worked for a three-consecutive month period, commencing on the date of hire, and
for which the employee is credited with at least 1,000 paid hours, including
vacation, sickness, disability, leave of absence and back pay. The plan provides
for voluntary employee contributions up to 20% of annual compensation, subject
to the maximum limit allowed by the Internal Revenue Service guidelines, which
is currently $10,000 annually. We may make matching contributions to each
participating employee based on his or her voluntary contributions to the plan.
We may also make discretionary contributions to the plan at our sole discretion.
As of September 30, 1999 we have contributed approximately $14,000 to the plan.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
We have included in our Certificate of Incorporation a provision indicating
that, to the extent permitted by Delaware General Corporation Law, our directors
will not be personally liable to us or our stockholders for monetary damages for
breach of fiduciary duty as directors, except for liability:
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
44
<PAGE>
- under Section 174 of the General Corporation Law of the State of Delaware;
or
- for any transaction from which the director derived an improper personal
benefit.
Our Bylaws provide for the indemnification of our directors and executive
officers to the fullest extent permitted by the Delaware General Corporation
Law. We may limit the extent of such indemnification by individual contracts
with our directors and executive officers, but have not done so. We are not,
however, required to indemnify any director or executive officer in connection
with any proceeding initiated by such person or any proceeding by such person
against us or our directors, officers, employees or other agents unless such
indemnification is expressly required to be made by law, the proceeding was
authorized by our Board of Directors or such indemnification is provided by us,
in our sole discretion, pursuant to the powers vested in us under the Delaware
General Corporation Law. We are required to advance, prior to the final
disposition of any proceeding, promptly on request, all expenses incurred by any
director or executive officer in connection with such proceeding on receipt of
an undertaking by or on behalf of such person to repay those amounts if it
should be determined ultimately that he or she is not entitled to be indemnified
under our Bylaws or otherwise.
We have entered into indemnification agreements with our directors and some
of our officers. These agreements contain provisions that may require us, among
other things, to indemnify these directors and officers against certain
liabilities that may arise because of their status or service as directors or
officers, except for liabilities arising from willful misconduct of a culpable
nature, advance their expenses incurred as a result of any proceeding against
them as to which they could be indemnified, and obtain directors' and officers'
liability insurance if it is maintained for other directors or officers.
At present, we are not aware of any pending or threatened litigation or
proceeding involving a director, officer, employee or agent in which
indemnification would be required or permitted. We are not aware of any
threatened litigation or proceeding that might result in a claim for
indemnification. We believe that our charter provisions and indemnification
agreements are necessary to attract and retain qualified persons as directors
and officers.
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with each of Messrs. Zarley,
Schwenk, Johnson and Malm.
In January 1999, we entered into an at-will employment agreement with Mr.
Zarley. Under this agreement, Mr. Zarley is entitled to a base salary of
$150,000 per year. This agreement may be terminated at any time by either party
upon ten days notice. In connection with this agreement, we granted Mr. Zarley
options to purchase 1,200,000 shares of our common stock at an exercise price of
$0.13 per share under our 1999 Stock Option Plan. 150,000 options became
exercisable in July 1999. The remaining 1,050,000 options shall become
exercisable in equal monthly installments over the 18 month period thereafter.
All 1,200,000 options shall be immediately exercisable upon the closing of our
initial public offering or upon transfer of 50% or more of the ownership
interest of ValueClick.
In April 1999, we entered into an at-will employment agreement with Mr.
Schwenk. Under this agreement, Mr. Schwenk is entitled to a base salary of
$100,000 per year. This agreement may be terminated at any time by either party
upon ten days notice. In connection with this agreement, we granted Mr. Schwenk
options to purchase 400,000 shares of our common stock at an exercise price of
$0.13 per share under our 1999 Stock Option Plan. 50,000 options became
exercisable in October 1999. The remaining 350,000 options will become
exercisable in equal monthly installments over the 42 month period thereafter.
200,000 options shall be immediately exercisable upon the closing of our initial
public offering or upon transfer of 50% or more of the ownership interest of
ValueClick.
45
<PAGE>
In May 1999, we entered into an at-will employment agreement with Mr.
Johnson. Under this agreement, Mr. Johnson is entitled to a base salary of
$130,000 per year. Upon the closing of our initial public offering or a change
in 50% or more of ownership Mr. Johnson will be entitled to a $20,000 bonus. If
we terminate Mr. Johnson's employment in connection with or following, and by
reason of the transfer of ownership of 50% or more of ValueClick, Mr. Johnson
will be entitled to severance equal to one year's salary. This agreement may be
terminated at any time by either party upon ten days notice. In connection with
this agreement, we granted Mr. Johnson options to purchase 300,000 shares of our
common stock at an exercise price of $0.50 per share under our 1999 Stock Option
Plan. 37,500 options will become exercisable in November 1999. The remaining
262,500 options will become exercisable in equal monthly installments over the
42 month period thereafter. 150,000 options shall be immediately exercisable
upon the closing of our initial public offering or upon transfer of 50% or more
of the ownership interest of ValueClick.
In June 1999, we entered into an at-will employment agreement with Mr. Malm.
Under this agreement, Mr. Malm is entitled to a base salary of $150,000 per
year. This agreement provides for a one-year term but may be terminated at any
time by either party upon ten days notice. In the event we terminate Mr. Malm's
employment following a change in control of ValueClick or for any reason other
than for cause, Mr. Malm will be entitled to all compensation, stock options and
health and welfare benefits to which he would otherwise be entitled during the
remaining term of employment. In connection with this agreement, we granted Mr.
Malm options to purchase 800,000 shares of our common stock at an exercise price
of $0.50 per share under our 1999 Stock Option Plan. 800,000 options will vest
in 12 equal monthly installments over the 12 month period commencing on June 1,
1999. These 800,000 options will become immediately exercisable upon the closing
of our initial public offering or upon transfer of 50% or more of the ownership
interest of ValueClick.
46
<PAGE>
CERTAIN TRANSACTIONS
On May 1, 1998, Brian Coryat, the sole stockholder of Web-Ignite
Corporation, caused Web-Ignite to transfer to ValueClick, LLC its rights to (a)
the ValueClick trademarks and domain names, (b) the trademark license, software
license and copyright agreement with Trans-Pacific Ltd., predecessor to
ValueClick Japan, and (c) the rights to the advertising delivery software used
in our business. At that time, Michael Bueno, the primary developer of the
software, transferred all of his remaining royalty and ownership rights in the
software to ValueClick, LLC. In exchange, on May 1, 1998, ValueClick, LLC issued
a 77% membership interest to Mr. Coryat, a 15% membership interest to Mr. Bueno,
and a 0.5% membership interest to Web-Ignite Corporation. Web-Ignite
subsequently transferred its 0.5% membership interest to Brian Coryat. Upon the
reorganization of ValueClick, LLC as ValueClick, Inc., Mr. Coryat's entire
membership interest in ValueClick, LLC was exchanged for 15,253,560 shares of
our common stock and 24,761 shares of our Series A Convertible Preferred Stock
and Mr. Bueno's membership interest in ValueClick, LLC was exchanged for
2,971,316 shares of our common stock. Mr. Coryat was the sole stockholder and
sole director of Web-Ignite, and was President and Chief Executive Officer and a
director of ValueClick, LLC. Mr. Coryat is a director, and is President and
Chief Operating Officer of ValueClick, Inc. Mr. Bueno served as a director and
as Chief Technical Officer of ValueClick, LLC and was Vice President, Chief
Technology Officer and a director of ValueClick, Inc. Mr. Bueno resigned as a
director of ValueClick, Inc. as of September 30, 1999 and is no longer an
officer of ValueClick, Inc. Mr. Coryat and Mr. Bueno each currently holds more
than 5% of our stock.
ValueClick was formed as a California limited liability company, ValueClick,
LLC, on May 1, 1998. On December 31, 1998, ValueClick, LLC was reorganized as
ValueClick, Inc., a Delaware corporation. In connection with this
reorganization, ValueClick, Inc. acquired all of the assets and assumed all of
the liabilities of ValueClick, LLC. It also issued to ValueClick, LLC,
19,952,024 shares of its common stock, 297,132 shares of its Series A
Convertible Preferred Stock and 1,047,804 shares of its Series B Convertible
Preferred Stock, all of which ValueClick, LLC then distributed to its members
upon its dissolution.
In June 1998, Brian Coryat borrowed $50,000, at an interest rate of 9% per
annum, from ValueClick, LLC. Mr. Coryat repaid this loan in full in December
1998. Mr. Coryat served as President and Chief Executive Officer and was a
director of ValueClick, LLC.
On December 31, 1998, we borrowed $200,000, at an interest rate of 10% per
annum, from Brian Coryat, a director, and our President and Chief Operating
Officer. We repaid this loan in full in January 1999.
VALUECLICK EUROPE
In August 1999, we formed a joint venture with three of our directors to
engage in the Internet advertising business in the United Kingdom and Europe by
purchasing a 20% interest in ValueClick Europe, Limited, a corporation organized
under the laws of the U.K., for $99,000. At that time, we granted ValueClick
Europe an exclusive license to our trademarks and other intellectual property
within western Europe, Scandinavia and the U.K., which may become non-exclusive
if ValueClick Europe fails to recognize a minimum level of gross revenues during
the 12 months ending August 2000. We co-founded ValueClick Europe with Mr.
Umberger, one of our directors; Mr. Coryat, our President, Chief Operating
Officer and director; Mr. Zarley, our Chairman of the Board and Chief Executive
Officer; and another party. Mr. Umberger currently owns 45,000 shares, or 45%,
of ValueClick Europe, and Messrs. Coryat and Zarley each own 2,500 shares, or
2.5%.
We have an option to acquire all of the outstanding shares of ValueClick
Europe which will become exercisable in the future. The option exercise price
per share is calculated by dividing a numerator, which may vary, by a
denominator equal to the number of outstanding shares of ValueClick
47
<PAGE>
Europe common stock. The numerator used to calculate the option exercise price
equals (a) four times ValueClick Europe's gross revenues for the three calendar
months preceding the option exercise, which we refer to as ValueClick Europe's
annualized gross revenues, multiplied by (b) five. We refer to the option
exercise price arrived at using this numerator as the base option exercise
price. The base option exercise price is subject to adjustment, however, in the
event we consummate an initial public offering, or IPO, of our stock, or in the
event of a change of control of ValueClick, Inc.
In the event of an IPO, and if adjustment would result in a lower option
exercise price than the base option exercise price, the numerator used to
determine the option exercise price will equal (a)(1) the product of the average
price per share of our common stock for the three months immediately preceding
exercise of the option and the total number of shares of our common stock on the
date of the option exercise, divided by (2) four times our gross revenues for
the three calendar months preceding the option exercise, which we refer to as
our annualized gross revenues, multiplied by (b) ValueClick Europe's annualized
gross revenues, multiplied by (c) 0.75.
In the event of a change of control of ValueClick, Inc., prior to or after
an IPO, and if adjustment would result in a lower option exercise price than the
base option exercise price, the numerator used to calculate the option exercise
price will also be adjusted. In the event a change of control results from an
acquisition by a privately-held company or by a company not in a substantially
similar business, the numerator used to calculate the option exercise price will
be equal to (a)(1) the fair market value of ValueClick, Inc. based on the
consideration paid in the change of control transaction divided by (2) our
annualized gross revenues, multiplied by (b) 0.75, multiplied by (c) ValueClick
Europe's annualized gross revenues. In the event a change of control results
from an acquisition by a publicly traded company in a substantially similar
business, the numerator used to calculate the option exercise price will be
equal to (1)(a) the average share price of the acquiring company for the three
months immediately preceding the date of the acquisition multiplied by the total
number of shares of stock of the acquiring company outstanding on the date of
the acquisition (b) divided by four times the acquiring company's gross revenues
for the three calendar months preceding the acquisition date, multiplied by (2)
0.75, multiplied by (3) ValueClick Europe's annualized gross revenues.
48
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of September 30, 1999, as adjusted to reflect
the sale of common stock in this offering and the automatic conversion of all
shares of preferred stock to common stock upon the consummation of this
offering, for each of the following persons:
- each of our directors and each of the named officers in the
"Management--Executive Compensation" section of this prospectus;
- all directors and executive officers as a group; and
- each person who is known by us to own beneficially five percent or more of
our common stock prior to this offering.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage of ownership of that person,
shares of common stock subject to options held by that person that are currently
exercisable or become exercisable within 60 days of September 30, 1999 are
included. Those shares, however, are not deemed outstanding for the purpose of
computing the percentage ownership of any other person. Unless otherwise
indicated in the table, the persons and entities named in the table have sole
voting and sole investment power with respect to the shares set forth opposite
the stockholder's name. Except as specified, all share number and percentages
assume no exercise of the underwriters' over-allotment option.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING SHARES BENEFICIALLY
OWNED AFTER OFFERING(2)
------------------------- --------------------------------
NAME OF STOCKHOLDER(1) NUMBER PERCENT NUMBER PERCENT
- ---------------------------------------------------------------- ------------ ----------- --------------- -------
<S> <C> <C> <C> <C>
Named executive officers and directors:
James R. Zarley(3)............................................ 2,253,976 6.9% 2,253,976
Brian Coryat(4)............................................... 10,337,928 33.3% 10,337,928
Kurt A. Johnson(5)............................................ 150,000 * 150,000
Earle A. Malm II(6)........................................... 1,109,004 3.5% 1,109,004
John H. Schwenk(7)............................................ 274,076 * 274,076
David S. Buzby(8)............................................. 923,128 3.0% 923,128
Robert D. Leppo............................................... 2,026,156 6.5% 2,026,156
Martin T. Hart(9)............................................. 1,259,260 4.1% 1,259,260
Steven J. Umberger............................................ 1,924,420 6.2% 1,924,420
5% stockholder:
Michael J. Bueno(10).......................................... 2,719,464 8.8% 2,719,464
All directors and executive officers
as a group (9 persons)(11).................................... 20,257,948 60.2% 20,257,948 12)
</TABLE>
- ------------------------
* Less than one percent
(1) Unless otherwise indicated, the address of each person set forth above is in
care of ValueClick, Inc., 6450 Via Real, Carpinteria, California 93013.
(2) Assumes the sale of shares offered hereby but excludes any common stock
that may be issued upon exercise of the underwriters' over-allotment option
in connection with this offering.
(3) Includes (a) 1,200,000 shares of Common Stock issuable upon exercise of
stock options at a price of $0.13 per share, which will automatically become
exercisable upon the closing of this offering and (b) 200,000 shares of
Common Stock issuable upon exercise of stock options at a price of
49
<PAGE>
$0.50 per share, which are presently exercisable or will become exercisable
within 60 days from September 30, 1999.
(4) If the underwriters' over-allotment option is exercised in full, Mr. Coryat
will sell 200,000 shares in this offering and will beneficially own
10,137,928 shares ( %) after the offering.
(5) Includes 150,000 shares of Common Stock issuable upon exercise of stock
options at a price of $0.50 per share that will automatically become
exercisable upon the closing of this offering.
(6) Includes 800,000 shares of Common Stock issuable upon exercise of stock
options at a price of $0.50 per share that will automatically become
exercisable upon the closing of this offering, and 27,200 shares of Common
Stock presently exercisable at a price of $0.50 per share.
(7) Includes 200,000 shares of Common Stock issuable upon exercise of stock
options at a price of $0.50 per share that will automatically become
exercisable upon the closing of this offering.
(8) Includes 630,444 shares of Common Stock and 292,684 shares of Series B
Preferred Stock held by Buzby-Vasan 1997 Trust.
(9) Represents 1,259,260 shares of Common Stock held by VC Investors LLC. Mr.
Hart is the managing partner of VC Investors LLC.
(10) If the underwriters' over-allotment option is exercised in full, Mr. Bueno
will sell 50,000 shares in this offering and will beneficially own 2,669,464
shares ( %) after the offering.
(11) Includes (a) 227,200 shares of Common Stock issuable upon the exercise of
stock options with a price of $0.50 per share, which are presently
exercisable or will become exercisable within 60 days of September 30, 1999
and (b) 1,400,000 and 950,000 shares, respectively, of Common Stock issuable
upon the exercise of stock options with a price of $0.13 and $0.50 per
share, respectively, which will automatically become exercisable upon the
closing of this offering.
(12) Includes 200,000 shares which Mr. Coryat and 50,000 shares which Mr. Bueno
will sell in this offering if the underwriters' over-allotment option is
exercised in full.
50
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, we will be authorized to issue
100,000,000 shares of common stock, $.001 par value per share, and 20,000,000
shares of preferred stock, $.001 par value per share.
COMMON STOCK
As of September 30, 1999, there were 20,478,008 shares of common stock
outstanding held of record by 16 stockholders (or 31,065,152 shares, held of
record by 47 stockholders as adjusted to reflect the conversion of all
outstanding preferred stock upon the consummation of this offering). Options to
purchase an aggregate of 5,489,200 shares of common stock were also outstanding
as of September 30, 1999. There will be shares of common stock
outstanding (assuming no exercise of the underwriters' over-allotment option or
exercise of outstanding options under our 1999 stock option plan after September
30, 1999) after giving effect to the sale of the shares offered hereby.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any outstanding preferred stock, holders
of common stock are entitled to receive ratably such dividends as may be
declared by the board out of funds legally available for that purpose. See
"Dividend Policy." In the event of liquidation, dissolution or winding up of
ValueClick, the holders of common stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to the prior distribution
rights of any outstanding preferred stock. The common stock has no preemptive or
conversion rights or other subscription rights. The outstanding shares of common
stock are, and the shares of common stock to be issued upon completion of this
offering will be, fully paid and non-assessable.
PREFERRED STOCK
The Board will have the authority, without further action by the
stockholders, to issue up to 20,000,000 shares of preferred stock, $.001 par
value, in one or more series. The Board will also have the authority to
designate the rights, preferences, privileges and restrictions of each such
series, including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and the
number of shares constituting any series.
The issuance of preferred stock might have the effect of delaying, deferring
or preventing a change in control of ValueClick without further action by the
stockholders. The issuance of preferred stock with voting and conversion rights
might also adversely affect the voting power of the holders of common stock. In
certain circumstances, an issuance of preferred stock could have the effect of
decreasing the market price of the common stock. As of the closing of this
offering, no shares of preferred stock will be outstanding. We currently have no
plans to issue any shares of preferred stock.
The Board has authorized the issuance of three series of preferred stock--
Series A, B and C convertible preferred stock. There are 297,132 authorized,
issued and outstanding shares of Series A, 1,047,804 authorized, issued and
outstanding shares of Series B and 1,400,000 shares of Series C authorized, of
which 1,301,850 are issued and outstanding. Upon consummation of this offering,
the 297,132 shares of Series A, 1,047,804 shares of Series B, and 1,301,850
shares of Series C will be converted into 1,188,528, 4,191,216, and 5,207,400
shares of common stock, respectively, or an aggregate of 10,587,144 shares of
common stock.
AUTHORIZED BUT UNISSUED CAPITAL STOCK
We estimate that following the completion of this offering we will have
approximately shares of authorized but unissued common stock, including
an aggregate of 8,000,000 shares reserved for issuance upon the exercise of
options under our 1999 stock plan, and 20,000,000 shares of authorized preferred
stock, of which none will be issued and outstanding. If the underwriters' over-
51
<PAGE>
allotment option is exercised in full, we will have approximately shares
of authorized but unissued common stock. Delaware law does not require
stockholder approval for the issuance of authorized shares. However, the listing
requirements of the Nasdaq National Market, which apply so long as the common
stock remains included in that inter-dealer quotation system, require prior
stockholder approval of specified issuances, including issuances of shares
bearing voting power equal to or exceeding 20% of the pre-issuance outstanding
voting power or pre-issuance outstanding number of shares of common stock. These
additional shares could be used for a variety of corporate purposes, including
future public offerings to raise additional capital or to facilitate corporate
acquisitions. We currently do not have any plans to issue additional shares of
common stock or preferred stock, other than in connection with employee
compensation plans. See "Management--Stock Plans/Employee Compensation
Programs." One of the effects of the existence of unissued and unreserved common
stock and preferred stock may be to enable the Board to issue shares to persons
who may agree or be inclined to vote in concert with current management on
issues put to consideration of stockholders, which issuance could render more
difficult or discourage an attempt to obtain control of us by means of a merger,
tender offer, proxy contest or otherwise, and protect the continuity of our
management and possibly deprive the stockholders of the opportunity to sell
their shares of common stock at prices higher than prevailing market prices.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
Certain provisions of Delaware law and our charter documents could make the
acquisition of ValueClick and the removal of incumbent officers and directors
more difficult. These provisions are expected to discourage certain types of
coercive takeover practices and inadequate takeover bids and to encourage
persons seeking to acquire control of ValueClick to negotiate with it first. We
believe that the benefits of increased protection of our potential ability to
negotiate with the proponent of an unfriendly or unsolicited proposal to acquire
or restructure ValueClick outweigh the disadvantages of discouraging such
proposals because, among other things, negotiation of such proposals could
result in an improvement of their terms.
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. In general, this statute 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 that the person became
an interested stockholder unless (with certain exceptions) the business
combination or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the stockholder. Generally, an "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years prior, did own) 15% or more of the corporation's voting
stock. These provisions may have the effect of delaying, deferring or preventing
a change in control of us without further action by our stockholders.
Our Certificate of Incorporation provides that stockholder action can be
taken at an annual or special meeting of stockholders and may be taken by
written consent. Our Bylaws provide that special meetings of stockholders can be
called by the president, the Board or by a majority of the stockholders.
Moreover, the business permitted to be conducted at any special meeting of
stockholders is limited to the business brought before the meeting by the Board,
the President or any such stockholder. Our Bylaws set forth an advance notice
procedure with regard to the nomination, other than by or at the direction of
the Board, of candidates for election as directors and with regard to business
to be brought before a meeting of stockholders.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock is ChaseMellon
Shareholder Services, L.L.C.
52
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of common stock in the public market could
adversely affect prevailing market prices. Furthermore, since only a limited
number of shares will be available for sale shortly after this offering because
of certain contractual and legal restrictions on resale (as described below),
sales of substantial amounts of our common stock in the public market after the
restrictions lapse could adversely affect the prevailing market price and our
ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding shares
of common stock. Of these shares, the shares sold in the offering (plus
any shares issued upon exercise of the underwriters' over-allotment option) will
be freely tradable without restriction under the Securities Act, unless
purchased by our "affiliates" as that term is defined in Rule 144 under the
Securities Act (generally, officers, directors or 10% stockholders).
The remaining 31,065,152 shares outstanding are "restricted securities"
within the meaning of 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, which are summarized below. Sales of the restricted securities
in the public market, or the availability of such shares for sale, could
adversely affect the market price of the common stock.
Our stockholders and our option holders have entered into lock-up agreements
generally providing that they will not offer, sell, contract to sell or grant
any option to purchase or otherwise dispose of our common stock or any
securities exercisable for or convertible into our common stock owned by them
for a period of 180 days after the date of this prospectus without the prior
written consent of Volpe Brown Whelan & Company, LLC on behalf of the
underwriters. As a result of these contractual restrictions, notwithstanding
possible earlier eligibility for sale under the provisions of Rules 144, 144(k)
and 701, shares subject to lock-up agreements may not be sold until such
agreements expire or are waived by the designated underwriters' representative.
Taking into account the lock-up agreements, and assuming Volpe Brown Whelan &
Company does not release stockholders from these agreements, the following
shares will be eligible for sale in the public market at the following times:
- Beginning on the effective date of the offering, only the shares sold in
the offering will be immediately available for sale in the public market;
- Beginning 180 days after the effective date of the offering, 29,432,152
shares will be eligible for sale pursuant to Rules 144, 144(k) and 701;
and
- An additional 1,633,000 shares will become eligible for sale pursuant to
Rule 144 beginning on June 23, 2000. Shares eligible to be sold by
affiliates pursuant to Rule 144 are subject to volume restrictions as
described below.
In general, under Rule 144 as currently in effect, and beginning after the
expiration of the lock-up agreements (180 days after the date of this
prospectus), a person (or persons whose shares are aggregated) who has
beneficially owned restricted securities for at least one year would be entitled
to sell within any three-month period a number of shares that does not exceed
the greater of: one percent of the number of shares of common stock then
outstanding (which will equal approximately shares immediately after
the offering) or the average weekly trading volume of the common stock during
the four calendar weeks preceding the sale. Sales under Rule 144 are also
subject to certain manner of sale provisions and notice requirements and to the
availability of current public information about us. Under Rule 144(k), a person
who is not deemed to have been our affiliate at any time during the three months
preceding a sale, and who has beneficially owned the shares proposed to be sold
for at least two years, is entitled to sell such shares without complying with
the manner of sale, public information, volume limitation or notice provisions
of Rule 144.
53
<PAGE>
Beginning 90 days after the effective date of the registration statement for
this offering, any employee, officer or director of or consultant to us who
purchased shares pursuant to a written compensatory plan or contract may be
entitled to rely on the resale provisions of Rule 701. Rule 701 permits
affiliates to sell their Rule 701 shares under Rule 144 without complying with
the holding period requirements of Rule 144. Rule 701 further provides that
non-affiliates may sell such shares in reliance on Rule 144 without having to
comply with the holding period, public information, volume limitation or notice
provisions of Rule 144. In addition, we intend to file registration statements
under the Securities Act as promptly as possible after the effective date to
register shares to be issued pursuant to our employee benefit plans. As a
result, any options exercised under the 1999 Stock Option Plan, as amended, or
any other benefit plan after the effectiveness of such registration statement
will also be freely tradable in the public market, except that shares held by
affiliates will still be subject to the volume limitation, manner of sale,
notice and public information requirements of Rule 144 unless otherwise
resalable under Rule 701. As of September 30, 1999, there were outstanding
options under the 1999 Stock Option Plan for the purchase of 5,489,200 shares.
See "Risk Factors--virtually all of our shares will be eligible for sale shortly
after this offering, which could result in a decline in our stock price" and
"Management--Employee Benefit Plans."
54
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
among the underwriters and us, each of the underwriters named below, for whom
Volpe Brown Whelan & Company, LLC, William Blair & Company, L.L.C., Prudential
Securities Incorporated and PrudentialSecurities.com are acting as
representatives, has severally agreed to purchase from us the aggregate number
of shares of our common stock set forth opposite its name below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- --------------------------------------------------------------------------- -------------------------
<S> <C>
Volpe Brown Whelan & Company, LLC..........................................
William Blair & Company, L.L.C.............................................
Prudential Securities Incorporated.........................................
PrudentialSecurities.com...................................................
Total................................................................
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
to purchase shares of common stock are subject to approval of some matters by
their counsel and to various other conditions. Under the terms and conditions of
the underwriting agreement, all of the underwriters are obligated to take and
pay for all such shares of common stock if any are taken.
The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters by us. Such amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.
<TABLE>
<CAPTION>
FULL
NO EXERCISE EXERCISE
------------ ------------
<S> <C> <C>
Per Share................................................................... $ $
Total................................................................... $ $
</TABLE>
We estimate that the total expenses of this offering, excluding underwriting
discounts and commissions, will be million.
The underwriters propose initially to offer the shares of common stock
directly to the public at the public offering price set forth on the cover page
of this prospectus and to some dealers at the same price, less a concession not
in excess of $ per share. The underwriters may allow, and those dealers
may reallow, concessions not in excess of $ per share of common stock to
other dealers. After the initial public offering of the common stock, the
offering price of the common stock and other selling terms may be changed by the
underwriters.
Pursuant to the underwriting agreement, we and certain selling stockholders
have granted the underwriters an option, exercisable for 30 days from the date
of this prospectus, to purchase up to additional shares of common stock from us
and up to an additional 250,000 shares of common stock from the selling
stockholders on the same terms as set forth on the cover page of this
prospectus. The underwriters may exercise this option solely to cover
over-allotments. To the extent the option is exercised, each underwriter will
have a commitment, subject to certain conditions, to purchase a number of
additional shares of common stock proportionate to the underwriter's initial
commitment pursuant to the underwriting agreement.
Our directors and officers and substantially all of our stockholders and
option holders have agreed that they will not sell, directly or indirectly, any
shares of common stock without the prior written consent of Volpe Brown Whelan &
Company on behalf of the underwriters for a period of 180 days from the date of
this prospectus. All remaining option holders have agreed with us that they will
not sell, directly or indirectly, shares of common stock issued upon exercise of
their options for a period of 180 days from the effective date of the
registration statement. In addition, we have agreed that for a period of 180
days after the date of this prospectus we will not, without the prior written
consent of
55
<PAGE>
Volpe Brown Whelan & Company, LLC on behalf of the underwriters, offer, sell or
otherwise dispose of any shares of common stock except for the shares of common
stock offered by this prospectus and the shares issued and options granted
pursuant to our stock option plan.
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial offering price for the common stock will be
determined by agreement between us and the representatives of the underwriters.
Among the factors to be considered in making this determination will be the
history of, and the prospects for, the industry in which we compete, an
assessment of our management, our present operations, our historical results of
operations and the trend of our revenues and earnings, our prospects for future
earnings, the general condition of the securities markets at the time of this
offering and the price of similar securities of generally comparable companies.
We cannot assure you that an active trading market will develop for our common
stock or that our common stock will trade in the public markets at or above the
initial public offering price.
In order to facilitate this offering, persons participating in this offering
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock during and after this offering, including
over-allotment, stabilizing and short-covering transactions and the impositions
of penalty bids. Specifically, the underwriters may over-allot or otherwise
create a short position in the common stock for their own account by selling
more shares of common stock than have been sold to them by us. The underwriters
may elect to cover this short position by purchasing shares of common stock in
the open market or by exercising the over-allotment option granted to the
underwriters. In addition, the underwriters may stabilize or maintain the price
of the common stock by bidding for or purchasing shares of common stock in the
open market and may impose penalty bids, under which selling concessions allowed
to syndicate members or other broker-dealers participating in this offering are
reclaimed if shares of common stock previously distributed in this offering are
repurchased in connection with stabilization transactions or otherwise. The
effect of these transactions may be to stabilize or maintain the market price at
a level above that which might otherwise prevail in the open market. The
imposition of a penalty bid may also affect the price of the common stock to the
extent that it discourages resales. No representation is made as to the
magnitude or effect of this stabilization or other transactions. These
transactions may be effected on the Nasdaq National Market or otherwise and, if
commenced, may be discontinued at any time.
We and the selling stockholders have agreed to indemnify the underwriters
against certain liabilities, losses and expenses, including liabilities under
the Securities Act, or to contribute to payments that the underwriters may be
required to make in respect thereof.
Prudential Securities Incorporated facilitates the marketing of new issues
online through its PrudentialSecurities.com division. Clients of Prudential
Advisor-SM-, a full service brokerage firm program, may view offering terms and
a prospectus online and place orders through their financial advisors.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
ValueClick by Brobeck, Phleger & Harrison LLP, Los Angeles, California.
Pillsbury Madison & Sutro LLP, San Francisco, California, is acting as counsel
for the underwriters in connection with selected legal matters relating to the
shares of common stock offered by this prospectus.
EXPERTS
The financial statements of ValueClick, Inc. as of December 31, 1998, and
for the period from May 1, 1998 (inception) to December 31, 1998, the financial
statements of the ValueClick Line of Business of Web-Ignite Corporation as of
December 31, 1997 and April 30, 1998 and for the period from July 1, 1997
through December 31, 1997 and the four months ended April 30, 1998, and the
financial statements of ValueClick Japan as of December 31, 1998 and for the
period from March 26, 1998 through November 15, 1998 of its predecessor line of
business within Trans-Pacific Ltd. and ValueClick Japan for the period from
November 16, 1998 through December 31, 1998 included in this prospectus have
been so included in reliance on the reports of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
56
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
ValueClick has filed with the Securities and Exchange Commission a
registration statement on Form S-1 under the Securities Act with respect to the
common stock offered hereby. This prospectus does not contain all of the
information set forth in the registration statement and the exhibits thereto.
For further information with respect to ValueClick and the common stock offered
hereby, reference is made to the registration statement and to the exhibits
thereto. Statements made in this prospectus concerning the contents of any
document referred to herein are not necessarily complete, and in each instance,
we refer you to the copy of the contract or other document filed as an exhibit
to the registration statement. Each statement about those contracts is qualified
in its entirety by that reference.
Following the offering we will become subject to the reporting requirements
of the Securities Exchange Act of 1934. In accordance with that law, we will be
required to file reports and other information with the SEC. The registration
statement and exhibits, as well as those reports and other information when so
filed, may be inspected without charge at the public reference facilities
maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the regional offices of the SEC located at Seven World Trade Center, 13th Floor,
New York, New York 10048, and the Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
facilities. Copies of all or any part of the registration statement may be
obtained from the SEC's offices upon payment of certain fees prescribed by the
SEC. The SEC maintains a World Wide Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the SEC. The address of the site is http://www.sec.gov.
We will furnish our stockholders annual reports and unaudited quarterly
reports for the first three quarters of each fiscal year. Annual reports will
include audited consolidated financial statements prepared in accordance with
generally accepted accounting principles. The financial statements included in
the annual reports will be examined and reported upon, with an opinion
expressed, by our independent auditors.
57
<PAGE>
VALUECLICK, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
ValueClick, Inc. Financial Statements
Report of Independent Accountants...................................................................... F-2
Balance Sheets......................................................................................... F-3
Statements of Operations............................................................................... F-4
Statements of Stockholders' Equity..................................................................... F-5
Statements of Cash Flows............................................................................... F-6
Notes to Financial Statements.......................................................................... F-7
Unaudited Pro Forma Condensed Consolidated Financial Statements
Introduction........................................................................................... F-19
Pro Forma Condensed Consolidated Balance Sheets........................................................ F-20
Pro Forma Condensed Consolidated Statements of Operations.............................................. F-21
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements............................... F-23
ValueClick Line of Business of Web-Ignite Corporation
Report of Independent Accountants...................................................................... F-24
Balance Sheets......................................................................................... F-25
Statements of Operations............................................................................... F-26
Statements of Changes in Invested Equity............................................................... F-27
Statements of Cash Flows............................................................................... F-28
Notes to Financial Statements.......................................................................... F-29
ValueClick Japan Financial Statements
Report of Independent Accountants...................................................................... F-31
Balance Sheets......................................................................................... F-32
Statements of Operations............................................................................... F-33
Statements of Stockholders' Equity..................................................................... F-34
Statements of Cash Flows............................................................................... F-35
Notes to Financial Statements.......................................................................... F-36
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
ValueClick, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, stockholders' equity and cash flows present fairly, in all material
respects, the financial position of ValueClick, Inc. (the "Company") at December
31, 1998, and the results of its operations and its cash flows for the period
from May 1, 1998 (inception) through December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Woodland Hills, California
May 31, 1999, except for Notes 1 and 12, as
to which the date is October 8, 1999
F-2
<PAGE>
VALUECLICK, INC.
BALANCE SHEETS
(All information as of June 30, 1999 is unaudited)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY
DECEMBER 31, JUNE 30, JUNE 30,
1998 1999 1999
------------ ----------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 262,392 $ 2,411,002
Accounts receivable, net of allowance for doubtful accounts of
$8,000 and $251,125 as of December 31, 1998 and June 30, 1999,
respectively...................................................... 714,559 2,324,458
Receivable from ValueClick Japan.................................... 10,263 3,510
Prepaid expenses and other current assets........................... 24,524 102,224
Deferred income taxes............................................... -- 100,701
------------ -----------
Total current assets.......................................... 1,011,738 4,941,895
Property and equipment, net............................................. 103,323 239,275
Investment in ValueClick Japan.......................................... 90,923 302,326
Other assets............................................................ -- 15,304
------------ -----------
Total assets.................................................. $1,205,984 $ 5,498,800
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses................................. $ 343,135 $ 398,190
Income taxes payable.................................................. -- 317,288
Deferred revenue...................................................... 14,894 377,310
Related party debt.................................................... 200,000 --
------------ -----------
Total current liabilities..................................... 558,029 1,092,788
Commitments and contingencies (Note 11).................................
Stockholders' equity:
Preferred stock, $0.001 par value; 3,000,000 and 20,000,000 shares
authorized at December 31, 1998 and June 30, 1999;
Series A Convertible - 297,132 shares issued and outstanding at
December 31, 1998 and June 30, 1999............................... 297 297 --
Series B Convertible - 1,047,804 shares issued and outstanding at
December 31, 1998 and June 30, 1999............................... 1,048 1,048 --
Series C Convertible - 0 and 1,301,850 shares issued and outstanding
at December 31, 1998 and June 30, 1999............................ -- 1,302 --
Common stock, $0.001 par value; 100,000,000 shares authorized;
19,838,008 shares issued and outstanding at December 31, 1998 and
June 30, 1999; pro forma 30,425,152 shares issued and outstanding at
June 30, 1999....................................................... 19,838 19,838 30,425
Additional paid-in capital............................................ 626,772 6,835,741 6,827,801
Deferred stock compensation........................................... -- (2,413,818) (2,413,818)
Accumulated deficit................................................... -- (38,396) (38,396)
------------ ----------- ------------
Total stockholders' equity........................................ 647,955 4,406,012 $4,406,012
------------ ----------- ------------
------------
Total liabilities and stockholders' equity.................... $1,205,984 $ 5,498,800
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
VALUECLICK, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
MAY 1, 1998
(INCEPTION)
THROUGH
DECEMBER 31,
1998
------------ SIX
MONTHS ENDED
JUNE 30,
1999
-------------
(UNAUDITED)
<S> <C> <C>
Revenues............................................................................ $2,052,539 $ 4,867,317
Cost of revenues.................................................................... 1,104,237 2,435,548
------------ -------------
Gross profit...................................................................... 948,302 2,431,769
------------ -------------
Operating expenses:
Sales and marketing............................................................... 516,169 648,100
General and administrative........................................................ 403,856 954,317
Technology enhancements........................................................... 154,806 320,672
Stock-based compensation.......................................................... -- 298,015
------------ -------------
Total operating expenses...................................................... 1,074,831 2,221,104
------------ -------------
(Loss) income from operations..................................................... (126,529) 210,665
Equity in loss of ValueClick Japan.................................................. (9,077) (52,056)
Interest income, net................................................................ 7,561 19,582
------------ -------------
(Loss) income before income taxes................................................. (128,045) 178,191
Provision for income taxes.......................................................... -- 216,587
------------ -------------
Net loss...................................................................... $ (128,045) $ (38,396)
------------ -------------
------------ -------------
Basic and diluted net loss per common share......................................... $ (0.01) $ --
------------ -------------
------------ -------------
Shares used to calculate basic and diluted net loss per common share................ 19,824,264 19,838,008
------------ -------------
------------ -------------
Unaudited pro forma basic and diluted net loss per common share..................... $ --
-------------
-------------
Unaudited pro forma shares used to calculate pro forma basic and diluted net loss
per common share.................................................................. 29,027,652
-------------
-------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
VALUECLICK, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
LLC MEMBERSHIP INTERESTS PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------------- ----------------------- ----------------------- PAID-IN
SHARES AMOUNT SHARES CAPITAL SHARES AMOUNT CAPITAL
------------- ---------- ------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at May 1, 1998 (inception)... -- $ -- -- $ -- -- $ -- $ --
Issuance of LLC membership
interests.......................... 4,988,006 776,000 -- -- -- -- --
Net loss............................. -- -- -- -- -- -- --
Exchange of LLC membership interests
to stock in the C-corporation upon
reincorporation and conversion..... (4,988,006) (776,000) 1,344,936 1,345 19,838,008 19,838 626,772
------------- ---------- ------------ --------- ------------ --------- -----------
Balance at December 31, 1998......... -- -- 1,344,936 1,345 19,838,008 19,838 626,772
Issuance of Series C preferred stock,
net (unaudited).................... 1,301,850 1,302 3,497,136
Deferred stock compensation
(unaudited)........................ 2,711,833
Amortization of stock-based
compensation (unaudited)...........
Net loss (unaudited)................. -- -- -- -- -- -- --
------------- ---------- ------------ --------- ------------ --------- -----------
Balance at June 30, 1999
(unaudited)........................ -- -- 2,646,786 2,647 19,838,008 19,838 6,835,741
Assumed conversion of convertible
preferred stock (unaudited)........ -- -- (2,646,786) (2,647) 10,587,144 10,587 (7,940)
------------- ---------- ------------ --------- ------------ --------- -----------
Balance at June 30, 1999, pro forma
(unaudited)........................ -- $ -- -- $ -- 30,425,152 $ 30,425 $ 6,827,801
------------- ---------- ------------ --------- ------------ --------- -----------
------------- ---------- ------------ --------- ------------ --------- -----------
<CAPTION>
TOTAL
DEFERRED STOCK ACCUMULATED STOCKHOLDERS'
COMPENSATION DEFICIT EQUITY
-------------- ------------ ------------
<S> <C> <C> <C>
Balance at May 1, 1998 (inception)... $ -- $ -- $ --
Issuance of LLC membership
interests.......................... -- -- 776,000
Net loss............................. -- (128,045) (128,045)
Exchange of LLC membership interests
to stock in the C-corporation upon
reincorporation and conversion..... -- 128,045 --
-------------- ------------ ------------
Balance at December 31, 1998......... -- -- 647,955
Issuance of Series C preferred stock,
net (unaudited).................... 3,498,438
Deferred stock compensation
(unaudited)........................ (2,711,833) --
Amortization of stock-based
compensation (unaudited)........... 298,015 298,015
Net loss (unaudited)................. -- (38,396) (38,396)
-------------- ------------ ------------
Balance at June 30, 1999
(unaudited)........................ (2,413,818) (38,396) 4,406,012
Assumed conversion of convertible
preferred stock (unaudited)........ -- -- --
-------------- ------------ ------------
Balance at June 30, 1999, pro forma
(unaudited)........................ $ (2,413,818) $ (38,396) $4,406,012
-------------- ------------ ------------
-------------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these finanical statements.
F-5
<PAGE>
VALUECLICK, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX
PERIOD FROM MONTHS ENDED
MAY 1, 1998 JUNE 30,
(INCEPTION) 1999
THROUGH -------------
DECEMBER 31,
1998 (UNAUDITED)
------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.......................................................................... $ (128,045) $ (38,396)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization................................................... 9,220 33,869
Provision for doubtful accounts................................................. 8,000 243,125
Equity in loss of ValueClick Japan.............................................. 9,077 52,056
Stock-based compensation........................................................ -- 298,015
Benefit for deferred taxes...................................................... -- (100,701)
Changes in operating assets and liabilities:
Accounts receivable........................................................... (722,559) (1,853,024)
Receivable from ValueClick Japan.............................................. (10,263) 6,753
Prepaid expenses and other assets............................................. (24,524) (93,004)
Accounts payable and accrued liabilities...................................... 343,135 55,055
Income taxes payable.......................................................... -- 317,288
Deferred revenue.............................................................. 14,894 362,416
------------ -------------
Net cash used in operating activities..................................... (501,065) (716,548)
Cash flows from investing activities:
Investment in ValueClick Japan.................................................... (100,000) (263,457)
Purchases of property and equipment............................................... (112,543) (169,823)
------------ -------------
Net cash used in investing activities..................................... (212,543) (433,280)
------------ -------------
Cash flows from financing activities:
Proceeds from the issuance of short-term debt..................................... 200,000 --
Repayments on short-term debt..................................................... -- (200,000)
Proceeds from issuance of LLC membership interests................................ 776,000 --
Net proceeds from issuance at Series C preferred stock............................ -- 3,498,438
------------ -------------
Net cash provided by financing activities................................. 976,000 3,298,438
------------ -------------
Net increase in cash and cash equivalents................................. 262,392 2,148,610
Cash and cash equivalents, beginning of period...................................... -- 262,392
------------ -------------
Cash and cash equivalents, end of period............................................ $ 262,392 $ 2,411,002
------------ -------------
------------ -------------
Supplemental disclosures of cash flow information:
Cash paid for interest............................................................ $ -- $ 1,480
------------ -------------
------------ -------------
Cash paid for taxes............................................................... $ -- $ --
------------ -------------
------------ -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
VALUECLICK, INC.
NOTES TO FINANCIAL STATEMENTS
(ALL INFORMATION WITH RESPECT TO JUNE 30, 1999 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
ValueClick, Inc. ("ValueClick" or the "Company") commenced operations as
ValueClick, LLC, a California limited liability company, on May 1, 1998
(inception). Prior to the formation of ValueClick, LLC, the ValueClick Internet
advertising delivery business began in July 1997 as a line of business within
Web-Ignite Corporation, an S-corporation wholly owned by the founding member of
ValueClick, LLC. The reorganization and formation of ValueClick, LLC was
accounted for as a transaction by entities under common control and was effected
by the founding member causing Web-Ignite to transfer the rights to the
ValueClick trademarks, domain names, the trademark, license, software license
and copyright agreements with Trans-Pacific Ltd., predecessor to ValueClick
Japan, and the rights to the advertising delivery software used in the business
to ValueClick, LLC. On December 31, 1998, ValueClick, LLC completed its
conversion and reincorporation from a California LLC to a Delaware C-corporation
by completing a merger with ValueClick, Inc., a Delaware C-corporation formed by
ValueClick, LLC. The accompanying financial statements reflect the conversion
and reincorporation.
The Company is an Internet based advertising network that provides a
performance based advertising solution on a cost-per-click basis to advertisers
and e-commerce companies.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
CASH AND CASH EQUIVALENT
The Company considers all short-term investments with an original maturity
at date of purchase of three months or less to be cash equivalents. At December
31, 1998, cash equivalents consist of money market funds.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation on property and
equipment is calculated on the straight-line method over the estimated useful
lives of the assets ranging from 3 to 5 years. Leasehold improvements are
amortized over their estimated useful lives, or the term of the lease, whichever
is shorter.
REVENUE RECOGNITION
The Company's revenues are principally derived from the delivery of
advertising click-throughs through third-party Web sites comprising the
ValueClick Network (the "Network"). Revenue is recognized in the period that the
advertising click-throughs occur, provided that no significant Company
obligations remain and collection of the resulting receivable is probable. To
date, the Company's agreements have not required guaranteed minimum
click-throughs.
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 click-throughs
F-7
<PAGE>
VALUECLICK, INC.
NOTES TO FINANCIAL STATEMENTS
(ALL INFORMATION WITH RESPECT TO JUNE 30, 1999 IS UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
are delivered. Such expenses are classified as cost of revenues in the
accompanying statements of operations
Deferred revenue represents payments received in advance for advertising
click-throughs. Such fees will be recognized as revenues once the advertising
click-throughs are delivered and no significant Company obligations remain.
COST OF REVENUES
Cost of revenues consist of payments to third-party web sites in the
Company's network, telecommunications costs, depreciation of equipment used for
ad delivery, and personnel and occupancy costs related to the Company's ad
delivery infrastructure.
SALES AND MARKETING
Sales and marketing expenses include salaries, sales commissions, employee
benefits, travel and related expenses for the Company's sales force, and
advertising costs.
Advertising costs included in sales and marketing expenses totaled $317,998
and $181,634 for the year ended December 31, 1998 and six months ended June 30,
1999.
GENERAL AND ADMINISTRATIVE
General and administrative expenses include salaries, related benefits and
expenses for the executive, finance, legal and human resources personnel, and
other general overhead costs.
TECHNOLOGY ENHANCEMENTS
Technology 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 releases have substantially
coincided. As a result, the Company has not capitalized any software development
costs since such costs have not been significant.
STOCK-BASED COMPENSATION
The Company accounts for its employee stock option plan in accordance with
the provisions of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees" and related interpretations.
Accordingly, compensation expense related to employee stock options is recorded
only if, on the date of the grant, the fair value of the underlying stock
exceeds the exercise price. The Company adopted the disclosure-only requirements
of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation" ("Statement No. 123"), which allows entities to
continue to apply the provisions of APB Opinion No. 25 for transactions with
employees and provide pro forma net income and pro forma earnings per share
disclosures for employee stock grants made in 1999 and future years as if the
fair-value based method of accounting in Statement No. 123 had been applied to
these transactions.
FOREIGN CURRENCY TRANSLATION
The Company's equity investment in ValueClick Japan subjects it to foreign
currency exchange risks as ValueClick Japan denominates its transactions in the
Japanese Yen. The Company's exposure is
F-8
<PAGE>
VALUECLICK, INC.
NOTES TO FINANCIAL STATEMENTS
(ALL INFORMATION WITH RESPECT TO JUNE 30, 1999 IS UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION (CONTINUED)
limited to the extent of the equity investment in ValueClick Japan which
represents 7.5% and 5.5% of its total assets at December 31, 1998 and June 30,
1999, respectively. Foreign currency impacts for the Investment in ValueClick
Japan were not significant at December 31, 1998 and June 30, 1999.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration
of credit risk consist of cash and cash equivalents and accounts receivable.
Cash and cash equivalents are deposited with major financial institutions; at
times, such balances with any one financial institution may be in excess of FDIC
insurance limits. Credit is extended to customers based on an evaluation of
their financial condition. The Company generally does not require collateral or
other security to support accounts receivable. The Company performs ongoing
credit evaluations of its customers and maintains an allowance for potential bad
debt. To date such losses, if any, have been within management's expectations.
At December 31, 1998, one customer comprised 20% of the accounts receivable
balance. For the year ended December 31, 1998, one customer comprised 43% of
revenues. At June 30, 1999, no customer comprised greater than 10% of revenues.
At June 30, 1999, two customers comprised 18% and 13% of the accounts receivable
balance, respectively.
FINANCIAL INSTRUMENTS
The Company's financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and short-term debt, are carried at
historical cost. At December 31, 1998, the fair values of these instruments
approximated their financial statement carrying amounts because of the
short-term maturity of these instruments and the relative stable interest rate
environment.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates its long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of such assets or
intangibles may not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to future
undiscounted net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. To date, no such impairment has been recorded.
BASIC AND DILUTED NET LOSS PER SHARE
The Company has adopted the provisions of Financial Accounting Standards
Board ("FASB") issued SFAS No. 128, "Earnings Per Share" ("Statement 128").
Basic and diluted net loss per share is computed by dividing the net loss per
share by the weighted average shares of common stock outstanding.
UNAUDITED PRO FORMA NET LOSS PER SHARE
Unaudited pro forma net loss per share is computed by dividing net loss by
the sum of the weighted average number of shares of common stock outstanding,
including the shares resulting from the conversion of the convertible preferred
stock as though such conversion occurred at December 31, 1998 and June 30, 1999.
Each share of preferred stock converts into four shares of common stock. The
conversion of the
F-9
<PAGE>
VALUECLICK, INC.
NOTES TO FINANCIAL STATEMENTS
(ALL INFORMATION WITH RESPECT TO JUNE 30, 1999 IS UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
UNAUDITED PRO FORMA NET LOSS PER SHARE (CONTINUED)
Series A, B and C convertible preferred stock has been reflected in the
accompanying unaudited pro forma statement of stockholders' equity as if these
events had occurred on June 30, 1999.
COMPREHENSIVE INCOME
The Company has adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income" ("Statement No. 130"). Statement No. 130 establishes
standards for reporting comprehensive income and its components in financial
statements. Comprehensive income, as defined, includes all changes in equity
(net assets) during a period from non-owner sources. To date, the Company has
not had any transactions that are required to be reported in comprehensive
income.
SEGMENTS
The Company adopted the provisions of SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information" ("Statement No. 131").
Statement No. 131 which establishes standards for the way companies report
information about operating segments in annual financial statements. It also
establishes standards for related disclosures about its products, services,
geographic areas and major customers. The Company has determined that it does
not have any separately reportable business segments.
UNAUDITED INTERIM FINANCIAL INFORMATION
The interim financial information of the Company for the six months ended
June 30, 1999 is unaudited. The unaudited financial information has been
prepared on the same basis as the annual financial statement statements and, in
the opinion of management, reflects all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial position,
results of operations and cash flows as of and for the six months ended June 30,
1999.
STOCK SPLIT
Subsequent to June 30, 1999, the Company authorized and implemented a four
for one stock split and increased the authorized number of common shares and
preferred shares to 100,000,000 and 20,000,000, respectively. The share
information in the accompanying financial statements has been retroactivity
restated to reflect the effect of the stock split and increased number of
authorized shares.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1998, the Accounting Standards Executive Committee issued Statement
of Position No. 98-1 ("SOP 98-1"), "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," which provides guidance on
accounting for the cost of computer software developed or obtained for internal
use. SOP 98-1 is effective for financial software statements for fiscal years
beginning after December 15, 1998. Implementation of SOP 98-1 did not have a
significant impact on the Company's financial position, results of operations or
cash flows.
In April 1998, the Accounting Standards Executive Committee issued Statement
of Position No. 98-5 ("SOP 98-5"), "Reporting on the Costs of Start-Up
Activities." This standard requires companies
F-10
<PAGE>
VALUECLICK, INC.
NOTES TO FINANCIAL STATEMENTS
(ALL INFORMATION WITH RESPECT TO JUNE 30, 1999 IS UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENTLY ISSUED ACCOUNTING STANDARDS (CONTINUED)
to expense the costs of start-up activities and organization costs as incurred.
In general, SOP 98-5 is effective for fiscal years beginning after December 13,
1998. Adoption of SOP 98-5 did not have a significant impact on the Company's
financial position, results of operations or cash flows.
In June 1998, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 133, ("Statement No. 133"), Accounting for Derivative
Instruments and Hedging Activities. SFAS 133 establishes new standards of
accounting and reporting for derivative instruments and hedging activities. SFAS
133 requires that all derivatives be recognized at fair value in the statement
of financial position, and that the corresponding gains and losses be reported
either in the statement of operations or as a component of comprehensive income,
depending on the type of hedging relationship that exists. SFAS 133 will be
effective for fiscal years beginning after June 15, 2000. The Company does not
currently hold derivative instruments or engage in hedging activities.
Accordingly, management believes the adoption of this statement will not have a
significant impact on the Company's financial position, results of operations or
cash flows.
2. PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1998 and June 30, 1999 consisted
of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------ ----------
<S> <C> <C>
Computer equipment and purchased software.............................................. $ 105,541 $ 219,875
Furniture and office equipment......................................................... 6,190 34,830
Leasehold improvements................................................................. 812 27,659
------------ ----------
112,543 282,364
Less: accumulated depreciation and amortization........................................ (9,220) (43,089)
------------ ----------
$ 103,323 $ 239,275
------------ ----------
------------ ----------
</TABLE>
3. INVESTMENT IN VALUECLICK JAPAN
The Company owns approximately 31.7% of the outstanding common stock of
ValueClick Japan which is engaged in the web-based advertising business in
Japan. The Company has accounted for this investment using the equity method
accounting and has reported its proportional share of ValueClick Japan's net
loss for the period from November 16, 1998 through December 31, 1998 and the six
months ended June 30, 1999 in the accompanying financial statements.
In February 1999, the Company contributed an additional $263,457 to
ValueClick Japan in order to maintain its 31.7% investment in ValueClick Japan
in connection with additional equity financing by ValueClick Japan.
The Company and ValueClick Japan are subject to the Trademark License,
Software License and Copyright Agreement to use the ValueClick advertising
network in Japan, which has been subsequently amended to the License and Option
Agreement. This agreement requires a monthly license fee based on ValueClick
Japan's revenue, subject to monthly and quarterly minimum thresholds. $10,263
was due
F-11
<PAGE>
VALUECLICK, INC.
NOTES TO FINANCIAL STATEMENTS
(ALL INFORMATION WITH RESPECT TO JUNE 30, 1999 IS UNAUDITED) (CONTINUED)
3. INVESTMENT IN VALUECLICK JAPAN (CONTINUED)
under the agreement at December 31, 1998 and $21,000 was earned from activity
for the six months ended June 30, 1999. The outstanding balance due from
ValueClick Japan is included in the receivable from ValueClick Japan in the
accompanying balance sheets.
4. RELATED PARTIES
In December 1998, the Company borrowed $200,000 from a majority stockholder
at 10% interest rate under an unsecured note agreement. Principal and interest
payments were due on demand. In January 1999, the note and accrued interest were
repaid in full.
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 JUNE 30, 1999
----------------- -------------
<S> <C> <C>
Accounts payable................................................................ $ 262,214 $ 259,874
Accrued payments to third-party web sites....................................... 51,115 81,391
Other accruals.................................................................. 29,806 56,925
-------- -------------
$ 343,135 $ 398,190
-------- -------------
-------- -------------
</TABLE>
6. INCOME TAXES
For the period from May 1, 1998 (inception) through December 31, 1998, the
Company was subject to the provisions of Subchapter K of the Internal Revenue
Code and as such the Company did not pay Federal income taxes. Instead, the
members were liable for individual Federal income taxes on the Company's taxable
income. California generally conforms to federal treatment, except for the
imposition of a minimum tax based on gross receipts. The Company's conversion
from a LLC to a C-corporation did not have a material impact on the Company's
financial position or results of operations.
Upon conversion to a C-corporation, ValueClick commenced using the asset and
liability method of accounting for income taxes. Under this method, deferred tax
assets and liabilities are recognized for future taxable consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases, and to operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in results of operations in the period that includes the
enactment date.
F-12
<PAGE>
VALUECLICK, INC.
NOTES TO FINANCIAL STATEMENTS
(ALL INFORMATION WITH RESPECT TO JUNE 30, 1999 IS UNAUDITED) (CONTINUED)
6. INCOME TAXES (CONTINUED)
The provision for income taxes for the six months ended June 30, 1999 is
comprised of the following:
<TABLE>
<S> <C>
Current:
Federal........................................................ $ 244,346
State.......................................................... 72,942
---------
$ 317,288
---------
Deferred
Federal........................................................ $ (85,383)
State.......................................................... (15,318)
---------
$(100,701)
---------
Provision for income taxes....................................... $ 216,587
---------
---------
</TABLE>
The components of the deferred tax assets at June 30, 1999 are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Allowance for doubtful accounts................................. $ 100,701
---------
Net deferred tax assets....................................... $ 100,701
---------
---------
</TABLE>
The overall effective tax rate differs from the statutory Federal tax rate
for the six months ended June 30, 1999 as follows:
<TABLE>
<S> <C>
Tax provision based on the federal statutory rate................ 34.0%
State income taxes, net of federal benefit....................... 6.0
Equity in loss of ValueClick Japan............................... 11.7
Stock based compensation......................................... 66.9
Other, net....................................................... 2.9
---------
121.5%
---------
---------
</TABLE>
7. CAPITALIZATION
On December 31, 1998, in connection with the Company's LLC conversion and
reincorporation as a Delaware C-corporation, membership interests were exchanged
for an equivalent number of common and preferred shares.
In May and June 1998, the Company sold membership interests in ValueClick,
LLC for total proceeds of approximately $776,000. On December 31, 1998, in
connection with the Company's conversion and reincorporation, the membership
interests were exchanged for Series A and Series B
F-13
<PAGE>
VALUECLICK, INC.
NOTES TO FINANCIAL STATEMENTS
(ALL INFORMATION WITH RESPECT TO JUNE 30, 1999 IS UNAUDITED) (CONTINUED)
7. CAPITALIZATION (CONTINUED)
preferred stock. The exchange of the membership interests for preferred stock is
summarized as follows:
<TABLE>
<S> <C>
Shares issued to exchange membership interests for Series A
preferred stock 297,132
Shares issued to exchange membership interests for Series B
preferred stock................................................ 1,047,804
---------
Total.................................................... 1,344,936
---------
---------
</TABLE>
At December 31, 1998 and June 30, 1999, the Company has reserved 5,379,744
shares of common stock for conversion of Series A and Series B preferred stock.
In the first quarter of 1999, the Company sold 1,301,850 shares of Series C
preferred stock at $2.70 per share, for total gross proceeds of approximately
$3,515,000. Costs associated with the Series C financing amounted to $17,864 and
were netted against the proceeds received.
Convertible preferred stock at June 30, 1999 consist of the following:
<TABLE>
<CAPTION>
SHARES LIQUIDATION
OUTSTANDING PREFERENCE
----------- ------------
<S> <C> <C>
Series A convertible.............................................. 297,132 $ 60,000
Series B convertible.............................................. 1,047,804 716,000
Series C convertible.............................................. 1,301,850 3,515,000
</TABLE>
Significant terms of the preferred stock are as follows:
VOTING. Holders of preferred stock have the same voting rights (on a
converted basis) as the holders of common stock, except where a class vote may
be required by law or Certificate of Incorporation.
DIVIDENDS. The preferred stock has no right to receive dividends.
LIQUIDATION. In the event of any liquidation of the Company (not including
the acquisition of the Company by another entity), the holders of the preferred
stock have a liquidation preference over common stock. Upon payment of all
preferred stock liquidation preferences, any remaining proceeds will be
allocated to the common stockholders and the preferred stockholders according to
their respective shares and priorities on a converted basis.
CONVERSION. At the option of the holder, each share of preferred stock is
convertible at any time into one share of common stock, subject to adjustment
for certain dilutive issuances. As of June 30, 1999, following the four for one
common stock split, each share of the Series A, Series B and Series C shares are
convertible into four shares of common stock. The preferred shares automatically
convert into common stock upon consummation of an underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, with an aggregate proceeds greater than or equal to $20,000,000.
F-14
<PAGE>
VALUECLICK, INC.
NOTES TO FINANCIAL STATEMENTS
(ALL INFORMATION WITH RESPECT TO JUNE 30, 1999 IS UNAUDITED) (CONTINUED)
8. STOCK OPTION PLAN
On May 13, 1999, the Board of Directors adopted and the stockholders
approved, the 1999 Stock Option Plan (the "1999 Stock Plan"). A total of
6,080,000 shares of common stock have initially been reserved for issuance under
the 1999 Stock Plan, of which 1,264,800 shares were available for future grant
at June 30, 1999.
In January 1999, options to purchase 1,500,000 shares of common stock were
granted outside the 1999 Stock Plan and were subsequently included in the shares
reserved under the 1999 plan. 1,200,000 of these shares were granted to the
Chairman of the Board.
The 1999 Stock Option Plan provides for the granting of nonstatutory and
incentive stock options to employees, officers, directors and consultants of the
Company. Options granted generally begin vesting six months after the vesting
start date, generally the employee's date of employment, and vest pro rata
monthly over periods ranging from 12 to 42 months and generally expire ten years
from the date of grant. In addition, certain employees have options that have
accelerated vesting upon certain events including the closing of an initial
public offering of the Company's stock or the transfer of ownership of 50% or
more of the Company's stock.
The following table summarizes activity under the Stock Option Plan for the
period from May 1, 1998 (inception) through December 31, 1998 and the six months
ended June 30, 1999:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
OF PRICE PER EXERCISE
SHARES SHARE PRICE
---------- ---------------- -----------
<S> <C> <C> <C>
Options outstanding at May 1, 1998 (inception).......................... -- $ -- $ --
Granted............................................................... -- -- --
Exercised............................................................. -- -- --
Forfeited/expired..................................................... -- -- --
---------- ---------------- -----
Options outstanding at December 31, 1998................................ -- -- --
Granted............................................................... 4,815,200 0.13 to 0.50 0.35
Exercised............................................................. -- -- --
Forfeited/expired..................................................... -- -- --
---------- ---------------- -----
Options outstanding at June 30, 1999 (unaudited)........................ 4,815,200 $ 0.13 to $0.50 $ 0.35
---------- ---------------- -----
---------- ---------------- -----
</TABLE>
Options granted during the six months ended June 30, 1999 resulted in a
total deferred compensation amount of $2,711,833 which was included in deferred
stock compensation in stockholders' equity. Deferred compensation expense is
recognized over the service period by using the aggregate percentage of
compensation accrued by the end of each year of service (the vesting period).
During the six months ended June 30, 1999, such compensation expense included in
stock-based compensation in the statement of operations amounted to $298,015
F-15
<PAGE>
VALUECLICK, INC.
NOTES TO FINANCIAL STATEMENTS
(ALL INFORMATION WITH RESPECT TO JUNE 30, 1999 IS UNAUDITED) (CONTINUED)
8. STOCK OPTION PLAN (CONTINUED)
Additional information with respect to the outstanding options as of June
30, 1999 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ----------------------------------------
AVERAGE ------------------------
REMAINING AVERAGE AVERAGE
NUMBER OF CONTRACTUAL EXERCISE NUMBER OF EXERCISE
SHARES LIFE (IN YEARS) PRICES SHARES PRICE
- ---------- --------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1,900,000 9.9 $ 0.13 -- $ --
2,915,200 9.9 $ 0.50 34,940 $ 0.50
- ---------- -----------
4,815,200 34,940
- ---------- -----------
- ---------- -----------
</TABLE>
The Company calculated the minimum fair value of each option grant on the
date of grant using the minimum value option pricing model as prescribed by
Statement No. 123 using the following assumptions:
<TABLE>
<CAPTION>
MAY 1, 1998 SIX MONTHS
(INCEPTION) THROUGH ENDED JUNE 30,
DECEMBER 31, 1998 1999
------------------- ---------------
<S> <C> <C>
Risk-free interest rates................................................................. 5% 5%
Expected lives (in years)................................................................ 4 4
Dividend yield........................................................................... 0% 0%
Expected volatility...................................................................... 0% 0%
</TABLE>
The compensation cost associated with the Company's stock-based compensation
plan, determined using the minimum value option pricing model did not result in
a material difference from the reported net loss for the six months ended June
30, 1998.
9. NET LOSS PER SHARE
The Company's historical capital structure prior to December 31, 1998 is not
indicative of its prospective structure as a result of its conversion and
reincorporation from a California LLC to a Delaware C-corporation on December
31, 1998. Accordingly, the historical net loss per share for the period May 1,
1998 (inception) through December 31, 1998 has been presented on a historical
basis as if the Company had been a C-corporation.
F-16
<PAGE>
VALUECLICK, INC.
NOTES TO FINANCIAL STATEMENTS
(ALL INFORMATION WITH RESPECT TO JUNE 30, 1999 IS UNAUDITED) (CONTINUED)
9. NET LOSS PER SHARE (CONTINUED)
The following table sets forth the computation of basic, diluted and pro
forma net loss per share for the periods indicated:
<TABLE>
<CAPTION>
PERIOD FROM
MAY 1, 1998
(INCEPTION)
THROUGH SIX MONTHS
DECEMBER 31, ENDED JUNE
1998 30, 1999
------------- -------------
<S> <C> <C>
HISTORICAL PRESENTATION
Numerator:
Net loss......................................................................... $ (128,045) $ (38,396)
Denominator:
Weighted average common shares................................................... 19,824,264 19,838,008
Basic and diluted net loss per common share........................................ $ (0.01) $ --
PRO FORMA PRESENTATION
Denominator:
Shares used above................................................................ 19,838,008
Weighted average effect of convertible preferred stock:
Series A convertible preferred stock............................................. 1,188,528
Series B convertible preferred stock............................................. 4,191,216
Series C convertible preferred stock............................................. 3,809,900
-------------
Denominator for pro forma calculation.............................................. 29,027,652
-------------
-------------
Unaudited pro forma basic and diluted net loss per common share.................... $ --
-------------
-------------
</TABLE>
The diluted per share computations exclude convertible preferred stock and
unvested common stock options which were antidilutive. The number of shares
excluded from the diluted net loss per common share computation were 4,745,504
and 14,004,844 for the period from May 1, 1998 (inception) through December 31,
1998 and the six months ended June 30, 1999, respectively. The number of such
shares excluded from the pro forma diluted net loss per share computation was
4,815,200 for the six months ended June 30, 1999.
10. DEFINED CONTRIBUTION PLAN
The Company has a Savings Plan (the "Savings Plan") that qualifies as a
defined contribution plan under Section 401(k) of the Internal Revenue Code.
Under the Savings Plan, participating employees may defer a percentage (not to
exceed 20%) of their eligible pretax earnings up to the Internal Revenue
Service's annual contribution limit. All full time employees on the payroll of
the Company are eligible to participate in the plan. Company matching and profit
sharing contributions are discretionary. To date, the Company has contributed
$6,400 to the Plan as of June 30, 1999.
F-17
<PAGE>
VALUECLICK, INC.
NOTES TO FINANCIAL STATEMENTS
(ALL INFORMATION WITH RESPECT TO JUNE 30, 1999 IS UNAUDITED) (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES
LEASES
Future minimum net lease payments, net of sublease income, under
noncancellable operating leases with initial or remaining lease terms in excess
of one year as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
- ------------------------
<S> <C>
1999............................................................................... $ 30,122
2000............................................................................... 30,122
2001............................................................................... 17,571
---------
Total.......................................................................... $ 77,815
---------
---------
</TABLE>
Total rent expense under operating leases, net of sublease income, for the
period from May 1, 1998 (inception) through December 31, 1998 and June 30, 1999
was $30,023 and $52,317, respectively.
EMPLOYMENT AGREEMENTS
The Company is subject to employment agreements with certain members of
management.
12. SUBSEQUENT EVENTS
On August 6, 1999, the Company acquired an additional 22.3 percent of
ValueClick Japan's common stock to increase its investment in ValueClick Japan
to approximately 54% in exchange for 640,000 shares of common stock of
ValueClick valued at $1,280,000. The Company will consolidate this investment.
On August 17, 1999, the Company entered into a license agreement and
invested $99,000 for a 20% interest in ValueClick Europe, Limited, formed in
August 1999 to engage in the web-based-Internet advertising business in the
United Kingdom. The Company will account for this investment using the equity
method of accounting.
On October 8, 1999, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission ("SEC") that
would permit the Company to sell shares of the Company's common stock in
connection with a proposed initial public offering ("IPO"). If the IPO is
consummated under the terms presently anticipated, upon the closing of the
proposed IPO, all of the then outstanding shares of the Company's convertible
preferred stock will automatically convert into shares of common stock on a
one-for-one basis, subject to antidilution provisions.
On October 8, 1999, the Board of Directors approved increasing the number of
shares of common stock reserved for issuance under the 1999 Stock Plan to
8,000,000 shares.
F-18
<PAGE>
INTRODUCTION TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
On August 6, 1999, ValueClick, Inc. ("ValueClick") entered into a Stock
Purchase Agreement (the "Agreement") to acquire a controlling interest in
ValueClick Japan. Prior to entering into the Agreement, ValueClick had a 31.7%
ownership interest in ValueClick Japan, which was accounted for using the equity
method of accounting. Under the Agreement, ValueClick purchased an additional
22.3% of the ValueClick Japan stock in exchange for 640,000 shares of ValueClick
common stock with an estimated fair value of $1,280,000 giving ValueClick a
54.0% controlling ownership interest in ValueClick Japan. The acquisition will
be accounted for using the purchase method. The purchase price will be allocated
to the estimated fair value of assets acquired and liabilities assumed to the
extent acquired by ValueClick. The remaining portion of the ValueClick Japan
assets and liabilities will be recorded at the historical cost basis of the
minority stockholders. The preliminary purchase price allocation is based on
available information but there can be no assurance that the actual results will
not differ significantly from the pro forma adjustments reflected in the pro
forma condensed consolidated financial statements. The preliminary purchase
price allocation indicates additional intangible assets, totaling $1,241,000,
which will be amortized on a straight-line basis over the estimated lives
ranging from 3 to 5 years.
The following unaudited pro forma condensed consolidated balance sheet as of
June 30, 1999 assumes that the acquisition was consummated on June 30, 1999. The
following unaudited pro forma consolidated statements of operations for the
periods from May 1, 1998 (Inception) through December 31, 1998 and the six
months ended June 30, 1999 give effect to the acquisition as if it had occurred
on May 1, 1998.
The unaudited pro forma condensed consolidated financial statements are not
necessarily indicative of the results that would have occurred if the
acquisition had occurred as of the beginning of the period presented and should
not be construed as being representative of future operating results.
The unaudited pro forma condensed consolidated financial statements should
be read in conjunction with the ValueClick and ValueClick Japan financial
statements and notes thereto, included elsewhere in this prospectus.
F-19
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1999
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
VALUECLICK, VALUECLICK,
INC. JAPAN PRO FORMA PRO FORMA
(HISTORICAL) (HISTORICAL) ADJUSTMENTS CONSOLIDATED
----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,411 $ 521 $ - $ 2,932
Accounts receivable....................................... 2,324 271 - 2,595
Receivable from ValueClick Japan.......................... 4 - (4)(1) -
Other current assets...................................... 102 35 - 137
Deferred taxes............................................ 101 - 101
----------- ----- ------ ------
Total current assets.................................. 4,942 827 (4) 5,765
Property and equipment, net................................. 239 37 - 276
Investment in ValueClick Japan.............................. 302 - (302)(2) -
Other assets................................................ 16 22 - 38
Intangible assets........................................... - - 1,241(3) 1,241
----------- ----- ------ ------
Total assets.......................................... $ 5,499 $ 886 $ 935 $ 7,320
----------- ----- ------ ------
----------- ----- ------ ------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expense...................... $ 398 $ 166 $ 25(4) $ 589
Payable to ValueClick, Inc................................ - 4 (4)(1) -
Income taxes payable...................................... 318 - - 318
Deferred revenue.......................................... 377 10 - 387
Other current liabilities................................. - 29 - 29
----------- ----- ------ ------
Total liabilities..................................... 1,093 209 21 1,323
Minority interest........................................... - - 311(5) 311
Stockholders' equity........................................ 4,406 677 603(6) 5,686
----------- ----- ------ ------
Total liabilities and stockholders' equity............ $ 5,499 $ 886 $ 935 $ 7,320
----------- ----- ------ ------
----------- ----- ------ ------
</TABLE>
See the accompanying notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements
F-20
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM MAY 1, 1998 (INCEPTION)
THROUGH DECEMBER 31, 1998
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
VALUECLICK, VALUECLICK,
INC. JAPAN PRO FORMA PRO FORMA
(HISTORICAL) (HISTORICAL) ADJUSTMENTS CONSOLIDATED
----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues.................................................... $ 2,053 $ 72 $ - $ 2,125
Cost of revenues............................................ 1,105 39 - 1,144
----------- --- ----- ------
Gross profit.............................................. 948 33 - 981
Operating expenses:
Sales and marketing....................................... 516 7 - 523
General and administrative................................ 404 55 - 459
Technology enhancements................................... 155 - - 155
Stock-based compensation.................................. - - - -
Amortization of intangibles............................... - - 207(7) 207
----------- --- ----- ------
Total operating expenses.............................. 1,075 62 207 1,344
----------- --- ----- ------
Loss from operations........................................ (127) (29) (207) (363)
Interest income, net........................................ 8 - - 8
Equity in losses of ValueClick Japan........................ (9) - 9(8) -
----------- --- ----- ------
Loss before provision for income taxes...................... (128) (29) (198) (355)
Provision for income taxes.................................. - - - -
----------- --- ----- ------
Net loss before minority interest........................... (128) (29) (198) (355)
Minority interest........................................... - - (13)(9) (13)
----------- --- ----- ------
Net loss.................................................... $ (128) $ (29) $ (211) $ (368)
----------- --- ----- ------
----------- --- ----- ------
</TABLE>
See the accompanying notes to unaudited Pro Forma Condensed Consolidated
Financial Statements
F-21
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
VALUECLICK, VALUECLICK,
INC. JAPAN PRO FORMA PRO FORMA
(HISTORICAL) (HISTORICAL) ADJUSTMENTS CONSOLIDATED
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenues........................... $4,867 $ 604 $ -- $5,471
Cost of revenues................... 2,435 347 -- 2,782
------------ ----- ----- ------------
Gross profit....................... 2,432 257 -- 2,689
Operating expenses:
Sales and marketing.............. 648 35 -- 683
General and administrative....... 954 386 -- 1,340
Technology enhancements.......... 321 -- -- 321
Stock-based compensation......... 298 -- -- 298
Amortization of intangibles...... -- -- 155(7) 155
------------ ----- ----- ------------
Total operating expenses....... 2,221 421 155 2,797
------------ ----- ----- ------------
Income (loss) from operations...... 211 (164) (155) (108)
Interest income, net............... 19 -- -- 19
Undistributed losses in ValueClick
Japan............................ (52) -- 52(8) --
------------ ----- ----- ------------
Income (loss) before provision for
income taxes, and minority
interest......................... 178 (164) (103) (89)
Provision for income taxes......... 216 -- -- 216
------------ ----- ----- ------------
Net loss before minority
interest......................... (38) (164) (103) (305)
Minority interest.................. -- -- (75)(9) (75)
------------ ----- ----- ------------
Net loss........................... $ (38) $(164) $ (28) $ (230)
------------ ----- ----- ------------
------------ ----- ----- ------------
Basic and diluted net loss per
common share..................... $ --
------------
------------
Shares used in computing basic and
diluted net loss per common
share............................ 19,838
------------
------------
Pro forma basic and diluted
net loss per common share........ $(0.01) $(0.01)
------------ ------------
------------ ------------
Pro forma shares used to calculate
pro forma
basic and diluted net loss per
common share..................... 29,028 640 29,668
------------ ----- ------------
------------ ----- ------------
</TABLE>
See the accompanying notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements
F-22
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
Pro forma adjustments giving effect to the acquisition of controlling
interest in ValueClick Japan as if the acquisition had occurred at June 30, 1999
for the pro forma balance sheet and as of May 1, 1998 for the pro forma
statement of operations are as follows:
PRO FORMA BALANCE SHEET ADJUSTMENTS
(1) To eliminate intercompany receivables and payables.
(2) To eliminate the equity investment in ValueClick Japan to reflect the
acquisition of majority control by ValueClick.
(3) To record intangible assets associated with the acquisition of majority
control of ValueClick Japan as follows:
<TABLE>
<CAPTION>
<S> <C>
Estimated fair value of 640,000 shares of ValueClick common stock.............................. $ 1,280
Existing equity investment in ValueClick Japan................................................. 302
Estimated transaction costs.................................................................... 25
---------
Total investment and transaction costs..................................................... 1,607
Less: ValueClick's 54.0% share of net assets............................................... 366
---------
$ 1,241
---------
---------
</TABLE>
(4) To record transaction costs related to the controlling investment in
ValueClick Japan.
(5) To reflect the 46.0% minority interest in ValueClick Japan.
(6) To reflect the acquisition of majority control of ValueClick Japan as
follows:
<TABLE>
<CAPTION>
<S> <C>
Estimated fair value of 640,000 shares of ValueClick common stock issued....................... $ 1,280
Minority interest in ValueClick Japan.......................................................... (311)
Elimination of historical net assets acquired by ValueClick.................................... (366)
---------
$ 603
---------
---------
</TABLE>
PRO FORMA STATEMENTS OF OPERATIONS ADJUSTMENTS
(7) To record amortization expense related to intangible assets of $1,241
created as a result of the acquisition assuming lives ranging from 3 to 5
years.
(8) To eliminate the equity in loss from ValueClick Japan.
(9) To record the portion of the losses in ValueClick Japan attributable to the
minority interests.
F-23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of ValueClick, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations and cash flows present fairly, in all material respects, the
financial position of the ValueClick Line of Business of Web-Ignite Corporation
(the "ValueClick Line of Business") at December 31, 1997 and April 30, 1998, and
the results of its operations for the period from July 1, 1997 (inception)
through December 31, 1997, and for the four months ended April 30, 1998, in
conformity with generally accepted accounting principles. These statements are
the responsibility of management; our responsibility is to express an opinion on
these statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Woodland Hills, California
October 1, 1999
F-24
<PAGE>
VALUECLICK LINE OF BUSINESS OF WEB-IGNITE CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, APRIL 30,
1997 1998
------------ ----------
<S> <C> <C>
ASSETS
Current assets:
Accounts receivable............................................... $ 12,775 $ 50,103
------------ ----------
Total current assets...................................... 12,775 50,103
Other assets........................................................ 2,886 3,095
------------ ----------
Total assets.............................................. $ 15,661 $ 53,198
------------ ----------
------------ ----------
LIABILITIES AND INVESTED EQUITY
Current liabilities:
Accounts payable.................................................. $ 27,286 $ 14,225
------------ ----------
Total current liabilities................................. 27,286 14,225
Commitments and contingencies: (Note 4)
Invested equity................................................... (11,625) 38,973
------------ ----------
Total liabilities and
invested equity......................................... $ 15,661 $ 53,198
------------ ----------
------------ ----------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-25
<PAGE>
VALUECLICK LINE OF BUSINESS OF WEB-IGNITE CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM JULY 1,
1997 (INCEPTION)
THROUGH DECEMBER 31, FOUR MONTHS ENDED
1997 APRIL 30, 1998
---------------------- ------------------
<S> <C> <C>
Revenues.......................................... $ 122,067 $ 253,382
Cost of revenues.................................. 37,029 88,168
-------- --------
Gross profit.................................... 85,038 165,214
Operating expenses:
General and administrative...................... 116,122 133,741
-------- --------
Net (loss) income................................. $ (31,084) $ 31,473
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-26
<PAGE>
VALUECLICK LINE OF BUSINESS OF WEB-IGNITE CORPORATION
STATEMENTS OF CHANGES IN INVESTED EQUITY
<TABLE>
<CAPTION>
INVESTED
EQUITY
---------
<S> <C>
Balance at July 1, 1997 (inception)................................................ $ --
Net advances from Web-Ignite....................................................... 19,459
---------
Net loss......................................................................... (31,084)
---------
Balance at December 31, 1997..................................................... (11,625)
Net advances from Web-Ignite....................................................... 19,125
Net income....................................................................... 31,473
---------
Balance at April 30, 1998........................................................ $ 38,973
---------
---------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-27
<PAGE>
VALUECLICK LINE OF BUSINESS OF WEB-IGNITE CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JULY 1, 1997
(INCEPTION) FOUR
THROUGH MONTHS ENDED
DECEMBER 31, APRIL 30,
1997 1998
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income................................................................. $ (31,084) $ 31,473
Adjustments to reconcile net loss (income) to net cash used in
operating activities:
Changes in operating assets and liabilities:
Accounts receivable........................................................... (12,775) (37,328)
Other assets.................................................................. (2,886) (209)
Accounts payable and accrued liabilities...................................... 27,286 (13,061)
------------ -------------
Net cash used in operating activities........................................... (19,459) (19,125)
Cash flows from financing activities:
Advances from Web-Ignite.......................................................... 19,459 19,125
------------ -------------
Net cash provided by financing activities........................................... 19,459 19,125
------------ -------------
Net increase in cash and cash equivalents........................................... -- --
Cash and cash equivalents, beginning of period...................................... -- --
------------ -------------
Cash and cash equivalents, end of period............................................ $ -- $ --
------------ -------------
------------ -------------
Supplemental disclosures of cash flow information:
Cash paid for interest............................................................ $ -- $ --
------------ -------------
------------ -------------
Cash paid for taxes............................................................... $ -- $ --
------------ -------------
------------ -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
VALUECLICK LINE OF BUSINESS OF WEB-IGNITE CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
The ValueClick Line of Business of Web-Ignite Corporation (the "ValueClick
Line of Business") was operated as a line of business within Web-Ignite
Corporation ("Web-Ignite"), a S-corporation wholly owned by the founding member
of ValueClick, LLC. The ValueClick Line of Business began the Internet
advertising delivery business in July 1997. Effective April 30, 1998, the
founding member caused Web-Ignite to transfer the rights to the ValueClick
Trademark, the rights to the ValueClick domain names, the rights to the
trademark, license, software license and copyright agreements within
Trans-Pacific Ltd., predecessor to ValueClick Japan and the rights to the ad
delivery software used in the business to ValueClick, LLC. The reorganization
and formation of ValueClick, LLC was accounted for as a transaction by entities
under common control.
The ValueClick Line of Business was an Internet based advertising network
that provided a performance based advertising solution on a cost-per-click to
advertisers and e-commerce companies.
The accompanying statements present the financial position at December 31,
1997 and April 30, 1998 and the results of operations and cash flows for the
period from July 1, 1997 (inception) to December 31, 1997 and the four months
ended April 30, 1998 for the ValueClick Line of Business. Web-Ignite did not
account for the ValueClick Line of Business as a separate entity. Accordingly,
the information included in the accompanying financial statements has been
obtained from Web-Ignite's financial records. The statements of operations
include revenues, cost of revenue and operating expenses as maintained in
Web-Ignite's general ledger attributed to the ValueClick Line of Business.
Certain operating expenses presented in these financial statements were
allocated by management of Web-Ignite based on estimates of the cost of services
provided to ValueClick Line of Business by Web-Ignite. Management believes the
allocation methodologies used were reasonable. However, these allocations may
not be indicative of future operating expenses required by a separate business
operation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
The ValueClick Line of Business's revenues were principally derived from the
delivery of advertising click-throughs through third-party Web sites comprising
the ValueClick Network (the "Network"). Revenue is recognized in the period that
the advertising click-throughs occur, provided that no significant obligations
remain and collection of the resulting receivable is probable.
COST OF REVENUES
The ValueClick Line of Business becomes obligated to make payments to
third-party websites, which have contracted with the ValueClick Line of Business
to be part of the Network, in the period the advertising click-throughs are
delivered. Such expenses are classified as cost of revenues in the accompanying
statement of operations.
F-29
<PAGE>
VALUECLICK LINE OF BUSINESS OF WEB-IGNITE CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OPERATING EXPENSES
Operating expenses consist of personnel and personnel related costs incurred
directly by the ValueClick Line of Business. Operating expenses also include
other costs, including office, facilities, management systems and general
corporate expenses. Certain operating expenses were allocated to the ValueClick
Line of Business. Management believes the allocation methodologies used were
reasonable. However, these allocations may not be indicative of what the
expenses would have been had the ValueClick Line of Business been a separate
entity or future operating expenses required by a separate business operation.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subjected the ValueClick Line of
Business to concentration of credit risk consist of cash and accounts
receivable. Cash was deposited with major financial institutions; at times, such
balances with any one financial institution may be in excess of FDIC insurance
limits. Credit was extended to customers based on an evaluation of their
financial condition. The ValueClick Line of Business did not generally require
collateral. The ValueClick Line of Business performed ongoing credit evaluations
of its customers and maintains an allowance for potential bad debt. To date such
losses, if any, have been within management's expectations.
COMPREHENSIVE INCOME
The ValueClick Line of Business adopted the provisions of SFAS No. 130,
"Reporting Comprehensive Income" ("Statement No. 130"). Statement No. 130
establishes standards for reporting comprehensive income and its components in
financial statements. Comprehensive income, as defined, includes all changes in
equity (net assets) during a period from nonowner sources. To date, the
ValueClick Line of Business has not had any transactions that were required to
be reported in comprehensive income.
3. INCOME TAXES
Web-Ignite operated as an S-corporation and as such was not subject to
federal and state income taxes. Accordingly, no separate tax provision was
required for the ValueClick Line of Business.
4. COMMITMENTS AND CONTINGENCIES
There were no separate leases or other commitments and contingencies related
to the ValueClick Line of Business.
5. INVESTED EQUITY
Invested equity represents the equity contributed to the ValueClick Line of
Business and related accumulated results of operations of the ValueClick Line of
Business.
F-30
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of ValueClick Japan
In our opinion, the accompanying balance sheet and the related statements of
operations, stockholders' equity and cash flows present fairly, in all material
respects, the financial position of ValueClick Japan (the "Company") at December
31, 1998, and the results of its operations and its cash flows for the period
from November 16, 1998 (legal inception) through December 31, 1998, and the
results of operations of its predecessor line of business within Trans-Pacific
Ltd. for the period from March 26, 1998 (business inception) through November
15, 1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICEWATERHOUSECOOPERS LLP
Woodland Hills, California
October 1, 1999
F-31
<PAGE>
VALUECLICK JAPAN
BALANCE SHEETS
(ALL INFORMATION AS OF JUNE 30, 1999 IS UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................... $ 79,022 $ 521,040
Accounts receivable, net of allowance for doubtful accounts of $0 and $10,000 at
December 31, 1998 and June 30, 1999, respectively................................. 91,179 270,676
Other current assets................................................................ 4,007 34,839
------------ -----------
Total current assets............................................................ 174,208 826,555
Property and equipment, net........................................................... 7,970 37,150
Other assets.......................................................................... -- 22,200
------------ -----------
Total assets.................................................................... $ 182,178 $ 885,905
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses............................................... $ 82,358 $ 166,230
Payable to ValueClick, Inc.......................................................... 10,262 3,510
Deferred revenue.................................................................... 17,427 9,870
Amount due to a related party....................................................... 8,843 --
Other current liabilities........................................................... 4,773 29,543
------------ -----------
Total current liabilities....................................................... 123,663 209,153
Commitments and contingencies (Note 6)................................................ -- --
Stockholders' equity:
Common stock, $420 par value as of December 31, 1998 and $445 as of June 30, 1999;
800 shares authorized. 200 shares issued and outstanding as of December 31, 1998
and 244 issued and outstanding as of June 30, 1999................................ 84,000 103,580
Additional paid-in capital............................................................ -- 799,228
Cumulative foreign currency translation adjustment.................................... 3,150 (33,206)
Accumulated deficit................................................................... (28,635) (192,850)
------------ -----------
Total stockholders' equity........................................................ 58,515 676,752
------------ -----------
Total liabilities and stockholders' equity...................................... $ 182,178 $ 885,905
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
VALUECLICK JAPAN
AND ITS PREDECESSOR LINE OF BUSINESS OF TRANS-PACIFIC LTD.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
TRANS-PACIFIC VALUECLICK JAPAN
------------ ----------------------------
PERIOD FROM
MARCH 26, PERIOD
1998 FROM
(INCEPTION) NOVEMBER 16,
THROUGH 1998 THROUGH SIX MONTHS
NOVEMBER 15, DECEMBER 31, ENDED
1998 1998 JUNE 30, 1999
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Revenues..................................... $156,244 $ 72,385 $ 604,143
Cost of revenues............................. 33,910 39,200 346,892
------------ ------------ -------------
Gross profit............................... 122,334 33,185 257,251
Operating expenses
Sales and marketing........................ -- 7,185 35,416
General and administrative................. 111,999 54,635 386,097
------------ ------------ -------------
Total operating expenses................. 111,999 61,820 421,513
------------ ------------ -------------
Operating income (loss)...................... 10,335 (28,635) (164,262)
Interest income.............................. -- -- 47
------------ ------------ -------------
Net income (loss).......................... 10,335 (28,635) (164,215)
Other comprehensive income (loss)
Foreign currency translation............... -- 3,150 (36,356)
------------ ------------ -------------
Comprehensive income (loss).............. $ 10,335 $(25,485) $ (200,571)
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE>
VALUECLICK JAPAN
STATEMENTS OF STOCKHOLDERS' EQUITY
(ALL INFORMATION AS OF JUNE 30, 1999 IS UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE TOTAL
----------------------- PAID-IN TRANSLATION ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT EQUITY
----------- ---------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at November 16, 1998
(inception)............................ -- $ -- $ -- $ -- $ -- $ --
Issuance of common stock................. 200 84,000 -- -- -- 84,000
Net loss................................. -- -- -- -- (28,635) (28,635)
Foreign currency translation............. -- -- -- 3,150 -- 3,150
--- ---------- ---------- ----------- ------------ ------------
Balance at December 31, 1998............. 200 84,000 -- 3,150 (28,635) 58,515
Issuance of common stock................. 44 19,580 799,228 -- -- 818,808
Net loss................................. -- -- -- -- (164,215) (164,215)
Foreign currency translation............. -- -- -- (36,356) -- (36,356)
--- ---------- ---------- ----------- ------------ ------------
Balance at June 30, 1999................. 244 $ 103,580 $ 799,228 $ (33,206) $ (192,850) $ 676,752
--- ---------- ---------- ----------- ------------ ------------
--- ---------- ---------- ----------- ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE>
VALUECLICK JAPAN
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS
NOVEMBER 16, ENDED JUNE
1998 30, 1999
(INCEPTION) -------------
TO DECEMBER
31, 1998 (UNAUDITED)
-------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.......................................................................... $ (28,635) $ (164,215)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization................................................... 148 2,654
Provision for doubtful accounts................................................. -- 10,000
Changes in operating assets and liabilities:
Accounts receivable........................................................... (91,179) (189,497)
Other assets.................................................................. (4,007) (53,032)
Accounts payable and other current liabilities................................ 87,131 108,642
Payable to ValueClick, Inc.................................................... 10,262 (6,752)
Deferred revenue.............................................................. 17,427 (7,557)
------------- -------------
Net cash used in operating activities........................................... (8,853) (299,757)
Cash flows from investing activities:
Purchases of property and equipment............................................... (8,118) (31,834)
------------- -------------
Net cash used in investing activities........................................... (8,118) (31,834)
Cash flows from financing activities:
Proceeds from the issuance of related party debt.................................. 8,843 --
Repayment of related party debt................................................... -- (8,843)
Proceeds from issuance of common stock............................................ 84,000 818,808
------------- -------------
Net cash provided by financing activities....................................... 92,843 809,965
Effect of foreign currency translation............................................ 3,150 (36,356)
------------- -------------
Net increase in cash and cash equivalents....................................... 79,022 442,018
Cash and cash equivalents, beginning of period...................................... -- 79,022
------------- -------------
Cash and cash equivalents, end of period............................................ $ 79,022 $ 521,040
------------- -------------
------------- -------------
Supplemental disclosures of cash flow information:
Cash paid for interest............................................................ $ -- $ --
------------- -------------
------------- -------------
Cash paid for taxes............................................................... $ -- $ --
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE>
VALUECLICK JAPAN
AND ITS PREDECESSOR LINE OF BUSINESS OF TRANS-PACIFIC LTD.
NOTES TO FINANCIAL STATEMENTS
(ALL INFORMATION WITH RESPECT TO JUNE 30, 1999 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
ValueClick Japan (the "Company") was incorporated as a Japanese joint stock
corporation on November 16, 1998. Prior to its incorporation, the business was
operated as a line of business of Trans-Pacific Ltd. ("Trans-Pacific"), which,
on March 22, 1998, entered into a Trademark License, Software License and
Copyright Agreement (the "Agreement") with Web-Ignite Corporation ("Web-Ignite")
to use the ValueClick Advertising Network (the "Network") in Japan. Effective
November 16, 1998, Trans-Pacific contributed the rights under the Agreement to
the Company.
Effective January 1, 1999, Trans-Pacific and Web-Ignite confirmed their
assignment of all of their respective rights under the Agreement to ValueClick
Japan and ValueClick, Inc. ("ValueClick"), the successor to Web-Ignite, and
entered into a License and Option Agreement.
For the period from March 22, 1998 through November 15, 1998, the financial
statements have been prepared using Trans-Pacific's historical results of
operations related to ValueClick Japan Line of Business. Trans-Pacific did not
account for this line of business as a separate entity. Accordingly, certain
costs and expenses presented in these financial statements were allocated by the
management of Trans-Pacific based on their estimates of the cost of services
provided to ValueClick Japan Line of Business by Trans-Pacific. Trans-Pacific
management believes that these allocations and allocation methods are
reasonable. However, the financial information included herein for the
ValueClick Japan Line of Business may not necessarily be indicative of the
future results of operations of ValueClick Japan.
UNAUDITED INTERIM FINANCIAL INFORMATION
The interim financial information of the Company for the six months ended
June 30, 1999 is unaudited. The unaudited financial information has been
prepared on the same basis as the annual financial statements and, in the
opinion of management, reflect all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial position,
results of operations and cash flows as of and for the six months ended June 30,
1999.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all short-term investments with an original maturity
of three months or less to be cash equivalents. At December 31, 1998, cash
equivalents consist of money market funds.
F-36
<PAGE>
VALUECLICK JAPAN
AND ITS PREDECESSOR LINE OF BUSINESS OF TRANS-PACIFIC LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION WITH RESPECT TO JUNE 30, 1999 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation on property and
equipment is calculated on the straight-line method over the estimated useful
lives of the assets ranging from 3 to 5 years. Leasehold improvements are
amortized over their estimated useful lives, or the term of the leases,
whichever is shorter.
INCOME TAXES
The operations of the ValueClick Japan line of business have been included
in the foreign income tax return of Trans-Pacific up through November 15, 1998.
Income taxes are accounted for under Statement of Financial Accounting Standards
("SFAS") Statement No. 109, "Accounting for Income Taxes" ("Statement No. 109").
Statement No. 109 requires that the deferred tax assets and liabilities be
determined based on differences between the financial reporting and tax basis of
assets and liabilities, and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
REVENUE RECOGNITION
The Company's revenues are principally derived from the delivery of
advertising click-throughs through third-party Web sites comprising the Network.
Revenue is recognized in the period the advertising click-throughs occur,
provided that no significant Company obligations remain and collection of the
resulting receivable is probable. To date, the Company's agreements have not
required guaranteed minimum click-throughs.
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 click-throughs are delivered. Such expenses are classified as
cost of revenues in the accompanying statements of operations
Deferred revenue represents payments received in advance for advertising
click-throughs. Such fees will be recognized as revenues once the advertising
click-throughs are delivered and no significant Company obligations remain.
TECHNOLOGY ENHANCEMENTS
Technology development costs and enhancements to existing products are
charged to operations as incurred. These costs have not been significant during
the periods presented.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration
of credit risk consist of trade receivables. Credit is extended to customers
based on an evaluation of their financial condition. The Company generally does
not require collateral. The Company performs ongoing credit evaluations of its
customers and maintains reserves for potential credit losses. For the period
from November 16, 1998 (inception) through December 31, 1998, 3 customers
comprised 21%, 12% and
F-37
<PAGE>
VALUECLICK JAPAN
AND ITS PREDECESSOR LINE OF BUSINESS OF TRANS-PACIFIC LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION WITH RESPECT TO JUNE 30, 1999 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
11% of revenues, respectively. At December 31, 1998, 2 customers comprised 15%
and 13% of accounts receivable, respectively. At June 30, 1999, 1 customer
comprised 12% of revenues, and one customer comprised 12% of accounts
receivable.
FOREIGN CURRENCY TRANSLATION
ValueClick Japan denominates its transactions in the Japanese Yen. Assets
and liabilities are translated at the exchange rate as of the balance sheet
date. All revenue and expense accounts are translated using a average of
exchange rates in effect during the year. Cumulative foreign currency
translation adjustments are recorded as a separate component of stockholders'
equity.
FINANCIAL INSTRUMENTS
The Company's financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and short-term debt, are carried at
historical cost, which approximates their fair values.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company evaluates its long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of such assets or
intangibles may not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to future
undiscounted net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. To date, no such impairment has been recorded.
COMPREHENSIVE INCOME
The Company adopted the provisions of SFAS No. 130, "Reporting Comprehensive
Income" ("Statement No. 130"). Statement No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from nonowner sources. To date, the only transactions that are
required to be reported as comprehensive income relate to foreign currency
translation adjustments.
SEGMENTS
Effective November 16, 1999, the Company adopted the provisions of SFAS No.
131, "Disclosures About Segments of an Enterprise and Related Information"
("Statement No. 131"). Statement No. 131 establishes standards for the way
companies report information about operating segments in annual financial
statements. It also establishes standards for related disclosures about its
products, services, geographic areas and major customers. The Company has
determined that it does not have any separately reportable business segments.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("Statement No. 133"), which defines
derivatives, requires that all derivatives be carried at
F-38
<PAGE>
VALUECLICK JAPAN
AND ITS PREDECESSOR LINE OF BUSINESS OF TRANS-PACIFIC LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION WITH RESPECT TO JUNE 30, 1999 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
fair value, and provides for hedge accounting when certain conditions are met.
Statement No. 133 is effective for the Company in fiscal 2000. Although the
Company has not fully assessed the implications of Statement No. 133, the
Company does not believe that adoption of this statement will have a material
impact on the Company's financial position or results of operations.
2. PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1998 and June 30, 1999 consisted
of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------- ---------
<S> <C> <C>
Computer equipment and purchased software.............................................. $ 8,118 $ 29,467
Leasehold improvements................................................................. -- 10,485
------ ---------
Total.................................................................................. 8,118 39,952
Less accumulated depreciation and amortization......................................... (148) (2,802)
------ ---------
$ 7,970 $ 37,150
------ ---------
------ ---------
</TABLE>
3. RELATED PARTY TRANSACTIONS
The Company and ValueClick are subject to the Agreement to use the Network
in Japan, which has been subsequently amended to the License and Option
Agreement. This agreement requires a monthly license fee based on the Company's
revenue, subject to monthly and quarterly minimum thresholds. This agreement has
a minimum revenue requirement based on a rolling three-months.
At December 31, 1998, $10,263 was due under the agreement to ValueClick,
Inc. and $21,000 was due for activity for the six months ended June 30, 1999.
The outstanding balances due to ValueClick, Inc. are included in the payable to
ValueClick, Inc. in the accompanying balance sheets.
In December 1998, the Company borrowed approximately $8,800 from a related
party. This obligation did not require interest payments. In January 1999, the
amount borrowed was repaid.
The Company leases a portion of the Network's infrastructure from a related
party on a month-to-month basis. Management believes that these costs are not
significant during the periods presented.
4. INCOME TAXES
Prior to November 16, 1998, the ValueClick Japan Line of Business was
operated as a division of Trans-Pacific, with any local income taxes recorded by
Trans-Pacific. From the date of incorporation, the Company has not recorded a
provision for its local country income taxes due to net operating losses
generated from operations. The Company may be able to carryforward these net
operating losses to offset future taxable income for a period of up to five
years, subject to utilization limitations, which may inhibit the Company's
ability to use the carryforwards in the future. Due to the uncertainty
surrounding the realization of the tax benefits in the future tax returns,
management has recorded a full valuation reserve against the deferred tax
assets.
F-39
<PAGE>
VALUECLICK JAPAN
AND ITS PREDECESSOR LINE OF BUSINESS OF TRANS-PACIFIC LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION WITH RESPECT TO JUNE 30, 1999 IS UNAUDITED)
4. INCOME TAXES (CONTINUED)
The components of the deferred tax assets at June 30, 1999 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------ ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards...................................................... $ 13,258 $ 71,402
Allowance for doubtful accounts....................................................... -- 4,630
------------ ----------
Total deferred assets............................................................... 13,258 76,032
Valuation allowance................................................................... (13,258) (76,032)
------------ ----------
Net deferred assets..................................................................... $ -- $ --
------------ ----------
------------ ----------
</TABLE>
5. CAPITALIZATION
The Company is authorized to issue 800 shares of common stock. The holders
of common stock are afforded equal voting rights on matters to be voted on by
the stockholders of the Company. Common stockholders are entitled to receive
ratably such dividends, if any, as may be declared by the Board of Directors.
The Company has not declared or paid any dividends during its operating history.
6. COMMITMENTS AND CONTINGENCIES
LEASES
Future minimum net lease payments, net of sublease income, under
noncancellable operating leases with initial or remaining lease terms in excess
of one year as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
- ----------------------------------------------------------------------------------
<S> <C>
1999.............................................................................. $ 56,000
2000.............................................................................. 61,000
2001.............................................................................. 5,000
----------
Total........................................................................... $ 122,000
----------
----------
</TABLE>
Total rent expense under operating leases for the period from November 16,
1998 through December 31, 1998 and June 30, 1999 was approximately $3,600 and
$29,300, respectively. Allocated rent for the period from March 22, 1998 through
November 15, 1998 was approximately $1,000.
7. SUBSEQUENT EVENT (UNAUDITED)
On August 6, 1999, ValueClick, Inc. acquired an additional 22.3% of the
Company's common stock to increase its investment in ValueClick Japan to
approximately 54% in exchange for 640,000 shares of common stock of ValueClick,
Inc., valued at $1,280,000.
F-40
<PAGE>
INSIDE BACK COVER
Artwork to come.
OUTSIDE BACK COVER
Company logo of "ValueClick" located in center of page with an arrow
pointing upwards in place of the letter "i." The phrase "The Pay-For-Results
Advertising Network" is centered beneath the logo.
<PAGE>
[LOGO]
<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
underwriting discounts and commissions, 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 fee and the Nasdaq National Market
listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................ $ 15,985
NASD filing fee.................................................... $ 6,250
Nasdaq National Market listing fees................................ $ 95,000
Blue Sky fees and expenses.........................................
Printing and engraving expenses.................................... *
Legal fees and expenses............................................ *
Accounting fees and expenses....................................... *
Transfer Agent and Registrar Fees.................................. *
Miscellaneous...................................................... *
---------
Total............................................................ $ *
---------
---------
</TABLE>
- ------------------------
* To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law, we can indemnify
our directors and officers against liabilities they may incur in such
capacities, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act"). Our certificate of incorporation will provide that,
pursuant to Delaware Law, our directors shall not be liable for monetary damages
for breach of the directors' fiduciary duty of care to ValueClick and our
stockholders. This provision in the certificate of incorporation does not
eliminate the duty of care, and in appropriate circumstances equitable remedies
such as injunctive or other forms of nonmonentary relief will remain available
under Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to ValueClick or our
stockholders, for acts or omissions not in good faith or involving intentional
misconduct or knowing violatios of the 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 unlawful under Delaware Law. The
provision also does not affect a director's responsibilities under any other
law, such as the federal securities laws or state or federal environmental laws.
Our bylaws will provide that we will indemnify our directors and officers to
the fullest extent permitted by law and require us to advance litigation
expenses upon our receipt of an undertaking by the director or officer to repay
such advances if it is ultimately determined that the director or officer is not
entitled to indemnification. Our bylaws will further provide that rights
conferred under such bylaws do not exclude any other right such persons may have
or acquire under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise.
We also have directors' and officers' liability insurance. In addition,
prior to the closing of this offering, we will enter into agreements to
indemnify our directors and certain of our officers in addition to the
indemnification provided for in the certificate of incorporation and bylaws.
These agreements will, among other things, indemnify our directors and certain
of our officers for certain expenses (including attorneys fees), judgments,
fines and settlement amounts incurred by such person in
II-1
<PAGE>
any action or proceeding, including any action by or in our right, on account of
services by that person as a director or officer of ValueClick or as a director
or officer of any subsidiary of ValueClick, or as a director or officer of any
company or enterprise that the person provides services to at the request of
ValueClick.
The Underwriting Agreement provides for indemnification by the underwriters
of ValueClick and its officers and directors, and by ValueClick of the
underwriters, for certain liabilities arising under the Securities Act or
otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following is a summary of transactions by ValueClick since its inception
in May 1998 involving sales of our securities that were not registered under the
Securities Act of 1933, as amended:
In May 1998, ValueClick, LLC issued securities equal to 6% of its total
equity to a total of six investors for an aggregate purchase price of $55,000
and issued securities equal to 77% of its total equity to four individuals in
consideration of certain trademarks, software and trademark licenses and
contractual rights. In June 1998, ValueClick, LLC issued securities equal to 17%
of its total equity to a total of ten investors for an aggregate purchase price
of $716,000.
On December 31, 1998, ValueClick, LLC was reorganized as ValueClick, Inc., a
Delaware corporation, and entered into an Exchange Agreement pursuant to which
ValueClick, Inc. issued to ValueClick, LLC 19,952,024 shares of ValueClick
common stock, 297,132 shares of Series A Convertible Preferred Stock and
1,047,804 shares of Series B Convertible Preferred Stock for distribution to the
members of ValueClick, LLC upon its dissolution and agreed to assume ValueClick,
LLC's liabilities, in exchange for ValueClick, LLC's assets.
From January through June 1999, we issued a total of 1,301,850 shares of
Series C convertible preferred stock to 24 investors, at $2.70 per share, for an
aggregate price of approximately $3.5 million.
From May 1, 1998 to September 30, 1999, we granted options to purchase an
aggregate of 5,489,200 shares of common stock to our directors, executive
officers, employees and consultants at a weighted average exercise price of
$0.42 per share. As of September 30, 1999, no options had been exercised.
In May 1999, we issued an aggregate of 1,217,756 shares of our common stock
to six employees in exchange for an equal number of shares of common stock
pursuant to Stock Exchange and Restriction Agreements with each of these
stockholders which placed transfer restrictions on the exchanged shares.
In August 1999, we issued 640,000 shares of our common stock to two holders
of shares of ValueClick Japan, in exchange for shares in ValueClick Japan equal
to 22.3% of the outstanding equity of ValueClick Japan.
The issuances of the above securities were exempt from registration under
the Securities Act in reliance on Section 4(2) or Regulation D of the Securities
Act as transactions by an issuer not involving any public offering or Rule 701
under the Securities Act. The recipients of securities in each transaction
represented their intentions to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the share certificates and warrants issued
in these transactions. All recipients had adequate access, through their
relationships with the Registrant, or otherwise, to information about the
Registrant.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
See Exhibit Index at page II-6.
(b) Financial Statement Schedules
None required.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in
denominations as required by the underwriters and registered in names as
required by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
indemnification is against public policy as expressed in the Securities Act, and
is, therefore, unenforceable. In the event that a claim for indemnification
against 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 a
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether indemnification by it is against public policy
as expressed in the Securities Act and will be governed by the final
adjudication of this issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities 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 Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
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 this offering of these securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Carpinteria, State of
California on October 8, 1999.
<TABLE>
<S> <C> <C>
VALUECLICK, INC.
By: /s/ JAMES R. ZARLEY
-----------------------------------------
James R. Zarley
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James R. Zarley and Kurt A. Johnson, and each of
them, as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, or any related registration
statement filed pursuant to Rule 462(b) under the Securities Act of 1933, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission and any other regulatory
authority, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or either
of them, or their or his substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ JAMES R. ZARLEY
- ------------------------------ Chairman of the Board and October 8, 1999
James R. Zarley Chief Executive Officer
/s/ EARLE A. MALM II Vice Chairman of the Board
- ------------------------------ and Chief Marketing October 8, 1999
Earle A. Malm II Officer
/s/ BRIAN CORYAT
- ------------------------------ Director, President and October 8, 1999
Brian Coryat Chief Operating Officer
/s/ KURT A. JOHNSON Chief Financial Officer
- ------------------------------ (Principal Financial and October 8, 1999
Kurt A. Johnson Accounting Officer)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ DAVID S. BUZBY
- ------------------------------ Director October 8, 1999
David S. Buzby
/s/ ROBERT D. LEPPO
- ------------------------------ Director October 8, 1999
Robert D. Leppo
/s/ MARTIN HART
- ------------------------------ Director October 8, 1999
Martin Hart
/s/ STEVEN J. UMBERGER
- ------------------------------ Director October 8, 1999
Steven J. Umberger
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1 *Form of Underwriting Agreement.
3.1 *Amended and Restated Certificate of Incorporation of the Registrant, as currently in effect.
3.2 *Bylaws of the Registrant.
4.1 See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated Certificate of Incorporation and
Bylaws for the Registrant defining the rights of holders of Common Stock of the Registrant.
4.2 *Specimen Stock Certificate.
5.1 *Opinion of Brobeck, Phleger & Harrison LLP.
10.1 Deed of Assignment, dated January 1, 1999, by and between Web-Ignite Corporation and the Registrant.
10.2 Trademark Assignment, dated as of May 1, 1998, from Web-Ignite Corporation to the Registrant.
10.3 Exchange Agreement, dated December 31, 1998, by and between the Registrant and ValueClick, LLC.
10.4 Bill of Sale and Assignment and Assumption of Liabilities, dated December 31, 1998.
10.5 Loan and Share Issuance Agreement, dated October 22, 1998, by and between ValueClick, LLC and Jonathan
Hendriksen.
10.6 License and Option Agreement, dated January 1, 1999, by and between ValueClick, LLC and ValueClick
Japan, Inc.
10.7 Stock Purchase Agreement, dated August 6, 1999, by and between Jonathan Hendriksen and Timothy Williams
and the Registrant.
10.8 *Shareholders' Agreement, dated August 17, 1999, by and among Steve Umberger, Todd Truesdell, Brian
Coryat, Jim Zarley, the Registrant and ValueClick Europe, Limited.
10.9 License Agreement, dated August 17, 1999, by and between the Registrant and ValueClick Europe, Limited.
10.10 *1999 Stock Option Plan, as amended, and form of option agreement.
10.11 *Key Employee Agreement between the Registrant and Kurt A. Johnson.
10.12 *Key Employee Agreement between the Registrant and James R. Zarley.
10.13 *Key Employee Agreement between the Registrant and Earle A. Malm II.
10.14 *Key Employee Agreement between the Registrant and John H. Schwenk.
10.15 Form of Employee Confidentiality, Noncompetition and Invention Agreement between the Company each of its
directors and officers and certain employees.
10.16 Sublease, dated April 1, 1999, between QAD, Inc. and the Registrant.
10.17 Lease, dated August 30, 1999, by and between William D. and Edna J. Wright, dba South Coast Business
Park and the Registrant.
10.18 Service Agreement, dated August 17, 1999, by and between SoftAware, Inc. and the Registrant.
10.19 Service Agreement, dated June 8, 1999, by and between Verio and the Registrant.
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.20 *Form of Indemnification Agreement between the Company and each of its directors and officers.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 *Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-4).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
II-7
<PAGE>
EXHIBIT 10.1
DEED OF ASSIGNMENT
To Assignee:
Name: ValueClick, Inc.
Address: 6450 Via Real
Carpinteria, CA 93013
Nationality: U.S.A.
I / We hereby confirm that I / We assigned the following trademark(s)
to you:
Trademark Application No. 10-24341
Assignor:
Name: Web-Ignite Corporation
Address:
Representative: Brian Coryat, President
Nationality: U.S.A.
By: /s/ Brian Coryat (Signature)
------------------------------------
Brian Coryat
Title: President
Date: January 1, 1999
<PAGE>
EXHIBIT 10.2
TRADEMARK ASSIGNMENT
This Assignment ("Assignment") is made effective as of May 1, 1998 from
Web Ignite Corporation("ASSIGNOR"), To ValueClick, LLC ("ASSIGNEE"):
WHEREAS, ASSIGNOR is the owner of the trademarks (the Marks") and other
intellectual property ("the Property") as described in Exhibit A, attached
hereto and incorporated by reference herein, together with the goodwill of the
business symbolized thereby in connection with the goods on which the Marks are
used ("the Products").
WHEREAS, ASSIGNOR desires to convey, transfer, assign, deliver, and
contribute to ASSIGNEE all of its right, title, and interest in and to the Marks
and the Property.
NOW, THEREFORE, in consideration of the payment of One Dollar ($1.00)
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, ASSIGNOR hereby conveys, transfers, assigns, delivers,
and contributes to ASSIGNEE all of ASSIGNOR'S right, title, and interest of
whatever kind in and to the Marks and the Property, together with (1) the
goodwill of the business relating to the Products in respect upon which the
Marks are used and for which they are registered: (2) all income, royalties, and
damages hereafter due or payable to ASSIGNOR with respect to the Marks,
including without limitation, damaged, and payments for past or future
infringements and misappropriations of the Marks: and (3) all rights to sue for
past, present and future infringements or misappropriations of the Marks.
ASSIGNOR further covenants that it will execute all documents, papers,
forms and authorizations and take all other actions that may be necessary for
securing , completing, or vesting in ASSIGNEE full right, title, and interest in
the Marks and the Property.
IN WITNESS WHEREOF, ASSIGNOR has duty executed under seal and delivered
this Assignment, as of the day and year first above written.
WEB IGNITE CORPORATION
/s/ Brian Coryat
---------------------------
by Brian Coryat, President
ACKNOWLEDGEMENT
State Of California )
)
County of Santa Barbara )
On July 8, 1998 before me, TATUM SARINANA, Notary Public, personally
appeared BRIAN CORYAT, proved to me on the basis of satisfactory evidence to be
the person(s) whose name is subscribed to the within instrument and acknowledged
to me that he executed the same in his authorized capacity, and that by his
signature on the instrument the person, or the entity upon behalf of which the
person acted, executed the instrument.
WITNESS my hand and official seal.
[ILLEGIBLE]
- --------------------------------
Signature of Notary Public
[SEAL]
<PAGE>
EXHIBIT A
TRADEMARKS
<TABLE>
<CAPTION>
MARK APPLICATION NO. REGISTRATION NO. FILING DATE REGISTRATION DATE
- ------------- ---------------- ---------------- ----------- -----------------
<S> <C> <C> <C> <C>
1. VALUECLICK 75/365,624 (USA) N/A 9/26/1997 N/A
2. VALUECLICK Class 35 (JAPAN) N/A 03/25/1998 N/A
</TABLE>
OTHER PROPERTY
3. Domain Names
Valueclick.com
value-click.com
valuestats.com
value-stats.com
4. All rights under and to the Agreement dated March 26, 1998 between
Web-Ignite Corporation and Trans-Pacific, Ltd.
5. All rights to the Software known as the ValueClick software defined as
that certain computer software known as the "ValueClick Software," which is
described as "software designed to deliver banner advertisements, in the form
of GIF images, to registered ValueClick host sites using HTTP." The
ValueClick software has been designed to work on a FreeBSD platform using the
Apache web server with the "mod-perl" module. The software requires perl
version 5.00404 or higher, the inclusion of the CGI.pm perl module, the SMBD
perl module, and the IO::socket perl module ("Program").
<PAGE>
EXHIBIT 10.3
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT is made as of December 31, 1998, by
and among ValueClick, Inc., a Delaware corporation (the "Company"), and
ValueClick, LLC, a California limited liability company (the "Stockholder"),
with reference to the following facts:
The parties hereto desire to enter into an agreement under
the terms of which the Stockholder will contribute all of its assets (the
"Assets") to the capital of the Company on the Company's initial
organization, in exchange for the following shares of the Company's
authorized and unissued capital stock: 4,655,063 shares of Common Stock, par
value $0.001 per share, 297,132 shares of Series A Convertible Preferred
Stock, par value $0.001 per share, and 1,047,804 shares of Series B
Convertible Preferred Stock, par Value $0.001 per share, all such shares
being herein collectively called the "Shares". Immediately after the
contribution of the Assets in exchange for the Shares, the Stockholder will
dissolve and distribute the Shares to its members, as their interests may
appear.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements herein and in consideration of the
contribution by Stockholder to the Company of the Assets, receipt of which is
hereby acknowledged by the Company, the parties agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. The
Stockholder represents and warrants to and agrees with the Company:
1.1 REVIEW OF DOCUMENTS. The Stockholder acknowledges
having had access to all of the books and records of the Company and having
conducted a thorough and comprehensive investigation of the Company. The
Stockholder is entering into this Agreement and the transactions contemplated
hereby solely in reliance on its own investigation.
1.2 ACQUISITION OF SHARES FOR OWN ACCOUNT. The Stockholder
is acquiring Shares pursuant to this Agreement with the Stockholder's own
funds, for the Stockholder's own account, not as a nominee or agent, except
that the Stockholder intends forthwith to dissolve and distribute the Shares
to its members.
1.3 RESTRICTED NATURE OF SHARES. The Stockholder and its
members are able to bear the economic risk of the Stockholder's investment in
the Shares and are aware that they must be prepared to hold the Shares for an
indefinite period and that the Shares have not been registered under the
Securities Act of 1933, as amended (the "Act"), or registered or qualified
under the California Corporate Securities Law of 1968, as amended (the
"Law"), or any other securities law, on the ground, among others, that no
distribution or public offering of Shares is to be effected and Shares are
being issued by the Company without any public offering within the meaning of
section 4(2) of the Act and Regulation D thereunder, and comparable
provisions of the Law and other state securities laws.
1
<PAGE>
1.4 SOPHISTICATION. The Stockholder's principal executive
officer acting on behalf of the Stockholder and each member of the
Stockholder have such knowledge and experience in financial and business
matters that he or she is capable of evaluating the merits and risks of the
investment by the Stockholder and its members contemplated by this Agreement
and has the capacity to protect the interests of the Stockholder or such
member, respectively.
1.5 AGREEMENT TO REFRAIN FROM RESALES. The Stockholder, for
itself and its members, further agrees that they shall not encumber, pledge,
hypothecate, sell, transfer, assign or otherwise dispose of (except as
provided in section 3), or receive and consideration for, any Shares or any
interest in any Shares, unless and until prior to any proposed encumbrance,
pledge, hypothecation, sale, transfer, assignment or other disposition,
either (a) a registration statement on Form S-1 (or any other form
appropriate for the purpose or replacing such form) under the Act with
respect to the Shares proposed to be transferred or otherwise disposed of
shall be then effective or (b)(1) the Stockholder and its members shall have
furnished the Company with a detailed statement of the circumstances of the
proposed disposition, (2) the Stockholder and its members shall have
furnished the Company with an opinion of counsel (obtained at their expense)
in form and substance satisfactory to the Company to the effect that such
disposition will not require registration of such Shares under the Act or
registration or qualification of such Shares under the Law or any other
securities law and (3) counsel for the Company shall have concurred in such
opinion of counsel.
1.6 CERTIFICATES TO BE LEGENDED. The Stockholder
understands and agrees that each certificate representing Shares will bear a
legend on the face thereof (or on the reverse thereof with a reference to
such legend on the face thereof) in substantially the form set forth below,
which legend restricts the sale, transfer or other disposition of Shares
otherwise than in accordance with this Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES MAY NOT BE
ENCUMBERED, PLEDGED, HYPOTHECATED, SOLD, ASSIGNED, TRANSFERRED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SHARES UNDER SAID ACT OR AN OPINION OF COUNSEL
SATISFACTORY IN FORM AND SUBSTANCE TO THE CORPORATION AND CONCURRED IN
BY THE CORPORATION'S COUNSEL TO THE EFFECT THAT SUCH REGISTRATION IS
NOT REQUIRED UNDER SAID ACT OR SUCH TRANSACTION COMPLIES WITH RULES
PROMULGATED BY THE SECURITIES AND EXCHANGE COMMISSION UNDER SAID ACT.
The Stockholder also understands and agrees that each certificate
representing Shares may also contain any legend required by the California
Commissioner of Corporations which may further restrict transfers of the
Shares.
2
<PAGE>
1.7 SHARES WILL BE "RESTRICTED SECURITIES". The Stockholder
understands and agrees that the Shares will be "restricted securities" as
that term is defined in Rule 144 under the Act and, accordingly, that the
Shares must be held indefinitely unless they are subsequently registered
under the Act or an exemption from such registration is available.
1.8 COMPANY MAY REFUSE TO TRANSFER. If at any time, in the
opinion of counsel for the Company, the Stockholder or any of its members has
acted or acts in any manner not consistent with the representations and
agreements of the Stockholder in this Agreement, the Company may refuse to
transfer the Stockholder's or any such member's Shares until such time as
counsel for the Company is of the opinion that such transfer is in all
respects in compliance with this Agreement and will not require registration
of such Shares under the Act or registration or qualification of such Shares
under any other securities law.
1.9 SURVIVAL. All representations and warranties in this
Agreement shall survive the consummation of the transactions contemplated by
this Agreement.
2. ISSUANCE OF SHARES. Subject to and in reliance on the
representations, warranties and agreements of the parties, the Stockholder
hereby contributes to the Company all of the Assets in exchange for the
Shares, and the Company hereby assumes all of the debts, duties, obligations
and liabilities of the Stockholder. To evidence such contribution and
assumption, the Stockholder and the Company each represent that they have
duly executed and are delivering herewith to each other a Bill of Sale and
Assignment and Assumption of Liabilities in the form of Exhibit A attached
hereto.
3. DISSOLUTION OF STOCKHOLDER. The Company acknowledges that the
Stockholder intends forthwith to dissolve and distribute the Shares to the
members of the Stockholder in accordance with the interests of such members.
The Company hereby consents to such distribution.
4. APPROVALS. The Company agrees to apply for, and use its best
efforts to obtain, all governmental and administrative approvals required in
connection with the issuance of Shares under this Agreement. The parties
agree to cooperate in obtaining such approvals and to execute any and all
documents or instruments that, in the opinion of the Company, may be
required, appropriate or desirable to be executed by them in connection with
such approvals. The Company shall pay all costs and filing fees in connection
with obtaining such approvals. This section 4 shall not be construed or
interpreted to alter the provisions of section 1 and, in particular, shall
not be deemed to impose on the Company any obligation to cause any securities
to be registered under the Act or registered or qualified under the Law or
any other securities law or to comply with the conditions for any exemption
from the registration provisions of the Act or the registration or
qualification provisions of the Law or any other securities law, except with
respect to compliance on initial issuance of the Shares with the Act, the Law
and all other applicable securities laws.
5. FURTHER ASSURANCES. The parties shall do or perform any and all
such further acts and things and execute and deliver any and all such
documents and instruments as may be reasonably necessary to carry out the
provisions of this Agreement.
3
<PAGE>
6. RESTRICTIONS TO RUN WITH SHARES. The covenants, conditions and
restrictions herein shall be and constitute convenants, conditions and
restrictions running with all of the Shares, and none of the Shares shall be
sold, assigned, transferred, encumbered, pledged, hypothecated, given as a
gift or otherwise disposed of or alienated in any way by any person except in
accordance with this Agreement. The parties agree that stop order
instructions prohibiting transfer of certificates for Shares will be issued
and filed by the Company on its records or with the Company's transfer agent
to prevent any disposition otherwise than strictly in accordance with this
Agreement and agree to cause the officers of the Company to refuse to record
on the books of the Company any assignments or transfers made or attempted to
be made except in accordance with this Agreement and to cause said officers
to refuse to cancel certificates, or issue or deliver new certificates
therefor, where the purchaser, assignee, pledgee, donee or other transferee
has acquired certificates or any Shares represented thereby otherwise than
strictly in accordance with this Agreement. Any person who acquires any
Shares or any interest therein shall hold such Share or interest subject to
this Agreement.
7. SUCCESSORS AND ASSIGNS. Without limiting the restrictions on
transfers herein, this Agreement shall bind and inure to the benefit of and
be enforceable by the Company, the Stockholder and the members of the
Stockholder and their respective successors, assigns, personal or legal
representatives, heirs and legatees, whether herein so expressed or not.
8. SHARES MAY BE FURTHER RESTRICTED. The Stockholder understands and
agrees that, if the Company at any time proposes to sell shares of its Common
Stock in a public offering registered under the Act or exempt from
registration under the Act under Regulation A promulgated under the Act, (a)
the Stockholder will enter into any agreement requested by the Company or
underwriters of such offering, prohibiting any disposition of the Shares for
a period not in excess of six months after the date of such offering, and (b)
the Stockholder will enter into any agreement that the Company may consider
necessary for the successful completion of such public offering under the
securities or Blue Sky laws of certain states that require as a condition of
registration or such exemption that some or all of the Shares be deposited in
an escrow or be subject to waivers of rights to dividends to assets on
liquidation, or both, for an extended period of time, subject to release if
certain financial or market requirements are met and partial cancellation if
such requirements are not met.
9. NOTICES. All notices, requests, demands and other communications
hereunder must be in writing and shall be deemed to have been duly given and
received when delivered personally, when transmitted by facsimile if receipt
is acknowledged by the addressee, one day after being deposited for next-day
delivery with a nationally recognized overnight delivery service, or three
days after being mailed by first class mail, charges and postage prepaid, and
properly addressed, if to the Company, at its principal executive office, or
if to the Stockholder or any of its members, at the Stockholder's or
member's address as it appears on the records of the Company, or any other
address that any party may designate by notice to the others.
10. ENTIRE AGREEMENT. This Agreement contains the entire agreement
of the parties and supersedes all prior or contemporaneous negotiations,
correspondence, understandings and agreements, written or oral, between the
parties hereto, regarding the subject matter hereof.
4
<PAGE>
11. GOVERNING LAW. This Agreement shall be governed by and construed
and interpreted in accordance with the laws of the State of California.
12. HEADINGS. The headings of sections hereof are for convenience of
reference only and are not part of this Agreement.
13. CALIFORNIA SECURITIES LAW. The sale of the securities which are
the subject of this Agreement has not been qualified with the Commissioner of
Corporations of the State of California and the issuance of such securities
or the payment or receipt of any part of the consideration therefor prior to
such qualification is unlawful, unless the sale of securities is exempt from
the qualification by section 25100, 25102 or 25105 of the Law. The rights of
all parties to this Agreement are expressly conditioned on such qualification
being obtained, unless the sale is so exempt or such qualification provisions
are preempted by Federal law.
IN WITNESS WHEREOF, this Agreement has been duly executed
by or on behalf of the parties hereto as of the date first above written.
VALUECLICK, LLC VALUECLICK, INC.
By: /s/ BRIAN CORYAT By: /s/ BRIAN CORYAT
------------------------- --------------------------
Brian Coryat, President Brian Coryat, President
5
<PAGE>
EXHIBIT A
BILL OF SALE AND ASSIGNMENT
AND
ASSUMPTION OF LIABILITIES
FOR VALUABLE CONSIDERATION, the receipt and sufficiency of
which are hereby acknowledged, pursuant to that certain Exchange Agreement
dated as of December 31, 1998 (the "Agreement"), and in consideration of the
issuance to ValueClick, LLC ("Transferor") of 4,655,063 shares of the Common
Stock, par value $0.001 per share, 297,132 shares of series A Convertible
Preferred Stock, par value $0.001 per share, and 1,047,804 shares of Series B
Convertible Preferred Stock, par value $0.001 per share, of ValueClick, Inc.,
a Delaware corporation (the "Company"), receipt of which is hereby
acknowledged, Transferor hereby contributes, assigns, conveys and transfers
to the Company all of Transferor's tangible and intangible assets, including
without limitation, the assets identified or described on Exhibit A attached
hereto and incorporated herein by this reference (the "Assets"). Transferor
covenants and warrants that:
(a) Transferor has fully paid for, and is the owner of, and
has absolute title to, all of the Assets, free and clear of all
mortgages, pledges, liens, claims, charges, encumbrances, community
property rights, security interests and other defects of title, of any
kind or nature, except only as is expressly set forth in said Exhibit
A.
(b) Transferor has not made any prior sale, assignment,
transfer or other disposition of any of the Assets to any person, firm
or association.
(c) Transferor has all right, power, authority and capacity to
contribute, assign, convey and transfer each and all of the Assets to
the Company.
(d) None of the licenses or permits, or leases or other
contracts, if any, included in the Assets has been amended or changed,
nor have any oral or written notices of breach, violation or default
been received by Transferor under any of such licenses, permits, leases
or contracts.
(e) No notice is necessary or desirable to be given to, and no
consent or approval is necessary or desirable to be obtained from, any
party or governmental authority in connection with the transactions
effected hereby, except such as have been given or obtained by
Transferor and are in full force and effect.
(f) All acts, proceedings and things necessary and required by
law and any instrument to which Transferor is a party or by which
Transferor is bound to make this Bill of Sale and Assignment and
Assumption of Liabilities a valid, binding and legal obligation of
Transferor, have been done and taken and have happened, and the
execution and delivery of this Bill of Sale and Assignment and
A-1
<PAGE>
Assumption of Liabilities have in all respects been authorized in
accordance with law.
Transferor shall forever warrant and defend the
contribution, assignment, transfer, conveyance and delivery of each and every
item of the Assets to the Company and the Company's successors and assigns,
against each and every person lawfully claiming the same. Possession of all
of the Assets and any and all instruments representing the same is being
delivered to the Company concurrently with this Bill of Sale and Assignment
and Assumption of Liabilities.
Transferor hereby appoints the Company as Transferor's
attorney-in-fact to demand, receive and collect for the Company's own use and
benefit all debts and obligations owing to Transferor on the effective date
hereof in connection with the Assents. Transferor further authorizes the
Company to do all things legally permissible that may be required to recover
and collect such debts and obligations and to use Transferor's name in any
manner the Company may deem necessary for the collection and recovery of
those debts and obligations but without cost, expense or damage to Transferor.
The Company hereby assumes the performance and payment when
due of all of the debts, duties, obligation and liabilities of Transferor,
including, without limitation, the terms, covenants and conditions imposed on
Transferor under or in connection with all leases and contracts included in
the Assets and all permits, licenses and authorizations included in the
Assets. The Company agrees to indemnify Transferor and hold Transferor
harmless from and against any and all of such terms, covenants and
conditions. In connection with the dissolution of the Transferor, the Company
hereby agrees to assume and pay in full when due all tax liabilities,
penalties, interest and fees of the Transferor.
This Bill of Sale and Assignment and Assumption of
Liabilities shall bind and inure to the benefit of Transferor and the Company
and their respective successors and assigns.
This Bill of Sale and Assignment and Assumption of
Liabilities shall be governed by and construed and interpreted in accordance
with the laws of the State of California.
IN WITNESS WHEREOF, this Bill of Sale and Assignment and
Assumption of Liabilities has been duly executed by or on behalf of
Transferor and the Company on this 31st day of December, 1998, in Santa
Barbara, California.
VALUECLICK, INC. VALUECLICK, LLC
By: /s/ BRIAN CORYAT By: /s/ BRIAN CORYAT
-------------------------- ---------------------------
Brian Coryat, President Brian Coryat, President
A-2
<PAGE>
EXHIBIT A
1. All rights to the trademark VALUECLICK in the United States and
associated good will represented by Application Serial No. 75/365,624 filed
in the United States Patent and Trademark Office on September 26, 1997, which
has been assigned by Web-Ignite Corporation to ValueClick, LLC concurrently
herewith.
2. All rights to the trademark VALUECLICK in JAPAN and associated
goodwill represented by the Application filed in Class 35 in the Japanese
Patent Office on March 25, 1998, claiming Priority Convention, which has been
assigned by Web-Ignite Corporation to ValueClick, LLC concurrently herewith.
3. All rights to the domain names ValueClick.com, Value-Click.com and
other domain names that contain either or both of the words "value" and
"click."
4. All rights to that certain "Trademark license, Software license, and
Copyright Agreement" dated March 26, 1998, between Web-Ignite Corporation and
Trans-Pacific, Ltd.
5. All rights to that certain computer software known as the
"ValueClick Software," which is described as "software designed to deliver
banner advertisements, in the form of GIF images, to registered ValueClick
host sites using HTTP." The ValueClick software has been designed to work on
the FreeBSD platform using the Apache web server with the "mod-perl" module.
The software requires perl version 5.00404 or higher, the inclusion of the
CGI.pm perl module, the SMBD perl module, and the IO::socket perl module. The
rights to such software include the copyright to such software, as assigned
to Web-Ignite Corporation, and the trade secrets associated with the software
that are necessary to operate the program. All rights to the ValueClick
Software have been assigned by Web-Ignite Corporation to ValueClick, LLC
concurrently herewith.
[BRIAN: ADD OTHER ASSETS THAT ARE BEING TRANSFERRED.]
A-3
<PAGE>
CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT
[FORM]
A-4
<PAGE>
EXHIBIT 10.5
LOAN AND SHARE ISSUANCE AGREEMENT
This Agreement (the "Agreement") is entered into as of 22 October 1998,
by and between ValueClick, LLC, a California limited liability company
("ValueClick") and Jonathan Hendriksen ("Hendriksen").
WHEREAS Hendriksen intends to cause the incorporation of a Japanese joint
stock corporation (KABUSHIKI KAISHA) to be known as "ValueClick Japan Inc."
(the "Company") and immediately following its incorporation will be the
Company's representative director; AND WHEREAS the parties have agreed that
ValueClick will make a loan on the terms and conditions below (the "Loan") to
Hendriksen to help him establish the Company.
NOW THEREFORE the parties intending to be legally bound hereby agree as
follows.
1. LOAN ADVANCE. Forthwith upon the execution of this Agreement, ValueClick
shall make the Loan by advancing the sum of One Hundred Thousand United
States Dollars (US$100,000) to Hendriksen by wire transfer to a bank
account in Japan designated by Hendriksen.
2. INTEREST AND REPAYMENT. The Loan shall bear interest at the rate of ten
percent (10%) per annum. Hendriksen shall repay the Loan, both principal
and interest, forthwith upon demand by ValueClick.
3. SHARE ISSUANCE. Upon the Company's incorporation, Hendriksen shall cause
the Company (a) to issue to ValueClick common shares in the Company
equivalent to thirty one and seven tenths percent (31.7%) of its issued and
outstanding capital stock (the "Shares") and (b) provide ValueClick with a
share certificate evidencing ValueClick's ownership of the Shares (the
"Certificate"). Hendriksen shall determine the subscription price for the
Shares and shall pay such amount into the Company on ValueClick's behalf
out of the Loan advance.
The Company shall have no issued or authorized capital stock other than
common shares. ValueClick shall cooperate in the said share issuance by
executing such standard documents as may reasonably be required.
4. LOAN CANCELLATION. Notwithstanding anything in this Agreement, the Loan
shall be deemed cancelled and satisfied in full immediately upon the
Company's issuance of the Certificate. Thereafter, Hendriksen shall not be
required to make any repayment of principal or interest on the Loan.
5. GOVERNING LAW. This Agreement shall be governed by and interpreted in
accordance with the laws of Japan.
ValueClick, LLC
/s/ Jonathan Hendriksen /s/ [illegible]
------------------------ ----------------------------
Jonathan Hendriksen per Brian Coryat, President
<PAGE>
LICENSE AND OPTION AGREEMENT
This License and Option Agreement (the "Agreement") is entered
into as of January 1, 1999, by and between ValueClick, LLC, a California limited
liability company (the "Licensor") and ValueClick Japan Inc., a Japanese joint
stock corporation ("Licensee") with reference to the following facts:
A. Web-Ignite Corporation, a California Corporation, and
Trans-Pacific, Ltd. executed a Trademark License, Software License, and
Copyright Agreement dated March 26, 1998 (the "Prior Agreement"). Web-Ignite
Corporation assigned all of its rights under the Prior Agreement to Licensor.
Trans-Pacific, Ltd. assigned all of its rights in the Prior Agreement to
Licensee. Licensor and Licensee desire to enter into this Agreement to confirm
the business relationship established under the Prior Agreement and to set forth
in full the terms and conditions between the parties.
B. Licensor is operating an internet-based advertising and
marketing tracking Service throughout the world which uses proprietary Software
to monitor and report to advertisers and to website hosts the number of times
that computer users access particular advertisements on host websites. The
Software and related materials permit the user to post banner advertisements on
the website and to collect, analyze and report data regarding advertising on the
websites. Licensor markets the Services and the proprietary Software under the
mark VALUECLICK.
C. Pursuant to the Prior Agreement, Licensee is using the
Software to provide and market the ValueClick Services on an exclusive basis to
customers for the Japanese language and desires to continue as the exclusive
licensee for the ValueClick System for the Japanese language.
D. In addition, Licensor desires that Licensee grant Licensor
an option to acquire Licensee in a stock-for-stock exchange on the terms and
subject to the conditions described in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties and covenants herein, Licensor and Licensee agree as
follows:
1. DEFINITIONS. Certain capitalized terms used in this Agreement
shall have the meaning ascribed to such terms in the Glossary attached as
Exhibit A and incorporated herein by this reference.
2. PRIOR AGREEMENT. Upon execution of this Agreement by Licensor and
Licensee, the Prior Agreement shall automatically be terminated, and shall be
superseded and replaced by this Agreement which shall govern the rights and
obligations of Licensor and Licensee from October1, 1998 (the "Effective Date")
with respect to the matters covered by this Agreement.
1
<PAGE>
3. GRANT OF LICENSE. Subject to the terms and conditions in this
Agreement, Licensor hereby grants to Licensee the following rights and licenses
with respect to the exclusive use by Licensee of the System in the Territory
during the term of this Agreement:
3.1 EXCLUSIVE USE OF SYSTEM IN TERRITORY. Licensor grants
Licensee the exclusive right and license to use, operate, and administer the
System to market and offer the Services, but only to customers within the
Territory. The fees and other amounts charged to its customers by Licensee
shall be determined solely by Licensee.
3.2 SOFTWARE LICENSE. Licensor grants Licensee a
non-transferable object-code only license to install and use the Software
only on Licensee's Server and only for the purpose of operating the System
and providing the Services pursuant to this Agreement. Licensee may not
sell, sublicense, distribute or otherwise transfer the Software to any other
person and may not allow any other person to copy or otherwise reproduce or
recreate the Software. Licensee has the right to make an archival copy of the
Software solely for backup purposes, but may not install the Software on any
other sever or network without Licensor's prior written consent, which shall
not be unreasonably withheld.
3.3 LICENSED MARKS. Licensor grants Licensee the exclusive,
non-transferable right to use and publicize the Licensed Marks within the
Territory in connection with the marketing, operation and administration of the
Services and the use of the System. Licensee agrees to use the Licensed Marks
at all times in connection with the marketing and sale of the Services, and
agrees not to offer the Services or any similar services under any other marks
or names during the term of this Agreement.
3.4 COPYRIGHT LICENSE. Licensor grants Licensee the
exclusive, non-transferable right to use, reproduce, publish, distribute,
translate and adapt the Licensed Copyrights in connection with the marketing,
operation and administration of the Services and the use of the System within
the Territory. Except as necessary to create the Localized Versions of the
Software and the Documentation, Licensee shall not alter or modify the
Licensed Copyrights, or create derivative works based on the Licensed
Copyrights, without Licensor's prior written consent.
4. TERRITORY. Licensee agrees that it will not offer the Services to
any customer outside the Territory and shall not enter into any agreement with
any customer within the Territory if Licensee is aware that such customer
intends or is likely to use the Services substantially outside the Territory.
Licensee agrees that it will not use, or assist others to use, or knowingly
allow or assist others to use the System to develop any product or service that
is similar to or competes with the Software or the Services within the
Territory.
5. TERM. The term of this Agreement shall commence on the effective
date and shall remain in effect for a period of ten (10) years unless earlier
terminated in
2
<PAGE>
accordance with the provisions of this Agreement. The termination rights in
this Agreement are in addition to and not in lieu of any other available
rights and remedies.
6. LICENSE FEE. In consideration of the execution of this Agreement
and the grant of the license rights by Licensor. Licensee shall pay Licensor a
license fee (the "License Fee") which shall be calculated and paid as follows:
6.1 CALCULATION OF LICENSE FEE. Licensee agrees to pay
Licensor a monthly license fee equal to the greater of: (i) ten percent (10%) of
the Net Revenue of Licensee for that month (the "License Fee"), or (ii) $3,500
(the "Minimum License Fee").
6.2 TAXES AND WITHHOLDING. Licensee shall be responsible for
and shall pay all taxes, (including sales, use, VAT, excise or similar taxes),
all customs fees and duties, and any non-U.S. withholdings and other
governmental taxes or assessments by Japan or any other country related to the
License Fees, the payment thereof to Licensor, and any other amounts payable
hereunder.
6.3 PAYMENT. The License Fee shall be payable monthly on the
fifteenth (15th) day of each month (the "Payment Date") with respect to the Net
Revenues received by Licensee during the previous month. All License Fees
payable to Licensor shall be paid within the United States and in United States
dollars, and shall be paid via wire transfer by Licensee directly to the bank
account designated by Licensor. The License Fee (including the Minimum License
Fee described in Section 6.1) shall be non-refundable and shall not be subject
to deduction, offset or withholding of any kind. Failure to pay the License Fee
when required by this Agreement shall constitute a material breach of this
Agreement. All late payments will be assessed a late fee charge equal to the
greater of one and one-half percent (1-1/2%) per month.
6.4 MINIMUM GROSS REVENUE. For each three-month period during
the term hereof (on a rolling three-month basis), Licensee must generate at
least 2,500,000 Japanese Yen in gross revenue (the "Minimum Gross Revenue") from
operation of the System.
6.5 MONTHLY STATEMENTS. Licensee shall deliver to Licensor
on each Payment Date (a) a monthly statement in form and content acceptable
to Licensor showing the amount of gross revenue and Net Revenues for the
applicable month (with supporting computations), (b) the License Fee (or
Minimum License Fee as applicable) due for the month and (c) any other
information about the Licensee's business reasonable requested by Licensor.
Licensee shall maintain true and accurate books of account and records during
the term of this Agreement and shall keep such books and records for a period
of four (4) years thereafter. Licensor shall have the right, upon reasonably
advance notice, to have its representative examine and audit the books and
records of Licensee to determine the accuracy of Licensee's monthly
statements. If any audit reveals that Licensee has underpaid License Fees or
any other amount due under this Agreement by five percent (5%) or more,
Licensee shall be required to pay for the cost of the audit.
3
<PAGE>
7. OWNERSHIP RIGHTS. All right, title and interest in and to the
System, and each element thereof (including all intellectual property rights
relating thereto), and all related materials created or furnished by Licensor
and licensed under this Agreement shall be and remain the sole and exclusive
property of Licensor, subject only to the license rights expressly granted in
this Agreement. Licensee acknowledges that Licensor shall have the unrestricted
right to use the System and to offer and operate the Services in any manner and
for any purpose and to appoint or license any other person to do so outside the
Territory at any time and, within the Territory, at any time after termination
of this Agreement for any reason. Any enhancement, modifications, new features
or other improvements to the System ("Improvements") made by Licensor or any
other person (including Licensee) shall be the sole and exclusive property of
Licensor. Licensee hereby agrees to assign to Licensor any and all rights
Licensee may have in any Improvements.
7.1 NOTICES. Licensee may not remove or change any copyright
notices, service mark or trademark designations, or other proprietary notices
included on any element of the System or on any screen displays, documents or
materials produced by the Software. Licensee shall submit any material,
including any advertising or promotional materials containing the Licensed Marks
or the Licensed Copyrights to Licensor for Licensor' review and approval. Such
approval shall not be un reasonably withheld, and shall be deemed given unless
Licensor notifies Licensee of disapproval within seven (7) days after receipt of
Licensee's request for approval. Licensee shall not include or attach any
additional service marks, trademarks or logos to any screen displays, printouts
or other material produced by the System.
7.2 NO CONTEST. Licensee acknowledges that the Licensed Marks,
the Licensed Copyrights and the Software are owned exclusively by Licensor and
Licensee agrees not to challenge the validity of or otherwise contest Licensor's
ownership of such items. Licensee agrees that all use of the Licensed Marks and
the Licensed Copyrights by Licensee shall inure to the benefit of Licensor.
Licensee agrees not to register any of the Licensed Marks or any similar mark in
any jurisdiction, and Licensee further agrees to change its name and cease all
use of the Licensed Marks upon termination of this Agreement.
7.3 COOPERATION. Licensee shall cooperate with Licensor and
use its best efforts at Licensor's request to protect the Licensed Marks,
Licensed Copyrights and other elements of the System, and the intellectual
property rights related thereto, from infringement by other parties. Licensee
shall promptly notify Licensor if Licensee becomes aware of any act by any third
party that may constitute an infringement of any element of the System or that
may constitute unfair competition or other unfair business practices against
Licensor or Licensee. Licensee shall also promptly notify Licensor if Licensee
becomes aware of any claims or allegations that the System, or any element
thereof, or the marketing, operation or sale of the Services by Licensee, may or
will infringe the intellectual property or other rights of any other person.
Licensee agrees to cooperate with Licensor to obtain, register and enforce for
Licensor's benefit all intellectual property rights associated with the System.
4
<PAGE>
7.4 CONFIDENTIAL INFORMATION.
(a) Licensee agrees that the Software and the other
non-public elements of the System shall be considered confidential and
proprietary information of Licensor (the "Confidential Information").
Licensee agrees to maintain the Confidential Information as confidential and
not to disclose or publish, or authorize or assist any other person to
disclose or publish, any of such Confidential Information to any other party
except as expressly allowed by this Agreement. Licensee agrees to keep the
Software and other Confidential Information under access and use restrictions
designed to prevent disclosure of such items to unauthorized persons and to
use its best efforts to protect Licensor's rights with respect to the
Software and the Confidential Information. Licensee acknowledges that any
unauthorized disclosure of the Confidential Information or any other breach
by Licensee of its obligation under this Section 7 will cause irrevocable
injury to Licensor which cannot be compensated by monetary damages and that
Licensor shall be entitled to obtain injunctive or other equitable relief.
(b) Licensor agrees to maintain the Confidential
Information of Licensee that is disclosed by Licensee to Licensor as
confidential and not to disclose, publish or authorize or assist any other
person to disclose or publish any such confidential information of Licensee to
any other party except as expressly allowed by this Agreement, and further
agrees to be bound by the last two sentences of Section 7.4(a) with respect to
License's Confidential Information.
(c) Each party agrees to use reasonable care (i.e.,
efforts no less than the standard of care each party reasonably exercises in
protecting its own Confidential Information) to fulfill its obligations to
maintain the confidentiality of the Confidential Information of the other party.
7.5 WEBSITE ADDRESS. Any website address, URL or other
identifying information adopted or obtained by Licensee for any website used in
connection with the marketing or offering of the Services shall be registered by
Licensee in the name of Licensor, provided that Licensee shall have the right to
use such website address or URL during the term of this agreement.
8. QUALITY CONTROL AND SUPPORT.
8.1 QUALITY CONTROL. Licensee shall use the System in
accordance with the quality control standards and operating specifications
set forth on Exhibit B attached hereto, and as Licensor may from time to time
prescribe with respect to the Services and the System, and shall use its best
efforts to protect and enhance the goodwill associated with the Licensed
Marks. Licensee agrees to comply with all applicable laws, statutes,
treaties, regulations, and ordinances in performing its duties hereunder, and
in marketing the Services, and in any of its dealings with respect to the
System.
8.2 TECHNICAL SUPPORT. Licensor will provide reasonable
support and maintenance of the Software to Licensee, provided that Licensor
shall not have any
5
<PAGE>
obligation to provide support or maintenance for Licensee's network, Server,
computer system, equipment or any other items not provided by Licensor.
Licensor shall determine the appropriate manner, timing and amount of support
and maintenance services in its reasonable discretion. Licensor shall
provide software Upgrades to Licensee free of charge if Licensor has
generally adopted such upgrade as part of the basic Software used by Licensor
to offer its Services. Nothing herein shall obligate Licensor to provide
Licensee with any new versions, releases or significant enhancements and new
features available to Licensee on the same terms offered to other licensees.
9. OBLIGATIONS OF LICENSEE.
9.1 BUSINESS RISKS/NATURE OF RELATIONSHIP. Licensee shall
conduct its business as a Licensee and offer and provide the Services at its own
expense and risk and for its own account. Licensee is an independent contractor
and not an employee or agent of Licensor and nothing in this Agreement shall be
interpreted or construed to create any employment, partnership, joint venture or
other relationship between Licensor and Licensee. Licensee shall not have any
right to bind or make any representation on behalf of Licensor. Licensee is
responsible for the selection, acquisition, design and maintenance of its
computer system and equipment and for determining that Licensee's operating
environment for the Software satisfies the technical requirements for the
Software and the System. Licensee shall furnish, at its own expense, all
personnel, computer equipment and other resources necessary to run the software
and operate the System and to offer the Services during the term of this
Agreement. Licensee shall be responsible for the operation of the System within
the Territory, and all related obligations and liabilities, during the term of
this Agreement.
9.2 COMMITMENT. Licensee shall use its best efforts to promote
and market the Services and generate Net Revenues within the Territory.
Licensee shall maintain such staff, equipment and facilities as are required to
adequately serve the reasonably anticipated demands of existing and potential
customers with respect to the Services.
9.3 NO UNAUTHORIZED REPRESENTATIONS. Licensee shall not make
any claims or representations regarding the performance, adequacy, capabilities
or other aspects of the System or the Services to any customer except as are
expressly permitted by Licensor in writing.
9.4 POST-TERMINATION. On termination of this Agreement,
Licensee agrees to immediately cease marketing the Services and cease any
further use of the Licensed Marks and Licensed Copyrights and to follow all
reasonable directions of Licensor for disconnection, removal and return of all
Software and other elements of the System to Licensor. At its option, Licensor
may elect to allow Licensee to continue operating the System to fulfill any
contractual obligations Licensee has to its customers, subject to continuation
of Licensee's obligation to pay License Fees to Licensor, or Licensor may
require that Licensee assign all existing agreements with customers for Services
to Licensor. Licensee further agrees to provide Licensor with a list of all of
6
<PAGE>
Licensee's customers and, upon request by Licensor, to notify those customers
identified by Licensor that the agreement with that customer will be terminated
in thirty (30) days.
9.5 NO REVERSE ENGINEERING. Licensee agrees not to reverse
engineer, decompile, or otherwise attempt to derive or reproduce the source code
for the Software (or any underlying concepts, ideas, algorithms, structure or
organization of the Software.
9.6 NO SUBLICENSE. Licensee shall have no right to sublicense
or otherwise transfer any of the rights granted in this Agreement without the
prior written consent of Licensor.
9.7 FORM OF CUSTOMER AGREEMENT. Licensee agrees that the
agreement used by the Licensee with its customers in the Territory will include
a clause expressly permitting the termination of the agreement by Licensee
without cause on 30 days written notice, and that the form of agreement will be
in form and substance reasonably acceptable to Licensor as to all ownership,
intellectual property, warranty and other matters related to the System and the
Services.
10. REPRESENTATIONS AND WARRANTIES.
10.1 REPRESENTATIONS AND WARRANTIES OF LICENSEE.
(a) Licensee represents and warrants that Licensee is a
Japanese joint stock corporation (Kabushiki Kaisha) duly organized, validly
existing and in good standing under the laws of Japan, that the execution and
performance of this Agreement have been duly authorized and that this Agreement
will constitute a valid and binding obligation of Licensee. Licensee further
represents and warrants that the execution and performance of this Agreement by
Licensee will not violate the terms of any other contract or arrangement to
which Licensee is a party or by which it is bound, and will not violate any
applicable law, statute, treaty or regulation.
(b) Licensee represents and warrants that it understands
that Licensor has not made any representations or promises to Licensee
concerning the operating capabilities of the System other than the written
Documentation delivered to Licensee with the Software, and that Licensor has not
guaranteed or promised that the marketing of the Services in the Territory will
generate any particular level of revenues for Licensee or that Licensee will
make any profit from using the System or entering into this Agreement.
10.2 REPRESENTATIONS AND WARRANTIES OF LICENSOR.
(a) Licensor represents and warrants that Licensee is
a limited liability company duly organized and validly existing and in good
standing under the laws of California, that the execution and performance of
the Agreement have been duly authorized and that this Agreement will
constitute a valid and binding obligation of Licensor. Licensor further
represents and warrants that the execution and performance of
7
<PAGE>
this Agreement by Licensor will not violate the terms of any other contract
or arrangement to which Licensor is a party or by which it is bound, and will
not violate any applicable law, statute, treaty or regulation.
(b) Licensor represents and warrants to Licensee that
Licensor has the right to grant the licenses and rights granted herein and
that, to Licensor's best knowledge, the System does not infringe any
copyright, service mark, trademark, patent, trade secret or other proprietary
right of any third party and that no claim has been made or is pending
against Licensor relative to the System alleging infringement or
misappropriation of any intellectual property right.
(c) THE WARRANTIES OF LICENSOR CONTAINED IN THIS
PARAGRAPH 10.2 ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING THE WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE
AND NON-INFRINGEMENT. LICENSOR DOES NOT GUARANTY THE COMPLETENESS OR ACCURACY
OF THE SYSTEM OR ANY INFORMATION OR OTHER RESULTS GENERATED BY THE SYSTEM.
(d) Licensor shall defend any action brought against
Licensee to the extent such action is based on a claim that the use of the
System directly infringes any service mark, trademark, copyright or patent of
a third party (an "Infringement Action"), and Licensor shall pay any and all
costs, expenses and damages awarded against Licensee in any Infringement
Action provided that (i) Licensor's obligation hereunder are expressly
conditioned on prompt notification from Licensee of any threat or claim of
any Infringement Action (and all claims relating thereto); (ii) Licensor
shall have sole control of the defense and all negotiations, settlement or
compromise of any Infringement Action, and Licensee shall compensate with
Licensor in such defense, and (iii) Licensor shall not be obligated hereunder
to the extent that any such Infringement Action is based on any modification
or alteration made by Licensee to the System or any element or part thereof.
THE FOREGOING STATES THE SOLE AND EXCLUSIVE LIABILITY OF LICENSOR AND THE
EXCLUSIVE REMEDY OF LICENSEE FOR ANY INFRINGEMENT ACTION.
10.3 LIMITED LIABILITY. LICENSEE AGREES THAT ITS EXCLUSIVE
REMEDIES AND LICENSOR'S ENTIRE LIABILITY WITH RESPECT TO THE SYSTEM AND THE
SOFTWARE SHALL BE AS SET FORTH IN THIS SECTION 10. NOTWITHSTANDING ANYTHING
ELSE IN THIS AGREEMENT OR OTHERWISE, LICENSOR WILL NOT BE ABLE LIABLE TO
LICENSEE OR ANY OF ITS CUSTOMERS WITH RESPECT TO ANY SUBJECT MATTER OF THIS
AGREEMENT UNDER THE CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR
EQUITABLE THEORY (I) FOR ANY AMOUNTS IN EXCESS IN THE AGGREGATE OF THE LICENSE
FEES PAID BY THE LICENSEE TO LICENSOR DURING THE TWELVE- (12-) MONTH PERIOD
PRIOR TO THE DATE THE CAUSE OF ACTION AROSE, OR (II) FOR ANY INCIDENTAL OR
CONSEQUENTAL
8
<PAGE>
DAMAGES, LOST PROFITS OR BUSINESS, LOST OR CORRUPTED DATA OR FOR COSTS OF
PROCUREMENT OF SUBSTITUTE GOODS, TECHNOLOGY OR SERVICES.
11. INDEMNIFICATION BY LICENSEE. Licensee agrees to indemnify,
defend and hold Licensor and its officers, directors, shareholders, agents
and employees harmless from and against any and all claims, liabilities,
losses, damages and expenses (including without limitation all attorneys'
fees, legal and expert witness fees and expenses and all costs of
investigation) incurred by any such person related to or arising out of or in
connection with the operation of Licensee's business, including but not
limited to the use of the System and the marketing and performance of the
Services (except to the extent that any such claim or liability results from
a breach by Licensor of its warranties under Section 10.2), or the breach by
Licensee of any term or provision of this Agreement, as they are incurred.
Licensor's rights to indemnification under this Section 11 shall be in
addition to any other rights that Licensor may have at common law or
otherwise and shall remain in full force and effect following any termination
of this Agreement.
12. NON-ASSIGNABILITY. This Agreement and the license rights and
obligations hereunder are not transferable or assignable by Licensee without the
prior written consent of Licensor. Licensor may assign this Agreement in its
sole discretion and, without limiting the foregoing, Licensee expressly
acknowledges that Licensor may assign this Agreement to any new entity (e.g. a
corporation) that may be organized by Licensor or its affiliates.
13. TERMINATION.
13.1 BASIS FOR TERMINATION. This Agreement may be terminated by
either party for cause immediately upon the occurrence of any of the following
events: (a) if the other party ceases to do business or otherwise terminates
its business operations, (b) if the other party breaches any term or condition
of this Agreement and fails to cure such breach within thirty (30) days (or ten
(10) days in the case of a failure to pay) after written notice is delivered to
such party describing the breach, (c) if the other party shall commence or
become subject to any bankruptcy, receivership or similar proceeding and such
proceeding is not dismissed within ninety (90) days), or (d) if any
representation or warranty made in this Agreement is materially inaccurate or
false. Notwithstanding the foregoing, Licensor may terminate this Agreement
immediately upon any breach by Licensee of any of its obligations under Section
6.1, Section 6.3 or Section 6.4 (including a failure to achieve the Minimum
Gross Revenue, or a failure to pay the Minimum License Fee in a timely manner),
Section 7.1, Section 7.4, Section 7.5, Section 8.1, Section 9.5 or Section 9.6,
or in the event of any fraudulent conduct or illegal activity by Licensee with
respect to the System, this Agreement or business of License operated under the
Licensed Marks.
13.2 EFFECT OF TERMINATION. In addition to Licensee's
obligations under Section 9.4, upon termination of this Agreement for any
reason, all unpaid License Fees shall become immediately due and payable. On
any termination, Licensee shall surrender
9
<PAGE>
to Licensor possession of all tangible items in the System, including any
Improvements to the System.
14. OPTION TO ACQUIRE LICENSEE.
14.1 GRANT OF OPTION. In consideration for the execution of
this Agreement by Licensor and for other good and valuable consideration from
Licensor, the sufficiency and receipt of which is hereby acknowledged by
Licensee, Licensee grants Licensor an exclusive option (the "Option"), which may
be exercised by Licensor at any time during the term of this Agreement or during
any extension or renewal thereof, to acquire all, but not less than all, of the
outstanding shares of capital stock of Licensee (the "Licensee Stock") in
exchange for shares of the common stock of Licensor (the "Licensor Stock"), the
number of which shares of Licensor Stock shall be determined in accordance with
the provisions of Section 14.4. It is an express condition of this Option that
it may only be exercised by Licensor in the event that Licensor engages in or is
a party to one of the following transactions and exercises the Option in
connection with such transaction: (i) a sale of all or substantially all of the
assets of Licensor, (ii) a merger, combination, pooling or other reorganization
involving Licensor, or (iii) a public offering of a class of securities issued
by Licensor pursuant to a registration statement filed with the United States
Securities and Exchange Commission (each, a "Transaction"). In the event that
Licensor engages in or notifies Licensee of its intention to engage in any such
Transaction, Licensor may elect, in its sole and absolute discretion, to
exercise the Option and acquire all of the Licensee's stock in a stock-for-stock
exchange (the "Stock Swap").
14.2 PROCEDURE FOR EXERCISE. If Licensor elects to exercise the
Option, Licensor shall notify Licensee in writing of its election and in such
notice shall also identify the nature of the Transaction and the anticipated
timing of the Transaction. Upon receipt of such notice, Licensee shall
thereafter not issue, exchange, dividend, redeem, transfer or otherwise engage
in any transaction involving the Licensee Stock. Licensor and Licensee shall
each promptly take all actions necessary or advisable to effect the Stock Swap,
including but not limited to the calculation of the Exchange Ration in
accordance with Section 14.4, and to cause the Stock Swap to occur prior to the
scheduled closing date for the Transaction. Licensor and Licensee shall agree
on a closing date for a Stock Swap and, at such Closing, the shareholders of
Licensee shall execute and deliver to Licensor stock certificates representing
all the issued and outstanding shares of Licensee Stock, and Licensor shall
issue to shareholders of Licensee the respective number of shares of Licensor
Stock to be issued to each shareholder of Licensee pursuant to the Exchange
Ratio determined according to Section 14.4.
14.3 CONSENT OF LICENSEE'S SHAREHOLDERS. Licensee represents
that, as of the Effective Date and as of the date this Agreement is executed,
the only shareholder of Licensee is Jonathon Hendriksen. By executing this
Agreement on the signature line
10
<PAGE>
set forth below, Mr. Hendriksen hereby consents to the grant of the Option on
the terms set forth herein, and agree to take all actions and execute and
deliver all documents necessary or desirable to effect the Stock Swap upon
exercise of the Option by Licensor, and Mr. Hendriksen agrees that the
valuation formula in Section 14.4 is fair, just and reasonable for purposes
of determining the Exchange Ratio for the Stock Swap. Licensor and Mr.
Hendriksen agree that any person who becomes a shareholder of Licensee shall
be required, as a condition of such admission, to approve in writing the
Option and the other matters described in this section 14.3.
14.4 DETERMINATION OF EXCHANGE RATIO. To determine the Exchange
Ratio to be used to calculate the number of shares of Licensor Stock to be
issued to the shareholders of Licensee in connection with the Stock Swap upon
exercise by Licensor of the Option (the "Exchange Ratio"), Licensor and Licensee
agree that the valuation of Licensee for such purposes shall be determined in
the same manner and according to the same formula and assumptions (including but
not limited to valuation of intangible assets, marketability discounts, the
effect of external considerations, etc.) as are used and applied to determine
the value of Licensor for purposes of the Transaction. For example, if the
valuation of Licensor for the Transaction is based on a multiple of annual gross
revenues, the same approach and calculation shall be used to determine the
valuation of Licensee; provided, that the valuation of Licensee resulting from
such determination shall be subject to a discount of twenty-five percent (25%)
for purposes of calculating the Exchange Ratio (e.g. if the initial valuation of
Licensee determined in accordance with this Section 14.4 is $1,000,000, the
actual valuation of Licensee used for purposes of calculating and determining
the Exchange Ratio shall be $750,000). In any event, the minimum valuation of
Licensee for determining the Exchange Ratio shall be (i) two (2) times the
annual revenue of Licensee, plus (minus) (ii) ten (10) times the net profit (net
loss) of Licensee for that year.
15. MISCELLANEOUS.
15.1 GOVERNING LAW AND JURISDICTION. Licensor and Licensee
expressly acknowledge that this Agreement was prepared, negotiated and delivered
in California and further agree that the validity, interpretation and
performance of the Agreement shall be controlled by and construed under the laws
of the State of California, United States of America, as if performed wholly
within that State and without giving effect to its conflict of laws principles.
Licensee expressly acknowledges that it understands the provisions of California
law may be different from the law of Japan and Licensee represents that it has
been advised by legal counsel regarding the impact of such differing laws on
this transaction. Subject to the provisions of Section 15.9, any action arising
out of any dispute between the parties to this Agreement or otherwise relating
to this Agreement shall be brought either in the Superior Court of the State of
California for the County of Santa Barbara or in the United States District
Court for the Southern District of California and each of the parties hereto (a)
submits itself to the exclusive jurisdiction and venue of such courts for
purposes of any such action, (b) agrees that service on it in any such action or
proceeding may be made in the same manner as noticed hereunder, and (c)
11
<PAGE>
consents to uncontested enforcement of a final judgment from such court (or
any other mutually approved arbitrator) in any other jurisdiction where
Licensee or any of its assets are or may be present.
15.2 ENTIRE AGREEMENT. This Agreement and its exhibits and
schedules constitute the entire agreement and understanding between Licensor and
Licensee relating to the subject matter hereof, and terminates, supersedes and
cancels any and all prior or contemporaneous written and oral understandings,
agreements, proposals, representations or promises of the parties relating to
the subject matter hereof. Any modification or amendment of any provision of
this Agreement shall be effective only if in writing and signed by Licensor and
Licensee.
15.3 SEVERABILITY. If any provision of this Agreement, or the
application of such provision to any person or circumstance is held by a court
of competent jurisdiction to be invalid or unenforceable, the remainder of this
Agreement or the application of such provision to persons or circumstances other
than those to which it is held to be invalid or unenforceable shall not be
effective thereby.
15.4 NOTICES. All notices and other communications that are
required or that may be given under the provisions of this Agreement shall be in
writing and the same shall be deemed to have been given on the same day if
delivered in person or by overnight courier to the address set forth below, or
by facsimile to the facsimile number listed below for the party to whom the
notice is given or on the third day thereafter if placed in registered or
certified mail with postage prepaid and addressed to the party at the address
specified. The addresses and facsimile number for Licensor and Licensee for all
purposes under this Agreement and for all notices shall be:
To Licensor:
ValueClick, LLC
c/o Brian Coryat
1333 De La Vina Street
Suite E
Santa Barbara, CA 93101
Telephone: (805) 965-0543
Facsimile: (805) 564-7151
To Licensee:
ValueClick - Japan Inc.
4F Unimat Hongo Building
4-1-6 Hongo, Bunkyo-ku
Tokyo, Japan 113-0033
Telephone: 81-3-5803-9944
Facsimile: 81-3-5803-9922
12
<PAGE>
From time to time, either party may designate another address, telephone
or facsimile number for all purposes of this Agreement by notifying the other
party of such change in writing.
15.5 COUNTERPARTS. This Agreement may be executed by Licensor
and Licensee in separate counterparts, each of which shall be an original and
all of which together shall constitute one and the same instrument.
15.6 BINDING ON SUCCESSORS. This Agreement shall be binding
upon and inure to the benefits of the successors and assigns of the parties
hereto.
15.7 WAIVER. The failure of any party to enforce any of the
provisions of this Agreement shall not be construed to be a waiver of the right
of such party to enforce such provisions thereafter.
15.8 ATTORNEY'S FEES. In the event any dispute, lawsuit,
arbitration or other action or proceeding is commenced to enforce or interpret
any provision of this Agreement or otherwise relating to this Agreement or the
subject matter hereof, the prevailing party will be entitled to recover all
costs and expenses, including reasonable attorney's fees and costs, costs of
investigation, evaluation and collection whether or not a suit is filed, and all
expert witness fees, court costs and related expenses incurred by the prevailing
party.
15.9 ARBITRATION. Any dispute with respect to or arising out
of or in connection with, or otherwise related to the execution or
performance of, this Agreement shall be determined exclusively by binding
expedited arbitration in Santa Barbara, California, and shall be governed by
the Federal Arbitration Act, 9 U.S.C. 1-16, subject to the modifications set
forth herein. In the event of any such dispute, any party thereto may
commence arbitration hereunder by delivering notice to the other party or
parties thereto. Within ten (10) business days of delivery of such notice,
such parties shall attempt to agree on one arbitrator; provided that if such
parties cannot agree on one arbitrator within such time period, each party to
the dispute shall within five (5) business days thereafter appoint one (1)
arbitrator. In that event, the arbitrators so appointed shall within five
(5) business days of their appointment mutually agree upon and appoint one
additional arbitrator; provided further that the persons eligible to be
selected as arbitrator(s) shall be limited to attorneys at law who (i) have
practiced law for at least 15 years as an attorney specializing in either
general commercial litigation or general corporate and commercial matters and
(ii) are experienced in the software or internet industry. The arbitration
hearing shall commence no later than ten (10) business days after the
completion of the selection of the arbitrator(s). Each party agrees to
cooperate fully with the arbitrator(s) to resolve any dispute that is subject
to arbitration hereunder. The determination made by the arbitrator(s) shall
be final and binding upon the parties in any subsequent actions at law or in
equity and the parties agree to stipulate thereto in any such action. The
arbitrator(s) shall render a decision within ten (10) business days of the
close of the arbitration hearing, shall base his, her or their determination
on the terms of this Agreement and the evidence presented and shall render
such determination in
13
<PAGE>
writing, including therein a statement of the findings of fact upon which the
determination is based.
IN WITNESS WHEREOF, Licensor and Licensee have entered into this License
and Option Agreement as of the date and year first above written.
LICENSOR: LICENSEE:
VALUECLICK, LLC a California VALUECLICK - JAPAN, a Japanese joint
Limited liability company stock corporation
By: /s/ Brian Coryat By: /s/ Jonathan Hendriksen
---------------------------- --------------------------------
Brian Coryat Jonathan Hendriksen
Title: Chief Executive Officer Title: CEO
-----------------------------
The undersigned shareholder of Licensee hereby executes this Agreement
solely for the purpose of indicating his consent and agreement to be bound by
the grant of the Option and the other provisions of Section 14.
/s/ Jonathan Hendriksen
-----------------------------
Jonathan Hendriksen
14
<PAGE>
EXHIBIT A
GLOSSARY
1. "Confidential Information" shall mean all trade secrets or confidential
information in any form or media disclosed by one party to the other
party provided that, to be deemed Confidential Information, the
information, if in tangible form, must be marked or otherwise identified
as being "confidential" or if disclosed orally, must be identified at the
time it is disclosed as constituting a trade secret or confidential
information or with respect to written or oral disclosures, if the
information is reasonably understood to be confidential by the nature of
the information and the circumstances surrounding its disclosure.
"Confidential Information" shall not include any information that the
receiving party can establish (i) to be publicly known or available, or
that becomes publicly known or available, without breach of this
Agreement or any other obligation of confidentiality regarding such
information; (ii) has been intentionally publicly disclosed by the
disclosing party; (iii) is already in the possession of the receiving
party prior to disclosure by the disclosing party; or (iv) is rightfully
received by the receiving party from a third party without breach of an
obligation of confidentiality.
2. "Documentation" shall mean the documentation, whether in electronic form,
manuals, written instructions or user's guides, including any updates,
relating to the marketing and operation of the Services and the use of
the System that are provided to Licensee by Licensor in connection with
this Agreement.
3. "Licensed Copyrights" shall mean the works of authorship and other
tangible materials and designs that are protected under the United States
Copyright Law and which are used by Licensor in connection with the
marketing and operation of the Services, including but not limited to the
copyright in the Software, the Documentation and other proprietary
textual and graphic information that may be displayed by Licensee on host
websites in connection with the operation of the System and the Services.
4. "Licensed Marks" shall mean those certain trademarks, service marks,
tradenames and logos owned by the Licensor and used in connection with
the use of the System and the operation and marketing of the Services
including
15
<PAGE>
VALUECLICK and any related registrations or pending registration
applications in the Territory.
5. "Localized Version" shall mean the versions of the Software and the
Documentation that have been translated and localized for use in the
Japanese language and characters such that text, visual displays,
printouts, and other elements of the System have been translated into
Japanese characters and formatted for use in Japan.
6. "Net Revenue" shall mean the aggregate gross revenues received by
Licensee of every kind and nature from its customers or otherwise in
connection with the marketing and sale of the Services and the use of the
Software, less only the aggregate amount of payments actually made by the
Licensee to website hosts for the right to place banner advertisements on
the host websites.
7. "Server" shall mean the primary server in Licensee's computer network
located in Tokyo, Japan.
8. "Services shall mean the internet-based advertising and marketing
services offered by Licensor to its customers. The Services are provided
by use of the Software and Documentation to facilitate the posting of
banner advertisements on host websites and to permit users to monitor,
track, administer, analyze, and report information and statistics
concerning the number of times that visitors to the website access
("click") the advertisement, and to calculate and bill the advertiser
based on such information.
9. "Software" shall mean the proprietary ValueClick computer software owned
by Licensor which permits the user to track and analyze information
concerning the rate and manner in which internet-based advertisements are
accessed by computer users and makes that information available to the
advertiser and the host website.
10. "System shall mean the product, technologies and related intellectual
property rights used by Licensor to operate its business of tracking,
administering, billing and reporting information relating to the number
of times that advertisements placed on host websites are accessed by
viewers. The System consists of the Software, the Documentation, the
Licensed Marks, and the Licensed Copyrights. The System may, at the
option of Licensor, be expanded or updated to include additional elements
during the term of this Agreement. In addition, the "System" shall also
mean the trade secrets, technology and know-how developed or accumulated
by Licensor by Licensor in connection with the development, operation and
administration of the System including designs, concepts, quality
control, operating techniques, specifications, reports, methods and other
information possessed by Licensor relating to the System.
16
<PAGE>
11. "Territory" shall mean all internet-based websites that are exclusively
or substantially entirely in the Japanese language and intended for a
Japanese language audience. It is the expectation of the parties that
most, if not all, of the customers in the Territory will be located in
the country of Japan.
EXHIBIT B
SPECIFICATIONS AND QUALITY CONTROL STANDARDS
1. Licensee shall comply with the operational specifications included in the
Software and the materials included in the System, and as delivered to
Licensee from time to time by Licensor electronically or by written
communication.
2. Further, to preserve the ability of Licensor to oversee the use and
operation of the System, Licensee agrees that the prior written approval
of Licensor's management must be obtained by Licensee before engaging in
or agreeing to engage in any of the following transactions:
(a) Any capital expenditure in excess of $100,000 US;
(b) Any individual Salaries for employees or consultants in excess of
$100,00 US;
(c) Sale of any shares of ValueClick - Japan stock or any sale of all
or substantially all of the assets or stock of the company;
(d) ValueClick - Japan must submit to a yearly audit by a mutually
agreed upon accounting firm;
(e) Brian Coryat, CEO of ValueClick, or another person designated by
him, will be elected to and maintain a board of directors position
for ValueClick - Japan.
3. If for any reason this agreement is terminated, Jonathan Hendriksen
agrees not to compete with ValueClick in Japan or in any other country or
region in which ValueClick is doing business or is contemplating doing
business for a period of two (2) years after the date of termination.
17
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (hereinafter called "Agreement") made as of this
sixth day of August, 1999, by and between Mr. Jonathan Hendriksen, whose address
is at [701 6-21-4 Hongo, Bunkyo-ku Tokyo 113-0033 Japan] and Mr. Timothy
Williams, whose address is at [305 Isazaki Copo 4-5-18 Hongo Bunkyo-ku Tokyo
113-0033 Japan] (together, hereinafter called the "Sellers") and ValueClick US,
a corporation organized and existing under the laws of the State of Delaware
having its principal office at [6450 Via Real Carpinteria CA 93014-50081
(hereinafter called the "Purchaser"),
WITNESSETH:
WHEREAS, each of the Sellers wishes to sell and the Purchaser wishes to
purchase, a certain number of shares of capital stock owned by each of the
Sellers in ValueClick Japan, a Japanese corporation having its principal office
at [6F Ohma Building 4-37-6 Hongo, Bunkyo-ku Tokyo 113-0033 Japan] , Japan
(hereinafter called the "Company") in accordance with the terms and conditions
specified hereinbelow,
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1. PURCHASE AND SALE OF STOCK
Each of the Sellers shall sell and the Purchaser shall purchase the following
numbers of the issued shares of the Company owned by each of the Sellers
(hereinafter called the "Shares") in accordance with the terms and conditions
of this Agreement.
Mr. Jonathan Hendriksen 27.18 shares
Mr. Timothy Williams 27.18 shares
ARTICLE 2. CONSIDERATION
2.1 The consideration for the Shares shall be paid by shares of common stock of
the Purchaser with par value of [1 cent]. The consideration for the Shares of
each of the Sellers shall be as follows:
<PAGE>
Mr. Jonathan Hendriksen [80,000] shares of the Purchaser
Mr. Timothy Williams [80,000] shares of the Purchaser
2.2 The consideration shall be paid by the Purchaser to each of the Sellers at
the time and in the manner agreed upon between the parties.
ARTICLE 3. DELIVERY OF SHARE CERTIFICATE
Each of the Sellers shall deliver the share certificates representing the Shares
together with any documents required by the Purchaser as necessary for the
consummation of the transaction contemplated hereby to the Purchaser at a time
mutually agreed upon between the parties (hereinafter called the "Closing Date")
ARTICLE 4. REPRESENTATION AND WARRANTIES
4.1 Representation and Warranties by the Seller
Each of the Sellers hereby represents and warrants to the Purchaser as
follows:
4.1.1 Each of the Sellers has good and marketable title to the Shares,
free and clear of any and all liens, security interests,
covenants, conditions, options and other restrictions.
4.1.2 No consents, approvals, authorizations or other requirements
prescribed by any law, rule or regulation is required to be
obtained or satisfied by each of the Sellers for the consummation
of the transactions contemplated hereby.
4.1.3 The execution of this Agreement and consummation of the
transactions contemplated hereby will not result in a breach of
any of the terms or provisions of, or constitute a default under,
any agreement, or other instrument to which each of the Sellers
is a party or by which it is bound.
4.2 Representation and Warranties by the Purchaser
The Purchaser hereby represents and warrants to each of the
Sellers as follows:
4.2.1 The Purchaser is duly organized and validly existing under the
laws of the State of Delaware, USA, and has all requisite
corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby.
<PAGE>
4.2.2 No consents, approvals, authorizations or other requirements
prescribed by any law, rule or regulation is required to be
obtained or satisfied by the Purchaser for the consummation of
the transactions contemplated hereby.
4.2.3 The execution of this Agreement and consummation of the
transactions contemplated hereby will not result in a breach of
any of the terms or provisions of, or constitute a default under,
any agreement, or other instrument to which the Purchaser is a
party or by which it is bound.
4.2.4 The Purchaser has taken all necessary corporate actions required
to pay the consideration provided for in Article 2.
ARTICLE 5 CONDITIONS TO THE CLOSING
5.1 Conditions to Obligations of each of the Sellers
The obligations of each of the Sellers to effect the transactions
contemplated hereby shall be, at the option of each of the Sellers,
subject to fulfillment, at or prior to the Closing Date, of the
following additional conditions:
(a) The representations and warranties of the Purchaser contained in
this Agreement shall have been true and correct in all material
respects on the date such representations and warranties were
made and as of the Closing Date; and
(b) Each of the obligations of the Purchaser to be performed by it on
or before the Closing Date pursuant to the terms of this
Agreement shall have been duly performed on or before the Closing
Date.
5.2 Conditions to Obligations of the Purchaser
The obligations of the Purchaser to effect the transactions contemplated
hereby shall be, at the option of the Purchaser, subject to fulfillment,
at or prior to the Closing Date, of the following additional conditions:
(a) The representations and warranties of each of the Sellers
contained in this Agreement shall have been true and correct in
all material respects on the date such representations and
warranties were made and as of the Closing Date;
<PAGE>
(b) Obligations of each of the Sellers to be performed by it on or
before the Closing Date pursuant to the terms of this Agreement
shall have been duly performed on or before the Closing Date;
[and
(c) Resolution of the board of directors of the Company shall have
been made to approve the sale of the Shares by each of the
Sellers contemplated hereby]. (This condition should be added if
sale of shares is restricted under the Articles of Incorporation
of the Company.)
ARTICLE 6. INDEMNIFICATION
6.1 Each of the Sellers jointly and severally indemnify and hold the
Purchaser harmless against, and shall reimburse the Purchaser for any
loss or damage, including, without limitation, attorneys' fees
reasonably incurred arising out of any misrepresentation, breach or
nonfulfillment of any covenant or obligation of each of the Sellers
under this Agreement, or any misrepresentation in, or omission from, any
certificate or other instrument furnished or to be furnished to the
Purchaser pursuant to this Agreement.
6.2 The Purchaser shall indemnify and hold each of the Sellers harmless
against, and shall reimburse each of the Sellers for any loss or damage,
including, without limitation, attorney's fees reasonably incurred
arising out of any misrepresentation, breach or nonfulfillment of any
obligation of the Purchaser under this Agreement.
ARTICLE 7. TERMINATION
This Agreement may be terminated:
(a) by each of the Sellers, if there has been a material misrepresentation
or material breach of any warranty or covenant by the Purchaser;
(b) by the Purchaser, if there has been a material misrepresentation or
material breach of any warranty or covenant by each of the Sellers; or
(c) by either Seller or Purchaser, if the Closing shall not have taken place
on the Closing Date.
<PAGE>
ARTICLE 8. PAYMENT OF EXPENSES
The Purchaser and each of the Sellers will respectively pay all fees and
expenses (including, without limitation, legal fees and expenses) incurred by
them in connection with the transactions contemplated hereunder.
ARTICLE 9. ENTIRE AGREEMENT
This Agreement contains the entire agreement between the parties and supersedes
all prior agreements or understandings between the parties hereto related to the
subject matter of this Agreement.
ARTICLE 10. GOVERNING LAW
This Agreement shall be governed by, and construed in accordance with the laws
of Japan.
ARTICLE 11. JURISDICTION
The parties hereto agree that Tokyo District Court shall have jurisdiction over
any disputes which may arise among the parties hereto.
ARTICLE 12. AMENDMENT
Neither this Agreement nor any of the terms and conditions hereof may be
amended, supplemented, waived or modified orally, but only by an instrument in
writing signed by the parties hereto.
ARTICLE 13. HEADINGS
The headings of this Agreement are for convenience of reference only and shall
not define, modify or otherwise affect any of the provisions hereof.
ARTICLE 14. INVALID OR UNENFORCEABLE PROVISION
Should any provision of this Agreement be deemed invalid or unenforceable, then
such provision shall be given no effect and shall be deemed not to be included
within the terms and conditions
<PAGE>
of this Agreement, but without invalidating any of the remaining terms and
conditions of this Agreement. The parties hereto shall then endeavor to
replace the invalid or unenforceable provision by a clause which is closest
to the contents of the invalid or unenforceable provision.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
as of the date first above written.
The Seller:
/s/ Jonathan Hendriksen
-------------------------------------------
Jonathan Hendriksen
The Seller:
/s/ Timothy Williams
-------------------------------------------
Timothy Williams
The Purchaser: ValueClick USA
By: /s/ James R. Zarley
----------------------------------------
James R. Zarley
CEO, ValueClick Corporation
<PAGE>
LICENSE AGREEMENT
THIS LICENSE AGREEMENT (this "Agreement") is entered into as of this
17th day of August, 1999, by and between ValueClick, Inc., a corporation
organized under the laws of Delaware, having a place of business at 6450 Via
Real, Carpinteria, California 93013 ("ValueClick"), and ValueClick Europe
Limited, a corporation organized under the laws of the United Kingdom, having
a place of business at 50 Burnaby Street, London SW10 OPN, England ("VCEU").
RECITALS:
A. ValueClick has developed and is the owner of various proprietary
technologies and materials relating to an internet advertising network ; and
B. ValueClick seeks to sell, and VCEU seeks to acquire certain
equipment and software, and ValueClick seeks to grant, and VCEU seeks to
receive, an exclusive royalty-bearing license to exploit certain intellectual
property, and to use certain trademarks, service marks and other rights
related in any way to an internet advertising network operated by ValueClick.
AGREEMENT:
In consideration of the premises, the mutual covenants and agreements
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. DEFINITIONS.
1.1. "ACTION" means any claim, action, suit, arbitration,
inquiry, proceeding or investigation by or before any Governmental Authority.
1.2. "AFFILIATE" means, with respect to any Person, any other
Person that, directly or indirectly, through one or more intermediary
controls, is controlled by or is under common control with such Person.
1.3. "AGREEMENT" has the meaning set forth in the preamble to
this Agreement.
1.4. "CONFIDENTIAL INFORMATION" means all materials and
information of ValueClick or VCEU, as the case may be, whether furnished
before or after the date hereof, concerning such party's business or
activities that such party considers proprietary and confidential, including
any materials generated or information obtained during the Term, including,
but not limited to, all information, Software and Technology relating to the
ValueClick Network, or the VCEU Network, as the case may be, all business,
financial and technical information of each party, and all information or
materials designated and marked by either stamping or otherwise affixing in a
<PAGE>
legible manner the term "confidential" or "proprietary"; provided, however,
that the term Confidential Information shall not include information or
material that: (a) is or becomes generally available to the public other than
as a result of a disclosure by the Receiving Party, (b) was available prior
to its disclosure by the Receiving Party, or (c) becomes available from a
person other than the Receiving Party who is not otherwise bound by a
confidentiality agreement with ValueClick or VCEU, as the case may be.
1.5. "DELIVERABLE" means any tangible item provided to VCEU by,
for, or on behalf of ValueClick in connection with this Agreement, including,
but not limited to Intellectual Property, the POD, computers, communications
equipment, documents, disks and the like.
1.6. "ENCUMBRANCE" means any security interest, pledge,
mortgage, lien (including, without limitation, environmental and tax liens),
charge, encumbrance, adverse claim, preferential arrangement or restriction
of any kind, including, without limitation, any restriction on the use,
voting, transfer, receipt of income or other exercise of any attributes of
ownership.
1.7. "END USERS" means all employees, officers, directors,
agents, consultants, customers, partners, dealers, distributors or sales
agents of, or approved by, VCEU, who or which are involved in the
exploitation of the VCEU Network .
1.8. "GOVERNMENTAL AUTHORITY" means any United States federal,
state or local or any foreign government, governmental, regulatory or
administrative authority, agency or commission or any court, tribunal or
judicial or arbitral body.
1.9. "GOVERNMENTAL ORDER" means any order, writ, judgment,
injunction, decree, stipulation, determination of award entered by or with
any Governmental Authority.
1.10. "INDEMNIFIED PARTY" has the meaning set forth in Section
11.2(c).
1.11. "INDEMNIFYING PARTY" has the meaning set forth in Section
11.2(c).
1.12. "INTELLECTUAL PROPERTY" means all property, regardless of
form, including all Software and Technology, used in, by or in connection
with, incorporated in, embodied in or displayed by the ValueClick Network or
used in the design, development, reproduction, operation, maintenance,
management or Modification of the ValueClick Network, and other similar
materials, including, but not limited to: (a) inventions, whether or not
patentable, whether or not reduced to practice, and whether or not yet made
the subject of a pending patent application or applications, (b) ideas and
conceptions of potentially patentable subject matter, including, without
limitation, any patent disclosures, whether or not reduced to practice and
whether or not yet made the subject of a pending patent application or
applications, (c) national (including the United States) and multinational
statutory invention registrations, patents, patent registrations and patent
applications (including all reissues, divisions, continuations,
continuations-in-part, extensions and reexaminations) and all rights
2
<PAGE>
therein provided by international treaties or conventions and all
improvements to the inventions disclosed in each such registration, patent or
application, (d) trademarks, service marks, trade dress, logos, trade names
and corporate names, whether or not registered, including all common law
rights, and registrations and applications for registration thereof,
including, but not limited to, all marks registered in the United States
Patent and Trademark Office, the trademark offices of the states and
territories of the United States of America, and the trademark offices of
other nations throughout the world, and all rights therein provided by
international treaties or conventions, (e) copyrights (registered or
otherwise) and registrations and applications for registration thereof, and
all rights therein provided by international treaties or conventions, (f)
trade secrets and confidential, technical and business information (including
ideas, formulas, compositions, inventions, and conceptions of inventions,
whether patentable or unpatentable and whether or not reduced to practice),
(g) whether or not confidential, manufacturing and production process and
techniques, research and development information, drawings, specifications,
designs, plans, proposals, technical data, copyrightable works, financial,
marketing and business data, pricing and cost information, business and
marketing plans and customer and supplier lists and information, (h) copies
and tangible embodiments of all the foregoing, in whatever form or medium,
(i) all rights to sue or recover and retain damages and costs and reasonable
attorneys' fees for present and past infringement of the foregoing; provided,
however, that Intellectual Property shall not include the ValueClick Marks or
the POD.
1.13. "INTERNET ADVERTISING FIELD" means all applications of
advertising on or through the internet in any form whatsoever.
1.14. "LAW" means any federal, state, local or foreign statute,
law, ordinance, regulation, rule, code, order or other requirement or rule of
law.
1.15. "LOSS" has the meaning set forth in Section 11.2(a).
1.16. "MODIFICATIONS" means, with respect to any item, all
modifications, translations, adaptations, improvements, redesigns,
conversions, compilations, upgrades or other derivative versions of, or
changes or additions to, such item or any portion of such item.
1.17. "OBJECTION NOTICE" has the meaning set forth in Section
6.2.
1.18. "POD" means all equipment, Software, and Modifications to
the foregoing used, or to be used, by ValueClick in connection with the
development, marketing, operation, maintenance and management of the
ValueClick Network, including, but not limited to, those items described on
Schedule 1 attached hereto and made a part hereof, and all warranties
pertaining to the foregoing.
1.19. "PERSON" means any individual, partnership, joint venture,
corporation, limited liability company, trust, incorporated organization,
Governmental Authority or other entity.
1.20. "RECEIVING PARTY" has the meaning set forth in Section
10.1.
3
<PAGE>
1.21. "REPRESENTATIVE" means, as to any entity, such entity's
affiliates and its and their directors, officers, employees, agents, advisors
(including, without limitation, counsel and accountants) and controlling
person.
1.22. "ROYALTY" has the meaning set forth in Section 5.2.
1.23. "SOFTWARE" means any and all computer software, whether
proprietary to either party hereto or proprietary to or licensed by a third
party software vendor (including a fully paid up license from such third
party software vendors), including, but not limited to, executable object
code (but excluding source code) that ValueClick either owns or has the right
to use pursuant to a license, databases, screens, user interfaces, report
formats, file formats, templates, menus, buttons and icons, and all
warranties, materials, manuals, design notes and other documentation related
thereto or associated therewith.
1.24. "TECHNOLOGY" means all designs, formulas, procedures,
methods, apparatus, ideas, creations, improvements, materials, processes,
inventions, works of authorship, techniques, data, know how, algorithms,
programs, subroutines, tools, specifications and related warranties and
technology.
1.25. "TERM" has the meaning set forth in Section 9.1.
1.26. "TERRITORY" means the geographic area defined in Schedule
2 to this Agreement, as may be amended in writing by the parties from time to
time.
1.27. "THIRD PARTY CLAIMS" has the meaning set forth in Section
11.2(c).
1.28. "VCEU" has the meaning set forth in the preamble to this
Agreement.
1.29. "VCEU INDEMNIFIED PARTY" has the meaning set forth in
Section 11.2(a).
1.30. "VCEU NETWORK" means a global internet advertising network
consisting of websites upon which VCEU is permitted to place advertising,
including, but not limited to banner advertisements, the advertising sales
activity for which is conducted out of offices maintained solely in the
Territory by VCEU and its dealers, distributors, licensees and sales agents,
including features which permit VCEU to pay the owners of such host websites,
and charge such website advertisers, based upon the number of Persons who
click on such advertisement.
1.31. "VALUECLICK" has the meaning set forth in the preamble to
this Agreement.
1.32. "VALUECLICK INDEMNIFIED PARTY" has the meaning set forth
in Section 11.2(b).
4
<PAGE>
1.33. "VALUECLICK MARKS" means all trade names, trademarks,
service marks, logos, trade dress, or other insignia of ValueClick now or in
the future used on or in connection with the ValueClick Network.
1.34. "VALUECLICK NETWORK" means a global internet advertising
network consisting of websites upon which ValueClick is permitted to place
advertising, including, but not limited to, banner advertisements, the
advertising sales activity for which is conducted out of offices maintained
in the United States of America and other countries outside the Territory by
ValueClick and its dealers, distributors, licensees and sales agents,
including features which permit ValueClick to pay website owners, and charge
website advertisers, based upon the number of Persons who click on the
advertisement.
2. PURCHASE OF POD.
2.1. THE POD. Subject to the terms and conditions set forth in
this Agreement, VCEU agrees to purchase and ValueClick agrees to sell,
convey, transfer and deliver the POD to VCEU, free and clear of any and all
Encumbrances, no later than sixty (60) days after the date hereof. The POD
shall be of the same type and capable of the same level of operation as that
used by ValueClick in connection with the ValueClick Network at the time of
the transfer pursuant hereto.
2.2. UPGRADES. Without additional consideration, ValueClick
shall sell, transfer, convey and deliver to VCEU each Modification to the POD
that ValueClick implements in connection with the ValueClick Network within a
reasonable time after such Modification is implemented. Upon the transfer
and installation of each Modification, the POD shall have the same
capabilities as similar equipment and software used by ValueClick at the time
ValueClick implemented such Modification.
3. TECHNOLOGY LICENSE.
3.1. GRANT OF LICENSE. ValueClick hereby grants to VCEU, and
VCEU hereby accepts and receives from ValueClick, an exclusive,
non-transferable, perpetual license (subject to termination as provided
herein) to use, offer, market, promote, modify and exploit the Intellectual
Property in connection with the VCEU Network in the Territory. This license
to VCEU shall include any and all rights now or in the future owned or
licensed by ValueClick necessary to enable VCEU and all End Users to enjoy
the benefits of the foregoing licensed rights including, but not limited to ,
the right to grant to any other Person the right to use, exploit, develop or
market any of the foregoing licensed rights. ValueClick shall not be
required to provide source code to VCEU.
3.2. RIGHTS TO DATA. VCEU shall have sole and exclusive
ownership, as against ValueClick, of all right, title and interest in and to
all data generated in connection with the license granted to VCEU under
Section 3.1 and the purchase of the POD in Section 2.1, in all tangible media
of expression whatsoever, including all paper, electronic, magnetic and
optical formats now known or hereafter developed, and including all related
Intellectual Property in and to the foregoing (the "Advertising
5
<PAGE>
Data"). ValueClick hereby grants to VCEU, and VCEU hereby accepts and
receives from ValueClick, a non-exclusive, perpetual license to use, sell,
lease, license, offer, market, promote, distribute, reproduce, modify and
exploit in connection with the VCEU Network any Intellectual Property
reasonably necessary to perceive, view, print, interpret or analyze the
Advertising Data. Subject to the provisions of this Agreement, ValueClick
hereby releases, discharges and holds VCEU and any End User harmless from and
against any and all claims by ValueClick that any Intellectual Property is
infringed, or any right of ValueClick is otherwise violated, by the use and
exploitation of the Advertising Data by VCEU or its assigns.
3.3. MODIFICATIONS. ValueClick shall have sole and exclusive
ownership of all right, title and interest in and to all Modifications of the
Intellectual Property licensed under this Section 3 and conceived by the
employees or contractors of ValueClick; provided, however, that all such
Modifications conceived by the employees or contractors of ValueClick shall
automatically become subject to the licenses granted to VCEU in Sections 3.1
and 4.1, without any adjustment or modification of the royalties payable
pursuant to Section 5.2. VCEU shall have sole and exclusive ownership of all
right, title and interest in and to all Modifications of the Intellectual
Property licensed under this Section 3 and conceived by the employees or
contractors of VCEU; provided, however, that all such Modifications conceived
by the employees or contractors of VCEU shall automatically be licensed to
ValueClick for use solely in connection with the ValueClick Network without
any additional consideration. Any Modifications requested by VCEU due to
VCEU's special needs shall be provided by ValueClick at standard industry
rates.
4. TRADEMARK LICENSE.
4.1. GRANT OF LICENSE. ValueClick hereby grants to VCEU, and
VCEU hereby accepts and receives from ValueClick, an exclusive, perpetual,
non-transferable right and license to use and reproduce the ValueClick Marks
in connection with the VCEU Network. This license to VCEU shall include any
and all rights now or in the future owned or licensed by ValueClick necessary
to enable VCEU and any End Users to enjoy the benefits of the foregoing
licensed rights including, but not limited to, the right to grant to any
other Person the right to use, exploit, develop or market any of the
foregoing licensed rights.
4.2. QUALITY STANDARDS. VCEU agrees that the nature and
quality of all products provided by VCEU and all services rendered by VCEU in
connection with the ValueClick Marks shall reasonably conform to standards
set by ValueClick. VCEU agrees to cooperate with ValueClick in facilitating
ValueClick's control of the nature and quality of VCEU's use of the
ValueClick Marks, to permit reasonable, periodic inspection of VCEU's
operations, at reasonable times and with reasonable notice, and to supply
ValueClick with specimens of all uses of the ValueClick Marks upon
ValueClick's reasonable written request.
4.3. USE OF THE MARKS. VCEU acknowledges the sole and
exclusive ownership of the ValueClick Marks by ValueClick, agrees that it
will do nothing inconsistent with such ownership, and that all use of the
ValueClick Marks by VCEU
6
<PAGE>
and all goodwill developed therefrom shall inure to the benefit of and be on
behalf of ValueClick. VCEU agrees that nothing in this Agreement shall give
VCEU any right, title or interest in the ValueClick Marks other than the
right to use the ValueClick Marks in accordance with this Agreement. VCEU
agrees that it shall not file nor cause the filing of any applications to
register any mark identical or similar to the ValueClick Marks in the
Territory and, upon ValueClick's written request, VCEU shall immediately
transfer all of its right, title and interest in such applications or
registrations to ValueClick.
5. PURCHASE PRICE/LICENSE AND SERVICE FEE COMMISSIONS.
5.1. PURCHASE PRICE. For the purchase of the POD, VCEU shall
pay to ValueClick within thirty (30) days from the date hereof, but prior to
delivery, the sum of $200,000.00 payable in U.S. funds at the address of
ValueClick set forth above.
5.2. ROYALTY PAYMENTS/LICENSE FEES. VCEU shall pay to
ValueClick, on a monthly basis (within thirty (30) days after the end of each
month during the Term), a royalty (the "Royalty") in an amount equal to five
percent (5%) of the advertising revenues received by VCEU from the VCEU
Network.
5.3. RECIPROCAL AGENCY FEES ValueClick and VCEU will extend
agency discounts to one another to run on each other's networks. For example,
if VCEU sells a contract to run on ValueClick's network, VCEU will receive
the standard agency discount, (i.e. 15%) provided by ValueCick. One the other
hand, if ValueClick sells a contract to run on VCEU's network, ValueClick
will receive the standard agency discount, (i.e., 15%), provided by VCEU.
6. VCEU RESPONSIBILITIES.
6.1. FINANCIAL STATEMENTS. VCEU shall provide to ValueClick
monthly financial statements no later than thirty (30) days following the end
of each full month during the Term. VCEU shall keep written records
necessary to verify such financial statements for a period of at least seven
(7) years. Upon thirty (30) days written notice to VCEU, ValueClick shall
have the right at any time during regular business hours, but not more
frequently than quarterly to have a designated officer of ValueClick examine
such records to the extent necessary to verify royalties payable to
ValueClick.
6.2. ANNUAL AUDIT. Each year, VCEU shall engage the same
accounting firm that is to audit the financial statements of ValueClick, to
conduct an audit of the financial statements of VCEU. VCEU shall provide its
audited financial statements promptly to ValueClick. If ValueClick disagrees
with VCEU's computation of royalties, ValueClick may, within forty-five (45)
days after receipt of the audited financial statements, deliver written
notice (an "Objection Notice") to VCEU setting forth ValueClick's calculation
of royalties. If an Objection Notice is not delivered within such time
period, the amount of royalties set forth in VCEU's corporate records shall
be conclusive and binding upon ValueClick. Each party to this Agreement
shall use reasonable efforts to resolve any disputes as to the computation of
royalties. Any
7
<PAGE>
dispute over royalties shall not affect the ongoing validity of this
Agreement or the licenses granted to VCEU hereunder.
6.3. LINKS FROM HOME PAGE. VCEU shall display on its home page
a link to ValueClick's website.
7. RESPONSIBILITIES OF VALUECLICK.
7.1. INSTALLATION OF THE POD. ValueClick shall, in accordance
with best industry practice and promptly after delivery to VCEU, install the
POD and any Modifications thereto at such place in, or in the vicinity of,
London, England as designated by VCEU.
7.2. INTELLECTUAL PROPERTY DEVELOPMENT. Throughout the Term,
VlaueClick shall use its best efforts to continually develop, improve and
enhance the POD, the Intellectual Property and any Modifications to the
foregoing licensed or purchased hereunder so that such items are the "state
of the art" in the Internet Advertising Field.
7.3. LINKS FROM HOME PAGE. ValueClick shall display on its
home page a link to VCEU's website.
8. REPRESENTATIONS, WARRANTIES AND COVENANTS.
8.1. REPRESENTATIONS, WARRANTIES AND COVENANTS OF VALUECLICK.
ValueClick hereby represents, warrants and covenants to VCEU that:
(a) ValueClick is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to carry on its business as now
conducted and as proposed to be conducted.
(b) All corporate action on the part of ValueClick, its
officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement and the performance of all
obligations of ValueClick hereunder, has been taken prior to the date hereof,
and this Agreement constitutes a valid and legally binding obligation of
ValueClick, enforceable in accordance with its terms.
(c) ValueClick is the sole and exclusive owner of all
right, title and interest, free and clear of any liens or other Encumbrances,
to the POD, the Intellectual Property, and any Modifications to the
foregoing, or has valid licenses or authorizations necessary to use any third
party intellectual property incorporated into, or used in connection with,
the POD, the Intellectual Property, the ValueClick Network or any
Modifications to the foregoing, including all rights, licenses and
authorizations to sell the POD and related Modifications and license the use
of the Intellectual Property, and any Modifications to the foregoing in the
Territory. ValueClick has not assigned, conveyed, licensed, transferred or
granted any interest, right or license to
8
<PAGE>
any third party in or to the POD, the Intellectual Property , the ValueClick
Marks or any Modifications to the foregoing that conflicts with the rights
conveyed herein.
(d) ValueClick has not received notification from any
third party that the POD, the Intellectual Property, the ValueClick Marks or
any Modifications to the foregoing violate or infringe any intellectual
property or other rights of any third party.
(e) There are no Actions by or against ValueClick
relating to the POD, the Intellectual Property, the ValueClick Marks or any
Modifications to the foregoing pending before any Governmental Authority
(or, to the best knowledge of ValueClick, threatened to be brought by or
before any Governmental Authority). Neither ValueClick, the POD, the
Intellectual Property nor any Modification to the foregoing is subject to any
Governmental Order (nor, to the best knowledge of ValueClick, are there any
such Governmental Orders threatened to be imposed by any Governmental
Authority).
(f) The exercise by VCEU and any End User of its rights
in accordance with the terms of this Agreement shall not violate or infringe
any intellectual property or other rights of any third party.
(g) Each Deliverable shall conform to the specifications
and operational requirements associated with such Deliverable, and shall be
free from material defect, errors and faulty workmanship in accordance with
best industry practice.
(h) Each Deliverable shall be free from physical defects
in the media in which it is embodied.
(i) The POD, the Intellectual Property and any
Modifications to the foregoing conveyed or licensed to VCEU under this
Agreement shall at all times during this Agreement be sufficient to develop,
own, market, operate, maintain and manage the VCEU Network in the Territory
to the same extent and capabilities as the ValueClick Network is developed,
owned, marketed, operated, maintained and managed by ValueClick in the United
States at the time such items are conveyed or licensed to VCEU. The VCEU
Network shall throughout the Term have substantially the same capabilities
and be able to operate substantially to the same extent as the ValueClick
Network.
(j) Without VCEU's prior written consent, ValueClick
shall not (i) use, or license the use of, the Intellectual Property, the
ValueClick Marks, or any Modifications to the foregoing in the Internet
Advertising Field through any sales offices located in the Territory, (ii)
solicit for inclusion in the ValueClick Network host websites that are
directed primarily at internet users located in the Territory, (iii) solicit
advertising from advertisers whose advertising is directed primarily at
internet users located in the Territory, (iv) use, sell, license or lease a
POD, or similar assets, for use in the Territory, or (v) operate or permit
any other Person to operate, directly or indirectly, a sales office or other
facility in the Territory.
9
<PAGE>
(k) Without VCEU's prior written consent, ValueClick
shall not insert into any Deliverable any (i) "back door," "time bomb," "drop
dead" device or other software routinely designed to disable a computer
program automatically with the passage of time or under the positive control
of any person, or (ii) any virus, "Trojan horse," "worm" or other software
routines or hardware components designed to permit unauthorized access, to
disable, erase or otherwise harm software, hardware or data, or to perform
any other similar actions.
(l) ValueClick has and shall maintain liability insurance
coverage sufficient for its indemnification obligations hereunder that
provides coverage up to a minimum of $1,000,000 per occurrence and $3,000,000
total coverage.
(m) ValueClick shall use its best efforts to ensure that
it conducts its business so as to not cause a violation of any law, rule,
regulation, order, judgment or decree applicable to ValueClick or to the
Intellectual Property that would materially or adversely affect the ability
of VCEU to utilize the licenses granted in Sections 3.1 and 4.1.
8.2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF VCEU. VCEU
hereby represents, warrants and covenants to ValueClick that:
(a) VCEU is a corporation duly organized, validly
existing and in good standing under the laws of the United Kingdom and has
all requisite corporate power and authority to carry on its business as now
conducted and as proposed to be conducted.
(b) All corporate action on the part of VCEU, its
officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement and the performance of all
obligations of VCEU hereunder, has been taken prior to the date hereof, and
this Agreement constitutes a valid and legally binding obligation of VCEU,
enforceable in accordance with its terms.
(c) Without ValueClick's prior written consent, VCEU
shall not (i) use, or license the use of, the Intellectual Property, the
ValueClick Marks, or any Modifications to the foregoing in the Internet
Advertising Field through sales offices located outside the Territory, (ii)
solicit for inclusion in the VCEU Network host websites that are directed
primarily at internet users located outside the Territory, (iii) solicit
advertising from advertisers to the extent that such advertising is directed
primarily at internet users located outside the Territory, (iv) use, sell,
license or lease a POD, or similar assets, for use outside the Territory, or
(v) operate or permit any other Person to operate, directly or indirectly, a
sales office or other facility outside the Territory..
9. TERM AND TERMINATION.
10
<PAGE>
9.1. TERM OF AGREEMENT. This Agreement shall commence on the
date hereof and shall be in force in each country of the Territory until
terminated in accordance with Section 9.2 (the "Term").
9.2. TERMINATION. This Agreement may be terminated at any time:
(a) by the mutual consent of VCEU and ValueClick;
(b) by ValueClick if there has been a breach of any
representation and warranty, covenant or agreement of VCEU set forth in this
Agreement, which breach has not been cured within forty-five (45) days after
written notification thereof has been received by VCEU; or
(c) by VCEU if:
(i) there has been a breach of any representation
and warranty, covenant or agreement of ValueClick set forth in this
Agreement, which breach has not been cured within forty-five (45) days after
written notification thereof has been received by ValueClick;
(ii) a filing is made by or against (or an order for
relief is entered) ValueClick in a voluntary or an involuntary proceeding,
brought and maintained in good faith, under any bankruptcy, insolvency,
reorganization or receivership law or an admission seeking relief, which
filing or order is not vacated within 90 days of its entry;
(iii) a receiver is appointed over the assets of
ValueClick, or the assumption of custody, attachment or sequestration by a
court of competent jurisdiction over the ValueClick assets; or
(iv) there has been a final, non-appealable order or
judgment by a court of competent jurisdiction that all or any portion of a
patent or license owned by ValueClick that is necessary for the operation of
the VCEU Network is declared invalid or unenforceable, or is found to be
infringed by any direct competitor of VCEU in the Internet Advertising Field.
9.3. EFFECT OF TERMINATION. In the event of termination of
this Agreement as provided in Section 9.2, this Agreement shall forthwith
become void and there shall be no liability thereafter on the part of either
party hereto, except (a) as set forth in Sections 10, 11 and 12, and (b) that
nothing herein shall relieve either party from liability for any breach of
this Agreement. Notwithstanding the foregoing, if this Agreement is
terminated pursuant to subsection 9.2(c), then, in addition to any remedies
or rights at law or in equity, VCEU may, at its sole option, continue to use,
royalty-free, solely in connection with the VCEU Network the Intellectual
Property, the ValueClick Marks and any Modification to the foregoing licensed
rights under this Agreement so long as the use is consistent with the use of
such items prior to the termination of this Agreement.
11
<PAGE>
9.4. TERMINATION OF EXCLUSIVITY. If VCEU fails to recognize
gross revenues of at least $1,000,000 during the twelve (12) full calendar
months following the date of this Agreement (the "Revenue Period") and
ValueClick notifies VCEU in writing of its election to declare the license
granted in Section 3.1 to be nonexclusive within thirty (30) days following
the end of the Revenue Period, then such license shall become non-exclusive
forty-five (45) days after VCEU's receipt of such written notice from
ValueClick. If ValueClick fails to so notify VCEU within ninety (90) days
following the end of the Revenue Period, ValueClick's rights under this
Section 9.4 shall terminate.
10. CONFIDENTIALITY.
10.1. TREATMENT OF CONFIDENTIAL INFORMATION. The party
receiving any Confidential Information (the "Receiving Party") shall maintain
such Confidential Information in confidence and shall not use such
Confidential Information for any purpose other than the purposes contemplated
by this Agreement and agrees, except as required by Law, to keep all
Confidential Information confidential and not to disclose any Confidential
Information to any person other than Representatives who are actively and
directly participating in the exploitation of the licenses granted under this
Agreement or who otherwise need to know the Confidential Information for the
purposes relating to the other party's internet advertising network. Such
party shall cause those Representatives to observe the terms of this Section
10.1. In the event that either party is requested pursuant to, or required
by, legal process to disclose any Confidential Information or any other
information concerning the other party, the party to which the request or
order is made shall provide the other party with prompt notice of such
request or requirement.
10.2. RETURN OF CONFIDENTIAL INFORMATION. Upon termination of
this Agreement pursuant to the provisions of Section 9, each party shall
deliver to the other party any written, printed or other materials embodying
Confidential Information of the other party in its possession or in the
possession of any of its Representatives; provided, however, that the party
in possession of the Confidential Information may, in lieu of returning such
Confidential Information, destroy all such Confidential Information and work
product containing Confidential Information.
11. INDEMNIFICATION AND RELEASE.
11.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties contained in this Agreement shall survive
indefinitely. Neither the period of survival nor the liability of either
party with respect to its obligations shall be reduced by an investigation
made at any time by or on behalf of the Indemnified Party. If written notice
of a claim has been given prior to the expiration of the applicable
representations and warranties, then the relevant representations and
warranties shall survive as to such claim, until such claim has been finally
resolved.
11.2. Indemnification.
12
<PAGE>
(a) VCEU and its Affiliates, officers, directors,
employees, agents, successors and assigns (each a "VCEU Indemnified Party")
shall be indemnified and held harmless by ValueClick for any and all
liabilities, losses, damages, claims, costs and expenses, interest, awards,
judgments and penalties (including, without limitation, reasonable attorney's
and consultants' fees and expenses) actually suffered or incurred by them
(including, without limitation, any action brought or otherwise initiated by
any of them)(hereinafter a "Loss"), arising out of or resulting from:
(i) the breach of any representation or warranty,
including the infringement of any Intellectual Property, made by ValueClick
contained in this Agreement; or
(ii) the breach of any covenant or agreement made by
ValueClick contained in this Agreement.
(b) ValueClick, its Affiliates, officers, directors,
employees, agents, successors and assigns (each a "ValueClick Indemnified
Party") shall be indemnified and held harmless by VCEU for any and all Losses
arising out of or resulting from the breach of any representation, warranty,
covenant or agreement by VCEU contained in this Agreement.
(c) A VCEU Indemnified Party or a ValueClick Indemnified
Party, as the case may be (each an "Indemnified Party"), shall give the party
providing indemnification hereunder (the "Indemnifying Party") notice of any
matter that such Indemnified Party has determined has given or could give
rise to a right of indemnification under this Agreement, within 60 days of
such determination, stating the amount of the Loss, if known, and the method
of computation thereof, and containing a reference to the provisions of this
Agreement in respect of which such right of indemnification is claimed or
arises; provided, however, that the failure to provide such notice shall not
release the Indemnifying Party from any of its obligations under this Section
11, except to the extent the Indemnifying Party is materially prejudiced by
such failure and shall not relieve Indemnifying Party from any other
obligation or Liability that it may have to any Indemnified Party otherwise
than under this Section 11. The obligations and liabilities of the
Indemnifying Party under this Section 11 with respect to Losses arising from
claims of any third party, which are subject to the indemnification provided
for in this Section 11 (the "Third Party Claims") shall be governed by and
contingent upon the following additional terms and conditions: if an
Indemnified Party shall receive notice of any Third Party Claim, the
Indemnified Party shall give the Indemnifying Party notice of such Third
Party Claim within ten (10) days of the receipt by the Indemnified Party of
such notice; provided, however, that the failure to provide such notice shall
not release the Indemnifying Party from any of its obligations under this
Section 11, except to the extent the Indemnifying Party is materially
prejudiced by such failure and shall not relieve Indemnifying Party from any
other obligation or Liability that it may have to any Indemnified Party
otherwise than under this Section 11. If the Indemnifying Party acknowledges
in writing its obligation to indemnify the Indemnified Party hereunder
against any Losses that may result from such Third Party Claim, then the
Indemnifying Party shall be entitled to assume and control the defense of
such Third
13
<PAGE>
Party Claim at its expense and through counsel of its choice if it
gives notice of its intention to do so to the Indemnified Party within ten
(10) days of the receipt of such notice from the Indemnified Party; provided,
however, that if there exists or is reasonably likely to exist one or more
legal defenses available to it that is in conflict with one or more defenses
available to the Indemnifying Party, or a conflict of interest that would
make it inappropriate in the judgment of the Indemnified Party, in its sole
and absolute discretion, for the same counsel to represent both the
Indemnified Party and the Indemnifying Party, the Indemnified Party shall be
entitled to retain its own counsel, in each jurisdiction for which the
Indemnified Party determines counsel is required, at the expense of the
Indemnifying Party. In the event that the Indemnified Party is, directly or
indirectly, conducting the defense against any such Third Party Claim, the
Indemnifying Party shall cooperate with the Indemnified Party in such defense
and make availabe to the Indemnified Party, at the Indemnifying Party's
expense, all such witnesses, records, materials and information in the
Indemnifying Party's possession or under the Indemnifying Party's control
relating thereto as is reasonably required by the Indemnified Party. No such
Third Party Claim may be settled by the Indemnifying Party without the prior
written consent of the Indemnified Party unless such settlement is for
monetary damages, exclusive of any injunctive or other equitable relief.
12. DISPUTE RESOLUTION.
12.1. NEGOTIATION. The parties shall attempt in good faith to
resolve any dispute arising out of or relating to this Agreement promptly by
good faith negotiation. Either party may give the other party written notice
of any dispute not resolved in the normal course of business. Within twenty
(20) days after delivery of said notice, the parties shall meet at a mutually
acceptable time and place, and thereafter as often as they deem necessary, to
exchange relevant information and to attempt to resolve the dispute. If the
matter has not been resolved within sixty (60) days of the disputing party's
notice, or if the parties fail to meet within twenty (20) days, either party
may initiate mediation of the controversy or claim as provided in Section
12.2 below.
12.2. MEDIATION. If any dispute has not been resolved by
negotiation as provided in Section 12.1 hereof, the parties shall endeavor to
resolve the dispute by mediation under the then current Model Procedure for
Mediation of Business Disputes of the Center for Public Resources, Inc.
("CPR"), 366 Madison Avenue, New York, New York 10017. The neutral third
party will be selected from the CPR Panel of Neutrals. If the parties
encounter difficulty in agreeing on a neutral, they will seek the assistance
of CPR in the selection process. Unless otherwise agreed by the parties, the
place of mediation shall be Los Angeles, California
12.3. ARBITRATION. Any dispute that has not been resolved by
mediation, as provided in Section 12.2 hereof within sixty (60) days of the
initiation of such procedure, shall be finally settled by arbitration
conducted expeditiously in accordance with the CPR Rules for Non-Administered
Arbitration of Business Disputes by a sole arbitrator; provided, however,
that if one party has requested the other party to participate in a
non-binding dispute resolution procedure under Sections 12.1 or 12.2 hereof
and the other party has failed to participate therein, the other party may
14
<PAGE>
initiate arbitration before expiration of the above time period. The
arbitration shall be governed by the laws of the State of California, and
judgment upon the award rendered by the arbitrator may be entered by any
court having jurisdiction thereof. The place of arbitration shall be Los
Angeles, California. The arbitrator is not empowered to award damages in
excess of compensatory damages, which shall not include consequential
damages, and each party hereby irrevocably waives any damages in excess of
such compensatory damages.
12.4. COSTS. The parties shall bear their respective costs in
connection with the dispute resolution procedures described in Sections 12.1,
12.2 and 12.3 hereof, except that the parties shall share equally the fees
and expenses of any neutral third party or arbitrator and the costs of any
facility used in connection with such dispute resolution procedures.
12.5. REPRESENTATION BY COUNSEL. With respect to the
non-binding procedures provided in Sections 12.1 or 12.2 hereof, if a
negotiator intends to be accompanied at a meeting by an attorney, the other
negotiator shall be given at least three (3) working days' notice of such
intention and may also be accompanied by an attorney. All negotiations
relating to any non-litigated procedure provided herein are confidential and
shall be treated as compromise and settlement negotiations for purposes of
the rules of evidence of all applicable jurisdictions.
13. MISCELLANEOUS.
13.1. HEADINGS. The descriptive headings of the Sections
contained in this Agreement are for convenience of reference only and in no
way limit or affect the terms or conditions of this Agreement.
13.2. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery in
person, by courier service, by cable, by telecopy, by telegram, by telex or
by registered or certified mail (postage prepaid, return receipt requested)
to the respective parties at the following addresses (or at such other
address for a party as shall be specified in a notice given in accordance
with this Section 13.2):
IF TO VALUECLICK:
ValueClick, Inc.
6450 Via Real
Carpinteria, California 93013
Fax: (805) 566-0190
Attn: Brian Coryatt
15
<PAGE>
IF TO VCEU:
ValueClick Europe
50 Burnaby Street
London SW10 OPN
Fax: 011-44-171-795-2113
Attn: Steve Umberger
With a copy to (which shall not comprise notice hereunder):
Holland & Knight LLP
50 N. Laura Street, Suite 3900
Jacksonville, Florida 32202
Fax: (904) 358-1872
Attn: James L. Main, Esquire
13.3. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any
manner materially adverse to any party. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced,
the parties hereto shall negotiate in good faith to modify this Agreement so
as to effect the original intent of the parties as closely as possible in an
acceptable manner in order that the transactions contemplated hereby are
consummated as originally contemplated to the greatest extent possible.
13.4. RELATIONSHIP BETWEEN VALUECLICK AND VCEU. Nothing herein
shall create, be deemed to create or be construed as creating any
partnership, employer/employee, joint venture, franchiser/franchisee or
agency relationship between ValueClick and VCEU or shall be deemed to render
ValueClick or VCEU liable for any debts or obligations of the other party
which the other party may have to any third party. Neither of the parties
hereto nor any of their employees or agents shall have the power or authority
to bind or obligate the other party.
13.5. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject mater hereof and
thereof and supersedes all prior agreements and undertakings, both written
and oral, between ValueClick and VCEU with respect to the subject matter
hereof and thereof.
13.6. ASSIGNMENT. This Agreement may not be assigned by
operation of law or otherwise without the express written consent of
ValueClick and VCEU (which consent may be granted or withheld in the sole
discretion of ValueClick and VCEU).
13.7. NO THIRD PARTY BENEFICIARIES. Except for the provisions of
Section 11 relating to Indemnified Parties, this Agreement shall be binding upon
and inure
16
<PAGE>
solely to the benefit of the parties hereto and their permitted assigns, and
nothing herein, express or implied, is intended to or shall confer upon any
other Person any legal or equitable right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement.
13.8. AMENDMENT. This Agreement may not be amended or modified
except by an instrument in writing signed by, or on behalf of, ValueClick and
VCEU.
13.9. GOVERNING LAW/JURISDICTION. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of
California applicable to contracts executed in and to be performed entirely
within that state. All actions and proceedings arising out of or relating to
this Agreement shall be heard and determined in any California state or
federal court sitting in the County of Orange and the parties hereby submit
to the personal jurisdiction of such court. Any and all service of process
and any other notice in any such suit, action, claim, proceeding or
investigation shall be effective against any party if given by registered or
certified mail, return receipt requested, or by any other means of mail that
requires a signed receipt, postage prepaid, mailed to such party as herein
provided.
13.10. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate
counterparts and delivered by facsimile, each of which when executed shall be
deemed to be an original, but all of which taken together shall constitute
one and the same agreement.
13.11. NON-WAIVER. A failure of either party to enforce at any
time any term, provision or condition of this Agreement, or to exercise any
right or option herein, shall in no way operate as a waiver thereof, nor
shall any single or partial exercise preclude any other right or option
herein; in no way whatsoever shall a waiver of any term, provision or
condition of this Agreement be valid unless in writing, signed by the waiving
party, and only to the extent set forth in such writing.
IN WITNESS WHEREOF, VCEU and ValueClick have caused this
Agreement to be signed and delivered by their duly authorized officers, all
as of the date hereof.
VALUECLICK, INC.
By: /s/ James R. Zarley
---------------------------
Name: James R. Zarley
---------------------------
Title: CEO
---------------------------
VALUECLICK EUROPE, LIMITED
By: [Illegible]
---------------------------
Name:
---------------------------
Title:
---------------------------
17
<PAGE>
SCHEDULE 1
DESCRIPTION OF POD
The POD includes the necessary hardware and software to manage the VCEU
advertising network. In Europe, the POD will be similar in function to the
POD currently installed and running the ValueClick advertising network. This
includes, but is not limited to, the following:
Hardware
5 slave servers
1 "Pollux" system (main software system)
2 Equalizers
1 Switch
Software and OS
FreeBSD for all servers
ValueClick proprietary banner server engine
ValueClick proprietary administration software
Misc. software, e.g., SSH and Verisign for secure transactions
The POD will include all equipment and software anticipated to handle the
startup workload. In addition, hardware and software will be installed
within the original POD to accommodate the growth that is expected through
the first several months of business. This will allow both sides to focus on
growing the business from a customer perspective, rather than being slowed
down by the continual adding of small increments of equipment.
i
<PAGE>
SCHEDULE 2
TERRITORY
1. Austria
2. Belgium
3. Denmark
4. Great Britain (which shall include England, Scotland, Wales and
Northern Ireland)
5. France
6. Finland
7. Germany
8. Greece
9. Ireland
10. Italy
11. Luxembourg
12. Netherlands
13. Norway
14. Portugal
15. Spain
16. Sweden
17. Switzerland
18. Any other country recognized as being located in Western Europe
ii
<PAGE>
FORM OF
EMPLOYEE CONFIDENTIALITY, NONCOMPETITION
AND INVENTION AGREEMENT
This EMPLOYEE CONFIDENTIALITY, NONCOMPETITION AND INVENTION AGREEMENT is
made as of ____________, 1999, by and between ValueClick, Inc., a Delaware
corporation ("the Company"), and the undersigned employee (the "Employee").
As a result of his or her employment by the Company, the Employee has
had or will have access to and has or will become acquainted with various
trade secrets and other proprietary and confidential information and property
of the Company, the disclosure or use of which for any purposes other than in
the Company's business would unreasonably and unfairly impair the Company's
ability to conduct its business profitably.
THEREFORE, as a condition of and in consideration of the Company's
employment or continuation of employment of the Employee, the Employee agrees
with the Company as follows:
1. CERTAIN DEFINITIONS. For purposes of this Agreement, the terms
defined below have the meanings indicated.
1.1 "AFFILIATE". "Affiliate" means and includes any of the
Company's subsidiaries (whenever formed or acquired), and any corporation,
limited liability company, partnership, joint venture, association or other
entity in which the Company owns or comes to own more than twenty percent of
the voting stock or other ownership interest or which owns or
1
<PAGE>
comes to own twenty percent or more of the Company's outstanding common
stock, and any of the Company's clients, customers, licensees, licensors,
franchisees and franchisors.
1.2 "CONFIDENTIAL MATTER". "Confidential Matter" means and
includes the following:
Various financial and operating data and other proprietary and
confidential information of the Company consisting of marketing data;
equipment; documents; files; electronically recordable data or
concepts; computer software and hardware; inventions; improvements;
books; papers; compilations of information; records; specifications;
names, addresses, names of agents and employees, buying habits and
practices of existing and potential clients, customers and other
Affiliates; names, marketing methods, practices and related information
regarding the Company's existing and potential joint venture partners,
licensees, licensors, vendors, suppliers and distributors; costs of
materials; prices the Company obtains or has obtained or at which it
sells, has sold or intends to sell its products or services; lists or
other written records used in the Company's business; information
regarding the Company's financial condition; compensation paid to the
Company's consultants and employees and other terms of employment; and
any of the foregoing that may have been or may be conceived,
originated, discovered or developed by the Company or the Employee or
any other employees or consultants of the Company while employed or
engaged by the Company or on the basis of or using any Confidential
Matter.
2
<PAGE>
All of the foregoing are owned and held in strict confidence by the Company
or by Affiliates to which the Company has a duty of confidentiality.
Nevertheless, "Confidential Matter" excludes any of the foregoing that has
entered the public domain through no fault of the Employee, that an
authorized executive officer of the Company has authorized for public
dissemination, that was known to or possessed by the Employee prior to his or
her employment by the Company and other than through disclosure or delivery
by the Company, or that was learned or obtained by the Employee from sources
having no duty of confidentiality to the Company that were or are unconnected
with and unrelated to his or her employment by the Company.
2. NONDISCLOSURE, COMPETITION, SOLICITATION, PROPERTY.
2.1 NONDISCLOSURE. The Employee acknowledges and agrees that,
as an employee of the Company, he or she has had or will have access to and
has or will become acquainted with Confidential Matter, all of which the
Employee will regard and protect as trade secrets owned by the Company and
all of which are used or contemplated to be used in the Company's business.
The Employee represents, warrants and agrees that, except as required by the
Company in the course of his or her employment with the Company, he or she
will not at any time, whether during or after his or her employment by the
Company, directly or indirectly, use or permit others to use, or disclose or
communicate to any person or entity, any Confidential Matter, without the
prior written consent of an executive officer of the Company in the
particular case.
2.2 COMPETITION, SOLICITATION. The Employee further
acknowledges and agrees that, as an employee of the Company he or she has
participated or will participate in important aspects of the Company's
research, development, creative work, planning, operations
3
<PAGE>
and other activities, and that the conduct by him or her of any business or
activity directly or indirectly competing with the Company's business
necessarily would constitute trading on the Company's good will and
reputation developed through the Company's expenditure of very substantial
efforts and moneys, would involve the use by the Employee of Confidential
Matter and would unreasonably and unfairly impair the Company's ability to
conduct its business profitably.
The Employee therefore further acknowledges and agrees
that he or she will not at any time during his or her employment with the
Company directly or indirectly own an interest in, join, operate, control,
participate in or be connected, as an officer, director, manager, employee,
agent, independent contractor, consultant, member, partner, shareholder
(except as a shareholder of a corporation in the management and affairs of
which the Employee has no control and which is the issuer of shares that are
actively traded in a national securities market) or principal, with any
corporation, limited liability company, partnership, joint venture,
proprietorship, association or other entity or person engaged in developing,
producing, designing, providing, soliciting orders for, selling, distributing
or marketing products or services that directly or indirectly compete with
the Company's products, services or other business, in any markets in which
the Company is now doing business, contemplates doing business or does
business during his or her employment, or directly or indirectly take or
permit any action in preparation to do any of the foregoing. As further
protection for the Confidential Matter, the Employee agrees that he or she
will not, directly or indirectly, and whether or not for compensation, divert
or attempt to divert from the Company any business in which the Company is
engaged or contemplates engaging or induce or attempt to induce any employee
of the Company to leave the Company's employ.
4
<PAGE>
2.3 PROPERTY. The Employee agrees that he or she will not
make or retain any originals, copies or reproductions of or excerpts from any
of the Confidential Matter for his or her use or the use of others and, on
request by the Company or on termination of the Employee's employment with
the Company, the Employee will deliver to the Company all tangible property
that is or embodies any of the Confidential Matter, whether prepared or
developed by or with the assistance of the Employee or otherwise coming into
his or her possession, control or knowledge.
2.4 LEGAL DUTIES. The Employee acknowledges and agrees that
his or her agreements herein are intended to implement certain of the
Employee's duties under Federal and state laws, such as California Labor Code
section 2860, which provides:
"Everything which an employee acquires by virtue of his employment,
except the compensation which is due to him from his employer, belongs
to the employer, whether acquired lawfully or unlawfully, or during or
after the expiration of the term of his employment."
This Agreement shall not be interpreted or construed as limiting the Employee's
obligations or the Company's rights under any of such laws.
2.5 NONDISCLOSURE TO THE COMPANY. The Employee further
represents and warrants that the Employee has not disclosed and will not
disclose to the Company or any Affiliate any trade secrets or other
proprietary or confidential information that may not lawfully be so disclosed
by the Employee, by virtue of the ownership of the same by another person or
entity or otherwise.
5
<PAGE>
3. INVENTIONS, DESIGNS AND PATENTS.
3.1 DISCLOSURE AND ASSIGNMENT OF INVENTIONS. The Employee
agrees that he or she will promptly and fully disclose to the Company, and
the Company agrees to keep confidential, all inventions, designs, creations,
processes, technical or other developments, improvements, ideas and
discoveries (collectively, "Inventions"), whether patentable or not, of which
the Employee obtains knowledge or information during his or her employment
with the Company and for a period of one year thereafter and which relate to
the existing or contemplated products, services or business of or to any
research or experimental, developmental or creative work carried on or
contemplated by the Company, whether or not conceived, originated, made,
developed or reduced to practice by the Employee alone or with others during
regular working hours or at other times. All Inventions are and shall remain
the exclusive property of the Company. The Employee agrees that he or she
will assign, and hereby does assign, to the Company or its designee, all of
the Employee's right, title and interest in and to all Inventions, whether
patentable or not, conceived, originated, made, developed or reduced to
practice by the Employee, alone or with others, while he or she is an
employee with the Company.
3.2 COOPERATION. The Employee agrees to assist the Company to
obtain any and all patents, copyrights, trademarks and service marks relating
to Inventions and to execute all documents and do all things necessary to
obtain letters patent and copyright, trademark and service mark registrations
therefor, to vest the Company or its designee with full and exclusive title
thereto and to protect the same against infringement by others, all as and to
the extent the Company may request and at the Company's expense, for no
consideration to the Employee other than the Employee's salary or wages.
6
<PAGE>
3.3 EXCEPTIONS. Sections 3.1 and 3.2 shall not, however,
apply to an Invention developed entirely on the Employee's own time without
using the Company's or any Affiliate's equipment, supplies, facilities or
trade secret information except for those Inventions that either (a) relate
at the time of conception or reduction to practice of the Invention to the
Company's business or demonstrably anticipated research or development of the
Company, or (b) result from any work performed by the Employee for the
Company. The Employee acknowledges and agrees that the preceding sentence
constitutes the notification required by California Labor Code section 2872.
The Employee has listed on the Attachment to this Agreement, which the
Company agrees to keep confidential, all unpatented Inventions owned,
conceived, originated, made, developed or reduced to practice by the Employee
(whether or not prior to the Employee's employment with the Company)
qualifying for the exception in the first sentence of this section 3.3.
4. TRADE SECRETS OF THIRD PARTIES. The Employee acknowledges and
understands that, in dealing with existing and potential Affiliates,
suppliers, contracting parties and other third parties with which the Company
has business relations or potential business relations, the Company
frequently receives confidential and proprietary information and materials
from such third parties subject to the Company's understanding that the
Company will maintain the confidentiality thereof and will require its
employees and consultants to do so. The Employee agrees to treat all such
information and materials as Confidential Matter subject to this Agreement.
5. INJUNCTIVE RELIEF. The Employee acknowledges and agrees that his or
her failure to perform any of his or her covenants in this Agreement would
cause irreparable injury to the
7
<PAGE>
Company and cause damages to the Company that would be difficult or
impossible to ascertain or quantify. Accordingly, without limiting any
remedies that may be available with respect to any breach of this Agreement,
the Employee consents to the entry of an injunction to restrain any breach of
this Agreement.
6. SEVERABILITY. The invalidity or unenforceability of any provision
hereof shall in no way affect the validity or enforceability of any other
provision hereof.
7. ATTORNEYS' FEES. If suit is brought to enforce or interpret this
Agreement, the prevailing party shall be entitled to recover as an element of
costs of suit, and not as damages, reasonable attorneys' fees and expenses
and all expert witnesses' fees and expenses incurred by the prevailing party.
In such event, the "prevailing party" shall be the party that is entitled to
recover costs of suit, whether or not the suit proceeds to final judgment,
the party not entitled to recover costs shall not recover attorneys' or
expert witnesses' fees or expenses and no sum for attorneys' and expert
witnesses' fees and expenses shall be counted in calculating the amount of a
judgment for purposes of determining whether a party is entitled to recover
costs or attorneys' or expert witnesses' fees or expenses.
8. HEADINGS. The section headings in this Agreement are for
convenience of reference only and are not part of this Agreement.
9. NOTICES. Any notice, consent or other communication to be given
under or in connection with this Agreement shall be in writing and shall be
deemed duly given and received when delivered personally, when transmitted by
facsimile if receipt is acknowledged by the addressee, one day after being
deposited for next-day delivery with a nationally recognized
8
<PAGE>
overnight delivery service or three days after being mailed by first class
mail, charges or postage prepaid, properly addressed, if to the Company, at
6450 Via Real, Carpinteria, California 93013 (Facsimile number: (805)
566-0190), and, if to the Employee, at his or her address or facsimile number
appearing on the records of the Company. Either the Company or the Employee
may change its or his or her address for this purpose from time to time by
notice to the other.
10. SUCCESSORS. This Agreement shall inure to the benefit of and bind
the Company and the Employee and their respective successors, assigns, heirs,
legatees, devisees and personal representatives.
11. ENTIRE AGREEMENT. This Agreement contains the entire agreement of
the Company and the Employee and supersedes all prior or contemporaneous
negotiations, correspondence, understandings and agreements, whether written
or oral, between them, with respect to the subject matter hereof.
12. SURVIVAL. All agreements, representations, warranties and
acknowledgments herein shall survive any termination of the Employee's
employment with the Company for any reason.
13. THE COMPANY'S RIGHT TO TERMINATE. Nothing herein shall be
interpreted to impair or otherwise affect the right and power of the Company
to terminate its employment of the Employee, which is at will.
9
<PAGE>
14. THE EMPLOYEE HEREBY WARRANTS AND ACKNOWLEDGES THAT HE OR SHE HAS
CAREFULLY READ AND UNDERSTANDS ALL OF THE PROVISIONS OF THIS AGREEMENT.
COMPANY: EMPLOYEE:
VALUECLICK, INC.
By:
------------------------------- -------------------------------
Name: Print Name:
----------------------------- --------------------
Title:
----------------------------
10
<PAGE>
ATTACHMENT
TO
EMPLOYEE CONFIDENTIALITY, NONCOMPETITION
AND INVENTION AGREEMENT
The undersigned Employee certifies that he or she owns the interest indicated
below in the following inventions, designs, processes, technical or other
developments, improvements, ideas and discoveries, as contemplated by section
3.3 of this Agreement:
EMPLOYEE:
-----------------------------------
Print Name:
------------------------
Date:
------------------------------
11
<PAGE>
MUTUAL NONDISCLOSURE AGREEMENT
Each undersigned party (which together with their subsidiaries and
affiliated entities is referred to herein as the "Receiving Party")
understands that the other party (which together with their subsidiaries and
affiliated entities is referred to herein as the "Disclosing Party") has
disclosed or may disclose information relating to the Disclosing Party's
business (including, without limitation, its properties, employees, finances,
businesses and operations), which to the extent previously, presently, or
subsequently disclosed to the Receiving Party, as well as the Receiving
Party's analyses, conclusions and evaluations thereof (whether in written or
electronic form), is hereinafter referred to as "Proprietary Information" of
the Disclosing Party.
In consideration of the parties' discussions in connection with a
proposed transaction between the parties (the "Transaction") and any access
the Receiving Party may have to Proprietary Information of the Disclosing
Party, the Receiving Party hereby agrees as follows:
1. All administrative, technical, financial, trade-secret,
manufacturing, or other confidential information shall be deemed to be
"Proprietary Information" for purposes of this Agreement. The fact that
Proprietary Information does not carry a proprietary legend, or is
transmitted verbally, shall not act as a waiver to deprive such information
from protection under this Agreement.
2. The Receiving Party agrees (i) to hold the Disclosing Party's
Proprietary Information delivered in accordance with paragraph 1 above (the
"Confidential Information") in strict confidence and to take all reasonable
precautions to protect the Confidential Information (including, without
limitation, all precautions the Receiving Party employs with respect to its
confidential materials), (ii) not to divulge any such Confidential
Information or any information derived therefrom to any third person
(including, but not limited to, any affiliated person or entity), except to
the Receiving Party's attorneys, accountants or professional advisors on a
"need to know" basis, (iii) not to make any use whatsoever at any time of
such Confidential Information except to evaluate internally, or to evaluate
with the parties set forth in (ii) above, whether to enter into an agreement
with the Disclosing Party relating to the Transaction, (iv) not to remove or
export from the United States or re-export any such Confidential Information
or any direct product thereof to Afghanistan, the Peoples' Republic of China
or any Group Q, S, W, Y or Z country (as specified in Supplement No. 1 to
Section 770 of the U.S. Export Administration Regulations, or a successor
thereto) or otherwise except in compliance with and with all licenses and
approvals required under applicable export laws and regulations, including
without limitation, those of the U.S. Department of Commerce, and (v) not to
copy or reverse engineer any such Confidential Information. Any employee
given access to any such Confidential Information by the Receiving Party must
have a legitimate "need to know" and shall be similarly bound in writing.
Without granting any right or license, the Disclosing Party agrees that the
foregoing clauses (i), (ii), (iii) and (v) shall not apply with respect to
any Confidential that the Receiving Party can document (a) is or, through no
improper action or inaction by the Receiving Party or any affiliate, agent,
consultant or employee, is made generally available to the public, or (b) was
in its possession or known by it prior to receipt from the Disclosing Party,
or (c) was rightfully
<PAGE>
disclosed to it by a third party, provided the Receiving Party complies with
any restrictions imposed by such third party, or (d) was independently
developed without use of any Confidential Information of the Disclosing
Party. For purposes of the immediately preceding sentence, the terms
"availability," "possession," "disclosure," "development" or "knowledge" of
information combined, synthesized or used by the Disclosing Party in a
particular manner are meant to incorporate the various pieces of information
as they are combined, synthesized or used. Such terms are not meant to
include the availability, possession, disclosure, development or knowledge of
various pieces of information that are not so combined, synthesized or used.
The Receiving Party may make disclosures required by law (including, without
limitation, the disclosure requirements of the Federal securities laws of the
United States) or court order, PROVIDED that the Receiving Party uses
reasonable efforts to limit any such disclosure and to obtain confidential
treatment or a protective order and has allowed the Disclosing Party to
participate in attempting to limit such disclosure or to seek confidential
treatment. Nothing contained in this Agreement shall be construed as granting
or conferring any rights by license or otherwise in any Proprietary
Information disclosed.
3. Immediately upon (i) the decision by either party not to enter into
the Transaction contemplated hereby, or (ii) a request by the Disclosing
Party at any time (which will be effective if actually received or three days
after mailed first class postage prepaid to the Receiving Party's address
set forth herein), the Receiving Party will turn over to the Disclosing Party
all Confidential Information of the Disclosing Party and all documents or
media containing any such Confidential Information and any and all copies or
extracts thereof. In addition, the Receiving Party shall provide the
Disclosing Party with written notice that it has returned all of the
Disclosing Party's Confidential Information and all copies or extracts
thereof. The Receiving Party understands that nothing herein (a) requires
the disclosure of any Confidential Information of the Disclosing Party, which
shall be disclosed if at all solely at the option of the Disclosing Party (in
particular, but without limitation, any disclosure is subject to compliance
with export control laws and regulations), or (b) requires the Disclosing
Party to proceed with any proposed transaction or relationship in connection
with which Confidential Information may be disclosed.
4. Except to the extent required by law, neither party shall disclose
the existence or subject matter of the negotiations or business relationship
contemplated by this Agreement.
5. Notwithstanding anything in this letter agreement to the contrary,
the Disclosing Party hereby represents and warrants that such party may
rightfully disclose or make available the Proprietary Information to the
Receiving Party without the violation of any contractual, legal, fiduciary or
other obligation to any person, and the Disclosing Party shall indemnify and
hold harmless in full the Receiving Party against any and all damages, costs
and expenses of any nature whatsoever (including, without limitation,
reasonable attorneys' fees) incurred by the Receiving Party in connection with
the breach of such representation and warranty.
6. Subject to the terms and conditions of a definitive agreement
regarding the Transaction and without the prejudice thereto, each party
hereto acknowledges that neither it nor any of its officers, directors,
employees or agents makes any express or implied representation or
<PAGE>
warranty as to the completeness of the Proprietary Information. The Receiving
Party shall not be entitled to rely on the completeness of any Proprietary
Information, but shall be entitled to rely solely on such representations and
warranties regarding the completeness of the Proprietary Information as may
be made to it in any definitive agreement relating to the Transaction,
subject to the terms and conditions of such agreement.
7. Each party is aware, and will advise its representatives and agents
who are informed of the matters that are the subject to this letter
agreement, of the restrictions imposed by the United States securities laws
on the purchase or sale of securities by any persons who has received
material, non-public information from the issuer of such securities and on
the communication of such information to any other person when it is
reasonably foreseeable that such other person is likely to purchase or sell
such securities in reliance upon such information.
8. This Agreement will apply only to disclosures made within six (6)
months of the date of this Agreement. However, the obligations hereunder with
respect to any disclosure made within that period will continue thereafter in
accordance with the provisions of this Agreement.
9. The Receiving Party acknowledges and agrees that due to the unique
nature of the Disclosing Party's Confidential Information, there can be no
adequate remedy at law for any breach of its obligations hereunder, that any
such breach may allow the Receiving Party or third parties to unfairly
compete with the Disclosing Party resulting in irreparable harm to the
Disclosing Party, and therefore, that upon any such breach or any threat
thereof, the Disclosing Party shall be entitled to appropriate equitable
relief in addition to whatever remedies it might have at law and to be
indemnified by the Receiving Party from any loss or harm, including, without
limitation, attorney's fees, in connection with any breach or enforcement of
the Receiving Party's obligations hereunder or the unauthorized use or
release of any such Confidential Information as set forth herein. The
Receiving Party will notify the Disclosing Party in writing immediately upon
the occurrence of any such unauthorized release or other breach of which it
is aware. In the event that any of the provisions of this Agreement shall be
held by a court or other tribunal of competent jurisdiction to be illegal,
invalid or unenforceable, such provisions shall be limited or eliminated to
the minimum extent necessary so that this Agreement shall otherwise remain in
full force and effect.
10. This Agreement shall be governed by the law of the State of
California without regard to the conflicts of law provisions thereof. This
Agreement supersedes all prior discussions and writings and constitutes the
entire agreement between the parties with respect to the subject matter
hereof. The prevailing party in any action to enforce this Agreement shall
be entitled to costs and attorneys' fees. No waiver or modification of this
Agreement will be binding upon either party unless made in writing and signed
by a duly authorized representative of such party and no failure or delay in
enforcing any right will be deemed a waiver.
<PAGE>
In witness whereof, the parties have executed this Agreement as of the
day and year set forth below.
June 9, 1999
ValueClick, Inc.
By: By: /s/ James R. Zarley
------------------------------- Chairman/CEO
Name:
Title:
Address: 6450 Via Real
Address: P.O. Box 5008
Carpinteria, CA 93014-5008
<PAGE>
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD SUBLEASE
(SHORT-FORM TO BE USED WITH POST 1995 AIR LEASES)
1. PARTIES. This Sublease, dated, for reference purpose only, APRIL 1, 1999,
is made by and between QAD, INC. ("Sublessor") and VALUE CLICK, INC., A
DELAWARE CORPORATION ("Sublessee").
2. PREMISES. Sublessor hereby subleases to Sublessee and Sublessee hereby
subleases from Sublessor for the term, at the rental, and upon all of the
conditions set forth herein, that certain real property, including all
improvements therein, and commonly known by the street address of 6450 VIA
REAL SUITES 3-9, CARPINTERIA located in the County of SANTA BARBARA, State
of CALIFORNIA and generally described as (describe briefly the nature of
the property) APX. 9,000 SF PORTION OF A 12,265 SF OFFICE/INDUSTRIAL
BUILDING LOCATED WITHIN THE SOUTH COAST BUSINESS PARK ("Premises").
3. TERM.
3.1 TERM. The term of this Subleases shall be for APX. TWENTY AND
TWO/THIRDS (20 2/3) MONTHS commencing on APRIL 9, 1999 and ending
on DECEMBER 31, 2000 unless sooner terminated pursuant
to any provision hereof.
3.2 DELAY IN COMMENCEMENT. Sublessor agrees to use reasonable efforts to
deliver possession of the Premises by the commencement date. If,
despite said efforts, Sublessor is unable to deliver possession as
agreed. Sublessee agrees that Sublessor shall not be liable whatsoever
for such failure to deliver possession.
4. RENT.
4.1 BASE RENT. Sublessee shall pay to Sublessor as Base Rent for the
Premises equal monthly payments of $12,150.00 in advance, on the 1ST
day of each month of the term thereof. Sublessee shall pay Sublessor
upon the execution hereof $7,290 as Base Rent for April 12, 1999 TO
APRIL 30, 1999 Base Rent for any period during the term hereof which is
for less than one month shall be a pro rata portion of the monthly
installment.
4.2 RENT DEFINED. All monetary obligations of Sublessee to Sublessor
under the terms of the Sublease (except for the Security Deposit )
are deemed to be rent ("RENT"). Rent shall be payable in lawful
money of the United States to Sublessor at the address stated herein
or to such other persons or at such other places as Sublessor may
designate in writing. (See Addendum)
5. SECURITY DEPOSIT. Sublessee shall deposit with Sublessor upon execution
hereof $12,150.00 as security for Sublessee's faithful performance of
Sublessee's obligations hereunder. The rights and obligations of
Sublessor and Sublessee as to said Security Deposit shall be as set
forth in paragraph 5 of the Master Lease (as modified by Paragraph 7.3
of this Sublease).
6. USE.
6.1 AGREED USE. The Premises shall be used and occupied only for general
office use and for no other purpose.
6.2 Acceptance of Premises and Lessee. Sublessee acknowledges that:
(a) It has been advised by Brokers to satisfy itself with respect to
the condition of the Premises (including but not limited to the
electrical, HVAC and fire sprinkler systems, security,
environmental aspects, and compliance with applicable
Requirements), and their suitability for Sublessee's intended use,
<PAGE>
(b) Sublessee has made such investigation as it deems necessary with
reference to such matters and assumes all responsibility therefore
as the same relate to its occupancy of the Premises, and
(c) Neither Sublessor, Sublessor's agents, nor any Broker has made any
oral or written representations or warranties with respect to said
matters other than as set forth in this Sublease.
In addition, Sublessor acknowledges that:
(a) Broker has made no representations, promises or warranties
concerning Sublessee's ability to honor the Sublease or
suitability to occupy the Premises, and
(b) It is Sublessor's sole responsibility to investigate the
financial capability and /or suitability of all proposed
tenants.
7. MASTER LEASE
7.1 Sublessor is the lessee of the Premises by virtue of a lease,
hereinafter the "MASTER LEASE", a copy of which is attached thereto
marked Exhibit 1, wherein WILLIAM D AND EDNA J. WRIGHT DBA SOUTH COAST
BUSINESS PARK is the lessor, hereinafter the "MASTER LESSOR"
7.2 This Sublease is and shall be at all times subject and subordinate
to the Master Lease and shall be subject to consent of Master Lessor.
7.3 The terms, conditions and respective obligations of Sublessor and
Sublessee to each other under this Sublease shall be subordinate to -
the terms and conditions of the Master Lease. Therefore, for the
purposes of this Sublease, wherever in the Master Lease the word
"Lessor" is used it shall be deemed to mean the Sublessor herein and
wherever in the Master Lease the word "Lessee' is used it shall be
deemed to mean the Sublessee herein.
7.4 During the term of this Sublease and for all periods subsequent for
obligations which have arisen prior to the termination of this
Sublease, Sublessee does hereby expressly assume and agree to perform
and comply with, for the benefit of Sublessor and Master Lessor, each
and every obligation of Sublessor under the Master Lease except for the
following paragraphs which excluded therefrom: 2.1 PREMISES SHALL BE
AMENDED TO REFLECT SUBLESSEE'S PREMISES AS 9,000 SF
7.5 The obligations that Sublessee has assumed under paragraph 7.4 hereof
are hereinafter referred to as the "SUBLESSEE'S ASSUMED OBLIGATIONS".
The obligations that sublessee has not assumed under paragraph 7.4
hereof are hereinafter referred to as the "SUBLESSOR'S REMAINING
OBLIGATIONS".
7.6 Sublessee shall hold Sublessor free and harmless from all liability,
judgment, costs, damages, claims or demands, including reasonable
attorneys fees, arising out of Sublessee's failure to comply with or
perform Sublessee's Assumed Obligations.
7.7 Sublessor agrees to maintain the Master Lease during the entire term of
this Sublease, subject, however, to any earlier termination of the
master Lease without the fault of the Sublessor, and to comply with or
perform Sublessor's Remaining obligations and to hold Sublessee free
and harmless from all liability, judgments, costs, damages, claims or
demands arising out of Sublessor's failure to comply with or perform
Sublessor's Remaining Obligations.
7.8 Sublessor represents to Sublessee that the Master Lease is in full
force and effect and that to Sublessor's knowledge, no default
exists on the part of any party to the Master Lease.
<PAGE>
8. ASSIGNMENT OF SUBLEASE AND DEFAULT.
8.1 Sublessor hereby assigns and transfers to Master Lessor the
Sublessor's interest in this Sublease, subject however to the
provisions of Paragraph 8.2 hereof.
8.2 Master Lessor, by executing this document, agrees that until a Default
shall occur in the performance of Sublessor's obligations under the
Master Lease, that Sublessor may receive, collect and enjoy the Rent
accruing under this Sublease. However, if Sublessor shall Default in
the performance of its obligations to Master Lessor then Master Lessor
may, at its option, receive and collect, directly from Sublessee, all
Rent owing and to be owed under this Sublease. Master Lessor shall not,
by reason of this assignment of the Sublease not by reason of the
collection of the Rent from the Sublessee, be deemed liable to
Sublessee for any failure of the Sublessor to perform and comply with
Sublessor's Remaining Obligations.
8.3 Sublessor hereby irrevocably authorizes and directs Sublessee upon
receipt of any written notice from the Master Lessor stating that a
Default exists in the performance of Sublessor's obligations under the
Master Lease, to pay to Master Lessor the Rent due and to become due
under the Sublease. Sublessor agrees that Sublessee shall have the
right to rely upon any such statement and request from mater Lessor,
and that Sublessee shall pay such Rent to Master Lessor without any
obligation or right to inquire as to whether such Default exists and
notwithstanding any notice from or claim from Sublessor to the contrary
and Sublessor shall have no right or claim against Sublessee for any
such Rent so paid by Sublessee.
8.4 No changes or modifications shall be made to this Sublease without
the consent of Master Lessor.
9. CONSENT OF MASTER LESSOR.
9.1 In the event that the Master Lease requires that Sublessor obtain the
consent of Master Lessor to any subletting by Sublessor then, this
Sublease shall not be effective unless, within then days of the date
hereof, master Lessor signs this Sublease thereby giving its consent to
this Subletting.
9.2 In the event that the obligations of the Sublessor under the Master
Lease have been guaranteed by third parties then neither this Sublease,
nor the Master Lessor's consent, shall be effective unless, within 10
days of the date hereof, said guarantors sign this Sublease thereby
giving their consent to this sublease.
9.3 In the event that Master Lessor does give such consent then:
(a) Such consent shall not release Sublessor of its obligations or
alter the primary liability of Sublessor to pay the Rent and
perform and comply with all the obligations of Sublessor to be
performed under the Master Lease.
(b) The acceptance of Rent by Master Lessor from Sublessee or
anyone else liable under the master Lease shall not be deemed a
waiver by Master Lessor of any provisions of the Master Lease.
(c) The consent to this Sublease shall not constitute a consent to
any subsequent subletting or assignment.
(d) In the event of any Default of Sublessor under the Master Lease,
Master Lessor may proceed directly against Sublessor, any
guarantors or anyone else liable under the Master Lease or this
Sublease without first exhausting Master Lessor's remedies against
any other person or entity liable thereon to Master Lessor.
(e) Master lessor may consent to subsequent sublettings and
assignments of the Master Lease or this Sublease or any amendments
or modifications thereto without notifying Sublessor or any one
else liable under the Master Lease and without obtaining their
consent and such action shall not relieve such persons from
liability.
(f) In the event that Sublessor shall Default in its obligations under
the Master Lease, then Master Lessor, at its option and without
being obligated to do so, may require Sublessee to attorn to
Master Lessor in which event Master Lessor shall undertake the
obligations of Sublessor under
<PAGE>
this Sublease from the time of the exercise of said option to
termination of this Sublease but Master Lessor shall not be
liable for any prepaid Rent nor any Security deposit paid by
Sublessee, not shall Master Lessor be liable for any other
Defaults of the Sublessor under the Sublease.
9.4 The signatures of the Master Lessor and any Guarantors of Sublessor
at the end of this document shall constitute their consent to the
terms of the Sublease.
9.5 Master Lessor acknowledges that, to the best of Master Lessor's
knowledge, no Default presently exists under the Master Lease of
obligations to be performed by Sublessor and that the Master Lease is
in full force and effect.
9.6 In the event that Sublessor Defaults under its obligations to be
performed under the Master Lease by Sublessor, Master Lessor agrees to
deliver to Sublessee a copy of any such notice of default. Sublessee
shall have the right to cure any Default of Sublessor described in any
notice of default within ten days after service of such notice of
default on Sublessee. If such Default is cured by Sublessee then
Sublessee shall have the right of reimbursement and offset from and
against Sublessor.
10. BROKERS FEE.
10.1 Upon execution hereof by all parties, Sublessor shall pay to PACIFICA
COMMERCIAL REALTY a licensed real estate broker, ("BROKER"), a fee as
set forth in a separate agreement between Sublessor and Broker, or in
the event there is no such separate agreement, the sum of $27,500.00
for brokerage services rendered by Broker to Sublessor in this
transaction.
10.2 Sublessor agrees that if Sublessee exercises any option of right of
first refusal as granted by Sublessor herein, or any option or right
substantially similar thereto, either to extend the term of this
sublease, to renew this Sublease, to purchase the Premises, or to lease
or purchase adjacent property which Sublessor may own or in which
Sublessor has an interest, then Sublessor shall pay to Broker a fee in
accordance with the schedule of Broker in effect at the time of the
execution of this Sublease. Notwithstanding the foregoing, Sublessor's
obligation under this Paragraph 10.2 is limited to a transaction in
which Sublessor is acting as a Sublessor, lessor or seller.
10.3 Master Lessor agrees that if Sublessee shall exercise any option or
right of first refusal granted to Sublessee by Master Lessor in
connection with this Sublease, or any option or right substantially
similar thereto, either to extend or renew the Master Lease, to
purchase the Premises or any part thereof, or to lease or purchase
adjacent property which Master Lessor may own or in which Master
Lessor has an interest, or if Broker is the procuring cause of any
other lease or sale entered into between Sublessee and Master Lessor
pertaining to the Premises, any part thereof, or any adjacent
property which Master Lessor owns or in which it has an interest,
then as to any of said transactions, Master Lessor shall pay to
Broker a fee, in cash, in accordance with the schedule of Broker in
effect at the time of the execution of this Sublease.
10.4 Any fee due from Sublessor or Master Lessor hereunder shall be due and
payable upon the exercise of any option to extend or renew, upon the
execution of any new lease, or, in the event of a purchase, at the
close of escrow.
10.5 Any transferee of Sublessor's interest in this Sublease, or of Master
Lessor's interest in the Master Lease by accepting an assignment
thereof, shall be deemed to have assumed the obligations of Sublessor
or Master Lessor under this Paragraph 10. Broker shall be deemed to be
a third-party beneficiary of this paragraph 10.
11. ATTORNEY'S FEE. If any party or the Broker named herein brings an action to
enforce the terms hereof or to declare rights hereunder, the prevailing
party in any such action, on trial and appeal, shall be entitled to his
reasonable attorney's fees to be paid by the losing party as fixed by the
Court.
12. ADDITIONAL PROVISIONS. [If there are no additional provisions, draw a line
from this point to the next printed word after the space left here. If
there are additional provisions place the same here.]
See Addendum
<PAGE>
- -------------------------------------------------------------------------------
ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY REAL ESTATE BROKER AS TO THE
LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS SUBLEASE OR THE
TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO:
1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
SUBLEASE.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION
OF THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED
TO: THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCE, THE ZONING OF THE
PROPERTY, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND
OPERATING SYSTEMS, AND THE SUITABILITY OF THE PREMISES FOR SUBLESSEE'S
INTENDED USE.
WARNING: IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN
CALIFORNIA, CERTAIN PROVISIONS OF THE SUBLEASE MAY NEED TO BE REVISED TO
COMPLY WITH THE LAWS OF THE STATE IN WHICH THE PROPERTY IS LOCATED.
- -------------------------------------------------------------------------------
Executed at: QAD, INC., A DELAWARE CORPORATION
-----------------
On: By /s/ Barry [ILLEGIBLE]
--------------------------- -------------------------
Address: By
--------------------- -------------------------
"Sublessor" (Corporate Seal)
Executed at: VALUE CLICK, INC., A DELAWARE CORPORATION
------------------
On: By /s/ [ILLEGIBLE]
--------------------------- ----------------------------------
Address: By
--------------------- ----------------------------------
"Sublessee" (Corporate Seal)
Executed at: William D. and Edna J. Wright dba
------------------
South Coast Business Park
On: By /s/ [ILLEGIBLE] Wright [ILLEGIBLE]
--------------------------- ----------------------------------
Address: By
--------------------- ----------------------------------
"Master Lessor" (Corporate Seal)
NOTE: THESE FORMS ARE OFTEN MODIFIED TO MET CHANGING REQUIREMENTS OF LAW AND
NEEDS OF THE INDUSTRY. ALWAYS WRITE OR CALL TO MAKE SURE YOU ARE UTILIZING
THE MOST CURRENT FORM: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 SO.
FLOWER ST., SUITE 600, LOS ANGELES, CA 90017. (213) 687-8777.
<PAGE>
EXHIBIT A
Premises: 6450 Via Real
Sublessor: QAD Inc.
Sublessee: ValueClick LLC
Date: April 1, 1999
Balance
Left
Danbury
Desk & Return 8
Credenza 5
Book Case
Wood (4' x 6') 2
Metal 2
Storage Cabinet 1
Reception Cabinet 1
Action Office Cubes 5
Chairs
Rolling 4
Plastic 6
Tables
Conference Room 1
4' Sectional 1
4' Round 1
Rectangular 7
Folding 2
PRICE FOR ALL $0.00
Initials: Sublessor [ILLEGIBLE]
Sublessee [ILLEGIBLE]
Lessor [ILLEGIBLE]
<PAGE>
EXHIBIT B
Premises: 6450 Via Real
Sublessor: QAD Inc.
Sublessee: ValueClick LLC
Date: April 1, 1999
Total
Count
Danbury (Wood Desk)
Desk & Return 12
Credenza 11
Book Case
Wood (4' x 6') 25
Metal 4
PRICE FOR ALL: $5,000.00
Initials: Sublessor [ILLEGIBLE]
Sublessee [ILLEGIBLE]
Lessor [ILLEGIBLE]
<PAGE>
ADDENDUM TO STANDARD SUBLEASE
Premises: 6450 Via Real
Sublessor: QAD Inc.
Sublessee: ValueClick LLC
Date: April 1, 1999
4.2 ADDENDUM: In addition to the Base Rent, Sublessee shall pay to
Sublessor on or before the date such payments are to be
made by Sublessor under the master Lease, additional rent
in an amount equal to Sublessee's prorata share of all
operating expenses, taxes, utilities, rent increases and
other amounts of any kind whatsoever payable by Sublessor
to Master Lessor under the Master Lease. Sublessee's
prorata share of such amounts shall be determined by
Sublessor in its reasonable discretion based upon the
size of the Premises hereunder relative to the Premises
leased under the Master Lease and such other factors as
may be reasonably considered by commercial landlords in
making such determinations. Sublessee agrees to make such
payments within five (5) days of the delivery of written
notice by Sublessor. In the event that Sublessee fails to
make payments a s required hereunder, Sublessee agrees to
pay a late charge equal to ten percent (10%) of the
overdue amount and pay interest on such overdue amount at
ten percent (10%) per annum on the date that such payment
is due until the date Sublessor receives payment.
13. PARKING: Sublessee shall be entitled to use twenty-seven (27)
unreserved parking spaces during the term to this
Sublease.
14. FURNITURE: 14.1 QAD shall include at no cost to ValueClick all of
the furniture listed on Exhibit A dated march 31, 1999.
The furniture listed on Exhibit A dated march 31, 1999.
The furniture listed shall be given to ValueClick upon
the mutual execution of the Sublease.
14.2 QAD shall sell to ValueClick for the sum of five
Thousand dollars ($5000) all of the furniture listed on
Exhibit B dated march 31, 1999. The furniture listed on
exhibit B shall be transferred when QAD vacated 6420 Via
Real, expected to be on or about June 10, 1999.
15. SIGNAGE: QAD authorizes ValueClick to relocate the existing
Monument sign approximately six (6) feet and install a
new monument sign for ValueClick. QAD's consent is
subject to the consent of the Master Lessor.
16. OPTION TO Provided Sublessor has exercised its one remaining option to
EXTEND: extend the Master Lease, Sublessee is hereby granted the
Option to Extend the term of this Sublease for one (1)
additional period of three (3) years. The Option shall be
exercised by the delivery of a written notice to
Sublessor no earlier than two hundred seventy (270) days
and no later than one hundred eighty five (185) days
prior to the expiration of the Sublease term. The
extension granted hereunder shall be on the same terms
and conditions applicable to the initial term, except as
to tent, which shall be increased per the terms of the
Master Lease. In the event that Sublessee exercises said
Option to Extend, then Sublessor agrees to pay Grey
Bartholomew of Pacifica Commercial Realty a brokerage
commission equal to six percent (6%) of the value of the
Option term. Said commission shall be due and payable
once the Option has been exercised.
17. REPRESENTATION Each individual executing this Sublease on behalf of
OF SUBLESSEE: Sublessee represents and warrants that each such individual
is duly authorized to execute and deliver this Sublease
on behalf of Sublessee in accordance with a duly adopted
resolution of Sublessee's board of Directors, and that
this Sublease is binding on Sublessee in accordance with
its terms, and that upon request of Sublessor, Sublessee
shall deliver a copy of such resolution to Sublessor.
Initials: Sublessor [ILLEGIBLE]
Sublessee [ILLEGIBLE]
Lessor [ILLEGIBLE]
<PAGE>
STANDARD INDUSTRIAL LEASE - MULTI-TENANT
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. PARTIES. This Lease, dated, for reference purpose only, AUGUST 30, 1999,
is made by and between WILLIAM D & EDNA J. WRIGHT DBA SOUTH COAST
BUSINESS PARK (herein called "Lessor") and VALUECLICK, INC., A DELAWARE
CORPORATION (herein called "Lessee").
2. PREMISES, PARKING AND COMMON AREAS.
2.1 PREMISES. Lessor hereby Leases to Lessee and leases from Lessor for the
term, at the rental, and upon all of the conditions set forth herein,
real property situated in the County of SANTA BARBARA, State of
CALIFORNIA commonly known as SOUTH COAST BUSINESS PARK, PHASE I & II
(46,198 + 14,000 = 60,198 S.F.) and described as 6430 VIA REAL, (BUILDING
C), SUITE'S 1 & 2, CARPINTERIA, CA, CONSISTING OF APPROXIMATELY 2,750
SQUARE FEET (SEE EXHIBIT "A") herein referred to as the "Premises", as
may be outlined on an Exhibit attached hereto, including rights to the
Common Areas as hereinafter specified but not including any rights to the
roof of the Premises or to any Building in the Industrial Center. The
Premises are a portion of a building herein referred to as the
"Building." The Premises, the Building, the Common Areas, the land upon
which the same are located, along with all other buildings and
improvements thereon, are herein collectively referred to as the
"Industrial Center."
2.2 VEHICLE PARKING. Lessee shall be entitled to 9 vehicle parking
spaces, unreserved and unassigned, on those portions of the Common Areas
designated by Lessor for parking. Lessee shall not use more parking
spaces than said number. Said parking spaces shall be used only for
parking by vehicles no larger than full size passenger automobiles or
pick-up trucks, herein called "Permitted Size Vehicles." Vehicles other
than Permitted Size Vehicles are herein referred to as "Oversized
Vehicles."
2.2.1 Lessee shall not permit or allow any vehicles that belong to or
are controlled by Lessee or Lessee's employees, suppliers,
shippers, customer, or invitees to be loaded, unloaded, or parked
in areas other than those designated by Lessor for such
activities.
2.2.2 If Lessee permits or allows any of the prohibited activities
described in paragraph 2.2 of this Lease, then Lessor shall have
the right, without notice, in addition to such other rights and
remedies that it may have, to remove or tow away the vehicle
involved and charge the cost to Lessee, which cost shall be
immediately payable upon demand by Lessor.
2.3 COMMON AREAS - DEFINITION. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior
boundary line of the Industrial Center that are provided and designated
by the Lessor from time to time for the general non-exclusive use of
Lessor, Lessee and of other lessees of the Industrial Center and their
respective employees, suppliers, shippers, customers and invitees,
including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways and landscaped areas.
2.4 COMMON AREAS - LESSEE'S RIGHTS. Lessor hereby grants to Lessee, for the
benefit of Lessee and its employees, suppliers, shippers, customers and
invitees, during the term of this Lease, the non-exclusive right to use,
in common with other entitled to such use, the Common Areas as they exist
from time to time, subject to any rights, powers, and privileges reserved
by Lessor under the terms hereof or under the terms of any rules and
regulations or restrictions governing the use of the Industrial Center.
Under no circumstances shall the right herein granted to use the Common
Areas be deemed to include the right to store any property, temporarily
or permanently, in the Common Areas. Any such storage shall be permitted
only by the prior written consent of Lessor or Lessor's designated agent,
which consent may be revoked at any time. In the event that any
unauthorized
<PAGE>
storage shall occur then Lessor shall have the right,
without notice, in addition to such other rights and remedies that it may
have, to remove the property and charge the cost to Lessee, which cost
shall be immediately payable upon demand by Lessor.
2.5 COMMON AREAS - RULES AND REGULATIONS. Lessor or such other person(s) as
Lessor may appoint shall have the exclusive control and management of the
Common Areas and shall have the right, from time to time, to establish,
modify, amend and enforce reasonable rules and regulations with respect
thereto. Lessee agrees to abide by and conform to all such rules and
regulations, and to cause its employees, suppliers, shippers, customers,
and invitees to so abide and conform. Lessor shall not be responsible to
Lessee for the non-compliance with said rules and regulations by other
lessees of the Industrial Center.
2.6 COMMON AREAS - CHANGES. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Common Areas, including, without limitation,
changes in the location, size, shape and number of driveways, entrance,
parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas and walkways; (b) To
close temporarily any of the Common Areas for maintenance purposes so
long as reasonable access to the Premises remains available; (c) To
designate other land outside the boundaries of the Industrial Center to
be a part of the Common Areas; (d) To add additional buildings and
improvements to the Common Areas; (e) To use the Common Areas while
engaged in making additional improvements, repairs or alterations to the
Industrial Center, or any portion thereof; (f) To do and perform such
other acts and make such other changes in, to or with respect to the
Common Areas and Industrial Center as Lessor may, in the exercise of
sound business judgement, deem to be appropriate.
2.6.1 Lessor shall at all times provide the parking facilities required
by applicable law and in no event shall the number of parking spaces that
Lessee is entitled to under paragraph 2.2 be reduced.
3. TERM.
3.1 TERM. The term of this Leases shall be for APPROXIMATELY 3 YEARS
commencing on OCTOBER 1, 1999 and ending on SEPTEMBER 30, 2002 unless
sooner terminated pursuant to any provision hereof. See Addendum.
3.2 DELAY IN POSSESSION. Notwithstanding said commencement date, if for any
reason Lessor cannot deliver possession of the Premises to Lessee on said
date, Lessor shall not be subject to any liability therefor, nor shall
such failure affect the validity of this Lease or the obligations of
Lessee hereunder or extend the term hereof, but in such case, Lessee
shall not be obligated to pay rent or perform any other obligation of
Lessee under the terms of this Lease, except as may be otherwise provided
in this Lease, until possession of the Premises is tendered to Lessee.
3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to said
commencement date, such occupancy shall be subject to all provisions of
this Lease, such occupancy shall not advance the termination date, and
Lessee shall pay rent for such period at the initial monthly rates set
forth below.
4. RENT.
4.1 BASE RENT. Lessee shall pay to Lessor, as Base Rent for the Premises,
without any offset or deduction, except as may be otherwise expressly
provided in this Lease, on the 1ST day of each month of the term hereof,
monthly payments in advance of $3,575.00 SEE ADDENDUM FOR COST OF LIVING
ADJUSTMENTS TO BASE RENT, AND DETERMINATION OF RENT DURING EXTENSION
PERIODS. Lessee shall pay Lessor upon the execution hereof $3,575.00 as
Base Rent for 10/1/99 - 11/1/99. Rent for any
<PAGE>
period during the term hereof which is for less than one month shall be a
pro rata portion of the Base Rent. Rent shall be payable in lawful money
of the United Sates to Lessor at the address stated herein or to such
other persons or at such other places as Lessor may designate in writing.
4.2 OPERATING EXPENSES. Lessee shall pay to Lessor during the term hereof,
in addition to the Base Rent, Lessee's Share, as hereinafter defined, of
all Operating Expenses, as hereinafter defined, during each calendar year
of the term of this Lease, in accordance with the following provisions:
(a) "Lessee's Share" is defined, for purpose of this Lease as 4.56
percent.
(b) "Operating Expenses" is defined, for purposes of this Lease, as
all costs incurred by Lessor, if any, for:
(i) The operation, repair and maintenance, in neat, clean, good
order arid condition, of the following:
(aa) The Common Areas, including parking areas, loading
and unloading areas, trash areas, roadways,
sidewalks, walkways, parkways, driveways, landscaped
areas, striping, bumpers, irrigation systems, Common
Area lighting facilities and fences and gates;
(bb) Trash disposal services;
(cc) Tenant directories;
(dd) Fire detection systems including sprinkler system
maintenance and repair;
(ee) Security services;
(ff) Any other service to be provided by Lessor that is
elsewhere in this Lease stated to be an "Operating
Expense;"
(gg) Property management expenses;
(ii) Any deductible portion of an insured loss concerning any of
the items or matters described in this paragraph 4.2;
(iii) The cost of the premiums for the liability and property
insurance policies to be maintained by Lessor under
paragraph 8 hereof;
(iv) The amount of the real property tax to be paid by Lessor
under paragraph 10.1 hereof;
(v) The cost of water, gas and electricity to service the
Common Areas.
(c) The inclusion of the improvement, facilities and services set
forth in paragraph 4.2 (b)(i) of the definition of Operating
Expenses shall not be deemed to impose an obligation upon Lessor
to either have said improvements or facilities or to provide those
services unless the Industrial Center already has the same, Lessor
already provides the services, or Lessor has agreed elsewhere in
this Lease to provide the same or some of them.
(d) Lessee's Share of Operating Expenses shall be payable by Lessee
within ten (10) days after a reasonably detailed statement of
actual expenses is presented to Lessee by Lessor. At lessor's
option, however, an amount may be estimated by Lessor from time to
time of Lessee's Share of annual Operating Expenses and the same
shall be payable monthly or quarterly, as Lessor shall designate,
during each twelve-month period of the Lease term, on the same day
as the Base Rent is due hereunder. In the event that Lessee pays
Lessor's estimate of Lessee's Share of Operating Expenses as
aforesaid, Lessor shall deliver to Lessee within sixty (60) days
after the expiration of each calendar year a reasonably detailed
statement showing Lessee's Share of the actual Operating Expenses
incurred during the preceding year. If Lessee's payments under
this paragraph 4.2(d) during said preceding year exceed Lessee's
Share as indicated on said statement, Lessee shall be entitled to
credit the amount of such overpayment against Lessee's Share of
Operating Expenses next falling due. If Lessee's payments under
this paragraph during said preceding year were less than Lessee's
Share as indicated on said statement, Lessee shall pay to Lessor
the amount of the deficiency within ten (10) days after delivery
by Lessor to Lessee of said statement.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
$3,575.00 as security for Lessee's faithful performance of Lessee's
obligations hereunder. If Lessee fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provision of this
Lease. Lessor may use, apply or retain all or any portion of said
deposit for the payment of any rent or other charge in default or for the
payment of any other sum to which Lessor may become
<PAGE>
obligated by reason of Lessee's default, or to compensate Lessor for any
loss or damage which Lessor may suffer thereby. If Lessor so uses or
applies all or any portion of said deposit. Lessee shall within
ten (10) days after written demand therefor deposit cash with Lessor in
an amount sufficient to restore said deposit to the full amount then
required of Lessee. If the monthly rent shall from time to time,
increase during the term of this Lease, Lessee shall, at the time of such
increase, deposit with Lessor additional money as a security deposit so
that the total amount of the security deposit held by Lessor shall at all
times bear the same proportion to the then current Base Rent as the
initial security deposit bears to the initial Base Rent set forth in
paragraph 4. Lessor shall not be required to keep said security deposit
separate from its general accounts. If Lessee performs all of Lessee's
obligations hereunder, said deposit, or so much thereof as has not
theretofore been applied by Lessor, shall be returned, without payment of
interest or other increment for its use, to Lessee (or, at Lessor's
option, to the last assignee, if any, of Lessee's interest hereunder) at
the expiration of the term hereof, and after Lessee has vacated the
Premises. No trust relationship is created herein between Lessor and
Lessee with respect to said Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for GENERAL OFFICE
USE AND FOR NO OTHER USE WITHOUT LESSOR'S PRIOR written consent. See
Addendum for additional terms.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in the state existing
on the date that the Lease term commences, but without regard to
the use for which Lessee will occupy the Premises, does not
violate any covenants or restrictions of record, or any applicable
building code, regulation or ordinance in effect on such Lease
term commencement date. In the event it is determined that this
warranty has been violated, then it shall be the obligation of the
Lessor, after written notice from Lessee, to promptly, at Lessor's
sole cost an expense, rectify any such violation. In the event
Lessee does not give to Lessor written notice of the violation of
this warranty within six months from the date that the Lease term
commences, the correction of same shall be the obligation of the
Lessee at Lessee's sole cost. The warranty contained in this
paragraph 6.2(a) shall be of no force or effect if, prior to the
date of this Lease, Lessee was an owner or occupant of the
Premises and, in such event, Lessee shall correct any such
violation at Lessee's sole cost.
(b) Except as provided in paragraph 6.2(a) Lessee shall, at Lessee's
expense, promptly comply with all applicable statutes, ordinances,
rules, regulations, orders, covenants and restrictions of record,
and requirements of any fire insurance underwriters or rating
bureaus, now in effect or which may hereafter come into effect,
whether or not they reflect a change in policy from that now
existing, during the term or any part of the term or which may
hereafter come into effect, whether or not they reflect a change
in policy from that now existing, during the term or any part of
the term hereof, relating in any manner to the Premises and the
occupation and use by Lessee of the Premises and of the Common
Areas. Lessee shall not use nor permit the use of the Premises or
the Common Areas in any manner that will tend to create waste or a
nuisance or shall tend to disturb other occupants of the
Industrial Center.
6.3 CONDITION OF PREMISES
(a) Lessor shall deliver the Premises to Lessee clean and free of
debris on the Lease commencement date (unless Lessee is already in
possession) and Lessor warrants to Lessee that the plumbing,
lighting, air conditioning, heating, and loading doors in the
Premises shall be in good operating condition on the Lease
commencement date. In the event that it is determined that this
warranty has been violated, then it shall be the obligation of
Lessor, after receipt of written notice from Lessee setting forth
with specificity the nature of the violation, to promptly, at
Lessor's sole cost, rectify such violation. Lessee's failure to
give such written
<PAGE>
notice to Lessors within thirty (30) days after the Lease
commencement date shall cause the conclusive presumption
that Lessor has complied with all of Lessor's obligations
hereunder. The warranty contained in this paragraph 6.3(a) shall
be of no force or effect if prior to the date of this Lease,
Lessee was an owner or occupant of the Premises. See Addendum.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts
the Premises in their condition existing as of the Lease
commencement date or the date that Lessee takes possession of the
Premises, whichever is earlier, subject to all applicable zoning,
municipal, county and state laws, ordinances and regulations
governing and regulating the use of the Premises, and any
covenants or restrictions of record, and accepts this Lease
subject thereto and to all matters disclosed thereby and by any
exhibits attached hereto. Lessee acknowledges that neither Lessor
nor Lessor's agent has made any representation or warranty as to
the present or future suitability of the Premises for the conduct
of Lessee's business.
7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES.
7.1 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 4.2
(Operating Expenses). 6 (Use), 7.2 (Lessee's Obligations) and 9 (Damage
or Destruction) and except for damage caused by any negligent or
intentional act or omission of Lessee, Lessee's employees, suppliers,
shippers, customers, or invitees, in which event Lessee shall repair the
damage, Lessor, at Lessor's expense, subject to reimbursement pursuant to
paragraph 4.2 shall keep in good condition and repair the foundations,
exterior walls, structural condition of interior bearing walls, and roof
of the Premises, as well as the parking lots, walkways, driveways,
landscaping, fences, signs and utility installations of the Common Areas
and all parts thereof, as well as providing the services for which there
is an Operating expense pursuant to paragraph 4.2. Lessor shall not,
however, be obligated to paint the exterior or interior surface of
exterior walls, nor shall Lessor be required to maintain, repair or
replace windows, doors or plate glass of the Premises. Lessor shall have
no obligation to make repairs under this paragraph 7.1 until a reasonable
time after receipt of written notice from Lessee of the need for such
repairs. Lessee expressly waives the benefits of any statute now or
hereafter in effect which would otherwise afford Lessee the right to make
repairs at Lessor's expense or to terminate this Lease because of
Lessor's failure to keep the Premises in good order, condition and
repair. Lessor shall not be liable for damages or loss of any kind or
nature by reason of Lessor's failure to furnish any Common Area Services
when such failure is caused by accident, breakage, repairs, strikes,
lockout, or other labor disturbances or disputes of any character, or by
any other cause beyond the reasonable control of Lessor.
7.2 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of paragraphs 6 (Use), 7.1 (Lessor's
Obligations), and 9 (Damage or Destruction), Lessee, at Lessee's
expense, shall keep in good order, condition and repair the
Premises and every part thereof (whether or not the damaged
portion of the Premises of the means of repairing the same are
reasonably or readily accessable to Lessee) including, without
limiting the generality of the foregoing, all plumbing, heating,
ventilating and air conditioning systems (Lessee shall procure and
maintain, at Lessee's expense, a ventilating and air conditioning
system maintenance contract), electrical and lighting facilities
and equipment within the Premises, fixtures, interior walls and
interior surfaces of exterior walls, ceilings, windows, doors,
plate glass, and skylights located within the Premises. Lessor
reserves the right to procure and maintain the ventilating and air
conditioning system maintenance contract and if Lessor so elects,
Lessee shall reimburse Lessor, upon demand, for the cost thereof.
Lessee shall be responsible for clean-up of all hazardous waste
occurring in or about the Premises.
(b) If Lessee fails to perform Lessee's obligations under this
paragraph 7.2 or under any other paragraph of this Lease, Lessor
may enter upon the Premises after ten (10) days'
<PAGE>
prior written notice to Lessee (except in the case of emergency,
in which no notice shall be required), perform such obligations
on Lessee's behalf and put the Premises in good order, condition
and repair, and the cost thereof together with interest thereon at
the maximum rate then allowable by law shall be due and payable as
additional rent to Lessor together with Lessee's next Base Rent
installment.
(c) On the last day of the term hereof, or on any sooner termination,
Lessee shall surrender the Premises to Lessor in the same
condition as received, ordinary wear and tear excepted, clean and
free of debris. Any damage or deterioration of the Premises shall
not be deemed ordinary wear and tear if the same could have been
prevented by good maintenance practices. Lessee shall repair any
damage to the Premises occasioned by the installation or removal
of Lessee's trade fixtures, alterations, furnishings and
equipment. Notwithstanding anything to the contrary otherwise
stated in this Lease, Lessee shall leave the air lines, power
panels, electrical distribution systems, lighting fixtures, space
heaters, air conditioning, plumbing and fencing on the Premises in
good operating condition.
7.3 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent make any
alteration, improvement, additions, or Utility Installations in,
on or about the premises, or the Industrial Center, except for
nonstructural alterations to the Premises not exceeding $2,500 in
cumulative costs, during the term of this Lease. In any event,
whether or not in excess of $2,500 in cumulative cost, Lessee
shall make no change or alteration to the exterior of the Premises
nor the exterior of the Building not the Industrial Center without
Lessor's prior written consent. As used in this paragraph 7.3 the
term "Utility Installation" shall mean carpeting, window
coverings, air lines, power panels, electrical distribution
systems, lighting fixtures, space heaters, air conditioning,
plumbing, and fencing. Lessor may require that Lessee remove any
or all of said alterations, improvements, additions or Utility
Installations at the expiration of the term, and restore the
Premises and the Industrial Center to their prior condition.
Lessor may require Lessee to provide Lessor, at Lessee's sole cost
and expense, a lien and completion bond in an amount equal to one
and one-half times the estimated cost of such improvements, to
inure Lessor against any liability for mechanic's and
materialmen's liens and to insure completion of the work. Should
Lessee make any alterations, improvements, additions or Utility
Installations without the prior approval of Lessor, Lessor may, at
any time during the term of this Lease, require that Lessee remove
any or all of the same.
(b) Any alterations, improvement, additions or Utility Installations
in or about the Premises or the Industrial Center that Lessee
shall desire to make and which requires the consent of the Lessor
shall be presented to Lessor in written form, with proposed
detailed plans. If Lessor shall give its consent, the consent
shall be deemed conditioned upon Lessee acquiring a permit to do
so from appropriate governmental agencies, the furnishing of a
copy thereof to Lessor prior to the commencement of the work and
the compliance by Lessee of all conditions of said permit in a
prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or
for use in the Premises, which claims are or may be secured by any
mechanic's or materialmen's lien against the Premises, or the
Industrial Center, or any interest therein. Lessee shall give
Lessor not less than ten (10) days' notice prior to the
commencement of any work in the Premises, and Lessor shall have
the right to post notices of non-responsibility in or on the
Premises or the Building as provided by law. If Lessee shall, in
good faith contest the validity of any such lien, claim or demand,
then Lessee shall, at its sole expense defend itself and Lessor
against the same and shall pay and satisfy any such adverse
judgement that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises or the Industrial
<PAGE>
Center, upon the condition that if Lessor shall require, Lessee
shall furnish to Lessor a surety bond satisfactory to Lessor in an
amount equal to such contested lien claim or demand indemnifying
Lessor against liability for the same and holding the Premises and
the Industrial Center free from the effect of such lien or claim.
In addition, Lessor may require Lessee to pay Lessor's attorneys
fees and costs in participating in such action if Lessor shall
decide it is to Lessor's best interest to do so.
(d) All alterations, improvements, additions and Utility Installations
(whether or not such Utility Installations constitute trade
fixtures of Lessee), which may be made on the Premises, shall be
the property of Lessor and shall remain upon and be surrendered
with the Premises at the expiration of the Lease term, unless
Lessor requires their removal pursuant to paragraph 7.3(a).
Notwithstanding the provisions of this paragraph 7.3(d). Lessee's
machinery and equipment, other than that which is affixed to the
Premises so that it cannot be removed without material damaged to
the Premises, and other than Utility Installations, shall remain
the property of Lessee and may be removed by Lessee subject to the
provision of paragraph 7.2.
7.4 UTILITY ADDITIONS. Lessor reserves the right to install new or
additional utility facilities throughout the Building and the Common
Areas for the benefit of Lessor or Lessee, or any other lessee of the
Industrial Center, including, but not by way of limitation, such
utilities as plumbing, electrical systems, security systems,
communication system, and fire protection and detection systems, so long
as such installations do not unreasonably interfere with Lessee's use of
the Premises.
8. INSURANCE; INDEMNITY.
8.1 LIABILITY INSURANCE - LESSEE.
See page 8 after article number 49
8.2 LIABILITY INSURANCE - LESSOR. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily
Injury and Property Damage Insurance, inuring Lessor, but not Lessee,
against any liability arising out of the ownership, use occupancy or
maintenance of the Industrial Center in an amount not less than
$1,000,000 per occurrence.
8.3 PROPERTY INSURANCE. Lessor shall obtain and keep in force during the
term of this Lease a policy or policies of insurance coving loss or
damage to the industrial Center improvements, but not Lessee's personal
property, fixtures, equipment or tenant improvement, in an amount not to
exceed the full replacement value thereof, as the same may exist from
time to time, providing protection against all perils including within
the classification of fire, extended coverage, vandalism, malicious
mischief, flood (in the event same is required by a lender having a lien
on the Premises) special extended perils ("all risk", as such term is
used in the insurance industry), plate glass insurance and such other
insurance as Lessor deems advisable. In addition, Lessor shall obtain
and keep in force, during the term of this Lease, a policy of rental
value insurance covering a period of one year, with loss payable to
Lessor, which insurance shall also cover all Operating expenses for said
period. In the event that the Premises shall suffer an insured loss as
defined in paragraph 9.1(g) hereof, the deductible amounts under the
casualty insurance policies relating to the Premises shall be paid by
Lessee.
8.4 PAYMENT OF PREMIUM INCREASE.
(a) After the term of this Lease has commenced, Lessee shall not be
responsible for paying Lessee's Share of any increase in the
property insurance premium for the Industrial Center specified by
Lessor's Insurance carrier as being caused by the use, acts or
omissions of any other lessee of the Industrial Center, or by the
nature of such other lessee's occupancy which create an
extraordinary or unusual risk.
<PAGE>
(b) Lessee, however, shall pay the entirety of any increase in the
property insurance premium for the Industrial Center over what is
was immediately prior to the commencement of the term of this
Lease if the increase is specified by Lessor's insurance carrier
as being caused by the nature of Lessee's occupancy or any act of
omission of Lessee.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies
holding a "General Policyholders Rating" of at least B plus, or such
other rating as may be required by a lender having a lien on the
Premises, as set forth in the most current issue of "Best's Insurance
Guide." Lessee shall not do or permit to be done anything which shall
invalidate the insurance policies carried by Lessor. Lessee shall
deliver to Lessor copies of liability insurance policies required under
paragraph 8.1 or certificates evidencing the existence and amounts of
such insurance within seven (7) days after the commencement date of this
Lease. No such policy shall be cancellable or subject to reduction of
coverage or other modification except after thirty (30) days prior
written notice to Lessor. Lessee shall, at least thirty (30) days prior
to the expiration of such policies, furnish Lessor with renewals or
"binders" thereof.
8.6 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and relieve
the other, and waive their entire right of recovery against the other for
loss or damage arising out of or incident to the perils insured against
which perils occur in, on or about the Premises, whether due to the
negligence of Lessor or Lessee or their agents, employees, contractors
and/or invitees. Lessee and Lessor shall, upon obtaining the policies of
insurance required give notice to the insurance carrier or carriers that
the foregoing mutual waiver of subrogation is contained in this Lease.
8.7 INDEMNITY. Lessee shall indemnify and hold harmless Lessor from and
against any and all claims arising from Lessee's use of the Industrial
Center, or from the conduct of Lessee's business or from any activity,
work or things done, permitted or suffered by Lessee in or about the
Premises or elsewhere and shall further indemnify and hold harmless
Lessor from and against any and all claims arising from any breach or
default in the performance of any obligation on Lessee's part to be
performed under the terms of this Lease, or arising from any act or
omission of Lessee, or any of Lessee's agents, contractors, or
employees, and from and against all costs, attorney's fee, expenses and
liabilities incurred in the defense of any such claim or any action or
proceeding brought thereon and in case any action or proceeding be
brought against Lessor by reason of any such claim. Lessee upon notice
from Lessor shall defend the same at Lessee's expense by counsel
reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee
in such defense. Lessee, as a material part of the consideration to
Lessor, hereby assumes all risk of damage to property of Lessee or injury
to persons, in upon or about the Industrial Center arising from any cause
and Lessee hereby waives all claims in respect thereof against Lessor.
See Addendum.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of
income therefrom or for damage to the goods, wares, merchandise or other
property of Lessee, Lessee's employees, invitees, customers, or nay other
person in or about the Premises or the Industrial Center, nor shall
Lessor be liable for injury to the person of Lessee, Lessee's employees,
agents or contractors, whether such damage or injury is caused by or
results from fire, steam, electricity, gas water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, sprinklers,
wires, appliances, plumbing, air conditioning or lighting fixtures, or
from any other cause, whether said damage or injury results from
conditions arising upon the Premises or upon other portions of the
Industrial Center, or from other sources or places and regardless of
whether the cause of such damage or injury or the means of repairing the
same is inaccessible to Lessee. Lessor shall not be liable for any
damages arising from any act or neglect of any other lessee, occupant or
user of the Industrial Center, nor from the failure of Lessor to enforce
the provisions of any other lease of the Industrial Center.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS
<PAGE>
(a) "Premises Partial Damage" shall mean if the Premises are damaged
or destroyed to the extent that the cost of repair is less than
fifty percent of he then replacement cost of the Premises.
(b) "Premises Total Destruction" shall mean if the Premises are
damaged or destroyed to the extend that the cost of repair is
fifty percent or more of the then replacement cost of the
Premises.
(c) "Premises Building Partial Damage" shall mean if the Building of
which the Premises are a part is damaged or destroyed to the
extent that the cost to repair is less than fifty percent of the
then replacement cost of the Building.
(d) "Premises Building Total Destruction" shall mean if the Building
of which the Premises are a part is damaged or destroyed to the
extent that the cost to repair is fifty percent or more of the
then replacement cost of the Building.
(e) "Industrial Center Buildings" shall mean all of the buildings on
the Industrial Center site.
(f) "Industrial Center Buildings Total Destruction" shall mean if the
Industrial Center Buildings are damaged or destroyed to the extent
that the cost of repair is fifty percent or more of the then
replacement cost of the Industrial Center Buildings.
(g) "Insured Loss" shall mean damage or destruction which was covered
by an event required to be covered by the insurance described in
paragraph 8. The fact that an insured Loss has a deductible
amount shall not make the loss an uninsured loss.
(h) "Replacement Cost" shall mean the amount of money necessary to be
spent in order to repair or rebuild the damaged area to the
condition that existed immediately prior to the damaged occurring
excluding all improvements made by lessees.
9.2 PREMISES PARTIAL DAMAGE; PREMISES BUILDING PARTIAL DAMAGE.
(a) Insured Loss: Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage
which is an Insured Loss and which falls into the classification
of either Premises Partial Damage or Premises Building Partial
Damage then Lessor shall, at Lessor's expense, repair such damage
to the Premises, but not Lessee's fixtures, equipment or tenant
improvements, as soon as reasonably possible and this Lease shall
continue in full force and effect.
(b) Uninsured Loss: Subject to the provisions of paragraph 9.4 and
9.5, if at any time during the term of this Lease there is damage
which is not an Insured Loss and which falls within the
classification of Premises Partial Damage or Premises Building
Partial Damage, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's
expense), which damaged prevents Lessee from using the Premises,
Lessor may at Lessor's option either (i) repair such damage as
soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give
written notice to Lessee within thirty (30) days after the date of
the occurrence of such damage of Lessor's intention to cancel and
terminate this Lease as of the date of the occurrence of such
damage. In the event Lessor elects to give such notice of
Lessor's intention to cancel and terminate the Lease, Lease shall
have the right within ten (10) days after the receipt of such
notice to give written notice to Lessor of Lessee's intention to
repair such damage at Lessee's expense, without reimbursement from
Lessor, in which event this Lease shall continue in full force and
effect, and Lessee shall proceed to make such repairs as soon as
reasonably possible. If Lessee does not give such notice within
such 10-day period this Lease shall be cancelled and terminated as
of the date of occurrence of such damage.
9.3 PREMISES TOTAL DESTRUCTION; PREMISES BUILDING TOTAL DESTRUCTION;
INDUSTRIAL CENTER BUILDINGS TOTAL DESTRUCTION.
(a) Subject to the provisions of paragraphs 9.4 and 9.5, if at any
term during the term of this Lease there is damage, whether or not
it is an Insured Loss, and which falls into the classifications of
either (i) Premises Total Destruction, or (ii) Premises Building
Total Destruction, or (iii) Industrial Center Buildings Total
Destruction, then Lessor may at Lessor's option either (i) repair
such damage or destruction, but not Lessee's fixtures,
<PAGE>
equipment or tenant improvements, as soon as reasonably possible
at Lessor's expense, and this Lease shall continue in full force
and effect, or (ii) give written notice to Lessee within thirty
(30) days after the date of occurrence of such damage of Lessor's
intention to cancel and terminate this Lease, in which case this
Lease shall be cancelled and terminated as of the date of
occurrence of such damage.
9.4 DAMAGE NEAR END OF TERM.
(a) Subject to paragraph 9.4(b), if at any time during the last six
months of the term of this Lease there is substantial damage,
whether or not an insured Loss, which falls within the
classification of Premises Partial Damage. Lessor may at Lessor's
option cancel and terminate this Lease as of the date of
occurrence of such damage by giving written notice to Lessee of
Lessor's election to do so within 30 days after the date of
occurrence of such damage.
(b) Notwithstanding paragraph 9.4 (a), in the event that Lessee has an
option to extend or renew this Lease, and the time within which
said option may be exercised has not yet expired, Lessee shall
exercise such option, if it is to be exercised at all, no later
than twenty (20) days after the occurrence of an Insured Loss
falling within the classification of Premises Partial Damage
during the last six months of the term of this Lease. If
Lessee duly exercises such option during said twenty (20) day
period, Lessor shall, at Lessor's expense, repair such damage,
but not Lessee's fixtures, equipment or tenant improvements, as
soon as reasonably possible and this Lease shall continue in
full force and effect. If Lessee fails to exercise such option
during said twenty (20) day period, then Lessor may at Lessor's
option terminate and cancel this Lease as of the expiration of
said twenty (20) day period by giving written notice to Lessee
of Lessor's election to do so within ten (10) days after the
expiration of said twenty (20) day period, notwithstanding any
term or provision in the grant of option to the contrary.
9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event Lessor repairs or restores the Premises pursuant to
the provisions of this paragraph 9, the rent payable hereunder for
the period during which such damage, repair or restoration
continues shall be abated in proportion to the degree to which
Lessee's use of the Premises is impaired. Except for abatement of
rent, if any, Lessee shall have no claim against Lessor for any
damage suffered by reason of any such damage, destruction, repair
or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this paragraph 9 and shall not commence
such repair or restoration within ninety (90) days after such
obligation shall accrue, Lessee may at Lessee's option cancel and
terminate this Lease by giving Lessor written notice of Lessee's
election to do so at any time prior to the commencement of such
repair or restoration. In such event this Lease shall terminate
as of the date of such notice.
9.6 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease pursuant
to this paragraph 9, an equitable adjustment shall be made concerning
advance rent and any advance payment made by Lessee to Lessor. Lessor
shall, in addition, return to Lessee so much of Lessee's security deposit
as has not theretofore been applied by Lessor.
9.7 WAIVER. Lessor and Lessee waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and
agree that such event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES.
<PAGE>
10.1 PAYMENT OF TAXES. Lessor shall pay the real property tax, as defined in
paragraph 10.3, applicable to the Industrial Center subject to
reimbursement by Lessee of Lessee's Share of such taxes in accordance
with the provisions of paragraph 4.2, except as other wise provide in
paragraph 10.2.
10.2 ADDITIONAL IMPROVEMENTS. Lessee shall not be responsible for paying
Lessee's Share of any increase in real property tax specified in the tax
assessor's records and work sheets as being caused by additional
improvements placed upon the Industrial Center by other Lessees or by
Lessor for the exclusive enjoyment of such other lessees. Lessee shall,
however, pay to Lessor at the time that Operating Expenses are payable
under paragraph 4.2 (c) the entirety of any increase in real property tax
if assessed solely by reason of additional improvements placed upon the
Premises by Lessee or at Lessee's request.
10.3 DEFINITION OF "REAL PROPERTY TAX." As used herein, the term "real
property tax" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee,
commercial rental tax, improvement bond or bonds, levy or tax (other than
inheritance, personal income or estate taxes) imposed on the Industrial
Center or any portion thereof by any authority having the direct or
indirect power to tax, including any city, county, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage
or other improvement district thereof, as against any legal or equitable
interest of Lessor in the Industrial Center or in any portion thereof, as
against Lessor's right to rent or other income therefrom, and as against
Lessor's business of leasing the Industrial Center. The term "real
property tax" shall also include any tax, fee, levy, assessment or charge
(i) in substitution of, partially or totally, any tax, fee levy,
assessment or charge hereinabove included within the definition of "real
property tax," or (ii) the nature of which was hereinbefore included
within the definition of "real property tax," or (iii) which is imposed
for a service or right not charge prior to June 1, 1978, or, if
previously charged, has been increased since June 1, 1078, or (iv) which
is imposed as a result of a transfer, either partial or total, of
Lessor's interest in the Industrial Center or which is added to a tax or
charge hereinbefore included within the definition of real property tax
by reason of such transfer, or (v) which is imposed by reason of this
transaction, any modifications or changes hereto , or any transfers
hereof.
10.4 JOINT ASSESSMENT. If the industrial center is not separately assessed,
Lessee's Share of the real property tax liability shall be an equitable
proportion of the real property taxes for all of the land and
improvements included within the tax parcel assessed, such proportion to
be determined by Lessor from the respective valuations assigned in the
assessor's work sheets or such other information as may be reasonably
available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.5 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all
other personal property of Lessee contained in the premises or
else where. When possible, Lessee shall cause said trade
fixtures, furnishings, equipment and all other personal property
to be assessed and billed separately from the real property of
Lessor.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay to Lessor the taxes
attributable to Lessee within ten (10) days after receipt of a
written statement setting forth the taxes applicable to Lessee's
property.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises,
together with any taxes thereon. If any such services are not separately
metered to the Premises, lessee shall pay at Lessor's option, either
Lessee's Share or a reasonable proportion to be determined by Lessor of
all charges jointly metered with other premises in the Building.
<PAGE>
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by operation
of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in the Lease or in the
Premises, without Lessor's prior written consent, which Lessor shall not
unreasonably withhold. Lessor shall respond to Lessee's request for
consent hereunder in a timely manner and any attempted assignment,
transfer mortgage, encumbrance or subletting without such consent shall
be void, and shall constitute a breach of this Lease without the need for
notice to Lessee under paragraph 13.1. See Addendum for additional
terms.
12.3 TERMS AND CONDITIONS OF ASSIGNMENT. Regardless of Lessor's consent, no
assignment shall release Lessee of Lessee's obligations hereunder or
alter the primary liability of Lessee to pay the Base Rent and Lessee's
Share of Operating Expenses, and to perform all other obligations to be
performed by Lessee hereunder. Lessor may accept rent from any person
other than the Lessee pending approval or disapproval of such assignment.
Neither a delay in the approval or disapproval of such assignment nor the
acceptance of rent shall constitute a waiver or estoppel of Lessor's
right to exercise its remedies for the breach of any of the terms or
conditions of this paragraph 12 or this Lease. Consent to one assignment
shall not be deemed consent to any subsequent assignment. In the event of
default by any assignee of Lessee or any successor of Lessee, in the
performance of any of the terms hereof, Lessor may proceed directly
against Lessee without the necessity of exhausting remedies against said
assignee. Lessor may consent to subsequent assignments of this Lease or
amendments or modifications to this Lease with assignees of Lessee,
without notifying Lessee, or any successor of Lessee, and without
obtaining its or their consent thereto and such action shall not relieve
Lessee of liability under this Lease.
12.4 TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. Regardless of Lessor's
consent, the following terms and conditions shall apply to any subletting
by Lessee of all or part of the premises and shall be included in the
subleases:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interests in all rentals and income arising from any sublease
heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations
under this Lease; provided, however, that until a default shall
occur in the performance of Lessee's obligations under this Lease,
Lessee may receive, collect and enjoy the rents accruing under
such a sublease. Lessor shall not, by reason of this or any other
assignment of such sublease to Lessor nor by reason of the
collection of the rents from a sublessee, be deemed liable to the
sublessee for any failure of Lessee to perform and comply with any
of Lessee's obligations to such sublessee under such sublease.
Lessee hereby irrevocably authorizes and directs any such
sublease, upon a written notice from Lessor stating that a default
exists in the performance of Lessee's obligations under this
Lease, to pay Lessor the rents due and to become due under the
sublease. Lessee agrees that such sublessee shall have the right
to rely upon any such statement and request from Lessor, and that
such sublessee shall pay such rents to Lessor without any
obligation or right to inquire as to whether such default exists
and notwithstanding any notice from or claim from Lessee to the
contrary. Lessee shall have no right or claim against such
sublessee or Lessor for any such rents so paid by said sublessee
to Lessor.
(b) No sublease entered into by Lessee shall be effective unless and
until it has been approved in writing by Lessor. In entering into
any sublease, Lessee shall use only such form of sublease as is
satisfactory to Lessor, and once approved by Lessor, such sublease
shall not be changed or modified without Lessor's prior written
consent. Any sublease shall, by reason of entering into a sublease
under this Lease, be deemed, for the benefit of the Lessor, to
have assumed and agreed to conform and comply with each and every
obligation herein to be performed by Lessee other than such
obligations as are contrary to or inconsistent with provisions
contained in a sublease to which Lessor has expressly consented in
writing.
<PAGE>
(c) If Lessee's obligations under this Lease have been guaranteed by
third parties, then a sublease, and Lessor's consent thereto,
shall not be effective unless said guarantors give their written
consent to such sublease and the terms thereof.
(d) The consent by Lessor to any subletting shall not release Lessee
from its obligations or alter the primary liability of Lessee to
pay the rent and perform and comply with all of the obligations of
Lessee to be performed under this Lease.
(e) The consent by Lessor to any subletting by Lessee or to any
assignment or subletting by the sublessee. However, Lessor may
consent to subsequent sublettings and assignments of the sublease
or any amendments or modifications thereto without notifying
Lessee or anyone else liable on the Lease or sublease and without
obtaining their consent and such action shall not relieve such
persons from liability.
(f) In the event of any default under this Lease, Lessor may proceed
directly against Lessee, any guarantors or any one else
responsible for the performance of this Lease, including the
sublessee, without first exhausting Lessor's remedies against any
other person or entity responsible therefore to Lessor, or any
security held by Lessor or Lessee.
(g) In the event Lessee shall default in the performance of its
obligations under this Lease, Lessor, at its option and without
any obligation to do so, may require any sublessee to attorn to
Lessor, in which event Lessor shall undertake the obligations of
Lessee under such sublease from the time of the exercisr of said
option to the termination of such sublease; provided, however,
Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to Lessee or for any other prior
defaults of Lessee under such sublease.
(h) Each and every consent required of Lessee under a sublease shall
also require the consent of Lessor.
(i) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(j) Lessor's written consent to any subletting of the Premises by
Lessee shall not constitute an acknowledgement that no default
then exists under this Lease of the obligations to be performed by
Lessee nor shall such consent be deemed a waiver of any then
existing default, except as may be otherwise stated by Lessor at
the time.
(k) With respect to any subletting to which Lessor has consented,
Lessor agrees to deliver a copy of any notice of default by Lessee
to the sublessee. Such sublessee shall have the right to cure a
default of Lessee within ten (10) days after service of said
notice of default upon such sublessee, and the sublessee shall
have a right of reimbursement and offset from and against Lessee
for any such defaults cured by the sublessee.
12.5 ATTORNEY'S FEES. In the event Lessee shall assign or sublet the Premises
or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes
to do then Lessee shall pay Lessor's reasonable attorneys fees incurred
in connection therewith, such attorneys fees not to exceed $350.00 for
each subsequent request.
13. DEFAULT; REMEDIES.
13.1 DEFAULT. The occurrence of any one or more of the following
events shall constitute a material default of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by Lessee.
<PAGE>
(b) The failure by Lessee to make any payment of rent or any
other payment required to be made by Lessee hereunder, as
and when due, where such failure shall continue for a
period of three (3) days after written notice thereof from
Lessor to Lessee. In the even that Lessor serves Lessee
with a Notice to Pay Rent or Quite pursuant to applicable
Unlawful Detainer statutes such Notice to Pay Rent or Quit
shall also constitute the notice required by this
subparagraph.
(c) Except as otherwise provided in this Lease, the failure by
Lessee to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or
performed by Lessee, other than described in paragraph (b)
above, where such failure shall continue for a period of
thirty (30) days after written notice thereof from Lessor
to Lessee; provided, however that if the nature of Lessee's
noncompliance is such that more than thirty (30) days are
reasonably required for its cure, then Lessee shall not be
deemed to be in default if Lessee commenced such cure
within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion. To the
extent permitted by law, such thirty (30) day notice shall
constitute the sole and exclusive notice required to be
given to Lessee under applicable Unlawful Detainer
statutes.
(d) (i) The making by Lessee of any general arrangement or
general assignment for the benefit of creditors; (ii)
Lessee becomes a "debtor" as defined in 11 U.S.C. Section
101 or any successor statute thereto (unless, in the case
of a petition filed against Lessee, the same is dismissed
within sixty (60) days) (iii) the appointment of a trustee
or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to
Lessee within thirty (30) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of
Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not
discharged within thirty (30) days. In the event that any
provision of this paragraph 13.1 (d) is contrary to any
applicable law, such provision shall be of no force or
effect.
(e) The discovery by Lessor that any financial statement given
to Lessor by Lessee, any assignee of Lessee, any subtenant
of Lessee, any successor in interest of Lessee or any
guarantor of Lessee's obligation hereunder, was materially
false. See addendum.
13.2 REMEDIES. In the event of any such material default by Lessee, Lessor
may at any time thereafter, with or without notice or demand and without
limiting Lessor in the exercise of any right or remedy which Lessor may
have by reason of such default:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease and the term
hereof shall terminate and Lessee shall immediately
surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee all
damages incurred by Lessor by reason of Lessee's default
including, but not limited to, the cost of recovering the
Premises; expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable
attorney's fees, and any real estate commission actually
paid; the worth at the time of award by the court having
jurisdiction thereof of the amount by which the unpaid rent
for the balance of the term after the time of such award
exceeds the amount of such rental loss for the same period
that Lessee proves could be reasonably avoided; that
portion of the leasing commission paid by Lessor pursuant
to paragraph 15 applicable to the unexpired terms of this
Lease.
(b) Maintain Lessee's right to possession in which case this
Lease shall continue in effect whether or not Lessee shall
have vacated or abandoned the Premises. In such event
Lessor shall be entitled to enforce all of Lessor's rights
and remedies under this lease, including the right to
recover rent as it becomes due hereunder.
<PAGE>
(c) Persue any other remedy now or hereafter available to
Lessor under the laws or judicial decisions of the state
wherein the Premises are located. Unpaid installments of
rent and other unpaid monetary obligations of Lessee under
the terms of this Lease shall bear interest from the date
due at the maximum rate then allowable by
law. Lessor's remedies shall include the relief set forth
in Section 1951.2 of the California Civil Code.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor fails to
perform obligations required of Lessor within a reasonable time, but in
no event later than thirty (30) days after written notice by Lessee to
Lessor and to the holder of any first mortgage or deed of trust covering
the Premises whose name and address shall have theretofore been furnished
to Lessee in writing, specifying wherein Lessor has failed to perform
such obligation; provided, however, that if the nature of Lessor's
obligation is such that more than thirty (30) days are required for
performance then Lessor shall not be in default if Lessor commences
performance within such thirty (30) day period and thereafter diligently
prosecutes the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee to
Lessor of Base Rent, Lessee's Share of Operating Expenses or other sums
due hereunder will cause Lessor to incur costs not contemplated by this
lease, the exact amount of which will be extremely difficult to
ascertain. Such costs include, but are not limited to, processing and
accounting charges, and late charges which may be imposed on Lessor by
the terms of any mortgage or trust deed covering the Property.
Accordingly, if any installment of Base Rent, Operating Expenses, or any
other sum due from Lessee shall not be received by Lessor or Lessor's
designee within ten (10) days after such amount shall be due, then
without any requirement for notice to Lesee, Lessee shall pay to Lessor a
late charge equal to 6% of such overdue amount. The parties hereby agree
that such late charge represents a fair and reasonable estimate of the
costs Lessor will incur by reason of late payment by Lessee. Acceptance
of such late charge by Lessor shall in no eventconstitute a waiver of
Lessee's default with respect to such overdue amount, nor prevent Lessor
from exercising any of the other rights and remedies granted hereunder.
In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of any of the aforesaid
monetary obligations of Lessee, then Base Rent shall automatically become
due and payable quarterly in advance, rather than monthly,
notwithstanding paragraph 4.1 or any other provision of this Lease to the
contrary.
14. CONDEMNATION. If the Premises or any portion thereof or the Industrial
Center are taken under the power of eminent domain, or sold under the
threat of the exercise of said power (all of which are herein called
"condemnation"), this Lease shall terminate as to the part so taken as of
the date the condemning authority takes title or possession, whichever
first occurs. If more than ten percent of the floor area of the
Premises, or more than twenty-five percent of that portion of the
Common Areas designated as parking for the Industrial Center is taken by
condemnation, Lessee may, at Lessee's option, to be exercised in writing
only within ten (10) days after Lessor shall be given Lessee written
notice of such taking (or in the absence of such notice, within ten
days after the condemning authority shall have taken possession)
terminate this Lease as of the date the condemning authority takes such
possession. If Lessee does not terminate this Lease in accordance with
the foregoing, this Lease shall remain in full force and effect as to the
portion of the premises remaining, except that the rent shall be reduced
in the proportion that the floor area of the Premises taken bears to the
total floor area of the Premises. No reduction of rent shall occur if the
only area taken is that which does not have the Premises located thereon.
Any award for the taking of all or any part of the Premises under the
power of eminent domain or any payment made under threat of the exercise
of such power shall be the property of Lessor, whether such award shall
be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that
Lessee shall be entitled to any award for loss of or damage to Lessee's
trade fixtures and removable personal property. In the event that this
lease is not terminated by reason of such condemnation, Lessor shall to
the extent of severance damages received by Lessor in connection with
such condemnation, repair any damage to the Premises caused by such
condemnation except to the extent that Lessee has been reimbursed
therefore by the condemning authority. Lessee shall pay any amount in
excess of such severance damages required to complete such repair.
<PAGE>
15. BROKER'S FEE.
(a) Upon execution of this Lease by both parties, Lessor shall pay to
Pacifica Commercial Realty Licensed real estate broker(s), a fee as set
forth in a separate agreement between Lessor and said broker(s), the sum
of $3,832.40, for brokerage services rendered by said broker(s) to Lessor
in this transaction.
(b) Lessor agrees to pay said fee not only on behalf of Lessor but also on
behalf of any person, corporation, association, or other entity having an
ownership interest in said real property or any part thereof, when such
fee is due hereunder. Any transferee of Lessor's interests in this Lease,
whether such transfer is by agreement or by operation of law, shall be
deemed to have assumed Lessor's obligation under this paragraph 15. Said
broker shall be a third party beneficiary of the provisions of this
paragraph 15.
16. ESTOPPEL CERTIFICATE.
(a) Each party (as "responding party") shall at any time upon not less than
ten (10) days' prior written notice from the other party ("requesting
party") execute, acknowledge and deliver to the requesting party a
statement in writing (i) certifying that this Lease is unmodified and in
full force and effect (or, if modified, stating the nature of such
modification and certifying that this Lease, as so modified, is in full
force and effect) and the date to which the rent and other charges are
paid in advance, if any, and (ii) acknowledging that there are not, to
the responding party's knowledge, any uncured defaults on the part of the
requesting party, or specifying such defaults if they are claimed. Any
such statement may be conclusively relied upon by any prospective
purchaser or encumbrancer of the Premises or of the business of the
requesting party.
(b) At the requesting party's option, the failure to deliver such statement
within such time shall be a material default of this Lease by the party
who is to respond, without any further notice to such party, or it shall
be conclusive upon such party that (i) this lease is in full force and
effect, without modification except as may be represented by the
requesting party, (ii) there are no uncured defaults in the requesting
party's performance, and (iii) if Lessor is the requesting party, not
more than one month's rent has been paid in advance.
(c) If Lessor desires to finance, refinance, or sell the Property, or any
part thereof, Lessee hereby agrees to deliver to any lender or purchaser
designated by Lessor such financial statementsof Lessee as may be
reasonably required by such lender or purchaser. Such statements shall
include the past three (3) years' financial statements of Lessee. All
such financial statements shall be received by Lessor and such lender or
purchaser in confidence and shall be used only for the purposes herein
set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the
owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Industrial Center, and except as
expressly provided in paragraph 15, in the event if any transfer of such
title or interest, Lessor herein named (and in case of any subsequent
transfers then the grantor) shall be relieved from and after the date of
such transfer of all liability as respects Lessor's obligations
thereafter to be performed, provided that any fundsin the hands of the
Lessor or the then grantor at the time of such transfer, in which Lessee
has an interest, shall be delivered to the grantee. The obligations
contained in this Lease to be performed by Lessor shall, subject as
aforesaid, be binding on Lessor's successors and assigns, only during
their respective periods of ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as determined
by a court of competent jurisdiction, shall in no way affect the validity
of any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided,
any amount due to Lessor not paid when due shall bear interest at the
maximum rate then allowable by law from the date due. Payment of such
interest shall nor excuse or cure any default by Lessee under this Lease;
provided, however, that interest shall not be payable on late charges
incurred by Lessee nor on any amounts upon which late charges are paid by
Lessee.
<PAGE>
20. TIME OF ESSENCE. Time is of the essence with respect to the obligations
to be performed under this Lease.
21. ADDITIONAL RENT. All monetary obligations of Lessee to Lessor under the
terms of this Lease, included but not limited to Lessee's Share of
Operating Expenses and insurance and tax expenses payable shall be deemed
to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No
prior or contemporaneous agreement or understanding pertaining to any
such matter shall be effective. This lease may be modified in writing
only, signed by the parties in interest at the time of the modification.
Except as otherwise stated in this Lease, Lessee hereby acknowledges that
neither the real estate broker listed in paragraph 15 hereof nor any
cooperating broker on this transaction nor the Lessor or any employee or
agents of any said persons has made any oral or written warranties or
representations to Lessee relative to the condition or use by Lessee of
the Premises or the Property and Lessee acknowledges that Lessee assumes
all responsibility regarding the Occupational Safety Health Act, the
legal use and adaptability of the Premises and the compliance thereof
with all applicable laws and regulations in effect during the term of
this Lease except as otherwise specifically stated in this Lease.
23. NOTICES. Any notice required or permitted to be given hereunder shall be
in writing and may be given by personal delivery or by certified mail,
and if given personally or by mail, shall be deemed sufficiently given if
addressed to Lessee or to Lessor at the address noted below the signature
of the respective parties, as the case may be. Either party may by notice
to the other specify a different address for notice purposes. A copy of
all notices required or permitted to be given to Lessor hereunder shall
be concurrently transmitted to such party or parties at such addresses as
Lessor may from time to time hereafter designate by notice to Lessee.
24. WAIVERS. No waiver by Lessor or any provision hereof shall be deemed a
waiver of any other provision. Lessor's consent to, or approval of, any
act shall not be deemed to render unnecessary the obtaining of Lessor's
consent to or approval of any subsequent act by Lessee. The acceptance of
rent hereunder by Lessor shall not be a waiver of any preceding breach by
Lessee of any provision hereof, other than the failure of Lessee to pay
the particular rent so accepted, regardless of Lessor's knowledge of such
preceding breach at the time of acceptance of such rent.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum
of this lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of
the Premises or any part thereof after the expiration of the term hereof,
such occupancy shall be a tenancy from month to month upon all the
provisions of this Lease pertaining to the obligations of Lessee, but all
Options, if any, granted under the terms of this Lease shall be deemed
terminated and be of no further effect during said month to month
tenancy.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to the
provisions of paragraph 17, this Lease shall bind the parties, their
personal representatives, successors and assign. This Lease shall be
governed by the laws of the State where the Industrial Center is located
and any litigation concerning this Lease
<PAGE>
between the parties hereto shall be initiated in the country in which
the Industrial Center is located.
30. SUBORDINATION.
(a) This Lease, and any Option granted hereby, at Lessor's option,
shall be subordinate to any ground lease, mortgage, deed or trust,
or any other hypothecation or security now or hereafter placed
upon the Industrial Center and to any and all advances made on the
security thereof and to all renewals, modifications,
consolidations, replacements and extensions thereof.
Notwithstanding such subordination. Lessee's right to quiet
possession of the Premises shall not be disturbed if Lessee is not
in default and so long as Lessee shall pay the rent and observe
and perform all of the provisions of this Lease, unless this Lease
is otherwise terminated pursuant to its terms. If any mortgagee,
trustee or ground lessor shall elect to have this Lease and any
Options granted hereby prior to the lien of its mortgage, deed of
trust or ground lease, and shall give written notice thereof to
Lessee, this Lease and such Options shall be deemed prior to such
mortgage, deed of trust or ground lease, whether this lease or
such Options are dated prior or subsequent to the date of said
mortgage, deed of trust or ground lease or the date of recording
thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination or to make this Lease or any Option
granted herein prior to the lien of any mortgage, deed of trust or
ground lease, as the case may be. Lessee's failure to execute
such documents within ten (10) days after written demand shall
constitute a material default by Lessee hereunder without further
notice to Lessee or, at Lessor's option. Lessor shall execute
such documents on behalf of Lessee, as Lessee's attorney-in-fact.
Lessee does hereby make, constitute and irrevocably appoint Lessor
as Lessee's attorney-in-fact and in Lessee's name, place and
stead, to execute such documents in accordance with this paragraph
30(b).
31. ATTORNEY'S FEES. If either party or the broker(s) named herein bring an
action to enforce the terms hereof or declare rights hereunder, the
prevailing party in any such action, on trial or appeal, shall be
entitled to his reasonable attorney's fees to be paid by the losing party
as fixed by the court. The provisions of this paragraph shall inure to
the benefit of the broker named herein who seeks to enforce a right
hereunder.
32. LESSOR'S ACCESS. Lessor and Lessor's agents shall have the right to
enter the Premises at reasonable times for the purpose of inspecting the
same, showing the same to prospective purchasers, lenders, or lessees,
and making such alternations, repairs, improvements or additional to the
Premises or to the building of which they are part of Lessor may deem
necessary or desirable. Lessor may at any time place on or about the
Premises or the Building any ordinary "For Sale" signs and Lessor may at
any time during the last 120 days of the term hereof place on or about
the Premises any ordinary "For lease" signs. All activities of Lessor
pursuant to this paragraph shall be without abatement of rent, nor shall
Lessor have any liability to Lessee for the same.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily or involuntarily, any auction upon the
Premises or the Common Areas without first having obtained Lessor's prior
written consent. Notwithstanding anything to the contrary in this Lease,
Lessor shall not be obligated to exercise any standard of reasonableness
in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises or the
Industrial Center without Lessor's prior written consent. Under no
circumstances shall Lessee place a sign on any roof of the Industrial
Center.
<PAGE>
35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to
Lessor of any or all of such subtenancies.
36. CONSENTS. Except paragraph 33 hereof, wherever in this Lease the consent
of one party is required to an act of the other party such consent shall
not be unreasonably withhold or delayed.
37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and
observing the performing all of the covenants, conditions and provisions
on Lessee's part to be observed and performed hereunder, Lessee shall
have quiet possession of the Premises for the entire term hereof subject
to all of the provisions of this Lease. The individuals executing this
Lease on behalf of Lessor represent and warrant to Lessee that they are
fully authorized the legally capable of executing this Lease on behalf of
Lessor and that such execution is binding upon all parties holding an
ownership interest in the Property.
39. OPTIONS.
39.1 DEFINITION. As used in this paragraph the work "Option" has the
following meaning: (1) the right or option to extend the term of this
Lease or to renew this Lease or to extend or renew any lease that Lessee
has on other property of Lessor; (2) the option or right of first refusal
to lease the Premises or the right of first offer to lease the Premises
or the right of first refusal to lease other space within the Industrial
Center or other property of Lessor or the right of first offer to lease
other space within the Industrial Center or other property of Lessor; (3)
the right or option to purchase the Premises or the Industrial Center, or
the right of first refusal to purchase the Premises or the Industrial
Center, or the right of first offer to purchase the Premises or the
Industrial Center, or the right or option to purchase other property of
Lessor, or the right of first refusal to purchase other property of
Lessor of the right of first offer to purchase other property of Lessor.
39.2 OPTIONS PERSONAL. Each Option granted to Lessee in this Lease is
personal to the original Lessee and may be exercised only by the original
Lessee while occupying the Premises who does so without the intent of
thereafter assigning this Lease or subletting the Premises or any portion
thereof, and may not be exercised or be assigned, voluntarily or
involuntarily, by or to any Lessee Affiliate as defined in paragraph 12.2
of this lease. The Options, if any, herein granted to Lessee are not
assignable separate and apart from this Lease, nor may any Option be
separated from this Lease in any manner, either by reservation or
otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple options to
extend or renew this Lease a later option cannot be exercised unless the
prior option to extend or review this Lease has been so exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee Shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary, (i) during
the time commencing from the date Lessor gives to Lessee a notice
of default pursuant to paragraph 13.1(b) or 13.1(c) and continuing
until the noncompliance alleged in said notice of default is
cured, or (ii) during the period of time commencing on the date
after a monetary obligation to Lessor is due from Lessee and
unpaid (without any necessity for notice thereof to Lessee) and
continuing until the obligation is paid, or (iii) at any time
after an event of default described in paragraphs 13.1 (d), or
13.1(e) (without any necessity of Lessor to give
<PAGE>
notice of such default to Lessee), nor (iv) in the event that
lessor has given to Lessee three or more notices of default
under paragraph 13.1(b), or paragraph 13.1(c), whether or not
the defaults are cured, during the 12 month period of time
immediately prior to the time that Lessee attempts to exercise
the subject Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to
exercise an Option because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding
Lessee's due and timely exercise of the Option, if, after such
exercise and during the term of this Lease, (i) Lessee fails to
pay to Lessor a monetary obligation of Lessee for a period of
thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii)
Lessee fails to commence to cure a default specified in paragraph
13.1(c) within thirty(30) days after the date that lessor gives
notice to Lessee of such default and/or Lessee fails thereafter to
diligently prosecute said cure to completion, or (iii) Lessee
commits a default described in paragraph 13.1(a), 13.1(d) or 13.1
(e) (without any necessity of Lessor to give notice of such
default to Lessee), or (iv) Lessor gives to Lessee three or more
notices of default under paragraph 13.1(b), or paragraph 13.1 (c),
whether or not the defaults are cured.
40. SECURITIES MEASURES. Lessee hereby acknowledges that Lessor shall have no
obligation whatsoever to provide guard service or other security measures
for the benefit of the Premises or the Industrial Center. Lessee assumes
all responsibility for the protection of Lessee, its agents, and invitees
and the property of Lessee and of Lessee's agents and invitees from acts
of third parties. Nothing herein contained shall prevent Lessor, at
lessor's sole option, from providing security protection for the
Industrial Center or any part thereof, in which event the cost thereof,
in which event the cost thereof shall be included within the definition
of Operating Expenses, as set forth in paragraph 4.2(b).
41. EASEMENTS. Lessor reserves to itself the right, from time to time, to
grant such easements, rights and dedications that Lessor deems necessary
or desirable, and to cause the recordation of Parcel Maps and
restrictions, so long as such easements, rights, dedications, Maps and
restrictions do not unreasonably interfere with the use of the Premises
by Lessee. Lessee shall sign any of the aforementioned documents upon
request of Lessor and failure to do so shall constitute a material
default of this Lease by Lessee without the need for further notice to
Lessee.
42. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one party to the other under the
provisions hereof, the party against whom the obligation to pay the money
is asserted shall have the right to make payment "under protest' and such
payment shall not be regarded as a voluntary payment, and there shall
survive the right on the part of said party to institute suit for the
recovery of such sum. If it shall be adjudged that there was no legal
obligation on the part of said party to pay such sum or any part thereof,
said party shall be entitled to recover such sum or so much thereof as it
was not legally required to pay under the provisions of this Lease.
43. AUTHORITY. If Lessee is a corporation, trust, or general or limited
partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to
execute and deliver this Lease on behalf of said entity. If Lessee is a
corporation, trust or partnership, Lessee shall, within thirty (30) days
after execution of this Lease, deliver to lessor evidence of such
authority satisfactory to Lessor.
44. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provision, if any, shall be controlled by
the typewritten or handwritten provisions.
<PAGE>
45. OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to lease. This
Lease shall become binding upon Lessor and Lessee only when fully
executed by Lessor and Lessee.
46. ADDENDUM. Attached hereto is an addendum or addenda containing
paragraphs A through H which constitue a part of this Lease.
47. MODIFICATION FOR LENDER. If in connection with obtaining financing for
the building, the Lender shall request reasonable modifications in this
Lease as a condition to such financing, Lessee will not unreasonably
withhold, delay, or defer its consent thereto, provided that such
modifications do not increase the obligations of Lessee hereunder or
materially adverse affect the leasehold interest hereby created.
48. LESSOR OPTION TO RELOCATE LESSEE. At any time after Lessee's execution
of this Lease, Lessor shall have the right, upon providing Lessee thirty
(30) days notice in writing, to provide and furnish Lessee with space
elsewhere in the building of approximately the same size as said
Premises, and to move and place Lessee in such new space at Lessor's
expense. In the event Lessor moves Lessee to such new space, then this
Lease and each and all of the terms and covenants and conditions hereof
shall thereupon remain in full force and effect and be deemed applicable
to such new space except that a revised Exhibit "A" shall become a part
of this Lease and shall reflect the location of the new space and
Paragraphs 4.1, 4.2, and 5 shall be amended to show correct data. Should
Lessee refuse to permit Lessor to move Lessee to such new space at the
end of said thirty (30) day period, Lessor shall have the right to
terminate this Lease by notice to such effect given to Lessee in writing
within ten (10) days following the end of said thirty (30) day period,
which termination shall be effective sixty (60) days after the date of
the original relocation by Lessor.
49. MORTGAGE PROTECTION. Lessee agrees to give any mortgages and/or trust
deed holders, as to all or a portion of the Premises, by registered mail,
a copy of any notice of default served upon Lessor, provided that prior
to such notice Lessee has been notified in writing (by way of notice or
assignment of rents and leases, or otherwise) of the addresses of such
mortgages an/or trust deed holders. Lessee agrees not to exercise any
remedies available by virtue of a default unless Lessor shall have failed
to cure such default within thirty (30) days after receipt of notice of
default or such additional time as may be reasonably necessary to cure
the default in the case of a default incapable of being cured within
thirty (30) days within which to cure such default, or if such default
cannot be cured within that time, then such additional time as may be
necessary if within such thirty (30) days any mortgagee and/or trust deed
holder has commenced and is diligently pursuing the remedies necessary to
cure such default (including but not limited to commencement of
foreclosure proceedings if necessary to effect such cure), in which event
such right, if any, as Lessee might otherwise have to terminate the Lease
shall not be exercised while such remedies are being so diligently
pursued.
8.1 LIABILITY INSURANCE-LESSEE. Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease a policy of Comprehensive
General Liability insurance utilizing an Insurance Services Office
standard form with Broad Form General Liability Endorsement (GLO404), or
equivalent, in an amount of not less than 1) $1,000,000 per occurrence
of Bodily Injury and Property Damage combined single limit with a
$1,000,000 excess liability policy, or 2) $1,000,000 per occurrence of
Bodily Injury and Property Damage with a $2,000,000 General Aggregate
Bodily Injury and Property Damage, and shall insure Lessee with a Lessor
as an additional insured against liability arising out of the use,
occupancy or maintenance of the Premises. The policy shall insure
performance by Lessee of the indemnity provisions of this paragraph 8.
The limits of said insurance shall not, however, limit the liability of
Lessee hereunder.
<PAGE>
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTRAY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
THIS LEASE HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR
APPROVAL. NO REPRESENTATION OR RECOMMENDAION IS MADE BY TH
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE
BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION
RELATING THERETO: THE PARTIES SHALL RELY SOLELY UPON THE ADVICE
OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF
THIS LEASE.
LESSOR LESSEE
William D & Edan J. Wright dba ValueClick, Inc.
South Coast Business Park a Delaware Corporation
- ------------------------- ----------------------
By ILLEGIBLE By /s/ JAMES ZARLEY
--------------------------- ---------------------------
By By
-------------------------- --------------------------
Executed on 9/10/99 Executed on
--------------- ------------------
(Corporate Seal) (Corporate Seal)
ADDRESS FOR NOTICES AND RENT ADDRESS
- -------------------------------- ------------------------------
130 Garden Street
- -------------------------------- ------------------------------
Santa Barbara, California 93101
- -------------------------------- ------------------------------
For these forms write the American Industrial Real Estate Association, 350 South
Figueroa St., Suite 275 Los Angeles, CA 90071 (213) 687-8777
<PAGE>
ADDENDUM TO LEASE
This ADDENDUM is attached to and forms a part of that certain Standard
Industrial Lease dated for reference purposes AUGUST 30, 1999, by and between
William D & Edna J. Wright dba South Coast Business Park ("Lessor"), and
VALUECLICK, INC., A DELAWARE CORPORATION ("Lessee"). The said Standard
Industrial Lease is hereby modified/supplemented (and as
modified/supplemented is hereinafter referred to as "this Lease") in the
following particulars only:
A. OPTION TO EXTEND TERM OF LEASE. Lessee is hereby granted the
option to extend the term of this Lease of N/A ( ) additional
successive periods of N/A ( ) years each. The options
shall be exercised by the delivery of written notice to Lessor no earlier
than two hundred seventy (270) days an no later than one hundred eighty (180)
days prior to the expiration of the lease term then in effect. Any
extentions granted hereunder shall be on the same terms and conditions
applicable to the initial term except as to rent, which shall be increased I
accordance with paragraph B(2) below. Lessee's right to exercise the options
granted herein is subject to the terms and conditions set forth in paragraph
39 of this Lease.
B. ADJUSTMENT TO BASE RENT.
(1) Cost of Living Adjustments to Base Rent. The Base Rent
payable pursuant to Paragraph 4.1 shall be subject to further adjustment as of
N/A, and as of the same date each year thereafter during the initial lease term
and any extension period. Said date is hereinafter referred to as the
"Adjustment Date." The adjustment shall be made as follows:
The Base Rent for the Premises shall be adjusted by the same
percentage as the increase, if any, in the Consumer Price Index (All Items
for All Urban Consumer 1982-84 = 100 Base), of the United States Department
of Labor, Bureau of Labor Statistics for Los Angeles-Anaheim-Riverside, CA
(the "Index"). The adjustment shall be calculated according to the following
formula:
X = A x B
-
C
X = Adjusted rent
A = Base Rent as of the first month of the term then in effect.
B = The monthly index for the third month immediately preceding the
Adjustment Date.
C = The monthly index for the third month immediately preceding the first
month of the term then in effect.
The month rent as so adjusted shall be payable for each month commencing with
the Adjustment Date and continuing until the next Adjustment Date.
If the Index is discontinued or revised during the term of this Lease, such
other government Index or computation with which it is replaced shall be used
in order to obtain substantially the same result as would be obtained if the
Index had not been discontinued or revised.
<PAGE>
C. USE. Paragraph 6 of this Lease is hereby supplemented as follows:
(1) Prohibited Uses. Lessee shall not do or permit anything to be done in or
about the Premises nor bring or keep anything therein which will in any
way increase the existing rate of or affect any fire or other insurance
upon the Premises or any of its contents, or cause a cancellation of any
insurance policy covering the Premises or any part thereof or any of its
contents. Lessee shall not commit or suffer to be committed any nuisance
or waste in or upon the Premises. Lessee shall not use the Premises or
permit anything to be done in or about the Premises which will in any way
conflict with any law, statute, ordinance or governmental rule or
regulation now in force or which may hereafter be enacted or promulgated.
Lessee shall not keep any animals or pets on the Premises. Lessee shall
not use or store "hazardous materials or wastes" on the Premises, as such
terms are defined by applicable federal and state law, without Lessor's
prior written consent. If such consent is given, Lessee shall comply
with governmental laws, rules and regulations pertaining to hazardous
materials and wastes. Lessor shall have a right of re-entry upon the
Premises on reasonable notice and at reasonable times for purpose of
inspection, contamination testing and remediation.
(2) Installation of Specialized Equipment and Use of Lessee's
Possessions on the Premises. Lessee shall not install on the Premises any
specialized equipment requiring the use of a power source (including, but not
limited to, computer hardware or software) without the prior written consent
of Lessor. Lessor shall give its consent to such installation provided the
conditions contained herein are satisfied. Lessor shall not be liable to
Lessee for damage to Lessee or Lessee's possession, including but not limited
to furniture, fixture, equipment (specialized or otherwise), and inventory,
from any course. Lessee waives all claims against Lessor for damage to
lessee's possessions arising for any reason. Lessee shall comply with all
laws, regulations or ordinances relating to the condition and use of any and
all of Lessee's possessions on the Premises, including laws requiring the
alteration, maintenance and restoration of the Premises as a result of
Lessee's particular use. Provided, however, any required alterations to the
Premises shall be conditioned upon Lessor's prior written consent. The
Premises shall not be electrically overloaded. No equipment, machinery,
apparatus or other appliance shall be used or operated on the premises in
such a manner that such equipment will in any way injure, vibrate or shake
the Premises, or place an excessive burden on power sources installed on the
Premises.
E. ASSIGNMENT AND SUBLETTING. Lessee hereby understands and agrees that
Lessor may withhold its consent to any requested assignment or subletting,
and such withholding of consent shall be deemed reasonable, in the event that
the proposed assignee or sublessee intends to use or store hazardous wastes
or materials on the Premises. Also, it is a requirement that Lessor receive
seventy five percent (75%) of any consideration or increase in rent received
or to be received by Lessee for such assignment or sublease. Please note
that the term of the sublease may not exceed the term of the "master" lease.
F. INDEMNITY. The indemnification of Lessor by Lessee pursuant to
Paragraph 8.7 of this Lease shall also include and extend to any violation by
Lessee of applicable state, federal and local laws pertaining to the use,
storage and discharge of hazardous materials and wastes.
G. DEFAULT. Paragraph 13.1 of this Lease is supplemented to provide that
the release or discharge by Lessee of any hazardous material or wastes in or
about the Premises, or violation of any law or deviation from prescribed
procedures in the use or storage of hazardous materials or wastes, shall
constitute a material default of this Lease by Lessee. Wherever used in this
Lease, the terms hazardous wastes and/or hazardous material shall include all
definitions of hazardous wastes and materials provided by both federal and
California Law.
I. CONDITIONS PRECEDENT TO EFFECTIVENESS. In addition to any other
conditions for the benefit of Lessor under the Lease, Lessor's obligations
under the Lease and the effectiveness of the Lease as against the lessor are
subject to the following condition for the benefit of Lessor, which condition
may be waived in Lessor's sole and absolute discretion.
<PAGE>
a. The execution and delivery by Q.A.D., Inc., the existing Lessee of
Suites 1 & 2 of the Premises, of any document necessary to terminate its
leasehold interest in Suites 1 & 2, upon terms and conditions which are
acceptable to Lessor in Lessor's sole and absolute discretion
IN WITNESS WHEREOF, Lessor and Lessee have each caused this Addendum to be
executed concurrently with the Lease of which this Addendum forms a part.
LESSOR:
WILLIAM D & EDNA J. WRIGHT dba
SOUTH COAST BUSINESS PARK
BY: ILLEGIBLE Dated: 9/10/99
------------------------------------ -------
LESSEE:
VALUECLICK, INC., A DELAWARE CORPORATION
BY: /s/ JAMES ZARLEY Dated: 9/2/99
------------------------------------- ------
Title
BY: Date:
------------------------------------- ------
Title
<PAGE>
EXHIBIT 10.20
[LOGO] SOFTAWARE, INC.
4676 Admiralty Way Suite #217
Marina del Rey, California 90292
Tel: 310-305-0275
Fax: 310-305-9165
Web Site: www.softaware.com
SOFTAWARE SERVICE ORDER
- -------------------------------------------------------------------------------
Customer Information
Sales Rep: Dennis Wojnar
ValueClick August 17, 1999
---------- ---------------
Billing Name Requested Service Date
6450 Via Real
-------------
P.O. Box 5008
-------------
Carpinteria, CA 93014-5008
---------------------------
Billing Address: City, State & Zip Code
Michael Bueno 805-684-6060
------------- ------------
Customer Contact Phone
Michael Bueno 805-684-6060
------------- ------------
Billing Contact Phone
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SERVICE INFORMATION (FILLED OUT BY ACCOUNT REP)
SERVICE TO BE PROVIDED:
Add'l shelves 4 shelves $750 each ($3,000) $0
------------------------------------------------------------------
Service Type Quantity Monthly Rate Non-Recurring Charge
- -------------------------------------------------------------------------------
--------------------------------------------------------------------------
| Note |
--------------------------------------------------------------------------
THIS SERVICE ORDER IS SUBJECT TO THE TERMS AND CONDITIONS OF YOUR SOFTAWARE
SERVICE AGREEMENT. CUSTOMER HAS READ AND UNDERSTANDS THE ORDER TERMS AND
AGREES TO BE BOUND BY THOSE CONDITIONS. ACCEPTANCE IS CONTINGENT UPON
SIGNATURE BY AN AUTHORIZED REPRESENTATIVE OF YOUR COMPANY.
SIGN AND RETURN TO SOFTAWARE BY FAX - 310-305-9165
Date: August 17, 1999 Date: August 17, 1999
Company Name: ValueClick Company Name: SoftAware, Inc.
Full Name & Title: John Schwenk, CTO Richard Gable, President - COO
------------------------------
Signature /s/ JOHN SCHWENK Signature
---------------- ----------------
<PAGE>
VALUECLICK ("Client"), and SOFTAWARE, Inc. ("SoftAware"), agree to the following
terms and conditions regarding Internet Colocation Services ("Internet
Services"):
1. SOFTAWARE'S RESPONSIBILITIES
SoftAware will provide access to the Internet (at SoftAware's discretion as to
equipment and conditions), to the Client's computer located on SoftAware's
premises. SoftAware will house Client's computer in a secure computer room,
monitor data throughout and provide emergency support for Client at all times.
2. COSTS AND TERMS
Charges and additional terms for Internet Services are specified in the attached
Exhibit A, incorporated by reference.
3. WARRANTIES/LIMITATIONS OF LIABILITY
SOFTAWARE EXPLICITLY DISCLAIMS ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE WHATSOEVER. Client acknowledges that SoftAware does not
warrant any privacy conditions and may provide access to any computer system on
its network if required by State of Federal law.
SoftAware is not liable for: (a) loss resulting from the use, installation, and
or discontinuation of the Internet Services, including but not limited to losses
resulting from delays, improper or incomplete delivery of information, computer
viruses, interruption of service or damage to equipment; (b) damages relating to
Client's failure to perform Client's responsibilities under this or any other
agreement; (c) lost profits or other consequential damages of Client or a third
party, even if SoftAware has been advised of the possibility of such damages;
(d) any claim against Client by a third party; (e) the monitoring or supervision
of content transmitted by Client or a third party, regardless of notice of
illegal or inaccurate matters; (f) the enforcement of its acceptable use policy,
or (g) performance of its obligations hereunder where delayed or hindered by
war, riots, embargoes, strikes or other concealed acts of workmen, casualties,
accidents, acts of nature (including floods and earthquakes), or other
occurrences beyond the SoftAware's control. SoftAware shall notify Client in the
event of any of the occurrences listed in (g), and should such occurrence
continue for more than sixty (60) days, SoftAware or Client may terminate this
agreement with no future obligations to be incurred.
If SoftAware provides hardware to Client, SoftAware makes no actual warranty of
its own, but will pass through to the Client the manufacturers warranty to the
extent that such warranty is provided. In the even that Client discovers a
product to be defective, SoftAware will assist the buyer in notifying the
manufacturer of such defect.
Periodically, SoftAware will conduct routine scheduled maintenance of its
network and facilities. During such time, Client's Equipment may be unable to
transmit and receive data and Client may be unable to access its Equipment.
Client agrees to cooperate with SoftAware during the scheduled maintenance so
that SoftAware may keep such period or time to a minimum.
4. PROHIBITED ACTIONS & ACCEPTABLE USE POLICY
Client is prohibited from engaging in: (a) Attempts to flood the network or
compromise the security or integrity of computers connected directly or
indirectly to the internet; (b) Attempts to increase traffic levels for a
malicious purpose or without a legitimate business purpose; (c) Any security
cracking or action which compromises SoftAware's system security or the security
of any computer system connected to said network in any way; (d) Harassment,
intimidation, or infringement of the privacy of any Internet users or user of
Internet access, including but not limited to electronic mail; (e) Operating a
domain name server without SoftAware approval. Client agrees to adhere by
SoftAware's Acceptable Use Policy as detailed in Exhibit B and incorporated by
reference.
5. INDEMNIFICATION
Client agrees to use the Internet Services in a manner permitted by applicable
local, state and federal laws. Client is prohibited from transmitting any
material in violation of local, state or federal law, including, but not limited
to, the use of copyrighted material without permission of the copyright holder,
material legally judged to be threatening or obscene, or material protected by
trade secret or trademark laws. Client agrees to indemnify and hold SoftAware
<PAGE>
harmless from any claims relating to direct or indirect damage to another party
by use of the Internet Services. Client further agrees to indemnify and hold
SoftAware harmless from all lawsuits, judgments, decrees, cost and expenses, and
any attorney fees relating to Client's use of the Internet Services or breach of
this or other contracts.
6. TERMINATION
SoftAware may discontinue any or all classes of service at its discretion for
any of the following reasons: protection of the integrity of its network; fraud;
willful misconduct; malfeasance; failure; neglect or refusal to perform duties
in any material respect; misfeasance or incompetence in any material respect;
violation of any law, rule or regulation (other than traffic violations or
similar minor infractions); material breach of any provision of this Agreement
(including, but not limited to, failure to keep Client's account current); or
any acts which would tend to threaten the financial integrity of SoftAware.
Before SoftAware discontinues service, SoftAware will use its best efforts to
notify the Client of any such problem, and attempt to resolve such problem.
7. GENERAL
(a) Client shall not assign or transfer any rights or obligations
under this Agreement without SoftAware's prior written
approval;
(b) Any legal action arising out of failure, malfunction or defect
of the Internet Services shall be brought within one year of
the occurrence, or is deemed waived;
(c) Breach of any contract provision by Client can only be waived
in writing;
(d) Waiver of any breach by Client shall not be deemed to be a
waiver of any other breach;
(e) This agreement constitutes the entire agreement between the
parties with respect to Internet Services, and can not be
modified without the express written consent of all parties;
(f) Neither Client nor SoftAware has made any promise,
representation, or warranty, explicit or implied, not set
forth in this contract;
(g) If any portion of this agreement is held by a Court of
competent jurisdiction or mutually agreed on authority, to be
invalid, void, or unenforceable, the remainder will
nevertheless continue in full force without impairment or
invalidation;
(h) This agreement shall be governed and interpreted by the laws
of California applicable to such contracts entirely made and
performed in said jurisdiction.
(i) Service Hours and Conditions: Client understands that
alterations to accounting status, service contract conditions
or removal of equipment must be processed during business
hours weekdays unless previously scheduled or approved.
SoftAware reserves the right the refuse service on those
matters during non-business hours, and to redirect customer
inquiries to staff available during the normal operating
schedule.
8. NONDISCLOSURES
Client shall not disclose to any third party, during the term of service, any of
the material terms and conditions set forth in this Agreement, unless such
disclosure is lawfully required by any government agency or is otherwise
required by law. Breach of this provision shall be cause for termination of
services, and shall subject Client to damages, including SoftAware's lost
profits, as a result of said breach.
9. COMPLIANCE WITH LAW/ RENEGOTIATION.
The parties intend to not violate any laws or governmental rules or regulations
or any ethical requirements. While both the parties believe that they have
accomplished this in structuring this agreement, both acknowledge that to the
extend that any portion of this agreement violates any laws, rules, regulations
or ethical requirements, both will promptly renegotiate any such provisions so
that it will be in full compliance with all laws, rules, regulations and ethical
requirements at all times. The parties agree to perform any further acts and
execute and deliver any documents that may be reasonably necessary to carry out
this Agreement.
<PAGE>
10. ARBITRATION
Any controversy or claim relating to this contract or breach thereof, unless
otherwise settled by agreement of the parties, will be settled by arbitration in
accordance with the Commercial Arbitration rules of the American Arbitration
Association, and judgment on the arbitrator's award may be entered in any Court
having jurisdiction thereof.
11. ATTORNEYS' FEES
Should any party hereto reasonably retain counsel for the purpose of enforcing
or preventing the breach of this Agreement, including, but not limited to,
instituting any arbitration or any action at law or in equity, including an
action for declaratory relief or for any other judicial remedy, then if said
matter is settled by judicial determination (which term includes arbitration),
the prevailing party (whether at trial or appeal), shall be entitled, in
addition to such other relief as may be granted, to be reimbursed by the losing
party for all costs and expenses incurred thereby, including, but not limited to
reasonable attorney's fees and costs for the services rendered to such
prevailing party.
If this Agreement is acceptable to Client, indicate said acceptance in the
appropriate space provided below.
Once signed by Client and SoftAware this Agreement will be binding upon
all parties hereto. These signatures apply to the above conditions, as well as
attachments and exhibits incorporated by reference, constituting the entire
agreement between the parties. By signing below, I affirm that I am a
responsible corporate office, acting within the scope of my authority, to bind
the corporation.
Corporate Office:
Date: 10/9/98
<TABLE>
<S> <C>
Company Name: Value Click Company Name: SoftAware, Inc.
Full name and Title (Print): Brian Coryat, President
Signature: /s/ BRIAN CORYAT Signature: /s/ RICHARD GABLE
---------------- -----------------
Richard Gable, Chief Operations
</TABLE>
<PAGE>
EXHIBIT A - PAYMENT TERMS
<TABLE>
<CAPTION>
SOFTAWARE COLOCATION
<S> <C>
Installation $ 0
Monthly fee Internet Services (100mb/s ethernet) $10,000
Monthly fee full standing rack $ 3,000
Monthly fee for each add'l shelf $ 750
</TABLE>
The initial term of this agreement will be one year and will commence on October
5th, 1998 (commencement date). Unless terminated as provided by this Agreement,
the agreement shall thereafter automatically renew for successive one year
terms. Either party may terminate this agreement at the end of the initial term
by giving the other party thirty (30) days prior written notice. SoftAware
reserves the right, at its discretion, to increase prices and alter terms at the
end of the initial contract term.
Client agrees to compensate SoftAware for providing the services expressed in
this agreement in the amount of $13,000 per month. Client will receive up to ten
megabits per second for the $13,000 Internet Service fee. Client agrees to pay
an additional $950 per megabit per second if bandwidth usage exceeds the first
ten (10) megabits per second. Bandwidth usage will be measured by taking an
average of the usage for the month. SoftAware may delay billing on bandwidth
changes until all data relevant to said charges is collected and analyzed.
Monthly payments for each month will be due by the fifteenth day of the
preceding month.
Interest at a rate equal to the greater of one and three quarter percent (1.75%)
per month or the highest rate permissible under applicable law, accrued daily,
will be due on all amounts not paid by the sixteenth of the month. Client will
pay or reimburse SoftAware for any and all sales and use taxes, duties, or
levies imposed by any authority, government or government agency in connection
with the Internet Services, except property taxes and SoftAware's income taxes.
Should termination occur due to: (a ) client's non-payment of sums due under
this Agreement, or (b) Client's termination of SoftAware's service; then the
remainder of the amount due for the term of the contract shall be accelerated
and due on the date of termination, in addition to any other remedies which may
be applicable.
Client agrees that any equipment, facilities modification, or Client provided
infrastructure or services that remain in the service area or impound area for
more than sixty (60) days beyond termination, regardless of reason or ownership
of said items, shall be deemed to be abandoned and SoftAware shall have the
right to remove and or dispose of said equipment, modifications or
infrastructure or services at its sole discretion.
Client is hereby on notice the passing of a check on insufficient funds shall
subject Client to (1) the amount of the check, and (2) treble damages not less
than $100, and (3) a service charge payable to SoftAware for an amount not to
exceed twenty-five dollars for the first check, and thirty-five dollars for the
second check. After the second dishonored check, payment for services will take
the form of cashier's check, money order, or some other secured form of payment
deemed acceptable by SoftAware.
As additional security for the enforcement of this Agreement: Client grants
SoftAware a lien upon any material used or stored at SoftAware's facility.
Client warrants that may equipment stored under this Agreement is lawfully owned
by Client. If said equipment is not owned by Client, Client shall specify such
in writing to SoftAware, providing the name, address, and telephone number of
the legal owner, as well as any identification or invoice numbers necessary to
establish the correct identify of the products. Client shall also inform the
legal owner of the existence to this lien.
<TABLE>
<S> <C>
Approved By:
Date: 10/9/98 Date:___________________
Company Name: Value Click Company Name: SoftAware, Inc.
Full Name & Title (Print): Brian Coryat, President Signature: /s/ RICHARD GABLE
-----------------
Signature: /s/ BRIAN CORYAT Richard Gable, Chief Operations
----------------
</TABLE>
<PAGE>
ACCEPTABLE USE POLICY
EXHIBIT B
The purpose of the Acceptable Use Policy (AUP) is to provide clear expectations
for SoftAware customers and their authorized users. This policy complements your
SoftAware Service Agreement.
TERMS OF SERVICE AND OPERATING RULES: This policy applies to all customer,
Clients, employees, agents of SoftAware, and all authorized third parties that
are granted access to the services SoftAware provides.
CONDITIONS OF USE: By using any service SoftAware provides, you agree to observe
all of the provisions of these Terms of Service and Operating Rules as they may
be in effect from time to time. No acceptance of any purchase order from you
shall constitute acceptance by and control all dealing between SoftAware and
you. SoftAware reserves the right to make changes to this policy without prior
notification to users.
COMPLIANCE: All service users are required to comply with this Policy. You are
accountable for all violations of the SoftAware Acceptable Use Policy by any
third party using your network including your customers and they authorized
users.
INTERNET ETIQUETTE: You are expected to be familiar with end to practice good
Internet etiquette (Netiquette). You will comply with the rules appropriate
to any network to which SoftAware may provide access.
You will not post, transmit, or permit Internet access to information you desire
to keep confidential. You will not post or transmit any information or software
that contains a virus, illicit code or other harmful components. You will not
post any material that is illegal, libelous, torturous, or likely to result in
retaliation against SoftAware by offended users. SoftAware reserves the right to
refuse to terminate service at any time.
You will indemnify and hold SoftAware harmless from any damages to SoftAware's
business, service, equipment, network, operations, or reputation resulting from
your actions including without limitation any government actions, acts of
vandalism or other retaliation, and any claims of libel, unfair competition,
infringement of any patents, copyright, trademark, service mark, or other
intellectual property right, violation of privacy, or other tort.
APAM/UCE: SPAM/UCE mailing of any sort will not be permitted. Customer will be
held accountable for all actions including any SPAM/UCE originating from their
network, network device or any APAM/UCE mailing that causes SoftAware to respond
regardless of point or origin.
Upon Notification that such an act has occurred, SoftAware will warn the
customer on the first offence, and may in turn pass along any expenses the
customers have incurred. On the second, offense, SoftAware may give notice of
termination of service. Upon the receipt of notification by SoftAware that a
violation of the AUP has occurred, customers must provide written confirmation
of all compliance and enforcement actions they have taken within 48 hours.
PASSWORD PROTECTION: Users are responsible for protecting their password and for
any authorized or unauthorized use made of your password. You will not use or
permit anyone to use SoftAware's service to guess passwords or access other
systems or networks without authorization. In the event a network or network
device becomes compromised. SoftAware will assist in the tracking and/or
expulsion of said offender on the network level to an extent they find
reasonable. SoftAware is not responsible for securing a customer network or
device beyond the equipment SoftAware Installs.
ILLEGAL ACTIVITY: Use of SoftAware service for illegal or improper activity of
any kind, including unauthorized usage as previously described. Forged header or
user identification information and/or software piracy is prohibited. SoftAware
will fully cooperate with law enforcement authorities in the detection and
prosecution of illegal activity.
REMEDIES: All violations of this Acceptable Use Policy will be reviewed for the
appropriate action that can include immediate termination of access services.
Upon notification of any violation of the Acceptable Use Policy,
<PAGE>
users must provide a written response within 48 hours of all compliance
actions and/or enforcement actions with third parties they have undertaken.
Failure to provide such information may result in termination of service.
CONTACTS: Notifications of any violation of the SoftAware acceptable Use
Policy should be sent to [email protected]
<PAGE>
[LOGO]
- -------------------------------------------------------------------------------
PROPOSED SOLUTION
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Internet | Verio
Co-Location Requirements | Monthly Recurring Fee
- -------------------------------------------------------------------------------
0 - 20 Mbps | $750/Mbps
- -------------------------------------------------------------------------------
21 - 30 Mbps | $700/Mbps
- -------------------------------------------------------------------------------
31 - 40 Mbps | $650/Mbps
- -------------------------------------------------------------------------------
Standard 19" rack in cage or cabinets | $250/rack
Boca Raton facility, Mountain View, or| ---------
Los Angeles
- -------------------------------------------------------------------------------
Samples of outbound and inbound traffic are taken on 5 minute intervals over
a 24 hour period. These samples are compiled for the month, and the customer
is billed on the 95th percentile of the highest group of samples (inbound or
outbound). Pricing is based on a one-year contract.
ON-SITE CO-LOCATION FACILITY:
- -----------------------------
- - IP Addresses
- - Secure Card Key Facility Access 24 x 7
- - Private Cage or Cabinet
- - Primary DNS
- - Back-up diesel generators
- - Back-up Air Conditioning Units
- - 24 x 7 Network Operations Center Monitoring and Support and Maintenance
- - System reboots
- - On-site support - menu of services to follow
Agreed
/s/ JOHN SCHWENK Date 6-8-99
---------------- ------
John Schwenk
Title CTO
---
<PAGE>
EXHIBIT 10.21
VERIO
Pacific Headquarters
1777 Botelho Drive, Suite 130
Walnut Creek, CA 94596
October 6, 1999
Verio ValueClick
345 East Middlefield Rd. 6450 Via Real
Mountain View, CA 94043 Carpinteria, CA 93014-5008
(650) 944-8253 (805) 684-6060
(650) 966-9090 (805) 566-0190
Stacy D'Amico John Schwenk
VERIO INTERNET SERVICES
<TABLE>
<CAPTION>
Service Description No. Pricing Monthly One-Time Product Code Site
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Verio Co-Location 1 Manual $15,000.00 $0.00 VERIO-OOR-COLO 1
None 1 Auto 1
None 1 Auto 1
None 1 Auto 1
None 1 Auto 1
4 racks at $250 per $ 1,000.00
Boca-Raton
Total Vario Internet Services $16,000.00 $0.00
</TABLE>
VERIO NETWORKING EQUIPMENT
<TABLE>
<CAPTION>
Item Description No. Service Cost Total Hardware Order Code Site
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
None 1 1
None 1 1
None 1 1
None 1 1
None 1 1
None 1 1
Total Vario Networking Equipment
</TABLE>
<TABLE>
<CAPTION>
FEATURES OF THE SELECTED VARIO INTERNET SERVICES IP ITEM
<S> <C>
Verio Co-Location (out-of-region features may vary, see comments) 1
2
3
4
5
</TABLE>
ASSOCIATED TELCO SERVICES REQUIRED
<TABLE>
<CAPTION>
Site Telco Connectivity Service No Carrier Monthly One-Time Verio Pop NPA/nxx
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Ethernet X-Connect 1 $0.00 $0.00 None
1 None None
1 None None
1 None None
1 None None
TOTAL TELCO SERVICES $0.00 $0.00
</TABLE>
<PAGE>
VERIO
Pacific Headquarters
1777 Botelho Drive, Suite 130
Walnut Creek, CA 94596
October 6, 1999
Verio ValueClick
345 East Middlefield Rd. 6450 Via Real
Mountain View, CA 94043 Carpinteria, CA 93014-5008
Stacy D'Amico John Schwenk
SUMMARY PRICING FOR SELECTED VERIO SERVICES AND PRODUCTS
<TABLE>
<CAPTION>
Service Description Monthly One-Time Comments
<S> <C> <C> <C> <C>
Verio Total Internet Charges $16,000.00 $0.00
Total Telco Charges
Total Network Equipment
Other Charges or Credits (VERIO)
Other Charges or Credits Tax%
Tax 8.25%
Totals $16,000.00 $0.00
</TABLE>
TERMS AND CONDITIONS
This quote for Verio services and products is valid for 30 days (promotions may
expire earlier). After 30 days, this quote may be honored by Verio at its sole
discretion. To accept this quote and order the services and/or products
represented here, you must sign this quote, choose a payment method, and return
this document to Verio or one of its authorized agents. Signature indicates
acceptance of Verio's "ACCESS SERVICE AGREEMENT TERMS AND CONDITIONS" (attached)
, as well as the pricing, products, and services indicated on this quote.
Telephone company pricing included in this quote is believed to be accurate, but
is not guaranteed by Verio.
<TABLE>
<S> <C> <C>
/s/ JOHN SCHWENK [ILLEGIBLE]
- ---------------------------- -----------------------------
Signature Accepted For: Title of Representative
John Schwenk June 8, 1999
ValueClick
6450 Via Real
Carpinteria, CA 93014-5008
Contract Term: 1 year
</TABLE>
ADDITIONAL COMMENTS OR SPECIAL CONDITIONS
Verio commits to installing an OC-3 within 90 days in the Boca-Raton, Florida
facility. Pricing per Mbps is based upon the attached Proposed Solution. Verio
commits to installing a DS-3 in the Boca Raton facility within 30 days.
Please sign this agreement after reading the terms and conditions and additional
stipulations below:
1. Set-up includes installation fees and associated set-up and
configuration of equipment
2. Any interruption in any Service(s) that is caused by the malfunction or
interruption of any telecommunications services or facility (including
but not limited to cables and fiber optic lines) order by Verio on
behalf of Customer or purchased directly by Customer in connection with
Service(s) will not be deemed a breach of Verio's obligations under
this Agreement.
3. Verio is acting only as a reseller of the hardware and software offered
under this Agreement, which was manufactured by a third-party
"Manufacturer." Verio shall niot be responsible for any changes in
services that cause hardware or software to become obsolete, require
modification or alteration, or otherwise affect the performance of the
Services. Any malfunction or manufacturer's defects of equipment either
sold or provided by VERIO to Customer, or purchased directly by
Customer in connection with the Service(s) will not be deemed a breach
of Verio's obligations under this Agreement. Customer shall use its
best efforts to protect and keep confidential all intellectual property
provided by VERIO to Customer through any hardware or software and
shall make no attempt to copy, alter, reverse-engineer, or tamper with
such intellectual property, or to use it other than in connection with
the Services. Prices do not include the cost of shipping and handling
of equipment.
4. Customer may incur early termination charges from the Telephone Company
in the event services are cancelled prior to completion of contract
terms.
<PAGE>
VERIO
ValueClick
6450 Via Real
Carpinteria, CA 93014-5008
John Schwenk
Phone: (805)684-6060 Fax:(805)566-0190
IP INFORMATION:
The InterNIC requires that Verio provide complete justification for any IP
numbers that are allocated to Verio customers. The information below must be
completed to receive IP numbers from Verio.
<TABLE>
<S> <C>
Number of hosts (devices needing an IP #) on your network currently: 40
Number of hosts added with this connection: 30
Number of total hosts anticipated within the next 12 months: 45
Number of total hosts anticipated within the next 24 months: 100
Quantity of IP Numbers requested with this connection: 32
IP numbers allocated (to be completed by Verio personnel):
</TABLE>
DOMAIN NAME INFORMATION:
Customer (has/requests/does not have) a domain name: HAS
Enter the current domain name to the right: VALUECLICK.COM
Which ISP currently does DNS for this domain name?:
You will continue to be billed for your Domain Name maintenance by Network
Solutions.
Please attach a network diagram to this form.
<PAGE>
VERIO CUSTOMER LOCATION AND BILLING INFORMATION
<TABLE>
<CAPTION>
SERVICE ADDRESS 1 IP SERVICE SERVICE DESCRIPTION
<S> <C> <C>
Company Name: ValueClick TECH CONTACT
Address: 6450 Via Real E-MAIL
City, State, Zip: Carpinteria, CA 93014-5008 PHONE
Customer Contact: John Schwenk Page
Customer Phone: 805-684-6060 SVC PHONE #
Customer Fax: 805-566-0190 JACK/MPOE
Customer E-Mail:
<CAPTION>
SERVICE ADDRESS 2 IP SERVICE SERVICE DESCRIPTION
<S> <C>
Company Name: TECH CONTACT
Address: E-MAIL
City, State, Zip: PHONE
Customer Contact: Page
Customer Phone: SVC PHONE #
Customer Fax: JACK/MPOE
Customer E-Mail:
<CAPTION>
SERVICE ADDRESS 3 IP SERVICE SERVICE DESCRIPTION
<S> <C>
Company Name: TECH CONTACT
Address: E-MAIL
City, State, Zip: PHONE
Customer Contact: Page
Customer Phone: SVC PHONE #
Customer Fax: JACK/MPOE
Customer E-Mail:
<CAPTION>
SERVICE ADDRESS 4 IP SERVICE SERVICE DESCRIPTION
<S> <C>
Company Name: TECH CONTACT
Address: E-MAIL
City, State, Zip: PHONE
Customer Contact: Page
Customer Phone: SVC PHONE #
Customer Fax: JACK/MPOE
Customer E-Mail:
</TABLE>
Payment Option (Visa/AMEX/MC/Corporate PO/Check/Other) Check
Make Check Payable to Verio, Inc. Acct# ____________________________________
BILLING ADDRESS:
ValueClick
6450 Via Real
Carpinteria, CA 93014-5008
Contact: John Schwwenk (805) 684-6060/(805)566-0190
<PAGE>
VERIO
1. This agreement applies to the purchase of all services (collectively, the
"Services") ordered by Customer under this Agreement.
2. Customer shall pay the fees and other charges for each Service as provided
in this Agreement. VERIO reserves the right to change rates by notifying the
customer sixty (60) days in advance of the effective date of the change;
provided that VERIO shall not change rates during the term of any Term
Commitment. Billing for Services will commence when a VERIO hub and a
telephone circuit/line are prepared to route IP packets to Customer's
location. Service charges shall be incvoiced monthly, and payment shall be
due on the date specified in the invoice ("Due Date"). Set-up and equipment
charges shall be invoiced upon acceptance of this Agreement by VERIO.
Customer will pay a late payment charge equal to 1.5% (or the highest amount
permitted by law, whichever is lower) per month or portion thereof on the
outstanding balance of any invoice remaining unpaid thirty (30) days after
the Due Date. Accounts unpaid thirty (30) days after the Due Date may have
service suspended or terminated. Such suspenison or termination shall not
relieve Customer of its obligation to pay the monthly fee. Customer agrees to
pay VERIO its reasonable expanses, including attorney's fees and collection
agency fees, incurred in enforcing its rights under this Agreement. Customer
shall pay all federal, state, and local state taxes assessed with respect to
the Services and the sale of equipment to Customer, except that taxesbased on
VERIO's net income shall be the responsibility of VERIO.
3. This Agreement will be automatically renewed on a month-to-month basis at
the end of the Term Commitment unless Customer provides ninety (90) days
written notice to VERIO of termination of this Agreement. In the event of
early cancellation of a Term Commitment, Customer will be required to pay 75%
of VERIO's standard monthly charge for each month remaining in the Term
Commitment.
4. Customer shall at all times adhere to the VERIO Acceptable Use Policy at
http://www.verio.net/isite/policy.html, as amended from time-to-time by VERIO
effective upon posting of the revised policy at the URL. Notwithstanding
anything to the contrary contained herein, VERIO may immediately take
corrective action, including disconnection or discontinuance of any and all
Services, or terminate this Agreement in the event of notice of possible
violation by Customer of the VERIO Acceptable Use Policy.
5. VERIO exercises no control over, and accepts no responsibility for, the
content of the information passing through VERIO's host computers, network
hubs, and points of presence (the "VERIO Network"). VERIO MAKES NO WARRENTIES
OF ANY KIND, EITHER EXPRESSED OR IMPLIED, INCLUDING, BUT NOT LIMITED TO,
WARRANTIES OF MERCHANTIBILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR
NON-INFRINGEMENT FOR THE SERVICES OR ANY EQUIPMENT VERIO PROVIDES. NEITHER
VERIO, ITS EMPLOYEES, AFFILIATES, AGENTS, THIRD-PARTY INFORMATION PROVIDERS,
MERCHANTS, LICENSORS OR THE LIKE, WARRANT THAT THE SERVICES WILL NOT BE
INTERRUPTED ERROR FREE; NOR DO ANY OF THEM MAKE ANY WARRANTY AS TO THE
RESULTS THAT MAY BE OBTAINED FROM THE USE OF THE SERVICES OR AS TO THE
ACCURACY, RELIABILITY OR CONTENT OF ANY INFORMATION SERVICED OR MERCHANDISE
CONTAINED IN OR PROVIDED THROUGH THE SERVICES. VERIO IS NOT LIABLE FOR THE
CONTENT O FANY DATA TRANSFERRED WHETHER TO OR FROM CUSTOMER OR STORED BY
CUSTOMER OR ANY OF ITS CUSTOMERS VIA THE SERVICE(S) PROVIDED BY VERIO.
6. Customer will indemnify, save harmless, and defend VERIO and all
employees, officers, directors and agents of VERIO (collectively "indemnified
parties") from and against any and all claims, damages, losses, liabilities,
suits, actions, demands, proceedings (whether legal or administrative) and
expenses (including but not limited to reasonable attorney's fees)
threatened, asserted, or filed by a third party against any of the
indemnified parties arising out of or relasting to the use of the Services,
including any violation of the VERIO Acceptable Use Policy.
7. IN NO EVENT SHALL VERIO BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL,
OR CONSEQUENTIAL DAMAGES, OR LOSS OF PROFITS, REVENUE, DATA OR USE, BY
CUSTOMER OR ANY THIRD PARTY, WHETHER IN AN ACTION IN CONTRACT OR TORT OR
STRICT LIABILITY OR OTHER LEGAL THEORY, EVEN IF VERIO HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. In no event will VERIO's liability for any
damages, losses and causes of actions whether in contract or tort (including
negligence or otherwise) exceed the actual dollar amount paid by Customer for
the Service which gave rise to such damages, losses and causes of actions
during the 12-month period prior to the date the damage or loss occurred or
the cause of the action arose. VERIO shall not be liable for failure or delay
in performing its obligations hereunder if such failure or delay is due to
circumstances beyond its reasonable control, including, without limitation,
acts of any governmental body, war, insurrection, sabotage, embargo, fire,
flood, strike or other labor disturbance, interruption or delay in
telecommunications services or inability to obtain raw materials, supplies,
or power used in or equipment needed for provision of the Services.
8. The validity, interpretationm enforceability, and performance of this
Agreement shall be governed by and construed in accordance with the laws of
the State of Colorado. This Agreement may not be amended except upon written
consent of the parties; provided that the VERIO Acceptable Use Policy may be
amended form time-to-time by VERIO. No failure to exercise and no delay in
exercising any right, remedy, or power hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, remedy, or
power hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, or power provided herein or by law or in
equity. The waiver by any party of the time for performance of any act or
condition hereunder shall not constitute a waiver of the act or condition
itself. This Agreement shall be binding upon and inure to the benefit of the
parties and successors, and assigns. Customer may not assign this Agreement
without the prior consent of VERIO. If any provision of this Agreement
without the prior written consent of VERIO. If any provision of this Agreement
shall be held by a court of competent jurisdiction to be invalid,
unenforceable, or void, the remainder of this Agreement shall remain in full
force and effect.
* This Agreement supercedes all previous representations, understandings or
agreements and shall prevail notwithstanding any variance with the terms and
conditions of any order submitted. Acceptance of this Agreement by VERIO may be
subject, in VERIO's absolute discretion, to satisfactory completion of a credit
check. Activation of service shall indicate VERIO's acceptance of this
Agreement. Use of the VERIO Network constitutes acceptanxce of this agreement.
<PAGE>
- -------------------------------------------------------------------------------
PROPOSED SOLUTION
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Internet Co-Location Requirements Verio Monthly Recurring Fee
<S> <C>
0 - 20 Mbps $750/Mbps
21 - 30 $700/Mbps
31 - 40 $650/Mbps
Standard 19" rack in cage or cabinets $250/rack
Boca Raton facility, Mountain View, or Los Angeles
</TABLE>
Samples of outbound and inbound traffic are taken on 5-minute intervals over
a 24-hour period. These samples are compiled for the month, and the customer
is billed on the 95th percentile of the highest group of samples (inbound or
outbound). Pricing is based on a one-year contract.
ON-SITE CO-LOCATION FACILITY:
- - IP Addresses
- - Secure Card Key Facility Access 24 x 7
- - Private Cage or Cabinet
- - Primary DNS
- - Back-up diesel generators
- - Back-up Air Conditioning units
- - 24 x 7 Network Operations Center Monitoring and Support and Maintenance
- - System reboots
- - On-site support - menu of services to follow
Agreed
X_________________________________ Date_________________________
Title______________________________
<PAGE>
SERVICE LEVEL AGREEMENT: AVAILABILITY GUARANTEE
Verio guarantees to have the Verio available to the Client for 99.9% of the
time. Verio will credit Client's account if Verio fails to meet this
availability guarantee during any given calendar month. "Network Unavailability"
consists of the number of minutes that the Verio network is not available to the
Client, but does not include unavailability continuing for an hour of less which
Client fails to report to Verio within 3 business days.
Client shall not receive any credit if Network Unavailability is:
(a) caused by Client's applications, equipment or facilities;
(b) caused by negligence, willful misconduct, or the use of the Verio
services in breach of Verio's Terms and Conditions and Acceptable
Use Policy, by Client or others authorized by Client;
(c) due to a failure of power, facilities, equipment, applications,
systems or connections not provided by Verio;
(d) caused by the failure of access circuits to Verio's network, unless
such failure is solely caused by Verio;
(e) a result of scheduled Verio maintenance;
(f) associated with DNS issues outside the direct control of Verio;
(g) a result of other National networks/exchanges that adversely affect
the ability to pass IP traffic on the Internet as a whole; or
(h) for any reason beyond the control of Verio.
In the event that Verio's Network Availability is less than 99.9% uptime in any
calendar month, Verio will provide a credit on its IP charges to Client. For
every hour, or fraction thereof, of Network unavailability as defined above, a
credit for one day's pro-rated service will be applied to the next monthly
invoice. This amount shall not exceed 7 day's credit for any outage(s) during
any single 24-hour period. Total credits for any outage(s) in any calendar month
will not exceed the amount of the client's regular monthly bill for IP services.
LATENCY GUARANTEE
Verio will guarantee the latency for average round-trip transmission times
between Verio designated backbone routers located in California and the East
Coast. "Average Latency" is defined as the average of samples taken between the
specified backbone routers during a calendar month. In the event that the
Average Latency exceeds 100 milliseconds during a calendar month, Verio will
provide a credit on its IP charges for one day's pro-rated service on the next
monthly invoice.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report on ValueClick, Inc., dated May 31, 1999, except for Notes 1 and 12 as
to which the date is October 8, 1999, our report on the ValueClick Line of
Business of Web-Ignite Corporation, dated October 1, 1999, and our report on
ValueClick Japan and its predecessor line of business within Trans-Pacific Ltd.,
dated October 1, 1999, relating to the financial statements which appear in such
Registration Statement. We also consent to the references to us under the
heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Woodland Hills, California
October 8, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,411
<SECURITIES> 0
<RECEIVABLES> 2,576
<ALLOWANCES> (251)
<INVENTORY> 0
<CURRENT-ASSETS> 4,942
<PP&E> 282
<DEPRECIATION> 43
<TOTAL-ASSETS> 5,499
<CURRENT-LIABILITIES> 1,093
<BONDS> 0
3
0
<COMMON> 5
<OTHER-SE> 4,398
<TOTAL-LIABILITY-AND-EQUITY> 5,499
<SALES> 4,867
<TOTAL-REVENUES> 0
<CGS> 2,436
<TOTAL-COSTS> 2,436
<OTHER-EXPENSES> 2,253
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 178
<INCOME-TAX> 216
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (38)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
