<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 24, 1999
REGISTRATION NO. 333-88765
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
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 Organization) Classification Number) Identification Number)
</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:
<TABLE>
<S> <C>
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
</TABLE>
Approximate date of commencement of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
--------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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 PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.001 par value per share 5,750,000 shares(1) $11.00(2) $63,250,000(2) $17,583.50(3)
</TABLE>
(1) Includes 750,000 shares issuable upon exercise of the Underwriters'
over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a).
(3) Of this amount, $15,985 has been previously paid.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 24, 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
5,000,000 SHARES
[LOGO]
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 $9.00 and $11.00 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 340,000
shares from us and up to an additional 410,000 shares from 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>
[INSIDE FRONT COVER WILL CONTAIN A RECENT ADVERTISEMENT USED BY VALUECLICK TO
COMMUNICATE INFORMATION ABOUT ITS PRODUCTS AND SERVICES.]
[FRONT GATE FOLD WILL FOLD OUT. FOLD OUT PAGE WILL CONTAIN A GRAPHIC OF A
FLOWCHART DEPICTING THE VALUECLICK NETWORK.]
<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........... 18
Use of Proceeds...................... 18
Dividend Policy...................... 18
Capitalization....................... 19
Dilution............................. 20
Selected Financial Data.............. 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 24
</TABLE>
<TABLE>
Business............................. 34
Management........................... 44
<CAPTION>
PAGE
----
<S> <C>
Related Party Transactions........... 51
Principal and Selling Stockholders... 53
Description of Capital Stock......... 55
Shares Eligible for Future Sale...... 57
Underwriting......................... 59
Legal Matters........................ 61
Experts.............................. 61
Where You Can Find More Information.. 61
Index to Financial Statements........ F-1
</TABLE>
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 global provider of Internet advertising solutions for
publishers of Web sites and online advertisers. Web publishers provide us with
an inventory of advertising space on their Web sites, which we sell to online
advertisers seeking to market goods and services over the Internet. We focus on
a performance-based advertising model, known as cost-per-click or CPC, in which
an advertiser only pays us when an Internet user clicks on the advertiser's
banner advertisement. This solution provides publishers of Web sites that have
low to moderate rates of traffic with 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.
The markets for Internet advertising and e-commerce transactions have grown
rapidly in recent years. Forrester Research estimates that in 1999, $2.8 billion
will be spent on Internet advertising in the United States, and projects that
this amount will grow to $22.2 billion by 2004, a compound annual growth rate of
57%. 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. 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 strategy is to be the leading provider of
performance-based advertising solutions by taking advantage of our position as a
large 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
- Enhance our technology
- Extend our global presence
- Provide superior customer service
3
<PAGE>
We believe we are a leading aggregator of small- to medium-sized Web sites
based on the number of Web sites within our network. Our network of Web sites,
which consists of independent sites that have agreed to sell us advertising
inventory on a non-exclusive basis, grew over 90% from July 1998 to July 1999,
from approximately 4,200 sites to approximately 8,200 sites, and included over
10,200 Web sites as of October 31, 1999. In October 1999, we delivered over
1.5 billion banner advertisements, and according to Media Metrix, for each month
in the quarter ended September 30, 1999 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.
------------------------
Unless otherwise indicated, all information in this prospectus assumes that:
- the initial public offering price will be $10.00 per share;
- the common stock has been split on a 2.88-for-one basis as the result of
stock splits effective in October 1999 and immediately prior to the
closing of this offering;
- each share of our preferred stock will be converted into 2.88 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.
------------------------
We have registered the trademark "ValueClick" in the European Union and have
applied for registration of the trademark in the United States and Japan. This
prospectus also contains product names, trade names and trademarks that belong
to other organizations.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Total common stock offered................................. 5,000,000 shares
Outstanding common stock after the offering................ 27,366,910 shares
Outstanding common stock owned by our affiliates after
the offering......................................... 15,606,574 shares
Outstanding common stock owned by our non-affiliates
after the offering................................... 11,760,336 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 and assumes
the conversion of our preferred stock into 7,622,744 shares of common stock at
that date. This number does not include 3,952,224 shares subject to outstanding
options under our 1999 Stock Option Plan with a weighted average exercise price
of $0.58 per share and 425,376 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 8 of Notes to Financial
Statements for further information concerning our Stock Option Plan.
5
<PAGE>
SUMMARY CONSOLIDATED 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 PRO FORMA
MAY 1, 1998 COMBINED HISTORICAL NINE MONTHS NINE MONTHS
(INCEPTION) THROUGH NINE MONTHS ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1998(3) 1999 1999(4)
------------------- ------------------- -------------- --------------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues.......................... $2,053 $1,038 $10,593 $11,386
Gross profit...................... 948 610 5,328 5,655
Loss from operations.............. (221) (125) (332) (954)
Net loss.......................... (222) (121) (847) (1,340)
Net loss per common share:
Basic and diluted(1)...... $(0.02) -- $ (0.06) --
Shares used to calculate
basic and diluted(1).... 14,273 -- 13,801 --
Pro forma basic and
diluted net loss per
common share(2)(4)...... -- -- -- $ (0.06)
Shares used in pro forma
basic and diluted net
loss per common share
calculation(2)(4)....... -- -- -- 21,424
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
----------------------------------------
ACTUAL PRO FORMA(2) AS ADJUSTED(5)
-------- ------------ --------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................................. $2,574 $ 2,574 $48,174
Working capital............................................ 4,502 4,502 50,102
Total assets............................................... 11,984 11,984 57,584
Deferred stock compensation................................ (5,918) (5,918) (5,918)
Total stockholders' equity................................. 8,333 8,333 53,933
</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 3,952,224 shares of common stock
nor the vesting of 575,335 restricted shares of common stock as of
September 30, 1999.
(3) Combined historical statement of operations data for the nine months ended
September 30, 1998 reflects the combined historical operating results for
ValueClick for the period May 1, 1998 through September 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 nine months ended
September 30, 1999 reflects the acquisition of a controlling interest in
ValueClick Japan on August 6, 1999 for 460,800 shares of common stock.
(5) As adjusted to reflect the sale of 5,000,000 shares of common stock offered
by us at an assumed initial public offering price of $10.00 per common share
after deducting the underwriting discounts and estimated offering expenses
payable by ValueClick. See "Use of Proceeds" on page 18 for more information
on our intended use of proceeds from this offering and "Capitalization" on
page 19 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
IF BANNER ADVERTISING ON THE INTERNET LOSES ITS APPEAL TO DIRECT MARKETING
COMPANIES, OUR REVENUES COULD DECLINE.
We currently derive all of our revenues by delivering banner advertisements
that generate clicks to our advertisers' Web sites. 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, we may experience difficulty in attracting publishers
and advertisers, and our revenues could decline.
IF OUR BUSINESS MODEL IS NOT ACCEPTED BY INTERNET ADVERTISERS OR WEB PUBLISHERS,
OUR REVENUES COULD DECLINE.
We conduct 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.
One 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.
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
7
<PAGE>
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 REVENUES COULD DECLINE IF WE FAIL TO EFFECTIVELY MANAGE OUR EXISTING
ADVERTISING SPACE AND OUR GROWTH COULD BE IMPEDED IF WE FAIL TO ACQUIRE 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 long-term 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 in order to meet our
customers' changing requirements, our revenues could decline.
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 will increase or even remain constant in the
future.
WE MAY FACE INTELLECTUAL PROPERTY DISPUTES THAT ARE COSTLY OR COULD HINDER OR
PREVENT OUR ABILITY TO DELIVER ADVERTISEMENTS OVER THE INTERNET.
We may be subject to disputes and legal actions alleging intellectual
property infringement, unfair competition or similar claims against us. 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;
accordingly, we may be sued by DoubleClick for infringement. 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 or lose
our ability to use our technology or may be required to pay DoubleClick for a
license of its technology. Furthermore, other companies, such as 24/7 Media, may
have or may in the future be granted patents that cover aspects of our
technology or our business. We cannot assure you that we could enter into
licensing agreements with DoubleClick or other companies on commercially
reasonable terms, if at all.
DoubleClick recently filed a lawsuit against L90, Inc., a company in our
industry that offers Internet advertising services. DoubleClick alleges that L90
is infringing its patent and seeks a preliminary and permanent injunction from
further alleged infringement, treble damages in an unspecified amount, and
attorneys' fees and costs. We cannot assure you that we will not be similarly
8
<PAGE>
sued by DoubleClick. 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.
See "Business--Intellectual Property Rights" for more information regarding
our intellectual property.
IF WE FAIL TO KEEP PACE WITH RAPIDLY CHANGING TECHNOLOGIES, WE COULD LOSE
CUSTOMERS OR ADVERTISING INVENTORY.
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
adapt successfully to developments such as these, we could lose customers or
advertising inventory.
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 solution or enhancement 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 expenses could increase, and we could lose customers or advertising
inventory.
IF THE USE OF THE TECHNOLOGY WE CURRENTLY USE TO TARGET THE DELIVERY OF BANNERS
AND TO PREVENT FRAUD ON OUR NETWORK IS RESTRICTED OR BECOMES SUBJECT TO
REGULATION, OUR EXPENSES COULD INCREASE AND WE COULD LOSE CUSTOMERS OR
ADVERTISING INVENTORY.
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.
9
<PAGE>
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 losing customers or
advertising inventory, 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.
IF WE FAIL TO COMPETE EFFECTIVELY AGAINST OTHER INTERNET ADVERTISING COMPANIES,
WE COULD LOSE CUSTOMERS OR ADVERTISING INVENTORY AND OUR REVENUES COULD
DECLINE.
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:
- 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. If we fail to compete successfully, we
could lose customers or advertising inventory and our revenues could decline.
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<PAGE>
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 could divert management's
time and attention, increase our expenses and adversely affect our ability to
manage our business efficiently. The inability of our management to respond
quickly in the rapidly evolving Internet advertising market could cause us to
lose customers or advertising inventory.
WE DEPEND ON KEY PERSONNEL, THE LOSS OF WHOM COULD HARM OUR BUSINESS.
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 divert management's time and attention, increase
our expenses and adversely affect our ability to conduct our business
efficiently. 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.
OUR OFFICERS AND DIRECTORS WILL HAVE SUBSTANTIAL INFLUENCE OVER OUR OPERATIONS,
CAN SIGNIFICANTLY INFLUENCE ALL MATTERS REQUIRING STOCKHOLDER APPROVAL AND MAY
HAVE INTERESTS THAT ARE DIFFERENT FROM, OR IN ADDITION TO, YOUR INTERESTS.
We anticipate that our executive officers and directors will beneficially
own approximately 50% of our common stock following the completion of this
offering, or 48% 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, WHICH COULD CAUSE US
TO LOSE CUSTOMERS OR ADVERTISING INVENTORY.
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
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<PAGE>
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 revenues could decline. 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 REVENUES.
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 revenues.
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
12
<PAGE>
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 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.
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<PAGE>
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 cash flows. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for more detailed information.
IF WE FAIL TO MANAGE OUR GROWTH EFFECTIVELY, OUR EXPENSES COULD INCREASE AND OUR
MANAGEMENT'S TIME AND ATTENTION COULD BE DIVERTED.
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
increase our expenses and divert management's time and attention.
IF WE DO NOT SUCCESSFULLY DEVELOP OUR INTERNATIONAL STRATEGY, OUR REVENUES AND
CASH FLOWS AND THE GROWTH OF OUR BUSINESS COULD BE HARMED.
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 nine months ended
September 30, 1999, international sales represented 7% 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;
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<PAGE>
- 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.
RISKS RELATED TO OUR INDUSTRY
OUR REVENUE GROWTH DEPENDS 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 revenues could be materially and adversely affected.
OUR LONG-TERM SUCCESS MAY DEPEND ON THE DEVELOPMENT OF E-COMMERCE BECAUSE MANY
OF OUR CUSTOMERS' ADVERTISEMENTS RELATE TO ONLINE PURCHASING.
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
15
<PAGE>
generally, any of which could cause us to lose customers and advertising
inventory and could materially, adversely effect our revenues.
INCREASED GOVERNMENT REGULATION COULD DECREASE DEMAND FOR OUR SERVICES AND
INCREASE OUR COSTS OF DOING BUSINESS.
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, 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 WHICH
COULD INCREASE OUR EXPENSES.
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.
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 27,366,910 shares of common stock
outstanding. Of these shares, the 5,000,000 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
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<PAGE>
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 5,760,000 shares of common stock reserved for issuance under the 1999
Stock Option Plan. As of September 30, 1999, options to purchase 3,952,224
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 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.
DELAWARE LAW CONTAINS ANTI-TAKEOVER PROVISIONS THAT COULD DETER TAKEOVER
ATTEMPTS, EVEN IF SUCH TRANSACTIONS WOULD BE BENEFICIAL TO OUR STOCKHOLDERS.
Provisions of 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" for more detailed
information.
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<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 independently verified 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 5,000,000 shares being offered
by us at an assumed initial public offering price of $10.00 per share, after
deducting estimated underwriting discounts and commissions and estimated
offering expenses, are estimated to be $45.6 million, or $48.8 million 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 and
international expansions. As of the date of this prospectus, we have not
allocated any specific amount of proceeds for these purposes. However, we
presently anticipate that we will spend between $10 million and $15 million in
sales and marketing expenses during the year ending December 31, 2000 to promote
our brand and attract Web publishers and Internet advertisers. We further
anticipate that we will spend between $5 million and $8 million on capital
expenditures associated with technology and system upgrades. We anticipate that
we will spend between $10 million and $15 million on international expansions.
The remainder of the net proceeds will be used for general corporate purposes
and working capital. This allocation is only an estimate and we will have broad
discretion to adjust it as necessary to address our operational needs in the
future. For instance, we may also use a portion of the net proceeds to acquire
complementary technologies or businesses. However, we currently have no
commitments or agreements and are not involved in any negotiations with respect
to any such transactions. 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. Our loan agreement with Silicon Valley Bank prohibits us from
paying cash dividends without the bank's consent.
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of September 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 $10.00 per common share. The table does not include
outstanding options to acquire 3,952,224 shares of common stock as of
September 30, 1999 with a weighted average exercise price of $0.58 per share.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
---------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
-------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents.................................. $ 2,574 $ 2,574 $48,174
======= ======= =======
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; 14,744,166 shares issued and outstanding,
actual; 22,366,910 shares issued and outstanding, pro
forma; 27,366,910 shares issued and outstanding, pro
forma as adjusted...................................... 15 22 27
Deferred stock compensation................................ (5,918) (5,918) (5,918)
Additional paid in capital................................. 15,030 15,025 60,620
Cumulative foreign currency translation adjustments........ 50 50 50
Accumulated deficit........................................ (846) (846) (846)
------- ------- -------
Total stockholders' equity............................... 8,333 8,333 53,933
------- ------- -------
Total capitalization................................. $ 8,333 $ 8,333 $53,933
======= ======= =======
</TABLE>
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DILUTION
Our pro forma net tangible book value as of September 30, 1999 was
approximately $4.8 million or $0.22 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 as of September 30, 1999 after giving effect to the
automatic conversion of all outstanding shares of preferred stock upon the
closing of this offering. After giving effect to the sale of the shares of
common stock offered by us at an assumed initial public offering price of $10.00
per common share after deducting estimated underwriting discounts and
commissions and estimated offering expenses, our pro forma net tangible book
value as of September 30, 1999 would have been $1.84 per share of common stock.
This represents an immediate increase in net tangible book value of $1.62 per
common share to existing stockholders and an immediate dilution of $8.16 per
share to new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $10.00
Pro forma net tangible book value per share before the
offering................................................ $0.22
Increase attributable to new investors.................... 1.62
-----
Pro forma net tangible book value after the offering........ 1.84
------
Dilution per share to new investors......................... $ 8.16
======
</TABLE>
The following table summarizes on a pro forma basis, as of September 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)........ 22,366,910 81.7% $ 7,816,120 13.5% $ 0.35
New investors.................... 5,000,000 18.3 50,000,000 86.5 $10.00
---------- ---- ----------- ----
Totals....................... 27,366,910 100% $57,816,120 100% $ 2.11
========== ==== =========== ====
</TABLE>
The foregoing table assumes no exercise of the underwriters' over-allotment
option or issuance of shares underlying outstanding options. As of
September 30, 1999, options to purchase 3,952,224 shares of common stock were
outstanding at a weighted average exercise price of $0.58 per share. To the
extent that these options are exercised, new investors will experience further
dilution. See "Description of Capital Stock" on page 55 and Notes 1 and 8 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 21,956,910 or approximately
80% of total shares of common stock outstanding after this offering.
20
<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 September 30, 1999 and the selected statement of operations
data for the nine months ended September 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 nine months
ended September 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 September 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 nine months ended September 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 September 30, 1999 and the
pro forma selected statement of operations data for the nine months ended
September 30, 1999 have been derived from the unaudited pro forma condensed
consolidated financial statements appearing elsewhere in this prospectus.
21
<PAGE>
STATEMENT OF OPERATIONS DATA:
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
VALUECLICK LINE OF BUSINESS OF
WEB-IGNITE CORPORATION VALUECLICK, INC.
------------------------------- ---------------------------------
PERIOD FROM
PERIOD FROM MAY 1, 1998
JULY 1, 1997 FOUR MONTHS (INCEPTION) NINE MONTHS
THROUGH ENDED THROUGH ENDED
DECEMBER 31, APRIL 30, DECEMBER 31, SEPTEMBER 30,
1997 1998 1998 1999
------------- --------------- ------------- -----------------
<S> <C> <C> <C> <C>
Revenues........................................ $ 122 $ 253 $ 2,053 $ 10,593
Cost of revenues................................ 37 88 1,105 5,265
-------- -------- -------- --------
Gross profit.................................... 85 165 948 5,328
Operating expenses:
Sales and marketing........................... -- -- 516 1,467
General and administrative.................... 116 134 404 2,079
Technology enhancements....................... -- -- 155 587
Stock-based compensation...................... -- -- 61 1,341
Amortization of intangibles and acquired
software.................................... -- -- 33 186
-------- -------- -------- --------
Total operating expenses........................ 116 134 1,169 5,660
-------- -------- -------- --------
(Loss) income from operations................... (31) 31 (221) (332)
Equity in loss of ValueClick Japan.............. -- -- (9) (64)
Interest and other income, net.................. -- -- 8 38
-------- -------- -------- --------
(Loss) income before income taxes and minority
interest...................................... (31) 31 (222) (358)
Provision for income taxes...................... -- -- -- 517
-------- -------- -------- --------
Net (loss) income before minority interest...... (31) 31 (222) (875)
Minority interest............................... -- -- -- 28
-------- -------- -------- --------
Net (loss) income............................... $ (31) $ 31 $ (222) $ (847)
======== ======== ======== ========
Net loss per share:
Basic and diluted net loss per common
share(1).................................. -- -- $ (0.02) $ (0.06)
Shares used to calculate basic and diluted
net loss per share(1)..................... -- -- 14,273 13,801
</TABLE>
22
<PAGE>
STATEMENT OF OPERATIONS DATA:
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMBINED HISTORICAL(3) PRO FORMA
------------------------------ -----------------
TWELVE
NINE MONTHS MONTHS NINE MONTHS
ENDED ENDED ENDED
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1998 1998 1999
-------------- ------------- -----------------
<S> <C> <C> <C>
Revenues.................................................... $ 1,038 $ 2,306 $ 11,386
Cost of revenues............................................ 428 1,193 5,731
-------- -------- --------
Gross profit................................................ 610 1,113 5,655
Operating expenses:
Sales and marketing....................................... 233 516 1,637
General and administrative................................ 336 538 2,439
Technology enhancements................................... 85 155 587
Stock-based compensation.................................. 61 61 1,341
Amortization of intangibles and acquired software......... 20 33 605
-------- -------- --------
Total operating expenses.................................... 735 1,303 6,609
-------- -------- --------
Loss from operations........................................ (125) (190) (954)
Equity in loss of ValueClick Japan.......................... -- (9) --
Interest and income, net.................................... 4 8 38
-------- -------- --------
Loss before income taxes and minority interest.............. (121) (191) (916)
Provision for income taxes.................................. -- -- 517
-------- -------- --------
Net loss before minority interest........................... (121) (191) (1,433)
Other minority interest..................................... -- -- 93
-------- -------- --------
Net loss.................................................... $ (121) $ (191) $ (1,340)
======== ======== ========
Net loss per share:
Basic and diluted net loss per common share(1).......... -- -- --
Shares used to calculate basic and diluted net loss per
share(1).............................................. -- -- --
Pro forma basic and diluted net loss per common
share(2).............................................. -- -- $ (0.06)
Shares used in pro forma basic and diluted net loss per
common share(2)....................................... -- -- 21,424
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, 1998 SEPTEMBER 30, 1999
BALANCE SHEET DATA: ------------------ -------------------
<S> <C> <C>
Cash and cash equivalents................................. $ 262 $ 2,574
Working capital........................................... 454 4,502
Total assets.............................................. 1,323 11,984
Deferred stock compensation............................... -- (5,918)
Total stockholders' equity................................ 765 8,333
</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 automatic conversion of all issued and
outstanding shares of preferred stock into 7,622,744 shares of common stock,
but not giving effect to the exercise of outstanding options to purchase
3,952,224 shares of common stock nor the vesting of 575,335 restricted
shares of common stock as of September 30, 1999.
3. The combined historical statement of operations for the nine months ended
September 30, 1998 reflects the combined results of our operations for the
period from May 1, 1998 through September 30, 1998 and the ValueClick line
of business of Web-Ignite for the four months ended April 30, 1998.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND OUR
RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH "SELECTED FINANCIAL
DATA" AND OUR 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. We provide our advertising customers,
primarily e-commerce and direct marketing companies, an Internet advertising
alternative to the cost-per-thousand-impressions, or CPM, model, in which
advertisers pay whenever their banner ads are displayed. Our solution provides
publishers of over 10,200 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.
See "Related Party Transactions" for more detailed information.
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, all of our
revenues are derived from banner 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. Revenues are
recognized in the month that clicks on delivered banner 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 a
guaranteed minimum number of clicks. 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 34% of our revenues for the nine months ended September 30, 1999. One
advertiser, Microsoft, accounted for 23% of our revenues for the period from
May 1, 1998 (inception) through December 31, 1998. For the nine months ended
September 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.
24
<PAGE>
VALUECLICK JAPAN
In January 1999, we entered into a license agreement with ValueClick Japan.
Under this agreement, we granted ValueClick Japan an exclusive 10-year license
to use our trademarks, copyrights and ad tracking and serving technology in
connection with the delivery of advertisements to Japanese language Web sites in
Japan. In exchange for this license, ValueClick Japan pays us a monthly fee
equal to the greater of $3,500 or 10% of the net revenue of ValueClick Japan for
that month. In addition, ValueClick Japan has granted us an option to acquire
all the outstanding shares of ValueClick Japan in exchange for an amount of our
common stock. We may only exercise this option upon the occurrence of a major
transaction, including a sale of substantially all of our assets, a merger
involving us or the completion of a public offering of our stock. The amount of
our common stock exchanged will be determined based on the valuation of
ValueClick Japan using the same methodology used to determine our valuation in
the applicable major transaction. Under this arrangement, the valuation of
ValueClick Japan will in no event be less than two times its annual revenue plus
(minus) 10 times its net profit (loss) for that year.
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 460,800 shares of our common stock valued at $7.65 per share, giving us a
54% controlling ownership interest in ValueClick Japan. The acquisition was
accounted for using the purchase method. The purchase price was 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 was recorded at the historical cost basis of the minority
stockholders. The preliminary purchase price allocation indicates additional
intangible assets, principally comprised of goodwill, totaling $3.6 million,
which will be amortized on a straight-line basis over an estimated life of five
years.
See "Unaudited Pro Forma Condensed Consolidated Financial Statements" on
pages F-20 through F-23 for more information on the consolidation of ValueClick
Japan with our domestic operations.
25
<PAGE>
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
(INCEPTION) HISTORICAL(1) NINE MONTHS
THROUGH ------------------- ENDED
DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
1998 SEPTEMBER 30, 1998 1999
------------- ------------------- --------------
<S> <C> <C> <C>
Revenues...................................... 100% 100% 100%
Costs of revenues............................. 54 41 50
--- ---- ---
Gross profit.................................. 46 59 50
Operating expenses:
Sales and marketing......................... 25 23 14
General and administrative.................. 20 32 20
Technology enhancements..................... 8 8 5
Stock-based compensation.................... 3 6 13
Amortization of intangibles and acquired
software.................................. 1 2 1
--- ---- ---
Total operating expenses.................... 57 71 53
--- ---- ---
Loss from operations.......................... (11) (12) (3)
Equity in loss of ValueClick Japan............ -- -- --
Interest income, net.......................... -- -- --
--- ---- ---
Loss before income taxes and minority
interest.................................... (11) (12) (3)
Provision for income taxes.................... -- -- (5)
--- ---- ---
Net loss before minority interest............. (11) (12) (8)
Minority interest............................. -- -- --
Net loss...................................... (11)% (12)% (8)%
=== ==== ===
</TABLE>
- ------------------------------
(1) The combined historical statement of operations for the nine months ended
September 30, 1998 reflects the combined results of our operations for the
period from May 1, 1998 through September 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 each
advertiser an amount based on the number of times consumers click on the
advertiser's banner ad. The ValueClick line of business of Web-Ignite
Corporation had revenues of $122,000 for the period of July 1, 1997 (inception
of line of business) through December 31, 1997 and revenues of $253,000 for the
four months ended April 30, 1998. We had revenues of $2.1 million for the period
from May 1, 1998 (inception) through December 31, 1998. Our revenues were
$10.6 million for the nine months ended September 30, 1999 as compared to $1.0
million for the combined historical nine months ended September 30, 1998. The
increase in revenues over these periods was due to the growth of the ValueClick
network and our ability to serve a larger advertiser customer base.
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
26
<PAGE>
advertising delivery system and Internet access costs. The ValueClick line of
business of Web-Ignite Corporation had cost of revenues of $37,000 for the
period of July 1, 1997 (inception of line of business) through December 31, 1997
and a cost of revenues of $88,000 for the four months ended April 30, 1998. Our
cost of revenues was $1.1 million for the period from May 1, 1998 (inception)
through December 31, 1998. For the nine months ended September 30, 1999 our cost
of revenues was $5.3 million compared to $428,000 for the combined historical
nine months ended September 30, 1998. The increase in cost of revenues over
these periods 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 nine months ended
September 30, 1999 our sales and marketing expenses were $1.5 million compared
to $233,000 for the combined historical nine months ended September 30, 1998. Of
the $1.3 million increase in sales and marketing expense, $455,000 was due to
the addition of nine sales and marketing personnel, and the remainder was due to
increased advertising, public relations and other sales and marketing
activities. 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. The ValueClick line of business of Web-Ignite
Corporation had general and administrative expenses of $116,000 for the period
from July 1, 1997 (inception of line of business) through December 31, 1997 and
general and administrative expenses of $134,000 for the four months ended
April 30, 1998. We had general and administrative expenses of $404,000 for the
period from May 1, 1998 (inception) through December 31, 1998. For the nine
months ended September 30, 1999 we had general and administrative expenses of
$2.1 million compared to $336,000 for the combined historical nine months ended
September 30, 1998. The $1.8 million increase in the comparable period in 1999
was primarily attributable to the addition of 14 executive and administrative
employees, which accounted for $900,000 of this increase. In addition, we
increased our allowance for doubtful accounts by approximately $500,000 as a
result of the significant growth in the business and accounts receivables. We
also have 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 nine months ended September 30, 1999, we had
technology enhancement expenses of $587,000 compared to $85,000 on a combined
historical basis for the nine months ended September 30, 1998. The increase was
primarily attributable to the hiring of five additional 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.
27
<PAGE>
STOCK-BASED COMPENSATION
In connection with the grant of stock options to employees and the
imposition of restrictions on common shares held by certain founding employees
during the nine months ended September 30, 1999, we recorded total deferred
compensation of $7.3 million. This deferred compensation represented the
difference between the deemed fair value of our common stock for accounting
purposes and the exercise price of these options or the purchase price of these
restricted shares at the date of grant, resulting in an expense charge of
$1.3 million for the nine months ended September 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 and
restricted shares granted as of September 30, 1999 is estimated to be $2.4
million for the year ending December 31, 1999, $2.9 million for the year ending
December 31, 2000, $1.3 million for the year ending December 31, 2001, $532,000
for the year ending December 31, 2002, and $134,000 for the year ending
December 31, 2003. In addition, employees have options that have accelerated
vesting upon a change of control of ValueClick, 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.
AMORTIZATION OF INTANGIBLES AND ACQUIRED SOFTWARE
Amortization of intangibles and acquired software represents principally the
amortization of acquired software purchased from a founding stockholder in May
1998 and amortization created as a result of the acquisition of majority control
of ValueClick Japan in August 1999.
EQUITY IN LOSS OF VALUECLICK JAPAN
Equity in loss of ValueClick Japan increased to $64,000 for the nine months
ended September 30, 1998 primarily as a result of the growth in the ValueClick
Japan business, which has operating losses for 1999.
INTEREST AND OTHER INCOME (EXPENSE), NET
Interest and other income principally consists of interest earned on our
cash and cash equivalents and is net 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 $35,000 for the nine months ended
September 30, 1999. Interest expense was $0 for the period from May 1, 1998
(inception) through December 31, 1998 and $1,500 for the nine months ended
September 30, 1999. No interest expense was incurred for the combined historical
nine months ended September 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 nine months ended September 30, 1999, our provision for Federal
and state income taxes amounted to $517,000. No provision has been recorded for
the combined historical nine months ended
28
<PAGE>
September 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 each of the quarters of 1998 and the
first three 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
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, JUNE 30, SEPT. 30,
1998 1998 1998 1998 1998 1999 1999 1999
--------- -------- ----------- ------------ -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................... $207 $ 243 $ 197 $ 588 $1,268 $1,968 $2,899 $5,726
Cost of revenues........... 74 107 93 247 765 1,087 1,348 2,830
---- ----- ----- ----- ------ ------ ------ ------
Gross profit............... 133 136 104 341 503 881 1,551 2,896
---- ----- ----- ----- ------ ------ ------ ------
Operating expenses:
Sales and marketing...... -- 55 55 178 283 257 391 819
General and
administrative......... 101 108 75 127 202 342 612 1,125
Technology
enhancements........... -- 15 15 70 70 108 213 266
Stock-based
compensation........... -- 61 61 -- -- 33 408 900
Amortization of
intangibles and
acquired software...... -- 7 7 13 13 13 13 160
---- ----- ----- ----- ------ ------ ------ ------
Total operating
expenses............. 101 246 213 388 568 753 1,637 3,270
---- ----- ----- ----- ------ ------ ------ ------
Income (loss) from
operations............... 32 (110) (109) (47) (65) 128 (86) (374)
Equity in losses of
ValueClick Japan......... -- -- -- -- (9) (42) (10) (12)
Interest income, net....... -- 1 1 3 4 5 14 19
---- ----- ----- ----- ------ ------ ------ ------
Income (loss) before income
taxes.................... 32 (109) (108) (44) (70) 91 (82) (367)
Provision for income
taxes.................... -- -- -- -- -- (62) (154) (301)
---- ----- ----- ----- ------ ------ ------ ------
Net income (loss) before
minority interest........ $ 32 $(109) $(108) $ (44) $ (70) $ 29 $ (236) $ (668)
==== ----- ----- ----- ------ ------ ------
Minority interest.......... -- -- -- -- -- -- -- 28
---- ----- ----- ----- ------ ------ ------ ------
Net income (loss).......... $ 32 $(109) $(108) $ (44) $ (70) $ 29 $ (236) $ (640)
==== ===== ===== ===== ====== ====== ====== ======
</TABLE>
29
<PAGE>
<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, JUNE 30, SEPT. 30,
1998 1998 1998 1998 1998 1999 1999 1999
--------- -------- ----------- ------------ -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
As a Percentage of Revenues:
Revenues................... 100% 100% 100% 100% 100% 100% 100% 100%
Cost of revenues........... 36 44 47 42 60 55 46 49
----- ----- ----- ----- ----- ----- ----- -----
Gross profit............... 64 56 53 58 40 45 54 51
----- ----- ----- ----- ----- ----- ----- -----
Operating expenses:
Sales and marketing...... -- 23 28 30 22 13 14 14
General and
administrative......... 49 44 38 22 16 17 21 20
Technology
enhancements........... -- 6 8 12 6 5 7 5
Stock-based
compensation........... -- 25 31 -- -- 2 14 16
Amortization of
intangibles and
acquired software...... -- 3 4 2 1 1 1 3
----- ----- ----- ----- ----- ----- ----- -----
Total operating
expenses............. 49 101 108 66 45 38 57 58
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) from
operations............... 15 (45) (56) (8) (5) 7 (3) (7)
Equity in losses of
ValueClick Japan......... -- -- -- -- (1) (2) (1) 0
Interest income, net....... -- -- 1 1 -- -- 1 0
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) before income
taxes.................... 15 (45) (55) (7) (6) 5 (3) (7)
Provision for income
taxes.................... -- -- -- -- -- (3) (5) (5)
----- ----- ----- ----- ----- ----- ----- -----
Net income (loss) before
minority interest........ 15 (45) (55) (7) (6) 2 (8) (12)
Minority interest.......... -- -- -- -- -- -- -- 1
----- ----- ----- ----- ----- ----- ----- -----
Net income (loss).......... 15% (45)% (55)% (7)% (6)% 2% (8)% (11)%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
Our revenues increased in each quarter presented due to an average 76%
quarter to quarter increase in the number of advertisements delivered on the
ValueClick network. Cost of revenues as a percentage of revenues decreased in
the first and second quarters of 1999 due to a greater increase in the average
cost-per-click charged to advertisers than the cost-per-click paid to Web sites.
Cost of revenues as a percentage of revenue increased in the third quarter of
1999 due to the consolidation of ValueClick Japan's operations with our domestic
operations. 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 and third quarters 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 September 30, 1999. Net cash
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used in operating activities was $623,000 for the nine months ended
September 30, 1999, which resulted principally from increases in accounts
receivable of $4.1 million partially offset by net income and increases in
income taxes payable and deferred revenue.
At December 31, 1998 and at September 30, 1999, we had no known material
commitments for capital expenditures.
Net cash provided by financing activities during the nine months ended
September 30, 1999 represented the net proceeds from the sale of our Series C
preferred stock for $3.5 million.
On October 21, 1999 we executed a loan and security agreement with Silicon
Valley Bank for a $2.5 million revolving credit line. Interest on the
outstanding balances accrues at an annual rate of one percentage point above the
bank's prime rate. The credit facility contains provisions requiring us to meet
specified financial ratios and net worth tests on a monthly basis, and expires
on the first anniversary of the agreement. As of November 15, 1999 we have not
borrowed against this credit line.
Net cash used in investing activities for the nine months ended
September 30, 1999 was $393,000 representing an additional equity investment of
$263,000 in ValueClick Japan offset by $413,000 of acquired cash, $99,000 in
equity investments in ValueClick Europe and the purchase of $443,000 of fixed
assets.
We believe that our existing cash and cash equivalents, our available bank
credit and the 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.
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.
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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 inquired as to the Year 2000 readiness of our co-location providers
and the major vendors of the hardware and software we use in our business. Based
on the results of these inquiries and based on our own internal testing of the
third party hardware and software we use, we believe that our co-location
providers and major vendors are Year 2000 compliant. We have tested and continue
to test our internal computer systems to simulate Year 2000 conditions. These
tests have, at this time, indicated that all of our major vendors are Year 2000
compliant. If any vendor was not compliant, we would either alert the vendor and
request that the non-compliant software or hardware be remedied, develop an
internal solution or replace the vendor with a Year 2000 compliant vendor. 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. We have not contacted any
advertisers or publishers of Web sites concerning their Year 2000 compliance. In
addition, we have not contacted any utilities, telecommunications providers or
financial institutions regarding their Year 2000 compliance.
COSTS TO ADDRESS OUR YEAR 2000 COMPLIANCE. We estimate that total costs for
the Year 2000 compliance assessment and remediation will not exceed $150,000. We
believe that these compliance costs will be paid through our working capital. 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.
We depend on the uninterrupted availability of the Internet infrastructure
and the operations of our network of Web sites to conduct our business as an
advertising network. We are heavily dependent upon the success of Year 2000
compliance efforts of the many service providers that support the Internet.
Interruptions in the Internet infrastructure affecting us or our network of Web
sites could severely affect our ability to generate revenue.
CONTINGENCY PLAN. We have completed the development of our contingency plan
to deal with Year 2000 problems. All of our technology departments will be on
standby alert on December 31, 1999 and January 1, 2000. A senior technical
employee from each area of technology will monitor our information technology
systems at that time. If these 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.
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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 investment in ValueClick Japan, including the additional 22% controlling
interest we acquired in August 1999, 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 the amount of ValueClick Japan's assets
which totaled $1.2 million at September 30, 1999. 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.
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BUSINESS
OVERVIEW
ValueClick is a 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 the advertiser's banner
advertisement. We provide advertisers a low-risk solution since they do not pay
us for advertisements which do not result in action by Internet users. This
solution also 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, based on
the number of Web sites within our network, we provide our advertising
customers, primarily direct marketing and e-commerce companies, a more
cost-effective Internet advertising solution than purchasing advertising space
directly from individual Web publishers. In October 1999, we delivered in excess
of 1.5 billion Web advertisements and as of October 31, 1999, our network
consisted of more than 10,200 Web sites. According to Media Metrix, for each of
the months in the quarter ended September 30, 1999, we reached approximately
one-quarter of all Internet users.
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 1999, $2.8 billion will be spent on
Internet advertising in the United States, and projects that this amount will
grow to $22.2 billion by 2004, a compound annual growth rate of 57%.
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 growth rate of these markets may differ from the growth
rate of ValueClick.
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.
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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
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. High-traffic Web sites
typically charge high CPM rates for their premium advertising space. At
these premium prices, insufficient demand, coupled with controlled
distribution, results in large amounts of unsold inventory on these Web
sites. This unsold inventory represents an incremental revenue opportunity
for these publishers, provided the solution does not conflict with their
underlying CPM pricing strategy, which seeks to maximize the rate card for
premium inventory.
- 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, which may otherwise have
been ignored by many CPM-based advertisers, to join the ValueClick network. We
have also developed an effective publisher referral program that facilitates
growth and retention of publishers. By aggregating this underutilized inventory
of advertising space, we have developed a low cost solution for advertisers who
want 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 10,200 Web sites as of October 31,
1999. In October 1999, we delivered over 1.5 billion banner advertisements and
registered over 6.2 million clicks.
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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 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 advertisers.
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 the ValueClick solution, Web publishers have an opportunity
to sell a significant portion of their unsold inventory to response-oriented
advertisers under the ValueClick brand name. This protects the value of the Web
site's brand name and therefore does not jeopardize the Web site's published CPM
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.
A LEADING AGGREGATOR OF SMALL- TO MEDIUM-SIZED WEB SITES
We are a leading aggregator of small- to medium-sized Web sites, with over
10,200 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 taking advantage of our position as a large aggregator of
advertising inventory of small- to medium-sized Web
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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 a 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 network that, in October 1999, included
over 10,200 Web sites and a volume of advertising inventory that exceeded
1.5 billion banners served. Through these 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.
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.
ENHANCE OUR TECHNOLOGY
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 153
million banner ads and registered over 671,000 clicks in October 1999. In the
same month, we organized our operations in London and we are planning to offer
services throughout continental Europe. We believe that the ability of our
technology and business model to accommodate increased levels of demand 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
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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.
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. Web sites are selected based on
traffic and quality standards. Web sites with their own domain name must have a
minimum of 15,000 impressions per month. Web sites without their own domain name
require 50,000 impressions per month to qualify for selection. Web sites must
contain an adequate number of pages and are also evaluated for design and
content quality. We reject Web sites which contain restricted content such as
profanity, hate speech, pornography or any illegal activity. 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.
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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.
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, which are clicks intentionally
made to inflate the number of clicks and incur additional revenue for the host
Web site, on our advertisers' banner ads. Our system incorporates
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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. If fraudulent
clicking activity is detected, the Web site publisher is terminated from the
network and no payment is made for the fraudulent clicks.
OPERATING AGREEMENTS
WEB PUBLISHER AGREEMENT PROCEDURE
We enter into contracts with each of the Web publishers on our network. Our
contracts may be cancelled immediately by either party at any time without
notification. Web publishers are paid within ten days of the end of each month
based on the total number of clicks on advertisements served on their Web sites
for that particular month. The amount paid per click depends on the Web
publisher's traffic level for that month. We may deactivate a Web publisher's
account on our network at any time for activity or content deemed inappropriate.
We also have reserved the right to withhold payment to any Web publisher whose
Web site exhibits patterns of clicks that we deem questionable.
ADVERTISER AGREEMENT PROCEDURE
Advertisers desiring to advertise on our network of Web publishers enter
into short term contracts, or insertion orders, with us for each advertising
campaign they wish to run. The term of each insertion order is limited to the
length of the advertising campaign. We may reject, discontinue or omit any
advertisement that does not meet our standards. We may also remove any
advertisement for any reason upon written notice to the advertiser. Each
advertiser pays us only if Web users click on their advertisements.
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. We believe that there is a 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 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 "Related Party Transactions."
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 the ability to increase
our capacity without increasing our costs. We use dual processor systems running
the FreeBSD operating system. Our applications are developed primarily in Perl,
a widely used software development language, and are served on Apache servers.
We maintain tolerance and performance objectives for banner delivery response
time from our network. To
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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.
We have agreements with SoftAware, Inc. and Verio to provide us with access
to the Internet at our data centers located in Los Angeles and Boca Raton,
respectively. The monthly service fees under our agreements with SoftAware and
Verio are $13,000 and $16,000, respectively. The SoftAware agreement expires in
October 2000 and is subject to automatic one year renewals until terminated by
either party with 30 days prior written notice. SoftAware may also discontinue
service at its discretion for a breach of the agreement. The Verio agreement
expires in June 2000 and is subject to automatic monthly renewals unless
terminated by us with 90 days written notice. We believe that our existing
agreements with our data centers are more than adequate for our current
operations, and that suitable replacement of and additional capacity at these
data centers will be available in the future in commercially reasonable terms.
SALES, MARKETING AND CUSTOMER SERVICE
We market our products and services primarily through direct marketing,
print advertising and online advertising throughout the year. We also market
them through 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.
Each of our account executives assists the advertisers he or she services,
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.
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.
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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 Internet advertising networks that also use a
performance-based model, such as TeknoSurf and ClickAgents. Based on
publicly-available information, we believe that we are larger than TeknoSurf in
terms of revenue and larger than ClickAgents in terms of banners served. We also
compete with other Internet advertising networks that focus on the traditional
CPM model, including DoubleClick, 24/7 Media and Flycast. Unlike us, these
companies primarily deal with publishers of large Web sites and advertisers
seeking increased brand recognition. These companies have longer operating
histories, greater name recognition and have greater financial and marketing
resources than we do.
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 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 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
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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
may limit or terminate our ability to use our technology, we may be sued by
DoubleClick for infringement and we may be required to pay for a license to
DoubleClick's technology. Any litigation regarding this patent, other parties'
proprietary rights, 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.
DoubleClick recently filed a lawsuit against L90, Inc., a company in our
industry that offers Internet advertising services. DoubleClick alleges that L90
is infringing its patent and seeks a preliminary and permanent injunction from
further alleged infringement, treble damages in an unspecified amount, and
attorneys' fees and costs. We cannot assure you that we will not be similarly
sued by DoubleClick.
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. One of our leases expires on December 31, 2000 and the
other expires on September 30, 2002. We have an option to extend the lease
expiring on December 31, 2000 for an additional three years. Our current monthly
rent due under these leases is $16,250 in the aggregate. We also lease
approximately 1,490 square feet of office space in Tokyo, Japan. Our lease in
Tokyo expires on January 31, 2001. We have an option to extend the Tokyo lease
for an additional three years. 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.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Set forth below is information concerning the directors, executive officers
and other key employees of ValueClick as of November 15, 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 April 1987 to December 1996, Mr. Zarley was Chief Executive
Officer of Quantech Investments, an information services company. From December
1996 to May 1998, Mr. Zarley was the Chairman and Chief Executive Officer of
Best Internet, until its merger with Hiway Technologies, a Web hosting company,
in May 1998. From May 1998 to January 1999, Mr. Zarley was the Chief Operating
Officer of Hiway Technologies until its merger with Verio. 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
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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 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 1998, he was the Western
Group 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.
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<PAGE>
ROBERT D. LEPPO
Mr. Leppo has been a director of ValueClick since May 1998. Mr. Leppo's
primary occupation since 1977 has been as a private investor. 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. Mr. Hart's primary occupation
since 1969 has been as a private investor. 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.
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<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
ANNUAL COMPENSATION 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. Employee directors do not
participate in votes concerning issuances of stock options to themselves.
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.
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<PAGE>
SHARES SUBJECT TO 1999 STOCK OPTION PLAN. We have authorized and reserved
for issuance an aggregate of 5,760,000 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;
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- 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 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. These agreements
do not require us to indemnify our directors and officers in situations where:
- the renumeration paid to the director or officer is determined by final
judgment to be in violation of law;
- a judgment is rendered against the director or officer for an accounting
of profits made from the purchase or sale of our securities pursuant to
the provisions of Section 16(b) of the Securities Exchange Act of 1934;
- the director or officer's conduct is adjudged to have been knowingly
fraudulent or deliberately dishonest, or constitutes willful misconduct;
or
- a court determines that indemnification under the circumstances is not
lawful.
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. Under these agreements, each of them is entitled to a
base salary as set forth in the table below. In connection with these
agreements, we have granted each of them options to purchase shares of our
common stock under our 1999 Stock Option Plan as set forth in the table below.
All of the options granted to Messrs. Zarley and Malm, 144,000 of the options
granted to Mr. Schwenk, and 108,000 of the options granted to Mr. Johnson will
become immediately exercisable upon the closing of our initial public offering
or upon transfer of 50% or more of the ownership of ValueClick.
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<PAGE>
OPTIONS GRANTED UNDER EMPLOYMENT AGREEMENTS
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
NAME BASE SALARY UNDERLYING OPTIONS EXERCISE PRICE EXPIRATION DATE
- ---- ----------- -------------------- -------------- ----------------
<S> <C> <C> <C> <C>
James R. Zarley....... $150,000 864,000(2) $0.17 January 1, 2009
John H. Schwenk....... $100,000 288,000(3) $0.17 May 13, 2009
Kurt A. Johnson....... $130,000(1) 216,000(4) $0.69 May 23, 2009
Earle A. Malm II...... $150,000 576,000(5) $0.69 June 1, 2009
</TABLE>
- ------------------------------
(1) Mr. Johnson will be entitled to a $20,000 bonus upon the closing of this
offering or a change of 50% or more of our ownership.
(2) 216,000 of Mr. Zarley's options became exercisable in July 1999. The
remaining 648,000 options will become exercisable in equal monthly
installments over the following 18 months.
(3) 36,000 of Mr. Schwenk's options became exercisable in October 1999. The
remaining 252,000 options will become exercisable in equal monthly
installments over the following 42 months.
(4) 27,000 of Mr. Johnson's options become exercisable in November 1999. The
remaining 189,000 options will become exercisable in equal monthly
installments over the following 42 months.
(5) Mr. Malm's options will vest in 12 equal monthly installments commencing on
June 1, 1999.
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, he
will be entitled to severance equal to one year's salary. 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.
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<PAGE>
RELATED PARTY 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:
- the ValueClick trademarks and domain names; and
- the trademark license, software license and copyright agreement with
Trans-Pacific Ltd., predecessor to ValueClick Japan.
In exchange for the transfer of these rights, which the parties agreed had an
aggregate value of $770,000, ValueClick, LLC issued a 77% membership interest to
Mr. Coryat. At that time, Michael Bueno, the primary developer of certain
technology underlying the software used to deliver advertisements, had licensed
this software to Web-Ignite. Prior to the transfer of the Web-Ignite business to
ValueClick, LLC, Web-Ignite and Mr. Bueno terminated their license agreement
resulting in all rights in the software reverting back to Mr. Bueno. Mr. Bueno
subsequently transferred all of his ownership rights in the software to
ValueClick, LLC. In exchange for the transfer of these software rights, which
the parties agreed had an aggregate value of $150,000, ValueClick, LLC issued a
15% membership interest to Mr. Bueno.
Web-Ignite contributed $5,000 to ValueClick, LLC in exchange for a 0.5%
membership interest in ValueClick, LLC. Web-Ignite subsequently transferred its
0.5% interest to Mr. Coryat in connection with Mr. Coryat's sale of 2,250 shares
of Web-Ignite common stock to a third party for $45,000.
Upon the reorganization of ValueClick, LLC as ValueClick, Inc.,
Mr. Coryat's entire membership interest in ValueClick, LLC was exchanged for
10,981,987 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 2,139,348 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. Upon formation, ValueClick, LLC issued securities equal to
6% of its total equity to investors for an aggregate purchase price of $60,000
and issued securities equal to 94% of its total equity to certain individuals
for consideration of intellectual property, including trademarks, software and
trademark licenses, contractual rights and services. In June 1998, ValueClick,
LLC issued securities equal to 17% of its total equity to investors for an
aggregate purchase price of $716,000.
On December 31, 1998, ValueClick, LLC was reorganized into ValueClick, Inc.,
a Delaware corporation. In connection with this reorganization, ValueClick, Inc.
acquired all the assets and assumed all of the liabilities of ValueClick, LLC.
It also issued to ValueClick, LLC 13,406,581 shares of its common stock, 297,132
share 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. The 13,406,581 shares of common
stock were distributed to the members who originally contributed intellectual
property, contractual rights and services to ValueClick, LLC in proportion to
their membership interests in ValueClick, LLC. The 297,132 shares of Series A
Convertible Preferred Stock were distributed to the investors who originally
purchased 6% of ValueClick, LLC's equity interest for $60,000 in proportion to
their membership interests in ValueClick, LLC. The 1,047,804 shares of Series B
Convertible Preferred Stock were distributed to the investors who purchased 17%
of ValueClick, LLC's equity interest for $716,000 in June 1998 in proportion to
their membership interests in ValueClick, LLC.
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<PAGE>
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 and paid total interest under the loan of $2,687. 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 and paid total interest
under the loan of $1,480.
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 owns 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 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. 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.
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<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 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, each person and entity named in the table has sole
voting and sole investment power with respect to the shares set forth opposite
its name. Except as specified, all share numbers and percentages assume no
exercise of the underwriters' over-allotment option.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR TO SHARES BENEFICIALLY
OFFERING 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).............................. 1,622,863 6.4% 1,622,863 5.6%
Brian Coryat(4)................................. 7,443,308 33.3 7,443,308 25.5
Kurt A. Johnson(5).............................. 108,000 * 108,000 *
Earle A. Malm II(6)............................. 798,483 3.3 798,483 2.7
John H. Schwenk(7).............................. 197,335 * 197,335 *
David S. Buzby(8)............................... 664,652 3.0 664,652 2.3
Robert D. Leppo................................. 1,458,832 6.5 1,458,832 5.0
Martin T. Hart(9)............................... 906,667 4.1 906,667 3.1
Steven J. Umberger.............................. 1,385,582 6.2 1,385,582 4.7
5% stockholder:
Michael J. Bueno(10)............................ 1,958,014 8.8 1,958,014 6.7
All directors and executive officers
as a group (9 persons)(11)...................... 14,585,723 60.2% 14,585,723(12) 49.9%
</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 5,000,000 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) 864,000 shares of Common Stock issuable upon exercise of stock
options at a price of $0.17 per share, which will automatically become
exercisable upon the closing of this offering and (b) 144,000 shares of
Common Stock issuable upon exercise of stock options at a price of $0.69
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<PAGE>
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 342,000 shares in this offering and will beneficially own
7,101,308 shares (23.7%) after the offering.
(5) Includes 108,000 shares of Common Stock issuable upon exercise of stock
options at a price of $0.69 per share that will automatically become
exercisable upon the closing of this offering.
(6) Includes 576,000 shares of Common Stock issuable upon exercise of stock
options at a price of $0.69 per share that will automatically become
exercisable upon the closing of this offering, and 19,584 shares of Common
Stock presently exercisable at a price of $0.69 per share.
(7) Includes 144,000 shares of Common Stock issuable upon exercise of stock
options at a price of $0.69 per share that will automatically become
exercisable upon the closing of this offering.
(8) Includes 453,920 shares of Common Stock and 210,732 shares of Series B
Preferred Stock held by Buzby-Vasan 1997 Trust.
(9) Represents 906,667 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 68,000 shares in this offering and will beneficially own 1,890,014
shares (6.3%) after the offering. From June 1998 to April 1999 Mr. Bueno
served as the lead engineer for ValueClick, LLC, the predecessor of
ValueClick. Since April 1999, Mr. Bueno has served in various capacities
with ValueClick including Chief Technical Officer and his current position,
lead engineer.
(11) Includes (a) 163,584 shares of Common Stock issuable upon the exercise of
stock options with a price of $0.69 per share, which are presently
exercisable or will become exercisable within 60 days of September 30, 1999
and (b) 1,008,000 and 684,000 shares, respectively, of Common Stock issuable
upon the exercise of stock options with a price of $0.17 and $0.69 per
share, respectively, which will automatically become exercisable upon the
closing of this offering.
(12) Includes 342,000 shares which Mr. Coryat and 68,000 shares which Mr. Bueno
will sell in this offering if the underwriters' over-allotment option is
exercised in full.
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<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 14,744,166 shares of common stock
outstanding held of record by 16 stockholders (or 22,366,910 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 3,952,224 shares of common stock were also outstanding
as of September 30, 1999. There will be 27,366,910 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 855,740, 3,017,676, and 3,749,328
shares of common stock, respectively, or an aggregate of 7,622,744 shares of
common stock.
AUTHORIZED BUT UNISSUED CAPITAL STOCK
We estimate that following the completion of this offering we will have
approximately 72,633,090 shares of authorized but unissued common stock,
including an aggregate of 5,760,000 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-allotment option is exercised in full, we will have
approximately 72,293,090 shares of authorized but
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<PAGE>
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--Employee Benefit Plans." 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
Section 203 of the Delaware General Corporation Law could make the
acquisition of ValueClick and the removal of incumbent officers and directors
more difficult. This statute is 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.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock is ChaseMellon
Shareholder Services, L.L.C.
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<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 27,366,910 shares
of common stock. Of these shares, the 5,000,000 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 22,366,910 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, 21,191,149
shares will be eligible for sale pursuant to Rules 144, 144(k) and 701;
and
- An additional 1,175,760 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 must be
conducted through a broker or directly with a market maker are also subject to
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
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<PAGE>
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144.
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 3,952,224 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."
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<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, a division of Prudential
Securities Incorporated, 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................................................. 5,000,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
to purchase shares of common stock are subject to 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>
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per Share................................................... $ $
Total................................................... $ $
</TABLE>
We estimate that the total expenses of this offering, excluding underwriting
discounts and commissions, will be $900,000.
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. The underwriters have informed us that they do not intend to
confirm sales to accounts over which the underwriters have discretionary
authority.
Pursuant to the underwriting agreement, we and the selling stockholders have
granted the underwriters an option, exercisable for 30 days from the date of
this prospectus, to purchase up to 340,000 additional shares of common stock
from us and up to an additional 410,000 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 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 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
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<PAGE>
of this prospectus. 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 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. The underwriters may also impose a penalty bid on other underwriters and
selling group members. This means that if the underwriters purchase shares of
our common stock in the open market to reduce their short position or to
stabilize the price of our common stock, they may reclaim the amount of the
selling concession from the underwriters and selling group members who sold
those shares as part of this offering. 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.
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<PAGE>
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.
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. You should read the agreements and other documents we have filed as
exhibits to this registration statement.
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.
61
<PAGE>
VALUECLICK, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
ValueClick, Inc. Financial Statements
Report of Independent Accountants....................... F-2
Consolidated Balance Sheets............................. F-3
Consolidated Statements of Operations................... F-4
Consolidated Statements of Stockholders' Equity......... F-5
Consolidated Statements of Cash Flows................... F-6
Notes to Financial Consolidated Statements.............. F-7
Unaudited Pro Forma Condensed Consolidated Financial
Statements
Introduction............................................ 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
The following report is in the form that will be signed upon the completion
of the 1-for-0.72 reverse stock split as described in Note 12 of the notes to
the consolidated financial statements.
/s/ PRICEWATERHOUSECOOPERS LLP
Woodland Hills, California
November 22, 1999
To the Board of Directors and Stockholders of
ValueClick, Inc.
In our opinion, the accompanying consolidated balance sheet and the
related consolidated 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.
Woodland Hills, California
May 31, 1999, except for Notes 1 and 12, as
to which the date is November , 1999
F-2
<PAGE>
VALUECLICK, INC.
CONSOLIDATED BALANCE SHEETS
(All information as of September 30, 1999 is unaudited)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1999 1999
------------- -------------- --------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 262,392 $ 2,573,642
Accounts receivable, net of allowance for doubtful
accounts of $8,000 and $519,701 as of December 31,
1998 and September 30, 1999, respectively............. 714,559 4,753,607
Receivable from ValueClick Japan........................ 10,263 --
Prepaid expenses and other current assets............... 24,524 203,792
Deferred income taxes................................... -- 202,723
---------- -----------
Total current assets.............................. 1,011,738 7,733,764
Property and equipment, net................................. 103,323 552,932
Acquired software........................................... 116,667 79,168
Investment in ValueClick Japan.............................. 90,923 --
Investment in ValueClick Europe............................. -- 99,000
Intangibles, net............................................ -- 3,439,484
Other assets................................................ -- 79,153
---------- -----------
Total assets...................................... $1,322,651 $11,983,501
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 343,135 $ 1,874,683
Income taxes payable...................................... -- 719,288
Deferred revenue.......................................... 14,894 637,373
Related party debt........................................ 200,000 --
---------- -----------
Total current liabilities......................... 558,029 3,231,344
Minority interest in ValueClick Japan....................... -- 418,882
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
September 30, 1999;
Series A Convertible - 297,132 shares issued and
outstanding at December 31, 1998 and September 30,
1999.................................................. 297 297 --
Series B Convertible - 1,047,804 shares issued and
outstanding at December 31, 1998 and September 30,
1999.................................................. 1,048 1,048 --
Series C Convertible - 0 and 1,301,850 shares issued and
outstanding at December 31, 1998 and September 30,
1999.................................................. -- 1,302 --
Common stock, $0.001 par value; 100,000,000 shares
authorized; 14,283,365 and 14,744,166 shares issued and
outstanding at December 31, 1998 and September 30, 1999,
respectively; pro forma 22,366,910 shares issued and
outstanding at September 30, 1999....................... 14,283 14,744 22,367
Additional paid-in capital................................ 748,994 15,029,631 15,024,655
Deferred stock compensation............................... -- (5,917,716) (5,917,716)
Cumulative foreign currency translation adjustment........ -- 50,419 50,419
Accumulated deficit....................................... -- (846,450) (846,450)
---------- ----------- -----------
Total stockholders' equity............................ 764,622 8,333,275 $ 8,333,275
---------- ----------- ===========
Total liabilities and stockholders' equity........ $1,322,651 $11,983,501
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
VALUECLICK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
MAY 1, 1998
(INCEPTION) NINE
THROUGH MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------- --------------
(UNAUDITED)
<S> <C> <C>
Revenues.................................................... $2,052,539 $10,593,497
Cost of revenues............................................ 1,104,237 5,265,416
---------- -----------
Gross profit.............................................. 948,302 5,328,081
---------- -----------
Operating expenses:
Sales and marketing....................................... 516,169 1,466,736
General and administrative................................ 403,856 2,079,204
Technology enhancements................................... 154,806 586,691
Stock-based compensation.................................. 61,375 1,341,126
Amortization of intangibles and acquired software......... 33,333 186,015
---------- -----------
Total operating expenses.............................. 1,169,539 5,659,772
---------- -----------
Loss from operations...................................... 221,237 (331,691)
Equity in loss of ValueClick Japan.......................... (9,077) (64,336)
Interest income, net........................................ 7,561 33,928
Other income................................................ -- 4,125
---------- -----------
Loss before income taxes and minority interest............ (222,753) (357,974)
Provision for income taxes.................................. -- 516,565
---------- -----------
Net income before minority interest......................... -- (874,539)
Minority interest in ValueClick Japan....................... -- 28,089
---------- -----------
Net loss.............................................. $ (222,753) $ (846,450)
========== ===========
Basic and diluted net loss per common share (Note 9)........ $ (0.02) $ (0.06)
========== ===========
Shares used to calculate basic and diluted net loss per
common share (Note 9)..................................... 14,273,470 13,800,866
========== ===========
Unaudited pro forma basic and diluted net loss per common
share..................................................... $ (0.04)
===========
Unaudited pro forma shares used to calculate pro forma basic
and diluted net loss per common share..................... 21,423,610
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
VALUECLICK, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
LLC MEMBERSHIP
INTERESTS PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------------ ---------------------- ---------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
------------ --------- ----------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at May 1, 1998
(inception)...................... -- $ -- -- $ -- -- $ -- $ --
Issuance of LLC membership
interests........................ 4,111,220 926,000 -- -- -- -- --
Charge for issuance of LLC
interests to employees........... 876,786 61,375 -- -- -- -- --
Net loss........................... -- -- -- -- -- -- --
Exchange of LLC membership
interests to stock in the
C-corporation upon
reincorporation and conversion... (4,988,006) (987,375) 1,344,936 1,345 14,283,366 14,283 748,994
------------ --------- ----------- ------- ----------- ------- -----------
Balance at December 31, 1998....... -- -- 1,344,936 1,345 14,283,366 14,283 748,994
Issuance of Series C preferred
stock, net (unaudited)........... -- -- 1,301,850 1,302 -- -- 3,497,136
Deferred stock compensation
(unaudited)...................... -- -- -- -- -- -- 7,258,842
Amortization of stock-based
compensation (unaudited)......... -- -- -- -- -- -- --
Issuance of common stock to acquire
ValueClick Japan................. -- -- -- -- 460,800 461 3,524,659
Comprehensive loss:
Net loss (unaudited)............. -- -- -- -- -- -- --
Foreign currency translation..... -- -- -- -- -- -- --
------------ --------- ----------- ------- ----------- ------- -----------
Total comprehensive loss........... -- -- -- -- -- -- --
------------ --------- ----------- ------- ----------- ------- -----------
Balance at September 30, 1999
(unaudited)...................... -- -- 2,646,786 2,647 14,744,166 14,744 15,029,631
Assumed conversion of convertible
preferred stock (unaudited)...... -- -- (2,646,786) (2,647) 7,622,744 7,623 (4,976)
------------ --------- ----------- ------- ----------- ------- -----------
Balance at September 30, 1999, pro
forma (unaudited)................ -- $ -- -- $ -- 22,366,910 $22,367 $15,024,655
============ ========= =========== ======= =========== ======= ===========
<CAPTION>
CUMULATIVE
FOREIGN
CURRENCY TOTAL
DEFERRED STOCK TRANSLATION ACCUMULATED STOCKHOLDERS'
COMPENSATION ADJUSTMENT DEFICIT EQUITY
-------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at May 1, 1998
(inception)...................... $ -- $ -- $ -- $ --
Issuance of LLC membership
interests........................ -- -- -- 926,000
Charge for issuance of LLC
interests to employees........... -- -- -- 61,375
Net loss........................... -- -- (222,753) (222,753)
Exchange of LLC membership
interests to stock in the
C-corporation upon
reincorporation and conversion... -- -- 222,753 --
----------- ------- --------- ----------
Balance at December 31, 1998....... -- -- -- 764,622
Issuance of Series C preferred
stock, net (unaudited)........... -- -- -- 3,498,438
Deferred stock compensation
(unaudited)...................... (7,258,842) -- -- --
Amortization of stock-based
compensation (unaudited)......... 1,341,126 -- -- 1,341,126
Issuance of common stock to acquire
ValueClick Japan................. -- -- -- 3,525,120
Comprehensive loss:
Net loss (unaudited)............. -- -- (846,450) (846,450)
Foreign currency translation..... -- 50,419 -- 50,419
----------- ------- --------- ----------
Total comprehensive loss........... -- -- -- (796,031)
----------- ------- --------- ----------
Balance at September 30, 1999
(unaudited)...................... (5,917,716) 50,419 (846,450) 8,333,275
Assumed conversion of convertible
preferred stock (unaudited)...... -- -- -- --
----------- ------- --------- ----------
Balance at September 30, 1999, pro
forma (unaudited)................ $(5,917,716) $50,419 $(846,450) $8,333,275
=========== ======= ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
VALUECLICK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
MAY 1, 1998
(INCEPTION) NINE
THROUGH MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------- --------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(222,753) $ (846,450)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization........................... 42,553 259,890
Provision for doubtful accounts......................... 8,000 501,588
Equity in loss of ValueClick Japan...................... 9,077 64,336
Stock-based compensation................................ 61,375 1,341,126
Minority interest in ValueClick Japan................... -- (28,088)
Benefit for deferred taxes.............................. -- (202,723)
Changes in operating assets and liabilities:
Accounts receivable................................... (722,559) (4,103,498)
Receivable from ValueClick Japan...................... (10,263) --
Prepaid expenses and other assets..................... (24,524) (108,509)
Accounts payable and accrued liabilities.............. 343,135 1,250,968
Income taxes payable.................................. -- 719,288
Deferred revenue...................................... 14,894 528,941
--------- -----------
Net cash used in operating activities............. (501,065) (623,131)
--------- -----------
Cash flows from investing activities:
Investment in ValueClick Japan............................ (100,000) (263,456)
Acquisition of ValueClick Japan, net of cash received..... -- 412,738
Investment in ValueClick Europe........................... -- (99,000)
Purchases of property and equipment....................... (112,543) (442,983)
--------- -----------
Net cash used in investing activities............. (212,543) (392,701)
--------- -----------
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
--------- -----------
Effect of currency translations................... -- 28,644
--------- -----------
Net increase in cash and cash equivalents......... 262,392 2,311,250
Cash and cash equivalents, beginning of period.............. -- 262,392
--------- -----------
Cash and cash equivalents, end of period.................... $ 262,392 $ 2,573,642
========= ===========
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 CONSOLIDATED FINANCIAL STATEMENTS
(ALL INFORMATION WITH RESPECT TO SEPTEMBER 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.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its majority owned subsidiary. All material intercompany transactions have
been eliminated in consolidation.
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.
F-7
<PAGE>
VALUECLICK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL INFORMATION WITH RESPECT TO SEPTEMBER 30, 1999 IS UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACQUIRED SOFTWARE
Acquired software represents certain software used in the Internet
advertising delivery, which was acquired from a founding member of ValueClick
LLC in exchange for a 15% ownership interest in ValueClick LLC on May 1, 1998.
The acquired software was valued at $150,000 and is being amortized on a
straightline basis over an estimated useful life of 3 years.
INTANGIBLES
Intangible assets are principally comprised of goodwill which represents the
excess of the cost of the acquired business over the net assets acquired and is
being amortized on a straight line basis over 5 years. Accumulated amortization
at September 30, 1999 amounted to $148,516.
The carrying amounts of intangible assets are reviewed if the facts and
circumstances indicate potential impairment of their carrying value. If this
review indicates that intangible assets are not recoverable, as determined based
on the undiscounted cash flows of the entity acquired over the remaining
amortization period, the Company's carrying values related to the intangible
assets are reduced to the fair value of the assets.
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 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.
F-8
<PAGE>
VALUECLICK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL INFORMATION WITH RESPECT TO SEPTEMBER 30, 1999 IS UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Advertising costs are expensed as incurred and totaled approximately
$318,000 and $402,000 for the year ended December 31, 1998 and nine months ended
September 30, 1999, respectively.
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 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 limited to the extent of the equity investment in
ValueClick Japan which represents 7.5% of total assets at December 31, 1998. At
September 30, 1999, ValueClick Japan represented approximately 10.0% of total
assets. At September 30, 1999, all assets and liabilities of ValueClick Japan
are translated at the current exchange rate while revenues and expenses are
translated at the average rates in effect for the period. The effects of these
translation adjustments are reported in a separate component of stockholders'
equity. Transaction gains and losses are included in the statement of operations
and were not significant for the period subsequent to the acquisition through
September 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
F-9
<PAGE>
VALUECLICK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL INFORMATION WITH RESPECT TO SEPTEMBER 30, 1999 IS UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 23% of revenues. For the nine months
ended September 30, 1999, no customer comprised greater than 10% of revenues and
at September 30, 1999, no customer comprised more than 10% of accounts
receivable.
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 September 30,
1999. Each share of preferred stock converts into four shares of common stock.
The conversion of the 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 September 30, 1999.
F-10
<PAGE>
VALUECLICK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL INFORMATION WITH RESPECT TO SEPTEMBER 30, 1999 IS UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE INCOME (LOSS)
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. The only element of
comprehensive income, other than net loss, relates to foreign currency
translation adjustments subsequent to the acquisition of majority control of
ValueClick Japan as discussed in Note 3.
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 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 nine months ended
September 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 nine months ended
September 30, 1999.
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 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. Statement No. 133 establishes new standards
of accounting and reporting for derivative instruments and hedging activities.
Statement No. 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
F-11
<PAGE>
VALUECLICK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL INFORMATION WITH RESPECT TO SEPTEMBER 30, 1999 IS UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
type of hedging relationship that exists. Statement No. 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 September 30, 1999
consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------- --------------
<S> <C> <C>
Computer equipment and purchased software................... $105,541 $551,133
Furniture and office equipment.............................. 6,190 61,458
Leasehold improvements...................................... 812 27,659
-------- --------
112,543 640,250
Less: accumulated depreciation and amortization............. (9,220) (87,318)
-------- --------
$103,323 $552,932
======== ========
</TABLE>
3. INVESTMENT IN VALUECLICK JAPAN AND VALUECLICK EUROPE
At December 31, 1998, the Company owned approximately 31.7% of the
outstanding common stock of ValueClick Japan which is engaged in the web-based
advertising business in Japan. 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
raised by ValueClick Japan. The Company accounted for this investment using the
equity method accounting and has reported its proportional share of ValueClick
Japan's net loss for periods up through the acquisition date of majority control
as discussed below.
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 under the agreement at December 31, 1998 and $31,500 was earned from
activity for the nine months ended September 30, 1999. The outstanding balance
due from ValueClick Japan is included in the receivable from ValueClick Japan at
December 31, 1998 in the accompanying balance sheets.
On August 6, 1999, the Company entered into a Stock Purchase Agreement (the
"Agreement") to acquire a controlling interest in ValueClick Japan. Under the
Agreement, ValueClick purchased an additional 22.3% of the ValueClick Japan
stock in exchange for 460,800 shares of ValueClick common stock with an
estimated fair value of approximately $3,525,120 giving ValueClick a 54%
controlling ownership interest in ValueClick Japan. The acquisition was
accounted for using the purchase method and the purchase price was allocated to
the estimated fair value of assets acquired and liabilities assumed to the
extent acquired by the Company. The remaining portion of the ValueClick Japan
assets and liabilities were recorded at the historical cost basis of the
minority stockholders.
F-12
<PAGE>
VALUECLICK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL INFORMATION WITH RESPECT TO SEPTEMBER 30, 1999 IS UNAUDITED) (CONTINUED)
3. INVESTMENT IN VALUECLICK JAPAN AND VALUECLICK EUROPE (CONTINUED)
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 advertising business in the United
Kingdom. The Company has accounted for this investment using the equity method
of accounting. To date, ValueClick Europe has not yet begun operations. The
Company has the option to acquire all of the outstanding shares of ValueClick
Europe using a predetermined option price formula based on revenue.
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 SEPTEMBER 30, 1999
------------------ -------------------
<S> <C> <C>
Accounts payable............................................ $262,214 $ 991,856
Accrued payments to third-party web sites................... 51,115 497,302
Other accruals.............................................. 29,806 385,525
-------- ----------
$343,135 $1,874,683
======== ==========
</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. The tax provision on a pro forma
basis assuming a C corporation status would not differ from the historical
presentation as a result of the Company's operating loss in 1998.
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-13
<PAGE>
VALUECLICK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL INFORMATION WITH RESPECT TO SEPTEMBER 30, 1999 IS UNAUDITED) (CONTINUED)
6. INCOME TAXES (CONTINUED)
The provision for income taxes for the nine months ended September 30, 1999
is comprised of the following:
<TABLE>
<S> <C>
Current:
Federal................................................... $ 557,097
State..................................................... 162,191
---------
$ 719,288
---------
Deferred
Federal................................................... $(171,885)
State..................................................... (30,838)
---------
$(202,723)
---------
Provision for income taxes.................................. $ 516,565
=========
</TABLE>
The components of the deferred tax assets at September 30, 1999 are as
follows:
<TABLE>
<S> <C>
Deferred tax assets:
Allowance for doubtful accounts and other................. $202,723
--------
Net deferred tax assets................................. $202,723
========
</TABLE>
The overall effective tax rate differs from the statutory Federal tax rate
for the six months ended September 30, 1999 as follows:
<TABLE>
<S> <C>
Tax benefit based on the federal statutory rate............. (34.0)%
State income taxes, net of federal benefit.................. 19.9
Equity in loss of ValueClick Japan.......................... 6.1
Stock based compensation.................................... 127.4
Non deductible amortization................................. 17.7
Other, net.................................................. 7.2
---------
144.3%
=========
</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.
PREFERRED STOCK
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-14
<PAGE>
VALUECLICK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL INFORMATION WITH RESPECT TO SEPTEMBER 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>
In the first and second 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 September 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 September 30, 1999, giving effect to the
four-for-one common stock split and the 1-for-0.72 reverse common stock split,
each share of the Series A, Series B and Series C shares is convertible into
2.88 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.
FOUNDING EMPLOYEE RESTRICTED STOCK
In May and June of 1998, the Company issued LLC ownership interests to six
founding employees for no consideration and recorded a charge to stock-based
compensation of $61,375 for the estimated fair value of the LLC ownership
interests issued to these employees. The ownership interests were converted into
1,019,409 shares of common stock upon completion of the LLC conversion and
F-15
<PAGE>
VALUECLICK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL INFORMATION WITH RESPECT TO SEPTEMBER 30, 1999 IS UNAUDITED) (CONTINUED)
7. CAPITALIZATION (CONTINUED)
reincorporation on December 31, 1998. In May 1999, the Company entered into
stock restriction agreements with these founding employees' restricting 876,786
of their shares to monthly vesting over a 48-month period from their original
dates of employment with the unvested shares subject to repurchase upon the
employees termination. The Company recorded deferred stock compensation
amounting to $1,351,250 for the remeasurement of these shares covered under the
restriction agreements. The deferred amount will be recognized as compensation
expense over the vesting period. During the nine months ended September 30,
1999, such compensation expense included in stock-based compensation in the
accompanying statement of operations amounted to $358,788. At September 30,
1999, 575,337 shares of common stock were subject to repurchase under the
restricted stock agreements.
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
4,377,600 shares of common stock have initially been reserved for issuance under
the 1999 Stock Plan, of which 425,376 shares were available for future grant at
September 30, 1999.
In January 1999, options to purchase 1,080,000 shares of common stock were
granted outside the 1999 Stock Plan and were subsequently included in the shares
reserved under the 1999 plan. 864,000 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 and also
includes the 1,080,000 shares of common stock granted outside the plan for the
period from May 1, 1998 (inception) through December 31, 1998 and the nine
months ended September 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................................................. 3,955,104 0.17 to 0.69 0.58
Exercised............................................... -- -- --
Forfeited/expired....................................... (2,880) 0.69 0.69
--------- -------------- -----
Options outstanding at September 30, 1999 (unaudited)..... 3,952,224 $0.17 to $0.69 $0.58
========= ============== =====
</TABLE>
F-16
<PAGE>
VALUECLICK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL INFORMATION WITH RESPECT TO SEPTEMBER 30, 1999 IS UNAUDITED) (CONTINUED)
8. STOCK OPTION PLAN (CONTINUED)
Options granted during the nine months ended September 30, 1999 resulted in
a total deferred compensation amount of $5,907,592 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 nine months ended September 30, 1999, such compensation expense
included in stock-based compensation in the statement of operations amounted to
$982,338.
Additional information with respect to the outstanding options as of
September 30, 1999 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
- ----------------------------------
AVERAGE OPTIONS EXERCISABLE
REMAINING --------------------
CONTRACTUAL AVERAGE AVERAGE
NUMBER OF LIFE (IN EXERCISE NUMBER OF EXERCISE
SHARES YEARS) PRICES SHARES PRICE
- --------- ----------- -------- --------- --------
<S> <C> <C> <C> <C>
1,368,000 9.3 $0.17 414,000 $0.17
2,193,984 9.7 0.69 179,544 0.69
390,240 9.9 1.39 --
- --------- -------
3,952,224 593,544
========= =======
</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
(INCEPTION) NINE MONTHS
THROUGH ENDED
DECEMBER 31, SEPTEMBER 30,
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 nine months ended
September 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 pro
forma historical basis as if the Company had been a C-corporation.
F-17
<PAGE>
VALUECLICK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL INFORMATION WITH RESPECT TO SEPTEMBER 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
DECEMBER 31, 1998 NINE MONTHS
HISTORICAL ENDED
PRO FORMA SEPTEMBER 30, 1999
------------------ -------------------
<S> <C> <C>
HISTORICAL PRESENTATION
Numerator:
Net loss.................................................. $ (222,753) $ (846,450)
Denominator:
Weighted average common shares............................ 14,273,470 13,800,866
Basic and diluted net loss per common share................. $ (0.02) $ (0.06)
PRO FORMA PRESENTATION
Denominator:
Shares used above......................................... 13,800,866
Weighted average effect of convertible preferred stock:
Series A convertible preferred stock...................... 855,740
Series B convertible preferred stock...................... 3,017,676
Series C convertible preferred stock...................... 3,749,328
-----------
Denominator for pro forma calculation....................... 21,423,610
===========
Unaudited pro forma basic and diluted net loss per common
share..................................................... $ (0.04)
===========
</TABLE>
The diluted per share computations exclude convertible preferred stock,
unvested restricted shares, and unvested common stock options which were
antidilutive. The number of shares excluded from the diluted net loss per common
share computation were 4,613,147 and 12,150,303 for the period from May 1, 1998
(inception) through December 31, 1998 and the nine months ended September 30,
1999, respectively. The number of such shares excluded from the pro forma
diluted net loss per share computation was 4,527,561 for the nine months ended
September 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
$11,931 to the Plan as of September 30, 1999.
F-18
<PAGE>
VALUECLICK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL INFORMATION WITH RESPECT TO SEPTEMBER 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 September 30,
1999 was $30,023 and $109,148, respectively.
EMPLOYMENT AGREEMENTS
The Company is subject to employment agreements with certain members of
management.
12. SUBSEQUENT EVENTS
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
2.88-for-1 basis, subject to antidilution provisions, including the stock
splits.
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
5,760,000 shares.
On October 8, 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 retroactively restated to reflect the
effect of the stock split and increased number of authorized shares.
On October 21, 1999, the Company entered into a loan and security agreement
with Silicon Valley Bank for a $2.5 million revolving line of credit. Interest
on outstanding balances will accrue at an annual rate of one percentage point
above the Bank's Prime Rate (8.25% at September 30, 1999). The credit facility
has a revolving maturity date which is the anniversary date of the agreement and
is collateralized by substantially all the Company's assets.
On November __, 1999, the Board of Directors approved a 1-for-0.72 reverse
stock split of the outstanding shares of common stock. All share and per share
information included in these consolidated financial statements have been
retroactively adjusted to reflect this stock split.
F-19
<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 460,800 shares of ValueClick
common stock with an estimated fair value of approximately $3,525,000 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
indicates additional intangible assets, principally comprised of goodwill,
totaling approximately $3,588,000, which will be amortized on a straight-line
basis over an estimated life of 5 years.
The following unaudited pro forma consolidated statements of operations for
the periods from January 1, 1998 through December 31, 1998 and the nine months
ended September 30, 1999 give effect to the acquisition as if it had occurred on
January 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, ValueClick Line of Business of
Web-Ignite Corporation, and ValueClick Japan financial statements and notes
thereto, included elsewhere in this prospectus.
F-20
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PREDECESSOR LINE OF VALUECLICK,
VALUECLICK LINE OF VALUECLICK, BUSINESS OF JAPAN
BUSINESS INC. TRANS-PACIFIC LTD. NOVEMBER 16,
OF WEB-IGNITE CORPORATION MAY 1, 1998 MARCH 26, 1998 1998
JANUARY 1, 1998 THROUGH THROUGH THROUGH
THROUGH APRIL 30, 1998 DECEMBER 31, 1998 NOVEMBER 15, 1998 DECEMBER 31, 1998
(HISTORICAL) (HISTORICAL) (HISTORICAL) (HISTORICAL)
------------------------- ------------------ ------------------- ------------------
<S> <C> <C> <C> <C>
Revenues............................ $253 $2,053 156 $ 72
Cost of revenues.................... 88 1,105 34 39
---- ------ ---- ----
Gross profit...................... 165 948 122 33
Operating expenses:
Sales and marketing............... -- 516 -- 7
General and administrative........ 134 404 112 55
Technology enhancements........... -- 155 -- --
Stock-based compensation.......... -- 61 -- --
Amortization of intangibles and
acquired software............... -- 33 -- --
---- ------ ---- ----
Total operating expenses...... 134 1,169 112 62
---- ------ ---- ----
Income (loss) from operations....... 31 (221) 10 (29)
Equity in losses of ValueClick
Japan............................. -- (9) -- --
Interest income, net................ -- 8 -- --
---- ------ ---- ----
Income (loss) before provision for
income taxes and minority
interest.......................... 31 (222) 10 (29)
Provision for income taxes.......... -- -- -- --
---- ------ ---- ----
Net income (loss) before minority
interest.......................... 31 (222) 10 (29)
Minority interest in ValueClick
Japan............................. -- -- -- --
---- ------ ---- ----
Net income (loss)................... $ 31 $ (222) 10 $(29)
==== ====== ==== ====
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS CONSOLIDATED
----------- ------------
<S> <C> <C>
Revenues............................ $ -- 2,534
Cost of revenues.................... -- 1,266
----- ------
Gross profit...................... -- 1,268
Operating expenses:
Sales and marketing............... -- 523
General and administrative........ -- 705
Technology enhancements........... -- 155
Stock-based compensation.......... -- 61
Amortization of intangibles and
acquired software............... 718(1) 751
----- ------
Total operating expenses...... 718 2,195
----- ------
Income (loss) from operations....... (718) (927)
Equity in losses of ValueClick
Japan............................. 9(2) --
Interest income, net................ -- 7
----- ------
Income (loss) before provision for
income taxes and minority
interest.......................... (709) (920)
Provision for income taxes.......... -- --
----- ------
Net income (loss) before minority
interest.......................... (709) (920)
Minority interest in ValueClick
Japan............................. 9(3) 9
----- ------
Net income (loss)................... $(700) $ (911)
===== ======
</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 NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
VALUECLICK, VALUECLICK,
INC. JAPAN PRO FORMA PRO FORMA
(HISTORICAL) (HISTORICAL) ADJUSTMENTS CONSOLIDATED
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenues............................... $ 10,593 $ 793 $ -- $ 11,386
Cost of revenues....................... 5,265 466 -- 5,731
---------- ----- ----- ----------
Gross profit........................... 5,328 327 -- 5,655
Operating expenses:
Sales and marketing.................. 1,467 170 -- 1,637
General and administrative........... 2,079 360 -- 2,439
Technology enhancements.............. 587 -- -- 587
Stock-based compensation............. 1,341 -- -- 1,341
Amortization of intangibles and
acquired software.................. 186 -- 419(4) 605
---------- ----- ----- ----------
Total operating expenses........... 5,660 530 419 6,609
---------- ----- ----- ----------
Loss from operations................... (332) (203) (419) (954)
Equity in losses in ValueClick Japan... (64) -- 64(2) --
Interest income, net................... 34 -- -- 34
Other Income........................... 4 -- -- 4
---------- ----- ----- ----------
Loss before provision for
income taxes and minority interest... (358) (203) (355) (916)
Provision for income taxes............. 517 -- -- 517
---------- ----- ----- ----------
Net loss before minority interest...... (875) (203) (355) (1,433)
Minority interest...................... 28 -- 65(3) 93
---------- ----- ----- ----------
Net loss............................... $ (847) $(203) $(290) $ (1,340)
========== ===== ===== ==========
Basic and diluted net loss per common
share................................ $ (0.06)
==========
Shares used in computing basic and
diluted net loss per common share.... 13,800,866
==========
Pro forma basic and diluted
net loss per common share............ $ (0.04) $ (0.06)
========== ==========
Pro forma shares used to calculate pro
forma basic and diluted net loss per
common share......................... 21,423,610 21,423,610
========== ==========
</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 as of
January 1, 1998 for the pro forma statements of operations are as follows:
(1) To record amortization expense associated with goodwill and other
intangibles created as a result of the acquisition of majority control of
ValueClick Japan as follows:
<TABLE>
<S> <C>
Estimated fair value of 460,800 shares of ValueClick common
stock..................................................... $ 3,525
Existing equity investment in ValueClick Japan.............. 264
Estimated transaction costs................................. 32
-------
Total investment and transaction costs.................. 3,821
Less: ValueClick's 54.0% share of net assets............ 233
-------
$ 3,588
Estimated useful life....................................... 5 years
-------
Annual amortization expense................................. $ 718
=======
</TABLE>
(2) To eliminate the equity in loss from ValueClick Japan.
(3) To record the portion of the losses in ValueClick Japan attributable to the
minority interests.
(4) To record pro forma amortization expense of $419 for the period from
January 1, 1999 through the August 6, 1999 acquisition date.
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)
THROUGH FOUR
DECEMBER 31, MONTHS ENDED
1997 APRIL 30, 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 general and administrative expenses presented in these financial
statements were allocated by management of Web-Ignite using a proportional cost
allocation method for the costs 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 JULY 31, 1999 IS UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, JULY 31,
1998 1999
------------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 79,022 $ 444,938
Accounts receivable, net of allowance for doubtful
accounts of $0 and $10,000 at December 31, 1998 and July
31, 1999, respectively.................................. 91,179 397,032
Other current assets...................................... 4,007 56,228
-------- ----------
Total current assets.................................. 174,208 898,198
Property and equipment, net................................. 7,970 74,030
Other assets................................................ -- 23,377
-------- ----------
Total assets.......................................... $182,178 $ 995,605
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 82,358 $ 261,840
Payable to ValueClick, Inc................................ 10,262 3,510
Deferred revenue.......................................... 17,427 57,794
Amount due to a related party............................. 8,843 --
Other current liabilities................................. 4,773 --
-------- ----------
Total current liabilities............................. 123,663 323,144
Commitments and contingencies (Note 6)...................... -- --
Stockholders' equity:
Common stock, $420 par value as of December 31, 1998 and
$436 as of July 31, 1999; 800 shares authorized; 200
shares issued and outstanding as of December 31, 1998
and 244 issued and outstanding as of July 31, 1999...... 84,000 103,580
Additional paid-in capital.................................. -- 799,228
Cumulative foreign currency translation adjustment.......... 3,150 1,241
Accumulated deficit......................................... (28,635) (231,588)
-------- ----------
Total stockholders' equity.............................. 58,515 672,461
-------- ----------
Total liabilities and stockholders' equity............ $182,178 $ 995,605
======== ==========
</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 PERIOD
MARCH 26, FROM
1998 NOVEMBER 16,
(INCEPTION) 1998
THROUGH THROUGH SEVEN MONTHS
NOVEMBER 15, DECEMBER 31, ENDED
1998 1998 JULY 31, 1999
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Revenues................................................ $156,244 $ 72,385 $ 793,443
Cost of revenues........................................ 33,910 39,200 466,039
-------- -------- ---------
Gross profit.......................................... 122,334 33,185 327,404
Operating expenses
Sales and marketing................................... -- 7,185 170,214
General and administrative............................ 111,999 54,635 360,190
-------- -------- ---------
Total operating expenses............................ 111,999 61,820 530,404
-------- -------- ---------
Operating income (loss)................................. 10,335 (28,635) (203,000)
Interest income......................................... -- -- 47
-------- -------- ---------
Net income (loss)..................................... 10,335 (28,635) (202,953)
Other comprehensive income (loss)
Foreign currency translation.......................... -- 3,150 (1,909)
-------- -------- ---------
Comprehensive income (loss)......................... $ 10,335 $(25,485) $(204,862)
======== ======== =========
</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 JULY 31, 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......................... -- -- -- -- (202,953) (202,953)
Foreign currency translation..... -- -- -- (1,909) -- (1,909)
--- -------- -------- -------- --------- ---------
Balance at July 31, 1999......... 244 $103,580 $799,228 $ 1,241 $(231,588) $ 672,461
=== ======== ======== ======== ========= =========
</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
NOVEMBER 16,
1998
(INCEPTION) TO SEVEN MONTHS
DECEMBER 31, ENDED
1998 JULY 31, 1999
-------------- --------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(28,635) $(202,953)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... -- 3,470
Provision for doubtful accounts......................... -- 10,000
Changes in operating assets and liabilities:
Accounts receivable................................... (87,270) (306,755)
Other assets.......................................... (34) (73,592)
Accounts payable and other current liabilities........ 82,955 151,876
Payable to ValueClick, Inc............................ 10,262 (6,752)
Deferred revenue...................................... 16,680 39,286
-------- ---------
Net cash used in operating activities................... (6,042) (385,420)
Cash flows from investing activities:
Purchases of property and equipment....................... (7,770) (67,470)
-------- ---------
Net cash used in investing activities................... (7,770) (67,470)
Cash flows from financing activities:
Proceeds from the issuance of related party debt.......... 8,464 --
Repayment of related party debt........................... -- --
Proceeds from issuance of common stock.................... 84,000 820,783
-------- ---------
Net cash provided by financing activities............... 92,464 820,783
Effect of foreign currency translation.................... 370 (1,977)
-------- ---------
Net increase in cash and cash equivalents............... 79,022 365,916
Cash and cash equivalents, beginning of period.............. -- 79,022
-------- ---------
Cash and cash equivalents, end of period.................... $ 79,022 $ 444,938
======== =========
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 JULY 31, 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
general and administrative expenses presented in these financial statements were
allocated by the management of Trans-Pacific using a proportional cost
allocation method for the costs 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 seven months ended
July 31, 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 seven months ended
July 31, 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 JULY 31, 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 JULY 31, 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 July 31, 1999, one customer
comprised 10% 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 JULY 31, 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 July 31, 1999 consisted
of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JULY 31,
1998 1999
------------- ---------
<S> <C> <C>
Computer equipment and purchased software................. $8,118 $66,733
Leasehold improvements.................................... -- 11,032
------ -------
Total..................................................... 8,118 77,764
Less accumulated depreciation and amortization............ (148) (3,735)
------ -------
$7,970 $74,030
====== =======
</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 $7,000 was due for activity for the seven months ended July 31, 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 JULY 31, 1999 IS UNAUDITED)
4. INCOME TAXES (CONTINUED)
The components of the deferred tax assets at July 31, 1999 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JULY 31,
1998 1999
------------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 13,258 $ 84,708
Allowance for doubtful accounts........................... -- 4,630
-------- --------
Total deferred assets................................... 13,258 89,338
Valuation allowance....................................... (13,258) (89,338)
-------- --------
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 the seven months ended July 31, 1999 was
approximately $3,600 and $33,554, 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 460,800 shares of common stock of
ValueClick, Inc., once the .72-for-1 stock split is effected, valued at
approximately $3,525,000.
F-40
<PAGE>
[INSIDE BACK COVER WILL CONTAIN A RECENT ADVERTISEMENT USED BY VALUECLICK TO
COMMUNICATE INFORMATION ABOUT ITS PRODUCTS AND SERVICES.]
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......... $ 17,584
NASD filing fee............................................. 6,825
Nasdaq National Market listing fee.......................... 95,000
Blue Sky fees and expenses.................................. 7,500
Printing and engraving expenses............................. 175,000
Legal fees and expenses..................................... 350,000
Accounting fees and expenses................................ 200,000
Transfer Agent and Registrar Fees........................... 30,000
Miscellaneous............................................... 18,091
----------
Total..................................................... $ 900,000
==========
</TABLE>
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 violations 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 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
II-1
<PAGE>
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 accredited and non-accredited investors for an aggregate purchase
price of $60,000 and issued securities equal to 94% of its total equity to
certain individuals in consideration of the transfer of certain trademarks,
software and trademark licenses and contractual rights to ValueClick. The
non-accredited investors received offering materials satisfying the requirements
of Rule 506 of Regulation D of the Securities Act. By meeting the requirements
of Rule 506 these issuances of securities were exempt from registration under
the Securities Act.
In June 1998, ValueClick, LLC issued securities equal to 17% of its total
equity to accredited and non-accredited investors for an aggregate purchase
price of $716,000. The non-accredited investors received offering materials
satisfying the requirements of Rule 506. By meeting the requirements of
Rule 506 these issuances of securities were exempt from registration under the
Securities Act.
In June 1998, ValueClick, LLC issued securities equal to 4.83% of its total
equity to six employees in exchange for services performed for ValueClick, LLC.
These securities were exempt from registration under Rule 701 of the Securities
Act as securities issued in connection with services performed for the issuer.
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 14,283,366 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 and acquire ValueClick, LLC's assets. The issuances of shares
of ValueClick, Inc. common stock, Series A Convertible Preferred Stock and
Series B Convertible Preferred Stock were exempt from registration under
Section 3(a)(9) of the Securities Act as an exchange of securities by an issuer
with its existing security holders where no commission or remuneration was paid,
and under Rule 506.
In January 1999, we issued an aggregate of 370,370 shares of Series C
Convertible Preferred Stock for an aggregate purchase price of $1,000,000 to an
accredited investor. This issuance of securities was exempt from registration
under Rule 506.
In February 1999, we issued an aggregate of 220,368 shares of Series C
Convertible Preferred Stock for an aggregate purchase price of $595,000 to
accredited and non-accredited investors. The non-accredited investor received
offering materials satisfying the requirements of Rule 506. By meeting the
requirements of Rule 506 these issuances of securities were exempt from
registration.
In March 1999, we issued an aggregate of 462,859 shares of Series C
Convertible Preferred Stock for an aggregate purchase price of $1,249,719 to
accredited investors. These issuances of securities were exempt from
registration under the Securities Act in reliance on Rule 506.
In June 1999, we issued an aggregate of 248,253 shares of Series C
Convertible Preferred Stock for an aggregate purchase price of $670,283 to
accredited investors and one non-accredited investor. The non-accredited
investor is an employee of ValueClick and received offering materials satisfying
the requirements of Rule 506. These issuances of securities were exempt from
registration under the Securities Act in reliance on Rule 506.
II-2
<PAGE>
From May 1, 1998 to October 31, 1999, we granted options to purchase an
aggregate of 4,061,664 shares of common stock to our directors, executive
officers, employees and consultants at a weighted average exercise price of
$0.60 per share. As of October 31, 1999, no options had been exercised. The
issuances of these options were exempt from registration under Rule 701 of the
Securities Act as securities issued under a written compensatory benefit plan
established by us for the participation of our employees, directors, officers or
consultants and advisors.
In August, we issued 460,800 shares of our common stock to two holders of
shares of ValueClick Japan, each of whom are accredited investors, in exchange
for shares of ValueClick Japan equal to 22.3% of the outstanding equity of
ValueClick Japan. Accordingly, these issuances of securities were exempt from
registration under the Securities Act in reliance on Rule 506.
The recipients of securities in each transaction described above 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 issued in these transactions. All
recipients had adequate access, through their relationships with ValueClick, or
otherwise, to information about ValueClick.
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 Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Carpinteria, State of California on November 23, 1999.
<TABLE>
<S> <C> <C>
VALUECLICK, INC.
By: /s/ KURT A. JOHNSON
-----------------------------------------
Kurt A. Johnson
CHIEF FINANCIAL OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to the 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>
JAMES R. ZARLEY*
------------------------------------------- Chairman of the Board and November 23, 1999
James R. Zarley Chief Executive Officer
EARLE A. MALM II* Vice Chairman of the Board
------------------------------------------- and Chief Marketing November 23, 1999
Earle A. Malm II Officer
BRIAN CORYAT*
------------------------------------------- Director, President and November 23, 1999
Brian Coryat Chief Operating Officer
/s/ KURT A. JOHNSON Chief Financial Officer
------------------------------------------- (Principal Financial and November 23, 1999
Kurt A. Johnson Accounting Officer)
DAVID S. BUZBY*
------------------------------------------- Director November 23, 1999
David S. Buzby
ROBERT D. LEPPO*
------------------------------------------- Director November 23, 1999
Robert D. Leppo
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
MARTIN HART*
------------------------------------------- Director November 23, 1999
Martin Hart
STEVEN J. UMBERGER*
------------------------------------------- Director November 23, 1999
Steven J. Umberger
</TABLE>
<TABLE>
<S> <C> <C>
/s/ KURT A. JOHNSON
-------------------------------------------
Kurt A. Johnson
*By: ATTORNEY-IN-FACT
</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 Form of 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.
10.21 Loan and Security Agreement, dated October 21, 1999, between
Silicon Valley Bank and the Registrant.
10.22 Intellectual Property Security Agreement, dated October 21,
1999, by and between Silicon Valley Bank and the
Registrant.
23.1 *Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Counsel (included in Exhibit 5.1).
23.3 Consent of Media Metrix, Inc.
23.4 Consent of Jupiter Communications
23.5 Consent of The Yankee Group
24.1 Power of Attorney
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
+ Previously filed.
II-7
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
VALUECLICK, INC.
ValueClick, Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
FIRST: The original Certificate of Incorporation of
ValueClick, Inc. was filed with the Secretary of State of Delaware on October 9,
1998.
SECOND: The Amended and Restated Certificate of Incorporation
of ValueClick, Inc., in the form attached hereto as EXHIBIT A, has been duly
adopted in accordance with the provisions of Sections 228, 242 and 245 of the
General Corporation Law of the State of Delaware by the directors and
stockholders of the Corporation, and the Certificate of Incorporation shall be
amended and restated in full to read as set forth as EXHIBIT A.
THIRD: The Restated Certificate of Incorporation so adopted
reads in full as set forth in EXHIBIT A and is hereby incorporated herein by
this reference.
IN WITNESS WHEREOF, the undersigned has executed this Amended
and Restated Certificate of Incorporation this 8th day of October, 1999 and
certifies under penalties of perjury that the Amended and Restated Certificate
of Incorporation is the act and deed of the Corporation and that the statements
herein are true.
By /s/ KURT A. JOHNSON
---------------------------------------------------
Kurt A. Johnson, Secretary
<PAGE>
EXHIBIT A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
VALUECLICK, INC.
ARTICLE I
The name of this Corporation is ValueClick, Inc.
ARTICLE II
The address of the registered office of this Corporation in
the State of Delaware is 1013 Centre Road, Wilmington, New Castle County,
Delaware 19805. This Corporation's registered agent at that address is
Corporation Service Company.
ARTICLE III
The purpose of this Corporation is to engage in any lawful act
or activity for which a corporation may be organized under the General
Corporation Law of Delaware.
ARTICLE IV
This Corporation is to have perpetual existence.
ARTICLE V
A. CLASSES OF STOCK. This Corporation is authorized to issue two
classes of capital stock, to be designated "Preferred Stock" and "Common Stock."
The total number of shares of capital stock that this Corporation shall have
authority to issue is 120,000,000. The total number of shares of Preferred Stock
that this Corporation shall have authority to issue is 20,000,000. The total
number of shares of Common Stock that this Corporation shall have authority to
issue is 100,000,000. The Preferred Stock shall have a par value of $.001 per
share, and the Common Stock shall have a par value of $.001 per share.
B. SERIES OF PREFERRED STOCK. The Preferred Stock shall be divided into
series. The first series shall consist of 297,132 shares and is designated
"Series A Convertible Preferred Stock." The second series shall consist of
1,047,804 shares and is designated "Series B Convertible Preferred Stock." The
third series shall consist of 1,400,000 shares and is designated "Series C
Convertible Preferred Stock." The remaining shares of Preferred Stock may be
issued from time to time in one or more series. The Board of Directors of the
Corporation is expressly authorized to provide for the issue of all or any of
the remaining shares of the Preferred Stock in one or more series, to fix the
number of shares of each such series, and to determine or alter for each such
series such voting powers, full or limited, or no voting powers, and such
designations, preferences, and relative, participating, optional or other rights
and such qualifications, limitations, or restrictions thereof, as shall be
stated in a resolution or resolutions adopted by the
<PAGE>
Board of Directors of the Corporation and as may be permitted by the General
Corporation Law of the State of Delaware. Any such series may be senior to, on a
par with or junior to any other series of Preferred Stock (including the Series
A, B, and C Convertible Preferred Stock), in any one or more, or all, respects,
as the Board of Directors of the Corporation may determine. The Board of
Directors of the Corporation is also expressly authorized to increase or
decrease (but not below the number of shares of such series then outstanding)
the number of shares of any series, other than the Series A, B or C Convertible
Preferred Stock, subsequent to the issue of shares of that series. In case the
number of shares of any such series shall be so decreased, the shares
constituting such decrease shall resume the status that they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
C. SERIES A, B AND C CONVERTIBLE PREFERRED STOCK. The powers,
preferences, rights, restrictions, and other matters relating to the Series A, B
and C Convertible Preferred Stock are as follows:
1. CERTAIN DEFINITIONS. Unless the context otherwise requires, the
terms defined in this paragraph 1 shall have, for all purposes of this part C,
the meanings specified below.
BOARD means the Board of Directors of the Corporation.
COMMON STOCK means all shares now or hereafter authorized of
any class of Common Stock of the Corporation and any other stock of the
Corporation, however designated, authorized after the Issue Date, that has the
right (subject always to prior rights of any class or series of Preferred Stock)
to participate in the distribution of the assets and earnings of the Corporation
without limit as to per share amount.
CONVERSION DATE has the meaning set forth in subparagraph 4.d.
CONVERSION Price means the price per share of Common Stock
used to determine the number of shares of Common Stock deliverable on conversion
of a share of the Series A, B or C Convertible Preferred Stock, which price
shall initially be, for the Series A Convertible Preferred Stock, $0.20 per
share of Common Stock, for the Series B Convertible Preferred Stock, $0.68 per
share of Common Stock, and, for the Series C Convertible Preferred Stock, $2.70
per share of Common Stock, in each case subject to adjustment in accordance with
paragraph 4.
CORPORATION means ValueClick, Inc., a Delaware corporation.
CURRENT MARKET PRICE has the meaning set forth in subparagraph
4.g.
EXCLUDED STOCK has the meaning set forth in subparagraph
4.f(2).
ISSUE DATE means the date that shares of Series A, B or C
Convertible Preferred Stock are first issued by the Corporation.
JUNIOR STOCK means any class or series of stock of the
Corporation issued after the Issue Date and not entitling the holders thereof to
receive any assets on the liquidation, dissolution or winding up of the affairs
of the Corporation until the holders of Series A, B and C
3
<PAGE>
Convertible Preferred Stock shall have received the entire amount to which the
holders of Series A, B and C Convertible Preferred Stock are entitled on
liquidation, dissolution or winding up.
LIQUIDATION VALUE means the maximum amount per share to which
the holders of Series A, B or C Convertible Preferred Stock would be entitled
pursuant to paragraph 3 on a liquidation, dissolution or other winding up of the
affairs of the Corporation.
PARITY STOCK means any class or series of stock of the
Corporation issued after the Issue Date and entitling the holders thereof to
receive assets on the liquidation, dissolution or winding up of the affairs of
the Corporation on a parity with the holders of Series A, B and C Convertible
Preferred Stock.
SENIOR STOCK means any class or series of stock of the
Corporation issued after the Issue Date and entitling the holders thereof to
receive assets on the liquidation, dissolution or winding up of the affairs of
the Corporation prior and in preference to the holders of Series A, B and C
Convertible Preferred Stock.
SERIES A ISSUE PRICE means $0.20 per share of Series A
Convertible Preferred Stock.
SERIES B ISSUE PRICE means $0.68 per share of Series B
Convertible Preferred Stock.
SERIES C ISSUE PRICE means $2.70 per share of Series C
Convertible Preferred Stock.
SUBSIDIARY means any corporation of which shares of stock
possessing at least a majority of the general voting power in electing the board
of directors are, at the time as of which any determination is being made, owned
by the Corporation, whether directly or indirectly through one or more
Subsidiaries.
2. DIVIDENDS. The holders of Series A, B and C Convertible Preferred
Stock shall not have any right to receive any dividends whatsoever. So long as
any shares of Series A, B or C Convertible Preferred Stock shall be outstanding,
the Corporation shall not declare or pay on any Junior Stock or Parity Stock any
dividend whatsoever, whether in cash, property or otherwise, shall not make any
distribution on any Junior Stock or Parity Stock, shall not purchase or redeem
any Junior Stock or Parity Stock or permit any Subsidiary to purchase or redeem
any Junior Stock or Parity Stock, or pay or make available for a sinking fund
any monies for the purchase or redemption of any Junior Stock or Parity Stock,
without the prior written consent in each case of the holders of not less than
two-thirds of the outstanding shares of Series A Convertible Preferred Stock,
the holders of not less than two-thirds of the outstanding shares of Series B
Convertible Preferred Stock and the holders of not less than two-thirds of the
outstanding shares of Series C Convertible Preferred Stock; provided that such
holders shall be deemed to have consented in writing to any purchase of shares
of Common Stock held by one or more employees or former employees of the
Corporation pursuant to a written agreement or agreements approved by the Board
to which such employees or former employees and the Corporation are parties, so
long as the aggregate number of shares of Common Stock so
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purchased does not exceed ten percent of the number of shares of Common Stock
outstanding immediately prior to such purchase.
3. DISTRIBUTIONS ON LIQUIDATION, DISSOLUTION OR WINDING UP. In the
event of any voluntary or involuntary liquidation, dissolution or other winding
up of the affairs of the Corporation, after payment in full and discharge of the
prior preferences and other rights of any Senior Stock, but before any
distribution or payment shall be made to the holders of Junior Stock, out of the
remaining assets of the Corporation, the holders of Series A Convertible
Preferred Stock shall be entitled to receive the Series A Issue Price for each
share of Series A Convertible Preferred Stock, the holders of Series B
Convertible Preferred Stock shall be entitled to receive the Series B Issue
Price for each share of Series B Convertible Preferred Stock, and the holders of
Series C Convertible Preferred Stock shall be entitled to receive the Series C
Issue Price for each share of Series C Convertible Preferred Stock, in cash or
in property taken at its fair value as determined by the Board, or a combination
thereof, at the election of the Board. If such payment shall have been made in
full to the holders of the Series A, B and C Convertible Preferred Stock, and if
payment shall have been made in full to the holders of any Senior Stock and
Parity Stock of all amounts to which such holders shall be entitled, the
remaining assets and funds of the Corporation shall be distributed among the
holders of Parity Stock, Series A, B and C Convertible Preferred Stock and
Junior Stock, according to their respective shares and priorities; provided
that, for this purpose, the Parity Stock, Series A, B and C Convertible
Preferred Stock shall be deemed to have been converted in full immediately prior
to such liquidation, dissolution or other winding up as provided in paragraph 4.
If, on any such liquidation, dissolution or other winding up of the affairs of
the Corporation, the net assets of the Corporation distributable among the
holders of all outstanding shares of the Series A, B and C Convertible Preferred
Stock and Parity Stock shall be insufficient to permit the payment in full to
such holders of the preferential amounts to which they are entitled, the entire
net assets of the Corporation remaining after the distributions to holders of
any Senior Stock of the full amounts to which they may be entitled shall be
distributed among the holders of the Series A, B and C Convertible Preferred
Stock and Parity Stock ratably in proportion to the full amounts to which they
would otherwise be respectively entitled. Neither the consolidation or merger of
the Corporation into or with another corporation or corporations nor the sale of
all or substantially all of the assets of the Corporation to another corporation
or corporations shall be deemed a liquidation, dissolution or winding up of the
affairs of the Corporation for purposes of this paragraph 3.
4. CONVERSION RIGHTS. The Series A, B and C Convertible Preferred Stock
shall be convertible into Common Stock as follows:
a. OPTIONAL CONVERSION. Subject to and on compliance with this
paragraph 4, any holder of any shares of Series A, B or C Convertible Preferred
Stock shall have the right at such holder's option, at any time or from time to
time, to convert any of such shares into whole, fully paid and nonassessable
shares of Common Stock at the Conversion Price therefor in effect on the
Conversion Date therefor on the terms hereinafter set forth.
b. AUTOMATIC CONVERSION. Each outstanding share of Series A, B
or C Convertible Preferred Stock shall automatically be converted, without any
further act of the Corporation or any of its stockholders, into whole, fully
paid and nonassessable shares of
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Common Stock at the Conversion Price therefor then in effect on the consummation
of an underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offering
and sale of shares of Common Stock for the account of the Corporation in which
the aggregate proceeds (after deducting all underwriting discounts and
commissions) received by the Corporation equals or exceeds $20,000,000.
c. CONVERSION PRICE. Each share of Series A, B or C
Convertible Preferred Stock shall be converted into a number of shares of Common
Stock equal to the quotient determined by dividing the Series A Issue Price, the
Series B Issue Price or the Series C Issue Price, respectively, by the
Conversion Price in effect for that series of Preferred Stock on the Conversion
Date therefor. Each Conversion Price shall be subject to adjustment as set forth
in subparagraph 4.f. No payment or adjustment shall be made for any dividends on
the Common Stock issuable on such conversion.
c. MECHANICS OF CONVERSION. The holder of any shares of Series
A, B or C Convertible Preferred Stock may exercise the conversion right in this
paragraph 4 by surrendering to the Corporation or any transfer agent of the
Corporation the certificate or certificates for the shares to be converted,
accompanied by written notice specifying the number of shares to be converted.
On the occurrence of the event specified in subparagraph 4.b, the outstanding
shares of Series A, B and C Convertible Preferred Stock shall be converted
automatically without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to the
Corporation or its transfer agent; provided that the Corporation shall not be
obligated to issue to any such holder certificates evidencing the shares of
Common Stock issuable on such conversion unless certificates evidencing the
shares of Series A, B or C Convertible Preferred Stock so converted are
delivered to the Corporation or its transfer agent. Conversion shall be deemed
to have been effected on the date when delivery of notice of an election to
convert and certificates for shares is made or on the date of the occurrence of
the event specified in subparagraph 4.b, as the case may be, and such date is
called herein the "Conversion Date." Subject to subparagraph 4.f(7), as promptly
as practicable thereafter (and after surrender of the certificate or
certificates representing shares of Series A, B or C Convertible Preferred Stock
to the Corporation or its transfer agent in the case of conversions pursuant to
subparagraph 4.b) the Corporation shall issue and deliver to or on the written
order of such holder a certificate or certificates for the number of whole
shares of Common Stock to which such holder is entitled and a check or cash with
respect to any fraction of a share of Common Stock as provided in subparagraph
4.e. Subject to subparagraph 4.f(7), the person in whose name the certificate or
certificates for Common Stock are to be issued shall be deemed to have become a
holder of record of such Common Stock on the applicable Conversion Date. On
conversion of only a portion of the number of shares covered by a certificate
representing shares of Series A, B or C Convertible Preferred Stock surrendered
for conversion (in the case of conversion pursuant to subparagraph 4.a), the
Corporation shall issue and deliver to or on the written order of the holder of
the certificate so surrendered for conversion, at the expense of the
Corporation, a new certificate covering the number of shares of Series A, B or C
Convertible Preferred Stock representing the unconverted portion of the
certificate so surrendered.
e. FRACTIONAL SHARES. No fractional shares of Common Stock or
scrip shall be issued on conversion of shares of Series A, B or C Convertible
Preferred Stock. If more
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than one share of Series A, B or C Convertible Preferred Stock shall be
surrendered for conversion at any one time by the same holder, the number of
whole shares of Common Stock issuable on conversion thereof shall be computed on
the basis of the aggregate number of shares of Series A, B or C Convertible
Preferred Stock so surrendered. In lieu of any fraction of a share of Common
Stock that would, otherwise be issuable on any conversion of shares of Series A,
B or C Convertible Preferred Stock, the Corporation shall pay cash to the holder
thereof in an amount equal to such fraction multiplied by the Current Market
Price at the time of conversion.
f. CONVERSION PRICE ADJUSTMENTS. The Conversion Price for each
of the Series A, B and C Convertible Preferred Stock shall be subject to
adjustment from time to time, as follows:
(1) COMMON STOCK ISSUED BELOW CURRENT CONVERSION
PRICE. If the Corporation shall issue any Common Stock other than Excluded Stock
without consideration or for consideration per share less than a Conversion
Price in effect immediately prior to such issuance, such Conversion Price in
effect immediately prior to such issuance shall immediately (except as provided
below) be reduced to the price determined by dividing (1) an amount equal to the
sum of the product of the number of shares of Common Stock outstanding
immediately prior to such issuance multiplied by such Conversion Price in effect
immediately prior to such issuance plus the consideration, if any, received by
the Corporation on such issuance, by (2) the total number of shares of Common
Stock outstanding immediately after such issuance. For the purposes of any such
adjustment of a Conversion Price, the following provisions shall apply:
(a) CASH. In the case of the issuance of
Common Stock for cash, the amount of the consideration received by the
Corporation shall be deemed to be the amount of the cash proceeds received by
the Corporation for such Common Stock before deducting therefrom any discounts,
commissions, taxes or other expenses allowed, paid or incurred by the
Corporation for any underwriting or otherwise in connection with the issuance
and sale thereof.
(b) CONSIDERATION OTHER THAN CASH. In the
case of the issuance of Common Stock (otherwise than on the conversion of share
of capital stock or other securities of the Corporation) for consideration
wholly or partly other than cash, including securities acquired in exchange
therefor (other than securities by their terms so exchangeable), the
consideration other than cash shall be deemed to be the fair value thereof as
determined by the Board, without regard to any accounting treatment; provided
that such fair value as determined by the Board shall not exceed the aggregate
Current Market Price of the shares of Common Stock being issued as of the date
on which the Board authorizes the issuance of such shares.
(c) OPTIONS AND CONVERTIBLE SECURITIES. In
the case of the issuance of options, warrants or other rights to purchase or
acquire Common Stock (whether or not at the time exercisable), securities by
their terms convertible into or exchangeable for Common Stock (whether or not at
the time so convertible or exchangeable) or options, warrants or rights to
purchase such convertible or exchangeable securities (whether or not at the time
exercisable):
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(i) the aggregate maximum number of
shares of Common Stock deliverable on exercise of such options, warrants or
other rights to purchase or acquire Common Stock shall be deemed to have been
issued at the time such options, warrants or rights shall have been issued and
for a consideration equal to the consideration (determined in the manner
provided in the preceding subclauses (a) and (b)), if any, that shall have been
received by the Corporation on the issuance of such options, warrants or rights
plus the minimum purchase price provided in such options, warrants or rights for
the Common Stock covered thereby;
(ii) the aggregate maximum number
of shares of Common Stock deliverable on conversion of or in exchange for any
such convertible or exchangeable securities, or on the exercise of options,
warrants or other rights to purchase or acquire such convertible or exchangeable
securities and the subsequent conversion or exchange thereof, shall be deemed to
have been issued at the time such securities shall have been issued or such
options, warrants or rights shall have been issued and for a consideration equal
to the consideration, if any, that shall have been received by the Corporation
for any such securities and related options, warrants or rights (excluding any
cash that shall have been received on account of accrued interest), plus the
additional consideration (determined in the manner provided in the preceding
subclauses (a) and (b)), if any, to be received by the Corporation on the
conversion or exchange of such securities, or on the exercise of any related
options, warrants or rights to purchase or acquire such convertible or
exchangeable securities and the subsequent conversion or exchange thereof;
(iii) on any change in the number
of shares of Common Stock deliverable on exercise of any such options, warrants
or rights or conversion or exchange of such convertible or exchangeable
securities or any change in the consideration to be received by the Corporation
on such exercise, conversion or exchange, including, but not limited to, a
change resulting from the anti-dilution provisions thereof, each Conversion
Price as then in effect shall forthwith be readjusted to the Conversion Price
that would have been obtained had an adjustment been made on the issuance of
such options, warrants or rights not exercised prior to such change, or of such
convertible or exchangeable securities not converted or exchanged prior to such
change, on the basis of such change;
(iv) on the expiration or
cancellation of any such options, warrants or rights, or the termination of the
right to convert or exchange such convertible or exchangeable securities, if a
Conversion Price shall have been adjusted on the issuance thereof, such
Conversion Price shall forthwith be readjusted to the Conversion Price that
would have been obtained had an adjustment been made on the issuance of such
options, warrants, rights or such convertible or exchangeable securities on the
basis of the issuance of only the number of shares of Common Stock actually
issued on the exercise of such options, warrants or rights, or on the conversion
or exchange of such convertible or exchangeable securities; and
(v) if a Conversion Price shall
have been adjusted on the issuance of any such options, warrants, rights or
convertible or exchangeable securities, no further adjustment of such Conversion
Price shall be made for the actual issuance of Common Stock on the exercise,
conversion or exchange thereof;
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provided that no increase in a Conversion Price shall be made pursuant to
subclause (i) or (ii) of this clause 4.f(l)(c).
(2) EXCLUDED STOCK. "Excluded Stock" means (a) shares
of Common Stock issued or reserved for issuance by the Corporation as a stock
dividend payable in shares of Common Stock, or on any subdivision or split-up of
the outstanding shares of Common Stock or Preferred Stock, or on conversion of
shares of Preferred Stock and (b) 2,000,000 shares of Common Stock to be issued
after the Issue Date to key employees, consultants and advisers of the
Corporation together with any such shares that are repurchased by the
Corporation and reissued to any employee, consultant or adviser of the
Corporation. All shares of Excluded Stock that the Corporation reserves for
issuance shall thereafter until such reservation is rescinded be deemed to be
outstanding for all purposes of computations under subparagraph 4.f(1).
(3) STOCK DIVIDENDS, SUBDIVISIONS, RECLASSIFICATIONS
OR COMBINATIONS. If the Corporation shall declare a dividend or make a
distribution on its Common Stock in shares of its Common Stock, subdivide or
reclassify the outstanding shares of Common Stock into a greater number of
shares, or combine or reclassify the outstanding Common Stock into a smaller
number of shares, each Conversion Price in effect at the time of the record date
for such dividend or distribution or the effective date of such subdivision,
combination or reclassification shall be proportionately adjusted so that the
bolder of any shares of Series A, B or C Convertible Preferred Stock surrendered
for conversion after such date shall be entitled to receive the number of shares
of Common Stock that such holder would have owned or been entitled to receive
had such Series A, B or C Convertible Preferred Stock been converted immediately
prior to such date. Successive adjustments in such Conversion Price shall be
made whenever any such event shall occur.
(4) OTHER DISTRIBUTIONS. If the Corporation shall fix
a record date for the making of a distribution to all holders of shares of its
Common Stock of shares of any class other than its Common Stock, of evidence of
indebtedness of the Corporation or any Subsidiary, of assets (excluding cash
dividends or distributions, and dividends or distributions referred to in
subparagraph 4.f(3)), or of rights or warrants (excluding those referred to in
subparagraph 4.f(1)), then, in each such case, each Conversion Price in effect
immediately prior thereto shall be reduced immediately thereafter to the price
determined by dividing (a) an amount equal to the excess of the product of the
number of shares of Common Stock outstanding on such record date multiplied by
such Conversion Price per share on such record date over the fair market value
(as determined by the Board, whose determination shall be conclusive) of said
shares or evidences of indebtedness or assets or rights or warrants to be so
distributed, by (b) the number of shares of Common Stock outstanding on such
record date. Such adjustment shall be made successively whenever such a record
date is fixed. If such distribution is not so made, such Conversion Price then
in effect shall be readjusted, effective as of the date when the Board
determines not to make such distribution, to the Conversion Price that would
then be in effect if such record date had not been fixed.
(5) CONSOLIDATION, MERGER, SALE, LEASE OR CONVEYANCE.
In case of any consolidation with or merger of the Corporation with or into
another corporation or a limited liability company, partnership or other entity,
or in case of any sale, lease or conveyance to
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another corporation or a limited liability company, partnership or other entity
of all or substantially all of the assets of the Corporation, each share of
Series A, B or C Convertible Preferred Stock shall after the date of such
consolidation, merger, sale, lease or conveyance be convertible into the number
of shares of stock or other securities or property (including cash) to which the
Common Stock issuable (at the time of such consolidation, merger, sale, lease or
conveyance) on conversion of such share of Series A, B or C Convertible
Preferred Stock would have been entitled on such consolidation, merger, sale,
lease or conveyance; and in any such case, if necessary, the provisions herein
with respect to the rights and interests thereafter of the holders of the shares
of Series A, B and C Convertible Preferred Stock shall be appropriately adjusted
so as to be applicable, as nearly as may reasonably be, to any shares of stock
or other securities or property thereafter deliverable on the conversion of the
shares of Series A, B or C Convertible Preferred Stock.
(6) ROUNDING OF CALCULATIONS; MINIMUM ADJUSTMENT. All
calculations under this subparagraph 4.f shall be made to the nearest cent or to
the nearest one hundredth of a share, as the case may be. Any provision of this
paragraph 4 to the contrary notwithstanding, no adjustment in a Conversion Price
shall be made if the amount of such adjustment would be less than $0.01, but any
such amount shall be carried forward and an adjustment with respect thereto
shall be made at the time of and together with any subsequent adjustment which,
together with such amount and any other amount or amounts so carried fox-ward,
shall aggregate $0.01 or more.
(7) TIMING OF ISSUANCE OF ADDITIONAL COMMON STOCK ON
CERTAIN ADJUSTMENTS. In any case in which this subparagraph 4.f shall require
that an adjustment shall become effective immediately after a record date for an
event, the Corporation may defer until the occurrence of such event (a) issuing
to any holder of Series A, B or C Convertible Preferred Stock converted after
such record date and before the occurrence of such event the additional shares
of Common Stock issuable on such conversion by reason of the adjustment required
by such event over and above the shares of Common Stock issuable on such
conversion before giving effect to such adjustment and (b) paying to such holder
any amount of cash in lieu of a fraction of a share of Common Stock pursuant to
subparagraph 4.e; provided that the Corporation on request shall deliver to such
holder a due bill or other appropriate instrument evidencing such holder's right
to receive such additional shares, and such cash, on the occurrence of the event
requiring such adjustment.
g. CURRENT MARKET PRICE. The Current Market Price at any date
means, if the Common Stock is publicly traded, the average of the daily closing
prices per share of Common Stock for thirty consecutive trading days ending no
more than five business days before such date (as adjusted for any stock
dividend, split, combination or reclassification taking effect during such
thirty-trading-day period). The closing price for each day shall be the last
reported sale price regular way or, in case no such reported sale takes place on
such day, the average of the last closing bid and asked prices regular way, in
either case on the principal national securities exchange on which the Common
Stock is listed or admitted to trading, or if not listed or admitted to trading
on any national securities exchange, the closing sale price for such day
reported by the Nasdaq Stock Market, if the Common Stock is traded
over-the-counter and quoted by the Nasdaq Stock Market, or if the Common Stock
is so traded but not so quoted, the average of the closing reported bid and
asked prices of the Common Stock as reported by the
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Nasdaq Stock Market or any comparable system or, if the Common Stock is not
listed or traded on the Nasdaq Stock Market or any comparable system, the
average of the closing bid and asked prices as furnished by two members of the
National Association of Securities Dealers, Inc. selected from time to time by
the Corporation for that purpose. If no such quotation is available for the
period required hereunder, Current Market Price per share of Common Stock shall
be deemed to be the fair value as determined by the Board, without regard to any
accounting treatment.
h. STATEMENT REGARDING ADJUSTMENTS. Whenever a Conversion
Price shall be adjusted as provided in subparagraph 4.f, the Corporation shall
forthwith file, at the office of any transfer agent for the Series A, B or C
Convertible Preferred Stock and at the principal office of the Corporation, a
statement showing in detail the facts requiring such adjustment and each
Conversion Price that shall be in effect after such adjustment, and shall cause
a copy of such statement to be sent by mail, first class postage prepaid, to
each holder of shares of Series A, B or C Convertible Preferred Stock at such
holder's address appearing on the Corporation's records. Where appropriate, such
copy may be given in advance and may be included as part of a notice required to
be mailed under subparagraph 4.i.
i. NOTICE TO HOLDERS. If the Corporation shall propose to take
any action of the type described in clause (1) (but only if the action of the
type described in clause (1) would result in an adjustment in a Conversion
Price), (3), (4) or (5) of subparagraph 4.f, the Corporation shall give notice
to each bolder of shares of Series A, B or C Convertible Preferred Stock, in the
manner set forth in subparagraph 4.h, of the record date, if any, with respect
to any such action and the approximate date on which such action is to take
place. Such notice shall also set forth such facts with respect thereto as shall
be reasonably necessary to indicate the effect of such action (to the extent
that such effect is known to the Corporation at the date of such notice) on each
Conversion Price and the number, kind or class of shares or other securities or
property which shall be deliverable on conversion of shares of Series A, B and C
Convertible Preferred Stock. If such action requires the fixing of a record
date, such notice shall be given at least ten days prior to such record date;
such notice shall otherwise be given at least fifteen days prior to the taking
of such action. Failure to give such notice, or any defect therein, shall not
affect the legality or validity of any such action.
j. TREASURY STOCK. For the purposes of this paragraph 4, the
sale or other disposition of any Common Stock theretofore held in the
Corporation's treasury shall be deemed to be the issuance thereof.
k. COSTS. The Corporation shall pay all documentary, stamp,
transfer or other transactional taxes attributable to the issuance or delivery
of shares of Common Stock on conversion of any shares of Series A, B or C
Convertible Preferred Stock; provided that the Corporation shall not be required
to pay any taxes resulting from any transfer involved in the issuance or
delivery of any certificate for such shares in a name other than that of the
registered holder of the shares of Series A, B or C Convertible Preferred Stock
in respect of which such shares are being issued.
l. RESERVATION OF SHARES. The Corporation shall reserve at all
times so long as any shares of Series A, B or C Convertible Preferred Stock
remain outstanding, free from
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preemptive rights, out of its treasury stock (if
applicable) or its authorized but unissued shares of Common Stock, or both,
solely for the purpose of effecting the conversion of the shares of Series A, B
and C Convertible Preferred Stock, sufficient shares of Common Stock to provide
for the conversion of all outstanding shares of Series A, B and C Convertible
Preferred Stock.
m. APPROVALS. If any shares of Common Stock to be reserved for
conversion of shares of Series A, B or C Convertible Preferred Stock require
registration with or approval of any governmental authority under any federal or
state law before such shares may be validly issued or delivered on conversion,
the Corporation will in good faith and as expeditiously as possible endeavor to
secure such registration or approval. If, and so long as, any Common Stock into
which the shares of Series A, B and C Convertible Preferred Stock are then
convertible is listed on any national securities exchange, the Corporation will,
if permitted by the rules of such exchange, list and keep listed on such
exchange, on official notice of issuance, all shares of such Common Stock
issuable on conversion.
n. VALID ISSUANCE. All shares of Common Stock that may be
issued on conversion of shares of Series A, B or C Convertible Preferred Stock
will on issuance by the Corporation be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issuance thereof, and the Corporation shall take no action that will cause a
contrary result (including without limitation, any action that would cause a
Conversion Price to be less than the par value, if any, of the Common Stock).
5. VOTING RIGHTS.
a. SERIES A AND B CONVERTIBLE PREFERRED STOCK. The holders of
the Parity Stock, the holders of Series A, B and C Convertible Preferred Stock
and the holders of Common Stock shall vote together as a single class on all
matters submitted to a vote of the stockholders at a meeting or by written
consent; provided that holders of Series A, B or C Convertible Preferred Stock
shall have one vote per share of Common Stock into which their shares of Series
A, B or C Convertible Preferred Stock may be converted pursuant to paragraph 4;
and provided further that, with respect to each matter submitted to the
stockholders for action at a meeting or by written consent, such number of votes
for each holder of Series A, B and C Convertible Preferred Stock shall be
determined as of the record date therefor.
b. CLASS VOTES. Notwithstanding any of the foregoing
provisions to the contrary, the holders of Series A, B and C Convertible
Preferred Stock and Common Stock shall be entitled to vote as separate classes
on such matters (and only such matters) as may expressly be required by law or
this Certificate of Incorporation to be submitted to such holders voting as
separate classes.
c. NOTICE AND ATTENDANCE. Only the holders of shares entitled
to vote shall be entitled to notice of or to attend any meeting of the
stockholders in accordance with the Bylaws of the Corporation.
6. CAPITAL. On any redemption or repurchase by the Corporation of
shares of Series A, B or C Convertible Preferred Stock, the Corporation's
capital shall be reduced by an amount equal to the product of the Liquidation
Value for such shares multiplied by the number
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of such shares so redeemed or repurchased. This paragraph 6 shall apply to all
certificates representing Series A, B or C Convertible Preferred Stock, whether
or not all such certificates shall have been surrendered to the Corporation.
7. EXCLUSION OF OTHER RIGHTS. Except as may otherwise be required by
law, the shares of Series A, B and C Convertible Preferred Stock shall not have
any preferences or relative, participating, optional or other special rights,
other than those specifically set forth in this Article V.C (as it may be
amended from time to time). The shares of Series A, B and C Convertible
Preferred Stock shall have no preemptive or subscription rights.
8. HEADINGS. The headings of the paragraphs and subparagraphs in this
Article V.C are for convenience of reference only and shall not affect the
interpretation of any provision hereof.
9. SEVERABILITY. If any right, preference or limitation of the Series
A, B or C Convertible Preferred Stock provided in this Article V.C (as it may be
amended from time to time) is invalid, unlawful or incapable of being enforced
by reason of any law or public policy, all other rights, preferences and
limitations provided in this Article V.C (as so amended) that can be given
effect without the invalid, unlawful or unenforceable right, preference or
limitation shall nevertheless remain in full force and effect, and no such
right, preference or limitation shall be deemed dependent on any other such
right, preference or limitation unless so expressed herein.
10. STATUS OF REACQUIRED SHARES. Shares of Series A, B or C Convertible
Preferred Stock that are issued and subsequently redeemed or otherwise
reacquired in any manner shall (on compliance with any applicable provisions of
the laws of the State of Delaware) have the status of authorized and unissued
shares of Preferred Stock issuable in series undesignated as to series and may
be redesignated and reissued.
D. STOCK SPLIT. Immediately upon the filing (the "Effective Time") of this
Amended and Restated Certificate of Incorporation, each share of Common Stock
outstanding as of the Effective Time shall be, without further action by the
Corporation or any of the holders thereof, split up and converted into four (4)
shares of Common Stock. Unless otherwise requested by the holders thereof, the
share certificates representing the shares outstanding prior to the filing of
this Amended and Restated Certificate of Incorporation shall represent such
number of new shares as split and converted following the filing hereof. Upon
surrender by a holder of Common Stock of a certificate or certificates for
Common Stock, duly endorsed, at the office of the Corporation, the Corporation
shall, as soon as practicable thereafter, issue and deliver at such office to
such holder of Common Stock, or to the nominee or nominees of such holder, a
certificate or certificates for the number of new shares to which such holder
shall be entitled as aforesaid.
ARTICLE VI
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors of this Corporation is expressly authorized to
adopt, amend or repeal from time to time any or all of the Bylaws of this
Corporation.
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ARTICLE VII
The number of directors which shall constitute the whole Board
of Directors of this Corporation shall be as specified in the Bylaws of this
Corporation, subject to Article VI and this Article VII.
ARTICLE VIII
A director of this Corporation shall not be personally liable
to this Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (a) for any breach of the
director's duty of loyalty to this Corporation or its stockholders, (b) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) under section 174 of the General Corporation Law
of the State of Delaware, or (d) for any transaction from which the director
derived an improper personal benefit. Neither the amendment or repeal of this
Article VIII nor the adoption of any provision of the Certificate of
Incorporation or the Bylaws or any statute inconsistent with this Article VIII,
shall eliminate or reduce the effect of this Article VIII with respect to any
act or omission occurring, or any cause of action, suit or claim that but for
this Article VIII would accrue or arise, prior to such amendment, repeal or
adoption of an inconsistent provision.
ARTICLE IX
This Corporation reserves the right at any time and from time
to time to amend, alter, change or repeal any provision herein, and other
provisions authorized by the laws of the State of Delaware at the time in force
may be added or inserted, in the manner now or hereafter prescribed by law, and
all rights, preferences and privileges of whatsoever nature conferred on
stockholders, directors or any other person whomsoever by or pursuant to this
Certificate of Incorporation in its present form or as hereafter amended are
granted, subject to the rights reserved in this Article IX.
ARTICLE X
Meetings of stockholders may be held outside the State of
Delaware, if the Bylaws so provide. The books of this Corporation may be kept
(subject to any provision of law) outside the State of Delaware. Elections of
directors need not be by ballot unless the Bylaws of this Corporation shall so
provide.
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BYLAWS
OF
VALUECLICK, INC.
ARTICLE I
OFFICES
Section 1. REGISTERED OFFICE. The registered office shall be in Wilmington,
County of Newcastle, State of Delaware.
Section 2. OTHER OFFICES. The corporation may also have offices at such
other places both within and without the State of Delaware as the board of
directors may from time to time determine or the business of the corporation
may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. PLACE OF MEETINGS. Each meeting of the stockholders for the
election of directors shall be held at such place as may be fixed from time
to time by the board of directors, either within or without the State of
Delaware, as shall be designated from time to time by the board of directors
and stated in the notice of the meeting. Meetings of stockholders for any
other purpose may be held at such time and place, within or without the State
of Delaware, as shall be stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
Section 2. ANNUAL MEETINGS. Annual meetings of stockholders shall be
held at such date and time as shall be designated from time to time by the
board of directors and stated in the notice of the meeting, at which they
shall elect by a plurality vote a board of directors and transact such other
business as may properly be brought before the meeting.
Section 3. NOTICE OF ANNUAL MEETING. Written notice of the annual
meeting stating the place, date and hour of the meeting shall be given to
each stockholder entitled to vote at such meeting not less than ten nor more
than sixty days before the date of the meeting, except as may otherwise be
provided by law.
Section 4. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer who has
charge of the stock ledger of the corporation shall prepare and make, at
least ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares
<PAGE>
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to
the meeting, either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting, or, if not
so specified, at the place where the meeting is to be held. The list shall
also be produced and kept at the time and place of the meeting during the
whole time thereof and may be inspected by any stockholder who is present.
Section 5. SPECIAL MEETINGS. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
certificate of incorporation, may be called by the president and shall be
called by the president or secretary at the request in writing of a majority
of the board of directors, or at the request in writing of stockholders
owning a majority in amount of the entire capital stock of the corporation
issued and outstanding and entitled to vote. Such request shall state the
purpose or purposes of the proposed meeting.
Section 6. NOTICE OF SPECIAL MEETINGS. Written notice of a special
meeting stating the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called shall be given not less than ten nor
more than sixty days before the date of the meeting to each stockholder
entitled to vote at such meeting.
Section 7. BUSINESS TRANSACTED AT SPECIAL MEETINGS. Business
transacted at any special meeting of stockholders shall be limited to the
purpose stated in the notice.
Section 8. ADJOURNMENT OF MEETINGS. The holders of a majority of the
stock issued and outstanding and entitled to vote thereat, present in person
or represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business except as otherwise provided by
statute or by the certificate of incorporation. If, however, such quorum
shall not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting at which a quorum shall be
present or represented any business may be transacted which might have been
transacted at the meeting as originally noticed. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given
to each stockholder of record entitled to vote at the meeting.
Section 9. QUORUM. When a quorum is present at any meeting, the vote of
the holders of a majority of the stock having voting power present in person
or represented by proxy shall decide any question brought before such
meeting, unless the question is one upon which by express provision of the
statutes or of the certificate of incorporation a different vote is required,
in which case such express provision shall govern.
Section 10. VOTING. Unless otherwise provided in the certificate of
incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital
stock having voting power held by such stockholder, but no proxy shall be
voted after three years from its date, unless the proxy provides for a longer
period.
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Section 11. CONSENT IN LIEU OF MEETING. Unless otherwise provided in the
certificate of incorporation, any action required to be taken at any annual
or special meeting of stockholders of the corporation, or any action which
may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a
consent or consents in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Each such written consent shall bear the date of the signature of the
consenting stockholder. No such written consent shall be effective unless
written consents, signed by stockholders holding of record a sufficient
number of shares to take the action proposed, shall be delivered to the
corporation within sixty days of the date of the earliest consent so
delivered. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to stockholders
as required by the Delaware General Corporation Law.
ARTICLE III
DIRECTORS
Section 1. NUMBER OF DIRECTORS. The authorized number of directors shall
not be less than two (2) nor more than nine (9). The exact authorized number
of directors shall be fixed from time to time, within the limits specified in
this Section 1 or in the certificate of incorporation, by the board of
directors, or by a bylaw or amendment thereof duly adopted by the vote of a
majority of the shares represented and voting at a duly held meeting at which
a quorum is present (which shares voting affirmatively also constitute at
least a majority of the required quorum), or by the written consent of the
holders of a majority of the outstanding shares entitled to vote. Subject to
the foregoing, the authorized number of directors of this corporation shall
initially be set at six (6).
Section 2. VACANCIES. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be
filled by a majority of the directors then in office, though less than a
quorum, or by a sole remaining director, and the directors so chosen shall
hold office until the next annual election and until their successors are
duly elected and shall qualify, unless sooner displaced. If there are no
directors in office, then an election of directors may be held in the manner
provided by law. If, at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a
majority of the whole board (as constituted immediately prior to any such
increase), the Court of Chancery may, on application of any stockholder or
stockholders holding at least ten percent of the total number of the shares
at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors
then in office.
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Section 3. POWERS AND AUTHORITY. The business of the corporation shall
be managed by or under the direction of its board of directors which may
exercise all such powers of the corporation and do all such lawful acts and
things as are not by law, by the certificate of incorporation or by these
bylaws directed or required to be exercised or done by the stockholders.
Section 4. MEETINGS OF THE BOARD OF DIRECTORS. The board of directors of
the corporation may hold meetings, both regular and special, either within or
without the State of Delaware.
Section 5. FIRST MEETINGS. The first meeting of each newly elected board
of directors shall be held at such time and place as shall be fixed by the
vote of the stockholders at the annual meeting and no notice of such meeting
shall be necessary for the newly elected directors legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of
the stockholders to fix the time or place of such first meeting of the newly
elected board of directors, or in the event such meeting is not held at the
time and place so fixed by the stockholders, the meeting may be held at such
time and place as shall be specified in a notice given as hereinafter
provided for special meetings of the board of directors, or as shall be
specified in a written waiver signed by all of the directors.
Section 6. REGULAR MEETINGS. Regular meetings of the board of directors
may be held without notice at such time and at such place as shall from time
to time be determined by the board.
Section 7. SPECIAL MEETINGS. Special meetings of the board may be called
by the president on two days' notice to each director, either personally or
by mail or telegram; special meetings shall be called by the president or
secretary in like manner and on like notice on the written request of two
directors unless the board consists of only one director, in which case
special meetings shall be called by the president or secretary in like manner
and on like notice on the written request of the sole director.
Section 8. QUORUM. At all meetings of the board, a majority of the
directors shall constitute a quorum for the transaction of business and the
act of a majority of the directors present at any meeting at which there is a
quorum shall be the act of the board of directors, except as may be otherwise
specifically provided by law or the certificate of incorporation. If a quorum
shall not be present at any meeting of the board of directors, the directors
present thereat may adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present.
Section 9. ACTION WITHOUT A MEETING. Unless otherwise restricted by the
certificate of incorporation or these bylaws, any action required or
permitted to be taken at any meeting of the board of directors or of any
committee thereof may be taken without a meeting, if all members of the board
or committee, as the case may be, consent thereto in writing, and the writing
or writings are filed with the minutes of proceedings of the board or
committee.
Section 10. MEETINGS BY CONFERENCE TELEPHONE. Unless otherwise
restricted by the certificate of incorporation or these bylaws, members of
the board of directors, or any committee
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established by the board of directors, may participate in a meeting of the
board of directors, or such committee, by means of conference telephone or
similar communications equipment by means of which all persons participating
in the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
Section 11. COMMITTEES OF DIRECTORS. The board of directors may, by
resolution passed by a majority of the whole board, establish one or more
committees, each committee to consist of one or more of the directors of the
corporation. The board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member
at any meeting of the committee.
In the absence or disqualification of a member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he, she or they constitute a quorum,
may unanimously appoint another member of the board of directors to act at
the meeting in the place of any such absent or disqualified member.
Any such committee, to the extent provided by resolution of
the board of directors, shall have and may exercise all the powers and
authority of the board of directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; provided that no such
committee shall have power or authority to resolve to amend the certificate
of incorporation, adopt an agreement of merger or consolidation, recommend to
the stockholders the sale, lease or exchange of all or substantially all of
the corporation's property and assets, recommend to the stockholders a
dissolution of the corporation or a revocation of a dissolution or amend the
bylaws of the corporation; and provided further that, unless such resolution
or the certificate of incorporation expressly so provides, no such committee
shall have power or authority to declare a dividend or authorize the issuance
of stock.
Each committee shall keep regular minutes of its meetings
and report the same to the board of directors when required.
Section 12. COMPENSATION OF DIRECTORS. Unless otherwise restricted by
the certificate of incorporation or these bylaws, the board of directors
shall have the authority to fix the compensation of directors. The directors
may be paid their expenses, if any, of attendance at each meeting of the
board of directors and may be paid a fixed sum for attendance at each meeting
of the board of directors or a stated salary as director. No such payment
shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor. Members of special or standing
committees may be allowed like compensation for attending committee meetings.
Section 13. REMOVAL OF DIRECTORS. Unless otherwise restricted by law or
the certificate of incorporation, any director or the entire board of
directors may be removed, with or without cause, by the holders of a majority
of shares entitled to vote at an election of directors.
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ARTICLE IV
NOTICES
Section 1. NOTICE OF MEETINGS OF STOCKHOLDERS AND DIRECTORS. Whenever
notice is required by law, the certificate of incorporation or these bylaws
to be given to any director or stockholder, such notice shall be in writing
and delivered personally, by mail or by telegram or other electronic means,
postage and charges prepaid, addressed to such director or stockholder, at
his or her address as it appears on the records of the corporation, and such
notice shall be deemed given when the same shall be delivered personally,
delivered to the agent for transmission or deposited in the United States
mail.
Section 2. WAIVER OF NOTICE. Whenever any notice is required by law, the
certificate of incorporation or these bylaws, a waiver thereof in writing,
signed by the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent thereto.
ARTICLE V
OFFICERS
Section 1. OFFICERS. The officers of the corporation shall be chosen by
the board of directors and shall be a president, a secretary and a treasurer.
The board of directors may also appoint a chairman of the board and one or
more vice chairmen, vice presidents, assistant secretaries or assistant
treasurers. Any number of offices may be held by the same person, unless the
certificate or incorporation or these bylaws otherwise provide.
Section 2. APPOINTMENT OF OFFICERS. The board of directors at its first
meeting after each annual meeting of stockholders shall choose a president, a
secretary and a treasurer.
Section 3. ASSISTANT OFFICERS. The board of directors may appoint such
other officers and agents as it shall deem necessary who shall hold their
offices for such terms and shall exercise such powers and perform such duties
as shall be determined from time to time by the board.
Section 4. OFFICERS' SALARIES. The salaries of all officers and agents
of the corporation shall be fixed by or pursuant to the authority of the
board of directors.
Section 5. TERMS OF OFFICE. The officers of the corporation shall hold
office until their successors are chosen and qualify. Any officer elected or
appointed by the board of directors may be removed at any time by the
affirmative vote of a majority of the board of directors. Any vacancy
occurring in any office of the corporation shall be filled by the board of
directors.
Section 6. PRESIDENT. The president shall be the chief executive officer
of the corporation, shall preside at all meetings of the stockholders and the
board of directors, shall
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have general and active management of the business of the corporation and
shall see that all orders and resolutions of the board of directors are
carried into effect. The president shall execute any certificate or
instrument requiring a seal, under the seal of the corporation, except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be expressly delegated by the
board of directors to some other officer or agent of the corporation.
Section 7. VICE PRESIDENTS. In the absence or inability or refusal to
act of the president, the vice president, if any (or, in the event there be
more than one vice president, the vice presidents in the order designated by
the board of directors or, in the absence of any designation, in the order of
their election), shall perform the duties of the president and, when so
acting, shall have all the powers of and be subject to all the restrictions
on the president. The vice presidents shall perform such other duties and
have such other powers as the board of directors may from time to time
prescribe.
Section 8. SECRETARY. The secretary shall attend all meetings of the
board of directors, all meetings of committees of the board of directors and
all meetings of the stockholders and record all the proceedings of such
meetings in a book to be kept for that purpose. The secretary shall give, or
cause to be given, notice of all meetings of the stockholders and special
meetings of the board of directors and committees of the board of directors,
and shall perform such other duties as may be prescribed by the board of
directors or president, under whose supervision the secretary shall be. The
secretary shall have custody of the corporate seal of the corporation and the
secretary or an assistant secretary shall have authority to affix the same to
any certificate or instrument requiring it and, when so affixed, it may be
attested by either of their signatures. The board of directors may give
general authority to any other officer to affix the seal of the corporation
and to attest the affixing by such officer's signature.
Section 9. ASSISTANT SECRETARY. The assistant secretary (or, if there be
more than one, the assistant secretaries in the order determined by the board
of directors or, if there be no such determination, in the order of their
election) shall, in the absence or inability or refusal to act of the
secretary, perform the duties and exercise the powers of the secretary and
shall perform such other duties and have such other powers as the board of
directors may from time to time prescribe.
Section 10. TREASURER. The treasurer shall have custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts
and disbursements in books belonging to the corporation and shall deposit all
moneys and other valuable effects in the name and to the credit of the
corporation in such depositories as may be designated by the board of
directors. The treasurer shall disburse the funds of the corporation as may
be ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the president and board of directors, at
its regular meetings, or when the president or board of directors so
requires, an account of all transactions as treasurer and of the financial
condition of the corporation. If required by the board of directors, the
treasurer shall give the corporation a bond in such sum and with such surety
or sureties as shall be satisfactory to the board of directors for the
faithful performance of the duties of the office of treasurer and for the
restoration to the corporation, in case of the treasurer's death,
resignation, retirement or removal
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from office, of all books, papers, vouchers, money and other property of
whatever kind in his or her possession or under his or her control belonging
to the corporation.
Section 11. ASSISTANT TREASURER. The assistant treasurer (or, if there
be more than one, the assistant treasurers in the order determined by the
board of directors or, if there be no such determination, in the order of
their election) shall, in the absence or inability or refusal to act of the
treasurer, perform the duties and exercise the powers of the treasurer and
shall perform such other duties and have such other powers as the board of
directors may from time to time prescribe.
ARTICLE VI
STOCK CERTIFICATES
Section 1. FORM OF CERTIFICATE. Every holder of stock in the corporation
shall be entitled to have a certificate, signed by, or in the name of the
corporation by, the chairman or vice chairman of the board of directors or
the president or a vice president and by the treasurer, an assistant
treasurer, the secretary or an assistant secretary of the corporation,
certifying the number of shares owned by such holder in the corporation.
Section 2. CONSIDERATION. Certificates may be issued for partly paid
shares and, in such case, the total amount of the consideration to be paid
therefor and the amount paid thereon shall be specified on the face or back
of the certificates issued to represent any such partly paid shares.
Section 3. CLASSES OR SERIES OF STOCK. If the corporation shall be
authorized to issue more than one class of stock or more than one series of
any class, the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualification, limitations or restrictions of such preferences or rights
shall be set forth in full or summarized on the face or back of any
certificate that the corporation shall issue to represent shares of such
class or series of stock; provided that, except as otherwise provided in
section 202 of the General Corporation Law of Delaware, in lieu thereof, a
statement that the corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and
relative, participating optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions
of such preferences or rights may be set forth on the face or back of each
certificate that the corporation shall issue to represent shares of such
class or series of stock.
Section 4. FACSIMILE SIGNATURES. Any or all of the signatures on any
such certificate may be facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed on a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the corporation
with the same effect as if he, she or it were such officer, transfer agent or
registrar at the date of issue.
Section 5. LOST CERTIFICATES. The board of directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the
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corporation alleged to have been lost, stolen or destroyed, on the taking of
an affidavit of that fact by the person claiming the certificate of stock to
be lost, stolen or destroyed. When authorizing such issue of a new
certificate or certificates, the board of directors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of
such lost, stolen or destroyed certificate or certificates, or his, her or
its legal representative, to advertise the same in such manner as it shall
require or to give the corporation a bond in such sum as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen or destroyed.
Section 6. TRANSFER OF STOCK. Subject to applicable law, on surrender to
the corporation or the transfer agent of the corporation of a certificate for
shares duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer, the corporation shall issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction on its books.
Section 7. RECORD DATE. So that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof or to consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights or to exercise any rights in respect
of any change, conversion or exchange of stock, or for the purpose of any
other lawful action, the board of directors may fix a record date in advance
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other such action, and
which shall not precede the date of adoption by the board of directors of the
resolution fixing such record date. Additionally, the record date for
determining stockholders entitled to consent to corporate actions in writing
in lieu of a meeting shall not be more than ten days after the date of
adoption of the resolution fixing such record date. In the case of any
proposal so to be submitted to the stockholders for action by written
consent, if no record date is fixed by resolution of the board of directors,
the record date therefor shall be either (a) if no prior action by the board
of directors is necessary, the first date on which a signed written consent
setting forth the proposed action is delivered to the corporation, or (b) if
prior action by the board of directors is required, the close of business on
the date of adoption by the board of directors of the resolution taking such
prior action. Except as otherwise provided by applicable law, a determination
of stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting, unless the board
of directors fixes a new record date for the adjourned meeting.
Section 8. STOCKHOLDERS OF RECORD. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the
owner of shares, and shall not be bound to recognize any equitable
or other claim to or interest in such share or shares on the part of any
other person, whether or not it shall have express or other notice thereof,
except as otherwise provided by law.
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ARTICLE VII
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND OTHER AGENTS
Section 1. DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall
indemnify its directors and executive officers to the fullest extent
permitted by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of alleged occurrences or actions or
omissions preceding any such amendment, only to the extent that such
amendment permits the corporation to provide broader indemnification rights
than said Law permitted the corporation to provide prior to such amendment);
provided, however, that the corporation may limit the extent of such
indemnification by individual contracts with its directors and executive
officers; and provided, further, that the corporation shall not be required
to indemnify any director or executive officer in connection with any
proceeding (or part thereof) initiated by such person or any proceeding by
such person against the corporation or its directors, officers, employees or
other agents unless (i) such indemnification is expressly required to be made
by law, (ii) the proceeding was authorized by the board of directors of the
corporation or (iii) such indemnification is provided by the corporation, in
its sole discretion, pursuant to the powers vested in the corporation under
the Delaware General Corporation Law.
Section 2. OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation
shall have power to indemnify its other officers, employees and other agents
as set forth in the Delaware General Corporation Law.
Section 3. GOOD FAITH.
(a) For purposes of any determination under this Article, a
director or executive officer shall be deemed to have acted in good faith and
in a manner he or she reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe that his or her
conduct was unlawful, if such action is based on the records or books of
account of the corporation or another enterprise, or on information supplied
to him or her by the officers of the corporation or another enterprise in the
course of their duties, or on the advice of legal counsel for the corporation
or another enterprise or on information or records given or reports made to
the corporation or another enterprise by an independent certified public
accountant or by an appraiser or other expert selected with reasonable care
by the corporation or another enterprise.
(b) The termination of any proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent
shall not, of itself, create a presumption that the person did not act in
good faith and in a manner which he or she reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to
any criminal proceeding, that he or she had reasonable cause to believe that
his or her conduct was unlawful.
(c) The provisions of this section 3 shall not be deemed to be
exclusive or to limit in any way the circumstances in which a person may be
deemed to have met the applicable standard of conduct set forth by the
Delaware General Corporation Law.
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Section 4. EXPENSES. The corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all
expenses incurred by any director or executive officer in connection with
such proceeding upon receipt of an undertaking by or on behalf of such person
to repay said amounts if it should be determined ultimately that such person
is not entitled to be indemnified under this Article or otherwise.
Notwithstanding the foregoing, unless otherwise determined
pursuant to section 5 of this Article, no advance shall be made by the
corporation if a determination is reasonably and promptly made (1) by the
board of directors by a majority vote of a quorum consisting of directors who
were not parties to the proceeding, or (2) if such quorum is not obtainable,
or, even if obtainable, a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, that the facts known to the
decision-making party at the time such determination is made demonstrate
clearly and convincingly that such person acted in bad faith or in a manner
that such person did not believe to be in or not opposed to the best
interests of the corporation.
Section 5. ENFORCEMENT. Without the necessity of entering into an
express contract, all rights to indemnification and advances under this
Article shall be deemed to be contractual rights and to be effective to the
same extent and as if provided for in a contract between the corporation and
the director or executive officer who serves in such capacity at any time
while this Article and other relevant provisions of the Delaware General
Corporation Law and other applicable law, if any, are in effect. Any right to
indemnification or advances granted by this Article to a director or
executive officer shall be enforceable by or on behalf of the person holding
such right in any court of competent jurisdiction if (i) the claim for
indemnification or advances is denied, as a whole or in part, or (ii) no
disposition of such claim is made within ninety days of request therefor. The
claimant in such enforcement action, if successful as a whole or in part,
shall be entitled to be paid also the expense of prosecuting his or her
claim. It shall be a defense to any such action (other than an action brought
to enforce a claim for expenses incurred in connection with any proceeding in
advance of its final disposition when the required undertaking has been
tendered to the corporation) that the claimant has not met the standards of
conduct which make it permissible under the Delaware General Corporation Law
for the corporation to indemnify the claimant for the amount claimed, but the
burden of proving such defense shall be on the corporation. Neither the
failure of the corporation (including its board of directors, independent
legal counsel or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the corporation (including its board of directors,
independent legal counsel or its stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or
create a presumption that claimant has not met the applicable standard of
conduct.
Section 6. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person
by this Article shall not be exclusive of any other right which such person
may have or hereafter acquire under any statute, provision of the Certificate
of Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his or her official capacity and
as to action in another capacity while holding office. The corporation is
specifically authorized to enter into individual contracts with any or all of
its directors, officers, employees or
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<PAGE>
agents respecting indemnification and advances, to the fullest extent
permitted by the Delaware General Corporation Law.
Section 7. SURVIVAL OF RIGHTS. The rights conferred on any person by
this Article shall continue as to a person who has ceased to be a director,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Section 8. INSURANCE. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the board of
directors, may purchase insurance on behalf of any person required or
permitted to be indemnified pursuant to this Article.
Section 9. AMENDMENTS. Any repeal or modification of this Article shall
only be prospective and shall not affect the rights under this Article in
effect at the time of the alleged occurrence of any action or omission to act
that is the cause of any proceeding against any agent of the corporation.
Section 10. SAVINGS CLAUSE. If this Article or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer
to the full extent permitted by any applicable portion of this Article that
shall not have been invalidated, or by any other applicable law.
Section 11. CERTAIN DEFINITIONS. For the purposes of this Article, the
following definitions shall apply:
(a) the term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony
in, any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative.
(b) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees,
fines, amounts paid in settlement or judgment and any other costs and
expenses of any nature or kind incurred in connection with any proceeding.
(c) The term "the corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent
of a constituent) absorbed in a consolidation or merger which, if its
separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any
person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall
stand in the same position under the provisions of this Article with respect
to the resulting or surviving corporation as he or she would have with
respect to such constituent corporation if its separate existence had
continued.
(d) References to a "director," "officer," "employee," or "agent" of the
corporation shall include, without limitation, situations where such person
is serving at the
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request of the corporation as a director, officer, employee, trustee or agent
of another corporation, partnership, joint venture, trust or other enterprise.
(e) References to "other enterprises" shall include employee benefit
plans; references to "fines" shall include any excise taxes assessed on a
person with respect to an employee benefit plan; and references to "serving
at the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee or agent with respect
to an employee benefit plan, its participants, or beneficiaries; and a person
who acted in good faith and in a manner he or she reasonably believed to be
in the interest of the participants and beneficiaries of an employee benefit
plan shall be deemed to have acted in a manner "not opposed to the best
interests of the corporation" as referred to in this Article.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. DIVIDENDS. Subject to applicable law and the certificate of
incorporation, dividends on the capital stock of the corporation may be
declared by the board of directors at any regular or special meeting and may
be paid in cash, shares of the capital stock or other property.
Section 2. PAYMENT OF DIVIDENDS. Before payment of any dividend, there
may be set aside out of any funds of the corporation available for dividends
such sum or sums as the directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, for
equalizing dividends, for repairing or maintaining any property of the
corporation or for such other purpose as the directors shall think conducive
to the interest of the corporation, and the directors may modify or abolish
any such reserve in the manner in which it is created.
Section 3. ANNUAL STATEMENT. The board of directors shall present at
each annual meeting, and at any special meeting of the stockholders when
called for by vote of the stockholders, a full and clear statement of the
business and condition of the corporation.
Section 4. CHECKS. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person
or persons as the board of directors may from time to time designate.
Section 5. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by the board of directors.
Section 6. SEAL. The corporation shall have a corporate seal, which may
be altered at pleasure, and which may have inscribed thereon the name of the
corporation, the year of its organization and the words "Incorporated,
Delaware", or which may have inscribed thereon any other words, including but
not limited to the words "Corporate Seal" as the officers may designate. The
seal may be used by causing it or a facsimile thereof to be impressed,
affixed or reproduced, or otherwise.
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ARTICLE IX
AMENDMENTS
These bylaws may be altered, amended or repealed or new
bylaws may be adopted by the stockholders, or by the board of directors when
such power is conferred on the board of directors by the certificate of
incorporation, at any regular meeting thereof, or at any special meeting of
the stockholders or of the board of directors if notice of such alteration,
amendment, repeal or adoption be contained in the notice of such special
meeting. If the power to alter, adopt, amend or repeal bylaws is conferred on
the board of directors by the certificate of incorporation, it shall not
divest or limit the power of the stockholders to alter, adopt, amend or
repeal bylaws.
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CERTIFICATE OF SECRETARY
The undersigned, Secretary of ValueClick, Inc., a Delaware
corporation, hereby certifies that the foregoing is a full, true and correct
copy of the Bylaws of said corporation, as amended and in full force and
effect at the date of this Certificate.
WITNESS the signature of the undersigned and the seal of
the corporation this October 9, 1998.
/s/ BRIAN CORYAT
[SEAL] -----------------------------
Brian Coryat
Secretary of ValueClick, Inc.
15
<PAGE>
EXHIBIT 5.1
[LETTERHEAD]
TELEPHONE: (213) 489-4060
FACSIMILE: (213) 239-1324
November 23, 1999
ValueClick, Inc.
6450 Via Real
Carpinteria, California 93013
Re: VALUECLICK, INC. REGISTRATION STATEMENT ON FORM S-1
FOR 5,750,000 SHARES OF COMMON STOCK
Ladies and Gentlemen:
We have acted as counsel to ValueClick, Inc. the ("Company"), in
connection with (i) the proposed issuance and sale by the Company of up to
5,340,000 shares of the Company's Common Stock and (ii) the proposed sale by
certain selling stockholders of up to 410,000 shares of the Company"s Common
Stock (collectively, the "Shares") pursuant to the Company's Registration
Statement on Form S-1 (the "Registration Statement") filed with the
Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Act").
This opinion is being furnished in accordance with the requirements of
Item 16(a) of Form S-1 and Item 601(b)(5)(i) of Regulation S-K.
We have reviewed the Company's charter documents and the corporate
proceedings taken by the Company in connection with the issuance and sale of
the Shares. Based on such review, we are of the opinion that the Shares have
been duly authorized, and if, as and when issued in accordance with the
Registration Statement and the related prospectus (as amended and
supplemented through the date of issuance) will upon such issuance and sale,
be legally issued, fully paid and nonassessable.
We consent to the filing of this opinion letter as Exhibit 5.1 to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus which is part of the Registration
Statement. In giving this consent, we do not thereby admit that we are
within the category of persons whose consent is required under Section 7 of
the Act, the rules and regulations of the Securities and Exchange Commission
promulgated thereunder, or Item 509 of Regulation S-K.
<PAGE>
ValueClick, Inc. November 23, 1999
Page 2
This opinion letter is rendered as of the date first written above and
we disclaim any obligation to advise you of facts, circumstances, events or
developments which hereafter may be brought to our attention and which may
alter, affect or modify the opinion expressed herein. Our opinion is
expressly limited to the matters set forth above and we render no opinion,
whether by implication or otherwise, as to any other matters relating to the
Company or the Shares.
Very truly yours,
BROBECK, PHLEGER & HARRISON LLP
<PAGE>
VALUECLICK, INC.
1999 STOCK OPTION PLAN
PLAN AMENDMENT
---------------
The ValueClick, Inc. 1999 Stock Option Plan (the "Plan") is hereby
amended, effective October 8, 1999, as follows:
1. The first sentence of Section 1 is hereby amended to read as
follows:
The Company shall reserve TWO MILLION (2,000,000) shares (the
"Shares") of its Common Stock, with a par value $0.001 (the "Common Stock")
to be issued upon exercise of the Options which may be granted from time to
time under this Plan (the "Options").
2. Except as modified by this Plan Amendment, all the existing
terms and provisions of the Plan shall continue in full force and effect.
IN WITNESS WHEREOF, ValueClick, Inc. has caused
this Plan Amendment to be executed on its behalf by its duly authorized
officer on this 8th day of October, 1999.
VALUECLICK, INC.,
a Delaware corporation
By: /s/ KURT A. JOHNSON
-------------------------------
Name: Kurt A. Johnson
Title: Chief Financial Officer
<PAGE>
VALUECLICK, INC.
1999 STOCK OPTION PLAN
--------------------------
This ValueClick, Inc. 1999 Stock Option Plan (the "Plan") was
adopted by the Board of Directors of ValueClick, Inc., a Delaware corporation
(the "Company") on May 13, 1999, and by the stockholders of the Company on May
13, 1999.
1. PURPOSES.
The purpose of the Plan is to strengthen the Company and any
corporations and other entities which are or may hereafter become subsidiary
corporations or associations of the Company ("Subsidiaries") by providing an
additional means of attracting and retaining competent directors, officers, and
employees and by providing to participating directors, officers and employees
added incentive for superior performance. The Plan seeks to accomplish these
purposes and achieve these results by providing a means whereby such directors,
officers, and employees may purchase shares of the common stock of the Company
pursuant to Options granted in accordance with this Plan.
2. STOCK SUBJECT TO PLAN.
The Company shall reserve ONE MILLION FIVE HUNDRED TWENTY
THOUSAND (1,520,000) shares (the "Shares") of its Common Stock, with a par value
$0.001 (the "Common Stock") to be issued upon exercise of the Options which may
be granted from time to time under this Plan (the "Options"). As it may from
time to time determine, the Board of Directors of the Company (hereinafter
called the "Board") may authorize that the Shares may be comprised, in whole or
in part, of authorized but unissued shares of the Common Stock of the Company.
If Options granted under this Plan terminate or expire before being exercised in
whole or in part, the Shares subject to those Options that have not been issued
may be subjected to subsequent Options granted under this Plan.
3. ADMINISTRATION OF THE PLAN.
The Board may at its discretion appoint a Stock Option
Committee (hereinafter called the "Committee") which shall consist of not fewer
than two (2) members of the Board who are not also employees or officers of the
Company, or, at the discretion of the Board, may consist of the entire Board, to
administer this Plan. Subject to the express provisions of this Plan and
guidelines which may be adopted from time to time by the Board, the Committee
(if one is appointed) shall have plenary authority in its discretion to (a)
determine the individuals to whom, and the time at which, Options are granted,
and the number and purchase price of the Shares subject to each Option; (b)
determine whether the Options granted shall be "incentive stock options" within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or non-statutory stock options, or both; (c) interpret this Plan and
prescribe, amend, and rescind rules and regulations relating to it; (d)
determine the terms and provisions (and amendments thereof) of the respective
Option Agreements subject to Section 6 of this Plan, which need not be
identical,
<PAGE>
including, if the Board or the Committee shall determine that a particular
Option is to be an incentive stock option, such terms and provisions (and
amendments thereof) as the Committee deems necessary to provide for an incentive
stock option or to conform to any change in any law, regulation, ruling or
interpretation applicable to incentive stock options; and (e) make any and all
determinations which the Committee deems necessary or advisable in administering
this Plan. The Committee's determination on the foregoing matters shall be
conclusive.
4. PERSONS ELIGIBLE.
(a) All persons who are directors or full-time salaried
employees of, or consultants to, the Company or of any Subsidiary are eligible
to participate in this Plan, and to be granted Options hereunder. For the
purposes of this Plan, (i) the term "employee" shall be deemed to conform to the
requirements of Section 422 of the Code, and (ii) the term "subsidiary" means
subsidiary corporations as defined in Section 424 of the Code.
(b) Employees of the Company or its subsidiaries may be
granted either incentive or non-statutory options. Consultants (including
officers and directors) of the Company and its subsidiaries may be granted only
non-statutory options, except officers and directors who are also employees, who
may be granted either incentive or non-statutory options.
(c) The aggregate fair market value (determined as provided in
Section 6(a)(iii), below) of the Shares with respect to which incentive stock
options are exercisable for the first time by an Optionee during any calendar
year (under all incentive stock option plans of the Company or its parent or
subsidiaries) shall not exceed $100,000.
5. CHANGES IN CAPITAL STRUCTURE.
(a) EFFECT ON THE PLAN. In the event of changes in the
outstanding capital stock of the Company by reason of any stock dividend, stock
split or reverse split, reclassification, recapitalization, merger or
consolidation, reorganization, liquidation, or equivalent event, the Committee
and/or the Board shall make such adjustments in the aggregate number and class
of shares available under this Plan as it deems to be appropriate and in
accordance with the terms of the Plan. Such determination shall be final,
binding, and conclusive.
(b) EFFECT OF CERTAIN EVENTS ON OUTSTANDING OPTIONS.
(i) STOCK SPLITS AND LIKE EVENTS. Should a stock
dividend, stock split, reverse stock split, or reclassification occur, then the
Committee and/or the Board shall make such adjustments in (A) the number and
class of shares to which Optionees will thereafter be entitled upon exercise of
their outstanding Options and (B) the price which Optionees shall be required to
pay upon such exercise, as it in its sole discretion in good faith deems
appropriate; PROVIDED, that each such adjustment shall have the result that an
Optionee exercising an Option subsequent to such occurrence shall have paid the
same aggregate exercise price to exercise the entire Option and shall
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<PAGE>
then hold the same class and aggregate number of shares as if such Optionee had
exercised the outstanding Option immediately prior to such occurrence.
(ii) RECAPITALIZATIONS; ASSUMPTION OF OPTIONS.
(A) In the event of
(I) a merger or consolidation in which the Company is
not the surviving corporation (other than a merger or
consolidation with a wholly owned subsidiary, a
reincorporation of the Company in a different
jurisdiction, or other transaction in which there is
no substantial change in the stockholders of the
Company and the Options granted under this Plan are
assumed by the successor corporation, which
assumption shall be binding on all Optionees);
(II) a dissolution or liquidation of the Company;
(III) the sale of substantially all of the assets of
the Company; or
(IV) any other transaction which qualifies as a
"corporate transaction" under Section 424(a) of the
Code wherein the stockholders of the Company give up
all of their equity interest in the Company (except
for the acquisition, sale, or transfer of all or
substantially all of the outstanding shares of the
Company):
then, and in each such case, any or all outstanding Options
may be assumed or replaced by the successor corporation, which
assumption or replacement shall be binding on all Optionees.
In the alternative, the successor corporation may substitute
an option as nearly equivalent as practicable.
(B) In the event such successor corporation, if any,
refuses to assume or substitute Options, as provided above,
pursuant to a transaction described in Section 5(b)(ii)(A)
above, the Committee and/or the Board shall provide for the
Optionee to have the right to exercise the Option in full as
to all of the shares subject to the Option, including shares
as to which the Option would not otherwise yet be exercisable.
If the Option is made fully exercisable in such event in lieu
of assumption or substitution of the Option by the successor
corporation, the Board shall notify the Optionee that the
Option shall be fully exercisable for a period of fifteen (15)
days from the date of the notice, and the Option shall expire
upon the expiration of that period.
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<PAGE>
(C) Subject to any greater rights granted to
Optionees under the foregoing provisions of this Section 5, in
the event of the occurrence of any transaction described in
Section 5(b)(ii)(A), any outstanding Options shall be treated
as provided in the applicable agreement or plan of merger,
consolidation, dissolution, liquidation, sale of assets, or
other "corporate transaction."
(D) The Company, from time to time, may also
substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such
other company or otherwise, by either (I) granting an Option
under this Plan in substitution of such other company's award,
or (II) assuming such award as if it had been granted under
this Plan if the terms of such assumed award could be applied
to an Option granted under this Plan. Such substitution or
assumption shall be permissible if the holder of the
substituted or assumed option would have been eligible to be
granted an Option under this Plan if the other company had
applied the rules of this Plan to such grant. In the event the
Company assumes an award granted by another company, the terms
and conditions of such award shall remain unchanged (except
that the exercise price and the number and nature of shares
issuable upon exercise of any such Option will be adjusted
appropriately pursuant to Section 424(a) of the Code). In the
event the Company elects to grant a new Option rather than
assuming an existing Option, such new Option may in the
discretion of the Board (or the Committee) be granted with a
similarly adjusted exercise price.
6. TERMS AND CONDITIONS OF OPTIONS.
Each Option granted under this Plan shall be evidenced by a
stock Option Agreement (an "Agreement") which is not inconsistent with this
Plan, and the form of which the Committee and/or Board may from time to time
determine, PROVIDED that any such Agreement shall contain the substance of the
following:
(a) OPTION PRICE.
(i) MINIMUM EXERCISE PRICES. The per share exercise
price of all Options granted under this Plan shall be: (A) in the case of
incentive stock options, not less than one hundred percent (100%) of the fair
market value of a share of Common Stock; or (B) in the case of non-statutory
options, not less than eighty five percent (85%) of such fair market value; in
either case determined as provided in paragraph (a)(iii) of this Section 6,
below.
(ii) MINIMUM EXERCISE PRICES FOR PRINCIPAL
STOCKHOLDERS. If, at the time a given Option is granted, the Optionee owns
shares possessing more than ten percent (10%) of the total combined voting power
of all the classes of stock of the Company or of its parent or subsidiaries (a
"Principal Stockholder"), the Option price of his or her incentive and
non-statutory stock Options shall be not less than one hundred ten percent
(110%) of the fair market value of the
4
<PAGE>
Shares, determined as provided in paragraph (a)(iii) of this Section 6, below.
(iii) DETERMINATION OF FAIR MARKET VALUE. Whenever
any determination of the fair market value of the company's stock is required to
be made, such fair market value shall be determined in accordance with the
valuation methods described in Section 20.2031-2 of the Treasury Regulations, or
any currently effective successor regulation thereto, or otherwise as the Board
or the Committee may in good faith direct. In each case, the date and time as of
which such fair market value shall be determined is the close of business on the
date immediately prior to the date on which the Board or the Committee awards
the Options in question (or, if the Common Stock is at that time listed on any
national exchange or automated quotation system, the close of business on the
last trading day immediately prior to the date on which the Board or the
Committee awards the Options in question).
(b) METHOD OF EXERCISE.
(i) At the time of purchase, the purchase price of
any Shares purchased hereunder (and any tax due upon exercise) shall be paid in
full, and may be paid, at the discretion of the Board or the Committee: (A) in
cash or cash equivalent acceptable to the Board or the Committee, (B) with a
promissory note secured by the Shares purchased, (C) with outstanding stock of
Company at such value as the Board or the Committee shall determine to be the
fair market value of such stock on the date of exercise in accordance with the
provisions of paragraph (a)(iii) of this Section 6, above, or (D) with a
combination of any of the foregoing. If shares of outstanding Common Stock are
used as payment or part payment, and such shares were acquired upon prior
exercise of an Option granted under this Plan, then such shares must have (I)
been owned by the Optionee for more than six (6) months on the date of surrender
and (II) an aggregate fair market value on the date of surrender of not less
than the aggregate exercise price of the Shares as to which said Option shall be
exercised.
(ii) To the extent that the right to purchase Shares
has accrued under an Option, the Option holder may exercise said Option from
time to time by (A) giving written notice to the Company stating the number of
Shares with respect to which the Option is being exercised, (B) submitting with
said notice payment of the full purchase price of said Shares as described in
paragraph (b)(i) of this Section 6, above, and (C) if applicable, complying with
the requirements of paragraph (b)(iii), and any requirements of the Company upon
advice of its counsel pursuant to paragraph (b)(iv), of this Section 6, below.
(iii) At the discretion of the Board or the
Committee, the Optionee may be required, as a condition of the exercise of any
Option, to make such representations and warranties to the Company as may be
reasonably be required under applicable state and federal securities laws.
5
<PAGE>
(iv) After receiving the notice, payment, and
evidence of compliance described in paragraphs (b) (ii) and (b)(iii) of this
Section 6, above, the Company shall issue, at the main office of the Company or
such other place as shall be mutually acceptable, a certificate or certificates
representing the number of Shares to be delivered, out of authorized but
unissued Shares or reacquired Shares of its capital stock. The certificate shall
be issued within thirty (30) days after full compliance with all of such
conditions; PROVIDED, HOWEVER, that the time of such delivery may be postponed
by the Company for such period as may be required for it with reasonable
diligence to comply with such procedures as may, in the opinion of counsel to
the Company, be desirable in view of federal and state laws, including corporate
securities laws and revenue and taxation laws, and the provisions of this Plan.
If the Option holder fails to accept delivery of any or all of the number of
Shares specified in such notice upon tender of delivery of the certificates
representing them, the right to exercise the Option with respect to such
undelivered Shares may, at the Committee's discretion, be terminated.
(c) OPTION TERM. The Board or the Committee may grant Options
for any term, but shall not grant any Options for a term longer than ten (10)
years from the date the Option is granted (except in the case of an incentive
stock option granted to a Principal Stockholder, in which case the term shall be
no longer than five (5) years from the date the Option is granted). Each Option
shall be subject to earlier termination as provided in Section 6(f) of this
Plan.
(d) TIME OF EXERCISE OF OPTIONS.
(i) Except as provided in clause (ii), below, each
Option granted under this Plan shall be exercisable on such date or dates, upon
or after the occurrence of certain events, or upon or after the achievement of
certain performance milestones (which dates may be advanced or which occurrences
or achievements may be waived in whole or in part or extended at the discretion
of the Board or the Committee), during such period, and for such number of
Shares, as shall be determined by the Board or the Committee in its sole
discretion.
(ii) Notwithstanding clause (i), above, if and for so
long as the Company is relying on the exemption from qualification provided by
Section 25102(o) of the California Corporate Securities Law of 1968, as amended
(the "Law") and such minimum vesting is a requirement of such exemption,
(A) all options granted hereunder shall (subject to
reasonable conditions including continued employment or
directorship of the Optionee) vest at a minimum rate of 20%
per year, beginning with the first year after the Option
grant, except that
(B) options granted to offices, directors, and
consultants may vest at any time.
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<PAGE>
(iii) If an Option becomes exercisable upon the
occurrence of certain specified events or achievements of certain specified
performance milestones, it shall not be exercised unless and until the Board or
the Committee shall determine, and notify the Optionee in writing, that such
events have occurred or that such performance milestones have been achieved.
(e) NONASSIGNABILITY OF OPTION RIGHTS. No Option shall be
assignable or transferable by the optionee except by will or by the laws of
descent and distribution. During the life of an Optionee, his or her Options
shall be exercisable only by the Optionee.
(f) EFFECT OF TERMINATION OF EMPLOYMENT OR DIRECTORSHIP.
(i) TERMINATION OTHER THAN BY DEATH, DISABILITY, OR
FOR CAUSE. In the event that an Optionee's employment or consulting with the
Company and its Subsidiaries ceases during the Optionee's life for any reason
(except disability or death), including but not limited to retirement and
termination for cause, then, (subject to the provisions of clause (iii) of this
paragraph (f), below), any incentive or non-statutory stock option or
unexercised portion thereof held by such Optionee which is otherwise exercisable
shall terminate unless exercised within thirty (30) days after the date on which
the Optionee's employment or directorship shall have ceased.
(ii) TERMINATION BY REASON OF DEATH OR DISABILITY. In
the event that any Optionee shall suffer death or disability (as defined in
Section 22(e)(3) of the Code)
(A) while employed or serving as a
director of the Company, or
(B) at the discretion of the Board or
the Committee, within a specified
period of not more than three (3)
months nor less than thirty (30)
days from the date on which such
employment or directorship ceases,
then any option or unexercised portion thereof granted to the Optionee, if
otherwise exercisable by the Optionee at the date of such death or disability,
may (subject to the provisions of clause (iv) of this paragraph (f), below) be
exercised by the Optionee (or by his or her personal representatives, heirs or
legatees) within a period of time, which shall be specified in the Option
Agreement, not to exceed one (1) year nor to be fewer than six (6) months from
the date of death or disability of the Optionee.
(iii) TERMINATION FOR CAUSE. In the event that any
Optionee's employment or directorship shall be terminated for cause, his or her
Options shall, effective immediately thereupon, terminate, and shall thereafter
be void and unexercisable.
7
<PAGE>
(iv) NO EXTENSION OF TERM. Anything to the contrary
herein notwithstanding, no extension provided under this Section 6(f) shall have
the effect of extending the term of any Option granted under this Plan past its
expiration date as provided in the Option Agreement under which it was granted.
(g) RIGHTS OF OPTIONEES. No Optionee shall have rights as a
stockholder with respect to any Shares subject to an Option until the date of
issuance of a share certificate to the Optionee for such Shares. No adjustment
shall be made for dividends or other rights of which the record date is prior to
the date such share certificate is issued. Neither this Plan, nor any action or
agreement thereunder, shall confer on any Optionee, or on any person eligible to
receive Options hereunder, any rights of employment by, or to election or
retention as an officer or director of, the Company or any of its Subsidiaries.
(h) TAX WITHHOLDING. To the extent required by applicable law,
the Company shall withhold from the pay of an Optionee any taxes required to be
withheld upon exercise of an Option. The Company may instead at its discretion
require that the taxes be paid to the Company concurrently with the exercise of
the Option as a condition to the exercise of the Option. The Company may, at the
discretion and upon the approval of the Committee, permit the Optionee to pay
some or all of such taxes by (i) tendering to the Company outstanding shares of
the Company's stock held by the Optionee, meeting the same criteria and valued
in the same manner as stock tendered to pay the exercise price as set forth in
Section 6, above, or (ii) reducing, at the Optionee's instructions, the number
of shares to be issued upon exercise of the Option, with such shares similarly
valued.
(i) RESTRICTIONS ON SHARES. To the extent required by the
Company's Bylaws, or at its discretion by the Board of Directors or the
Committee, all Shares issued upon exercise of Options granted hereunder shall be
subject to (i) a right of repurchase, (ii) a first right of refusal, (iii) a
market stand-off in the event of any public offering of the Company's Common
Stock, or other Company securities convertible into Common Stock, and/or (iv)
such other restrictions on the ownership and/or transfer of the Shares as may
seem reasonable to the Board and/or the Committee. Holders of Shares may be
required to execute non-disclosure agreements prior to being shown certain
information concerning the Company.
(j) COPY OF THE PLAN. Each Option Agreement issued pursuant to
the Plan shall be accompanied by a copy of the Plan itself, including all
currently effective amendments thereto.
(k) OTHER CONDITIONS IMPOSED BY REGULATORY AUTHORITIES. This
Plan, the granting of any Option hereunder, the exercise of any Options
hereunder, and the issuance of shares upon the exercise of any Option, shall be
subject to such approval or other conditions as may be required or imposed by
any regulatory authority having jurisdiction to issue regulations or rules with
respect thereto, including the securities laws of various governmental entities.
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7. LIMITATIONS ON OPTION ISSUANCES UNDER RULE 701, IF APPLICABLE.
(a) The aggregate offering price of Shares subject to
outstanding Options under this Plan in reliance on Rule 701 (or any successor
thereto) under the Securities Act of 1933 ("Rule 701"), plus all other
securities of the Company sold during the previous twelve (12) months in
reliance on Rule 701, may not at any time exceed fifteen percent (15%) of the
Company's total assets, measured as of the end of the Company's most recent
fiscal year.
(b) No Option may be issued under the Plan in reliance on Rule
701 if the number of Shares subject to Options which would thereafter be
outstanding, plus other Shares sold during the preceding twelve (12) months in
reliance upon Rule 701, would exceed fifteen percent (15%) of the total number
of then-outstanding Shares, including all Shares issuable pursuant to the
exercise of outstanding options, rights, warrants, or the conversion of other
convertible securities unless such outstanding options, rights, warrants, or
other convertible securities were issued pursuant to Rule 701, in which case the
number of outstanding shares shall be deemed to include the number of Shares
into which such convertible securities may be converted.
8. AMENDMENT OF THE PLAN.
The Board of Directors of the Company may at any time amend
this Plan; PROVIDED, HOWEVER, that
(a) no amendment may affect any then outstanding Options or
any unexercised portions thereof without the prior consent of the holders of
such Options, and
(b) any amendment which effects one or more of the following
changes in the Plan shall be subject to stockholder approval:
(i) any increase in the number of Shares reserved for
issuance under the Plan,
(ii) any alteration in the class of persons eligible
to be granted incentive stock Options,
(iii) any amendment which causes Options granted to
employees and intended to be incentive Options under this Plan not to
qualify as "incentive stock options" under Section 422 of the Code,
(iv) any amendment which amends this Section 8,
and/or
(v) if the Company then has registered a class of
equity securities pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended, any amendment which would cause this Plan not to
satisfy the conditions of Rule 16b-3 (or
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any then-current replacement therefor) as then in effect.
9. FINANCIAL INFORMATION.
(a) Within ninety (90) days after the end of each fiscal year,
the Company shall provide every holder of a currently outstanding Option under
the Plan with a copy of its financial statements, either audited or unaudited,
for that fiscal year. The Company may require the Optionee to enter into a
nondisclosure agreement in connection with his or her receipt of such financial
statements; PROVIDED, HOWEVER, that any such nondisclosure agreement may not
contain provisions which are more stringent than those the Company imposes
generally on its stockholders who are also receiving the financial statements.
(b) Notwithstanding the foregoing provisions, whenever the
Company provides financial statements, whether audited or unaudited, to all of
its stockholders as a group, the Company shall also concurrently provide each
Optionee with a copy of such financial statements.
10. TERMINATION OF THE PLAN.
(a) The Board may terminate this Plan at any time. If not
earlier terminated, this Plan shall terminate ten (10) years from the date of
its adoption by the Board of Directors. Termination of this Plan will not affect
rights and obligations theretofore granted and then in effect.
(b) This Plan, the granting of any Option hereunder, and the
issuance of Shares upon the exercise of any Option granted hereunder, shall be
subject to such approval or other conditions as may be required or imposed by
any regulatory authority having jurisdiction to issue regulations or rules with
respect thereto, including the securities laws of the various States and other
governmental entities.
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FORM OF INCENTIVE STOCK OPTION AGREEMENT
VALUECLICK, INC.
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION AGREEMENT (the "Agreement") is made and
entered into to be effective as of the __ day of ________, 1999, (the "Effective
Date"), by and between ValueClick, Inc., a California corporation (the
"Company"), and ______________ (the "Optionee"), pursuant to the Company's 1999
Stock Option Plan (the "Plan"), which reserves for issuance to persons serving
the Company as employees certain shares of the Company's Common Stock
(hereinafter called the "Common Stock").
R E C I T A L
The Company desires to carry out the purposes of the Plan by affording
Optionee an opportunity to purchase shares of Common Stock by means of the grant
of an incentive stock option, as hereinafter provided.
A G R E E M E N T
Based upon the facts and premises described above and the mutual
covenants below, the parties hereto do hereby agree as follows:
1. GRANT OF OPTION
The Company hereby grants to Optionee the right and option (hereinafter
called the "Option") to purchase all or any part of an aggregate of
_________________ (_______) shares of Common Stock (such number being subject to
adjustment as provided in Section 7 hereof and hereinafter called the "Option
Shares") on the terms and conditions herein set forth. The Option is intended to
qualify as an "incentive stock option" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
2. PURCHASE PRICE
The purchase price of the Option Shares shall be
_______________________________ ($_____) per share, which price has been
determined by the Stock Option Committee (hereinafter called the "Committee")
appointed by the Board of Directors (the "Board") to be not less than __________
percent (___%) of the fair market value of the Option Shares as of the date on
which this Option was granted.
<PAGE>
3. TERMS OF OPTION
(a) OPTION TERM. This Option shall be exercisable in
accordance with its terms for a period of ____ (__) calendar years from and
after the Effective Date (the "Option Term"). Unless it is earlier terminated as
provided in Sections 5, 6, or 7 below, this Option shall terminate, and all
rights of Optionee hereunder shall expire, at the close of business on the last
day of the Option Term, or when all of the Option Shares have been acquired,
whichever first occurs.
(b) VESTING SCHEDULE. Subject to the provisions of paragraph
(a), above and Sections 3(e) and 8, below, this Option shall be and become
exercisable as follows:
(i) Except as provided in Sections 6(a) and 7(c), below,
the Option may not be exercised, in whole or in part,
prior to the date which is one (1) calendar year
after the Effective Date (the "Initial Exercise
Date");
(ii) During the calendar year commencing with the Initial
Exercise Date, the Optionee shall be entitled to
exercise the Option to the extent of twenty percent
(20%) of all of the Options granted hereby; and each
of the next four (4) calendar years thereafter,
commencing with the anniversary of the Initial
Exercise Date, the Optionee shall be entitled to
exercise an additional twenty percent (20%) of all of
the Options granted hereby.
(iii) On and after the fifth (5th) anniversary of the
Initial Exercise Date, and until the expiration of
the Option Term, the Optionee shall be entitled to
exercise this Option to purchase all of the Option
Shares to which the Optionee is then entitled
hereunder.
(c) MINIMUM OPTION EXERCISE. This Option may be exercised as
to any or all of the Option Shares then available for exercise as set forth
above; PROVIDED, HOWEVER, that if at any time this Option is exercised for fewer
than all of the then-available Option Shares, it cannot be exercised for less
than one hundred (100) Option Shares unless it is being then exercised for all
of the Option Shares then remaining available under this Agreement.
(d) PAYMENT OF PURCHASE PRICE. The purchase price of the
Option Shares as to which this Option is at any time exercised shall be paid
in full at time of exercise, as provided in Section 8, below. Payment shall
be made in cash money of the United States of America.
(e) NO EXERCISE AFTER TERMINATION OF EMPLOYMENT. Except as
provided in Sections 5 and 6, below, this Option may not be exercised at any
time unless the Optionee is then in the service of the Company as an employee
and shall have been continuously employed by the Company or a subsidiary since
the Effective Date.
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(f) NO RIGHTS AS A SHAREHOLDER. The Optionee shall not have
any of the rights of a shareholder with respect to the Option Shares unless and
until this Option has been exercised with respect to such shares and
certificates representing such Option Shares have been issued and delivered to
the Optionee by the Company.
4. NONTRANSFERABILITY
This Agreement, and the Options granted pursuant hereto, shall not be
transferable otherwise than by will or the laws of descent and distribution, and
they may be exercised, during the lifetime of the Optionee, only by the
Optionee. More particularly (but without limiting the generality of the
foregoing), these Options may not be assigned, transferred (except as provided
above), pledged, or hypothecated in any way, shall not be assignable by
operation of law, and shall not be subject to execution, attachment or similar
process. Any attempted assignment, transfer, pledge, hypothecation, or other
disposition of the Options granted hereunder contrary to the provisions hereof,
and the levy of any execution, attachment or similar process upon them or upon
this Agreement, shall be null and void and without effect.
5. TERMINATION OF OPTIONEE'S EMPLOYMENT.
(a) EFFECT OF TERMINATION. Except as provided in Section 6, below, (i)
the Options granted hereunder may not be exercised by or on behalf of the
Optionee or by any other person or entity from or after the date on which the
Optionee's employment with the Company is terminated, regardless of the reason
for such termination, whether it is with or without cause, or whether it is at
the initiative of the Optionee or the Company, and (ii) from and after the time
and date of such termination, the Options granted hereby shall automatically
become void and invalid, without any requirement of prior or other notice to any
party.
(b) NO RIGHT TO FUTURE EMPLOYMENT. Nothing in this Agreement
or in the transactions taken pursuant hereto shall be construed to constitute or
be evidence of an agreement or understanding, express or implied, on the part of
the Company or its subsidiaries to continue utilizing the Optionee as an
employee or consultant for any specific period of time. Except as may otherwise
be agreed to in writing between the Company and the Optionee, any consulting
arrangement or full-time employment of the Optionee shall be terminable at the
will of the Company, with or without cause, and shall also be terminated by the
Optionee's resignation, death, or permanent disability.
6. DEATH OR DISABILITY OF OPTIONEE
(a) POST-TERMINATION EXERCISE. If, during the Option Term as
described in Section 3(a), above, the employment, consultancy, or Directorship
is terminated as a result of his or her (i) death, or (ii) disability as defined
in either Section 22(e)(3) of the Code or the Americans with Disabilities Act,
as amended (the "ADA"), then and in each such case this Option may be
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<PAGE>
exercised (to the extent that the Optionee shall have been entitled to do so at
the date of his or her death or disability) by the Optionee (or by the
Optionee's personal representatives, heirs, or legatees) at any time within one
(1) year after the Optionee's death or disability, but not after the termination
date described in Section 3(a), above.
(b) NO IMPLICATIONS CREATED OR INFERRED. The Company's
permission as described in Paragraph (a), above, to the Optionee to exercise
this Option after the termination of his or her employment shall not give rise
to any implication (or be admissible in any proceeding as an admission or as
evidence) as to whether the Optionee is or is not, or at any time was or was
not, (i) disabled as defined by the Code, state law, or the ADA, (ii) unable to
perform his or her job functions, or (iii) terminated because he or she could
not perform his or her job functions, or as to whether the Company has or has
not made reasonable efforts to accommodate any disability which the Optionee may
have had.
(c) POTENTIAL TAX EFFECTS. The Optionee understands that if he
or she is disabled as provided in the ADA or under state law, , but not as
defined in Section 22(e)(3) of the Code, then at some point after termination of
his employment the Option may convert from an incentive to a non-statutory stock
option; and upon any exercise of the Option thereafter federal (and possibly
state) income tax may be or become due on any difference between the then fair
market value of the Option Shares at the time of exercise and the Option
exercise price; and in such event Optionee agrees that he will obtain and rely
on tax advice from advisors who are independent of the Company.
7. ADJUSTMENTS UPON CHANGES IN CAPITAL STRUCTURE
(a) STOCK SPLITS AND LIKE EVENTS. In the event of a stock
dividend, stock split, reverse stock split, or reclassification, the aggregate
number and/or class of shares subject to this Option and the exercise price
prior to such occurrence shall be appropriately adjusted in accordance with the
terms of the Plan. The adjustment shall have the result that if Optionee
exercises a portion of the Option subsequent to the applicable event, then
Optionee shall pay the same aggregate exercise price to exercise the same
portion of the Option, and shall then receive the same class and proportionate
number of shares, as if Optionee had exercised that portion of the Option
immediately prior to such the event.
(b) RECAPITALIZATIONS; ASSUMPTION OF OPTIONS. In the
event of any
(i) merger or consolidation in which the Company
is not the surviving corporation (other than
a merger or consolidation with a wholly
owned subsidiary, a reincorporation of the
Company in a different jurisdiction, or
other transaction in which there is no
substantial change in the shareholders of
the Company and the options granted under
this Plan are assumed by the successor
corporation in a manner binding on all
optionees);
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<PAGE>
(ii) dissolution or liquidation of the Company;
(iii) sale of substantially all of the assets of
the Company; or
(iv) other transaction which qualifies as a
"corporate transaction" under Section 424(a)
of the Code wherein the shareholders of the
Company give up all of their equity interest
in the Company (except for the acquisition,
sale or transfer of all or substantially all
of the outstanding shares of the Company):
then this Option, if still outstanding, may be assumed or replaced by the
successor corporation, which assumption or replacement shall be binding on
Optionee. In the alternative, the successor corporation may substitute an option
as nearly equivalent hereto as practicable.
(c) FAILURE OR REFUSAL TO ASSUME. In the event the successor
corporation, if any, fails or refuses to assume or substitute the Option, as
provided above, pursuant to a transaction described in Section 7(b)(i) above,
the Company shall provide for Optionee to have the right to exercise the Option
in full as to all of the shares subject to the Option, including shares as to
which the Option would not otherwise yet be exercisable pursuant to Section 3,
above. If the Option is made fully exercisable in such event in lieu of an
assumption or substitution of the Option by the successor corporation, the
Company shall notify Optionee that the Option shall be fully exercisable for a
period of fifteen (15) days from the date of the notice, and the Option shall
expire upon the expiration of that period.
(d) OTHER RIGHTS CREATED BY AGREEMENT. Subject to any greater
rights granted to Optionee under the foregoing provisions of this Section 7, in
the event of any transaction described in Section 7(b)(i), the Option, to the
extent outstanding, shall be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation, sale of assets, or
other corporate transaction.
8. METHOD OF EXERCISING OPTION; INVESTMENT REPRESENTATION
(a) METHOD OF EXERCISE.
(i) Subject to the terms and conditions of this
Agreement, the Option may be exercised by written notice, delivered to the
Company at its main office. The notice shall (A) be in a form reasonably
satisfactory to the Company, (B) state the election to exercise the Option and
the number of shares in respect of which it is being exercised, (C) be signed by
the person or persons so exercising the Option, and (D) include the
representations described in paragraph (d) of this Section 8, below. In the
event the Option shall be exercised pursuant to
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<PAGE>
Section 6 hereof after Optionee's death or disability, the notice shall be
accompanied by appropriate proof of the right of the person or persons to
exercise the Option. All shares purchased upon the exercise of the Option as
provided herein shall be fully paid and nonassessable.
(ii) The notice shall be accompanied by payment of
the full purchase price of the Option Shares (and any tax due upon exercise),
which may be paid: (A) in cash or cash equivalent acceptable to the Company, (B)
at the discretion of the Company, with a promissory note secured by the Option
Shares being purchased, (C) at the discretion of the Company, with outstanding
stock of Company at such value as the Board of Directors shall determine to be
the fair market value of such stock on the date of exercise, or (D) with a
combination of any of the foregoing. If shares of outstanding Common Stock are
used as payment or part payment, and such shares were acquired upon prior
exercise of an option granted under the Plan, then such shares (x) must have
been owned by the Optionee for more than six (6) months on the date of surrender
and (y) must have an aggregate fair market value on the date of surrender of not
less than the aggregate exercise price of the Option Shares as to which this
Option is currently being exercised.
(iii) Subject to paragraph (b) of this Section 8,
below, the Company shall, within thirty (30) days after the Company receives (A)
a notice of exercise, in form and content reasonably satisfactory to the
Company, which complies with this Section 8 and (B) payment in full of the
Option exercise price as provided above, deliver a certificate (or certificates)
representing the shares as to which the Option shall have been exercised, to the
then-current Escrow Holder under the terms of the Shareholder Buy-Sell Agreement
referred to in Section 10, below.
(b) SECURITIES LAWS; APPROPRIATE REGISTRATION OR EXEMPTION
UNDER STATE LAW REQUIRED BEFORE EXERCISE. This Option shall not be exercisable
unless the Option Shares have been qualified and/or registered under the
securities laws of the state in which Optionee resides, or are exempt from such
qualification or registration. (The Company may, if permitted by such laws,
permit the exercise of this Option but postpone delivery of the Option Shares
and/or payment of the purchase price thereof, or may establish an escrow pending
such qualification and/or registration.) The qualification and/or registration
can typically, but not always, be effected within thirty (30) days; therefore
the Optionee is advised to periodically check with the Company to verify the
procedure the Company needs to follow in order to qualify and/or register the
Option Shares in the state in which the Optionee resides and to give the Company
at least thirty (30) days prior written notice of his or her intent to exercise
the Option. Upon the Optionee's agreement to exercise the Option, the Company
hereby agrees to use its reasonable, diligent efforts to promptly register
and/or qualify the Option Shares in the state in which the Optionee resides so
that the Option may be exercisable; but the Company shall have no liability to
the Optionee if, despite such efforts, the registration and/or qualification is
not obtained as promptly as desired by the Optionee. The certificates for the
shares shall be subject to any legend condition imposed by the securities law of
the state in which Optionee resides.
(c) TRANSFER RESTRICTIONS UNDER FEDERAL SECURITIES LAWS. The
shares purchasable upon the exercise of options granted under the Plan have not
been registered under the
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<PAGE>
Federal Securities Act of 1933, as amended (the "Act"). Therefore, unless the
Option Shares are so registered prior to the Optionee acquiring them by
exercising an Option, the Option Shares shall be subject to the following
restrictions, and all certificates representing the Option Shares shall bear a
conspicuous legend containing said restrictions as follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE FEDERAL SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") IN
RELIANCE IN PART ON THE EXEMPTION PROVIDED BY RULE 701, OR REGISTERED
UNDER THE SECURITIES STATUTES OF ANY STATE (THE "STATE LAWS"). THE
SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND CONSTITUTE RESTRICTED
SECURITIES FOR PURPOSES OF RULE 144. NEITHER THE SHARES NOR ANY
INTEREST THEREIN MAY BE TRANSFERRED, SOLD, OR OFFERED FOR SALE (1) IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER
THE ACT AND (2) IN THE ABSENCE OF QUALIFICATION OR REGISTRATION UNDER
THE STATE LAWS, WITHOUT AN OPINION OF COUNSEL SATISFACTORY TO THE
CORPORATION THAT SUCH REGISTRATION AND/OR QUALIFICATION IS NOT
REQUIRED.
(d) INVESTMENT AND OTHER REPRESENTATIONS. Until registration
of the Option Shares under the Act, the Company shall require the Optionee (and
each subsequent transferee of the Shares) to represent IN THE NOTICE OF EXERCISE
that the Optionee (or his or her transferee) is acquiring the Option Shares for
the Optionee's (or his or her transferee's) own account, for investment, and not
for purposes of resale or distribution. The Company may prohibit any sale or
transfer of any interest in the Option Shares by a person so representing for
one year (or such longer time as the Company reasonably deems appropriate) if
such person does not demonstrate to the satisfaction of the Company that the
sale or transfer was due to changed circumstances from when such person made
such representation and that such representation was therefore truthfully made.
9. DISPOSITION OF SHARES; NOTICE OF DISPOSITION; WITHHOLDING
TAXES
The Optionee shall notify the Company in writing of any sale or
transfer of any Option Shares which takes place either within two (2) years
following the Effective Date or within one year following the issuance of Option
Shares pursuant to exercise of the Option. Such notice shall be given to the
Company within ten (10) days of the sale or transfer and shall set forth the
price and terms of any such sale or transfer. If any such transaction could
potentially act to disqualify the Option as an incentive stock option (a
"Disqualifying Disposition") the Company shall be entitled, in its sole
discretion, to require Optionee or his heirs, executors, administrators,
trustees, and transferees, and their successors in interest with respect to the
Option Shares, to pay any applicable withholding taxes as a condition precedent
to its obligation to issue the Option Shares.
10. MARKET STAND-OFF.
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<PAGE>
The Optionee shall not, unless otherwise authorized in writing
by the Company, sell or otherwise transfer or dispose of any Option Shares
during a period of up to one hundred eighty (180) days following the effective
date of a registration statement of the Company filed under the Act; PROVIDED
HOWEVER, that such agreement shall only be applicable to the Company's initial
registration statement (the "First Registration Statement") and registration
statements filed within three (3) years after the effective date of the First
Registration Statement and if all officers and directors of the Company enter
into similar agreements. In order to enforce the foregoing covenant, the Company
may impose stop-transfer instructions with respect to the Option Shares until
the end of such six-month period and place an appropriate legend on any share
certificate representing the Option Shares. The restrictions contained in this
Section 12 shall be referred to as the "Market Stand-Off."
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<PAGE>
11. NOTICES
Any notice required to be given pursuant to this Agreement
shall be deemed effectively given (i) to the Company upon personal delivery to
the Company's President, or three (3) days after it is deposited in the U.S.
mail, by registered or certified mail, postage prepaid and addressed to the
Company at it principal executive office, Attention: President, and (ii) to the
Optionee upon personal delivery or three (3) days after it is deposited in the
U.S. mail, by registered or certified mail, postage prepaid and addressed to
Optionee at the most recent address of Optionee appearing on the records of the
Company. Either party may designate another address for purposes of receiving
notice under this section by giving written notice to the other party thereof in
accordance with this section.
12. PRECAUTIONARY TAX ELECTION.
(a) If this Option qualifies as an ISO, the Company expects
that the Optionee will (under the current Code) have no regular federal or state
income tax liability upon its exercise, although the excess, if any, of the Fair
Market Value of the Exercised Shares on the date of exercise over their
aggregate Exercise Price will be treated as an adjustment to alternative minimum
taxable income for federal tax purposes and may subject the Optionee to
alternative minimum tax in the year of exercise. In the event that the Option
described herein were to be disqualified as incentive stock options, however,
the Optionee would (again, under the current Code) recognize income equal to the
difference, if any between the price paid to purchase the Option Shares upon
exercise of the Options and the fair market value of the Option Shares on the
dates that the Option Shares become fully vested. By filing the tax election
form described below, if these Options were to be disqualified as an ISO
Optionee would instead recognize income on the date of exercise. Assuming the
Optionee elects to file the tax election form, he or she will promptly complete
the tax election form attached as Exhibit B, and the timely completion of such
tax election form will constitute authorization and direction from the Optionee
to the Company to file such tax election form with the Internal Revenue Service
("IRS") within thirty (30) days of the exercise of any Option. Such filing
without further action automatically constitutes filing with the California
Franchise Tax Board ("FTB") as well unless the Optionee indicates to the
contrary on his or her California income tax for such year. The Optionee
understands that, as described above, he or she should not recognize any income
as the result of the exercise of an Option, but that if the Option were to be
disqualified as an incentive option, then these elections would serve as his or
her formal election to be taxed on the spread between the fair market value of
the Option Shares at their Purchase Price as of the date of the exercise of the
Option rather than the dates that the Exercised Shares become vested even though
the Option Shares are subject to a substantial risk of forfeiture until such
dates (after exercise) that the Option Shares become vested.
(b) The Optionee further understands that the IRS and/or the
FTB could dispute that the Purchase Price set forth in Section 2 is the present
fair market value of the Option Shares and that if the IRS or the FTB were to
prevail on such a contention, then the Optionee by filing the tax election would
incur taxes as of the date of exercise of the Option on the spread
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between the Purchase Price and the fair market value of the Option Shares on the
date of exercise of the Option. The Company represents that it has determined
that Purchase Price equals or exceeds the fair market value of each Option Share
as of the date of grant of these Options. The Optionee, however, agrees not to
sue or otherwise seek redress from the Company, the Committee, or the Company's
Board of Directors for any tax liability he or she incurs due to reliance on
such fair market value determination.
13. TAX ADVICE.
Notwithstanding anything contained in Section 12 above or in
any other part of this Agreement, the Optionee represents and agrees that he or
she has not received or relied upon any tax advice from the Company or its
counsel with respect to this Agreement.
14. CONFIDENTIALITY AND FINANCIAL INFORMATION.
(a) CONFIDENTIALITY. The Company has a general policy of
maintaining the confidentiality of certain Company records. The Option Shares
shall be subject to such confidentiality policy and all certificates
representing the Option Shares shall bear the following legend:
THE HOLDER OF RECORD OF THESE SHARES, AND SUCH HOLDER'S AGENTS
AND ATTORNEYS, MAY BE REQUIRED TO EXECUTE NONDISCLOSURE
STATEMENTS PRIOR TO BEING PERMITTED TO INSPECT CERTAIN RECORDS
OF THE COMPANY.
(b) FINANCIAL INFORMATION. Whenever the Company provides
financial statements, whether audited or unaudited, to all of its shareholders
as a group, the Company shall concurrently provide the Optionee with a copy of
such financial statements. Notwithstanding the foregoing, the Company shall upon
request provide the Optionee at the end of its fiscal year with a copy of its
financial statements, either audited or unaudited, for such fiscal year, within
ninety (90) days after the end of such fiscal year, if the Optionee is then an
optionee of the Company.
(c) CONFIDENTIALITY OF FINANCIAL INFORMATION. Optionee
acknowledges that such financial statements are confidential information of the
Company and are being provided solely in order to assist him in the decision of
whether and when to exercise the Option. Optionee therefore agrees (i) to
maintain the confidentiality of all such financial statements and not to
disclose the contents of such financial statements to any third party without
the prior written consent of the Company's Board of Directors and (ii) not to
use such financial statements for any other purpose.
15. MISCELLANEOUS.
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(a) CHOICE OF LAW; FORUM; JURISDICTION AND VENUE. This
Agreement shall be governed by, and construed in accordance with, internal laws
of the State of California applicable to contracts made by California residents
which are to be performed in California, but without reference to the choice of
laws principles of California or of any other jurisdiction. The parties agree
that any suit or proceeding in connection with, arising out of, or relating to
this Agreement shall be instituted only in a court (whether federal or
California) located in the City and County of San Francisco, California, and for
the purpose of any such suit or proceeding the parties irrevocably consent and
submit to the personal and subject matter jurisdiction and venue of any such
court in any such suit or proceeding. The parties hereby agree that service of
process may be effected in the same manner as notice is given pursuant to
Section 11, above.
(b) REMEDIES. In the event of a breach by any party of its
obligations under this Agreement, the aggrieved party shall be entitled to
exercise any rights and remedies available at law or equity. In addition to all
other rights it may have, the Company shall have the right to enjoin any sale or
other transfer of the Option Shares which would violate or cause a breach of the
Market Stand-Off or the securities laws of the U.S. or any state. The prevailing
party in any suit or proceeding in connection with, arising out of, or relating
to this Agreement shall be entitled to reasonable attorney's fees.
(c) AMENDMENT; WAIVER. This Agreement may only be amended or
changed by a written instrument signed by the parties hereto; however no
additional consideration is necessary to make such amendment or change. Any
covenant, condition, or consideration contained in this Agreement may be waived
or any breach thereof may be excused, only by a writing signed by the party or
persons entitled to the benefits thereof or remedies therefor.
(d) SEVERABILITY. If the application of any provision or
provisions of this Agreement to any particular facts or circumstances shall be
held to be invalid or unenforceable by any court of competent jurisdiction, then
(i) the validity and enforceability of such provision or provisions as applied
to any other particular facts or circumstances and the validity of other
provisions of this Agreement shall not in any way be affected or impaired
thereby and (ii) such provision or provisions shall be reformed without further
action by the parties hereto to and only to the extent necessary to make the
same valid and enforceable when applied to such particular facts and
circumstances and to the extent possible consistent with the intent of such
provision or provisions.
(e) ENTIRE UNDERSTANDING. This Agreement, and any document or
agreements executed by the parties pursuant to this Agreement or incorporated
herein, constitute the entire understanding and agreement of the parties hereto
with respect to the subject matter hereof and supersede all prior agreements or
understandings, written or oral, between the parties with respect thereto. No
party shall be liable or bound to the other in any manner by any warranty,
representation, or covenant contained in any such prior agreement,
understanding, or contract except as specifically set forth in this Agreement.
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(f) EXHIBITS. The exhibits referred to herein and annexed
hereto are hereby incorporated into and made a part of this Agreement.
(g) BINDING AGREEMENT. This Agreement shall be binding on each
party hereto, and on each of their respective heirs, successors, executors,
administrators, and assigns.
(h) COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which will be deemed an original and all of which
together will constitute one and the same instrument.
(i) TIME. Time is expressly made of the essence of this
Agreement, especially (but not only) with respect to the vesting and exercise
provisions set forth in Sections 3(b) and 8, above and the Market Stand-Off
provisions of Section 10, above.
AUTHORIZED SIGNATURES
IN WITNESS WHEREOF, in order to bind themselves to the terms and
conditions of this Incentive Stock Option Agreement, Optionee and the Company,
by its duly authorized representative, have executed this Agreement as set forth
below, to be effective as of the day and year first set forth above.
THE COMPANY: VALUECLICK, INC.
By:
------------------------------------
Name:
---------------------------
Its:
----------------------------
OPTIONEE:
-----------------------------
-----------------------------
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FORM OF NONSTATUTORY STOCK OPTION AGREEMENT
VALUECLICK, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
THIS NONSTATUTORY STOCK OPTION AGREEMENT (the "Agreement") is made and
entered into to be effective as ________, (the "Effective Date"), by and between
ValueClick, Inc., a Delaware corporation (the "Company"), and _______ (the
"Optionee"), pursuant to the Company's 1999 Stock Option Plan (the "Plan").
R E C I T A L S
A. This Agreement, and the Options granted hereunder, are executed and
granted under the terms of the ValueClick, Inc. 1999 Stock Option Plan, a copy
of which is attached hereto as Exhibit A (the "Plan"), which reserves for
issuance to persons serving the Company as consultants or directors certain
shares of the Company's Common Stock (hereinafter called the "Common Stock").
B. The Company desires to carry out the purposes of the Plan by
affording Optionee an opportunity to purchase shares of Common Stock by means of
the grant of a nonstatutory stock option, as hereinafter provided.
C. The Optionee desires to accept the Options hereby granted and to
comply with the terms and conditions of this Agreement and of the Plan as a
condition thereto.
A G R E E M E N T
Based upon the facts and premises described above and the mutual
covenants below, the parties hereto do hereby agree as follows:
1. GRANT OF OPTION
The Company hereby grants to Optionee the right and option (hereinafter
called the "Option" or the "Options") to purchase all or any part of an
aggregate of ______ shares of Common Stock (such number being subject to
adjustment as provided in Section 7 hereof and hereinafter called the "Option
Shares") on the terms and conditions herein set forth. The Option is intended to
be a nonstatutory stock option.
2. PURCHASE PRICE
<PAGE>
The purchase price of the Option Shares shall be $____ per share, which
price has been determined by the Board of Directors (the "Board") or the Stock
Option Committee (hereinafter called the "Committee") appointed by the Board to
be the fair market value of the Option Shares as of the date on which this
Option was granted.
3. TERMS OF OPTION
(a) OPTION TERM. The Options shall be exercisable in
accordance with the terms of this Agreement for a period of ten (10) calendar
years from and after the Effective Date (the "Option Term"). Unless it is
earlier terminated as provided in Sections 5, 6, or 7 below, this Agreement, and
the Options, shall terminate, and all rights of Optionee hereunder shall expire,
at the close of business on the last day of the Option Term, or when all of the
Option Shares have been exercised, whichever first occurs.
(b) VESTING SCHEDULE. Subject to the provisions of paragraph
(a) above and Sections 3(e) and 8, below, the Options shall be and become
exercisable as follows:
(i) The Option vesting start date ("Vesting Start
Date") shall be ________.
(ii) All Options shall be fully vested at the Vesting
Start Date.
(c) MINIMUM OPTION EXERCISE. This Option may be exercised as
to any or all of the Option Shares then available for exercise as set forth
above; PROVIDED, HOWEVER, that if at any time this Option is exercised for fewer
than all of the then-available Option Shares, it cannot be exercised for less
than one hundred (100) Option Shares unless it is being then exercised for all
of the Option Shares then remaining available under this Agreement.
(d) PAYMENT OF PURCHASE PRICE. The purchase price of the
Option Shares as to which this Option is at any time exercised shall be paid in
full at time of exercise, as provided in Section 8, below.
Payment shall be made in cash money of the United States of America.
(e) NO EXERCISE AFTER TERMINATION OF CONSULTANCY/DIRECTORSHIP.
Except as provided in Sections 5 and 6, below, this Option may not be exercised
at any time unless the Optionee is then in the service of the Company as a
consultant or director and shall have continuously held such status with the
Company or a subsidiary since the Effective Date.
(f) NO RIGHTS AS A SHAREHOLDER. The Optionee shall not have
any of the rights of a shareholder with respect to the Option Shares unless and
until this Option has been exercised with respect to such shares and
certificates representing such Option Shares have been issued and delivered to
the Optionee by the Company.
4. NONTRANSFERABILITY
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This Agreement, and the Options granted pursuant hereto, shall not be
transferable otherwise than by will or the laws of descent and distribution, and
they may be exercised, during the lifetime of the Optionee, only by the
Optionee. More particularly (but without limiting the generality of the
foregoing), these Options may not be assigned, transferred (except as provided
above), pledged, or hypothecated in any way, shall not be assignable by
operation of law, and shall not be subject to execution, attachment or similar
process. Any attempted assignment, transfer, pledge, hypothecation, or other
disposition of the Options granted hereunder contrary to the provisions hereof,
and the levy of any execution, attachment or similar process upon them or upon
this Agreement, shall be null and void and without effect.
5. TERMINATION OF OPTIONEE'S CONSULTANCY/DIRECTORSHIP
(a) EFFECT OF TERMINATION. Except as provided in Section 6,
below, (i) the Options granted hereunder may not be exercised by or on behalf of
the Optionee or by any other person or entity from or after the date on which
the Optionee's consultancy or directorship with the Company is terminated,
regardless of the reason for such termination, whether it is with or without
cause, or whether it is at the initiative of the Optionee or the Company, and
(ii) from and after the time and date of such termination, the Options granted
hereby shall automatically become void and invalid, without any requirement of
prior or other notice to any party.
(b) NO RIGHT TO FUTURE RELATIONSHIP. Nothing in this Agreement
or in the transactions taken pursuant hereto shall be construed to constitute or
be evidence of an agreement or understanding, express or implied, on the part of
the Company or its subsidiaries to continue utilizing the Optionee as a
consultant or director for any specific period of time. Except as may otherwise
be agreed to in writing between the Company and the Optionee, any consulting
arrangement of the Optionee shall be terminable at the will of the Company, with
or without cause, and shall also be terminated by the Optionee's resignation,
death, or permanent disability.
6. DEATH OR DISABILITY OF OPTIONEE
(a) POST-TERMINATION EXERCISE.
(i) GENERAL. If, during the Option Term as described
in Section 3(a), above, the Optionee's consultancy, or directorship is
terminated for any reason other than his or her death or disability, or for
cause, and whether at the instance of the Company or the Optionee, then any
Options or unexercised portion thereof held by such Optionee shall terminate
unless exercised within thirty (30) days after the date on which the Optionee's
consultancy or directorship shall have ceased, but not after the termination
date described in Section 3(a), above.
(ii) TERMINATION UPON DEATH OR DISABILITY. If, during
the Option Term as described in Section 3(a), above, the Optionee's consultancy
or directorship is terminated as a result of his or her (i) death, or (ii)
disability as defined in either Section 422(e)(3) of the Code or the Americans
with Disabilities Act, as amended (the "ADA"), then and in each such case this
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Option may be exercised (to the extent that the Optionee shall have been
entitled to do so at the date of his or her death or disability) by the Optionee
(or by the Optionee's personal representatives, heirs, or legatees) at any time
within one (1) year after the Optionee's death or disability, but not after the
termination date described in Section 3(a), above.
(iii) TERMINATION FOR CAUSE. In the event that any
Optionee's consultancy, or Directorship shall be terminated for cause, any and
all Options then remaining unexercised shall, effective immediately upon such
termination and without any requirement of further notice, terminate, and shall
thereafter be void and unexercisable. For purposes of this Section 6, the term
"cause" shall include (A) any conviction of a felony or of a misdemeanor
involving theft or the misappropriation of funds, (B) any willful failure or
willful refusal without proper cause to perform fully the Optionee's obligations
to the Company as directed by the Board of Directors, or (C) any material breach
of the Optionee's fiduciary obligations to the Company or its stockholders.
(b) NO IMPLICATIONS CREATED OR INFERRED. The Company's
permission as described in Paragraph (a), above, to the Optionee to exercise
this Option after the termination of his or her consultancy or directorship
shall not give rise to any implication (or be admissible in any proceeding as an
admission or as evidence) as to whether the Optionee is or is not, or at any
time was or was not, (i) disabled as defined by the Code, state law, or the ADA,
(ii) unable to perform his or her job functions, or (iii) terminated because he
or she could not perform his or her job functions, or as to whether the Company
has or has not made reasonable efforts to accommodate any disability which the
Optionee may have had.
7. ADJUSTMENTS UPON CHANGES IN CAPITAL STRUCTURE
(a) STOCK SPLITS AND LIKE EVENTS. In the event of a stock
dividend, stock split, reverse stock split, or reclassification, the aggregate
number and/or class of shares subject to this Option and the exercise price
prior to such occurrence shall be appropriately adjusted in accordance with the
terms of the Plan. The adjustment shall have the result that if Optionee
exercises a portion of the Option subsequent to the applicable event, then
Optionee shall pay the same aggregate exercise price to exercise the same
portion of the Option, and shall then receive the same class and proportionate
number of shares, as if Optionee had exercised that portion of the Option
immediately prior to such the event.
(b) RECAPITALIZATIONS; ASSUMPTION OF OPTIONS. In the
event of any
(i) merger or consolidation in which the Company
is not the surviving corporation (other than
a merger or consolidation with a wholly
owned subsidiary, a reincorporation of the
Company in a different jurisdiction, or
other transaction in which there is no
substantial change in the shareholders of
the Company and the options granted under
this Plan are assumed by the successor
corporation in a
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manner binding on all optionees);
(ii) dissolution or liquidation of the Company;
(iii) sale of substantially all of the assets of
the Company; or
(iv) other transaction which qualifies as a
"corporate transaction" under Section 424(a)
of the Code wherein the shareholders of the
Company give up all of their equity interest
in the Company (except for the acquisition,
sale or transfer of all or substantially all
of the outstanding shares of the Company):
then this Option, if still outstanding, may be assumed or replaced by the
successor corporation, which assumption or replacement shall be binding on
Optionee. In the alternative, the successor corporation may substitute an option
as nearly equivalent hereto as practicable.
(c) FAILURE OR REFUSAL TO ASSUME. In the event the successor
corporation, if any, fails or refuses to assume or substitute the Option, as
provided above, pursuant to a transaction described in Section 7(b)(i) above,
the Company shall provide for Optionee to have the right to exercise the Option
in full as to all of the shares subject to the Option, including shares as to
which the Option would not otherwise yet be exercisable pursuant to Section 3,
above. If the Option is made fully exercisable in such event in lieu of an
assumption or substitution of the Option by the successor corporation, the
Company shall notify Optionee that the Option shall be fully exercisable for a
period of fifteen (15) days from the date of the notice, and the Option shall
expire upon the expiration of that period.
(d) OTHER RIGHTS CREATED BY AGREEMENT. Subject to any greater
rights granted to Optionee under the foregoing provisions of this Section 7, in
the event of any transaction described in Section 7(b)(i), the Option, to the
extent outstanding, shall be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation, sale of assets, or
other corporate transaction.
8. METHOD OF EXERCISING OPTION; INVESTMENT REPRESENTATION
(a) METHOD OF EXERCISE.
(i) Subject to the terms and conditions of this
Agreement, the Option may be exercised by written notice, delivered to the
Company at its main office. The notice shall (A) be in a form reasonably
satisfactory to the Company, (B) state the election to exercise the Option and
the number of shares in respect of which it is being exercised, (C) be signed by
the person or persons so exercising the Option, and (D) include the
representations described in paragraph (d) of this Section 8, below. In the
event the Option shall be exercised pursuant to
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Section 6 hereof after Optionee's death or disability, the notice shall be
accompanied by appropriate proof of the right of the person or persons to
exercise the Option. All shares purchased upon the exercise of the Option as
provided herein shall be fully paid and nonassessable.
(ii) The notice shall be accompanied by payment of
the full purchase price of the Option Shares (and any tax due upon exercise),
which may be paid: (A) in cash or cash equivalent acceptable to the Company, (B)
at the discretion of the Company, with a promissory note secured by the Option
Shares being purchased, (C) at the discretion of the Company, with outstanding
stock of the Company at such value as the Board of Directors shall determine to
be the fair market value of such stock on the date of exercise, or (D) with a
combination of any of the foregoing. If shares of outstanding Common Stock are
used as payment or part payment, and such shares were acquired upon prior
exercise of an option granted under the Plan, then such shares (x) must have
been owned by the Optionee for more than six (6) months on the date of surrender
and (y) must have an aggregate fair market value on the date of surrender of not
less than the aggregate exercise price of the Option Shares as to which this
Option is currently being exercised.
(iii) Subject to paragraph (b) of this Section 8,
below, the Company shall, within thirty (30) days after it receives (A) a notice
of exercise, in form and content reasonably satisfactory to the Company, which
complies with this Section 8 and (B) payment in full of the Option exercise
price as provided above, deliver to the Optionee, or at his direction, a
certificate (or certificates) representing the shares as to which the Option
shall have been exercised.
(b) SECURITIES LAWS; APPROPRIATE REGISTRATION OR EXEMPTION
UNDER STATE LAW REQUIRED BEFORE EXERCISE. This Option shall not be exercisable
unless the Option Shares have been qualified and/or registered under the
securities laws of the state in which Optionee resides, or are exempt from such
qualification or registration. (The Company may, if permitted by such laws,
permit the exercise of this Option but postpone delivery of the Option Shares
and/or payment of the purchase price thereof, or may establish an escrow pending
such qualification and/or registration.) The qualification and/or registration
can typically, but not always, be effected within thirty (30) days; therefore
the Optionee is advised to periodically check with the Company to verify the
procedure the Company needs to follow in order to qualify and/or register the
Option Shares in the state in which the Optionee resides and to give the Company
at least thirty (30) days prior written notice of his or her intent to exercise
the Option. Upon the Optionee's agreement to exercise the Option, the Company
hereby agrees to use its reasonable, diligent efforts to promptly register
and/or qualify the Option Shares in the state in which the Optionee resides so
that the Option may be exercisable; but the Company shall have no liability to
the Optionee if, despite such efforts, the registration and/or qualification is
not obtained as promptly as desired by the Optionee. The certificates for the
shares shall be subject to any legend condition imposed by the securities law of
the state in which the Optionee resides.
(c) TRANSFER RESTRICTIONS UNDER FEDERAL SECURITIES LAWS. The
shares purchasable upon the exercise of options granted under the Plan have not
been registered under the Federal Securities Act of 1933, as amended (the
"Act"). Therefore, unless the Option Shares are so
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<PAGE>
registered prior to the Optionee acquiring them by exercising an Option, the
Option Shares shall be subject to the following restrictions, and all
certificates representing the Option Shares shall bear a conspicuous legend
containing said restrictions as follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE FEDERAL SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") IN
RELIANCE IN PART ON THE EXEMPTION PROVIDED BY RULE 701, OR REGISTERED
UNDER THE SECURITIES STATUTES OF ANY STATE (THE "STATE LAWS"). THE
SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND CONSTITUTE RESTRICTED
SECURITIES FOR PURPOSES OF RULE 144. NEITHER THE SHARES NOR ANY
INTEREST THEREIN MAY BE TRANSFERRED, SOLD, OR OFFERED FOR SALE (1) IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER
THE ACT AND (2) IN THE ABSENCE OF QUALIFICATION OR REGISTRATION UNDER
THE STATE LAWS, WITHOUT AN OPINION OF COUNSEL SATISFACTORY TO THE
CORPORATION THAT SUCH REGISTRATION AND/OR QUALIFICATION IS NOT
REQUIRED.
(d) INVESTMENT AND OTHER REPRESENTATIONS. Until registration
of the Option Shares under the Act, the Company shall require the Optionee (and
each subsequent transferee of the Shares) to represent in the notice of exercise
that the Optionee (or his or her transferee) is acquiring the Option Shares for
the Optionee's (or his or her transferee's) own account, for investment, and not
for purposes of resale or distribution. The Company may prohibit any sale or
transfer of any interest in the Option Shares by a person so representing for
one year (or such longer time as the Company reasonably deems appropriate) if
such person does not demonstrate to the satisfaction of the Company that the
sale or transfer was due to changed circumstances from when such person made
such representation and that such representation was therefore truthfully made.
9. DISPOSITION OF SHARES; NOTICE OF DISPOSITION; WITHHOLDING
TAXES
The Optionee shall notify the Company in writing of any sale or
transfer of any Option Shares which takes place either within two (2) years
following the Effective Date or within one year following the issuance of Option
Shares pursuant to exercise of the Option. Such notice shall be given to the
Company within ten (10) days of the sale or transfer and shall set forth the
price and terms of any such sale or transfer. The Company shall be entitled, in
its sole discretion, to require Optionee or his heirs, executors,
administrators, trustees, and transferees, and their successors in interest with
respect to the Option Shares, to pay any applicable withholding taxes as a
condition precedent to its obligation to issue the Option Shares.
10. MARKET STAND-OFF
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The Optionee shall not, unless otherwise authorized in writing
by the Company, sell or otherwise transfer or dispose of any Option Shares
during a period of up to one hundred eighty (180) days following the effective
date of a registration statement of the Company filed under the Act; PROVIDED
HOWEVER, that such agreement shall only be applicable to the Company's initial
registration statement (the "First Registration Statement") and registration
statements filed within three (3) years after the effective date of the First
Registration Statement and if all officers and directors of the Company enter
into similar agreements. In order to enforce the foregoing covenant, the Company
may impose stop-transfer instructions with respect to the Option Shares until
the end of such six-month period and place an appropriate legend on any share
certificate representing the Option Shares. The restrictions contained in this
Section 10 shall be referred to as the "Market Stand-Off."
11. NOTICES
Any notice required to be given pursuant to this Agreement
shall be deemed effectively given (i) to the Company upon personal delivery to
the Company's President, or three (3) days after it is deposited in the U.S.
mail, by registered or certified mail, postage prepaid and addressed to the
Company at its principal executive office, Attention: President, and (ii) to the
Optionee upon personal delivery or three (3) days after it is deposited in the
U.S. mail, by registered or certified mail, postage prepaid and addressed to
Optionee at the most recent address of Optionee appearing on the records of the
Company. Either party may designate another address for purposes of receiving
notice under this section by giving written notice to the other party thereof in
accordance with this section.
12. PRECAUTIONARY TAX ELECTION.
In light of the nonstatutory nature of the Option, the
Optionee will (again, under the current Internal Revenue Code (the "Code")
recognize income equal to the difference, if any between the price paid to
purchase the Option Shares upon exercise of the Options and the fair market
value of the Option Shares on the dates that the Option is exercised. The
Optionee further understands that the IRS and/or the FTB could dispute that the
Purchase Price set forth in Section 2 is the present fair market value of the
Option Shares. The Company represents that it has determined that Purchase Price
equals or exceeds the fair market value of each Option Share as of the date of
grant of these Options. The Optionee, however, agrees not to sue or otherwise
seek redress from the Company, the Committee, or the Company's Board of
Directors for any tax liability he or she incurs due to reliance on such fair
market value determination.
13. TAX ADVICE
Notwithstanding anything contained in Section 12 above or in
any other part of this Agreement, the Optionee represents and agrees that he or
she has not received or relied upon any tax advice from the Company or its
counsel with respect to this Agreement.
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14. CONFIDENTIALITY AND FINANCIAL INFORMATION
(a) CONFIDENTIALITY. The Company has a general policy of
maintaining the confidentiality of certain Company records. The Option Shares
shall be subject to such confidentiality policy and all certificates
representing the Option Shares shall bear the following legend:
THE HOLDER OF RECORD OF THESE SHARES, AND SUCH HOLDER'S AGENTS
AND ATTORNEYS, MAY BE REQUIRED TO EXECUTE NONDISCLOSURE
STATEMENTS PRIOR TO BEING PERMITTED TO INSPECT CERTAIN RECORDS
OF THE COMPANY.
(b) FINANCIAL INFORMATION. Whenever the Company provides
financial statements, whether audited or unaudited, to all of its shareholders
as a group, the Company shall concurrently provide the Optionee with a copy of
such financial statements. Notwithstanding the foregoing, the Company shall upon
request provide the Optionee at the end of its fiscal year with a copy of its
financial statements, either audited or unaudited, for such fiscal year, within
ninety (90) days after the end of such fiscal year, if the Optionee is then an
optionee of the Company.
(c) CONFIDENTIALITY OF FINANCIAL INFORMATION. Optionee
acknowledges that such financial statements are confidential information of the
Company and are being provided solely in order to assist him in the decision of
whether and when to exercise the Option. Optionee therefore agrees (i) to
maintain the confidentiality of all such financial statements and not to
disclose the contents of such financial statements to any third party without
the prior written consent of the Company's Board of Directors and (ii) not to
use such financial statements for any other purpose.
15. MISCELLANEOUS
(a) CHOICE OF LAW; FORUM; JURISDICTION AND VENUE. This
Agreement shall be governed by, and construed in accordance with, internal laws
of the State of California applicable to contracts made by California residents
which are to be performed in California, but without reference to the choice of
laws principles of California or of any other jurisdiction. The parties agree
that any suit or proceeding in connection with, arising out of, or relating to
this Agreement shall be instituted only in a court (whether federal or state)
located in the County of Santa Barbara, California, and for the purpose of any
such suit or proceeding the parties irrevocably consent and submit to the
personal and subject matter jurisdiction and venue of any such court in any such
suit or proceeding. The parties hereby agree that service of process may be
effected in the same manner as notice is given pursuant to Section 11 above.
(b) REMEDIES. In the event of a breach by any party of its
obligations under this Agreement, the aggrieved party shall be entitled to
exercise any rights and remedies
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available at law or equity. In addition to all other rights it may have, the
Company shall have the right to enjoin any sale or other transfer of the Option
Shares which would violate or cause a breach of the Market Stand-Off or the
securities laws of the U.S. or any state. The prevailing party in any suit or
proceeding in connection with, arising out of, or relating to this Agreement
shall be entitled to reasonable attorney's fees.
(c) AMENDMENT; WAIVER. This Agreement may only be amended or
changed by a written instrument signed by the parties hereto; however no
additional consideration is necessary to make such amendment or change. Any
covenant, condition, or consideration contained in this Agreement may be waived
or any breach thereof may be excused, only by a writing signed by the party or
persons entitled to the benefits thereof or remedies therefor.
(d) SEVERABILITY. If the application of any provision or
provisions of this Agreement to any particular facts or circumstances shall be
held to be invalid or unenforceable by any court of competent jurisdiction, then
(i) the validity and enforceability of such provision or provisions as applied
to any other particular facts or circumstances and the validity of other
provisions of this Agreement shall not in any way be affected or impaired
thereby and (ii) such provision or provisions shall be reformed without further
action by the parties hereto to and only to the extent necessary to make the
same valid and enforceable when applied to such particular facts and
circumstances and to the extent possible consistent with the intent of such
provision or provisions.
(e) ENTIRE UNDERSTANDING. This Agreement, and any document or
agreements executed by the parties pursuant to this Agreement or incorporated
herein, constitute the entire understanding and agreement of the parties hereto
with respect to the subject matter hereof and supersede all prior agreements or
understandings, written or oral, between the parties with respect thereto. No
party shall be liable or bound to the other in any manner by any warranty,
representation, or covenant contained in any such prior agreement,
understanding, or contract except as specifically set forth in this Agreement.
(f) EXHIBITS. The exhibits referred to herein and annexed
hereto are hereby incorporated into and made a part of this Agreement.
(g) BINDING AGREEMENT. This Agreement shall be binding on each
party hereto, and on each of their respective heirs, successors, executors,
administrators, and assigns.
(h) COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which will be deemed an original and all of which
together will constitute one and the same instrument.
(i) TIME. Time is expressly made of the essence of this
Agreement, especially (but not only) with respect to the vesting and exercise
provisions set forth in Sections 3(b) and 8, above and the Market Stand-Off
provisions of Section 10, above.
32
<PAGE>
AUTHORIZED SIGNATURES
IN WITNESS WHEREOF, in order to bind themselves to the terms and
conditions of this Incentive Stock Option Agreement, Optionee and the Company,
by its duly authorized representative, have executed this Agreement as set forth
below, to be effective as of the day and year first set forth above.
THE COMPANY: VALUECLICK, INC.
By:
-------------------------
(signature)
-------------------------
(print name)
-------------------------
(title)
OPTIONEE:
-----------------------------
(signature)
-----------------------------
-----------------------------
(address)
-----------------------------
(telephone/facsimile numbers)
33
<PAGE>
EXHIBIT A
VALUECLICK, INC. 1999 STOCK OPTION PLAN
34
<PAGE>
KEY EMPLOYEE AGREEMENT
This Key Employment Agreement ("Agreement") is made and entered into as of May
24, 1999, by and between VALUECLICK, INC., a Delaware corporation (the
"Company") and KURT JOHNSON ("Executive").
RECITALS
WHEREAS, Company is a global Internet advertising network enabling advertisers
to take advantage of the Internet to sell their products and increase brand
awareness;
WHEREAS, Executive possesses unique technical and operational skills which are
valuable to the business and financial prospects of Company; and
WHEREAS, in light of the foregoing, Company desires to employ Executive to serve
as its Chief Financial Officer and Executive desires to accept such employment.
NOW, THEREFORE, in consideration of the mutual promises contained herein, the
Company and Executive agree as follows:
1. DUTIES. The Company hereby employs Executive to serve as its Chief Financial
Officer, reporting to the Chief Executive Officer with such duties as are
specified in the Company's Bylaws and as may be defined from time to time by the
Chief Executive Officer and the Board of Directors. To the fullest extent
permitted by Delaware law, the Company shall indemnify and defend Executive from
all costs, expenses and losses whether direct or indirect, including
consequential damages and attorney's fees, incurred or sustained by Executive in
consequence of the discharge of his duties on the Company's behalf.
2. TERM OF EMPLOYMENT. The Company hereby agrees to employ Executive and
Executive agrees to accept employment upon the terms and conditions set forth
herein, commencing on the date of this Agreement, and shall continue unless and
until terminated by the Company or until Executive resigns from his office, each
pursuant to Paragraph 10 below.
<PAGE>
3. SALARY. Executive shall be entitled to receive from the Company a
starting base salary of $10,833.33 per month, which if annualized is
$130,000. The Company shall calculate Executive's salary from the
date of Executive's commencement of employment. The base salary
shall be paid to Executive in installments every other week and
shall be reviewed and may be increased by the Board of Directors
annually or at such earlier time or times as it determines.
(A) IPO BONUS. ValueClick, Inc. agrees to pay to Mr. Johnson a
cash bonus of $20,000 for the successful completion of the
Company's Initial Public Offering (IPO) or should there be a
change in control and/or ownership of the Company. This "IPO
Bonus" will be processed through payroll at the direction of
ValueClick's CEO, James Zarley when Zarley determines that
Johnson has completed all duties/tasks required in the
successful completion of the IPO process or within thirty (30)
days of change of control/ownership.
4. STOCK OPTIONS. In addition to Executive's salary described in Section 3
above, Executive shall receive an incentive stock option ("Option") to purchase
75,000 shares ("Option Shares") of the Company's Common Stock at an exercise
price of $2.00 per share. The Option shall vest and become exercisable as
follows:
(a) One-eighth (1/8) of the Option Shares subject to the Option shall
vest and become exercisable six (6) months after the vesting start date of May
24, 1999. One-forty-second (1/42) of the remaining Option Shares subject to the
Option shall vest and become exercisable on the last calendar day of each full
month thereafter;
(b) In the event of the closing of an initial public offering of the
Company's securities or the transfer of ownership of 50% or more of the Company,
for other than passive funding purposes, at least one-half (1/2) of the Option
Shares subject to the Option shall be fully vested as of the date of such
transaction and the balance shall vest over the succeeding twelve (12) months or
such shorter period as they would have fully vested under the aforesaid original
vesting schedule; and
(c) In the event of the termination of Mr. Johnson's position with the
Company as Chief Financial Officer following the transfer of ownership of 50% or
more of the Company, for other than passive funding purposes, all of the Option
Shares shall be fully vested as of the date of such transaction and Mr. Johnson
shall be entitled to exercise the Option in full with a promissory note secured
by the Option Shares, payable in one calendar year from the date of issuance and
bearing interest at the prime lending rate then in effect.
The Option shall otherwise be subject to the terms and conditions of the
Company's 1999 Stock Option Plan.
5. EXTENT OF SERVICES. Executive shall devote his full time, attention and
energies to the business of the Company and shall not during such time be
engaged (whether or not during normal business
2
<PAGE>
hours) in any other business or professional activity, whether or not such
activity is pursued for gain, profit or other pecuniary advantage, but this
shall not be construed as preventing Executive from (a) investing personal
assets in businesses which do not compete with the Company in such form or
manner as will not require any substantial services on the part of Executive and
in which Executive's participation is principally that of an investor; (b)
purchasing securities in any corporation whose securities are regularly traded,
provided that such purchase shall not result in the Executive's collectively
owning beneficially at any time five percent (5%) or more of the equity
securities of a corporation engaged in a business competitive with that of the
Company; and (c) participating in conferences, preparing or publishing papers or
books or teaching, so long as the Board of Directors, or its designee, approves
of such activities prior to the Executive engaging in them.
6. VACATIONS AND LEAVE. Executive shall be entitled to vacation and other leave
in accordance with normal the Company policy applicable to management level
employees, which at the date hereof is three (3) weeks annual combined vacation
and sick leave. Vacations shall be taken at such time or times as Executive and
the Board of Directors, or its designee, shall mutually agree.
7. EXPENSE REIMBURSEMENT. Upon presentation of supporting documentation and
consistent with the Company's policy, the Company will reimburse Executive for
any reasonable and necessary business expenses incurred by Executive in
connection with the business of the Company. The parties acknowledge that
Executive may incur certain business-related expenses which the Company will not
reimburse but which nonetheless further the business interests of the Company
and Executive's professional interest.
8. OTHER BENEFITS. In addition to the benefits specifically described herein,
during the term of this Agreement, Executive and his dependents shall be
entitled to receive, on an equivalent basis, all other benefits of employment
generally made available to other members of the Company's management and their
families, including, without limitation, benefits as a result of any present or
future medical insurance, disability insurance, life insurance, retirement or
pension plans. It is understood that any 401(k) plan implemented by Company will
be made available to Executive at the time and upon the equivalent terms as made
available to the Company's other management level employees.
9. TAXES. The Company may withhold from any amounts payable under this Agreement
such federal, state, or local taxes as shall be required to be withheld pursuant
to any applicable law or regulation.
10. TERMINATION OF EMPLOYMENT. This Agreement and Executive's employment may be
terminated by either party, for any reason or no reason, immediately upon ten
(10) days prior written notice given to the other party. Accordingly, Executive
and the Company acknowledge and agree that the employer-employee relationship
between them, as set forth in this Agreement, is an at will employment
relationship. Termination pursuant to this Section shall not prejudice any other
remedy to which the terminating party may be entitled at law, in equity, or
under this Agreement, provided also that, in the event of the Company's
termination of the Agreement and employment concomitant with or following, and
by reason of, the transfer of ownership of 50% or more of the Company, for other
than passive funding purposes, Executive shall be entitled to severance in the
amount of one
3
<PAGE>
year's compensation at the then current rate pursuant to Paragraph 3, above.
This is the only Agreement concerning termination between the Company and
Executive, and the parties acknowledge that this Agreement supersedes and
replaces any other written or oral agreement, representation or understanding
between the parties concerning termination and that this Agreement can only be
modified in a writing signed by Executive and the Board of Directors, or its
designee.
11. SUCCESSORS TO THE COMPANY. Except as otherwise provided herein, this
Agreement shall be binding upon and inure to the benefit of the Company and any
successors of Company, or any corporation which acquires directly or indirectly
all of the assets of the Company, whether by merger, consolidation, sale or
otherwise, and shall not be otherwise assignable by the Company. This Agreement
is not assignable by Executive.
12. NOTICE. Any notice to be given under the terms of this Agreement shall be
given as follows: Notice to the Company shall be addressed to its Chief
Executive Officer at the Company's principal office; notices to Executive shall
be addressed to Executive's home as last shown on the records of the Company or
given by personal delivery. Notice of a change of address under this Section
shall have been duly given when personally delivered or three (3) days after
being enclosed in a properly sealed envelope addressed as aforesaid, and
deposited, postage paid, with the United States Postal Service.
13. WAIVER. Neither party's failure to enforce any provision of this Agreement
shall be deemed or in any way construed as a waiver of any such provision, nor
prevent that party from thereafter enforcing each and every provision of this
Agreement. The rights granted both parties herein are cumulative and shall not
constitute a waiver of either party's right to assert all other legal remedies
available under the circumstances.
14. SEVERABILITY. If one or more of the provisions or paragraphs of this
Agreement shall be held to be illegal or otherwise void or invalid, the
remainder of this Agreement shall not be affected and shall remain in full force
and effect.
15. GOVERNING LAW. This Agreement shall be interpreted under the laws of the
State of California, without regard to or application of choice of law rules or
principles.
16. ARBITRATION. In the event any claim or controversy arises under or
concerning any provision of this Agreement, including the termination provision
of Section 10, the Company and Executive hereby agree that such claim or
controversy shall be settled by final, binding arbitration in accordance with
the Employment Dispute Resolution Rules of the American Arbitration Association,
provided, however, that the impartial arbitrator shall be chosen as follows: if
the Company and Executive are unable to agree upon an impartial arbitrator
within five (5) days of a request for arbitration, the parties shall request a
panel of five (5) labor and employment arbitrators from the American Arbitration
Association and shall alternatively strike names until a single arbitrator
remains. Arbitration shall occur, if practicable, in Santa Barbara County,
California. Judgment upon the award rendered by the arbitrator may be entered in
any court having jurisdiction thereof. Depositions may be taken and other
discovery may be obtained during such arbitration proceedings to the same extent
as authorized in civil judicial proceedings, subject to any limitations placed
on
4
<PAGE>
discovery by the arbitrator. The parties shall share equally in the costs of
conducting the arbitration and shall each pay their expenses, but the prevailing
party shall be entitled to recover its reasonable attorneys' fees.
Notwithstanding the foregoing, nothing herein shall preclude or limit the
Company from seeking injunctive relief from a court of competent jurisdiction.
Executive acknowledges and agrees that, by agreeing to this provision, he is
agreeing to arbitrate any claim relating to his employment, whether or not it
arises under the terms of this Agreement, that may arise under federal and state
laws including, but not limited to, claims arising under Title VII, the Age
Discrimination in Employment Act, the Americans with Disabilities Act and the
Fair Employment and Housing Act. EXECUTIVE FURTHER UNDERSTANDS THAT BY AGREEING
TO ARBITRATE EMPLOYMENT CLAIMS HE IS WAIVING HIS RIGHT TO BRING AN ACTION
AGAINST THE COMPANY IN A COURT OF LAW, EITHER STATE OR FEDERAL, AND IS WAIVING
HIS RIGHT TO HAVE HIS CLAIMS AND DAMAGES, IF ANY, DETERMINED BY A JURY.
17. ENTIRE AGREEMENT. This Agreement, any stock option agreement, stockholder
buy-sell agreement and employee proprietary information agreement signed by
Executive contain the entire agreement of the parties and supersede and replace
any other Agreement. Except as provided herein, this Agreement may be modified
only by an agreement in writing signed by the party against whom enforcement of
any waiver, change, modification, extension or discharge is sought. Only the
Company's Board of Directors, or its designee, has the authority to modify this
Agreement on behalf of the Company.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day
and year first above written.
COMPANY: EXECUTIVE:
VALUECLICK, INC.
/s/ JAMES ZARLEY /s/ KURT JOHNSON
- -------------------------------- ---------------------------
JAMES ZARLEY, KURT JOHNSON
CHIEF EXECUTIVE OFFICER
5
<PAGE>
KEY EMPLOYEE AGREEMENT
This KEY EMPLOYEE AGREEMENT (hereinafter referred to as the
("Agreement") is made and entered into as of the 1st day of January, 1999, by
and between ValueClick, Inc., a Delaware corporation (hereinafter referred to as
the "Company") and Jim Zarley (hereinafter referred to as "Executive").
WHEREAS, Company is a global Internet advertising network enabling
advertisers to take advantage of the Internet to sell their products and
increase brand awareness;
WHEREAS, Executive possesses unique technical and operational skills
which are valuable to the business and financial prospects of Company;
WHEREAS, in light of the foregoing, Company desires to employ
Executive as Chairman, and Executive desires to accept such employment;
NOW, THEREFORE, in consideration of the mutual promises contained
herein, Company and Executive agree as follows:
1. DUTIES. Company hereby employs Executive to serve as Chairman, reporting
to the Board of Directors with such duties as are specified in Company's
Bylaws and as may be defined from time to time by the Board. To the fullest
extent permitted by Delaware law, Company shall indemnify and defend
Executive from all costs, expenses and losses whether direct or indirect,
including consequential damages and attorney's fees, incurred or sustained by
Executive in consequence of the discharge of his duties on Company's behalf.
2. TERM OF EMPLOYMENT. Company hereby agrees to employ Executive and
Executive agrees to accept employment upon the terms and conditions set forth
herein, commencing on January 1, 1999, and shall continue unless and until
terminated by Company or by the Executive pursuant to Paragraph 10 below.
3. SALARY. Executive shall be entitled to receive from Company a starting
base salary of $10,000 per month, which if annualized is $120,000. Salary is
calculated from the date of Executive's commencement of employment, pursuant
to Paragraph 2 above. The base salary shall be paid Executive in installments
every other week and shall be reviewed and may be increased by the Board
annually or at such earlier time or times as it determines.
4. STOCK OPTIONS. In addition to Executive's salary described in
-1-
<PAGE>
Paragraph 3, above, Executive shall receive Incentive Stock Options at a
striking price of 50 cents ($0.50)per share as to 300,000 shares of Company
Common Stock, which shall vest over a twenty-four(24) month period,
commencing on January 1, 1999. The aforementioned stock options shall
otherwise be subject to the terms and conditions of the Company's 1999 Stock
Incentive Plan. In the event of the closing of an Initial Public Offering of
Company securities or the transfer of ownership of 50% or more of the
Company, for other than passive funding purposes, all of such options as have
been granted to the Executive shall be fully vested as of the date of such
transaction.
5. EXTENT OF SERVICES. So long as he serves as Chairman, Executive shall
devote his full time, attention and energies to the business of Company and
shall not during such time be engaged (whether or not during normal business
hours) in any other business or professional activity, whether or not such
activity is pursued for gain, profit or other pecuniary advantage, but this
shall not be construed as preventing the Executive from (a) investing
personal assets in businesses which do not compete with Company in such form
or manner as will not require any substantial services on the part of the
Executive and in which the Executive's participation is principally that of
an investor; (b) purchasing securities in any corporation whose securities
are regularly traded, provided that such purchase shall not result in the
Executive's collectively owning beneficially at any time five percent (5%) or
more of the equity securities of a corporation engaged in a business
competitive to that of Company; and (c) participating in conferences,
preparing or publishing papers or books or teaching, so long as the Board
approves of such activities prior to the Executive engaging in them.
6. VACATIONS AND LEAVE. Executive shall be entitled to vacation and other
leave in accordance with normal Company policy applicable to management
employees, which at the date hereof is three (3) weeks annual combined
vacation and sick leave. Vacations shall be taken at such time or times as
Executive and the Board shall mutually agree.
7. EXPENSE REIMBURSEMENT. Upon presentation of supporting documentation and
consistent with Company policy, Company will reimburse Executive for any
reasonable and necessary business expenses incurred by Executive in
connection with the business of Company. The parties acknowledge that
Executive may incur certain business-related expenses which Company will not
reimburse but which nonetheless further the business interests of Company and
Executive's professional interest.
-2-
<PAGE>
8. OTHER BENEFITS. In addition to the benefits specifically described herein,
during the term of this Agreement, Executive and his dependents shall be
entitled to receive, on an equivalent basis, all other benefits of employment
generally made available to other members of Company's management and their
families, including, without limitation, benefits as a result of any present
or future medical insurance, disability insurance, life insurance, retirement
or pension plans. It is understood that any 401(k) plan implemented by
Company will be made available to Executive at the time and upon the
equivalent terms as made available to Company's other management employees.
9. TAXES. Company may withhold from any amounts payable under this Agreement
such federal, state, or local taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
10. TERMINATION OF EMPLOYMENT. This Agreement and Executive's employment as
Chairman may be terminated by either party, for any reason or no reason,
immediately upon ten (10) days written notice given to the other party.
Accordingly, Executive and Company acknowledge and agree that this Agreement
and any employments hereunder are to be considered AT-WILL EMPLOYMENT.
Termination pursuant to this Section shall not prejudice any other remedy to
which the terminating party may be entitled at law, in equity, or under this
Agreement. This is the only Agreement concerning termination between Company
and Executive, and the parties acknowledge that this Agreement supersedes and
replaces any other written or oral agreement, representation or understanding
between the parties concerning termination and that this Agreement can only
be modified in a writing signed by the Board's delegate and Executive.
11. SUCCESSORS TO THE COMPANY. Except as otherwise provided herein, this
Agreement shall be binding upon and inure to the benefit of Company and any
successors of Company, or any corporation which acquires directly or
indirectly all of the assets of Company, whether by merger, consolidation,
sale or otherwise, and shall not be otherwise assignable by Company. This
Agreement is not assignable by Executive.
12. NOTICE. Any notice to be given under the terms of this Agreement shall be
given as follows: Notice to Company shall be addressed to its CEO at
Company's principal office; notices to Executive shall be addressed to
Executive's home as last shown on the records of Company or given by personal
delivery. Notice of a change of address under this section shall have been
duly given when personally delivered or three (3) days after being enclosed
in
-3-
<PAGE>
a properly sealed envelope addressed as aforesaid, and deposited (postage
paid) with the United States Postal Service.
13. WAIVER. Neither party's failure to enforce any provision of this
Agreement shall be deemed or in any way construed as a waiver of any such
provision, nor prevent that party from thereafter enforcing each and every
provision of this Agreement. The rights granted both parties herein are
cumulative and shall not constitute a waiver of either party's right to
assert all other legal remedies available under the circumstances.
14. SEVERABILITY. If one or more of the provisions or paragraphs of this
Agreement shall be held to be illegal or otherwise void or invalid, the
remainder of this Agreement shall not be affected and shall remain in full
force and effect.
15. GOVERNING LAW. This Agreement shall be interpreted under the laws of the
State of California, without regard to or application of choice of law rules
or principles.
16. ARBITRATION. In the event any claim or controversy arises under or
concerning any provision of this Agreement, including the termination
provision (Paragraph 10), Company and Executive hereby agree that such claim
or controversy shall be settled by final, binding arbitration in accordance
with the Employment Dispute Resolution Rules of the American Arbitration
Association, provided, however, that the impartial arbitrator shall be chosen
as follows: if Company and Executive are unable to agree upon an impartial
arbitrator within five (5) days of a request for arbitration, the parties
shall request a panel of five (5) labor and employment arbitrators from the
American Arbitration Association and shall alternatively strike names until a
single arbitrator remains. Arbitration shall occur, if practicable, in Santa
Barbara County, CA. Judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof. Depositions may be taken
and other discovery may be obtained during such arbitration proceedings to
the same extent as authorized in civil judicial proceedings, subject to any
limitations placed on discovery by the arbitrator. The parties shall share
equally in the costs of conducting the arbitration and shall each pay their
expenses, but the prevailing party shall be entitled to recover its
reasonable attorneys' fees. Notwithstanding the foregoing, nothing herein
shall preclude or limit Company from seeking injunctive relief from a court
of competent jurisdiction. Executive acknowledges and agrees that, by
agreeing to this provision, he is agreeing to arbitrate any claim relating to
his employment, whether or not it arises under the terms of this Agreement,
that may arise under federal and state laws including, but not limited to,
claims
-4-
<PAGE>
arising under Title VII, the Age Discrimination in Employment Act, the
Americans with Disabilities Act and the Fair Employment and Housing Act.
EXECUTIVE FURTHER UNDERSTANDS THAT BY AGREEING TO ARBITRATE EMPLOYMENT CLAIMS
HE IS WAIVING HIS RIGHT TO BRING AN ACTION AGAINST COMPANY IN A COURT OF LAW,
EITHER STATE OR FEDERAL, AND IS WAIVING HIS RIGHT TO HAVE HIS CLAIMS AND
DAMAGES, IF ANY, DETERMINED BY A JURY.
17. ENTIRE AGREEMENT. This Agreement, any stock option agreements and the
Employee Proprietary Information Agreement signed by the Executive contain
the entire agreement of the parties and supersede and replace any other
Agreement. Except as provided herein, this Agreement may be modified only by
an agreement in writing signed by the party against whom enforcement of any
waiver, change, modification, extension or discharge is sought. Only
Company's Board has the authority to make such modifications of this
Agreement on behalf of Company.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the day and year first above written.
COMPANY:
ValueClick, Inc.
By: /S/ JAMES R. ZARLEY
---------------------------
Chief Executive Officer
EXECUTIVE: /S/ JAMES R. ZARLEY
------------------------------
Jim Zarley
-5-
<PAGE>
KEY EMPLOYEE AGREEMENT
This KEY EMPLOYEE AGREEMENT (hereinafter referred to as the
("Agreement") is made and entered into as of the 1st day of June, 1999, by
and between ValueClick, Inc., a Delaware corporation (hereinafter referred to
as the "Company") and Earle Malm (hereinafter referred to as "Executive").
WHEREAS, Company is a global Internet advertising network enabling
advertisers to take advantage of the Internet to sell their products and
increase brand awareness;
WHEREAS, Executive possesses unique technical and operational skills
which are valuable to the business and financial prospects of Company;
WHEREAS, in light of the foregoing, Company desires to employ
Executive as Chief Marketing Officer (CMO), and Executive desires to accept
such employment;
NOW, THEREFORE, in consideration of the mutual promises contained
herein, Company and Executive agree as follows:
1. DUTIES. Company hereby employs Executive to serve as CMO, reporting to the
CEO with such duties as are specified in Company's Bylaws and as may be
defined from time to time by the Board and/or CEO. To the fullest extent
permitted by Delaware law, Company shall indemnify and defend Executive from
all costs, expenses and losses whether direct or indirect, including
consequential damages and attorney's fees, incurred or sustained by Executive
in consequence of the discharge of his duties on Company's behalf.
2. TERM OF EMPLOYMENT. Company hereby agrees to employ Executive and
Executive agrees to accept employment upon the terms and conditions set forth
herein, commencing on June 1, 1999, and shall continue, for a period of one
year, unless and until terminated by Company or by Executive pursuant to
Paragraph 10 below.
3. SALARY. Executive shall be entitled to receive from Company a starting
base salary of $12,500 per month, which if annualized is $150,000. Salary is
calculated from the date of Executive's commencement of employment, pursuant
to Paragraph 2 above. The base salary shall be paid Executive in installments
every other week and shall be reviewed and may be increased by the Board
annually or at such earlier time or times as it determines.
4. STOCK OPTIONS. In addition to Executive's salary described in Paragraph
3, above, Executive shall receive Incentive Stock Options
1
<PAGE>
at a striking price of Two Dollars ($2.00)per share as to 200,000 shares of
Company Common Stock, which will vest in twelve (12) equal monthly
installments over the twelve (12)month period commencing on June 1, 1999. All
of the aforementioned stock options shall otherwise be subject to the terms
and conditions of the Company's 1999 Stock Incentive Plan.
5. EXTENT OF SERVICES. So long as he serves as CMO, Executive shall devote
his full time, attention and energies to the business of Company and shall
not during such time be engaged (whether or not during normal business hours)
in any other business or professional activity, whether or not such activity
is pursued for gain, profit or other pecuniary advantage, but this shall not
be construed as preventing the Executive from (a) investing personal assets
in businesses which do not compete with Company in such form or manner as
will not require any substantial services on the part of the Executive and in
which the Executive's participation is principally that of an investor; (b)
purchasing securities in any corporation whose securities are regularly
traded, provided that such purchase shall not result in the Executive's
collectively owning beneficially at any time five percent (5%) or more of the
equity securities of a corporation engaged in a business competitive to that
of Company; and (c) participating in conferences, preparing or publishing
papers or books or teaching, so long as the Board and/or the CEO approves of
such activities prior to the Executive engaging in them.
6. VACATIONS AND LEAVE. Executive shall be entitled to vacation and other
leave in accordance with normal Company policy applicable to management
employees, which at the date hereof is three (3) weeks annual combined
vacation and sick leave. Vacations shall be taken at such times the Executive
and the Board and/or the CEO shall mutually agree.
7. EXPENSE REIMBURSEMENT. Upon presentation of supporting documentation and
consistent with Company policy, Company will reimburse Executive for any
reasonable and necessary business expenses incurred by Executive in
connection with the business of
2
<PAGE>
Company. The parties acknowledge that Executive may incur certain
business-related expenses which Company will not reimburse but which
nonetheless further the business interests of Company and Executive's
professional interest.
8. OTHER BENEFITS. In addition to the benefits specifically described herein,
during the term of this Agreement, Executive and his dependents shall be
entitled to receive, on an equivalent basis, all other benefits of employment
generally made available to other members of Company's management and their
families, including, without limitation, benefits as a result of any present
or future medical insurance, disability insurance, life insurance, retirement
or pension plans. It is understood that any 401(k) plan implemented by
Company will be made available to Executive at the time and upon the
equivalent terms as made available to Company's other management employees.
9. TAXES. Company may withhold from any amounts payable under this Agreement
such federal, state, or local taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
10. TERMINATION OF EMPLOYMENT. This Agreement and Executive's employment as
CMO may be terminated by either party, for any reason or no reason,
immediately upon ten (10) days written notice given to the other party. In
the event the Executive's employment is terminated for any reason other than
cause (i.e. gross negligence, willful misconduct, insubordination); or, in
the event the Executive is terminated for any reason following a Change in
Control, as defined below, the Executive shall be entitled to all
compensation, stock option and health and welfare benefits the Executive
would have been eligible for during the Executive's remaining period of
employment. Accordingly, Executive and Company acknowledge and agree that
this Agreement and any employments hereunder are to be considered AT-WILL
EMPLOYMENT. Termination pursuant to this Section shall not prejudice any
other remedy to which the terminating party may be entitled at law, in
equity, or under this Agreement. This is the only Agreement concerning
termination between Company and Executive, and the parties acknowledge that
this Agreement supersedes and replaces any other written or oral agreement,
representation or understanding between the parties concerning termination
and that this Agreement can only be modified in a writing signed by the
Board's delegate and Executive.
"Change In Control" shall be deemed to have occurred for purposes hereof
(i)when a change of stock ownership of Company of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A promulgated
under the Securities Exchange Act
3
<PAGE>
of 1934, as amended (the "Exchange Act") and any successor item of a similar
nature has occurred; or (ii) upon the acquisition of beneficial ownership,
directly or indirectly, by any person (as such term is used in Sections 13(d)
and 14(d)(2) of the Exchange Act) of securities of Company representing 50%
or more of the combined voting power of Company's then outstanding
securities; provided that a Change In Control will not be deemed to have
occurred for purposes hereof with respect to any person meeting the
requirements of clauses (i) and (ii) of Rule 13(b)(1) promulgated under the
Exchange Act.
11. SUCCESSORS TO THE COMPANY. Except as otherwise provided herein, this
Agreement shall be binding upon and inure to the benefit of Company and any
successors of Company, or any corporation which acquires directly or
indirectly all of the assets of Company, whether by merger, consolidation,
sale or otherwise, and shall not be otherwise assignable by Company. This
Agreement is not assignable by Executive.
12. NOTICE. Any notice to be given under the terms of this Agreement shall be
given as follows: Notice to Company shall be addressed to its CEO at
Company's principal office; notices to Executive shall be addressed to
Executive's home as last shown on the records of Company or given by personal
delivery. Notice of a change of address under this section shall have been
duly given when personally delivered or three (3) days after being enclosed
in a properly sealed envelope addressed as aforesaid, and deposited (postage
paid) with the United States Postal Service.
13. WAIVER. Neither party's failure to enforce any provision of this
Agreement shall be deemed or in any way construed as a waiver of any such
provision, nor prevent that party from thereafter enforcing each and every
provision of this Agreement. The rights granted both parties herein are
cumulative and shall not constitute a waiver of either party's right to
assert all other legal remedies available under the circumstances.
14. SEVERABILITY. If one or more of the provisions or paragraphs of this
Agreement shall be held to be illegal or otherwise void or invalid, the
remainder of this Agreement shall not be affected and shall remain in full
force and effect.
15. GOVERNING LAW. This Agreement shall be interpreted under the laws of the
State of California, without regard to or application of choice of law rules
or principles.
16. ARBITRATION. In the event any claim or controversy arises under or
concerning any provision of this Agreement, excluding the
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termination provision (Paragraph 10), Company and Executive hereby agree that
such claim or controversy shall be settled by final, binding arbitration in
accordance with the Employment Dispute Resolution Rules of the American
Arbitration Association, provided, however, that the impartial arbitrator
shall be chosen as follows: if Company and Executive are unable to agree upon
an impartial arbitrator within five (5) days of a request for arbitration,
the parties shall request a panel of five (5) labor and employment
arbitrators from the American Arbitration Association and shall alternatively
strike names until a single arbitrator remains. Arbitration shall occur, if
practicable, in Santa Barbara County, CA. Judgment upon the award rendered by
the arbitrator may be entered in any court having jurisdiction thereof.
Depositions may be taken and other discovery may be obtained during such
arbitration proceedings to the same extent as authorized in civil judicial
proceedings, subject to any limitations placed on discovery by the
arbitrator. The parties shall share equally in the costs of conducting the
arbitration and shall each pay their expenses, but the prevailing party shall
be entitled to recover its reasonable attorneys' fees. Notwithstanding the
foregoing, nothing herein shall preclude or limit Company from seeking
injunctive relief from a court of competent jurisdiction. Executive
acknowledges and agrees that, by agreeing to this provision, he is agreeing
to arbitrate any claim relating to his employment, whether or not it arises
under the terms of this Agreement, that may arise under federal and state
laws including, but not limited to, claims arising under Title VII, the Age
Discrimination in Employment Act, the Americans with Disabilities Act and the
Fair Employment and Housing Act. EXECUTIVE FURTHER UNDERSTANDS THAT BY
AGREEING TO ARBITRATE EMPLOYMENT CLAIMS HE IS WAIVING HIS RIGHT TO BRING AN
ACTION AGAINST COMPANY IN A COURT OF LAW, EITHER STATE OR FEDERAL, AND IS
WAIVING HIS RIGHT TO HAVE HIS CLAIMS AND DAMAGES, IF ANY, DETERMINED BY A
JURY.
17. ENTIRE AGREEMENT. This Agreement, any stock option agreements and the
Employee Proprietary Information Agreement signed by the Executive contain
the entire agreement of the parties and supersede and replace any other
Agreement. Except as provided herein, this Agreement may be modified only by
an agreement in writing signed by the party against whom enforcement of any
waiver, change, modification, extension or discharge is sought. Only
Company's Board has the authority to make such modifications of this
Agreement on behalf of Company.
IN WITNESS WHEREOF, the parties have duly executed this
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Agreement as of the day and year first above written.
COMPANY:
ValueClick, Inc.
By: /s/ James R. Zarley
--------------------
CEO
EXECUTIVE: /s/ Earle Malm
--------------------
Earle Malm
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KEY EMPLOYEE AGREEMENT
This KEY EMPLOYEE AGREEMENT (hereinafter referred to as the
("Agreement") is made and entered into as of the 1st day of April, 1999, by
and between ValueClick, Inc., a Delaware corporation (hereinafter referred to
as the "Company") and John Schwenk(hereinafter referred to as "Executive").
WHEREAS, Company is a global Internet advertising network enabling
advertisers to take advantage of the Internet to sell their products and
increase brand awareness;
WHEREAS, Executive possesses unique technical and operational skills
which are valuable to the business and financial prospects of Company;
WHEREAS, in light of the foregoing, Company desires to employ
Executive as Chief Technical Officer, and Executive desires to accept such
employment;
NOW, THEREFORE, in consideration of the mutual promises contained
herein, Company and Executive agree as follows:
1. DUTIES. Company hereby employs Executive to serve as Chief Technical
Officer, reporting to the Chief Executive Officer with such duties as are
specified in Company's Bylaws and as may be defined from time to time by the
Chief Executive Officer and Board. To the fullest extent permitted by
Delaware law, Company shall indemnify and defend Executive from all costs,
expenses and losses whether direct or indirect, including consequential
damages and attorney's fees, incurred or sustained by Executive in
consequence of the discharge of his duties on Company's behalf.
2. TERM OF EMPLOYMENT. Company hereby agrees to employ Executive and
Executive agrees to accept employment upon the terms and conditions set forth
herein, commencing on April 1, 1999, and shall continue unless and until
terminated by Company or by the Executive pursuant to Paragraph 10 below.
3. SALARY. Executive shall be entitled to receive from Company a starting base
salary of $8,333.34 per month, which if annualized is $100,000. Salary is
calculated from the date of Executive's commencement of employment, pursuant to
Paragraph 2 above. The base salary shall be paid Executive in installments
consistent with the Company's pay periods and shall be reviewed and may be
increased by the Board annually or at such earlier time or times as it
determines.
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<PAGE>
4. STOCK OPTIONS. In addition to Executive's salary described in Paragraph 3,
above, Executive shall receive Incentive Stock Options at a striking price of
50 cents ($0.50)per share as to 100,000 shares of Company Common Stock, which
shall vest over a forty-eight (48) month period, commencing on April 1, 1999.
The aforementioned stock options shall otherwise be subject to the terms and
conditions of the Company's 1999 Stock Incentive Plan. In the event of the
closing of an Initial Public Offering of Company securities or the transfer
of ownership of 50% or more of the Company, for other than passive funding
purposes, at least one-half (1/2) of such options as have been granted to the
Executive shall be fully vested as of the date of such transaction and the
balance shall vest over the succeeding twelve (12) months or such shorter
period as they would have to fully vest under the aforesaid original vesting
schedule.
5. EXTENT OF SERVICES. Executive shall devote his full time, attention and
energies to the business of Company and shall not during such time be engaged
(whether or not during normal business hours) in any other business or
professional activity, whether or not such activity is pursued for gain,
profit or other pecuniary advantage, but this shall not be construed as
preventing the Executive from (a) investing personal assets in businesses
which do not compete with Company in such form or manner as will not require
any substantial services on the part of the Executive and in which the
Executive's participation is principally that of an investor; (b) purchasing
securities in any corporation whose securities are regularly traded, provided
that such purchase shall not result in the Executive's collectively owning
beneficially at any time five percent (5%) or more of the equity securities
of a corporation engaged in a business competitive to that of Company; and
(c) participating in conferences, preparing or publishing papers or books or
teaching, so long as the Board approves of such activities prior to the
Executive engaging in them.
6. VACATIONS AND LEAVE. Executive shall be entitled to vacation and other leave
in accordance with normal Company policy applicable to management employees,
which at the date hereof is three (3) weeks annual combined vacation and sick
leave. Vacations shall be taken at such time or times as Executive and the Board
shall mutually agree.
7. EXPENSE REIMBURSEMENT. Upon presentation of supporting documentation and
consistent with Company policy, Company will reimburse Executive for any
reasonable and necessary business expenses incurred by Executive in connection
with the business of Company. The parties acknowledge that Executive may incur
certain business-related expenses which Company will not reimburse but
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which nonetheless further the business interests of Company and Executive's
professional interest.
8. OTHER BENEFITS. In addition to the benefits specifically described herein,
during the term of this Agreement, Executive and his dependents shall be
entitled to receive, on an equivalent basis, all other benefits of employment
generally made available to other members of Company's management and their
families, including, without limitation, benefits as a result of any present
or future medical insurance, disability insurance, life insurance, retirement
or pension plans. It is understood that any 401(k) plan implemented by
Company will be made available to Executive at the time and upon the
equivalent terms as made available to Company's other management employees.
9. TAXES. Company may withhold from any amounts payable under this Agreement
such federal, state, or local taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
10. TERMINATION OF EMPLOYMENT. This Agreement and Executive's employment may
be terminated by either party, for any reason or no reason, immediately upon
ten (10) days written notice given to the other party. Accordingly, Executive
and Company acknowledge and agree that this Agreement and any employments
hereunder are to be considered AT-WILL EMPLOYMENT. Termination pursuant to
this Section shall not prejudice any other remedy to which the terminating
party may be entitled at law, in equity, or under this Agreement. This is the
only Agreement concerning termination between Company and Executive, and the
parties acknowledge that this Agreement supersedes and replaces any other
written or oral agreement, representation or understanding between the
parties concerning termination and that this Agreement can only be modified
in a writing signed by the Board's delegate and Executive.
11. SUCCESSORS TO THE COMPANY. Except as otherwise provided herein, this
Agreement shall be binding upon and inure to the benefit of Company and any
successors of Company, or any corporation which acquires directly or
indirectly all of the assets of Company, whether by merger, consolidation,
sale or otherwise, and shall not be otherwise assignable by Company. This
Agreement is not assignable by Executive.
12. NOTICE. Any notice to be given under the terms of this Agreement shall be
given as follows: Notice to Company shall be addressed to its CEO at
Company's principal office; notices to Executive shall be addressed to
Executive's home as last shown on the records of Company or given by personal
delivery. Notice of a
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<PAGE>
change of address under this section shall have been duly given when
personally delivered or three (3) days after being enclosed in a properly
sealed envelope addressed as aforesaid, and deposited (postage paid) with the
United States Postal Service.
13. WAIVER. Neither party's failure to enforce any provision of this
Agreement shall be deemed or in any way construed as a waiver of any such
provision, nor prevent that party from thereafter enforcing each and every
provision of this Agreement. The rights granted both parties herein are
cumulative and shall not constitute a waiver of either party's right to
assert all other legal remedies available under the circumstances.
14. SEVERABILITY. If one or more of the provisions or paragraphs of this
Agreement shall be held to be illegal or otherwise void or invalid, the
remainder of this Agreement shall not be affected and shall remain in full
force and effect.
15. GOVERNING LAW. This Agreement shall be interpreted under the laws of the
State of California, without regard to or application of choice of law rules
or principles.
16. ARBITRATION. In the event any claim or controversy arises under or
concerning any provision of this Agreement, including the termination
provision (Paragraph 10), Company and Executive hereby agree that such claim
or controversy shall be settled by final, binding arbitration in accordance
with the Employment Dispute Resolution Rules of the American Arbitration
Association, provided, however, that the impartial arbitrator shall be chosen
as follows: if Company and Executive are unable to agree upon an impartial
arbitrator within five (5) days of a request for arbitration, the parties
shall request a panel of five (5) labor and employment arbitrators from the
American Arbitration Association and shall alternatively strike names until a
single arbitrator remains. Arbitration shall occur, if practicable, in Santa
Barbara County, CA. Judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof. Depositions may be taken
and other discovery may be obtained during such arbitration proceedings to
the same extent as authorized in civil judicial proceedings, subject to any
limitations placed on discovery by the arbitrator. The parties shall share
equally in the costs of conducting the arbitration and shall each pay their
expenses, but the prevailing party shall be entitled to recover its
reasonable attorneys' fees. Notwithstanding the foregoing, nothing herein
shall preclude or limit Company from seeking injunctive relief from a court
of competent jurisdiction. Executive acknowledges and agrees that, by
agreeing to this provision, he is agreeing to arbitrate any claim relating to
his employment, whether
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<PAGE>
or not it arises under the terms of this Agreement, that may arise under
federal and state laws including, but not limited to, claims arising under
Title VII, the Age Discrimination in Employment Act, the Americans with
Disabilities Act and the Fair Employment and Housing Act. EXECUTIVE FURTHER
UNDERSTANDS THAT BY AGREEING TO ARBITRATE EMPLOYMENT CLAIMS HE IS WAIVING HIS
RIGHT TO BRING AN ACTION AGAINST COMPANY IN A COURT OF LAW, EITHER STATE OR
FEDERAL, AND IS WAIVING HIS RIGHT TO HAVE HIS CLAIMS AND DAMAGES, IF ANY,
DETERMINED BY A JURY.
17. ENTIRE AGREEMENT. This Agreement, any stock option agreements and the
Employee Proprietary Information Agreement signed by the Executive contain
the entire agreement of the parties and supersede and replace any other
Agreement. Except as provided herein, this Agreement may be modified only by
an agreement in writing signed by the party against whom enforcement of any
waiver, change, modification, extension or discharge is sought. Only
Company's Board has the authority to make such modifications of this
Agreement on behalf of Company.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first above written.
COMPANY:
ValueClick, Inc.
By: /s/ James R. Zarley
-----------------------
Chief Executive Officer
EXECUTIVE: /s/ John Schwenk
-----------------------
John Schwenk
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<PAGE>
LOAN AND SECURITY AGREEMENT
<PAGE>
THIS LOAN AND SECURITY AGREEMENT (this "Agreement") dated October 21,
1999 between SILICON VALLEY BANK ("Bank") and ValueClick, Inc. ("Borrower"),
provides the terms on which Bank will lend to Borrower and Borrower will repay
Bank. The parties agree as follows:
1. ACCOUNTING AND OTHER TERMS
Accounting terms not defined in this Agreement will be construed
following GAAP. Calculations and determinations must be made following GAAP. The
term "financial statements" includes the notes and schedules. The terms
"including" and "includes" always mean "including (or includes) without
limitation" in this or any Loan Document. Capitalized terms in this Agreement
shall have the meanings set forth in Section 13.
2. LOAN AND TERMS OF PAYMENT
2.1 ADVANCES. Borrower will pay Bank the unpaid principal amount of all
Advances and interest on the unpaid principal amount of the Advances in
accordance with terms hereof.
2.1.1 REVOLVING ADVANCES.
(a) Bank will make Advances from time to time in an amount outstanding
at any one time not exceeding the Committed Revolving Line or the Borrowing
Base, whichever is less. Amounts borrowed under this Section may be repaid and
reborrowed during the term of this Agreement.
(b) To obtain an Advance, Borrower must notify Bank by facsimile or
telephone by 3:00 p.m. Pacific time on the Business Day the Advance is to be
made. Borrower must promptly confirm the notification by delivering to Bank the
Payment/Advance Form attached as Exhibit B. Bank will credit Advances to
Borrower's deposit account Account Number [________________]. Bank may make
Advances under this Agreement based on instructions from a Responsible Officer
or his or her designee or without instructions if the Advances are necessary to
meet Obligations which have become due. Bank may rely on any telephone notice
given by a person whom Bank believes is a Responsible Officer or designee.
Borrower will indemnify Bank for any loss Bank suffers due to that reliance.
(c) The Committed Revolving Line terminates on the Revolving Maturity
Date, when all Advances are immediately payable.
2.1.2 [Reserved]
2.1.3 [Reserved]
2.1.4 [Reserved]
2.1.5 [Reserved]
2.1.6 [Reserved]
2.1.7 [Reserved]
<PAGE>
2.2 OVERADVANCES. If Borrower's Obligations under Section 2.1.1 exceed
the lesser of either (i) the Committed Revolving Line or (ii) the Borrowing
Base, Borrower must immediately pay in cash to Bank the excess.
2.3 INTEREST RATE; PAYMENTS.
(a) Interest Rate. Advances accrue interest on the outstanding
principal balance at a per annum rate one (1.0) percentage point above the
Prime Rate. After the occurrence and during the continuation of an Event of
Default, Obligations accrue interest at five (5.0) percent above the rate
effective immediately before the occurrence of such Event of Default. The
interest rate increases or decreases when the Prime Rate changes. Interest is
computed on a 360 day year for the actual number of days elapsed.
(b) Payments. Interest is payable on the first day of each month. Bank
may debit any of Borrower's deposit accounts including Account Number
[__________] for principal and interest payments or any amounts Borrower owes
Bank. Bank will notify Borrower when it debits Borrower's accounts. These debits
are not a set-off. Payments received after 12:00 noon Pacific time are
considered received at the opening of business on the next Business Day. When a
payment is due on a day that is not a Business Day, the payment is due the next
Business Day and additional fees or interest accrue.
2.4 FEES. Borrower will pay to Bank:
(a) Facility Fee. A fully earned, non-refundable facility fee of
$12,500 due on the Closing Date (Bank acknowledges receipt of $12,500 from
Borrower on July 12, 1999 as payment in full of the facility fee due to Bank
hereunder); and
(b) Bank Expenses. All Bank Expenses (including reasonable attorneys'
fees and expenses) incurred through and after the Closing Date when due.
(c) Unused Line Fee. An Unused Line Fee, in addition to all interest
and other fees payable hereunder. The amount of the Unused Line Fee shall be
0.50% per annum multiplied by an amount equal to the Committed Revolving Amount
minus the average daily balance of the outstanding Advances. The Unused Line Fee
shall be computed and paid quarterly, in arrears, and shall be due on the last
day of each fiscal quarter. Anything contained in the foregoing to the contrary
notwithstanding, during each quarter in which Borrower maintains Permitted
Investments in investment vehicles provided to Borrower by Bank in an average
aggregate amount of $15,000,000 or more, payment of the entire amount of any
Unused Line Fee otherwise due for such quarter in accordance with the foregoing
shall be waived by Bank, and no such fee shall be payable with respect to such
period.
3. CONDITIONS OF LOANS
3.1 CONDITIONS PRECEDENT TO INITIAL ADVANCE. Bank's obligation to make
the initial Advance is subject to the condition precedent that it receive the
agreements, documents and fees it requires, including, without limitation,
the following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with
respect to articles, bylaws, incumbency and resolutions authorizing the
execution and delivery of this Agreement;
(c) financing statements (Forms UCC-1);
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<PAGE>
(d) insurance certificate;
(e) payment of the fees and Bank Expenses then due;
(f) [Reserved];
(g) Certificate of Foreign Qualification with respect to
Borrower (except from such jurisdictions where the
failure to do be so qualified or licensed could not
reasonably be expected to cause a Material Adverse
Change);
(h) an intellectual property security agreement; and
(i) such other documents, and completion of such other
matters, as Bank may reasonably deem necessary or appropriate.
3.2 CONDITIONS PRECEDENT TO ALL ADVANCES OR OTHER CREDIT EXTENSIONS.
Bank's obligations to make each Advance or other Credit Extension, including
the initial Advance, is subject to the following:
(a) timely receipt of any Payment/Advance Form to be delivered to Bank
in accordance with Section 2.1.1(b); and
(b) the representations and warranties in Section 5 must be materially
true on the date of any such Payment/Advance Form and on the effective date of
each Advance or other Credit Extension and no Event of Default may have occurred
and be continuing, or result from the Advance or other Credit Extension. Each
Advance or other Credit Extension is Borrower's representation and warranty on
that date that the representations and warranties in Section 5 remain true as of
that date.
4. CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST. Borrower grants Bank a continuing
security interest in all presently existing and later acquired Collateral to
secure all Obligations and performance of each of Borrower's duties under the
Loan Documents. Except for Permitted Liens, any security interest will be a
first priority security interest in the Collateral. Bank may place a "hold"
on any deposit account pledged as Collateral. If the Agreement is terminated,
Bank's lien and security interest in the Collateral will continue until
Borrower fully satisfies its Obligations.
5. REPRESENTATIONS AND WARRANTIES
As of the date of this Agreement, and as of the date of the making of
each Advance or other credit extension hereunder (except to the extent that such
representations and warranties relate solely to an earlier date) Borrower
represents and warrants as follows:
5.1 DUE ORGANIZATION AND AUTHORIZATION. Borrower and each Subsidiary is
duly existing and in good standing in its state of formation and qualified
and licensed to do business in, and in good standing in, any state in which
the conduct of its business or its ownership of property requires that it be
qualified except where the failure to do so could not reasonably be expected
to cause a Material Adverse Change.
The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's formations documents, nor
constitute an event of
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<PAGE>
default under any material agreement by which Borrower is bound. Borrower is not
in default under any agreement to which or by which it is bound in which the
default could reasonably be expected to cause a Material Adverse Change.
5.2 COLLATERAL. Borrower has good title to the Collateral, free of Liens
except Permitted Liens. The Eligible Accounts are bona fide, existing
obligations, and the service or property has been performed or delivered to
the account debtor or its agent for immediate shipment to and unconditional
acceptance by the account debtor. Borrower has no notice of any actual or
imminent Insolvency Proceeding of any account debtor whose accounts are an
Eligible Account in any Borrowing Base Certificate. All Inventory is in all
material respects of good and marketable quality, free from material defects.
Borrower is the sole owner of the Intellectual Property, except for
non-exclusive licenses granted to its customers in the ordinary course of
business. Each Patent is valid and enforceable and no part of the
Intellectual Property has been judged invalid or unenforceable, in whole or
in part, and no claim has been made that any part of the Intellectual
Property violates the rights of any third party.
5.3 LITIGATION. Except as shown in the Schedule, there are no actions or
proceedings pending or, to Borrower's knowledge, threatened by or against
Borrower or any Subsidiary in which an adverse decision could reasonably be
expected to cause a Material Adverse Change.
5.4 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS. All consolidated
financial statements for Borrower and any Subsidiary delivered to Bank fairly
present in all material respects Borrower's consolidated financial condition
and Borrower's consolidated results of operations. There has not been any
material deterioration in Borrower's consolidated financial condition since
the date of the most recent financial statements submitted to Bank.
5.5 SOLVENCY. The fair salable value of Borrower's assets (including
goodwill minus disposition costs) exceeds the fair value of its liabilities;
the Borrower is not left with unreasonably small capital after the
transactions in this Agreement; and Borrower is able to pay its debts
(including trade debts) as they mature.
5.6 REGULATORY COMPLIANCE. Borrower is not an "investment company" or a
company "controlled" by an "investment company" under the Investment Company
Act. Borrower is not engaged as one of its important activities in extending
credit for margin stock (under Regulations T and U of the Federal Reserve
Board of Governors). Borrower has complied with the Federal Fair Labor
Standards Act. Borrower has not violated any laws, ordinances or rules, the
violation of which could reasonably be expected to cause a Material Adverse
Change. None of Borrower's or any Subsidiary's properties or assets has been
used by Borrower or any Subsidiary or, to the best of Borrower's knowledge,
by previous Persons, in disposing, producing, storing, treating, or
transporting any hazardous substance other than legally. Borrower and each
Subsidiary has timely filed all required tax returns and paid, or made
adequate provision to pay, all material taxes. Borrower and each Subsidiary
has obtained all consents, approvals and authorizations of, made all
declarations or filings with, and given all notices to, all government
authorities that are necessary to continue its business as currently
conducted.
5.7 SUBSIDIARIES. Borrower does not own any stock, partnership interest
or other equity securities except for Permitted Investments.
5.8 FULL DISCLOSURE. No representation, warranty or other statement of
Borrower in any certificate or written statement given to Bank contains any
untrue statement of a material fact or omits to state a material fact
necessary to make the statements contained in the certificates or statements
not misleading.
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<PAGE>
6. AFFIRMATIVE COVENANTS
Borrower will do all of the following:
6.1 GOVERNMENT COMPLIANCE. Borrower will maintain its and all
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could reasonably be expected to have a material adverse
effect on Borrower's business or operations. Borrower will comply, and have
each Subsidiary comply, with all laws, ordinances and regulations to which it
is subject, noncompliance with which could reasonably be expected to have a
material adverse effect on Borrower's business or operations or could
reasonably be expected to cause a Material Adverse Change.
6.2 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.
(a) Borrower will deliver to Bank: (i) as soon as available, but no
later than 30 days after the last day of each month, a company prepared
consolidated balance sheet and income statement covering Borrower's consolidated
operations during the period, in a form acceptable to Bank and certified by a
Responsible Officer; (ii) as soon as available, but no later than 120 days after
the end of Borrower's fiscal year, audited, consolidated financial statements
prepared under GAAP, consistently applied, together with an unqualified opinion
on the financial statements from an independent certified public accounting firm
acceptable to Bank; (iii) within 5 Business Days of filing, copies of all
statements, reports and notices made available to Borrower's security holders or
to any holders of Subordinated Debt and all reports on Form 10-K, 10-Q and 8-K
filed with the Securities and Exchange Commission; (iv) a prompt report of any
legal actions pending or threatened against Borrower or any Subsidiary that
could result in damages or costs to Borrower or any Subsidiary of $100,000 or
more; (v) prompt notice of any material change in the composition of the
Intellectual Property, including any subsequent ownership right of Borrower in
or to any Copyright, Patent or Trademark not shown in any intellectual property
security agreement between Borrower and Bank or knowledge of an event that
Borrower could reasonably expect to materially adversely affect the value of the
Intellectual Property; and (vi) budgets, sales projections, operating plans or
other financial information Bank requests.
(b) Within 20 days after the last day of each month, Borrower will
deliver to Bank a Borrowing Base Certificate signed by a Responsible Officer in
the form of Exhibit C, with aged listings of accounts receivable and accounts
payable.
(c) Within 30 days after the last day of each month, Borrower will
deliver to Bank with the monthly financial statements a Compliance Certificate
signed by a Responsible Officer in the form of Exhibit D.
(d) Bank has the right to audit Borrower's Accounts at Borrower's
expense, but the audits will be conducted no more often than once every 12
months unless an Event of Default has occurred and is continuing.
6.3 INVENTORY; RETURNS. Borrower will keep all Inventory in good and
marketable condition, free from material defects. Returns and allowances
between Borrower and its account debtors will follow Borrower's customary
practices as they exist at the Closing Date. Borrower must promptly notify
Bank of all returns, recoveries, disputes and claims that involve more than
$50,000.
6.4 TAXES. Borrower will make, and cause each Subsidiary to make, timely
payment of all material federal, state, and local taxes or assessments and
will deliver to Bank, on demand, appropriate certificates attesting to the
payment.
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<PAGE>
6.5 INSURANCE. Borrower will keep its business and the Collateral
insured for risks ordinarily insured against by other owners in similar
businesses conducted in the locations where the Borrower's business is
conducted on the date hereof and in amounts, as Bank requests. Insurance
policies will be in a form, with companies, reasonably satisfactory to Bank
and in amounts that are satisfactory to Bank. All property policies will have
a lender's loss payable endorsement showing Bank as a loss payee and all
liability policies will show the Bank as an additional insured and provide
that the insurer must give Bank at least 20 days notice before canceling its
policy. At Bank's request, Borrower will deliver certified copies of policies
and evidence of all premium payments. Proceeds payable under any policy will,
at Bank's option, be payable to Bank on account of the Obligations. If no
Event of Default has occurred and is continuing, proceeds payable under any
casualty policy will, at Borrower's option, be payable to Borrower to replace
the property subject to the claim, provided that any such replacement
property shall be deemed Collateral in which Bank has been granted a first
priority security interest. If an Event of Default has occurred and is
continuing, then, at Bank's option, proceeds payable under any policy will be
payable to Bank on account of the Obligations.
6.6 PRIMARY ACCOUNTS. Borrower will maintain its primary depository and
operating accounts with Bank.
6.7 FINANCIAL COVENANTS.
Borrower will maintain as of the last day of each month, unless
otherwise noted:
(a) QUICK RATIO. A ratio of Quick Assets to Current
Liabilities of at least 2.0 to 1.0.
(b) TANGIBLE NET WORTH. After the occurrence of the Major
Liquidity Event, a Tangible Net Worth plus Subordinated Debt of at least
$10,000,000.
(c) LOSS. Prior to the occurrence of the Major Liquidity
Event, Borrower may suffer a loss for up to $1,000,000 for calendar year 1999
and up to $250,000 for calendar year 2000. After the occurrence of the Major
Liquidity Event, this Loss Financial Covenant shall not be applicable.
6.8 REGISTRATION OF INTELLECTUAL PROPERTY RIGHTS. Borrower will register
with the United States Copyright Office (i) any software material to the
business of Borrower it has, develops or acquires, including those in Exhibit
A to the Intellectual Property Security Agreement, within 30 days of the
Closing Date, and additional software rights material to the business of
Borrower that are developed or acquired, including significant revisions,
additions or improvements to the software or revisions, additions or
improvements which significantly improve the functionality of the software,
after the Closing Date before the sale or licensing to any third party of the
software or any product based on or containing any software. Borrower will
promptly notify Bank upon Borrower's filing of any application or
registration of any Intellectual Property rights with the United States
Patent and Trademark Office and Borrower will execute and deliver any and all
instruments and documents as Bank may require to evidence or perfect Bank's
security interest in such application or registration.
Borrower will: (i) protect, defend and maintain the validity and
enforceability of the Intellectual Property; (ii) promptly advise Bank in
writing of material infringements of the Intellectual Property; and (iii) not
allow any Intellectual Property to be abandoned, forfeited or dedicated to the
public without Bank's written consent.
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6.9 FURTHER ASSURANCES. Borrower will execute any further instruments
and take further action as Bank requests to perfect or continue Bank's
security interest in the Collateral or to effect the purposes of this
Agreement.
7. NEGATIVE COVENANTS
Borrower will not do any of the following without the Bank's written
consent, which will not be unreasonably withheld:
7.1 DISPOSITIONS. Convey, sell, lease, transfer or otherwise dispose of
(collectively a "Transfer"), or permit any of its Subsidiaries to Transfer,
all or any part of its business (other than the issuance of any capital
stock, or any options for the purchase thereof, under any incentive stock
option plan in effect on or after the date hereof) or property, other than a
Transfer (i) of Inventory in the ordinary course of business; (ii) of
non-exclusive licenses and similar arrangements for the use of the property
of Borrower or its Subsidiaries in the ordinary course of business; or (iii)
of worn-out or obsolete Equipment.
7.2 CHANGES IN BUSINESS, OWNERSHIP, MANAGEMENT OR BUSINESS LOCATIONS.
Engage in or permit any of its Subsidiaries to engage in any business other
than the businesses currently engaged in by Borrower or have a change in its
ownership or management other than in connection with a Major Liquidity
Event, the events set forth in Section 7.3 below or in connection with the
issuance of any capital stock, or any options for the purchase thereof, under
any incentive stock option plan in effect on or after the date hereof.
Borrower will not, without at least 30 days prior written notice to Bank,
relocate its principal executive office or add any new offices or business
locations.
7.3 MERGERS OR ACQUISITIONS. Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with any other Person, or acquire, or
permit any of its Subsidiaries to acquire, all or substantially all of the
capital stock or property of another Person except where (i) such
transactions do not in the aggregate result in a decrease of more than 33% of
Tangible Net Worth and (ii) no Event of Default has occurred and is
continuing or would exist after giving effect to the transactions. A
Subsidiary may merge or consolidate into another Subsidiary or into Borrower.
7.4 INDEBTEDNESS. Create, incur, assume, or be liable for any
Indebtedness, or permit any Subsidiary to do so, other than Permitted
Indebtedness.
7.5 ENCUMBRANCE. Create, incur, or allow any Lien on any of its
property, or assign or convey any right to receive income, including the sale
of any Accounts, or permit any of its Subsidiaries to do so, except for
Permitted Liens, or cause Bank's first priority security interest in the
Collateral to change.
7.6 INVESTMENTS; DISTRIBUTIONS. (i) Directly or indirectly acquire or
own any Person, or make any Investment in any Person, other than Permitted
Investments, or permit any of its Subsidiaries to do so; or (ii) pay any
dividends or make any distribution or payment or redeem, retire or purchase
any capital stock, except for repurchases of stock from former employees or
directors of Borrower under the terms of applicable repurchase agreements in
an aggregate amount not to exceed $50,000 in the aggregate in any fiscal
year, provided that no Event of Default has occurred, is continuing or would
exist after giving effect to the repurchases.
7.7 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter or permit
any material transaction with any Affiliate, except transactions that are in
the ordinary course of Borrower's
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business, on terms that are less favorable to Borrower than would be obtained in
an arm's length transaction with a non-affiliated Person.
7.8 SUBORDINATED DEBT. Make or permit any payment on any Subordinated
Debt, except under the terms of the Subordinated Debt, or amend any provision
in any document relating to the Subordinated Debt, or enter into any new
Subordinated Debt without Bank's prior written consent.
7.9 COMPLIANCE. Undertake as one of its important activities extending
credit to purchase or carry margin stock, or use the proceeds of any Advance
for that purpose; fail to meet the minimum funding requirements of ERISA,
permit a Reportable Event or Prohibited Transaction, as each such term is
defined in ERISA, to occur; fail to comply with the Federal Fair Labor
Standards Act or violate any other law or regulation, if the violation could
reasonably be expected to have a material adverse effect on Borrower's
business or operations or could reasonably be expected to cause a Material
Adverse Change, or permit any of its Subsidiaries to do so.
8. EVENTS OF DEFAULT
Any one of the following is an Event of Default:
8.1 PAYMENT DEFAULT. Borrower fails to pay any of the Obligations within
3 days (4 days if the third day is a non Business Day) after their due date.
During the additional period the failure to cure the default is not an Event
of Default (but no Advances or other Credit Extensions will be made during
the cure period);
8.2 COVENANT DEFAULT. Borrower does not perform any obligation in
Section 6 or violates any covenant in Article 7 or does not perform or
observe any other material term, condition or covenant in this Agreement, any
Loan Documents, or in any agreement between Borrower and Bank and as to any
default under a term, condition or covenant that can be cured, has not cured
the default within 10 days after it occurs, or if the default cannot be cured
within 10 days or cannot be cured after Borrower's attempts in the 10 day
period, and the default may be cured within a reasonable time, then Borrower
has an additional time, (of not more than 30 days) to attempt to cure the
default. During the additional period the failure to cure the default is not
an Event of Default (but no Credit Extensions will be made during the cure
period);
8.3 MATERIAL ADVERSE CHANGE.
(i) A material impairment in the perfection or priority of Bank's security
interest in the Collateral or in the value of such Collateral which is not
covered by adequate insurance occurs; or (ii) Bank determines, based upon
information available to it and in its reasonable judgment, that, as a result of
a material adverse change in the business, prospects, operations, results of
operations, assets, liabilities or condition (financial or otherwise) of
Borrower, there is a reasonable likelihood that Borrower will fail to comply
with one or more of the financial covenants in Section 6 during the next
succeeding financial reporting period;
8.4 ATTACHMENT. (i) Any material portion of Borrower's assets is
attached, seized, levied on, or comes into possession of a trustee or
receiver and the attachment, seizure or levy is not removed in 10 days; (ii)
Borrower is enjoined, restrained, or prevented by court order from conducting
a material part of its business; (iii) a judgment or other claim becomes a
Lien on a material portion of Borrower's assets; or (iv) a notice of lien,
levy, or assessment is filed against any of Borrower's assets by any
government agency and not paid within 10 days after Borrower receives notice.
These are not Events of Default if stayed or if a bond is posted pending
contest by Borrower (but no Advances or other Credit Extensions will be made
during the cure period);
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8.5 INSOLVENCY. (i) Borrower becomes insolvent; (ii) Borrower begins an
Insolvency Proceeding; or (iii) an Insolvency Proceeding is begun against
Borrower and not dismissed or stayed within 30 days (but no Credit Extensions
will be made before any Insolvency Proceeding is dismissed);
8.6 OTHER AGREEMENTS. If there is a default in any agreement between
Borrower and a third party that gives the third party the right to accelerate
any Indebtedness exceeding $150,000 or that could cause a Material Adverse
Change;
8.7 JUDGMENTS. If a money judgment or judgments in the aggregate of at
least $100,000 is rendered against the Borrower and is unsatisfied and
unstayed for 10 days (but no Credit Extensions will be made before the
judgment is stayed or satisfied);
8.8 MISREPRESENTATIONS. If Borrower or any Person acting for Borrower
makes any material misrepresentation or material misstatement now or later in
any warranty or representation in this Agreement or in any communication
delivered to Bank or to induce Bank to enter this Agreement or any Loan
Document; or
8.9 [Reserved]
9. BANK'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES. When an Event of Default occurs and continues Bank may,
without notice or demand, do any or all of the following:
(a) Declare all Obligations immediately due and payable (but if an
Event of Default described in Section 8.5 occurs all Obligations are immediately
due and payable without any action by Bank);
(b) Stop advancing money or extending credit for Borrower's benefit
under this Agreement or under any other agreement between Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account debtors
for amounts, on terms and in any order that Bank considers advisable;
(d) Make any payments and do any acts it considers necessary or
reasonable to protect its security interest in the Collateral. Borrower will
assemble the Collateral if Bank requests and make it available as Bank
designates. Bank may enter premises where the Collateral is located, take and
maintain possession of any part of the Collateral, and pay, purchase, contest,
or compromise any Lien which appears to be prior or superior to its security
interest and pay all expenses incurred. Borrower grants Bank a license to enter
and occupy any of its premises, without charge, to exercise any of Bank's rights
or remedies;
(e) Apply to the Obligations any (i) balances and deposits of Borrower
it holds, or (ii) any amount held by Bank owing to or for the credit or the
account of Borrower;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell the Collateral. Bank is granted a
non-exclusive, royalty-free license or other right to use, without charge,
Borrower's labels, Patents, Copyrights, Mask Works, rights of use of any name,
trade secrets, trade names, Trademarks, service marks, and advertising matter,
or any similar property as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Bank's exercise of its rights under this Section, Borrower's
rights under all licenses and all franchise agreements inure to Bank's benefit;
and
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(g) Dispose of the Collateral according to the Code.
9.2 POWER OF ATTORNEY. When an Event of Default occurs and continues,
Borrower irrevocably appoints Bank as its lawful attorney to: (i) endorse
Borrower's name on any checks or other forms of payment or security; (ii)
sign Borrower's name on any invoice or bill of lading for any Account or
drafts against account debtors, (iii) make, settle, and adjust all claims
under Borrower's insurance policies; (iv) settle and adjust disputes and
claims about the Accounts directly with account debtors, for amounts and on
terms Bank determines reasonable; and (v) transfer the Collateral into the
name of Bank or a third party as the Code permits. Bank may exercise the
power of attorney to sign Borrower's name on any documents necessary to
perfect or continue the perfection of any security interest regardless of
whether an Event of Default has occurred. Bank's appointment as Borrower's
attorney in fact, and all of Bank's rights and powers, coupled with an
interest, are irrevocable until all Obligations have been fully repaid and
performed and Bank's obligation to provide Credit Extensions terminates. `
9.3 ACCOUNTS COLLECTION. When an Event of Default occurs and continues,
Bank may notify any Person owing Borrower money of Bank's security interest
in the funds and verify the amount of the Account. Borrower must collect all
payments in trust for Bank and, if requested by Bank, immediately deliver the
payments to Bank in the form received from the account debtor, with proper
endorsements for deposit.
9.4 BANK EXPENSES. If Borrower fails to pay any amount or furnish any
required proof of payment thereof to third persons Bank may make all or part
of the payment or obtain insurance policies required in Section 6.5, and take
any action under the policies Bank deems prudent. Any amounts paid by Bank
are Bank Expenses and immediately due and payable, bearing interest at the
then applicable rate and secured by the Collateral. No payments by Bank are
deemed an agreement to make similar payments in the future or Bank's waiver
of any Event of Default.
9.5 BANK'S LIABILITY FOR COLLATERAL. If Bank complies with reasonable
banking practices and Section 9-207 of the Code, it is not liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or
damage to the Collateral; (c) any diminution in the value of the Collateral;
or (d) any act or default of any carrier, warehouseman, bailee, or other
person. Borrower bears all risk of loss, damage or destruction of the
Collateral.
9.6 REMEDIES CUMULATIVE. Bank's rights and remedies under this
Agreement, the Loan Documents, and all other agreements are cumulative. Bank
has all rights and remedies provided under the Code, by law, or in equity.
Bank's exercise of one right or remedy is not an election, and Bank's waiver
of any Event of Default is not a continuing waiver. Bank's delay is not a
waiver, election, or acquiescence. No waiver is effective unless signed by
Bank and then is only effective for the specific instance and purpose for
which it was given.
9.7 DEMAND WAIVER. Borrower waives demand, notice of default or
dishonor, notice of payment and nonpayment, notice of any default, nonpayment
at maturity, release, compromise, settlement, extension, or renewal of
accounts, documents, instruments, chattel paper, and guaranties held by Bank
on which Borrower is liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
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delivery service, by certified mail, postage prepaid, return receipt requested,
or by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below:
If to Borrower: ValueClick, Inc.
6450 Via Real
Carpinteria, CA 93014
Attention: Mr. Kurt Johnson
FAX: (805) 566-9873
with a cc to: Brobeck Phleger & Harrison LLP
550 South Hope Street
Los Angeles, CA 90071
Attention: Allen Z. Sussman, Esq.
FAX: (213) 239-1324
If to Bank: Silicon Valley Bank
340 N. Westlake Boulevard, Suite 150
Westlake Village, CA 91362
Attn: Mr. Karl Brier
FAX: (805) 496-7015
with a cc to: Levy, Small & Lallas
815 Moraga Drive
Los Angeles, CA 90049
Attn: Angel F. Castillo, Esq.
FAX: (310) 471-7990
11. CHOICE OF LAW , VENUE AND JURY TRIAL WAIVER
California law governs the Loan Documents without regard to principles
of conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction
of the State and Federal courts in Santa Clara County, California. BORROWER AND
BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY
CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER
CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS
AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
12. GENERAL PROVISIONS
12.1 SUCCESSORS AND ASSIGNS. This Agreement binds and is for the benefit
of the successors and permitted assigns of each party. Borrower may not
assign this Agreement or any rights or Obligations under it without Bank's
prior written consent which may be granted or withheld in Bank's discretion.
Bank has the right, without the consent of or notice to Borrower, to sell,
transfer, negotiate, or grant participation in all or any part of, or any
interest in, Bank's obligations, rights and benefits under this Agreement,
the Loan Documents or any related agreement.
12.2 INDEMNIFICATION. Borrower will indemnify, defend and hold harmless
Bank and its officers, employees and agents against: (a) all obligations,
demands, claims, and liabilities
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asserted by any other party in connection with the transactions contemplated by
the Loan Documents; and (b) all losses or Bank Expenses incurred, or paid by
Bank from, following, or consequential to transactions between Bank and Borrower
(including reasonable attorneys' fees and expenses), except for losses caused by
Bank's gross negligence or willful misconduct.
12.3 TIME OF ESSENCE. Time is of the essence for the performance of all
Obligations in this Agreement.
12.4 SEVERABILITY OF PROVISION. Each provision of this Agreement is
severable from every other provision in determining the enforceability of any
provision.
12.5 AMENDMENTS IN WRITING, INTEGRATION. All amendments to this
Agreement must be in writing signed by both Bank and Borrower. This Agreement
and the Loan Documents represent the entire agreement about this subject
matter, and supersedes prior or contemporaneous negotiations or agreements.
All prior or contemporaneous agreements, understandings, representations,
warranties, and negotiations between the parties about the subject matter of
this Agreement and the Loan Documents merge into this Agreement and the Loan
Documents.
12.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of
which, when executed and delivered, are an original, and all taken together,
are one Agreement.
12.7 SURVIVAL. All covenants, representations and warranties made in
this Agreement continue in full force while any Obligations remain
outstanding. The obligations of Borrower in Section 12.2 to indemnify Bank
will survive until all statutes of limitations for actions that may be
brought against Bank have run.
12.8 CONFIDENTIALITY. In handling any confidential information, Bank
will exercise the same degree of care that it exercises for its own
proprietary information, but disclosure of information may be made: (i) to
Bank's subsidiaries or affiliates in connection with their present or
prospective business relations with Borrower; (ii) to prospective transferees
or purchasers of any interest in the Loans; (iii) as required by law,
regulation, subpoena, or other order, (iv) as required in connection with
Bank's examination or audit; and (v) as Bank considers appropriate in
exercising remedies under this Agreement. Confidential information does not
include information that either: (a) is in the public domain or in Bank's
possession when disclosed to Bank, or becomes part of the public domain after
disclosure to Bank; or (b) is disclosed to Bank by a third party, if Bank
does not know that the third party is prohibited from disclosing the
information.
12.9 ATTORNEYS' FEES, COSTS AND EXPENSES. In any action or proceeding
between Borrower and Bank arising out of the Loan Documents, the prevailing
party will be entitled to recover its reasonable attorneys' fees and other
costs and expenses incurred, in addition to any other relief to which it may
be entitled, whether or not a lawsuit is filed.
13. DEFINITIONS
13.1 DEFINITIONS.
"ACCOUNTS" are all existing and later arising accounts, contract
rights, and other obligations owed Borrower in connection with its sale or lease
of goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
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"ADVANCE" or "ADVANCES" is a loan advance (or advances) under the
Committed Revolving Line.
"AFFILIATE" of a Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person's senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person's managers and members.
"BANK EXPENSES" are all audit fees and expenses and reasonable costs or
expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings).
"BORROWER'S BOOKS" are all Borrower's books and records including
ledgers, records regarding Borrower's assets or liabilities, the Collateral,
business operations or financial condition and all computer programs or discs or
any equipment containing the information.
"BORROWING BASE" is (i) 80% of Eligible Accounts, as determined by Bank
from Borrower's most recent Borrowing Base Certificate.
"BUSINESS DAY" is any day that is not a Saturday, Sunday or a day on
which the Bank is closed.
"CLOSING DATE" is the date of this Agreement.
"CODE" is the California Uniform Commercial Code.
"COLLATERAL" is the property described on EXHIBIT A.
"COMMITTED REVOLVING LINE" is a Credit Extension of up to $2,500,000.
"CONTINGENT OBLIGATION" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another person or entity such
as an obligation directly or indirectly guaranteed, endorsed, co-made,
discounted or sold with recourse by that Person, or for which that Person is
directly or indirectly liable; (ii) any obligations for undrawn letters of
credit for the account of that Person; and (iii) all obligations from any
interest rate, currency or commodity swap agreement, interest rate cap or collar
agreement, or other agreement or arrangement designated to protect a Person
against fluctuation in interest rates, currency exchange rates or commodity
prices; but "Contingent Obligation" does not include endorsements in the
ordinary course of business. The amount of a Contingent Obligation is the stated
or determined amount of the primary obligation for which the Contingent
Obligation is made or, if not determinable, the maximum reasonably anticipated
liability for it determined by the Person in good faith; but the amount may not
exceed the maximum of the obligations under the guarantee or other support
arrangement.
"COPYRIGHTS" are all copyright rights, applications or registrations
and like protections in each work or authorship or derivative work, whether
published or not (whether or not it is a trade secret) now or later existing,
created, acquired or held.
"CREDIT EXTENSION" is each Advance or any other extension of credit by
Bank for Borrower's benefit.
"CURRENT ASSETS" are amounts that under GAAP should be included on that
date as current assets on Borrower's consolidated balance sheet.
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"CURRENT LIABILITIES" are the aggregate amount of Borrower's Total
Liabilities which mature within one (1) year.
"ELIGIBLE ACCOUNTS" are Accounts in the ordinary course of Borrower's
business that meet all Borrower's representations and warranties in Section 5.2;
BUT Bank may change eligibility standards by giving Borrower 30 days prior
written notice. Unless Bank agrees otherwise in writing, Eligible Accounts will
not include:
(a) Accounts that the account debtor has not paid within 90 days of
invoice date;
(b) Accounts for an account debtor, 50% or more of whose Accounts have
not been paid within 90 days of invoice date;
(c) Credit balances over 90 days from invoice date;
(d) Accounts for an account debtor, including Affiliates, whose total
obligations to Borrower exceed 25% of all Accounts, for the amounts that exceed
that percentage, unless Bank approves in writing;
(e) Accounts for which the account debtor does not have its principal
place of business in the United States or Canada except for Eligible Foreign
Accounts;
(f) Accounts for which the account debtor is a federal, state or local
government entity or any department, agency, or instrumentality except for
Accounts of the United States if the payee has assigned its payment rights to
Bank and the assignment has been acknowledged under the Assignment of Claims Act
of 1940 (31 U.S.C. 3727);
(g) Accounts for which Borrower owes the account debtor, but only up to
the amount owed (sometimes called "contra" accounts, accounts payable, customer
deposits or credit accounts);
(h) Accounts for demonstration or promotional equipment, or in which
goods are consigned, sales guaranteed, sale or return, sale on approval, bill
and hold, or other terms if account debtor's payment may be conditional;
(i) Accounts for which the account debtor is Borrower's Affiliate,
officer, employee, or agent;
(j) Accounts in which the account debtor disputes liability or makes
any claim and Bank believes there may be a basis for dispute (but only up to the
disputed or claimed amount), or if the Account Debtor is subject to an
Insolvency Proceeding, or becomes insolvent, or goes out of business;
(k) Accounts for which Bank reasonably determines collection to be
doubtful.
"ELIGIBLE FOREIGN ACCOUNTS" are Accounts for which the account debtor
does not have its principal place of business in the United States or Canada but
are: (1) covered by credit insurance satisfactory to Bank, less any deductible;
or (2) supported by letter(s) of credit acceptable to Bank; or (3) that Bank
approves in writing.
"EQUIPMENT" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"ERISA" is the Employment Retirement Income Security Act of 1974, and
its regulations.
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"GAAP" is generally accepted accounting principles.
"GUARANTOR" is any present or future guarantor of the Obligations.
"INDEBTEDNESS" is (a) indebtedness for borrowed money or the deferred
price of property or services, such as reimbursement and other obligations for
surety bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.
"INSOLVENCY PROCEEDING" is any proceeding by or against any Person
under the United States Bankruptcy Code, or any other bankruptcy or insolvency
law, including assignments for the benefit of creditors, compositions,
extensions generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"INTELLECTUAL PROPERTY" is:
(a) Copyrights, Trademarks, Patents, and Mask Works including
amendments, renewals, extensions, and all licenses or other rights to use and
all license fees and royalties from the use;
(b) Any trade secrets and any Intellectual Property Rights in computer
software and computer software products now or later existing, created, acquired
or held;
(c) All design rights which may be available to Borrower now or later
created, acquired or held;
(d) Any claims for damages (past, present or future) for infringement
of any of the rights above, with the right, but not the obligation, to sue and
collect damages for use or infringement of the intellectual property rights
above;
All proceeds and products of the foregoing, including all insurance,
indemnity or warranty payments.
"INVENTORY" is present and future inventory in which Borrower has any
interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now or later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including insurance proceeds) from the sale or disposition of any of the
foregoing and any documents of title.
"INVESTMENT" is any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"LIEN" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"LOAN DOCUMENTS" are, collectively, this Agreement, any note, or notes
or guaranties executed by Borrower or Guarantor, and any other present or future
agreement between Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, extended or restated.
"MAJOR LIQUIDITY EVENT" is the sale of Borrower's equity securities,
after the date hereof, in a public offering or to venture capital investors, the
net proceeds of which sale equal at
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least $15,000,000 in cash.
"MASK WORKS" are all mask works or similar rights available for the
protection of semiconductor chips, now owned or later acquired.
"MATERIAL ADVERSE CHANGE" has the meaning set forth in Section 8.3
hereof.
"MATURITY DATE" is the Revolving Maturity Date.
"OBLIGATIONS" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including letters of credit and foreign
exchange contracts, if any, and including interest accruing after Insolvency
Proceedings begin and debts, liabilities, or obligations of Borrower assigned to
Bank.
"PATENTS" are patents, patent applications and like protections,
including improvements, divisions, continuations, renewals, reissues, extensions
and continuations-in-part of the same.
"PAYMENT ADVANCE FORM" means a Loan Payment/Advance Form Telephone
Request Form in the form attached hereto as Exhibit B.
"PERMITTED INDEBTEDNESS" is:
(a) Borrower's indebtedness to Bank under this Agreement or the Loan
Documents;
(b) Indebtedness existing on the Closing Date and shown on the
Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary course of
business; and
Indebtedness secured by Permitted Liens.
"PERMITTED INVESTMENTS" are:
(a) Investments shown on the Schedule and existing on the Closing
Date;
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States or its agency or any State maturing within 1
year from its acquisition, (ii) commercial paper maturing no more than 1 year
after its creation and having the highest rating from either Standard & Poor's
Corporation or Moody's Investors Service, Inc., and (iii) Bank's certificates of
deposit issued maturing no more than 1 year after issue; and
(c) Loans or advances to employees made by Borrower in the ordinary
course of business in an aggregate principal amount outstanding at any one time
not to exceed $250,000.
"PERMITTED LIENS" are:
(a) Liens existing on the Closing Date and shown on the Schedule or
arising under this Agreement or other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges or
levies, either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its Books, IF they have no priority over
any of Bank's security interests;
16
<PAGE>
(c) Purchase money Liens (i) on Equipment acquired or held by Borrower
or its Subsidiaries incurred for financing the acquisition of the Equipment, or
(ii) existing on equipment when acquired, IF the Lien is confined to the
property and improvements and the proceeds of the equipment;
(d) Leases or subleases and licenses or sublicenses granted in the
ordinary course of Borrower's business, IF the leases, subleases, licenses and
sublicenses permit granting Bank a security interest;
(e) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), BUT any extension,
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not increase;
(f) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 8.4 or 8.7;
(g) Liens in favor of other financial institutions arising in
connection with Borrower's deposit accounts held at such institutions, provided
that Bank has a perfected security interest in the amounts held in such deposit
accounts;
(h) Liens on deposits or pledges to secure the payment of workmen's
compensation, unemployment insurance, surety or appeal bonds, bid or performance
bonds, or other obligations of a like nature incurred in the ordinary course of
business and not in connection with the borrowing of money (but nothing in this
clause (h) shall permit the creation of Liens on Accounts, Inventory or General
Intangibles),
(i) Liens arising by operation of law in favor of warehousemen,
landlords, carriers, mechanics, materialmen, laborers or suppliers, incurred in
the ordinary course of Borrower's business and not in connection with the
borrowing of money, for sums not delinquent; and
(j) Other Liens not described above arising in the ordinary course of
business and not having or not reasonably likely to have a material adverse
effect on Borrower and its Subsidiaries taken as a whole.
"PERSON" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or government agency.
"PRIME RATE" is Bank's most recently announced "prime rate," even if it
is not Bank's lowest rate.
"QUICK ASSETS" is, on any date, the Borrower's consolidated,
unrestricted cash, cash equivalents, net billed accounts receivable and
investments with maturities of less than 12 months determined according to GAAP.
"RESPONSIBLE OFFICER" is each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"REVOLVING MATURITY DATE" is the first anniversary of the date of this
Agreement.
"SCHEDULE" is any attached schedule of exceptions.
"SUBORDINATED DEBT" is debt incurred by Borrower subordinated to
Borrower's debt to
17
<PAGE>
Bank (and identified as subordinated by Borrower and Bank).
"SUBSIDIARY" is for any Person, joint venture, or any other business
entity of which more than 50% of the voting stock or other equity interests is
owned or controlled, directly or indirectly, by the Person or one or more
Affiliates of the Person.
"TANGIBLE NET WORTH" is, on any date, the consolidated total assets of
Borrower and its Subsidiaries MINUS, (i) any amounts attributable to (a)
goodwill, (b) intangible items such as unamortized debt discount and expense,
Patents, trade and service marks and names, Copyrights and research and
development expenses except prepaid expenses, and (c) reserves not already
deducted from assets, AND (ii) Total Liabilities plus Subordinated Debt.
"TOTAL LIABILITIES" is on any day, obligations that should, under GAAP,
be classified as liabilities on Borrower's consolidated balance sheet, including
all Indebtedness, and current portion Subordinated Debt allowed to be paid, but
excluding all other Subordinated Debt.
"TRADEMARKS" are trademark and service mark rights, registered or not,
applications to register and registrations and like protections, and the entire
goodwill of the business of Assignor connected with the trademarks.
BORROWER:
VALUECLICK, INC.
By: Kurt A. Johnson
------------------------------
Title: CFO
---------------------------
SILICON VALLEY BANK
By: Karl R. Burns
------------------------------
Title: Vice President
---------------------------
18
<PAGE>
EXHIBIT A
The Collateral consists of all of Borrower's right, title and interest
in and to the following:
All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;
All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower;
All documents, cash, deposit accounts, securities, securities
entitlements, securities accounts, investment property, financial assets,
letters of credit, certificates of deposit, instruments and chattel paper now
owned or hereafter acquired and Borrower's Books relating to the foregoing;
All copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; all trade
secret rights, including all rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired; all
claims for damages by way of any past, present and future infringement of any of
the foregoing; and
All Borrower's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions
and accessions to and proceeds thereof.
<PAGE>
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
<TABLE>
<S><C>
TO: CENTRAL CLIENT SERVICE DIVISION DATE:
----------------------------------------
FAX#: (408) 496-2426 TIME:
----------------------------------------
- -------------------------------------------------------------------------------------------------------------------
FROM:
--------------------------------------------------------------------------------------------------------------
CLIENT NAME (BORROWER)
REQUESTED BY:
------------------------------------------------------------------------------------------------------
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:
----------------------------------------------------------------------------------------------
PHONE NUMBER:
------------------------------------------------------------------------------------------------------
FROM ACCOUNT # TO ACCOUNT #
------------------------------------ -------------------------------------------------
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
PRINCIPAL INCREASE (ADVANCE) $
----------------------------------------------------------------------
PRINCIPAL PAYMENT (ONLY) $
----------------------------------------------------------------------
INTEREST PAYMENT (ONLY) $
----------------------------------------------------------------------
PRINCIPAL AND INTEREST (PAYMENT) $
----------------------------------------------------------------------
OTHER INSTRUCTIONS:
------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
All Borrower's representations and warranties in the Loan and Security Agreement are true, correct and complete
in all material respects on the date of the telephone request for and Advance confirmed by this Borrowing
Certificate; but those representations and warranties expressly referring to another date shall be true, correct
and complete in all material respects as of that date.
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S><C>
- -------------------------------------------------------------------------------------------------------------------
BANK USE ONLY
TELEPHONE REQUEST:
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
- ------------------------------------------------------------------------------------
Authorized Requester ------------- Phone #
- ------------------------------------------------------------------------------------
Received By (Bank) ------------- Phone #
-----------------------------------------------------------------------------------------
Authorized Signature (Bank)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT C
BORROWING BASE CERTIFICATE
<TABLE>
<S><C>
- ------------------------------------------------------------------------------------------------------------------------------
Borrower: ValueClick, Inc. Lender: Silicon Valley Bank
Commitment Amount: $2,500,000
- ------------------------------------------------------------------------------------------------------------------------------
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of ________ $
-----------
2. Additions (please explain on reverse) $
-----------
3. TOTAL ACCOUNTS RECEIVABLE $
-----------
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $
-----------
5. Balance of 50% over 90 day accounts $
-----------
6. Credit balances over 90 days $
-----------
7. Concentration Limits $
-----------
8. Foreign Accounts $
-----------
9. Governmental Accounts $
-----------
10. Contra Accounts $
-----------
11. Promotion or Demo Accounts $
-----------
12. Intercompany/Employee Accounts $
-----------
13. Other (please explain on reverse) $
-----------
14. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $
-----------
15. Eligible Accounts (#3 minus #13) $
-----------
16. LOAN VALUE OF ACCOUNTS ( ____% of #14) $
-----------
INVENTORY
17. Inventory Value as of _______________ $
-----------
18. LOAN VALUE OF INVENTORY ( ____% of #16) $
-----------
BALANCES
19. Maximum Loan Amount $
-----------
20. Total Funds Available [Lesser of #18 or (#15 plus #17)] $
-----------
21. Present balance owing on Line of Credit $
-----------
22. Outstanding under Sublimits ( ) $
-----------
23. RESERVE POSITION (#19 minus #20 and #21) $
-----------
THE UNDERSIGNED REPRESENTS AND WARRANTS THAT THIS IS TRUE, COMPLETE AND CORRECT, AND THAT THE INFORMATION IN THIS
BORROWING BASE CERTIFICATE COMPLIES WITH THE REPRESENTATIONS AND WARRANTIES IN THE LOAN AND SECURITY AGREEMENT BETWEEN
THE UNDERSIGNED AND SILICON VALLEY BANK.
COMMENTS: -----------------------
VALUECLICK, INC.
By:
---------------------------
Authorized Signer
-----------------------
</TABLE>
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: VALUECLICK, INC.
The undersigned authorized officer of VALUECLICK, INC. certifies
that under the terms and conditions of the Loan and Security Agreement
between Borrower and Bank (the "Agreement"), (i) Borrower is in complete
compliance for the period ending _______________ with all required covenants
except as noted below and (ii) all representations and warranties in the
Agreement are true and correct in all material respects on this date.
Attached are the required documents supporting the certification. The Officer
certifies that these are prepared in accordance with Generally Accepted
Accounting Principles (GAAP) consistently applied from one period to the next
except as explained in an accompanying letter or footnotes. The Officer
acknowledges that no borrowings may be requested at any time or date of
determination that Borrower is not in compliance with any of the terms of the
Agreement, and that compliance is determined not just at the date this
certificate is delivered.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES"
COLUMN.
<TABLE>
<CAPTION>
REPORTING COVENANT REQUIRED COMPLIES
<S> <C> <C>
Monthly financial statements Monthly within 30 days Yes No
Annual (CPA Audited) FYE within 120 days Yes No
10-Q, 10-K and 8-K Within 5 days after filing with SEC Yes No
A/R & A/P Agings Monthly within 20 days Yes No
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
Maintain on a Monthly Basis:
Minimum Quick Ratio 2.0:1.0 _____:1.0 Yes No
Minimum Tangible Net Worth $10,000,000 $________ Yes No
(Applicable Only After Major Liq. Event)
Loss: (N/A after Major Liq. Event)
Annually $1,000,000 (1999) $________ Yes No
$250,000 (2000) $________ Yes No
</TABLE>
<TABLE>
<S><C>
--------------------------------------------
COMMENTS REGARDING EXCEPTIONS: See Attached. BANK USE ONLY
Received by:
--------------------------------
AUTHORIZED SIGNER
Sincerely,
Date:
- -------------------------------------------- ---------------------------------------
SIGNATURE
Verified:
-----------------------------------
- -------------------------------------------- AUTHORIZED SIGNER
TITLE
Date:
---------------------------------------
- --------------------------------------------
DATE Compliance Status: Yes No
--------------------------------------------
</TABLE>
<PAGE>
INTELLECTUAL PROPERTY SECURITY AGREEMENT
This Intellectual Property Security Agreement is entered into as of
October 21, 1999 by and between SILICON VALLEY BANK ("Bank") and VALUECLICK,
INC. ("Grantor").
RECITALS
A. Bank has agreed to make certain advances of money and to extend
certain financial accommodation to Grantor (the "Loans") in the amounts and
manner set forth in that certain Loan and Security Agreement by and between Bank
and Grantor dated of even date herewith (as the same may be amended, modified or
supplemented from time to time, the "Loan Agreement"; capitalized terms used
herein are used as defined in the Loan Agreement). Bank is willing to make the
Loans to Grantor, but only upon the condition, among others, that Grantor shall
grant to Bank a security interest in certain Copyrights, Trademarks, Patents,
and Mask Works to secure the obligations of Grantor under the Loan Agreement.
B. Pursuant to the terms of the Loan Agreement, Grantor has granted to
Bank a security interest in all of Grantor's right, title and interest, whether
presently existing or hereafter acquired, in, to and under all of the
Collateral.
NOW, THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged, and intending to be legally bound, as collateral
security for the prompt and complete payment when due of its obligations under
the Loan Agreement, Grantor hereby represents, warrants, covenants and agrees as
follows:
AGREEMENT
To secure its obligations under the Loan Agreement, Grantor grants and
pledges to Bank a security interest in all of Grantor's right, title and
interest in, to and under its Intellectual Property Collateral (including
without limitation those Copyrights, Patents, Trademarks and Mask Works listed
on Schedules A, B, C, and D hereto), and including without limitation all
proceeds thereof (such as, by way of example but not by way of limitation,
license royalties and proceeds of infringement suits), the right to sue for
past, present and future infringements, all rights corresponding thereto
throughout the world and all re-issues, divisions continuations, renewals,
extensions and continuations-in-part thereof.
This security interest is granted in conjunction with the security
interest granted to Bank under the Loan Agreement. The rights and remedies of
Bank with respect to the security interest granted hereby are in addition to
those set forth in the Loan Agreement and the other Loan Documents, and those
which are now or hereafter available to Bank as a matter of law or equity. Each
right, power and remedy of Bank provided for herein or in the Loan Agreement or
any of the Loan Documents, or now or hereafter existing at law or in equity
shall be cumulative and concurrent and shall be in addition to every right,
power or remedy provided for herein and the exercise by Bank of any one or more
of the rights, powers or remedies provided for in this
<PAGE>
Intellectual Property Security Agreement, the Loan Agreement or any of the other
Loan Documents, or now or hereafter existing at law or in equity, shall not
preclude the simultaneous or later exercise by any person, including Bank, of
any or all other rights, powers or remedies.
IN WITNESS WHEREOF, the parties have cause this Intellectual Property
Security Agreement to be duly executed by its officers thereunto duly authorized
as of the first date written above.
Address of Grantor: GRANTOR:
VALUECLICK, INC.
6450 Via Real By: /s/ Kurt A. Johnson
Carpinteria, CA 93013 ----------------------------------
Title: CFO
Attn: /s/ Kurt Johnson -------------------------------
----------------------------------
BANK:
Address of Bank: SILICON VALLEY BANK
340 N. Westlake Boulevard, Suite 150 By: /s/ Karl R. Burns
Westlake Village, California 91362 ----------------------------------
Title: Vice President
Attn: Manager -------------------------------
<PAGE>
EXHIBIT A
Copyrights
<TABLE>
<CAPTION>
Description Registration/ Registration/
- ----------- Application Application
Number Date
------ ----
<S> <C> <C>
NONE
</TABLE>
<PAGE>
EXHIBIT B
Patents
<TABLE>
<CAPTION>
Description Registration/ Registration/
- ----------- Application Application
Number Date
------ ----
<S> <C> <C>
NONE
</TABLE>
<PAGE>
EXHIBIT C
Trademarks
<TABLE>
<CAPTION>
Description Registration/ Registration/
- ----------- Application Application
Number Date
------ ----
<S> <C> <C>
ValueClick 75/365,624
794727
(Europe)
10-2434-1
(Japan)
</TABLE>
<PAGE>
EXHIBIT D
Mask Works
<TABLE>
<CAPTION>
Description Registration/ Registration/
- ----------- Application Application
Number Date
------ ----
<S> <C> <C>
</TABLE>
<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
<PAGE>
EXHIBIT 23.3
October 7, 1999
ValueClick
Guy Hill
Director of Marketing
6450 Via Real
Carpinteria, CA 93014
Guy:
Please find below the Home/Work combined "Actual Reach" figures for the Ad
Networks as reported by Media Metrix in its syndicated "Ad Network Report". The
following information was published by Media Metrix in July and August 1999:
<TABLE>
<CAPTION>
AD NETWORK ACTUAL REACH %
- ---------- --------------
<S> <C>
AUGUST 1999
24/7 Media.................................................. 39.7
Adsmart..................................................... 24.7
BurstMedia.................................................. 19.3
DoubleClick Network, The.................................... 38.0
Flycast..................................................... 35.7
LinkExchange Network........................................ 51.6
Snowball.com................................................ 6.8
Startpath Network........................................... 0.8
ValueClick.................................................. 28.3
</TABLE>
<TABLE>
<CAPTION>
AD NETWORK ACTUAL REACH %
- ---------- --------------
<S> <C>
JULY 1999
24/7 Media.................................................. 46.6
Adsmart..................................................... 21.4
BurstMedia.................................................. 19.8
DoubleClick Network, The.................................... 38.0
Flycast..................................................... 35.9
LinkExchange Network........................................ 54.9
Snowball.com................................................ N/A
Startpath Network........................................... N/A
ValueClick.................................................. 24.6
</TABLE>
Please feel free to contact me if you have any additional questions.
Sincerely,
/s/ ROB WARD
Account Development Manager
Media Metrix, Inc.
<PAGE>
EXHIBIT 23.4
September 29, 1999
ValueClick, Inc.
6450 Via Real
Carpinteria, California 93013
Telephone: (805) 684-6060
Re: Consent to Use of Information in Registration Statement and Prospectus
Ladies and Gentlemen:
The undersigned hereby grants to ValueClick, Inc., a Delaware corporation
(the "Company"), permission to disclose the information that is highlighted in
Exhibit A attached hereto, substantially in the form contained in Exhibit A, in
the Company's Registration Statement on Form S-1 and related Prospectus which it
intends to file shortly with the Securities and Exchange Commission.
The undersigned acknowledges and understands that the proposed language is
subject to some change and modification by the Company prior to its inclusion in
the final Prospectus relating to this offering, including changes suggested by
the staff of the Securities Exchange Commission, and that the language contained
in the final Prospectus may vary somewhat from the language which is attached as
Exhibit A.
As a condition to the undersigned's permission, the Company will not sell
any of the information included in Exhibit A and the undersigned will be
credited as the source of the information.
<TABLE>
<S> <C> <C>
JUPITER COMMUNICATIONS
By: /s/ KATE BERG
-----------------------------------------
Kate Berg
DIRECTOR, COMMUNICATIONS
</TABLE>
<PAGE>
EXHIBIT A
"Jupiter Communications estimates that in 1996, 15.2 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 63.6% of U.S. households
by 2003."
"Jupiter estimates that in 1998, $2.1 billion was spend on Internet advertising,
and projects that this amount will grow to $11.5 billion by 2003."
<PAGE>
[LOGO]
November 18, 1999
ValueClick, Inc.
6450 Via Real
Carpinteria, California
Telephone: (805) 684-6060
CONSENT TO USE OF INFORMATION IN REGISTRATION STATEMENT AND PROSPECTUS
Ladies and Gentlemen:
The undersigned hereby grants to ValueClick, Inc., a Delaware
corporation (the "Company"), permission to disclose the information that is
highlighted in EXHIBIT A attached hereto, substantially in the form
contained in EXHIBIT A, in the Company's Registration Statement on Form S-1
and related Prospectus which it intends to file shortly with the Securities
and Exchange Commission.
The undersigned acknowledges and understands that the proposed
language is subject to some change and modification by the Company prior to
its inclusion in the final Prospectus relating to this offering, including
changes suggested by the staff of the Securities and Exchange Commission, and
that the language contained in the final Prospectus may vary somewhat from
the language which is attached as EXHIBIT A.
As a condition to the undersigned's permission, the Company will not
sell any of the information included in EXHIBIT A and the undersigned will be
credited as the source of the information.
Yankee Group
By: /s/ Berge Ayvazian
------------------------------
(signature)
Name: Berge Ayvazian
----------------------------
Title: President, CEO
---------------------------
<PAGE>
EXHIBIT A
1. "Additionally, the Yankee Group expects e-commerce transactions will
increase from $25 billion in 1998 to $699 billion in 2002, a compound
annual growth rate of 130%."
2. "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."
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,574
<SECURITIES> 0
<RECEIVABLES> 5,273
<ALLOWANCES> (520)
<INVENTORY> 0
<CURRENT-ASSETS> 7,734
<PP&E> 640
<DEPRECIATION> 87
<TOTAL-ASSETS> 11,984
<CURRENT-LIABILITIES> 3,231
<BONDS> 0
3
0
<COMMON> 15
<OTHER-SE> 8,315
<TOTAL-LIABILITY-AND-EQUITY> 11,984
<SALES> 10,593
<TOTAL-REVENUES> 0
<CGS> 5,265
<TOTAL-COSTS> 5,265
<OTHER-EXPENSES> 5,660
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (358)
<INCOME-TAX> 517
<INCOME-CONTINUING> (875)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (846)
<EPS-BASIC> (.06)
<EPS-DILUTED> (.06)
</TABLE>
