<PAGE>
4,000,000 Shares
[LOGO]
VALUECLICK, INC.
Common Stock
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This is an initial public offering of shares of common stock of ValueClick,
Inc. All of the 4,000,000 shares of common stock are being sold by ValueClick.
Prior to this offering, there has been no public market for the common
stock. The common stock has been approved for quotation on the Nasdaq National
Market under the symbol "VCLK."
See "Risk Factors" on page 7 to read about factors you should consider
before buying shares of the common stock.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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<TABLE>
<CAPTION>
Per Share Total
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<S> <C> <C>
Initial public offering price............................... $19.00 $76,000,000
Underwriting discount....................................... $ 1.33 $ 5,320,000
Proceeds, before expenses, to ValueClick.................... $17.67 $70,680,000
</TABLE>
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To the extent that the underwriters sell more than 4,000,000 shares of
common stock, the underwriters have the option to purchase up to an additional
315,000 shares from ValueClick and up to an additional 285,000 shares from the
selling stockholders identified in this prospectus at the initial public
offering price less the underwriting discount. ValueClick will not receive any
of the proceeds from the sale of any shares sold by the selling stockholders.
--------------
GOLDMAN, SACHS & CO.
SALOMON SMITH BARNEY
WIT SOUNDVIEW
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Prospectus dated March 30, 2000.
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INSIDE FRONT COVER
Recent advertisement used by ValueClick to communicate information about its
products and services
Top of page reads: "We focus on a performance-based Internet advertising
solution, in which an advertiser only pays when an Internet user clicks on its
banner advertisement. Here is an example of an advertisement communicating the
benefit of our business model to potential Internet advertising customers."
Center of advertisement: a picture of the human eye with the phrase "This is not
a customer" written above it.
An arrow pointing at the center of the eye with the caption: "Pupil. The hole in
the eye where banners enter"
Text in the lower right hand corner of eye reads: "(Not shown) The hole in the
head where irrelevant banners leave"
Bottom portion of page reads: "A window-shopper, maybe. But definitely not a
customer. If you're only buying impressions, you're targeting the window
shopper, the looky-loo, the passive banner-blind viewer. To generate real
results--site visits, downloads, sales--you need more than eyes. You need
action. The people who don't visit your site can't become your customers. So why
pay to reach them? ValueClick's cost-per-click model guarantees site visits, and
doesn't waste your ad budget on disinterested viewers."
Bottom center displays the ValueClick logo with the phrase "The Pay-For-Results
Advertising Network".
INSIDE GATEFOLD
Flowchart diagram demonstrating business flows from Web publishers to
advertisers with the caption, "The ValueClick Pay-for-Results Advertising
Network in Action"
The right side of the gatefold displays a circular schematic with four large
arrows flowing in a clockwise circular manner pointing to boxes in each quadrant
of the circle. The boxes are titled "ValueClick", "Internet Advertisers",
"Payment Management" and "Web Site Publishers."
At the center of the circle of arrows are additional boxes lined in a vertical
order with each box titled: "Ad Serving Solutions" and "Reporting". Arrows point
from the "ValueClick" box to the "Ad Serving" box to the "Reporting" box to the
"Payment Management" box. A arrow labeled "Banner Advertisement" points from the
"Internet Advertisers" box to the "Ad Serving Solutions" box. A arrow labeled
"Internet user Delivered" points from the "Ad Serving" box to the "Internet
Advertisers" box. A two way arrow labeled "Banner Call Banner Served" points
between the "Ad Serving Solutions" box and the "Web Site Publishers" box. An
arrow labeled "Internet user clicks" points from the "Web Site Publisher" box to
the "Ad Serving Solutions" box. An arrow labeled "User Data/VisiTrak Software"
points from the "Reporting" box to the "Internet Advertisers" box. An arrow
labeled "Real-Time Statistics" points from the "Reporting" box to the "Web Site
Publishers" box.
The left side of gatefold contains a column of numbered textual boxes. Each
numbered box contains a description which corresponds to a point in the
flowchart indicating how the ValueClick network operates.
Box 1 reads: "The publisher of a Web site applies to become a member of the
ValueClick network. Membership in the network is non-exclusive."
Box 2 reads: "The advertising inventories of member Web sites are aggregated and
offered for sale to Internet advertisers."
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Box 3 reads: "Internet advertisers provide their banner advertisements to
ValueClick. We then place this banner in our database where the banner waits to
be served through our proprietary ad serving software to an Internet user
visiting a ValueClick affiliated Web site."
Box 4 reads: "When a user visits a ValueClick network Web site, a banner
advertisement is served to the site."
Box 5 reads: "The Internet user views the banner advertisement and clicks if he
or she is interested in the advertiser's message."
Box 6 reads: "Once an Internet user clicks he or she is then directed to the
advertiser's Web site. The click is counted and then recorded on the ValueClick
server."
Box 7 reads: "ValueClick reports click data in real time to both the advertiser
and the Web publishers."
Box 8 reads: "At the end of each month ValueClick invoices the advertiser for
the clicks generated by its banner advertisements during that month."
Box 9 reads: "At the end of each month ValueClick pays the Web site publisher
for the clicks generated on their Web site during that month."
<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.
OUR COMPANY
ValueClick is a leading provider of performance-based Internet advertising
solutions for publishers of Web sites and online advertisers, based on the size
and reach of our network. We focus on an advertising model known as
cost-per-click or CPC, in which an advertiser only pays us, and we in turn only
pay a publisher of a Web site, when an Internet user clicks on an advertiser's
banner advertisement. Our network consists of over 10,600 small- to medium-sized
independent Web sites which have agreed to sell advertising inventory to us on a
non-exclusive basis. Each of these Web sites must satisfy our strict quality
standards for content and traffic. This network, which reaches approximately 28%
of U.S.-based Internet users, provides our advertising customers access to one
of the largest networks of Web sites for banner advertising. In January 2000, we
delivered in excess of 2.0 billion Web advertisements and registered over 7.7
million clicks across our network.
As one of the largest aggregators of banner advertising on small- to
medium-sized Web sites, we believe that we provide Internet advertisers a
cost-effective solution for purchasing advertising space from thousands of Web
publishers through a single source. In addition, we believe our CPC model offers
several advantages for both advertisers and Web publishers over the traditional
cost-per-thousand-impressions model, commonly referred to as CPM, including:
- a low-risk solution for advertisers, since they do not pay us for
advertisements which do not result in an action by Internet users;
- an opportunity to generate advertising revenue for Web publishers whose
sites have low to moderate rates of traffic; and
- for publishers of high-traffic Web sites, the ability to capture
additional revenue from unsold advertising inventory.
On February 28, 2000, we completed a strategic investment transaction with
DoubleClick, a provider of Internet advertising solutions for advertisers and
Web publishers. As part of this agreement, we sold to DoubleClick approximately
30% of our common stock and we issued a 15-month warrant to DoubleClick allowing
it to increase its ownership to 45% of our fully diluted common stock. In
addition, among other things, we have agreed to enter into an agreement to use
DoubleClick's ad serving technology known as DART. We believe this would allow
us to enhance our performance-based solution by integrating DoubleClick's
dynamic ad matching, targeting and delivery technology into our existing
services.
OUR MARKET OPPORTUNITY
The market for Internet advertising is projected to grow rapidly over the
next few years, and performance-based Internet advertising is projected to
capture an increased share. Forrester Research projects that Internet
advertising in the United States will grow from $2.8 billion in 1999 to
$22.2 billion in 2004, a compound annual growth rate of 57%. In addition,
Forrester Research projects that performance-based advertising models, such as
CPC, will account for 50% of online advertising budgets by 2003, up from 15% in
1999.
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OUR SOLUTION AND STRATEGY
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 measure ad
effectiveness, because they only pay for visitors to their sites.
Our objective is to be the leading provider of performance-based Internet
advertising solutions. Key elements of our strategy include:
- Grow our network of high-quality Web sites;
- Expand the solutions that we provide to our Web publishers and
advertisers;
- Increase our sales and marketing efforts;
- Extend our global presence;
- Continue to provide superior customer service; and
- Take advantage of our strategic relationship with DoubleClick.
OTHER INFORMATION
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.
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.
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THE OFFERING
<TABLE>
<S> <C>
Total common stock offered by ValueClick................... 4,000,000 shares
Outstanding common stock after the offering................ 27,912,536 shares
Outstanding common stock owned by our affiliates after
the offering......................................... 18,892,557 shares
Outstanding common stock owned by our non-affiliates
after the offering................................... 9,019,979 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."
Nasdaq National Market 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 March 14, 2000 and assumes the
conversion of our preferred stock into 5,293,572 shares of common stock at that
date. This number excludes:
- shares issuable to DoubleClick under a warrant entitling DoubleClick to
purchase enough shares to result in DoubleClick owning 45% of our common
stock on a fully-diluted basis, at $21.76 per share,
- 2,849,337 shares subject to outstanding options under our 1999 Stock
Option Plan with a weighted average exercise price of $2.64 per share as
of March 14, 2000, and
- 649,264 shares of common stock reserved for future issuance under our 1999
Stock Option Plan as of March 14, 2000.
See "The DoubleClick Investment" for more information about the DoubleClick
warrant. See also "Management--Employee Benefit Plans" and Notes 1 and 8 of
Notes to Financial Statements for further information concerning our Stock
Option Plan.
------------------------
UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES THAT:
- THE COMMON STOCK HAS BEEN SPLIT ON A 2-FOR-1 BASIS AS A RESULT OF STOCK
SPLITS EFFECTED IN OCTOBER 1999 AND MARCH 2000;
- EACH SHARE OF OUR PREFERRED STOCK HAS BEEN CONVERTED INTO TWO SHARES OF
COMMON STOCK, WHICH WILL OCCUR AUTOMATICALLY 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 OR WARRANT.
------------------------
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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following tables set forth summary consolidated financial data for
ValueClick to aid investors in their analysis of this potential investment. The
summary financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," our
consolidated financial statements and the notes to those financial statements
appearing elsewhere in this prospectus. The pro forma information at
December 31, 1999 includes the DoubleClick investment. See "The DoubleClick
Investment" on page 57.
<TABLE>
<CAPTION>
PERIOD FROM COMBINED
MAY 1, 1998 HISTORICAL PRO FORMA
(INCEPTION) THROUGH YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1998(3) 1999 1999(4)
------------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues............................ $2,053 $2,306 $20,288 $21,081
Gross profit........................ 948 1,113 10,131 10,458
Loss from operations................ (221) (190) (1,567) (2,261)
Net loss............................ (222) (191) (2,489) (3,054)
Net loss per common share:
Basic and diluted(1).............. $(0.02) -- $ (0.26) --
Weighted average shares used to
calculate basic and
diluted(1)...................... 9,912 -- 9,687 --
Pro forma basic and
diluted(1)(4)................... -- -- -- $ (0.21)
Weighted average shares used to
calculate pro forma basic and
diluted(1)(4)................... -- -- -- 14,634
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
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PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(2)(5)
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<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 2,129 $ 12,129 $ 81,609
Investment in DoubleClick common stock................ -- 85,796 85,796
Working capital....................................... 4,929 14,929 84,409
Total assets.......................................... 14,973 110,769 180,249
Deferred stock compensation........................... (5,678) (5,678) (5,678)
Total stockholders' equity............................ 9,400 105,196 174,676
</TABLE>
(1) See Notes 1 and 9 of Notes to Consolidated Financial Statements for
determination of shares used in computing basic and diluted net loss per
common share.
(2) Pro forma to give effect to the conversion of all issued and outstanding
shares of preferred stock into common stock and the issuance of 7,878,562
shares of our common stock and a warrant upon the closing of the DoubleClick
investment on February 28, 2000 for proceeds comprised of $10.0 million in
cash and DoubleClick common stock valued at $85.8 million, but not giving
effect to the exercise of outstanding options to purchase 2,847,820 shares
of common stock, the exercise by DoubleClick of its warrant or the vesting
of 361,483 restricted shares of common stock as of December 31, 1999.
(3) Combined historical statement of operations data for the year ended
December 31, 1998 reflects the combined historical operating results for
ValueClick for the period May 1, 1998 through December 31, 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 year ended December 31, 1999
reflects the acquisition of a majority interest in ValueClick Japan on
August 6, 1999 for 320,000 shares of common stock, giving effect to the
acquisition as if it had occurred on January 1, 1999.
(5) As adjusted to reflect the sale of 4,000,000 shares of common stock offered
by us at the initial public offering price of $19.00 per common share after
deducting the underwriting discounts and estimated offering expenses payable
by ValueClick. See "Use of Proceeds" on page 20 for more information on our
intended use of proceeds from this offering and "Capitalization" on page 21
for more information on our capital structure.
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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 over 99% 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 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
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project the levels of advertising revenue or the margins that we, or the
Internet advertising industry in general, will realize in the future. Moreover,
an increase in the amount of advertising on the Web may result in a decline in
click rates. Since we predominantly rely on a performance-based pricing model to
generate revenue, any decline in click rates may make our CPC pricing model a
less viable or less attractive solution for Web publishers and advertisers.
OUR 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 depends on 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.
DoubleClick has brought a lawsuit against at least two other companies in our
industry on the basis of this patent. We have, however, recently agreed with
DoubleClick to enter into an agreement which would enable us to use its DART
technology, and DoubleClick has agreed to not sue or threaten to sue us or any
of our customers, affiliates or licensees, in connection with its patent, so
long as DoubleClick or any of its subsidiaries hold at least five percent of our
capital stock, including options to purchase common stock, on a fully diluted
basis. We cannot assure you, however, that we will be able to enter into a DART
services agreement on mutually acceptable terms. See "The DoubleClick
Investment." In addition, other companies may apply for or be awarded patents or
have other intellectual property rights covering aspects of our technology or
business. Our failure to prevail in any litigation with any party asserting
intellectual property infringement could result in:
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- 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 track an Internet
user's movement through the advertiser's Web site and to monitor and prevent
potentially fraudulent activity on our network. We do not share, collect or sell
any other information concerning Internet users. Most currently available
Internet browsers allow Internet users to modify
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their browser settings to prevent cookies from being stored on their hard drive,
and some users currently do so. Internet users can also delete cookies from
their hard drives at any time.
Some Internet commentators and privacy advocates have suggested limiting or
eliminating the use of cookies and legislation has been introduced that would
restrict their use. 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.
DoubleClick is currently a defendant in several pending class action
lawsuits alleging, among other things, that it unlawfully obtains and sells
Internet users' personal information. DoubleClick is also the subject of a
Federal Trade Commission inquiry concerning its collection and maintenance of
information concerning Internet users and a request for information from the New
York Attorney General's office relating to its collection, maintenance and
sharing of information concerning, and its disclosure of those practices to,
Internet users. Further, the press has reported that the Michigan Attorney
General commenced legal proceedings against DoubleClick under Michigan's
consumer protection laws. DoubleClick may receive additional regulatory
inquiries in the future. Although we do not presently gather information
concerning Internet users in the same manner as DoubleClick, our use of cookie
technology or any other technologies designed to collect Internet usage
information may subject us to similar litigation or investigations in the
future. In addition, if we implement the DART technology in our business in the
same or similar manner as DoubleClick, we could be subject to similar litigation
or investigations. Any litigation or government action against us could be
costly and time-consuming, could require us to change our business practices and
could divert management's attention.
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.
Our principal competitors are other companies that provide advertisers with
performance-based Internet advertising solutions, such as cost-per-click, or
CPC; cost-per-lead, or CPL and cost-per-action, or CPA. We directly compete with
a number of competitors in the CPC market segment, such as Flycast,
Advertising.com, eAds, Datacomm, and ClickAgents. We also compete in the
performance-based marketing segment with CPL and CPA performance-based companies
such as
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DirectLeads and CommissionJunction. 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.
DoubleClick recently agreed to acquire a substantial percentage of our company.
See "The DoubleClick Investment."
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, our
business, result of operations and financial condition would be negatively
affected.
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.
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 Vice Chairman, Brian
Coryat; and our President and Chief Operating Officer, Earle A. Malm II. Our
employment agreements with our key personnel are short-term and on an at-will
basis. We do not have key-person insurance on any of our employees, other than
Brian Coryat, our Vice Chairman. 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.
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DOUBLECLICK WILL HAVE SIGNIFICANT INFLUENCE OVER OUR BUSINESS, AND IT MAY HAVE
INTERESTS THAT ARE DIFFERENT FROM, OR IN ADDITION TO, YOURS.
DoubleClick, which is one of our competitors, will own approximately 28.2%
of our outstanding common stock following the completion of this offering, or
27.9% if the underwriters' over-allotment option is exercised in full. In
connection with its investment in our company, DoubleClick has received a
warrant entitling it to increase its ownership of our common stock, at any time
prior to May 28, 2001, to 45% on a fully diluted basis, which assumes that all
outstanding options, warrants and convertible securities have been exercised or
converted into common stock. DoubleClick also has the right to maintain its
percentage ownership if we issue new securities, other than in a public offering
or under other specified exceptions, until February 28, 2003.
As a result of its share ownership, board representation and the other
rights described in this prospectus, DoubleClick will be able to exert
substantial influence over our management and affairs. DoubleClick may have
interests that are different from, or in addition to, your interests. Because we
have agreed to enter into an agreement to use DoubleClick's DART services in our
business and have generally agreed to use DoubleClick rather than other
providers of services similar to those that DoubleClick makes available, and
because we may have additional commercial relationships with DoubleClick in the
future, conflicts of interest could arise with respect to the nature, quality
and pricing of services that DoubleClick provides to us. See "The DoubleClick
Investment" for more detailed information.
DOUBLECLICK MAY BE ABLE TO CAUSE A SALE OF OUR COMPANY, EVEN IF IT IS NOT
FAVORED BY OUR STOCKHOLDERS.
As long as DoubleClick continues to own 10% of our common stock on a fully
diluted basis, we must obtain DoubleClick's consent before we take specified
actions such as issuing securities to any company that competes with DoubleClick
and implementing any anti-takeover provision. DoubleClick has agreed to
standstill provisions under which it would not acquire more than 45% ownership
of ValueClick on a fully diluted basis for three years, but after that time it
may acquire additional shares of our common stock. These standstill provisions
would terminate upon the announcement or commencement of a tender or exchange
offer to acquire shares of our common stock which would result in the offeror
owning 50% or more of our common stock. Due to Doubleclick's ownership and
contractual rights, we may be unable to prevent a sale of our company that
DoubleClick favors, even if it is not favored by our other stockholders, and it
may be difficult for our stockholders to receive a control premium in any sale
of our company.
DOUBLECLICK MAY HAVE SIGNIFICANT INFLUENCE OVER OUR BOARD OF DIRECTORS.
DoubleClick has designated two members of our board of directors. In
addition, the holders of 30.6% of our outstanding common stock following the
completion of this offering, or 29.2% if the underwriters' over-allotment option
is exercised in full, have agreed to vote their shares in favor of a specified
number of DoubleClick's nominees to our board of directors, depending on
DoubleClick's percentage ownership of our common stock. If DoubleClick exercises
its warrant in full, these stockholders have agreed to vote in favor of three
DoubleClick nominees. Because DoubleClick provides Internet advertising services
that compete with ours, conflicts of interest could arise for DoubleClick's
representatives on our board of directors. We have not implemented specific
policies with respect to these potential conflicts of interest, which could be
resolved in a manner adverse to us.
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DOUBLECLICK MAY BE ABLE TO PREVENT A TAKEOVER OF OUR COMPANY EVEN IF SUCH A
TRANSACTION WOULD BE BENEFICIAL TO OUR STOCKHOLDERS.
DoubleClick may be able to prevent or impede a change of control transaction
that our other stockholders favor. DoubleClick will be our largest stockholder
after this offering, and as long as it owns 10% of our common stock on a fully
diluted basis, it will have the right to receive prior notice of, and will have
the opportunity to respond to, a proposed sale of our company or an unsolicited
offer to buy our company. These rights may discourage third-party offers for our
company. See "The DoubleClick Investment" for more detailed information about
DoubleClick's rights.
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 publishers. Our business, results of operations
and financial condition could be materially and adversely affected by any damage
or failure that interrupts or delays our operations.
Our computer systems are vulnerable to damage from a variety of sources,
including telecommunications failures, malicious human acts and natural
disasters. We lease server space in Los Angeles, California; Boca Raton,
Florida; and Tokyo, Japan. Therefore, any of the above factors affecting the Los
Angeles, Boca Raton or Tokyo areas would substantially harm our business.
Moreover, despite network security measures, our servers are potentially
vulnerable to physical or electronic break-ins, computer viruses and similar
disruptive problems in part because we cannot control the maintenance and
operation of our third-party data centers. Despite the precautions we have
taken, unanticipated problems affecting our systems could cause interruptions in
the delivery of our solutions in the future. Our data storage centers
incorporate redundant systems, consisting of additional servers, but our primary
system does not switch over to our backup system automatically. Our insurance
policies may not adequately compensate us for any losses that may occur due to
any failures in our systems.
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. As the numbers of Web pages and Internet 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 Internet service providers, or 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.
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IT MAY BE DIFFICULT FOR YOU TO EVALUATE OUR BUSINESS AND YOUR INVESTMENT BECAUSE
WE HAVE A LIMITED OPERATING HISTORY.
Because we have a limited operating history, it may be difficult to evaluate
our business and prospects. You should consider our prospects in light of the
risks, expenses and difficulties frequently encountered by early-stage companies
in the rapidly-changing Internet market. These risks include our ability to:
- maintain and increase our inventory of advertising space on Web sites;
- maintain and increase the number of advertisers that use our products and
services and offer banner advertisements that generate significant
response rates;
- continue to expand the number of products and services we offer and the
capacity of our systems;
- continue to increase the acceptance of the CPC pricing model; and
- adapt to changes in Web advertisers' promotional needs and policies, and
the technologies used to generate Web advertisements.
If we are unsuccessful in addressing these risks and uncertainties, our
business, results of operations and financial condition could be materially and
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for more detailed information.
IT MAY BE DIFFICULT TO PREDICT OUR FINANCIAL PERFORMANCE BECAUSE OUR QUARTERLY
OPERATING RESULTS MAY FLUCTUATE.
Our revenues and operating results may vary significantly from quarter to
quarter due to a variety of factors, many of which are beyond our control. You
should not rely on period-to-period comparisons 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
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the time it takes us to close sales with advertisers, and could materially and
adversely affect our business, results of operations and financial condition.
WE MAY EXPERIENCE SEASONAL FLUCTUATIONS IN OUR REVENUES.
We believe that our revenues will be subject to seasonal fluctuations
because advertisers generally place fewer advertisements during the first and
third calendar quarters of each year. Additional seasonal patterns in Internet
advertisers' spending may emerge as the industry matures.
OUR FUTURE REVENUES AND OPERATING RESULTS ARE DIFFICULT TO FORECAST AND MANY OF
OUR EXPENSES ARE FIXED.
Our current and future expense estimates are based, in large part, on our
estimates of future revenues and on our investment plans. In particular, we plan
to increase our operating expenses significantly in order to:
- expand our sales and marketing operations;
- enhance our technology and software solutions;
- acquire additional advertising inventory;
- enhance our advertising management platform; and
- continue our international expansion.
Most of our expenses are fixed in the short term. We may be unable to reduce
spending if our revenues are lower than expected. Any significant shortfall in
revenues in relation to our expectations could materially and adversely affect
our 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 60
full- and part-time employees domestically in February 2000 and have grown to 31
full- and part-time employees in Japan and four full- and part-time employees in
Europe in February 2000. 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 year ended December 31,
1999, international sales represented 14% of our revenues, on a pro forma basis.
Our Japanese operation subjects us to foreign currency
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exchange risks as it denominates its transactions in Japanese Yen. We currently
do not utilize hedging instruments to mitigate foreign exchange risks. Our
international expansion will subject us to additional foreign currency exchange
risks and will require management attention and resources. We expect to pursue
expansion through a number of international alliances and to rely extensively on
these business partners initially to conduct operations, establish local
networks, register Web sites as affiliates and coordinate sales and marketing
efforts. Our success in these markets will depend on the success of our business
partners and their willingness to dedicate sufficient resources to our
relationships. We cannot assure you that we will be successful in our efforts
overseas. International operations are subject to other inherent risks,
including:
- the impact of recessions in economies outside the United States;
- changes in and differences between regulatory requirements, domestic and
foreign;
- export restrictions, including export controls relating to encryption
technologies;
- 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, and as a result of sabotage, such as the recent electronic
attacks designed to interrupt service on many Web sites. 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
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would be adversely affected if the growth or acceptance of e-commerce does not
develop, or develops more slowly than expected. A number of factors outside of
our control could hinder the development of e-commerce, including the following:
- the network infrastructure necessary for substantial growth in Internet
usage may not develop adequately or its performance and reliability may
decline;
- insufficient availability of telecommunication services or changes in
telecommunication services could result in inconsistent quality of service
or slower response times on the Internet; and
- negative publicity and consumer concern surrounding the security of
e-commerce could impede its acceptance and growth.
In particular, any well-publicized compromise of security involving Web-based
transactions could deter people from purchasing items on the Internet, clicking
on advertisements, or using the Internet generally, any of which could 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 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.
CHANGES IN LAWS AND STANDARDS RELATING TO DATA COLLECTION AND USE PRACTICES AND
THE PRIVACY OF INTERNET USERS AND OTHER INDIVIDUALS COULD HARM OUR BUSINESS.
Recently, growing public concern regarding privacy and the collection,
distribution and use of information about Internet users has led to increased
federal and state scrutiny and legislative and regulatory activity concerning
data collection and use practices. Various federal and state governments and
agencies have recently proposed limitations on the collection and use of
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information regarding Internet users. In October 1998, the European Union
adopted a directive that limits the collection and use of information regarding
Internet users in Europe. In addition to government activity, a number of
industry and privacy advocacy groups are considering various new, additional or
different self-regulatory standards. This focus, and any legislation,
regulations or standards promulgated, may impact us adversely.
Although our compliance with applicable federal and state laws, regulations
and industry guidelines has not had a material adverse effect on us,
governments, trade associations and industry self-regulatory groups may enact
more burdensome laws, regulations and guidelines, including consumer privacy
laws, affecting us and our clients. Since many of the proposed laws or
regulations are just being developed, and a consensus on privacy and data usage
has not been reached, we cannot yet determine the impact these regulations may
have on our business. However, these regulations and guidelines could materially
and adversely affect our business. For additional information and risks
concerning our use of information about Internet users, see "Risk Factors--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."
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.
THE YEAR 2000 PROBLEM COULD CAUSE SIGNIFICANT HARM TO OUR OPERATIONS.
Prior to January 1, 2000, there was a great deal of concern regarding the
ability of computers to adequately recognize 21st century dates from 20th
century dates due to the two-digit date fields used by many systems. To date,
our computer systems are functioning normally and our compliance and remediation
efforts leading up to 2000 have been effective to prevent any problems. However,
computer experts have warned that there may still be residual consequences of
the change in centuries and any such difficulties could disrupt our ability to
deliver advertisements to our Web publishers the ability of Web users to click
to our advertisers.
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 March 14, 2000, upon completion
of this offering, we will have 27,912,536 shares of common stock outstanding. Of
these shares, the 4,000,000 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. All of
these remaining shares are subject to contractual restrictions with the
underwriters that prevent them from being sold until 180 days after the date of
this prospectus without the consent of Goldman, Sachs & Co.
In addition, upon the effective date of this offering, we expect to register
for sale 4,000,000 shares of common stock reserved for issuance under the 1999
Stock Option Plan. As of
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March 14, 2000, options to purchase 2,849,337 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 initial public offering price of
our common stock. DoubleClick will also have the right to require us to register
the shares of our common stock that it acquired in February 2000 or pursuant to
the exercise of its warrant. 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 has been 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. Section
203 of the Delaware General Corporation Law may make the acquisition of
ValueClick and the removal of incumbent officers and directors more difficult by
prohibiting stockholders holding 15% or more of ValueClick's outstanding voting
stock from acquiring ValueClick without the Board's consent for at least three
years from the date they first hold 15% or more of the voting stock. DoubleClick
is not subject to this provision of Delaware law with respect to its investment
in ValueClick. See "Description of Capital Stock--Delaware Anti-Takeover Law"
for more detailed information.
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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. You should not place undue reliance on these
forward-looking statements.
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 4,000,000 shares being offered
by us at the initial public offering price of $19.00 per share, after deducting
underwriting discounts and commissions and estimated offering expenses, are
estimated to be $69.5 million, or $75.0 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, possible acquisitions 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 $5 million and $10 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,
working capital and possible acquisitions of complementary technologies or
businesses. 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. 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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CAPITALIZATION
The following table sets forth our capitalization as of December 31, 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 the issuance of 7,878,562 shares of
our common stock and a warrant upon the closing of the DoubleClick investment on
February 28, 2000 for proceeds comprised of $10.0 million in cash and
DoubleClick common stock valued at $85.8 million, 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 the initial public offering price of $19.00 per common share. The table does
not include:
- shares issuable to DoubleClick under a warrant entitling DoubleClick to
buy enough shares to result in DoubleClick owning 45% of our common stock
on a fully-diluted basis; and
- outstanding options to acquire 2,847,820 shares of our common stock as of
December 31, 1999 with a weighted average exercise price of $1.20 per
share.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................................ $ 2,129 $ 12,129 $ 81,609
======= ======== ========
Investment in DoubleClick common stock................... -- 85,796 85,796
======= ======== ========
Note payable, long term portion.......................... 20 20 20
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, $0.001 par value; 100,000,000 shares
authorized; 10,241,920 shares issued and outstanding,
actual; 23,414,054 shares issued and outstanding, pro
forma; 27,414,054 shares issued and outstanding, pro
forma as adjusted.................................... 10 23 27
Additional paid in capital............................... 17,585 113,370 182,846
Deferred stock compensation.............................. (5,678) (5,678) (5,678)
Cumulative foreign currency translation adjustment....... (30) (30) (30)
Accumulated deficit...................................... (2,489) (2,489) (2,489)
------- -------- --------
Total stockholders' equity............................. 9,400 105,196 174,676
------- -------- --------
Total capitalization............................... $ 9,420 $105,216 $174,696
======= ======== ========
</TABLE>
21
<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1999, after giving
effect to the issuance of 7,878,562 shares of our common stock and a warrant
upon closing of the DoubleClick investment on February 28, 2000 for proceeds
comprised of $10.0 million in cash and DoubleClick common stock valued at
$85.8 million, was approximately $101.3 million or $4.33 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 December 31, 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 the initial public offering
price of $19.00 per common share after deducting underwriting discounts,
commissions and offering expenses, our pro forma net tangible book value as of
December 31, 1999 would have been $6.23 per share of common stock. This
represents an immediate increase in net tangible book value of $1.90 per common
share to existing stockholders and an immediate dilution of $12.77 per share to
new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $19.00
Pro forma net tangible book value per share before the
offering................................................ 4.33
Increase attributable to new investors.................... 1.90
-----
Pro forma net tangible book value after the offering........ 6.23
------
Dilution per share to new investors......................... $12.77
======
</TABLE>
The following table summarizes on a pro forma basis, as of December 31,
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. The
existing stockholder amounts include the shares and warrant issued in connection
with the DoubleClick Investment.
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION
---------------------- ------------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- -------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders
(1)..................... 23,414,054 85.4% $104,237,036 57.8% $ 4.45
New investors............. 4,000,000 14.6 76,000,000 42.2 $19.00
----------- ---- ------------ ----
Totals................ 27,414,054 100% $180,237,036 100% $ 6.57
=========== ==== ============ ====
</TABLE>
The foregoing table assumes no exercise of the underwriters' over-allotment
option or issuance of shares underlying outstanding options. As of December 31,
1999, options to purchase 2,847,820 shares of common stock were outstanding at a
weighted average exercise price of $1.20 per share. To the extent that these
options are exercised, new investors will experience further dilution. See
"Description of Capital Stock" and Notes 1 and 7 of the notes to our
Consolidated Financial Statements for more information on our capital stock and
further dilution you may experience.
The foregoing table also does not include the shares that may be issued upon
exercise of the common stock purchase warrant issued to DoubleClick which allows
DoubleClick to purchase shares of our common stock at $21.76 per share. Under
the warrant, DoubleClick may purchase a number of shares which, when added to
the 7,878,562 shares of common stock purchased by DoubleClick at the closing of
DoubleClick investment and any other shares it subsequently purchased, would
give DoubleClick 45% of our outstanding common stock on a fully-diluted basis.
The warrant expires 15 months following the closing of the initial DoubleClick
investment and, if exercised, could result in further dilution to new investors.
- ------------------------
(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 23,129,054 or approximately
84.4% of total shares of common stock outstanding after this offering.
22
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with the financial statements, the notes to the consolidated 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
1999 and the selected statement of operations data for the period from May 1,
1998 (inception) through December 31, 1998 and the year ended December 31, 1999,
have been derived from the audited financial statements of ValueClick, Inc.
appearing elsewhere in this prospectus. The combined historical selected
financial data for the year ended December 31, 1998 reflect the combined
selected financial data of 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.
The unaudited pro forma selected statement of operations data for the year
ended December 31, 1999 have been derived from the unaudited pro forma condensed
consolidated financial statements appearing elsewhere in this prospectus.
<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) YEAR
THROUGH ENDED THROUGH ENDED
DECEMBER 31, APRIL 30, DECEMBER 31, DECEMBER 31,
1997 1998 1998 1999
------------- -------------- ------------- -------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................... $ 122 $ 253 $ 2,053 $ 20,288
Cost of revenues........................... 37 88 1,105 10,157
-------- -------- -------- --------
Gross profit............................. 85 165 948 10,131
Operating expenses:
Sales and marketing...................... -- -- 516 2,866
General and administrative............... 116 134 404 3,825
Product development...................... -- -- 155 1,100
Stock-based compensation................. -- -- 61 3,506
Amortization of intangibles and acquired
software............................... -- -- 33 401
-------- -------- -------- --------
Total operating expenses............... 116 134 1,169 11,698
-------- -------- -------- --------
(Loss) income from operations............ (31) 31 (221) (1,567)
Equity in loss of ValueClick Japan......... -- -- (9) (64)
Interest and other income, net............. -- -- 8 45
-------- -------- -------- --------
Loss before income taxes and minority
interest............................... (31) 31 (222) (1,586)
Provision for income taxes................. -- -- -- 897
-------- -------- -------- --------
Net (loss) income before minority
interest................................. (31) 31 (222) (2,483)
Minority interest in ValueClick Japan...... -- -- -- (6)
-------- -------- -------- --------
Net (loss) income...................... $ (31) $ 31 $ (222) $ (2,489)
======== ======== ======== ========
Net loss per common share:
Basic and diluted(1)................. -- -- $ (0.02) $ (0.26)
Shares used to calculate basic and
diluted(1)......................... -- -- 9,912 9,687
</TABLE>
23
<PAGE>
SELECTED FINANCIAL DATA, CONTINUED
<TABLE>
<CAPTION>
UNAUDITED
PRO FORMA
COMBINED CONSOLIDATED
HISTORICAL(3) ------------------
------------- YEAR
YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
------------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $ 2,306 $ 21,081
Cost of revenues............................................ 1,193 10,623
-------- --------
Gross profit................................................ 1,113 10,458
Operating expenses:
Sales and marketing....................................... 516 3,036
General and administrative................................ 538 4,185
Product development....................................... 155 1,100
Stock-based compensation.................................. 61 3,506
Amortization of intangibles and acquired software......... 33 892
-------- --------
Total operating expenses................................ 1,303 12,719
-------- --------
Loss from operations...................................... (190) (2,261)
Equity in loss of ValueClick Japan.......................... (9) --
Interest income, net........................................ 8 45
-------- --------
Loss before income taxes and minority interest............ (191) (2,216)
Provision for income taxes.................................. -- 897
-------- --------
Net loss before minority interest........................... (191) (3,113)
Minority interest in ValueClick Japan....................... -- 59
-------- --------
Net loss................................................ $ (191) $ (3,054)
======== ========
Net loss per common share:
Basic and diluted(1).................................. -- --
Weighted average shares used to calculate basic and
diluted(1).......................................... -- --
Pro forma basic and diluted(2)........................ -- $ (0.21)
Weighted average shares used in pro forma basic and
diluted(2).......................................... -- 14,634
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, 1998 DECEMBER 31, 1999
BALANCE SHEET DATA: ------------------ ------------------
<S> <C> <C>
Cash and cash equivalents................................. $ 262 $ 2,129
Working capital........................................... 454 4,929
Total assets.............................................. 1,323 14,973
Deferred stock compensation............................... -- (5,678)
Total stockholders' equity................................ 765 9,400
</TABLE>
- --------------------------
1. See Notes 1 and 9 of Notes to Consolidated 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 5,293,572 shares of common stock,
but not giving effect to the exercise of outstanding options to purchase
2,847,820 shares of common stock nor the vesting 361,483 restricted shares
of common stock as of December 31, 1999.
3. The combined historical statement of operations for the year ended
December 31, 1998 reflects the combined results of our operations for the
period from May 1, 1998 through December 31, 1998 and the ValueClick line of
business of Web-Ignite for the four months ended April 30, 1998.
24
<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 CONSOLIDATED 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 us, and we in turn only
pay a Web publisher, when an Internet user clicks on an 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 10,600
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 corporation.
See "Related Party Transactions" for more detailed information.
We generate revenues by delivering banner 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, over 95% 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; New York, New York; Tokyo, Japan and London, England.
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. Our
agreements with Web publishers are also subject to cancellation.
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 38% of our revenues for the year ended December 31, 1999. One
advertiser, Microsoft, accounted for 23% of our revenues for the period from
May 1, 1998 (inception) through December 31, 1998. For the year ended
December 31, 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.
25
<PAGE>
VALUECLICK JAPAN
In November 1998, we entered into a license agreement with ValueClick Japan
which was superceded by a new license agreement in December 1999. Under this
agreement, we granted ValueClick Japan an exclusive license to use our
trademarks, copyrights and ad tracking and serving technology in connection with
the delivery of advertisements to Japanese language Web sites targeting users
located in Japan. In exchange for this license, ValueClick Japan pays us a
monthly fee of $3,500. This agreement may be terminated by either party on
30 days' notice if the other party ceases to do business, materially breaches
any term or condition of the agreement or is subject to bankruptcy or similar
proceedings. ValueClick Japan may terminate this agreement at any time upon 90
days prior written notice. In addition, we may terminate the agreement
immediately if Valueclick Japan:
- fails to pay the monthly fee due under the agreement,
- modifies or removes any intellectual property notices included in the
technology,
- contests our ownership of the intellectual property subject to the
license,
- breaches its confidentiality obligations under the license agreement, or
- fails to meet quality control standards specified in the license
agreement.
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 320,000 shares of our common stock valued at $12.96 per share, giving us a
54% ownership interest in ValueClick Japan. We account for our interest in
ValueClick Japan on a consolidated basis for financial reporting purposes. 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 purchase price allocation indicates additional
intangible assets, comprised of goodwill, totaling $4.2 million, which will be
amortized on a straight-line basis over an estimated life of five years. In
January 2000 we agreed to purchase an additional 3.4% of ValueClick Japan stock
in exchange for 48,836 shares of our common stock valued at approximately
$633,000, which would give us a 57.4% ownership interest in ValueClick Japan.
ValueClick Japan recently took steps to commence the initial public offering
of its stock on a new section of the Tokyo Stock Exchange for emerging growth
companies. We anticipate that in the event of an initial public offering of
ValueClick Japan's stock, we would continue to own in excess of 50% of the
outstanding stock of ValueClick Japan and would continue to account for our
interest on a consolidated basis for financial reporting purposes. We cannot
predict when any initial public offering by ValueClick Japan would be completed
or the likelihood of its success.
See "Unaudited Pro Forma Condensed Consolidated Financial Statements" on
pages F-22 through F-25 for more information on the consolidation of ValueClick
Japan with our domestic operations.
DOUBLECLICK INVESTMENT
On February 28, 2000, we consummated an investment in our company by
DoubleClick, a provider of Internet advertising solutions. DoubleClick acquired
7,878,562 shares of our common stock for an estimated purchase price of $12.16
per share, $10.0 million of which was paid in cash and the remainder of which
was paid in 732,860 shares of DoubleClick common stock. The shares of
DoubleClick common stock were valued at $85.8 million for accounting purposes
based on an average price of $117.07 per share for the public announcement date
of January 13, 2000 and the five trading days before and after that date. Under
the agreement we also granted a warrant to
26
<PAGE>
DoubleClick to acquire additional shares of our common stock at $21.76 per share
payable in DoubleClick common stock. This warrant would be exercisable for that
number of shares that would result in DoubleClick owning 45% of our outstanding
common stock on a fully-diluted basis. The warrant is exercisable for the 15
month period commencing February 28, 2000. The per share consideration we
received in exchange for the common stock and warrant that we issued to
DoubleClick was determined based on the fair value of our common stock in arms'
length negotiations with DoubleClick and as such is recorded at the issuance
price. See "DoubleClick Investment."
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)
THROUGH ------------------ YEAR ENDED
DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 DECEMBER 31, 1998 1999
------------- ------------------ --------------
<S> <C> <C> <C>
Revenues................................... 100% 100% 100%
Costs of revenues.......................... 54 52 50
--- ---- ---
Gross profit............................... 46 48 50
Operating expenses:
Sales and marketing...................... 25 22 14
General and administrative............... 20 23 19
Product development...................... 8 7 6
Stock-based compensation................. 3 3 17
Amortization of intangibles and acquired
software............................... 1 1 2
--- ---- ---
Total operating expenses............... 57 56 58
--- ---- ---
Loss from operations..................... (11) (8) (8)
Equity in loss of ValueClick Japan......... -- -- --
Interest income, net....................... -- -- --
--- ---- ---
Loss before income taxes and minority
interest............................... (11) (8) (8)
Provision for income taxes................. -- -- (4)
--- ---- ---
Net loss before minority interest.......... (11) (8) (12)
Minority interest in ValueClick Japan...... -- -- --
Net loss............................... (11)% (8)% (12)%
=== ==== ===
</TABLE>
- ------------------------------
(1) The combined historical statement of operations for the year ended
December 31, 1998 reflects the combined results of our operations for the
period from May 1, 1998 through December 31, 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 users 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.
27
<PAGE>
We had revenues of $2.1 million for the period from May 1, 1998 (inception)
through December 31, 1998. Our revenues were $20.3 million for the year ended
December 31, 1999 as compared to $2.3 million for the combined historical year
ended December 31, 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 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
year ended December 31, 1999 our cost of revenues was $10.2 million compared to
$1.2 million for the combined historical year ended December 31, 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 year ended
December 31, 1999 our sales and marketing expenses were $2.9 million compared to
$516,000 for the combined historical year ended December 31, 1998. The
$2.4 million increase in sales and marketing expense was primarily due to the
addition of 28 sales and marketing personnel, and 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 year
ended December 31, 1999 we had general and administrative expenses of
$3.8 million compared to $538,000 for the combined historical year ended
December 31, 1998. The $3.3 million increase in 1999 was primarily attributable
to the addition of 19 executive and administrative employees. In addition, we
increased our allowance for doubtful accounts by $636,000 as a result of the
significant growth in our revenue and accounts receivable and our limited
historical collection experience. We anticipate our allowance for doubtful
accounts will decline as a percentage of revenues in the future as the current
level of allowance is anticipated to be adequate to cover our anticipated losses
from uncollectible 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.
28
<PAGE>
PRODUCT DEVELOPMENT
Product development 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 and supplies. To date, all product development
costs have been expensed as incurred. We had product development expenses of
$155,000 for the period from May 1, 1998 (inception) through December 31, 1998.
For the year ended December 31, 1999, we had product development expenses of
$1.1 million compared to $155,000 on a combined historical basis for the year
ended December 31, 1998. The increase was primarily attributable to the hiring
of 20 additional engineers and support personnel. We believe that continued
investment in product development is critical to attaining our strategic
objectives and, as a result, we expect product development expenses to increase
in future periods.
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 year ended December 31, 1999, we recorded a deferred compensation
balance of approximately $8.6 million. This deferred compensation represented
the difference between the deemed fair value of our common stock for financial
accounting purposes and the exercise price of these options at the date of grant
or the purchase price of these restricted shares at the date of issuance,
resulting in an expense charge of $2.9 million for the year ended December 31,
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 or restricted shares which is
generally four years. Stock-based compensation for the year ended December 31,
1999 also included a charge of approximately $563,000 related to the issuance of
stock and stock options to non-employees for services provided.
Annual amortization of deferred stock compensation for options and
restricted shares granted as of December 31, 1999 is estimated to be
approximately $3.5 million for the year ending December 31, 2000, $1.4 million
for the year ending December 31, 2001, $609,000 for the year ending
December 31, 2002, and $164,000 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
April 30, 2000, we believe that the amortization of deferred stock compensation
for the years listed above would not be significantly different than the amounts
presented above.
From January 1, 2000 through March 29, 2000, we granted stock options to
purchase 487,000 shares of common stock at an exercise price of $11.00 per
share. In connection with these grants, we expect to record an additional
estimated deferred compensation amount of $3,896,000 in the first quarter of
2000. The additional annual amortization for this deferred compensation amount
is estimated to be approximately $1,576,000 for fiscal year 2000, $1,268,000 for
2001, $688,000 for 2002, $312,000 for 2003, and $52,000 for 2004.
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 of goodwill created as a result of the acquisition of a
majority interest in ValueClick Japan in August 1999.
29
<PAGE>
EQUITY IN LOSS OF VALUECLICK JAPAN
Equity in loss of ValueClick Japan increased from $9,000 for the period from
May 1, 1998 (inception) through December 31, 1998 to $64,000 for the year ended
December 31, 1999. The loss is primarily a result of the increase in operating
expenses required to grow the ValueClick Japan business, which began full
operation in November 1998.
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 debt obligations.
Interest income was $8,000 for the period from May 1, 1998 (inception) through
December 31, 1998 and $46,000 for the year ended December 31, 1999. Interest
expense was $0 for the period from May 1, 1998 (inception) through December 31,
1998 and $1,000 for the year ended December 31, 1999.
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 year ended December 31, 1999, our provision for Federal and state
income taxes amounted to $897,000. No provision has been recorded for the
combined historical year ended December 31, 1998 as the predecessor entity was
taxed as an S-corporation and we were taxed as an LLC.
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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 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
QUARTER
ENDED QUARTER ENDED
---------------------- -------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
---------- --------- -------------- -------- ---------- --------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................... $207 $ 243 $ 588 $1,268 $1,968 $2,899 $5,726 $ 9,695
Cost of revenues........... 74 107 247 765 1,087 1,348 2,830 4,892
---- ----- ----- ------ ------ ------ ------ -------
Gross profit............. 133 136 341 503 881 1,551 2,896 4,803
---- ----- ----- ------ ------ ------ ------ -------
Operating expenses:
Sales and marketing...... -- 55 178 283 257 391 819 1,399
General and
administrative......... 101 108 127 202 342 612 1,125 1,746
Product development...... -- 15 70 70 108 213 266 513
Stock-based
compensation........... -- 61 -- -- 33 441 1,003 2,029
Amortization of
intangibles and
acquired software...... -- 7 13 13 13 13 160 215
---- ----- ----- ------ ------ ------ ------ -------
Total operating
expenses............. 101 246 388 568 753 1,670 3,373 5,902
---- ----- ----- ------ ------ ------ ------ -------
Income (loss) from
operations............... 32 (110) (47) (65) 128 (119) (477) (1,099)
Equity in losses of
ValueClick Japan......... -- -- -- (9) (42) (10) (12) --
Interest income, net....... -- 1 3 4 5 14 19 7
---- ----- ----- ------ ------ ------ ------ -------
Income (loss) before
income taxes........... 32 (109) (44) (70) 91 (115) (470) (1,092)
Provision for income
taxes.................... -- -- -- -- (62) (154) (300) (381)
---- ----- ----- ------ ------ ------ ------ -------
Net income (loss) before
minority interest........ $ 32 $(109) $ (44) $ (70) $ 29 $ (269) $ (770) $(1,473)
==== ----- ----- ------ ------ ------ ------ -------
Minority interest in
ValueClick Japan......... -- -- -- -- -- -- 28 (34)
---- ----- ----- ------ ------ ------ ------ -------
Net income (loss)...... $ 32 $(109) $ (44) $ (70) $ 29 $ (269) $ (742) $(1,507)
==== ===== ===== ====== ====== ====== ====== =======
</TABLE>
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QUARTERLY RESULTS OF OPERATIONS, CONTINUED
<TABLE>
<CAPTION>
COMBINED
HISTORICAL
QUARTER
ENDED QUARTER ENDED
---------------------- -------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 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 42 60 55 46 49 50
----- ----- ----- ----- ----- ----- ----- -----
Gross profit............. 64 56 58 40 45 54 51 50
----- ----- ----- ----- ----- ----- ----- -----
Operating expenses:
Sales and marketing...... -- 23 30 22 13 14 14 15
General and
administrative......... 49 44 22 16 17 21 20 18
Product development...... -- 6 12 6 5 7 5 5
Stock-based
compensation........... -- 25 -- -- 2 15 18 21
Amortization of
intangibles and
acquired software...... -- 3 2 1 1 1 3 2
----- ----- ----- ----- ----- ----- ----- -----
Total operating
expenses............. 49 101 66 45 38 58 60 61
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) from
operations............... 15 (45) (8) (5) 7 (4) (9) (11)
Equity in losses of
ValueClick Japan......... -- -- -- (1) (2) (1) 0 0
Interest income, net....... -- -- 1 -- -- 1 0 0
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) before
income taxes........... 15 (45) (7) (6) 5 (4) (9) (11)
Provision for income
taxes.................... -- -- -- -- (3) (5) (5) (4)
----- ----- ----- ----- ----- ----- ----- -----
Net income (loss) before
minority interest........ 15 (45) (7) (6) 2 (9) (14) (15)
Minority interest in
ValueClick Japan......... -- -- -- -- -- -- 1 (1)
----- ----- ----- ----- ----- ----- ----- -----
Net income (loss)...... 15% (45)% (7)% (6)% 2% (9)% (13)% (16)%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
Revenues increased to $9.7 million for the quarter ended December 31, 1999,
compared to $1.3 million for the quarter ended December 31, 1998. 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. The
resulting improvement in gross margins reversed the trend of cost of revenues
increasing in 1998. The 67% increase in cost of revenues during 1998 was due to
the impact of paying a greater cost-per-click to Web publishers to provide
needed inventory for the growing backlog of advertising sold. With the addition
of new Web sites to our network during 1999, these pricing pressures
subsequently decreased. Similar pricing pressures may arise in the future,
however. Gross margin was 50% and 40% for the three months ended December 31,
1999 and 1998, respectively. Operating expenses increased in absolute dollars in
each quarter in 1998 and decreased overall as a percentage of revenues as the
revenue base grew. In 1999, operating expenses increased on an absolute dollar
basis. 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 the hiring of executive,
accounting and administrative personnel, as well as the relocation of our
company and expansion into a larger facility.
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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."
SEGMENT AND GEOGRAPHIC INFORMATION
ValueClick operates in one industry segment and has no other separate
reportable segments.
Our operations are domiciled in the United States with operations in Japan
through our majority-owned subsidiary, ValueClick Japan, with operations in
Europe through our wholly owned subsidiary, ValueClick Europe. Our geographic
information is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
--------------------------- LONG-LIVED
INCOME (LOSS) ASSETS
FROM AT DECEMBER 31,
REVENUES OPERATIONS 1999
----------- ------------- ---------------
<S> <C> <C> <C>
United States..................... $18,194,735 $(1,409,480) $4,621,043
Japan............................. 2,093,354 14,764 200,160
Europe............................ -- (171,755) 17,022
----------- ----------- ----------
Total......................... $20,288,089 $(1,566,471) $4,838,225
=========== =========== ==========
</TABLE>
There were no significant foreign operations prior to the acquisition of
majority control of ValueClick Japan in August of 1999.
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 December 31, 1999. Net cash used in operating activities was
$0.9 million for the year ended December 31, 1999, which resulted principally
from increases in accounts receivable of $6.5 million partially offset by an
increase in accounts payable and other operating cash flows.
At December 31, 1998 and 1999, we had no known material commitments for
capital expenditures.
Net cash provided by financing activities during the year ended
December 31, 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 to be used for general
working capital. Interest on the outstanding balances accrues at an annual rate
of one percentage point above the bank's prime rate. As of December 31, 1999,
the bank's prime rate was 8.5%. We are also required to pay the bank on a
quarterly basis an unused line fee on the unused portion of the line of credit
at an annual rate of half a percent. The credit facility contains provisions
requiring us to:
- maintain our corporate existence and remain in good standing,
- provide regular financial reports to the bank,
- pay all taxes when due,
- maintain satisfactory insurance,
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<PAGE>
- maintain a quick ratio, defined as unrestricted cash, cash equivalents,
net billed accounts receivables and investments with maturities less than
12 months divided by current liabilities, of 2 to 1,
- maintain a tangible net worth, which excludes goodwill, intangibles and
reserves not already deducted from assets, plus any debt junior to the
revolving credit line, of $10,000,000, and
- protect our intellectual property rights.
The credit facility also restricts our ability to:
- transfer our business or property,
- merge or consolidate,
- borrow funds,
- mortgage our property,
- acquire or invest in other entities,
- pay dividends, or
- enter into transactions with affiliates.
The credit facility expires on and all outstanding balances are due on the
first anniversary of the agreement. In exchange for the credit facility, we
granted the bank a first priority security interest in our goods and equipment,
inventory, accounts receivables and intellectual property. As of December 31,
1999, we have not borrowed against this credit line.
Net cash used in investing activities for the year ended December 31, 1999
was $707,000 representing an additional equity investment of $263,000 in
ValueClick Japan and the purchase of $924,000 of fixed assets partially offset
by $413,000 of acquired cash from ValueClick Japan.
We received $10,000,000 in cash and 732,860 shares of DoubleClick common
stock on February 28, 2000, upon the closing of the DoubleClick investment. In
connection with this transaction, we obtained the right to require DoubleClick
to register these shares with the SEC and list them with the Nasdaq National
Market in order that we may sell some or all of these shares. In addition, we
have the right to include these shares in any registration of DoubleClick stock
with the SEC, either on behalf of DoubleClick or for other DoubleClick
stockholders, subject to certain exceptions. We eventually plan to liquidate our
holdings of DoubleClick stock in order to raise additional capital for our
capital needs. We intend to account for the investment in DoubleClick common
stock as an available for sale investment in accordance with Financial
Accounting Standards Board Statement of Financial Accounting Standards No. 115,
"Accounting For Certain Investments in Debt and Equity Securities," whereby the
investment will be carried at market value with unrealized holding gains and
losses from increases and decreases in market value recorded as a separate
component of stockholders' equity until realized. DoubleClick's stock price will
likely be volatile, and we cannot predict the value we will ultimately realize
from our DoubleClick shares.
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
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
34
<PAGE>
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. 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.
- 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,
upgrade or replacement of any non-Year 2000 compliant systems.
- Testing--The continuous testing of our systems to determine their Year
2000 compliance after any necessary Year 2000 remediations.
Based on our Year 2000 readiness assessment, we believe 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, 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 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, or any Year 2000 issues that may be discovered subsequent
to January 1, 2000. We have not contacted any advertisers or publishers of Web
sites concerning their Year 2000 compliance. In addition, we have not contacted,
nor do we intend to contact, any utilities, telecommunications providers or
financial institutions regarding their Year 2000 compliance. We have relied upon
publicly released statements from these companies indicating that they are
Year 2000 compliant.
COSTS TO ADDRESS OUR YEAR 2000 COMPLIANCE. To date, we have not incurred
any material expenditure in connection with identifying, evaluating, or
remediating any Year 2000 compliance issues. However, we believe that, if
expenditures are necessary, they would not exceed $150,000 and would be paid
with our working capital.
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. We may, however, 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 heavily on the uninterrupted availability of the Internet
infrastructure to conduct our business.
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<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not hold any derivative instruments and do not engage in hedging
activities. The interest rate of our line of credit with Silicon Valley Bank
varies depending on the bank's prime rate. Currently, we have not made any
borrowings under this credit facility.
Our investment in ValueClick Japan, including the additional 22.0% 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 $2.3 million at December 31, 1999. We also will have foreign currency
exchange risks for ValueClick Europe, which will denominate its transactions in
U.K. pounds. Our exposure is limited to the extent of the amount of ValueClick
Europe's assets, which totaled $215,000 at December 31, 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. For all of our other advertising
services provided in foreign countries during 1999, including Canada, Australia,
Belgium, Brazil, China, England, France, Mexico and Spain, the transactions were
denominated in U.S. dollars and we receive payment from these foreign customers
prior to delivering our services.
As part of the consideration for DoubleClick's investment in our company, we
received 732,860 shares of DoubleClick common stock valued at approximately
$85.8 million based on an average value of $117.07 per share for the public
announcement date of January 13, 2000 and the five trading days before and after
that date. Fluctuations in the market price of DoubleClick's common stock could
have a material effect on the value that we ultimately realize from these
shares. Although we plan to sell this stock pursuant to a registration statement
that DoubleClick has agreed to file for us, we cannot assure you as to when we
will sell the stock, what price we will receive for the stock, or how many
shares we will be able to sell at any price.
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.
36
<PAGE>
BUSINESS
OVERVIEW
We are a leading provider of performance-based Internet advertising
solutions, based on the size and reach of our network. We provide publishers of
Web sites and online advertisers an advertising model known as cost-per-click or
CPC, in which an advertiser only pays us, and we in turn only pay a publisher of
a Web site, when an Internet user clicks on an advertiser's banner
advertisement. Our network of Web sites, which currently consists of over 10,600
Web sites and reaches approximately 28% of U.S.-based Internet users, grew
approximately 50% during 1999. Our member Web sites must satisfy our strict
quality standards for content and traffic. In January 2000, we delivered in
excess of 2.0 billion Web advertisements and registered over 7.7 million clicks
across our network.
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, 15.2
million or 15% of U.S. households were Internet users, compared to 44.9 million
or 44% in 1999, and projects that Internet use will grow to 67.6 million or 63%
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 projects that Internet advertising in the United States will
grow from $2.8 billion in 1999 to $22.2 billion in 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%.
EMERGENCE OF PERFORMANCE-BASED INTERNET ADVERTISING
Historically, most Internet advertising campaigns have been priced based on
a cost-per-thousand impressions model, commonly referred to as CPM. Under the
CPM model, Internet advertisers are charged based on the number of times a
banner advertisement is displayed. This pricing model, which was adopted from
traditional media, is generally associated with advertising campaigns that are
designed to generate brand awareness through widespread exposure to
advertisements.
Although CPM has historically been the predominant Internet advertising
model, we believe that the CPM model may have several inefficiencies:
- UNDERSERVES A LARGE NUMBER OF SMALL-TO MEDIUM-SIZED WEB SITES. CPM
Internet advertisers generally advertise on high-traffic, branded Web
sites. Small- to medium-sized Web sites
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<PAGE>
typically serve a more targeted audience, lack brand identity and do not
drive enough traffic to appeal to CPM advertisers and CPM advertising
networks.
- 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 MEASURING 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 measure the
actual return on their Internet advertising dollars.
Due in part to these inefficiencies, we believe that Internet advertisers,
such as direct marketing and e-commerce based companies, are increasingly
seeking performance-based models such as CPC. 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. 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 measure ad
effectiveness, because they only pay for visitors to their sites.
OUR NETWORK
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 Web 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 Web sites. Our network of
Web sites grew over 50% from January 1999 to January 2000 from approximately
7,000 Web sites to approximately 10,600 Web sites. In January 2000, we delivered
over 2.0 billion banner advertisements and registered over 7.7 million clicks.
We believe the effectiveness of our advertising solution is dependent on the
quality of the Web sites in our network. We currently reject approximately 80%
of the Web sites that apply to our network for failure to meet our quality
standards. This includes inappropriate content, insufficient traffic, illegal
activity and fraudulent clicking activity. We enforce our quality standards
using manual auditing and automated processes that continually monitor and
review Web site content. In
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<PAGE>
addition, we eliminate Web sites that encourage users to click on banner
advertisements for reasons other than an interest in our advertisers' message.
We believe our solutions offer several benefits to both Web publishers and
advertisers. The principal benefits of our solutions to Web publishers include:
OUTSOURCED ADVERTISING SERVICES FOR PUBLISHERS OF SMALL- TO MEDIUM-SIZED WEB
SITES. Our 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 quality 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 by purchasing ad space from them 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.
The principal benefits of our solutions to advertisers include:
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 can be a more efficient and cost-effective choice than CPM
for measuring 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 10,600 Web 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 using our database of 15 categories 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.
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OUR STRATEGY
Our objective is to be the leading provider of performance-based Internet
advertising solutions. Key elements of our strategy include:
GROW OUR NETWORK OF HIGH-QUALITY WEB SITES. We are a leading aggregator of
Internet advertising inventory for small- to medium-sized Web sites. Our quality
screening process combined with our highly automated proprietary software and
focused customer support allow us to aggregate and manage a high-quality network
that, in January 2000, included over 10,600 Web sites and a volume of
advertising inventory that, in that month, delivered over 7.7 million clicks and
exceeded 2.0 billion banners served. Through these processes and services, we
intend to maintain our existing base of Web publishers, increase the number of
small- to medium-sized Web sites in our network and attract publishers of
high-traffic Web sites with remnant inventory that meet our quality
requirements.
EXPAND THE SOLUTIONS THAT WE PROVIDE TO OUR WEB SITE PUBLISHERS AND
ADVERTISERS. We intend to expand our solutions for Web publishers with the
intent of generating more traffic to their Web sites. By leveraging our market
position in the Internet advertising field, we intend to offer to our publishers
third-party and proprietary content and Web design tools intended to enhance an
Internet user's experience, in order to generate additional page views and an
increase in the number of repeat visitors on our publishers' Web sites. By
increasing traffic to a publisher's Web site we believe that we will increase
the value of its advertising inventory. With these solutions we intend to
maximize the revenue potential of every Web site on our network.
We intend to expand our solutions for advertisers to position ValueClick as
a "one-stop shop" for performance-based Internet advertising solution. We intend
to achieve this goal by working closely with our advertisers and direct
marketers to expand our services to target, measure, and increase return on
investment.
INCREASE OUR SALES AND MARKETING EFFORTS. We intend to increase the size of
our advertiser sales force including the addition of new sales offices in the
U.S. and other countries. We will continue to leverage the production
efficiencies that we have achieved through our proven telemarketing and e-mail
selling approach, and through our automated account management system that makes
it possible for each sales representative to handle all management and
administrative functions for an account.
We intend to expand our sales team focused on publishers of Web sites and
increase our marketing efforts toward emerging Web sites and existing ad
supported business models. We will support this effort by increasing account
management staff to focus on maintaining and expanding our relationships with
our current network members.
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. We will expand our public relations and marketing
efforts to build additional brand awareness around our performance-based market
position.
EXTEND OUR GLOBAL PRESENCE. We plan to aggressively expand our business
internationally. We believe the international Internet advertising market
provides a significant opportunity for growth and will be receptive to our
performance-based advertising solution.
We currently serve banner advertisements through a majority-owned subsidiary
in Japan. In January 2000 our Japanese subsidiary's advertising network
delivered approximately 800,000 clicks. We also commenced European operations in
London through a wholly-owned U.K. subsidiary and plan to offer services
throughout the U.K. and continental Europe. We will actively seek additional
partnerships or acquisitions throughout Asia, Latin America and Europe to
continue accelerating our international growth.
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CONTINUE TO 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 will work effectively with both advertisers and Web
publishers. We also plan to continue enhancing our service by providing
on-demand, customized online statistical information to allow advertisers and
Web publishers to rapidly assess the efficiency and performance of Web
advertisements.
TAKE ADVANTAGE OF OUR STRATEGIC RELATIONSHIP WITH DOUBLECLICK. We intend to
take advantage of our strategic relationship with DoubleClick by integrating
DART into our existing services to provide advertisers with dynamic ad matching,
targeting and delivery technology, once we have entered into an agreement
allowing us to do so. We also plan to work with DoubleClick to create new
product offerings for our advertisers and our network of Web sites.
DOUBLECLICK INVESTMENT
On February 28, 2000, we completed a strategic transaction under an
agreement with DoubleClick, a provider of Internet advertising solutions for
advertisers and Web publishers. As part of this agreement, we sold to
DoubleClick approximately 30% of our common stock and we issued a 15-month
warrant to DoubleClick allowing it to increase its ownership to 45% of our fully
diluted common stock. In addition, among other things, we have agreed to enter
into an agreement to use DoubleClick's ad serving technology known as DART. We
believe this would allow us to enhance our performance-based solution by
integrating DoubleClick's dynamic ad matching, targeting and delivery technology
into our proprietary technology.
We believe DoubleClick's technology and industry knowledge can benefit our
business in several ways, including:
INTEGRATION OF DART TECHNOLOGY. We have agreed to enter into an agreement
to use DoubleClick's DART technology, which we believe will be substantially on
market terms and conditions. We believe the successful integration of DART
technology with our existing services would enhance our banner ad targeting and
tracking product offerings for advertisers. We believe this would enhance our
competitive position as performance-based advertisers are increasingly seeking
more targeting capabilities and sophisticated reporting.
FUTURE COOPERATION. Although we currently have no binding agreement with
DoubleClick covering new business ventures, we have agreed that, if in the
future we use any other services available from DoubleClick, we will purchase
them from DoubleClick as long as the terms are reasonable and as favorable as
generally available to others. We believe there may be significant opportunities
in the future to expand the scope of our relationship with DoubleClick for
serving additional markets, developing new business opportunities and expanding
international operations.
PRODUCTS AND SERVICES
We develop our products and services to meet the changing needs of our Web
publishers and advertisers and we anticipate these offerings will continue to
evolve and expand. 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.
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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 our Web publishers the opportunity
to earn commissions on clicks generated from Web sites of publishers they
introduce to our network through a referral. The referral program is highly
automated and a referring publisher can monitor the activity of all referred
sites online through our real-time reporting tools.
We offer the following products and services for advertisers:
AD SERVING SOLUTIONS. Our proprietary system for ad serving and reporting
is provided to advertisers at no additional cost. Advertisers deliver Internet
banner advertisements to us in a form ready to be delivered on our servers. Our
proprietary software can determine how many banners are in circulation, which
banners are appropriately targeted for the consumer, and whether or not the Web
publisher has excluded any particular banners from its site. Our server then
delivers the banner to the Web publisher's site to be viewed by the user 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.
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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 enables 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 generate
additional revenue for the host Web site, on our advertisers' banner ads. Our
system incorporates sophisticated algorithms that detect any Web site within our
network that is receiving an abnormal click pattern during any period with the
goal of protecting advertisers from fraudulent clicking activity and improving
the accuracy of information conveyed to our advertising clients. 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 agreements with each of the Web publishers on our network. Our
agreements 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 or fraudulent.
ADVERTISER AGREEMENT PROCEDURE
Advertisers desiring to advertise on our network of Web publishers enter
into short-term agreements, 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. Advertisers
may terminate their agreements with ValueClick upon two weeks prior written
notice to us.
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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 entered into a strategic relationship with Trans-Pacific
Ltd., a Japanese company which operated an Internet advertising business. In
November 1998, Trans-Pacific transferred the Internet advertising business into
ValueClick Japan, a joint venture between us and 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 31 employees, of whom 12 are direct salespersons. In January 2000, we agreed
to increase our ownership interest in ValueClick Japan to 57.4%. In August 1999,
we commenced operations in the European market with ValueClick Europe. In
December 1999, we purchased all of the outstanding shares of ValueClick Europe.
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.
ValueClick Japan recently took steps to commence the initial public offering
of its stock on a new section of the Tokyo Stock Exchange for emerging growth
companies. We anticipate that in the event of an initial public offering of
ValueClick Japan's stock, we would continue to own in excess of 50% of the
outstanding stock of ValueClick Japan and would continue to account for our
interest on a consolidated basis for financial reporting purposes. We cannot
predict when any initial public offering by ValueClick Japan would be completed
or the likelihood of its success.
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 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. 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 adequate for our current operations,
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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
13 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 12 sales persons as of December 31, 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.
Our ability to compete depends upon several factors, including the
following:
- our ability to aggregate a large network of small- to medium-sized Web
sites efficiently,
- the timing and market acceptance of new solutions and enhancements to
existing solutions developed by us,
- our customer service and support efforts,
- our sales and marketing efforts, and
- the ease of use, performance, price and reliability of solutions developed
by us.
Additional competitive factors include each competitor's reputation,
knowledge of the advertising market, financial controls, geographical coverage,
relationships with clients, technological capability and quality and breadth of
services. We expect that we will face additional competition from new entrants
into the market in the future.
Our principal competitors are other companies that provide advertisers with
performance-based Internet advertising solutions, such as cost-per-click, or
CPC, cost-per-lead, or CPL and cost-per-action, or CPA. We directly compete with
a number of competitors in the CPC market segment,
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such as Flycast, Advertising.com, eAds, Datacomm, and ClickAgents. Flycast
entered the CPC market segment in December 1999 and has yet to report any
revenue from its CPCnet unit. We believe that our performance-based solution,
which serves more sites than Flycast's CPCnet unit, reaches more U.S.-based
Internet users and produces more clicks than CPCnet. Based on publicly available
information we believe that we are larger than Advertising.com, eAds, Datacomm,
and ClickAgents in terms of the number of Web sites within our network. We also
compete in the performance-based marketing segment with CPL and CPA
performance-based companies such as DirectLeads and CommissionJunction. Based on
publicly available information we believe that we are larger than DirectLeads in
terms of number of clicks delivered and number of Web sites within our network,
but we do not have similar information about CommissionJunction, which is a
privately held company. 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. DoubleClick recently acquired a substantial
percentage of our company. See "The DoubleClick Investment."
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, 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 the United States Patent and
Trademark Office to determine priority of rights to the trademarks, 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. We believe that
competitors in the Internet advertising industry are increasingly seeking patent
protection for their business methods and
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technologies. For example, DoubleClick was recently granted a patent claiming
targeting the delivery of advertisements through the Internet, and it is suing
at least two other companies in our industry based on this patent. We have,
however, recently agreed with DoubleClick to enter into an agreement which would
enable us to use its DART technology, and DoubleClick has agreed to not sue or
threaten to sue us or any of our customers, affiliates or licensees in
connection with its patent, so long as DoubleClick or any of its subsidiaries
hold at least five percent of our capital stock, including options to purchase
common stock, on a fully diluted basis. See "The DoubleClick Transaction."
Nevertheless, other companies may apply for or be awarded patents or have other
intellectual property rights covering aspects of our technology or business. Any
litigation regarding 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.
EMPLOYEES
As of February 29, 2000, we had 60 full-time and part-time employees in the
U.S., 31 full-time and part-time employees in Japan and four full-time and
part-time employees in Europe. 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.
DoubleClick is currently a defendant in several pending class action
lawsuits alleging, among other things, that it unlawfully obtains and sells
Internet users' personal information. DoubleClick is also the subject of a
Federal Trade Commission inquiry concerning its collection and maintenance of
information concerning Internet users and a request for information from the New
York Attorney General's office relating to its collection, maintenance and
sharing of information concerning, and its disclosure of those practices to,
Internet users. Further, the press has reported that the Michigan Attorney
General commenced legal proceedings against DoubleClick under Michigan's
consumer protection laws. DoubleClick may receive additional regulatory
inquiries in the future. As part of the DoubleClick investment, we received
732,860 shares of DoubleClick common stock. The impact of any of these or other
lawsuits or investigations may negatively impact DoubleClick's stock price and
accordingly result in a loss of value of the shares of DoubleClick stock we
hold.
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 3,000 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 March 14, 2000.
<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 Founder and Vice Chairman
Earle A. Malm II.................................... 50 Director, President and Chief
Operating Officer
Kurt A. Johnson..................................... 37 Chief Financial Officer and
Secretary
Robert P. Sherry.................................... 42 Senior Vice President of Sales
John H. Schwenk..................................... 36 Chief Technical Officer
David S. Buzby...................................... 40 Director
Robert D. Leppo..................................... 56 Director
Martin T. Hart...................................... 64 Director
Steven J. Umberger.................................. 38 Director
Jeffrey E. Epstein.................................. 43 Director
Barry Salzman....................................... 36 Director
</TABLE>
JAMES R. 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 is the founder of ValueClick and has been its Vice Chairman
since February 2000 and a director since the Company's inception. He served as
the Company's President from its inception until February 2000 and a director
since its inception. From May 1999 to February 2000 he acted as the 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.
EARLE A. MALM II has been ValueClick's President and Chief Operating Officer
since February 2000. Mr. Malm joined ValueClick in June 1999 as its Chief
Marketing Officer, became the Vice Chairman of the Board in July 1999 and served
in these capacities until February 2000. 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
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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. from Bowling Green State University.
KURT A. JOHNSON joined ValueClick as its Chief Financial Officer in
May 1999 and has also served as its Secretary since September 1999. Mr. Johnson
brings over 13 years of financial management experience to the ValueClick team.
From February 1998 to May 1999, Mr. Johnson was an investment banker at Olympic
Capital Partners, specializing in mergers and acquisitions and Internet company
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.
ROBERT P. 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 joined ValueClick as its 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 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.
ROBERT D. 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 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.
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STEVEN J. 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 1995 to June 1999, he was employed
as the Chief Marketing Officer of Hiway Technologies, a Web hosting company and
later a division of Verio. 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.
JEFFERY E. EPSTEIN has been a director since February 2000. Mr. Epstein has
served as the Executive Vice President of DoubleClick, Inc., a provider of
Internet advertising solutions for advertisers and Web publishers, since April
1999. From March 1998 to April 1999, Mr. Epstein served as DoubleClick's Chief
Financial Officer. From May 1997 to February 1998, Mr. Epstein served as Chief
Financial Officer of Trans National Group Inc., a consumer services company.
From January 1995 to March 1997, Mr. Epstein served as Senior Vice President of
CUC International Inc., a membership based consumer services company. From
February 1988 to December 1994, Mr. Epstein served as Chief Financial Officer of
King World Productions, Inc., a television production company. Mr. Epstein
received his B.A. from Yale University and his M.B.A. from Stanford University.
BARRY SALZMAN has been a director since February 2000. Mr. Salzman has
served as the President of DoubleClick International, a provider of Internet
advertising solutions for advertisers and Web publishers, since February 1997.
From August 1994 to January 1997, Mr. Salzman served as President of BMS
Associates, Inc., a consulting firm. From June 1993 to July 1994, Mr. Salzman
served as an associate for AEA Investors, Inc., a principal investment firm.
From June 1989 to June 1993, Mr. Salzman served as an Engagement Manager for
McKinsey & Company, a management consulting firm. Mr. Salzman received his B.S.
from the University of Cape Town and his M.B.A. from Harvard University.
BOARD OF DIRECTORS
Our Board is currently composed of nine 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 all compensation awarded to, earned by or
paid to our Chief Executive Officer and other executive officers whose cash
compensation exceeded $100,000 in 1999 for services rendered to ValueClick in
all capacities in 1999.
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>
James R. Zarley........................ $123,750(1) $110,000 $ -- 1,400,000 --
Chairman and Chief Executive Officer
Brian Coryat........................... $139,290(2) $110,000 $3,000(5) -- --
Founder and Vice Chairman
Earle A. Malm II....................... $ 87,500(3) $110,000 $ -- 413,600 --
President and Chief Operating Officer
Kurt A. Johnson........................ $ 78,833(4) $110,000 $ 650(5) 150,000 --
Chief Financial Officer and Secretary
</TABLE>
- ------------------------------
(1) Mr. Zarley commenced his employment in February 1999 at a base salary of
$150,000.
(2) Mr. Coryat's base salary increased from $120,000 to $150,000 in May 1999.
Salary information reflects Mr. Coryat's employment as our President for the
year ended December 31, 1999.
(3) Mr. Malm commenced his employment in June 1999 at a base salary of $150,000.
Salary information reflects Mr. Malm's employment as our Chief Marketing
Officer for the year ended December 31, 1999.
(4) Mr. Johnson commenced his employment in May 1999 at a base salary of
$130,000.
(5) Represents 401(k) matching contributions paid by us on executive's behalf.
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STOCK OPTIONS GRANTED DURING 1999
The following table sets forth certain information regarding options to
purchase common stock granted to named executive officers during 1999 including
the potential realizable value over the ten-year term of the options, based on
assumed annually compounded rates of stock value appreciation. These assumed
rates of appreciation comply with the rules of the Securities and Exchange
Commission and do not represent our estimate of future stock price. Actual
gains, if any, on stock option exercises will be dependent on the future
performance of our common stock. No stock appreciation rights were granted to
these individuals during the year.
These options were granted under our 1999 Stock Option Plan. See
"--Employment Agreements" for more information on the vesting of the option
shares.
The following table sets forth information regarding the option grants to
our named executive officers. All the options were granted at an exercise price
which our board of directors believed to be equal to the fair market value of
our common stock on the date of grant. The potential realizable values set forth
in the table are computed by:
- multiplying the number of shares of common stock subject to the option by
the initial public offering price of $19.00 per share;
- assuming that the stock value derived from that calculation compounds at
the annual 0%, 5% or 10% rate shown in the table for the entire ten-year
term of the option; and
- subtracting that result from the total option exercise price. The 5% and
10% values assume annual rates of stock price appreciation as mandated by
the rules of the Securities and Exchange Commission and do not represent
our estimate or projection of future common stock prices.
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF OF TOTAL POTENTIAL REALIZABLE VALUE AT
SECURITIES OPTIONS ASSUMED ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO EXERCISE APPRECIATION FOR OPTION TERM
OPTIONS EMPLOYEES PRICE PER ---------------------------------------
GRANTED IN 1999 SHARE 0% 5% 10%
---------- ----------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
James R. Zarley............... 600,000 21% $0.25 $11,250,000 $18,325,065 $29,179,603
James R. Zarley............... 800,000 28% $1.00 14,400,000 23,456,083 37,349,891
Brian Coryat.................. -- -- -- -- -- --
Earle A. Malm II.............. 400,000 14% $1.00 7,200,000 11,728,041 18,674,946
Earle A. Malm II.............. 13,600 0.5% $1.00 244,800 398,753 634,948
Kurt A. Johnson............... 150,000 5% $1.00 2,700,000 4,398,015 7,003,105
</TABLE>
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<PAGE>
AGGREGATE OPTION VALUES AT DECEMBER 31, 1999
The following table sets forth the number of shares of common stock subject
to exercisable and unexercisable stock options held as of December 31, 1999 by
our named executive officers. Also reported are values of "in-the-money"
options, which represent the positive spread between the exercise prices of
outstanding stock options and the initial public offering price of $19.00 per
share.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 31, 1999 AT DECEMBER 31, 1999
--------------------- ------------------------
VESTED UNVESTED VESTED UNVESTED
--------- --------- ---------- -----------
<S> <C> <C> <C> <C>
James R. Zarley................................ 455,555 944,445 $8,425,001 $17,224,998
Brian Coryat................................... -- -- -- --
Earle A. Malm II............................... 246,934 166,666 4,444,812 2,999,988
Kurt A. Johnson................................ 27,976 122,024 503,568 2,196,432
</TABLE>
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 1999 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. 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.
SHARES SUBJECT TO 1999 STOCK OPTION PLAN. We have authorized and reserved
for issuance an aggregate of 4,000,000 shares of our common stock under the 1999
plan. The shares of common stock issuable under the 1999 plan may be authorized
but unissued shares, shares issued and reacquired by us or shares purchased by
us on the open market. If any of the awards granted under the 1999 plan expire,
terminate or are forfeited for any reason before they have been
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<PAGE>
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 December 31, 1999 we have contributed approximately $23,690 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 the 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;
- under Section 174 of the Delaware General Corporation Law; or
- for any transaction from which the director derived an improper personal
benefit.
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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,
Malm, Schwenk and Johnson. 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.
We entered into two employment agreements with Mr. Malm, one in June 1999 and
the other in February 2000. The June 1999 employment agreement was entered into
in connection with Mr. Malm's employment as our Chief Marketing Officer. The
February 2000 agreement was entered into in connection with Mr. Malm's
appointment as our President and Chief Operating Officer. Although Mr. Malm's
June 1999 employment agreement has been superseded by the February 2000
agreement, Mr. Malm is still entitled to the options granted under the June 1999
agreement. 600,000 of the options granted to Mr. Zarley, all of the options
granted to Mr. Malm under his June
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<PAGE>
1999 employment agreement, 100,000 of the options granted to Mr. Schwenk, and
75,000 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.
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.............. $300,000 1,400,000(1) $ 0.25 January 1, 2009
Earle A. Malm II............. $150,000(2) 413,600(3) $ 1.00 June 1, 2009
$300,000(4) 500,000(5) $11.00 February 14, 2010
Kurt A. Johnson.............. $130,000(6) 150,000(7) $ 1.00 May 23, 2009
John H. Schwenk.............. $100,000 200,000(8) $ 0.25 May 13, 2009
</TABLE>
- ------------------------------
(1) 150,000 of Mr. Zarley's options became exercisable in June 1999. The 450,000
options will become exercisable in equal monthly installments over the
following 18 months or will become fully vested upon the closing of this
offering. An additional 155,555 of Mr. Zarley's options became exercisable
in December 1999. The remaining 644,445 options will become exercisable in
equal monthly installments over the following 30 months.
(2) Reflects salary and options provided in Mr. Malm's June 1999 employment
agreement. Except for the options granted under Mr. Malm's June 1999
employment agreement, all other provisions of the June 1999 employment
agreement has been superceded by Mr. Malm's February 2000 employment
agreement.
(3) 400,000 of Mr. Malm's options vest in 12 equal monthly installments
commencing on June 1, 1999. The remaining 13,600 options are currently
exercisable.
(4) Reflects compensation and options provided in Mr. Malm's February 2000
employment agreement. Mr. Malm will be entitled to an annual bonus of up to
$200,000 based upon the achievement of certain business goals.
(5) All of Mr. Malm's 500,000 options vest in 48 equal monthly installments
commencing on February 14, 2000.
(6) 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.
(7) 25,000 of Mr. Johnson's options became exercisable in November 1999. The
remaining 125,000 options will become exercisable in equal monthly
installments over the following 42 months. However, upon the closing of this
offering, a total of 75,000 options will become immediately exercisable and
the balance of 75,000 will vest over the following 12 months in equal
installments.
(8) 33,333 of Mr. Schwenk's options became exercisable in October 1999. The
remaining 166,667 options will become exercisable in equal monthly
installments over the following 42 months. However, upon the closing of this
offering, a total of 100,000 options will become immediately exercisable and
the balance of 100,000 will vest over the following 12 months in equal
installments.
The employment agreements of Messrs. Zarley, Schwenk and Johnson may be
terminated at any time by either party upon ten days' notice. These employment
agreements continue until terminated by either us or the employee. Mr. Malm's
June 1999 employment agreement, except for the stock options granted thereunder,
has been superseded by Mr. Malm's February 2000 employment agreement.
Mr. Malm's February 2000 employment agreement provides for a four-year term but
may be terminated at any time by either party upon ten days' notice. Mr. Malm
will be entitled to all salary, stock options and health and welfare benefits he
would have been entitled to for a period of 12 months of employment if we
terminate his employment for other than cause or if he is terminated for any
reason following a change of control. Under Mr. Johnson's employment agreement,
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.
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THE DOUBLECLICK INVESTMENT
On February 28, 2000, we completed a strategic investment transaction with
DoubleClick, a leading worldwide provider of Internet advertising solutions for
advertisers and Web publishers. The terms of this agreement involved an
investment by DoubleClick of approximately $95.8 million in ValueClick and
possible additional investments by DoubleClick in the future. DoubleClick's
common stock is quoted on the Nasdaq National Market under the symbol "DCLK."
We have entered into the following agreements with DoubleClick in connection
with the transaction:
- Common Stock and Warrant Purchase Agreement
- Common Stock Purchase Warrant
- Registration Rights Agreement
- Investor Rights Agreement
- Voting Agreement
Under the terms of the common stock and warrant purchase agreement,
DoubleClick acquired 7,878,562 shares of our common stock, which represents
approximately 30% of our fully diluted outstanding common stock, for an
estimated purchase price of $12.16. DoubleClick paid $10.0 million in cash and
732,860 shares of DoubleClick common stock valued at $85.8 million for
accounting purposes based on an average price of $117.07 per share for the
public announcement date of January 13, 2000 and the five days before and after
that date. As part of the common stock investment, we delivered to DoubleClick a
warrant to acquire additional shares of ValueClick common stock at a purchase
price of $21.76 per share, payable in common stock of DoubleClick. The warrant,
which is exercisable for 15 months commencing February 28, 2000, is exercisable
for that number of shares of our common stock that, when added to the 7,878,562
shares initially purchased by DoubleClick, would result in DoubleClick owning
45% of our outstanding shares of capital stock calculated on a fully diluted
basis. The number and type of shares issuable and the exercise price under the
warrant are subject to customary adjustments for stock splits, stock dividends,
combinations, reclassifications and similar events affecting our common stock.
The per share consideration we received in exchange for the common stock and
warrant that we issued to DoubleClick was determined based on the fair value of
our common stock in arms' length negotiations with DoubleClick, and as such has
been recorded at the issuance price.
The purchase agreement contains other agreements with DoubleClick. We have
agreed with DoubleClick to enter into a DART services agreement under terms to
be mutually agreed upon, which would enable us to use DoubleClick's dynamic ad
matching, targeting and delivery technology in our business. The terms of this
agreement are still under negotiation, but we believe that this agreement will
be substantially on market terms and conditions. We also agreed that, if in the
future we use any other services available from DoubleClick, we will purchase
them from DoubleClick as long as the terms are reasonable and as favorable as
other generally available. In addition, DoubleClick has agreed, as long as it
owns or has the right to acquire at least 5% of our capital stock, not to sue or
threaten to sue us or any of our customers, affiliates or licensees, (1) for
infringement of any claim of DoubleClick's U.S. Patent No. 5,948,061 or (2) for
infringement of any claim of any U.S. patent or patent application, or foreign
patent or patent application, that is related to U.S. Patent No. 5,948,061 or
that claims priority from this patent or otherwise makes claims similar to those
made in this patent. DoubleClick's Patent No. 5,948,061 covers the process of
using linked advertising space and compiling statistics on individual users in
order to target advertisements over the Internet or computer networks.
DoubleClick has agreed that if it no longer owns at least 5% of our capital
stock, it will in good faith negotiate with us for a license to use its
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technology under commercially reasonable terms. However, there can be no
assurance that we will be able to secure such a license.
We will have the right to demand that DoubleClick register, under the
Securities Act, the DoubleClick stock that we received as payment under the
Purchase Agreement. This registration right will terminate 28 months after
February 28, 2000. We may demand registration of our DoubleClick stock on
Form S-3 twice, provided that the value of the shares to be registered is at
least $1,000,000. We also have the right to require DoubleClick to register our
shares in a firm commitment underwritten public offering once, provided that the
value of the shares to be registered is at least $5,000,000 or at least 20% of
the DoubleClick shares that we receive under the purchase agreement. We also
have the right to include our DoubleClick shares in any registration under the
Securities Act filed by DoubleClick with respect to the sale of its equity
securities, other than registrations relating solely to employee benefit plans,
transactions under Rule 145 and registrations of convertible debt securities and
the common stock underlying them. On March 8, 2000, we submitted a request that
DoubleClick register for resale on Form S-3 all of the DoubleClick shares we
received from DoubleClick in connection with the DoubleClick transaction.
Under the investor rights agreement and voting agreement, we agreed to grant
certain additional rights and make certain additional agreements with
DoubleClick, as follows:
- Our founders and principal stockholders holding an aggregate of 33.6% of
our common stock have agreed to vote to elect designees of DoubleClick to
our board of directors as follows: (1) two designees of DoubleClick upon
the closing under the purchase agreement, subject to adjustment for
increases in the size of our board or decreases in DoubleClick's ownership
of our stock; (2) three designees of DoubleClick upon the exercise in full
by DoubleClick of the warrant, subject to adjustment for increases in the
size of our board or decreases in DoubleClick's ownership of our stock;
and (3) one designee of DoubleClick so long as DoubleClick holds at least
10% of our outstanding capital stock on a fully diluted basis. On
February 28, 2000, the date of the closing of the DoubleClick investment,
we elected DoubleClick's two designees, Jeffrey E. Epstein and Barry
Salzman, to our Board of Directors.
- We agreed, so long as DoubleClick holds at least 10% of our outstanding
capital stock on a fully diluted basis, that we will not, without
DoubleClick's prior approval, (1) issue any securities or right to acquire
securities for financing purposes of any company that is competitive with
DoubleClick; (2) amend our certificate of incorporation or bylaws in a way
which would have an adverse effect on DoubleClick; (3) implement any
anti-takeover defense, including, but not limited to a stockholder rights
plan; or (4) issue any securities for which vesting accelerates solely
upon a change of control or upon a public offering.
- We granted to DoubleClick a right of first offer in connection with future
sales of shares of our capital stock, entitling DoubleClick to purchase at
least enough shares to maintain its percentage ownership of ValueClick.
This right of first offer is subject to exceptions and expires three years
after the effective date of the investor rights agreement.
- We granted to DoubleClick a right of first offer in the event of a sale of
ValueClick, so long as DoubleClick holds at least 10% of our outstanding
capital stock on a fully diluted basis. Pursuant to this right,
DoubleClick has the right to be notified of any proposed transaction
involving a change of control of ValueClick or a sale of all or
substantially all of our assets. DoubleClick has the right to present its
own offer to acquire ValueClick and we could only accept a competing offer
that is more favorable than DoubleClick's offer. Further, DoubleClick has
the right to match unsolicited offers involving a change of control of
ValueClick or a sale of all or substantially all of our assets. If our
board of directors approves a sale of ValueClick to a party other than
DoubleClick, DoubleClick is obligated to vote its shares of ValueClick
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<PAGE>
stock in favor of the change of control transaction only if the per share
consideration to be paid to DoubleClick by the acquiror equals or exceeds
the highest price the acquiror paid for ValueClick stock in the change of
control transaction or the year prior to its public announcement and the
acquiror would own all of our capital stock or substantially all of our
assets after the transaction closed.
- DoubleClick has agreed to standstill provisions under which it would not,
until February 28, 2003, (1) acquire additional shares of our capital
stock such that it would own more than 45% of our capital stock on a fully
diluted basis; (2) make or participate in any solicitation of proxies to
vote, or advise or influence any other stockholder with respect to the
voting of, any of our voting securities; or (3) vote its shares against
the Board of Director nominees nominated by the ValueClick Board of
Directors. These standstill provisions would terminate upon the
announcement or commencement of a tender or exchange offer to acquire
shares of our common stock which would result in the offeror owning 50% or
more of our common stock.
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RELATED PARTY TRANSACTIONS
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.
It also issued securities equal to 92% of its total equity to Messrs. Coryat and
Bueno, as described below, in consideration for intellectual property, including
trademarks, software and trademark licenses and contractual rights. Valueclick,
LLC also issued securities equal to 2% of its total equity to two individuals on
May 1, 1998, in consideration for services rendered. Among the investors who
purchased 6% of ValueClick, LLC's total equity as described above, Web-Ignite
contributed assets worth $5,000 to ValueClick, LLC in exchange for a 0.5%
membership interest. 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.
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 had an estimated aggregate
value of $770,000, ValueClick, LLC issued a 77% membership interest to Mr.
Coryat. We believe that the transfer of the Web-Ignite business was on terms
comparable to terms we would expect to have received in an arm's length
transaction. 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. In connection with 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
had an estimated aggregate value of $150,000, ValueClick, LLC issued a 15%
membership interest to Mr. Bueno.
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 9,919,004 shares of its common stock, 297,132
shares of its Series A Convertible Preferred Stock and 1,047,804 shares of its
Series B Convertible Preferred Stock, all of which ValueClick, LLC then
distributed to its members upon its dissolution. The 9,919,004 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.
Upon the reorganization of ValueClick, LLC as ValueClick, Inc., as described
above, Mr. Coryat's entire membership interest in ValueClick, LLC was exchanged
for 7,628,380 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 1,485,658 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 Vice Chairman 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
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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.
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 Vice Chairman. 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. 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 Todd Treusdell, one of our stockholders. 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. for $200,000. This
license may become non-exclusive if ValueClick Europe fails to recognize a
minimum level of gross revenues during the 12 months ending August 2000.
Pursuant to the license agreement, ValueClick Europe will also pay us a royalty
fee equal to five percent of the advertising revenues it receives per month on
its network. The license agreement may be terminated at any time by mutual
consent of the parties or by any party if the other party breaches any terms of
the agreement and the breach is not cured within 45 days. In addition,
ValueClick Europe may terminate the agreement if we are subject to bankruptcy
proceedings, if our assets are subject to a receivership or if any part of our
patents subject to the agreement is found to be invalid.
As part of the formation of ValueClick Europe, all five of the founders
entered into a shareholders agreement which gave us an option to acquire all of
the shares of ValueClick Europe owned by each of the other founders in the event
the shareholder proposed to sell or transfer his shares or upon a change of
control of ValueClick Europe. Effective December 1999, we purchased all of the
shares of ValueClick Europe held by the other four founders. All of these
founders waived their rights under the shareholders agreement in connection with
this transaction and the shareholders agreement terminated by its own terms upon
the closing of the transaction. As a result of this transaction, ValueClick
Europe became our wholly-owned subsidiary.
We agreed to pay Mr. Umberger a total of $239,829 for his 45% interest in
ValueClick Europe, which included the reimbursement of $17,519 for out-of-pocket
expenses incurred by Mr. Umberger related to the operation of ValueClick Europe.
We agreed to pay Messrs. Zarley and Coryat $12,375 each for their 2.5% interests
in ValueClick Europe. In exchange for Mr. Treusdell's 30% interest in ValueClick
Europe, we agreed to pay him $300, to assume his obligation to pay ValueClick
Europe $148,200, which was the outstanding balance of the purchase price for his
30% interest, and to reimburse his expenses of up to $1,000 in connection with
this transaction.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of March 14, 2000, 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 March 14, 2000 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 SHARES BENEFICIALLY
OWNED PRIOR TO 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)................. 1,249,209 5.2% 1,249,209 4.4%
Brian Coryat(4).................... 5,166,964 21.6 5,166,964 18.5
Earle A. Malm II(5)................ 585,752 2.4 585,752 2.1
Kurt A. Johnson(6)................. 75,000 * 75,000 *
John H. Schwenk(7)................. 137,038 * 137,038 *
David S. Buzby(8).................. 461,564 1.9 461,564 1.7
Robert D. Leppo(9)................. 954,732 4.0 954,732 3.4
Martin T. Hart(10)................. 503,702 2.1 503,702 1.8
Steven J. Umberger(11)............. 962,210 4.0 962,210 3.4
Jeffrey E. Epstein(12)............. 7,878,562 32.9 7,878,562 28.2
Barry Salzman(13).................. 7,878,562 32.9 7,878,562 28.2
5% STOCKHOLDERS:
DoubleClick Inc. (14).............. 7,878,562 32.9 7,878,562 28.2
Michael J. Bueno(15)............... 1,259,732 5.3 1,259,732 4.5
All directors and executive officers
as a group (11 persons)(16)........ 17,974,733 72.2% 17,689,733(17) 63.4%
</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 4,000,000 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.
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(3) Includes (a) 73,171 shares of Series B Preferred Stock which will be
converted into 146,342 shares of common stock immediately prior to the
closing of this offering, (b) 300,000 shares of common stock issuable upon
exercise of stock options at a price of $0.25 per share, which will
automatically become exercisable upon the closing of this offering and
(c) 66,666 shares of common stock issuable upon exercise of stock options at
a price of $1.00 per share, which are presently exercisable or will become
exercisable within 60 days from March 14, 2000.
(4) Includes (a) 125,000 shares of common stock held by The Bryan Coryat Trust
No. 1 for the benefit of Mr. Coryat's family, (b) 24,761 shares of Series A
Preferred Stock which will be converted into 49,532 shares of common stock
upon the consummation of this offering. If the underwriters' over-allotment
option is exercised in full, Mr. Coryat will sell 233,700 shares in this
offering and will beneficially own 4,933,264 shares (17.7%) after the
offering.
(5) Includes (a) 400,000 shares of common stock issuable upon exercise of stock
options at a price of $1.00 per share that will automatically become
exercisable upon the closing of this offering, (b) 31,250 shares of common
stock issuable upon exercise of stock options at a price of $11.00 per
share, which are presently exercisable or will become exercisable within 60
days from March 14, 2000, (c) 7,407 shares of Series C Preferred Stock which
will be converted into 14,814 shares of common stock upon the consummation
of the closing of this offering and (d) 13,600 shares of common stock
issuable upon exercise of stock options presently exercisable at a price of
$1.00 per share, which are presently exercisable or will become exercisable
within 60 days from March 14, 2000.
(6) Includes 75,000 shares of common stock issuable upon exercise of stock
options at a price of $1.00 per share that will automatically become
exercisable upon the closing of this offering.
(7) Includes (a) 18,519 shares of Series C Preferred Stock which will be
converted into 37,038 shares of common stock upon the consummation of this
offering and (b) 100,000 shares of common stock issuable upon exercise of
stock options at a price of $0.25 per share that will automatically become
exercisable upon the closing of this offering.
(8) Includes 75,171 shares of Series B Preferred Stock held by the Buzby-Vasan
1997 Trust, which will be converted into 146,342 shares of common stock upon
the consummation of this offering.
(9) Includes 142,316 shares of Series A Preferred Stock, 31,106 shares of
Series B Preferred Stock and 55,556 shares of Series C Preferred Stock all
of which will be converted into an aggregate of 457,956 shares of common
stock upon the consummation of this offering.
(10) Represents 251,851 shares of Series C Preferred Stock held by H Investment
Company LLC., which will be converted into 503,702 shares of common stock
upon the consummation of this offering. Mr. Hart is the managing partner of
H Investment Company LLC.
(11) Includes (a) 21,105 shares of common stock held by Margaret Norine Davis,
as Trustee of the Steven J. Umberger 1999 Grantor Annuity Trust and
(b) 73,171 shares of Series B Preferred Stock which will be converted into
146,342 shares of common stock upon the consummation of this offering.
(12) Reflects 7,878,562 shares of common stock owned by DoubleClick, Inc. and
does not include shares issuable upon exercise of the DoubleClick warrant.
Mr. Epstein is the Executive Vice President of DoubleClick, Inc.
(13) Reflects 7,878,562 shares of common stock owned by DoubleClick, Inc. and
does not include shares issuable upon exercise of the DoubleClick warrant.
Mr. Salzman is the Vice President, International of DoubleClick, Inc.
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(14) The address for DoubleClick Inc. is 450 West 33rd Street, 16th Floor, New
York, New York 10001. Excludes an indeterminate number of shares of our
common stock issuable upon exercise of a Common Stock Purchase Warrant at
$21.76 per share. The number of shares of our common stock which DoubleClick
may purchase under the warrant is that number of shares which, when added to
the shares of our common stock purchased by DoubleClick under the purchase
agreement and any other shares of our common stock subsequently purchased by
DoubleClick, would cause DoubleClick and its affiliates to hold 45% of all
outstanding ValueClick common stock on a fully-diluted basis.
(15) If the underwriters' over-allotment option is exercised in full, Mr. Bueno
will sell 51,300 shares of common stock in this offering and will
beneficially own 1,208,432 shares (4.3%) 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.
(16) Includes (a) 80,266 and 31,250 shares of common stock issuable upon the
exercise of stock options with a price of $1.00 and $11.00 per share,
respectively, which are presently exercisable or will become exercisable
within 60 days of March 14, 2000, (b) 400,000 and 475,000 shares of Common
Stock issuable upon the exercise of stock options with a price of $0.25 and
$1.00 per share, respectively, which will automatically become exercisable
upon the closing of this offering and (c) 7,878,562 share of common stock
owned by DoubleClick, Inc., and does not include shares issuable upon
exercise of the DoubleClick warrant. Messrs. Epstein and Salzman are the
Executive Vice President and Vice President, International of DoubleClick,
Inc., respectively.
(17) Reflects the sale of 233,700 shares of common stock which Mr. Coryat and
51,300 shares of common stock which Mr. Bueno will sell in this offering if
the underwriters' over-allotment option is exercised in full.
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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 March 14, 2000, there were 18,618,965 shares of common stock
outstanding held of record by 30 stockholders, or 23,912,536 shares, held of
record by 58 stockholders assuming the conversion of all outstanding preferred
stock upon the consummation of this offering. Options to purchase an aggregate
of 2,849,337 shares of common stock were also outstanding as of March 14, 2000.
There will be 27,912,536 shares of common stock outstanding, assuming no
exercise of the underwriters' over-allotment option, exercises of outstanding
options under our 1999 stock option plan or warrant after March 14, 2000, 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 has 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 594,264, 2,095,608, and 2,603,700
shares of common stock, respectively, or an aggregate of 5,293,572 shares of
common stock.
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REGISTRATION RIGHTS
After this offering, DoubleClick will be entitled to registration rights
with respect to its 7,878,562 shares of our common stock, and any shares it
subsequently acquires. DoubleClick may require us to register all or part of its
shares at any time following 180 days after this offering. DoubleClick may
exercise this right to demand registration of its shares no more than four times
and no more than twice in any 12 month period. In addition, DoubleClick may
require us to include its shares in future registration statements that we file
and may require us to register its shares on Form S-3. Upon registration, these
shares will be freely tradable without restriction. We have agreed to pay for
the expenses of DoubleClick's four demand registrations, all piggyback
registrations requested by DoubleClick and up to three registrations on
Form S-3 requested by DoubleClick.
WARRANT
In February 2000, we issued a common stock purchase warrant to DoubleClick
to purchase an indeterminate number of shares of common stock at $21.76 per
share. Under the warrant, DoubleClick may purchase a number of shares, when
added to the 7,878,562 shares of common stock purchased by DoubleClick upon the
closing of the DoubleClick investment and any other shares it subsequently
purchases, would cause DoubleClick to hold 45% of our outstanding common stock
on a fully diluted basis.
AUTHORIZED BUT UNISSUED CAPITAL STOCK
We estimate that following the completion of this offering we will have
approximately 72,087,464 shares of authorized but unissued common stock,
including an aggregate of 3,498,602 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 71,772,464 shares of authorized but unissued common stock.
Delaware law does not require stockholder approval for the issuance of
authorized shares. However, the listing requirements of the Nasdaq National
Market, which apply so long as the common stock remains included in that
inter-dealer quotation system, require prior stockholder approval of specified
issuances, including issuances of shares bearing voting power equal to or
exceeding 20% of the pre-issuance outstanding voting power or pre-issuance
outstanding number of shares of common stock. These additional shares could be
used for a variety of corporate purposes, including future public offerings to
raise additional capital or to facilitate corporate acquisitions. We currently
do not have any plans to issue additional shares of common stock or preferred
stock, other than in connection with employee compensation plans and shares
reserved for issuance upon exercise of DoubleClick's warrant. 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
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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.
DoubleClick is not subject to this provision of Delaware law with respect to its
investment in ValueClick.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock is ChaseMellon
Shareholder Services, L.L.C.
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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 27,912,536 shares
of common stock. Of these shares, the 4,000,000 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 23,912,536 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 Goldman, Sachs & Co. 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 Goldman, Sachs & Co. 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.
- 180 days after the effective date of the offering, 16,017,798 shares will
become eligible for sale pursuant to Rules 144, 144(k) and 701. Shares
eligible to be sold by affiliates pursuant to Rule 144 are subject to
volume restrictions as described below.
- An additional 16,176 shares will become eligible for sale pursuant to
Rule 144 in October 2000. Shares eligible to be sold by affiliates
pursuant to Rule 144 are subject to volume restrictions as described
below.
- 7,878,562 shares which DoubleClick purchased will become eligible for sale
pursuant to Rule 144 on February 28, 2001 and any additional shares
purchased by DoubleClick pursuant to its warrant will become eligible for
sale pursuant to Rule 144 one year after their issuance to DoubleClick.
DoubleClick also has the right to require us to register its shares for
sale upon request. See "The DoubleClick Investment." Shares eligible to be
sold by affiliates will be subject to volume restrictions as described
below.
- An additional 48,836 shares will become eligible for sale pursuant to
Rule 144 in March 2001. Shares eligible to be sold by affiliates pursuant
to Rule 144 are subject to volume restrictions as described below.
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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 279,192 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 and are also subject to notice
requirements and to the availability of current public information about us.
Under Rule 144(k), a person who is not deemed to have been our affiliate at any
time during the three months preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years, is entitled to sell such
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
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 March 14, 2000, there were outstanding options
under the 1999 Stock Option Plan for the purchase of 2,849,337 shares of our
common stock. 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."
After this offering, DoubleClick will be entitled to registration rights
with respect to its 7,878,562 shares of our common stock, and any shares it
subsequently acquires. DoubleClick may require us to register all or part of its
shares at any time following 180 days after this offering. DoubleClick may
exercise this right to demand registration of its shares no more than four times
and no more than twice in any 12 month period. In addition, DoubleClick may
require us to include its shares in future registration statements that we file
and may require us to register its shares on Form S-3. Upon registration, these
shares will be freely tradable without restriction. We have agreed to pay for
the expenses of DoubleClick's four demand registrations, all piggyback
registrations requested by DoubleClick and up to three registrations on
Form S-3 requested by DoubleClick. See "The DoubleClick Investment."
69
<PAGE>
UNDERWRITING
ValueClick, the selling stockholders and the underwriters named below have
entered into an underwriting agreement with respect to the shares being offered
on the cover page of this prospectus. Each underwriter has severally agreed to
purchase the number of shares indicated in the following table. Goldman,
Sachs & Co., Salomon Smith Barney Inc. and Wit SoundView Corporation are the
representatives of the underwriters.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Goldman, Sachs & Co......................................... 1,720,000
Salomon Smith Barney Inc.................................... 1,032,000
Wit SoundView Corporation................................... 688,000
Robert W. Baird & Co. Incorporated.......................... 40,000
Banc of America Securities LLC.............................. 70,000
William Blair & Company, L.L.C.............................. 40,000
First Union Securities, Inc................................. 70,000
Edward D. Jones & Co., L.P.................................. 70,000
C.L. King & Associates, Inc................................. 40,000
Merrill Lynch & Co.......................................... 70,000
Nomura Securities International, Inc........................ 40,000
Raymond James & Associates, Inc............................. 40,000
C.E. Unterberg, Towbin...................................... 40,000
The Williams Capital Group, L.P............................. 40,000
---------
Total................................................. 4,000,000
=========
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional 315,000
shares from us and up to an additional shares 285,000 from the selling
stockholders to cover those sales. They may exercise this option for 30 days. If
any shares are purchased pursuant to this option, the underwriters will
severally purchase shares in approximately the same proportion as set forth in
the table above.
The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters by the selling stockholders and us.
Such amounts are shown assuming both no exercise and full exercise of the
underwriters' option to purchase 600,000 additional shares.
<TABLE>
<CAPTION>
PAID BY THE SELLING
PAID BY VALUECLICK STOCKHOLDERS
--------------------------- ---------------------------
NO EXERCISE FULL EXERCISE NO EXERCISE FULL EXERCISE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Per Share.................. $ 1.33 $ 1.33 n/a $ 1.33
Total...................... $5,320,000 $5,738,950 n/a $ 379,050
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $0.79 per share from the initial public offering price. Any of these
securities dealers may resell any shares purchased from the underwriters to
certain other brokers or dealers at a discount of up to $0.10 per share from the
initial public offering price. If all the shares are not sold at the initial
offering price, the representatives may change the offering price and the other
selling terms.
ValueClick, our officers and directors, and all of our stockholders have
agreed with the underwriters not to dispose of or hedge any of our common stock
or securities convertible into or exchangeable for shares of common stock during
the period from the date of this prospectus
70
<PAGE>
continuing through the date 180 days after the date of this prospectus, except
with the prior written consent of the representatives. This agreement does not
apply to existing employee benefit plans. See "Shares Available for Future Sale"
for a discussion of certain transfer restrictions.
Prior to the offering, there has been no public market for our common stock.
The initial public offering price was negotiated among us and the
representatives. Among the factors considered in determining the initial public
offering price of the shares, in addition to prevailing market conditions, were
our historical performance, estimates of our business potential and earnings
prospects, an assessment of our management and the consideration of the above
factors in relation to market valuation of companies in related businesses.
The common stock will be quoted on the Nasdaq National Market under the
symbol "VCLK."
In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offerings.
Stabilizing transactions consist of bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the common stock while
the offering is in progress.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions. To reduce the likelihood of the imposition of a penalty bid,
underwriters, in determining how to allocate shares in the offering, may take
into consideration the history of investors who have quickly sold their shares
in prior offerings. The imposition of a penalty bid may discourage the immediate
resale of shares sold in this offering.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
The underwriters expect to deliver the shares against payment in New York,
New York on April 5, 2000.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
ValueClick estimates that its share of the total expenses of the offering,
excluding underwriting discounts and commissions, will be approximately
$1,130,000 and that the selling stockholders' share will be approximately
$70,000.
ValueClick and the selling stockholders have agreed to indemnify the several
underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
A prospectus in electronic format will be made available on the web sites
maintained by one or more of the lead managers of this offering and may also be
made available on web sites maintained by other underwriters. The underwriters
may agree to allocate a number of shares to underwriters for sale to their
online brokerage account holders. Internet distributions will be allocated by
the lead managers to underwriters that may make Internet distributions on the
same basis as other allocations.
ValueClick has asked the underwriters to reserve up to 200,000 shares for
sale at the same offering price directly to our officers, directors, employees
and other business affiliates or related third parties. The number of shares
available for sale to the general public in the offering will be reduced to the
extent these persons purchase the reserved shares.
71
<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 consolidated financial statements of ValueClick, Inc. as of
December 31, 1998 and 1999, and for the period from May 1, 1998 (inception) to
December 31, 1998 and the year ended December 31, 1999, 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.
72
<PAGE>
VALUECLICK, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
ValueClick, Inc. Consolidated 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 Consolidated Financial Statements.............. F-7
Unaudited Pro Forma Condensed Consolidated Financial
Statements
Introduction............................................ F-22
Pro Forma Condensed Consolidated Statements of
Operations............................................. F-23
Notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements................................... F-25
ValueClick Line of Business of Web-Ignite Corporation
Report of Independent Accountants....................... F-26
Balance Sheets.......................................... F-27
Statements of Operations................................ F-28
Statements of Changes in Invested Equity................ F-29
Statements of Cash Flows................................ F-30
Notes to Financial Statements........................... F-31
ValueClick Japan Financial Statements
Report of Independent Accountants....................... F-33
Balance Sheets.......................................... F-34
Statements of Operations................................ F-35
Statements of Stockholders' Equity...................... F-36
Statements of Cash Flows................................ F-37
Notes to Financial Statements........................... F-38
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
ValueClick, Inc.
In our opinion, the accompanying consolidated balance sheets 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 1999, and the
results of its operations and its cash flows for the period from May 1, 1998
(inception) through December 31, 1998, and the year ended December 31, 1999,
in conformity with accounting principles generally accepted in the United
States. 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 statements
in accordance with auditing standards generally accepted in the United
States, 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
February 7, 2000, except for Notes 1 and 14, as
to which the date is March 29, 2000
F-2
<PAGE>
VALUECLICK, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1999 1999
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 262,392 $ 2,128,669
Accounts receivable, net of allowance for doubtful
accounts of $8,000 and $644,037 as of December 31,
1998 and 1999, respectively........................... 714,559 7,021,806
Receivable from ValueClick Japan........................ 10,263 --
Prepaid expenses and other current assets............... 24,524 548,641
Deferred income taxes................................... -- 330,196
---------- -----------
Total current assets.............................. 1,011,738 10,029,312
Property and equipment, net................................. 103,323 912,208
Acquired software, net...................................... 116,667 66,667
Investment in ValueClick Japan.............................. 90,923 --
Intangibles, net............................................ -- 3,859,350
Other assets................................................ -- 105,527
---------- -----------
Total assets...................................... $1,322,651 $14,973,064
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 343,135 $ 4,304,216
Income taxes payable...................................... -- 250,041
Deferred revenue.......................................... 14,894 388,986
ValueClick Japan short term borrowings.................... 200,000 146,730
Note payable, current portion............................. -- 9,855
---------- -----------
Total current liabilities......................... 558,029 5,099,828
---------- -----------
Note payable, less current portion.......................... -- 19,679
Minority interest in ValueClick Japan....................... -- 453,340
Commitments and contingencies (Note 12).....................
Stockholders' equity:
Preferred stock, $0.001 par value; 3,000,000 and
20,000,000 shares authorized at December 31, 1998 and
1999, respectively;
Series A Convertible - 297,132 shares issued and
outstanding at December 31, 1998 and 1999............. 297 297 --
Series B Convertible - 1,047,804 shares issued and
outstanding at December 31, 1998 and 1999............. 1,048 1,048 --
Series C Convertible - 0 and 1,301,850 shares issued and
outstanding at December 31, 1998 and 1999,
respectively.......................................... -- 1,302 --
Common stock, $0.001 par value; 100,000,000 shares
authorized; 9,919,004 and 10,241,920 shares issued and
outstanding at December 31, 1998 and 1999, respectively;
pro forma 23,414,054 shares issued and outstanding at
December 31, 1999....................................... 9,919 10,242 23,414
Additional paid-in capital................................ 753,358 17,584,826 113,370,221
Deferred stock compensation............................... -- (5,678,403) (5,678,403)
Cumulative foreign currency translation adjustment........ -- (30,027) (30,027)
Accumulated deficit....................................... -- (2,489,068) (2,489,068)
---------- ----------- ------------
Total stockholders' equity............................ 764,622 9,400,217 $105,196,137
---------- ----------- ============
Total liabilities and stockholders' equity........ $1,322,651 $14,973,064
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
VALUECLICK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
MAY 1, 1998
(INCEPTION) YEAR
THROUGH ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
------------- -------------
<S> <C> <C>
Revenues.................................................... $ 2,052,539 $20,288,089
Cost of revenues............................................ 1,104,237 10,157,403
----------- -----------
Gross profit.............................................. 948,302 10,130,686
----------- -----------
Operating expenses:
Sales and marketing....................................... 516,169 2,865,858
General and administrative................................ 403,856 3,824,706
Product development....................................... 154,806 1,099,608
Stock-based compensation.................................. 61,375 3,506,136
Amortization of intangibles and acquired software......... 33,333 400,849
----------- -----------
Total operating expenses.............................. 1,169,539 11,697,157
----------- -----------
Loss from operations...................................... (221,237) (1,566,471)
Equity in loss of ValueClick Japan.......................... (9,077) (64,336)
Interest income, net........................................ 7,561 44,754
----------- -----------
Loss before income taxes and minority interest............ (222,753) (1,586,053)
Provision for income taxes.................................. -- 896,645
----------- -----------
Net loss before minority interest........................... (222,753) (2,482,698)
Minority interest in ValueClick Japan....................... -- (6,370)
----------- -----------
Net loss.............................................. $ (222,753) $(2,489,068)
=========== ===========
Basic and diluted net loss per common share (Note 9)........ $ (0.02) $ (0.26)
=========== ===========
Shares used to calculate basic and diluted net loss per
common share (Note 9)..................................... 9,912,132 9,686,757
=========== ===========
Unaudited pro forma basic and diluted net loss per common
share..................................................... $ (0.17)
===========
Unaudited pro forma shares used to calculate pro forma basic
and diluted net loss per common share..................... 14,633,825
===========
</TABLE>
The accompanying notes are an integral part of these consolidated 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 inter-
ests............................ 1,885,125 926,000 -- -- -- -- --
Charge for issuance of LLC
interests to employees.......... 608,878 61,375 -- -- -- -- --
Net loss.......................... -- -- -- -- -- -- --
Exchange of LLC membership inter-
ests to stock in the
C-corporation upon
reincorporation and conver-
sion............................ (2,494,003) (987,375) 1,344,936 1,345 9,919,004 9,919 753,358
------------ --------- ----------- ------- ----------- ------- ------------
Balance at December 31, 1998...... -- -- 1,344,936 1,345 9,919,004 9,919 753,358
Issuance of Series C preferred
stock, net...................... -- -- 1,301,850 1,302 -- -- 3,497,136
Deferred stock compensation....... -- -- -- -- -- -- 8,621,355
Charge for issuance of stock and
stock options to non-employees.. -- -- -- -- -- -- 563,184
Amortization of stock-based com-
pensation....................... -- -- -- -- -- -- --
Issuance of common stock to
acquire ValueClick Japan........ -- -- -- -- 320,000 320 4,146,880
Exercise of common stock options.. -- -- -- -- 2,916 3 2,913
Comprehensive loss:
Net loss........................ -- -- -- -- -- -- --
Foreign currency translation.... -- -- -- -- -- -- --
------------ --------- ----------- ------- ----------- ------- ------------
Total comprehensive loss.......... -- -- -- -- -- -- --
------------ --------- ----------- ------- ----------- ------- ------------
Balance at December 31, 1999...... -- -- 2,646,786 2,647 10,241,920 10,242 17,584,826
Assumed conversion of convertible
preferred stock (unaudited)..... -- -- (2,646,786) (2,647) 5,293,572 5,293 (2,646)
Issuance of common stock and a
warrant to DoubleClick in Febru-
ary 2000 (unaudited)............ -- -- -- -- 7,878,562 7,879 95,788,041
------------ --------- ----------- ------- ----------- ------- ------------
Balance at December 31, 1999, pro
forma (unaudited)............... -- $ -- -- $ -- 23,414,054 $23,414 $113,370,221
============ ========= =========== ======= =========== ======= ============
<CAPTION>
CUMULA-
TIVE
FOREIGN
CURRENCY
TRANSLATION TOTAL
DEFERRED STOCK ADJUST- ACCUMULATED STOCKHOLDERS'
COMPENSATION MENT DEFICIT EQUITY
-------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at May 1, 1998
(inception)..................... $ -- $ -- $ -- $ --
Issuance of LLC membership inter-
ests............................ -- -- -- 926,000
Charge for issuance of LLC
interests to employees.......... -- -- -- 61,375
Net loss.......................... -- -- (222,753) (222,753)
Exchange of LLC membership inter-
ests to stock in the
C-corporation upon
reincorporation and conver-
sion............................ -- -- 222,753 --
----------- -------- ----------- ------------
Balance at December 31, 1998...... -- -- -- 764,622
Issuance of Series C preferred
stock, net...................... -- -- -- 3,498,438
Deferred stock compensation....... (8,621,355) -- -- --
Charge for issuance of stock and
stock options to non-employees.. -- -- -- 563,184
Amortization of stock-based com-
pensation....................... 2,942,952 -- -- 2,942,952
Issuance of common stock to
acquire ValueClick Japan........ -- -- -- 4,147,200
Exercise of common stock options.. -- -- -- 2,916
Comprehensive loss:
Net loss........................ -- -- (2,489,068) (2,489,068)
Foreign currency translation.... -- (30,027) -- (30,027)
----------- -------- ----------- ------------
Total comprehensive loss.......... -- -- -- (2,519,095)
----------- -------- ----------- ------------
Balance at December 31, 1999...... (5,678,403) (30,027) (2,489,068) 9,400,217
Assumed conversion of convertible
preferred stock (unaudited)..... -- -- -- --
Issuance of common stock and a
warrant to DoubleClick in Febru-
ary 2000 (unaudited)............ -- -- -- 95,795,920
----------- -------- ----------- ------------
Balance at December 31, 1999, pro
forma (unaudited)............... $(5,678,403) $(30,027) $(2,489,068) $105,196,137
=========== ======== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
VALUECLICK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
MAY 1, 1998
(INCEPTION) YEAR
THROUGH ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(222,753) $(2,489,068)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization........................... 42,553 544,069
Provision for doubtful accounts......................... 8,000 625,042
Equity in loss of ValueClick Japan...................... 9,077 64,336
Stock-based compensation................................ 61,375 3,506,136
Minority interest in ValueClick Japan................... -- 6,370
Benefit for deferred taxes.............................. -- (330,196)
Changes in operating assets and liabilities:
Accounts receivable................................... (722,559) (6,458,380)
Receivable from ValueClick Japan...................... (10,263) --
Prepaid expenses and other assets..................... (24,524) (539,773)
Accounts payable and accrued liabilities.............. 343,135 3,785,290
Income taxes payable.................................. -- 250,041
Deferred revenue...................................... 14,894 172,530
--------- -----------
Net cash used in operating activities............. (501,065) (863,603)
--------- -----------
Cash flows from investing activities:
Investment in ValueClick Japan............................ (100,000) (263,456)
Acquisition of ValueClick Japan, net of cash received..... -- 412,738
Purchases of property and equipment....................... (112,543) (923,541)
Proceeds from ValueClick Japan minority shareholder....... -- 67,462
--------- -----------
Net cash used in investing activities............. (212,543) (706,797)
--------- -----------
Cash flows from financing activities:
Proceeds from the issuance of short-term debt............. 200,000 140,700
Repayments on short-term debt............................. -- (203,772)
Repayments on note payable................................ -- (882)
Proceeds from issuance of LLC membership interests........ 776,000 --
Net proceeds from issuance of Series C preferred stock.... -- 3,498,438
Proceeds from issuance of common stock.................... -- 2,916
--------- -----------
Net cash provided by financing activities......... 976,000 3,437,400
--------- -----------
Effect of currency translations................... -- (723)
--------- -----------
Net increase in cash and cash equivalents......... 262,392 1,866,277
Cash and cash equivalents, beginning of period.............. -- 262,392
--------- -----------
Cash and cash equivalents, end of period.................... $ 262,392 $ 2,128,669
========= ===========
Supplemental disclosures of cash flow information:
Cash paid for interest.................................... $ -- $ 1,480
========= ===========
Cash paid for taxes....................................... $ -- $ 976,800
========= ===========
Non-cash investing and financing activities:
Issuance of LLC membership interests for acquired
software................................................ $ 150,000 $ --
========= ===========
Issuance of LLC membership interests for employee
services................................................ $ 61,375 $ --
========= ===========
Conversion of LLC membership interests into Series A and B
preferred stock......................................... $ 776,000 $ --
========= ===========
Conversion of LLC membership interests into common
stock................................................... $ 211,375 $ --
========= ===========
Equipment obtained under note payable..................... $ -- $ 29,534
========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
VALUECLICK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 ValueClick Japan, and its wholly-owned
subsidiary, ValueClick Europe. 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 EQUIVALENTS
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 and 1999, 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.
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 acquisition of the software was accounted for as a nonmonetary exchange and
the acquired software was valued at $150,000. The acquired software
F-7
<PAGE>
VALUECLICK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
is being amortized on a straight-line basis over an estimated useful life of
3 years with accumulated amortization amounting to $33,333 and $83,333 at
December 31, 1998 and 1999, respectively.
INTANGIBLES
Intangible assets are 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
December 31, 1999 amounted to $350,850.
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 consolidated 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, telecommunication costs and depreciation of equipment used
for ad delivery related to the Company's ad delivery infrastructure.
SALES AND MARKETING
Sales and marketing expenses include salaries, sales commissions, employee
benefits, travel and related expenses for the Company's sales force, and
advertising costs.
Advertising costs are expensed as incurred and totaled approximately
$318,000 and $1,007,000 for the year ended December 31, 1998 and 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.
F-8
<PAGE>
VALUECLICK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRODUCT DEVELOPMENT
Product development costs are expensed as incurred and include costs for the
development of new technologies designed to enhance the Company's service and
include salaries and related expenses of the software engineering department,
contract services, and supplies.
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 foreign subsidiares, ValueClick Japan and ValueClick Europe,
measure their operations in the local currency and translate these operations
into U.S. dollars for purposes of consolidation.
These operations subject the Company to foreign currency exchange risks
which are limited to the extent of the assets of ValueClick Japan and ValueClick
Europe, which amounted to approximately $2.3 million and $215,000, respectively,
at December 31, 1999.
At December 31, 1999, all assets and liabilities of ValueClick Japan and
ValueClick Europe 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
acquisitions through December 31, 1999.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration
of credit risk consist of cash and cash equivalents and accounts receivable.
Cash and cash equivalents are deposited with major financial institutions; at
times, such balances with any one financial institution may be in excess of FDIC
insurance limits. Credit is extended to customers based on an evaluation of
their financial condition. The Company generally does not require collateral or
other security to support accounts receivable. The Company performs ongoing
credit evaluations of its customers and maintains an allowance for potential bad
debts. 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. At December 31, 1999, no customer comprised more than 10% of accounts
receivable.
F-9
<PAGE>
VALUECLICK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 and 1999, the fair values of these
instruments approximated their financial statement carrying amounts because of
the short-term maturity of these instruments and the relatively 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") SFAS No. 128, "Earnings Per Share". Basic and diluted net loss
per share is computed by dividing the net loss by the weighted average shares of
common stock outstanding.
UNAUDITED PRO FORMA NET LOSS PER SHARE AND INITIAL PUBLIC OFFERING
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-for-1 basis, subject to antidilution provisions, including stock splits.
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, 1999. Each share of
preferred stock converts into two shares of common stock subject to antidilution
provisions, including stock splits. The conversion of the Series A, B and C
convertible preferred stock has been reflected in the accompanying unaudited pro
forma consolidated statements of stockholders' equity as if these events had
occurred on December 31, 1999.
UNAUDITED PRO FORMA STOCKHOLDERS' EQUITY
Unaudited pro forma stockholders' equity reflects the conversion of each
share of convertible preferred stock into two shares of common stock upon the
completion of the IPO, and the issuance of common stock and a warrant to
DoubleClick on February 28, 2000 as more fully discussed in Note 14, as if these
events had occurred at December 31, 1999.
F-10
<PAGE>
VALUECLICK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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 and ValueClick Europe as discussed in Note 3.
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 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.
F-11
<PAGE>
VALUECLICK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1999
--------- ----------
<S> <C> <C>
Computer equipment and purchased software............ $105,541 $ 927,841
Furniture and equipment.............................. 6,190 110,219
Leasehold improvements............................... 812 27,659
-------- ----------
112,543 1,065,719
Less: accumulated depreciation and amortization...... (9,220) (153,511)
-------- ----------
$103,323 $ 912,208
======== ==========
</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 $42,000 was earned from
activity for the year ended December 31, 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 for an aggregate purchase price of approximately $4,225,000 that was
comprised of $78,000 in cash and 320,000 shares of ValueClick common stock with
an estimated fair value of $4,147,200 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. The
estimated fair value of the tangible assets acquired and the liabilities assumed
approximated the historical cost basis and the excess of purchase price over the
net tangible assets acquired was allocated to goodwill. The purchase price
allocation resulted in goodwill of approximately $4,210,000 which is being
amortized on a straight-line basis over an estimated useful life of 5 years.
Direct transaction costs related to the acquisition amounted to $32,000.
F-12
<PAGE>
VALUECLICK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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. As part of the formation of ValueClick Europe, the founding
shareholders entered into an agreement which gave the Company an option to
acquire all of the shares of ValueClick Europe owned by the other founders in
the event the shareholder proposed to sell or transfer their shares or upon
change of control of ValueClick Europe. In December 1999, the Company purchased
all of the shares of ValueClick Europe for a total consideration of
approximately $430,000, that is to be comprised of cash payments to the other
founding shareholders of approximately $275,000, which includes the
reimbursement of approximately $18,000 of out-of-pocket expenses incurred by one
of the founding shareholders and the assumption of one of the founding
shareholders obligation to pay ValueClick Europe approximately $148,000 for the
outstanding balance owed on the original purchase of their shares from
ValueClick Europe. The acquisition was accounted for as a purchase and the
estimated fair value of the tangible assets acquired and liabilities assumed
equalled the purchase price less expenses incurred. Accordingly, no intangible
assets were created as a result of the acquisition.
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 consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1999
--------- ----------
<S> <C> <C>
Accounts payable............................................ $262,214 $1,951,522
Accrued payments to third-party web sites................... 51,115 684,411
Other accruals.............................................. 29,806 1,668,283
-------- ----------
$343,135 $4,304,216
======== ==========
</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
F-13
<PAGE>
VALUECLICK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
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.
The provision for income taxes for the year ended December 31, 1999 is
comprised of the following:
<TABLE>
<S> <C>
Current:
Federal................................................... $ 993,157
State..................................................... 233,684
----------
$1,226,841
----------
Deferred
Federal................................................... $ (279,583)
State..................................................... (50,613)
----------
$ (330,196)
----------
Provision for income taxes.................................. $ 896,645
==========
</TABLE>
The components of the deferred tax assets at December 31, 1999 are as
follows:
<TABLE>
<S> <C>
Deferred tax assets:
Allowance for doubtful accounts and other................. $330,196
--------
Net deferred tax assets................................. $330,196
========
</TABLE>
The overall effective tax rate differs from the statutory Federal tax rate
for the year ended December 31, 1999 as follows:
<TABLE>
<S> <C>
Tax benefit based on the federal statutory rate............. (34.0)%
State income taxes, net of federal benefit.................. (6.1)
Equity in loss of ValueClick Japan.......................... 1.6
Stock based compensation.................................... 85.0
Non deductible amortization................................. 10.0
Other, net.................................................. (0.5)
---------
56.0%
=========
</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.
F-14
<PAGE>
VALUECLICK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. CAPITALIZATION (CONTINUED)
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 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 December 31, 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 December 31, 1999, giving effect to the
four-for-one common stock split and the one-for-two reverse stock split, each
share of the Series A, Series B and Series C shares is convertible into 2 shares
of common stock. The preferred shares automatically convert into common stock
upon consummation of an underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, with an aggregate
proceeds greater than or equal to $20,000,000.
F-15
<PAGE>
VALUECLICK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. CAPITALIZATION (CONTINUED)
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
707,923 shares of common stock upon completion of the LLC conversion and
reincorporation on December 31, 1998. In May 1999, the Company entered into
stock restriction agreements with these founding employees' restricting 608,878
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 year ended December 31, 1999, such
compensation expense included in stock-based compensation in the accompanying
consolidated statement of operations amounted to approximately $549,000. At
December 31, 1999, 361,483 shares of common stock were subject to repurchase
under the restricted stock agreements.
COMMON STOCK SPLIT
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.
8. STOCK OPTIONS
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
4,000,000 shares of common stock have initially been reserved for issuance under
the 1999 Stock Plan, of which 1,152,180 shares were available for future grant
at December 31, 1999.
In January 1999, options to purchase 750,000 shares of common stock were
granted outside the 1999 Stock Plan and were subsequently included in the shares
reserved under the 1999 plan. 600,000 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 750,000 shares of common stock granted outside the plan and options
granted to non-employees
F-16
<PAGE>
VALUECLICK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCK OPTIONS (CONTINUED)
for the period from May 1, 1998 (inception) through December 31, 1998 and the
year ended December 31, 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............................................ 2,898,822 0.26 to 20.00 1.22
Exercised.......................................... (2,916) 1.00 1.00
Forfeited/expired.................................. (48,086) 1.00 to 2.00 1.08
--------- --------------- --------
Options outstanding at December 31, 1999............. 2,847,820 $0.26 to $20.00 $ 1.20
========= =============== ========
</TABLE>
Options granted during the year ended December 31, 1999 resulted in a total
deferred compensation amount of approximately $7,270,000 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 year ended December 31, 1999, such compensation expense included in
stock-based compensation in the statement of operations amounted to
approximately $2,394,000.
Additional information with respect to the outstanding options as of
December 31, 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>
950,000 9.1 $ 0.26 381,151 $0.26
1,484,598 9.5 1.00 450,985 1.00
342,000 9.6 2.00 893 2.00
52,722 9.9 13.00 -- 13.00
18,500 9.9 20.00 -- 20.00
- --------- ---------
2,847,820 833,029
========= =========
</TABLE>
F-17
<PAGE>
VALUECLICK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCK OPTIONS (CONTINUED)
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)
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
------------- -------------
<S> <C> <C>
Risk-free interest rates.................................... 5% 5%
Expected lives (in years)................................... 4 4
Dividend yield.............................................. 0% 0%
Expected volatility......................................... 0% 0%
</TABLE>
The compensation cost associated with the Company's stock-based compensation
plan, determined using the minimum value option pricing model, did not result in
a material difference from the reported net loss for the year ended
December 31, 1999.
OPTIONS ISSUED TO NON-EMPLOYEES
In October 1999, the Company granted 24,000 stock options to a non-employee
consultant for services provided that are non-forfeitable and immediately
exercisable into the Company's common stock. In addition, in December 1999, the
Company agreed to issue 6,000 shares of common stock in exchange for services
provided by consultants to ValueClick Europe during 1999. The stock and stock
options were valued at the estimated value of the services provided, and the
Company recorded a charge of approximately $563,000 to stock-based compensation
in the accompanying consolidated statement of operations for the year ended
December 31, 1999.
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.
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
HISTORICAL YEAR ENDED
PRO FORMA DECEMBER 31, 1999
------------------- ------------------
<S> <C> <C>
HISTORICAL PRESENTATION
Numerator:
Net loss............................................... $ (222,753) $(2,489,068)
Denominator:
Weighted average common shares......................... 9,912,132 9,686,757
Basic and diluted net loss per common share.............. $ (0.02) $ (0.26)
</TABLE>
F-18
<PAGE>
VALUECLICK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. NET LOSS PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
PERIOD FROM MAY 1,
1998 (INCEPTION)
THROUGH
DECEMBER 31, 1998
HISTORICAL YEAR ENDED
PRO FORMA DECEMBER 31, 1999
------------------- ------------------
<S> <C> <C>
PRO FORMA PRESENTATION
Denominator:
Shares used above...................................... 9,686,757
Weighted average effect of convertible preferred stock:
Series A convertible preferred stock................... 594,264
Series B convertible preferred stock................... 2,095,608
Series C convertible preferred stock................... 2,257,196
-----------
Denominator for pro forma calculation.................... 14,633,825
===========
Unaudited pro forma basic and diluted net loss per common
share.................................................. $ (0.17)
===========
</TABLE>
The diluted per share computations exclude convertible preferred stock,
unvested restricted shares, and common stock options which were antidilutive.
The number of shares excluded from the diluted net loss per common share
computation were 3,163,443 and 8,412,004 for the period from May 1, 1998
(inception) through December 31, 1998 and the year ended December 31, 1999,
respectively. The number of such shares excluded from the pro forma diluted net
loss per share computation was 3,118,432 for the year ended December 31, 1999.
10. LINE OF CREDIT AND SHORT TERM BORROWINGS
In October 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 (8.5% at December 31, 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. The credit facility
also has certain covenants the Company must maintain including minimum net worth
requirements and financial ratios. As of December 31, 1999, no amounts were
outstanding under this line of credit.
In December 1999, ValueClick Japan borrowed $146,730 from a financial
institution under an unsecured note agreement with interest accruing at 16.5%.
Principal and interest payments were due on demand. In January 2000, the note
and accrued interest were fully repaid.
11. 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
F-19
<PAGE>
VALUECLICK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. DEFINED CONTRIBUTION PLAN (CONTINUED)
are discretionary. To date, the Company has contributed $23,690 to the Plan as
of December 31, 1999.
12. 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, 1999 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
- ------------------------------------------------------------
<S> <C>
2000........................................................ $230,845
2001........................................................ 57,107
2002........................................................ 42,793
2003........................................................ 3,855
2004........................................................ 2,891
--------
Total................................................... $337,491
========
</TABLE>
Total rent expense under operating leases, net of sublease income, for the
period from May 1, 1998 (inception) through December 31, 1998 and for the year
ended December 31, 1999 was $30,023 and $158,251, respectively.
EMPLOYMENT AGREEMENTS
The Company is subject to employment agreements with certain members of
management.
13. SEGMENTS, GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS
The Company operates in one industry segment, the internet advertising
business and as such has no other separate reportable segments.
The Company's operations are domiciled in the United States with operations
in Japan through its majority owned subsidiary, ValueClick Japan and with
operations in Europe through its wholly owned subsidiary, ValueClick Europe. The
Company's geographic information is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
--------------------------- LONG-LIVED
INCOME (LOSS) ASSETS
FROM AT DECEMBER 31,
REVENUES OPERATIONS 1999
----------- ------------- ---------------
<S> <C> <C> <C>
United States..................... $18,194,735 $(1,409,480) $4,621,043
Japan............................. 2,093,354 14,764 200,160
Europe............................ -- (171,755) 17,022
----------- ----------- ----------
Total......................... $20,288,089 $(1,566,471) $4,838,225
=========== =========== ==========
</TABLE>
There were no significant foreign operations prior to the acquisition of
majority control of ValueClick Japan in August of 1999.
F-20
<PAGE>
VALUECLICK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. SEGMENTS, GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS (CONTINUED)
For the period from May 1, 1998 (Inception) through December 31, 1998, one
customer comprised 23% of revenues. For the year ended December 31, 1999, no
customer comprised greater than 10% of revenues.
14. SUBSEQUENT EVENTS (UNAUDITED)
On February 28, 2000, the Company consummated an investment by DoubleClick
under a common stock and warrant purchase agreement (the "Agreement") entered
into on January 11, 2000 whereby DoubleClick acquired 7,878,562 shares of the
Company's common stock for an estimated purchase price of $12.16 per share to be
paid in cash of $10.0 million and 732,860 shares of DoubleClick common stock.
The shares of DoubleClick common stock were valued at approximately
$85.8 million for accounting purposes based on an average price of $117.07 per
share for the public announcement date of January 13, 2000 and the 5 trading
days before and 5 trading days thereafter. Under the Agreement, the Company also
issued a warrant to DoubleClick to acquire additional shares of the Company's
common stock at $21.76 per share payable in DoubleClick common stock which is
exercisable for that number of shares that would result in DoubleClick owning
45% of the Company's outstanding common stock on a fully diluted basis. The
warrant will be exercisable for the 15 month period commencing on February 28,
2000.
The Company intends to account for the investment in DoubleClick common
stock as an available for sale investment in accordance with Financial
Accounting Standards Board Statement of Financial Accounting Standards No. 115
"Accounting For Certain Investments in Debt and Equity Securities," whereby the
investment will be carried at market value with unrealized holding gains and
losses from increases and decreases in market value being recorded as a separate
component of stockholders' equity until realized.
On March 29, 2000, the Board of Directors approved a one-for-two 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 reverse stock split.
From January 1, 2000 through March 29, 2000, the Company granted stock
options to purchase 487,000 shares of common stock at an exercise price of
$11.00 per share. In connection with these grants, the Company expects to record
an additional estimated deferred compensation amount of $3,896,000 in the first
quarter of 2000.
F-21
<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 for an aggregate purchase price of
approximately $4,225,000 that was comprised of $78,000 in cash and 320,000
shares of ValueClick common stock with an estimated fair value of approximately
$4,147,000 giving ValueClick a 54.0% 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 ValueClick, acquired and
liabilities assumed. The estimated fair value of the tangible assets acquired
and the liabilities assumed approximated the historical cost basis and the
excess of the purchase price over the net tangible assets acquired was allocated
to goodwill. The remaining portion of the ValueClick Japan assets and
liabilities will be recorded at the historical cost basis of the minority
stockholders. The purchase price allocation indicated goodwill, totaling
approximately $4,210,000, which is being amortized on a straight-line basis over
an estimated life of 5 years. Direct transaction costs related to the
acquisition amounted to $32,000.
The following unaudited pro forma consolidated statements of operations for
the periods from January 1, 1998 through December 31, 1998 and the year ended
December 31, 1999 give effect to the acquisition as if it had occurred on
January 1, 1998 and 1999, respectively.
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-22
<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
Product development.......... -- 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)
==== ====== ==== ====
Basic and diluted net loss per
common share.................
Shares used in computing basic
and diluted net loss per
common share.................
<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
Product development.......... -- 155
Stock-based compensation..... -- 61
Amortization of intangibles
and acquired software...... 842(1) 875
----- -----------
Total operating
expenses............... 842 2,319
----- -----------
Income (loss) from
operations................... (842) (1,051)
Equity in losses of ValueClick
Japan........................ 9(2) --
Interest income, net........... -- 8
----- -----------
Income (loss) before provision
for income taxes and minority
interest..................... (833) (1,043)
Provision for income taxes..... -- --
----- -----------
Net income (loss) before
minority interest............ (833) (1,043)
Minority interest in ValueClick
Japan........................ 9(3) 9
----- -----------
Net income (loss).............. $(824) $ (1,034)
===== ===========
Basic and diluted net loss per
common share................. $ (0.05)
===========
Shares used in computing basic
and diluted net loss per
common share................. 19,824,264
===========
</TABLE>
See the accompanying notes to unaudited Pro Forma Condensed Consolidated
Financial Statements
F-23
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 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............................ $ 20,288 $ 793 $ -- $ 21,081
Cost of revenues.................... 10,157 466 -- 10,623
---------- ----- ----- ----------
Gross profit........................ 10,131 327 -- 10,458
Operating expenses:
Sales and marketing............... 2,866 170 -- 3,036
General and administrative........ 3,825 360 -- 4,185
Product development............... 1,100 -- -- 1,100
Stock-based compensation.......... 3,506 -- -- 3,506
Amortization of intangibles and
acquired software............... 401 -- 491(4) 892
---------- ----- ----- ----------
Total operating expenses........ 11,698 530 491 12,719
---------- ----- ----- ----------
Loss from operations................ (1,567) (203) (491) (2,261)
Equity in losses in ValueClick
Japan............................. (64) -- 64(2) --
Interest income, net................ 45 -- -- 45
---------- ----- ----- ----------
Loss before income taxes and
minority interest................. (1,586) (203) (427) (2,216)
Provision for income taxes.......... 897 -- -- 897
---------- ----- ----- ----------
Net loss before minority interest... (2,483) (203) (427) (3,113)
Minority interest................... (6) -- 65(3) 59
---------- ----- ----- ----------
Net loss............................ $ (2,489) $(203) $(362) $ (3,054)
========== ===== ===== ==========
Basic and diluted net loss per
common share...................... $ (0.26)
==========
Shares used in computing basic and
diluted net loss per common
share............................. 9,686,757
==========
Pro forma basic and diluted
net loss per common share......... $ (0.21)
==========
Pro forma shares used to calculate
pro forma basic and diluted net
loss per common share............. 14,633,825
==========
</TABLE>
See the accompanying notes to Unaudited Pro Forma Condensed
Consolidated Financial Statements
F-24
<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 created as a result
of the acquisition of majority control of ValueClick Japan as follows:
<TABLE>
<S> <C>
Estimated fair value of 320,000 shares of ValueClick common
stock..................................................... $ 4,147
Additional cash consideration............................... 78
Existing equity investment in ValueClick Japan.............. 264
Direct transaction costs.................................... 32
-------
Total investment and direct transaction costs........... 4,521
Less: ValueClick's 54.0% share of net assets............ 311
-------
$ 4,210
Estimated useful life....................................... 5 years
-------
Annual amortization expense................................. $ 842
=======
</TABLE>
The fair value of the ValueClick tangible assets acquired and liabilities
assumed approximated the historical cost basis and accordingly, no fair
value adjustments were required to be made to the tangible assets acquired
and liabilities assumed.
(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 $491 for the period from
January 1, 1999 through the August 6, 1999 acquisition date.
F-25
<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 accounting principles generally accepted in the United States.
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 auditing standards generally
accepted in the United States, 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-26
<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-27
<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-28
<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-29
<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-30
<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 utilizing revenue as the basis for allocation of the costs of
services provided to the ValueClick Line of Business. Management believes the
allocations and allocation methodology 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-31
<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 using a proportionate cost allocation method utilizing revenue
as the basis for allocation of the costs. Management believes the allocations
and allocation method used were reasonable. However, the 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-32
<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 accounting principles generally
accepted in the United States. 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
statements in accordance with auditing standards generally accepted in the
United States, 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-33
<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-34
<PAGE>
VALUECLICK JAPAN
AND ITS PREDECESSOR LINE OF BUSINESS OF TRANS-PACIFIC LTD.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
TRANS-PACIFIC
------------- VALUECLICK JAPAN
PERIOD FROM -----------------------------
MARCH 26, PERIOD
1998 FROM
(INCEPTION) NOVEMBER 16,
THROUGH 1998 THROUGH 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-35
<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-36
<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-37
<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 utilizing revenue as the basis for the allocation of the costs
of services provided to the ValueClick Japan Line of Business. Trans-Pacific
management believes that the allocations and allocation method were 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.
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
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)
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.
PRODUCT DEVELOPMENT
Product 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 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.
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)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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
F-40
<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)
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-41
<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 320,000 shares of common stock of
ValueClick, Inc., valued at $4,210,200.
F-42
<PAGE>
INSIDE BACK COVER
Recent advertisement used by ValueClick to communicate information about its
products and services
Top of page reads: "We focus on a performance-based Internet advertising
solution, in which an advertiser only pays when an Internet user clicks on its
banner advertisement. Here is an example of an advertisement communicating the
benefit of our business model to potential Internet advertising customers."
Title of advertisement: "Anatomy of a Click"
Center of advertisement: a picture of a skeletal human hand holding a computer
mouse.
Arrows pointing to parts of the hand leads to text that read the following:
"Extension of the distal phalanx"
"Click"
"Another company connects with a customer"
"Rotation of the Flexor retinaculum"
Lower left corner of advertisement reads:
"Take a closer look at your banner advertising strategy. People say banner
advertising is about impressions. But on closer inspection, it's really
about clicks. If you're not getting clicks, you're not connecting with your
customers. ValueClick is your guaranteed source of clicks. You pay for
clicks--as many as you want--but not for impressions. By the way,
cost-per-click campaigns usually generate more impressions per dollar than
CPM campaigns. So get impressions, but pay for results. Let one of our
experts help you plan your next campaign. We'll show you how to get a
guaranteed number of clicks, and more impressions, for the same budget."
Bottom of page and centered is the ValueClick logo with the phrase "The
Pay-for-Results Advertising Network" written below.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
sell only the shares offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 7
Forward-Looking Statements..................... 20
Use of Proceeds................................ 20
Dividend Policy................................ 20
Capitalization................................. 21
Dilution....................................... 22
Selected Financial Data........................ 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 25
Business....................................... 37
Management..................................... 48
The DoubleClick Investment..................... 57
Related Party Transactions..................... 60
Principal and Selling Stockholders............. 62
Description of Capital Stock................... 65
Shares Eligible for Future Sale................ 68
Underwriting................................... 70
Legal Matters.................................. 72
Experts........................................ 72
Where You Can Find More Information............ 72
Index to Financial Statements.................. F-1
</TABLE>
----------------
Through and including April 24, 2000 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to a dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to an unsold allotment or subscription.
4,000,000 Shares
VALUECLICK, INC.
Common Stock
-----------
[LOGO]
-----------
GOLDMAN, SACHS & CO.
SALOMON SMITH BARNEY
WIT SOUNDVIEW
Representatives of the Underwriters
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
