<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 22, 2000
REGISTRATION NO. 333-88765
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
VALUECLICK, INC.
(Exact Name of Registrant as Specified in its Charter)
--------------------------
<TABLE>
<S> <C> <C>
DELAWARE 7319 77-0495335
(State or Other Jurisdiction (Primary Standard Industry (I.R.S. Employer
of Incorporation or Organization) Classification Number) Identification Number)
</TABLE>
--------------------------
6450 VIA REAL
CARPINTERIA, CALIFORNIA 93013
(805) 684-6060
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
--------------------------
JAMES R. ZARLEY
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
6450 VIA REAL
CARPINTERIA, CALIFORNIA 93013
(805) 684-6060
(Name, Address Including Zip Code, and Telephone Number Including
Area Code, of Agent for Service)
COPIES TO:
<TABLE>
<S> <C>
KENNETH R. BENDER, ESQ. TERRY M. KEE, ESQ.
ALLEN Z. SUSSMAN, ESQ. DAVID R. LAMARRE, ESQ.
RYAN S. HONG, ESQ. DAVID M. KOENINGER, ESQ.
MICHAEL W. CHOU, ESQ. DANIEL T. DASHIELL, ESQ.
BROBECK, PHLEGER & HARRISON LLP PILLSBURY MADISON & SUTRO LLP
550 SOUTH HOPE STREET P.O. BOX 7880
LOS ANGELES, CALIFORNIA 90071 SAN FRANCISCO, CALIFORNIA 94120
TELEPHONE: (213) 489-4060 TELEPHONE: (415) 983-1000
</TABLE>
Approximate date of commencement of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
--------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
COMMON STOCK, PAR VALUE $.001 PER
SHARE.............................. 4,600,000(1) $13.00(2) $59,800,000 $15,787.20(3)
</TABLE>
(1) Includes 600,000 shares issuable upon exercise of the Underwriters'
over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a).
(3) Previously paid.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION. DATED FEBRUARY , 2000.
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
4,000,000 Shares
[LOGO]
VALUECLICK, INC.
Common Stock
-----------
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. It is currently estimated that the initial public offering price per
share will be between $11.00 and $13.00. ValueClick has applied for quotation of
the common stock 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.
--------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
--------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to ValueClick.................... $ $
</TABLE>
--------------
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.
--------------
The underwriters expect to deliver the shares against payment in New York,
New York on , 2000.
GOLDMAN, SACHS & CO.
SALOMON SMITH BARNEY
WIT SOUNDVIEW
--------------
Prospectus dated , 2000.
<PAGE>
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."
<PAGE>
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. 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 Web sites, each of which 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 provide Internet advertisers a more cost-effective
solution than purchasing advertising space directly from individual Web
publishers. 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 January 11, 2000, we initiated a strategic relationship with DoubleClick,
a leading worldwide provider of Internet advertising solutions for advertisers
and Web publishers. As part of this agreement, we have agreed to sell to
DoubleClick approximately 30% of our common stock and we have agreed to issue 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.
3
<PAGE>
OUR SOLUTION AND STRATEGY
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 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.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Total common stock offered by ValueClick................... 4,000,000 shares
Outstanding common stock after the offering................ 27,916,712 shares
Outstanding common stock owned by our affiliates after
the offering......................................... 19,078,831 shares
Outstanding common stock owned by our non-affiliates
after the offering................................... 8,837,881 shares
Use of proceeds............................................ For general corporate purposes including
expansion of sales and marketing
activities, enhancement of our
technology, possible acquisitions and
international expansions. See "Use of
Proceeds."
Proposed Nasdaq symbol..................................... VCLK
</TABLE>
The number of shares of common stock to be outstanding after the offering is
based on the number of shares outstanding as of February 18, 2000 and assumes
the conversion of our preferred stock into 5,293,572 shares of common stock at
that date and includes 7,878,562 shares of our common stock that DoubleClick has
agreed to purchase for $10.88 per share. 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.
- 2,847,820 shares subject to outstanding options under our 1999 Stock
Option Plan with a weighted average exercise price of $1.20 per share as
of December 31, 1999, and
- 1,152,180 shares of common stock reserved for future issuance under our
1999 Stock Option Plan as of December 31, 1999.
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 INITIAL PUBLIC OFFERING PRICE WILL BE $12.00 PER SHARE;
- THE COMMON STOCK HAS BEEN SPLIT ON A 2-FOR-1 BASIS AS A RESULT OF STOCK
SPLITS EFFECTED IN OCTOBER 1999 AND IMMEDIATELY PRIOR TO THE CLOSE OF THIS
OFFERING;
- 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.
------------------------
5
<PAGE>
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 does not include the DoubleClick investment. See "The
DoubleClick Investment" on page 55.
<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) (1,582) (2,276)
Net loss............................ (222) (191) (2,504) (3,069)
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 --
Pro forma basic and
diluted(2)(4)................... -- -- -- $ (0.21)
Shares used to calculate pro forma
basic and diluted(2)(4)......... -- -- -- 14,634
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(2)(5)
-------- ------------ -----------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 2,129 $ 2,129 $45,569
Working capital....................................... 4,929 4,929 48,369
Total assets.......................................... 14,973 14,973 58,413
Deferred stock compensation........................... (6,204) (6,204) (6,204)
Total stockholders' equity............................ 9,400 9,400 52,840
</TABLE>
(1) See Notes 1 and 9 of Notes to Financial Statements for determination of
shares used in computing basic and diluted net loss per common share.
(2) Pro forma to give effect to the conversion of all issued and outstanding
shares of preferred stock into common stock but not giving effect to the
exercise of outstanding options to purchase 2,847,820 shares of common stock
nor 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 an assumed initial public offering price of $12.00 per common share
after deducting the underwriting discounts and estimated offering expenses
payable by ValueClick. See "Use of Proceeds" on page 19 for more information
on our intended use of proceeds from this offering and "Capitalization" on
page 20 for more information on our capital structure.
6
<PAGE>
RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CONSIDER CAREFULLY
THE RISKS AND UNCERTAINTIES DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS
PROSPECTUS BEFORE DECIDING WHETHER TO INVEST IN SHARES OF OUR COMMON STOCK. IF
ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, RESULTS OF OPERATIONS
AND FINANCIAL CONDITION COULD BE MATERIALLY AND ADVERSELY AFFECTED. THIS COULD
CAUSE THE TRADING PRICE OF OUR COMMON STOCK TO DECLINE, AND YOU MIGHT LOSE PART
OR ALL OF YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS
IF BANNER ADVERTISING ON THE INTERNET LOSES ITS APPEAL TO DIRECT MARKETING
COMPANIES, OUR REVENUES COULD DECLINE.
We currently derive substantially all of our revenues by delivering banner
advertisements that generate clicks to our advertisers' Web sites. This business
model may not continue to be effective in the future for a number of reasons,
including the following:
- click rates have always been low and may decline as the number of banner
advertisements on the Web increases;
- Internet users can install "filter" software programs which allow them to
prevent banner advertisements from appearing on their screens;
- banner advertisements are, by their nature, limited in content relative to
other media;
- direct marketing companies may be reluctant or slow to adopt banner
advertising that replaces, limits or competes with their existing direct
marketing efforts; and
- direct marketing companies may prefer other forms of Internet advertising,
including permission-based e-mail.
If the number of direct marketing companies who purchase banner clicks from us
does not continue to grow, we may experience difficulty in attracting
publishers, and our revenues could decline.
IF OUR BUSINESS MODEL IS NOT ACCEPTED BY INTERNET ADVERTISERS OR WEB PUBLISHERS,
OUR REVENUES COULD DECLINE.
We conduct all of our business on a cost-per-click or CPC pricing model.
This business model is relatively new and much less common than the
cost-per-thousand impressions or CPM pricing model, which many other Internet
advertising companies use. Our ability to generate significant revenue from
advertisers will depend, in part, on our ability to:
- demonstrate the effectiveness of our CPC pricing model to Internet
advertisers, many of which may be more accustomed to the CPM pricing
model, and to Web publishers; and
- attract and retain advertisers and Web publishers by differentiating our
technology and services from those of our competitors.
One component of our strategy is to enhance advertisers' ability to measure
their return on investment and track the performance and effectiveness of their
advertising campaigns. However, we have limited experience in implementing our
strategy. To date, few advertisers have taken advantage of the most
sophisticated tool we offer for tracking Internet users' activities after they
have reached advertisers' Web sites. We cannot assure you that our strategy will
succeed.
Intense competition among Web sites and Internet advertising services has
led to the proliferation of a number of alternative pricing models for Internet
advertising. These alternatives, and the likelihood that additional pricing
alternatives will be introduced, make it difficult for us to project the levels
of advertising revenue or the margins that we, or the Internet advertising
industry in general, will realize in the future. Moreover, an increase in the
amount of advertising on the Web may result in a decline in click rates. Since
we predominantly rely on a performance-based pricing
7
<PAGE>
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:
- 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
8
<PAGE>
- the need to pay significant license fees in order to use technology
belonging to third parties.
See "Business--Intellectual Property Rights" for more information regarding
our intellectual property.
IF WE FAIL TO KEEP PACE WITH RAPIDLY CHANGING TECHNOLOGIES, WE COULD LOSE
CUSTOMERS OR ADVERTISING INVENTORY.
The Internet advertising market is characterized by rapidly changing
technologies, evolving industry standards, frequent new product and service
introductions and changing customer demands. The introduction of new products
and services embodying new technologies and the emergence of new industry
standards and practices can render existing products and services obsolete and
unmarketable or require unanticipated investments in research and development.
Our success will depend on our ability to adapt to rapidly changing
technologies, to enhance existing solutions and to develop and introduce a
variety of new solutions to address our customers' changing demands.
For example, advertisers are increasingly requiring Internet advertising
networks to have the ability to deliver advertisements utilizing new formats
that surpass stationary images and incorporate rich media, such as video and
audio, interactivity, and more precise consumer targeting techniques. Our system
does not support some types of advertising formats, such as video and audio, and
many of the Web sites in our network have not implemented systems to allow rich
media advertisements. In addition, an increase in the bandwidth of Internet
access resulting in faster data delivery may provide new products and services
that will take advantage of this expansion in delivery capability. If we fail to
adapt successfully to developments such as these, we could lose customers or
advertising inventory.
We purchase most of the software we use in our business from third parties.
We intend to continue to acquire technology necessary for us to conduct our
business from third parties. We cannot assure you that, in the future, these
technologies will be available on commercially reasonable terms, or at all.
We may also experience difficulties that could delay or prevent the
successful design, development, introduction or marketing of new solutions. Any
new solution or enhancement we develop will need to meet the requirements of our
current and prospective customers and may not achieve significant market
acceptance. If we fail to keep pace with technological developments and the
introduction of new industry and technology standards on a cost-effective basis,
our expenses could increase, and we could lose customers or advertising
inventory.
IF THE USE OF THE TECHNOLOGY WE CURRENTLY USE TO TARGET THE DELIVERY OF BANNERS
AND TO PREVENT FRAUD ON OUR NETWORK IS RESTRICTED OR BECOMES SUBJECT TO
REGULATION, OUR EXPENSES COULD INCREASE AND WE COULD LOSE CUSTOMERS OR
ADVERTISING INVENTORY.
Web sites typically place small files of information, commonly known as
"cookies," on an Internet user's hard drive, generally without the user's
knowledge or consent. Cookie information is passed to the Web site through the
Internet user's browser software. We currently use cookies to collect
information about an Internet user's movement through the advertiser's Web site
and to monitor and prevent potentially fraudulent activity on our network. Most
currently available Internet browsers allow Internet users to modify their
browser settings to prevent cookies from being stored on their hard drive, and
some users currently do so. Internet users can also delete cookies from their
hard drives at any time.
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
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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. 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 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
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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.
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 would also receive a
warrant entitling it to increase its ownership of our common stock, at any time
prior to 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 will also have the right to maintain
its percentage ownership if we issue new securities, other than in a public
offering or under other specified exceptions, for three years after the closing
of its investment.
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As long as DoubleClick continues to own 10% of our common stock on a fully
diluted basis, we must also 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.
In addition, DoubleClick will initially be entitled to designate two members
of our board of directors. The holders of 9,386,527 shares of our common stock,
as converted, 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. Particularly 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.
In addition, DoubleClick may be able to prevent or impede a change of
control of ValueClick 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.
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.
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.
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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.
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.
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Our revenues and operating results may vary significantly from quarter to
quarter due to a variety of factors, many of which are beyond our control. You
should not rely on period-to-period comparisons of our results of operations as
an indication of our future performance. Our results of operations may fall
below the expectations of market analysts and investors in some future periods.
If this happens, the market price of our common stock may fall.
The factors that may affect our quarterly operating results include:
- fluctuations in demand for our advertising solutions;
- fluctuations in click rates;
- fluctuations in the amount of available advertising space, or views, on
Web sites in the ValueClick network;
- the timing and amount of sales and marketing expenses incurred to attract
new advertisers;
- fluctuations in sales of different types of advertising, for example, the
amount of advertising sold at higher rates rather than lower rates;
- changes in our pricing policies, the pricing policies of our competitors
or the pricing policies for advertising on the Internet generally;
- timing differences at the end of each quarter between our payments to Web
publishers for a given set of clicks and our collection of advertising
revenue for those clicks; and
- costs related to acquisitions of technology or businesses.
Expenditures by advertisers also tend to be cyclical, reflecting overall
economic conditions as well as budgeting and buying patterns. Any decline in the
economic prospects of advertisers or the economy generally may alter current or
prospective advertisers' spending priorities, or may increase the time it takes
us to close sales with advertisers, and could materially and adversely affect
our business, results of operations and financial condition.
WE MAY EXPERIENCE SEASONAL FLUCTUATIONS IN OUR REVENUES.
We believe that our revenues will be subject to seasonal fluctuations
because advertisers generally place fewer advertisements during the first and
third calendar quarters of each year. Additional seasonal patterns in Internet
advertisers' spending may emerge as the industry matures.
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.
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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 32
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 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.
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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 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
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quality of products and services. This legislation could hinder growth in the
use of the Web generally and decrease the acceptance of the Web as a
communications, commercial and advertising medium. In addition, the growing use
of the Web has burdened the existing telecommunications infrastructure and has,
at times, caused interruptions in telephone service. Telephone carriers have
petitioned the government to regulate and impose fees on ISPs and online service
providers in a manner similar to long distance carriers.
Due to the global nature of the Web, it is possible that, although our
transmissions currently originate in California, Florida and Japan, the
governments of other states or foreign countries might attempt to regulate our
transmissions or levy sales or other taxes relating to our activities. The
European Union recently adopted a directive addressing data privacy that may
result in limits on the collection and use of user information. The laws
governing the Internet remain largely unsettled, even in areas where there has
been some legislative action. It may take years to determine whether and how
existing laws, including those governing intellectual property, privacy, libel
and taxation, apply to the Internet and Internet advertising. In addition, the
growth and development of the market for Internet commerce may prompt calls for
more stringent consumer protection laws, both in the United States and abroad,
that may impose additional burdens on companies conducting business over the
Internet. Our business, results of operations and financial condition could be
materially and adversely affected by the adoption or modification of laws or
regulations relating to the Internet, or the application of existing laws to the
Internet or Internet-based advertising.
WE MAY BE LIABLE FOR CONTENT DISPLAYED ON THE WEB SITES OF OUR PUBLISHERS WHICH
COULD INCREASE OUR EXPENSES.
We may be liable to third parties for content in the advertising we deliver
if the artwork, text or other content involved violates copyright, trademark, or
other intellectual property rights of third parties or if the content is
defamatory. Any claims or counterclaims could be time-consuming, result in
costly litigation or divert management's attention.
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 February 18, 2000, upon
completion of this offering, we will have 27,916,712 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
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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 December 31, 1999, options to purchase 2,847,820 shares
of common stock were outstanding. Shares acquired upon exercise of these options
will be eligible for sale in the public market from time to time subject to
vesting and the 180-day lockup restrictions that apply to the outstanding stock.
The exercise price of all of these stock options is lower than the expected
initial public offering price of our common stock. DoubleClick will also have
the right to require us to register the shares of our common stock that it
acquires in its initial investment 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 will be determined by
us and the representatives of the underwriters and may not be indicative of
prices that will prevail in the trading market. The price at which our common
stock will trade after this offering is likely to be highly volatile and may
fluctuate substantially due to factors such as:
- actual or anticipated fluctuations in our results of operations;
- changes in securities analysts' expectations, or our failure to meet those
expectations;
- announcements of technological innovations;
- introduction of new services by us or our competitors;
- developments with respect to intellectual property rights;
- conditions and trends in the Internet and other technology industries; and
- general market conditions.
In addition, the stock market has from time to time experienced significant
price and volume fluctuations that have affected the market prices for the
common stocks of technology companies, particularly Internet companies. In the
past, these broad market fluctuations have been unrelated or disproportionate to
the operating performance of these companies. Any significant fluctuations in
the future might result in a decline in the market price of our common stock. In
the past, following periods of volatility in the market price of a particular
company's securities, securities class action litigation has often been brought
against that company. We may become involved in this type of litigation in the
future. Litigation is often expensive and diverts management's attention and
resources, which could harm our business and operating results.
DELAWARE LAW CONTAINS ANTI-TAKEOVER PROVISIONS THAT COULD DETER TAKEOVER
ATTEMPTS, EVEN IF SUCH TRANSACTIONS WOULD BE BENEFICIAL TO OUR STOCKHOLDERS.
Provisions of Delaware law could make it more difficult for a third party to
acquire us, even if doing so would be beneficial to our stockholders. 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. See
"Description of Capital Stock--Delaware Anti-Takeover Law" for more detailed
information.
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<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. You should not rely on these forward-looking statements. We use
words such as "anticipates," "believes," "plans," "expects," "future," "intends"
and similar expressions to identify forward-looking statements. Our actual
results could differ materially from those anticipated in these forward-looking
statements for many reasons, including the risks faced by us and described in
the preceding "Risk Factors" section and elsewhere in this prospectus. This
prospectus also contains forward-looking statements attributed to third parties
relating to their estimates regarding the growth of Internet use, e-commerce and
Internet advertising. 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 an assumed initial public offering price of $12.00 per share, after
deducting underwriting discounts and commissions and estimated offering
expenses, are estimated to be $43.4 million, or $47.0 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.
19
<PAGE>
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 (c) the pro forma information on an
as adjusted basis to give effect to the receipt of the estimated net proceeds
from the sale of shares of common stock in this offering at an assumed initial
public offering price of $12.00 per common share. The table does not include:
- 7,878,562 shares of our common stock that DoubleClick has agreed to
purchase for $10.88 per share;
- 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
---------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
-------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................................ $ 2,129 $ 2,129 $45,569
======= ======= =======
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... 2 -- --
Common stock, par value $0.001; 100,000,000 shares
authorized; 10,241,920 shares issued and outstanding,
actual; 15,535,492 shares issued and outstanding, pro
forma; 19,535,492 shares issued and outstanding, pro
forma as adjusted.................................... 10 16 20
Additional paid in capital............................... 18,125 18,122 61,558
Deferred stock compensation.............................. (6,204) (6,204) (6,204)
Cumulative foreign currency translation adjustments...... (30) (30) (30)
Accumulated deficit...................................... (2,504) (2,504) (2,504)
------- ------- -------
Total stockholders' equity............................. 9,400 9,400 52,840
------- ------- -------
Total capitalization............................... $ 9,420 $ 9,420 $52,860
======= ======= =======
</TABLE>
20
<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1999 was
approximately $5.5 million or $0.35 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 an assumed initial public offering price of $12.00
per common share after deducting estimated underwriting discounts and
commissions and estimated offering expenses, our pro forma net tangible book
value as of December 31, 1999 would have been $2.50 per share of common stock.
This represents an immediate increase in net tangible book value of $2.15 per
common share to existing stockholders and an immediate dilution of $9.50 per
share to new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $12.00
Pro forma net tangible book value per share before the
offering................................................ 0.35
Increase attributable to new investors.................... 2.15
-----
Pro forma net tangible book value after the offering........ 2.50
------
Dilution per share to new investors......................... $ 9.50
======
</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.
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders (1)... 15,535,492 79.5% $ 8,438,200 15.0% $ 0.54
New investors............... 4,000,000 20.5 48,000,000 85.0 $12.00
---------- ---- ----------- ----
Totals.................. 19,535,492 100% $56,438,200 100% $ 2.89
========== ==== =========== ====
</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 8 of the notes to our financial
statements for more information on our capital stock and further dilution you
may experience.
The foregoing table also does not include the shares to be issued in
connection with the DoubleClick investment. Assuming the DoubleClick investment
had closed on December 31, 1999 we would have issued 7,878,562 shares of common
stock at $10.88 per share. We also would have issued DoubleClick a common stock
purchase warrant 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 15,250,492 or approximately
78% of total shares of common stock outstanding after this offering.
21
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with the financial statements, the notes to the financial statements and the
other information contained in this prospectus. The selected balance sheet data
as of December 31, 1997 and statement of operations data for the period July 1,
1997 through December 31, 1997 and the four months ended April 30, 1998 have
been derived from the audited financial statements of the ValueClick line of
business of Web-Ignite Corporation appearing elsewhere in this prospectus. The
selected balance sheet data as of December 31, 1998 and 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 3,521
Amortization of intangibles and acquired
software............................... -- -- 33 401
-------- -------- -------- --------
Total operating expenses............... 116 134 1,169 11,713
-------- -------- -------- --------
(Loss) income from operations............ (31) 31 (221) (1,582)
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) (1,601)
Provision for income taxes................. -- -- -- 897
-------- -------- -------- --------
Net (loss) income before minority
interest................................. (31) 31 (222) (2,498)
Minority interest in ValueClick Japan...... -- -- -- (6)
-------- -------- -------- --------
Net (loss) income...................... $ (31) $ 31 $ (222) $ (2,504)
======== ======== ======== ========
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>
22
<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 3,521
Amortization of intangibles and acquired software......... 33 892
-------- --------
Total operating expenses................................ 1,303 12,734
-------- --------
Loss from operations...................................... (190) (2,276)
Equity in loss of ValueClick Japan.......................... (9) --
Interest income, net........................................ 8 45
-------- --------
Loss before income taxes and minority interest............ (191) (2,231)
Provision for income taxes.................................. -- 897
-------- --------
Net loss before minority interest........................... (191) (3,128)
Minority interest in ValueClick Japan....................... -- 59
-------- --------
Net loss................................................ $ (191) $ (3,069)
======== ========
Net loss per common share:
Basic and diluted(1).................................. -- --
Shares used to calculate basic and diluted(1)......... -- --
Pro forma basic and diluted(2)........................ -- $ (0.21)
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............................... -- (6,204)
Total stockholders' equity................................ 765 9,400
</TABLE>
- --------------------------
1. See Notes 1 and 9 of Notes to Financial Statements for determination of
shares used in computing basic and diluted net loss per common share.
2. Pro forma to give effect to the automatic conversion of all issued and
outstanding shares of preferred stock into 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.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND OUR
RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH "SELECTED FINANCIAL
DATA" AND OUR 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.
24
<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.
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 January 11, 2000, we entered into an agreement with DoubleClick, a
leading worldwide provider of Internet advertising solutions, involving an
investment by DoubleClick in our company. Under the agreement, DoubleClick would
acquire 7,878,562 shares of our common stock for a purchase price of $10.88 per
share, $10.0 million of which would be paid in cash and the remainder of which
will be paid in 732,860 shares of DoubleClick common stock valued at
$75.7 million. Under the agreement we also would grant a warrant to DoubleClick
to acquire additional shares of our common stock at $21.76 per share payable in
DoubleClick common stock. This warrant would be exerciseable for that number of
shares that would result in DoubleClick owning 45% of our outstanding common
stock on a fully-diluted basis. The warrant would be exerciseable for 15 months
following the closing of DoubleClick's initial investment. The closing of this
initial investment is expected to occur in February 2000. The per share
consideration we would receive in exchange for the common stock and warrant that
we will issue to DoubleClick was determined based on the fair value of our
common stock in arms' lengths negotiations with DoubleClick and as such will be
recorded at the issuance price. See "DoubleClick Investment."
25
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth statement of operations data for the periods
indicated as a percentage of revenues:
<TABLE>
<CAPTION>
PERIOD FROM
MAY 1, 1998 COMBINED
(INCEPTION) HISTORICAL(1)
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. 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.
26
<PAGE>
COST OF REVENUES
Cost of revenues consists primarily of amounts we pay to Web sites on the
ValueClick network. We pay these Web sites on a cost-per-click basis. Cost of
revenues also includes depreciation costs of the advertising delivery system and
Internet access costs. 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.
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
27
<PAGE>
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 $9.2 million. This deferred compensation represented the difference
between the deemed fair value of our common stock for accounting purposes and
the exercise price of these options at the date of grant or the purchase price
of these restricted shares at the date of issuance, resulting in an expense
charge of $3.0 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 $3.8
million for the year ending December 31, 2000, $1.6 million for the year ending
December 31, 2001, $684,000 for the year ending December 31, 2002, and $192,000
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.
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.
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.
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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.
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 2,044
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 5,917
---- ----- ----- ------ ------ ------ ------ -------
Income (loss) from
operations............... 32 (110) (47) (65) 128 (119) (477) (1,114)
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) (1,107)
Provision for income
taxes.................... -- -- -- -- (62) (154) (300) (381)
---- ----- ----- ------ ------ ------ ------ -------
Net income (loss) before
minority interest........ $ 32 $(109) $ (44) $ (70) $ 29 $ (269) $ (770) $(1,488)
==== ----- ----- ------ ------ ------ ------ -------
Minority interest in
ValueClick Japan......... -- -- -- -- -- -- 28 (34)
---- ----- ----- ------ ------ ------ ------ -------
Net income (loss)...... $ 32 $(109) $ (44) $ (70) $ 29 $ (269) $ (742) $(1,522)
==== ===== ===== ====== ====== ====== ====== =======
</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."
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,
- maintain a quick ratio 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
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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.
Upon the closing of the DoubleClick investment, we will receive $10,000,000
in cash and 732,860 shares of DoubleClick common stock. In connection with this
transaction, we would obtain 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 our shares of DoubleClick stock. In addition, we
would 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. DoubleClick's stock price will likely be volatile, and we cannot
predict the value we will ultimately realize from our DoubleClick shares. We
anticipate that the DoubleClick investment will be completed in late February
2000 following the termination or expiration of the applicable waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
satisfaction of other closing conditions.
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 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
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<PAGE>
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.
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
would receive 732,860 shares of DoubleClick common stock valued at approximately
$75.7 million based on a value of $103.31 per share of DoubleClick common stock,
which was the 30 day weighted average closing price of DoubleClick's common
stock ending on January 10, 2000. 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.
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<PAGE>
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1998, the Accounting Standards Executive Committee issued Statement
of Position No. 98-1, or SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," which provides guidance on
accounting for the cost of computer software developed or obtained for internal
use. SOP 98-1 is effective for financial software statements for fiscal years
beginning after December 15, 1998. Implementation of SOP 98-1 did not have a
significant impact on our financial position, results of operations or cash
flows.
In April 1998, the Accounting Standards Executive Committee issued Statement
of Position No. 98-5, or SOP 98-5, "Reporting on the Costs of Start-Up
Activities." This standard requires companies to expense the costs of start-up
activities and organization costs as incurred. In general, SOP 98-5 is effective
for fiscal years beginning after December 13, 1998. Adoption of SOP 98-5 did not
have a significant impact on our financial position, results of operations or
cash flows.
In June 1998, the Accounting Standards Executive Committee issued Statement
of Accounting Standards No. 133, or SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes new standards of
accounting and reporting for derivative instruments and hedging activities. SFAS
133 requires that all derivatives be recognized at fair value in the statement
of financial position, and that the corresponding gains and losses be reported
either in the statement of operations or as a component of comprehensive income,
depending on the type of hedging relationship that exists. SFAS 133 will be
effective for fiscal years beginning after June 15, 2000. We do not currently
hold derivative instruments or engage in hedging activities. Accordingly,
management believes the adoption of this statement will not have a significant
impact on our financial position, results of operations or cash flows.
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<PAGE>
BUSINESS
OVERVIEW
We are a leading provider of performance-based Internet advertising
solutions for publishers of Web sites and online advertisers. 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 of Web sites
has grown approximately 50% during 1999 and currently consists of over 10,600
small- to medium-sized Web sites, each of which must satisfy our strict quality
standards for content and traffic. This network reaches approximately 28% of
U.S.-based Internet users and 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 provide online advertisers a more cost-effective
solution than purchasing advertising space directly from individual Web
publishers. In addition, we believe our CPC model offers several advantages for
both advertisers and Web publishers over the traditional cost-per-thousand-
impressions model, known as CPM, in which advertisers pay based on the number of
banner ads delivered. These advantages include:
- a low-risk solution for advertisers, since they do not pay us for
advertisements which do not result in 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 January 11, 2000, we initiated a strategic relationship with DoubleClick,
a leading worldwide provider of Internet advertising solutions for advertisers
and Web publishers. We have agreed to sell to DoubleClick approximately 30% of
our common stock and we have agreed to issue 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.
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.
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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 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.
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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 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-
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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.
OUR STRATEGY
Our objective is to be the leading provider of performance-based 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
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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.
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 January 11, 2000, we initiated a strategic relationship with DoubleClick,
a leading worldwide provider of Internet advertising solutions for advertisers
and Web publishers. As part of this agreement, we have agreed to sell
DoubleClick approximately 30% of our common stock and we have agreed to issue 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. The successful integration of DART
technology with our existing
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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.
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
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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.
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
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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.
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 32
employees, of whom 12 are direct salespersons. 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.
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
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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, 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.
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Our ability to compete depends upon several factors, including the
following:
- our ability to aggregate a large network of small- to medium-sized Web
sites efficiently,
- the timing and market acceptance of new solutions and enhancements to
existing solutions developed by us,
- our customer service and support efforts,
- our sales and marketing efforts, and
- the ease of use, performance, price and reliability of solutions developed
by us.
Additional competitive factors include each competitor's reputation,
knowledge of the advertising market, financial controls, geographical coverage,
relationships with clients, technological capability and quality and breadth of
services. We expect that we will face additional competition from new entrants
into the market in the future.
Our principal competitors are 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. 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, reaches
more U.S.-based Internet users and produces more clicks than Flycast's CPCnet
unit. 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 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.
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.
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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 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 18, 2000, we had 60 full-time and part-time employees in the
U.S., 32 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 will receive
732,860 shares of DoubleClick common stock. The impact
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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 February 18, 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...................................... 63 Director
Steven J. Umberger.................................. 38 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 and became the Vice Chairman of the Board in July 1999. Prior
to joining ValueClick, Mr. Malm was the Chief Operating Officer for AIM Funds,
an investment management company in San Francisco from June 1998 to March 1999.
From March 1990 to May 1998, Mr. Malm served in various capacities at GT Global,
an investment management company, including Senior Vice President of
Institutional Marketing, Executive Vice President of Business Development and
Chief Operating Officer. In addition, Mr. Malm has over 25 years of business
experience in service industries. Mr. Malm has held senior management positions
in technology businesses with GE and RCA which has given him a
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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.
BOARD OF DIRECTORS
Our Board is currently composed of seven members. Each director serves until
the next annual meeting or until his or her successor is duly elected and
qualified.
BOARD COMMITTEES
In March 1999, the Board established an audit committee and a compensation
and incentive plan committee. Mr. Leppo, Mr. Hart and Mr. Umberger serve on the
audit committee and Mr. Leppo and Mr. Buzby comprise the compensation and
incentive plan committee.
BOARD COMPENSATION
The directors of ValueClick do not currently receive salaries or fees for
serving as directors or for serving on committees of our Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No interlocking relationship exists between our Board of Directors and the
Board of Directors or compensation committee of any other company, nor has any
interlocking relationship existed in the past.
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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<PAGE>
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 $12.00 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 PRICEPER --------------------------------------
GRANTED IN 1999 SHARE 0% 5% 10%
---------- ----------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
James R. Zarley................ 600,000 21% $0.25 $7,050,000 $11,578,041 $18,524,946
James R. Zarley................ 800,000 28% $1.00 8,800,000 14,837,388 24,099,928
Brian Coryat................... -- -- -- -- -- --
Earle A. Malm II............... 400,000 14% $1.00 4,400,000 7,418,694 12,049,964
Earle A. Malm II............... 13,600 0.5% $1.00 149,600 252,236 409,699
Kurt A. Johnson................ 150,000 5% $1.00 1,650,000 2,782,010 4,518,736
</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 an assumed initial public offering price of $12.00
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 $5,236,116 $10,613,884
Brian Coryat................................... -- -- -- --
Earle A. Malm II............................... 246,934 166,666 2,716,274 1,833,326
Kurt A. Johnson................................ 27,976 122,024 307,736 1,342,264
</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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<PAGE>
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.
600,000 of the options granted to Mr. Zarley, all of the options granted to
Mr. Malm, 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.
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<PAGE>
OPTIONS GRANTED UNDER EMPLOYMENT AGREEMENTS
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
NAME BASE SALARY UNDERLYING OPTIONS EXERCISE PRICE EXPIRATION DATE
- ---- ----------- -------------------- -------------- ----------------
<S> <C> <C> <C> <C>
James R. Zarley............... $150,000 1,400,000(1) $0.25 January 1, 2009
Earle A. Malm II.............. $150,000 413,600(2) $1.00 June 1, 2009
Kurt A. Johnson............... $130,000(3) 150,000(4) $1.00 May 23, 2009
John H. Schwenk............... $100,000 200,000(5) $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) 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.
(3) 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.
(4) 25,000 of Mr. Johnson's options become 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.
(5) 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, 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
employment agreement provides for a one-year term but may be terminated at any
time by either party upon ten days' notice. If we terminate Mr. Johnson's
employment in connection with, or following and by reason of, the transfer of
ownership of 50% or more of ValueClick, he will be entitled to severance equal
to one year's salary. In the event we terminate Mr. Malm's employment following
a change in control of ValueClick or for any reason other than for cause,
Mr. Malm will be entitled to all compensation, stock options and health and
welfare benefits to which he would otherwise be entitled during the remaining
term of employment.
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<PAGE>
THE DOUBLECLICK INVESTMENT
On January 11, 2000, we initiated a strategic relationship with DoubleClick,
a leading worldwide provider of Internet advertising solutions for advertisers
and Web publishers. The terms of this agreement involve an investment by
DoubleClick of approximately $85.7 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:
- 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 will acquire 7,878,562 shares of our common stock, which represents
approximately 30% of our fully diluted outstanding common stock, for a purchase
price of $10.88 per share. DoubleClick will pay $10.0 million in cash and
732,860 shares of DoubleClick common stock valued at $75.7 million, based on a
value of $103.31 per share of DoubleClick common stock as the weighted average
closing price of DoubleClick's common stock for the 30 trading days prior to and
including January 10, 2000. As part of the common stock investment, we will also
deliver 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 will be exercisable for 15 months after the
closing of DoubleClick's initial investment, 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 will receive in exchange for the common stock
and warrant that we will issue to DoubleClick was determined based on the fair
value of our common stock in arms length negotiations with DoubleClick, and as
such will be 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 license fee to
be paid to DoubleClick under this agreement is still under negotiation. 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 technology under
commercially
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<PAGE>
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 receive as payment under the
Purchase Agreement. This registration right will terminate 28 months after the
closing under the purchase agreement. 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 will 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 will 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.
Under the investor rights agreement and voting agreement to be signed at the
closing under the purchase agreement, we would grant certain additional rights
and make certain additional agreements with DoubleClick, as follows:
- Our founders and principal stockholders holding an aggregate of 60% of our
common stock would agree 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.
- We would agree, 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 would grant 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 would grant 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 would have 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 would have 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 would have 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 would be obligated to vote its
shares of ValueClick 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
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<PAGE>
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 would agree to standstill provisions under which it would not,
until January 11, 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.
We anticipate that this transaction with DoubleClick will close during
February 2000. The consummation of this transaction is subject to, among other
things:
- the expiration of the applicable waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
- confirmation of the accuracy of the representations and warranties of the
parties and the performance of the covenants of the parties, and
- receipt of required Blue Sky law permits and qualifications or exemptions
from these requirements.
While we believe that we will complete the DoubleClick transaction during
February 2000, there can be no assurance that this transaction will be
successfully completed during February, if at all, or that completion of the
transactions can be accomplished on terms that are commercially viable to
ValueClick.
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<PAGE>
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
share of its Series A Convertible Preferred Stock and 1,047,804 shares of its
Series B Convertible Preferred Stock, all of which ValueClick, LLC then
distributed to its members upon its dissolution. The 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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<PAGE>
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 February 18, 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 February 18, 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
OWNED PRIOR TO SHARES BENEFICIALLY
OFFERING OWNED AFTER OFFERING(2)
--------------------- ------------------------
NAME OF STOCKHOLDER(1) NUMBER PERCENT NUMBER PERCENT
- ---------------------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C>
NAMED EXECUTIVE OFFICERS AND DIRECTORS:
James R. Zarley(3).............................. 1,226,987 5.1% 1,226,987 4.3%
Brian Coryat(4)................................. 5,168,964 21.6 5,168,964 18.5
Earle A. Malm II(5)............................. 554,502 2.3 554,502 2.0
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................................. 1,013,078 4.2 1,013,078 3.6
Martin T. Hart(9)............................... 629,630 2.6 629,630 2.3
Steven J. Umberger.............................. 962,210 4.0 962,210 3.4
5% STOCKHOLDERS:
DoubleClick Inc. (10)........................... 7,878,562 32.9 7,878,562 28.2
Michael J. Bueno(11)............................ 1,359,732 5.7 1,359,732 4.9
All directors and executive officers as a group
(9 persons)(12)................................. 10,228,973 41.2% 10,228,973(13) 35.5%
</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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<PAGE>
(3) Includes (a) 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 (b) 44,444 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 February 18, 2000.
(4) If the underwriters' over-allotment option is exercised in full, Mr. Coryat
will sell 233,700 shares in this offering and will beneficially own
4,935,264 shares (15.5%) after the offering.
(5) Includes 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, and 13,600 shares of common
stock presently exercisable at a price of $1.00 per share.
(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 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 315,222 shares of common stock and 146,342 shares of Series B
Preferred Stock held by Buzby-Vasan 1997 Trust.
(9) Represents 629,630 shares of Series C Preferred Stock held by VC Investors
LLC. Mr. Hart is the managing partner of VC Investors LLC.
(10) 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.
(11) If the underwriters' over-allotment option is exercised in full, Mr. Bueno
will sell 51,300 shares in this offering and will beneficially own 1,308,432
shares (4.2%) 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.
(12) Includes (a) 58,044 shares of common stock issuable upon the exercise of
stock options with a price of $1.00 per share, which are presently
exercisable or will become exercisable within 60 days of February 18, 2000
and (b) 400,000 and 475,000 shares, respectively, 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.
(13) Includes 233,700 shares which Mr. Coryat and 51,300 shares which Mr. Bueno
will sell in this offering if the underwriters' over-allotment option is
exercised in full.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, we will be authorized to issue
100,000,000 shares of common stock, $.001 par value per share, and 20,000,000
shares of preferred stock, $.001 par value per share.
COMMON STOCK
As of February 18, 2000, there were 10,744,578 shares of common stock
outstanding held of record by 26 stockholders, or 23,916,712 shares, held of
record by 54 stockholders as adjusted to reflect the conversion of all
outstanding preferred stock upon the consummation of this offering and the
issuance of shares to DoubleClick upon the close of the DoubleClick investment.
Options to purchase an aggregate of 2,351,162 shares of common stock were also
outstanding as of February 18, 2000. There will be 27,916,712 shares of common
stock outstanding, assuming no exercise of the underwriters' over-allotment
option or exercises of outstanding options under our 1999 stock option plan
after February 15, 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.
WARRANTS
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 72,083,288 shares of authorized but unissued common stock,
including an aggregate of 4,000,000 shares reserved for issuance upon the
exercise of options under our 1999 stock plan, and 20,000,000 shares of
authorized preferred stock, of which none will be issued and outstanding. If the
underwriters' over-allotment option is exercised in full, we will have
approximately 71,768,288 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.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock is ChaseMellon
Shareholder Services, L.L.C.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of common stock in the public market could
adversely affect prevailing market prices. Furthermore, since only a limited
number of shares will be available for sale shortly after this offering because
of certain contractual and legal restrictions on resale (as described below),
sales of substantial amounts of our common stock in the public market after the
restrictions lapse could adversely affect the prevailing market price and our
ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding 27,916,712 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 23,916,712 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, 16,052,150 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 6,000 shares will become eligible for sale pursuant to
Rule 144 in February 2001. 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 has agreed to purchase will become
eligible for sale pursuant to Rule 144 one year after the closing of the
DoubleClick investment, 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.
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
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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 279,167 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 February 18, 2000, there were outstanding
options under the 1999 Stock Option Plan for the purchase of 2,351,162 on
June 23, 2000 shares. See "Risk Factors--Virtually all of our shares will be
eligible for sale shortly after this offering, which could result in a decline
in our stock price" and "Management--Employee Benefit Plans."
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."
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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 SoundView Technology Group, Inc. are
the representatives of the underwriters.
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ---------
<S> <C>
Goldman, Sachs & Co.........................................
Salomon Smith Barney Inc....................................
SoundView Technology Group, Inc.............................
---------
Total.................................................
=========
</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................... $ $ n/a $
Total....................... $ $ n/a $
</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 $ 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 $ 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 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 will be negotiated among us and the
representatives. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be 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.
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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 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.
68
<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.
69
<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 Financial Consolidated 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>
The following report is in the form that will be signed upon the completion
of the one-for-two reverse stock split as described in Note 14 of the notes to
the consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
Woodland Hills, California
February 18, 2000
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.
Woodland Hills, California
February 7, 2000, except for Note 14, as
to which the date is February 18, 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 15,535,492 shares issued and outstanding at
December 31, 1999....................................... 9,919 10,242 15,535
Additional paid-in capital................................ 753,358 18,125,093 18,122,447
Deferred stock compensation............................... -- (6,203,670) (6,203,670)
Cumulative foreign currency translation adjustment........ -- (30,027) (30,027)
Accumulated deficit....................................... -- (2,504,068) (2,504,068)
---------- ----------- -----------
Total stockholders' equity............................ 764,622 9,400,217 $ 9,400,217
---------- ----------- ===========
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 3,521,136
Amortization of intangibles and acquired software......... 33,333 400,849
----------- -----------
Total operating expenses.............................. 1,169,539 11,712,157
----------- -----------
Loss from operations...................................... (221,237) (1,581,471)
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) (1,601,053)
Provision for income taxes.................................. -- 896,645
----------- -----------
Net income before minority interest......................... -- (2,497,698)
Minority interest in ValueClick Japan....................... -- (6,370)
----------- -----------
Net loss.............................................. $ (222,753) $(2,504,068)
=========== ===========
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
interests........................ 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........ -- -- -- -- -- -- 9,161,622
Charge for issuance of stock and
stock options to non-employees... -- -- -- -- -- -- 563,184
Amortization of stock-based compen-
sation........................... -- -- -- -- -- -- --
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 18,125,093
Assumed conversion of convertible
preferred stock.................. -- -- (2,646,786) (2,647) 5,293,572 5,293 (2,646)
------------ --------- ----------- ------- ----------- ------- -----------
Balance at December 31, 1999, pro
forma (unaudited)................ -- $ -- -- $ -- 15,535,492 $15,535 $18,122,447
============ ========= =========== ======= =========== ======= ===========
<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
interests........................ -- -- -- 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........ (9,161,622) -- -- --
Charge for issuance of stock and
stock options to non-employees... -- -- -- 563,184
Amortization of stock-based compen-
sation........................... 2,957,952 -- -- 2,957,952
Issuance of common stock to acquire
ValueClick Japan................. -- -- -- 4,147,200
Exercise of common stock options... -- -- -- 2,916
Comprehensive loss:
Net loss......................... -- -- (2,504,068) (2,504,068)
Foreign currency translation..... -- (30,027) -- (30,027)
----------- -------- ----------- ----------
Total comprehensive loss........... -- -- -- (2,534,095)
----------- -------- ----------- ----------
Balance at December 31, 1999....... (6,203,670) (30,027) (2,504,068) 9,400,217
Assumed conversion of convertible
preferred stock.................. -- -- -- --
----------- -------- ----------- ----------
Balance at December 31, 1999, pro
forma (unaudited)................ $(6,203,670) $(30,027) $(2,504,068) $9,400,217
=========== ======== =========== ==========
</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) $(2,504,068)
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 3,521,136
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 at 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..................... $ -- $ 29,535
========= ===========
</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 straightline 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 statements of operations.
Deferred revenue represents payments received in advance for advertising
click-throughs. Such fees will be recognized as revenues once the advertising
click-throughs are delivered and no significant Company obligations remain.
COST OF REVENUES
Cost of revenues consist of payments to third-party web sites in the
Company's network, telecommunications costs, depreciation of equipment used for
ad delivery, and personnel and occupancy costs related to the Company's ad
delivery infrastructure.
SALES AND MARKETING
Sales and marketing expenses include salaries, sales commissions, employee
benefits, travel and related expenses for the Company's sales force, and
advertising costs.
Advertising costs 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 relative stable interest
rate environment.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates its long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of such assets or
intangibles may not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to future
undiscounted net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. To date, no such impairment has been recorded.
BASIC AND DILUTED NET LOSS PER SHARE
The Company has adopted the provisions of Financial Accounting Standards
Board ("FASB") issued SFAS No. 128, "Earnings Per Share" ("Statement 128").
Basic and diluted net loss per share is computed by dividing the net loss per
share by the weighted average shares of common stock outstanding.
UNAUDITED PRO FORMA NET LOSS PER SHARE 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
4-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 four shares of common stocks subject to
antidulition 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.
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
founder 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 consist 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.
F-13
<PAGE>
VALUECLICK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
Upon conversion to a C-corporation, ValueClick commenced using the asset and
liability method of accounting for income taxes. Under this method, deferred tax
assets and liabilities are recognized for future taxable consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases, and to operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in results of operations in the period that includes the
enactment date.
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>
F-14
<PAGE>
VALUECLICK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. CAPITALIZATION
On December 31, 1998, in connection with the Company's LLC conversion and
reincorporation as a Delaware C-corporation, membership interests were exchanged
for an equivalent number of common and preferred shares.
PREFERRED STOCK
In May and June 1998, the Company sold membership interests in ValueClick,
LLC for total proceeds of approximately $776,000. On December 31, 1998, in
connection with the Company's conversion and reincorporation, the membership
interests were exchanged for Series A and Series B 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
F-15
<PAGE>
VALUECLICK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. CAPITALIZATION (CONTINUED)
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.
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
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
F-16
<PAGE>
VALUECLICK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCK OPTIONS (CONTINUED)
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 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 $7,810,000 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 $2,409,000.
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 0 13.00
18,500 9.9 20.00 0 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.
F-18
<PAGE>
VALUECLICK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. NET LOSS PER SHARE (CONTINUED)
The following table sets forth the computation of basic, diluted and pro
forma net loss per share for the periods indicated:
<TABLE>
<CAPTION>
PERIOD FROM MAY 1,
1998 (INCEPTION)
THROUGH
DECEMBER 31, 1998
HISTORICAL YEAR ENDED
PRO FORMA DECEMBER 31, 1999
------------------- ------------------
<S> <C> <C>
HISTORICAL PRESENTATION
Numerator:
Net loss............................................... $ (222,753) $(2,504,068)
Denominator:
Weighted average common shares......................... 9,912,132 9,686,757
Basic and diluted net loss per common share.............. $ (0.02) $ (0.26)
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.
F-19
<PAGE>
VALUECLICK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 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.
F-20
<PAGE>
VALUECLICK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. SEGMENTS, GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS (CONTINUED)
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 $(1,424,480) $4,621,043
Japan............................. 2,093,354 14,764 200,160
Europe............................ -- (171,755) 17,022
----------- ----------- ----------
Total......................... $20,288,089 $(1,581,471) $4,838,225
=========== =========== ==========
</TABLE>
There were no significant foreign operations prior to the acquisition of
majority control of ValueClick Japan in August of 1999.
For the year ended 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
On January 11, 2000, the Company entered into an agreement with DoubleClick,
a leading worldwide provider of Internet advertising solutions whereby
DoubleClick will acquire 7,878,562 shares of the Company's common stock for a
purchase price of $10.88 per share which will be paid in cash of $10.0 million
and 732,860 shares of DoubleClick common stock valued at $75.7 million. The
agreement also provided DoubleClick a warrant 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 15 months following the
closing of DoubleClick's initial investment. The closing is expected to occur in
February 2000.
On February , 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.
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.......... 3,521 -- -- 3,521
Amortization of intangibles and
acquired software............... 401 -- 491(4) 892
---------- ----- ----- ----------
Total operating expenses........ 11,713 530 491 12,734
---------- ----- ----- ----------
Loss from operations................ (1,582) (203) (491) (2,276)
Equity in losses in ValueClick
Japan............................. (64) -- 64(2) --
Interest income, net................ 45 -- -- 45
---------- ----- ----- ----------
Loss before income taxes and
minority interest................. (1,601) (203) (427) (2,231)
Provision for income taxes.......... 897 -- -- 897
---------- ----- ----- ----------
Net loss before minority interest... (2,498) (203) (427) (3,128)
Minority interest................... (6) -- 65(3) 59
---------- ----- ----- ----------
Net loss............................ $ (2,504) $(203) $(362) $ (3,069)
========== ===== ===== ==========
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.
OUTSIDE BACK COVER
Company logo of "ValueClick" located in center of page with an arrow
pointing upwards in place of the letter "i." The phrase "The Pay-For-Results
Advertising Network" is centered beneath the logo.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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..................... 19
Use of Proceeds................................ 19
Dividend Policy................................ 19
Capitalization................................. 20
Dilution....................................... 21
Selected Financial Data........................ 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 24
Business....................................... 35
Management..................................... 47
The DoubleClick Investment..................... 55
Related Party Transactions..................... 58
Principal and Selling Stockholders............. 60
Description of Capital Stock................... 62
Shares Eligible for Future Sale................ 65
Underwriting................................... 67
Legal Matters.................................. 69
Experts........................................ 69
Where You Can Find More Information............ 69
Index to Financial Statements.................. F-1
</TABLE>
----------------
Through and including , 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
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of common stock being registered. All amounts are estimates except
the SEC registration fee, the NASD filing fee and the Nasdaq National Market
listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 17,584
NASD filing fee............................................. 6,825
Nasdaq National Market listing fee.......................... 95,000
Blue Sky fees and expenses.................................. 7,500
Printing and engraving expenses............................. 275,000
Legal fees and expenses..................................... 425,000
Accounting fees and expenses................................ 300,000
Transfer Agent and Registrar Fees........................... 30,000
Miscellaneous............................................... 43,091
----------
Total..................................................... $1,200,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law, we can indemnify
our directors and officers against liabilities they may incur in such
capacities, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act"). Our certificate of incorporation provides that, pursuant
to Delaware Law, our directors shall not be liable for monetary damages for
breach of the directors' fiduciary duty of care to ValueClick and our
stockholders. This provision in the certificate of incorporation does not
eliminate the duty of care, and in appropriate circumstances equitable remedies
such as injunctive or other forms of nonmonentary relief will remain available
under Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to ValueClick or our
stockholders, for acts or omissions not in good faith or involving intentional
misconduct or knowing violations of the law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are unlawful under Delaware Law. The
provision also does not affect a director's responsibilities under any other
law, such as the federal securities laws or state or federal environmental laws.
Our bylaws provide that we will indemnify our directors and officers to the
fullest extent permitted by law and require us to advance litigation expenses
upon our receipt of an undertaking by the director or officer to repay such
advances if it is ultimately determined that the director or officer is not
entitled to indemnification. Our bylaws further provide that rights conferred
under such bylaws do not exclude any other right such persons may have or
acquire under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise.
We also have directors' and officers' liability insurance. In addition,
prior to the closing of this offering, we will enter into agreements to
indemnify our directors and certain of our officers in addition to the
indemnification provided for in the certificate of incorporation and bylaws.
These agreements will, among other things, indemnify our directors and certain
of our officers for certain expenses (including attorneys fees), judgments,
fines and settlement amounts incurred by such person in any action or
proceeding, including any action by or in our right, on account of services by
that person as a director or officer of ValueClick or as a director or officer
of any subsidiary of ValueClick, or as a director or officer of any company or
enterprise that the person provides services to at the request of ValueClick.
The Underwriting Agreement provides for indemnification by the underwriters
of ValueClick and its officers and directors, and by ValueClick of the
underwriters, for certain liabilities arising under the Securities Act or
otherwise.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following is a summary of transactions by ValueClick since its inception
in May 1998 involving sales of our securities that were not registered under the
Securities Act of 1933, as amended:
Upon its formation on May 1, 1998, ValueClick, LLC issued securities equal
to 6% of its total equity to four accredited investors and two non-accredited
investors for an aggregate purchase price of $60,000 and issued securities equal
to 92% of its total equity to Messrs. Coryat and Bueno in consideration of the
transfer of certain trademarks, software and trademark licenses and contractual
rights with an estimated fair market value of $920,000 to ValueClick.
ValueClick, LLC also issued securities equal to 2% of its total equity to two
individuals on May 1, 1998 in consideration of services rendered, with an
estimated fair market value of $20,000. The non-accredited investors received
offering materials satisfying the requirements of Rule 506 of Regulation D of
the Securities Act. By meeting the requirements of Rule 506 these issuances of
securities were exempt from registration under the Securities Act.
In May and June 1998, ValueClick, LLC issued securities equal to 17% of its
total equity to thirteen accredited and three non-accredited investors for an
aggregate purchase price of $716,000. The non-accredited investors received
offering materials satisfying the requirements of Rule 506. By meeting the
requirements of Rule 506 these issuances of securities were exempt from
registration under the Securities Act.
In June 1998, ValueClick, LLC issued securities equal to 4.83% of its total
equity to six employees in exchange for services, with an estimated fair market
value of $61,375, they performed for ValueClick, LLC. These securities were
exempt from registration under Rule 701 of the Securities Act as securities
issued in connection with services performed for the issuer.
On December 31, 1998, ValueClick, LLC was reorganized as ValueClick, Inc., a
Delaware corporation, and entered into an Exchange Agreement pursuant to which
ValueClick, Inc. issued to ValueClick, LLC 9,919,004 shares of ValueClick common
stock, 297,132 shares of Series A Convertible Preferred Stock and 1,047,804
shares of Series B Convertible Preferred Stock for distribution to the members
of ValueClick, LLC upon its dissolution and agreed to assume ValueClick, LLC's
liabilities and acquire ValueClick, LLC's assets. The issuances of shares of
ValueClick, Inc. common stock, Series A Convertible Preferred Stock and
Series B Convertible Preferred Stock were exempt from registration under
Section 3(a)(9) of the Securities Act as an exchange of securities by an issuer
with its existing security holders where no commission or remuneration was paid,
and under Rule 506.
In January 1999, we issued an aggregate of 370,370 shares of Series C
Convertible Preferred Stock for an aggregate purchase price of $1,000,000 to an
accredited investor. This issuance of securities was exempt from registration
under Rule 506.
In February 1999, we issued an aggregate of 220,368 shares of Series C
Convertible Preferred Stock for an aggregate purchase price of $595,000 to ten
accredited investors and one non-accredited investor. The non-accredited
investor received offering materials satisfying the requirements of Rule 506. By
meeting the requirements of Rule 506 these issuances of securities were exempt
from registration.
In March 1999, we issued an aggregate of 462,859 shares of Series C
Convertible Preferred Stock for an aggregate purchase price of $1,249,719 to
four accredited investors. These issuances of securities were exempt from
registration under the Securities Act in reliance on Rule 506.
In June 1999, we issued an aggregate of 248,253 shares of Series C
Convertible Preferred Stock for an aggregate purchase price of $670,283 to seven
accredited investors and one non-accredited investor. The non-accredited
investor is an employee of ValueClick and received offering materials satisfying
the requirements of Rule 506. These issuances of securities were exempt from
registration under the Securities Act in reliance on Rule 506.
From January 1999 to April 1999, we granted options to purchase an aggregate
of 950,000 shares of common stock to our directors, executive officers,
employees and consultants at an exercise price of $0.25 per share. From May 1999
to July 1999, we granted options to purchase 1,484,600 shares of
II-2
<PAGE>
common stock to our directors, executive officers, employees and consultants at
an exercise price of $1.00 per share. From August 1999 to October 1999, we
granted options to purchase an aggregate of 337,000 shares of common stock to
our employees and consultants at an exercise price of $2.00 per share. In
December 1999, we granted options to purchase an aggregate of 5,000, 52,722, and
18,500 shares of common stock to our employees and consultants at exercise
prices of $2.00, $13.00 and $20.00 per share, respectively. As of December 31,
1999, 2,916 shares had been exercised. The issuances of these options were
exempt from registration under Rule 701 of the Securities Act as securities
issued under a written compensatory benefit plan established by us for the
participation of our employees, directors, officers or consultants and advisors.
In August 1999, we issued 320,000 shares of our common stock to two holders
of shares of ValueClick Japan, each of whom are accredited investors, in
exchange for shares of ValueClick Japan equal to 22.3% of the outstanding equity
of ValueClick Japan and having a fair market value of $4,147,000. Accordingly,
these issuances of securities were exempt from registration under the Securities
Act in reliance on Rule 506.
In November 1999, we issued 2,916 shares of our common stock to one
employee, upon exercise of options granted under our 1999 Stock Option Plan, at
an exercise price of $1.00 per share.
In January 2000, we issued 496,658 shares of our common stock to three
employees, upon exercise of options granted under our 1999 Stock Option Plan.
495,436 of the shares were issued at an exercise price of $0.25 per share. 1,222
of the shares were issued at an exercise price of $1.00 per share.
In February 2000, we issued 7,878,562 shares of our common stock at a price
of $10.88 per share to DoubleClick Inc. in consideration of $10,000,000 in cash
and 732,860 shares of DoubleClick common stock. In this transaction, DoubleClick
also received a warrant to purchase that number of shares of our common stock
which would result in DoubleClick owning 45% of our fully diluted shares at a
price of $21.76 per share. This issuance of securities was exempt from
registration under the Securities Act in reliance upon Section 4(2).
In February 2000, we issued 6000 shares of our common stock to three
individuals in consideration of services rendered to ValueClick Europe. This
issuance of securities was exempt from registration under the Securities Act in
reliance on Rule 506 and Regulation S.
The recipients of securities in each transaction described above represented
their intentions to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution thereof and appropriate
legends were affixed to the share certificates issued in these transactions. In
connection with each transaction described above, we did not engage in a general
solicitation for sales. Based on representations of the investors in each of the
transactions described above, we believe each non-accredited investor had such
knowledge and experience in financial and business matters that the investor was
capable of evaluating the merits and risks of the investment in our securities.
All investors had adequate access, through their relationships with ValueClick,
or otherwise, to information about ValueClick.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
See Exhibit Index at page II-7.
(b) Financial Statement Schedules
None required.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in
denominations as required by the underwriters and registered in names as
required by the underwriters to permit prompt delivery to each purchaser.
II-3
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
indemnification is against public policy as expressed in the Securities Act, and
is, therefore, unenforceable. In the event that a claim for indemnification
against liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by a
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether indemnification by it is against public policy
as expressed in the Securities Act and will be governed by the final
adjudication of this issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and this offering of these securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 3 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Carpinteria, State of California on February 22, 2000.
<TABLE>
<S> <C> <C>
VALUECLICK, INC.
By: /s/ KURT A. JOHNSON
-----------------------------------------
Kurt A. Johnson
CHIEF FINANCIAL OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 3 to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
JAMES R. ZARLEY*
------------------------------------------- Chairman of the Board and February 22, 2000
James R. Zarley Chief Executive Officer
EARLE A. MALM II*
------------------------------------------- Director, President and February 22, 2000
Earle A. Malm II Chief Operating Officer
BRIAN CORYAT*
------------------------------------------- Founder and Vice Chairman February 22, 2000
Brian Coryat
/s/ KURT A. JOHNSON Chief Financial Officer
------------------------------------------- (Principal Financial and February 22, 2000
Kurt A. Johnson Accounting Officer)
DAVID S. BUZBY*
------------------------------------------- Director February 22, 2000
David S. Buzby
ROBERT D. LEPPO*
------------------------------------------- Director February 22, 2000
Robert D. Leppo
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
MARTIN HART*
------------------------------------------- Director February 22, 2000
Martin Hart
STEVEN J. UMBERGER*
------------------------------------------- Director February 22, 2000
Steven J. Umberger
</TABLE>
<TABLE>
<S> <C> <C>
/s/ KURT A. JOHNSON
-------------------------------------------
Kurt A. Johnson
*By: ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
1.1 *Form of Underwriting Agreement.
3.1+ Amended and Restated Certificate of Incorporation of the
Registrant, as currently in effect.
3.2+ Bylaws of the Registrant.
4.1 See Exhibits 3.1 and 3.2 for provisions of the Amended and
Restated Certificate of Incorporation and Bylaws for the
Registrant defining the rights of holders of Common Stock
of the Registrant.
4.2 *Specimen Stock Certificate.
5.1+ Form of Opinion of Brobeck, Phleger & Harrison LLP.
10.1+ Deed of Assignment, dated January 1, 1999, by and between
Web-Ignite Corporation and the Registrant.
10.2+ Trademark Assignment, dated as of May 1, 1998, from
Web-Ignite Corporation to the Registrant.
10.3+ Exchange Agreement, dated December 31, 1998, by and between
the Registrant and ValueClick, LLC.
10.4+ Bill of Sale and Assignment and Assumption of Liabilities,
dated December 31, 1998.
10.5+ Loan and Share Issuance Agreement, dated October 22, 1998,
by and between ValueClick, LLC and Jonathan Hendriksen.
10.6+ License and Option Agreement, dated January 1, 1999, by and
between ValueClick, LLC and ValueClick Japan, Inc. in
effect from January 1, 1999 to December 17, 1999.
10.7+ Stock Purchase Agreement, dated August 6, 1999, by and
between Jonathan Hendriksen and Timothy Williams and the
Registrant.
10.8 *Share Purchase Agreement, dated December , 1999, by and
between the Registrant and Steve Umberger.
10.9+ License Agreement, dated August 17, 1999, by and between the
Registrant and ValueClick Europe, Limited.
10.10+ 1999 Stock Option Plan, as amended, and form of option
agreement.
10.11+ Key Employee Agreement between the Registrant and Kurt A.
Johnson.
10.12+ Key Employee Agreement between the Registrant and James R.
Zarley.
10.13+ Key Employee Agreement between the Registrant and Earle A.
Malm II.
10.14+ Key Employee Agreement between the Registrant and John H.
Schwenk.
10.15+ Form of Employee Confidentiality, Noncompetition and
Invention Agreement between the Company each of its
directors and officers and certain employees.
10.16+ Sublease, dated April 1, 1999, between QAD, Inc. and the
Registrant.
10.17+ Lease, dated August 30, 1999, by and between William D. and
Edna J. Wright, dba South Coast Business Park and the
Registrant.
10.18+ Service Agreement, dated August 17, 1999, by and between
SoftAware, Inc. and the Registrant.
10.19+ Service Agreement, dated June 8, 1999, by and between Verio
and the Registrant.
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
10.20 *Form of Indemnification Agreement between the Company and
each of its directors and officers.
10.21+ Loan and Security Agreement, dated October 21, 1999, between
Silicon Valley Bank and the Registrant.
10.22+ Intellectual Property Security Agreement, dated October 21,
1999, by and between Silicon Valley Bank and the
Registrant.
10.24 *Share Purchase Agreement, dated December , 1999, by and
between the Registrant and Todd Treusdell.
10.25 *Share Purchase Agreement, dated December , 1999, by and
between the Registrant and James R. Zarley.
10.26 *Share Purchase Agreement, dated December , 1999, by and
between the Registrant and Brian Coryat.
10.27 Common Stock and Warrant Purchase Agreement, dated January
11, 2000, by and between the Registrant and DoubleClick
Inc.
10.28 Form of Common Stock Purchase Warrant dated , 2000
and issued to DoubleClick Inc.
10.29 Investor Rights Agreement dated as of , 2000 by
and between the Registrant and DoubleClick Inc.
10.30 Voting Agreement dated , 2000 by and among the
Registrant, Michael J. Bueno, Brian Coryat, Steven J.
Umberger, and James R. Zarley and DoubleClick Inc.
10.31 Registration Rights Agreement dated , 2000 by and
between the Registrant and DoubleClick Inc.
10.32 Intercompany License Agreement dated December 17, 1999, by
and between the Registrant and ValueClick Japan, Inc.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2+ Consent of Counsel (included in Exhibit 5.1).
23.3+ Consent of Media Metrix, Inc.
23.4+ Consent of Jupiter Communications
23.5+ Consent of The Yankee Group
24.1+ Power of Attorney
27.1+ Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
+ Previously filed.
II-8
<PAGE>
EXHIBIT 10.27
VALUECLICK, INC.
COMMON STOCK AND WARRANT PURCHASE AGREEMENT
JANUARY 11, 2000
<PAGE>
TABLE OF CONTENTS
PAGE
----
SECTION 1.....................................................................1
1.1 Authorization of Common Stock...............................1
1.2 Sale of Common Stock........................................1
1.3 Issuance of Warrant.........................................1
SECTION 2.....................................................................1
2.1 Closing.....................................................1
2.2 Delivery and Payment........................................1
SECTION 3.....................................................................2
3.1 Organization and Qualification; Subsidiaries................2
3.2 Certificate of Incorporation and Bylaws.....................2
3.3 Capitalization..............................................2
3.4 Corporate Power; Authorization..............................3
3.5 No Conflict; Required Filings and Consents..................4
3.6 Permits; Compliance with Laws...............................4
3.7 SEC Filings; Financial Statements...........................5
3.8 Absence of Certain Changes or Events........................5
3.9 Employee Benefit Plans; Labor Matters.......................6
3.10 Contracts...................................................8
3.11 Litigation..................................................8
3.12 Environmental Matters.......................................8
3.13 Intellectual Property.......................................9
3.14 Taxes......................................................10
3.15 Brokers....................................................12
3.16 Certain Business Practices.................................12
3.17 Section 203 of the DGCL Not Applicable.....................12
3.18 Business Activity Restriction..............................12
3.19 Registration Rights........................................13
3.20 Offering...................................................13
SECTION 4....................................................................13
4.1 Organization and Qualification; Subsidiaries...............13
4.2 Certificate of Incorporation and Bylaws....................13
4.3 Capitalization.............................................13
4.4 Authority Relative to the Authorized Agreements............14
4.5 No Conflict; Required Filings and Consents.................14
4.6 SEC Filings; Financial Statements..........................15
4.7 Brokers....................................................15
4.8 Investment Intent; Blue Sky................................15
4.9 Rule 144...................................................16
4.10 No Public Market...........................................16
-i-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
4.11 Restrictions on Transfer; Restrictive Legends..............16
4.12 Authorization..............................................16
4.13 Accredited Investor........................................16
SECTION 5....................................................................17
5.1 Representations and Warranties Correct.....................17
5.2 Covenants..................................................17
5.3 Compliance Certificate.....................................17
5.4 Blue Sky...................................................17
5.5 Restated Certificate.......................................17
5.6 Investor Rights Agreement..................................17
5.7 Board of Directors.........................................17
5.8 Voting Agreement...........................................17
5.9 Registration Rights Agreement..............................17
5.10 Opinion of the Company's Counsel...........................17
5.11 No Order; HSR Act..........................................17
SECTION 6....................................................................18
6.1 Representations and Warranties Correct.....................18
6.2 Covenants..................................................18
6.3 Blue Sky...................................................18
6.4 Investor Rights Agreement..................................18
6.5 Voting Agreement...........................................18
6.6 Registration Rights Agreement..............................18
6.7 No Order; HSR Act..........................................18
SECTION 7....................................................................19
7.1 Covenant Not to Sue........................................19
7.2 Good Faith Negotiation of a License........................19
7.3 No Admission of Validity or Infringement...................19
7.4 Agreement to Use DART Services.............................19
SECTION 8....................................................................19
8.1 Governing Law..............................................19
8.2 Entire Agreement; Amendment................................20
8.3 Notices, etc...............................................20
8.4 Delays or Omissions........................................21
8.5 Counterparts...............................................21
8.6 Severability...............................................21
8.7 Titles and Subtitles.......................................21
8.8 Successors and Assigns.....................................21
8.9 No Survival of Representations and Warranties..............21
8.10 Amendments and Waivers.....................................21
-ii-
<PAGE>
EXHIBIT A Common Stock Purchase Warrant
EXHIBIT B Company Disclosure Schedule
EXHIBIT C Investor Rights Agreement
EXHIBIT D Voting Agreement
EXHIBIT E Registration Rights Agreement
EXHIBIT F Opinion of Company Counsel
<PAGE>
VALUECLICK, INC.
COMMON STOCK AND WARRANT PURCHASE AGREEMENT
This agreement (the "AGREEMENT") is made effective as of January 11,
2000 (the "EFFECTIVE DATE"), by and between ValueClick, Inc., a Delaware
corporation (the "COMPANY") and DoubleClick Inc., a Delaware corporation (the
"PURCHASER").
SECTION 1
AUTHORIZATION AND SALE OF COMMON STOCK.
1.1 AUTHORIZATION OF COMMON STOCK. The Company has authorized the sale
and issuance of 15,757,125 shares (the "Shares") of Common Stock (the "Common
Stock") and has reserved sufficient shares of Common Stock for issuance pursuant
to the exercise of the Common Stock Purchase Warrant in substantially the form
attached hereto as EXHIBIT A (the "Warrant").
1.2 SALE OF COMMON STOCK. Subject to the terms and conditions hereof,
the Company will issue and sell to the Purchaser and the Purchaser will buy from
the Company a total of 15,757,125 Shares at a per share purchase price of $5.44,
and at the aggregate purchase price of $85,718,760.
1.3 ISSUANCE OF WARRANT. Subject to the terms and conditions hereof,
the Company will issue to the Purchaser a warrant to purchase that number of
shares of Common Stock of the Company as described in the Warrant.
SECTION 2
CLOSING DATE; DELIVERY.
2.1 CLOSING. The closing (the "CLOSING") shall be held at the offices
of Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto, CA as
promptly as practicable after satisfaction of the closing conditions in Section
4 and Section 5 of this Agreement (the date and time of the Closing is
hereinafter referred to as the "CLOSING DATE").
2.2 DELIVERY AND PAYMENT. At the Closing, the Company will deliver to
the Purchaser, with respect to the Shares being purchased at the Closing,
certificates, registered in the Purchaser's name, representing the number of
Shares to be purchased by the Purchaser at the Closing, against payment of the
aggregate purchase price of $85,718,760. The purchase price shall be paid by a
$10,000,000 wire transfer and $75,718,760 in shares of Purchaser Common Stock.
Purchaser's Common Stock shall be valued at the weighted average closing price
of Purchaser's Common Stock for thirty consecutive trading days ending on and
including the day preceding the Effective Date. The Company shall also deliver
to the Purchaser the executed Warrant.
<PAGE>
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth on EXHIBIT B attached hereto (the "COMPANY
DISCLOSURE SCHEDULE"), which sets forth exceptions listed by applicable
subsection, the Company represents and warrants to the Purchaser that, as of the
date of the Closing:
3.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Company and each directly and indirectly owned
subsidiary of Company (the "COMPANY SUBSIDIARIES") has been duly organized and
is validly existing and in good standing (to the extent applicable) under the
laws of the jurisdiction of its incorporation or organization, as the case may
be, and has the requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as it is now being
conducted. Company and each Company Subsidiary is duly qualified or licensed to
do business, and is in good standing (to the extent applicable), in each
jurisdiction where the character of the properties owned, leased or operated by
it or the nature of its business makes such qualification or licensing
necessary, except for such failures to be so qualified or licensed and in good
standing that could not reasonably be expected to have, individually or in the
aggregate, any change in or effect on the business of Company and the Company
Subsidiaries that, individually or in the aggregate (taking into account all
other such changes or effects), is, or is reasonably likely to be, materially
adverse to the business, assets, liabilities, financial condition, results of
operations or prospects of Company and the Company Subsidiaries, taken as a
whole (a "MATERIAL ADVERSE EFFECT")
(b) Section 3.1 of the Company Disclosure Schedule sets forth,
as of the date of this Agreement, a true and complete list of each Company
Subsidiary, together with (i) the jurisdiction of incorporation or organization
of each Company Subsidiary and the percentage of each Company Subsidiary's
outstanding capital stock or other equity interests owned by Company or another
Company Subsidiary and (ii) an indication of whether each Company Subsidiary is
a "Significant Subsidiary" as defined in Regulation S-X under the Securities and
Exchange Act of 1934, as amended (the "EXCHANGE ACT"). Except as set forth in
Section 3.1 of the Company Disclosure Schedule, neither Company nor any Company
Subsidiary owns an equity interest in any partnership or joint venture
arrangement or other business entity.
3.2 CERTIFICATE OF INCORPORATION AND BYLAWS. The copies of Company's
Amended and Restated Certificate of Incorporation (the "RESTATED CERTIFICATE")
and bylaws previously provided to Purchaser by Company are true, complete and
correct copies thereof. Such Restated Certificate and bylaws are in full force
and effect. Company is not in violation of any of the provisions of the Restated
Certificate or bylaws.
3.3 CAPITALIZATION. The authorized capital stock of Company consists
of 100,000,000 shares of Company Common Stock and 20,000,000 shares of preferred
stock ("COMPANY PREFERRED STOCK"). As of the date hereof, (i) 21,474,713 shares
of Company Common Stock are issued and outstanding, all of which are validly
issued, fully paid and nonassessable, (ii) no shares of Company Common Stock are
held in the treasury of Company, (iii) no shares of Company Common Stock are
held by Company Subsidiaries, (iv) 8,000,000 shares of Company Common Stock are
reserved for
2
<PAGE>
future issuance pursuant to Company Stock Options, of which 4,036,487 and
668,281 shares of Company Common Stock are reserved for future issuance
pursuant to unvested, outstanding and vested, outstanding, unexercised
Company Stock Options, respectively, and (v) 10,587,144 shares of Company
Preferred Stock are outstanding. The name of each holder of a Company Stock
Option, the grant date of each Company Stock Option, and the number of shares
of Company Common Stock for which each Company Stock Option is exercisable
and the exercise price of each Company Stock Option are set forth in Section
3.3 of the Company Disclosure Schedule. Except for shares of Company Common
Stock issuable pursuant to Company Stock Plans, there are no options,
warrants or other rights, agreements, arrangements or commitments of any
character to which Company is a party or by which Company is bound relating
to the issued or unissued capital stock of Company or any Company Subsidiary
or obligating Company or any Company Subsidiary to issue or sell any shares
of capital stock of, or other equity interests in, Company or any Company
Subsidiary. All shares of Company Common Stock subject to issuance as
aforesaid, upon issuance prior to the Effective Time on the terms and
conditions specified in the instruments pursuant to which they are issuable,
will be duly authorized, validly issued, fully paid and nonassessable. There
are no outstanding contractual obligations of Company or any Company
Subsidiary to repurchase, redeem or otherwise acquire any shares of Company
Common Stock or any capital stock of any Company Subsidiary. Each outstanding
share of capital stock of each Company Subsidiary is duly authorized, validly
issued, fully paid and nonassessable and each such share owned by Company or
another Company Subsidiary is free and clear of all security interests,
liens, claims, pledges, options, rights of first refusal, agreements,
limitations on Company's or such other Company Subsidiary's voting rights,
charges and other encumbrances of any nature whatsoever. There are no
material outstanding contractual obligations of Company or any Company
Subsidiary to provide funds to, or make any material investment (in the form
of a loan, capital contribution or otherwise) in, any Company Subsidiary or
any other person.
3.4 CORPORATE POWER; AUTHORIZATION. Company has all necessary corporate
power and authority to execute and deliver this Agreement, the Warrant, the
Investor Rights Agreement in substantially the form attached hereto as EXHIBIT C
(the "INVESTOR RIGHTS AGREEMENT"), the Voting Agreement in substantially the
form attached hereto as EXHIBIT D (the "VOTING AGREEMENT") and the Registration
Rights Agreement in substantially the form attached hereto as EXHIBIT E (the
"REGISTRATION RIGHTS AGREEMENT" and, together with the Investor Rights Agreement
and Voting Agreement, the "AUTHORIZED AGREEMENTS"), to perform its obligations
under each such agreement, to consummate the transactions contemplated under
each such agreement and to sell and issue the Shares hereunder. The execution
and delivery of each such agreement by Company and the consummation by Company
of the transactions contemplated under each such agreement have been duly and
validly authorized by all necessary corporate action, and no other corporate
proceedings on the part of Company are necessary. Each such agreement has been
duly executed and delivered by Company and, assuming the due authorization,
execution and delivery by the other parties hereto and thereto, constitute
legal, valid and binding obligations of Company, enforceable against Company in
accordance with their terms, subject to any effect of applicable bankruptcy,
insolvency, reorganization, moratorium or other similar federal or state laws
effecting the rights of creditors. The Authorized Agreements, when executed and
delivered by the Company, shall constitute valid and binding obligations of the
Company, enforceable in accordance with their terms, subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies. The Shares, when issued in compliance with the provisions of
this Agreement, will be validly issued, fully paid and
3
<PAGE>
nonassessable, and will have the rights, preferences, privileges and
restrictions described in the Company's Restated Certificate; the Common Stock
issuable upon exercise of the Warrant has been duly and validly reserved and,
when issued in compliance with the provisions of the Restated Certificate, will
be validly issued, fully paid and nonassessable; and the Shares will be free of
any liens or encumbrances (assuming the Purchaser take the Shares with no notice
thereof) other than any liens or encumbrances created by or imposed upon the
holders; provided, however, that the Shares may be subject to restrictions on
transfer under state or federal securities laws and restrictions set forth in
the Investor Rights Agreement. The issuance of the Shares is not subject to any
preemptive rights or rights of first refusal.
3.5 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of the Authorized
Agreements by Company do not, and the performance by Company of its obligations
hereunder and under each such agreement and the sale of the Shares will not, (i)
conflict with or violate any provision of the certificate of incorporation or
bylaws of Company or any equivalent organizational documents of any Company
Subsidiary, (ii) assuming that all filings and notifications described in
Section 3.5(b) have been made, conflict with or violate any Law applicable to
Company or any Company Subsidiary or by which any property or asset of Company
or any Company Subsidiary is bound or affected or (iii) result in any breach of
or constitute a default (or an event which with the giving of notice or lapse of
time or both could reasonably be expected to become a default) under, or give to
others any right of termination, amendment, acceleration or cancellation of, or
result in the creation of a lien or other encumbrance on any property or asset
of Company or any Company Subsidiary pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation.
(b) The execution and delivery of this Agreement by Company do
not, and the performance by Company of its obligations hereunder and the sale of
the Shares will not, require any consent, approval, authorization or permit of,
or filing by Company with or notification by Company to any United States
Federal, state or local or any foreign governmental, regulatory or
administrative authority, agency or commission or any court, tribunal or
arbitral body (a "GOVERNMENTAL ENTITY"), except pursuant to applicable
requirements of the Exchange Act, the Securities Act of 1933, as amended (the
"SECURITIES ACT"), Blue Sky Laws, the rules and regulations of the Nasdaq
National Market System ("NNM"), the pre-merger notification requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR ACT")
and the filing of the Company's Restated Certificate.
3.6 PERMITS; COMPLIANCE WITH LAWS. Company and the Company Subsidiaries
are in possession of all material franchises, grants, authorizations, licenses,
establishment registrations, product listings, permits, easements, variances,
exceptions, consents, certificates, identification and registration numbers,
approvals and orders of any Governmental Entity necessary for Company or any
Company Subsidiary to own, lease and operate its properties or to offer or
perform its services or to develop, produce, store, distribute and market its
products or otherwise to carry on its business as it is now being conducted
(collectively, the "COMPANY PERMITS"), and, as of the date of this Agreement,
none of the Company Permits has been suspended or cancelled nor is any such
suspension or cancellation pending or, to the knowledge of Company, threatened.
Neither Company nor any Company Subsidiary is in conflict with, or in default or
violation of, (i) any Law applicable
4
<PAGE>
to Company or any Company Subsidiary or by which any property or asset of
Company or any Company Subsidiary is bound or affected or (ii) any Company
Permits except for such conflicts, defaults or violations which could not in the
aggregate be reasonably expected to have a Material Adverse Effect. Since
January 1, 1999, neither Company nor any Company Subsidiary has received from
any Governmental Entity any written notification with respect to possible
conflicts, defaults or violations of Laws.
3.7 SEC FILINGS; FINANCIAL STATEMENTS.
(a) The Company's Registration Statement on Form S-1
filed with the Securities and Exchange Commission (the "SEC") on October 12,
1999, as amended on December 22, 1999 (the "S-1 REGISTRATION") (i) was prepared
in accordance with the requirements of the Securities Act, and (ii) did not at
the time it was filed contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements made therein, in the light of the circumstances under which
they were made, not misleading. The S-1 Registration was prepared in all
material respects in accordance with the requirements of applicable law. No
Company Subsidiary is subject to the periodic reporting requirements of the
Exchange Act or required to file any form, report or other document with the
SEC, the NNM, any other stock exchange or any other comparable Governmental
Entity.
(b) Each of the consolidated financial statements (including,
in each case, any notes thereto) contained in the S-1 Registration was prepared
in accordance with U.S. GAAP (except as may be permitted by Form 10-Q under the
Exchange Act) applied on a consistent basis throughout the periods indicated
(except as may be indicated in the notes thereto) and each presented fairly, in
all material respects, the consolidated financial position of Company and the
consolidated Company Subsidiaries as at the respective dates thereof and for the
respective periods indicated therein, except as otherwise noted therein
(subject, in the case of unaudited statements, to normal and recurring
immaterial year-end adjustments).
(c) Except as and to the extent set forth or reserved against
on the consolidated balance sheet of Company and the Company Subsidiaries as
reported in the S-1 Registration, including the notes thereto, none of Company
or any Company Subsidiary has any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) that would be required to
be reflected on a balance sheet or in notes thereto prepared in accordance with
United States generally accepted accounting principles ("U. S. GAAP"), except
for immaterial liabilities or obligations incurred in the ordinary course of
business consistent with past practice since December 31, 1998.
3.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1998,
Company and the Company Subsidiaries have conducted their businesses only in the
ordinary course consistent with past practice and, since such date, there has
not been (i) any Material Adverse Effect on the Company, (ii) any event that
could reasonably be expected to prevent or materially delay the performance of
Company's obligations pursuant to this Agreement and the sale of the Shares by
Company, (iii) any material change by Company in its accounting methods,
principles or practices, (iv) any declaration, setting aside or payment of any
dividend or distribution in respect of the shares of Company Common Stock or any
redemption, purchase or other acquisition of any of Company's securities, (v)
except for changes in the ordinary course of business consistent with past
practice that
5
<PAGE>
only affect non-officer employees of the Company, any increase in the
compensation or benefits or establishment of any bonus, insurance, severance,
deferred compensation, pension, retirement, profit sharing, stock option
(including, without limitation, the granting of stock options, stock
appreciation rights, performance awards or restricted stock awards), stock
purchase or other employee benefit plan, or any other increase in the
compensation payable or to become payable to any employees, officers,
consultants or directors of Company or any Company Subsidiary, (vi) any issuance
or sale of any stock, notes, bonds or other securities other than pursuant to
the exercise of outstanding securities, or entering into any agreement with
respect thereto, (vii) any amendment to the Company's certificate of
incorporation or bylaws, (viii) other than in the ordinary course of business
consistent with past practice, any (x) purchase, sale, assignment or transfer of
any material assets, (y) mortgage, pledge or existence of any lien, encumbrance
or charge on any material assets or properties, tangible or intangible, except
for liens for Taxes not yet delinquent and such other liens, encumbrances or
charges which do not, individually or in the aggregate, have a Material Adverse
Effect on the Company, or (z) waiver of any rights of material value or
cancellation or any material debts or claims, (ix) any incurrence of any
material liability (absolute or contingent), except for current liabilities and
obligations incurred in the ordinary course of business consistent with past
practice, (x) any incurrence of any damage, destruction or similar loss, whether
or not covered by insurance, materially affecting the business or properties of
Company or any Company Subsidiary, or (xi) any entering into any transaction of
a material nature other than in the ordinary course of business, consistent with
past practice.
3.9 EMPLOYEE BENEFIT PLANS; LABOR MATTERS.
(a) DEFINITIONS. For purposes of this Section 3.9(a),
the following terms shall mean as follows: (i) ERISA: Employee Retirement Income
Security Act of 1974, as amended; (ii) Benefit Plans: any "employee benefit
plan", as defined in Section 3(3) of ERISA and any plan, program, arrangement or
contract providing for severance; medical, dental or vision benefits; life
insurance or death benefits; disability benefits, sick pay or other wage
replacement; vacation, holiday or sabbatical; pension or profit-sharing
benefits; stock options or other equity compensation; bonus or incentive pay or
other material fringe benefits), whether written or not; (iii) Company Benefit
Plan: any Benefit Plan maintained, sponsored or contributed to or required to be
contributed to by Company or any Company Subsidiary; (iv) IRS: United States
Internal Revenue Service; and (v) the Code: Internal Revenue Code of 1986, as
amended (together with the rules and regulations promulgated thereunder).
(b) Each Company Benefit Plan has been administered in all
material respects in accordance with its terms and all applicable laws,
including ERISA and the Code, and contributions required to be made under the
terms of any of the Company Benefit Plans as of the date of this Agreement have
been timely made or, if not yet due, have been properly reflected on the most
recent consolidated balance sheet filed or incorporated by reference in the S-1
Registration prior to the date of this Agreement. With respect to the Company
Benefit Plans, no event has occurred and, to the knowledge of Company, there
exists no condition or set of circumstances in connection with which Company or
any Company Subsidiary could be subject to any material liability (other than
for routine benefit liabilities) under the terms of, or with respect to, such
Company Benefit Plans, ERISA, the Code or any other applicable Law.
6
<PAGE>
(c) No suit, administrative proceeding, action or other
litigation has been brought, or to the knowledge of Company is threatened,
against or with respect to any such Company Benefit Plan, including any audit or
inquiry by the Internal Revenue Service or United States Department of Labor
(other than routine benefits claims).
(d) No Company Benefit Plan is a multiemployer pension plan
(as defined in Section 3(37) of ERISA) or other pension plan subject to Title IV
of ERISA and neither the Company, any Company Subsidiary nor any other trade or
business (whether or not incorporated) that is under "common control" with
Company or a Company Subsidiary (within the meaning of ERISA Section 4001) or
with respect to which Company or any Company Subsidiary could otherwise incur
liability under Title IV of ERISA (a "COMPANY ERISA AFFILIATE") has sponsored or
contributed to or been required to contribute to a multiemployer pension plan or
other pension plan subject to Title IV of ERISA. No material liability under
Title IV of ERISA has been incurred by Company, any Company Subsidiary or any
Company ERISA Affiliate that has not been satisfied in full, and no condition
exists that presents a material risk to Company or any Company Subsidiary of
incurring or being subject (whether primarily, jointly or secondarily) to a
material liability thereunder. None of the assets of Company or any Company
Subsidiary is, or may reasonably be expected to become, the subject of any lien
arising under ERISA or Section 412(n) of the Code.
(e) With respect to each Benefit Plan that is subject to Title
IV or Part 3 of Title I of ERISA or Section 412 of the Code, (i) no reportable
event (within the meaning of Section 4043 of ERISA, other than an event that is
not required to be reported before or within 30 days of such event) has occurred
or is expected to occur, (ii) there was not an accumulated funding deficiency
(within the meaning of Section 302 of ERISA or Section 412 of the Code), whether
or not waived, as of the most recently ended plan year of such Benefit Plan; and
(iii) there is no "unfunded benefit liability" (within the meaning of Section
4001(a)(18) of ERISA).
(f) Company has delivered to Purchaser true, complete and
correct copies of (i) all employment agreements with officers and all consulting
agreements of Company and each Company Subsidiary, (ii) all severance plans,
agreements, programs and policies of Company and each Company Subsidiary with or
relating to their respective employees, directors or consultants, and (iii) all
plans, programs, agreements and other arrangements of Company and each Company
Subsidiary with or relating to their respective employees, directors or
consultants which contain "change of control" provisions. No payment or benefit
which may be required to be made by Company or any Company Subsidiary or which
otherwise may be required to be made under the terms of any Company Benefit Plan
or other arrangement will constitute a parachute payment under Code Section
280(G)(1), and the consummation of the transactions contemplated by this
Agreement will not, alone or in conjunction with any other possible event
(including termination of employment), (i) entitle any current or former
employee or other service provider of Company or any Company Subsidiary to
severance benefits or any other payment, compensation or benefit (including
forgiveness of indebtedness), except as expressly provided by this Agreement, or
(ii) accelerate the time of payment or vesting, or increase the amount of
compensation or benefit due any such employee or service provider.
(g) Neither Company nor any Company Subsidiary is a party to,
or has any obligations under or with respect to, any collective bargaining or
other labor union contract applicable to persons employed by Company or any
Company Subsidiary and no collective
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bargaining agreement is being negotiated by Company or any Company Subsidiary or
any person or entity that may obligate the Company or any Company Subsidiary
thereunder. As of the date of this Agreement, there is no labor dispute, strike,
union organizing activity or work stoppage against Company or any Company
Subsidiary pending or, to the knowledge of Company, threatened which may
interfere with the respective business activities of Company or any Company
Subsidiary. As of the date of this Agreement, to the knowledge of Company, none
of Company, any Company Subsidiary, or any of their respective representatives
or employees has committed any unfair labor practice in connection with the
operation of the respective businesses of Company or any Company Subsidiary, and
there is no charge or complaint against Company or any Company Subsidiary by the
National Labor Relations Board or any comparable Governmental Entity pending or
threatened in writing.
3.10 CONTRACTS. Neither Company nor any Company Subsidiary is in
violation of or in default under (nor does there exist any condition which with
the passage of time or the giving of notice could reasonably be expected to
cause such a violation of or default under) any contract or agreement that is
material to the business, assets, liabilities, financial condition or results of
operations of Company and Company Subsidiaries, taken as a whole (each, a
"MATERIAL CONTRACT"). Each Material Contract is in full force and effect and is
a legal, valid and binding obligation of Company or a Company Subsidiary and, to
the knowledge of Company, each of the other parties thereto, enforceable in
accordance with its terms.
3.11 LITIGATION . There is no suit, claim, action, proceeding or
investigation pending or, to the knowledge of Company, threatened against
Company or any Company Subsidiary that could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company or
materially interfere with Company's ability to consummate the transactions
contemplated hereby, and, to the knowledge of Company, there are no existing
facts or circumstances that could reasonably be expected to result in such a
suit, claim, action, proceeding or investigation. Company is not aware of any
facts or circumstances which could reasonably be expected to result in the
denial of insurance coverage under policies issued to Company and Company
Subsidiaries in respect of such suits, claims, actions, proceedings and
investigations, except in any case as could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company.
Neither Company nor any Company Subsidiary is subject to any outstanding order,
writ, injunction or decree which could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company or
materially interfere with Company's ability to consummate the transactions
contemplated hereby.
3.12 ENVIRONMENTAL MATTERS. To the Company's knowledge, except as
could not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the Company, (i) Company and the Company Subsidiaries
are in compliance with all applicable Environmental Laws and all Company Permits
required by Environmental Laws; (ii) all past noncompliance of Company or any
Company Subsidiary with Environmental Laws or Environmental Permits has been
resolved without any pending, ongoing or future obligation, cost or liability;
and (iii) neither Company nor any Company Subsidiary has released a Hazardous
Material at, or transported a Hazardous Material to or from, any real property
currently or formerly owned, leased or occupied by Company or any Company
Subsidiary, in violation of any Environmental Law. For purposes of this
Agreement, "ENVIRONMENTAL LAW" shall mean any Law and any enforceable judicial
or administrative interpretation thereof, including any judicial or
administrative
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order, consent decree or judgment, relating to pollution or
protection of the environment or natural resources, including, without
limitation, those relating to the use, handling, transportation, treatment,
storage, disposal, release or discharge of Hazardous Material, as in effect as
of the date hereof. "ENVIRONMENTAL PERMIT" shall mean any permit, approval,
identification number, license or other authorization required under or issued
pursuant to any applicable Environmental Law. "HAZARDOUS MATERIAL" shall mean
(i) any petroleum, petroleum products, by-products or breakdown products,
radioactive materials, asbestos-containing materials or polychlorinated
biphenyls or (ii) any chemical, material or substance defined or regulated as
toxic or hazardous or as a pollutant or contaminant or waste under any
applicable Environmental Law.
3.13 INTELLECTUAL PROPERTY. All patents (including, without
limitation, all U.S. and foreign patents, patent applications, patent
disclosures, and any and all divisions, continuations, continuations-in-part,
reissues, re-examinations and extensions thereof), design rights, trademarks,
trade names and service marks (whether or not registered), trade dress, Internet
domain names, copyrights (whether or not registered) and any renewal rights
therefor, SUI GENERIS database rights, statistical models, technology,
inventions, supplier lists, trade secrets, know-how, computer software programs
or applications in both source and object code form, databases, technical
documentation of such software programs ("TECHNICAL DOCUMENTATION"),
registrations and applications for any of the foregoing and all other tangible
or intangible proprietary information or materials that are or have been used in
(including, without limitation, in the development of) Company's business and/or
in any product, technology or process (i) currently being or formerly
manufactured, published or marketed by Company or (ii) previously or currently
under development for possible future manufacturing, publication, marketing or
other use by Company are hereinafter referred to as the "COMPANY INTELLECTUAL
PROPERTY."
(a) All of Company's patents, patent applications, registered
trademarks, and trademark applications, and registered copyrights remain in good
standing with all fees and filings due as of the Closing Date duly made.
(b) Company Intellectual Property contains only those items
and rights which are: (i) owned by Company; (ii) in the public domain; or (iii)
rightfully used by Company pursuant to a valid and enforceable license or other
permission by owner (the "COMPANY LICENSED INTELLECTUAL PROPERTY"). Company has
all rights in Company Intellectual Property necessary to carry out Company's
current activities (and had all rights necessary to carry out its former
activities at the time such activities were being conducted), including without
limitation, to the extent required to carry out such activities, rights to make,
use, reproduce, modify, adopt, create derivative works based on, translate,
distribute (directly and indirectly), transmit, display and perform publicly,
license, rent and lease and, other than with respect to Company Licensed
Intellectual Property, assign and sell, Company Intellectual Property.
(c) To the best of Company's knowledge, the reproduction,
manufacturing, distribution, licensing, sublicensing, sale or any other exercise
of rights in any Company Intellectual Property, product, work, technology or
process necessary for operation of Company's business as presently conducted by
Company does not infringe on any rights in patent, design right, trademark,
trade name, service mark, trade dress, Internet domain name, copyright,
database, statistical model, technology, invention, supplier list, trade secret,
know-how, computer software program or application of any person, anywhere in
the world. Other than with respect to Company Licensed
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Intellectual Property, no claims (i) challenging the validity, effectiveness or,
ownership by Company of any Company Intellectual Property, or (ii) to the effect
that the use, distribution, licensing, sublicensing, sale or any other exercise
of rights in any product, work, technology or process as now used or offered for
use, licensing, sublicensing or sale by Company or its agents or use by its
customers infringes or will infringe on any intellectual property or other
proprietary or personal right of any person, have been asserted or, to the
knowledge of Company, are threatened by any person, nor are there, to Company's
knowledge, any valid grounds for any bona fide claim of any such kind. All of
the rights within Company Intellectual Property (except with respect to Company
Licensed Property), and to Company's knowledge, all the rights in Company's
Licensed Intellectual Property, necessary for use in the operation of the
Company's business by Company as presently conducted are enforceable and
subsisting. To the knowledge of Company, there is no unauthorized use,
infringement or misappropriation of any Company Intellectual Property by any
third party, employee or former employee.
(d) All personnel, including employees, agents, consultants
and contractors, who have contributed to or participated in the conception and
development of Company Intellectual Property on behalf of Company, have executed
nondisclosure agreements in the form previously provided to Purchaser and either
(i) have been a party to an enforceable "work-for-hire" arrangement or
agreements with Company in accordance with applicable national and state law
that has accorded Company full, effective, exclusive and original ownership of
all tangible and intangible property thereby arising, or (ii) have executed
appropriate instruments of assignment in favor of Company as assignee that have
conveyed to Company effective and exclusive ownership of all tangible and
intangible property thereby arising.
(e) Company is not, nor as a result of the execution or
delivery of this Agreement, or performance of Company's obligations hereunder,
will Company be, in violation of any license, sublicense, agreement or
instrument to which Company is a party or otherwise bound, nor will execution or
delivery of this Agreement, or performance of Company's obligations hereunder,
cause the diminution, termination or forfeiture of any Company Intellectual
Property.
(f) Company has taken reasonable steps, in accordance with
normal industry practice, to preserve and maintain complete notes and records
relating to Company Intellectual Property to cause the same to be readily
understood, identified and available to one skilled in the relevant technology.
(g) Company Intellectual Property (other than Company Licensed
Intellectual Property), and to Company's knowledge the Company's Licensed
Intellectual Property is free and clear of any and all mortgages, pledges,
liens, security interests, conditional sale agreements, encumbrances or charges
of any kind.
(h) Company (including its subsidiaries) does not owe any
royalties or other payments to third parties in respect of Company Intellectual
Property.
3.14 TAXES. For purposes of this Agreement, "TAX" shall mean (i) any
and all taxes, fees, levies, duties, tariffs, imposts and other charges of any
kind (together with any and all interest, penalties, additions to tax and
additional amounts imposed with respect thereto) imposed by any Governmental
Entity or taxing authority, including, without limitation, taxes or other
charges on or
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with respect to income, franchises, windfall or other profits, gross receipts,
property, sales, use, capital stock, payroll, employment, social security,
workers' compensation, unemployment compensation or net worth; taxes or other
charges in the nature of excise, withholding, ad valorem, stamp, transfer,
value-added or gains taxes; license, registration and documentation fees; and
customers' duties, tariffs and similar charges; (ii) any liability for the
payment of any amounts of the type described in (i) as a result of being a
member of an affiliated, combined, consolidated or unitary group for any taxable
period; and (iii) any liability for the payment of amounts of the type described
in (i) or (ii) as a result of being a transferee of, or a successor in interest
to, any Person or as a result of an express or implied obligation to indemnify
any person. "TAX RETURN" shall mean any return, statement or form (including,
without limitation, any estimated tax reports or return, withholding tax reports
or return and information report or return) required to be filed with respect to
any Taxes.
(a) Company and each of Company Subsidiaries, and any
consolidated, combined, unitary or aggregate group for Tax purposes of which
Company or any Company Subsidiary is or has been a member, have properly
completed and timely filed all Tax Returns required to be filed by them and have
paid all Taxes shown thereon to be due. Company has provided adequate accruals
in accordance with generally accepted accounting principles in its latest
financial statements included in the S-1 Registration for any Taxes that have
not been paid, whether or not shown as being due on any Tax Returns. Company and
the Company Subsidiaries have no material liability for unpaid Taxes accruing
after the date of the Company's latest financial statements included in the S-1
Registration.
(b) There is (i) no material claim for Taxes that is a lien
against the property of Company or any Company Subsidiary or is being asserted
against Company or any Company Subsidiary other than liens for Taxes not yet due
and payable, (ii) no audit of any Tax Return of Company or any Company
Subsidiary being conducted by a Tax Authority; (iii) no extension of the statute
of limitations on the assessment of any Taxes granted by Company or any Company
Subsidiary and currently in effect, and (iv) no agreement, contract or
arrangement to which Company or any Company Subsidiary is a party that may
result in the payment of any amount that would not be deductible by reason of
Section 280G or Section 404 of the Code.
(c) There has been no change in ownership of Company or any
Company Subsidiaries that has caused the utilization of any losses of such
entities to be limited pursuant to Section 382 of the Code, and any loss
carryovers reflected on the latest financial statements included in the S-1
Registration are properly computed and reflected.
(d) Company and the Company Subsidiaries have not been and
will not be required to include any material adjustment in Taxable income for
any Tax period (or portion thereof) pursuant to Section 481 or 263A of the Code
or any comparable provision under state or foreign Tax laws as a result of
transactions, events or accounting methods employed prior to the Sale of Shares
and issuance of Warrant.
(e) Neither Company nor any Company Subsidiary has filed or
will file any consent to have the provisions of paragraph 341(f)(2) of the Code
(or comparable provisions of any state Tax laws) apply to Company or any Company
Subsidiary.
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(f) Neither Company nor any Company Subsidiary is a party to
any Tax sharing or Tax allocation agreement nor does Company or any Company
Subsidiary have any liability or potential liability to another party under any
such agreement.
(g) Neither Company nor any Company Subsidiary has filed any
disclosures under Section 6662 or comparable provisions of state, local or
foreign law to prevent the imposition of penalties with respect to any Tax
reporting position taken on any Tax Return.
(h) Neither Company nor any Company Subsidiary has ever been a
member of a consolidated, combined or unitary group of which Company was not the
ultimate parent corporation.
(i) Company and each Company Subsidiary has in its possession
receipts for any Taxes paid to foreign Tax authorities. Neither Company nor any
Company Subsidiary has ever been a "personal holding company" within the meaning
of Section 542 of the Code or a "United Sates real property holding corporation"
within the meaning of Section 897 of the Code.
3.15 BROKERS. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the sale
of Shares and issuance of Warrant based upon arrangements made by or on behalf
of Company.
3.16 CERTAIN BUSINESS PRACTICES. Neither Company nor any Company
Subsidiary nor any directors, officers, agents or employees of Company or any
Company Subsidiary (in their capacities as such) has (i) used any funds for
unlawful contributions, gifts, entertainment or other unlawful expenses relating
to political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns or violated any provision of the Foreign Corrupt Practices Act of
1977, as amended, or (iii) made any other unlawful payment.
3.17 SECTION 203 OF THE DGCL NOT APPLICABLE. The Board of Directors of
Company has approved the sale of Shares and issuance of Warrant and the
Authorized Agreements, and such approval is sufficient to render inapplicable to
the sale of Shares and issuance of Warrant, the Authorized Agreements and the
transactions contemplated by this Agreement, the provisions of Section 203 of
the General Corporation Law of the State of Delaware (the "DGCL"). No other
state takeover statute or similar statute or regulation applies or purports to
apply to the sale of Shares and issuance of Warrant, this Agreement, the
Authorized Agreements or the transactions contemplated by this Agreement and the
Authorized Agreements.
3.18 BUSINESS ACTIVITY RESTRICTION. There is no non-competition or
other similar agreement, commitment, judgment, injunction, order or decree to
which Company or any subsidiary of Company is a party or subject to that has or
could reasonably be expected to have the effect of prohibiting or impairing the
conduct of business by Company. Company has not entered into any agreement under
which Company is restricted from selling, licensing or otherwise distributing
any of its technology or products to, or providing services to, customers or
potential customers or any class of customers, in any geographic area, during
any period of time or in any segment of the market or line of business.
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3.19 REGISTRATION RIGHTS. Except as set forth in the Investor Rights
Agreement, the Company is not under any contractual obligation to register under
the Securities Act, any of its presently outstanding securities or any of its
securities which may hereafter be issued.
3.20 OFFERING. Subject to the accuracy of the Purchaser's
representations in Section 4 hereof, the offer, sale and issuance of the Shares
and the Common Stock reserved for issuance upon exercise of the Warrant
constitute transactions exempt from the registration requirements of Section 5
of the Securities Act and are exempt from the qualification requirements of the
California Corporate Securities Law of 1968, as amended and the rules
thereunder.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser hereby severally represents and warrants to the Company
as follows:
4.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Each of Purchaser and
its subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite corporate power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted, except
where the failure to do so would not, individually or in the aggregate, have a
Material Adverse Effect on Purchaser. Each of Purchaser and its subsidiaries is
in possession of all Approvals necessary to own, lease and operate the
properties it purports to own, operate or lease and to carry on its business as
it is now being conducted, except where the failure to have such Approvals would
not, individually or in the aggregate, have a Material Adverse Effect on
Purchaser. Each of Purchaser and its subsidiaries is duly qualified or licensed
as a foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of the properties owned, leased or operated by
it or the nature of its activities makes such qualification or licensing
necessary, except for such failures to be so duly qualified or licensed and in
good standing that would not, either individually or in the aggregate, have a
Material Adverse Effect on Purchaser.
4.2 CERTIFICATE OF INCORPORATION AND BYLAWS. Purchaser has previously
furnished to Company complete and correct copies of its certificate of
incorporation and bylaws as amended to date (together, the "PURCHASER CHARTER
DOCUMENTS"). Such Purchaser Charter Documents and equivalent organizational
documents of each of its subsidiaries are in full force and effect. Purchaser is
not in violation of any of the provisions of the Purchaser Charter Documents,
and no subsidiary of Purchaser is in violation of any of its equivalent
organizational documents.
4.3 CAPITALIZATION. The authorized capital stock of Purchaser consists
of (i) 200,000,000 shares of Purchaser Common Stock, and (ii) 5,000,000 shares
of Preferred Stock, par value $0.001 per share ("PURCHASER PREFERRED STOCK"). At
the close of business on December 31, 1999, (i) 56,145,702 shares of Purchaser
Common Stock were issued and outstanding, (ii) no shares of Purchaser Common
Stock were held in treasury by Purchaser or by subsidiaries of Purchaser, (iii)
3,018,385 shares of Purchaser Common Stock were reserved for future issuance
pursuant to Purchaser's employee stock incentive stock plan, (iv) 375,000 shares
of Purchaser Common Stock were reserved for future issuance pursuant to
Purchaser's non-officer stock issuance plan; (v) 12,403,208 shares of Purchaser
Common Stock were reserved for issuance upon the exercise of
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outstanding options ("PURCHASER OPTIONS") to purchase Purchaser Common Stock
under the employee stock incentive plan; and (vi) no shares of Purchaser Common
Stock were reserved for issuance upon the exercise of Purchaser Options to
purchase Purchaser Common Stock under the non-officer stock issuance plan. As of
the date hereof, no shares of Purchaser Preferred Stock were issued or
outstanding. All of the outstanding shares of Purchaser's respective capital
stock have been duly authorized and validly issued and are fully paid and
nonassessable. All shares of Purchaser Common Stock subject to issuance as
aforesaid, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, shall, and the Shares to be
issued will be, duly authorized, validly issued, fully paid and nonassessable.
All of the outstanding shares of capital stock (other than directors' qualifying
shares) of each of Purchaser's subsidiaries is duly authorized, validly issued,
fully paid and nonassessable and all such shares (other than directors'
qualifying shares) are owned by Purchaser or another subsidiary free and clear
of all security interests, liens, claims, pledges, agreements, limitations in
Purchaser's voting rights, charges or other encumbrances of any nature
whatsoever.
4.4 AUTHORITY RELATIVE TO THE AUTHORIZED AGREEMENTS. Purchaser has all
necessary corporate power and authority to execute and deliver the Authorized
Agreements, and to perform its obligations under the transactions contemplated
under the Authorized Agreements. The execution and delivery of the Authorized
Agreements by Purchaser and the consummation by Purchaser the transactions
contemplated under the Authorized Agreements have been duly and validly
authorized by all necessary corporate action on the part of Purchaser, and no
other corporate proceedings on the part of Purchaser are necessary to authorize
the Authorized Agreements or to consummate the transactions so contemplated. The
Authorized Agreements have been duly and validly executed and delivered by
Purchaser and, assuming the due authorization, execution and delivery by
Company, constitute legal and binding obligations of Purchaser, enforceable
against Purchaser in accordance with their respective terms.
4.5 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of the Authorized
Agreements by Purchaser do not, and the performance of the Authorized Agreements
by Purchaser shall not, (i) conflict with or violate the certificate of
incorporation, bylaws or equivalent organizational documents of Purchaser or any
of its subsidiaries, (ii) subject to compliance with the requirements set forth
in Section 4.5(b) below, conflict with or violate any law, rule, regulation,
order, judgment or decree applicable to Purchaser or any of its subsidiaries or
by which it or their respective properties are bound or affected, or (iii)
result in any breach of or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or impair Purchaser's or
any such subsidiary's rights or alter the rights or obligations of any third
party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the properties or assets of Purchaser or any of its
subsidiaries pursuant to, any material note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Purchaser or any of its subsidiaries is a party or by which
Purchaser or any of its subsidiaries or its or any of their respective
properties are bound or affected, except to the extent such conflict, violation,
breach, default, impairment or other effect could not in the case of clauses
(ii) or (iii) individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on Purchaser.
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(b) The execution and delivery of the Authorized Agreements by
Purchaser do not, and the performance of the Authorized Agreements by Purchaser
shall not, require any consent, approval, authorization or permit of, or filing
with or notification to, any Governmental Entity except (i) for applicable
requirements, if any, of the Securities Act, the Exchange Act, Blue Sky Laws,
the pre-merger notification requirements of the HSR Act and of foreign
governmental entities and the rules and regulations thereunder and the rules and
regulations of the NNM, and (ii) where the failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications,
(x) would not prevent the sale of Shares and issuance of Warrant or otherwise
prevent Purchaser from performing their respective obligations under this
Agreement or (y) could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on Purchaser.
4.6 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Purchaser has made available to Company a correct and
complete copy of each report, schedule, registration statement and definitive
proxy statement filed by Purchaser with the SEC on or after July 1, 1997 (the
"PURCHASER SEC REPORTS"), which are all the forms, reports and documents
required to be filed by Purchaser with the SEC since July 1, 1997. The
Purchaser SEC Reports (A) were prepared in accordance with the requirements
of the Securities Act or the Exchange Act, as the case may be, and (B) did
not at the time they were filed (or if amended or superseded by a filing
prior to the date of this Agreement, then on the date of such filing) contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. None of Purchaser's subsidiaries is required to file any reports
or other documents with the SEC.
(b) Each set of consolidated financial statements (including,
in each case, any related notes thereto) contained in the Purchaser SEC Reports
was prepared in accordance with U.S. GAAP applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes thereto
or, in the case of unaudited statements, do not contain footnotes as permitted
by Form 10-Q of the Exchange Act) and each fairly presents the consolidated
financial position of Purchaser and its subsidiaries at the respective dates
thereof and the consolidated results of its operations and cash flows for the
periods indicated, except that the unaudited interim financial statements were
or are subject to normal adjustments which were not or are not expected to be
material in amount.
4.7 BROKERS. Purchaser has not incurred, nor will it incur, directly
or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby.
4.8 INVESTMENT INTENT; BLUE SKY. Purchaser is acquiring the Shares for
investment for its own account, not as a nominee or agent, and not with the view
to, or for resale in connection with, any distribution thereof. It understands
that the issuance of the Shares and Warrant has not been, and will not be,
registered under the Securities Act by reason of a specific exemption from the
registration provisions of the Securities Act, the availability of which depends
upon, among other things, the bona fide nature of the Purchaser's investment
intent and the accuracy of the Purchaser's representations as expressed herein.
The Purchaser's address set forth in Section 8.3(a) represents
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the Purchaser's true and correct state of domicile, upon which the Company may
rely for the purpose of complying with applicable "Blue Sky" laws.
4.9 RULE 144. Purchaser acknowledges that the Shares must be held
indefinitely unless subsequently registered under the Securities Act or unless
an exemption from such registration is available. Purchaser is aware of the
provisions of Rule 144 promulgated under the Securities Act which permit limited
resale of shares purchased in a private placement subject to the satisfaction of
certain conditions, including, among other things, the existence of a public
market for the shares, the availability of certain current public information
about the Company, the resale occurring not less than one year after a party has
purchased and paid for the security to be sold, the sale being effected through
a "broker's transaction" or in a transaction directly with a "market maker," and
the number of shares being sold during any three-month period not exceeding
specified limitations.
4.10 NO PUBLIC MARKET. Purchaser understands that no public market now
exists for any of the securities issued by the Company and that the Company has
made no assurances that a public market will ever exist for the Company's
securities.
4.11 RESTRICTIONS ON TRANSFER; RESTRICTIVE LEGENDS. Purchaser
understands that the transfer of the Shares is restricted by applicable state
and Federal securities laws and by the provisions of the Investor Rights
Agreement, and that the certificates representing the Shares will be imprinted
with legends restricting transfer except in compliance therewith.
4.12 AUTHORIZATION. All action on the part of the Purchaser's
partners, board of directors, and stockholders, as applicable, necessary for the
authorization, execution, delivery and performance of the Authorized Agreements,
the purchase of and payment for the Shares and the performance of all of the
Purchaser's obligations under the Authorized Agreements has been taken or will
be taken prior to the Closing. The Authorized Agreements, when executed and
delivered by the Purchaser, shall constitute valid and binding obligations of
the Purchaser, enforceable in accordance with their terms, subject to laws of
general application relating to bankruptcy, insolvency and the relief of debtors
and rules of law governing specific performance, injunctive relief or other
equitable remedies; PROVIDED, HOWEVER, that the Purchaser makes no
representation as to the enforceability of the indemnification provisions
contained in the Registration Rights Agreement.
4.13 ACCREDITED INVESTOR. Purchaser is an "accredited investor" within
the meaning of SEC Rule 501 or Regulation D, as presently in effect. The
Purchaser acknowledges that it has had the opportunity to review this Agreement,
the exhibits and the schedules attached hereto and the transactions contemplated
by this Agreement with its own legal counsel. Purchaser is relying solely on its
own legal counsel and not on the Company or any of the Company's agents for
legal advice with respect to this investment or the transactions contemplated by
this Agreement.
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SECTION 5
CONDITIONS TO CLOSING OF THE PURCHASER.
The Purchaser's obligation to purchase the Shares is, unless waived in
writing by the Purchaser, subject to the fulfillment as of the date of such
Closing of the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and
warranties made by the Company in Section 3 hereof shall be true and correct in
all material respects as of the date of the Closing.
5.2 COVENANTS. All covenants, agreements and conditions contained in
this Agreement to be performed or complied with by the Company on or prior to
the Closing Date shall have been performed or complied with in all material
respects.
5.3 COMPLIANCE CERTIFICATE. The Chief Executive Officer of the Company
shall deliver to the Purchaser at the Closing a certificate stating that the
conditions specified in Sections 5.1 and 5.2 have been fulfilled and stating
that there shall have been no adverse change in the business, affairs,
operations, properties, assets or condition of the Company since November 30,
1999.
5.4 BLUE SKY. The Company shall have obtained all necessary Blue Sky
law permits and qualifications, or have the availability of exemptions
therefrom, required by any state for the offer and sale of the Shares.
5.5 RESTATED CERTIFICATE. The Company's Restated Certificate
increasing the number of authorized Common Stock shall have been filed in the
office of the Delaware Secretary of State.
5.6 INVESTOR RIGHTS AGREEMENT. The Company shall have executed and
delivered the Investor Rights Agreement in substantially the form attached
hereto as EXHIBIT C.
5.7 BOARD OF DIRECTORS. Upon the Closing, the authorized number of the
Company's directors shall be 9 members 2 of whom shall be designated by the
Purchaser.
5.8 VOTING AGREEMENT. Michael J. Bueno, Brian Coryat, Robert D. Leppo,
Steven J. Umberger, James R. Zarley and the Company shall have executed and
delivered the Voting Agreement in substantially the form attached hereto as
EXHIBIT D.
5.9 REGISTRATION RIGHTS AGREEMENT. The Company shall have executed and
delivered the Registration Rights Agreement in substantially the form attached
hereto as EXHIBIT E.
5.10 OPINION OF THE COMPANY'S COUNSEL. The Purchaser shall have
received from Brobeck, Phleger & Harrison, counsel to the Company, a favorable
opinion addressed to the Purchaser, dated as of the Closing Date, in
substantially the form attached hereto as EXHIBIT F.
5.11 NO ORDER; HSR ACT. No Governmental Entity shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and which has the
17
<PAGE>
effect of making the sale of Shares and issuance of Warrant illegal or otherwise
prohibiting consummation of the transactions contemplated under this Agreement.
All waiting periods, if any under the HSR Act relating to the transactions
contemplated hereby will have expired or terminated early and all material
foreign antitrust approvals required to be obtained prior to the sale of Shares
and issuance of Warrant in connection with the transactions contemplated hereby
shall have been obtained.
SECTION 6
CONDITIONS TO CLOSING OF THE COMPANY.
The Company's obligation to sell and issue the Shares at the Closing
is, unless waived in writing by the Company, subject to the fulfillment as of
the date of such Closing of the following conditions:
6.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations made
in Section 4 hereof by the Purchaser purchasing at the Closing shall be true and
correct as of the date of the Closing.
6.2 COVENANTS. All covenants, agreements, and conditions contained in
this Agreement to be performed or complied with by the Purchaser on or prior to
the date of the Closing shall have been performed or complied with in all
material respects.
6.3 BLUE SKY. The Company shall have obtained all necessary Blue Sky
law permits and qualifications, or have the availability of exemptions
therefrom, required by any state for the offer and sale of the Shares and
issuance of the Warrant.
6.4 INVESTOR RIGHTS AGREEMENT. The Purchaser shall have executed and
delivered the Investor Rights Agreement in substantially the form attached
hereto as EXHIBIT C.
6.5 VOTING AGREEMENT. The Purchaser shall have executed and delivered
the Voting Agreement in substantially the form attached hereto as EXHIBIT D.
6.6 REGISTRATION RIGHTS AGREEMENT. The Purchaser shall have executed
and delivered the Registration Rights Agreement in substantially the form
attached hereto as EXHIBIT E.
6.7 NO ORDER; HSR ACT.
No Governmental Entity shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, executive order, decree,
injunction or other order (whether temporary, preliminary or permanent) which is
in effect and which has the effect of making the sale of Shares and issuance of
Warrant illegal or otherwise prohibiting consummation of the transactions
contemplated under this Agreement. All waiting periods, if any under the HSR Act
relating to the transactions contemplated hereby will have expired or terminated
early and all material foreign antitrust approvals required to be obtained prior
to the sale of Shares and issuance of Warrant in connection with the
transactions contemplated hereby shall have been obtained.
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<PAGE>
SECTION 7
ADDITIONAL AGREEMENTS.
7.1 COVENANT NOT TO SUE. So long as Purchaser, or any of its
subsidiaries, is the owner of record or beneficial owner of at least five
percent of the Company's capital stock or option to purchase capital stock of
the Company (on a fully diluted basis), Purchaser covenants and agrees not to
sue or threaten to sue the Company or any of its vendees, affiliates, licensees,
customers or successors in interest for infringement of any claim of Purchaser's
U.S. Patent No. 5,948,061, or any claim of any United States patent or patent
application, or foreign patent or patent application, that is related to U.S.
Patent No. 5,948,061 or claims priority from U.S. Patent No. 5,948,061 or claims
any device or process or system of delivery, targeting and/or measuring
advertising in a computer network, based upon any act by the Company or any of
its vendees, affiliates, licensees, customers or successors in interest.
Purchaser further promises to impose the covenant of this paragraph on any third
party to whom Purchaser may assign or exclusively license any patent or patent
application covered by this paragraph.
7.2 GOOD FAITH NEGOTIATION OF A LICENSE. If, at any time following the
Closing Date, Purchaser, or any of its subsidiaries, is no longer the owner of
record or beneficial owner of at least five percent of the Company's capital
stock shares of the capital stock of the Company or options to purchase capital
stock of the Company, then Purchaser agrees that at such time Purchaser will, in
good faith, negotiate with the Company for the Company to obtain a license under
commercially reasonable terms to make, use, sell, offer for sale, import and
otherwise exploit the invention claimed in Purchaser's U.S. Patent No. 5,948,061
or claimed in any United States or foreign patent or patent application that is
related to U.S. Patent No. 5,948,061 or claims priority from U.S. Patent No.
5,948,061 or claims any device or process or system of delivery, targeting
and/or measuring advertising in a computer network.
7.3 NO ADMISSION OF VALIDITY OR INFRINGEMENT. Nothing in this Section 7
shall be construed as an admission by the Company that Purchaser's U.S. Patent
No. 5,948,061 is valid, enforceable and/or that U.S. Patent No. 5,948,061 is
infringed by the Company.
7.4 AGREEMENT TO USE DART SERVICES. The Company and Purchaser hereby
covenant that they shall enter into a DART Services Agreement with each other as
soon as practicable after the Effective Date of this Agreement under such terms
as mutually agreed to by the parties. The Company further covenants that to the
extent it uses other services that are in the future made available by
Purchaser, it shall obtain such services from Purchaser, so long as Purchaser
offers such services to the Company on commercially reasonable terms and that
such terms are as favorable as others generally available in the marketplace.
SECTION 8
MISCELLANEOUS.
8.1 GOVERNING LAW. This Agreement shall be governed in all respects by
the internal laws of the State of Delaware without regard to conflict of laws
provisions.
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<PAGE>
8.2 ENTIRE AGREEMENT; AMENDMENT. This Agreement, including the
exhibits hereto, constitutes the full and entire understanding and agreement
among the parties with regard to the subjects hereof and thereof, and no party
shall be liable or bound to any other party in any manner by any warranties,
representations or covenants except as specifically set forth herein or therein.
Except as expressly provided herein, neither this Agreement nor any term hereof
may be amended, waived, discharged or terminated other than by a written
instrument signed by the party against whom enforcement of any such amendment,
waiver, discharge or termination is sought.
8.3 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by facsimile
transmission, by hand or by messenger, addressed:
(a) if to a Purchaser, to:
DoubleClick Inc.
450 West 33rd Street, 16th Floor
New York, NY 10001
Attn: Elizabeth Wang
Fax: (212) 287-9704
or at such other address as such Purchaser shall have
furnished to the Company, with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
One Market
Spear Tower
San Francisco, California 94105
Attn: Steve Camahort, Esq.
Fax: (415) 222-9633
(b) if to the Company, to:
ValueClick, Inc.
6450 Via Real
P.O. Box 5008
Carpinteria, CA 93014-5008
Attn: Kurt Johnson Fax:
(805) 566-9202
or at such other address as the Company shall have furnished to the Purchaser,
with a copy to:
Brobeck Phleger & Harrison
550 South Hope Street
Los Angeles, CA 90071
Attn: Kenneth R. Bender, Esq.
Fax: (213) 745-3345
20
<PAGE>
Each such notice or other communication shall for all purposes
of this Agreement be treated as effective or having been given when received if
delivered personally, if sent by facsimile, the first business day after the
date of confirmation that the facsimile has been successfully transmitted to the
facsimile number for the party notified, or, if sent by mail, at the earlier of
its receipt or 72 hours after the same has been deposited in a regularly
maintained receptacle for the deposit of the United States mail, addressed and
mailed as aforesaid.
8.4 DELAYS OR OMISSIONS. Except as expressly provided herein, no delay
or omission to exercise any right, power or remedy accruing to any party, upon
any breach or default of another party under this Agreement, shall impair any
such right, power or remedy of such party nor shall it be construed to be a
waiver of any such breach or default, or an acquiescence therein, or of or in
any similar breach or default thereafter occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent or approval of
any kind or character on the part of any party of any breach or default under
this Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any party, shall be cumulative
and not alternative.
8.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, and all of which together
shall constitute one instrument.
8.6 SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision, which shall be replaced with an enforceable provision
closest in intent and economic effect as the severed provision; PROVIDED
HOWEVER, that no such severability shall be effective if it materially changes
the economic benefit of this Agreement to any party.
8.7 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
8.8 SUCCESSORS AND ASSIGNS. This Agreement shall not be assigned
without the consent of both parties to the Agreement. Except as otherwise
provided herein, the terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective successors and assigns of the
parties (including transferees of any Shares). Nothing in this Agreement,
express or implied, is intended to confer upon any party, other than the parties
hereto or their respective successors and assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
8.9 NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of this Agreement shall not survive the Closing of this
Agreement.
8.10 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with written consent of the Company and the Purchaser.
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<PAGE>
The foregoing agreement is hereby executed effective as of the date
first set forth above.
"COMPANY" "PURCHASER"
VALUECLICK, INC., DOUBLECLICK INC.
a Delaware corporation
By: By:
--------------------------- -------------------------
Name: Name:
------------------------- -----------------------
Title: Title:
------------------------ ----------------------
[Signature Page to Common Stock and Warrant Purchase Agreement]
<PAGE>
EXHIBIT 10.28
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE LAWS, AND
NO INTEREST THEREIN MAY BE SOLD, DISTRIBUTED, ASSIGNED, OFFERED, PLEDGED OR
OTHERWISE TRANSFERRED UNLESS (I) THERE IS AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS COVERING ANY SUCH
TRANSACTION OR SUCH TRANSACTION IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF
SUCH ACT AND LAWS AND (II) SUCH TRANSFER IS EFFECTED IN ACCORDANCE WITH THE
TERMS SET FORTH IN THIS WARRANT.
NO. ___ VALUECLICK, INC. ____________, 2000
COMMON STOCK PURCHASE WARRANT
This certifies that, for good and valuable consideration, DoubleClick
Inc. (the "Holder"), or registered assigns, is entitled, upon the terms and
subject to the conditions hereinafter set forth, at any time on or after the
date hereof and at or prior to the close of business on the fifteen month
anniversary of the date hereof, to acquire from the Company, in whole or from
time to time in part that number of fully paid and nonassessable shares of
Common Stock of the Company ("Warrant Stock") that when added to the sum of (i)
the number of shares of Common Stock of the Company purchased by the Holder
pursuant to the Common Stock and Warrant Purchase Agreement dated January 11,
2000, and (ii) the number of shares of Company Common Stock acquired by the
Holder or any affiliate of the Holder (as such term is defined under Rule 405 of
the Securities Act of 1933) subsequent to January 11, 2000, results in the
Holder together with its Rule 405 affiliates owning 45% of the then outstanding
shares of the Company's capital stock, assuming the conversion of all preferred
stock, convertible debt and other similar securities and the exercise of all
outstanding options and warrants. Such Warrant Stock shall be purchased at a
price per share of $10.88 (the "Exercise Price") and shall be paid for by Holder
with shares of Holder's Common Stock equal to the aggregate purchase price (the
"Share Consideration"). The Share Consideration shall be valued at the weighted
average closing price of Holder's Common Stock for thirty consecutive trading
days ending on and including the day preceding the date the Warrant is exercised
by Holder. Such number of shares, type of security and Exercise Price are
subject to adjustment as provided herein, and all references to "Warrant Stock"
and "Exercise Price" herein shall be deemed to include any such adjustment or
series of adjustments.
1. EXERCISE OF WARRANT
The purchase rights represented by this Warrant are exercisable, in
whole or in part, at any time and from time to time at or prior to the
Expiration Time, by the surrender of this Warrant and the Notice of Exercise
form attached hereto, both duly executed, and the presentation of evidence that
a registration statement on Form S-3 has been filed pursuant to the Registration
Rights Agreement entered into between the Company and the Holder of even date
herewith. Such documentation shall be sent to the office of the Company at 6450
Via Real, P.O. Box 5008, Carpinteria, California 93014-5008, Attn: Corporate
Secretary (or such other office or agency of the Company as it may designate by
notice in writing to the registered holder hereof at the address of such holder
appearing on the books of the Company). Upon the surrender and presentation of
such documents and upon payment of the Exercise
<PAGE>
Price for the shares thereby purchased whereupon the the Holder shall be
entitled to receive from the Company a stock certificate in proper form
representing the number of shares of Warrant Stock so purchased, and a new
Warrant in substantially identical form and dated as of such exercise for the
purchase of that number of shares of Warrant Stock equal to the difference, if
any, between the number of shares of Warrant Stock subject hereto and the number
of shares of Warrant Stock as to which this Warrant is so exercised.
2. ISSUANCE OF SHARES; NO FRACTIONAL SHARES OR SCRIP
Certificates for shares purchased hereunder shall be delivered to the
holder hereof within a reasonable time after the date on which this Warrant
shall have been exercised or converted in accordance with the terms hereof. The
Company hereby represents and warrants that all shares of Warrant Stock which
may be issued upon the exercise of this Warrant will, upon such exercise, be
duly and validly authorized and issued, fully paid and nonassessable and free
from all taxes, liens and charges in respect of the issuance thereof (other than
liens or charges created by or imposed upon the holder of the Warrant Stock).
The Company agrees that the shares so issued shall be and shall for all purposes
be deemed to have been issued to such holder as the record owner of such shares
as of the close of business on the date on which this Warrant shall have been
exercised or converted in accordance with the terms hereof. No fractional shares
or scrip representing fractional shares shall be issued upon the exercise of
this Warrant. With respect to any fraction of a share called for upon the
exercise of this Warrant, an amount equal to such fraction multiplied by the
fair market value of a share of Warrant Stock, such fair market value to be
determined based on the closing sales price for the Common Stock of the Company
(or the closing bid, if no sales were reported) as quoted on any established
stock exchange or national market system on which Company's Common Stock is
listed, for the last market trading day prior to the date of exercise of the
Warrant, or, if no public market exists for the Common Stock of the Company, as
determined in good faith by the Company's Board of Directors, shall be paid in
cash or check to the holder of this Warrant.
3. CHARGES, TAXES AND EXPENSES
Issuance of certificates for shares of Warrant Stock upon the exercise
of this Warrant shall be made without charge to the holder hereof for any issue
or transfer tax or other incidental expense in respect of the issuance of such
certificate, all of which taxes and expenses shall be paid by the Company, and
such certificates shall be issued in the name of the holder of this Warrant.
4. NO RIGHTS AS A STOCKHOLDER
This Warrant does not entitle the holder hereof to any voting rights or
other rights as a stockholder of the Company prior to the exercise hereof.
5. RESTRICTIONS ON TRANSFER; LOCK-UP
(a) TRANSFER OF WARRANT. Prior to the Expiration Time and
subject to compliance with applicable laws, this Warrant and all rights
hereunder are transferable by the holder hereof to any affiliate of such holder
(as such term is defined under Rule 405 of the Securities Act of 1933), in whole
or in part, at the office or agency of the Company referred to in Section 1
hereof. Any such
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<PAGE>
transfer to an affiliate shall be made upon surrender of this Warrant together
with the Assignment Form attached hereto properly executed, endorsed and
guaranteed. The Company shall not be required to effect any transfer of this
Warrant or the rights hereunder unless the transferor and transferee provide the
Company with an opinion of counsel that such transfer is in compliance with
applicable Federal and state securities laws, or provide the Company with
information sufficient for the Company to make such determination. The Company
shall not be required to effect any transfer of this Warrant or the rights
hereunder unless the transferee shall have agreed in writing to be bound by the
restrictions set forth in this Warrant. Except as expressly permitted by this
Section 5(a), this Warrant may not be transferred by the Holder.
(b) TRANSFER OF WARRANT STOCK. After the exercise of the
Warrant and subject to compliance with applicable laws, the shares of Warrant
Stock may be transferable by the holder hereof. The Company shall not be
required to effect any transfer of the Warrant Stock unless the transferor and
transferee provide the Company with an opinion of counsel that such transfer is
in compliance with applicable Federal and state securities laws, or provide the
Company with information sufficient for the Company to make such determination.
The Company shall not be required to effect any transfer of the Warrant Stock
unless the transferee shall have agreed in writing to be bound by the
restrictions set forth in this Warrant.
(c) LOCK-UP. In connection with any registration of the
offering of any securities of the Company under the Securities Act, if so
requested by the Company or any representative of the underwriters (the
"Managing Underwriter"), the Warrant, the Warrant Stock and any securities of
the Company issued with respect thereto may not be sold or otherwise transferred
during the period specified by the Company's Board of Directors at the request
of the Managing Underwriter, with such period not to exceed 180 days following
the effective date of a registration statement of the Company filed under the
Securities Act (the "Market Standoff Period"). The Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such Market Standoff Period. The restrictions set
forth in this Section 5(c) shall be of no further force or effect following the
transfer of the securities subject hereto pursuant to a registration statement
filed under the Securities Act or pursuant to a brokers' transaction or
transaction with a market maker pursuant to Rule 144 promulgated under the
Securities Act.
(d) NO PUBLIC MARKET. At the date of issuance of this Warrant,
no public market exists for any of the securities of the Company and the Company
makes no assurances that a public market will ever exist for the Company's
securities.
(e) LEGENDS FOR WARRANT STOCK. The certificates representing
the Warrant Stock and any securities of the Company issued with respect thereto
shall be imprinted with the following restrictive legends:
(1) "THE SECURITIES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 (THE "ACT") AND MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE
-3-
<PAGE>
SECURITIES UNDER SAID ACT OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT
SUCH REGISTRATION IS NOT REQUIRED."
(2) "THE SHARES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO A LOCKUP PERIOD OF 180-DAYS
FOLLOWING THE COMPANY'S INITIAL PUBLIC
OFFERING AS SET FORTH IN AN AGREEMENT
BETWEEN THE ISSUER AND THE ORIGINAL HOLDER
OF THESE SHARES, A COPY OF WHICH MAY BE
OBTAINED AT THE PRINCIPAL OFFICE OF THE
ISSUER. SUCH LOCKUP PERIOD IS BINDING ON
TRANSFEREES OF THESE SHARES.
(f) TRANSFER OF SHARE CONSIDERATION. The Holder shall not be
required to effect any transfer of the Share Consideration unless the transferor
and transferee provide the Holder with an opinion of counsel that such transfer
is in compliance with applicable Federal and state securities laws, or provide
the Holder with information sufficient for the Holder to make such
determination. The Holder shall not be required to effect any transfer of the
Share Consideration unless the transferee shall have agreed in writing to be
bound by the restrictions set forth in this Warrant.
(g) LEGEND FOR SHARE CONSIDERATION. The certificates
representing the Share Consideration and any securities of the Holder issued
with respect thereto shall be imprinted with the following restrictive legend:
"THESE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
"ACT") AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED
OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."
6. EXCHANGE AND REGISTRY OF WARRANT
This Warrant is exchangeable, upon the surrender hereof by the
registered holder at the above-mentioned office or agency of the Company, for a
new Warrant in substantially identical form and dated as of such exchange. The
Company shall maintain at the above-mentioned office or agency a registry
showing the name and address of the registered holder of this Warrant. This
Warrant may be surrendered for exchange, transfer or exercise, in accordance
with its terms, at such office or agency of the Company, and the Company shall
be entitled to rely in all respects upon such registry.
7. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT
On receipt by the Company of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant, and in
case of any such loss, theft or destruction of this Warrant, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the
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<PAGE>
Company or, in the case of any such mutilation, on surrender and cancellation of
such Warrant, the Company will execute and deliver to the holder, in lieu
thereof, a new Warrant in substantially identical form, dated as of such
cancellation and reissuance.
8. SATURDAYS, SUNDAYS AND HOLIDAYS
If the last or appointed day for the taking of any action or the
expiration of any right required or granted herein shall be a Saturday or a
Sunday or shall be a legal holiday, then such action may be taken or such right
may be exercised on the next succeeding business day.
9. ADJUSTMENT TO NUMBER AND TYPE OF SECURITIES AND EXERCISE PRICE
The type and number of securities of the Company issuable upon exercise
of this Warrant and the Exercise Price are subject to adjustment as set forth
below:
(a) ADJUSTMENT FOR STOCK SPLITS, STOCK DIVIDENDS,
RECAPITALIZATIONS, AUTOMATIC CONVERSION, ETC. The Exercise Price and the number
and type of securities and/or other property issuable upon exercise of this
Warrant shall be appropriately and proportionately adjusted to reflect any stock
dividend, stock split, combination of shares, reclassification,
recapitalization, automatic conversion, redemption or other similar event
affecting the number or character of outstanding shares of Warrant Stock, so
that the number and type of securities and/or other property issuable upon
exercise of this Warrant shall be equal to that which would have been issuable
with respect to the number of shares of Warrant Stock subject hereto at the time
of such event, had such shares of Warrant Stock then been outstanding.
(b) ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER,
ETC.. In case of any consolidation or merger of the Company with or into any
other corporation, entity or person, or any other corporate reorganization, in
which the Company shall not be the continuing or surviving entity of such
consolidation, merger or reorganization, or any transaction in which in excess
of 50% of the Company's voting power is transferred, or any sale of all or
substantially all of the assets of the Company (any such transaction being
hereinafter referred to as a "Reorganization"), then, in each case, the holder
of this Warrant, on exercise at any time after the consummation or effective
date of such Reorganization, shall receive, in lieu of the Warrant Stock
issuable on such exercise prior to the date of such Reorganization, the stock
and other securities and property (including cash) to which such holder would
have been entitled upon the date of such Reorganization if such holder had
exercised this Warrant immediately prior thereto.
(c) CERTIFICATE AS TO ADJUSTMENTS. In case of any adjustment
in the Exercise Price or number and type of securities issuable on the exercise
of this Warrant, the Company will promptly give written notice thereof to the
holder of this Warrant in the form of a certificate, certified and confirmed by
an officer of the Company, setting forth such adjustment and showing in
reasonable detail the facts upon which such adjustment is based.
10. REPRESENTATIONS AND WARRANTIES OF HOLDER
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<PAGE>
In connection with the issuance of this Warrant (this Warrant and the
Warrant Stock, collectively, the "Securities") Holder hereby agrees, represents
and warrants as follows: (i) Holder is acquiring the Securities solely for its
own account for investment and not with a view to or for sale or distribution of
the Securities or any portion thereof in violation of the Securities Act; (ii)
the entire legal and beneficial interest of the Securities is being purchased
for, and will be held for the account of, Holder only and neither in whole nor
in part for any other person; (iii) Holder either (a) has a prior business
and/or personal relationship with the Company and/or its officers and directors,
or (b) by reason of its business or financial experience or the business or
financial experience of its professional advisors who are unaffiliated with the
Company, and who are not compensated by the Company, has the capacity to protect
its own interests in connection with the purchase of the Securities; (iv) the
transaction under which Holder is purchasing the Securities has not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
and the Securities must be held indefinitely unless subsequently registered
under the Securities Act or an exemption from such registration is available;
and (v) the Holder has full authority to issue to the Company the Share
Consideration upon exercise of the Warrant.
11. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the holder
hereof that:
(a) during the period this Warrant is outstanding, the Company
will reserve from its authorized and unissued Warrant Stock a sufficient number
of shares to provide for the issuance of Warrant Stock upon the exercise of this
Warrant;
(b) the issuance of this Warrant shall constitute full
authority to the Company's officers who are charged with the duty of executing
stock certificates to execute and issue the necessary certificates for the
shares of Warrant Stock issuable upon exercise of this Warrant;
(c) the Company has all requisite legal and corporate power to
execute and deliver this Warrant, to sell and issue the Warrant Stock hereunder
and to carry out and perform its obligations under the terms of this Warrant;
and
(d) all corporate action on the part of the Company, its
directors and stockholders necessary for the authorization, execution, delivery
and performance of this Warrant by the Company, the authorization, sale,
issuance and delivery of the Warrant Stock and the performance of the Company's
obligations hereunder has been taken.
(e) with respect to the Share Consideration to be received by
Company upon exercise of the Warrant, Company hereby agrees, represents and
warrants as follows: (i) Company is acquiring the Share Consideration solely for
its own account for investment and not with a view to or for sale or
distribution of the Share Consideration or any portion thereof in violation of
the Securities Act; (ii) the entire legal and beneficial interest of the Share
Consideration is being acquired for, and will be held for the account of,
Company only and neither in whole nor in part for any other person; (iii)
Company either (a) has a prior business and/or personal relationship with the
Holder and/or its officers and directors, or (b) by reason of its business or
financial experience or the business or financial experience of its professional
advisors who are unaffiliated with the Holder, and who are not compensated by
the Holder, has the capacity to protect its own interests in connection with the
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acquisition of the Share Consideration; and (iv) the transaction under which
Company is acquiring the Share Consideration has not been registered under the
Securities Act, and the Share Consideration must be held indefinitely unless
subsequently registered under the Securities Act or an exemption from such
registration is available.
12. COOPERATION
The Company will not, by amendment of its Certificate of Incorporation
or through any reorganization, recapitalization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
action, avoid or seek to avoid the observance or performance of any of the terms
to be observed or performed hereunder by the Company, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant and
in the taking of all such action as may be necessary or appropriate in order to
protect the rights of the holder of the Warrant against impairment.
13. GOVERNING LAW
This Warrant shall be governed by and construed in accordance with the
laws of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officers.
Dated: January ___, 2000
VALUECLICK, INC.,
a Delaware corporation
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Attest:
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
DOUBLECLICK INC.,
a Delaware corporation
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Attest:
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
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NOTICE OF EXERCISE
To: ValueClick, Inc., a Delaware corporation
(1) The undersigned hereby elects to purchase __________ shares of
Common Stock of ValueClick, Inc., a Delaware corporation, pursuant to the terms
of the attached Warrant, and tenders herewith payment of the purchase price in
full.
(2) The undersigned represents that the aforesaid shares are being
acquired for the account of the undersigned for investment and not with a view
to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares,
except in compliance with applicable Federal and state securities laws.
(3) The undersigned accepts such shares subject to the restrictions on
transfer set forth in the attached Warrant.
-------------------------------------
(Date) (Signature)
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute this form and supply the required
information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
----------------------------------
(Please Print)
whose address is
----------------------------------------------
(Please Print)
Dated:
-----------------------------------------------
Holder's Signature:
-----------------------------------
Holder's Address:
-------------------------------------
Guaranteed Signature:
------------------------------------------
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatever, and must be guaranteed by an eligible guarantor institution
such as a bank, stockbroker, savings and loan association or credit union with
membership in an approved medallion signature guarantee program. Officers of
corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.
The undersigned transferee agrees to hold the Warrant and any Warrant Stock
issuable upon exercise or conversion of the Warrant subject to the restrictions
on transfer set forth in the Warrant.
By:
--------------------------------------------------
Date:
------------------------------------------------
<PAGE>
Exhibit 10.29
VALUECLICK, INC.
INVESTOR RIGHTS AGREEMENT
This Investor Rights Agreement (the "AGREEMENT") is made effective as
of __________, 2000, by and among: ValueClick, Inc., a Delaware corporation (the
"COMPANY") and DoubleClick Inc., a Delaware corporation (the "PURCHASER").
RECITALS
The obligations of the Company and the Purchaser under that certain
Common Stock and Warrant Purchase Agreement by and between the Company and the
Purchaser of even date herewith (the "PURCHASE AGREEMENT") are conditioned,
among other things, upon the execution and delivery of this Agreement by the
Company and the Purchaser.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, all parties hereto agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
"COMMISSION" means the Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act.
"COMMON STOCK" means the Common Stock of the Company.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
or any similar Federal rule or statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"HOLDER" means the Purchaser so long as Purchaser holds Registrable
Securities, or any person holding Registrable Securities to whom the rights
under this Agreement have been transferred in accordance with Section 5.10
hereof.
"IPO" means the closing of the first firmly underwritten public
offering of the Company's equity securities pursuant to a registration statement
filed under the Securities Act and declared effective by the Commission;
PROVIDED, HOWEVER, that in no event shall a registered offering relating solely
to employee benefit plans or to a Rule 145 transaction constitute the IPO.
"INITIATING HOLDERS" means any Holder or Holders who, in the aggregate,
hold not less than the required percentage of the Registrable Securities then
outstanding. The "REQUIRED PERCENTAGE" shall be 20% for the purposes of Sections
5.1 and 5.3 hereof.
<PAGE>
"OUTSTANDING CAPITAL STOCK" means the outstanding shares of the
Company's capital stock, calculated on an as-converted to Common Stock basis.
"SHARES" shall mean the shares of Common Stock of the Company sold to
Purchaser pursuant to the Purchase Agreement.
"REGISTRABLE SECURITIES" means (i) the Shares and (ii) the Warrant
Stock and (iii) any Common Stock of the Company issued or issuable in respect of
any of the foregoing upon any conversion, stock split, stock dividend,
recapitalization, or similar event; PROVIDED, HOWEVER, that securities shall
only be treated as Registrable Securities if and so long as (i) they have not
been registered or sold to or through a broker or dealer or underwriter in a
public distribution or a public securities transaction and (ii) the registration
rights with respect to such securities have not terminated pursuant to Section
5.11.
The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"REGISTRATION EXPENSES" shall mean all expenses, except as otherwise
stated below, incurred by the Company in complying with Sections 5.1, 5.2 and
5.3 hereof, including without limitation, all registration, qualification and
filing fees, printing expenses, escrow fees, fees and disbursements of counsel
for the Company, blue sky fees and expenses, the expense of any special audits
incident to or required by any such registration (but excluding the compensation
of regular employees of the Company which shall be paid in any event by the
Company).
"RESTRICTED SECURITIES" shall mean the securities of the Company
required to bear the legends set forth in Section 3 hereof.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or
any similar Federal rule or statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"SELLING EXPENSES" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Holders and all fees and disbursements of counsel for any Holder.
"WARRANT" shall mean the warrant for the purchase of shares of Company
Common Stock at a per share purchase price of $15.20, the form of such warrant
which is attached as an exhibit to the Purchase Agreement.
"WARRANT EXERCISE DATE" shall mean the effective date upon which the
Purchaser exercises its rights to purchase Company Common Stock under the
Warrant.
"WARRANT STOCK" shall mean the Common Stock of the Company issued or
issuable upon the exercise of the Warrant.
2. RESTRICTIONS ON TRANSFERABILITY. The Shares, the Warrant Stock and
any other securities issued in respect of such stock upon any stock split, stock
dividend, recapitalization, merger, or
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similar event, shall not be sold, assigned, transferred or pledged except upon
the conditions specified in this Agreement, which conditions are intended to
ensure compliance with the provisions of the Securities Act and the provisions
of this Agreement. Each Holder or transferee will cause any proposed purchaser,
assignee, transferee, or pledgee of any such shares held by the Holder or
transferee to agree to take and hold such securities subject to the restrictions
and upon the conditions specified in this Agreement.
3. RESTRICTIVE LEGEND. Each certificate representing the Shares, the
Warrant Stock or any other securities issued in respect of such stock upon any
stock split, stock dividend, recapitalization, merger, or similar event, shall
(unless otherwise permitted by the provisions of Section 4 below) be stamped or
otherwise imprinted with legends in substantially the following form (in
addition to any legends required by agreement or by applicable state securities
laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR
IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. SUCH
SHARES GENERALLY MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION UNLESS THE COMPANY RECEIVES AN OPINION OF
COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR
TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF SAID ACT.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
LOCKUP PERIOD OF UP TO 180-DAYS FOLLOWING THE EFFECTIVE DATE
OF CERTAIN REGISTRATION STATEMENTS OF THE COMPANY FILED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AS SET FORTH IN AN
AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE
SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL
OFFICE OF THE ISSUER. SUCH LOCKUP PERIOD IS BINDING ON
TRANSFEREES OF THESE SHARES.
Each Holder and transferee consents to the Company making a
notation on its records and giving instructions to any transfer agent of its
capital stock in order to implement the restrictions on transfer established in
this Agreement.
4. NOTICE OF PROPOSED TRANSFERS. The holder of each certificate
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 5. Without in any way limiting the
immediately preceding sentence, no sale, assignment, transfer or pledge of
Restricted Securities shall be made by any holder thereof to any person unless
such person shall first agree in writing to be bound by the restrictions of this
Agreement. Prior to any proposed sale, assignment, transfer or pledge of any
Restricted Securities, unless there is in effect a registration statement under
the Securities Act covering the proposed transfer, the holder thereof shall give
written notice to the Company of such holder's intention to effect such
transfer, sale, assignment or pledge. Each such notice shall describe the manner
and circumstances of the proposed transfer, sale, assignment or pledge in
sufficient detail. Each certificate evidencing the
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Restricted Securities transferred as above provided shall bear, except if such
transfer is made pursuant to Rule 144, the appropriate restrictive legend set
forth in Section 3 above. Each holder of Restricted Securities agrees that it
will not request that a transfer of the Restricted Securities be made or that
the legend set forth in Section 3 be removed from the certificate representing
the Restricted Securities, solely in reliance on Rule 144(k) if as a result
thereof, the Company would be rendered subject to the reporting requirements of
the Exchange Act.
5. REGISTRATION.
5.1 REQUESTED REGISTRATION.
(a) REQUEST FOR REGISTRATION. In case the Company
shall receive from Initiating Holders a written request that the Company effect
any registration with respect to shares of Registrable Securities, so long as
the Company meets the minimum qualifications for listing and inclusion on the
Nasdaq National Market, the Company will:
(i) promptly give written notice of
the proposed registration to all other Holders; and
(ii) as soon as practicable, use its
best efforts to effect such registration as part of a firm commitment
underwritten public offering with underwriters reasonably acceptable to
Initiating Holders and the Company (including, without limitation, appropriate
qualification under applicable state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act and any other
governmental requirements or regulations) as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Registrable Securities as are specified in such request, together with all or
such portion of the Registrable Securities of any Holder or Holders joining in
such request by delivering a written notice to such effect to the Company within
20 days after the date of such written notice from the Company.
Notwithstanding the foregoing, the Company shall not
be obligated to take any action to effect or complete any such registration
pursuant to this Section 6.1:
(A) Unless the requested
registration would include at least 20% of the Registrable Securities or any
lesser than percentage so long as the aggregate offering price of all
Registrable Securities sought to be registered by all Holders, net of
underwriting discounts and commissions, would exceed $5,000,000;
(B) During the period starting with
the date sixty (60) days prior to the Company's estimated date of filing of, and
ending on the date six (6) months immediately following the effective date of,
any registration statement pertaining to securities of the Company (other than a
registration of securities in a Rule 145 transaction or with respect to an
employee benefit plan), provided that the Company is actively employing in good
faith all reasonable efforts to cause such registration statement to become
effective;
(C) If the Company, within ten (10)
days of the receipt of the request of the Initiating Holders, gives notice of
its bona fide intention to effect the filing of a registration statement with
the Commission within ninety (90) days of receipt of such request (other
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than with respect to a registration statement relating to a Rule 145
transaction, an offering solely to employees or any other registration which is
not appropriate for the registration of Registrable Securities);
(D) After the Company has effected
four (4) registrations pursuant to this Section 6.1(a), and such registrations
have been declared or ordered effective;
(E) After the Company has effected
two (2) registrations pursuant to the Section 6.1(a) in any twelve month period,
and such registrations have been declared or ordered effective;
(F) Prior to four years from the
date of this Agreement;
(G) If the requested registration
would include Registrable Securities that comprise 5% or more of the Company's
outstanding Common Stock unless Initiating Holders enter into underwriting
arrangements pursuant to Section 5.1(b) below.
(H) If the Company shall furnish to
the Initiating Holders a certificate signed by the President of the Company
stating that in the good faith judgment of the Board of Directors it would be
seriously detrimental to the Company or its stockholders for a registration
statement to be filed in the near future. In such case, the Company's obligation
to use its best efforts to register, qualify or comply under this Section 5.1(a)
shall be deferred for a period not to exceed 120 days from the date of receipt
of the written request from the Initiating Holders, provided that the Company
may not defer registration under this deferral right for more than an aggregate
of 120 days per twelve month period.
Subject to the foregoing clauses (A) through (H), the Company shall
file a registration statement covering the Registrable Securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Initiating Holders.
(b) UNDERWRITING. In the event of a registration
pursuant to Section 5.1 that the Initiating Holder have requested be effected as
part of a firm commitment underwritten public offering or with respect to which
the Initiating Holders are required by Section 5.1(a)(ii)(G) to have effected
pursuant to this Section 5.1(b), the Company shall advise the Holders as part of
the notice given pursuant to Section 5.1(a)(i) that the right of any Holder to
registration pursuant to Section 5.1 shall be conditioned upon such Holder's
participation in the underwriting arrangements (including arrangements for block
trades) required by this Section 5.1, and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent requested shall be
limited to the extent provided herein.
The Company shall, together with all Holders proposing to distribute
their securities through such underwriting, enter into an underwriting agreement
in customary form with the managing underwriter selected for such underwriting
by a majority in interest of the Initiating Holders, but subject to the
Company's reasonable approval. Notwithstanding any other provision of this
Section 5.1, if the managing underwriter advises the Initiating Holders in
writing that marketing factors require a limitation of the number of shares to
be underwritten, then the Company shall so advise all Holders requesting to be
included in the registration and underwriting and the number of shares of
Registrable Securities that may be included in the registration and underwriting
shall be
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<PAGE>
allocated among all Holders requesting to be included in the registration and
underwriting in proportion, as nearly as practicable, to the respective amounts
of Registrable Securities held by them at the time of filing the registration
statement, PROVIDED, HOWEVER, that in the event of such limitation on the number
of shares to be underwritten, then the shares of Company capital stock to be
included in the registration held by any Company officer or director shall be
reduced on a pro rata basis according to the total number of shares to be
included in such registration. No Registrable Securities excluded from the
underwriting by reason of the underwriter's marketing limitation shall be
included in such registration. To facilitate the allocation of shares in
accordance with the above provisions, the Company or the underwriters may round
the number of shares allocated to any Holder to the nearest 100 shares. If any
Holder of Registrable Securities disapproves of the terms of the underwriting,
such person may elect to withdraw therefrom by written notice to the Company.
5.2 COMPANY REGISTRATION.
(a) NOTICE OF REGISTRATION. If at any time or from
time to time the Company shall determine to register any of its equity
securities, either for its own account or the account of a Holder or other
holders, other than (i) a registration relating solely to employee benefit
plans, (ii) a registration relating solely to a Rule 145 transaction, or (iii) a
registration in which the only equity security being registered is Common Stock
issuable upon conversion of convertible debt securities which are also being
registered, the Company will:
(i) promptly give to each Holder written
notice thereof; and
(ii)include in such registration (and
any related qualifications including compliance with Blue Sky laws), and in any
underwriting involved therein, all the Registrable Securities specified in a
written request or requests, made within 20 days after the date of such written
notice from the Company, by any Holder.
(b) UNDERWRITING. If the registration of which the
Company gives notice is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as a part of the written
notice given pursuant to Section 5.2(a)(i). In such event, the right of any
Holder to registration pursuant to Section 5.2 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of Registrable
Securities in the underwriting shall be limited to the extent provided herein.
All Holders proposing to distribute their securities
through such underwriting shall (together with the Company and the other Holders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the managing underwriter selected
for such underwriting by the Company. Notwithstanding any other provision of
this Section 5.2, if the managing underwriter determines that marketing factors
require a limitation of the number of shares to be underwritten, the managing
underwriter may limit the Registrable Securities to be included in such
registration to zero, PROVIDED HOWEVER, that in the event of such limitation,
then the shares of Company capital stock to be included in the registration held
by any Company officer or director shall be reduced on a pro rata basis
according to the total number of shares to be included in such registration. The
Company shall so advise all Holders requesting to be included in the
registration and underwriting and the number of shares of Registrable Securities
that may be included in the registration and underwriting shall be allocated
among all the Holders
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requesting to be included in the registration and underwriting in proportion, as
nearly as practicable, to the respective amounts of Registrable Securities held
by them at the time of filing the registration statement, PROVIDED, HOWEVER, in
the event of such limitation on the number of shares to be underwritten in any
such registration with an effective date falling prior to the expiration of two
years from the IPO, then the shares of Company capital stock to be included in
the registration held by any Company officer or director shall be reduced on a
pro rata basis according to the total number of shares to be included in such
registration. To facilitate the allocation of shares in accordance with the
above provisions, the Company or the underwriters may round the number of shares
allocated to any Holder to the nearest 100 shares. If any Holder disapproves of
the terms of any such underwriting, such person may elect to withdraw therefrom
by written notice to the Company.
(c) RIGHT TO TERMINATE REGISTRATION. The Company
shall have the right to terminate or withdraw any registration initiated by it
under this Section 5.2 prior to the effectiveness of such registration whether
or not any Holder has elected to include securities in such registration.
5.3 REGISTRATION ON FORM S-3.
(a) REQUEST FOR REGISTRATION. In case the Company
shall receive from Initiating Holders a written request that the Company file a
registration statement on Form S-3 (or any successor form to Form S-3) for a
public offering of shares of the Registrable Securities the aggregate price to
the public of which, net of underwriting discounts and commissions, would exceed
$1,000,000 and the Company is a registrant entitled to use Form S-3 to register
the Registrable Securities for such an offering, the Company shall use its best
efforts to cause such Registrable Securities to be registered for the offering
on such form and to cause such Registrable Securities to be qualified in such
jurisdictions as such Holder or Holders may reasonably request. If such offer is
to be an underwritten offer, the underwriters selected by the Initiating Holders
must be reasonably acceptable to the Company. The Company shall inform the other
Holders of the proposed registration and offer them upon at least 20 days
written notice the opportunity to participate. In the event the registration is
proposed to be part of a firm commitment underwritten public offering, the
substantive provisions of Section 5.1(b) shall be applicable to each such
registration initiated under this Section 5.3.
(b) Notwithstanding the foregoing, the Company shall
not be obligated to take any action pursuant to this Section 5.3:
(i) If the Company, within ten (10)
days of the receipt of the request of the Initiating Holders, gives notice of
its bona fide intention to effect the filing of a registration statement with
the Commission within ninety (90) days of receipt of such request (other than
with respect to a registration statement relating to a Rule 145 transaction, an
offering solely to employees or any other registration which is not appropriate
for the registration of Registrable Securities);
(ii) During the period starting with
the date sixty (60) days prior to the Company's estimated date of filing of, and
ending on the date six (6) months immediately following the effective date of,
any registration statement pertaining to securities of the Company (other than a
registration of securities in a Rule 145 transaction or with respect to an
employee
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benefit plan), provided that the Company is actively employing in good faith all
reasonable efforts to cause such registration statement to become effective;
(iii) If the requested registration
would include Registrable Securities that comprise 5% or more of the Company's
outstanding Common Stock unless Initiating Holders enter into an underwriting
arrangement in customary form with the managing underwriter selected for such
underwriting by a majority in interest of the Initiating Holders, but subject to
the Company's reasonable approval; or
(iv) If the Company shall furnish to
the Initiating Holders a certificate signed by the President of the Company
stating that, in the good faith judgment of the Board of Directors, it would be
seriously detrimental to the Company or its stockholders for a registration
statement to be filed in the near future, then the Company's obligation to use
its best efforts to file a registration statement shall be deferred for a period
not to exceed 120 days from the receipt of the request to file such registration
by such Initiating Holder or Holders, provided that the Company may not defer
registration under this deferral right for more than an aggregate of 120 days
per twelve month period.
5.4 SUBSEQUENT REGISTRATION RIGHTS.
(a) The Company shall not enter into any agreement
granting any holder or prospective holder of any securities of the Company
registration rights superior to the registration rights granted the Purchaser
hereunder without the written consent of the holders of a majority of the
Registrable Securities.
(b) The Company may grant to any holder of securities
of the Company registration rights on a pari passu basis with or inferior to
those granted hereunder, without the consent of any holders of Registrable
Securities hereunder; except and to the extent that other holders of Company
securities have such rights.
5.5 EXPENSES OF REGISTRATION. All Registration Expenses
incurred in connection with (i) four registrations pursuant to Section 5.1, (ii)
all registrations pursuant to Section 5.2, and (iii) three registrations
pursuant to Section 5.3 shall be borne by the Company. Notwithstanding the
foregoing, in the event that Initiating Holders cause the Company to begin a
registration pursuant to Section 5.1 or Section 5.3, and the request for such
registration is subsequently withdrawn by the Initiating Holders or such
registration is not completed due to failure to meet the net proceeds minimum,
aggregate value minimum or other requirements set forth in such section or is
otherwise not successfully completed due to acts or omissions of the Initiating
Holders, all Holders shall be deemed to have forfeited their right to one
registration under Section 5.1 or Section 5.3, as applicable, unless the
Initiating Holders pay for, or reimburse the Company for, the Registration
Expenses incurred in connection with such withdrawn or incomplete registration.
All Selling Expenses relating to securities registered on behalf of the Holders
and all other registration expenses shall be borne by the Holders of such
securities pro rata on the basis of the number of shares so registered or
proposed to be so registered, unless otherwise agreed by such Holders.
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5.6 REGISTRATION PROCEDURES. In the case of each registration
effected by the Company pursuant to this Agreement, the Company will keep each
Holder advised in writing as to the initiation of such registration and as to
the completion thereof. The Company will:
(a) Prepare and file with the Commission a
registration statement and such amendments and supplements as may be necessary
and use its best efforts to cause such registration statement to become and
remain effective for at least 90 days or until the distribution described in the
registration statement has been completed, whichever first occurs; and
(b) Furnish to the Holders participating in such
registration and to the underwriters of the securities being registered such
reasonable number of copies of the registration statement, preliminary
prospectus, final prospectus and such other documents as such underwriters may
reasonably request in order to facilitate the public offering of such
securities.
5.7 INDEMNIFICATION.
(a) The Company will indemnify each Holder, each of
its officers and directors and partners, and each person controlling such Holder
within the meaning of Section 15 of the Securities Act, with respect to which
registration has been effected pursuant to this Agreement, against all expenses,
claims, losses, damages or liabilities (or actions in respect thereof),
including any of the foregoing incurred in settlement of any litigation,
commenced or threatened, arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any registration
statement, prospectus, offering circular or other document, or any amendment or
supplement thereto, incident to any such registration, or based on any omission
(or alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, or any violation by the
Company of the Securities Act, the Exchange Act, state securities laws or any
rule or regulation promulgated under such laws applicable to the Company in
connection with any such registration, and the Company will reimburse each such
Holder, each of its officers and directors, and each person controlling such
Holder, for any legal and any other expenses reasonably incurred, as such
expenses are incurred, in connection with investigating, preparing or defending
any such claim, loss, damage, liability or action, provided that the Company
will not be liable in any such case to the extent that any such claim, loss,
damage, liability or expense arises out of or is based on any untrue statement
or omission or alleged untrue statement or omission, made in reliance upon and
in conformity with information furnished to the Company for use in such
document; PROVIDED, HOWEVER, that the foregoing indemnity Agreement is subject
to the condition that, insofar as it relates to any such untrue statement,
alleged untrue statement, omission or alleged omission made in a preliminary
prospectus on file with the Commission at the time the registration statement
becomes effective or the amended prospectus filed with the Commission pursuant
to Rule 424(b) (the "FINAL PROSPECTUS"), such indemnity Agreement shall not
inure to the benefit of any Holder, if a copy of the Final Prospectus was not
furnished to the person asserting the loss, liability, claim or damage at or
prior to the time such action is required by the Securities Act, and if the
Final Prospectus would have cured the defect giving rise to the loss, liability,
claim or damage.
(b) Each Holder will, if Registrable Securities held
by such Holder are included in the securities as to which such registration is
being effected, indemnify the Company, each of its directors and officers, other
holders of the Company's securities covered by such
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registration statement, each person who controls the Company within the meaning
of Section 15 of the Securities Act, and each other such Holder, each of its
officers and directors and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, against all claims, losses, damages
and liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or any violation by the Holder of the Securities Act, the Exchange
Act, state securities laws or any rule or regulation promulgated under such laws
applicable to the Holder, and will reimburse the Company, such other Holders,
such directors, officers, persons, underwriters or control persons for any legal
or any other expenses reasonably incurred, as such expenses are incurred, in
connection with investigating or defending any such claim, loss, damage,
liability or action, but in the case of the Company or the other Holders or
their officers, directors or controlling persons, only to the extent that such
untrue statement (or alleged untrue statement) or omission (or alleged omission)
is made in such registration statement, prospectus, offering circular or other
document in reliance upon and in conformity with information furnished to the
Company by such Holder. Notwithstanding the foregoing, the liability of each
Holder under this subsection 5.7(b) shall be limited in an amount equal to the
initial public offering price of the shares sold by such Holder, unless such
liability arises out of or is based on willful misconduct by such Holder.
(c) Each party entitled to indemnification under this
Section 5.7 (the "INDEMNIFIED PARTY") shall give notice to the party required to
provide indemnification (the "INDEMNIFYING PARTY") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement unless the failure to
give such notice is materially prejudicial to an Indemnifying Party's ability to
defend such action and provided further, that the Indemnifying Party shall not
assume the defense for matters as to which there is a conflict of interest or
there are separate and different defenses. No Indemnifying Party, in the defense
of any such claim or litigation, shall, except with the consent of each
Indemnified Party (whose consent shall not be unreasonably withheld), consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
5.8 INFORMATION BY HOLDER. The Holder or Holders of
Registrable Securities included in any registration shall furnish to the Company
such information regarding such Holder or Holders, the Registrable Securities
held by them and the distribution proposed by such Holder or Holders as the
Company may request in writing and as shall be required in connection with any
registration referred to in this Agreement.
5.9 RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Restricted
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Securities to the public without registration, after such time as a public
market exists for the Common Stock of the Company, the Company agrees to use all
reasonable efforts to:
(a) Make and keep public information available, as
those terms are understood and defined in Rule 144 under the Securities Act, at
all times after the effective date that the Company becomes subject to the
reporting requirements of the Securities Act or the Exchange Act;
(b) File with the Commission in a timely manner all
reports and other documents required of the Company under the Securities Act and
the Exchange Act (at any time after it has become subject to such reporting
requirements); and
(c) So long as a Holder owns any Restricted
Securities, to furnish to the Holder forthwith upon request a written statement
by the Company as to its compliance with the reporting requirements of said Rule
144 (at any time after 90 days after the effective date of the first
registration statement filed by the Company for an offering of its securities to
the general public), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents of the Company and other
information in the possession of or reasonably obtainable by the Company as the
Holder may reasonably request in availing itself of any rule or regulation of
the Commission allowing the Holder to sell any such securities without
registration.
5.10 TRANSFER OF REGISTRATION RIGHTS. The rights to cause the
Company to register securities granted Holders under Sections 5.1, 5.2 and 5.3
may be assigned to a transferee or assignee reasonably acceptable to the Company
in connection with any transfer or assignment of Registrable Securities by the
Holder provided that: (i) such transfer is otherwise effected in accordance with
applicable securities laws and the terms of this Agreement, (ii) such assignee
or transferee acquires at least 30% of the Registrable Securities (as adjusted
for stock splits, stock dividends, stock combinations and the like) of
Registrable Securities, (iii) written notice is promptly given to the Company
and (iv) such transferee agrees to be bound by the provisions of this Agreement.
Notwithstanding the foregoing, the rights to cause the Company to register
securities may be assigned without compliance with item (ii) above to (x) any
constituent partner or member of a Holder which is a partnership or limited
liability company, or an affiliate (as such term is defined in Rule 405 of the
Securities Act) of a Holder which is a corporation, or (y) a family member or
trust for the benefit of a Holder who is an individual, or a trust for the
benefit of a family member of such a Holder.
5.11 TERMINATION OF REGISTRATION RIGHTS. The rights granted
pursuant to Section 5.1, 5.2 and 5.3 of this Agreement shall terminate as to any
Holder upon the earlier of (i) the date five years after the effective date of
the IPO and (ii) such time as the Holder may sell all of such Registrable
securities in any single three-month period under Rule 144.
6. INFORMATION RIGHTS.
6.1 The Company will provide the following reports to the
Purchaser for so long as Purchaser or any of its affiliates continues to hold
capital stock of the Company:
(a) As soon as practicable after the end of the
fiscal year ending December 31, 1999 and each fiscal year thereafter, and in any
event within 120 days after the end of each such
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fiscal year, consolidated balance sheets of the Company and its subsidiaries, if
any, as of the end of such fiscal year, and consolidated statements of
operations and consolidated statements of cash flows and stockholders' equity of
the Company and its subsidiaries, if any, for such year, prepared in accordance
with generally accepted accounting principles and setting forth in each case in
comparative form the figures for the previous fiscal year, all in reasonable
detail and audited by independent public accountants selected by the Company,
and a capitalization table in reasonable detail shall be provided upon request
by the Purchaser for such fiscal year;
(b) At least 30 days prior to the beginning of each
fiscal year, commencing with the fiscal year beginning January 1, 2000, a budget
and business plan as adopted by the Company's Board of Directors for the fiscal
year; and
(c) As soon as practicable after the end of each
month, a consolidated balance sheet of the Company and its subsidiaries (if
any), as of the end of each such monthly period, and consolidated statements of
operations and consolidated statements of cash flows of the Company and its
subsidiaries (if any), for such persons and for the current fiscal year to date,
prepared in accordance with generally accepted accounting principles (other than
accompanying notes), subject to changes resulting from period-end adjustments,
in reasonable detail and signed by the principal financial or accounting officer
of the Company; PROVIDED, HOWEVER, that in lieu of delivering such statements
covering the third month of a quarterly accounting period, the Company may at is
option deliver such statements covering such entire quarterly accounting period.
6.2 The Company will afford to Purchaser, for so long as it
continues to hold any shares of Company Common Stock, reasonable access during
normal business hours to the Company's facilities and to the Company's
accounting books, records (including a summary capitalization table setting
forth Purchaser's percentage interest of the issued and outstanding capital
stock of the Company), and minutes of proceedings of the stockholders and the
Board of Directors and committees of the Board of Directors, for a purpose
reasonably related to such Investor's interests as a stockholder of the Company.
The Company shall not be required to disclose information where to do so would
violate confidentiality obligations of the Company.
6.3 The rights granted pursuant to this Section 6 may be
assigned to any transferee, other than a competitor or potential competitor of
the Company (as reasonably determined by the Company's Board of Directors), who
acquires at least 30% of Registrable Securities (as adjusted for stock splits,
stock dividends, stock combinations and the like), so long as such transferee
agrees in writing to be bound by the provisions of Section 6.4, below.
6.4 Each Purchaser or transferee of rights under this Section
6 acknowledges and agrees that any information obtained pursuant to this Section
6 will be used solely for appropriate stockholder purposes and shall be
maintained in strict confidence by such Purchaser or transferee and will not be
utilized by such Purchaser or transferee in connection with purchases or sales
of the Company's securities except in compliance with applicable state and
Federal securities laws.
6.5 The covenants of the Company set forth in this Section 6
shall terminate and be of no further force or effect upon the IPO or at such
time as the Company is required to file reports pursuant to Section 13 or 15(d)
of the Exchange Act, whichever shall occur first.
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7. LOCKUP AGREEMENT. The Purchaser and each transferee who receives
Shares, Warrant Stock and any Common Stock issued or issuable in respect of any
of the foregoing upon any conversion, stock split, stock dividend,
recapitalization, or similar event, hereby agrees that, in connection with any
registration of the offering of any securities of the Company under the
Securities Act for the account of the Company, if so requested by the Company or
any representative of the underwriters (the "MANAGING UNDERWRITER"), such
Purchaser, Holder or transferee shall not sell or otherwise transfer any
interest in any securities of the Company during the period specified by the
Company's Board of Directors at the request of the Managing Underwriter (the
"MARKET STANDOFF PERIOD"), with such period not to exceed 180 days following the
effective date of the registration statement related to such offering. The
Company shall use its reasonable best efforts to place similar contractual
lockup restrictions on all capital stock issued now or hereafter to executive
officers and directors then holding Common Stock of the Company and holders of
2% or more of the Company's Common Stock (fully diluted and on an as-converted
basis). The Company may impose stop-transfer instructions with respect to
securities subject to the foregoing restrictions until the end of such Market
Standoff Period. Notwithstanding the foregoing, the provisions of this Section 8
shall not apply to a registration relating solely to employee benefit plans on
Form S-1 or Form S-8 or similar forms which may be promulgated in the future, or
a registration relating solely to a transaction within Rule 145 of the
Securities Act on Form S-4 or similar form which may be promulgated in the
future.
8. APPROVAL BY PURCHASERS. So long as Purchaser holds at least ten
percent of the Company's outstanding capital stock (on a fully diluted basis),
the Company shall not, without first obtaining the approval of the Purchaser
conduct any of the following activities:
(a) Issuance of securities or right to acquire
securities for financing purposes of any company that is competitive with
Purchaser;
(b) Any amendment to the Company's certificate of
incorporation or bylaws which would have an adverse effect on Purchaser;
(c) Implementation of any anti-takeover defense,
including, but not limited to a stockholder rights plan; and
(d) The issuance of any securities for which vesting
accelerates solely upon a change of control or upon a public offering.
9. RIGHT OF FIRST OFFER. Subject to the terms and conditions specified
in this Section 9, Company agrees that for a period commencing on the date of
this Agreement and ending on the 3 year anniversary of the date of this
Agreement, that it shall grant the Purchaser a right of first offer with respect
to future sales by the Company of its Securities (as defined below).
Each time the Company proposes to offer any shares of, or securities
convertible into or exchangeable or exercisable for any shares of, any class of
its capital stock ("SECURITIES"), the Company shall first make an offering of
such Securities to the Purchaser in accordance with the following provisions.
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9.1 The Company shall deliver a notice in accordance with
Section 16 to the Purchaser stating (i) its bona fide intention to offer such
Securities, (ii) the number of such shares of Securities to be offered, and
(iii) the price and terms upon which it proposes to offer such Securities.
9.2 By written notification received by the Company, within
twenty (20) calendar days after receipt of the notice, the Purchaser may elect
to purchase or obtain at the price and on the terms specified in the notice, up
to that portion of such Securities that equals the proportion that the number of
shares of Common Stock issued and held, or issuable upon exercise of the Warrant
then held, by Purchaser bears to the total number of shares of Common Stock of
the Company then outstanding (assuming full conversion of all convertible
securities and full exercise of all options and warrants).
9.3 If any Securities that Purchaser is entitled to obtain
pursuant to Section 9.2 are not elected to be obtained as provided in Section
9.2 hereof, the Company may, during the ninety (90) day period following the
expiration of the period provided in Section 9.2 hereof, offer the remaining
unsubscribed portion of such Securities to any person or persons at a price not
less than, and upon terms no more favorable to the offeree than those specified
in the notice. If the Company does not enter into an agreement for the sale of
the Securities within such period, or if such agreement is not consummated
within ninety (90) days of the execution thereof, the right provided hereunder
shall be deemed to be revived and such Securities shall not be offered unless
first reoffered to the Purchaser in accordance herewith.
9.4 The right of first offer in this Section 9 shall not be
applicable to (i) the issuance or sale of shares of Common Stock (or options
therefor) to employees, directors and consultants pursuant to a plan approved by
the Company's Board of Directors issued or sold for the primary purpose of
soliciting or retaining their services; (ii) the issuance of securities pursuant
to a bona fide, firmly underwritten public offering of shares of Common Stock,
registered under the Act, at an offering price of at least $5.44 per share
(appropriately adjusted for any stock split, dividend, combination or other
recapitalization) and resulting in proceeds to the Company of at least
$20,000,000 in the aggregate; (iii) the issuance of securities pursuant to the
conversion or exercise of convertible or exercisable securities; (iv) the
issuance of securities in connection with a bona fide business acquisition of or
by the Company, whether by merger, consolidation, sale of assets, sale or
exchange of stock or otherwise; or (v) the issuance of stock, warrants or other
securities or rights to persons or entities with which the Company has business
relationships provided such issuances are for other than primarily equity
financing purposes and that such issuances be approved by both the full board of
directors and the directors designated by the Purchaser.
10. RIGHT OF FIRST OFFER IN CONNECTION WITH SALE OF COMPANY. Subject to
the terms and conditions specified in this Section 10 and so long as Purchaser
holds at least ten percent of the outstanding capital stock of the Company (on a
fully diluted basis), the Company hereby grants the Purchaser a right of first
offer in connection with the sale of the Company.
(a) If the Board of Directors determines to explore a
possible Sale of the Company (as hereinafter defined), the Company will provide
the Purchaser with notice of such intention (the "SALE NOTICE").
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(b) Upon receipt of the Sale Notice, the Purchaser
shall have until the Response Date (as defined below) to make a formal offer
(the "PURCHASER OFFER") for the acquisition of the Company. The Purchaser Offer
shall be presented in writing to the Board of Directors, which will use good
faith in evaluating the Purchaser Offer. If the Board of Directors accepts the
Purchaser Offer but the transaction proposed by the Purchaser Offer is not
consummated within one hundred twenty (120) days (or such longer period, if any,
as mutually agreed to by the parties) after acceptance of the Purchaser Offer as
a result of actions or inactions on the part of Purchaser, the Company will be
free to pursue the marketing and Sale of the Company for one hundred fifty (150)
days and this Section 10 will not apply to any other offers received pursuant
thereto. If the Board of Directors rejects the Purchaser Offer, the Company
shall be free to pursue another transaction for the Sale of the Company so long
as terms of such transaction taken as a whole, as consummated, are more
favorable to the Company than the Purchaser Offer, PROVIDED, HOWEVER, that so
long as Purchaser is in compliance with this Section 10, the Purchaser's
designees to the Board of Directors shall be permitted to attend and participate
in all such Board of Director meetings regarding the Sale of the Company. The
Company may not consummate any such transaction after one hundred fifty (150)
days after the rejection of the Purchaser Offer.
The "RESPONSE DATE" shall be the date which is
thirty (30) days following receipt by the Purchaser of the Sale Notice;
provided, however, that if the Company has retained an investment banker,
business broker or other representative to market the Company and indications of
interest have been received based on a descriptive memorandum, then the Response
Date shall be the later to occur of (1) the date which is thirty (30) days
following receipt of the Sale Notice by the Purchaser and (2) the date which is
five (5) days following the receipt by the Company of all indications of
interest from the recipients of the descriptive memorandum (which recipients
will be determined in the sole discretion of the Company).
"SALE OF THE COMPANY" is a transaction that would result in
(i) a change of control of the Company (meaning a transaction in which the
Company's voting equity securities immediately prior to such transaction (or the
securities into which such securities are converted as a result of such
transactions) would represent less than 50% of the voting power of the equity
securities of the surviving entity of such transaction as of immediately
following such transaction); or (ii) a sale of all or substantially all of the
Company's assets.
(c) If, other than during the pendency of a Sale
Notice and the procedures related thereto described in Section (b), the Company
receives an unsolicited offer (the "UNSOLICITED OFFER") for the Sale of the
Company, before such Unsolicited Offer is accepted by the Company, the Company
shall deliver to the Purchaser an offer (the "COMPANY OFFER") for the Sale of
the Company to the Purchaser for the same price and on the same terms and
conditions as the Unsolicited Offer. The Company Offer shall set forth the terms
of the Unsolicited Offer and shall include a copy of any writing containing the
Unsolicited Offer. The Company Offer shall remain open and irrevocable for a
period of twenty (20) days (the "ACCEPTANCE PERIOD") from the date of its
delivery to the Purchaser.
The Purchaser may accept the Company Offer by
delivering to the Company a notice (the "ACCEPTANCE NOTICE") within the
Acceptance Period, which notice shall state and confirm the terms upon which the
Purchaser intends to acquire the Company. If the Purchaser shall fail to
consummate the acquisition of the Company in accordance with the terms of the
Acceptance
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Notice within one hundred twenty (120) days (or such longer period, if any, set
forth in the Company Offer) (the "CLOSING DATE") after the Acceptance Notice is
delivered to the Company as a result of actions or inactions on the part of
Purchaser, or if the Purchaser shall not deliver to the Company an Acceptance
Notice during the Acceptance Period, then the Company may proceed to consummate
a Sale of the Company pursuant to the Unsolicited Offer within one hundred fifty
(150) days after the Closing Date or the end of the Acceptance Period, as
applicable, without further obligation to the Purchaser under this Section 10(c)
with respect to the Unsolicited Offer.
(d) If the Board of Directors approves a
proposed Sale of the Company to a party other than Purchaser (the "POTENTIAL
THIRD PARTY PURCHASER") after fully complying with Section 10(b) and/or Section
10(c), as applicable, then Purchaser hereby agrees to vote all of its voting
securities in favor of such proposed Sale of the Company if the following
additional conditions shall have been met: (i) the aggregate per share amount of
the cash and the fair market value, as of the date of consummation of such
proposed Sale of the Company, of non-cash consideration to be received by the
Purchaser for all of Purchaser's shares of Company capital stock pursuant to the
Proposed Sale of the Company shall equal or exceed the highest per share price
paid by the Potential Third Party Purchaser or any of its affiliates for any
other shares of Company capital stock (A) in such proposed Sale of the Company
or (B) otherwise during the one-year period immediately prior to the public
announcement of such proposed Sale of the Company; and (ii) consummation of the
proposed Sale of the Company shall result in the Potential Third Party Purchaser
owning all of the capital stock or substantially all of the assets of the
Company.
10.2 Any non-public information communicated to Purchaser by
the Company in connection with this Section 10 shall be considered confidential
information. Purchaser acknowledges and agrees that such information obtained
pursuant to this Section 10 will be used solely for purposes of evaluating the
terms of Letter of Intent and/or preparing a matching acquisition proposal, (ii)
will not be utilized by Purchaser in connection with purchases or sales of the
Company's securities except in compliance with applicable state and Federal
securities laws, and (iii) will not be disclosed to third parties other than
Purchaser's attorneys, accountants and other professionals engaged to assist
Purchaser in connection with the prospective acquisition.
11. STANDSTILL AGREEMENT. Purchaser agrees that for a period commencing
on the date of this Agreement and ending the earlier of (i) the 3 year
anniversary of the date of this Agreement and (ii) the occurrence of a
Significant Event (as defined below), neither it nor any of its directors,
executive officers or affiliates (as defined in Rule 405 under the Securities
Act) shall, without the express approval of the Board of Directors in a duly
adopted resolution making reference to this Section, directly or indirectly (i)
acquire additional shares of the Company's capital stock such that Purchaser
would own more than 45% of the Company's capital stock on a fully diluted basis;
(ii) make or participate in any "solicitation" of "proxies" to vote (as such
terms are used in the rules of the Securities and Exchange Commission), or seek
to advise or influence any person or entity with respect to the voting of any
voting securities of the other party; or (iii) vote its shares against the Board
of Director nominees nominated by the Company's Board of Directors, so long as
such slate of nominees conforms with the Voting Agreement entered into between
Purchaser, Company and certain Company stockholders of even date herewith. For
purposes of this Section 11, "SIGNIFICANT EVENT" shall mean, with respect to the
Company, the announcement or commencement by any person or 13D Group (as defined
below) of a tender or exchange offer to acquire shares of Common Stock of the
Company which, if successful, would result in such person or 13D Group
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owning, when combined with any other shares of Common Stock of the Company owned
by such person or 13D Group, 50% or more of the then outstanding shares of
Common Stock of the Company; and "13D GROUP" shall mean, with respect to the
voting securities of the Company, any group of persons formed for the purpose of
acquiring, holding, voting or disposing of such voting securities which would be
required under Section 13(d) of the Exchange Act and the rules and regulations
thereunder to file a statement on Schedule 13D with the SEC as a "person" within
the meaning of Section 13(d)(3) of the Exchange Act if such group beneficially
owned voting securities representing more than 5% of the total combined voting
power of all such voting securities then outstanding.
12. BOARD OF DIRECTORS. At each meeting and by each board action by
written consent where members of the Company Board of Directors are to be
nominated, the Company shall take all actions that are necessary to nominate to
the Board of Directors such number of designees selected by the Purchaser as is
required to be voted for by certain Company stockholders under the Voting
Agreement entered into between Purchaser and Company of even date herewith.
13. AMENDMENT. Except as otherwise provided above, additional parties
may be added to this Agreement, any provision of this Agreement may be amended
or the observance thereof may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and the Holders of a majority of the Registrable
Securities then outstanding. Notwithstanding the foregoing, no amendment shall
be made to this Agreement which by its terms adversely affects, or which was
motivated primarily by an intent to adversely affect, a Holder in a manner
differently from the other Holders without the written consent of such Holder or
a majority of the Registrable Securities held by the Holders in such adversely
affected class, as the case may be. Any amendment or waiver effected in
accordance with Section 13 shall be binding upon Purchaser and each Holder of
Registrable Securities at the time outstanding, each future holder of any of
such securities, and the Company. Notwithstanding the foregoing, Section 11
hereof shall not be amended without Purchaser's consent.
14. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Delaware.
15. ENTIRE AGREEMENT. This Agreement constitutes the full and entire
understanding and Agreement among the parties regarding the matters set forth
herein. Except as otherwise expressly provided herein, the provisions hereof
shall inure to the benefit of, and be binding upon the successors, assigns,
heirs, executors and administrators of the parties hereto.
16. NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by facsimile
transmission, by hand or by messenger, addressed:
16.1 if to a Holder, or at such other address as such Holder
shall have furnished to the Company.
DoubleClick Inc.
450 West 33rd Street, 16th Floor
New York, NY 10001
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Attn: Elizabeth Wang
Fax: (212) 287-9704
with a copy to:
Wilson Sonsini Goodrich & Rosati
Spear Street Tower
One Market Street
San Francisco, CA 94105
Attn: Steve Camahort, Esq.
Fax: (415) 222-9633
16.2 if to the Company, to:
ValueClick, Inc.
6450 Via Real
P.O. Box 5008
Carpinteria, CA 93014-5008
Attn: Kurt Johnson
Fax: (805) 566-9202
or at such other address as the Company shall have furnished to the Holders,
with a copy to:
Brobeck, Phleger & Harrison, LLP
550 South Hope Street
Los Angeles, CA 90071
Attn: Kenneth R. Bender, Esq.
Fax: (213) 745-3345
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given when delivered if
delivered personally, if sent by facsimile, the first business day after the
date of confirmation that the facsimile has been successfully transmitted to the
facsimile number for the party notified, or, if sent by mail, at the earlier of
its receipt or 72 hours after the same has been deposited in a regularly
maintained receptacle for the deposit of the United States mail, addressed and
mailed as aforesaid.
17. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
"THE COMPANY"
ValueClick, Inc.
a Delaware corporation
By:
--------------------------------------------------
Name:
------------------------------------------------
Title:
-----------------------------------------------
"THE PURCHASER"
DoubleClick Inc.
a Delaware corporation
By:
--------------------------------------------------
Name:
------------------------------------------------
Title:
-----------------------------------------------
[Signature page to Investor Rights Agreement]
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EXHIBIT A
SCHEDULE OF HOLDERS
(to the Investor Rights Agreement)
"THE PURCHASER" "REGISTRABLE SECURITIES"
__________ shares of Common Stock
__________ shares of Common Stock issuable
to Purchaser upon Purchaser's exercise Warrant
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Exhibit 10.30
VOTING AGREEMENT
THIS AGREEMENT is made as of the ___th day of ________, 2000 by and
among ValueClick, Inc., a Delaware corporation (the "COMPANY"), Michael J.
Bueno, Brian Coryat, Steven J. Umberger and James R. Zarley (together the
"STOCKHOLDERS") and DoubleClick Inc., a Delaware corporation (the "INVESTOR").
1. AGREEMENT TO VOTE. During the term of this Agreement, the
Stockholders agree to vote all of the shares of the Company's voting securities
now or hereafter owned by them, whether beneficially or otherwise (the
"SHARES"), at any regular or special meeting of stockholders of the Company, or,
in lieu of any such meeting, to give their written consent, as provided in
paragraph 2 below.
2. VOTING EVENTS. If there shall be submitted to the stockholders of
the Company any proposal concerning: the election or removal of directors of the
Company, then the Stockholders shall vote or act with respect to the Shares in
the manner provided below:
With respect to the designee(s) to be selected by the Investor, the
Stockholders agree that they will vote all of their Shares in favor of:
(a) 2 designees of the Investor upon the effective date of this
Agreement; PROVIDED HOWEVER, that if the Company's Board of Directors shall
consist of more than 9 members, then the number of Investor designees shall be
proportional to Investor's equity ownership in the Company rounded down to the
nearest whole number; and PROVIDED FURTHER, that if the number of shares of
Company Common Stock held by the Investor decreases below 22 percent, then the
number of Investor designees shall be decreased to be proportional to Investor's
equity ownership in the Company rounded down to the nearest whole number;
(b) 3 designees of the Investor upon the exercise in full by the
Investor of the Common Stock Purchase Warrant dated ________, 2000; PROVIDED
HOWEVER, that if the Company's Board of Directors shall consist of more than 9
members, then the number of Investor designees shall be proportional to
Investor's equity ownership in the Company rounded down to the nearest whole
number; and PROVIDED FURTHER, that if the number of shares of Company Common
Stock held by the Investor decreases below 33 percent, then the number of
Investor designees shall be decreased to be proportional to Investor's equity
ownership in the Company rounded down to the nearest whole number; and
(c) 1 designee of the Investor so long as Investor holds at least
10% of the Company's outstanding capital stock (on a fully diluted basis), as
adjusted for stock split, stock dividends, stock combinations and the like.
A vote taken to remove any director elected pursuant to this Section 2.1, or to
fill any vacancy created by the resignation or death of a director elected
pursuant to this Section 2.1, shall also be subject to the relevant provisions
of this Section 2.1.
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3. SUCCESSORS IN INTEREST. The provisions of this Agreement shall be
binding upon the successors in interest of the Investor and Stockholders to any
of the Shares, so long as such successor holds at least 5% of the fully diluted
outstanding shares of the Company's Common Stock. The Company shall not permit
the transfer of any Shares on its books or issue a new certificate representing
any shares unless and until the person to whom such security is to be
transferred shall have executed a written agreement, satisfactory in form and
substance to the nontransferring Investors and Stockholders, as the case may be,
pursuant to which such person becomes a party to this Agreement and agrees to be
bound by all the provisions hereof as if such person was an Investor or
Stockholder, as the case may be, hereunder.
4. LEGEND. Each certificate representing any Shares shall be endorsed
by the Company with a legend reading as follows:
THE SHARES EVIDENCED HEREBY ARE SUBJECT TO A VOTING AGREEMENT,
DATED AS OF ___________, 2000 (A COPY OF WHICH MAY BE OBTAINED
FROM THE COMPANY), AND BY ACCEPTING ANY INTEREST IN SUCH
SHARES THE PERSON ACCEPTING AN INTEREST CONSTITUTING 5% OR
MORE OF THE THEN OUTSTANDING VOTING SECURITIES OF THE COMPANY,
SHALL BE DEEMED TO AGREE TO AND SHALL BECOME BOUND BY ALL THE
PROVISIONS OF SAID VOTING AGREEMENT.
This legend shall be removed upon the sale of the Shares evidenced thereby
through a broker-dealer sale or through a registered offering.
5. AMENDMENTS AND WAIVERS. Any term hereof may be amended and the
observance of any term hereof may be waived (either generally or in a particular
instance and either retroactively or prospectively) only with the written
consent of (i) Stockholders holding a majority of the Shares held by all
Stockholders and (ii) Investors holding a majority of the Shares held by all the
Investors.
6. SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be held to be
prohibited by or invalid under applicable law, such provision shall be effective
only to the extent of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
7. GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of Delaware.
8. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
9. SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided in
this Agreement, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors and assigns of the parties thereto.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year herein above first written.
COMPANY:
VALUECLICK, INC
By:
--------------------------------------
Name:
--------------------------------------
Its:
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STOCKHOLDERS:
--------------------------------------
Michael J. Bueno
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Brian Coryat
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Steve J. Umberger
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James R. Zarley
INVESTOR:
DOUBLECLICK INC.
By:
--------------------------------------
Name:
--------------------------------------
Its:
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[Signature Page to Voting Agreement]
<PAGE>
Exhibit 10.31
DOUBLECLICK INC.
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "AGREEMENT") is made effective
as of __________, 2000, by and among DoubleClick Inc., a Delaware corporation
(the "COMPANY") and ValueClick, Inc. (the "SECURITY HOLDER") under the Common
Stock and Warrant Purchase Agreement dated January 11, 2000 (the "PURCHASE
AGREEMENT").
RECITALS
The obligations of the Company and the Security Holder under the
Purchase Agreement are conditioned, among other things, upon the execution and
delivery of this Agreement by the Company and the Security Holder.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, all parties hereto agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall have the following respective meanings:
"COMMISSION" means the Securities and Exchange Commission or any
other Federal agency at the time administering the Securities Act.
"CONSIDERATION SHARES" means the Common Stock of the Company
issued or issuable to Security Holder pursuant to the Purchase Agreement and the
Common Stock Purchase Warrant attached as an exhibit to the Purchase Agreement.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, or any similar Federal rule or statute and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
"HOLDER" means the Security Holder.
"REGISTRABLE SECURITIES" means (i) the Consideration Shares; and
(ii) any Common Stock of the Company issued or issuable in respect of any of the
foregoing upon any conversion, stock split, stock dividend, recapitalization, or
similar event; PROVIDED, HOWEVER, that securities shall only be treated as
Registrable Securities if and so long as (i) they have not been registered or
sold to or through a broker or dealer or underwriter in a public distribution or
a public securities transaction and (ii) the registration rights with respect to
such securities have not terminated pursuant to Section 5.6.
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The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"REGISTRATION EXPENSES" shall mean all expenses, except as
otherwise stated below, incurred by the Company in complying with Section 5.1
hereof, including without limitation, all registration, qualification and filing
fees, printing expenses, escrow fees, fees and disbursements of counsel for the
Company, blue sky fees and expenses, the expense of any special audits incident
to or required by any such registration (but excluding Selling Expenses and the
compensation of regular employees of the Company which shall be paid in any
event by the Company). Registration Expenses shall also include the reasonable
fees and disbursements for one special counsel to the selling stockholders for
the registrations pursuant to Section 5.1 hereof.
"RESTRICTED SECURITIES" shall mean the securities of the Company
required to bear the legends set forth in Section 3 hereof.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, or any similar Federal rule or statute and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
"SELLING EXPENSES" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Holder and, except as set forth in the definition of REGISTRATION Expenses
above, all fees and disbursements of counsel for any Holder.
2. RESTRICTIONS ON TRANSFERABILITY. The Consideration Shares, and
any securities issued in respect of such stock upon any stock split, stock
dividend, recapitalization, merger, or similar event, shall not be sold,
assigned, transferred or pledged except upon the conditions specified in this
Agreement, which conditions are intended to ensure compliance with the
provisions of the Securities Act. Each Holder or transferee will cause any
proposed purchaser, assignee, transferee, or pledgee of any such shares held by
the Holder or transferee to agree to take and hold such securities subject to
the restrictions and upon the conditions specified in this Agreement.
3. RESTRICTIVE LEGEND. Each certificate representing the
Consideration Shares, or any other securities issued in respect of such stock
upon any stock split, stock dividend, recapitalization, merger, or similar
event, shall (unless otherwise permitted by the provisions of Section 4 below)
be stamped or otherwise imprinted with a legend in substantially the following
form (in addition to any legends required by agreement or by applicable state
securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR
IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. SUCH
SHARES GENERALLY MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION UNLESS THE COMPANY RECEIVES AN OPINION OF
COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR
TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF SAID ACT.
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Each Holder consents to the Company making a notation on its
records and giving instructions to any transfer agent of its capital stock in
order to implement the restrictions on transfer established in this Agreement.
4. NOTICE OF PROPOSED TRANSFERS. The holder of each certificate
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 4. Without in any way limiting the
immediately preceding sentence, no sale, assignment, transfer or pledge of
Restricted Securities shall be made by any holder thereof to any person unless
such person shall first agree in writing to be bound by the restrictions of this
Agreement. Prior to any proposed sale, assignment, transfer or pledge of any
Restricted Securities, unless there is in effect a registration statement under
the Securities Act covering the proposed transfer, the holder thereof shall give
written notice to the Company of such holder's intention to effect such
transfer, sale, assignment or pledge. Each such notice shall describe the manner
and circumstances of the proposed transfer, sale, assignment or pledge in
sufficient detail. Each certificate evidencing the Restricted Securities
transferred as above provided shall bear, except if such transfer is made
pursuant to Rule 144, the appropriate restrictive legend set forth in Section 3
above, except that such certificate shall not bear such restrictive legend if in
the opinion of counsel for such holder and counsel for the Company such legend
is not required in order to establish compliance with any provision of the
Securities Act. Notwithstanding the foregoing, each holder of Restricted
Securities agrees that it will not request that a transfer of the Restricted
Securities be made or that the legend set forth in Section 3 be removed from the
certificate representing the Restricted Securities, solely in reliance on Rule
144(k) if solely as a result thereof, the Company would be rendered subject to
the reporting requirements of the Exchange Act.
5. REGISTRATION.
5.1 REQUESTED REGISTRATION.
(a) REQUEST FOR REGISTRATION. In case the Company shall
receive from Holder a written request that the Company effect any registration
with respect to shares of Registrable Securities, so long as the Company meets
the minimum qualifications for listing and inclusion on the Nasdaq National
Market, the Company will:
(i) promptly give written notice of the proposed
registration to Holder; and
(ii) as soon as practicable, use its best efforts to
effect such registration as part of a firm commitment underwritten public
offering with underwriters reasonably acceptable to Holder and the Company
(including, without limitation, appropriate qualification under applicable
state securities laws and appropriate compliance with applicable regulations
issued under the Securities Act and any other governmental requirements or
regulations) as may be so requested and as would permit or facilitate the sale
and distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of Holder.
Notwithstanding the foregoing, the Company shall not be
obligated to take any action to effect or complete any such registration
pursuant to this Section 5.1:
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(A) Unless the requested registration would include at
least 20% of the Registrable Securities or any lesser percentage so long as the
aggregate offering price of all Registrable Securities sought to be registered
by Holder, net of underwriting discounts and commissions, would exceed
$5,000,000;
(B) During the period starting with the date sixty (60)
days prior to the Company's estimated date of filing of, and ending on the date
six (6) months immediately following the effective date of, any registration
statement pertaining to securities of the Company (other than a registration of
securities in a Rule 145 transaction or with respect to an employee benefit
plan), provided that the Company is actively employing in good faith all
reasonable efforts to cause such registration statement to become effective;
(C) If the Company, within ten (10) days of the receipt of
the request of the Holder, gives notice of its bona fide intention to effect the
filing of a registration statement with the Commission within ninety (90) days
of receipt of such request (other than with respect to a registration statement
relating to a Rule 145 transaction, an offering solely to employees or any other
registration which is not appropriate for the registration of Registrable
Securities);
(D) After the Company has effected one (1) registration
pursuant to this Section 5.1, and such registration has been declared or ordered
effective; or
(E) If the Company shall furnish to Holder a certificate
signed by an executive officer of the Company stating that in the good faith
judgment of the Board of Directors it would be seriously detrimental to the
Company or its stockholders for a registration statement to be filed in the near
future. In such case, the Company's obligation to use its best efforts to
register, qualify or comply under this Section 5.1(a) shall be deferred for a
period not to exceed 120 days from the date of receipt of the written request
from Holder, provided that the Company may not defer registration under this
deferral right for more than an aggregate of 120 days per twelve month period.
Subject to the foregoing clauses (A) through (E), the Company shall
file a registration statement covering the Registrable Securities so requested
to be registered as soon as practicable after receipt of the request of the
Holder.
(b) UNDERWRITING. In the event of a registration pursuant to
Section 5.1, the Company shall advise Holder as part of the notice given
pursuant to Section 5.1(a)(i) that the right of Holder to registration pursuant
to Section 5.1 shall be conditioned upon Holder's participation in the
underwriting arrangements required by this Section 5.1, and the inclusion of
Holder's Registrable Securities in the underwriting to the extent requested
shall be limited to the extent provided herein.
The Company shall, together with Holder, enter into an underwriting
agreement in customary form with the managing underwriter selected for such
underwriting by the Holder, but subject to the Company's reasonable approval.
Notwithstanding any other provision of this Section 5.1, if the managing
underwriter advises the Holder in writing that marketing factors require a
limitation of the number of shares to be underwritten, then the Company shall so
advise Holder and the number of shares of Registrable Securities that may be
included in the registration and underwriting shall be reduced; PROVIDED,
HOWEVER, that in the event of such limitation on the number of shares to be
underwritten, then the shares of Company capital stock to be included in the
registration held by any
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Company officer or director shall be reduced on a pro rata basis according to
the total number of shares to be included in such registration. To facilitate
the allocation of shares in accordance with the above provisions, the Company or
the underwriters may round the number of shares allocated to any Holder to the
nearest 100 shares. If Holder of Registrable Securities disapproves of the terms
of the underwriting, it may elect to withdraw therefrom by written notice to the
Company and shall not be deemed to have used a registration under this Section
5.1.
5.2 COMPANY REGISTRATION.
(a) NOTICE OF REGISTRATION. If at any time or from time to
time the Company shall determine to register any of its equity securities,
either for its own account or the account of Holder or other holders, other than
(i) a registration relating solely to employee benefit plans, (ii) a
registration relating solely to a Rule 145 transaction, or (iii) a registration
in which the only equity security being registered is Common Stock issuable upon
conversion of convertible debt securities which are also being registered, the
Company will:
(i) promptly give to Holder written notice thereof; and
(ii) include in such registration (and any related
qualifications including compliance with Blue Sky laws), and in any
underwriting involved therein, all the Registrable Securities specified in a
written request, made within 20 days after the date of such written
(iii) notice from the Company, by any Holder.
(b) UNDERWRITING. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holder as a part of the written notice given
pursuant to Section 5.2(a)(i). In such event, the right of Holder to
registration pursuant to Section 5.2 shall be conditioned upon Holder's
participation in such underwriting and the inclusion of Registrable Securities
in the underwriting shall be limited to the extent provided herein.
If Holder proposes to distribute their securities through
such underwriting, the Holder shall (together with the Company and any other
holders of Company Securities distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
managing underwriter selected for such underwriting by the Company.
Notwithstanding any other provision of this Section 5.2, if the managing
underwriter determines that marketing factors require a limitation of the number
of shares to be underwritten, the managing underwriter may limit the Registrable
Securities to be included in such registration to zero; PROVIDED, HOWEVER, that
in the event of such limitation on the number of shares to be underwritten, then
the shares of Company capital stock to be included in the registration held by
any Company officer or director shall be reduced on a pro rata basis according
to the total number of shares to be included in such registration. The Company
shall so advise Holder and the number of shares of Registrable Securities that
may be included in the registration and underwriting by Holder shall be reduced.
To facilitate the allocation of shares in accordance with the above provisions,
the Company or the underwriters may round the number of shares allocated to
Holder to the nearest 100 shares. If Holder disapproves of the terms of any such
underwriting, Holder may elect to withdraw therefrom by written notice to the
Company.
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(c) RIGHT TO TERMINATE REGISTRATION. The Company shall have
the right to terminate or withdraw any registration initiated by it under this
Section 5.2 prior to the effectiveness of such registration whether or not
Holder has elected to include securities in such registration.
5.3 REGISTRATION ON FORM S-3.
(a) REQUEST FOR REGISTRATION. In case the Company shall
receive from Holder a written request that the Company file a registration
statement on Form S-3 (or any successor form to Form S-3) for a public offering
of shares of the Registrable Securities the aggregate price to the public of
which, net of underwriting discounts and commissions, would exceed $1,000,000,
and the Company is a registrant entitled to use Form S-3 to register the
Registrable Securities for such an offering, the Company shall use its best
efforts to cause such Registrable Securities to be registered for the offering
on such form and to cause such Registrable Securities to be qualified in the
jurisdiction as Holder may reasonably request. The Company shall further use its
best efforts to cause one such offering of Registrable Securities to be
registered by February 29, 2000; PROVIDED, HOWEVER, that the Company shall not
be required to effect more than two registrations pursuant to this Section 5.3.
Such registrations must be maintained in effect until the earlier of (i) the
expiration of 30 days or (ii) the date the shares under registration on Form S-3
are sold. If such offer is to be an underwritten offer, the underwriters shall
be selected by the Company and approved by Holder with such approval not being
unreasonably withheld.
(b) In the event the registration is proposed to be part of a
firm commitment underwritten public offering, the following provisions shall be
applicable to each such registration initiated under this Section 5.3. The
Company shall, together with Holder, enter into an underwriting agreement in
customary form with the managing underwriter selected for such underwriting by
Company, but subject to Holder's reasonable approval. Notwithstanding any other
provision of this Section 5.3, if the managing underwriter advises Holder in
writing that marketing factors require a limitation of the number of shares to
be underwritten, then the Company shall so advise Holder. No Registrable
Securities excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such registration. If Holder of
Registrable Securities disapproves of the terms of the underwriting, it may
elect to withdraw therefrom by written notice to the Company and shall not be
deemed to have used a registration under this Section 5.3.
(c) Notwithstanding the foregoing, the Company shall not be
obligated to take any action pursuant to this Section 5.3:
(i) During the period starting with the date sixty (60)
days prior to the Company's estimated date of filing of, and ending on the date
six (6) months immediately following the effective date of, any registration
statement pertaining to securities of the Company (other than a registration of
securities in a Rule 145 transaction or with respect to an employee benefit
plan), provided that the Company is actively employing in good faith all
reasonable efforts to cause such registration statement to become effective; or,
(ii) If the Company shall furnish to Holder a certificate
signed by an officer of the Company stating that, in the good faith judgment of
the Board of Directors, it would be seriously detrimental to the Company or its
stockholders for a registration statement to be filed in the near future, then
the Company's obligation to use its best efforts to file a registration
statement shall be deferred for no more than an aggregate of 120 days from the
receipt of the request to file
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such registration by the Holder during any twelve month period, provided that
the Company may not defer registration under this deferral right for more than
an aggregate of 120 days per twelve month period.
5.4 EXPENSES OF REGISTRATION. All Registration Expenses shall
be borne by the Company. Notwithstanding the foregoing, in the event that Holder
causes the Company to begin a registration pursuant to Section 5.1 or Section
5.3 and the request for such registration is subsequently withdrawn by the
Holder, or such registration is not completed due to failure to meet the net
proceeds requirement set forth in such section or is otherwise not successfully
completed due to no fault of the Company, Holder shall be deemed to have
forfeited its right to one registration under Section 5.1 or Section 5.3 unless
the Holder pays for, or reimburse the Company for, the Registration Expenses
incurred in connection with such withdrawn or incomplete registration, or unless
such registration is withdrawn as a result of a material change in the Company's
condition. Unless otherwise stated, all Selling Expenses relating to securities
registered on behalf of the Holder and all other registration expenses shall be
borne by the Holder.
5.5 REGISTRATION PROCEDURES. In the case of each registration
effected by the Company pursuant to this Agreement, the Company will keep Holder
advised in writing as to the initiation of such registration and as to the
completion thereof. The Company will:
(a) Prepare and file with the Commission a registration
statement and such amendments and supplements as may be necessary and use its
best efforts to cause such registration statement to become and remain effective
for at least 30 days or until the distribution described in the registration
statement has been completed, whichever first occurs; and
(b) Furnish to Holder and to the underwriters of the
securities being registered such reasonable number of copies of the registration
statement, preliminary prospectus, final prospectus and such other documents as
such underwriters may reasonably request in order to facilitate the public
offering of such securities.
(c) Use its best efforts to register and qualify the
securities covered by such registration statement under the securities laws of
such jurisdictions as shall be reasonably appropriate for the distribution of
the securities covered by the registration statement, provided that the Company
shall not be required in connection therewith or as a condition thereto to
qualify to do business or to file a general consent to service of process in any
such jurisdiction, and provided further that (anything in this Agreement to the
contrary notwithstanding with respect to the bearing of expenses) if any
jurisdiction in which the securities shall be qualified shall require that
expenses incurred in connection with the qualification of the securities in that
jurisdiction be borne by selling shareholders, then such expenses shall be
payable by Holder, to the extent required by jurisdiction if Holder does not
elect to withdraw from the registration after notice of such requirement.
(d) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement with terms
generally satisfactory to the managing underwriter of such offering. Holder
shall also enter into and perform its obligations under such an agreement.
(e) Notify Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such
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registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances then existing.
(f) Cause all such Registrable Securities registered
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
(g) Provide a transfer agent and registrar for all
Registrable Securities registered pursuant to such registration statement and a
CUSIP number for all such Registrable Securities, in each case not later than
the effective date of the registration.
(h) Use its best efforts to furnish, at the request of Holder
requesting registration of Registrable Securities pursuant to this Section 5, on
the date that such Registrable Securities are delivered to the underwriters for
sale, if such securities are being sold through underwriters, (i) an opinion,
dated as of such date, of the counsel representing the Company for the purposes
of such registration, in form and substance as is provided to the underwriters
in such underwritten public offering, and (ii) a letter, dated as of such date,
from the independent certified public accountants of the Company in form and
substance as is provided by independent certified public accountants to the
underwriters in such underwritten public offering.
5.6 INFORMATION BY HOLDER. The Holder of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder, the Registrable Securities held by them and
the distribution proposed by such Holder as the Company may request in writing
and as shall be required in connection with any registration referred to in this
Agreement.
5.7 RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Restricted Securities to the public without
registration, after such time as a public market exists for the Common Stock of
the Company, the Company agrees to use best efforts to:
(a) Make and keep public information available, as those
terms are understood and defined in Rule 144 under the Securities Act, at all
times after the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Exchange Act;
(b) File with the Commission in a timely manner all reports
and other documents required of the Company under the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements); and
(c) So long as Holder owns any Restricted Securities, to
furnish to the Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144 (at any
time after 90 days after the effective date of the first registration statement
filed by the Company for an offering of its securities to the general public), a
copy of the most recent annual or quarterly report of the Company, and such
other reports and documents of the Company and other information in the
possession of or reasonably obtainable by the Company as the Holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing the Holder to sell any such securities without registration.
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5.8 TERMINATION OF REGISTRATION RIGHTS. The rights granted
pursuant to Sections 5.1, 5.2 and 5.3 of this Agreement shall terminate 28
months after the effective date of this Agreement.
6. AMENDMENT. Except as otherwise provided above, any
provision of this Agreement may be amended or the observance thereof may be
waived (either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Holder. Any
amendment or waiver effected in accordance this Section 6 shall be binding upon
the Holder and the Company.
7. GOVERNING LAW. This Agreement shall be governed in all
respects by the internal laws of the State of Delaware without regard to
conflict of laws provisions.
8. ENTIRE AGREEMENT. This Agreement constitutes the full and entire
understanding and Agreement among the parties regarding the matters set forth
herein. Except as otherwise expressly provided herein, the provisions hereof
shall inure to the benefit of, and be binding upon the successors, assigns,
heirs, executors and administrators of the parties hereto.
9. NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by facsimile
transmission, by hand or by messenger, addressed:
(a) if to the Holder to:
ValueClick, Inc.
6450 Via Real
P.O. Box 5008
Carpinteria, CA 93014-5008
Attn: Kurt Johnson
Fax: (805) 566-9202
with a copy to:
Brobeck Phleger & Harrison
550 South Hope Street
Los Angeles, CA 90071
Attn: Kenneth R. Bender, Esq.
Fax: (213) 745-3345
or at such other address as the Holder shall have furnished to the
Company.
if to the Company to:
DoubleClick Inc.
450 West 33rd Street, 16th Floor
New York, NY 10001
Attn: Elizabeth Wang
Fax: (212) 287-9704
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with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
One Market, Spear Street Tower
San Francisco, California 94105
Attn: Steve Camahort, Esq.
Fax: (415) 222-9633
or at such other address as such Company shall have furnished to the Holder.
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given when delivered if
delivered personally, if sent by facsimile, the first business day after the
date of confirmation that the facsimile has been successfully transmitted to the
facsimile number for the party notified, or, if sent by mail, at the earlier of
its receipt or 72 hours after the same has been deposited in a regularly
maintained receptacle for the deposit of the United States mail, addressed and
mailed as aforesaid.
10. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
"THE COMPANY"
DoubleClick Inc.
a Delaware corporation
By:
-----------------------------------------------
Name:
-----------------------------------------------
Title:
-----------------------------------------------
"THE PURCHASER"
ValueClick, Inc.
a Delaware corporation
By:
-----------------------------------------------
Name:
-----------------------------------------------
Its:
-----------------------------------------------
[Signature Page to Registration Rights Agreement]
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EXHIBIT 10.32
INTERCOMPANY LICENSE AGREEMENT
This Intercompany License Agreement ("AGREEMENT") is entered into as of
December 17, 1999 ("EFFECTIVE DATE"), by and between ValueClick, Inc., a
Delaware corporation ("VALUECLICK") and ValueClick Japan Inc., a Japanese
corporation and wholly owned subsidiary of ValueClick ("LICENSEE") (hereinafter
collectively referred to as the "Parties" and individually as a "PARTY").
RECITALS
A. ValueClick and Licensee desire to enter into this Agreement to
confirm the business relationship established between them and to set forth in
full herein the terms and conditions thereof.
B. ValueClick is operating an internet-based advertising and marketing
tracking service throughout the world which uses proprietary software to monitor
and report to advertisers and to website hosts the number of times that computer
users access particular advertisements on host websites. The software and
related materials permit the user to post banner advertisements on the website
and to collect, analyze and report data regarding advertising on the websites.
ValueClick markets the services and the proprietary software under the mark
"VALUECLICK."
C. Licensee is using ValueClick's proprietary software to provide and
market Licensee's Services (as defined below) on an exclusive basis to customers
in the Japanese-language market and desires to continue as the exclusive
licensee of ValueClick's System Technology (as defined below) for the
Japanese-language market.
NOW, THEREFORE, in consideration of the obligations, representations,
warranties and covenants herein, the Parties agree as follows:
1. DEFINITIONS. As used in this Agreement, the following capitalized
terms shall have the meanings set forth below:
1.1 "CONFIDENTIAL INFORMATION" shall mean all trade secrets or
confidential information in any form or media disclosed by one Party to the
other Party provided that, to be deemed Confidential Information, the
information, if in tangible form, must be marked or otherwise identified as
being "CONFIDENTIAL" or if disclosed orally, must be identified at the time it
is disclosed as constituting a trade secret or confidential information.
"CONFIDENTIAL INFORMATION" shall not include any information that: (i) is
publicly known or available, or that becomes publicly known or available,
without breach of this Agreement or any other obligation of confidentiality
regarding such information; (ii) has been intentionally publicly disclosed by
the disclosing Party; (iii) is already in the possession of the receiving Party
without restriction prior to disclosure by the disclosing Party; or (iv) is
rightfully received by the receiving Party without restriction from a third
party without breach of an obligation of confidentiality. Notwithstanding the
foregoing, all non-public elements of any Improvements and Localized Versions of
the Licensed Works created by Licensee shall be deemed
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Confidential Information of ValueClick disclosed by ValueClick to Licensee and
the exception set forth in the foregoing clause (iii) will not be applicable
thereto.
1.2 "DOMAIN NAME" shall mean the domain name Valueclick.ne.jp,
which has been registered by ValueClick in Japan.
1.3 "DOCUMENTATION" shall mean the documentation, manuals,
written instructions and user's guides, whether in electronic or other form,
relating to the operation and use of the Software, the marketing and operation
of ValueClick's Services and/or the use of the System Technology, including any
updates, new versions, additions or modifications thereto that are provided to
Licensee by ValueClick in connection with this Agreement.
1.4 "INTELLECTUAL PROPERTY RIGHTS" shall mean, collectively,
Patents, Trade Secrets, Copyrights, moral rights, trade names, rights in trade
dress, and all other intellectual property rights and proprietary rights,
excluding trademarks, whether arising under the laws of the United States or any
other state, country or jurisdiction, including all rights or causes of action
for infringement or misappropriation of any of the foregoing, in each case now
existing or hereafter developed during the term of this Agreement. For purposes
of this Agreement: (a) "PATENTS" shall mean all patent rights and all right,
title and interest in all letters patent or equivalent rights and applications,
including any reissue, extension, division, continuation, or
continuation-in-part applications throughout the world; (b) "TRADE SECRETS"
shall mean all right, title and interest in all trade secrets and trade secret
rights arising under common law, state law, federal law or laws of foreign
countries; and (c) "COPYRIGHTS" shall mean all copyrights, and all right, title
and interest in all copyrights, copyright registrations and applications for
copyright registration, certificates of copyright and copyrighted interests
throughout the world, and all right, title and interest in related applications
and registrations throughout the world.
1.5 "JAPAN SITES" shall mean all internet-based websites,
URLs, network sites and other Web and network addresses that present content
exclusively or substantially in the Japanese language intended to be viewed by
users located in Japan or are otherwise marketed primarily for a
Japanese-language-speaking audience located in Japan.
1.6 "LICENSED WORKS" shall mean any works of authorship and
other tangible materials and designs that are protected under United States
Copyright Law which (i) are used by ValueClick in connection with the marketing
and operation of ValueClick's Services, including but not limited to the
Software, the Documentation and other proprietary textual, graphic, audio,
animated and other content and information and (ii) ValueClick has the right to
sublicense to Licensee.
1.7 "LICENSED MARKS" shall mean those trademarks, service
marks, tradenames and logos owned by ValueClick and used in connection with the
operation and marketing of ValueClick's Services, including without limitation
"VALUECLICK" and any related registrations or pending registration applications
in Japan.
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1.8 "LOCALIZED VERSION" shall mean a version of the Software,
Documentation or any other Licensed Work (including without limitation a
tangible representation of a Licensed Mark) that have been translated and/or
otherwise localized for use in the Japanese market such that, for example, the
text, visual displays, printouts, and other elements have been translated into
Japanese characters and formatted for use in Japan.
1.9 "SERVERS" shall mean the primary and back-up servers (or
group of connected servers) in Licensee's computer network located in Tokyo,
Japan.
1.10 "SERVICES" shall mean internet-based advertising and
marketing services based on the Software.
1.11 "SOFTWARE" shall mean the proprietary ValueClick computer
software owned by ValueClick which, among other functions and features,
facilitates the posting of banner advertisements on host websites, permits users
to monitor, track, administer, analyze, and report information and statistics
concerning the rate and manner in which internet-based advertisements are
accessed by computer users, calculates and bills the advertiser based on such
information, and provide reports on such information to advertisers and host
websites. "SOFTWARE" shall include any modifications, updates, new versions, new
releases, enhancements and new features thereto that are provided by ValueClick
to Licensee hereunder.
1.12 "SYSTEM TECHNOLOGY" shall mean all proprietary computer
software (including all object code, firmware, development tools, files, records
and data), and all know-how, techniques, processes, methods, products,
applications and other technology that ValueClick owns, controls or acquires, to
the extent utilized in or for the development, production, operation,
administration, distribution and/or marketing of its Services during the term
hereof and, with respect to portions of the foregoing that are licensed from
third parties, to the extent ValueClick has the right to sublicense such items
to Licensee. "SYSTEM TECHNOLOGY" includes, without limitation, the Software, the
Documentation, designs, concepts, quality control methods, operating techniques,
specifications, reports, and other information possessed by ValueClick relating
to the Software, the Documentation and ValueClick's Services.
2. TERMINATION OF PREVIOUS AGREEMENT. ValueClick and Licensee hereby
agree to terminate the License and Option Agreement between the Parties dated as
of January 1, 1999 ("PREVIOUS AGREEMENT"), effective as of the Effective Date,
and agree that such Previous Agreement shall be entirely null and void and shall
be superseded and replaced in its entirety by this Agreement, which shall govern
the rights and obligations of ValueClick and Licensee from the Effective Date
with respect to the matters set forth herein. The foregoing notwithstanding,
Sections 6.5 and 7.4(b) of the Previous Agreement shall continue in effect in
accordance with their terms. Without limitation of the foregoing, the Parties
agree that, effective as of the Effective Date, Section 9.4 ("Post-Termination
Obligations") of the Previous Agreement shall be deemed deleted therefrom and
that neither party shall have any rights or obligations pursuant to such Section
9.4.
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3. GRANT OF LICENSE. Subject to the terms and conditions of this
Agreement, ValueClick hereby grants to Licensee, under all of ValueClick's
Intellectual Property Rights, the exclusive (even as to ValueClick),
non-transferable (except as provided in Section 11 ("ASSIGNMENT")) right and
license to use and otherwise exploit the System Technology, all Improvements (as
defined in Section 6) and Localized Versions of the Licensed Works and the
Licensed Marks to develop, market and provide Services, but only to customers
for use on and in connection with Japan Sites. The parties acknowledge that it
may be possible for end-users located outside of Japan to access the Japan Sites
and such access will not be deemed a breach of this Agreement by either party,
unless a party knowingly facilitates such access. The foregoing license shall
include, but not be limited to, the right to:
(a) install on Licensee's Servers and use the Software, in
object code form only, and Localized Versions thereof, for the purpose of
providing Services for Japan Sites (but not to install the Software, or
Localized Versions thereof, on any other server or network without ValueClick's
prior written consent, which shall not be unreasonably withheld);
(b) reproduce, perform and display (publicly or otherwise),
and distribute, and sublicense the foregoing rights to Licensee's customers,
only such portion(s) of the Licensed Works, and Localized Versions thereof, as
are necessary to permit such customers to use Licensee's Services in connection
with Japan Sites, subject to a sublicense agreement containing terms and
conditions no less restrictive and protective of ValueClick's Intellectual
Property Rights than those contained herein;
(c) reproduce a reasonable number of copies of the Software
and Documentation, and Localized Versions thereof, solely for back-up, archival,
maintenance and technical support purposes;
(d) use the Licensed Marks, and Localized Versions thereof,
and the Domain Name solely in connection with the marketing, operation,
administration and provision of Licensee's Services for Japan Sites and on and
in promotional materials distributed in connection therewith, and, subject to
ValueClick's prior written consent (not to be unreasonably withheld), to modify
the Licensed Marks to create Localized Versions thereof; and
(e) translate and modify the Licensed Works to create
Localized Versions thereof, provided however, that except as necessary to create
Localized Versions of the Licensed Works and the Licensed Trademarks, Licensee
shall not alter or modify the Licensed Works, or create any derivative works
based on the Licensed Works, without ValueClick's prior written consent.
4. JAPAN SITES. Licensee agrees that it will not offer its Services to
any customer for use other than on Japan Sites and shall not enter into any
agreement with any customer if Licensee is aware that such customer intends or
is likely to use Licensee's Services substantially other than on Japan Sites.
Licensee agrees that it will not use or knowingly allow or assist others in
using the System Technology to develop
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any product or service that is similar to or competes with the Software or
Licensee's Services within Japan.
5. LICENSE FEE. In consideration of the rights granted hereunder,
during the effective term of the Agreement, Licensee shall pay to ValueClick a
monthly license fee of Thirty-five Hundred U.S. Dollars (U.S. $3,500)(the
"LICENSE FEE"). In the event Licensee receives, not in the ordinary course of
business, pursuant to any single commercial transaction with an third party (and
excluding loans, equity infusions, equipment leases or similar transactions),
any extraordinary revenues arising substantially out of the license rights
granted by ValueClick hereunder, Licensee agrees to notify ValueClick and the
Parties will discuss in good faith appropriate compensation, if any, to
recognize the value that the licenses hereunder contributed to the transaction,
if any. If, within thirty (30) days from the date of Licensee' notice, the
parties fail to reach agreement as to the amount of additional compensation to
be paid to ValueClick, the matter will be decided by an independent business
consulting firm of national standing selected by ValueClick and reasonably
acceptable to the Licensee. Such consulting firm will be instructed (i) that it
is to be objective and is not an advocate of either party and (ii) to make its
decision within thirty (30) days of being retained. Each party will fully
cooperate with the consulting firm, will provide all information and materials
reasonably requested by such firm, will equally bear such firm's fees and
expenses and (for the benefit of such firm) will not take any action against
such firm relating to its review or decision. The fees and other amounts charged
by Licensee to its customers shall be determined solely by Licensee.
5.1 TAXES AND WITHHOLDING. Licensee shall be responsible for
and shall pay all taxes, (including sales, use, VAT, excise or similar taxes),
all customs fees and duties, and any non-U.S. withholdings and other
governmental taxes or assessments by Japan or any other country related to the
License Fees and the payment thereof to ValueClick.
5.2 PAYMENT. The License Fees shall be payable monthly on the
fifteenth (15th) day of each month ("Payment Date") with respect to the License
Fee owed by Licensee for the previous month. All License Fees payable to
ValueClick shall be paid in United States dollars, and shall be paid via wire
transfer by Licensee directly to the bank account designated by ValueClick. All
late payments will be assessed a late fee charge equal to the lesser of one and
one-half percent (1-1/2%) per month or the maximum amount permitted by
applicable law.
6. OWNERSHIP RIGHTS. All right, title and interest in and to the System
Technology, and each element thereof (including all Intellectual Property Rights
relating thereto), and all related materials created or furnished by ValueClick
and licensed under this Agreement shall be and remain the sole and exclusive
property of ValueClick, subject only to the license rights expressly granted in
this Agreement. Any enhancements, modifications and derivative works of or to
the System Technology ("IMPROVEMENTS") and Localized Versions of the Licensed
Works and the Licensed Marks made by or for Licensee shall be the sole and
exclusive property of ValueClick. Licensee hereby agrees to assign and does
hereby assign to ValueClick any and all rights
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Licensee may acquire in any Improvements and Localized Versions of the Licensed
Works and the Licensed Marks and agrees to waive any moral rights it may have
with respect thereto.
6.1 NOTICES. Licensee may not remove or modify any copyright
notices, service mark or trademark designations, or other proprietary notices
included on any element of the System Technology or on any screen displays,
documents or materials produced by the Software provided, however, that Licensee
may replace or augment any such notices with comparable Japanese-language
notices. Licensee shall comply with ValueClick's reasonable trademark
guidelines, as provided to Licensee in writing from item to time. At
ValueClick's request, Licensee shall submit samples of any advertising or
promotional materials containing the Licensed Marks or Localized Versions
thereof to ValueClick.
6.2 NO CONTEST. Licensee acknowledges that the Licensed Marks,
Localized Versions of the Licensed Marks created by Licensee, the Domain Name,
the Licensed Works, Localized Versions of the Licensed Works and the Software
are owned exclusively by ValueClick and Licensee agrees not to challenge the
validity of or otherwise contest ValueClick's ownership of such items. Licensee
agrees that all use of the Licensed Marks, Localized Versions of the Licensed
Marks, the Licensed Works and Localized Versions of the Licensed Works by
Licensee shall inure to the benefit of ValueClick. Licensee agrees not to
register any of the Licensed Marks or any similar mark in any jurisdiction, and
Licensee further agrees to cease all use of the Licensed Marks upon termination
of this Agreement and to change its name as soon as practicable after
termination of this Agreement.
6.3 COOPERATION. Licensee shall cooperate with ValueClick and
use reasonable commercial efforts at ValueClick's request to protect the
Licensed Marks, Licensed Works and other elements of the System Technology, and
the Intellectual Property Rights related thereto, from infringement by other
parties. Licensee shall promptly notify ValueClick if Licensee becomes aware of
any act by any third party that may constitute an infringement of any element of
the System Technology. Licensee shall also promptly notify ValueClick if
Licensee becomes aware of any claims that the System Technology, or any element
thereof, or the marketing, operation or sale of Licensee's Services, may or will
infringe the intellectual property or other rights of any other person. Licensee
agrees to cooperate with ValueClick, at ValueClick's expense, to obtain,
register and enforce for ValueClick's benefit all Intellectual Property Rights
associated with the System Technology.
6.4 CONFIDENTIAL INFORMATION.
(a) Each Party agrees to maintain the Confidential
Information of the other Party as confidential and not to disclose or publish,
or authorize or assist any other person to disclose or publish, any of such
Confidential Information to any other party except as expressly allowed by this
Agreement. Each Party agrees to keep the Confidential Information of the other
Party under access and use restrictions designed to prevent disclosure of such
items to unauthorized persons.
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(b) Licensee agrees that the Software and the other
non-public elements of the System Technology shall be considered the
Confidential Information of ValueClick.
(c) Each Party agrees to use reasonable care (i.e.,
efforts no less than the standard of care each Party reasonably exercises in
protecting its own Confidential Information) to fulfill its obligations to
maintain the confidentiality of the Confidential Information of the other Party.
6.5 WEBSITE ADDRESS. ValueClick hereby commissions Licensee to
operate Licensee's Services, during the term of this Agreement, under the Domain
Name.
7. QUALITY AND SUPPORT.
7.1 QUALITY. Licensee agrees to maintain a consistent level of
quality of Licensee's Services substantially equal to that found in Licensee's
Services existing as of the Effective Date, and further agrees to maintain a
level of quality in connection with the provision of its Services that is
consistent with general industry standards. Licensee shall use all commercially
reasonable efforts to protect and enhance the goodwill associated with the
Licensed Marks. Licensee agrees to comply with all applicable laws, statutes,
treaties, regulations, and ordinances in marketing Licensee's Services.
7.2 TECHNICAL SUPPORT AND MAINTENANCE. ValueClick will provide
support and maintenance of the Software to Licensee, as reasonably requested by
Licensee, provided that ValueClick shall have no obligation to provide support
or maintenance for Licensee's network, Servers, computer system, equipment or
any other items not provided by ValueClick. Licensee agrees to pay the
reasonable, actual, out-of-pocket expenses incurred by ValueClick personnel in
traveling to Japan to provide support at Licensee's request (including coach
airfare, hotel, local transportation, and meals but not including salary,
charges for such personnel's time, allocated overhead or like expenses);
Licensee shall pay such expenses within thirty (30) days of receipt of an
undisputed invoice therefor. ValueClick agrees to make any upgrades, new
versions, new releases, significant enhancements and new features of its
Software, Services and System Technology that ValueClick makes generally
available to its other licensees available to Licensee at no charge provided
Licensee is current in its License Fee payments pursuant to Section 5 ("LICENSE
FEE").
8. OBLIGATIONS OF LICENSEE.
8.1 NATURE OF RELATIONSHIP. Licensee is an independent
contractor and not an employee or agent of ValueClick and nothing in this
Agreement shall be interpreted or construed to create any employment,
partnership, joint venture or other relationship between ValueClick and
Licensee. Licensee shall not have any right to bind or make any representation
on behalf of ValueClick. Licensee is responsible for the selection, acquisition,
design and maintenance of its computer system and equipment and for determining
that Licensee's operating environment for the Software satisfies the technical
requirements for the Software. Except for support and maintenance services
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provided by ValueClick pursuant to Section 7.2 ("Technical Support and
Maintenance"), Licensee shall furnish, at its own expense, all personnel,
computer equipment and other resources necessary to operate the Software and to
offer Licensee's Services during the term of this Agreement.
8.2 COMMITMENT. Licensee shall use reasonable commercial
efforts to promote and market Licensee's Services in Japan. Licensee shall
maintain such staff, equipment and facilities as it reasonably deems necessary
to adequately serve the needs of its customers with respect to Licensee's
Services.
8.3 NO REVERSE ENGINEERING. Licensee agrees not to reverse
engineer, decompile, disassemble or otherwise attempt to derive or reproduce the
source code for the Software or assist any third party to do any of the
foregoing.
8.4 FORM OF CUSTOMER AGREEMENT. Licensee agrees that the
sublicense agreement used by Licensee with its customers will include a clause
expressly permitting the termination of the agreement by Licensee without cause
on thirty (30) days' prior written notice, and that the agreement will include
terms no less restrictive and protective of ValueClick's Intellectual Property
Rights than those contained herein.
9. REPRESENTATIONS AND WARRANTIES.
9.1 REPRESENTATIONS AND WARRANTIES OF LICENSEE. Licensee
represents and warrants that: (a) Licensee is a Japanese joint stock corporation
(KABUSHIKI KAISHA) duly organized, validly existing and in good standing under
the laws of Japan; (b) the execution and performance of the Agreement have been
duly authorized; (c) this Agreement will constitute a valid and binding
obligation of Licensee; and (d) the execution and performance of this Agreement
by Licensee will not violate the terms of any other contract or arrangement to
which Licensee is a party or by which it is bound.
9.2 REPRESENTATIONS AND WARRANTIES OF VALUECLICK.
(a) ValueClick represents and warrants that Licensee:
(i) is a corporation duly organized and validly existing and in good standing
under the laws of the State of Delaware; (ii) the execution and performance of
the Agreement have been duly authorized; (iii) this Agreement will constitute a
valid and binding obligation of ValueClick; and (iv) the execution and
performance of this Agreement by ValueClick will not violate the terms of any
other contract or arrangement to which ValueClick is a party or by which it is
bound.
(b) ValueClick represents and warrants that: (i)
ValueClick has the right to grant the licenses and rights granted herein; (ii)
the Software, the Documentation and the other Licensed Works do not infringe or
misappropriate any copyright or trade secret of any third party; (iii) to the
best of its knowledge, the Software, the Documentation, the other Licensed
Works, the Licensed Marks and the System Technology do not infringe or
misappropriate any service mark, trademark, patent or other proprietary right of
any third party; and (iv) no claim has been made or is pending against
ValueClick relative to the Software, the Documentation, the other
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Licensed Works, the Licensed Trademarks, and the System Technology alleging
infringement or misappropriation of any Intellectual Property Right.
(c) THE WARRANTIES OF VALUECLICK CONTAINED IN THIS
PARAGRAPH 9.2 ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING
THE WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND
NON-INFRINGEMENT. VALUECLICK DOES NOT GUARANTY THE COMPLETENESS OR ACCURACY OF
THE SYSTEM TECHNOLOGY OR ANY INFORMATION OR OTHER RESULTS GENERATED BY THE
SYSTEM TECHNOLOGY.
9.3 INDEMNIFICATION BY VALUECLICK. ValueClick agrees to
indemnify, defend and hold Licensee and its officers, directors, employees and
sublicensees harmless from and against any and all claims, liabilities, losses,
damages and expenses (including without limitation all attorneys' fees, legal
and expert witness fees and expenses and all costs of investigation) incurred by
any such person related to or arising out of a third-party claim that, if true,
would constitute a breach of any ValueClick warranty in Section 9.2 (b) (an
"Infringement Action"), provided that (i) ValueClick's obligations hereunder are
expressly conditioned on prompt notification from Licensee of any such
Infringement Action; (ii) ValueClick shall have sole control of the defense and
all negotiations, settlement or compromise of any Infringement Action, and
Licensee shall cooperate, at ValueClick's expense, with ValueClick in such
defense; and (iii) ValueClick shall not be obligated hereunder to the extent
that any such Infringement Action is based on any modification or alteration
made by Licensee to the System Technology. THE FOREGOING STATES THE SOLE AND
EXCLUSIVE LIABILITY OF VALUECLICK AND THE EXCLUSIVE REMEDY OF LICENSEE FOR ANY
INFRINGEMENT ACTION.
9.4 LIMITED LIABILITY. LICENSEE AGREES THAT ITS EXCLUSIVE
REMEDIES AND VALUECLICK'S ENTIRE LIABILITY WITH RESPECT TO THE SYSTEM TECHNOLOGY
AND THE SOFTWARE SHALL BE AS SET FORTH IN THIS SECTION 9. IN ANY EVENT,
VALUECLICK WILL NOT BE LIABLE TO LICENSEE OR ANY OF ITS CUSTOMERS WITH RESPECT
TO ANY SUBJECT MATTER OF THIS AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE, STRICT
LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR ANY AMOUNTS IN EXCESS IN THE
AGGREGATE OF THE LICENSE FEES PAID BY LICENSEE TO VALUECLICK PRIOR TO THE DATE
THE CAUSE OF ACTION AROSE. EXCEPT FOR LIABILITY FOR THIRD PARTY CLAIMS ARISING
OUT OF SECTION 9.3 ("INDEMNIFICATION BY VALUE CLICK"), NEITHER PARTY SHALL BE
LIABLE FOR ANY INCIDENTAL, SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES, HOWEVER
CAUSED AND ON ANY THEORY OR LIABILITY ARISING OUT OF OR RELATED TO THIS
AGREEMENT, INCLUDING BUT NOT LIMITED TO LOST PROFITS OR BUSINESS, LOST OR
CORRUPTED DATA OR COSTS OR PROCUREMENT OF SUBSTITUTE GOODS, TECHNOLOGY OR
SERVICES.
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10. INDEMNIFICATION BY LICENSEE. Licensee agrees to indemnify, defend
and hold ValueClick and its officers, directors, and employees harmless from and
against any and all claims, liabilities, losses, damages and expenses (including
without limitation all attorneys' fees, legal and expert witness fees and
expenses and all costs of investigation) incurred by any such person related to
or arising out of the operation of Licensee's business, including but not
limited to the use of the System Technology or any Localized Version of the
Software or Licensed Works created by or for Licensee and the marketing and
provision of Licensee's Services, including but not limited to any Localized
Version of a Licensed Mark (except to the extent that any such liability is the
responsibility of ValueClick in accordance with Section 9.3 ("Indemnification by
ValueClick")), provided that (i) Licensee's obligations hereunder are expressly
conditioned on prompt notification from ValueClick of any such claim; and (ii)
Licensee shall have sole control of the defense and all negotiations, settlement
or compromise, and ValueClick shall, at Licensee's expense, cooperate with
Licensee in such defense.
11. ASSIGNMENT. This Agreement and the rights and obligations hereunder
are not transferable or assignable by Licensee without the prior written consent
of ValueClick, except in connection with a merger or a sale of all or
substantially all of its assets, provided, however, that Licensee may not assign
this Agreement to any entity engaged in business activities competitive with
those ValueClick. ValueClick may assign this Agreement without Licensee's prior
consent provided, however, that ValueClick may not assign this Agreement to any
entity engaged in business activities competitive with those of Licensee. Any
purported assignment in violation of this Section 11 shall be null and void.
12. TERM AND TERMINATION.
12.1 TERM. The term of this Agreement shall commence on the
Effective Date and shall remain in effect in perpetuity unless and until
terminated earlier in accordance with the provisions of this Agreement. The
termination rights in this Agreement are in addition to and not in lieu of any
other available rights and remedies.
12.2 TERMINATION FOR CAUSE. This Agreement may be terminated
by either Party for cause immediately upon the occurrence of any of the
following events: (a) if the other Party ceases to do business or otherwise
terminates its business operations, (b) if the other Party materially breaches
any material term or condition of this Agreement and fails to cure such breach
within thirty (30) days after written notice is delivered to such Party
describing the breach, or (c) if the other Party shall commence or become
subject to any bankruptcy, receivership or similar proceeding and such
proceeding is not dismissed within ninety (90) days.
12.3 TERMINATION FOR CONVENIENCE. This Agreement may be
terminated, for convenience, by Licensee on ninety (90) days' prior written
notice to ValueClick.
12.4 EFFECT OF TERMINATION. On termination of this Agreement,
Licensee agrees to immediately cease marketing Licensee's Services and cease any
further use of the Licensed Marks and Licensed Works and to follow all
reasonable
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directions of ValueClick for disconnection, removal and return of all Software
and other System Technology to ValueClick. At its option, ValueClick may elect
to allow Licensee to continue using the System Technology and operating
Licensee's Services in accordance with the terms of this Agreement in order to
fulfill any contractual obligations Licensee has to its customers, subject to
the continuation of Licensee's obligation to pay License Fees to ValueClick. On
termination of this Agreement, Licensee further agrees, upon request by
ValueClick, to notify customers that their sublicense agreements will be
terminated in thirty (30) days. On any termination, Licensee shall surrender to
ValueClick possession of all tangible items of System Technology, including any
Improvements thereto and Localized Versions of the Licensed Works and the
Licensed Marks, except as necessary to fulfill its obligations under sublicense
agreements continuing in effect after termination in accordance with this
Section 12.4.
13. MISCELLANEOUS.
13.1 GOVERNING LAW. The validity, construction and
enforceability of this Agreement shall be governed by the laws of the State of
California, United States of America, as if performed wholly within that State
and without giving effect to its conflict of laws principles.
13.2 ENTIRE AGREEMENT. This Agreement and its exhibits and
schedules constitute the entire agreement and understanding between ValueClick
and Licensee relating to the subject matter hereof, and terminates, supersedes
and cancels any and all prior or contemporaneous written and oral
understandings, agreements, proposals, representations or promises of the
parties relating to the subject matter hereof. Any modification or amendment of
any provision of this Agreement shall be effective only if in writing and signed
by ValueClick and Licensee.
13.3 SEVERABILITY. If any provision of this Agreement, or the
application of such provision to any person or circumstance is held by a court
of competent jurisdiction to be invalid or unenforceable, the remainder of this
Agreement or the application of such provision to persons or circumstances other
than those to which it is held to be invalid or unenforceable shall not be
effectively thereby.
13.4 NOTICES. All notices and other communications that are
required or that may be given under the provisions of this Agreement shall be in
writing and the same shall be deemed to have been given on the same day if
delivered in person or by overnight courier to the address set forth below, or
by facsimile to the facsimile number listed below for the Party to whom the
notice is given or on the fifth day thereafter if placed in registered or
certified mail with postage prepaid and addressed to the Party at the address
specified. The addresses and facsimile numbers for ValueClick and Licensee for
all purposes under this Agreement and for all notices shall be:
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To ValueClick:
ValueClick, Inc.
6450 Via Real
P.O. Box 5008
Capinteria, CA 93014-5008
Telephone: (805) 684-6060
Facsimile: (805) 566-9202
To Licensee:
ValueClick Japan Inc.
4F Unimat Hongo Building
4-1-6 Hongo, Bunkyo-ku
Tokyo, Japan 113-0033
Telephone: 81-3-5803-9944
Facsimile: 81-3-5803-9922
From time to time, either Party may designate another address,
telephone or facsimile number for all purposes of this Agreement by notifying
the other Party of such change in writing.
13.5 COUNTERPARTS. This Agreement may be executed by
ValueClick and Licensee in separate counterparts, each of which shall be an
original and both of which together shall constitute one and the same
instrument.
13.6 BINDING ON SUCCESSORS. This Agreement shall be binding
upon and inure to the benefit of the successors and permitted assigns of the
parties hereto.
13.7 WAIVER. The failure of either Party to enforce any of the
provisions of this Agreement shall not be construed to be a waiver of the right
of such Party to enforce such provisions thereafter.
13.8 ATTORNEYS' FEES. In the event any dispute, lawsuit,
arbitration or other action or proceeding is commenced to enforce or interpret
any provision of this Agreement or otherwise relating to this Agreement or the
subject matter hereof, the prevailing Party will be entitled to recover all
costs and expenses, including reasonable attorneys' fees and costs, costs of
investigation, evaluation and collection whether or not a suit is filed, and all
expert witness fees, court costs and related expenses incurred by the prevailing
Party.
13.9 DISPUTE RESOLUTION; ARBITRATION. Any dispute with respect
to or arising out of or in connection with, or otherwise related to the
execution or performance of, this Agreement shall be settled by the Parties
amicably through good faith discussions upon the written request of either
Party. In the event that any such dispute cannot be resolved thereby within a
period of sixty (60) days ("Resolution Period") after such written request has
been delivered, such dispute shall be finally settled by binding, confidential
arbitration, held in San Francisco, California, if the Party initiating the
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dispute resolution/arbitration is Licensee or in Tokyo, Japan, if the Party
initiating the dispute resolution/arbitration is ValueClick, using the English
language, and in accordance with the commercial arbitration rules then in effect
of the American Commercial Arbitration Association. Within fifteen (15) business
days of the end of such Resolution Period, if the dispute has not been resolved,
the Parties shall attempt to agree on one arbitrator; provided that if such
parties cannot agree on one arbitrator within such time period, each Party to
the dispute shall within ten (10) business days thereafter appoint one (1)
arbitrator and such appointed arbitrators shall within fifteen (15) business
days thereafter mutually agree upon and appoint one additional arbitrator;
provided further that the persons eligible to be selected as arbitrator(s) shall
be limited to current or former judges or current or former attorneys at law who
(i) have presided as a judge and/or practiced law for at least 15 years in the
field of general commercial or intellectual property litigation or general
corporate, intellectual property and/or commercial matters and (ii) are
experienced in the software or internet industry. Each Party agrees to cooperate
fully with the arbitrator(s) to resolve any dispute that is subject to
arbitration hereunder. The arbitrator(s) shall have the authority to grant
specific performance, and to allocate between the Parties the costs of
arbitration in such equitable manner as the arbitrator(s) may determine. The
arbitrator(s) shall render a decision within thirty (30) business days of the
close of the arbitration hearing and shall render such decision in writing. The
determination made by the arbitrator(s) shall be final and binding upon the
parties in any subsequent actions at law or in equity and the parties agree to
stipulate thereto in any such action. Judgement upon the award so rendered may
be entered in any court having jurisdiction or application may be made to such
court for judicial acceptance of any award and an order of enforcement, as the
case may be. Notwithstanding the foregoing, either Party shall have the right to
institute a legal action in a court of proper jurisdiction for injunctive relief
and/or a decree for specific performance pending final settlement by
arbitration.
IN WITNESS WHEREOF, ValueClick and Licensee have entered into this
Agreement as of the date and year first above written.
LICENSOR: LICENSEE:
VALUECLICK, INC., VALUECLICK JAPAN INC.,
a Delaware corporation a Japanese corporation
By: By:
------------------------------ --------------------------------
Kurt Johnson Jonathan Hendriksen
Chief Financial Officer Chief Executive Officer
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report on ValueClick, Inc., dated February 7, 2000, except for Note 14 as to
which the date is February 18, 2000, our report on the ValueClick Line of
Business of Web-Ignite Corporation, dated October 1, 1999, and our report on
ValueClick Japan and its predecessor line of business within Trans-Pacific Ltd.,
dated October 1, 1999, relating to the financial statements which appear in such
Registration Statement. We also consent to the references to us under the
heading "Experts" in such Registration Statement.
Woodland Hills, California
February 18, 2000
