<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 7, 1999
REGISTRATION NO. 333-73231
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ADFORCE, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7374 33-0694260
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) identification no.)
</TABLE>
10590 NORTH TANTAU AVENUE
CUPERTINO, CALIFORNIA 95014
(408) 873-3680
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
JOHN A. TANNER
CHIEF FINANCIAL OFFICER
10590 NORTH TANTAU AVENUE
CUPERTINO, CALIFORNIA 95014
(408) 873-3680
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------
COPIES TO:
GORDON K. DAVIDSON, ESQ. STEVEN M. SPURLOCK, ESQ.
LAIRD H. SIMONS, III, ESQ. MICHAEL P. KENNEDY, ESQ.
MARK A. LEAHY, ESQ. ERIC E. KEPPLER, ESQ.
EDWARD M. URSCHEL, ESQ. GUNDERSON DETTMER STOUGH VILLENEUVE
FENWICK & WEST LLP FRANKLIN & HACHIGIAN, LLP
TWO PALO ALTO SQUARE 155 CONSTITUTION DRIVE
PALO ALTO, CALIFORNIA 94306 MENLO PARK, CALIFORNIA 94025
(650) 494-0600 (650) 321-2400
--------------
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 of 1933, 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 of 1933, 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 of 1933, 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. / /
THIS REGISTRATION STATEMENT SHALL HEREAFTER BECOME EFFECTIVE IN
ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, OR ON SUCH DATE AS
THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE>
PROSPECTUS
4,500,000 SHARES
[LOGO]
COMMON STOCK
This is an initial public offering of common stock by AdForce, Inc. All of
the shares of common stock are being sold by AdForce.
--------------
There is currently no public market for the common stock. The common stock
has been approved for quotation on the Nasdaq National Market under the symbol
ADFC.
--------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
----------- ----------
<S> <C> <C>
Initial public offering price.............................. $ 15.00 $67,500,000
Underwriting discounts and commissions..................... $ 1.05 $4,725,000
Proceeds to AdForce, before expenses....................... $ 13.95 $62,775,000
</TABLE>
AdForce has granted the underwriters an option for a period of 30 days to
purchase up to 675,000 additional shares of common stock.
--------------
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 6.
-------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
HAMBRECHT & QUIST
LEHMAN BROTHERS
VOLPE BROWN WHELAN & COMPANY
CHARLES SCHWAB & CO., INC.
May 7, 1999
<PAGE>
[OUTSIDE FRONT COVER]
The AdForce logo is centered at the top of the page. The logo appears as a
capital letter "A" without the horizontal line and without the bottom left half
of the letter, along with a crescent shape that wraps around the letter "A" on a
horizontal axis. The name "ADFORCE" appears below the logo.
[INSIDE FRONT COVER]
TITLE: THE ADFORCE ADVANTAGE
The page contains three sections of text bearing the headings "The AdForce
Advantage," "Advertisers and Ad Agencies" and "Web Sites and Ad Rep Firms." The
"AdForce Advantage" section reads: "Centralized, online, outsourced ad
management and delivery--AdForce's highly reliable, scalable technology
infrastructure and data centers currently deliver up to 210 million ads per day.
Our services offer sophisticated ad campaign design, inventory management,
targeting, delivery, tracking, measuring and reporting capabilities. By
outsourcing the technically complex and operationally demanding ad management
and delivery functions to AdForce, our customers can rely on our high
performance systems, technology and personnel while focusing on their own core
competencies." The "Advertisers and Ad Agencies" section reads: "AdForce allows
advertisers and ad agencies to plan and manage Internet advertising across
multiple Web sites. Our services allow our customers to reach large or targeted
audiences and to track, measure and report on their ad campaigns to maximize
return on advertising investments." A chart divided into three rows follows. The
first row contains two rectangles labeled "Advertisers" and "Ad Agencies." Each
rectangle is connected by a line to a large, rectangular bar on the second row
labeled "AdForce," which is connected by lines to five rectangles located in the
third row and labeled "Web Sites" and "Ad Rep Firms." The rectangle labeled "Ad
Agencies" located in the first row is connected to a large rectangular box to
the right. The box reads: "Key Ad Agency Customers: ModemMedia.PoppeTyson,
USWeb, VR Services, Carat Freeman, Bozell Worldwide." The five boxes located in
the third row are connected by a horizontal line to a large rectangular box to
the right. The box reads: "Key Web Site and Ad Rep Customers: 24/7 Media,
Adsmart, GeoCities, Netscape, Mapquest, Fortune City, Encompass, Netcom,
NHL.com, GoTo.com, Virtual Vegas, Spree.com, PGATOUR.com." The "Web Sites and Ad
Rep Firms" section reads: "AdForce helps Web sites and ad rep firms maximize the
value of their page view inventories. AdForce's advanced inventory management
system allows Web sites to accurately monitor sold and unsold inventory and to
sell that inventory more effectively."
[ICONS AT LEFT MARGIN UNDER SERVICES HEADING (PP. 35-36)]
Beginning on p. 35: First icon reads "Media Planning" and contains a file
folder graphic. Second icon reads "Campaign Scheduling" and contains an
appointment book graphic. Third icon reads "Targeting" and contains a target
graphic. Fourth icon reads "Ad Delivery" and contains a truck graphic. Fifth
icon reads "Reporting" and contains a chart graphic. Sixth icon reads
"Transactions" and contains a lighthouse graphic. Seventh icon reads "Auditing
and Accounting" and contains an abacus graphic. Eighth icon reads "Analysis" and
contains a microscope graphic. Ninth icon reads "Inventory Management" and
contains a file boxes graphic.
[INSIDE BACK COVER]
TITLE: ADFORCE MAKE THE RIGHT IMPRESSION
The AdForce logo is centered at the top of the page. The logo is the same
logo as appears on the outside front cover of the prospectus. A circular flow
chart is at the center of the page containing four icons. The icon at the top of
the flow chart reads "Deliver Ad" and contains a truck graphic. A clockwise
arrow leads to an icon that reads "Track User Activity" and contains a
lighthouse graphic. Another clockwise arrow leads to an icon that reads "Measure
Results" and contains a chart graphic. A clockwise arrow leads to an icon that
reads "Target User" and contains a target graphic. A final arrow leads from the
icon that reads "Target User" to the icon that reads "Deliver Ad." Text at the
center of the flow chart reads: "Lifetime Customer Value--AdForce's closed-loop
ad management and delivery services help our customers find, attract and retain
their target customers." The bottom of the page contains the text "End-To-End Ad
Management." Nine icons appear below this text representing media planning,
campaign scheduling, targeting, ad delivery, reporting, transactions, auditing
and accounting, analysis and inventory management.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary........................................... 4
Risk Factors................................................. 6
Forward-Looking Statements................................... 13
Use of Proceeds.............................................. 14
Dividend Policy.............................................. 14
Capitalization............................................... 15
Dilution..................................................... 16
Selected Financial Data...................................... 17
Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 18
Business..................................................... 27
Management................................................... 40
Related Party Transactions................................... 52
Principal Stockholders....................................... 57
Description of Capital Stock................................. 58
Shares Eligible for Future Sale.............................. 62
Underwriting................................................. 64
Legal Matters................................................ 66
Experts...................................................... 66
Where You Can Find More Information.......................... 66
Index to Financial Statements................................ F-1
</TABLE>
3
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD
CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY, INCLUDING "RISK FACTORS" AND THE FINANCIAL STATEMENTS,
BEFORE MAKING AN INVESTMENT DECISION.
ADFORCE
AdForce is a leading provider of centralized, outsourced ad management
and delivery services on the Internet. Our highly reliable, scalable technology
infrastructure and data centers currently deliver up to 210 million ads per day.
Our services offer sophisticated ad campaign design, inventory management,
targeting, delivery, tracking, measuring and reporting capabilities. Our
technology infrastructure and services allow our customers to:
- Reach large or targeted audiences across multiple Web sites on our
common platform;
- Maximize return on advertising investments for advertisers and ad
agencies;
- Maximize the value of page view inventories for Web sites and ad rep
firms;
- Monitor and measure the effectiveness of ad campaigns;
- Modify ad campaigns based on campaign performance data;
- Aggregate large numbers of sites into a single network and segment the
network into groups of special interest content such as sports or
finance; and
- Take advantage of direct marketing opportunities using sophisticated
targeting technologies supported by our large and growing database of
user information.
By outsourcing the technically complex and operationally demanding ad
management and delivery functions to AdForce, our customers can rely on our high
performance systems, technology and personnel while focusing on their own core
competencies.
Growth of the Internet generally and electronic commerce in particular
has spurred traditional businesses to devote larger portions of their marketing
budgets to Internet advertising, and has prompted Internet and electronic
commerce companies to increase their spending on Internet advertising. Jupiter
Communications estimates that spending on Internet advertising will grow from
$1.9 billion in 1998 to $7.7 billion in 2002, and the Direct Marketing
Association estimates that spending on Internet direct marketing will grow from
$603 million in 1998 to $5.3 billion in 2003.
During 1998, we delivered 13.6 billion ads with increasing quarterly ad
volumes of 0.9 billion, 1.6 billion, 3.2 billion and 7.9 billion. We delivered
13.2 billion ads in the first quarter of 1999. Our key customers include 24/7
Media, Adsmart, GeoCities, Netscape and ModemMedia.PoppeTyson.
We incorporated in California as Imgis, Inc. on January 16, 1996 and
reincorporated in Delaware as AdForce, Inc. in April 1999. Our address is 10590
North Tantau Avenue, Cupertino, California 95014, and our telephone number is
(408) 873-3680. Information contained on our Web site is not a part of this
prospectus.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by AdForce.............. 4,500,000 shares
Common stock to be outstanding after this
offering..................................... 19,169,429 shares
Use of proceeds.............................. For general corporate purposes, including
working capital. See "Use of Proceeds."
Nasdaq National Market symbol................ ADFC
</TABLE>
--------------
ALL INFORMATION IN THIS PROSPECTUS RELATING TO ADFORCE'S OUTSTANDING
CAPITAL STOCK, OPTIONS AND WARRANTS IS AS OF MARCH 31, 1999. UNLESS OTHERWISE
INDICATED, THE INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE OVER-ALLOTMENT
OPTION WILL NOT BE EXERCISED AND REFLECTS THE CONVERSION OF ALL PREFERRED STOCK
INTO COMMON STOCK. PLEASE SEE "CAPITALIZATION" FOR A MORE COMPLETE DISCUSSION
REGARDING ADFORCE'S CAPITAL STOCK, OPTIONS AND WARRANTS. THE TERMS "ADFORCE,"
"WE," "US" AND "OUR" REFER TO ADFORCE, INC., A DELAWARE CORPORATION, AND ITS
CALIFORNIA PREDECESSOR.
--------------
THE SUMMARY FINANCIAL DATA PRESENTED BELOW ARE DERIVED FROM THE
FINANCIAL STATEMENTS OF ADFORCE. THE QUARTERLY FINANCIAL DATA HAVE BEEN DERIVED
FROM UNAUDITED FINANCIAL STATEMENTS. THE PRO FORMA WEIGHTED AVERAGE COMMON
SHARES INCLUDE PREFERRED STOCK ON AN AS-CONVERTED BASIS AS WELL AS COMMON STOCK.
THE AS ADJUSTED BALANCE SHEET DATA PRESENTED BELOW REFLECT THE RECEIPT OF THE
NET PROCEEDS FROM THE SALE OF THE 4,500,000 SHARES OF COMMON STOCK OFFERED BY
ADFORCE AT THE INITIAL PUBLIC OFFERING PRICE OF $15.00 AND AFTER DEDUCTING
UNDERWRITING DISCOUNTS AND COMMISSIONS AND THE ESTIMATED OFFERING EXPENSES.
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM YEARS ENDED DECEMBER THREE MONTHS
JANUARY 16, 1996 31, ENDED MARCH 31,
(INCEPTION) TO -------------------- --------------------
DECEMBER 31, 1996 1997 1998 1998 1999
----------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue...................................... $ -- $ 320 $ 4,286 $ 414 $ 3,220
Gross profit (loss).............................. -- (1,188) (1,253) (486) 936
Loss from operations............................. (3,383) (5,596) (15,469) (2,500) (4,930)
Net loss......................................... (3,452) (5,704) (15,620) (2,603) (5,003)
Basic and diluted net loss per share............. $ (1.40) $ (3.48) $ (5.49) $ (1.25) $ (1.26)
Weighted average common shares -- basic and
diluted........................................ 2,465 1,639 2,844 2,079 3,966
Pro forma basic and diluted net loss per share... $ (1.44) $ (0.37)
Pro forma weighted average common shares -- basic
and diluted.................................... 10,877 13,402
</TABLE>
<TABLE>
<CAPTION>
QUARTERS ENDED
-------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1998 1998 1998 1998 1999
--------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
QUARTERLY STATEMENT OF OPERATIONS DATA:
Net revenue................................................. $ 414 $ 784 $ 1,064 $ 2,024 $ 3,220
Gross profit (loss)......................................... (486) (746) (281) 260 936
Net loss.................................................... (2,603) (4,070) (3,967) (4,980) (5,003)
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999
----------------------
ACTUAL AS ADJUSTED
--------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................... $ 9,727 $ 71,402
Working capital......................................................................... 3,044 64,719
Total assets............................................................................ 24,269 85,944
Long-term portion of capital lease obligations.......................................... 5,183 5,183
Total stockholders' equity.............................................................. 10,379 72,054
</TABLE>
5
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND ALL OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE PURCHASING OUR COMMON STOCK.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. ANY OF THE
FOLLOWING RISKS COULD MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS AND QUARTERLY
AND ANNUAL RESULTS OF OPERATIONS AND COULD RESULT IN A COMPLETE LOSS OF YOUR
INVESTMENT.
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO PREDICT FUTURE RESULTS OF
OPERATIONS AND TO ADDRESS RISKS AND UNCERTAINTIES
We incorporated in January 1996 and have a limited operating history.
You should consider the risks and difficulties frequently encountered by early
stage companies in new and rapidly evolving markets, particularly those
companies whose businesses depend on the Internet. These risks and difficulties
include our inability to predict future results of operations accurately due to
our lack of operating history and the unavailability of comparable business
models. We cannot assure you that our business strategy will be successful or
that we will address these risks and difficulties successfully.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE, WHICH COULD AFFECT THE MARKET
PRICE OF YOUR SHARES
Our quarterly results of operations have varied in the past. You should
not rely on quarter-to-quarter comparisons of our results of operations as an
indication of our future performance. It is likely that in future periods our
results of operations will be below the expectations of securities analysts and
investors. If so, the market price of your shares would likely decline. Our
revenue and quarterly results of operations depend on a variety of factors, many
of which are beyond our control. Please see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Fluctuations in
Results of Operations" for a list of these factors.
We expect to make significant capital expenditures as we increase the
capacity and reliability of our existing technology infrastructure and data
center. We also intend to open additional ad management and delivery centers. We
intend to increase our sales and marketing operations and to continue to
allocate a large portion of our budget for research and development. Our
operating costs are relatively fixed. We would likely be unable to adjust
spending quickly enough to offset any unexpected revenue shortfall. If we have a
shortfall in revenue relative to our expenses, our quarterly and annual results
of operations would be materially and adversely affected, which in turn could
affect the market price of your shares.
WE HAVE A HISTORY OF LOSSES AND EXPECT FUTURE LOSSES
We expect to continue to incur net losses on a quarterly and annual
basis for at least the next two years. If our revenue does not grow or grows
more slowly than we anticipate, or if our operating or capital expenditures
exceed our expectations and cannot be reduced, our quarterly and annual results
of operations will be materially and adversely affected. We incurred net losses
of $3.5 million for the period from January 16, 1996 (inception) to December 31,
1996, $5.7 million for the year ended December 31, 1997, $15.6 million for year
ended December 31, 1998, and $5.0 million for the three months ended March 31,
1999. We expect to continue to incur significant operating expenditures, and
capital expenditures of at least $9.0 million, for the remainder of 1999. As a
result, we will need to generate significantly greater revenue than we have
generated to date to achieve and maintain profitability. We expect that future
revenue growth, if any, will not be as rapid as in recent periods. We may never
achieve profitability on a quarterly or an annual basis.
WE DEPEND ON A SMALL NUMBER OF CUSTOMERS FOR OUR REVENUE, THE LOSS OF ANY OF
WHICH WOULD ADVERSELY AFFECT OUR ABILITY TO GENERATE REVENUE
We derive a substantial portion of our net revenue from a small number
of Web sites and ad rep firms. Our quarterly and annual results of operations
would be materially and adversely affected by the
6
<PAGE>
loss of any of these customers or any significant reduction in net revenue
generated from these customers. Our three largest customers for each quarter of
1998 represented 94%, 81%, 60% and 63% of our net revenue. In the first quarter
of 1999, four of our customers, 24/7 Media, Adsmart, GeoCities and Netscape,
accounted for approximately 77% of our net revenue. Our customer agreements can
generally be terminated at any time with little or no penalty.
CONSOLIDATION IN THE INTERNET INDUSTRY MAY ADVERSELY AFFECT OUR ABILITY TO
RETAIN OUR PRINCIPAL CUSTOMERS, THE LOSS OF ANY OF WHICH WOULD ADVERSELY
AFFECT OUR ABILITY TO GENERATE REVENUE
Many of our principal customers are now and may in the future be
affected by rapid consolidation in the Internet industry. Our quarterly and
annual results of operations would be materially and adversely affected if we
lose any of these customers as a result of consolidation or if our customers are
required to use the proprietary ad delivery technologies of the companies that
acquire them or other ad delivery technologies. Please see
"Business--Competition" for detailed information on industry consolidation.
WE MAY NOT BE ABLE TO SCALE OUR TECHNOLOGY INFRASTRUCTURE, WHICH WOULD ADVERSELY
AFFECT OUR ABILITY TO RETAIN OUR EXISTING CUSTOMERS AND TO ATTRACT NEW
CUSTOMERS
Our technology infrastructure may not be able to support higher volumes
of ads, additional customers or new types of advertising or direct marketing. If
we are not able to scale our technology infrastructure, we would have difficulty
retaining existing customers and attracting new customers. If our traffic
increases because of heightened demand from existing or new customers, we will
need to accommodate large increases in the number of ads that we manage and
deliver and the amount of data that we store. We will also need to support the
introduction of new and evolving types of advertising and direct marketing that
require greater system resources than current methods of Internet advertising.
We may not be able to continue to scale our data centers on time or
within budget. The uninterrupted performance of our data centers is critical to
our success. We expect to add more data centers to improve redundancy and to
increase capacity. Adding capacity will be expensive, and we may not be able to
do so successfully. In addition, we cannot assure you that we will be able to
protect our new or existing data centers from unexpected events as we scale our
systems. Please see "Business-- Technology and Data Center Operations" for
detailed information on our system capacity.
WE MAY NOT BE ABLE TO RESPOND TO RAPID TECHNOLOGICAL CHANGE, WHICH COULD
ADVERSELY AFFECT OUR ABILITY TO RETAIN OUR EXISTING CUSTOMERS AND TO ATTRACT
NEW CUSTOMERS
We may not be able to improve our technology infrastructure to respond
to technological change, changes in customer requirements or preferences, or new
industry standards. We must be able to steadily increase our system capacity,
improve our existing services, and introduce new service offerings without
interrupting or interfering with our operations, and we must be able to do so in
a timely and cost-effective manner. We must ensure that our technology
infrastructure is flexible enough to accommodate technology advancements,
including our ability to deliver ads to a customer base that uses multiple
browsers and multiple versions of those browsers. We must also ensure that our
technology infrastructure is flexible enough to accommodate new customer
requirements and preferences. For example, in August 1998, we had difficulties
transitioning GeoCities from an on-site ad server to our service, AdForce for
Publishers, causing them to revert to their existing on-site ad server for that
month. The difficulties were resolved and GeoCities resumed using our service in
September 1998. Please see "Business--Technology and Data Center Operations" for
detailed information on our technology infrastructure.
7
<PAGE>
WE MAY NOT BE ABLE TO ATTRACT AD AGENCIES AND ADVERTISERS AS CUSTOMERS, WHICH
COULD CAUSE US TO MISS OUR FINANCIAL PROJECTIONS OR THOSE OF SECURITIES
ANALYSTS
If we fail to attract advertisers and ad agencies as customers or do so
more slowly than we anticipate, we may not meet our financial projections or
those of securities analysts. We currently have no agreements with individual
advertisers, and ad agencies accounted for less than 5% of our net revenue in
the first quarter of 1999. The service and support requirements of advertisers
and ad agencies are significantly different from those of Web sites and ad rep
firms, and advertisers and ad agencies may not accept third-party Internet ad
management and delivery services or may not choose our services over those
offered by others. Moreover, advertisers and ad agencies may find Internet
advertising services to be too complex, ineffective or otherwise unsatisfactory
for managing and delivering their ad campaigns.
WE MAY NOT COMPETE SUCCESSFULLY IN THE MARKET FOR INTERNET AD MANAGEMENT AND
DELIVERY SERVICES, WHICH WOULD ADVERSELY AFFECT OUR ABILITY TO RETAIN OUR
EXISTING CUSTOMERS AND TO ATTRACT NEW CUSTOMERS
The market for Internet ad management and delivery services is extremely
competitive, and we expect this competition to increase. Our ability to compete
successfully in this market depends on many factors, including:
- the performance, reliability, ease of use and price of services that
we or our competitors offer;
- market acceptance of centralized, outsourced ad management and
delivery systems as compared to internally-developed or site-specific
software and hardware solutions;
- our ability, relative to our competitors, to scale our technology
infrastructure as our customer needs grow;
- timeliness and market acceptance of new services and enhancements to
existing services introduced by us or our competitors; and
- customer service and support efforts by us or our competitors.
The market for Internet ad management and delivery services is subject
to intense competition as companies attempt to establish a market presence. We
have in the past and may in the future be forced to reduce the prices for our
services in order to compete, which could materially and adversely affect our
net revenue and gross margins.
We currently compete with providers of outsourced ad services, including
DoubleClick and MatchLogic, as well as providers of ad server software and
hardware solutions, such as NetGravity. Many of our current competitors have
substantially greater resources and more developed sales and marketing
strategies than we do. We may be unable to compete effectively against these
competitors now or in the future. In addition, several large Web sites possess
proprietary ad serving technologies and could decide to enter the market for
outsourced Internet advertising solutions. Barriers to entering the Internet
advertising market are relatively low. We may encounter new competitors that
have longer operating histories, greater name recognition, larger customer bases
or significantly greater financial, technical and marketing resources than we
do.
MANY OF OUR CUSTOMERS HAVE LIMITED OPERATING HISTORIES, ARE UNPROFITABLE AND MAY
NOT BE ABLE TO PAY FOR OUR SERVICES, WHICH COULD ADVERSELY AFFECT OUR ABILITY
TO RECOGNIZE REVENUE FROM THESE CUSTOMERS
Many of our leading customers, including GeoCities, 24/7 Media and
Adsmart, have limited operating histories and have not achieved profitability.
If one or more of our customers is unable to pay for our services, or pays more
slowly than we anticipate, our quarterly and annual results of operations could
8
<PAGE>
be materially and adversely affected. You should evaluate the ability of our
customers to meet their payment obligations to us in light of the risks,
expenses and difficulties encountered by companies with limited operating
histories, particularly in the evolving Internet market. In the past, some of
our customers have failed to pay for our services on a timely basis.
WE MAY EXPERIENCE SYSTEM FAILURES OR DELAYS THAT WOULD ADVERSELY AFFECT OUR
OPERATIONS, WHICH COULD LEAD TO CUSTOMER DISSATISFACTION
Our operations depend on our ability to protect our computer systems
against damage from fire, water, power loss, telecommunications failures,
computer viruses, vandalism and other malicious acts, and similar unexpected
adverse events. In the past, interruptions or slowdowns in our services have
resulted from the failure of our telecommunications providers to supply the
necessary data communications capacity in the time frame we require, as well as
from deliberate acts. Unanticipated problems affecting our systems could in the
future cause interruptions or delays in our services. Slow response times or
system failures could also result from straining the capacity of our software or
hardware due to an increase in the volume of advertising delivered through our
servers. Our customers may become dissatisfied by any system failure or delay
that interrupts our ability to provide service to them or slows our response
time.
WE MAY NOT BE ABLE TO TARGET ADVERTISEMENTS, WHICH COULD ADVERSELY AFFECT OUR
ABILITY TO RETAIN OUR EXISTING CUSTOMERS AND TO ATTRACT NEW CUSTOMERS
We may not be able to continue to meet the needs of our customers or the
marketplace for more sophisticated targeting solutions. As more advertisers
demand targeting solutions, we will need to develop increasingly effective tools
and larger databases that can provide greater demographic precision in ad
management and delivery. The development of these tools and databases is
technologically challenging and expensive. We cannot assure you that we can
develop any of these tools or databases in a cost-effective and timely manner,
if at all. Moreover, privacy concerns may cause a reduction or limitation in the
use of user information, which could limit the effectiveness of our technology
and adversely affect our ability to retain our existing customers and to attract
new customers.
THE INTERNET ADVERTISING MARKET MAY FAIL TO DEVELOP OR DEVELOP MORE SLOWLY THAN
EXPECTED, WHICH COULD ADVERSELY AFFECT OUR ABILITY TO RETAIN OUR EXISTING
CUSTOMERS AND TO ATTRACT NEW CUSTOMERS
The Internet advertising market may fail to develop or develop more
slowly than expected. Our future growth largely depends on the continued growth
in Internet advertising generally, and on the willingness of our potential
customers to outsource their Internet advertising and direct marketing needs.
Companies doing business on the Internet must compete with traditional media,
including television, radio, cable and print, for a share of advertisers' total
advertising budgets. Advertisers may be reluctant to devote a significant
portion of their advertising budgets to Internet advertising if they perceive
the Internet to be a limited or ineffective advertising medium.
Substantially all of our revenue is derived from the delivery of
advertisements placed on Web sites. If advertisers determine that those ads are
ineffective or unattractive as an advertising medium, we may be unable to make
the transition to any other form of Internet advertising. Also, there are filter
software programs that limit or prevent advertising from being delivered to a
user's computer. The commercial viability of Internet advertising would be
materially and adversely affected by Internet users' widespread adoption of
these software programs.
THE INTERNET INFRASTRUCTURE MAY NOT BE ABLE TO ACCOMMODATE RAPID GROWTH, WHICH
COULD ADVERSELY AFFECT OUR ABILITY TO RETAIN OUR EXISTING CUSTOMERS AND TO
ATTRACT NEW CUSTOMERS
The Internet infrastructure may fail to support the growth of the
Internet. If the Internet continues to experience an increase in users, an
increase in frequency of use or an increase in the capacity
9
<PAGE>
requirements of users, we cannot assure you that the Internet infrastructure
will be able to support the demands placed on it. Any actual or perceived
failure of the Internet could undermine the benefits of our services. In
addition, 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 or due to increased government regulation.
Changes in, or insufficient availability of, telecommunications services to
support the Internet could result in slower response times and could hamper use
of the Internet. Even if the Internet infrastructure is able to accommodate
rapid growth, we may be required to spend heavily to adapt to new technologies.
WE MAY NOT BE ABLE TO RETAIN KEY PERSONNEL, AND OUR MANAGEMENT TEAM MAY NOT WORK
TOGETHER SUCCESSFULLY
Our future success depends on the continued service of our key
technical, sales and senior management personnel and their ability to execute
our growth strategy. Recently, we have experienced significant changes in our
management team. One of our founders and former President, Chad Steelberg, who
originally developed some of our core technologies, left AdForce in November
1998. In addition, in January 1999 we hired three new executive officers. Our
future performance will depend, in part, on our ability to integrate our newly
hired executive officers effectively into our management team. Our executive
officers, who have worked together for only a short time, may not be successful
in carrying out their duties or making strategic decisions quickly in a rapidly
changing market.
WE MAY NOT BE ABLE TO MANAGE OUR GROWTH, WHICH COULD ADVERSELY AFFECT OUR
ABILITY TO MANAGE OUR BUSINESS
We have grown our workforce substantially, from 52 employees on March
31, 1998 to 109 employees on March 31, 1999, and we plan to continue to expand
our research and development, data center operations, sales, marketing and
customer service organizations. We may not be able to manage our internal growth
effectively to keep pace with the expansion of the Internet advertising market
or our competitors' growth. Our growth has placed, and the anticipated future
growth in our operations will continue to place, a significant strain on our
management systems and resources. We expect that we will need to continue to
improve our financial and managerial controls and reporting systems and
procedures, and will need to continue to expand, train and manage our workforce.
WE MAY NOT BE ABLE TO PROTECT OUR TECHNOLOGY, WHICH COULD DIMINISH THE VALUE OF
OUR TECHNOLOGY AND OUR SERVICES
Our success and ability to compete are dependent on our internally
developed technologies and trademarks. If our proprietary rights are infringed
by a third party, the value of our services to our customers would be diminished
and additional competition might result from the third party's use of those
rights. We cannot assure you that our patent applications or trademark
registrations will be approved. Even if they are approved, our patents or
trademarks may be successfully challenged by others or invalidated. If our
trademark registrations are not approved because third parties own those
trademarks, our use of these trademarks would be restricted unless we entered
into arrangements with the third-party owners, which might not be possible on
reasonable terms. We cannot assure you that any of our proprietary rights will
be viable or of value since the validity, enforceability and scope of protection
of proprietary rights in Internet-related industries are uncertain and evolving.
We also cannot assure you that the steps we have taken will prevent
misappropriation of our solutions or technologies, particularly in foreign
countries where laws or law enforcement practices may not protect our
proprietary rights as fully as in the United States.
10
<PAGE>
THIRD PARTIES MAY ASSERT INFRINGEMENT CLAIMS AGAINST US OR OUR CUSTOMERS, WHICH
COULD RESULT IN LIABILITY FOR DAMAGES, THE INVALIDATION OF OUR RIGHTS OR THE
DIVERSION OF OUR TIME AND ATTENTION
Third parties may assert infringement claims against us or our customers
based on our technology or our collection of user data. Any claims or
litigation, if they occur, could subject us to significant liability for damages
or could result in invalidation of our rights. Even if we were to prevail,
litigation could be time-consuming and expensive to defend, and could result in
diversion of our time and attention. Any claims or litigation from third parties
might also limit our ability to use the proprietary rights subject to these
claims or litigations.
OUR CONTRACTUAL RELATIONSHIP WITH AMERICA ONLINE COULD LEAD TO A DIVERSION OF
OUR DEVELOPMENT RESOURCES AND THE OBLIGATION TO PAY AMERICA ONLINE A LARGE SUM
OF MONEY
We have granted to America Online and its affiliates a royalty-free,
perpetual license to our ad management and delivery technology, including source
and object code, and any improvements to it that we make generally available to
our customers. Under the terms of this license agreement, America Online could
also require us to customize a version of our technology for the exclusive use
of America Online and its affiliates. We are obliged under the license agreement
to provide these services for an indefinite period of time with little potential
for significant profit, which could significantly strain our development
resources. We have also entered into a demographic data agreement with America
Online. Under the terms of this agreement, America Online may elect to make
demographic information available to us at any time within three years,
triggering substantial payment obligations from us even if we do not use this
information and even if we have contracted to obtain similar information from an
alternative source. If America Online makes the demographic data available to us
and then later limits or denies access to the demographic information or
significantly changes its advertising or privacy policies, our ability to market
our technology and services with enhanced targeting abilities and to generate
additional revenue could be severely limited. Please see "Related Party
Transactions" for detailed information on our relationship with America Online.
GOVERNMENT REGULATION OF THE INTERNET MAY INHIBIT THE COMMERCIAL ACCEPTANCE OF
INTERNET
New legislation regulating the Internet could inhibit the growth of the
Internet and decrease the acceptance of the Internet as a communications and
commercial medium. The applicability to the Internet of existing laws governing
issues such as property ownership, libel and personal privacy is uncertain.
Governmental authorities may seek to further regulate the Internet with respect
to issues such as user privacy, pornography, acceptable content, electronic
commerce, taxation, and the pricing, characteristics and quality of products and
services.
POTENTIAL YEAR 2000 RISKS MAY ADVERSELY AFFECT OUR BUSINESS
There is significant uncertainty in the software industry regarding the
potential effects associated with Year 2000 compliance issues. We have not
engaged in any official process designed to independently verify our Year 2000
readiness or to assess potential costs associated with Year 2000 risks, nor have
we made any contingency plans to address these risks. We cannot assure you that
unanticipated costs associated with any Year 2000 compliance will not exceed our
present expectations.
We depend heavily on the uninterrupted availability of the Internet
infrastructure to conduct our business as a centralized management and delivery
service. We also rely heavily on the continued operations of our customers, in
particular Web sites hosting advertisements, for our revenue. We are thus
dependent upon the success of the Year 2000 compliance efforts of the many
service providers that support the Internet, and the Year 2000 compliance
efforts of our customers. Interruptions in the Internet infrastructure affecting
us or our customers, or the failure of the Year 2000 compliance efforts of one
or more of our customers, could have a material adverse effect on our quarterly
and annual results of
11
<PAGE>
operations. Please see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000 Compliance" for detailed
information on our Year 2000 readiness.
WE MAY NOT HAVE ENOUGH CAPITAL TO EXECUTE OUR BUSINESS OBJECTIVES, WHICH COULD
ADVERSELY AFFECT OUR ABILITY TO MEET OUR FINANCIAL PROJECTIONS OR THOSE OF
SECURITIES ANALYSTS
We may need to raise additional funds, and we cannot be certain that we
would be able to obtain additional financing on favorable terms, if at all. We
are devoting at least an additional $9.0 million to our data center facilities
in Costa Mesa and Cupertino, California during the remainder of 1999, and will
need to devote additional resources as we establish new ad management and
delivery centers. We also expect to make significant investments in sales and
marketing and the development of new services. The failure to generate
sufficient cash flows or to raise sufficient funds to finance growth could
require us to delay or abandon some or all of our plans or forego new market
opportunities, making it difficult for us to respond to competitive pressures.
If we issue equity securities to raise funds, our stockholders will be diluted.
The holders of the new equity securities may also have rights, preferences or
privileges senior to those of existing holders of common stock.
THE PRICE OF OUR COMMON STOCK IS LIKELY TO BE VOLATILE AND SUBJECT TO WIDE
FLUCTUATIONS, AND WE COULD BE SUBJECT TO SECURITIES LITIGATION
The market price of our common stock is likely to be subject to wide
fluctuations. If our revenue does not grow or grows more slowly than we
anticipate, or if operating or capital expenditures exceed our expectations or
cannot be adjusted accordingly, the market price of our common stock could fall.
In addition, if the market for Internet-related stocks or the stock market in
general experiences a loss in investor confidence, the market price of our
common stock could fall for reasons unrelated to our business or results of
operations. Investors may be unable to resell their shares of our common stock
at or above the offering price. In the past, companies that have experienced
volatility in the market price of their stock have been the subject of
securities class action litigation. If we were the subject of litigation, it
could result in substantial costs and a diversion of management's attention and
resources.
AN ACTIVE PUBLIC MARKET FOR OUR COMMON STOCK MAY NOT DEVELOP, WHICH COULD
ADVERSELY AFFECT YOUR ABILITY TO SELL YOUR SHARES AND THE MARKET PRICE OF YOUR
SHARES
Before this offering, you could not buy or sell our common stock on a
public market. An active public market for our common stock may not develop or
be sustained after the offering, which could affect your ability to sell your
shares and depress the market price of your shares. The market price of your
shares may significantly vary from the offering price.
PROVISIONS IN OUR CHARTER DOCUMENTS MAY DETER ACQUISITION BIDS FOR ADFORCE,
WHICH COULD ADVERSELY AFFECT THE MARKET PRICE OF YOUR SHARES
We have adopted a classified board of directors. In addition, our
stockholders are unable to act by written consent or to fill any vacancy on the
board of directors. Our stockholders cannot call special meetings of
stockholders to remove any director or the entire board of directors without
cause. These provisions and other provisions of Delaware law could make it more
difficult for a third party to acquire us, even if doing so would benefit our
stockholders. Please see "Management" and "Description of Capital Stock" for
detailed information on these protective provisions.
OUR OFFICERS AND DIRECTORS EXERT SUBSTANTIAL INFLUENCE OVER ADFORCE, WHICH COULD
LIMIT YOUR ABILITY TO INFLUENCE ADFORCE AND WHICH COULD DELAY OR PREVENT A
CHANGE OF CONTROL OF ADFORCE
We anticipate that our executive officers, our directors and entities
affiliated with them and our 5% stockholders will beneficially own, in the
aggregate, approximately 56.4% of our outstanding common
12
<PAGE>
stock following the completion of this offering. These stockholders may be able
to exercise substantial influence over all matters requiring approval by our
stockholders, including the election of directors and approval of significant
corporate transactions. This concentration of ownership may also have the effect
of delaying or preventing a change in control of AdForce.
FUTURE SALES OF SHARES BY EXISTING STOCKHOLDERS COULD ADVERSELY AFFECT THE
MARKET PRICE OF YOUR SHARES
Sales of a substantial number of shares of our common stock in the
public market by our stockholders after this offering could depress the market
price of our common stock and could impair our ability to raise capital through
the sale of additional equity securities. Please see "Shares Eligible for Future
Sale" for a description of shares of our common stock that are available for
future sale.
FORWARD-LOOKING STATEMENTS
Some of the statements under the captions "Prospectus Summary," "Risk
Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" and elsewhere in this
prospectus are forward-looking statements. These forward-looking statements
include statements about our plans, objectives, expectations and intentions and
other statements contained in the prospectus that are not historical facts. When
used in this prospectus, the words expects, anticipates, intends, plans,
believes, seeks and estimates and similar expressions are generally intended to
identify forward-looking statements. Because these forward-looking statements
involve risks and uncertainties, there are important factors that could cause
actual results to differ materially from those expressed or implied by these
forward-looking statements, including our plans, objectives, expectations and
intentions and other factors discussed under "Risk Factors."
13
<PAGE>
USE OF PROCEEDS
The net proceeds to us from the sale of the 4,500,000 shares of common
stock offered by us will be approximately $61,675,000, at the initial public
offering price of $15.00 per share and after deducting underwriting discounts
and commissions and the estimated offering expenses. If the underwriters' over-
allotment option is exercised in full, our net proceeds will be approximately
$71,091,250.
We intend to use the net proceeds from this offering primarily for
general corporate purposes, including working capital. We may also use a portion
of the net proceeds from this offering to acquire or invest in businesses,
technologies or services that are complementary to our business. We have no
present plans or commitments and are not engaged in any negotiations with
respect to any transactions of this type. Pending these uses, we intend to
invest the net proceeds from this offering in short-term, interest-bearing,
investment-grade securities. Please see "Risk Factors--We May Not Have Enough
Future Capital to Execute Our Business Objectives, Which Could Adversely Affect
Our Ability to Meet Our Financial Projections or Those of Securities Analysts."
DIVIDEND POLICY
We have never declared or paid any cash dividends on shares of our
capital stock. We intend to retain any future earnings to finance future growth
and do not anticipate paying any cash dividends in the future.
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<PAGE>
CAPITALIZATION
The following table shows (1) the actual capitalization of AdForce as of
March 31, 1999, (2) the capitalization as of that date on a pro forma basis to
give effect to the conversion of each outstanding share of preferred stock into
two shares of common stock upon the closing of this offering and (3) the pro
forma capitalization as adjusted to reflect the receipt of the net proceeds from
the sale of the 4,500,000 shares of common stock offered by AdForce at the
initial public offering price of $15.00 per share and after deducting
underwriting discounts and commissions and the estimated offering expenses.
The information shown in the table below is qualified by, and should be
read along with, our more detailed financial statements and the related notes
appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1999
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term portion of capital lease obligations............ $ 5,183 $ 5,183 $ 5,183
--------- ----------- -----------
Stockholders' equity:
Preferred stock; 6,238,163 shares authorized, 4,733,559
shares issued and outstanding, actual; 5,000,000
shares authorized, no shares issued and outstanding,
pro forma and pro forma as adjusted................... 5 -- --
Common stock; 40,000,000 shares authorized, 5,202,311
shares issued and outstanding, actual; 100,000,000
shares authorized, pro forma and pro forma as
adjusted; 14,669,429 shares issued and outstanding,
pro forma; 19,169,429 shares issued and outstanding,
pro forma as adjusted................................. 5 15 19
Additional paid-in capital.............................. 46,034 46,029 107,700
Deferred stock compensation............................. (5,823) (5,823) (5,823)
Note receivable from stockholder........................ (63) (63) (63)
Accumulated deficit..................................... (29,779) (29,779) (29,779)
--------- ----------- -----------
Total stockholders' equity............................ 10,379 10,379 72,054
--------- ----------- -----------
Total capitalization................................ $ 15,562 $ 15,562 $ 77,237
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
The outstanding share information shown in the table above excludes:
- 1,294,686 shares of common stock issuable upon the exercise of
outstanding warrants, at a weighted average per share exercise price
of $6.19;
- 2,280,759 shares of common stock issuable upon the exercise of
outstanding stock options, at a weighted average per share exercise
price of $1.12;
- 861,938 shares of common stock available for future grant under the
1997 Stock Plan;
- 2,200,000 shares available for future grant under the 1999 Equity
Incentive Plan or the 1999 Directors Stock Option Plan; and
- 300,000 shares initially available for issuance under the 1999
Employee Stock Purchase Plan, subject to automatic annual increases up
to a maximum of 3,000,000 shares over the term of the purchase plan.
15
<PAGE>
DILUTION
The pro forma net tangible book value of AdForce as of March 31, 1999
was $5.6 million, or $0.38 per share of common stock. Pro forma net tangible
book value per share represents the amount of AdForce's total tangible assets
less total liabilities, divided by 14,669,429 shares of common stock outstanding
after giving effect to the conversion of all outstanding shares of preferred
stock into shares of common stock upon completion of this offering. After giving
effect to the receipt of the net proceeds from the sale of the 4,500,000 shares
of our common stock at the initial public offering price of $15.00 per share and
after deducting underwriting discounts and commissions and the estimated
offering expenses, the pro forma net tangible book value of AdForce as of March
31, 1999 would have been approximately $67.2 million, or $3.51 per share. This
represents an immediate increase in pro forma net tangible book value of $3.13
per share to existing stockholders and an immediate dilution of $11.49 per share
to new investors purchasing shares at the initial public offering price. The
following table illustrates the per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share............................ $ 15.00
Pro forma net tangible book value per share as of March 31, 1999......... $ 0.38
Increase per share attributable to new investors......................... 3.13
---------
Pro forma net tangible book value per share after offering................. 3.51
---------
Dilution per share to new investors........................................ $ 11.49
---------
---------
</TABLE>
The following table summarizes as of March 31, 1999, on the pro forma
basis described above, the number of shares of common stock purchased from
AdForce, the total consideration paid to AdForce and the average price per share
paid by existing stockholders and by new investors purchasing shares of common
stock in this offering, before deducting underwriting discounts and commissions
and the estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ----------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders................ 14,669,429 76.5% $31,179,000 31.6% $ 2.13
New investors........................ 4,500,000 23.5 67,500,000 68.4 15.00
--------- ----------- ---------- -----------
Total.............................. 19,169,429 100.0% $98,679,000 100.0%
--------- ----------- ---------- -----------
--------- ----------- ---------- -----------
</TABLE>
The above discussion and tables assume no exercise of any stock options
or warrants outstanding as of March 31, 1999. As of March 31, 1999, there were
options and warrants outstanding to purchase a total of 3,575,445 shares of
common stock with a weighted average exercise price of $2.96 per share. If any
of these options or warrants are exercised, there will be further dilution to
new public investors. Please see "Capitalization," "Management-- Employee
Benefit Plans" and Note 8 of Notes to Financial Statements.
16
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction
with, and are qualified by reference to, the financial statements and the
related notes and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" appearing elsewhere in this prospectus. The statement
of operations data for the period from January 16, 1996 (inception) to December
31, 1996 and the years ended December 31, 1997 and 1998, and the balance sheet
data at December 31, 1996, 1997 and 1998, are derived from our financial
statements, which have been audited by Ernst & Young LLP, independent auditors,
and, except for the balance sheet as of December 31, 1996, are included
elsewhere in this prospectus. The statement of operations data for the three
months ended March 31, 1998 and 1999 and the balance sheet data as of March 31,
1999 are derived from unaudited financial statements included elsewhere in this
prospectus and, in the opinion of our management, include all adjustments,
consisting only of normal recurring adjustments, that are necessary for a fair
presentation of the results of operations for these periods. Historical results
are not necessarily indicative of future results.
<TABLE>
<CAPTION>
PERIOD FROM YEARS ENDED DECEMBER THREE MONTHS
JANUARY 16, 1996 31, ENDED MARCH 31,
(INCEPTION) TO -------------------- --------------------
DECEMBER 31, 1996 1997 1998 1998 1999
----------------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue............................................... $ -- $ 320 $ 4,286 $ 414 $ 3,220
Cost of revenue:
Data center operations.................................. -- 1,508 4,439 709 1,915
Amortization of intangible assets and deferred stock
compensation.......................................... -- -- 1,100 191 369
------ --------- --------- --------- ---------
Total cost of revenue................................. -- 1,508 5,539 900 2,284
------ --------- --------- --------- ---------
Gross profit (loss)....................................... -- (1,188) (1,253) (486) 936
Operating expenses:
Research and development................................ 1,561 2,236 4,665 818 2,244
Marketing and selling................................... 1,485 1,054 4,863 613 1,773
General and administrative.............................. 337 1,118 1,839 390 615
Amortization of intangible assets and deferred stock
compensation.......................................... -- -- 2,849 193 1,234
------ --------- --------- --------- ---------
Total operating expenses.............................. 3,383 4,408 14,216 2,014 5,866
------ --------- --------- --------- ---------
Loss from operations...................................... (3,383) (5,596) (15,469) (2,500) (4,930)
Interest expense, net..................................... (69) (108) (151) (103) (73)
------ --------- --------- --------- ---------
Net loss.................................................. $ (3,452) $ (5,704) $ (15,620) $ (2,603) $ (5,003)
------ --------- --------- --------- ---------
------ --------- --------- --------- ---------
Basic and diluted net loss per share...................... $ (1.40) $ (3.48) $ (5.49) $ (1.25) $ (1.26)
------ --------- --------- --------- ---------
------ --------- --------- --------- ---------
Weighted average shares of common stock outstanding used
in computing basic and diluted net loss per share....... 2,465 1,639 2,844 2,079 3,966
------ --------- --------- --------- ---------
------ --------- --------- --------- ---------
Pro forma basic and diluted net loss per share............ $ (1.44) $ (0.37)
--------- ---------
--------- ---------
Weighted average shares used in computing pro forma basic
and
diluted net loss per share.............................. 10,877 13,402
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------- MARCH 31,
1996 1997 1998 1999
--------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................................... $ 681 $ 1,680 $ 10,045 $ 9,727
Working capital (deficit)................................................... (22) 1,173 7,975 3,044
Total assets................................................................ 1,855 4,269 20,935 24,269
Long-term portion of capital lease obligations.............................. -- 1,744 3,089 5,183
Total stockholders' equity.................................................. 1,078 1,375 14,041 10,379
</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
AdForce is a leading provider of centralized, outsourced ad management
and delivery services on the Internet. We began operations on January 16, 1996
as Imgis, Inc. and spent the first 15 months of our operations developing
technology that could be used to manage and deliver Internet ads for
advertisers, ad agencies, Web sites and ad rep firms. Initially, we did not have
an internal sales force dedicated to selling our services. To generate business,
we relied primarily on the sales forces of ad rep firms that used our services
to manage and deliver ads to the Web site customers they represented. In
December 1997, we began to build a direct sales force to allow us to penetrate
the market for our services more effectively.
We began delivering ads and recognizing revenue during the second
quarter of 1997, and increased our revenue as the ad volumes delivered by our ad
rep firm customers grew. 24/7 Media and its predecessor firms were responsible
for 92% of our net revenue in 1997. In November 1997, we also contracted to
deliver ads for Netcom and FortuneCity, and began to demonstrate the
applicability of our services to Web sites. In 1998, we continued to add
customers with material amounts of ad volume. Adsmart and Netscape began using
our services in early 1998, and GeoCities began using our services in the latter
half of June 1998. Though we continue to derive the majority of our net revenue
from a limited number of customers, we broadened our customer base in 1998. In
the first quarter of 1998, Petry Interactive and Katz Millenium, which are now
part of 24/7 Media, accounted for 76% and 14% of our net revenue. By the first
quarter of 1999, our top four customers, 24/7 Media, Adsmart, GeoCities and
Netscape, accounted for 23%, 21%, 20% and 12% of our net revenue. 24/7 Media has
stated that it is currently developing a next generation ad delivery technology
that is intended to serve as its sole ad delivery solution. It has also stated
that, unless and until the development of and transition to its own ad delivery
technology is complete, it will be primarily dependent on us to deliver ads to
its networks and Web sites.
In 1997 and 1998, we earned the vast majority of our revenue by managing
and delivering ads for ad agencies, Web sites and ad rep firms. We intend to
begin marketing our services to advertisers during 1999. We also charged
customers for other services, such as developing custom reports, although
revenue to date from these services has not been significant. We plan to
continue to develop and offer new services, such as advanced consumer targeting
capabilities, and expect that an increasing proportion of our revenue will be
generated by these services.
We charge our customers based on each 1,000 ads delivered. Customers
with higher expected ad volumes than average generally are charged a lower rate
on each 1,000 ads delivered. During 1998, the monthly volume of ads we delivered
increased significantly as Internet traffic increased and we gained market
share. However, the average rate we charged declined during 1998. We believe
that pricing competition and lower rates charged to higher-volume customers were
the primary reasons for this decline. We expect those factors to cause future
declines in average rates charged.
We believe our centralized ad management system is substantially less
expensive than on-site ad delivery alternatives available to most individual Web
sites. Our average cost to manage and deliver each ad is significantly
influenced by the ad volume moving through our system. As we continue to
aggregate Web sites and their ad volumes on our system, and add additional
advertisers, ad agencies and ad rep firms as customers, we expect the average
cost to deliver each ad to generally decline. In the second quarter of 1999, we
opened our second data center, potentially increasing our costs to deliver each
ad during the next 12 months. In addition, a portion of our research and
development efforts is devoted to improving the performance and efficiency of
our systems. We believe that these favorable economies for centralized ad
management will increase if greater and greater ad volumes are delivered by our
system.
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<PAGE>
During 1998, the average cost to deliver each ad declined more significantly
than the decrease in the average rate charged, resulting in steadily improving
gross margins.
In the operating areas of research and development, marketing and
selling, and general and administrative costs, the single most significant cost
is personnel, including the related payroll, facilities and other overhead
costs. Historically, our personnel requirements in these operating areas have
increased at significantly lower rates than revenue.
We have recorded deferred stock compensation for options granted after
January 1998. As of March 31, 1999, we had recorded aggregate deferred stock
compensation of $8.1 million. This deferred stock compensation is being
amortized over the vesting periods of the stock options. AdForce recognized a
total of $1.2 million and $1.1 million in stock compensation expense during 1998
and the three months ended March 31, 1999. In addition, we recorded stock
compensation expense of $1.4 million during 1998 related to unvested founders'
stock that was not repurchased. Since a portion of this expense was related to
persons involved in running our data center operations, we allocated that
portion to cost of revenue and thus reduced our gross margin. The total charges
to be recognized in future periods from amortization of deferred stock
compensation as of March 31, 1999 are anticipated to be approximately $2.8
million, $1.9 million, $900,000 and $200,000 for the remaining nine months of
1999 and for 2000, 2001 and 2002. In addition to these charges, we expect to
record an additional $4.4 million of deferred stock compensation in April and
May 1999, which will be amortized over the vesting periods of the related
options.
In February 1998, AdForce acquired StarPoint Software, Inc., principally
by exchanging AdForce shares for StarPoint shares. We accounted for this
transaction as a purchase with a total purchase price of $4.1 million. The
purchase price was primarily allocated to intangible assets, including purchased
technology of $2.6 million, personnel-related assets of $740,000, and goodwill
of $609,000, which are being amortized over the respective lives of those
assets, and in-process technology of $100,000 that was expensed at the time of
the acquisition. Amortization charges of $1,329,000 related to this purchase
were recognized during 1998, and further amortization charges of $1,446,000,
$1,107,000 and $66,000 are expected to be recognized in 1999, 2000 and 2001.
We incurred net losses of $3.5 million for the period from January 16,
1996 (inception) to December 31, 1996, $5.7 million for the year ended December
31, 1997, $15.6 million for year ended December 31, 1998, and $5.0 million for
the three months ended March 31, 1999. As of March 31, 1999, our accumulated
deficit was $29.8 million. We expect to continue to incur significant operating
expenditures, and capital expenditures of at least $9.0 million, for the
remainder of 1999. As a result, we will need to generate significantly greater
revenue than we have generated to date to achieve and maintain profitability. In
addition, our operating costs are relatively fixed, and cannot be quickly
lowered even if we fail to generate significant revenue. Although we have
experienced significant growth in revenue in recent periods, we expect the
growth rate to decline substantially. We expect to continue to incur net losses
on a quarterly and annual basis for at least the next two years.
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RESULTS OF OPERATIONS
The following table shows for the periods presented the dollar amounts
of selected line items from our unaudited statements of operations and also
shows these dollar amounts as a percentage of net revenue for those periods.
Figures below are rounded to the nearest whole percentage, and thus line items
representing subtotal and total percentages may differ, due to rounding, from
the sum of the percentages for each line item.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1998 1998 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net revenue............................ $ 414 $ 784 $ 1,064 $ 2,024 $ 3,220
Cost of revenue:
Data center operations............... 709 1,235 1,044 1,451 1,915
Amortization of intangible assets and
deferred stock compensation........ 191 295 301 313 369
----------- ----------- ----------- ----------- -----------
Total cost of revenue.............. 900 1,530 1,345 1,764 2,284
----------- ----------- ----------- ----------- -----------
Gross profit (loss).................... (486) (746) (281) 260 936
Operating expenses:
Research and development............. 818 972 1,241 1,634 2,244
Marketing and selling................ 613 1,221 1,389 1,640 1,773
General and administrative........... 390 453 509 487 615
Amortization of intangible assets and
deferred stock compensation........ 193 601 584 1,471 1,234
----------- ----------- ----------- ----------- -----------
Total operating expenses........... 2,014 3,247 3,723 5,232 5,866
----------- ----------- ----------- ----------- -----------
Loss from operations................... (2,500) (3,993) (4,004) (4,972) (4,930)
Interest income (expense), net......... (103) (77) 37 (8) (73)
----------- ----------- ----------- ----------- -----------
Net loss............................... $ (2,603) $ (4,070) $ (3,967) $ (4,980) $ (5,003)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
<CAPTION>
AS A PERCENTAGE OF NET REVENUE
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenue............................ 100% 100% 100% 100% 100%
Cost of revenue:
Data center operations............... 171 158 98 72 59
Amortization of intangible assets and
deferred stock compensation........ 46 38 28 15 11
----------- ----------- ----------- ----------- -----------
Total cost of revenue.............. 217 195 126 87 71
----------- ----------- ----------- ----------- -----------
Gross margin........................... (117) (95) (26) 13 29
Operating expenses:
Research and development............. 198 124 117 81 70
Marketing and selling................ 148 156 131 81 55
General and administrative........... 94 58 48 24 19
Amortization of intangible assets and
deferred stock compensation........ 47 77 55 73 38
----------- ----------- ----------- ----------- -----------
Total operating expenses........... 486 414 350 258 182
----------- ----------- ----------- ----------- -----------
Loss from operations................... (604) (509) (376) (246) (153)
Interest income (expense), net....... (25) (10) 3 -- (2)
----------- ----------- ----------- ----------- -----------
Net loss............................... (629 )% (519 )% (373 )% (246 )% (155 )%
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
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NET REVENUE
We experienced revenue growth in each quarter of 1998 and the first
quarter of 1999. When compared to the immediately preceding quarter, quarterly
net revenue grew by 97%, 89%, 36%, 90% and 59% during the first, second, third
and fourth quarters of 1998 and the first quarter of 1999. The increases in net
revenue for all periods presented were primarily due to increases in the volumes
of ads that we delivered on behalf of our customers, partially offset by
declines in the average rates charged for delivering those ads. The ad volume
increases resulted from both the addition of new customers and the growth in ad
volumes experienced by many of our existing customers as the market for Internet
advertising increased. The declines in average rates charged were primarily the
result of competitive pricing pressure and lower rates charged to higher-volume
customers. In 1998, we added several large customers with significant ad
volumes. We expect pricing pressure from competitors and discounts related to
large-contract pricing to continue for at least the next several quarters.
The growth in net revenue between the first and second quarters of 1998
was due primarily to increased ad volumes delivered for 24/7 Media and, to a
lesser extent, to significant ad volume increases from Fortune City and several
new ad agency and Web site customers. The growth in net revenue between the
second and third quarters of 1998 was largely due to the revenue contribution of
GeoCities, which became a customer in late June 1998, and of ad agencies and
other Web sites that became customers during the third quarter. The increase in
net revenue from these customers in the third quarter was partially offset by a
decline in net revenue from 24/7 Media, as it moved a portion of its ad volume
from our systems to its own proprietary server. The revenue growth rate from the
second to the third quarter was significantly less than the revenue growth rate
in previous quarters as we encountered issues in transitioning GeoCities from
its own on-site ad server to our service, AdForce for Publishers, causing them
to revert to their existing on-site ad server for the month of August 1998. The
issues were resolved and GeoCities resumed using our centralized service in
September 1998. As a result, our quarterly revenue growth rate in the fourth
quarter returned to earlier levels. The growth in net revenue between the third
and fourth quarters of 1998 was due to significantly greater net revenue from
GeoCities, from 24/7 Media as it began to move ad volume from its proprietary
server back to the AdForce service, and from Netscape and other customers.
Although Netscape became a customer in the first quarter of 1998, it did not
generate significant revenue for us until the fourth quarter of 1998. The growth
in net revenue between the fourth quarter of 1998 and the first quarter of 1999
was due to increases in revenue from 24/7 Media, Netscape, Adsmart and MapQuest.
The increases in revenue were the result of increased ad volumes. The increase
in ad volumes was partially offset by a decrease in the average rate charged to
deliver 1,000 ads. We expect that future revenue growth, if any, will not be as
dramatic as in recent periods. 24/7 Media has stated that it is currently
developing a next generation ad delivery technology that is intended to serve as
its sole ad delivery solution. It has also stated that, unless and until the
development of and transition to its own ad delivery technology is complete, it
will be primarily dependent on us to deliver ads to its networks and Web sites.
Our net revenue increased from $320,000 in 1997 to $4.3 million in 1998,
and was $3.2 million in the first quarter of 1999. We had no revenue in 1996.
The increases in net revenue were primarily due to the increased number of ads
that we served on behalf of our customers, offset in part by a decline in the
average rates charged for serving these ads. The increase in ad volume resulted
both from the addition of new customers and from increasing ad volumes for
existing and new customers. The decline in the average rates charged resulted
from significant pricing pressure from competitors and volume-based pricing
discounts.
Our net revenue increased from $414,000 in the first quarter of 1998 to
$3.2 million in the first quarter of 1999. This increase in net revenue was
primarily due to the increased number of ads that we delivered on behalf of our
customers, offset in part by a decline in the average rates charged for
delivering these ads. The increase in ad volume resulted both from the addition
of new customers and from
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increasing ad volumes for existing and new customers. The decline in the average
rates charged resulted from significant pricing pressure from competitors and
lower rates charged to higher-volume customers.
GROSS PROFIT (LOSS)
Gross margin increased sequentially from negative 117% in the first
quarter of 1998 to negative 95% in the second quarter of 1998 to negative 26% in
the third quarter of 1998 to positive 13% in the fourth quarter of 1998 and to
positive 29% in the first quarter of 1999. Although our average rates charged
declined during 1998 and the first quarter of 1999 as a result of competition
and discounts to customers with large ad volumes, our average cost to manage and
deliver ads declined at a faster pace. Our average cost to manage and deliver
each ad is significantly influenced by ad volume moving through our system. When
a larger number of ads is delivered, the average cost to deliver each ad
declines. In addition, a portion of our research and development efforts is
devoted to more efficient design and deployment of capital assets used in
managing and delivering ads. As the results of these efforts are integrated into
the AdForce system, we expect fewer resources will be required to deliver the
same number of ads and the average cost to deliver each ad will generally
decline, although on a quarterly basis these costs may fluctuate. In April 1999,
we opened our second data center to provide additional capacity and operational
redundancy. The expenses associated with operating this second data center will
increase cost of revenue, and, as such, will have a negative impact on gross
margin in future periods.
Total cost of revenue primarily consists of capital asset costs,
telecommunications costs, facilities costs and personnel-related costs incurred
to operate our data center. It also includes non-cash charges for amortization
of deferred stock compensation to data center personnel who received options
with exercise prices below the fair market value of the underlying shares on the
date of grant, as well as charges for amortization of an intangible asset
acquired in the purchase of StarPoint. The related intangible asset was
technology that has been deployed in our ad delivery system. This asset is being
amortized over its estimated useful life of three years.
Our gross margin was negative 371% in 1997, negative 29% in 1998 and
positive 29% in the first quarter of 1999. The improvement in gross margin from
1997 to 1998 to the first quarter of 1999 was primarily due to increased revenue
resulting from increased ad volumes and an improved technology infrastructure
that allowed us to deploy our resources to deliver ads more efficiently. These
efficiency improvements were offset in part by declining average rates charged
to our customers.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses consist primarily of personnel and
related costs associated with developing technology, primarily software, for use
in providing our services to customers. These expenses increased sequentially
each quarter from the first quarter of 1998 to the first quarter of 1999, as
personnel were added to enhance the features and performance of our services. In
the fourth quarter of 1998 and the first quarter of 1999, we also incurred
consulting costs in connection with a review of our technology to identify
potential ways to enhance future performance and reliability. Our research and
development expenses were $1.6 million in 1996, $2.2 million in 1997, $4.7
million in 1998 and $2.2 million in the first quarter of 1999. These expenses
increased primarily as a result of growth in the number of research and
development employees and, to a lesser extent, as a result of increases in
capital assets and facility expenses incurred to develop the software used to
deliver ads. We expect our research and development expenses to increase in
absolute dollars over the next several quarters.
MARKETING AND SELLING EXPENSES
Our marketing and selling expenses during 1998 and the first quarter of
1999 consisted primarily of personnel and related costs, as well as costs for
promotional activities associated with raising brand awareness. In 1998 and the
first quarter of 1999, marketing and selling expenses increased across all
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quarters presented, reflecting our decision, late in the fourth quarter of 1997,
to establish a direct sales force and to increase brand awareness through
marketing efforts. As a result, we significantly increased the number of our
sales and marketing employees and our promotional events, and greatly expanded
our capital asset base and facilities dedicated to marketing and selling
activities. We incurred no direct selling expenses in 1996 or in 1997, and our
marketing expenses in those periods consisted primarily of personnel and related
costs for the indirect marketing of our services. In 1996, $954,000 of marketing
expenses represented payments for key word rights on certain Web sites under a
marketing plan that was abandoned late in 1996.
Our marketing and selling expenses were $1.5 million in 1996, $1.1
million in 1997, $4.9 million in 1998 and $1.8 million in the first quarter of
1999. The decline in marketing and selling expenses from 1996 to 1997 was
primarily the result of the absence in 1997 of expenses related to key word
rights that was recorded in 1996. The increase in marketing and selling expenses
from 1997 to 1998 to the first quarter of 1999 resulted primarily from our
decision late in the fourth quarter of 1997 to establish a direct sales force
and to increase market awareness through substantial marketing efforts. We
expect our marketing and selling expenses to increase in absolute dollars over
the next several quarters.
GENERAL AND ADMINISTRATIVE EXPENSES
Our general and administrative expenses consist primarily of personnel
and related costs associated with providing executive, financial and legal
support to AdForce, in addition to other costs typically associated with
providing corporate infrastructure. General and administrative expenses
increased in each of the first three quarters of 1998, reflecting increases in
personnel and related costs. In the third quarter of 1998, a $59,000 charge was
made to general and administrative expenses in connection with the settlement of
a claim made by a former officer of AdForce. Since no similar charge occurred in
the fourth quarter, general and administrative expenses were lower in the fourth
quarter of 1998 than in the third quarter of 1998. General and administrative
expenses in the first quarter of 1999 were higher than those in the first
quarter of 1998. Our general and administrative expenses were $337,000 in 1996,
$1.1 million in 1997, $1.8 million in 1998 and $615,000 in the first quarter of
1999. These increases were primarily the result of increased personnel and
infrastructure to address the requirements of increased business volume. We
expect our general and administrative expenses to increase in absolute dollars
over the next several quarters.
AMORTIZATION OF INTANGIBLE ASSETS AND DEFERRED STOCK COMPENSATION
In each of the four quarters of 1998 and in the first quarter of 1999,
we recognized expense for the amortization of deferred stock compensation to
personnel who had been granted options with an exercise price deemed to be below
the fair market value of the underlying common stock on the date of grant for
financial reporting purposes. In connection with our acquisition of StarPoint in
February 1998, intangible assets are being amortized to operations over the
lives of those assets. In addition, approximately $100,000 of the initial
consideration was allocated to the value of purchased in-process technology.
This purchased in-process technology had not achieved technological feasibility
at the time of the acquisition and, therefore, did not qualify for
capitalization under generally accepted accounting principles. Accordingly, the
portion of the purchase price allocated to purchased in-process technology was
charged to operations in the first quarter of 1998.
INTEREST EXPENSE, NET
Interest expense, net was $69,000 in 1996, $108,000 in 1997, $151,000 in
1998 and $73,000 in the first quarter of 1999. In each period, interest expense
resulted primarily from interest on bridge financings and capital equipment
leases, offset in part in 1997, 1998 and the first quarter of 1999 by interest
income earned on cash balances resulting from equity and capital lease
financings.
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FLUCTUATIONS IN RESULTS OF OPERATIONS
Our quarterly results of operations have varied in the past, and you
should not rely on quarter-to-quarter comparisons of our results of operations
as an indication of our future performance. It is likely that in future periods
our results of operations will be below the expectations of public market
analysts and investors. In this event, the price of our common stock would
likely decline. Our revenue and results of operations depend on a variety of
factors, many of which are beyond our control. These factors include:
- the timing and costs of improvements in our ad management and delivery
infrastructure, including the addition of more capacity;
- our ability to satisfy and retain our existing customers;
- any loss of existing customers due to consolidation in the industry;
- the ability of our existing customers to maintain or increase their
Internet traffic or market share;
- our ability to expand our customer base and the timing of new
customers commencing service with us;
- changes in our pricing policies or those of our competitors resulting
from competitive pressures;
- our ability to provide reliable and scalable service, including our
ability to avoid potential system failures;
- the announcement or introduction of new technology or services by us
or our competitors, including database marketing capabilities;
- seasonal trends in our business; and
- general economic and market conditions.
We anticipate making significant capital expenditures as we increase the
capacity and reliability of our existing technology infrastructure and data
center. We also intend to open additional ad management and delivery centers in
the future. The addition of these centers may increase the average cost to
deliver ads. In addition, we intend to increase our sales and marketing
operations and to continue to allocate a large portion of our budget for
research and development. We would likely be unable to adjust spending quickly
enough to offset any unexpected revenue shortfall. If we have a shortfall in
revenue in relation to our costs and expenses, then our business and quarterly
and annual results of operations would be materially and adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily from sales of
preferred stock and capital lease financings and, to a significantly lesser
extent, net proceeds from the issuance of notes payable and proceeds from sales
of common stock.
Net cash used in operating activities was $2.3 million in 1996, $5.6
million in 1997, and $9.6 million in 1998. Net cash provided by operating
activities was $348,000 in the first quarter of 1999. In each annual period,
cash used in operating activities resulted primarily from our net loss, offset
partially by non-cash charges for depreciation and amortization and, in 1998,
also offset partially by amortization of intangible assets and deferred stock
compensation. In the first quarter of 1999, cash provided by operating
activities resulted primarily from increases in deferred revenue and accounts
payable. The increase in deferred revenue was due to a cash prepayment by a
large customer for ad management and delivery services to be provided while the
increase in accounts payable related to the general increase in business
volumes, as well as increased payables to outside professional service providers
related to our initial public
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<PAGE>
offering. Net cash used in investing activities was $1.4 million in 1996,
$163,000 in 1997, $1.2 million in 1998 and $343,000 in the first quarter of
1999. In each period, net cash used in investing activities was primarily the
result of capital expenditures for equipment used in operating our primary data
center from which ads are managed and delivered.
Net cash provided by financing activities was $4.3 million in 1996, $6.7
million in 1997, $19.1 million in 1998. Net cash used in financing activities
was $323,000 in the first quarter of 1999. In 1996, net cash provided by
financing activities resulted primarily from net proceeds from the issuance of
preferred stock and notes payable. In 1997, net cash provided by financing
activities resulted primarily from net proceeds from the issuance of preferred
stock and proceeds from a sale-leaseback transaction. In 1998, net cash provided
by financing activities resulted primarily from net proceeds from the issuance
of preferred stock and notes payable, offset slightly, by principal payments on
capital lease obligations. In the first quarter of 1999, cash used in financing
activities was the result of payments on capital lease obligations, partially
offset by proceeds received from the issuance of common stock.
At March 31, 1999, our principal sources of liquidity were $9.7 million
of cash and cash equivalents and $2.8 million of availability under an equipment
lease line. At that date, we had commitments of $132,000 for capital
expenditures. These commitments are primarily related to equipping a second data
center and to existing facilities expansion. We expect capital expenditures to
be approximately $9.0 million through the remainder of 1999 and at least $14.0
million in 2000. These expenditures will be primarily for computer hardware and
software, office furniture and equipment, and leasehold improvements. A
significant portion of the equipment may be acquired under capital leases. At
March 31, 1999, we had minimum lease payment obligations, including interest, of
$9.1 million under capital leases and $11.6 million under operating leases. We
will also have to pay America Online quarterly fees totaling at least $10.0
million for the first three years after they give us access to demographic data
specified in our demographic data agreement with America Online. We are
uncertain as to when, if ever, the demographic data may be made available to us.
We believe that our existing cash and cash equivalents, and the net
proceeds from this offering will be sufficient to fund our operating activities,
capital expenditures and other obligations for at least the next 12 months.
However, if we are not successful in raising capital when we need it and on
terms acceptable to us, it could have a material adverse effect on our business,
results of operations and financial condition. If additional funds are raised
from the issuance of equity securities, the percentage ownership of our
stockholders would be reduced.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
issued SOP No. 98-1, "ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR
OBTAINED FOR INTERNAL USE." SOP No. 98-1 requires entities to capitalize costs
related to internal-use software once specified criteria have been met. We
adopted SOP No. 98-1 beginning January 1, 1999. The adoption of SOP No. 98-1 did
not have a material impact on our financial position or results of operations.
In April 1998, the AICPA issued SOP No. 98-5, "REPORTING ON THE COSTS OF
START-UP ACTIVITIES." SOP No. 98-5 requires that all start-up costs related to
new operations must be expensed as incurred. In addition, all start-up costs
that were capitalized in the past must be written off when SOP No. 98-5 is
adopted. We adopted SOP No. 98-5 beginning January 1, 1999. The adoption of SOP
No. 98-5 did not have a material impact on our financial position or results of
operations.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES." SFAS No. 133 establishes methods for
derivative financial instruments and hedging activities related to those
instruments, as well as other hedging activities. We will be required to
implement SFAS No. 133 for the year ending December 31, 2000. Because we do not
currently hold any derivative instruments and do not
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engage in hedging activities, we do not expect that the adoption of SFAS No. 133
will have a material impact on our financial position or results of operations.
YEAR 2000 COMPLIANCE
Many computer systems and software products are coded to accept only two
digit entries in the date code field. These date code fields will need to accept
four-digit entries to distinguish between 21(st) century and 20(th) century
dates. As a result, many companies' software and computer systems may need to be
upgraded or replaced to comply with these Year 2000 requirements.
In the ordinary course of our business, we have evaluated the internally
developed software included in our ad management and delivery system, and
believe that this software is generally Year 2000 compliant, meaning that the
use or occurrence of dates on or after January 1, 2000 will not materially
affect the performance of this software or the ability of this software to
correctly create, store, process and output data involving dates. In the third
quarter of 1999, we intend to implement internal Year 2000 testing procedures
for our software, and we may learn that our software does not contain all of the
necessary software routines and codes necessary for the accurate calculation,
display, storage and manipulation of data involving dates. We expect the costs
associated with these testing procedures to be approximately $250,000. We have
warranted to some of our customers that Year 2000 compliance issues will not
adversely affect the performance of our ad management and ad delivery services.
If our customers experience Year 2000 problems with our services, they could
assert claims against us for damages. Our standard service agreements provide
performance warranties, and we may need to incur costs to address Year 2000
problems that our customers encounter through the use of our services. To date
we have not received any Year 2000 related claims regarding our services.
We are also working with our external suppliers and service providers
with respect to both third-party applications in our ad management and delivery
system and third-party applications in our information technology infrastructure
to ensure that these third-party systems and applications will be able to
interoperate with our hardware and software infrastructure where necessary and
support our needs into the year 2000. We typically use industry-standard
third-party hardware and software. Where possible, we have sought assurances
from our suppliers that we believe are critical to our business that their
products are Year 2000 compliant. While we have received assurances as to the
Year 2000 compliance of some of these third-party products, we generally do not
have any contractual rights with these providers if their software or hardware
fails to function due to Year 2000 issues. If these failures do occur, we may
incur unexpected expenses to remedy any problems, including purchasing
replacement hardware and software.
Though we will continue these efforts, we do not believe we have
significant Year 2000 issues within our systems or services. Because we believe
we are Year 2000 compliant, we have not engaged any third parties to
independently verify our Year 2000 readiness, nor have we assessed potential
costs associated with Year 2000 risks or made any contingency plans to address
these risks. Further, we have not deferred any of our ongoing development
efforts to address Year 2000 issues. However, unanticipated costs associated
with any Year 2000 compliance may exceed our present expectations, which could
materially and adversely affect our quarterly and annual results of operations.
We depend on the uninterrupted availability of the Internet
infrastructure to conduct our business as a centralized ad delivery and
management service. We also rely on the continued operations of our customers,
in particular Web sites hosting advertisements, for our revenue. We are heavily
dependent upon the success of Year 2000 compliance efforts of the many service
providers that support the Internet, and the Year 2000 compliance efforts of our
customers. Interruptions in the Internet infrastructure affecting us or our
customers, or failure of the Year 2000 compliance efforts of one or more of our
customers, could materially and adversely affect our ability to generate
revenue. The purchasing patterns of advertisers and agencies could be affected
by Year 2000 issues as companies expend significant resources to correct their
current systems for the year 2000; these expenditures may result in reduced
funds available for Internet advertising, which could in turn materially and
adversely affect our ability to generate revenue.
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BUSINESS
OVERVIEW
AdForce is a leading provider of centralized, outsourced ad management
and delivery services on the Internet. Our highly reliable, scalable technology
infrastructure and data centers currently deliver up to 210 million ads per day.
Our services, AdForce for Advertisers and AdForce for Publishers, offer
sophisticated ad campaign design, inventory management, targeting, delivery,
tracking, measuring and reporting capabilities. Our technology infrastructure
and services leverage the advantages of Internet advertising and direct
marketing and allow our customers to:
- Reach large or targeted audiences across multiple Web sites on our
common platform;
- Maximize return on advertising investments for advertisers and ad
agencies;
- Maximize the value of page view inventories for Web sites and ad rep
firms;
- Monitor and measure the effectiveness of ad campaigns;
- Modify ad campaigns based on campaign performance data;
- Aggregate large numbers of sites into a single network and segment the
network into groups of special interest content such as sports or
finance; and
- Take advantage of direct marketing opportunities using sophisticated
targeting technologies supported by our large and growing database of
user information.
By outsourcing the technically complex and operationally demanding ad
management and delivery functions to AdForce, our customers can rely on our high
performance systems, technology and personnel while focusing on their own core
competencies.
During 1998, we delivered 13.6 billion ads with increasing quarterly ad
volumes of 0.9 billion, 1.6 billion, 3.2 billion and 7.9 billion. We delivered
13.2 billion ads in the first quarter of 1999. Our net revenue increased
sequentially from $414,000 in the first quarter of 1998 to $3.2 million in the
first quarter of 1999. Through relationships with key customers, including 24/7
Media, Adsmart, GeoCities, Netscape and ModemMedia.PoppeTyson, we have achieved
a broad reach over the Internet. According to Media Metrix, an Internet research
firm, in December 1998 AdForce served ads to approximately 58% of U.S. Internet
users.
INDUSTRY BACKGROUND
EMERGENCE OF THE INTERNET AS AN ADVERTISING MEDIUM
The Internet has emerged as an important mass medium for advertising and
direct marketing, communication and electronic commerce. International Data
Corporation, a firm specializing in online research and analysis, estimates that
Internet users numbered approximately 100 million in 1998 and will grow to more
than 320 million in 2002. Rapid expansion of the Internet has led to significant
growth in electronic commerce. IDC estimates that purchases of goods and
services over the Internet will increase from $32 billion in 1998 to $426
billion in 2002. Growth of the Internet generally and of electronic commerce in
particular has spurred traditional businesses to devote larger portions of their
marketing budgets to Internet advertising, and has prompted Internet and
electronic commerce companies to increase their spending on Internet
advertising. The Direct Marketing Association estimates that advertisers and
direct marketers spent approximately $284 billion in 1998 on all forms of media
in the United States, up from $264 billion in 1997. Growth in Internet
advertising and direct marketing during this period, though significantly
smaller in absolute dollars, outpaced the growth of traditional advertising and
direct marketing. Jupiter Communications, another online research firm,
estimates that spending on Internet advertising will grow from $1.9 billion in
1998 to $7.7 billion in 2002, while the DMA estimates that spending on Internet
direct marketing will grow from $603 million in 1998 to $5.3 billion in 2003.
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ADVANTAGES OF INTERNET ADVERTISING AND DIRECT MARKETING
The Internet offers significant advantages over traditional media as a
medium for advertising and direct marketing. We believe that the advantages
described below will lead advertisers to continue to increase spending on
Internet advertising and direct marketing.
ABILITY TO REACH LARGE OR TARGETED AUDIENCES. As a medium with no
geographic boundaries, the Internet enables advertisers to reach large audiences
in the U.S. and internationally. The Internet also affords advertisers the
opportunity to target ads to specific geographic regions, to specific interest
groups by targeting multiple Web sites with specific characteristics, and to
consumers with specific demographic profiles.
INTERACTIVITY. Unlike the broadcast model of traditional media, the
Internet is a truly interactive mass medium. Advertisers can receive immediate
feedback on the effectiveness of their ad campaigns and can complete sales
online. Advertisers can control the number of times a user sees an ad, rotate
ads in sequence for that user and build highly accurate user profiles through
transaction information, registration procedures and anonymous matching
techniques.
ABILITY TO TRACK, MONITOR AND MEASURE ADVERTISING EFFECTIVENESS. The
Internet allows advertisers to track, monitor and measure the effectiveness of
their ad campaigns, and provides the flexibility to control those campaigns
while the campaign is being delivered. Advertisers can measure the number of
times a user views a particular ad, how often the user responds or clicks
through to that ad and ultimately makes a purchase or other transaction, and
various characteristics of the user. Based on this data, advertisers can modify
ad messages and placement quickly and efficiently to maximize ad campaign
effectiveness, resulting in higher response rates. For this reason, Internet
advertising provides advertisers the potential to achieve returns on their
investments that are higher than returns currently achievable through
traditional media.
GREATER FLEXIBILITY AND REDUCED COSTS. Internet ad campaigns typically
are less time-consuming, less expensive and easier to produce than advertising
in traditional media. This allows Internet advertisers to cost-effectively
launch ad campaigns on short notice in response to specific needs or events. In
addition, once an ad campaign is launched, advertisers can easily and
inexpensively change its content, scope and frequency of delivery in response to
feedback in order to ensure that an effective message is delivered to consumers.
CHALLENGES OF MANAGING AND DELIVERING EFFECTIVE INTERNET ADVERTISING
The dynamic nature and rapid growth of the Internet are steadily
increasing the challenges and infrastructure requirements of delivering
effective advertising.
DISAGGREGATED NATURE OF THE INTERNET. The large number of Web sites and
the dispersed nature of the Internet audience make it difficult for advertisers
and ad agencies to identify and target specific customer segments with specific
ad campaigns. Advertisers and ad agencies often need to book ad campaigns across
hundreds of Web sites to obtain the necessary reach, number of ad impressions
and target audience. This complex and labor-intensive process includes
identifying Web sites with specific characteristics, understanding their
technical capabilities and contractual terms, identifying their available
inventory of desired page views, preparing their Web pages to accept the proper
ads, reserving and delivering ads, and tracking results. In addition, Web sites
operating an ad server independently from a network of other Web sites typically
find that they do not generate enough data from their own users to build an
effective database of Web users and their response patterns that would enable
sophisticated ad targeting.
COMPLEX, RAPIDLY CHANGING TECHNOLOGY. Delivering and tracking hundreds
of ad campaigns, with response times measured in milliseconds, to millions of
Internet users who click through to thousands of Web sites requires complex
networking, computing, applications and database technologies. In addition, as
browser vendors upgrade their software, advertisers pursue richer forms of
Internet advertising
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incorporating sound, motion and other advanced features. As other interdependent
technologies evolve, a delivery system must be updated continually to
accommodate the rapid pace of technological change.
SIGNIFICANT OPERATING COSTS AND REQUIREMENTS. Developing, building,
operating and maintaining an ad management and delivery system is costly and
time-consuming. It requires one or more large, complex data centers with
multiple network connections and back-up capabilities. Further, to maintain
reliable performance 24 hours a day, seven days a week, these systems must be
maintained around the clock by highly-specialized operations personnel. For most
advertisers, ad agencies, Web sites and ad rep firms, these operating burdens
create a substantial diversion of investment from their core competencies.
RAPID GROWTH OF WEB SITES. Successful Web sites are experiencing rapid
growth in the number of pages and ads they deliver, with larger portal Web sites
delivering hundreds of millions of ads per day. Increasing ad management and
delivery capabilities at these Web sites requires significant investment in
technology operations infrastructure. The failure to develop a scalable solution
can limit revenue growth for these Web sites.
TRUSTED REPORTING AND RESULTS. Unlike traditional broadcast media,
Internet ads are delivered to individuals one ad at a time. For this reason,
Internet advertising campaigns are typically measured and billed by the exact
number of ad impressions delivered and, in many cases, the exact number of
click-throughs or transactions that result. Advertisers, ad agencies and other
parties prefer third-party verification of ad delivery results to use as a basis
for determining ad campaign costs and effectiveness.
PRIVACY. The use of more precise targeting capabilities by Internet
advertisers will increase the challenges of preserving user privacy. Technology
advancements, strategic partnerships and evolving business practices will be
required to balance privacy concerns with the demand for more precise targeting
capabilities.
NEED FOR A CENTRALIZED, OUTSOURCED INTERNET ADVERTISING AND DIRECT MARKETING
SOLUTION
The rapid growth of the Internet as an advertising medium has made the
management and delivery of effective advertising and direct marketing extremely
important for advertisers, ad agencies, Web sites and ad rep firms. Because of
the significant technical, operational and resource challenges of ad management
and delivery, and the need to aggregate both users and data, we believe there is
a need for an outsourced, centralized Internet advertising and direct marketing
technology infrastructure provider that delivers the unique advantages of
Internet advertising while allowing advertisers, ad agencies, Web sites and ad
firms to focus on their core competencies. This infrastructure must provide high
performance and advanced functionality and be highly reliable and readily
scalable.
THE ADFORCE SOLUTION
We provide the technology infrastructure and services that we believe
advertisers, ad agencies, Web sites and ad rep firms need to exploit the
advantages of Internet advertising and direct marketing. Our turnkey solutions
for advertisers, ad agencies, Web sites and ad rep firms offer sophisticated ad
campaign design, inventory management, targeting, delivery, tracking, measuring
and reporting capabilities built on our technology platform. Our outsourced
services and infrastructure allow our customers to focus on their core
competencies, while leveraging our systems for quick time-to-market, low entry
and maintenance costs, reliability and scalability. During 1998, we delivered
13.6 billion ads with increasing quarterly volumes of 0.9 billion, 1.6 billion,
3.2 billion and 7.9 billion. We delivered 13.2 billion ads in the first quarter
of 1999. To date, we have increased our 30-day ad impression rate to over 5.6
billion, with per day volumes of up to 210 million. Our key Web site customers
include GeoCities and Netscape, our key ad rep firm customers include 24/7 Media
and Adsmart, and our key ad agency customers include ModemMedia.PoppeTyson.
According to Media Metrix, an Internet research firm, in December 1998 AdForce
served ads to approximately 58% of U.S. Internet users.
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BENEFITS FOR ADVERTISERS AND AD AGENCIES
- AdForce for Advertisers enables advertisers and ad agencies to
schedule, target, manage and deliver ad campaigns efficiently across
the entire Internet. Advertisers and ad agencies are able to track and
monitor ad campaign results using our data reporting and analysis
capabilities. Our measuring of ads delivered, which results in
advertising billings, is audited by a third party to ensure that
advertisers and ad agencies can have confidence in our results.
- The user interface of AdForce for Advertisers, which is installed on
our customers' personal computers, permits communications with our
systems over the Internet and assists advertisers and ad agencies in
the media planning process. Through this interface, advertisers and ad
agencies can build a schedule for their campaigns by checking and
reserving Web site inventories, and then specifying the content,
targeting criteria and type of media, and the times at which and
frequency with which their ads should appear. Through this interface,
advertisers and ad agencies also can monitor ongoing campaigns, and
adjust priorities or change ads to maximize the value of each ad
delivered.
- We store detailed information regarding every ad delivery in a manner
that allows broad and flexible reporting. In addition to
click-throughs, we track the activity of prospects who act on an ad by
making a purchase or completing a survey or registration form. This
information enables advertisers to track and measure the effectiveness
of a campaign and maximize its value. We offer numerous reports
covering various facets of an ad campaign with the ability to
consolidate data across multiple Web sites.
- Our services enable advertisers and ad agencies to utilize our large
and growing database to target ad campaigns using a wide variety of
criteria, increasing the value of their ad spending. In addition, our
strategic relationship with Experian will permit targeting through the
use of detailed consumer demographic data. We believe our targeting
capabilities allow advertisers and agencies to deliver ads that are
more relevant, less repetitious and more likely to match a particular
user's interests. These capabilities allow ad agencies to
differentiate themselves from their competitors, provide additional
services to their clients and create additional revenue opportunities.
- By relying on our outsourced solution and our technology
infrastructure, advertisers and ad agencies can focus on their core
competencies such as media planning, contract creation and direct
marketing.
BENEFITS TO WEB SITES AND AD REP FIRMS
- AdForce for Publishers provides the infrastructure that Web sites need
to maximize sales of advertising space, increase the value of their
page views, and differentiate themselves from their competition.
AdForce for Publishers also allows entities that operate multiple Web
sites and ad rep firms to aggregate multiple sites and pages within
sites into a single network. The network can then be subdivided based
on content to create special interest groups such as sports or finance
to maximize the value of a Web site's inventory.
- Our outsourced solution provides Web sites and ad rep firms the
advanced technology required for the complex processes of managing and
delivering Internet advertising. In addition, our outsourced solution
allows Web sites and ad rep firms to avoid the significant hardware,
software and personnel costs associated with site-specific software
services and to benefit from the scalability of our technology
infrastructure.
- Our inventory management system provides detailed reporting on current
and estimated future ad inventory. The system ensures that ad
campaigns are delivered evenly, smoothing the potential effects of
unexpected traffic increases. In addition, the system monitors each
active ad campaign, adjusting for differences in Web site traffic, to
ensure that ads are delivered as scheduled to achieve maximum yield
from a Web site's ad inventory. Because
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we enable Web sites and ad rep firms to track, monitor and measure ad
inventory consistently, our customers can sell more premium ad space.
- Our advanced targeting and reporting capabilities enable Web sites and
ad rep firms to maximize their advertising revenues by delivering to
their advertisers more valuable ad impressions that are more likely to
result in a click-through or other action.
- AdForce for Publishers allows ad rep firms to aggregate a number of
Web sites to measure and manage available inventory. In addition, our
services allow ad rep firms to schedule multiple campaigns across
multiple sites as simply as scheduling a single site.
STRATEGY
AdForce's objective is to be the primary technology and service
infrastructure for advertising and direct marketing on the Internet. Our
strategy consists of the following key elements:
ENHANCE AND EXPAND OUR CORE TECHNOLOGY. Our technology infrastructure
has enabled us to become a leading provider of centralized, outsourced
advertising and direct marketing services on the Internet. The ability of our
technology infrastructure to scale as Internet advertising has grown has been a
competitive advantage. In addition, by steadily increasing our ad volumes in
1998 and in the first quarter of 1999, we have been able to reduce the cost of
ad management and delivery. We intend to continue to invest heavily in research
and development activities to enhance the performance and functionality of our
core technology. In addition, we intend to continue to invest in enhancing the
reliability, scalability, performance and cost efficiency of our data center
infrastructure. We opened an additional data center in April 1999 that
significantly increases our ad delivery capacity. Our core technology has been
designed to facilitate developing new features and functionality. During the
remainder of 1999, we also plan to continue to develop new services and
capabilities for our customers.
LEVERAGE AND EXPAND CUSTOMER BASE. We seek to maintain, develop and
enhance existing and new revenue streams from our current customer base of ad
agencies, Web sites and ad rep firms, as well as revenue streams from new
customers. Our current customers, including 24/7 Media, Adsmart, GeoCities and
Netscape, substantially increased their Internet traffic during 1998, and we
expect our revenue from these customers will increase to the extent their Web
traffic continues to grow by continuing to provide them ad management and
delivery services. In addition to our recurring ad management and delivery
services, we anticipate developing additional sources of revenue by offering
advanced reporting, targeting and data analysis and by delivering ads featuring
audio, video and animation. We intend to attract and retain new customers by
promoting AdForce as the leading provider of outsourced advertising and direct
marketing services on the Internet, increasing our sales and marketing
activities and developing new services and leading technologies. To facilitate
this, we intend to continue promoting our services through online and
traditional advertising, an extensive public relations campaign, strategic
alliances and other promotional activities. As our network of customers grows,
we believe that our position as a primary provider of technology infrastructure
for ad management and delivery will be reinforced.
MAINTAIN NEUTRALITY. Our customers rely on us to provide accurate,
unbiased services and information. To fill this role as a trusted intermediary,
we believe it is essential that we not compete with our customers and avoid any
media bias. We provide the technology infrastructure to maximize the ad sales of
Web sites and ad rep firms. For this reason, we have avoided selling advertising
and putting ourselves in competition with our customers. In addition, we provide
the tools and infrastructure advertisers use to efficiently schedule and
effectively deliver complex campaigns on the Internet and to learn more about
their prospects and customers. We also avoid media buying or campaign or
creative development that would place us in competition with our existing and
potential customers. Instead, we are committed to continuing to develop the
AdForce brand to be synonymous with reliability, technical competence,
comprehensiveness and neutrality.
LEVERAGE DATABASE MARKETING CAPABILITIES. Our proprietary technology
infrastructure, substantial ad impression volumes and customer relationships
allow us to aggregate significant data regarding specific prospect and customer
behavior. This data is critical to developing a database of user profiles that
ad
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agencies and advertisers can use to target their ad campaigns. We intend to use
this data to provide additional database marketing services to our customers so
that advertisers are able to reach targeted audiences more effectively and Web
sites are able to provide a more valuable inventory. Leveraging our strategic
relationship with Experian, we intend to provide advanced targeting and database
marketing services to our customers based on demographic and lifestyle profiles
within the next 12 months. This demographic targeting will allow advertisers and
direct marketers to engage in relationship marketing by permitting them to
identify their audiences very specifically. In order to maintain a clear focus
on user privacy, we will substitute an encrypted code for all personally
identifiable information.
TARGET ADDITIONAL ADVERTISING MEDIA. As other forms of media such as
interactive television and addressable cable boxes converge with the Internet,
we may be able to build on our knowledge and technology in interactive
advertising solutions to penetrate these media. In addition, we believe much of
our industry expertise and developed technology may be transferable to more
traditional advertising media, such as newspaper, television, radio and cable,
that may benefit from centralized, outsourced ad management solutions.
SERVICES
We provide centralized, outsourced ad management and delivery services
that address the requirements of buyers and sellers of Internet advertising and
direct marketing. The buyers, primarily ad agencies, are served by AdForce for
Advertisers. The sellers, primarily Web sites and ad rep firms, are served by
AdForce for Publishers. We provide the following functions for our customers:
<TABLE>
<CAPTION>
<S> <C>
MEDIA PLANNING. Reflecting the media planner's workflow, AdForce for Advertisers organizes the
[LOGO] steps in planning and executing Internet advertising. Media planners can utilize in-house
databases or commercial third-party research to select Web sites and build a media plan.
CAMPAIGN SCHEDULING. Advertisers, ad agencies, Web sites and ad rep firms can use a Java client
[LOGO] application to create and schedule ad campaigns over the Internet. Our user interface helps users
build a campaign, allowing them to specify the schedule, content units, frequency and targeting
criteria, and then submit the ad for delivery. AdForce for Advertisers organizes campaigns to
reflect the typical workflow of an ad agency and transmits traffic instructions to many Web sites.
AdForce for Publishers allows Web sites and ad rep firms to view and manage all of the campaigns
running throughout their Web sites.
INVENTORY MANAGEMENT. Our automated inventory management system gives Web sites and ad rep firms
[LOGO] detailed information about current and future inventory, allowing them to sell available media
space more precisely. When an ad campaign is booked, the system uses historical data to forecast
available inventory for specified targets throughout the schedule and establishes the delivery
frequency for each group of ads. Automatically checking each ad campaign in progress, the system
regularly adjusts for variations in site traffic and updates available inventory while factoring
in other ad campaigns. Our system ensures that all ad campaigns are delivered on schedule, so Web
sites get maximum value for their inventory.
TARGETING. Serving ads from a central data center, we can employ more comprehensive targeting
[LOGO] databases than local ad servers. This allows us to offer more targeting options and far greater
targeting accuracy. Our customers can target campaigns using a range of criteria, including
domain/industry code, content area, keyword, geography, schedule and site-provided data. Our
advanced targeting capabilities enable Web sites to deliver valuable ad impressions for
advertisers, reaching the people who are most likely to respond to the ad. Web site visitors are
shown ads that are more relevant, less repetitious and more likely to match their interests.
</TABLE>
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<TABLE>
<CAPTION>
AD DELIVERY. Our ad delivery system delivers ads quickly, consistently, on schedule and on target.
[LOGO] Because we provide the technology infrastructure, our customers have no hardware, software,
networks or backup systems to purchase or maintain. Our scalable architecture handles millions of
decisions per second in order to deliver targeted ads. We have begun to deliver ads featuring
audio, video and animation to create a more compelling user experience. Our infrastructure offers
our customers built-in redundancy, the security of operating 24 hours a day, 7 days a week, and
the capacity to handle both traffic growth and fluctuations.
<S> <C>
TRANSACTIONS. Our transactions feature records user activities such as click-throughs, requesting
[LOGO] information, registering for a service or purchasing a product. The resulting data are made
available through reports that help Web sites demonstrate the effectiveness of campaigns on their
Web site and record their share of transactions generated by traffic on their Web site. The
resulting data also help advertisers and ad agencies interpret results and manage the
effectiveness of their campaigns.
REPORTING. We use detailed information accumulated from every ad delivered and consolidated across
[LOGO] multiple Web sites to provide our customers with dozens of accurate, timely reports. We ensure
that ad impressions are counted accurately, whether they are delivered from our data center, the
user's browser cache or a proxy server. Our reporting features provide Web sites and advertisers
with reports containing information they need in a readily usable format or in Microsoft Excel.
Advertisers and ad agencies can optimize ad campaigns for best results, and media planners can
adjust priorities, targeting criteria and ad rotation, or swap in new ads, to maximize the value
of campaigns in progress.
AUDITING AND ACCOUNTING. We provide audited statements that detail the number of ads delivered,
[LOGO] click-throughs and transactions for auditing and accounting purposes. ABC Interactive, a leading
Internet auditing service, provides a monthly audit of ads delivered and click-throughs that
enables us to provide a statement to each customer, ensuring greater accuracy and saving the
customer time. Our reports help automate and streamline billing operations by reducing the need
for manual data processing. All information required to generate invoices is available in a
readily usable format, exportable to Microsoft Excel and accounting software using a simple data
transfer.
ANALYSIS. Advertisers, ad agencies, Web sites and ad rep firms can use the information stored in
[LOGO] our data center to conduct post-campaign analysis of results, explore trends and examine
alternative scenarios. By integrating user profile information such as Voyager Profiles from
Millward Brown Interactive, a leading market research firm, we allow advertisers and ad agencies
to characterize users who viewed and responded to their ad campaigns and to improve future media
plans and their return on advertising spending. Web sites and ad rep firms can conduct analyses
that help them to increase their revenues from their Web traffic.
</TABLE>
PLANNED SERVICE ENHANCEMENTS
The primary service enhancements that we plan to implement in the next
12 months are:
ADFORCE TRACKING. We intend to continue to enhance user tracking
capabilities. While maintaining the anonymity and privacy of users, advertisers
will be able to track and record user activity related to ad campaigns. Using
this information, advertisers will be able to compare customer acquisition costs
using different ads on different sites and to track information such as the
value and frequency of purchases.
DEMOGRAPHIC TARGETING. We have been developing demographic targeting
capabilities and expect to make these capabilities available to advertisers, ad
agencies, Web sites and ad rep firms. Our targeting services will serve
dynamically targeted ads to users based on their demographic and lifestyle
profiles. User demographics will be identified by linking user cookies to known
demographic information with the
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user's permission. As part of our demographic targeting strategy, we will
maintain user privacy by substituting all personally identifiable information
with an encrypted code allowing us to match an Internet user anonymously to
existing demographic data. Demographic targeting will increase the value of
Internet marketing and allow marketers to reach their desired prospects more
readily, generating increased revenue for our customers and for us.
BANNER CO-OP SERVICE. Small Web sites and individual home page
publishers often trade ad impressions on their pages in return for promotional
advertising on other sites within an ad network or across the Internet. Home
page publishers typically have fewer of their ads served on the network than the
number of ads they serve on their home page, allowing the network owner to sell
the remaining inventory to earn revenue. We are developing a banner co-op
service that will enable ad networks and larger sites to provide home page
publishers the ability to serve ads on their home pages in exchange for
advertising space in the network or larger site. The banner co-op will leverage
our existing technology and infrastructure to provide a system capable of
handling over a million individual home page publishers and their ad campaigns.
TECHNOLOGY AND DATA CENTER OPERATIONS
Our ad management and delivery infrastructure employs advanced
technology and robust data centers to deliver ads 24 hours a day, 7 days a week,
for leading ad agencies, Web sites and ad rep firms.
THE ADFORCE AD MANAGEMENT AND DELIVERY SYSTEM
Our proprietary ad management and delivery system is divided into five
subsystems: ad management, campaign deployment, ad delivery, data analysis and
reporting. In building these subsystems, we have developed a significant amount
of proprietary software while also utilizing industry-standard hardware and
software and leading third-party technology wherever possible.
AD MANAGEMENT SUBSYSTEM. Our ad management subsystem consists of our
user application software, our inventory management system and an administrative
database. The user application software is loaded onto the customer's personal
computer and is used to communicate with our system over the Internet to design,
input, change and monitor ad campaigns and to request and receive reports.
Customers also use the user application software to validate their desired ad
campaigns against our inventory management system, a software engine that uses
proprietary algorithms to forecast available ad inventory on a given Web site or
in an AdForce-supported network, and to create daily ad campaign schedules.
Customer instructions delivered via the user application software are then
recorded in our administrative database for deployment by the campaign
deployment subsystem.
CAMPAIGN DEPLOYMENT SUBSYSTEM. Our campaign deployment subsystem
consists of a set of processes to transmit ad campaign schedules and ads from
the administrative database to the targeting database in the ad delivery
subsystem. These processes are run nightly and periodically during each day to
update schedule information and place new ad campaigns into production. Because
we are able to run these processes many times each day, customers can insert new
ad campaigns and change existing ad campaigns within an hour of our notifying
them.
AD DELIVERY SUBSYSTEM. The ad delivery subsystem consists of ad
delivery servers, ad selector servers and the targeting database. The ad
delivery servers handle ad requests coming in from the Internet, log those
requests into the data analysis subsystem for reporting purposes, and ask the ad
selector servers which ad should be served to the requesting user. The ad
selector servers choose the ads to be delivered to the particular user using a
patent-pending object-framework technology and by accessing information in the
targeting database. The ad selector servers provide that information to the ad
delivery servers, and the right ad is then served to the user.
DATA ANALYSIS SUBSYSTEM. The data analysis subsystem consists of
database and other applications for processing and storing transaction data
logged from the ad delivery servers. This information is then used by the
reporting subsystem and by our inventory management system. These data
repositories are also used for data mining and transaction correlation. Although
our database does not allow
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specific individuals to be individually identified, we have built and will
continue building consumer profiles using information compiled in these data
repositories to use in targeting ad campaigns.
REPORTING SUBSYSTEM. The reporting subsystem also has database and
processing applications that allow us to provide industry standard and custom
reports to our customers using data from the data analysis subsystem. Customers
access the reporting subsystem by logging requests with the administrative
database. We then make reports available to the customer through the user
application software or by e-mail.
DATA CENTER OPERATIONS
We deliver our services primarily from a central data center located at
our product development, operations and customer service and support facility in
Costa Mesa, California. This data center houses an extensive array of servers,
multiple databases, multiple terabytes of hard disk storage and routing
equipment connecting AdForce to the Internet using several fiber optic
providers. In April 1999, we moved our headquarters to and began operating our
second data center in a new facility in Cupertino, California.
We manage our system closely to ensure that we maintain excellent
performance and consistent ad delivery. Our system is self-monitored by
automated tools that measure system performance, including central processing
unit usage levels, disk usage, network and bandwidth usage, report processing
times and the response time of the system to ad requests. We also have
operations staff monitoring the system 24 hours per day, 7 days per week.
In building and maintaining our system, we have focused on reliability,
scalability, performance and operating cost. For reliability, we maintain
running standby servers for components within each subsystem so that a given
server can fail and the system itself will continue to function without
interruption. We use caching in the ad delivery subsystem to ensure ads will
continue to be served to our customers based on last available information even
if the back-end subsystems fail entirely. We have the backup power and
additional air conditioning needed for reliable data center operations, and use
multiple bandwidth network providers so that we have redundant capacity. We also
protect our data by using an off-site data backup service.
We aggressively increased the capacity of our system throughout 1998 and
in the first quarter of 1999 by adding additional servers and other equipment
within subsystems as needed, and by improving the performance of the subsystems
themselves. We are also continuing our development efforts to improve the
performance of components within each subsystem with a view to increasing
capacity and improving response times while reducing overall ad delivery costs.
KEY CUSTOMERS
We believe our continued success depends on establishing a broad
customer base within each of the primary categories of advertisers, ad agencies,
Web sites and ad rep firms. Our key customers include:
<TABLE>
<S> <C> <C>
AD AGENCIES WEB SITES AD REP FIRMS
- -------------------------- -------------------------- --------------------------
ModemMedia.PoppeTyson GeoCities 24/7 Media
USWeb Netscape Adsmart
VR Services MapQuest Euroserve-InterAd
Carat Freeman FortuneCity Adauction.com
Bozell Worldwide Encompass TVMV, Inc.
Netcom .tmc Ad Network
NHL.com
GoTo.com
Virtual Vegas
Spree.com
PGATOUR.com
</TABLE>
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We typically are the primary or sole ad management and delivery service
provider for our Web site customers. For example, we deliver through our system
all paid advertisements for GeoCities and the majority of paid advertisements
for Netscape. In addition to our direct Web site customers, we deliver ads on
hundreds of Web sites that our ad rep firm customers represent, including such
sites as AT&T, Reuters-Yahoo, Blizzard Entertainment and Earthlink, which are
customers of 24/7 Media, and Raging Bull, Free Real Time, Net Zero, College Club
USA, The Learning Channel, UBID, 123 Greetings and SecureTax, which are
customers of Adsmart. We also reach a wide variety of additional Web sites on ad
campaigns we manage and deliver for our ad agency customers.
During 1997, Petry Interactive and Katz Millenium, which are now part of
24/7 Media, accounted for 79% and 13% of net revenue. During 1998, 24/7 Media,
GeoCities and FortuneCity accounted for 40%, 16% and 11% of net revenue. During
the first quarter of 1999, 24/7 Media, Adsmart, GeoCities and Netscape accounted
for 23%, 21%, 20% and 12% of net revenue. Our business and quarterly and annual
results of operations would be materially and adversely affected by the loss of
any of these customers or any significant reduction in net revenue generated
from these customers. 24/7 Media has stated that it is currently developing a
next generation ad delivery technology that is intended to serve as its sole ad
delivery solution. It has also stated that, unless and until the development of
and transition to its own ad delivery technology is complete, it will be
primarily dependent on us to deliver ads to its networks and Web sites.
SALES AND MARKETING
Our primary sales strategy is to sell directly to leading Web sites,
large ad agencies and ad rep firms. We sell our services in the United States
through a 20-person sales and marketing organization. These employees are
located in northern and southern California, New York and northern Virginia. In
addition, we utilize the sales organizations of our ad rep firm customers to
provide our services to the Web sites they represent.
We will continue to focus our sales and marketing efforts on
establishing service relationships with large, high volume users of Internet
advertising such as 24/7 Media, Adsmart, GeoCities and Netscape. In addition, we
are increasingly targeting sales to ad agencies and intend to begin marketing to
advertisers within the next 12 months. We rely on our sales and marketing
organization, our senior management and our customer service personnel to
promote and sustain these relationships.
We use a variety of marketing programs to generate demand for our
products, build market awareness, develop customer leads and establish business
relationships. Our marketing activities include preparing market research and
collateral materials, determining market requirements, managing press coverage
and other public relations activities, identifying potential customers,
participating in trade events, seminars and conferences, and establishing and
maintaining close relationships with recognized industry analysts.
CUSTOMER SERVICE AND SUPPORT
We believe that a high level of customer service and support is critical
to the successful marketing and sale of our services. We have a comprehensive
professional organization that provides account management, technical support,
training and ongoing client services for our customers. Our customer service
personnel are available 24 hours a day, 7 days a week, to assist customers as
needed, and are currently located in California and New York. We plan to
establish additional service and support sites as needed.
COMPETITION
The market for Internet ad management and delivery services is extremely
competitive, and we expect this competition to increase in the future. We may be
unable to compete successfully, and competitive pressures may materially and
adversely affect our business and quarterly and annual results of operations.
Our ability to compete successfully in this market depends on many factors
within and beyond our control. Please see "Risk Factors--We May Not Compete
Successfully in the Market for Internet Ad Management and Delivery Services,
Which Would Adversely Affect Our Ability to Retain Our Existing
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Customers and to Attract New Customers" for a list of these factors. We
currently compete with providers of outsourced ad servers and related services,
including DoubleClick and MatchLogic, as well as providers of ad server software
and equipment services, such as NetGravity. Our principal competitor is
DoubleClick, which delivered over 8.0 billion ads in March 1999 as compared to
the 5.6 billion ads that we delivered in March 1999. Many of our current
competitors, including DoubleClick, have substantially greater capital
resources, more name recognition, more developed sales and marketing strategies,
and management teams that have a longer history of working together than we do.
Another principal source of competition is Web sites that use
internally-developed Internet advertising and direct marketing services. These
Web sites include America Online, one of our principal stockholders, and Yahoo!.
America Online has acquired Netscape, one of our major customers, and Yahoo! has
entered into an agreement to acquire GeoCities, another of our major customers.
Following these acquisitions, either Netscape or GeoCities, or both, might
transition their systems to the proprietary systems of their acquirors, which
would materially and adversely affect our business and quarterly and annual
results of operations. In addition, 24/7 Media, another of our major customers,
acquired its own ad management and delivery technology in 1998, and currently
uses this technology to serve a portion of its advertising needs. 24/7 Media has
stated that it is currently developing a next generation ad delivery technology
that is intended to serve as its sole ad delivery solution. It has also stated
that, unless and until the development of and transition to its own ad delivery
technology is complete, it will be primarily dependent on us to deliver ads to
its networks and Web sites. If 24/7 Media were to cease doing business with us
or enter into competition with us, it would materially and adversely affect our
business and quarterly and annual results of operations. Finally, a fourth major
customer, 2CAN Media, was recently acquired by Adsmart, a subsidiary of CMG
Investments. CMG Investments also owns Engage, which recently merged with
Accipiter, a supplier of ad server software and equipment services. If Adsmart
were to transition its business from us to Accipiter, it would materially and
adversely affect our business and quarterly and annual results of operations.
We may also encounter a number of potential new competitors that have
longer operating histories, greater name recognition, larger customer bases and
significantly greater financial, technical and marketing resources than we do.
These qualities may allow them to respond more quickly than we can to new or
emerging technologies and changes in customer requirements. It may also allow
them to devote greater resources than we can to the development, promotion and
sale of their products and services. These competitors might also engage in more
extensive research and development, undertake more far-reaching marketing
campaigns, adopt more aggressive pricing policies and make more attractive
offers to existing and potential employees, strategic partners, advertisers and
Web sites. If these companies were to enter the market, we might not be able to
compete against them effectively.
INTELLECTUAL PROPERTY
Our success and ability to compete are substantially dependent on our
internally developed technologies and trademarks, which we protect through a
combination of patent, copyright, trade secret and trademark laws. If our
proprietary rights are infringed by a third party, the value of our services to
our customers would be diminished and additional competition might result from
the third party's use of those rights, which would materially and adversely
affect our business and quarterly and annual results of operations. We have
filed two patent applications in the United States. In addition, we have applied
to register trademarks in the United States. We cannot assure you that our
patent applications or trademark registrations will be approved. Even if they
are approved, our patents or trademarks may be successfully challenged by others
or invalidated. If our trademark registrations are not approved because third
parties own these trademarks, our use of these trademarks would be restricted
unless we entered into arrangements with the third-party owners, which might not
be possible on reasonable terms.
Our technology collects and utilizes data derived from user activity on
the Internet. Although we believe that we generally have the right to use this
information and to compile it in our database, we cannot assure you that any
trade secret, copyright or other protection will be available for this
information. We also cannot assure you that any of our proprietary rights will
be viable or of value in the future since the validity, enforceability and scope
of protection of proprietary rights in Internet-related industries are uncertain
and still evolving. We believe that factors such as the technological and
creative skills of our
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<PAGE>
personnel, new service offerings, brand recognition and reliable customer
service are more essential to establishing and maintaining our technology
leadership position than the legal protection of our technology. There can be no
assurance that others will not develop technologies that are similar or superior
to our technology.
We generally enter into confidentiality or license agreements with our
employees, consultants and corporate partners, and control access to and
distribution of our technologies, documentation and other proprietary
information. Despite our efforts to protect our proprietary rights from
unauthorized use or disclosure, parties may attempt to disclose, obtain or use
our solutions or technologies. We cannot assure you that the steps we have taken
will prevent misappropriation of our solutions or technologies, particularly in
foreign countries where laws or law enforcement practices may not protect our
proprietary rights as fully as in the United States.
We have licensed, and we may license in the future, proprietary rights
to third parties. In particular, we have licensed our proprietary software to
America Online and Euroserve Media. In addition, before our acquisition of
StarPoint, StarPoint licensed its software to GeoCities and two other parties.
While we attempt to ensure that the quality of our brand is maintained by these
business partners, they may take actions that could materially and adversely
affect the value of our proprietary rights or our reputation. We cannot assure
you that these business partners will take the same steps we have taken to
prevent misappropriation of our solutions or technologies. Please see "Related
Party Transactions" for detailed information on our license to America Online.
Third parties may assert infringement claims against us or our
customers. We do not believe that our technological processes infringe the
proprietary rights of others, but we cannot assure you that third parties will
not assert claims that we violate their rights. In addition, we believe that we
have the right to use the user data we collect for our database, but we cannot
assure you that third parties will not assert claims that we violate their trade
secrets or copyrights. Although there has not been any claims of these types in
the past, any claims and resultant litigation, if they occur, could subject us
to significant liability for damages or could result in invalidation of our
rights. In addition, even if we were to prevail, litigation could be
time-consuming and expensive to defend and could result in diversion of our time
and attention, which could materially and adversely affect our business and
quarterly and annual results of operations. Any claims or litigation from third
parties might also result in limitations on our ability to use the trademarks
and other intellectual property subject to these claims or litigations unless we
entered into arrangements with the third parties responsible for the claims or
litigation, which might be unavailable on reasonable terms, if at all.
PRIVACY POLICY
We believe that issues relating to the privacy of Internet users and the
use of personal information about these users are critically important as the
Internet and its commercial use grow. We have adopted a detailed policy
outlining the permissible uses of information about users and the extent to
which such information may be shared with others. Our customers must acknowledge
and agree to this policy when registering to use our service. We do not sell or
license to third parties any personally identifiable information about users.
However, we do use information about users to improve marketing and promotional
efforts and to analyze usage patterns. We comply with all relevant privacy
initiatives in the industry, and we are a member of the TRUSTe program, an
independent non-profit organization that audits the privacy statements of Web
sites and their adherence to those privacy statements. Moreover, we have an
independent accounting firm regularly audit these privacy and business practices
to ensure compliance with all legal and industry accepted privacy standards.
EMPLOYEES
As of March 31, 1999, we had 109 employees, including 53 in engineering
and data center operations, 20 in sales and marketing, 20 in customer service
and support and 16 in general and administrative. Other than as described in
"Management--Employment Agreements and Severance Agreements," none of these
individuals has an employment agreement with us. We believe that we have good
relationships with our employees. We have never had a significant work stoppage,
and none of our employees is represented under a collective bargaining
agreement. We believe that our future success will
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depend in part on our ability to attract, integrate, retain and motivate highly
qualified technical and managerial personnel and upon the continued service of
our senior management and key technical personnel. Competition for qualified
personnel in our industry and geographical locations is intense, and there can
be no assurance that we will be successful in attracting, integrating, retaining
and motivating a sufficient number of qualified personnel to conduct our
business in the future.
FACILITIES
Our headquarters, including our principal administrative and marketing
facilities, are located in approximately 41,151 square feet of space we have
subleased in Cupertino, California, which includes a data center with a
fully-installed infrastructure. This sublease extends through April 2003. We
intend to sublet on a short-term basis approximately 40% of the office space in
our new Cupertino headquarters. Our principal data center, product development,
operations and customer service and support facilities are located in
approximately 18,362 square feet of office space in Costa Mesa, California; the
lease on this facility extends through April 2004. We believe our Cupertino and
Costa Mesa facilities will be adequate to meet our needs for at least the next
12 months. We have sales personnel in both California offices, and in a New York
City office of approximately 1,000 square feet. The lease for the New York
office expires in December 1999.
LEGAL PROCEEDINGS
We are not currently subject to any material legal proceedings. We may
from time to time become a party to various legal proceedings arising in the
ordinary course of our business.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table shows the name, age and position of each of our
executive officers and directors as of the date of this prospectus.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------- --- -------------------------------------------------------
<S> <C> <C>
Charles W. Berger............ 45 Chief Executive Officer, President and Chairman of the
Board
Harish S. Rao................ 57 Executive Vice President, Development and Operations
John A. Tanner............... 41 Executive Vice President and Chief Financial Officer
A. Dee Cravens............... 58 Vice President, Marketing
Anthony P. Glaves............ 41 Vice President, Sales and Business Development
Rex S. Jackson............... 39 Vice President, General Counsel and Secretary
Eric Di Benedetto(1)(2)...... 33 Director
Mark P. Gorenberg(1)......... 44 Director
J. Neil Weintraut(2)......... 40 Director
Dirk A. Wray................. 40 Director
Barton L. Faber.............. 52 Director Nominee
Douglas T. Hickey............ 44 Director Nominee
</TABLE>
- ------------------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
CHARLES W. BERGER joined AdForce in July 1997 as chairman and chief
executive officer and became president in February 1999. From March 1993 to June
1997, Mr. Berger was chairman and chief executive officer of Radius, Inc., now
Digital Origin, Inc., a developer and manufacturer of computer displays and
graphic and video technologies. Before joining Radius, Inc., Mr. Berger was
senior vice president of worldwide sales, operations and support of Claris
Corporation, now FileMaker, Inc., a maker of database software for groups and
individuals, from 1992 to 1993. From 1989 to 1992, he held several positions at
Sun Microsystems, Inc., a provider of hardware, software and services for the
Internet, where he served as president of Sun Microsystems Federal, Inc. from
1991 to 1992, vice president of business development from 1990 to 1991 and vice
president, product marketing from 1989 to 1990. From 1982 to 1989, Mr. Berger
was employed by Apple Computer, Inc., a maker of personal computing products,
serving as vice president and general manager of Apple Integrated Systems from
1988 to 1989, vice president of marketing from 1986 to 1988, vice president,
business development from 1985 to 1986 and treasurer from 1982 to 1985. Mr.
Berger received his bachelor of science in business administration from Bucknell
University and a masters of business administration from the University of Santa
Clara. He serves on the boards of directors of Digital Origin, Inc. and Splash
Technology, Inc. as well as the boards of the University of Santa Clara and the
Kyle Foundation.
HARISH S. RAO joined AdForce in January 1999 as executive vice
president, development and operations. From February 1997 to December 1998, Mr.
Rao served as vice president engineering in the network & service management
business unit at Cisco Systems, Inc., a supplier of networking products for the
Internet, where he was responsible for Cisco's service management system and
focused on end-to-end service architecture and technology development for
management of frame relay, ATM and IP networks. From July 1992 to January 1997,
Mr. Rao was senior vice president of TCSI Corporation, a provider of software
products and services for carrier networks management, where he managed
operations and development both domestically and internationally. Mr. Rao
received his B.E. and M.E. degrees from the University of Bombay, and his Ph.D.
in control systems engineering from the University of Houston.
JOHN A. TANNER joined AdForce in November 1997 as vice president,
finance and administration and chief financial officer and became executive vice
president in September 1998. From October 1995 to
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November 1997, Mr. Tanner held several positions with Network Computing Devices,
Inc., a manufacturer of network computers, server software, and other related
software products and services, where he served as vice president and controller
in 1997, corporate controller from 1995 to 1997 and director of corporate
accounting in 1995. From 1990 to October 1995, Mr. Tanner was employed by Aspect
Telecommunications Corporation, a manufacturer of computerized telephonic
switching devices, complementary software, and related services, where he served
in several positions, most recently as corporate planning and reporting manager.
Mr. Tanner received his bachelor of arts in English from San Jose State
University.
A. DEE CRAVENS joined AdForce in January 1999 as vice president,
marketing. From March 1998 to January 1999, Mr. Cravens was president of
Ensemble Solutions, Inc., an electronic distribution company, and, from March
1996 to March 1998, he served as vice president, corporate marketing at Adaptec,
Inc., a manufacturer of SCSI, fiber channel and RAID products. From August 1992
to March 1996, Mr. Cravens served as vice president, marketing at Radius, Inc.,
now Digital Origin, Inc., a developer and manufacturer of computer displays and
graphic and video technologies. From 1989 to 1992, Mr. Cravens was president of
The Cravens Group, Inc., a marketing consulting firm. Mr. Cravens received his
bachelor of arts and masters in communications from San Jose State University.
Mr. Cravens serves on the board of directors of Ensemble, a private company.
ANTHONY P. GLAVES joined AdForce in January 1999 as vice president,
sales and business development. From March 1998 to January 1999, Mr. Glaves
served as senior vice president, strategic relations and business development
for ImproveNet, Inc., a web-based service providing product and contractor
information to consumers for home improvement projects. From 1983 to November
1997, Mr. Glaves held several positions with Time Incorporated Magazine Company,
a magazine publisher, including vice president, publisher and vice president and
associate publisher of Sunset Magazine from May 1994 to November 1997 and vice
president, publisher of Southern Accents Magazine from April 1989 to May 1994.
Mr. Glaves received his bachelor of science in business administration from San
Diego State University.
REX S. JACKSON joined AdForce in August 1998 as vice president, general
counsel and secretary, and served on an interim basis as AdForce's executive
vice president, development and operations from August 1998 to January 1999.
Before joining AdForce, Mr. Jackson was with Read-Rite Corporation, a
manufacturer of thin film recording heads for the disk and tape drive
industries, where he served as vice president, business development and general
counsel from April 1997 to August 1998, and vice president, general counsel and
secretary from September 1992 to April 1997. Mr. Jackson received his A.B.
degree in political science from Duke University, and his J.D. degree from
Stanford University.
ERIC DI BENEDETTO has served as a member of AdForce's board of directors
since December 1997, and has been a co-founder and general partner of
Convergence Partners, L.P., an information technology venture capital firm,
since April 1997. From April 1991 to June 1997, Mr. Di Benedetto was the
managing director of U.S. venture capital funds managed by BANEXI, the merchant
banking arm of Banque Nationale de Paris. From 1989 to 1991, Mr. Di Benedetto
was a workout and restructuring specialist with the PARGESA/Lambert Brussels
Group, an international investment holding company, and, from 1988 to 1989, he
was a mergers and acquisitions associate covering defense electronics for
Bankers Trust Co., a financial services company. Mr. Di Benedetto received his
bachelor of arts in mathematics and physics from Lycee Perier, Marseilles,
France and his masters of business administration from E.S.S.E.C., Paris,
France. He serves on the boards of directors of the following private companies:
AdAuction.com, Inc., Decisive Technology Corporation, Magnifi, Inc. and
PaymentNet, Inc.
MARK P. GORENBERG has served as a member of AdForce's board of directors
since December 1996. Mr. Gorenberg joined Hummer Winblad Venture Partners, a
venture capital fund focused exclusively on software investments, since July
1990, and has served as a partner in the firm since 1993. From 1989 to 1990, Mr.
Gorenberg was a senior software manager in advanced product development at Sun
Microsystems, Inc., a provider of hardware, software and services for the
Internet. Mr. Gorenberg received
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his bachelor of science in electrical engineering from the Massachusetts
Institute of Technology, his masters in electrical engineering from the
University of Minnesota, and his masters in engineering management from Stanford
University. He serves on the boards of directors of the following private
companies: Envive Corporation and Escalade Corporation.
J. NEIL WEINTRAUT has served as a member of AdForce's board of directors
since December 1996, and is a founder and has been a partner of 21st Century
Internet Venture Partners, a venture capital firm, since its inception in
October 1996. From June 1987 to May 1996, Mr. Weintraut was a partner at
Hambrecht & Quist, an investment banking firm, where he led the enterprise
software practice, and later the Internet practice. From 1984 to 1985, Mr.
Weintraut worked as an engineer at Daisy Systems, Inc., a developer of computer
aided automation, and, from 1983 to 1984, he was an engineer working in
supercomputer design at International Business Machines Corporation, an
information technology company. Mr. Weintraut received his bachelor of science
in electrical engineering from Drexel University and his masters of business
administration from The Wharton School of Business. He serves on the boards of
directors of the following private companies: CareerBuilder, Inc. and GreenTree
Nutrition, Inc.
DIRK A. WRAY is a co-founder of AdForce, its original chief executive
officer and has served as a member of AdForce's board of directors from its
inception to December 1996 and again since November 1998. Since May 1998, Mr.
Wray has served as president and vice chairman of Omnigon, Inc., a full service
electronic-commerce company. From January 1994 to January 1998, Mr. Wray served
as president and chief financial officer of Covenant Care, Inc., an
international long-term health care provider. Mr. Wray received his bachelor of
science in marketing from Michigan State University, his masters of business
administration from Southern Methodist University, and his masters of
international management from The American Graduate School of International
Management. He serves on the boards of directors of the following private
companies: Covenant Care, Inc., Casa Reha GmbH and Omnigon, Inc.
BARTON L. FABER has been nominated to be a member of AdForce's board of
directors. Mr. Faber is the founder, chairman and chief executive officer of
FABERcapital, which makes private equity investments in information service
companies. Mr. Faber was chairman of Metromail Corporation, a provider of direct
marketing products and services, from January 1996 to June 1998, and a director
of Metromail from July 1995 to June 1998. From January 1995 to June 1996, he
also served as president of information resources for R. R. Donnelley & Sons
Company, a business services company. From September 1989 to January 1995, Mr.
Faber was president of information services for R. R. Donnelley. Mr. Faber
attended Arizona State University for his undergraduate studies and received his
masters of business administration from New York University. Mr. Faber serves on
the board of directors of the following companies: Document Sciences Corporation
and Xeikon N.V., both public companies, and Looking Glass Technologies, a
private company.
DOUGLAS T. HICKEY has been nominated to be a member of AdForce's board
of directors. Mr. Hickey has served as the president and chief executive officer
and a director of Critical Path, Inc., a supplier of e-mail solutions to
businesses, since October 1998. From February 1998 to October 1998, Mr. Hickey
served as executive vice president of Frontier Communications Corporation, a
telecommunications company, and as president of Frontier GlobalCenter. From July
1996 to February 1998, Mr. Hickey served as president and chief executive
officer of GlobalCenter, Inc., a Web hosting company. In February 1998,
GlobalCenter was acquired by Frontier. From December 1994 to July 1996, Mr.
Hickey was president of Internet services at MFS Communications, a provider of
high-speed fiber-optic services. From September 1990 to November 1994, Mr.
Hickey was general manager of North American sales and field operations at
Ardis, a Motorola company. Mr. Hickey received his bachelor of science in
economics from Siena College. Mr. Hickey serves on the board of directors of
Critical Path, a public company.
Our board of directors is currently comprised of five directors and has
two vacancies. We expect Messrs. Faber and Hickey to begin serving as members of
our board of directors following the offering. Directors are elected by the
stockholders at each annual meeting of stockholders and serve for one year or
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until their successors are duly elected and qualified. However, our bylaws
provide, following the offering, that our board of directors will be divided
into three classes as nearly equal in size as possible with staggered three-year
terms. The term of office of our Class I directors will expire at the annual
meeting of stockholders to be held in 2000; the term of office of our Class II
directors will expire at the annual meeting of stockholders to be held in 2001;
and the term of office of our Class III directors will expire at the annual
meeting of the stockholders to be held in 2002. At each annual meeting of the
stockholders, beginning with the 2000 annual meeting, the successors to the
directors whose terms will then expire will be elected to serve from the time of
their election and qualification until the third annual meeting following their
election or until their successors have been duly elected and qualified, or
until their earlier resignation or removal, if any. Messrs. Weintraut and Wray
have been designated as Class I directors; Messrs. Di Benedetto and Gorenberg
have been designated as Class II directors; and Messrs. Berger, Faber and Hickey
have been designated as Class III directors. The classification of our board of
directors could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from acquiring, control of AdForce.
America Online has the right to elect one director to the board of
directors so long as America Online holds at least 728,332 shares of common
stock, appropriately adjusted for any stock split, dividend, combination or
other recapitalization. This right expires in July 2008.
BOARD COMMITTEES
We have established an audit committee and a compensation committee. The
audit committee reviews our internal accounting procedures and consults with and
reviews the results and scope of the audit and other services provided by our
independent accountants. The compensation committee reviews and approves the
compensation and benefits for our key executive officers and establishes and
reviews general policies relating to compensation and benefits of our employees.
DIRECTOR COMPENSATION
Our directors do not receive cash compensation for their services as
directors, but are reimbursed for all reasonable expenses incurred in connection
with their attendance at meetings of our board of directors and committee
meetings of the board of directors.
In February 1999, our board of directors adopted, and in March 1999 our
stockholders approved, the 1999 Directors Stock Option Plan. We reserved a total
of 200,000 shares of common stock for issuance under the directors plan. Members
of our board of directors who are not our employees, or employees of any parent,
subsidiary or affiliate of AdForce, are eligible to participate in the directors
plan. Option grants under the directors plan are automatic and nondiscretionary,
and the exercise price of the options must equal the fair market value of our
common stock on the date of grant.
We will initially grant to each eligible director who first becomes a
member of our board of directors on or after the effective date of this offering
an option to purchase 10,000 shares of common stock on the date that director
becomes a member of our board of directors. We will initially grant to each
eligible director who became a member of our board of directors before the
effective date of this offering an option to purchase 10,000 shares of common
stock immediately following the first annual meeting of our stockholders that
occurs after the effective date of this offering. After the effective date of
this offering, immediately following each annual meeting of our stockholders
that occurs, each eligible director will automatically be granted an additional
option to purchase 5,000 shares of common stock if that director has served
continuously as a member of our board of directors for at least one year since
the date of that director's initial grant under the directors plan. The options
have ten year terms. They will terminate seven months after the director ceases
to provide services to us either as a director or a consultant, 12 months if the
termination is due to death or disability. All options granted under the
directors plan will vest at a rate of 25% of the shares on the anniversary of
the date of grant and 2.08% of the shares every
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month after that date. Options will stop vesting if a director ceases to provide
services to us either as a director or a consultant. If a merger or other
transaction in which we are not the surviving corporation occurs, all options
issued under the directors plan will accelerate and become exercisable in full.
If a director does not exercise options within seven months of the corporate
transaction, the options will expire.
In April 1999, we granted an option to purchase 50,000 shares of common
stock to Mr. Faber, and granted an option to purchase 75,000 shares of common
stock to Mr. Hickey. These options have an exercise price of $8.50 per share and
have a term of ten years. These options are immediately exercisable and will
vest at a rate of 25% of the shares on the first anniversary of the vesting
start date specified in the stock option agreements and 2.08% of the shares
every month after that date.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Before February 26, 1999, our board of directors did not have a
compensation committee and all compensation decisions were made by the full
board of directors. Beginning on February 26, 1999, our compensation committee
has made all compensation decisions. No interlocking relationship exists between
our board of directors or compensation committee and the board of directors or
compensation committee of any other company, nor has an interlocking
relationship existed in the past.
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EXECUTIVE COMPENSATION
The following table shows all compensation awarded to, earned by or paid
for services rendered to AdForce in all capacities during 1998 by our chief
executive officer and our other executive officers or former executive officers
who earned at least $100,000 in 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------
AWARDS
-------------
ANNUAL COMPENSATION SECURITIES
------------------------ UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($)(1) BONUS($) OPTIONS(#) COMPENSATION($)
- -------------------------------------- ----------- ----------- ------------- -----------------
<S> <C> <C> <C> <C>
Charles W. Berger .................... $ 250,000 -- -- $ 42,188(2)
President and Chief Executive
Officer
Chad E. Steelberg(3) ................. 162,692 $ 75,000 101,000(4) 3,000(5)
Former President
John A. Tanner ....................... 148,398 -- 45,000 --
Executive Vice President and Chief
Financial Officer
</TABLE>
- ------------------------
(1) Messrs. Rao, Cravens and Glaves were hired as executive officers in January
1999 and are compensated at annual rates of $215,000, $185,000 and $150,000.
Mr. Jackson was hired as an executive officer in August 1998 and is
compensated at an annual rate of $175,000. See "-- Employment Agreements and
Severance Agreements."
(2) Represents forgiveness of indebtedness evidenced by a promissory note issued
by Mr. Berger to AdForce in connection with the exercise of his option to
purchase 900,000 shares of common stock. See "Related Party Transactions."
(3) Mr. Steelberg resigned from his position as AdForce's president in November
1998.
(4) These options terminated in November 1998 upon termination of Mr.
Steelberg's employment. See "--Employment Agreements and Severance
Agreements."
(5) Represents amount paid to Mr. Steelberg as expense allowances.
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OPTION GRANTS IN LAST FISCAL YEAR
The following table shows each stock option grant during 1998 to the
officers named in the summary compensation table above. None of these officers
exercised any option in 1998.
All of these options were immediately exercisable and were incentive
stock options that were granted at an exercise price equal to the fair market
value of our common stock on the date of grant, as determined by our board of
directors. The exercise price may be paid in cash, in shares of our common stock
valued at fair market value on the exercise date or through a cashless exercise
procedure involving a same-day sale of the purchased shares. We may also finance
the option exercise by lending the optionee funds to pay the exercise price for
the purchased shares. These options vest over four years at the rate of 25% of
the shares subject to the option on the first anniversary of the vesting start
date specified in the stock option agreement and 2.08% every month after that
date. Unvested shares are subject to AdForce's right of repurchase upon
termination of employment. Upon specified changes in control of AdForce, vesting
will accelerate on all shares that are then unvested. Options expire ten years
from the date of grant. See "--Employee Benefit Plans" and "--Employment
Agreements and Severance Agreements" for a description of the material terms of
these options.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZED
INDIVIDUAL GRANTS VALUE AT ASSUMED
---------------------------------------------------------- ANNUAL RATES OF
NUMBER OF STOCK PRICE
SECURITIES % OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OPTION TERM(2)
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION --------------------
NAME GRANTED(#) FISCAL YEAR(1) ($/SH) DATE 5%($) 10%($)
- --------------------------------- ------------- ----------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Charles W. Berger................ -- -- -- -- -- --
Chad E. Steelberg................ 1,000(3) 0.1% $ 1.50 07/25/08 $ 0(3) $ 0(3)
100,000(3) 6.5 1.50 08/14/08 0(3) 0(3)
John A. Tanner................... 45,000 2.9 0.70 06/10/08 19,810 50,203
</TABLE>
- ------------------------
(1) Based on options to purchase 1,533,411 shares of common stock granted during
1998 or issued in connection with the assumption of options granted by
StarPoint Software, Inc.
(2) Potential realizable values are net of the exercise price but before any
payment of taxes, and are based on the assumption that our common stock
appreciates at the annual compounded rate shown from the date of grant until
the expiration of the ten-year term. The 5% and 10% assumed annual rates of
stock price appreciation are mandated by the rules of the Securities and
Exchange Commission and do not represent our estimate or projection of
future common stock prices.
(3) These options terminated in November 1998 upon termination of Mr.
Steelberg's employment. See "--Employment Agreements and Severance
Agreements."
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The table below shows the number of shares of common stock covered by
both exercisable and unexercisable stock options held as of December 31, 1998 by
each of the officers named in the summary compensation table above. Also
reported are values of in-the-money options, which represent the positive spread
between the respective exercise prices of outstanding stock options and the
initial public offering price of $15.00 per share.
FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FY-END (#) FY-END ($)
--------------------------- --------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------- ------------ ------------- ----------- -------------------
<S> <C> <C> <C> <C>
Charles W. Berger..................... -- -- -- --
Chad E. Steelberg(1).................. -- -- -- --
John A. Tanner........................ 225,000(2) -- $3,298,500 $ 0
</TABLE>
- ------------------------
(1) All of Mr. Steelberg's outstanding options terminated on November 20, 1998,
according to the terms of the settlement agreement and release dated the
same date. See "--Employment Agreements and Severance Agreements."
(2) The options are subject to AdForce's right of repurchase, which lapsed with
respect to 25% of the shares upon Mr. Tanner's completion of 12 months of
service from the vesting start date and an additional 2.08% every month
after that date. As of December 31, 1998, AdForce's right of repurchase had
lapsed with respect to 60,930 shares.
EMPLOYEE BENEFIT PLANS
1997 STOCK PLAN. In April 1997, our board of directors adopted the 1997
plan and in June 1997 our stockholders approved it. The board of directors
reserved 1,200,000 shares of our common stock for issuance under the 1997 plan.
It increased this number to 2,400,000 in July 1997 and 4,000,000 in December
1997. As of March 31, 1999, options to purchase 1,626,117 shares of our common
stock had been exercised, of which 52,216 shares were repurchased by AdForce,
options to purchase 1,564,161 shares of our common stock were outstanding under
the 1997 plan with a weighted average exercise price of $0.95 and 861,938 shares
of our common stock were available for future grants. Following the closing of
this offering, no additional options will be granted under the 1997 plan.
Options granted under the 1997 plan are subject to terms substantially similar
to those described below with respect to options to be granted under the 1999
plan. However, options granted under the 1997 plan become fully vested if not
assumed or substituted by the successor corporation in connection with a merger
or asset sale.
STARPOINT SOFTWARE, INC. 1996 STOCK PLAN. In connection with AdForce's
acquisition of StarPoint Software, Inc., AdForce assumed all options outstanding
under the StarPoint plan at the closing of the acquisition. These assumed
options will remain effective until exercised for AdForce's common stock or
until they terminate or expire. Options granted under the StarPoint plan are
subject to terms substantially similar to those described below with respect to
options to be granted under the 1999 plan. However, options granted under the
StarPoint plan become fully vested if not assumed or substituted by the
successor corporation in connection with a merger or asset sale. No options will
be granted in the future under the StarPoint plan. As of March 31, 1999, options
to purchase 17,116 shares of common stock had been exercised, and options to
purchase 6,598 shares of common stock were outstanding under the StarPoint plan.
1999 EQUITY INCENTIVE PLAN. In February 1999, our board of directors
adopted, and in March 1999 our stockholders approved, our 1999 plan. We reserved
2,000,000 shares for issuance under
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the 1999 plan. Our 1999 plan will become effective on the effective date of this
offering and will serve as the successor to our 1997 plan.
Options granted under the 1997 plan and the StarPoint plan before their
termination will remain outstanding according to their terms, but no further
options will be granted under the 1997 plan or the StarPoint plan after the
effective date of this offering. In some cases, shares granted or issued under
the 1997 plan or the 1999 plan may again become available for grant or issuance
under the 1999 plan. Our 1999 plan will terminate in February 2009, unless
sooner terminated in accordance with its terms. Our compensation committee
administers our 1999 plan and has the authority to construe and interpret our
1999 plan and any agreement made under it, grant awards and make all other
determinations necessary for the administration of our 1999 plan.
Our 1999 plan provides for the grant of both incentive stock options
that qualify under Section 422 of the Internal Revenue Code, and nonqualified
stock options, as well as stock awards and stock bonuses. We can grant incentive
stock options only to employees. We can grant other awards to employees,
officers, directors, consultants, independent contractors and advisors. However,
consultants, independent contractors and advisors must render actual services
not in connection with the offer and sale of securities in a capital-raising
transaction. The exercise price of incentive stock options must be at least
equal to the fair market value of our common stock on the date of grant. The
exercise price of nonqualified stock options must be at least equal to 85% of
the fair market value of our common stock on the date of grant. The maximum term
of options granted under our 1999 plan is ten years. Options granted under our
1999 plan generally expire three months after the termination of the optionee's
service. However, in the case of death or disability, the options generally may
be exercised up to 12 months following the date of death or termination of
service. Options will generally terminate immediately upon termination for
cause. If AdForce dissolves or liquidates or a change in control transaction
occurs, outstanding awards may be assumed or substituted by the successor
corporation, if any. Our compensation committee has the discretion to accelerate
the vesting of any award upon the occurrence of any of these events.
See "Director Compensation" for a description of our directors plan.
1999 EMPLOYEE STOCK PURCHASE PLAN. In February 1999, our board of
directors adopted, and in March 1999 our stockholders approved, our purchase
plan. We reserved a total of 300,000 shares of common stock for issuance under
our purchase plan. On each January 1, the total number of shares reserved for
issuance will be increased automatically by the number of shares purchased under
our purchase plan in the preceding calendar year. The total number of shares
issued over the term of our purchase plan may not exceed 3,000,000 shares. Our
compensation committee administers our purchase plan and has the authority to
construe and interpret it. Our purchase plan will become effective on the
effective date of this offering.
Employees generally will be eligible to participate in our purchase plan
if they are employed for more than 20 hours per week and more than five months
in a calendar year. Under our purchase plan, we permit employees to acquire
shares of our common stock through payroll deductions. Employees may select a
rate of payroll deduction between 2% and 10% of their W-2 cash compensation and
are subject to maximum purchase limitations described in our purchase plan.
Participation in our purchase plan will end automatically upon termination of
employment for any reason. Each offering period under our purchase plan will be
for two years and consist of four six-month purchase periods. The first offering
period is expected to begin on the day after the effective date of this
offering. The first purchase period may be more or less than six months long.
Offering periods and purchase periods after the date of this offering will begin
on February 1 and August 1. The purchase price under our purchase plan will be
85% of the lesser of the fair market value of our common stock on the first day
of the applicable offering period or the last day of each purchase period. Our
purchase plan will terminate in February 2009, unless earlier terminated. Our
board of directors has the authority to amend, terminate or extend the term of
our purchase plan. However, stockholder approval is required to increase the
number of shares that may be
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issued or to change the terms of eligibility. Our board of directors is also
able to make amendments to our purchase plan if the financial accounting
treatment for our purchase plan is different than the financial accounting
treatment in effect on the date that it adopted our purchase plan.
401(k) PLAN. We sponsor a defined contribution plan intended to qualify
under Section 401 of the Internal Revenue Code. All employees who are 21 years
old are eligible to participate and may enter the 401(k) plan as of the first
day of any month. Participants may make pre-tax contributions to the 401(k) plan
of up to 15% of their eligible earnings, subject to a statutorily prescribed
annual limit. We may make matching contributions on a discretionary basis to the
401(k) plan, but have not done so to date. Each participant is fully vested in
his or her contributions, any of our matching contributions, and the investment
earnings on either. Contributions by the participants or AdForce to the 401(k)
plan, and the income earned on these contributions, are generally not taxable to
the participants until withdrawn. Contributions by AdForce, if any, will
generally be deductible by AdForce when made. Participant and AdForce
contributions are held in trust as required by law. Individual participants may
direct the 401(k) plan's trustee to invest their accounts in authorized
investment alternatives.
EMPLOYMENT AGREEMENTS AND SEVERANCE AGREEMENTS
AdForce and Mr. Berger are parties to a letter agreement dated June 27,
1997 governing his employment with AdForce. Under the agreement, AdForce agreed
to pay Mr. Berger an annual salary of $250,000 and to grant him an immediately
exercisable option under the 1997 plan to purchase 900,000 shares of AdForce's
common stock at an exercise price of $0.125 per share. Mr. Berger exercised this
option in full on June 30, 1997 and paid the purchase price of the option,
$112,500, by issuing a promissory note to AdForce that is secured by a pledge of
the common stock purchased and forgivable in four annual installments, provided
Mr. Berger remains an employee. On June 30, 1998, AdForce's repurchase right
with respect to the 900,000 shares began to lapse. One quarter of the option
shares vested on that date and the remaining option shares began to vest monthly
after that date over the next 36 months of service. The agreement provided for
full vesting if (1) AdForce merges or consolidates with or into another entity
where more than 50% of the combined voting power of the surviving corporation's
securities outstanding immediately after the transaction is owned by persons who
were not stockholders of AdForce immediately before that transaction or (2) the
sale, transfer or other disposition of all or substantially all of AdForce's
assets, each a change of control, and in either case the option is not assumed
by the successor corporation. Finally, the agreement provided that, if (1) a
change of control occurs, (2) Mr. Berger's option is assumed and (3) his
employment is involuntarily terminated or Mr. Berger resigns for good reason
within 24 months of the change of control, Mr. Berger's option will become
vested and AdForce's repurchase right will lapse with respect to an additional
number of shares equal to the number of shares that would have vested if Mr.
Berger served for an additional 12 months.
In November 1998, AdForce and Mr. Berger entered into a letter agreement
regarding salary continuation and option vesting. Under the letter agreement, if
Mr. Berger's employment with AdForce is involuntarily terminated by AdForce
other than for cause or if Mr. Berger resigns for good reason, Mr. Berger will
receive salary continuation at his current rate of salary and continuation of
vesting of his options or restricted stock vesting for a period of twelve months
following termination. Under the letter agreement, cause is defined to include
failure to follow the written directions of the board of directors, dishonesty,
gross misconduct, fraud, or conviction for a felony, and good reason is defined
to include demotion, salary reduction or relocation.
In April 1999, AdForce granted Mr. Berger an immediately exercisable
option to purchase 100,000 shares of AdForce's common stock at an exercise price
of $8.50 per share. AdForce's repurchase right will begin to lapse and 25% of
the shares will vest after one year of service; the balance of the shares will
vest monthly over the next 36 months of service.
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AdForce and Mr. Rao are parties to a letter agreement dated December 11,
1998 governing his employment with AdForce. Under the agreement, AdForce agreed
to pay Mr. Rao an annual salary of $215,000 and a performance bonus of $50,000,
and granted Mr. Rao an option to purchase 360,000 shares of common stock at an
exercise price of $1.50 per share. AdForce's repurchase right will begin to
lapse and 33% of the shares subject to the option will vest after one year of
service; the balance of the shares will vest monthly over the next 24 months of
service.
AdForce and Mr. Tanner are parties to an employment agreement dated
December 9, 1998 governing his employment with AdForce. Under the agreement,
which has a term of two years, AdForce agreed to pay Mr. Tanner a base salary of
$175,000 and an incentive bonus under AdForce's incentive bonus plan. The
agreement provides for an additional one year of vesting of Mr. Tanner's
existing options (1) if AdForce merges with or is acquired by another company
and is not the surviving entity, (2) if AdForce sells all or substantially all
of its assets or stock or (3) if any other reorganization or business
combination involving AdForce results in 50% or more of AdForce's outstanding
voting stock being transferred to different holders. Finally, if AdForce
terminates Mr. Tanner's employment before the end of the term of the agreement
other than for cause, death or disability, or if Mr. Tanner terminates his
employment for good reason, Mr. Tanner will receive a severance amount equal to
his then-current base salary for 12 months following the date of termination,
plus benefits and any earned bonuses. In April 1999, AdForce granted Mr. Tanner
an immediately exercisable option to purchase 25,000 shares of AdForce's common
stock at an exercise price of $8.50 per share. AdForce's repurchase right will
begin to lapse and 25% of the shares subject to this option will vest after one
year of service; the balance of the shares will vest monthly over the next 36
months of service.
AdForce and Mr. Cravens are parties to a letter agreement dated January
21, 1999 governing his employment with AdForce. Under the agreement, AdForce
agreed to pay Mr. Cravens an annual salary of $185,000 and a $25,000 signing
bonus, and granted Mr. Cravens an immediately exercisable option to purchase
175,000 shares of AdForce's common stock at an exercise price of $1.50 per
share. AdForce's repurchase right will lapse and 25% of the shares subject to
the option will vest after one year of service; the balance of the shares will
vest monthly over the next 36 months of service. In April 1999, AdForce granted
Mr. Cravens an immediately exercisable option to purchase 25,000 shares of
AdForce's common stock at an exercise price of $8.50 per share. AdForce's
repurchase right will begin to lapse and 25% of the shares subject to this
option will vest after one year of service; the balance of the shares will vest
monthly over the next 36 months of service.
AdForce and Mr. Glaves are parties to a letter agreement dated December
28, 1998, as revised on December 31, 1998, governing his employment with
AdForce. Under the agreement, AdForce agreed to pay Mr. Glaves an annual salary
of $150,000 and a maximum quarterly performance bonus of $25,000, with the first
quarter's payment guaranteed, and granted him an immediately exercisable option
to purchase 175,000 shares of AdForce's common stock at an exercise price of
$1.50 per share. AdForce's repurchase right will lapse and 12.5% of the shares
subject to the option will vest after six months of service; the balance of the
shares will vest monthly over the next 42 months of service. In April 1999,
AdForce granted Mr. Glaves an immediately exercisable option to purchase 25,000
shares of AdForce's common stock at an exercise price of $8.50 per share.
AdForce's repurchase right will begin to lapse and 25% of the shares subject to
this option will vest after one year of service; the balance of the shares will
vest monthly over the next 36 months of service.
AdForce and Mr. Jackson are parties to a letter agreement dated July 22,
1998 governing his employment with AdForce. Under the agreement, AdForce agreed
to pay Mr. Jackson an annual salary of $150,000, and granted him an immediately
exercisable option to purchase 180,000 shares of AdForce's common stock at an
exercise price of $1.50 per share. AdForce's repurchase right will lapse and 25%
of the shares subject to the option will vest after one year of service; the
balance of the shares will vest monthly over the next 36 months. The vesting of
Mr. Jackson's options will accelerate in the same manner as Mr. Berger's upon
the changes in control described on the preceding page. In April 1999, AdForce
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increased Mr. Jackson's annual salary to $175,000 and granted him an immediately
exercisable option to purchase 20,000 shares of AdForce's common stock at an
exercise price of $8.50 per share. AdForce's repurchase right will begin to
lapse and 25% of the shares subject to this option will vest after one year of
service; the balance of the shares will vest monthly over the next 36 months of
service.
AdForce and Mr. Steelberg are parties to a settlement agreement and
release dated November 20, 1998 relating to the termination of Mr. Steelberg's
employment with AdForce. The agreement provided that, instead of amounts
otherwise payable to Mr. Steelberg, AdForce would pay him $225,000, that all
outstanding shares of common stock held by Mr. Steelberg on the date of the
agreement would be deemed fully vested, and that all unexercised options to
purchase common stock would terminate. However, certain agreements between the
parties remain enforceable. The agreement also provided for a mutual release of
claims.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
Our certificate of incorporation limits the liability of our directors
to the maximum extent permitted by Delaware law. Delaware law provides that a
director of a corporation will not be personally liable for monetary damages for
breach of fiduciary duty as a director, except for liability:
- for any breach of the director's duty of loyalty to the corporation or
its stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; or
- for any transaction from which the director derived an improper
personal benefit.
As permitted by Delaware law, our bylaws provide that:
- we must indemnify our directors and officers to the fullest extent
permitted by Delaware law, provided that each indemnified officer and
director acted in good faith and in a manner that the officer or
director reasonably believed to be in or not opposed to AdForce's best
interests;
- we may indemnify our other employees and agents to the same extent
that we indemnify our officers and directors, unless otherwise
required by law, our certificate of incorporation, our bylaws or any
agreements;
- we must advance expenses, as incurred, to our directors and officers
in connection with a legal proceeding to the fullest extent permitted
by Delaware law, subject to very limited exceptions; and
- the rights conferred in our bylaws are not exclusive.
In addition to the indemnification required in our certificate of
incorporation and bylaws, before the completion of this offering, we intend to
enter into indemnity agreements with each of our current directors and officers.
These agreements provide for the indemnification of our officers and directors
for all expenses and liabilities incurred in connection with any action or
proceeding brought against them by reason of the fact that they are or were
agents of AdForce. In addition, we intend to obtain directors' and officers'
insurance to cover our directors, officers and some of our employees for certain
liabilities. We believe that these indemnification provisions and agreements and
this insurance are necessary to attract and retain qualified directors and
officers.
The limitation of liability and indemnification provisions in our
certificate of incorporation and bylaws may discourage stockholders from
bringing a lawsuit against directors for breach of their fiduciary
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duty. They may also reduce the likelihood of derivative litigation against
directors and officers, even though an action, if successful, might benefit us
and other stockholders. Furthermore, a stockholder's investment may be adversely
affected to the extent we pay the costs of settlement and damage awards against
directors and officers as required by these indemnification provisions.
At present, there is no pending litigation or proceeding involving any
of our directors, officers or employees regarding which indemnification by
AdForce is sought, nor are we aware of any threatened litigation that may result
in claims for indemnification.
RELATED PARTY TRANSACTIONS
We have never been a party to, and we have no plans to be a party to,
any transaction or series of similar transactions in which the amount involved
exceeds $60,000 and in which any director, executive officer or holder of more
than 5% of our common stock had or will have an interest other than as described
under "Management" and the transactions described below. The numbers of shares
of preferred stock and the per share prices of shares of preferred stock
described below are reported on an as-if-converted to common stock basis.
LOANS AND SECURITIES ISSUANCES
In April 1996, three of our founders, Chad Steelberg, Gary Steelberg and
Ryan Steelberg, assigned ownership rights in computer software valued at $8,600
to AdForce in exchange for the issuance of 430,000 shares of common stock,
860,000 shares of common stock and 430,000 shares of common stock. Our fourth
founder, Washington Holdings, L.P., a Nevada limited partnership, acquired
2,000,000 shares of common stock for a purchase price of $10,000. Dirk Wray, one
of our directors, is a general partner of Washington Holdings.
In April 1996, AdForce acquired for a purchase price of $110,000 all of
the assets, properties and rights, including technology and other intellectual
property of Iron Mountain Global Information Systems, Inc., a California
corporation. Chad Steelberg, our former president, was also the president of
Iron Mountain Global Information Systems.
In April 1996, Washington Holdings, L.P. loaned AdForce $670,000 at an
annual interest rate of 10%. The loan was secured by assets of AdForce.
In June 1996, the Kuwait Investment Projects Company K.S.C., a Kuwait
company and a parent of IBL Corporation, loaned AdForce $1.0 million.
In July 1996, IBL Corporation, a principal stockholder of AdForce,
loaned AdForce $997,500 at an annual interest rate of 11.03%. In connection with
the loan, AdForce granted IBL a warrant to purchase 123,400 shares of common
stock.
In December 1996, we sold 1,200,914 shares of Series A preferred stock
to two investors. IBL Corporation purchased 797,950 shares of Series A preferred
stock in exchange for the cancellation of $997,500 owed by us and the
termination of a warrant to purchase 123,400 shares of common stock. In
addition, Washington Holdings, a Nevada limited partnership, purchased 402,964
shares of Series A preferred stock in exchange for the cancellation of $506,000
of indebtedness and the repayment of $119,000 owed by us. We also used $305,000
to repay indebtedness to Aurelius, Ltd., a British Virgin Island corporation.
Dirk Wray, one of our directors, is a representative of Aurelius, Ltd.
Also in December 1996, we sold 2,054,636 shares of Series B preferred
stock to six investors. Hummer Winblad Venture Partners II L.P., Hummer Winblad
Technology Fund, II, L.P. and Hummer Winblad Technology Fund II-A, L.P.
purchased 957,542, 33,912 and 5,984 shares of Series B preferred stock for an
aggregate purchase price of $1,251,785, or $1.255 per share. The Hummer Winblad
group of funds is one of our principal stockholders, and Mark P. Gorenberg, one
of our directors, is a partner at
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Hummer Winblad Venture Partners, which is the general partner of these funds. In
addition, 21st Century Internet Fund, L.P. purchased 997,438 shares of Series B
preferred stock for a purchase price of $1,251,785, or $1.255 per share. 21st
Century Internet Fund, L.P. is one of our principal stockholders, and J. Neil
Weintraut, one of our directors, is a founder and managing member of 21st
Century Internet Managing Partners, LLC, which is the general partner of this
fund.
Also in December 1996, as a condition of the purchase of Series B
preferred stock and as a condition to the repayment of indebtedness of AdForce
with the proceeds of the sale, AdForce entered into agreements with some of its
founders. Under these agreements, AdForce repurchased 7,886 shares of common
stock and 1,605,014 shares of common stock from Chad Steelberg, our former
President, and Washington Holdings, L.P., a principal stockholder, respectively.
Also, Chad Steelberg and Ryan Steelberg granted AdForce repurchase rights with
respect to shares owned by them. Finally, Washington Holders, L.P. acknowledged
transfer restrictions and granted Messrs. Gorenberg and Weintraut an irrevocable
proxy to elect to convert 402,964 shares of Series A preferred stock to common
stock in the event of a liquidation event resulting in proceeds to holders of
Series A preferred stock in excess of $1.255 per share.
In June 1997, as part of his employment with AdForce, AdForce loaned
Charles W. Berger, our Chief Executive Officer, $112,500 to be used by Mr.
Berger to exercise his option to purchase 900,000 shares of common stock. The
loan, which was evidenced by a promissory note, is due in June 30, 2001 and
accrues interest at the annual rate of 6.8%, compounded annually. The promissory
note is secured by the shares of common stock acquired by Mr. Berger upon
exercise of his option grant. However, Mr. Berger remains personally liable for
the payment of the promissory note, and Mr. Berger's assets, in addition to the
shares of common stock, may be applied to satisfy Mr. Berger's obligations under
the promissory note. The note and related interest are being forgiven ratably
over a period of four years of service/employment. At December 31, 1998, AdForce
forgave $42,188, and there remained $70,312 outstanding under the loan. See
"Management--Employment Agreements and Severance Agreements."
In July 1997, we sold 1,733,616 shares of Series C preferred stock to
six investors. Hummer Winblad Venture Partners II, L.P., Hummer Winblad
Technology Fund II, L.P. and Hummer Winblad Technology Fund II-A, L.P.,
purchased 142,072, 5,032 and 888 shares of Series C preferred stock for an
aggregate purchase price of $350,001, or $2.365 per share. 360 Capital Partners,
L.P. also purchased 1,268,500 shares of Series C preferred stock for a purchase
price of $3,000,002. 360 Capital Partners, L.P. is one of our principal
stockholders. In addition, IBL Corporation purchased 169,134 shares of Series C
preferred stock for a purchase price of $400,002. Finally, 21st Century Internet
Fund, L.P. purchased 147,990 shares of Series C preferred stock for a purchase
price of $349,996.
In November 1997, we sold 816,384 shares of Series C preferred stock to
two investors. Convergence Ventures I, L.P. purchased 784,672 shares of Series C
preferred stock for a purchase price of $1,855,749. In February 1998, we sold
60,994 shares of Series C preferred stock to Convergence Ventures I, L.P. for a
purchase price of $144,251 and 42,284 shares of Series C preferred stock to
Convergence Entrepreneurs Fund I, L.P. for a purchase price of $100,002. The
Convergence group of funds is one of our principal stockholders, and Eric Di
Benedetto, one of our directors, is a general partner of Convergence Partners,
L.P., which is the general partner of these funds.
In March 1998, Hummer Winblad Venture Fund II, L.P., Hummer Winblad
Technology Fund II, L.P. and Hummer Winblad Technology Fund II-A, L.P. loaned
AdForce $480,000, $17,000 and $3,000. Each loan had an annual interest rate of
8%.
In April 1998, we sold 1,457,532 shares of Series D preferred stock to
19 investors. Convergence Ventures I, L.P. and Convergence Entrepreneurs Fund I,
L.P. purchased 145,666 and 6,554 shares of Series D preferred stock for an
aggregate purchase price of $1,045,000, or $6.865 per share. Hummer Winblad
Technology Fund II-A, L.P., Hummer Winblad Technology Fund II, L.P. and Hummer
Winblad Venture Fund II, L.P. also acquired 442, 2,506 and 70,774 shares of
Series D preferred stock by converting
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notes of $3,000, $17,000 and $480,000 and accrued interest. In addition, IBL
Corporation purchased 72,832 shares of Series D preferred stock for a purchase
price of $499,992.
In July 1998, in consideration of the holders of our Series D preferred
stock agreeing to amendments to our then effective articles of incorporation
that, if not amended, would have triggered some anti-dilution protections
benefiting the holders of Series D preferred stock, we issued to the holders of
our Series D preferred stock warrants to purchase up to 72,860 shares of Series
D preferred stock at an exercise price of $6.865 per share. The warrants are
exercisable on or before July 14, 2003. The Convergence group of funds, the
Hummer Winblad group of funds and IBL Corporation each received warrants to
purchase a number of shares equal to five percent of the number of shares of
Series D preferred stock that they held. See "Principal Stockholders."
Also in July 1998, we sold 1,456,664 shares of Series E preferred stock
to America Online, Inc. for a purchase price of $9,999,998, or $6.865 per share.
America Online is one of our principal stockholders and has a right to appoint
one person to our board of directors that will continue following this offering.
In connection with the sale of Series E preferred stock to America Online, we
also issued to America Online a warrant to purchase up to 1,019,662 shares of
Series E preferred stock at an exercise price of $6.865 per share. The warrant
is exercisable on or before July 14, 2003.
We believe that the transactions described above were made on terms no
less favorable to us than could have been obtained from unaffiliated third
parties.
COMMERCIAL AGREEMENTS
In August 1998, AdForce entered into a services agreement with 2CAN
Media, which has been acquired by Adsmart. Two of AdForce's founders, Chad
Steelberg and Ryan Steelberg, worked for 2CAN Media, and now work for Adsmart.
Chad Steelberg and Ryan Steelberg originally developed some of our core
technologies. We believe that Chad Steelberg and Ryan Steelberg had a material
ownership interest and held executive management positions in 2CAN Media, and
may have similar interests and hold similar positions in Adsmart as well, but we
are unable to confirm our beliefs. In the services agreement, 2CAN Media agreed
to use our Internet advertising administration system as its exclusive
advertising serving technology. For our basic service, we charge Adsmart based
on the monthly volume of ads served, ranging from $0.55 per thousand ads served
if monthly volume is less than 300 million, to $0.25 per thousand ads served if
monthly volume is more than 1 billion. These prices are not lower than those
given to unaffiliated third parties with similar ad volumes. However, we have
agreed to give Adsmart most favored nation pricing protection, which could
result in lower prices to Adsmart if we give better pricing to other
organizations that are exclusively in the business of ad sales and delivering
similar volumes on similar terms as Adsmart. As of March 31, 1999, the agreement
had generated $942,000 in net revenue for AdForce. The agreement expires on
February 25, 2000.
In connection with the July 1998 sale of Series E preferred stock to
America Online, AdForce also entered into a license agreement and a demographic
data agreement with America Online.
LICENSE AGREEMENT. Under the license agreement, we licensed our
technology to America Online and its affiliates to be used internally by America
Online and on sites associated with America Online. The licensed technology
includes future enhancements to our technology and is warranted to perform
according to its specifications. The license is fully paid, nonexclusive,
perpetual, worldwide and nontransferable except for some assignments and
includes source code. We can terminate the license only in the event of a
material, uncorrected breach of the license agreement or demographic data
agreement by America Online. For the duration of the license, if requested, we
will provide technical support, development services and ad serving services on
a cost or cost plus basis if America Online is not in default. We will provide
these services at cost if America Online provides us access to demographic data
under the demographic data agreement and America Online is not in breach of the
demographic data agreement. Otherwise, we can mark up the cost of our services
by 25% under most circumstances, and an
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additional 15% under other circumstances, as specified in the license agreement.
To our knowledge, we would not agree to provide these services on these terms to
any other party. Under the license agreement, America Online will use
commercially reasonable efforts to encourage others associated with America
Online to use our technology, and we will use commercially reasonable efforts to
encourage our customers to use America Online in the sale of interactive
advertising. In either case, commission or revenue sharing obligations can
arise. To date, America Online has not used our technology on its sites and has
not requested any services from us.
DEMOGRAPHIC DATA AGREEMENT. Under the demographic data agreement,
America Online may authorize us to use demographic information about America
Online users in connection with the targeting and delivery of ads to these
users. AdForce and America Online will establish a timetable and procedures for
the implementation of access to the data subject to America Online's
determination that targeted advertising has become a generally accepted practice
on the Internet. If we receive demographic information from America Online, the
demographic information will not identify the user by name or address, and will
only be able to be used for serving targeted ads to America Online users. We
cannot use the demographic data to serve ads from advertisers or Web sites that
America Online finds objectionable, or from advertisers or Web sites on a list
provided by America Online. America Online may add names to this list at will,
but expenditures of these advertisers and revenues of these sites cannot exceed
25% of available advertising dollars on the Internet. America Online reserves
the right to limit or discontinue access to demographic data in the event of
adverse publicity, regulation, legal claims or changes to America Online
advertising and privacy policies. In the first year after we receive access to
the demographic data, we will pay America Online quarterly fees based on the
greater of $1.0 million, 10% of the consideration charged by us for targeted
advertising using America Online data, and 70% of the incremental revenue
charged by us for the targeting feature. The minimum payment for the first year
is $4.0 million; if other quarterly fees described above reach $5.0 million in
the first year, the percentages above would be reduced by one-half. In the
second year, quarterly fees to America Online would be based on the greater of
$750,000, 5% of the consideration charged by us for targeted advertising using
America Online data, and 35% of the incremental revenue charged by us for the
targeting feature. The minimum payment for the second year is the greater of
$3.0 million and one-half the total payments made by us to America Online in the
first year. In the third year, quarterly fees to America Online would be
calculated based on the same formula as the second year. The minimum payment for
the third year is the greater of $3.0 million and one-half the total payments
made by us to America Online in the second year. The demographic data agreement
will expire on the earlier of July 14, 2002 or three years after we have access
to the demographic data. America Online can elect to renew the demographic data
agreement on the same terms and conditions on a year-to-year basis with 90 days'
notice, subject to establishing mutually agreeable minimum annual fees. America
Online can elect to terminate the demographic data agreement upon payment of a
fee to us if a third party offers more favorable terms for access to the
demographic data and we do not match those terms. The demographic data agreement
cannot be assigned or transferred in connection with a change in control without
the consent of AdForce and America Online. To date, America Online has not
determined that the targeting of advertising has become a generally accepted
practice, so we have not had access to the demographic data. There is currently
no final implementation schedule or procedure for this access.
AdForce entered into a license agreement in February 1999 with Netscape,
similar to the license agreement with America Online described above. Under the
terms of the license agreement, upon the merger of Netscape and America Online,
which was completed in March 1999, we licensed our technology to Netscape and
its affiliates to be used internally by Netscape and on sites associated with
Netscape. The licensed technology includes future enhancements to our technology
and is warranted to perform according to its specifications. The license is
fully paid, nonexclusive, perpetual, worldwide and nontransferable, except for
some assignments, and includes source code. For the initial term of the license
agreement, which ends November 22, 1999, the estimated charges to Netscape are
approximately $2.7 million. Netscape has prepaid this amount. Our estimated
charges per thousand ads served is $0.10
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through October 1999 and $0.08 for the first 22 days of November 1999; however,
if actual volumes are lower than forecasted, these charges will be higher. These
prices are significantly lower than we give to any other party. During the first
quarter of 1999, we generated $396,000 in net revenue from Netscape, $209,000 of
which is attributable to services provided since February 1999 when the license
agreement was signed. We can terminate the license of the technology only in the
event of a material, uncorrected breach by Netscape of the license agreement or
the demographic data agreement, if AdForce and Netscape elect to enter a
demographic data agreement. At this time, AdForce and Netscape have not entered
a demographic data agreement. We will provide technical support and development
services in connection with Netscape's use of the technology and we will provide
ad servicing services, all on a cost or cost plus basis if Netscape is not in
default. We will provide these services at cost if Netscape provides us access
to demographic data under the demographic data agreement and Netscape is not in
breach of the demographic data agreement. Otherwise, we can mark up the cost of
our services by 25% under most circumstances, and an additional 15% under other
circumstances, as specified in the license agreement. Under the license
agreement, Netscape will use commercially reasonable efforts to encourage others
associated with Netscape to use our technology. Under this arrangement,
commission or revenue sharing obligations can arise. The agreement to provide
technical support and development services runs for the duration of the license.
The license agreement is renewable for a one-year term upon written agreement of
AdForce and Netscape. To our knowledge, we would not agree to provide any of the
services under this agreement to any other party under these same terms.
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PRINCIPAL STOCKHOLDERS
The following table shows certain information with respect to beneficial
ownership of our common stock as of March 31, 1999 by (1) each stockholder known
by us to be the beneficial owner of more than 5% of our common stock; (2) each
of our directors; (3) each of our officers named in the Summary Compensation
Table above; and (4) all executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the
SEC and represents sole or shared voting or sole or shared investment power with
respect to securities. Unless otherwise indicated below, the persons and
entities named in the following table have sole voting and sole investment power
with respect to all shares beneficially owned, subject to community property
laws where applicable. Shares of common stock subject to options or warrants
that are currently exercisable or exercisable within 60 days of March 31, 1999
are deemed to be outstanding and to be beneficially owned by the person holding
the options or warrants for the purpose of computing the percentage ownership of
that person, but are not treated as outstanding for the purpose of computing the
percentage ownership of any other person.
The following table assumes that the underwriters' over-allotment option
to purchase up to 675,000 shares from AdForce is not exercised.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
NUMBER OF SHARES ------------------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OFFERING OFFERING
- ------------------------------------------------------ ---------------- ----------- -----------
<S> <C> <C> <C>
America Online, Inc.(1)............................... 2,476,326 15.8% 12.3%
360 Capital Partners, L.P.(2)......................... 1,268,500 8.6 6.6
Mark P. Gorenberg(3)
Funds affiliated with Hummer Winblad................ 1,222,836 8.3 6.4
Chad Steelberg(4)..................................... 1,163,620 7.9 6.1
J. Neil Weintraut(5)
21(st) Century Internet Fund, L.P................... 1,145,428 7.8 6.0
Eric Di Benedetto(6)
Funds affiliated with Convergence Ventures.......... 1,047,778 7.1 5.5
IBL Corporation(7).................................... 1,043,556 7.1 5.4
Charles W. Berger(8).................................. 900,000 6.1 4.7
Dirk A. Wray(9)....................................... 649,952 4.4 3.4
John A. Tanner(10).................................... 225,000 1.5 1.2
All executive officers and directors as a group (10
persons)(11)......................................... 6,080,994 38.5 30.0
</TABLE>
- ------------------------
(1) Represents 1,456,664 shares held of record by America Online, Inc. and
1,019,662 shares subject to a warrant held by America Online, Inc. that is
currently exercisable. The address of America Online, Inc. is 22000 AOL
Way, Dulles, Virginia 20166.
(2) The address of 360 Capital Partners, L.P. is 360 East 22(nd) Street,
Lombard, Illinois 60148.
(3) Represents (a) 1,099,614 shares held of record by Hummer Winblad Venture
Partners II, L.P., (b) 70,774 shares held of record by Hummer Winblad
Venture Fund II, L.P., (c) 41,450 shares held of record by Hummer Winblad
Technology Fund II, L.P., (d) 7,314 shares held of record by Hummer Winblad
Technology Fund II-A, L.P, (e) 3,538 shares subject to a warrant held by
Hummer Winblad Venture Fund II, L.P. that is currently exercisable, (f) 124
shares subject to a warrant held by Hummer Winblad Technology Fund II, L.P.
that is currently exercisable, and (g) 22 shares subject to a warrant held
by Hummer Winblad Technology Fund II-A, L.P. that is currently exercisable.
Mr. Gorenberg, one of our directors, is a partner of Hummer Winblad Venture
Partners, which is the
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general partner of the above funds. The address of Mr. Gorenberg and each
entity is 2 South Park, 2(nd) Floor, San Francisco, California 94107. Mr.
Gorenberg disclaims beneficial ownership of the shares held by the above
funds except to the extent of his pecuniary interest in the above funds.
(4) Includes 1,019,620 shares held of record by Mr. Steelberg and 144,000
shares for which Mr. Steelberg has sole voting power. The address of Mr.
Steelberg is c/o The Busch Firm, 2532 Dupont, Irvine, California 92618.
(5) Represents shares held by 21(st) Century Internet Fund, L.P. Mr. Weintraut,
one of our directors, is a founder and managing member of 21st Century
Internet Management Partners, LLC, a general partner of this fund. The
address of Mr. Weintraut and 21(st) Century Internet Fund, L.P. is 2 South
Park, 2(nd) Floor, San Francisco, California 94107. Mr. Weintraut disclaims
beneficial ownership of the shares held by the above fund except to the
extent of his pecuniary interest arising from his interest in the above
fund.
(6) Represents (a) 991,332 shares held of record by Convergence Ventures I,
L.P., (b) 48,838 shares held of record by Convergence Entrepreneurs Fund I,
L.P., (c) 7,282 shares subject to a warrant held by Convergence Ventures I,
L.P. that is currently exercisable, and (d) 326 shares subject to a warrant
held by Convergence Entrepreneurs Fund I, L.P. that is currently
exercisable. Mr. Di Benedetto, one of our directors, is a general partner
of Convergence Partners, L.P., which is the general partner of the above
funds. The address of each entity is 3000 Sand Hill Road, Building 2, Suite
235, Menlo Park, California 94025. Mr. Di Benedetto disclaims beneficial
ownership of the shares held by the above fund except to the extent of his
pecuniary interest arising from his interest in the above funds.
(7) Represents 1,039,916 shares held of record by IBL Corporation and 3,640
shares subject to a warrant held by IBL Corporation that is currently
exercisable. The address of IBL Corporation is 136 Heber Avenue, Suite 304,
Park City, Utah 84060.
(8) Includes 468,750 shares that are subject to a repurchase right which lapses
at the rate of 2.08% per month until June 30, 2001. Mr. Berger is our chief
executive officer, president and chairman of our board of directors.
(9) Includes 530,952 shares held of record by Washington Holdings, a Nevada
limited partnership, and 119,000 shares for which Mr. Wray has sole voting
power. Mr. Wray, one of our directors, is a general partner of Washington
Holdings. Mr. Wray disclaims beneficial ownership of the shares held by
Washington Holdings except to the extent of his pecuniary interest arising
from his interest in Washington Holdings.
(10) Includes 225,000 shares subject to options exercisable within 60 days of
March 31, 1999 of which 140,625 remain subject to a repurchase right which
lapses at the rate of 2.08% per month until November 3, 2001. Mr. Tanner
is our executive vice president and chief financial officer.
(11) Represents 4,954,702 shares held of record by current executive officers
and directors as a group and 1,126,292 shares subject to options or
warrants exercisable within 60 days of March 31, 1999 held by current
executive officers and directors as a group.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Immediately following the closing of this offering, our authorized
capital stock will consist of 100,000,000 shares of common stock, and 5,000,000
shares of preferred stock. As of March 31, 1999, assuming the conversion of all
outstanding preferred stock into common stock, there were outstanding 14,669,429
shares of common stock held of record by 167 stockholders, options to purchase
2,280,759 shares of common stock and warrants to purchase 1,294,686 shares of
common stock.
COMMON STOCK
Subject to preferences that may apply to shares of preferred stock
outstanding at the time, the holders of outstanding shares of common stock are
entitled to receive dividends out of assets legally available for dividends at
times and in amounts as our board of directors may from time to time determine.
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders. Cumulative voting for the election
of directors is not authorized by our certificate of incorporation, which means
that the holders of a majority of the shares voted can elect all of the
directors then standing for election. The common stock is not entitled to
preemptive rights and is not subject to conversion or redemption. Upon a
liquidation, dissolution or winding-up of AdForce, the assets legally available
for distribution to stockholders would be distributed ratably among the holders
of the common stock and any participating preferred stock outstanding at that
time after payment of liquidation preferences, if any, on any outstanding
preferred stock and payment of other claims of creditors. Each outstanding share
of common stock is, and all shares of common stock to be outstanding upon
completion of this offering will be upon payment for those shares, duly and
validly issued, fully paid and nonassessable.
PREFERRED STOCK
Upon the closing of this offering, each outstanding share of preferred
stock will be converted into two shares of common stock. See note 8 of the notes
to the financial statements for a description of the preferred stock currently
outstanding. Following the offering, our board of directors will be authorized,
without any further vote or action by the stockholders and subject to
limitations prescribed by Delaware law, to issue up to 5,000,000 shares of
preferred stock in one or more series, to establish from time to time the number
of shares to be included in each series, to fix the rights, preferences and
privileges of the shares of each series and any qualifications, limitations or
restrictions on those shares, and to increase or decrease the number of shares
of each series. Our board of directors may authorize the issuance of preferred
stock with voting or conversion rights that could adversely affect the voting
power or other rights of the holders of the common stock. The issuance of
preferred stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of delaying,
deferring or preventing a change in control of AdForce and might adversely
affect the market price of the common stock and the voting and other rights of
the holders of common stock. We have no current plan to issue any shares of
preferred stock.
REGISTRATION RIGHTS
After this offering, the holders of approximately 10,532,696 shares of
common stock and warrants to acquire common stock will be entitled to rights to
register of those shares. As a result of an investors' rights agreement dated as
of July 15, 1998 between AdForce and certain of our stockholders, the
stockholders, holding an aggregate of 9,244,152 shares of our common stock
issuable upon conversion of our Series A preferred stock, Series B preferred
stock, Series C preferred stock, Series D preferred stock and Series E preferred
stock, have rights to register their shares that they may exercise at any time
after 180 days following the closing of this offering. Under the investors'
rights agreement, holders of: (1) at least 30% of the voting power of the
outstanding Series B preferred stock, (2) 30% of the voting power of the
outstanding Series C preferred stock, (3) a majority of the voting power of the
outstanding Series D
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preferred stock or (4) a majority of the voting power of the outstanding Series
E preferred stock may demand, by written request, that we file a registration
statement under the Securities Act covering all or a portion of their preferred
stock, provided that, in the case of a registration statement on a form other
than a Form S-3, the registration statement has an aggregate proposed offering
price to the public, net of underwriters' discounts and commissions, of at least
$7,500,000 or, in the case of a registration on a Form S-3, there is a
reasonably anticipated aggregate offering price to the public of at least
$1,000,000, or $3,000,000 in the case of Series E preferred stock. These
stockholders may not demand more than three Form S-3 registrations in total or
more than two in any one year. These registration rights are subject to
AdForce's right to delay the filing of a registration statement not more than
once in a 12-month period, for not more than 90 days, after receiving the
registration demand in the case of a registration on a form other than a Form
S-3, and 60 days in the case of a registration on a Form S-3.
In addition, the stockholders who are parties to the investors' rights
agreement, and holders of rights to acquire 100,176 shares of common stock, have
piggyback registration rights. If AdForce proposes to register any of its common
stock under the Securities Act, other than under the investors' demand
registration rights noted above, these stockholders may require AdForce to
include all or a portion of their stock in the registration; provided, however,
that the managing underwriter, if any, of the offering has rights to limit the
amount of stock held by those investors included in a registration to 30% of the
aggregate shares included in the offering.
All registration expenses incurred in connection with the above
registrations will be borne by AdForce. Each selling stockholder will pay all
underwriting discounts and selling commissions applicable to the sale of that
stockholder's stock.
Demand and piggyback registration rights under the investors' rights
agreement will terminate with respect to a stockholder when (1) that stockholder
owns less than 1% of the outstanding securities of AdForce, (2) that stockholder
is able to sell all its shares in a three-month period under Rule 144 of the
Securities Act and (3) AdForce is subject to the reporting requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934.
ANTI-TAKEOVER PROVISIONS
DELAWARE LAW
Upon the closing of this offering, we will be subject to the provisions
of Section 203 of the Delaware General Corporation Law regulating corporate
takeovers. Section 203 prevents some Delaware corporations, including those
whose securities are listed on the Nasdaq National Market, from engaging, under
some circumstances, in a business combination with any interested stockholder
for three years following the date that that stockholder became an interested
stockholder of AdForce. For purposes of Section 203, a business combination
includes a merger or consolidation involving AdForce and the interested
stockholders and the sale of more than 10% of our assets. In general, Section
203 defines an interested stockholder as any entity or person owning 15% or more
of our outstanding voting stock and any entity or person affiliated with or
controlled by or controlling that entity or person.
A Delaware corporation may opt out of Section 203 with an express
provision in its original certificate of incorporation or an express provision
in its certificate or incorporation or bylaws resulting from a stockholders'
amendment approved by at least a majority of the outstanding voting shares. We
have not opted out of the provisions of Section 203. Section 203 could prohibit
or delay mergers or other takeover or change-in-control attempts with respect to
us and, accordingly, may discourage attempts to acquire us.
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CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
Our certificate of incorporation and bylaws provide for the division of
our board of directors into three classes as nearly equal in size as reasonably
possible with staggered three-year terms. Our stockholders are unable to fill
any vacancy on our board of directors. Any action required or permitted to be
taken by our stockholders at an annual meeting or a special meeting of the
stockholders may only be taken if it is properly brought before that meeting and
may not be taken by written consent. Our stockholders are limited in their
ability to remove any director or the entire board of directors without cause.
Our bylaws provide that special meetings of the stockholders may be called at
any time by the board of directors, and must be called upon the request of the
chairman of the board of directors, the chief executive officer, the president,
stockholders that are entitled to cast not less than a majority of the total
number of votes entitled to be cast by all stockholders of that special meeting,
or by a majority of the members of the board of directors. These provisions of
our certificate of incorporation and bylaws are intended to enhance the
likelihood of continuity and stability in the composition of the board of
directors and to discourage transactions that may involve an actual or
threatened change of control of AdForce. These provisions are designed to reduce
the vulnerability of AdForce to an unsolicited acquisition proposal and,
accordingly, could discourage potential acquisition proposals and could delay or
prevent a change in control of AdForce. These provisions are also intended to
discourage tactics that may be used in proxy fights but could, however, have the
effect of discouraging others from making tender offers for our shares and,
consequently, may also inhibit fluctuations in the market price of our shares
that could result from actual or rumored takeover attempts. These charges may
also have the effect of preventing changes in our management. See "Risk
Factors--Provisions in Our Charter Documents May Deter Acquisition Bids for
AdForce, Which Could Adversely Affect the Market Price of Your Shares."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company.
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SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, you could not buy or sell our common stock on a
public market. An active public market for our common stock may not develop or
be sustained after this offering. Future sales of substantial amounts of common
stock, including shares issued upon exercise of outstanding options or warrants,
in the public market after this offering could adversely affect the prevailing
market price of our common stock and could impair our ability to raise equity
capital in the future. In addition, since few shares will be available for sale
immediately after this offering due to the contractual and legal restrictions on
resale 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 19,169,429
shares of common stock based on shares outstanding at March 31, 1999, assuming
no exercise of the underwriters' over-allotment option and no exercise of
outstanding options or warrants. Of this amount, 5,207,368 shares, including the
4,500,000 shares sold in this offering, will be freely tradable in the public
market without restriction or further registration under the Securities Act,
unless those shares are purchased by any of our affiliates. An affiliate of
AdForce is a person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
AdForce. Our current affiliates include the individuals and entities listed
under "Principal Stockholders" as well as our other executive officers. The
remaining 13,962,061 shares held by existing stockholders are subject to various
resale restrictions. Of these shares, 12,512,441 shares are subject to lock-up
agreements with the underwriters, under which all of our directors and officers
and most of our stockholders have agreed not to transfer or dispose of, directly
or indirectly, any shares of common stock or any securities convertible into or
exercisable or exchangeable for shares of common stock, for a period of 180 days
after the date of this prospectus. Hambrecht & Quist LLC may release the shares
subject to the lock-up agreements in whole or in part at any time with or
without notice. Hambrecht & Quist LLC has no current plans to do so. An
additional 1,449,620 shares are subject to a 180-day lockup through agreements
directly with us that we have agreed to enforce if requested by the
underwriters. Beginning 180 days after the date of this prospectus, the
13,962,061 shares subject to various resale restrictions will be eligible for
sale in the public market under Rule 144 or Rule 701, although 6,411,366 shares
will be subject to volume limitations. The remaining shares subject to various
resale restrictions will become eligible for sale, subject to volume
limitations, on October 28, 1999.
RULE 144
In general, under Rule 144, beginning 90 days after the date of this
prospectus, an affiliate of AdForce who has beneficially owned restricted shares
for at least one year but less than two years, would be entitled to sell within
any three-month period a number of shares that does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding, equal to
approximately 191,694 shares immediately after this offering; or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of
a notice of sale with the SEC.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.
RULE 144(K)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner except one of our affiliates, is
entitled to
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sell those shares without complying with the manner of sale, public information,
volume limitation or notice provisions of Rule 144.
RULE 701
In general, under Rule 701 of the Securities Act, any of our employees,
officers, directors, consultants or advisors who purchased shares from us in
connection with a compensatory stock or option plan or other written agreement
is eligible to resell those shares 90 days after the effective date of this
offering in reliance on Rule 144, but without compliance with certain
restrictions, including the holding period contained in Rule 144. However, all
shares issued pursuant to Rule 701 are subject to lock-up agreements and will
only become eligible for sale at the earlier of the expiration of the 180-day
lock-up agreements or obtaining the prior written consent of Hambrecht & Quist
LLC or the other representatives of the underwriters more than 90 days after
this offering.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of 10,532,696 shares of
our common stock and rights to acquire common stock, or their transferees, will
be entitled to rights to register their shares under the Securities Act. See
"Description of Capital Stock--Registration Rights." After registration, these
shares could be sold without restriction under the Securities Act.
STOCK OPTIONS
Promptly following this offering, we will file a registration statement
under the Securities Act covering all shares of common stock subject to
outstanding options or reserved for issuance under our 1999 plan, our directors
plan or our stock purchase plan. Based on the number of shares subject to
options outstanding at March 31, 1999 and currently reserved for issuance under
these plans, this registration statement would cover approximately 5,642,697
shares. The registration statement will automatically become effective upon
filing. Accordingly, shares registered under the registration statement will,
subject to Rule 144 volume limitations applicable to our affiliates, be
available for sale in the open market immediately after the 180-day lock-up
agreements expire.
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UNDERWRITING
Subject to the terms and conditions contained in the underwriting
agreement dated May 7, 1999, the underwriters named below, for whom Hambrecht &
Quist LLC, Lehman Brothers Inc., Volpe Brown Whelan & Company, LLC and Charles
Schwab & Co., Inc. are acting as representatives, have agreed to purchase from
AdForce the following respective numbers of shares of common stock.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---------------------------------------------------------------- -----------
<S> <C>
Hambrecht & Quist LLC........................................... 1,670,000
Lehman Brothers Inc............................................. 1,002,000
Volpe Brown Whelan & Company, LLC............................... 668,000
Charles Schwab & Co., Inc....................................... 200,000
ING Baring Furman Selz LLC...................................... 120,000
CIBC Oppenheimer Corp........................................... 120,000
BancBoston Robertson Stephens, Inc.............................. 120,000
J.P. Morgan Securities Inc...................................... 120,000
Legg Mason Wood Walker Inc...................................... 60,000
C.E. Unterberg, Towbin.......................................... 60,000
Pacific Crest Securities........................................ 60,000
Janney Montgomery Scott Inc..................................... 60,000
Sands Brothers & Co., Ltd....................................... 60,000
Needham & Co. Inc............................................... 60,000
Dain Rauscher Wessels........................................... 60,000
SoundView Technology Group, Inc................................. 60,000
-----------
Total........................................................... 4,500,000
-----------
-----------
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters are subject to specified conditions, including the absence of any
material adverse change in AdForce's business and the receipt of certificates,
opinions and letters from AdForce, its counsel and its independent auditors. The
underwriters are committed to purchase all of the shares of common stock offered
by us if they purchase any shares.
The underwriters propose to offer the shares of common stock directly to
the public initially at the initial public offering price shown on the cover
page of this prospectus and to dealers selected by the underwriters at that
price less a concession not in excess of $0.60 per share. The underwriters may
allow and those dealers may reallow a concession not in excess of $0.10 per
share to other dealers. After the initial public offering of the shares, the
offering price and other selling terms may be changed by the underwriters.
We have granted to the underwriters an option, exercisable no later than
30 days after the date of this prospectus, to purchase up to 675,000 additional
shares of common stock at the initial public offering price, less the
underwriting discounts shown on the cover page of this prospectus. To the extent
that the underwriters exercise this option, each of the underwriters will have a
firm commitment to purchase approximately the same percentage of those
additional shares which the number of shares of common stock to be purchased by
it shown in the above table bears to the total number of shares of common stock
offered by us. We will be obligated pursuant to this option to sell shares to
the underwriters to the extent the option is exercised. The underwriters may
exercise this option only to cover over-allotments made in connection with the
sale of shares of common stock offered by us.
The offering of the shares is made for delivery when, as and if accepted
by the underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
64
<PAGE>
We have agreed to indemnify the underwriters against specified
liabilities, including liabilities under the Securities Act, and to contribute
to payments the underwriters may be required to make in respect of those
liabilities.
AdForce and its officers, directors and certain other stockholders, who
will own in the aggregate 12,512,441 shares of common stock after the offering,
have agreed that they will not, without the prior written consent of Hambrecht &
Quist LLC, offer, sell or dispose of any shares of common stock, options or
warrants to acquire shares of common stock or securities exchangeable for or
convertible into shares of common stock owned by them for a period of 180 days
following the date of this prospectus. AdForce has agreed that it will not,
without the prior written consent of Hambrecht & Quist LLC, offer, sell, grant
any option to purchase or dispose of any shares of common stock or any
securities exchangeable for or convertible into shares of common stock for a
period of 180 days following the date of this prospectus, except that AdForce
may issue, and grant options to purchase, shares of common stock under its stock
and employee stock purchase plans and under currently outstanding options. Sales
of these shares in the future could adversely affect the market price of the
common stock.
Of the 4,500,000 shares of common stock to be sold in this offering, the
underwriters have reserved for sale, at the price to public shown on the cover
page of this prospectus, up to 393,750 shares as follows: (1) at our request, up
to 258,750 shares for our directors, officers and business associates and (2) up
to an additional 135,000 shares for preferred stockholders in connection with a
preexisting contractual right between AdForce and those preferred stockholders.
As a result, the number of shares of common stock available for sale to the
general public will be reduced to the extent these persons purchase the reserved
shares. The underwriters will offer to the general public any reserved shares
that are not so purchased on the same basis as the other shares to be sold in
this offering.
Before this offering, you could not buy or sell our common stock on a
public market. The initial public offering price for the common stock was
negotiated by AdForce and the underwriters. Among the factors considered in
determining the initial public offering price were prevailing market and
economic conditions, revenues and earnings of AdForce, market valuations of
other companies engaged in activities similar to AdForce, estimates of the
business potential and prospects of AdForce, and the present state of AdForce's
business operations and AdForce's management.
Some of the persons participating in this offering may over-allot or
effect transactions that stabilize, maintain or otherwise affect the market
price of the common stock at levels above those that might otherwise prevail in
the open market, including by entering stabilizing bids, effecting syndicate
covering transactions or imposing penalty bids. A stabilizing bid means the
placing of any bid or effecting of any purchase for the purpose of pegging,
fixing or maintaining the price of the common stock. A syndicate covering
transaction means the placing of any bid on behalf of the underwriting syndicate
or the effecting of any purchase to reduce a short position created in
connection with the offering. Penalty bids permit the underwriters to reclaim a
selling concession from a syndicate member in connection with the offering when
shares of common stock sold by the syndicate member are purchased in a syndicate
covering transaction. Stabilizing transactions may be effected on the Nasdaq
National Market, in the over-the-counter market, or otherwise. Stabilizing
transactions, if commenced, may be discontinued at any time.
H&Q Imgis Investors, L.P. and Hambrecht & Quist California purchased
101,968 and 43,700 shares of Series D preferred stock for an aggregate purchase
price of $1,000,011, or $6.865 per share, as part of an equity financing on the
same terms as all other participants in the financing purchased their shares. In
addition, in July 1998, we issued to H&Q Imgis Investors, L.P., a warrant to
purchase up to 5,048 shares of Series D preferred stock at an exercise price of
$6.865 per share, in consideration of agreeing to amendments to our then
effective articles of incorporation. Interests of H&Q Imgis Investors, L.P. and
Hambrecht & Quist California are beneficially owned in part by persons
affiliated with Hambrecht & Quist LLC.
65
<PAGE>
LEGAL MATTERS
Fenwick & West LLP, Palo Alto, California, will pass upon the validity
of the shares of common stock offered by us. Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP, Menlo Park, California, will pass upon legal matters
in connection with this offering for the underwriters. A partnership comprised
of partners of Fenwick & West LLP owns 3,640 shares of our common stock. A
partnership comprised of partners of Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP owns 31,712 shares of our common stock.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements and schedule at December 31, 1997 and 1998, and for the period from
January 16, 1996 (inception) through December 31, 1996 and for each of the two
years in the period ended December 31, 1998, as stated in their report. We have
included our financial statements and schedule in the prospectus and elsewhere
in the registration statement in reliance on Ernst & Young LLP's report, given
on their authority as experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited StarPoint
Software, Inc.'s financial statements at May 31, 1997, and for the period from
August 8, 1996 (inception) through May 31, 1997, as stated in their report. We
have included StarPoint Software's financial statements in the prospectus and
elsewhere in the registration statement in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 with
respect to the common stock offered by us. This prospectus, which constitutes a
part of the registration statement, does not contain all of the information in
the registration statement or the exhibits and schedule that are part of the
registration statement. For further information with respect to AdForce and the
common stock, please see the registration statement and the exhibits and
schedule that are part of the registration statement. You may read and copy any
document we file at the SEC's public reference rooms in Washington, D.C., New
York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for
further information about the public reference rooms. Our SEC filings are also
available to the public from the SEC's Web site at http://www.sec.gov.
Upon completion of this offering, we will become subject to the
information and periodic reporting requirements of the Securities Exchange Act
and, as required by the Securities Exchange Act, we will file periodic reports,
proxy statements and other information with the SEC. These periodic reports,
proxy statements and other information will be available for inspection and
copying at the SEC's public reference rooms and the Web site of the SEC referred
to above.
66
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
ADFORCE, INC.:
Report of Ernst & Young LLP, Independent Auditors.................................. F-2
Balance Sheets..................................................................... F-3
Statements of Operations........................................................... F-4
Statements of Stockholders' Equity................................................. F-5
Statements of Cash Flows........................................................... F-6
Notes to Financial Statements...................................................... F-7
STARPOINT SOFTWARE, INC.:
Report of Ernst & Young LLP, Independent Auditors.................................. F-26
Balance Sheets..................................................................... F-27
Statements of Operations........................................................... F-28
Statements of Shareholders' Equity (Net Capital Deficiency)........................ F-29
Statements of Cash Flows........................................................... F-30
Notes to Financial Statements...................................................... F-31
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
AdForce, Inc.
We have audited the accompanying balance sheets of AdForce, Inc. as of
December 31, 1997 and 1998, and the related statements of operations, and
stockholders' equity, and cash flows for the period from January 16, 1996
(inception) to December 31, 1996 and for the years ended December 31, 1997 and
1998. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of AdForce, Inc. at
December 31, 1997 and 1998, and the results of its operations and its cash flows
for the period from January 16, 1996 (inception) to December 31, 1996 and for
the years ended December 31, 1997 and 1998, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
San Jose, California
February 5, 1999,
except for Note 11,
as to which the date is April 30, 1999
F-2
<PAGE>
ADFORCE, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
--------- ---------
MARCH 31, PRO FORMA
1999 STOCKHOLDERS'
----------- EQUITY AT MARCH
31, 1999
(UNAUDITED) -----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 1,680 $ 10,045 $ 9,727
Accounts receivable, net of allowances of $131, $1,035, and $1,187
at December 31, 1997 and 1998 and March 31, 1999,
respectively.................................................... 239 1,160 1,348
Prepaid expenses and other current assets......................... 404 575 676
--------- --------- -----------
Total current assets................................................ 2,323 11,780 11,751
Property and equipment, net......................................... 1,946 4,208 7,219
Intangible assets, net.............................................. -- 4,662 4,294
Other non-current assets............................................ -- 285 1,005
--------- --------- -----------
Total assets........................................................ $ 4,269 $ 20,935 $ 24,269
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................. $ 374 $ 1,078 $ 2,608
Accrued compensation and related benefits......................... 85 458 715
Deferred revenue.................................................. -- 10 2,369
Other accrued liabilities......................................... 192 799 679
Current portion of capital lease obligations...................... 499 1,460 2,336
--------- --------- -----------
Total current liabilities........................................... 1,150 3,805 8,707
Long-term portion of capital lease obligations...................... 1,744 3,089 5,183
Commitments
Stockholders' equity:
Convertible preferred stock, $0.001 par value: 6,238,163 shares
authorized:
Series A, 602,000 shares designated, 600,457 shares issued and
outstanding as of December 31, 1997 and 1998, and March 31,
1999, and none pro forma, aggregate liquidation preference at
December 31, 1998 and March 31, 1999 of $1,507................ 1 1 1 $ --
Series B, 1,100,000 shares designated, 1,027,318 shares issued
and outstanding as of December 31, 1997 and 1998, and March
31, 1999, and none pro forma, aggregate liquidation preference
at December 31, 1998 and March 31, 1999 of $2,579............. 1 1 1 --
Series C, 1,725,000 shares designated, 1,275,000, 1,646,948, and
1,646,948 shares issued and outstanding as of December 31,
1997 and 1998, and March 31, 1999, respectively, and none pro
forma, aggregate liquidation preference at December 31, 1998
and March 31, 1999 of $7,790.................................. 1 1 1 --
Series D, 786,500 shares designated, 730,504 shares issued and
outstanding as of December 31, 1998 and March 31, 1999 and
none pro forma, aggregate liquidation preference at December
31, 1998 and March 31, 1999 of $10,030........................ -- 1 1 --
Series E, 1,238,163 shares designated, 728,332 shares issued and
outstanding as of December 31, 1998 and March 31, 1999 and
none pro forma, aggregate liquidation preference at December
31, 1998 and March 31, 1999 of $10,000........................ -- 1 1 --
Common stock, $0.001 par value: 25,000,000 shares authorized:
3,270,330, 5,016,603, and 5,202,311 shares issued and
outstanding as of December 31, 1997 and 1998 and March 31, 1999,
respectively, and 14,669,429 shares issued and outstanding pro
forma 3 5 5 15
Additional paid-in capital........................................ 10,623 41,679 46,034 46,029
Deferred stock compensation....................................... -- (2,802) (5,823) (5,823)
Note receivable from stockholder.................................. (98) (70) (63) (63)
Accumulated deficit............................................... (9,156) (24,776) (29,779) (29,779)
--------- --------- ----------- -------
Total stockholders' equity.......................................... 1,375 14,041 10,379 $ 10,379
--------- --------- ----------- -------
-------
Total liabilities and stockholders' equity.......................... $ 4,269 $ 20,935 $ 24,269
--------- --------- -----------
--------- --------- -----------
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
ADFORCE, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
PERIOD FROM YEARS ENDED DECEMBER
JANUARY 16, 1996 31, MARCH 31,
(INCEPTION) TO -------------------- --------------------
DECEMBER 31, 1996 1997 1998 1998 1999
----------------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue............................. $ -- $ 320 $ 4,286 $ 414 $ 3,220
Cost of revenue:
Data center operations................ -- 1,508 4,439 709 1,915
Amortization of intangible assets and
deferred stock compensation......... -- -- 1,100 191 369
------- --------- --------- --------- ---------
Total cost of revenue................. -- 1,508 5,539 900 2,284
------- --------- --------- --------- ---------
Gross profit (loss)..................... -- (1,188) (1,253) (486) 936
Operating expenses:
Research and development.............. 1,561 2,236 4,665 818 2,244
Marketing and selling................. 1,485 1,054 4,863 613 1,773
General and administrative............ 337 1,118 1,839 390 615
Amortization of intangible assets and
deferred stock compensation......... -- -- 2,849 193 1,234
------- --------- --------- --------- ---------
Total operating expenses................ 3,383 4,408 14,216 2,014 5,866
------- --------- --------- --------- ---------
Loss from operations.................... (3,383) (5,596) (15,469) (2,500) (4,930)
Interest income......................... -- 21 365 6 99
Interest expense........................ (69) (129) (516) (109) (172)
------- --------- --------- --------- ---------
Net loss................................ $ (3,452) $ (5,704) $ (15,620) $ (2,603) $ (5,003)
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
Basic and diluted net loss per share.... $ (1.40) $ (3.48) $ (5.49) $ (1.25) $ (1.26)
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
Weighted average shares of common stock
outstanding used in computing basic
and diluted net loss per share........ 2,465 1,639 2,844 2,079 3,966
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
Pro forma basic and diluted net loss per
share................................. $ (1.44) $ (0.37)
--------- ---------
--------- ---------
Weighted average shares used in
computing pro forma basic and diluted
net loss per share.................... 10,877 13,402
--------- ---------
--------- ---------
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
ADFORCE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED
STOCK COMMON STOCK
---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Issuance of common stock to founders in partial consideration for intellectual
property rights assigned to the Company...................................... -- $ -- 1,720,000 $ 2
Issuance of common stock....................................................... -- -- 2,003,000 2
Repurchase of common stock..................................................... -- -- (1,612,900) (2)
Issuance of Series A convertible preferred stock upon conversion of note
payable, net of issuance costs of $97........................................ 600,457 1 -- --
Issuance of Series B convertible preferred stock............................... 110,000 -- -- --
Conversion of Series B convertible preferred stock to common stock............. (110,000) -- 220,000 --
Issuance of Series B convertible preferred stock, net of issuance costs of
$17.......................................................................... 1,027,318 1 -- --
Net loss....................................................................... -- -- -- --
--------- ----- --------- -----
Balances at December 31, 1996.................................................... 1,627,775 2 2,330,100 2
Issuance of common stock....................................................... -- -- 940,230 1
Forgiveness of stockholder note receivable..................................... -- -- -- --
Issuance of Series C convertible preferred stock, net of issuance costs of
$72.......................................................................... 1,275,000 1 -- --
Issuance of warrants........................................................... -- -- -- --
Net loss....................................................................... -- -- -- --
--------- ----- --------- -----
Balances at December 31, 1997.................................................... 2,902,775 3 3,270,330 3
Issuance of common stock....................................................... -- -- 868,439 1
Deferred stock compensation related to certain options granted to employees.... -- -- -- --
Amortization of deferred stock compensation.................................... -- -- -- --
Compensation related to acceleration of vesting of founders' stock............. -- -- -- --
Issuance of Series C convertible preferred stock and common stock in
acquisition.................................................................. 309,738 -- 877,834 1
Issuance of Series C convertible preferred stock, net of issuance costs of
$26.......................................................................... 62,210 -- -- --
Issuance of Series D convertible preferred stock, net of issuance costs of
$74.......................................................................... 730,504 1 -- --
Issuance of Series E convertible preferred stock, net of issuance costs of
$112......................................................................... 728,332 1 -- --
Forgiveness of stockholder note receivable..................................... -- -- -- --
Issuance of warrants........................................................... -- -- -- --
Net loss....................................................................... -- -- -- --
--------- ----- --------- -----
Balances at December 31, 1998.................................................... 4,733,559 5 5,016,603 5
Issuance of common stock (unaudited)........................................... -- -- 185,708 --
Deferred stock compensation related to certain options granted to employees,
net (unaudited).............................................................. -- -- -- --
Amortization of deferred compensation (unaudited).............................. -- -- -- --
Compensation related to acceleration of vesting of employee options
(unaudited).................................................................. -- -- -- --
Forgiveness of stockholder note receivable (unaudited)......................... -- -- -- --
Issuance of warrants (unaudited)............................................... -- -- -- --
Net loss (unaudited)........................................................... -- -- -- --
--------- ----- --------- -----
Balances at March 31, 1999 (unaudited)........................................... 4,733,559 $ 5 5,202,311 $ 5
--------- ----- --------- -----
--------- ----- --------- -----
<CAPTION>
NOTE
DEFERRED RECEIVABLE
ADDITIONAL STOCK FROM
PAID-IN CAPITAL COMPENSATION STOCKHOLDER
--------------- ------------- -------------
<S> <C> <C>
Issuance of common stock to founders in partial consideration for intellectual
property rights assigned to the Company...................................... $ 6 $ -- $ --
Issuance of common stock....................................................... 8 -- --
Repurchase of common stock..................................................... (6) -- --
Issuance of Series A convertible preferred stock upon conversion of note
payable, net of issuance costs of $97........................................ 1,408 -- --
Issuance of Series B convertible preferred stock............................... 550 -- --
Conversion of Series B convertible preferred stock to common stock............. -- -- --
Issuance of Series B convertible preferred stock, net of issuance costs of
$17.......................................................................... 2,560 -- --
Net loss....................................................................... -- -- --
------- ------------- -------------
Balances at December 31, 1996.................................................... 4,526 -- --
Issuance of common stock....................................................... 116 -- (112)
Forgiveness of stockholder note receivable..................................... -- -- 14
Issuance of Series C convertible preferred stock, net of issuance costs of
$72.......................................................................... 5,958 -- --
Issuance of warrants........................................................... 23 -- --
Net loss....................................................................... -- -- --
------- ------------- -------------
Balances at December 31, 1997.................................................... 10,623 -- (98)
Issuance of common stock....................................................... 90 -- --
Deferred stock compensation related to certain options granted to employees.... 3,974 (3,974) --
Amortization of deferred stock compensation.................................... -- 1,172 --
Compensation related to acceleration of vesting of founders' stock............. 1,407 -- --
Issuance of Series C convertible preferred stock and common stock in
acquisition.................................................................. 3,224 -- --
Issuance of Series C convertible preferred stock, net of issuance costs of
$26.......................................................................... 269 -- --
Issuance of Series D convertible preferred stock, net of issuance costs of
$74.......................................................................... 9,954 -- --
Issuance of Series E convertible preferred stock, net of issuance costs of
$112......................................................................... 9,887 -- --
Forgiveness of stockholder note receivable..................................... -- -- 28
Issuance of warrants........................................................... 2,251 --
Net loss....................................................................... -- -- --
------- ------------- -------------
Balances at December 31, 1998.................................................... 41,679 (2,802) (70)
Issuance of common stock (unaudited)........................................... 92 -- --
Deferred stock compensation related to certain options granted to employees,
net (unaudited).............................................................. 4,139 (4,139) --
Amortization of deferred compensation (unaudited).............................. -- 1,118 --
Compensation related to acceleration of vesting of employee options
(unaudited).................................................................. 124 -- --
Forgiveness of stockholder note receivable (unaudited)......................... -- -- 7
Issuance of warrants (unaudited)............................................... -- -- --
Net loss (unaudited)........................................................... -- -- --
------- ------------- -------------
Balances at March 31, 1999 (unaudited)........................................... $ 46,034 $ (5,823) $ (63)
------- ------------- -------------
------- ------------- -------------
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
------------- -------------
Issuance of common stock to founders in partial consideration for intellectual
property rights assigned to the Company...................................... $ -- $ 8
Issuance of common stock....................................................... -- 10
Repurchase of common stock..................................................... -- (8)
Issuance of Series A convertible preferred stock upon conversion of note
payable, net of issuance costs of $97........................................ -- 1,409
Issuance of Series B convertible preferred stock............................... -- 550
Conversion of Series B convertible preferred stock to common stock............. -- --
Issuance of Series B convertible preferred stock, net of issuance costs of
$17.......................................................................... -- 2,561
Net loss....................................................................... (3,452) (3,452)
------------- -------------
Balances at December 31, 1996.................................................... (3,452) 1,078
Issuance of common stock....................................................... -- 5
Forgiveness of stockholder note receivable..................................... -- 14
Issuance of Series C convertible preferred stock, net of issuance costs of
$72.......................................................................... -- 5,959
Issuance of warrants........................................................... -- 23
Net loss....................................................................... (5,704) (5,704)
------------- -------------
Balances at December 31, 1997.................................................... (9,156) 1,375
Issuance of common stock....................................................... -- 91
Deferred stock compensation related to certain options granted to employees.... -- --
Amortization of deferred stock compensation.................................... -- 1,172
Compensation related to acceleration of vesting of founders' stock............. -- 1,407
Issuance of Series C convertible preferred stock and common stock in
acquisition.................................................................. -- 3,225
Issuance of Series C convertible preferred stock, net of issuance costs of
$26.......................................................................... -- 269
Issuance of Series D convertible preferred stock, net of issuance costs of
$74.......................................................................... -- 9,955
Issuance of Series E convertible preferred stock, net of issuance costs of
$112......................................................................... -- 9,888
Forgiveness of stockholder note receivable..................................... -- 28
Issuance of warrants........................................................... 2,251
Net loss....................................................................... (15,620) (15,620)
------------- -------------
Balances at December 31, 1998.................................................... (24,776) 14,041
Issuance of common stock (unaudited)........................................... -- 92
Deferred stock compensation related to certain options granted to employees,
net (unaudited).............................................................. -- --
Amortization of deferred compensation (unaudited).............................. -- 1,118
Compensation related to acceleration of vesting of employee options
(unaudited).................................................................. -- 124
Forgiveness of stockholder note receivable (unaudited)......................... -- 7
Issuance of warrants (unaudited)............................................... -- --
Net loss (unaudited)........................................................... (5,003) (5,003)
------------- -------------
Balances at March 31, 1999 (unaudited)........................................... $ (29,779) $ 10,379
------------- -------------
------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
ADFORCE, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
PERIOD FROM YEARS ENDED DECEMBER
JANUARY 16, 1996 31, MARCH 31,
(INCEPTION) TO -------------------- --------------------
DECEMBER 31, 1996 1997 1998 1998 1999
----------------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................... $ (3,452) $ (5,704) $ (15,620) $ (2,603) $ (5,003)
Reconciliation of net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization.................... 158 797 3,486 658 1,070
Amortization of deferred stock compensation and
other compensation charges..................... -- -- 2,579 39 1,242
Loss on sale of assets........................... -- -- 281 -- 15
Acquired in-process technology................... 319 -- 100 -- --
Other non-cash charges........................... -- 14 51 7 7
Changes in operating assets and liabilities:
Accounts receivable............................ -- (239) (908) (210) (188)
Prepaid expenses and other current assets and
other non-current assets..................... (75) (329) (449) 155 (821)
Accounts payable............................... 566 (192) 239 (290) 1,530
Accrued compensation and related benefits...... 61 24 61 77 257
Deferred revenue............................... -- -- 10 -- 2,359
Other accrued liabilities...................... 150 42 577 388 (120)
------- --------- --------- --------- ---------
Net cash (used in) provided by operating
activities................................. (2,273) (5,587) (9,593) (1,779) 348
------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of technology and operating rights... (106) -- -- -- --
Proceeds from sale of assets..................... -- -- 105 -- --
Capital expenditures............................. (1,248) (163) (1,291) (158) (343)
------- --------- --------- --------- ---------
Net cash used in investing activities........ (1,354) (163) (1,186) (158) (343)
------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale-leaseback transaction......... -- 1,033 -- -- --
Principal payments on capital lease
obligations.................................... -- (248) (923) (113) (415)
Proceeds from issuance of common stock, net...... 2 5 86 27 92
Proceeds from issuance of preferred stock, net... 3,014 5,959 19,594 269 --
Proceeds from issuance of notes payable.......... 1,757 -- 500 500 --
Repayment of notes payable....................... (465) -- (113) (113) --
------- --------- --------- --------- ---------
Net cash provided by (used in) financing
activities................................. 4,308 6,749 19,144 570 (323)
------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS...................................... 681 999 8,365 (1,367) (318)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD... -- 681 1,680 1,680 10,045
------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD......... $ 681 $ 1,680 $ 10,045 $ 313 $ 9,727
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid during the year for interest............. $ 69 $ 126 $ 457 $ 70 $ 116
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING/FINANCING ACTIVITIES
Property and equipment acquired under capital
leases........................................... $ -- $ 1,458 $ 3,389 $ 1,114 $ 3,370
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
Conversion of Series B convertible preferred stock
into common stock................................ $ 550 $ -- $ -- $ -- $ --
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
Conversion of notes payable into Series A
convertible preferred stock...................... $ 1,409 $ -- $ -- $ -- $ --
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
Conversion of notes payable and accrued interest
into Series D convertible preferred stock........ $ -- $ -- $ 506 $ -- $ --
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
Issuance of Series C convertible preferred stock,
common stock, and stock options for purchase of
business......................................... $ -- $ -- $ 3,225 $ 3,225 $ --
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
</TABLE>
SEE ACCOMPANYING NOTES.
F-6
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Imgis, Inc. was incorporated in the state of California on January 16,
1996. AdForce is a provider of centralized, outsourced ad management and
delivery services on the Internet. AdForce's services offer sophisticated
campaign design, inventory management, targeting, ad delivery, tracking,
measuring and reporting capabilities.
AdForce has incurred operating losses to date and had an accumulated
deficit of $24,776,000 and $29,779,000 at December 31, 1998 and March 31, 1999,
respectively. AdForce's activities have been primarily financed through private
placements of equity securities and capital lease financings. AdForce may need
to raise additional capital through the issuance of debt or equity securities
and capital lease financings. Such financing may not be available on terms
satisfactory to AdForce, if at all. If adequate funds are not available, AdForce
may be required to reduce its level of spending.
INTERIM FINANCIAL INFORMATION
The financial information as of March 31, 1999 and for the three months
ended March 31, 1998 and 1999 is unaudited but includes all adjustments,
consisting only of normal recurring adjustments, that AdForce's management
considers necessary for a fair presentation of AdForce's operating results and
cash flows for such period. Results for the three month period ended March 31,
1999 are not necessarily indicative of results to be expected for the full
fiscal year of 1999 or for any future period.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
AdForce sells and grants credit for its services to its customers
without requiring collateral or third-party guarantees. To date, all of
AdForce's customers are participants in the Internet industry, including ad
agencies, Web sites, and ad rep firms. Few companies in the Internet industry
have a demonstrated history of profitability, and, accordingly, granting
unsecured credit to such customers carries with it a significant risk of loss.
AdForce monitors its exposure for credit losses and maintains appropriate
allowances. During 1996, AdForce was still in the development stage and had no
revenues. During 1997, two customers accounted for approximately 79% and 13% of
net revenue. One customer accounted for approximately 85% of AdForce's net
accounts receivable at December 31, 1997. During 1998, three customers accounted
for 40%, 16% and 11% of net revenue. Two customers each accounted for
approximately 31% of AdForce's net accounts receivable at December 31, 1998.
During the three months ended March 31, 1999 four customers accounted for 23%,
21%, 20%, and 12% of net revenue. Three of these customers accounted for
approximately 39%, 33%, and 12% of AdForce's net accounts receivable at March
31, 1999.
CASH AND CASH EQUIVALENTS
AdForce considers all highly liquid investments with an original
maturity from the date of purchase of three months or less to be cash
equivalents. As of December 31, 1997 and 1998 and
F-7
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
March 31, 1999, cash equivalents consisted primarily of investments in money
market accounts and commercial paper, and their cost approximated fair value.
AdForce places its cash and cash equivalents in high-quality U.S. financial
institutions and, to date, has not experienced any losses on any of its
investments.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards ("FAS") No. 107,
"DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS," requires that fair
values be disclosed for most of AdForce's financial instruments. The carrying
amounts of cash and cash equivalents, accounts receivable, note receivable from
stockholder, current liabilities, and capital lease obligations are considered
to be representative of their respective fair values.
INTANGIBLE ASSETS, NET
Intangible assets consist primarily of purchased technology and other
intangibles related to an acquisition accounted for using the purchase method
and the value of the warrant issued to a data vendor. Amortization of the
purchased technology and other intangibles related to the acquisition is
provided on a straight-line basis over the respective useful lives of the
assets, which range from two to three years. Purchased in-process research and
development without an alternative future use was expensed when acquired.
Amortization of the warrant value will be provided on a straight-line basis over
a three year period, beginning upon the earlier of July 14, 1999 or the
commencement of activity under the related agreement.
As of December 31, 1998 and March 31, 1999, the Company has accumulated
amortization related to intangible assets of $1,329,000 and $1,697,000,
respectively.
AdForce identifies and records impairment losses on intangible assets
when events and circumstances indicate that such assets might be impaired. To
date, no such impairment has been recorded.
DEPRECIATION AND AMORTIZATION
AdForce records property and equipment at cost and calculates
depreciation using the straight-line method over the estimated useful lives of
the assets, generally three to five years. Equipment acquired under capital
leases is amortized on a straight-line basis over the shorter of its lease term
or estimated useful life, generally three to five years.
ADVERTISING COSTS
Advertising costs are charged to expense when incurred. No advertising
was incurred for the period from January 16, 1996 (inception) to December 31,
1996. Advertising expense was $93,000, $125,000, and $270,000 for the years
ended December 31, 1997 and 1998 and the three months ended March 31, 1999,
respectively.
F-8
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
To date, substantially all of AdForce's revenues have been generated
from the provision of Internet advertising management and delivery services for
its customers. AdForce recognizes revenues from these services based on the
number of ads delivered. Revenue is recognized at the time the service is
delivered, provided AdForce does not have any significant remaining obligations
and collection of the resulting receivable is probable. Prepaid amounts for
advertising management and delivery services are recorded as deferred revenue
until the related services are delivered.
STOCK-BASED COMPENSATION
AdForce has elected to follow Accounting Principles Board Opinion No.
25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES" (APB Opinion No. 25), and related
interpretations in accounting for its employee stock options because, as
discussed in Note 7, the alternative fair value accounting provided for under
Statement of Financial Accounting Standards No. 123, "ACCOUNTING FOR STOCK-BASED
COMPENSATION" (FAS 123), requires the use of option valuation models that were
not developed for use in valuing employee stock options. Under APB Opinion No.
25, when the exercise price of AdForce's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized. See pro forma disclosures of applying FAS 123 included in
Note 7.
RESEARCH AND DEVELOPMENT COSTS
Costs incurred in the development of new software (and substantial
enhancements to existing software) to be used in connection with AdForce's
services are expensed to operations as incurred until technological feasibility
of such software has been established, at which time any additional costs would
be capitalized in accordance with FAS No. 86. Because AdForce believes that its
present process for developing software is completed essentially concurrently
with the establishment of technological feasibility, no research and development
costs have been capitalized to date.
NET LOSS PER SHARE
Basic and diluted net loss per share are presented in conformity with
FAS No. 128, "EARNINGS PER SHARE" ("FAS 128"), for all periods presented.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 98,
common stock and convertible preferred stock issued or granted for nominal
consideration prior to the anticipated effective date of AdForce's initial
public offering must be included in the calculation of basic and diluted net
loss per share as if they had been outstanding for all periods presented. To
date, AdForce has not had any issuances or grants for nominal consideration. In
accordance with FAS 128, basic and diluted net loss per share has been computed
using the weighted average number of shares of common stock outstanding during
the period, less shares subject to repurchase.
PRO FORMA NET LOSS PER SHARE AND PRO FORMA STOCKHOLDERS' EQUITY
Pro forma net loss per share has been computed as described above and
also gives effect, under Securities and Exchange Commission guidance, to the
conversion of convertible preferred stock not included above that will
automatically convert upon completion of AdForce's initial public offering
(using the as converted method). If the offering contemplated by this prospectus
is consummated, all of the
F-9
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
convertible preferred stock outstanding as of March 31, 1999 will automatically
be converted into an aggregate of 9,467,118 shares of common stock. Pro forma
stockholders' equity at March 31, 1999, as adjusted for the conversion of
convertible preferred stock, is disclosed on the balance sheet.
Historical and pro forma basic and diluted net loss per share are as
follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
PERIOD FROM YEARS ENDED DECEMBER
JANUARY 16, 1996 31, MARCH 31,
(INCEPTION) TO -------------------- --------------------
DECEMBER 31, 1996 1997 1998 1998 1999
------------------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Historical:
Net loss................................ $ (3,452) $ (5,704) $ (15,620) $ (2,603) $ (5,003)
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
Basic and diluted shares:
Weighted average shares of common stock
outstanding........................... 3,665 2,836 4,443 3,720 5,108
Less weighted average shares subject to
repurchase............................ (1,200) (1,197) (1,599) (1,641) (1,142)
------- --------- --------- --------- ---------
Weighted average shares of common stock
outstanding used in computing basic
and diluted net per loss share........ 2,465 1,639 2,844 2,079 3,966
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
Basic and diluted net loss per share.... $ (1.40) $ (3.48) $ (5.49) $ (1.25) $ (1.26)
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
Pro forma:
Net loss................................ $ (15,620) $ (5,003)
--------- ---------
--------- ---------
Weighted average shares of common stock
outstanding used in computing basic
and diluted net loss per share........ 2,844 3,966
Adjusted to reflect the assumed
conversion of convertible preferred
stock from the date of issuance....... 8,033 9,436
--------- ---------
Weighted average shares used in
computing pro forma basic and diluted
net loss per share.................... 10,877 13,402
--------- ---------
--------- ---------
Pro forma basic and diluted net loss per
share................................. $ (1.44) $ (0.37)
--------- ---------
--------- ---------
</TABLE>
If AdForce had reported net income, diluted net income per share would
have included the shares used in the computation of pro forma net loss per share
as well as approximately 1,953,414, 3,217,546, and 3,575,445 common equivalent
shares related to outstanding options and warrants to purchase common stock not
included above for the years ended December 31, 1997 and 1998 and for the three
months ended March 31, 1999, respectively. The common equivalent shares from
options and warrants would be determined on a weighted average basis using the
treasury stock method.
F-10
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE LOSS
In June 1997, the Financial Accounting Standards Board issued FAS No.
130, "REPORTING COMPREHENSIVE INCOME" ("FAS 130"). FAS 130 establishes standards
for the reporting and display of comprehensive income and its components in a
full set of general purpose financial statements and is effective for fiscal
years beginning after December 15, 1997. AdForce adopted FAS 130 in the year
ended December 31, 1998. There was no impact on AdForce's financial statements
as a result of the adoption of FAS 130, as there is no difference between
AdForce's net loss reported and the comprehensive net loss under FAS 130 for the
periods presented.
SEGMENT INFORMATION
In June 1997, the Financial Accounting Standards Board issued FAS No.
131, "DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION" ("FAS
131"). FAS 131 changes the way companies report selected segment information in
annual financial statements and requires companies to report selected segment
information in interim financial reports to stockholders. FAS 131 also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. AdForce adopted FAS 131 in the year ended
December 31, 1998. AdForce operates solely in one segment, the provision of
Internet advertising management and delivery services, and therefore there is no
impact on AdForce's financial statements of adopting FAS 131. For the year ended
December 31, 1998, revenues from customers outside the United States were
$375,000. The majority of this revenue was from customers in Europe.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued SOP No. 98-1, "ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE
DEVELOPED OR OBTAINED FOR INTERNAL USE." SOP No. 98-1 requires entities to
capitalize certain costs related to internal-use software once certain criteria
have been met. AdForce implemented SOP No. 98-1 on January 1, 1999. The adoption
of SOP No. 98-1 did not have a material impact on its financial position or
results of operations.
In April 1998, the AICPA issued SOP No. 98-5, "REPORTING ON THE COSTS OF
START-UP ACTIVITIES." SOP No. 98-5 requires that all start-up costs related to
new operations must be expensed as incurred. In addition, all start-up costs
that were capitalized in the past must be written off when SOP No. 98-5 is
adopted. AdForce implemented SOP No. 98-5 on January 1, 1999. The adoption of
SOP No. 98-5 did not have a material impact on its financial position or results
of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES." SFAS No.
133 establishes methods for derivative financial instruments and hedging
activities related to those instruments, as well as other hedging activities.
AdForce will be required to implement SFAS No. 133 for the year ending December
31, 2000. Because AdForce does not currently hold any derivative instruments and
does not engage in hedging activities, AdForce does not expect that the adoption
of SFAS No. 133 will have a material impact on its financial position or results
of operations.
F-11
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
2. BUSINESS COMBINATION
In February 1998, AdForce acquired StarPoint Software, Inc.
("StarPoint"), a company that developed software to serve Internet advertising,
for (i) 309,738 shares of Series C preferred stock with a fair value of
$1,465,000 based on the price at which the Series C preferred stock was sold by
the Company in November 1997, (ii) 877,834 shares of common stock with an
aggregate fair value of $1,760,000 based on the deemed fair value of the
Company's common stock at the time of issuance, (iii) options to purchase 48,056
shares of common stock, (iv) $113,000 of debt and (v) $162,000 in acquisition
costs in a transaction that was accounted for as a purchase. The deemed fair
value of the common stock was determined by the Board of Directors after
consideration of the relevant factors, including the current prices of the
Company's preferred stock, the current status of the Company's operations and
key operating factors.
The purchase consideration was allocated to the acquired assets and
assumed liabilities based on fair values as follows (in thousands):
<TABLE>
<S> <C>
Current assets.............................................. $ 19
Property and equipment...................................... 77
Liabilities assumed......................................... (645)
Purchased in-process technology............................. 100
Purchased technology........................................ 2,600
Goodwill.................................................... 609
Non-competition agreement................................... 540
Assembled workforce......................................... 200
--------
$ 3,500
--------
--------
</TABLE>
AdForce determined that $100,000 of the purchase price represented
purchased in-process technology that had not yet reached technological
feasibility and had no alternative future use. Accordingly, this amount was
expensed at the time of the acquisition. The value assigned to purchased
in-process technology was determined by identifying research projects in areas
for which technological feasibility had not been achieved and assessing the
completion date of the research and development effort. The state of completion
was determined by estimating the costs and time incurred to date relative to the
costs and time to be incurred to develop the purchased in-process technology
into commercially viable products, estimating the resulting net cash flows only
from the percentage of research and development efforts completed at the date of
acquisition, and discounting the net cash flows back to their present value. The
discount rate of 40% included a factor that took into account the uncertainty
surrounding the successful development of the purchased in-process technology
projects.
The value of the purchased technology of $2,600,000 was determined by
discounting expected future cash flows of the existing developed technologies
taking into account the characteristics and applications of the technology, the
size of existing markets and growth rates of existing and future markets, as
well as an evaluation of past and anticipated service-life cycles. The discount
rate of 35% included a factor that took into account the uncertainty surrounding
the successful delivery of the purchased technology.
F-12
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
2. BUSINESS COMBINATION (CONTINUED)
The following (unaudited) pro forma summary represents the consolidated
results of operations as if the acquisition of StarPoint had occurred at the
beginning of the period presented and is not intended to be indicative of future
results (in thousands except per share amounts).
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-------------------
<S> <C>
Pro forma net revenue................................... $ 437
Pro forma net loss...................................... $ (8,739)
Pro forma basic and diluted net loss per share.......... $ (3.47)
Number of shares used in pro forma basic and diluted per
share calculation..................................... 2,517
</TABLE>
The pro forma disclosures for the year ended December 31, 1998 have been
omitted because they are not materially different from the reported amounts as
the results of operations of StarPoint have been included since February 13,
1998. In-process research and development charges of $100,000 were excluded from
the pro forma net loss and pro forma net loss per share figures for the year
ended December 31, 1997. The number of shares used in the above pro forma per
share calculation assumes that the common stock issued to StarPoint on February
13, 1998 was issued and outstanding for the entire year of 1997. The pro forma
results are not necessarily indicative of what actually would have occurred if
the acquisition had been effected at the beginning of the period presented and
are not intended to be a projection of future results.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
--------- --------- MARCH 31,
-----------
1999
-----------
(UNAUDITED)
<S> <C> <C> <C>
Computer hardware and software.................. $ 2,648 $ 6,475 $ 9,727
Office furniture and equipment.................. 155 345 576
Leasehold improvements.......................... 76 152 363
--------- --------- -----------
2,879 6,972 10,666
Less accumulated depreciation and
amortization.................................. 933 2,764 3,447
--------- --------- -----------
$ 1,946 $ 4,208 $ 7,219
--------- --------- -----------
--------- --------- -----------
</TABLE>
As of December 31, 1997 and 1998 and March 31, 1999, property and
equipment included amounts acquired under capital leases of $2,491,000,
$5,140,000 and $8,510,000, respectively, with related accumulated amortization
of $740,000, $1,714,000, and $2,202,000, respectively. This includes property
and equipment with a net book value of $589,000 and $447,000 at December 31,
1998 and March 31, 1999, respectively, that was acquired in 1996 and financed in
1997 through a sale-leaseback transaction.
F-13
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
4. RELATED PARTIES
Two of AdForce's founders and current stockholders hold executive
management positions with one of AdForce's customers. Net revenue recognized
from sales to this customer was $260,000 during the year ended December 31,
1998.
5. LICENSE AGREEMENT AND DEMOGRAPHIC DATA AGREEMENT
In July 1998, AdForce entered into a License Agreement and a Demographic
Data Agreement with America Online, Inc. In addition, AdForce sold 728,332
shares of Series E convertible preferred stock to America Online for a purchase
price of $10,000,000. In connection with the sale of Series E convertible
preferred stock to America Online, AdForce also issued to America Online a
warrant to purchase up to 509,831 shares of Series E convertible preferred stock
at an exercise price of $13.73 per share. The warrant is exercisable at any time
on or before July 14, 2003 (See Note 8). AdForce determined the fair value of
the warrants to be $3,686,000 using the Black-Scholes method. Approximately
$1,669,000 of the value of the warrant was attributable to the Series E
preferred stock agreement and approximately $2,019,000 of the value of the
warrant was attributable to the Demographic Data Agreement. AdForce determined
the allocation of the warrant value between the Series E preferred stock
agreement and the Demographic Data Agreement primarily based on the decrease to
the conversion rate (benefit to the Company and its other equity holders) of the
Series D preferred stock as a result of the sale and issuance of the Series E
preferred stock and warrant. The amount related to the Demographic Data
Agreement will be amortized to cost of revenue over the three year term of the
agreement beginning upon the earlier of commencement of activities under the
agreement or July 14, 1999.
Under the License Agreement, AdForce licensed its technology to America
Online and its affiliates to be used internally by America Online and on sites
associated with America Online. The licensed technology includes future
enhancements to AdForce's technology and is warranted to perform according to
its specifications. The license is fully paid, nonexclusive, perpetual,
worldwide and nontransferable except for certain assignments and includes source
code. AdForce can terminate the license only in the event of a material,
uncorrected breach of the License Agreement or Demographic Data Agreement by
America Online. For the duration of the license, if requested, AdForce will
provide technical support, development services and ad serving services on a
cost or cost plus basis if America Online is not in default. AdForce will
provide these services at cost if America Online provides AdForce access to
demographic data under the Demographic Data Agreement and America Online is not
in breach of the Demographic Data Agreement. Otherwise, AdForce can mark up the
cost of our services by certain percentages. Under the License Agreement,
America Online will use commercially reasonable efforts to encourage others
associated with America Online to use AdForce's technology, and AdForce will use
commercially reasonable efforts to encourage its customers to use America Online
in the sale of interactive advertising.
Under the Demographic Data Agreement, America Online may authorize
AdForce to use demographic information about America Online users in connection
with the targeting and delivery of ads to these users. After AdForce has access
to the demographic data, AdForce will pay America Online quarterly fees based on
the greater of a certain percentage of the consideration charged for targeted
advertising or a certain percentage of the incremental revenue charged for the
targeting feature. Such fees will total at least $10,000,000 for the first three
years after America Online provides access to the
F-14
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
5. LICENSE AGREEMENT AND DEMOGRAPHIC DATA AGREEMENT (CONTINUED)
demographic data. The term of the Demographic Data Agreement will expire on the
earlier of July 14, 2002 or three years after AdForce has access to the
demographic data. America Online can elect to renew the Demographic Data
Agreement on a year-to-year basis with 90 days' notice on the same terms and
conditions, subject to establishing mutually agreeable minimum annual fees.
America Online can elect to terminate the Demographic Data Agreement upon
payment of a fee to AdForce in the event a third party offers more favorable
terms for access to the demographic data and AdForce does not match such terms.
AdForce has proposed a preliminary implementation schedule that is subject to
America Online's approval. To date, however, AdForce has not had access to the
demographic data and there is no final implementation schedule or procedure for
such access. AdForce has no anticipated time frame for gaining access to the
Demographic Data Agreement.
6. COMMITMENTS
AdForce leases its operating and administrative facilities and certain
equipment under non-cancelable operating lease agreements that expire in April
2004. Rent expense was approximately $81,000, $210,000, $536,000, and $322,000
for the period from January 16, 1996 (inception) to December 31, 1996, for the
years ended December 31, 1997 and 1998 and for the three months ended March 31,
1999, respectively.
During the years ended December 31, 1997 and 1998, AdForce executed five
lease-line agreements for a total of $8,000,000 in lease-line credit
availability. At December 31, 1998, related lease obligations bore interest at
an effective rate of 7.9% to 9.75% and were secured by the related property and
equipment. Approximately $2,110,000 and $169,000 in unused lease-line credit
remained available under these lease agreements at December 31, 1998 and March
31, 1999, respectively.
As of December 31, 1998, minimum lease payments under all noncancelable
lease agreements were as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- -----------
<S> <C> <C>
1999.................................................... $ 1,943 $ 918
2000.................................................... 2,010 846
2001.................................................... 1,415 846
2002.................................................... 223 522
2003.................................................... -- 448
Thereafter.............................................. -- 60
----------- -----------
Total minimum lease payments............................ 5,591 $ 3,640
-----------
-----------
Less amount representing interest....................... 1,042
-----------
Present value of minimum lease payments................. 4,549
Less current portion of captial lease obligations....... 1,460
-----------
Long-term portion of capital lease obligations.......... $ 3,089
-----------
-----------
</TABLE>
F-15
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
6. COMMITMENTS (CONTINUED)
In February 1999, AdForce executed a lease-line agreement for a total of
$4,000,000 in lease-line credit availability. Obligations under the lease-line
will be secured by the related equipment and will be payable over a 42 month
period. A total of $1.4 million in borrowings were drawn under this arrangement
during the three month period ended March 31, 1999. Approximately $2.6 million
in unused lease-line credit remained available under this lease agreement at
March 31, 1999.
In February 1999, AdForce executed a noncancellable operating lease for
a facility in Cupertino, California that expires in April 2003. Future minimum
lease payments under the noncancellable lease agreement is as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
1999............................................................. $ 835
2000............................................................. 1,213
2001............................................................. 1,261
2002............................................................. 1,312
2003............................................................. 417
---------
Total minimum lease payments..................................... $ 5,038
---------
---------
</TABLE>
7. BORROWING ARRANGEMENTS
During 1998, AdForce received funding from a private investor secured by
notes payable totaling $500,000. The notes payable plus accrued interest were
converted into 36,861 shares of Series D convertible preferred stock at a rate
of $13.73 per share during the year ended December 31, 1998.
During the period from January 16, 1996 (inception) to December 31,
1996, AdForce received funding from three investors secured by notes payable
totaling $1,757,000. During the period from January 16, 1996 (inception) to
December 31, 1996, $1,506,000 of these notes payable plus accrued interest were
converted into Series A convertible preferred stock at a rate of $2.51 per
share. The remaining notes payable plus accrued interest of $465,000 were repaid
to the related note holders during the period from January 16, 1996 (inception)
to December 31, 1996.
8. STOCKHOLDERS' EQUITY
GENERAL
In February 1998, AdForce's stockholders approved certain modifications
to AdForce's capital structure, including a two-for-one stock split of AdForce's
common stock, and a modification of the conversion ratio of all shares of
AdForce's preferred stock to common stock. All shares of preferred stock are now
convertible into two shares of common stock. In addition, the stockholders
approved the addition of 1,600,000 shares of common stock to the pool of shares
available for stock option grants under the 1997 Stock Plan. All common share
and per share amounts presented have been adjusted retroactively to reflect the
stock split.
F-16
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
CONVERTIBLE PREFERRED STOCK
Each share of convertible preferred stock is convertible into common
stock at the conversion ratio in effect at the time of conversion (two-for-one
at December 31, 1998) and is subject to appropriate adjustment for common stock
splits, stock dividends, and similar transactions. Conversion is automatic upon
the closing of an initial public offering of common stock in which, with respect
to the Series A, B, and C convertible preferred stock, the aggregate gross
proceeds to AdForce are at least $15,000,000 and the minimum offering price is
at least equal to $6.275 per share, and, with respect to the Series D and E
convertible preferred stock, the aggregate proceeds (gross with respect to
Series D and net with respect to Series E) to AdForce are at least $20,000,000
and the minimum offering price is at least equal to $125,000,000 divided by the
number of shares of AdForce's common stock outstanding immediately prior to the
offering, assuming conversion of all convertible securities and the exercise of
all options and warrants. In addition, the Series A, B, and C convertible
preferred stock is convertible upon the written consent or agreement of the
holders of a majority of the respective series of preferred stock.
Each holder of convertible preferred stock is entitled to a number of
votes equal to the number of shares of common stock into which such convertible
preferred stock is convertible.
Each holder of convertible preferred stock is entitled to receive, when
and as declared by the Board of Directors, noncumulative dividends at the annual
rate of $0.20, $0.20, $0.38, $1.10, and $1.10 per share for Series A, B, C, D,
and E convertible preferred stock, respectively, payable in preference and
priority to any payment of any dividend on common stock.
In the event of liquidation, the holders of convertible preferred stock
would be entitled to a liquidation preference equal to $2.51 per share for all
Series B convertible preferred stock, $4.73 per share for all Series C
convertible preferred stock and $13.73 per share for all Series D and E
convertible preferred stock, plus any declared but unpaid dividends on such
share, and if assets remain in the corporation that are legally available for
distribution, the holders of the Series B, C, D, and E convertible preferred
stock would receive from the remaining assets of the corporation available for
distribution to stockholders that portion of such assets equal to their pro rata
share of such assets based on the number of shares of common stock held by all
stockholders of the corporation, assuming the conversion to common stock of all
shares of Series A, B, C, D, and E convertible preferred stock. Then, and only
then, would the holders of Series A convertible preferred stock receive $2.51
per share, plus all declared but unpaid dividends. Any remaining assets would
then be distributed on a pro rata basis among the holders of Series A
convertible preferred stock and the holders of common stock.
COMMON STOCK
At December 31, 1998, AdForce had reserved 10,755,662 shares of its
common stock for issuance upon conversion of the outstanding shares of its
Series A, B, C, D, and E convertible preferred stock and shares of preferred
stock issuable upon the exercise of outstanding warrants, and 2,631,770 shares
of common stock for issuance upon exercise of options outstanding and available
under the 1997 Stock Plan and shares of common stock issuable upon the exercise
of outstanding warrants.
A total of 1,449,620 shares of common stock issued to two of AdForce's
founders in 1996 are subject to certain repurchase rights, held by AdForce, upon
the termination of employment of the
F-17
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
respective founders. Such repurchase rights lapsed immediately with respect to
25% of the shares and lapse ratably with respect to the remaining shares over 36
months beginning in June 1996. During 1998, the founders ceased their employment
with AdForce. AdForce elected not to exercise its repurchase right with respect
to the remaining 256,195 shares subject to repurchase at that time. Compensation
expense of $1,407,000 was recorded in 1998 related to such shares based on the
difference between the exercise price and the fair value of such shares at the
time the founders ceased employment with AdForce.
At December 31, 1998, 562,500 shares of common stock held by an officer
were subject to repurchase by AdForce at their original purchase price of $0.125
per share. Such repurchase rights lapse ratably over the 48-month vesting period
of the underlying options to purchase common stock.
A total of 800,000 shares of common stock issued in conjunction with
AdForce's acquisition of StarPoint to three of StarPoint's founders, who are now
employees of AdForce, were subject to certain repurchase rights held by AdForce.
At December 31, 1998, 266,667 of these shares of common stock remained subject
to repurchase. The repurchase rights lapsed as to 22/48 of the shares on the
date of acquisition, as to 9/48 of the shares after the employees had completed
nine months of continuous employment at AdForce and as to 1/48 of these shares
each month thereafter.
NOTE RECEIVABLE FROM STOCKHOLDER
During 1997, AdForce received a note receivable from a stockholder of
AdForce upon his exercise of an option to purchase 900,000 shares of common
stock. As of December 31, 1998, 562,500 of the shares issued were subject to
repurchase by AdForce at the original exercise price. The repurchase rights
lapse ratably over the 48 month vesting period of the underlying option. The
note bears interest at 6.8% and is secured by the related stock. The note and
related interest is being forgiven ratably over a period of four years of
service/employment. The Company is recording compensation expense related to the
forgiveness of the note as the note is forgiven.
F-18
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
WARRANTS
In association with certain transactions, AdForce issued warrants to
third parties for the purchase of AdForce's common stock and convertible
preferred stock. The warrants that remained outstanding at December 31, 1998
were as follows:
<TABLE>
<CAPTION>
NATURE OF SHARES
RELATED DATE OF UNDER EXERCISE EXPIRATION OF
PARTY CLASS OF STOCK TRANSACTION ISSUANCE WARRANT PRICE EXERCISABILITY
- --------------- --------------- --------------- --------------- ----------- ------------- --------------- FAIR VALUE
---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Vendor Common stock Recruiting April 1997 6,142 $1.26 - $2.37 October 15, $ --
services 2007
Vendor Series B Capital lease March 1997 27,889 $2.51 December 31, $ 31
convertible agreement 2002
preferred
stock
Vendors Series C Capital lease December 1997 59,197 $4.73 December 31, $ 108
convertible agreements 2002 through
preferred December 2,
stock 2007
Vendor Series D Capital lease September 1998 10,925 $13.73 September 29, $ 67
convertible agreement 2008
preferred
stock
Private Series D Series D July 1998 36,430 $13.73 July 14, 2003 $ 267
Investors convertible convertible
preferred preferred
stock stock
agreement
Private Series E Series E July 1998 509,831 $13.73 July 14, 2003 $ 3,686
Investor/ convertible convertible
Vendor preferred preferred
stock stock
agreement and
Demographic
Data
Agreement
</TABLE>
F-19
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
Warrants to purchase 6,142 shares of common stock, included above,
expire on the earlier of October 15, 2007 or the filing by AdForce of an initial
public offering. Warrants to purchase 36,998 and 10,925 shares of Series C and
Series D convertible preferred stock, included above, expire on the later of
December 2, 2007 and September 29, 2008, respectively, or five years subsequent
to the filing by AdForce of an initial public offering. Warrants to purchase
36,430 shares of Series D convertible preferred stock and 509,831 shares of
Series E convertible preferred stock, included above, expire on the later of
July 14, 2003 or the closing of any merger, tender offer, or other transaction
in which all of the holders of AdForce's outstanding common stock and preferred
stock (if any) receive only cash or cash and other securities payable only in
cash. Warrants to purchase 400,000 shares of common stock issued to a
demographic data vendor in April 1997, with a fair value of $48,000 and a ten
year life, were exercised for total consideration of $2,000 during 1998 but are
subject to certain repurchase rights held by AdForce. These repurchase rights
lapsed as to 25% of the shares in April 1997 and 2.08% of the shares each month
thereafter. As of December 31, 1998, 133,360 shares acquired pursuant to this
warrant exercise remained subject to AdForce's repurchase right.
The value of the warrants granted to third parties, excluding the value
attributable to equity investments of approximately $1.9 million, is being
charged to the related expense over the term of the respective agreements.
AdForce recognized expenses of $23,000 and $56,000 during the years ended
December 31, 1997 and 1998, respectively, related to the estimated fair market
value of these warrants. The value of each of the warrants has been determined
using the Black-Sholes method, with an expected dividend yield of zero, a
risk-free interest rate of 5%, and a volatility factor of 20%, except for the
warrant to purchase shares of Series D and Series E preferred stock issued to
private investors for which a volatility factor of 55% was used. The lives used
to value each of the warrants was based on the term of each warrant as set forth
in the preceding table or described in the preceding paragraph.
STOCK OPTION PLANS
AdForce has elected to follow APB Opinion No. 25 and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FAS
No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION" ("FAS 123"), requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB Opinion No 25, when the exercise price of AdForce's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
During 1997, AdForce adopted the 1997 Stock Plan (the "Plan"). Under the
Plan, options to purchase common stock may be granted at no less than 85% of the
fair value of the underlying common stock on the date of the grant, as
determined by the Board of Directors. Options generally have a maximum term of
10 years and are exercisable immediately, but vest over a 48-month period. Under
the Plan, an optionee may exercise part or all of the options prior to the
stated vesting date. However, unvested shares are subject to repurchase, at
AdForce's option, upon a stockholder's termination of employment for any reason.
As of December 31, 1998, 763,088 of the shares issued upon exercise of stock
options, including the options exercised by an officer of AdForce that are
discussed under "NOTE RECEIVABLE FROM SALE OF COMMON STOCK," were subject to
repurchase by AdForce at the exercise price.
F-20
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
In connection with the acquisition by AdForce of StarPoint as described
in Note 2, AdForce assumed all options outstanding under the StarPoint Software,
Inc. 1996 Stock Plan ("StarPoint Plan"). These options vest over a 48-month
period with 9/48 of the underlying shares vesting after the employee had
completed nine months of continuous employment at AdForce and 1/48 of the
underlying shares vesting each month thereafter.
A summary of activity under the Plan, the StarPoint Plan and non-plan
options is as follows:
<TABLE>
<CAPTION>
SHARES WEIGHTED
AVAILABLE FOR OPTIONS PRICE PER AVERAGE
GRANT OUTSTANDING SHARE EXERCISE PRICE
------------- ------------ ------------- ---------------
<S> <C> <C> <C> <C>
Shares authorized...................... 2,400,000 -- -- --
Options granted........................ (2,360,098) 2,360,098 $0.125-$0.250 $ 0.159
Options exercised...................... -- (937,830) $0.125 $ 0.125
Options canceled....................... 49,168 (49,168) $0.153 $ 0.153
------------- ------------ -------------
Balances at December 31, 1997............ 89,070 1,373,100 $0.125-$0.250 $ 0.183
Shares authorized...................... 1,600,000 -- -- --
Options granted........................ (1,485,085) 1,485,085 $0.250-$1.500 $ 1.048
Options assumed under Starpoint Plan... -- 48,056 $0.090-$0.360 $ 0.264
Options repurchased.................... 52,216 -- $0.125-$0.250 $ 0.204
Options exercised...................... -- (519,695) $0.090-$1.500 $ 0.188
Options canceled....................... 446,567 (463,686) $0.090-$1.500 $ 0.562
------------- ------------ -------------
Balances at December 31, 1998............ 702,768 1,922,860 $0.125-$1.500 $ 0.760
Shares authorized (unaudited).......... 710,000 -- -- --
Options granted (unaudited)............ (816,000) 816,000 $1.500-$7.500 $ 1.787
Options exercised (unaudited).......... -- (185,708) $0.125-$1.500 $ 0.495
Options canceled (unaudited)........... 265,170 (272,393) $0.125-$7.500 $ 0.993
------------- ------------ -------------
Balances at March 31, 1999 (unaudited)... 861,938 2,280,759 $0.125-$7.500 $ 1.121
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
The following table summarizes information concerning outstanding
options at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------------
WEIGHTED WEIGHTED
RANGE OF AVERAGE REMAINING AVERAGE
EXERCISE NUMBERS OF CONTRACTUAL LIFE EXERCISE
PRICES SHARES (IN YEARS) PRICE
- -------------- ----------- ----------------- -----------
<S> <C> <C> <C>
$0.125 -
$0.250 1,016,950 8.88 $ 0.228
$0.700 162,250 9.42 $ 0.700
$1.500 743,660 9.32 $ 1.500
----------- --- -----------
$0.125 -
$1.500 1,922,860 9.10 $ 0.760
----------- --- -----------
----------- --- -----------
</TABLE>
F-21
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
All outstanding options to purchase common stock of AdForce were
exercisable at December 31, 1998. As of December 31, 1998, options to purchase
314,101 shares of common stock were vested.
In connection with the grant of certain options to employees during the
year ended December 31, 1998 and the three months ended March 31, 1999, AdForce
recorded deferred stock compensation of approximately $3,974,000 and $4,139,000,
respectively, between the exercise prices of those options at their respective
dates of grant and the deemed fair values for accounting purposes of the shares
of common stock subject to such options. Such amounts are included as a
reduction of stockholders' equity and are being amortized on a graded vesting
method. The compensation expense of $1,172,000 and $1,118,000 during 1998 and
the three months ended March 31, 1999, respectively, relate to options awarded
to employees in all operating expense categories, as well as employees in data
center operations. These amounts have not been separately allocated between
operating expense categories. In April and May 1999, the Company granted options
to purchase approximately 722,350 shares of common stock with exercise prices
ranging from $8.50 to $11.50 per share and expects to record additional deferred
compensation of approximately $4.4 million related to these grants for the
difference between the exercise price and the current deemed fair value.
Pro forma information regarding net loss is required by FAS 123,
computed as if AdForce had accounted for its employee stock options granted or
otherwise modified under the fair value-based accounting method of that
statement. The value for these options was estimated at the date of grant using
the minimum value method with the following weighted average assumptions:
<TABLE>
<CAPTION>
1997 1998
--------- ----------------
<S> <C> <C>
Expected dividend yield........................................... 0.00% 0.00%
Weighted average risk-free interest rate.......................... 5.00% 4.45% - 5.63%
Weighted average expected life.................................... 4 years 5 years
</TABLE>
The weighted average fair value of options granted during 1997, 1998 and
the three months ended March 31, 1999 with an exercise price equal to the fair
value of AdForce's common stock on the date of grant was $0.06, $0.06, and
$1.63, respectively. The weighted-average fair value of options granted during
1998 and during the three month period ended March 31, 1999 with an exercise
price below the deemed fair value of AdForce's common stock on the date of grant
was $3.70 and $6.31, respectively.
<TABLE>
<CAPTION>
1997 1998
--------- --------- THREE MONTHS
ENDED MARCH 31,
1999
----------------
(UNAUDITED)
<S> <C> <C> <C>
Pro forma net loss.................................... ($ 5,720) ($ 15,695) $ (5,047)
--------- --------- -------
--------- --------- -------
Pro forma basic and diluted net loss per share........ ($ 1.44) $ (0.38)
--------- -------
--------- -------
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Future pro
forma net income (loss) results may be materially different from actual future
amounts reported.
F-22
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
1999 EQUITY INCENTIVE PLAN
In February 1999, the Board of Directors adopted the 1999 Equity
Incentive Plan and reserved 2,000,000 shares for issuance thereunder, subject to
stockholder approval. The 1999 Equity Incentive Plan will become effective on
the effective date of the initial public offering and will serve as the
successor to the Plan. Options granted under the Plan before its termination
will remain outstanding according to their terms, but no further options will be
granted under the Plan after the effective date of the initial public offering.
The 1999 Equity Incentive Plan will terminate in February 2009, unless sooner
terminated in accordance with its terms. The 1999 Equity Incentive Plan
authorizes the award of incentive stock options and nonqualified stock options,
restricted stock awards and stock bonuses.
1999 EMPLOYEE STOCK PURCHASE PLAN
In February 1999, the Board of Directors adopted the 1999 Employee Stock
Purchase Plan and reserved a total of 300,000 shares of common stock for
issuance thereunder, subject to stockholder approval. On each January 1, the
aggregate number of shares reserved for issuance under the 1999 Employee Stock
Purchase Plan will be increased automatically by the number of shares purchased
under the 1999 Employee Stock Purchase Plan in the preceding calendar year. The
aggregate number of shares issued over the term of the 1999 Employee Stock
Purchase Plan may not exceed 3,000,000 shares. The 1999 Employee Stock Purchase
Plan will become effective on the effective date of the initial public offering.
Employees generally will be eligible to participate in the 1999 Employee Stock
Purchase Plan if they are customarily employed by AdForce or its parent or any
subsidiaries that AdForce designates for more than 20 hours per week and more
than five months in a calendar year. Under the 1999 Employee Stock Purchase
Plan, eligible employees will be permitted to acquire shares of AdForce's common
stock through payroll deductions. Eligible employees may select a rate of
payroll deduction between 2% and 10% of their compensation and are subject to
certain maximum purchase limitations described in the 1999 Employee Stock
Purchase Plan. Each offering period under the 1999 Employee Stock Purchase Plan
will be for two years and consist of six-month purchase periods. The first
offering period is expected to begin on the first business day on which price
quotations for AdForce's common stock are available on the Nasdaq National
Market. Offering periods and purchase periods thereafter will begin on February
1 and August 1. The purchase price for AdForce's common stock purchased under
the 1999 Employee Stock Purchase Plan is 85% of the lesser of the fair market
value of AdForce's common stock on the first day of the applicable offering
period or the last day of each purchase period. The 1999 Employee Stock Purchase
Plan will terminate in February 1999, unless earlier terminated pursuant to the
terms of the 1999 Employee Stock Purchase Plan. The Board of Directors will have
the authority to amend, terminate, or extend the term of the 1999 Employee Stock
Purchase Plan.
1999 DIRECTORS STOCK OPTION PLAN
In February 1999, the Board of Directors adopted the 1999 Directors
Stock Option Plan and reserved a total of 200,000 shares of common stock for
issuance under the 1999 Directors Stock Option Plan, subject to stockholder
approval. Members of the Board of Directors who are not employees of AdForce, or
any parent, subsidiary or affiliate of AdForce, are eligible to participate in
the 1999 Directors Stock Option Plan. Option grants under the 1999 Directors
Stock Option Plan are automatic and nondiscretionary, and the exercise price of
the options is the fair market value of the common stock on the
F-23
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
date of grant. Each eligible director who first becomes a member of the Board of
Directors on or after the effective date of the initial public offering will
initially be granted an option to purchase 10,000 shares of common stock on the
date he or she becomes a member of the Board of Directors. Each eligible
director who first becomes a member of the Board of Directors prior to the
effective date of the initial public offering will receive an initial grant
immediately following the first annual meeting of stockholders of AdForce after
the effective date of the initial public offering, provided that he or she is
elected a member of the Board of Directors at the first annual meeting of
stockholders. Immediately following each annual meeting of stockholders of
AdForce, each eligible director will automatically be granted an additional
option to purchase 5,000 shares of common stock if he or she has served
continuously as a member of the Board of Directors for a period of at least one
year since the date of his or her initial grant under this Plan. The options
have ten-year terms. They will terminate seven months following the date the
director ceases to be a director or a consultant to AdForce, or twelve months if
the termination is due to death or disability. All options granted under the
1999 Directors Stock Option Plan will vest as to 25% of the shares on the first
anniversary of the date of grant and as to 2.08333% of the shares each month
thereafter, provided the optionee continues as a member of the Board of
Directors or as a consultant to AdForce. In the event of a merger or other
transaction in which AdForce is not the surviving corporation, all options
issued under the 1999 Directors Stock Option Plan will accelerate and become
exercisable in full prior to the consummation of the transaction.
9. ACQUISITION OF TECHNOLOGY AND OPERATING RIGHTS
In January 1996, AdForce assumed the assets and liabilities of Iron
Mountain Global Information Systems, Inc. in exchange for a combination of
1,720,000 shares of common stock in AdForce valued at $0.005 per share, the
assumption of notes payable of $214,000 and an agreement to make a cash payment
of $106,000 to an investor in Iron Mountain Global Information Systems, Inc. The
net assets acquired included in-process software technology for use in the
business of Internet ad-serving. However, this technology was initially
developed for online real estate advertising and inquiry and subsequently proved
to be unusable for AdForce's current Internet advertising processes. This
software technology was abandoned during 1996 in favor of the development of new
software technology to satisfy projected market needs. Accordingly, the entire
value assigned to the acquired technology of $319,000 was expensed to Research
and Development during the period from January 16, 1996 (inception) to December
31, 1996.
10. INCOME TAXES
The difference between the amount of income tax benefit recorded and the
amount of income tax benefit calculated using the U.S. federal statutory rate of
34% is due to net operating losses not being benefitted. Accordingly, there is
no provision for income taxes for the period from January 16, 1996 (inception)
to December 31, 1996 and the years ended December 31, 1997 and 1998.
F-24
<PAGE>
ADFORCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
10. INCOME TAXES (CONTINUED)
Significant components of AdForce's deferred tax assets and liabilities
are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards......................... $ 3,275 $ 6,989
Tax credit carryforwards................................. 221 380
Other--net............................................... 204 1,214
--------- ---------
Total deferred tax assets.................................. 3,700 8,583
Valuation allowance........................................ (3,700) (7,707)
--------- ---------
Net deferred tax assets.................................... $ -- $ 876
--------- ---------
Deferred tax liability:
Acquired intangibles..................................... -- 876
--------- ---------
Net deferred tax assets and liabilities.................... $ -- $ --
--------- ---------
--------- ---------
</TABLE>
FASB Statement No. 109 provides for the recognition of deferred tax
assets if realization of such assets is more likely than not. Based upon the
weight of available evidence, which includes AdForce's historical operating
performance and the reported cumulative net losses in all prior years, AdForce
has provided a full valuation allowance against its net deferred tax assets.
The valuation allowance increased by approximately $1,300,000 and
$2,400,000 during the period from January 16, 1996 (inception) to December 31,
1996 and the year ended December 31, 1997, respectively.
As of December 31, 1998, AdForce had federal and state net operating
loss carryforwards of approximately $17,000,000. AdForce also had federal and
state research and development tax credit carryforwards of approximately
$250,000 and $130,000, respectively. The net operating loss and tax credit
carryforwards, if not utilized, will expire at various dates beginning in 2004.
Utilization of the net operating loss and tax credit carryforwards may
be subject to a substantial annual limitation due to the "change in ownership"
provisions of the Internal Revenue Code of 1986, as amended, and similar state
provisions. The annual limitation may result in expiration of net operating loss
and tax credit carryforwards before utilization.
11. SUBSEQUENT EVENTS
Effective on April 30, 1999, AdForce's stockholders approved its
reincorporation in the state of Delaware. In conjunction with the
reincorporation in Delaware, the Company changed the number of authorized shares
of preferred stock to 5,451,663 and the number of authorized shares of common
stock to 40,000,000. The par value of the Company's preferred and common stock
has been retroactively reflected in the accompanying financial statements.
F-25
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
AdForce, Inc.
We have audited the accompanying balance sheet of StarPoint Software,
Inc. as of May 31, 1997, and the related statements of operations, shareholders'
equity (net capital deficiency), and cash flows for the period from August 8,
1996 (inception) through May 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of StarPoint, Software,
Inc. at May 31, 1997, and the results of its operations and its cash flows for
the period from August 8, 1996 (inception) through May 31, 1997, in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
San Jose, California
October 29, 1998
F-26
<PAGE>
STARPOINT SOFTWARE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 31, NOVEMBER 30,
1997 1997
---------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash........................................................... $ 60,251 $ 42,515
Accounts receivable............................................ 47,500 12,600
Prepaid expenses and other current assets...................... 12,278 6,139
---------- -------------
Total current assets............................................. 120,029 61,254
Property and equipment, net...................................... 95,138 85,818
---------- -------------
Total assets..................................................... $ 215,167 $ 147,072
---------- -------------
---------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
(NET CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable............................................... $ 113,854 $ 128,273
Accrued compensation and related benefits...................... 172,415 336,313
Other accrued liabilities...................................... 45,483 235,548
Deferred revenue............................................... 42,500 13,333
Convertible promissory notes payable........................... 827,562 1,038,482
---------- -------------
Total current liabilities........................................ 1,201,814 1,751,949
Commitments
Shareholders' equity (net capital deficiency):
Convertible preferred stock, $0.0001 par value per share
issuable in series:
Authorized shares--5,000,000...............................
Series B convertible preferred stock:
Designated shares--1,500,000
Issued and outstanding shares--none........................ -- --
Common stock, $0.0001 par value:
Authorized shares--15,000,000
Issued and outstanding shares--2,544,918 at May 31, 1997 and
2,858,512 at November 30, 1997............................. 254 286
Additional paid-in capital..................................... 79,761 126,622
Accumulated deficit............................................ (1,066,662) (1,731,785)
---------- -------------
Total shareholders' equity (net capital deficiency).............. (986,647) (1,604,877)
---------- -------------
Total liabilities and shareholders' equity (net capital
deficiency).................................................... $ 215,167 $ 147,072
---------- -------------
---------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-27
<PAGE>
STARPOINT SOFTWARE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
AUGUST 8, 1996 AUGUST 8, 1996
(INCEPTION) (INCEPTION) SIX MONTHS ENDED
THROUGH MAY 31, THROUGH NOVEMBER NOVEMBER 30,
1997 30, 1996 1997
---------------- ---------------- ----------------
(UNAUDITED)
<S> <C> <C> <C>
Revenues:
Net revenue............................................. $ 5,000 $ -- $ 110,267
Cost of sales........................................... -- -- 23,530
---------------- -------- --------
Gross margin.............................................. 5,000 -- 86,737
Operating expenses:
Research and development................................ 592,152 128,404 394,606
Marketing and selling................................... 224,821 -- 77,699
General and administrative.............................. 214,469 34,007 229,757
---------------- -------- --------
Total operating expenses.................................. 1,031,442 162,411 702,062
---------------- -------- --------
Loss from operations...................................... (1,026,442) (162,411) (615,325)
Interest expense, net..................................... (40,220) -- (49,798)
---------------- -------- --------
Net loss.................................................. $ (1,066,662) $ (162,411) $ (665,123)
---------------- -------- --------
---------------- -------- --------
</TABLE>
SEE ACCOMPANYING NOTES.
F-28
<PAGE>
STARPOINT SOFTWARE, INC.
STATEMENT OF SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
<TABLE>
<CAPTION>
TOTAL
SHAREHOLDERS'
COMMON STOCK ADDITIONAL EQUITY
---------------------- PAID-IN ACCUMULATED (NET CAPITAL
SHARES AMOUNT CAPITAL DEFICIT DEFICIENCY)
--------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock to
founders....................... 2,470,000 $ 247 $ 24,453 $ -- $ 24,700
Issuance of common stock....... 74,918 7 5,428 -- 5,435
Issuance of stock purchase
warrants..................... -- -- 49,880 -- 49,880
Net loss....................... -- -- -- (1,066,662) (1,066,662)
--------- --- ----------- ------------ ------------
Balance at May 31, 1997.......... 2,544,918 254 79,761 (1,066,662) (986,647)
Issuance of common stock
(unaudited).................. 313,594 32 36,756 -- 36,788
Issuance of stock purchase
warrants (unaudited)......... -- -- 10,105 -- 10,105
Net loss (unaudited)........... -- -- -- (665,123) (665,123)
--------- --- ----------- ------------ ------------
Balance at November 30, 1997
(unaudited).................... 2,858,512 $ 286 $ 126,622 $(1,731,785) $(1,604,877)
--------- --- ----------- ------------ ------------
--------- --- ----------- ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-29
<PAGE>
STARPOINT SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
AUGUST 8, 1996 AUGUST 8, 1996
(INCEPTION) (INCEPTION) SIX MONTHS
THROUGH THROUGH ENDED
MAY 31, 1997 NOVEMBER 30, 1996 NOVEMBER 30, 1997
---------------- --------------------- ---------------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................ $ (1,066,662) $ (162,411) $ (665,123)
Reconciliation of net loss to net cash used in
operating activities:
Depreciation and amortization................. 19,294 336 15,559
Amortization of discount on convertible notes
payable..................................... 17,442 -- 27,925
Changes in operating assets and liabilities:
Accounts receivable......................... (47,500) -- 34,900
Prepaid expenses and other current assets... (12,278) (12,278) 6,139
Accounts payable............................ 113,854 376 14,419
Accrued compensation and related benefits... 172,415 95,339 163,898
Deferred revenue............................ 42,500 -- (29,167)
Other accrued liabilities................... 45,483 12,008 190,065
---------------- -------- --------
Net cash used in operating activities........... (715,452) (66,630) (241,385)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................ (114,432) (8,070) (6,239)
---------------- -------- --------
Net cash used in investing activities........... (114,432) (8,070) (6,239)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock and
warrants, net................................. 80,015 27,600 46,893
Proceeds from issuance of convertible notes
payable....................................... 810,120 47,100 182,995
---------------- -------- --------
Net cash provided by financing activities....... 890,135 74,700 229,888
---------------- -------- --------
Net increase (decrease) in cash................. 60,251 -- (17,736)
Cash at beginning of period..................... -- -- 60,251
---------------- -------- --------
Cash at end of period........................... $ 60,251 $ -- $ 42,515
---------------- -------- --------
---------------- -------- --------
</TABLE>
SEE ACCOMPANYING NOTES.
F-30
<PAGE>
STARPOINT SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1997
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
StarPoint Software Inc. ("StarPoint") was incorporated on August 8, 1996
to provide software products for serving Internet advertising. StarPoint has
developed technology that is used to electronically place advertisements on
Internet web pages using highly sophisticated targeting techniques. It has
deployed such technology as part of a marketed software offering that
facilitates the delivery of Internet ads for a variety of market segments,
including (i) advertisers; (ii) advertising agencies; (iii) advertising
representation firms; and (iv) Internet service providers, content providers
(i.e., "Web sites"), and search engines. StarPoint's principal activities to
date have been recruiting personnel, performing research and development, and
building a sales and marketing function. StarPoint was in the development stage
through May 1997, when it first began generating revenues.
INTERIM FINANCIAL STATEMENTS
The accompanying balance sheet as of November 30, 1997 and the
statements of operations and cash flows for the period from August 8, 1996
(inception) through November 30, 1996 and the six month period ended November
30, 1997 are unaudited. In the opinion of management, the unaudited financial
statements have been prepared on the same basis as the audited financial
statements and include all adjustments, consisting of normal recurring entries,
necessary for a fair statement of the financial position, result of operations,
and cash flows for the interim periods. The results of operations for the
six-month period ended November 30, 1997 are not necessarily indicative of
operating results to be expected for the full fiscal year.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
StarPoint markets, sells, and grants credit for its products to its
customers without requiring collateral or third-party guarantees. To date, all
of StarPoint's customers are participants in the Internet industry. Only a few
of all participants in the Internet industry have a demonstrated history of
profitability, and accordingly, unsecured credit granted to such customers
carries with it a greater risk of loss. StarPoint monitors its exposure for
credit losses and maintains appropriate allowances.
DEPRECIATION AND AMORTIZATION
StarPoint records property and equipment at cost and calculates
depreciation using an accelerated depreciation method over the estimated useful
life of the assets, generally three to seven years.
ADVERTISING COSTS
Advertising costs are charged to expense when incurred. Advertising
expense was $19,294 for the period from August 8, 1996 (inception) through May
31, 1997.
F-31
<PAGE>
STARPOINT SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
StarPoint licenses software to end users under noncancelable license
agreements. Software license revenue is generally recognized at the time the
product has been shipped, provided StarPoint does not have any significant
remaining obligations and collection of the resulting receivable is probable.
Maintenance revenue is recognized ratably over the term of the related
agreement, which in most cases is one year. Revenue is recorded net of revenue
allowances.
STOCK-BASED COMPENSATION
StarPoint accounts for employee stock option grants in accordance with
Accounting Principals Board Opinion No. 25, "ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES" (APB Opinion No. 25). StarPoint grants stock options for a fixed
number of shares to employees with an exercise price equal to the fair value of
the shares at the date of grant and, accordingly, recognizes no compensation
expense for the employee stock option grants.
RESEARCH AND DEVELOPMENT COSTS
Costs incurred in the development of new software (and substantial
enhancements to existing software) used in the processes of StarPoint's Internet
advertisement serving services are expensed to operations as incurred until
technological feasibility of such software has been established, at which time
any additional costs would be capitalized in accordance with Statement of
Financial Accounting Standards No. 86, "ACCOUNTING FOR THE COSTS OF COMPUTER
SOFTWARE TO BE SOLD, LEASED, OR OTHERWISE MARKETED" (FAS 86). Because StarPoint
believes that its present process for developing software is essentially
completed concurrently with the establishment of technological feasibility, no
costs have been capitalized to date.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
MAY 31, 1997
-------------
<S> <C>
Computer hardware and software................................ $ 101,172
Office furniture and equipment................................ 13,260
-------------
114,432
Less accumulated depreciation and amortization................ 19,294
-------------
$ 95,138
-------------
-------------
</TABLE>
3. COMMITMENTS
StarPoint has leased its facility under a noncancelable operating lease
agreement which expires in November 1997. As of May 31, 1997, minimum lease
payments under the noncancelable lease agreement for the year ended May 31, 1998
were $37,125.
Rent expense was approximately $60,500 for the period from August 8,
1996 (inception) through May 31, 1997.
F-32
<PAGE>
STARPOINT SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. CONVERTIBLE PROMISSORY NOTES PAYABLE
During the period from August 8, 1996 (inception) through May 31, 1997,
StarPoint received funding from investors secured by convertible promissory
notes payable totaling $860,000. The notes bear interest at 6.5% and mature on
demand or on the stated maturity date which is from November 29, 1997 to March
4, 1998. Prior to the maturity date, the promissory notes and accrued interest
will automatically convert into preferred stock upon the closing of an equity
financing of StarPoint's preferred stock for an aggregate consideration of at
least $1,500,000.
In connection with the convertible promissory notes issued, StarPoint
has issued warrants to purchase $172,000 of preferred stock at an exercise price
equal to the lower of $2.00 or the issuance price of the preferred stock at the
time of the financing. The warrants are exercisable at any time prior to
expiration and will expire at the earlier of: (i) five years, (ii) the merger or
consolidation of StarPoint into a third party pursuant to which StarPoint's
shareholders own less than 50% of the surviving entity, (iii) the sale of
substantially all of the assets of StarPoint, or (iv) the closing of an initial
public offering of common stock. StarPoint has allocated $49,880 of the proceeds
received from the issuance of the promissory notes to the value of the warrants.
The principal amounts of the convertible promissory notes were reduced by the
value assigned to the warrants, and such amount is being recognized as
additional interest expense over the life of the notes. StarPoint recognized
interest expense of $17,442 related to the estimated fair market value of the
warrants.
As of May 31, 1997, StarPoint has reserved 526,624 shares of preferred
stock for issuance upon conversion of the convertible promissory notes and
exercise of stock purchase warrants. No warrants were exercised in the period
from August 8, 1996 (inception) through May 31, 1997.
5. SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
COMMON STOCK
As of May 31, 1997, StarPoint has reserved 741,000 shares of its common
stock for issuance upon exercise of options outstanding and available under the
1996 Stock Plan.
A total of 2,470,000 shares of common stock issued in 1996 to three of
StarPoint's founders and a consultant are subject to certain repurchase rights
held by StarPoint. Such repurchase rights lapse 10% immediately, 15% in August
1997, and the remainder ratably over 48 months beginning in September 1997. As
of May 31, 1997, 2,223,000 shares of common stock are subject to repurchase by
StarPoint at the original purchase price of $0.01 per share.
STOCK OPTION PLANS
StarPoint has elected to follow APB Opinion No. 25, and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
Statement of Financial Accounting Standards No. 123, "ACCOUNTING FOR STOCK-BASED
COMPENSATION" (FAS 123), requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB Opinion 25, when
the exercise price of StarPoint's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recognized.
During the period from August 8, 1996 (inception) through May 31, 1997,
StarPoint adopted the 1996 Stock Plan (the Plan). Under the Plan, up to 741,000
shares of StarPoint's common stock may be granted to directors, employees, and
certain consultants. Under the Plan, options to purchase common
F-33
<PAGE>
STARPOINT SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY) (CONTINUED)
stock may be granted at no less than 100% of the fair value on the date of the
grant as determined by the Board of Directors. Options generally vest over a
48-month period and have a maximum term of ten years.
<TABLE>
<CAPTION>
WEIGHTED
SHARES AVERAGE
AVAILABLE OPTIONS PRICE PER EXERCISE
FOR GRANT OUTSTANDING SHARE PRICE
----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Shares authorized............ 741,000 -- $ -- $ --
$ 0.03 -
Options granted.............. (174,000) 174,000 $0.12 $ 0.07
Options canceled............. 4,000 (4,000) $ 0.07 $ 0.07
----------- -------------
$ 0.03 -
Balance at May 31, 1997...... 571,000 170,000 $0.12 $ 0.07
----------- -------------
----------- -------------
</TABLE>
All outstanding options to purchase common stock of StarPoint were
exercisable at May 31, 1997. As of May 31, 1997, options to purchase 7,292
shares of common stock were vested. The weighted average remaining contractual
life of those options is approximately 9.7 years.
Pro forma information regarding net income (loss) is required by FAS
123, which also requires that the information be determined as if StarPoint has
accounted for its employee stock options granted subsequent to December 31, 1994
under the fair value method of FAS 123. The fair value of these options was
estimated at the date of grant using the minimum-value method option-pricing
model. The following weighted average assumptions were used for the period ended
May 31, 1997: (i) a risk-free interest rate of 5%, (ii) a dividend yield of
zero, and (iii) a weighted average expected life of the option of four years.
The weighted average fair value of options granted during 1997 was $0.03.
The effect of applying FAS 123 to StarPoint's stock option awards
resulted in a pro forma net loss of $1,066,915 for the period from August 8,
1996 (inception) through May 31, 1997.
6. INCOME TAXES
As of May 31, 1997, StarPoint had federal and state net operating loss
carryforwards of approximately $1,100,000. The net operating loss carryforwards
will expire at various dates beginning in 2005 through 2012, if not utilized.
Utilization of the net operating losses may, in the future, be subject
to a substantial annual limitation due to the "change in ownership" provisions
of the Internal Revenue Code of 1986, as amended, and similar state provisions.
The annual limitation may result in the expiration of net operating losses
before utilization.
As of May 31, 1997, StarPoint had deferred tax assets of approximately
$400,000. The net deferred tax asset has been fully offset by a valuation
allowance. The net valuation allowance increased by $400,000 during the period
from August 8, 1996 (inception) through May 31, 1997. Deferred tax assets
primarily relate to net operating loss carryforwards.
7. SUBSEQUENT EVENTS
In June and October 1997, StarPoint amended the terms of the convertible
promissory notes to allow the holders to convert the outstanding principal and
accrued interest into Series B preferred stock at a conversion price of $0.60
per share upon the earlier of the maturity date or a change in control.
F-34
<PAGE>
STARPOINT SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. SUBSEQUENT EVENTS (CONTINUED)
In June, July, and October 1997, StarPoint received funding from
investors secured by convertible promissory notes payable totaling $192,500. The
notes bear interest at 6.5% and mature on demand or on the stated maturity date,
which is from June 13, 1998 to October 16, 1998. The promissory notes are
convertible into preferred stock at the then fair market value of such stock. In
connection with the convertible promissory notes issued, StarPoint has issued
warrants to purchase $96,250 of preferred stock at an exercise price equal to
the lower of $2.00 or the issuance price of the preferred stock at the time of
the financing.
In December 1997, StarPoint entered into a definitive agreement to merge
with AdForce, Inc. (formerly Imgis, Inc.), a company providing a comprehensive
service infrastructure that facilitates the planning, scheduling, targeting,
delivery, monitoring, analysis, reporting of, and accounting for advertising on
the Internet. The merger became effective on February 13, 1998 and was accounted
for as a purchase by AdForce, Inc. AdForce, Inc. assumed all assets and
liabilities of StarPoint, issued 877,834 shares of common stock in exchange for
all outstanding common stock of StarPoint, and issued 309,738 shares of Series C
preferred stock for all outstanding preferred stock of StarPoint.
F-35
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,500,000 SHARES
[LOGO]
COMMON STOCK
---------------
PROSPECTUS
---------------
HAMBRECHT & QUIST
LEHMAN BROTHERS
VOLPE BROWN WHELAN & COMPANY
CHARLES SCHWAB & CO., INC.
---------
May 7, 1999
--------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.
NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES
TO PERMIT A PUBLIC OFFERING OF THE COMMON STOCK OR POSSESSION OR DISTRIBUTION OF
THIS PROSPECTUS IN THAT JURISDICTION. PERSONS WHO COME INTO POSSESSION OF THIS
PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED STATES ARE REQUIRED TO INFORM
THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THIS OFFERING AND THE
DISTRIBUTION OF THIS PROSPECTUS APPLICABLE TO THAT JURISDICTION.
UNTIL JUNE 1, 1999, ALL DEALERS THAT BUY, SELL OR TRADE IN OUR COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses to be paid by the Registrant in connection with this
offering are as follows. All amounts other than the Securities and Exchange
Commission registration fee, the NASD filing fee and the Nasdaq National Market
application fee are estimates.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 21,580
NASD filing fee................................................. 8,263
Nasdaq National Market listing fee.............................. 95,000
Printing and engraving expenses................................. 150,000
Legal fees and expenses......................................... 450,000
Accounting fees and expenses.................................... 225,000
Blue sky fees and expenses...................................... 10,000
Transfer agent and registrar fees and expenses.................. 5,000
Road show expenses.............................................. 30,000
Miscellaneous................................................... 105,157
---------
Total......................................................... $1,100,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law authorizes a court
to award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Securities
Act").
As permitted by the Delaware General Corporation Law, the Registrant's
Second Amended and Restated Certificate of Incorporation, which will become
effective upon the closing of this offering, includes a provision that
eliminates the personal liability of its directors for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to the Registrant or its stockholders, (ii)
for acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law, (iii) under section 174 of the Delaware General
Corporation Law (regarding unlawful dividends and stock purchases) or (iv) for
any transaction from which the director derived an improper personal benefit.
As permitted by the Delaware General Corporation Law, the Bylaws of the
Registrant provide that (i) the Registrant is required to indemnify its
directors and officers to the fullest extent permitted by the Delaware General
Corporation Law, provided that any indemnified officer and director acted in
good faith and in a manner which such officer and director reasonably believed
to be in or not opposed to the Registrant's best interests, (ii) the Registrant
may indemnify its other employees and agents as set forth in the Delaware
General Corporation Law, (iii) the Registrant is required to advance expenses,
as incurred, to its directors and officers in connection with a legal proceeding
to the fullest extent permitted by the Delaware General Corporation Law, subject
to certain very limited exceptions and (iv) the rights conferred in the Bylaws
are not exclusive.
The Registrant intends to enter into Indemnification Agreements with
each of its current directors and officers to give such directors and officers
additional contractual assurances regarding the scope of the indemnification set
forth in the Registrant's Second Amended and Restated Certificate of
Incorporation and to provide additional procedural protections. At present,
there is no pending litigation or proceeding involving a director, officer or
employee of the Registrant regarding which indemnification is
II-1
<PAGE>
sought, nor is the Registrant aware of any threatened litigation that may result
in claims for indemnification.
Reference is also made to Section 7 of the Underwriting Agreement, which
provides for the indemnification of officers, directors and controlling persons
of the Registrant against certain liabilities. The indemnification provision in
the Registrant's Second Amended and Restated Certificate of Incorporation,
Bylaws and the Indemnification Agreements entered into between the Registrant
and each of its directors and officers may be sufficiently broad to permit
indemnification of the Registrant's directors and officers for liabilities
arising under the Securities Act.
The Registrant, with approval by the Registrant's Board of Directors,
expects to obtain directors' and officers' liability insurance.
See also the undertakings set out in response to Item 17.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
DOCUMENT EXHIBIT NUMBER
- ----------------------------------------------------------- ---------------
<S> <C>
Underwriting Agreement (draft dated May 3, 1999)........... 1.1
Registrant's First Amended and Restated Certificate of
Incorporation............................................ 3.1
Registrant's Second Amended and Restated Certificate of
Incorporation to be effective upon the closing of the
offering................................................. 3.2
Registrant's Bylaws, as amended............................ 3.3
Form of Indemnity Agreement to be entered into between the
Registrant and its executive officers and directors...... 10.1
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following table sets forth information regarding all securities sold
by the Registrant, or its California predecessor, since its incorporation on
January 16, 1996. Reference to warrants below assume full exercise of all
warrants. All preferred stock numbers are presented on an as-converted to common
stock basis, and all common stock numbers have been adjusted retroactively to
reflect a two-for-one stock-split that occurred in February 1998.
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PURCHASE
CLASS OF PURCHASERS DATE OF SALE TITLE OF SECURITIES(1) SECURITIES PRICE FORM OF CONSIDERATION
- ----------------------- ------------------- ----------------------- --------- ----------- -----------------------
<S> <C> <C> <C> <C> <C>
3 shareholders April 26, 1996 Common Stock 1,720,000 $ 8,600 Assignment of software
Washington Holdings,
L.P. April 26, 1996 Common Stock 2,000,000 10,000 Cash
5 investors May 30, 1996 Series B Preferred 220,000 550,000 Cash
Stock(2)
IBL Corporation July 15, 1996 Warrant to purchase -- -- --(3)
123,400 shares of
Common Stock
2 former employees August 7, 1996 Common Stock 3,000 15 Cash
AMGIT Marketing, Inc. December 2, 1996 Warrant to purchase -- -- --(4)
400,000 shares of
Common Stock
2 investors December 5, 1996 Series A Preferred 1,200,914 1,503,500(5) Cancellation of debt
Stock owed by AdForce
6 investors December 5, 1996 Series B Preferred 2,054,636 2,578,568 Cash
Stock
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PURCHASE
CLASS OF PURCHASERS DATE OF SALE TITLE OF SECURITIES(1) SECURITIES PRICE FORM OF CONSIDERATION
- ----------------------- ------------------- ----------------------- --------- ----------- -----------------------
<S> <C> <C> <C> <C> <C>
2 investors March 26, 1997 Warrant to purchase -- -- --(6)
55,778 shares of Series
B Preferred Stock
BridgeGate Group April 4, 1997 Warrant to purchase -- -- --(7)
6,142 shares of Common
Stock
Arun Swami June 4, 1997 Common Stock 2,400 300 Services rendered
6 investors July 2, 1997 Series C Preferred 1,733,616 4,100,001 Cash
Stock
2 investors November 25, 1997 Series C Preferred 816,384 1,930,748 Cash
Stock
Comdisco, Inc. December 2, 1997 Warrant to purchase -- -- --(8)
73,996 shares of Series
C Preferred Stock
2 investors December 17, 1997 Warrant to purchase -- -- --(9)
44,398 shares of Series
C Preferred Stock
Convergence Ventures I, February 3, 1998 Series C Preferred 60,994 144,251 Cash
L.P. Stock
Convergence February 3, 1998 Series C Preferred 42,284 100,002 Cash
Entrepreneurs Fund I, Stock
L.P.
9 shareholders February 13, 1998 Common Stock 877,834 -- Exchange for Common
Stock of StarPoint
Software, Inc.(10)
17 shareholders February 13, 1998 Series C Preferred 619,476 -- Exchange for Preferred
Stock Stock of StarPoint
Software, Inc.(10)
Comdisco, Inc. March 6, 1998 Series C Preferred 21,142 50,000 Cash
Stock
19 investors April 27, 1998 Series D Preferred 1,457,532 10,005,977 Cash and cancellation
Stock of debt owed by AdForce
19 investors July 15, 1998 Warrant to purchase -- -- --(11)
72,860 shares of Series
D Preferred Stock
America Online, Inc. July 15, 1998 Series E Preferred 1,456,664 9,999,998 Cash
Stock
America Online, Inc. July 15, 1998 Warrant to purchase -- -- --(12)
1,019,662 shares of
Series E Preferred
Stock
AMGIT Marketing, Inc. September 4, 1998 Exercise of warrant to 400,000 2,000 Cash
purchase Common Stock
Jane Anderson September 17, 1998 Option to purchase 960 -- -- --(13)
shares of Common Stock
Comdisco, Inc. September 29, 1998 Warrant to purchase -- -- --(14)
21,850 shares of
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PURCHASE
CLASS OF PURCHASERS DATE OF SALE TITLE OF SECURITIES(1) SECURITIES PRICE FORM OF CONSIDERATION
- ----------------------- ------------------- ----------------------- --------- ----------- -----------------------
Series D Preferred
Stock
<S> <C> <C> <C> <C> <C>
Jane Anderson October 28, 1998 Series D Preferred 2,604 17,876 Services rendered
Communications Stock
Ulrich Schmidt October 28, 1998 Series D Preferred 872 5,986 Cash
Stock
Officers, directors, January 16, 1996 to Exercise of options to 1,643,233 $ 307,118 Cash(15)
employees and other March 31, 1999 purchase Common Stock
eligible participants
</TABLE>
- ------------------------------
* As part of the reincorporation of AdForce into Delaware, AdForce exchanged
6,160,711 shares of its Common Stock, 9,467,118 shares of its convertible
preferred stock, warrants to purchase 6,142 shares of its Common Stock and
warrants to purchase 1,288,544 shares of its convertible preferred stock for
6,160,711 shares of Common Stock, 9,467,118 shares of preferred stock,
warrants to purchase 6,142 shares of its Common Stock and warrants to
purchase 1,288,544 shares of preferred stock, respectively.
(1) Each share of Series A, Series B, Series C, Series D, and Series E
Preferred Stock will convert automatically into two shares of common stock,
respectively, upon the consummation of this offering.
(2) Converted to Common Stock on December 5, 1996 as a condition to the Series
B Preferred Stock financing.
(3) Issued to IBL Corporation as consideration for a loan and terminated on
December 5, 1996 as a condition to the Series B1 Preferred Stock financing.
(4) In connection with a joint venture with AMGIT Marketing, Inc. to develop
certain research and information products for database application services,
AdForce granted AMGIT a warrant to purchase 400,000 shares of Common Stock
in exchange for a 50% interest in a joint venture.
(5) Represents the cancellation of indebtedness owed by AdForce to IBL
Corporation in the amount of $997,500 and to Washington Holdings, L.P. in
the amount of $506,000.
(6) Issued to Venture Lending & Leasing Inc. and Robert Kingsbook as additional
consideration to establish a credit line for acquisition of equipment and
other corporate purposes.
(7) Issued to BridgeGate Group as additional consideration for consulting
services performed for AdForce.
(8) Issued to Comdisco, Inc. as additional consideration to establish a credit
line for equipment acquisitions.
(9) Issued to Venture Lending & Leasing Inc. and Robert Kingsbook as additional
consideration to establish a credit line for acquisition of equipment and
other corporate purposes.
(10) In connection with AdForce's acquisition of StarPoint, AdForce exchanged
877,834 shares of Common Stock for StarPoint's Common Stock and 619,476
shares (as converted to Common Stock basis) of Series C Preferred Stock for
StarPoint's Preferred Stock.
(11) Issued to the holders of the Series D Preferred Stock in connection with
the closing of the Series E Preferred Stock financing on July 15, 1998.
(12) Issued to America Online, Inc. in connection with AdForce's Series E
Preferred Stock financing on July 15, 1998.
(13) Issued to Jane Anderson as consideration for consulting services performed
for Adforce.
(14) Issued to Comdisco, Inc. as additional consideration for the extension of a
credit line for equipment acquisitions.
(15) With respect to the grant of stock options, exemption from registration
under the Securities Act was unnecessary in that none of such transactions
involved a "sale" of securities as such term is used in Section 2(3) of the
Securities Act.
------------------
All sales of common stock made pursuant to the exercise of stock options
were made in reliance on Rule 701 under the Securities Act or on Section 4(2) of
the Securities Act.
All other sales were made in reliance on Section 4(2) of the Securities
Act and/or Regulation D promulgated under the Securities Act. These sales were
made without general solicitation or advertising. Each purchaser was a
sophisticated investor with access to all relevant information necessary to
evaluate the investment and represented to the Registrant that the shares were
being acquired for investment.
II-4
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
DOCUMENT NUMBER
- ---------------------------------------------------------------------------------- ---------
<S> <C>
Underwriting Agreement (draft dated May 3, 1999).................................. 1.1*
Agreement and Plan of Reorganization by and between Imgis, Inc. and StarPoint
Software, Inc. dated December 19, 1997.......................................... 2.1*
Agreement and Plan of Merger by and between the Registrant and Imgis, Inc. dated
April 29, 1999.................................................................. 2.2*
Registrant's First Amended and Restated Certificate of Incorporation.............. 3.1*
Registrant's Second Amended and Restated Certificate of Incorporation to be
effective upon the closing of the offering...................................... 3.2*
Registrant's Restated Bylaws, as amended.......................................... 3.3*
Specimen Stock Certificate........................................................ 4.1*
Amended and Restated Investors' Rights Agreement by and between Imgis, Inc. and
certain investors dated as of July 15, 1998..................................... 4.2*
Amended and Restated Voting Agreement by and between Imgis, Inc. and certain
investors dated as of July 15, 1998............................................. 4.3*
Opinion of Fenwick & West LLP..................................................... 5.1
Form of Indemnity Agreement to be entered into between the Registrant and its
executive officers and directors................................................ 10.1*
StarPoint Software, Inc. 1996 Stock Plan.......................................... 10.2*
Imgis, Inc. 1997 Stock Plan....................................................... 10.3*
Registrant's 1999 Equity Incentive Plan and associated documents.................. 10.4*
Registrant's 1999 Directors Stock Option Plan and associated documents............ 10.5*
Registrant's 1999 Employee Stock Purchase Plan and associated documents........... 10.6*
Sublease by and between Concentric Network Corporation and Imgis, Inc. dated
February 12, 1999............................................................... 10.7*
Standard Form Office Lease by and between De Anza Plaza II, LLC and Imgis, Inc.
dated May 29, 1998.............................................................. 10.8*
Lease between Imgis, Inc., and Two Town Center Associates dated December 20,
1996............................................................................ 10.9*
First Amendment to Lease between Imgis, Inc. and Two Town Center Associates dated
February 18, 1998............................................................... 10.10*
Second Amendment to Lease between Imgis, Inc. and Fifth Street Properties, LLC
dated February 18, 1999......................................................... 10.10.1*
Letter Agreement between Imgis, Inc. and Charles W. Berger dated June 27, 1997.... 10.11*
Letter Agreement between Imgis, Inc. (dba "AdForce") and Charles W. Berger dated
November 19, 1998............................................................... 10.12*
Letter Agreement between Imgis, Inc. (dba "AdForce") and Harish S. Rao dated
December 11, 1998............................................................... 10.13*
Employment Agreement between Imgis, Inc. (dba "AdForce") and John A. Tanner dated
December 9, 1998................................................................ 10.14*
Letter Agreement between Imgis, Inc. (dba "AdForce") and A. Dee Cravens dated
January 21, 1999................................................................ 10.15*
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
DOCUMENT NUMBER
- ---------------------------------------------------------------------------------- ---------
<S> <C>
Letter Agreement between Imgis, Inc. (dba "AdForce") and Anthony P. Glaves dated
December 28, 1998, as revised in December 31, 1998.............................. 10.16*
Letter Agreement between Imgis, Inc. and Rex S. Jackson dated July 22, 1998....... 10.17*
Settlement Agreement between Imgis, Inc. (dba "AdForce") and Chad Steelberg dated
November 20, 1998............................................................... 10.18*
Loan Agreement between Imgis, Inc. and Venture Lending & Leasing, Inc. dated March
26, 1997........................................................................ 10.19*
Loan and Security Agreement between Imgis, Inc. and Venture Lending & Leasing,
Inc. dated December 16, 1997.................................................... 10.20*
Loan and Security Agreement between Imgis, Inc. and Venture Lending & Leasing II,
Inc. dated December 16, 1997.................................................... 10.21*
Master Lease Agreement between Imgis, Inc. and Comdisco, Inc. dated December 2,
1997............................................................................ 10.22*
Service Agreement between Imgis, Inc. and GeoCities dated May 14, 1998............ 10.23*+
Software License and Support Agreement between StarPoint Software, Inc. and
GeoCities dated July 11, 1997................................................... 10.24+
Intentionally Omitted............................................................. 10.25
Services Agreement between Imgis, Inc. and 2CAN Media dated August 25, 1998....... 10.26
Intentionally Omitted............................................................. 10.27
Demographic Data Agreement by and between America Online, Inc. and Imgis, Inc.
dated as of July 15, 1998....................................................... 10.28
License Agreement by and between America Online, Inc. and Imgis, Inc. dated as of
July 15, 1998................................................................... 10.29
Service Agreement between Imgis, Inc. (dba "AdForce") and 24/7 Media, Inc. dated
January 1, 1999................................................................. 10.30+
License Agreement by and between Imgis, Inc. and Netscape Communications
Corporation dated February 1, 1999.............................................. 10.31
Consent of Fenwick & West LLP (included in Exhibit 5.1)........................... 23.1
Consent of Ernst & Young LLP, independent auditors................................ 23.2
Power of Attorney (see Page II-5 of this Registration Statement).................. 24.1*
Financial Data Schedule........................................................... 27.1
Consent of Bart Faber and Doug Hickey dated April 28, 1999........................ 99.1*
</TABLE>
- ------------------------
* Previously filed.
** To be supplied by amendment.
+ Confidential treatment has been requested.
(b) The following financial data schedule is filed herewith:
Schedule II-- Valuation and Qualifying Accounts.
All other financial statement schedules are omitted because the
information called for is not required or is shown either in the financial
statements or the notes thereto.
II-6
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, 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
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the 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 the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Amendment to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Cupertino, State
of California, on the 6th day of May 1999.
<TABLE>
<S> <C> <C>
ADFORCE, INC.
By: /s/ JOHN A. TANNER
-----------------------------------------
John A. Tanner
Executive Vice President
and Chief Financial Officer
</TABLE>
Pursuant to the requirements of the Securities Act, this Amendment to
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
PRINCIPAL EXECUTIVE OFFICER:
*/s/ CHARLES W. BERGER Chief Executive Officer, May 6, 1999
- ---------------------------- President and Chairman of
Charles W. Berger the Board
PRINCIPAL FINANCIAL OFFICER
AND
PRINCIPAL ACCOUNTING OFFICER:
/s/ JOHN A. TANNER Executive Vice President May 6, 1999
- ---------------------------- and Chief Financial
John A. Tanner Officer
ADDITIONAL DIRECTORS:
*/s/ ERIC DI BENEDETTO Director May 6, 1999
- ----------------------------
Eric Di Benedetto
*/s/ MARK P. GORENBERG Director May 6, 1999
- ----------------------------
Mark P. Gorenberg
*/s/ J. NEIL WEINTRAUT Director May 6, 1999
- ----------------------------
J. Neil Weintraut
*/s/ DIRK A. WRAY Director May 6, 1999
- ----------------------------
Dirk A. Wray
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ JOHN A. TANNER
-------------------------
John A. Tanner
ATTORNEY-IN-FACT
</TABLE>
II-8
<PAGE>
ADFORCE
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 1997 AND DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
AMOUNTS
CHARGED TO
BALANCE AT REVENUE,
BEGINNING OF COSTS, OR WRITE-OFFS AND BALANCE AT
YEAR EXPENSES RECOVERIES END OF YEAR
------------- ----------- --------------- -----------
<S> <C> <C> <C> <C>
1997
Allowance for Doubtful Accounts.............................. $ -- $ 131 $ -- $ 131
1998
Allowance for Doubtful Accounts.............................. $ 131 $ 1,355 $ 451 $ 1,035
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
EXHIBIT TITLE NUMBER
- ---------------------------------------------------------------------------------- ---------
<S> <C>
Underwriting Agreement (draft dated May 3, 1999).................................. 1.1*
Agreement and Plan of Reorganization by and between Imgis, Inc. and StarPoint
Software, Inc. dated December 19, 1997.......................................... 2.1*
Agreement and Plan of Merger by and between the Registrant and Imgis, Inc. dated
April 29, 1999.................................................................. 2.2*
Registrant's First Amended and Restated Certificate of Incorporation.............. 3.1*
Registrant's Second Amended and Restated Certificate of Incorporation to be
effective upon the closing of the offering...................................... 3.2*
Registrant's Restated Bylaws, as amended.......................................... 3.3*
Specimen Stock Certificate........................................................ 4.1*
Amended and Restated Investors' Rights Agreement by and between Imgis, Inc. and
certain investors dated as of July 15, 1998..................................... 4.2*
Amended and Restated Voting Agreement by and between Imgis, Inc. and certain
investors dated as of July 15, 1998............................................. 4.3*
Opinion of Fenwick & West LLP..................................................... 5.1
Form of Indemnity Agreement to be entered into between the Registrant and its
executive officers and directors................................................ 10.1*
StarPoint Software, Inc. 1996 Stock Plan.......................................... 10.2*
Imgis, Inc. 1997 Stock Plan....................................................... 10.3*
Registrant's 1999 Equity Incentive Plan and associated documents.................. 10.4*
Registrant's 1999 Directors Stock Option Plan and associated documents............ 10.5*
Registrant's 1999 Employee Stock Purchase Plan and associated documents........... 10.6*
Sublease by and between Concentric Network Corporation and Imgis, Inc. dated
February 12, 1999............................................................... 10.7*
Standard Form Office Lease by and between De Anza Plaza II, LLC and Imgis, Inc.
dated May 29, 1998.............................................................. 10.8*
Lease between Imgis, Inc., and Two Town Center Associates dated December 20,
1996............................................................................ 10.9*
First Amendment to Lease between Imgis, Inc. and Two Town Center Associates dated
February 18, 1998............................................................... 10.10*
Second Amendment to Lease between Imgis, Inc. and Fifth Street Properties, LLC
dated February 18, 1999......................................................... 10.10.1*
Letter Agreement between Imgis, Inc. and Charles W. Berger dated June 27, 1997.... 10.11*
Letter Agreement between Imgis, Inc. (dba "AdForce") and Charles W. Berger dated
November 19, 1998............................................................... 10.12*
Letter Agreement between Imgis, Inc. (dba "AdForce") and Harish S. Rao dated
December 11, 1998............................................................... 10.13*
Employment Agreement between Imgis, Inc. (dba "AdForce") and John A. Tanner dated
December 9, 1998................................................................ 10.14*
Letter Agreement between Imgis, Inc. (dba "AdForce") and A. Dee Cravens dated
January 21, 1999................................................................ 10.15*
Letter Agreement between Imgis, Inc. (dba "AdForce") and Anthony P. Glaves dated
December 28, 1998, as revised in December 31, 1998.............................. 10.16*
Letter Agreement between Imgis, Inc. and Rex S. Jackson dated July 22, 1998....... 10.17*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
EXHIBIT TITLE NUMBER
- ---------------------------------------------------------------------------------- ---------
<S> <C>
Settlement Agreement between Imgis, Inc. (dba "AdForce") and Chad Steelberg dated
November 20, 1998............................................................... 10.18*
Loan Agreement between Imgis, Inc. and Venture Lending & Leasing, Inc. dated March
26, 1997........................................................................ 10.19*
Loan and Security Agreement between Imgis, Inc. and Venture Lending & Leasing,
Inc. dated December 16, 1997.................................................... 10.20*
Loan and Security Agreement between Imgis, Inc. and Venture Lending & Leasing II,
Inc. dated December 16, 1997.................................................... 10.21*
Master Lease Agreement between Imgis, Inc. and Comdisco, Inc. dated December 2,
1997............................................................................ 10.22*
Service Agreement between Imgis, Inc. and GeoCities dated May 14, 1998............ 10.23*+
Software License and Support Agreement between StarPoint Software, Inc. and
GeoCities dated July 11, 1997................................................... 10.24+
Intentionally Omitted............................................................. 10.25
Services Agreement between Imgis, Inc. and 2CAN Media dated August 25, 1998....... 10.26
Intentionally Omitted............................................................. 10.27
Demographic Data Agreement by and between America Online, Inc. and Imgis, Inc.
dated as of July 15, 1998....................................................... 10.28
License Agreement by and between America Online, Inc. and Imgis, Inc. dated as of
July 15, 1998................................................................... 10.29
Service Agreement between Imgis, Inc. (dba "AdForce") and 24/7 Media, Inc. dated
January 1, 1999................................................................. 10.30+
License Agreement by and between Imgis, Inc. and Netscape Communications
Corporation dated February 1, 1999.............................................. 10.31
Consent of Fenwick & West LLP (included in Exhibit 5.1)........................... 23.1
Consent of Ernst & Young LLP, independent auditors................................ 23.2
Power of Attorney (see Page II-5 of this Registration Statement).................. 24.1*
Financial Data Schedule........................................................... 27.1
Consent of Bart Faber and Doug Hickey dated April 28, 1999........................ 99.1*
</TABLE>
- ------------------------
* Previously filed
** To be supplied by amendment.
+ Confidential treatment has been requested.
<PAGE>
EXHIBIT 5.1
May 7, 1999
AdForce, Inc.
10590 North Tantau Avenue
Cupertino, California 95014
Gentlemen/Ladies:
At your request, we have examined the Registration Statement on Form S-1
(File Number 333-73231) (the "REGISTRATION STATEMENT") filed by you with the
Securities and Exchange Commission (the "COMMISSION") on or about March 2, 1999,
as subsequently amended in connection with the registration under the Securities
Act of 1933, as amended, of an aggregate of 5,175,000 shares of your Common
Stock (the "STOCK").
In rendering this opinion, we have examined the following:
(1) your registration statement on Form 8-A (File Number 000-25497) filed
with the Commission on May 4, 1999;
(2) the Registration Statement, together with the Exhibits filed as a part
thereof;
(3) the prospectuses prepared in connection with the Registration
Statement;
(4) the minutes of meetings and actions by written consent of the
stockholders and Board of Directors that are contained in your minute
books and the minute books of your predecessor, Imgis, Inc., a
California corporation ("IMGIS CALIFORNIA"), that are in our
possession;
(5) the stock records for both you and Imgis California that you have
provided to us (consisting of a list of stockholders and photocopies
of stock certificates and a list of option and warrant holders
respecting your capital stock and of any other rights to purchase
capital stock verifying the number of such issued and outstanding
securities); and
(6) a Management Certificate addressed to us and dated of even date
herewith executed by the Company containing certain factual and other
representations.
In our examination of documents for purposes of this opinion, we have
assumed, and express no opinion as to, the genuineness of all signatures on
original documents, the authenticity and completeness of all documents submitted
to us as originals, the conformity to originals and completeness of all
documents submitted to us as copies, the legal capacity of all natural persons
executing the same, the lack of any undisclosed termination, modification,
waiver or amendment to any document reviewed by us and the due authorization,
execution and delivery of all documents where due authorization, execution and
delivery are prerequisites to the effectiveness thereof.
<PAGE>
AdForce, Inc.
May 7, 1999
Page 2
As to matters of fact relevant to this opinion, we have relied solely upon
our examination of the documents referred to above and have assumed the current
accuracy and completeness of the information obtained from public officials and
records referred to above. We have made no independent investigation or other
attempt to verify the accuracy of any of such information or to determine the
existence or non-existence of any other factual matters; HOWEVER, we are not
aware of any facts that would cause us to believe that the opinion expressed
herein is not accurate.
We are admitted to practice law in the State of California, and we express
no opinion herein with respect to the application or effect of the laws of any
jurisdiction other than the existing laws of the United States of America and
the State of California and (without reference to case law or secondary sources)
the existing Delaware General Corporation Law.
In connection with our opinion expressed below, we have assumed that, at or
prior to the time of the delivery of any shares of the Stock, the Registration
Statement and the registration statement on Form 8-A will have been declared
effective under the Securities Act of 1933, as amended, that the registration
will apply to such shares of the Stock and will not have been modified or
rescinded and that there will not have occurred any change in law affecting
the validity or enforceability of such shares of the Stock.
Based upon the foregoing, it is our opinion that the up to 5,175,000 shares
of the Stock to be issued and sold by you, when issued and sold in accordance in
the manner referred to in the relevant prospectus associated with the
Registration Statement, will be validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us, if any, in the
Registration Statement, the prospectus constituting a part thereof and any
amendments thereto.
This opinion speaks only as of its date and we assume no obligation to
update this opinion should circumstances change after the date hereof. This
opinion is intended solely for your use as an exhibit to the Registration
Statement for the purpose of the above sale of the Stock and is not to be relied
upon for any other purpose.
Very truly yours,
FENWICK & WEST LLP
By: /s/ Laird H. Simons
-----------------------------
<PAGE>
Exhibit 10.24
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
SOFTWARE LICENSE AND SUPPORT AGREEMENT
This SOFTWARE LICENSE AND SUPPORT AGREEMENT (this "Agreement") is
entered into by and between GeoCities, together with its Subsidiaries (as
defined below) (collectively "Customer"), and StarPoint Software, Inc.
("StarPoint"), and describes the terms and conditions pursuant to which
StarPoint shall license to Customer and support certain Software (as defined
below).
In consideration of the mutual promises and upon the terms and
conditions set forth below, the parties agree as follows:
1. DEFINITIONS
1.1 "CONFIDENTIAL INFORMATION" means this Agreement, including all of its
terms, and all its Schedules, any addenda hereto signed by both parties, all
Software listings, Documentation, information, data, drawings, benchmark
tests, specifications, trade secrets, object code and machine-readable copies
of the Software, source code relating to the Software, and any other
proprietary information supplied to Customer by StarPoint, or by Customer to
StarPoint and clearly marked as "confidential information", including all
items defined as "confidential information" in any other agreement between
Customer and StarPoint whether executed prior to or after the date of this
Agreement.
1.2 "DOCUMENTATION" means any on-line help files, instruction manuals,
operating instructions, user manuals, and specifications provided by
StarPoint which describe the use of the Software and which either accompany
the Software or are provided to Licensee at any time.
1.3 "EFFECTIVE DATE" means the later of the dates on which Customer and
StarPoint have signed this Agreement.
1.4 "EQUIPMENT" means the computer system, including peripheral equipment
and operating system software, specified in Schedule B.
1.5 "MAJOR AND MINOR UPDATES" shall mean updates, if any, to the StarPoint
Software. Major Updates involve additions of substantial functionality while
Minor Updates do not. Major Updates are designated by a change in the
number to the left of the decimal point of the number appearing after the
product name while Minor Updates are designated by a change in such number
to the right of the decimal point. StarPoint is the sole determiner of the
availability and designation of an update as a Major or Minor Update. Major
Updates exclude software releases which are reasonably designated by
StarPoint as new products, in accordance with generally accepted industry
practices. Where used herein "Updates" shall mean Major or Minor Updates
interchangeably.
1.6 "SITE" means each physical location, or each Internet service offering
specified in Schedule B of one or more CPU's of the Equipment at which
Customer is entitled to Use the Software.
1.7 "SOFTWARE" means the computer software programs specified in Schedule A
and otherwise provided to Customer pursuant to this Agreement.
1.8 "SUBSIDIARY" means all current and future business entities of which a
party owns, directly or indirectly, more than fifty percent (50%) of the
equity securities or other equity interest granting such party voting rights
exercisable in electing the management of the entities, for so long as such
ownership exists.
1.9 "USE" means loading, utilization, storage or display of the Software by
Customer for its own internal information processing, by copying or
transferring the same into Customer's Equipment.
2. LICENSE, DELIVERABLES AND COPIES
2.1 GRANT OF LICENSE. Subject to the terms and conditions of this
Agreement, StarPoint hereby grants to Customer during an unlimited period of
time, a non-exclusive and non-transferable license to (a) Use the Software on
the Equipment (or with prior written notice to StarPoint, on substitute,
upgraded, or additional equipment; provided, however that any costs resulting
from the transfer of the Software to such equipment, including without
limitation services rendered by StarPoint shall be Customer's responsibility)
and at the Site (or with prior written notice to StarPoint on additional
sites of Customer, to be specified in Schedule B), and to make sufficient
copies as necessary for such Use, (b) use the Documentation in connection
with Use of the Software, and (c) modify the Software pursuant to authorized
Use of the Software specified in Schedule A, if any; provided that, although
Customer does not transfer to StarPoint any of Customer's rights to such
modifications, all such modifications shall be subject to the restrictions of
this Agreement that apply to the Software. This license transfers to
Customer neither title nor any proprietary or intellectual property rights to
the Software, Documentation, or any copyrights, patents, or trademarks,
embodied or used in connection therewith, except for the rights expressly
granted herein. Notwithstanding the inclusion of Subsidiaries in the
definition of Customer in this Agreement, StarPoint's affirmative obligations
will be limited to the entity named above. Such entity hereby guarantees the
performance of its Subsidiaries under this Agreement and shall indemnify and
hold harmless StarPoint from and against all losses, costs, liabilities and
expenses arising out of or relating to any breaches by such Subsidiaries of
this Agreement.
2.2 DELIVERABLES. StarPoint shall issue to Customer, as soon as
practicable, one (1) machine-readable copy of the Software for Use at the
Site only, along with one (1) copy of the on-line Documentation, and one (1)
written copy of the Documentation. Customer may duplicate the Documentation
for internal use, and shall not distribute the Documentation to any party
other than Customer and its Subsidiaries.
2.3 COPIES. Customer will be entitled to make a reasonable number of
machine-readable copies of the Software for backup or archival purposes only.
Customer may not copy the Software, except as permitted by this Agreement.
Customer shall maintain accurate and up-to-date records of the number and
location of all copies of the Software and inform StarPoint in writing of
such location(s). All copies of the Software will be subject to all terms
and conditions of this Agreement. Whenever Customer is permitted to copy or
reproduce all or any part of the Software, all titles, trademark symbols,
copyright symbols and legends, and other proprietary markings must be
reproduced.
3. LICENSE RESTRICTIONS. Customer agrees that it will not itself, or
through any parent, subsidiary, affiliate, agent or other third party: (a)
sell, lease, license or sub-license the Software or the Documentation; (b)
decompile, disassemble, or reverse engineer
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the Software, in whole or in part; (c) write or develop any derivative
software or any other software program based upon the Software or any
Confidential Information, except pursuant to authorized Use of Software, if
any; (d) use the Software to provide services on a 'service bureau' basis; or
(e) provide, disclose, divulge or make available to, or permit use of the
Software by any unauthorized third party without StarPoint's prior written
consent.
4. LICENSE FEE
4.1 LICENSE FEE. In consideration of the license granted pursuant to
Section 2.1. Customer agrees to pay StarPoint the License Fee specified in
Schedule A. The License Fee is due and payable in full upon the Effective
Date.
4.2 TAXES. Customer agrees to pay or reimburse StarPoint for all federal,
state, dominion, provincial, or local sales, use, personal property, payroll,
excise or other taxes, fees, or duties arising out of this Agreement or the
transactions contemplated by this Agreement (other than taxes on the net
income of StarPoint).
4.3 NO OFFSET. Fees and expenses due from Customer under this Agreement may
not be withheld or offset by Customer against other amounts owed by Customer
for any reason.
5. ESCROW OF SOURCE CODE. A Master Source Code Escrow Agreement with
respect to the Software (excluding the Third Party Software) shall be
established within 30 days of the Effective Date. Customer shall have the
right to become a beneficiary of the Escrow Agreement provided that Customer
agrees to be bound by the terms of such Escrow Agreement.
6. MAINTENANCE AND SUPPORT. Customer agrees to pay Maintenance Fees
according to Schedule C as attached hereto for each Site as specified in
Schedule A. For so long as Customer is current in the payment of all
maintenance fees, with respect to each site, Customer will be entitled to
Maintenance and Support for each site as set forth in Schedule C attached
hereto. Failure to pay maintenance fees with respect to any Site shall be
deemed a material breach of this Agreement and in such event StarPoint shall
have the right to terminate the rights granted hereunder with respect to
such site.
7. LIMITED WARRANTY AND LIMITATION OF LIABILITY
7.1 LIMITED WARRANTY. StarPoint warrants that for a period of ninety (180)
days from the Effective Date (the "Warranty Period") (a) the Software will
perform in substantial accordance with the Documentation and (b) the media on
which the Software is distributed will be free from defects in materials and
workmanship under normal use. If during the Warranty Period the Software or
the media on which it is distributed do not perform as warranted (a
"Non-Conformance"), StarPoint shall undertake to correct such
Non-Conformance, or if correction is reasonably not possible, replace such
Software or the media free of charge. If neither of the foregoing is
commercially practicable, StarPoint shall terminate this Agreement and refund
to Customer the License Fee. THE FOREGOING ARE CUSTOMER'S SOLE AND EXCLUSIVE
REMEDIES FOR BREACH OF WARRANTY. The warranty set forth above is made to and
for the benefit of Customer only. The warranty will apply only if:
(a) the Software has been properly installed and used at all times and in
accordance with the instructions for Use; and
(b) no modification, alteration or addition has been made to the Software by
persons other than StarPoint or StarPoint's authorized representative
(except pursuant to the authorized Use of the Software specified in
Schedule A) except as authorized in writing by StarPoint; and
(c) Customer has not requested modifications, alterations or additions to the
Software that cause it to deviate from the Documentation.
(d) StarPoint warrants that it possesses all of the right, title, interest and
authority to enter into this agreement with Customer. StarPoint also
warrants that no lawsuit or claim concerning the Software is currently
pending.
Any pre-production versions of the Software distributed to Customer are
delivered "as-is," without any express or implied warranties. No employee,
agent, representative or affiliate of StarPoint has authority to bind
StarPoint to any oral representations or warranty concerning the Software.
Any written representation or warranty not expressly contained in this
Agreement will not be enforceable.
7.2 DISCLAIMER. EXCEPT AS SET FORTH ABOVE, STARPOINT MAKES NO WARRANTIES,
WHETHER EXPRESS, IMPLIED, OR STATUTORY REGARDING OR RELATING TO THE SOFTWARE
OR THE DOCUMENTATION, OR ANY MATERIALS OR SERVICES FURNISHED OR PROVIDED TO
CUSTOMER UNDER THIS AGREEMENT, INCLUDING MAINTENANCE AND SUPPORT. STARPOINT
SPECIFICALLY DISCLAIMS ALL IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR
A PARTICULAR PURPOSE AND NONINFRINGEMENT WITH RESPECT TO THE SOFTWARE,
DOCUMENTATION AND SAID OTHER MATERIALS AND SERVICES, AND WITH RESPECT TO THE
USE OF ANY OF THE FOREGOING. IN ADDITION, STARPOINT DISCLAIMS ANY WARRANTY
WITH RESPECT TO, AND WILL NOT BE LIABLE OR OTHERWISE RESPONSIBLE FOR, THE
OPERATION OF THE SOFTWARE IF PROGRAMS ARE MADE THROUGH THE USE OF SOFTWARE OR
NON-STARPOINT SOFTWARE THAT CHANGE, OR ARE ABLE TO CHANGE, THE DATA MODEL OF
THE SOFTWARE.
7.3 LIMITATION OF LIABILITY. IN NO EVENT WILL STARPOINT BE LIABLE FOR ANY
LOSS OF PROFITS, LOSS OF USE, BUSINESS INTERRUPTION, LOSS OF DATA, COST OF
COVER OR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND
IN CONNECTION WITH OR ARISING OUT OF THE FURNISHING, PERFORMANCE OR USE OF
THE SOFTWARE OR SERVICES PERFORMED HEREUNDER, WHETHER ALLEGED AS A BREACH OF
CONTRACT OR TORTIOUS CONDUCT, INCLUDING NEGLIGENCE, EVEN IF STARPOINT HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN ADDITION, STARPOINT WILL
NOT BE LIABLE FOR ANY DAMAGES CAUSED BY DELAY IN DELIVERY OR FURNISHING THE
SOFTWARE OR SAID SERVICES. STARPOINT'S LIABILITY UNDER THIS AGREEMENT FOR
DIRECT, INDIRECT, SPECIAL, INCIDENTAL AND/OR CONSEQUENTIAL DAMAGES OF ANY
KIND, INCLUDING, WITHOUT LIMITATION, RESTITUTION, WILL NOT, IN ANY EVENT,
EXCEED THE LICENSE FEE PAID BY CUSTOMER TO STARPOINT UNDER THIS AGREEMENT.
7.4 ALLOCATION OF RISK. The provisions of this Section 7 allocate risks
under this Agreement between Customer and StarPoint.
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StarPoint's pricing reflects this allocation of risks and limitation of in
accordance .with the provisions of this Agreement and will not liability.
7.5 CLAIMS. No action arising out of any breach or claimed breach of this
Agreement or transactions contemplated by this Agreement may be brought by
either party more than one (1) year after the cause of action has accrued.
For purposes of this Agreement, a cause of action will be deemed to have
accrued when a party knew or reasonably should have known of the breach or
claimed breach.
8. INDEMNIFICATION
8.1 INFRINGEMENT INDEMNITY. StarPoint shall, at its expense, defend or
settle any claim, action or allegation brought against Customer that the
Software infringes any patent, copyright, trade secret or other proprietary
right of any third party and shall pay any final judgments awarded or
settlements entered in the; provided that Customer gives prompt written notice
to StarPoint of any such claim, action or allegation of infringement and
gives StarPoint the authority to proceed as contemplated herein. StarPoint
will have the exclusive right to defend any such claim, action or allegation
and make settlements thereof at its own discretion, and Customer may not
settle or compromise such claim, action or allegation, except with prior
written consent of StarPoint. Customer shall give such assistance and
information as StarPoint may reasonably require to settle or oppose such
claims. In the event any such infringement, claim, action or allegation is
brought or threatened, StarPoint may, at its sole option and expense:
(a) procure for Customer the right to continue Use of the Software or
infringing part thereof; or
(b) modify or amend the Software or infringing part thereof, or replace the
Software or infringing part thereof with other software having
substantially the same or better capabilities; or, if neither of the
foregoing is commercially practicable,
(c) terminate this Agreement and repay to Customer a portion, if any, of the
License Fee and maintenance fees equal to the amount paid by Customer
less one-sixtieth (1/60) thereof for each month or portion thereof that
this Agreement has been in effect. StarPoint and Customer will then be
released from any further obligations of indemnification provided for
above and such other obligations that survive termination.
8.2 LIMITATION. The foregoing obligations shall not apply to the extent the
infringement arises as a result of modifications to the Software made by any
party other than StarPoint or StarPoint's authorized representative.
8.3 EXCLUSIVE REMEDY. The foregoing states the entire liability of StarPoint
and Customer's exclusive remedy with respect to infringement of any patent,
copyright, trade secret or other proprietary right.
8.4 CUSTOMER INDEMNITY. Customer shall indemnify and hold StarPoint
harmless from and against any costs, losses, liabilities and expenses
(including reasonable attorney's fees) arising out of third party claims
related to Customers Use of the Software under this AGreement.
9. CONFIDENTIALITY
9.1 CONFIDENTIAL INFORMATION. Each party acknowledges that the
Confidential Information constitutes valuable trade secrets and each party
agrees that it shall use Confidential Information solely in accordance with
the provisions of this Agreement and will not disclose, or permit to be
disclosed, the same, directly or indirectly, to any third party without the
other party's prior written consent. Each party agrees to exercise due care
in protecting the Confidential Information from unauthorized use and
disclosure. Furthermore, it is understood that the terms of this Agreement
reflect consideration received by Customer in return for being an early
adopter of the Software and that StarPoint's future revenue potential could be
adversely affected if such terms were to become publicly known. Therefore in
addition to not disclosing the terms of this Agreement, the parties shall
make no statement to any third party which tend to indicate the substance of
the terms (for example "we got a great deal, it was a bad deal for them).
However, neither party bears any responsibility for safeguarding information
that (i) is publicly available, (ii) already in the other party's possession
an not subject to a confidentiality obligation, (iii) obtained by the other
party from third parties without restrictions on disclosure, (iv)
independently developed by the other party without reference to Confidential
Information, or (v) required to be disclosed by order of a court or other
governmental entity. Nothing herein will prevent routine discussions by
the parties that normally take place in a "user group" context.
9.2 INJUNCTIVE RELIEF. In the event of actual or threatened breach of the
provisions of Section 9.1, the non-breaching party will have no adequate
remedy at law and will be entitled to immediate and injunctive and other
equitable relief, without bond and without the necessity of showing actual
money damages.
10. TERM AND TERMINATION
10.1 TERM. This Agreement will take effect on the Effective Date and will
remain in force until terminated in accordance with this Agreement.
10.2 TERMINATION. This Agreement is terminated by:
(a) Customer upon thirty (30) day's prior written notice to StarPoint,
with or without cause, provided that no such termination will entitle
Customer to a refund or any portion of the License Fee or maintenance
fees;
(b) StarPoint upon written notice to Customer if any of the following events
("Termination Events") occur, provided that, except as set forth in
Section 10.3(d) below, no such termination will entitle Customer to a
refund of any portion of the License Fee or maintenance fees; (i)
Customer fails to pay any undisputed amount due to StarPoint within
thirty (30) days after StarPoint gives the Customer written notice of
such non-payment; (ii) Customer is in material breach of any
non-monetary term, condition or provision of Agreement, which breach, if
capable of being cured, is not cured within thirty (30) days after
StarPoint gives Customer written notice of such breach; or (iii)
Customer becomes subject to any bankruptcy or insolvency proceeding
under federal or state statutes; or (iv) StarPoint elects to refund
Customer's fees in accordance with Section 7.1 or Section 8.1(c).
10.3 EFFECT OF TERMINATION. If any Termination Event occurs, termination
will become effective immediately or on the date set forth in the written
notice of termination. Termination of this Agreement will not affect the
provisions regarding Customer's or StarPoint's treatment of Confidential
Information, provisions relating to the payment of amounts due, or provisions
limiting or disclaiming StarPoint's liability, which provisions will survive
termination of this Agreement. Within fourteen (14) days after the date of
termination or discontinuance of this Agreement for
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any reason whatsoever, Customer shall return the Software, derivative works
and all copies thereof, in whole or in part, all related Documentation and
all copies thereof, and any other Confidential Information in its
possession. Customer shall furnish StarPoint with a certificate signed by an
executive officer of Customer verifying that the same has been done.
11. NON-ASSIGNMENT. Neither this Agreement nor any rights under this
Agreement may be assigned or otherwise transferred by Customer, in whole or
in part, whether voluntary or by operation of law, including by way of sale of
assets, merger or consolidation, without the prior written consent of
StarPoint, which consent will not be unreasonably withheld or delayed.
Subject to the foregoing, this Agreement will be binding upon and will inure
to the benefit of the parties and their respective successors and assigns.
11.2 ACQUISITION. In the event of acquisition of Customer resulting in
transfer of control of a majority of equity interest, the rights under this
Agreement shall be restricted to Customer and its Subsidiaries as constituted
prior to the acquisition.
12. NOTICES. Any notice required or permitted under the terms of this
Agreement or required by law must be in writing and must be (a) delivered in
person, (b) sent by first class registered mail, or air mail, as appropriate,
(c) sent by overnight air courier, or (d) by facsimile, in each case properly
posted to the appropriate address set forth below. Either party may change
its address for notice by notice to the other party given in accordance with
this Section. Notices will be considered to have been given at the time of
actual delivery in person, three (3) business days after deposition the mail
as set forth above, one (1) day after delivery to an overnight air courier
service, or one (1) day after the moment of transmission by facsimile.
13. MISCELLANEOUS
13.1 CENTURY DATE. The software shall experience no change in accuracy,
auditability or functionality relating to (1) the change of the system date
to January 1, 2000 (the "Century Date") on the Equipment or (ii) with
respect to the introduction or processing of records containing dates on or
after the Century Date.
13.2 VIRUSES AND DISABLING DEVICES. Neither the Software nor any
enhancements, modifications, upgrades, updates, revisions or releases thereof
shall contain (i) any mechanism such as a "trap door", "time bomb", or "logic
bomb", software protection routine or other similar device, that would enable
StarPoint to disable the Software or make the Software inaccessible to
GeoCities after the Software is installed; or (ii) to the best of StarPoint's
knowledge, any computer "virus", "worm" or similar programming routine.
13.3 FORCE MAJEURE. Neither party will incur any liability to the other
party on account of any loss or damage resulting from any delay or failure to
perform all or any part of this Agreement if such delay or failure is caused,
in whole or in part, by events, occurrences, or causes beyond the control and
without negligence of the parties. Such events, occurrences, or causes will
include,without limitation, acts of God, strikes, lockouts, riots, acts of
war, earthquakes, fire and explosions, but the inability to meet financial
obligations is expressly excluded.
13.4 WAIVER. Any waiver of the provisions of this Agreement or of a party's
rights or remedies under this Agreement must be in writing to be effective.
Failure, neglect, or delay by a party to enforce the provisions of this
Agreement or its rights or remedies at any time, will not be construed and
will not be deemed to be a waiver of such party's rights under this Agreement
and will not in any affect the validity of the whole or any part of this
Agreement or prejudice such party's right to take subsequent action. Except
as expressly stated in this Agreement, no exercise or enforcement by either
party of any right or remedy under this Agreement will preclude the
enforcement by such party of any other right or remedy under this Agreement or
that such party is entitled by law to enforce.
13.5 SEVERABILITY. If any term, condition, or provision in this Agreement is
found to be invalid,unlawful or unenforceable to any extent, the parties
shall endeavor in good faith to agree to such amendments that will preserve,
as far as possible,the intentions expressed in this Agreement. If the parties
fail to agree on such an amendment, such invalid term, condition or provision
will be severed from the remaining terms, conditions and provisions, which
will continue to be valid and enforceable to the fullest extent permitted by
law.
13.6 STANDARD TERMS OF CUSTOMER. No terms, provisions or condition s of
any purchase order, acknowledgment or other business form that Customer may
use in connection with the acquisition or licensing of the Software will have
any effect on the rights, duties or obligations of the parties under, or
otherwise modify, this Agreement, regardless of any failure of StarPoint to
object to such terms, provisions or conditions.
13.7 AMENDMENTS TO THIS AGREEMENT. This Agreement may not be amended, except
by a writing signed by both parties.
13.8 STARPOINT'S PRIOR CONSENT. Unless expressly provided otherwise in this
Agreement, any prior consent of StarPoint that is required before Customer
may take an action may be granted or withheld in StarPoint's sole and
absolute discretion.
13.9 EXPORT OF SOFTWARE. Customer may not export or re-export this Software
without the prior written consent of StarPoint and without the appropriate
United States and foreign government licenses.
13.10 APPLICABLE LAW. This Agreement will be interpreted and construed in
accordance with the laws of the State of California and the United States of
America, without regard to conflict of law principles.
13.11 PUBLIC ANNOUNCEMENTS. Customer acknowledges that StarPoint may desire
to use its name in press releases, product brochures and financial reports
indicating that Customer is a customer of StarPoint, and Customer agrees that
StarPoint may use its name in such a manner. Customer reserves the right to
review any use of its name and to withhold permission, which permission will
not reasonably be withheld.
13.12 ARBITRATION. All claims, disputes, and other matters in question
arising out of, or relating to, this Agreement or the interpretation or breach
thereof, shall be decided by arbitration before a single arbitrator in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association then obtaining unless the parties mutually agree otherwise. Said
arbitration shall be held in San Jose, California. This agreement to
arbitrate shall be specifically enforceable under applicable law in any court
of competent jurisdiction. Notice of the demand for arbitration shall be
filed in writing with the other party to this Agreement and with the American
Arbitration Association. The award rendered by the arbitrator shall be final
and judgment may be entered in accordance with applicable law and in any
court.
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having jurisdiction thereof. The arbitrator shall determine who is the
prevailing party and shall award reasonable attorneys' fees and expenses of
the arbitration to such party.
13.13 HEADINGS. Section and Schedule headings are for ease of reference only
and do not form part of this Agreement.
13.14 ENTIRE AGREEMENT. This Agreement (including the Schedules and any
addenda hereto signed by both parties) contains the entire agreement of the
parties with respect to the subject matter of this Agreement and supersedes
all previous communications, representations, understandings and agreements,
either oral or written, between the parties with respect to said subject
matter, except as provided in Section 1.3 with respect to the definition of
"Confidential Information."
IN WITNESS WHEREOF, the parties have executed this Agreement.
(CUSTOMER) STAR-POINT SOFTWARE, INC.
By: [illegible] By: /s/ Michael Tanne, President
------------------------------------- --------------------------------
[illegible], V.P. Operations Michael Tanne, President
- ---------------------------------------- --------------------------------
(print name and title) (print name and title)
Date: 7/11/97 Date: 27 June 1997
----------------------------------- ------------------------------
Address: Address:
1918 Main St #300 650 Castro Street, Suite 260
- ---------------------------------------- -----------------------------------
Santa Monica CA 90405 Mountain View, CA 94041
- ---------------------------------------- -----------------------------------
- ---------------------------------------- -----------------------------------
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SCHEDULE A
SOFTWARE AND LICENSE FEE
SOFTWARE
StarPoint Ad System. Standard configuration, including the following
modules: Content stream, demographic, c,eo-raphic, user interest,
sponsorship, ad inventory, and any future functionality that is incorporated
into the Ad System and not identified as a separate charceable option.
PLATFORM
Solaris
CONFIGURATION
Authorized confi-uration to support delivery of "unlimited" ads/day for the
GeoCities Web site and future sites that are Subsidiaries of Customer, or
sites that are minority-owned properties of Customer that do not qualify as
Subsidiaries, but for which StarPoint has -iven written permission to Use the
Software.
LICENSE FEE
[*] payable according to the followinc, schedule:
[*] upon contract sicnarure (by June 27, 1997)
[*] by July 31, 1997
[*] by August 29, 1997
ANNUAL MAINTENANCE FEE
[*] of License Fee [*] for each Site on which the Software is installed
that is not an exact duplicate of another Site, operated exclusively for the
purpose of Geographic or load distribution. Payment for the first year is
due by August 29, 1997. The annual maintenance renewal date shall be the
anniversary of the Effective Date.
SPECIAL TERMS
Customer agrees to provide a customer quote for a press release announcing
the use of StarPoint Ad System on the GeoCities Web site, and to continue to
act as a StarPoint reference account for prospects, customers, press and
analysts, provided such requests do not become burdensome to Customer.
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
SCHEDULE B
EQUIPMENT AND SITE
B.I The following is the Equipment on which Customer may Use the Software:
not restricted
B.2 The following is the Operating System on which Customer may Use the
Software:
Solaris
B.3 The following is/are the physical Site(s) at which Customer is entitled to
Use the Software:
Physical sites are not restricted, but Customer will advise StarPoint in
writinc, of the installation of Software at any new site.
B.4 The following is the maximum number of delivered ads/day allowed under the
Agreement:
unlimited
<PAGE>
SCHEDULE C
MAINTENANCE AND SUPPORT
DEFINITIONS
1.1 "SUPPORT CALL (LEVEL 1)" means a reported problem in the Software which
causes the system to be down and not serving ads, or has a significant
revenue impact, with no obvious work-around.
1.2 "SUPPORT CALL (LEVEL 2)" means a reported problem in the Software, not
considered as a Level I support problem as defined in 1.1 above, which
causes serious disruption of a function such as targeting, ad insertion,
campaign management or reporting, however the system is still serving ads.
1.3 "SUPPORT CALL (LEVEL 3)" means a reported problem in the Software which is
not affecting the Software's ability to perform substantially in accordance
with the user documentation.
1.4 "RESPONSE TIME" means the elapsed time between the receipt of a service
call and the time when StarPoint begins the Maintenance and Support,
includin- a verbal or written confirmation to the Customer thereof.
1.6 "RESPONSE CENTER AND CONTACT PROCEDURE" shall mean:
Address Hours of Operation *
650 Castro Street Suite 260 Monday - Friday
Mountain View, CA 94041 (excluding public holidays)
www.starpt.com 9 am - 6 pm PST
* 24x7 maintenance customers
have continuous access
Contact Infon-nation Pacer: 415/428-2424, 415/335-0503
Tel: (415) 960-1 1 00 x2O E-mail: [email protected]
Fax: (415) 960 1140 attn: Support
2 Term AND TERMINATION. StarPoint's provision of Maintenance and Support to
Customer will commence on the Effective Date and will continue for an
initial term of one (1) year. Maintenance and Support will automatically
renew at the end of the initial term and any subsequent term for a renewal
term of one (1) year unless Customer has provided StarPoint with a written
ten-nination notice of its intention not to renew the Maintenance and
Support at least ninety (90) days prior to the termination expiration of
the then-current term. Termination of Maintenance and Support upon failure
to renew will not affect the license of the Software.
3 MAINTENANCE AND SUPPORT SERVICES. Maintenance and Support will be provided
only with respect to versions cf the Software that are being supported by
StarPoint, according to the followincy schedule: (a) a Major Update will be
supported for two (2) years after the commercial release of the next Major
Update, provided always that Customer makes use of the last Minor Update
and Update of the first mentioned Major Update and (b) a Minor Update will
be supported for one (1) year after the commercial release of the next
Minor Update, provided always that Customer makes use of the last Update of
the related Major Update.
3.1 LEVELS OF MAINTENANCE AND SU@RT. Maintenance and Support is available
at the following Response Times: (i) Support Call (Level 1):
response time two (2) hours, patch or work-around next day, fixed or
documented in next major product release (ii) Support Call (Level 2):
response time six (6) hours, patch or work-around within five days,
fixed or documented in next major product release; (iii) Support Call
(Level 3): one (1) business day, problem documented and input for
consideration in next major product release
<PAGE>
3.2 BASIC MAINTENANCE. Basic Maintenance means that StarPoint will
provide during StarPoint's standard. hours of service: (i) Updates and
Minor Updates, when and if available, and related on-line
Documentation, and (ii) telephone assistance with respect to the
Software, including (a) clarification of functions and features of the
Software; (b) clarification of the Documentation; (c) cuidance in the
operation of the Software; and (d) error verification, analysis and
correction to the extent possible by telephone. StarPoint's standard
hours of service are Monday through Friday, 9:00 a.m. to 6:00 p.m.,
PST except for holidays as observed by StarPoint.
3.3 ON-SITE ASSISTANCE. At StarPoint's discretion, StarPoint can decide
to provide Maintenance and Support at the Customer Site. In such
event Customer will reimburse StarPoint for all related traveling
expenses and costs for board and lodging.
3.4 INSTALLATION AND CONVERSION. Upon Customer's request, StarPoint can
perform the installation and/or conversion of the Software. Unless
otherwise agreed, the costs hereof shall be invoiced to Customer on
the basis of StarPoint's then-current rates.
3.5 CAUSES WHICH ARE NOT ATTRIBUTABLE TO STARPOINT. Maintenance and
Support will not include services requested as a result of, or with
respect to causes which are not attributable to StarPoint. These
services will be billed to Customer at StarPoint's then-current rates.
Causes which are not attributable to StarPoint include but are not
limited to:
3.5.1 accident. unusual physical, electrical or electromagnetic
stress; neglect; misuse; failure or fluctuation of electric
power, air conditioning or humidity control; failure of
rotation media not famished by StarPoint; excessive heating;
fire and smoke damage; operation of the Software with other
media and hardware, software or telecommunication interfaces
not meeting or not maintained in accordance with the
manufacturer's specifications; or causes other than ordinary
use;
3.5.2 improper installation by Customer or use of the Software
that deviates from any operating procedures established by
StarPoint in the applicable Documentation;
3.5.3 modification. alteration or addition or attempted
modification, alteration or addition of the Software
undertaken bv persons other than StarPoint or StarPoint's
authorized representatives;
3.5.4 software programs made by Customer, StarPoint or other
parties.
4 RESPONSIBILITIES OF CUSTOMER. StarPoint's provision of Maintenance and
Support to Customer is subject to the following:
4.1 Customer shall provide StarPoint with access to Customer's personnel
and Equipment during normal business hours. This access must include
the ability to dial-in to the Equipment on which the Software is
operating and to obtain the level of necessary to support the
Software.
4.2 Customer shall provide supervision, control and management of the Use
of the Software. In addition, Customer shall implement procedures
for the protection of information and the implementation of backup
facilities in the event of errors or malfunction of the Software or
Equipment.
4.3 Customer shall document and promptly report all errors or malfunctions
of the Soft%vare to StarPoint. Customer shall take all steps
necessary to carry out procedures for the rectification of errors or
malfunctions within a reasonable time after such procedures have been
received from StarPoint.
4.4 Customer shall maintain a current backup copy of all programs and
data.
4.5 Customer shall properly train its personnel in the Use and application
of the Software and the Equipment on which it is used.
<PAGE>
5 MAINTENANC FEE. The Maintenance Fee for each calendar year of Maintenance
and Support will be [*] of the License Fee as defined in Schedule A for
each Site as specified in Schedule A. The Maintenance Fee is due and
payable in full in advance within thirty (30) days after the date of
delivery of the Software. Any amounts not paid within thirty (30) days
will be subject to interest of [*] per month, which interest will be
immediately due and payable. Each calendar year, the Maintenance Fee may
be modified by StarPoint due to general price increases and/or general
inflation increases which are reflected in the Consumer Price Index, but
shall, for a period of four years from the Effective Date, in no event
exceed [*] plus the increase in the Consumer Price Index for
the applicable time period, by written notice to Customer at least thirty
(30) days prior to the end of the then-current term. In the event of a
modification of the Maintenance Fee, Customer may discontinue Maintenance
and Support. If Customer elects not to renew Maintenance and Support,
Customer may re-enroll only upon payment of the annual Maintenance Fee for
the coming year and [*] per cent of all Maintenance Fees that would
have been paid had Customer not terminated Maintenance and Support, which
entities Customer to all Updates and Minor Updates of the Software which
have been released during the same period.
6 ASSIGNMENT OF DUTIES. StarPoint may assign its duties of Maintenance and
Support to a third party, provided that StarPoint will remain responsible
for the actions of such third party. Any such assignment is subject to
Customer's consent, which consent shall not be unreasonably withheld or
delayed.]
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
PROPOSAL
Estimated Engineering Time Required: 1 week, assuming no changes to the
proposed mapping and filtering.
Cost [*] ([*] days @ [*]/day consulting rate)
Delivery Date. Completed and fully-testing by Friday, October 24th. $[*] of
the fee will be paid up front and $[*] will be paid upon completion if the
proposal is complete on time. If the delivery date slips we will pay $[*]
when the project is completed, and StarPoint will forfeit the remaining $[*].
The agreed upon deliverables include all reports that run succssfully for the
three consecutive days starting Friday, October 24. All stock impromptu
reports templates will have columns of data specified along with the
appropriate formatting (see page 3). The reports should also generate 1-2
weeks of data without blowing up. Area filtering should be completed based on
the areamap.txt we will give you on Wednesday October 15. OS, Browser and
Domain filtering should be completed according to page 4 of this document.
All Stock Impromptu reports should be set up by StarPoint to sun
automatically on a nightly basis and saved as snapshots.
Accepted
GeoCities /s/ [ILLEGIBLE] Date 10/13/97
StarPoint /s/ [ILLEGIBLE] Date 10/13/97
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
page 2
<PAGE>
Exhibit 10.26
ADFORCE-TM- SERVICE 2CAN MEDIA AGREEMENT
- -------------------------------------------------------------------------------
ADFORCE SERVICES AGREEMENT
This Agreement (the "Agreement") is entered into between IMGIS, Inc., a
California corporation ("IMGIS"), with offices at 10101 North DeAnza Blvd.,
Suite 210, Cupertino, California 95014 and 2CAN Media, a Delaware corporation
("COMPANY"), with offices at 20700 Ventura Blvd., Woodland Hills, CA 91364.
1. ADFORCE SERVICE DEFINITION. The AdForce service is an Internet
advertising administration system that will allow 2CAN Media and its ad
sales and network clients, defined as Web publishers ("Clients") to
manage advertising on Client's Web sites or similar on-line services. As
part of the AdForce service, IMGIS will provide 2CAN Media with the
AdForce "client" software application ("Application Software"), with
which 2CAN Media will be able to (a) generate ad tags, (b) schedule
advertising to run in the online environments in which 2CAN Media places
those ad tags and (c) generate reports on such advertising. In addition,
IMGIS will maintain an AdForce server complex from which IMGIS will
electronically deliver advertising scheduled by 2CAN Media to the online
environments containing the ad tags placed by 2CAN Media and its
Clients. The delivery of "Impressions," defined as the transmission of
advertisements or other content by AdForce, will be verified by monthly
third-party audits of the AdForce service, conducted by the Audit Bureau
of Verification Services, Inc. or another third party chosen by IMGIS in
its sole discretion. The AdForce service includes targeting features as
listed in Exhibit B. The AdForce service includes a suite of standard
reports available in the AdForce system and listed in Exhibit B. Features
added to the AdForce service in the future, including, but not limited
to, demographic and psychographic targeting; will be considered part of
the AdForce service covered in this Agreement and may be subject to
additional fees, which fees will be subject to IMGIS sole discretion.
2. ADFORCE SERVICE AND SUPPORT. In addition to the functionality described
in Section 1, IMGIS will provide 2CAN Media with telephone customer
support from the hours of 6am to 6pm Pacific Time, Monday-Friday,
excluding major holidays and 7 day a week, 24-hour-a-day access to IMGIS
technical support via phone and pager. 2CAN Media will be responsible
for providing support to its Clients and advertisers unless IMGIS is
providing Platinum Service. IMGIS will provide full-service scheduling of
2CAN Media's advertising campaigns by IMGIS personnel ("Platinum
Service"), including manual insertions and campaign modifications for a
period of sixty (60) days from the execution date of this agreement
(Platinum Service). Platinum Service will be available to 2CAN Media
after this initial sixty (60) day period at an additional fee to be
determined.
3. OBLIGATIONS OF 2CAN MEDIA. 2CAN Media agrees to utilize the AdForce
service as its exclusive ad serving technology. 2CAN Media agrees to
implement the ad tags on its Clients' sites as described in the AdForce
User Guide and Help documentation. 2CAN Media also agrees to use best
commercial efforts to schedule all advertising for 2CAN's Client sites
or on-line properties on the AdForce service. If 2CAN Media elects to
have IMGIS process insertion and modification orders on 2CAN Media's
behalf, 2CAN Media agrees to supply IMGIS with the information necessary
to schedule and/or modify ad campaigns at least 12 hours in advance of
campaign initiation. Should the average file size of 2CAN Media's
advertisements exceed 12 kilobytes, as determined by IMGIS on a monthly
basis, 2CAN agrees to pay the incremental fee listed in Exhibit A to
compensate for higher bandwidth costs. 2CAN Media agrees to provide
IMGIS with non-binding volume forecasts of Impressions to be delivered
using the AdForce service for the upcoming 12 months on a rolling 30-day
basis. 2CAN Media agrees to respond favorably to inquiries from the
press, potential investors, customers and future customers regarding the
AdForce service, IMGIS and the relationship between parties.
Additionally, 2CAN Media agrees to participate in, and make inventory
available to, upcoming AdForce product functionality currently code
named "Cross Network Buying" which will allow media buyers and other web
publishers to electronically access available inventory through the
AdForce service. (release date TBD).
4. OWNERSHIP / LIMITATIONS ON USE. Subject to the terms and conditions
of this Agreement, IMGIS hereby grants to 2CAN Media a non-exclusive,
non-transferable license for the term of this Agreement to use the
Application Software in connection with the AdForce service. IMGIS shall
have the sole and exclusive ownership of all right, title and interest
in and to the Application Software and the AdForce service, any
enhancements thereto and in any materials provided to 2CAN Media by
IMGIS. 2CAN Media may not use or authorize the use of the AdForce
service except with its Clients and advertisers in conjunction with 2CAN
Media's ad sales business. 2CAN Media may not copy, sell, distribute or
sublicense the Application Software except as specifically permitted
under this Agreement. 2CAN Media shall not modify, alter, reverse
assemble, reverse compile or otherwise attempt by any other method to
create or derive the source programs of the AdForce service or the
Application Software, nor authorize or contract with third parties to do
the same.
5. DATA. During the course of delivering advertisements to Client Web
sites and for Client advertisers, the AdForce service collects and
maintains various information such as information necessary to target
advertising, including, but not limited to, the user's IP address,
cookies, browser type and operating system as well as the time, date and
ad tag of the request (the "Data"). IMGIS will store and maintain this
data for a period of 60 days. Although IMGIS owns the right to this
data, IMGIS shall not, during the term of this Agreement, distribute to
third parties, Data that discloses the traffic volumes, CPM's or
campaign details specific to the 2CAN Media network, their Clients or
advertisers. IMGIS will provide 2CAN Media with 24-hour access to data
on campaign results through reports available through the Application
Software. IMGIS will provide 2CAN Media monthly downloads of raw data
relating to
Page 1 of 6
<PAGE>
ADFORCE-TM- SERVICE 2CAN MEDIA AGREEMENT
- -------------------------------------------------------------------------------
reports available through the Application Software. IMGIS will provide
2CAN Media monthly downloads of raw data relating to 2CAN's network,
Clients and advertisers in a standard format to be agreed upon by 2CAN
Media and IMGIS for a period of 60 days. After the initial 60 day
period, should 2CAN Media require IMGIS to provide data downloads, 2CAN
Media will reimburse IMGIS for the cost of transferring the data on a
time and material basis at the rate of $225 per hour.
6. MODIFICATIONS/ENHANCEMENTS. IMGIS will give 2CAN Media access to any
modifications, upgrades or changes to the Application Software or AdForce
service that are generally available to other IMGIS customers as soon as
they become available; provided that any such modifications, upgrades or
changes will, at the sole discretion of IMGIS, be considered part of the
AdForce service covered in this Agreement, or be considered part of
other AdForce services and subject to additional fees. 2CAN Media may
request that IMGIS makes modifications to the Application Software or
the AdForce service. IMGIS will consider any such requests in good
faith, but shall not be obligated to make any requested modification. In
the event that IMGIS agrees to make a requested modification, IMGIS will
submit a quote for the cost to complete the modification to 2CAN Media
on a time and material basis at the rate of $225 per hour. Any
modifications will be the sole property of IMGIS and, unless
specifically agreed otherwise, IMGIS may include the modifications in
the Application Software and AdForce service it provides to other IMGIS
customers.
7. CONFIDENTIALITY. Confidential Information includes: (i) information
of either party regarding R&D, manufacturing, products, business plans,
customers, user information, finances, or personnel and other
information identified as confidential by the party at the time it is
disclosed; (ii) any information regarding 2CAN Media's specific activity
levels, pricing, performance or any other data specific to 2CAN Media's
activity levels; (iii) any 2CAN Media's passwords to AdForce, AdForce
user guides, the AdForce Application Software, and the AdForce "help"
documentation, whether on-line or in printed form; and (iv) any account
information input into the AdForce service by 2CAN Media, such as
advertiser contact and billing information. Confidential Information of
either party shall not be used, disclosed or reproduced by the other
party without the consent of the party providing said information,
except for any information, data or material which: (a) at the time of
disclosure to the receiving party was known or in the possession of the
receiving party; (b) is independently developed by the receiving party;
(c) is generally available to the public without any breach of this
Agreement; or (d) is obtained from a third party having the right to
disclose such information. Each party will disclose the other party's
Confidential Information only to employees who need to know it to perform
under this Agreement and who are bound by the terms of this Agreement.
Each party will return or destroy all copies of the other party's
Confidential Information when this Agreement is terminated except for
data resident within the AdForce system.
8. INDEMNIFICATION. (a) Subject to subsection (b), 2CAN Media shall
indemnify and hold harmless IMGIS from any liability and damages and
costs (including reasonable costs and attorney's fees) arising out of or
relating to advertising placed by 2CAN Media, its Clients and
advertisers using the AdForce service, including, without limitation,
content, libel, invasion of privacy, and rights of publicity, provided
that: (i) IMGIS promptly notifies 2CAN Media of such claims; (ii) 2CAN
Media has sole control of the defense and settlement of such claims and
is not responsible for any settlement that it does not approve in
writing; and (iii) IMGIS renders all reasonable assistance required.
(b) IMGIS shall indemnify and hold harmless 2CAN Media from any third
party claims and liabilities for infringement arising out of or relating
to 2CAN Media's use of the Application Software and the AdForce Service
pursuant to this Agreement, provided that: (i) 2CAN Media promptly
notifies IMGIS of such claims; (ii) IMGIS has sole control of the
defense and settlement of such claims and is not responsible for any
settlement that it does not approve in writing; and (iii) 2CAN Media
renders all assistance required. If an injunction is entered against
2CAN Media's use of the Application Software, IMGIS will, at its option,
(A) obtain a license permitting such use, (B) modify the Application
Software to avoid the infringement, or (C) if it cannot reasonably do
either of the foregoing, terminate 2CAN's license to the Application
Software and terminate this Agreement.
9. WARRANTY. 2CAN Media warrants that 2CAN Media is free to enter into
this Agreement and that this Agreement constitutes the valid and
binding obligation of 2CAN Media enforceable in accordance with its
terms. IMGIS represents and warrants that IMGIS is free to enter into
and perform this Agreement and, except for events beyond IMGIS' control
including but not limited to Internet access outages and other events
of force majeure, (a) the AdForce service will materially conform to
the functionality described in section; (b) IMGIS either owns, has, or
will otherwise acquire the right (and will, during the term hereof
maintain such right) to use all hardware and software components of the
AdForce service and will not infringe on any right or interest
(intellectual property or otherwise) of any third party.
EXCEPT AS SPECIFIED IN THIS SECTION, IMGIS HEREBY DISCLAIMS ALL
WARRANTIES, EXPRESS AND IMPLIED, INCLUDING WITHOUT LIMITATION ANY AND
ALL WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND
NON-INFRINGEMENT, IN CONNECTION WITH THIS AGREEMENT.
10. LIABILITY. NEITHER PARTY WILL BE LIABLE FOR CONSEQUENTIAL,
INCIDENTAL, SPECIAL OR EXEMPLARY DAMAGES, EVEN IF IT HAS BEEN WARNED OF
THE POSSIBILITY OF SUCH DAMAGES. IN NO EVENT SHALL IMGIS' AGGREGATE
LIABILITY TO 2CAN UNDER THIS AGREEMENT EXCEED THE FEES RECEIVED BY IMGIS
UNDER THIS AGREEMENT.
11. TERM AND TERMINATION. The initial term of this Agreement will be
eighteen (18) months and shall commence on the Effective Date indicated
below. Either party may terminate the Agreement if the other party fails
to perform any of its obligations in any material respect, and such
failure continues for a period of thirty (30) days after receipt by the
breaching party of written notice from the non-breaching party
specifying such default. Either party may terminate this Agreement in
the event that the other party ceases to do
Page 2 of 6
<PAGE>
ADFORCE-TM- SERVICE 2CAN MEDIA AGREEMENT
- -------------------------------------------------------------------------------
business, undergoes a bankruptcy or insolvency proceeding, or an
assignment for the benefit of creditors. Upon the expiration or
termination of the Agreement for any reason, the parties will return all
Confidential Information of the other party in their possession. All
accrued payment obligations of 2CAN shall survive expiration or
termination of the Agreement, as shall the parties' rights and
obligations under Sections 4 through 10, as well as sections 13 and 15.
12. ASSIGNMENT. This Agreement is not assignable or transferable by
either party without the prior written consent of the other party,
except that a party may assign the Agreement to any entity: (a)
controlling that party; (b) controlled by, under common control with, or
acquiring a controlling financial interest in that party, or in which
that party acquires a controlling financial interest (provided such
assignee assumes the assignor's obligations under this Agreement and
provided further that assignor remains liable to the other party
following such assignment); or (c) acquiring substantially all of
assignor's assets (provided such assignee assumes assignor's obligations
under this Agreement), where "control" in the foregoing shall mean
ownership of fifty percent (50%) or more of the voting stock of the
entity or (d) by operation of law.
13. PAYMENT TERMS. 2CAN shall pay to IMGIS the dollar amounts determined
from the pricing schedule set forth in Exhibit A for all fees incurred
by 2CAN, its Clients' and advertiser's use of the AdForce service,
within 15 days. 2CAN shall pay IMGIS for its use and its Clients' and
advertiser's use of the AdForce service, regardless of whether
2CAN has received reimbursement from its Clients and
advertisers for such charges. All payments to IMGIS shall be remitted in
U.S. Dollars. Fees for the AdForce service are subject to change at the
expiration of the initial term and upon renewal of this Agreement.
14. GENERAL. This Agreement is the complete and exclusive statement of
the mutual understanding of the parties and supersedes and cancels all
previous written and oral agreements and communications relating to the
subject matter of this Agreement. No failure or delay in exercising any
right hereunder will operate as a waiver thereof, nor will any partial
exercise of any right or power hereunder preclude further exercise. Any
waivers or amendments shall be effective only if made in writing. If
any provision of this Agreement shall be adjudged by any court of
competent jurisdiction to be unenforceable or invalid, that provision
shall be limited or eliminated to the minimum extent necessary so that
this Agreement shall otherwise remain in full force and effect and
enforceable. This Agreement shall be governed by the law of the State of
California without regard to the conflicts of law provisions thereof.
The prevailing party in any action to enforce this Agreement will be
entitled to recover its attorney's fees and costs in connection with such
action. Nothing contained herein shall be construed as establishing a
partnership, joint venture, employment or other business relationship
between the parties hereto other than that of independent contractors.
This Agreement may be executed in counterparts.
IN WITNESS WHEREOF, the parties have executed this Agreement as of: 8/25/98
(Effective Date) -----------
By: /s/ [illegible] Accepted: /s/ Charles W. Berger
----------------------------- ----------------------------
Print Name: [illegible] Name: Charles W. Berger
----------------------------- ----------------------------
Title: President & CEO Title: Chairman & CEO
----------------------------- ----------------------------
2CAN Media: (2CAN) IMGIS, Inc. (IMGIS)
Page 3 of 6
<PAGE>
ADFORCE-TM- SERVICE 2CAN MEDIA AGREEMENT
- -------------------------------------------------------------------------------
SCHEDULE A
FEES
Pricing for the AdForce basic service for 2CAN Media will be as shown below:
<TABLE>
<CAPTION>
MONTHLY VOLUME CPM (COST PER THOUSAND ADS SERVED)
- -------------- ----------------------------------
<S> <C>
< 300 million $0.55
300 million $0.35
400 million $0.32
500 million $0.29
750 million + $0.27
1 billion + $0.25
</TABLE>
MFN PRICING
-----------
- - IMGIS agrees that pricing for AdForce services for 2CAN Media will be
at most favored nation ("MFN") pricing as it relates to any
organizations who are exclusively in the business of ad sales and
delivering similar volumes on similar terms to 2CAN Media. Pricing to
America On-Lie and its affiliates are specifically excluded.
- - Pricing is based on average ad size of 12K bytes. An additional $0.01 per
thousand will be added for each 1K bytes average ad size exceeds 12K bytes.
- - Custom Reports can be designed for an extra charge.
- - On-site training is available on request for $750 per day, per trainer
plus expenses.
- - Pricing for advanced features such as demographic and psychographic
targeting will be negotiated as those features become available. Such
pricing shall be offered to 2CAN Media on a MFN basis when compared to
other organizations who's primary business is on-line media sales under
similar terms and volumes. The only exception to this will be America
On-Line and its affiliates.
- - IMGIS' client service personnel will manually input new campaigns for
a sixty (60) day period from the execution of this agreement at no
additional charge (Platinum Service). Additionally, IMGIS agrees to
assign a dedicated Client Services representative to work with 2CAN
Media. This person will be based in IMGIS' Costa Mesa office, but will
be available from time to time to go on site at 2CAN's South Coast
offices. This service will be available after the initial sixty (60) day
period at a fee to be agreed by the parties.
Page 4 of 6
<PAGE>
ADFORCE-TM- SERVICE 2CAN MEDIA AGREEMENT
- -------------------------------------------------------------------------------
SCHEDULE B
ADFORCE TARGETING
All levels of the AdForce service include targeting on the following
parameters, when AdForce databases allow the parameter to be resolved:
- - BROWSER TYPE - Different campaigns can be delivered to visitors with
different browsers.
- - OPERATING SYSTEM - Different campaigns can be delivered to visitors
with different operating systems.
- - DOMAIN TYPE - Different campaigns can be delivered to visitors from
different domains (i.e., com or edu)
- - SERVICE PROVIDER - Different campaigns can be delivered to visitors
with different Internet service providers.
- - TELEPHONE AREA CODE - Different campaigns can be delivered to visitors
in different area codes.
- - SIC CODE - Different campaigns can be delivered to visitors working
for companies with different SIC codes.
- - COUNTRY - Different campaigns can be delivered to visitors from
different countries.
- - FREQUENCY - An advertisement can be shown no more than a specified
number of times to each visitor.
- - SEQUENCE - A series of advertisements can be shown in sequence to a
visitor.
- - KEYWORDS - Advertisements can be targeted on the basis of a word or phrase
typed by a visitor.
- - SITE DATA - Ads can be targeted on the basis of data in a site's
database (i.e., with registered users)
- - DAY / DATE / TIME OF DAY - Ads can be scheduled to run during specific
times and on specific days.
- - CONTENT AREA - Ads can be targeted to a specific area of a site.
There may be additional charges for additional targeting parameters added in
the future, as well as for customization of the targeting algorithms for
keywords and site data--pricing for these services to be determined.
ADFORCE REPORTING
The following reports are currently available with all levels of the AdForce
service:
<TABLE>
<CAPTION>
NETWORK REPORTS WEBSITE REPORTS ADVERTISER REPORTS
- ----------------------------------------------------------------------------------
<S> <C> <C>
Daily Campaign Details Activity by Advertiser Campaign On-line Summary
Daily Campaign Summary Activity by Area Code Summary by Area Code
Monthly Billing Report Activity by Browser Summary by Banner
Sumary by Advertiser Activity by Content Unit Summary by Browser
Summary by Area Code Activity by Country Summary by Category
Summary by Browser Activity by Date Summary by Country
Summary by Category Activity by Domain Summary by Date
Summary by Country Activity by Keyword Summary by Domain
Summary by Date Activity by Hour Summary by Hour
Summary by Domain Activity by Operating System Summary by Operating System
Summary by Hour Activity by Pay Type Summary by Service Provider
Summary by Operating System Activity by Service Provider Summary by SIC Code
Summary by Payment Type Activity by SIC Code Summary by Website
Summary by Service Provider Website Revenue Campaign Summary
Summary by SIC Code Monthly Billing Report
Summary by Website
</TABLE>
Page 5 of 6
<PAGE>
ADFORCE-TM- SERVICE 2CAN MEDIA AGREEMENT
- -------------------------------------------------------------------------------
WEBSITE REVENUE
THERE WILL BE ADDITIONAL CHARGES FOR REPORTS CUSTOMIZED OR DESIGNED TO 2CAN'S
SPECIFICATIONS. THERE MAY ALSO BE ADDITIONAL CHARGES FOR REPORTS ADDED IN THE
FUTURE.
Page 6 of 6
<PAGE>
Exhibit 10.28
CONFIDENTIAL
DEMOGRAPHIC DATA AGREEMENT
By and Between
AMERICA ONLINE, INC.
and
IMGIS, INC.
Dated as of July 15, 1998
<PAGE>
CONFIDENTIAL
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PAGE
ARTICLE 1 DEFINITIONS.................................................. 1
1.1 "Ad Serving Services"............................... 1
1.2 "Affiliate"......................................... 1
1.3 "AOL Affiliate"..................................... 1
1.4 "AOL Brand Service"................................. 2
1.5 "AOL Network"....................................... 2
1.6 "AOL User".......................................... 2
1.7 "Commencement Date"................................. 2
1.8 "Covered AOL Partner Site".......................... 2
1.9 "Demographic Data".................................. 2
1.10 "Floor Number"...................................... 2
1.11 "Gross Amount"...................................... 2
1.12 "IMGIS AdForce System".............................. 2
1.13 "IMGIS Competitor".................................. 2
1.14 "Implementation Schedule"........................... 2
1.15 "Incremental Revenue Amount"........................ 2
1.16 "License Agreement"................................. 2
1.17 "License Agreement Material Breach"................. 3
1.18 "Losses"............................................ 3
1.19 "Materially Limit or Prohibit"...................... 3
1.20 "Metromail Standards"............................... 3
1.21 "Minimum Annual Fees"............................... 3
1.22 "Party" and "Parties"............................... 3
1.23 "Person"............................................ 3
1.24 "Provision of Demographic Data" and "Provide
Demographic Data"................................ 3
1.25 "Targeted".......................................... 3
1.26 "Third Party"....................................... 3
1.27 "Year One Start Date"............................... 3
ARTICLE 2 ACCESS TO DEMOGRAPHIC DATA................................... 3
2.1 Access to Demographic Data.......................... 3
2.2 Agreement on Implementation Schedule................ 5
2.3 Definition of "Demographic Data".................... 5
2.4 No Individual Identification Information............ 7
ARTICLE 3 LIMITATIONS OR PROHIBITIONS ON USE OF
DEMOGRAPHIC DATA................................... 7
3.1 Specific Interactive Sites and Specific Advertisers.. 7
</TABLE>
- i -
<PAGE>
CONFIDENTIAL
<TABLE>
<CAPTION>
<S> <C>
3.2 Rights of AOL........................................ 8
3.3 Definition of "Materially Limit or Prohibit"......... 9
ARTICLE 4 PAYMENTS BY IMGIS............................................ 9
4.1 Fees................................................. 9
4.2 Fees in Event of Nonmonetary or
Discounted Consideration.......................... 10
4.3 Guaranteed Minimum Annual Fees....................... 10
4.4 Payment Procedures................................... 11
4.5 Late Payment......................................... 12
4.6 Application of Payments.............................. 12
4.7 Taxes................................................ 12
4.8 No Diversion......................................... 12
4.9 Books and Records.................................... 12
ARTICLE 5 INDEMNIFICATION...................................... 13
5.1 Indemnity by IMGIS................................... 13
5.2 Indemnity by AOL..................................... 13
5.3 Procedure............................................ 13
ARTICLE 6 LIMITATION ON LIABILITY...................................... 14
ARTICLE 7 REPRESENTATIONS AND WARRANTIES............................... 14
7.1 Mutual Representations and Warranties............... 14
7.2 Additional Representations and Warranties of IMGIS.. 15
7.3 Disclaimer.......................................... 15
ARTICLE 8 CONFIDENTIALITY.............................................. 15
8.1 Confidentiality Obligation.......................... 15
8.2 Nondisclosure of Confidential Information........... 16
8.3 Exception........................................... 16
8.4 Survival............................................ 16
ARTICLE 9 TERM AND TERMINATION......................................... 16
9.1 Term................................................ 16
9.2 Termination Rights of Either Party.................. 17
9.3 Additional Termination Rights of AOL................ 17
9.4 Survival............................................ 17
</TABLE>
- ii -
<PAGE>
CONFIDENTIAL
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 10 MISCELLANEOUS................................................ 18
10.1 Relationship of the Parties......................... 18
10.2 Applicable Law...................................... 18
10.3 Consent to Jurisdiction............................. 18
10.4 Counterparts........................................ 19
10.5 Notices............................................. 19
10.6 Force Majeure....................................... 20
10.7 Binding Effect; Assignment.......................... 20
10.8 Entire Agreement.................................... 21
10.9 Recitals, Schedules and Exhibit..................... 21
10.10 Amendment........................................... 21
10.11 Severability........................................ 21
10.12 Headings............................................ 21
10.13 No Waiver of Rights................................. 21
10.14 Remedies Cumulative; Specific Performance........... 22
10.15 Confidentiality of Agreement........................ 22
10.16 Usage............................................... 22
</TABLE>
- iii -
<PAGE>
CONFIDENTIAL
<TABLE>
<CAPTION>
LIST OF SCHEDULES AND EXHIBIT
<S> <C>
Schedule 1.13 Imgis Competitors
Schedule 3.1 Specific Interactive Sites and Specific
(To be attached) Advertisers
Exhibit Implementation Schedule
(To be attached)
</TABLE>
<PAGE>
CONFIDENTIAL
DEMOGRAPHIC DATA AGREEMENT
This DEMOGRAPHIC DATA AGREEMENT (the "Agreement") is entered into as of
July 15, 1998 by and between AMERICA ONLINE, INC., a Delaware corporation having
its principal office at 22000 AOL Way, Dulles, Virginia 20166 ("AOL"), and
IMGIS, INC., a California corporation having its principal office at 10101 N.
DeAnza Boulevard, Suite 210, Cupertino, California 95014 ("IMGIS").
WITNESSETH:
WHEREAS, IMGIS desires to obtain, and AOL is willing to provide IMGIS with,
access to certain demographic data with respect to AOL Users (as defined below)
for the sole purpose of serving targeted interactive advertisements, on the
terms and subject to the limitations and conditions set forth herein, and which
shall in no event enable IMGIS to identify such AOL Users.
NOW, THEREFORE, in consideration of the foregoing, of the mutual covenants
and undertakings contained herein and of other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Parties,
intending to be legally bound, hereby agree as follows:
ARTICLE 1
DEFINITIONS
In addition to other terms defined elsewhere herein, the following terms
shall have the following meanings when used herein (any term defined in the
singular shall have the same meaning when used in the plural and vice versa,
unless stated otherwise):
1.1 "AD SERVING SERVICES" has the meaning set forth in the License
Agreement.
1.2 "AFFILIATE" of any specified Person means any other Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with the specified Person.
1.3 "AOL AFFILIATE" means: (a) any Affiliate of AOL, where the term
"control" for purposes of Section 1.2 means the direct or indirect ownership or
control by AOL of twenty-five percent (25%) or more of the stock or other equity
interests of such Person entitled to vote for the election of members of the
Board of Directors or similar governing body of such Person, provided, however,
that such Person shall cease to be an AOL Affiliate if and when such equity
interest becomes less than twenty-five percent (25%) for any reason other than
as a result of dilution, and provided, further, that if such equity
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CONFIDENTIAL
interest becomes less than twenty-five percent (25%) as a result of dilution,
such Person shall cease to be an AOL Affiliate if and when such percentage
equity interest is further reduced for any reason other than as a result of
dilution; and (b) AOL Bertelsmann Online France S.N.C.
1.4 "AOL BRAND SERVICE" means the America Online brand online and
information service, including future modifications to, implementations of,
successors of, and international versions of such service.
1.5 "AOL NETWORK" has the meaning set forth in the License Agreement.
1.6 "AOL USER" means a user of the AOL Brand Service who has not elected
(a) not to permit AOL to transmit codes embodying Demographic Data with respect
to such user to IMGIS or any Third Party for the purpose of serving Targeted
interactive advertisements or (b) not to receive Targeted interactive
advertising.
1.7 "COMMENCEMENT DATE" has the meaning set forth in Section 2.2 below.
1.8 "COVERED AOL PARTNER SITE" has the meaning set forth in the License
Agreement.
1.9 "DEMOGRAPHIC DATA" has the meaning set forth in Section 2.3 below.
1.10 "FLOOR NUMBER" has the meaning set forth in Section 2.4 below.
1.11 "GROSS AMOUNT" has the meaning set forth in Section 4.1 below.
1.12 "IMGIS ADFORCE SYSTEM" means any software owned and/or used by, and/or
licensed to, IMGIS that enables operators of interactive sites and interactive
advertisers to schedule, monitor, serve, traffic and/or target interactive
advertising, including the system used by IMGIS to provide services under the
AdForce service mark and any related or successor system (including, without
limitation, IMGIS' proposed system known as AdForce+ and IMGIS' proposed
"hybrid" system based on the StarPoint Ad System).
1.13 "IMGIS COMPETITOR" means any of the competitors of IMGIS set forth on
Schedule 1.13 attached hereto.
1.14 "IMPLEMENTATION SCHEDULE" means the implementation schedule for AOL's
Provision of Demographic Data.
1.15 "INCREMENTAL REVENUE AMOUNT" has the meaning set forth in Section 4.1
below.
1.16 "LICENSE AGREEMENT" means the License Agreement between IMGIS and AOL
being executed simultaneously with the execution of this Agreement.
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1.17 "LICENSE AGREEMENT MATERIAL BREACH" has the meaning set forth in
Section 9.3 below.
1.18 "LOSSES" means losses, liabilities, suits, claims, costs, expenses
(including reasonable attorneys' fees), penalties, fines, judgments and/or
damages (including personal injury or property damages, but excluding indirect,
incidental, special or consequential damages of the indemnified Party).
1.19 "MATERIALLY LIMIT OR PROHIBIT" has the meaning set forth in Section
3.3 below.
1.20 "METROMAIL STANDARDS" means the standards used by Metromail
Corporation ("Metromail") as of the date hereof to place data included in
Metromail's data repositories in specific categories.
1.21 "MINIMUM ANNUAL FEES" means the minimum annual fees the payment of
which is guaranteed by IMGIS as provided in Section 4.3 below, and "QUARTERLY
PORTION" of a Minimum Annual Fee means the quarterly portion of the then
applicable Minimum Annual Fee the payment of which is guaranteed by IMGIS on a
quarterly basis.
1.22 "PARTY" means AOL or IMGIS, and "PARTIES" means AOL and IMGIS.
1.23 "PERSON" means a natural person, a corporation, a partnership, a
limited liability company, a trust, a joint venture, any governmental authority,
or any other entity or organization.
1.24 "PROVISION OF DEMOGRAPHIC DATA" means the transmission by AOL of codes
embodying Demographic Data (using a one key to many user matching algorithm)
with respect to AOL Users and the provision to IMGIS of access to such codes,
and "PROVIDE DEMOGRAPHIC DATA" means to implement the Provision of Demographic
Data.
1.25 "TARGETED" means served to users of interactive media based on
specific demographic characteristics.
1.26 "THIRD PARTY" means any Person that is not a Party to this Agreement.
1.27 "YEAR ONE START DATE" has the meaning set forth in Section 4.3 below.
ARTICLE 2
ACCESS TO DEMOGRAPHIC DATA
2.1 ACCESS TO DEMOGRAPHIC DATA.
(a) Following the Commencement Date, in accordance with the terms of
the Implementation Schedule, AOL agrees to permit IMGIS to access codes
embodying
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Demographic Data (using a one key to many user matching algorithm) with
respect to AOL Users, access to which codes shall be provided by AOL at the
time that each AOL User uses the AOL Brand Service to request delivery of
an advertisement to an Internet site other than AOL.com, an Internet site
of any AOL Affiliate or any Covered AOL Partner Site. IMGIS shall access
such Demographic Data following the Commencement Date for the sole purpose
of serving Targeted interactive advertisements using the IMGIS AdForce
System for or on behalf of Third Parties that have contracted with IMGIS
for the serving of Targeted interactive advertisements and for no other
purpose, subject to the limitations and conditions set forth in Article 3
below and elsewhere herein. IMGIS shall provide to AOL, on a quarterly
basis, a written report signed by an officer of IMGIS describing IMGIS' use
of Demographic Data during each quarter, including, without limitation, the
Third Parties that have contracted with IMGIS for the serving of Targeted
interactive advertisements using Demographic Data.
(b) Following the Commencement Date, in accordance with the terms of
the Implementation Schedule, AOL, at its option, may permit IMGIS to access
codes embodying Demographic Data (using a one key to many user matching
algorithm) with respect to AOL Users, access to which codes shall be
provided by AOL at the time that each AOL User (i) uses the AOL Brand
Service to request delivery of an advertisement to AOL.com, an Internet
site of an AOL Affiliate or a Covered AOL Partner Site, if AOL has
requested that IMGIS provide Ad Serving Services for such Internet site
under the License Agreement or (ii) receives a screen page on the AOL
Network on which appears an interactive advertisement, if AOL has requested
that IMGIS provide Ad Serving Services for the AOL Network under the
License Agreement. IMGIS shall access such Demographic Data following the
Commencement Date for the sole purpose of serving Targeted interactive
advertisements using the IMGIS AdForce System for or on behalf of AOL, such
AOL Affiliate or such AOL Partner and for no other purpose, subject to the
limitations and conditions set forth in Article 3 below and elsewhere
herein.
(c) In no event shall IMGIS have the right to recreate, reproduce,
compile, store or retain any embodiments or records of Demographic Data, in
whole or in part, whether in IMGIS' data center, on any user's hard drive
or other component of such user's computer system, or in any other location
or for any purpose. IMGIS shall not recreate, reproduce, compile, store or
retain any information on any AOL User's hard drive or other component of
such AOL User's computer system which would enable IMGIS to associate such
AOL User with Demographic Data or to identify such AOL User using
Demographic Data or any other data or information available to IMGIS. In no
event shall IMGIS take any action that would enable IMGIS to identify an
AOL User using Demographic Data or any other data or information available
to IMGIS, and the Parties agree that any taking by IMGIS of such an action
or any attempt by IMGIS to identify, or identification by IMGIS of, any AOL
User using Demographic Data or other data or information available to IMGIS
would constitute a breach by IMGIS of a material obligation hereunder.
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(d) To the extent that IMGIS is not prohibited hereunder from
recreating, reproducing, compiling, storing or retaining any information on
any AOL User's hard drive or other component of such AOL User's computer
system, IMGIS shall do so in compliance with generally accepted standards
for the protection of individual privacy rights as adopted by TRUSTe or
another organization mutually agreeable to the Parties that is similarly
dedicated to protecting the privacy rights of individuals who receive
interactive advertisements; provided, however, that in no event shall the
taking of any such action enable IMGIS to identify such AOL User.
2.2 AGREEMENT ON IMPLEMENTATION SCHEDULE. Promptly following the execution
of this Agreement, the Parties shall commence discussions on the preparation of
the Implementation Schedule and shall endeavor to reach agreement on a
preliminary Implementation Schedule within 60 days following the commencement of
such discussions. The final Implementation Schedule shall be agreed upon by the
Parties, and attached as an Exhibit hereto, within 30 days following the date as
of which the following conditions precedent are satisfied:
(a) The mutual determination by the Parties that there is general
acceptance of Targeted interactive advertising, as conducted by
IMGIS and as contemplated hereunder, in the marketplace of users
of the Internet and online services, unless satisfaction of this
condition precedent is waived by AOL in its sole discretion; and
(b) Following the mutual determination described in subpart (a) above
or the waiver of such condition precedent by AOL, the receipt by
AOL of any and all Third Party consents required for the
Provision of Demographic Data to IMGIS, unless satisfaction of
this condition precedent is waived by AOL in its sole discretion,
in which case the Demographic Data to be Provided pursuant to the
Implementation Schedule shall be adjusted accordingly.
AOL shall deliver promptly to IMGIS a written notice informing IMGIS
of the satisfaction or waiver of the foregoing conditions precedent. In no
event shall the failure of AOL to deliver such a written notice to IMGIS be
deemed to be a waiver by AOL of the foregoing conditions precedent. For
purposes of this Agreement, the date as of which the Parties reach
agreement on the final Implementation Schedule shall be referred to as the
"Commencement Date".
2.3 DEFINITION OF "DEMOGRAPHIC DATA". For purposes of this Agreement,
"Demographic Data" means demographic data in the categories set forth below
with respect to AOL Users, to the extent such demographic data is known to
AOL, which demographic data shall be embodied in codes transmitted by AOL
in the three phases set forth below in accordance with the terms of the
Implementation Schedule. IMGIS and AOL shall agree on a mutually acceptable
mechanism for determining the "not provided" codes specified below.
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<TABLE>
<CAPTION>
PHASE I:
Demographic Data in the following categories shall be transmitted in Phase I:
<S> <C>
CATEGORY SPECIFIC DEMOGRAPHIC DATA
Age Up to twelve ranges as shall be determined by the
Parties; not known; or not provided
Gender Male; female; not known; or not provided
Marital status Single; married; divorced; not known; or not provided
Home ownership Own; rent; not known; or not provided
Dwelling type Single family; attached; apartment; not known; or
not provided
Zip code 5 digits of zip codes; not known; or not provided
Income $1-$250,000+ by $10,000 increments; not known; or
not provided
Education level (by grade) High school; some college; college graduate;
postgraduate; not known; or not provided
Occupational codes To be provided by IMGIS subject to AOL's agreement;
not known; or not provided
PHASE II:
Demographic Data in the following categories shall be transmitted in Phase II:
CATEGORY SPECIFIC DEMOGRAPHIC DATA
Number of children (Age range I) To be defined in accordance with Metromail Standards;
not known; or not provided
Number of children (Age range II) To be defined in accordance with Metromail Standards;
not known; or not provided
Number of children (Age range III) To be defined in accordance with Metromail Standards;
not known; or not provided
Number of children (Age range IV) To be defined in accordance with Metromail Standards;
not known; or not provided
Car type To be defined in accordance with Metromail Standards;
not known; or not provided
Product preference To be defined in accordance with Metromail Standards;
(propensity to buy) not known; or not provided
</TABLE>
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PHASE III:
Demographic Data in additional categories to be agreed upon by the Parties shall
be transmitted in Phase III.
2.4 NO INDIVIDUAL IDENTIFICATION INFORMATION.
(a) Notwithstanding the categories of Demographic Data set forth in Section
2.3 above, in no event shall AOL Provide Demographic Data to IMGIS in such
groups or combinations of categories that might enable IMGIS to identify the
particular AOL User having the characteristics expressed in such Demographic
Data. To this end, in the event that at any time there is no more than a Floor
Number of AOL Users (as defined below) in any group or combination of categories
of Demographic Data to be provided to IMGIS, then AOL shall have the right to
reduce the number of categories of Demographic Data in such group or
combination, or to aggregate Demographic Data within such group or combination,
to the extent necessary to increase the number of AOL Users in such group or
combination to a number above the Floor Number or, if this is not possible, then
AOL shall have the right to eliminate such group or combination of categories of
Demographic Data in its entirety.
(b) If AOL takes any of the actions provided for in Section 2.4(a) above,
in no event shall the taking of such action mean, or be construed to mean, that
AOL is Materially Limiting or Prohibiting the use by IMGIS of Demographic Data
or be counted along with any other actions toward a determination that AOL is
Materially Limiting or Prohibiting the use by IMGIS of Demographic Data.
(c) For purposes of this Agreement, "Floor Number" means the floor number
of AOL Users to be agreed upon by the Parties prior to the Commencement Date,
which number may be modified from time to time by mutual agreement of the
Parties.
ARTICLE 3
LIMITATIONS OR PROHIBITIONS ON USE OF DEMOGRAPHIC DATA
3.1 SPECIFIC INTERACTIVE SITES AND SPECIFIC ADVERTISERS.
(a) Notwithstanding any provision to the contrary herein, IMGIS shall not
use Demographic Data for the purpose of serving Targeted interactive
advertisements for or on behalf of:
(i) Any interactive sites or advertisers that are engaged in the
business of pornography or any other business of
questionable morality;
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(ii) Any interactive sites or advertisers whose sites or
advertising would violate AOL's Terms of Service as then in
effect as they apply to the distribution of content,
advertising and direct marketing and/or the principles
underlying such Terms of Service as they apply to the
foregoing; or
(iii) Any one or more of the specific interactive sites and
specific advertisers to be listed on Schedule 3.1 attached
hereto, which Schedule shall be provided by AOL to IMGIS on
or prior to the Commencement Date and which may be modified
from time to time by AOL.
(b) In the event that IMGIS notifies AOL that the aggregate of the dollars
received by the specific interactive sites, and the aggregate of the dollars
spent on interactive advertising by the specific advertisers, listed on Schedule
3.1 in the then most recent calendar quarter exceeds twenty-five percent (25%)
of the sum of (i) the available advertising dollars on the Internet and online
interactive services received by interactive sites in such calendar quarter and
(ii) the available advertising dollars on the Internet and online interactive
services spent by advertisers in such calendar quarter, in each case as reported
by Jupiter's WebTrack (or by any other publication that compiles such
information which is mutually agreeable to the Parties), with adjustment for any
duplicate counting of such dollar amounts as necessary, then AOL shall have the
right to modify Schedule 3.1 so that such 25% threshold is not exceeded and, in
the event that AOL does not modify Schedule 3.1 within ten business days of
receiving such notification from IMGIS, then, for so long as such 25% threshold
is exceeded:
(i) If such 25% threshold is exceeded by no more than ten
percentage points (i.e., is no more than 35%), IMGIS'
obligation to guarantee payment to AOL of any Minimum Annual
Fees shall be reduced by the percentage equal to the
following: (X - 25) divided by 75, where X equals the
percentage of the available advertising dollars on the
Internet and online interactive services received by the
specific interactive sites, and spent by the specific
advertisers, listed on Schedule 3.1; or
(ii) If such 25% threshold is exceeded by more than ten
percentage points (i.e., is more than 35%), IMGIS shall not
be obligated to guarantee payment to AOL of any Minimum
Annual Fees.
3.2 RIGHTS OF AOL. AOL shall have the right to immediately terminate or
defer IMGIS' access to any or all categories of Demographic Data or to
immediately limit or prohibit the use by IMGIS of any or all categories of
Demographic Data: (a) in the event that AOL receives any adverse publicity, is
subject to any law or issued or pending governmental regulation, or is the
subject of any pending or threatened governmental
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investigation or legal action, regarding the use or provision of Demographic
Data or similar demographic information or which otherwise would limit or
prohibit Targeted interactive advertising; or (b) based on AOL policy, as such
policy may be modified from time to time in AOL's sole discretion, regarding
Targeted interactive advertising or the provision of Demographic Data or similar
demographic information. Immediately upon the receipt of notice from AOL that
AOL is exercising the foregoing right, IMGIS shall limit or terminate the use of
such categories of Demographic Data as indicated by AOL in such notice;
provided, however, that AOL shall consult with IMGIS prior to any decision that
would materially affect IMGIS' access to Demographic Data. In any event where
IMGIS is limited or prohibited from the use of any or all categories of
Demographic Data, AOL shall be limited or prohibited during the term of this
Agreement from providing any Third Party with access to such Demographic Data or
similar demographic information for the purpose of serving Targeted interactive
advertisements.
3.3 DEFINITION OF "MATERIALLY LIMIT OR PROHIBIT". If AOL takes any action
(other than action permitted under Section 2.4 above) that would terminate or
prohibit IMGIS' access to all categories of Demographic Data with respect to
more than fifty percent (50%) of AOL Users, excluding children and other
individuals to whom Targeted interactive advertising may be at such time legally
prohibited, for more than a period of 30 cumulative days in any calendar year,
then, beginning 120 days from the date that AOL restricts IMGIS from such use,
AOL shall be deemed to "Materially Limit or Prohibit" the use by IMGIS of
Demographic Data for purposes of this Agreement. IMGIS agrees that, in the event
that AOL Materially Limits or Prohibits the use by IMGIS of Demographic Data,
such action shall in no event constitute, or be deemed to constitute, a breach
by AOL of, or failure by AOL to perform, an obligation under this Agreement or
under the License Agreement.
ARTICLE 4
PAYMENTS BY IMGIS
4.1 FEES. For all Targeted interactive advertisements served by or on
behalf of IMGIS using the IMGIS AdForce System to AOL Users for whom AOL has
Provided Demographic Data, IMGIS shall pay to AOL, on a quarterly basis, a fee
per advertisement equal to the greater of:
(a) 5% of the gross amount of the consideration charged by IMGIS for
serving such Targeted interactive advertisement (the "Gross Amount");
and
(b) 35% of the difference between (i) the gross amount of the
consideration charged by IMGIS for serving such Targeted interactive
advertisement and (ii) the gross amount of the consideration that
would have been charged by IMGIS for serving a comparable interactive
advertisement using the IMGIS AdForce
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System where such interactive advertisement is not Targeted (the
"Incremental Revenue Amount");
Provided, however, that, for all such Targeted interactive advertisements served
by or on behalf of IMGIS using the IMGIS AdForce System during the first twelve
months following the Year One Start Date (as defined below), IMGIS shall pay to
AOL a fee per advertisement equal to the greater of (x) 10% of the Gross Amount
of such advertisement and (y) 70% of the Incremental Revenue Amount of such
advertisement, until such time as AOL has received fees equal to $5 million in
the aggregate.
4.2 FEES IN EVENT OF NONMONETARY OR DISCOUNTED CONSIDERATION. In the event
that, in any calendar quarter, IMGIS serves Targeted interactive advertisements
using the IMGIS AdForce System to AOL Users for whom AOL has Provided
Demographic Data in exchange for nonmonetary consideration or any combination of
monetary and nonmonetary consideration, for any consideration below the fair
market value of such interactive ad serving services, or for no consideration at
all, then IMGIS shall pay to AOL the fee required under Section 4.1 above for
each such advertisement based on the gross amount of the fair market value of
such interactive ad serving services but in no event shall such payment to AOL
be less than the largest payment paid by IMGIS to AOL under Section 4.1 during
such quarter. Nothing herein shall limit IMGIS' discretion to grant commercially
reasonable discounts.
4.3 GUARANTEED MINIMUM ANNUAL FEES. So long as AOL is in compliance with
all of its material obligations under this Agreement and does not Materially
Limit or Prohibit the use by IMGIS of Demographic Data, IMGIS shall guarantee to
AOL the payment of the following Minimum Annual Fees payable on a quarterly
basis (each such payment being a "Quarterly Portion" of the then applicable
Minimum Annual Fee) for Targeted interactive advertisements served by or on
behalf of IMGIS using the IMGIS AdForce System to AOL Users for whom AOL has
Provided Demographic Data:
(a) For all such Targeted interactive advertisements served during
the twelve month period following the Commencement Date, unless
AOL does not Provide Demographic Data to IMGIS within 60 days
following the Commencement Date, in which case such date shall be
the date as of which AOL first Provides Demographic Data to IMGIS
(such date to be referred to as the "Year One Start Date" and
such twelve month period to be referred to as "Year One"):
$4 million;
(b) For all such Targeted interactive advertisements served during
the twelve month period following the first anniversary of the
Year One Start Date ("Year Two"):
The greater of (i) $3 million and (ii) one-half of the aggregate
amount of fees payable by IMGIS to AOL for Year One (including
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any amount payable by IMGIS to meet the Minimum Annual Fee for
Year One) (such greater amount to be referred to hereafter as the
"Year Two Minimum"); and
(c) For all such Targeted interactive advertisements served during
the twelve month period following the second anniversary of the
Year One Start Date ("Year Three"):
The greater of (i) the Year Two Minimum and (ii) one-half of the
aggregate amount of fees payable by IMGIS to AOL for Year Two
(including any amount payable by IMGIS to meet the Minimum Annual
Fee for Year Two);
Provided, however, that, in the event that, at any time during the term of this
Agreement, AOL provides access to Demographic Data to an IMGIS Competitor for
the purpose of serving Targeted interactive advertisements, then the Quarterly
Portion of the Minimum Annual Fee payable by IMGIS at the end of the calendar
quarter in which such event occurs shall be reduced ratably by the number of
days in such quarter during which AOL provides Demographic Data to such IMGIS
Competitor and IMGIS shall not be obligated to guarantee payment to AOL of any
Minimum Annual Fees thereafter.
In the event that, in Year One or Year Two (or in Year Three if this Agreement
is renewed and requires IMGIS to guarantee payment of a minimum annual fee
during such renewal term), IMGIS makes a payment to AOL in excess of the amount
of fees due under Section 4.1 in satisfaction of IMGIS' obligation under this
Section 4.3 to guarantee payment of the Minimum Annual Fee for such year (the
"Excess Amount"), then IMGIS may recoup such Excess Amount in any subsequent
year in which the Agreement remains in effect, including any renewal term, by
crediting such Excess Amount against the fees due to AOL in such subsequent year
following the payment to AOL in such subsequent year of the Minimum Annual Fee
due to AOL for such year and only to the extent that the amount of fees due to
AOL in such subsequent year exceeds the Minimum Annual Fee for such year.
4.4 PAYMENT PROCEDURES.
(a) IMGIS shall pay to AOL all fees and other amounts due and owing to AOL
as described herein for the serving of Targeted interactive advertisements
within 60 days of the end of the calendar quarter in which such Targeted
interactive advertisements are served using the IMGIS AdForce System, together
with a written report (in addition to the report required under Section 2.1(a)
above) signed by an officer of IMGIS setting forth the number of Targeted
interactive advertisements served during such calendar quarter, the Gross Amount
of each such Targeted interactive advertisement, and the Incremental Revenue
Amount of each such Targeted interactive advertisement.
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(b) All payments due to AOL hereunder shall be paid to AOL in U.S. Dollars
by wire transfer, or by such other method mutually agreed upon by the Parties,
in each case at the expense of IMGIS, for value no later than the due date
thereof (with 24 hours advance notice of each wire transfer) to such bank
account or accounts as AOL shall designate in writing within a reasonable period
of time prior to such due date.
4.5 LATE PAYMENT. Without limiting AOL's rights to pursue any other
remedies at law or in equity, if IMGIS fails to pay any payment required under
this Agreement on or before the due date therefor, then IMGIS shall pay annually
compounded interest on such amount at an annual rate equal to the lower of (a)
the highest rate permitted by applicable law and (b) the lowest prime rate as
published by The Wall Street Journal on or nearest to such due date plus three
percent (3%), which interest shall accrue from the date the payment not timely
made became due until the date such payment is paid in full.
4.6 APPLICATION OF PAYMENTS. Any payments received by AOL shall be applied
first to the satisfaction of the oldest of any unpaid, accrued interest charges
and, following payment of all such interest charges, to the satisfaction of the
oldest of any unpaid fees or other amounts due hereunder.
4.7 TAXES. All payments required to be made by IMGIS under this Agreement
shall be made free and clear of, and without deduction for, any and all taxes
that are levied on the transfer of such payments to AOL. If any withholding or
deductions are required by applicable law, payments shall be made such that,
after such withholding or deductions, the net amount that AOL receives is equal
to the amount due under this Article 4. IMGIS shall file any information or tax
returns with respect to such taxes, and IMGIS shall indemnify AOL from any
interest or other payments, fines or penalties relating to or resulting from any
failure, delay or error of IMGIS in doing so.
4.8 NO DIVERSION. IMGIS agrees that it shall not knowingly engage in any
action or practice that results in reducing any fees or other payment
obligations under this Article 4 that otherwise would have been owed to AOL
hereunder as consideration for the Provision of Demographic Data to IMGIS.
4.9 BOOKS AND RECORDS. IMGIS shall keep full, true and accurate books of
account containing all particulars and reasonable supporting documentation that
may be necessary for the purpose of determining the fees and other amounts
payable to AOL hereunder and IMGIS' compliance in other respects with its
obligations under this Agreement, including, without limitation, its obligations
under Section 2.1 above. All such books of account and reasonable supporting
documentation shall be located at the principal place of business of IMGIS and
shall be open for inspection for such purpose by AOL or any independent
certified public accountant retained by AOL, at a time mutually acceptable to
AOL and IMGIS during normal business hours but no more frequently than once each
calendar year for three years following the end of the calendar year to which
they pertain (and access shall not be denied thereafter if reasonably
available). If such records are insufficient for the foregoing purposes or any
such inspection discloses an underpayment to AOL of five percent (5%) or more of
the amount actually due for any
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quarterly period, then, in addition to any other rights and remedies available
to AOL under this Agreement, IMGIS shall pay to AOL the amount of such
underpayment as well as the reasonable cost of such inspection promptly
following IMGIS' receipt from AOL of the bill or invoice for such inspection.
ARTICLE 5
INDEMNIFICATION
5.1 INDEMNITY BY IMGIS. AOL shall not be liable to IMGIS, any of its
Affiliates or any other Person for, and IMGIS shall indemnify and hold harmless
AOL and all AOL Affiliates, and their respective directors, officers, employees
and agents (collectively, the "AOL Indemnitees"), from and against any Losses
incurred arising out of or resulting from the serving of Targeted interactive
advertisements using the IMGIS AdForce System or otherwise from the use of
Demographic Data by IMGIS or any of its Affiliates, except to the extent that
such Losses arise out of or result from the provision by AOL of Demographic Data
that AOL is not permitted to provide to IMGIS.
5.2 INDEMNITY BY AOL. IMGIS shall not be liable to AOL, any of its
Affiliates or any other Person for, and AOL shall indemnify and hold harmless
IMGIS and its Affiliates, and their respective directors, officers, employees
and agents (collectively, the "IMGIS Indemnitees"), from and against any Losses
incurred arising out of or resulting from the provision by AOL of Demographic
Data that AOL is not permitted to provide to IMGIS, except to the extent that
such Losses arise out of or result from the use of Demographic Data that AOL is
permitted to provide by IMGIS or any of its Affiliates.
5.3 PROCEDURE. Any AOL Indemnitee or IMGIS Indemnitee shall notify IMGIS or
AOL, as the case may be (the "Indemnifying Party"), promptly in writing of an
indemnifiable claim or cause of action under Section 5.1 or Section 5.2 above
upon receiving notice or being informed of the existence thereof; provided,
however, that failure to notify the Indemnifying Party of an indemnifiable claim
or cause of action shall not relieve the Indemnifying Party of its obligation to
provide indemnification hereunder, except to the extent that such failure
prejudices the Indemnifying Party's ability to defend or settle such claim or
cause of action. The Indemnifying Party shall assume, at its cost and expense,
the sole defense of such claim or cause of action through counsel selected by
the Indemnifying Party and reasonably acceptable to the other Party, except that
in the case of a conflict of interest between the Indemnifying Party and the
other Party, the Indemnifying Party shall, at its cost and expense, provide
separate counsel for the other Party selected by the other Party. The
Indemnifying Party shall maintain control of such defense, including any
decision as to settlement; provided that, in the event that the Indemnifying
Party does not maintain control of such defense on a timely basis, then, without
prejudice to any other rights and remedies available to the other Party under
this Agreement, the other Party may take over such defense with counsel of its
choosing, at the Indemnifying Party's cost and expense. The other Party may, at
its option and expense, participate in the Indemnifying Party's defense, and if
the other Party so participates, the
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Parties shall cooperate with one another in such defense. The Indemnifying Party
shall bear the total costs of any court award or any settlement of such claim or
cause of action approved by the Indemnifying Party and all other costs, fees and
expenses related to the resolution thereof (including reasonable attorneys'
fees, except for attorneys' fees for which the other Party is responsible in the
event that the other Party participates in the Indemnifying Party's defense of
such claim or cause of action).
ARTICLE 6
LIMITATION ON LIABILITY
EXCEPT FOR A CLAIM OF INDEMNIFICATION PURSUANT TO ARTICLE 5, NEITHER
PARTY SHALL BE LIABLE TO THE OTHER PARTY HEREUNDER FOR ANY INDIRECT, INCIDENTAL,
SPECIAL OR CONSEQUENTIAL DAMAGES.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES
7.1 MUTUAL REPRESENTATIONS AND WARRANTIES. Each Party represents and
warrants to the other Party that:
(a) Such Party has the full corporate right, power and authority to
execute, deliver and perform this Agreement and to consummate the
transactions contemplated hereby;
(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of
such Party;
(c) This Agreement has been duly executed and delivered by an
authorized officer of such Party, and is a legal, valid and
binding obligation of such Party enforceable against it in
accordance with its terms, except as enforcement may be limited
by general principles of equity (regardless of whether such
enforceability is considered in a proceeding at law or in equity)
and the effect of applicable bankruptcy, insolvency, moratorium
and other similar laws of general application relating to or
affecting creditors' rights generally, including, without
limitation, the effect of statutory or other laws regarding
fraudulent conveyances and preferential transfers;
(d) Except for, in the case of AOL, the Third Party consents referred
to in Section 2.2(b) above, such Party's execution, delivery and
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performance of this Agreement shall not constitute a breach or
default under any contract or agreement to which such Party is a
party or by which it is bound or otherwise violate the rights of
any Third Party; and
(e) Except for, in the case of AOL, the Third Party consents referred
to in Section 2.2(b) above, no consent, approval or authorization
of or from any governmental entity or any other Person not a
Party to this Agreement, whether prescribed by law, regulation,
contract or agreement, is required for such Party's execution,
delivery and performance of this Agreement or consummation of the
transactions contemplated hereby.
7.2 ADDITIONAL REPRESENTATIONS AND WARRANTIES OF IMGIS. IMGIS further
represents and warrants to AOL that:
(a) IMGIS is a member of TRUSTe and shall remain a member of TRUSTe
or another organization mutually agreeable to the Parties that is
similarly dedicated to the protection of the privacy rights of
individuals; and
(b) IMGIS has taken and shall take commercially reasonable steps to
ensure the protection of the privacy rights of individuals who
receive interactive advertisements served by or on behalf of
IMGIS or using the IMGIS AdForce System.
7.3 DISCLAIMER. AOL HEREBY DISCLAIMS ANY REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, AS TO THE ACCURACY OR COMPLETENESS OF ANY DEMOGRAPHIC DATA.
EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS ARTICLE 7, NEITHER PARTY MAKES
ANY OTHER WARRANTY OF ANY KIND WHATSOEVER, EXPRESS OR IMPLIED, AND ALL IMPLIED
WARRANTIES, INCLUDING THE WARRANTY OF FITNESS FOR A PARTICULAR USE OR PURPOSE
AND THE WARRANTY OF MERCHANTABILITY, ARE HEREBY DISCLAIMED BY THE PARTIES AND
EXCLUDED FROM THIS AGREEMENT.
ARTICLE 8
CONFIDENTIALITY
8.1 CONFIDENTIALITY OBLIGATION. Each of AOL and IMGIS (the "Receiving
Party") shall keep, and shall cause their Affiliates to keep, strictly
confidential any information disclosed by the other Party (the "Disclosing
Party") or otherwise made available to the Receiving Party concerning the
Demographic Data to be provided hereunder or either Party's performance of this
Agreement or otherwise concerning
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the business, operations, trade secrets or other proprietary information of the
Disclosing Party (whether in written media or otherwise) ("Confidential
Information"), using at least the same degree of care that it uses to protect
its own confidential or proprietary information. "Confidential Information"
shall not include information: (a) which is or becomes generally available to
the public other than as a result of disclosure thereof by the Receiving Party;
(b) which is lawfully received by the Receiving Party on a nonconfidential basis
from a Third Party that is not itself under any obligation of confidentiality or
nondisclosure to the Disclosing Party or any other Person with respect to such
information; or (c) which is independently developed by the Receiving Party.
8.2 NONDISCLOSURE OF CONFIDENTIAL INFORMATION. The Receiving Party shall
use Confidential Information solely for the purposes of this Agreement and the
transactions contemplated hereby and shall not disclose or disseminate any
Confidential Information to any Person at any time, except for disclosure to its
Affiliates and to those of its own and its Affiliates' directors, officers,
employees, accountants, attorneys, advisers and agents whose duties reasonably
require them to have access to such Confidential Information, provided that such
directors, officers, employees, accountants, attorneys, advisers and agents are
bound to maintain the confidentiality of such Confidential Information to the
same extent as if they were Parties hereto.
8.3 EXCEPTION. The foregoing confidentiality and nondisclosure obligations
shall not apply to Confidential Information which is required to be publicly
disclosed by law or by regulation; provided, however, that, in such event, the
Receiving Party provides the Disclosing Party with prompt advance notice of such
disclosure so that the Disclosing Party has the opportunity if it so desires to
seek a protective order or other appropriate remedy.
8.4 SURVIVAL. The confidentiality and nondisclosure obligations of this
Article 8 shall survive the expiration or termination of this Agreement.
ARTICLE 9
TERM AND TERMINATION
9.1 TERM. This Agreement shall commence as of the date hereof and, unless
otherwise terminated in accordance with Section 9.2 or 9.3 below, shall remain
in full force and effect for the earlier of: (a) three years following the Year
One Start Date; and (b) four years following the date hereof. Thereafter, this
Agreement may be renewed on a year-to-year basis at the option of AOL on the
same terms, except that the Parties shall negotiate mutually acceptable minimum
annual fees to be payable by IMGIS in consideration for Targeted interactive
advertisements served during such renewal period by or on behalf of IMGIS using
the IMGIS AdForce System to AOL Users for whom AOL has Provided Demographic
Data. In the event that AOL desires to exercise this option, AOL shall notify
IMGIS in writing of its desire to renew this Agreement at least 90 days prior to
the end of the initial term of this Agreement or any renewal term thereof.
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9.2 TERMINATION RIGHTS OF EITHER PARTY. Either Party shall have the right
to terminate this Agreement in the event of the breach by the other Party of, or
the failure of the other Party to perform, any of its material obligations
hereunder and the failure to remedy such breach or nonperformance within 60 days
following the receipt of written notice of such breach or nonperformance from
the nonbreaching Party. Such termination shall be immediately effective upon the
receipt by the breaching or nonperforming Party of written notice of termination
from the nonbreaching Party.
9.3 ADDITIONAL TERMINATION RIGHTS OF AOL.
(a) In addition to the right of termination provided in Section 9.2
above, AOL shall have the right to terminate this Agreement, at any time
following the earlier of (i) the first anniversary of the Year One Start
Date and (ii) the second anniversary of the date hereof, in the event that
AOL has received an offer from a Third Party seeking access to Demographic
Data on terms that are, and for financial consideration that is, more
favorable than the terms and financial consideration provided by IMGIS to
AOL in this Agreement and, within ten business days after the receipt from
AOL of notice of such Third Party offer, IMGIS has refused to modify this
Agreement to match the terms and financial consideration of such Third
Party offer or has failed to respond to the AOL notice. Such termination
shall be immediately effective upon the receipt by IMGIS of written notice
of termination from AOL and the receipt by IMGIS of: (i) $12,000,000, in
the event that the termination notice is delivered by AOL to IMGIS at any
time during Year Two or, if the second anniversary of the date hereof
occurs earlier than the first anniversary of the Year One Start Date,
during the twelve month period following the second anniversary of the date
hereof; or (ii) $6,000,000, in the event that the termination notice is
delivered by AOL to IMGIS at any time during Year Three or, if the second
anniversary of the date hereof occurs earlier than the first anniversary of
the Year One Start Date, during the twelve month period following the third
anniversary of the date hereof.
(b) In addition to the right of termination provided in Section 9.2
above, AOL shall have the right to terminate this Agreement in the event of
a "License Agreement Material Breach" by IMGIS. For purposes of this
Agreement, a "License Agreement Material Breach" means the breach by IMGIS
of, or the failure of IMGIS to perform, any of its material obligations
under the License Agreement, the failure of IMGIS to remedy such breach or
nonperformance within 60 days following the receipt of written notice of
such breach or nonperformance from AOL, and, in the event that such breach
or nonperformance is disputed by the Parties, the final determination of
such breach or nonperformance by a court of competent jurisdiction from
which no further appeal may be taken. Such termination shall be immediately
effective upon the receipt by IMGIS of written notice of termination from
AOL.
9.4 SURVIVAL. All rights granted to and obligations undertaken by the
Parties hereunder shall terminate immediately upon the expiration or termination
of this Agreement except for the following, which shall survive according to
their terms:
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(a) The obligations of IMGIS under Section 2.1(c);
(b) The obligation of IMGIS to pay to AOL any and all fees and other
payments accrued under Article 4;
(c) The right of AOL to inspect the books and records of IMGIS as
provided in Section 4.9;
(d) The indemnification obligations of Article 5 and the limitation
on liability of Article 6;
(e) The confidentiality and nondisclosure obligations of Article 8;
and
(f) The provisions of Sections 10.2, 10.3, 10.5, 10.14 and 10.15
below.
In addition, expiration or termination of this Agreement shall not affect the
remedies of the Parties otherwise available at law or in equity in relation to
any rights accrued under this Agreement prior to expiration or termination.
ARTICLE 10
MISCELLANEOUS
10.1 RELATIONSHIP OF THE PARTIES. Nothing in this Agreement is intended or
shall be deemed to constitute a partnership, agency or joint venture
relationship between the Parties hereto.
10.2 APPLICABLE LAW. This Agreement shall be governed by the laws of the
Commonwealth of Virginia applicable to contracts made and to be performed
entirely within such jurisdiction and without giving effect to the choice or
conflict of laws rules or principles of the Commonwealth of Virginia or of any
other jurisdiction.
10.3 CONSENT TO JURISDICTION. Each of the Parties irrevocably submits to
the exclusive jurisdiction of the courts of the Commonwealth of Virginia and of
any United States federal court sitting in the Commonwealth of Virginia in any
action or proceeding arising out of or relating to this Agreement, and
irrevocably agrees that all claims in respect of such action or proceeding shall
be heard and determined in any such Virginia or United States federal court.
Each Party further agrees that service of any process, summons, notice or
document by registered mail to the address of such Party set forth in Section
10.5 below shall be effective service of process for any action or proceeding
brought against such Party in any such court. Each Party hereby irrevocably and
unconditionally waives any objection to the laying of venue of any action or
proceeding arising out of or relating to this Agreement in any such court and
further irrevocably and unconditionally waives and agrees not to plead or claim
in any such court that any such action or proceeding brought in any such court
has been brought in any inconvenient forum. Each Party further agrees that a
final, nonappealable judgment in any such action
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or proceeding shall be conclusive and may be enforced in any other jurisdictions
by suit on the judgment or in any other manner provided by law.
10.4 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and may be executed by facsimile. All counterparts shall
collectively constitute one and the same Agreement.
10.5 NOTICES. In any case where any notice or other communication is
required or permitted to be given hereunder, such notice or communication shall
be in writing and deemed to have been duly given and delivered (a) if delivered
in person, on the date of such delivery, (b) if sent by confirmed facsimile
transmission (with answer back received), on the date of such facsimile
transmission, or (c) if sent by overnight express or registered or certified
mail (with return receipt requested), on the date of receipt of such mail, and
shall be sent to the following address (or such other address as either Party
may designate from time to time in writing):
If to AOL:
America Online, Inc.
22000 AOL Way
Dulles, VA 20166
Telephone: (703) 265 2365
Telefax: (703) 265 1202
Attention: Senior Vice President, Business Affairs
Copy to:
America Online, Inc.
22000 AOL Way
Dulles, VA 20166
Telephone: (703) 265 2120
Telefax: (703) 265 2208
Attention: General Counsel
If to IMGIS:
Imgis, Inc.
10101 N. DeAnza Boulevard
Suite 210
Cupertino, CA 95014
Telephone: (408) 873-3680
Telefax: (408) 873-3690
Attention: Charles W. Berger
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Copy to :
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Telephone: (650) 494-0600
Telefax: (650) 494-1417
Attention: Gordon K. Davidson
10.6 FORCE MAJEURE. If any circumstance beyond the reasonable control of
either Party occurs which delays or renders impossible the performance of that
Party's obligations under this Agreement on the dates herein provided, such
obligation shall be postponed for such time as such performance necessarily has
had to be suspended or delayed on account thereof, provided such Party shall
notify the other Party in writing as soon as practicable, but in no event more
than ten days after the occurrence of such force majeure. In such event, the
Parties shall meet promptly to determine an equitable solution to the effects of
any such event, provided that such Party who fails because of force majeure to
perform its obligations hereunder shall upon the cessation of the force majeure
take all reasonable steps within its power to resume with the least possible
delay compliance with its obligations. Events of force majeure shall include,
without limitation, war, revolution, invasion, insurrection, riots, mob
violence, sabotage or other civil disorders, acts of God, limitations imposed by
exchange control regulations or foreign investment regulations or similar
regulations, laws, regulations or rules of any government or governmental
agency, and any inordinate and unanticipated delays in the regulatory review or
governmental approval process that are within the control of such government or
governmental agency.
10.7 BINDING EFFECT; ASSIGNMENT. This Agreement may not be assigned, in
whole or in part, by either Party without the prior written consent of the other
Party, and any attempted assignment without such consent shall be null and void.
An assignment of this Agreement requiring the consent of the other Party shall
include, without limitation: (i) the acquisition by a Third Party of more than
fifty percent (50%) of the voting power of the assigning Party; (ii) the
acquisition by a Third Party of all or substantially all of the assets of the
assigning Party; and (iii) the consummation of a merger, consolidation or
similar corporate transaction of the assigning Party with or into a Third Party
where the voting securities of the assigning Party outstanding immediately prior
to consummation of such transaction are converted into cash or securities
possessing less than fifty percent (50%) of the voting power of the surviving
entity; provided, however, that such consent shall not be unreasonably withheld
and provided, further, that IMGIS agrees, by way of example, that, if AOL is the
other Party whose consent is being sought, it shall not be unreasonable for AOL
to withhold its consent if the Third Party is a competitor of AOL (e.g., if the
Third Party engages in a business that competes with the AOL Network) or if the
Third Party is engaged in the business of pornography or any other business of
questionable morality. Any assignment by IMGIS in violation of this Section 10.7
shall constitute a breach by IMGIS of a material obligation hereunder for which
AOL shall have the right, notwithstanding the provisions of Section 9.2 above,
to immediately terminate this Agreement without allowance of any period to
remedy such breach, such termination
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to be immediately effective upon the receipt by IMGIS of written notice of
termination from AOL; provided, however, that in the event that any such
assignment occurs as the result of the consummation of a merger, consolidation
or similar corporate transaction as described in subpart (iii) above, then AOL's
sole remedy in such event shall be such right of termination. This Agreement
shall inure to the benefit of and be binding upon each of the Parties hereto and
their respective successors and permitted assigns.
10.8 ENTIRE AGREEMENT. The terms and conditions herein contained constitute
the entire agreement between the Parties relating to the subject matter of this
Agreement and shall supersede all previous communications between the Parties
with respect to the subject matter of this Agreement, except for the Letter
Agreement between the Parties dated as of April 14, 1998 and the Confidential
Non-Disclosure Agreement between the Parties dated as of April 15, 1998, each of
which shall survive according to their terms. Neither Party has entered into
this Agreement in reliance upon any representation, warranty, covenant or
undertaking of the other Party that is not set out or referred to in this
Agreement.
10.9 RECITALS, SCHEDULES AND EXHIBIT. The recitals set forth at the start
of this Agreement along with the Schedule attached, and the Schedule and Exhibit
to be attached, to this Agreement and the terms and conditions incorporated in
such recitals, Schedules and Exhibit shall be deemed integral parts of this
Agreement, and all references in this Agreement to this Agreement shall
encompass such recitals, Schedules and Exhibit and the terms and conditions
incorporated in such recitals, Schedules and Exhibit.
10.10 AMENDMENT. This Agreement may be varied, amended or extended only by
the written agreement of the Parties through their duly authorized officers or
representatives, specifically referring to this Agreement.
10.11 SEVERABILITY. In the event that any provision of this Agreement is
held to be illegal, invalid or unenforceable in a final, unappealable order or
judgment (each such provision, an "invalid provision"), then such provision
shall be severed from this Agreement and shall be inoperative, and the Parties
promptly shall negotiate in good faith a lawful, valid and enforceable provision
that is as similar to the invalid provision as may be possible, while the
remaining provisions of this Agreement shall remain binding on the Parties
hereto.
10.12 HEADINGS. The descriptive headings of the several articles and
sections of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
10.13 NO WAIVER OF RIGHTS. No failure or delay on the part of either Party
in the exercise of any power or right hereunder shall operate as a waiver
thereof. No single or partial exercise of any right or power hereunder shall
operate as a waiver of such right or of any other right or power. The waiver by
either Party of a breach of any provision of this Agreement shall not operate or
be construed as a waiver of any other or subsequent breach hereunder.
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10.14 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. All rights and remedies
granted to either Party under this Agreement are cumulative and in addition to,
and not in lieu of, any other rights or remedies otherwise available to such
Party at law or in equity. The Parties agree that any breach by either Party of,
or failure of either Party to perform, any obligation under this Agreement shall
constitute immediate and irreparable damage to the other Party which cannot be
fully and adequately compensated in money damages and that, in the event of such
breach or failure, the other Party shall be entitled to injunctive relief and
specific performance in addition to any other remedies to which it may be
entitled at law or in equity.
10.15 CONFIDENTIALITY OF AGREEMENT. Each Party shall maintain the
confidentiality of this Agreement and all provisions of this Agreement and,
without the prior consent of the other Party, neither Party shall make any press
release or other public announcement of or otherwise disclose this Agreement or
any of its provisions to any Third Party (a) other than to its Affiliates and to
its own and its Affiliates' directors, officers, employees, attorneys and
accountants, and to the lead underwriter engaged by IMGIS in connection with any
offering of securities of IMGIS, whose duties reasonably require familiarity
with this Agreement, provided that such Persons (including any such lead
underwriter) are bound to maintain the confidentiality of this Agreement, and
(b) except for such disclosure as may be required by applicable law or
regulation, in which case the disclosing Party shall provide the other Party
with prompt advance notice of such disclosure so that the other Party has the
opportunity if it so desires to seek a protective order or other appropriate
remedy; provided that, in connection with any offering of securities of IMGIS,
IMGIS shall provide in advance to AOL for review the form and content of any
disclosure of this Agreement or any of its provisions that may be required by
applicable law or regulation and, to the extent consistent with its disclosure
obligations under applicable law, include such modifications to such disclosure
as may be reasonably requested by AOL (except that IMGIS may file this Agreement
as an exhibit to its registration statement if it would constitute a "material
agreement" under applicable law or regulation and IMGIS shall use its reasonable
best efforts to obtain confidential treatment of the portions of this Agreement
that meet the SEC qualifications for confidential treatment if so requested by
AOL). The confidentiality obligations of this Section 10.15 would apply, inter
alia, to any disclosure by IMGIS of this Agreement or of any provisions of this
Agreement to any customer or potential customer of IMGIS and any such disclosure
would constitute a breach of this Section 10.15. The Parties agree that any
breach of the provisions of this Section 10.15 by either Party, including,
without limitation, by any directors, officers or employees of such Party, would
constitute a breach by such Party of a material obligation hereunder for which
the other Party shall have the right, notwithstanding the provisions of Section
9.2 above, to immediately terminate this Agreement without allowance of any
period to remedy such breach, such termination to be immediately effective upon
the receipt by the breaching Party of written notice of termination from the
nonbreaching Party.
10.16 USAGE. Wherever any provision of this Agreement uses the term
"including" (or "includes"), such term shall be deemed to mean "including
without limitation" and "including but not limited to" (or "includes without
limitation"
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and "includes but is not limited to") regardless of whether the words "without
limitation" or "but not limited to" actually follow the term "including" (or
"includes").
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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.
AMERICA ONLINE, INC.
By: /s/ David M. Colburn
---------------------------------
David M. Colburn
Senior Vice President, Business Affairs
IMGIS, INC.
By: /s/ Charles W. Berger
---------------------------------
Charles W. Berger
Chairman and Chief Executive Officer
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SCHEDULE 1.13
IMGIS COMPETITORS
DoubleClick
NetGravity
AdFinity
Accipiter
Engage
AdSmart
FlyCast
MatchLogic
24/7
Zulu Technology
IPro
NetPerceptions
AdKnowledge
RealMedia
Yahoo
Excite
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SCHEDULE 3.1
SPECIFIC INTERACTIVE SITES AND SPECIFIC ADVERTISERS
[To be Provided by AOL on or Prior to the
Commencement Date]
<PAGE>
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EXHIBIT
IMPLEMENTATION SCHEDULE
[To be attached on the Commencement Date]
<PAGE>
EXHIBIT 10.29
CONFIDENTIAL
LICENSE AGREEMENT
By and Between
AMERICA ONLINE, INC.
and
IMGIS, INC.
Dated as of July 15, 1998
--
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1 DEFINITIONS .................................................. 1
1.1 "Ad Serving Services" .................................. 1
1.2 "Affiliate" ............................................ 1
1.3 "AOL Affiliate" ........................................ 1
1.4 "AOL Brand Service" .................................... 2
1.5 "AOL Network" .......................................... 2
1.6 "AOL Partner" .......................................... 2
1.7 "Covered AOL Partner Site" ............................. 2
1.8 "Data Agreement Material Breach"........................ 2
1.9 "Demographic Data" ..................................... 2
1.10 "Demographic Data Agreement"............................ 2
1.11 "Deployment Date" ...................................... 2
1.12 "Development Services".................................. 2
1.13 "Fully Burdened Costs".................................. 3
1.14 "IMGIS AdForce System".................................. 3
1.15 "IMGIS Customer" ....................................... 4
1.16 "Implementation Date" .................................. 4
1.17 "Improvement" .......................................... 4
1.18 "Losses" ............................................... 4
1.19 "Materially Limit or Prohibit".......................... 4
1.20 "Party" ................................................ 4
1.21 "Permitted Purposes" ................................... 4
1.22 "Person" ............................................... 4
1.23 "Personnel" ............................................ 4
1.24 "Services" ............................................. 4
1.25 "Software" ............................................. 4
1.26 "Technical Support Services"............................ 5
1.27 "Technology" ........................................... 5
1.28 "Third Party" .......................................... 5
1.29 "Work Products" ........................................ 5
ARTICLE 2 GRANT OF LICENSE............................................... 5
2.1 License Grant........................................... 5
2.2 Exercise of Rights...................................... 6
2.3 Use of Personnel........................................ 6
</TABLE>
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<TABLE>
<S> <C>
ARTICLE 3 DELIVERY....................................................... 7
3.1 Initial Delivery........................................ 7
3.2 Delivery of Improvements and Other Technology........... 7
ARTICLE 4 TECHNICAL SUPPORT SERVICES..................................... 8
4.1 Scope of Services....................................... 8
4.2 Fees for Technical Services Support..................... 8
4.3 Warranty................................................ 9
ARTICLE 5 DEVELOPMENT SERVICES........................................... 10
5.1 Scope of Services....................................... 10
5.2 Fees for Development Services........................... 10
5.3 Original Work........................................... 10
5.4 Work for Hire........................................... 11
5.5 Change Management Process............................... 11
ARTICLE 6 AD SERVING SERVICES............................................ 12
6.1 Scope of Services....................................... 12
6.2 Fees for Ad Serving Services............................ 12
6.3 Provision of Services to Other Sites of AOL Partners.... 13
6.4 Reimbursement for Ad Serving Services................... 13
ARTICLE 7 AOL MARKETING EFFORTS.......................................... 13
7.1 AOL Marketing Efforts................................... 13
7.2 Commissions............................................. 14
7.3 Commission Sharing...................................... 14
ARTICLE 8 SALE OF ADVERTISEMENTS ON BEHALF OF
IMGIS' CUSTOMERS............................................... 14
8.1 Obligations of IMGIS.................................... 14
8.2 Assignment of Rights to AOL............................. 15
8.3 Revenue Sharing and Other Consideration................. 15
ARTICLE 9 PAYMENT PROVISIONS............................................. 15
9.1 Payment Procedures...................................... 15
9.2 Late Payment............................................ 16
9.3 Application of Payments................................. 16
</TABLE>
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<TABLE>
<S> <C>
9.4 Taxes................................................... 16
9.5 Books and Records....................................... 17
ARTICLE 10 REPRESENTATIONS AND WARRANTIES................................. 17
10.1 Mutual Representations and Warranties................... 17
10.2 Additional Representations and Warranties of IMGIS...... 18
10.3 No Other Warranties..................................... 19
ARTICLE 11 INDEMNIFICATION................................................ 19
11.1 Indemnity............................................... 19
11.2 Procedure............................................... 19
11.3 Abatement of Infringement............................... 20
ARTICLE 12 LIMITATION ON LIABILITY........................................ 20
ARTICLE 13 CONFIDENTIALITY................................................ 20
13.1 Confidentiality Obligation.............................. 20
13.2 Nondisclosure of Confidential Information............... 21
13.3 Exception .............................................. 21
13.4 Survival ............................................... 21
13.5 Source Code Protection.................................. 21
13.6 Other Business Activities............................... 22
ARTICLE 14 TERM AND TERMINATION........................................... 22
14.1 Term ................................................... 22
14.2 Termination............................................. 22
14.3 Effect of Termination................................... 23
14.4 Return of Confidential Information...................... 24
14.5 Survival................................................ 24
ARTICLE 15 MISCELLANEOUS.................................................. 25
15.1 Electronic Repossession ................................ 25
15.2 Periodic Discussions ................................ 25
15.3 Mutual Non-Solicitation ................................ 25
15.4 Failure to Assert Rights in Bankruptcy.................. 25
15.5 Further Assurances...................................... 25
15.6 Relationship of the Parties ............................ 26
15.7 Applicable Law ......................................... 26
15.8 Consent to Jurisdiction ................................ 26
15.9 Counterparts ........................................... 26
</TABLE>
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<TABLE>
<S> <C>
15.10 Notices ................................................ 26
15.11 Force Majeure .......................................... 27
15.12 Binding Effect; Assignment.............................. 28
15.13 Entire Agreement........................................ 28
15.14 Recitals ............................................... 28
15.15 Amendment .............................................. 28
15.16 Severability ........................................... 29
15.17 Headings ............................................... 29
15.18 No Waiver of Rights..................................... 29
15.19 Remedies Cumulative; Specific Performance............... 29
15.20 Confidentiality of Agreement............................ 29
15.21 Usage .................................................. 30
</TABLE>
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LICENSE AGREEMENT
This LICENSE AGREEMENT (the "Agreement") is entered into as of July __,
1998 by and between AMERICA ONLINE, INC., a Delaware corporation having its
principal office at 22000 AOL Way, Dulles, Virginia 20166 ("AOL"), and IMGIS,
INC., a California corporation having its principal office at 10101 N. DeAnza
Boulevard, Suite 210, Cupertino, California 95014 ("IMGIS").
WITNESSETH:
WHEREAS, AOL desires to obtain, and IMGIS is willing to grant to AOL, a
worldwide, perpetual and nonexclusive license to use, and to serve interactive
advertisements using, IMGIS' ad serving, trafficking, targeting and related
technology on the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing, of the mutual covenants
and undertakings contained herein and of other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Parties,
intending to be legally bound, hereby agree as follows:
ARTICLE 1
DEFINITIONS
In addition to other terms defined elsewhere herein, the following terms
will have the following meanings when used herein (any term defined in the
singular will have the same meaning when used in the plural and vice versa,
unless stated otherwise):
1.1 "AD SERVING SERVICES" has the meaning set forth in Section 6.1 below.
1.2 "AFFILIATE" of any specified Person means any other Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with the specified Person.
1.3 "AOL AFFILIATE" means: (a) any Affiliate of AOL, where the term
"control" for purposes of Section 1.2 means the direct or indirect ownership or
control by AOL of twenty-five percent (25%) or more of the stock or other equity
interests of such Person entitled to vote for the election of members of the
Board of Directors or similar governing body of such Person; provided, however,
that such Person shall cease to be an AOL Affiliate if and when such equity
interest becomes less than twenty-five percent (25%) for any reason other than
as a result of dilution, and provided, further, that if such equity interest
becomes less than twenty-five percent (25%) as a result of dilution, such Person
shall cease to be an AOL Affiliate if and when such percentage equity interest
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reduced for any reason other than as a result of dilution; and (b) AOL
Bertelsmann Online France S.N.C.
1.4 "AOL BRAND SERVICE" means the America Online brand online and
information service, including future modifications to, implementations of,
successors of, and international versions of such service.
1.5 "AOL NETWORK" means: (a) the AOL Brand Service; (b) any other product
or service owned or operated by AOL or any AOL Affiliate (including, without
limitation, the Compuserve brand online and information service, AOL.com, and
any "offline" information browsing products of AOL or AOL Affiliates), excluding
mere links to Third Party products or services that are accessible through
distribution channels other than the AOL Brand Service and excluding any
products consisting of the Technology, or any repackaged or reengineered version
of the Technology, that are distributed commercially to Third Parties other than
AOL Affiliates; and (c) any other product or service distributed under the brand
name of AOL or any AOL Affiliate other than under a mere trademark license of
such brand name, provided that AOL or such AOL Affiliate contributes not
insubstantially to the creation or development of such product or service.
1.6 "AOL PARTNER" means any Person with which AOL or an AOL Affiliate has a
joint venture, partnership or other contractual relationship for the purposes of
commerce, advertising, online access, or the provision by such Person of content
or information for the AOL Network.
1.7 "COVERED AOL PARTNER SITE" means the interactive site of an AOL Partner
provided that: (a) such site is marketed or promoted, and intended to be
accessible, to AOL members only; and (b) AOL or an AOL Affiliate has the right
to serve and to sell the advertising inventory for such site.
1.8 "DATA AGREEMENT MATERIAL BREACH" has the meaning set forth in Section
14.2.2 below.
1.9 "DEMOGRAPHIC DATA" has the meaning set forth in the Demographic Data
Agreement.
1.10 "DEMOGRAPHIC DATA AGREEMENT" means the Demographic Data Agreement
between AOL and IMGIS being executed simultaneously with the execution of this
Agreement.
1.11 "DEPLOYMENT DATE" has the meaning set forth in Section 3.2 below.
1.12 "DEVELOPMENT SERVICES" has the meaning set forth in Section 5.1 below.
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1.13 "FULLY BURDENED COSTS" of IMGIS Personnel in the provision of Services
hereunder means, for each IMGIS Personnel providing any Services to AOL, an
amount equal to the sum of the following:
(a) (i) If such Personnel is an employee of IMGIS, the wages and
benefits payable by IMGIS to such employee multiplied by the
percentage of time spent by such employee in the provision of
such Services to AOL relative to the total amount of time spent
by such employee in his or her employment with IMGIS, as measured
on a daily basis and charged on an hourly basis, which amount
shall in no event exceed $100 per hour, or
(ii) if such Personnel is an independent contractor of IMGIS, the
fees (excluding out-of-pocket expenses paid to such contractor)
payable to such contractor by IMGIS multiplied by the percentage
of time spent by such contractor in the provision of such
Services to AOL relative to the total amount of time spent by
such contractor in the provision of services to IMGIS, as
measured on a daily basis and charged on an hourly basis, which
amount shall in no event exceed $100 per hour; plus
(b) IMGIS' direct out-of-pocket costs in the provision by such
Personnel of such Services to AOL but only to the extent that AOL
is not otherwise obligated hereunder to provide reimbursement to
IMGIS for such direct costs; plus
(c) An amount (representing a reasonable allocation of overhead
expenses) equal to ten percent (10%) of the direct out-of-pocket
costs provided for in subpart (b) above.
Out-of-pocket costs and expenses, for purposes of this definition, means travel,
lodging and other non-compensatory costs or expenses. The $100 per hour maximum
amount referred to in subparts (a)(i) and (a)(ii) above shall be adjusted by
mutual agreement of the Parties three years following the date hereof to reflect
any applicable increase or decrease in the cost of living.
1.14 "IMGIS ADFORCE SYSTEM" means any software owned and/or used by, and/or
licensed to, IMGIS that enables operators of interactive sites and interactive
advertisers to schedule, monitor, serve, traffic and/or target interactive
advertising, including the system used by IMGIS to provide services under the
AdForce service mark and any related or successor system (including, without
limitation, IMGIS' proposed system known as AdForce+ and IMGIS' proposed
"hybrid" system based on the StarPoint Ad System).
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1.15 "IMGIS CUSTOMER" means a Third Party that has contracted with IMGIS
for the serving and/or management of interactive advertisements using the IMGIS
AdForce System.
1.16 "IMPLEMENTATION DATE" means the date following the Commencement Date
(as such term is defined in the Demographic Data Agreement) as of which AOL
first Provides Demographic Data (as defined in the Demographic Data Agreement)
to IMGIS.
1.17 "IMPROVEMENT" means any modification, customization, upgrade, update,
enhancement, patch, "bug" fix or other improvement to the Technology.
1.18 "LOSSES" means losses, liabilities, suits, claims, costs, expenses
(including reasonable attorneys' fees), penalties, fines, judgments and/or
damages (including personal injury or property damages, but excluding indirect,
incidental, special or consequential damages suffered by the indemnified Party).
1.19 "MATERIALLY LIMIT OR PROHIBIT" has the meaning set forth in the
Demographic Data Agreement. In addition, for purposes of this Agreement, AOL
shall be deemed to "Materially Limit or Prohibit" the use by IMGIS of
Demographic Data: (a) six months following the expiration of the term (including
any renewal term) of the Demographic Data Agreement; or (b) six months following
the termination of the Demographic Data Agreement (other than as a result of
breach or nonperformance by AOL) provided that, if the event giving rise to such
termination is disputed by the Parties, there has been a final determination of
such termination event by a court of competent jurisdiction (excluding any
determination in connection with the granting of equitable relief).
1.20 "PARTY" means AOL or IMGIS, and "PARTIES" means AOL and IMGIS.
1.21 "PERMITTED PURPOSES" means to serve, traffic and/or target
advertisements or other information or materials, and to perform such other
functions as the Technology (including any Improvements) is capable of, for
AOL's own internal purposes or for or on behalf of any of the following networks
or sites, to users of such networks or sites: (a) the AOL Network; (b) the
interactive sites of AOL Affiliates; or (c) the Covered AOL Partner Sites.
1.22 "PERSON" means a natural person, a corporation, a partnership, a
trust, a joint venture, any governmental authority, or any other entity or
organization.
1.23 "PERSONNEL" means employees and/or independent contractors.
1.24 "SERVICES" means any services provided by IMGIS pursuant to this
Agreement, including Ad Serving Services, Development Services and Technical
Support Services.
1.25 "SOFTWARE" means software included in the Technology.
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1.26 "TECHNICAL SUPPORT SERVICES" has the meaning set forth in Section 4.1
below.
1.27 "TECHNOLOGY" means all software (in both source code and object code
form), inventions, discoveries, designs, tools, know-how and other technology,
including any Improvements thereto, now or hereafter developed, owned and/or
used by, and/or licensed to, IMGIS or any of its Affiliates relating to the
serving, trafficking and/or targeting of advertisements or other information or
materials (including all software, inventions, discoveries, designs, tools,
know-how and other technology comprising or used in connection with the IMGIS
AdForce System and all Third Party software and other Third Party technology
integrated in or necessary for the successful operation of such technology
(except for commercially available Third Party software that has not been
modified to meet IMGIS' needs, where IMGIS does not have the right to provide
such software to AOL)), and all documentation for such technology. Without
limiting the generality of the foregoing, in no event shall "Technology" include
(a) demographic data owned by or licensed to IMGIS from any Third Parties or (b)
Third Party software that is not integrated in or necessary for the successful
operation of such technology which is developed by IMGIS as a "work made for
hire" for a Third Party that is not an Affiliate of IMGIS. For purposes of the
foregoing definition, an "Affiliate" of IMGIS means any Affiliate of IMGIS where
the term "control" means the direct or indirect ownership or control by IMGIS of
twenty-five percent (25%) or more of the stock or other equity interests of such
Person entitled to vote for the election of members of the Board of Directors or
similar governing body of such Person.
1.28 "THIRD PARTY" means any Person that is not a Party to this Agreement.
1.29 "WORK PRODUCTS" means any Improvements, designs, drawings,
specifications, documentation, computer software, reports, training materials,
inventions, discoveries and other items made by or on behalf of IMGIS in
connection with the provision of Development Services.
ARTICLE 2
GRANT OF LICENSE
2.1 LICENSE GRANT.
(a) Subject to the terms and conditions hereof, IMGIS hereby grants to
AOL a perpetual, worldwide, nonexclusive, nontransferable (except as set forth
in Section 15.12 below), royalty-free license under all of IMGIS' patent,
copyright, trade secret and other proprietary rights to use, reproduce, adapt,
transmit, perform, display and otherwise practice the Technology or any part
thereof, other than commercially available Third Party software that IMGIS has
the right to provide to AOL only upon payment of a fee to the Third Party,
solely for the Permitted Purposes and to sublicense such rights to AOL
Affiliates solely for the Permitted Purposes.
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(b) If any Technology consists of commercially available Third Party
software that IMGIS has the right to provide to AOL only upon payment of a fee
to the Third Party, AOL may, by written notice to IMGIS and payment of such fee,
require IMGIS to grant to AOL a perpetual, worldwide, nonexclusive,
nontransferable (except as set forth in Section 15.12 below), royalty-free
(except for such fee) license under all applicable patent, copyright, trade
secret and other proprietary rights to use, reproduce, adapt, transmit, perform,
display and otherwise practice such Technology or any part thereof solely for
the Permitted Purposes and to sublicense such rights to AOL Affiliates solely
for the Permitted Purposes (but only to the extent of IMGIS' rights in such
Technology).
(c) In the event that AOL grants a sublicense to an AOL Affiliate
under any of the licenses granted in Section 2.1(a) or (b) above, AOL shall
enter into a sublicense agreement with such AOL Affiliate in a form to be
approved by IMGIS, which approval shall not be unreasonably withheld, and
included in such sublicense shall be the agreement of such AOL Affiliate to be
bound by the terms of this Agreement. AOL shall notify IMGIS of the grant of any
sublicense to an AOL Affiliate.
(d) AOL shall not disclose or transfer the source code for any
Software included in the Technology to any AOL Affiliate that is not a
wholly-owned subsidiary of AOL. If IMGIS includes trademark or other proprietary
rights notices on copies of the Technology delivered to AOL, AOL shall reproduce
such notices on copies of the Technology made by AOL.
(e) The Parties agree that neither the licenses granted in this
Section 2.1 nor any other provisions of this Agreement impose or shall be
construed to impose any obligation upon AOL to use or otherwise practice the
Technology. IMGIS agrees that it shall not bring any action in law or equity, or
any other judicial or nonjudicial proceeding, against AOL asserting that the use
by AOL of any patent rights claiming the Technology that are now or hereafter
owned by or licensed to IMGIS or any other Technology infringes or otherwise
violates any patent, copyright, trade secret or other proprietary rights of
IMGIS.
2.2 EXERCISE OF RIGHTS. AOL may exercise its rights in and to the
Technology at any location, on any hardware, and with respect to all, none or
any portion or combination of the Technology. Nothing in this Agreement shall
obligate AOL to use the Technology or to use a designated server or site in
connection with such Technology.
2.3 USE OF PERSONNEL. AOL may exercise its rights hereunder through
Personnel who are obligated by written agreement to maintain the Technology in
confidence and restrict their use of the Technology pursuant to terms comparable
to those set forth in Article 13.
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ARTICLE 3
DELIVERY
3.1 INITIAL DELIVERY. Within 45 days after the date hereof, IMGIS shall
deliver to AOL: (a) one machine-readable copy of the object code for the
Software; (b) one copy of available technical and user documentation for the
Technology in printed and machine-readable format as available; and (c) one
machine-readable copy of the source code for the Software. Such delivery shall
be transmitted electronically or by any other means agreed upon by IMGIS and
AOL.
3.2 DELIVERY OF IMPROVEMENTS AND OTHER TECHNOLOGY.
(a) IMGIS shall use commercially reasonable efforts regularly to
develop Improvements to adapt the Technology to changes in related technologies
and in market and user requirements and to remain competitive with alternative
technologies for the serving, trafficking and/or targeting of advertisements or
other information or materials.
(b) At such times as reasonably requested by AOL, IMGIS shall provide
AOL with any Improvements made by or on behalf of IMGIS and any other Technology
requested by AOL that is existing and not then in the possession of AOL. In
addition, commencing no later than 45 days after such time that AOL determines
to deploy the Technology in whole or in part (the "Deployment Date"), IMGIS
shall provide to AOL on a quarterly basis the then current version of the source
code for the Software and shall provide to AOL any and all Improvements,
including upgrades, updates, enhancements, patches and "bug" fixes, prior to or
concurrently with their installation or release, by any means requested by AOL
(including electronically), along with the applicable documentation related to
such Improvement.
(c) IMGIS shall provide all Improvements and other Technology, other
than Improvements provided in the provision of Development Services, to AOL
without any additional charge or fee provided that, in the case of any
Improvement, AOL is in compliance with all of its material obligations under the
Demographic Data Agreement and does not Materially Limit or Prohibit the use by
IMGIS of Demographic Data at the time such Improvement is developed. If AOL
ceases to be in compliance with all of its material obligations under the
Demographic Data Agreement or Materially Limits or Prohibits the use by IMGIS of
Demographic Data, and AOL desires to continue receiving Improvements from IMGIS,
then AOL shall pay to IMGIS on an annual basis a reasonable update fee to be
agreed upon by the Parties for all Improvements developed for so long as AOL is
not in compliance with all of its material obligations under the Demographic
Data Agreement or Materially Limits or Prohibits the use by IMGIS of Demographic
Data; provided that such fee shall not exceed (i) IMGIS' customary update fees
for such Improvements in arm's length transactions with its licensees, if IMGIS
then licenses the Technology to Third Parties, or (ii) update fees charged by
other licensors of comparable systems for serving, trafficking and/or targeting
of advertisements or other information or materials, but not less
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than IMGIS' cost of providing such Improvements, if IMGIS does not then license
the Technology to Third Parties.
(d) At AOL's request, IMGIS shall identify to AOL, and provide AOL
reasonable information and assistance in furtherance of AOL's efforts to
acquire, at AOL's own expense, commercially available Third Party software
licensed to IMGIS for use in connection with the Technology and not sublicensed
to AOL under Section 2.1(a) or (b) above.
ARTICLE 4
TECHNICAL SUPPORT SERVICES
4.1 SCOPE OF SERVICES.
(a) During the term of this Agreement, IMGIS shall provide to AOL, at
AOL's written request, reasonable technical training, support, documentation and
assistance relating to the interactive content (including interactive
advertisement) serving, trafficking, targeting and related functions of the
Technology (collectively, "Technical Support Services"). The Technical Support
Services shall, at a minimum, enable AOL, without the aid of IMGIS or any other
Person, to develop, enhance and maintain the Technology (including the source
code for the Software) for use by AOL to the same extent as IMGIS.
(b) Commencing no later than 45 days after the Deployment Date, the
Technical Support Services shall include, without limitation: (i) the regular
provision by IMGIS of qualified Personnel able to resolve problems in the
operation of the Technology on-site at AOL's data centers in the greater
Washington metropolitan area; and (ii) the provision by IMGIS of telephone
access 24 hours a day, seven days a week, to qualified Personnel able to resolve
problems in the operation of the Technology, via a designated telephone support
number.
4.2 FEES FOR TECHNICAL SERVICES SUPPORT.
(a) Provided that, at the time any Technical Support Services are
requested by AOL or are to be performed by IMGIS, AOL is in compliance with all
of its material obligations under the Demographic Data Agreement and does not
Materially Limit or Prohibit the use by IMGIS of Demographic Data, IMGIS shall
provide the Technical Support Services requested by AOL for no additional
consideration other than reimbursement of the Fully Burdened Costs of the
provision by IMGIS Personnel of such Technical Support Services.
(b) If, at the time any Technical Support Services are requested by
AOL or are to be performed by IMGIS: (i) the Implementation Date has not yet
occurred under the Demographic Data Agreement and no more than twelve months
have passed since the
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execution of the Demographic Data Agreement, then AOL shall pay to IMGIS the
Fully Burdened Costs of the provision by IMGIS Personnel of such Technical
Support Services plus twenty-five percent (25%) of such costs; or (ii) the
Implementation Date has not yet occurred under the Demographic Data Agreement
and more than twelve months have passed since the execution of the
Demographic Data Agreement, then AOL shall pay to IMGIS the Fully Burdened
Costs of the provision by IMGIS Personnel of such Technical Support Services
plus forty percent (40%) of such costs.
(c) If, following the occurrence of the Implementation Date, at the
time any Technical Support Services are requested by AOL or are to be performed
by IMGIS, AOL is not in compliance with all of its material obligations under
the Demographic Data Agreement or Materially Limits or Prohibits the use by
IMGIS of Demographic Data, then AOL shall pay to IMGIS the Fully Burdened Costs
of the provision by IMGIS Personnel of such Technical Support Services plus
twenty-five percent (25%) of such costs.
4.3 WARRANTY. In the event that the Technology fails to conform to or
perform in accordance with the technical or user documentation provided by IMGIS
(other than as a result of operator error, accident, or misuse or alteration of
the Technology by a Person not under IMGIS' direction or control) or in the
event of a breach of the warranties set forth in Section 10.2(e) or 10.2(f)
below, then IMGIS, at its expense and without any payment by AOL for Technical
Support or other Services, shall use commercially reasonable efforts to cure
such failure or breach as soon as practicable, but in any event:
(a) For a "critical" failure or breach, such as the Technology, or
other software, hardware or other technology with which the
Technology is interfacing or integrating, ceasing to execute a
function that AOL reasonably deems critical to its business,
IMGIS shall provide at least a temporary workaround or fix within
two hours of receiving notice of such failure or breach and shall
cure such failure or breach within three business days of
receiving notice of such failure or breach; and
(b) For any other failure or breach that is not a "critical" problem,
IMGIS shall provide at least a temporary workaround or fix within
three business days of receiving notice of such failure or breach
and shall cure such failure or breach within 15 days after
receiving notice of such failure or breach.
Without limiting the generality of the foregoing, IMGIS agrees, by way of
example, that it shall not be unreasonable for AOL to deem a failure or breach
"critical to its business" as provided in subpart (a) above if such failure or
breach results or would result in the breach or nonperformance by AOL of any
obligation to any advertiser on the AOL Network.
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ARTICLE 5
DEVELOPMENT SERVICES
5.1 SCOPE OF SERVICES. At AOL's written request, IMGIS shall undertake the
reasonable development of Improvements as necessary to customize the interactive
content (including interactive advertisement) serving, trafficking, targeting
and related functions of the Technology to meet AOL's needs, including, without
limitation, developing the functionality to serve the same advertisement to the
top and bottom of a page, scaling search term capabilities, and undertaking such
other work as may be specified by AOL (collectively, "Development Services").
Notwithstanding the foregoing, AOL shall have no obligation to request or to use
Development Services of IMGIS and may undertake similar work itself or through
independent contractors other than IMGIS, subject to the provisions of Section
2.3 above.
5.2 FEES FOR DEVELOPMENT SERVICES.
(a) Provided that, at the time any Development Services are requested
by AOL or are to be performed by IMGIS, AOL is in compliance with all of its
material obligations under the Demographic Data Agreement and does not
Materially Limit or Prohibit the use by IMGIS of Demographic Data, IMGIS shall
provide the Development Services requested by AOL for no additional
consideration other than reimbursement of the Fully Burdened Costs of the
provision by IMGIS Personnel of such Development Services.
(b) If, at the time any Development Services are requested by AOL
or are to be performed by IMGIS: (i) the Implementation Date has not yet
occurred under the Demographic Data Agreement and no more than twelve months
have passed since the execution of the Demographic Data Agreement, then AOL
shall pay to IMGIS the Fully Burdened Costs of the provision by IMGIS
Personnel of such Development Services plus twenty-five percent (25%) of such
costs; or (ii) the Implementation Date has not yet occurred under the
Demographic Data Agreement and more than twelve months have passed since the
execution of the Demographic Data Agreement, then AOL shall pay to IMGIS the
Fully Burdened Costs of the provision by IMGIS Personnel of such Development
Services plus forty percent (40%) of such costs.
(c) If, following the occurrence of the Implementation Date, at the
time any Development Services are requested by AOL or are to be performed by
IMGIS, AOL is not in compliance with all of its material obligations under the
Demographic Data Agreement or Materially Limits or Prohibits the use by IMGIS of
Demographic Data, then AOL shall pay to IMGIS the Fully Burdened Costs of the
provision by IMGIS Personnel of such Development Services plus twenty-five
percent (25%) of such costs.
5.3 ORIGINAL WORK. Any Work Products either shall be the original work of
IMGIS and its Personnel or shall be items licensed by Third Parties that IMGIS
has the right to provide to AOL and that IMGIS identifies as such to AOL in
writing. IMGIS shall
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not disclose to AOL, or induce AOL to use, the trade secrets or other
confidential information of any Third Parties, except to the extent that the
Technology includes Software licensed from Third Parties which IMGIS has the
right to provide to AOL.
5.4 WORK FOR HIRE.
(a) The Parties intend that each Work Product that is a work of
authorship shall be deemed a "work made for hire" within the meaning of the
copyright laws of the United States and any similar laws of other jurisdictions.
To the extent, if any, that IMGIS or its Personnel have rights in any Work
Product notwithstanding the foregoing, including because a Work Product does not
qualify as a "work made for hire," IMGIS hereby irrevocably assigns to AOL, and
agrees that AOL shall be the sole and exclusive owner of, all right, title and
interest in and to the Work Product, including all patent, copyright, trade
secret and other proprietary rights therein that may be secured in any place
under laws now or hereafter in effect.
(b) To the extent that IMGIS provides Development Services in support
of any modification of the Technology, AOL hereby grants to IMGIS a perpetual,
worldwide, nonexclusive, nontransferable license to use, reproduce, adapt,
transmit, perform and display such modification in connection with the provision
of such Development Services and for no other purpose without AOL's prior
written approval. In the event that IMGIS desires to integrate such modification
in the Technology and obtains AOL's approval thereto, then IMGIS shall reimburse
AOL for any payment made by AOL for such Development Services, or waive such
payment by AOL, in consideration for the grant of such license to IMGIS. IMGIS
may exercise its rights under the foregoing license through Personnel who are
obligated by written agreement to maintain such modification in confidence and
restrict their use of such modification pursuant to terms comparable to those
set forth in Article 13.
(c) IMGIS shall have valid and enforceable written agreements with all
of its Personnel providing Development Services hereunder containing
confidentiality and nondisclosure obligations comparable in scope to those set
forth in Article 13 and giving IMGIS all rights and authority necessary to
effectuate the provisions of this Section 5.4. IMGIS shall provide copies of
these agreements to AOL upon AOL's request.
(d) To the extent that IMGIS delivers to AOL any Improvements,
designs, drawings, specifications, documentation, computer software, reports,
training materials, inventions, discoveries and other items that are not Work
Products, such items shall be deemed included in the Technology and licensed
pursuant to Section 2.1 above.
5.5 CHANGE MANAGEMENT PROCESS. Notwithstanding the foregoing provisions of
this Article 5, in the event that AOL implements a version of the Technology
containing any modification to the source code for the Software that adds a
substantially new feature or function to the version of the Technology used by
IMGIS (in contrast to merely correcting what are colloquially known as "bugs" in
such Software or making any other
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minor modification to an existing feature or function) then: (a) IMGIS shall not
be obligated to provide Development Services or Technical Support Services for
such Improvement; and (b) in the event that AOL does not request, or IMGIS does
not agree to provide, such Services, the Parties shall work together to devise a
change management process to facilitate the technical support and maintenance of
AOL's version of the Technology containing such Improvement.
ARTICLE 6
AD SERVING SERVICES
6.1 SCOPE OF SERVICES. At AOL's discretion and upon AOL's written request
with the provision of reasonable advance notice to IMGIS, IMGIS shall provide to
AOL interactive advertisement serving, trafficking, targeting and related
services (collectively, "Ad Serving Services") for: (a) the AOL Network; (b) the
interactive sites of AOL Affiliates; and (c) the Covered AOL Partner Sites.
6.2 FEES FOR AD SERVING SERVICES.
(a) Provided that, at the time any Ad Serving Services are requested
by AOL or are to be performed by IMGIS, AOL is in compliance with all of its
material obligations under the Demographic Data Agreement and does not
Materially Limit or Prohibit the use by IMGIS of Demographic Data, IMGIS shall
provide the Ad Serving Services requested by AOL for no additional consideration
other than reimbursement of the Fully Burdened Costs of the provision by IMGIS
Personnel of such Ad Serving Services, provided, however, that in the event that
IMGIS agrees to provide any Ad Serving Services to any Third Party that is
similarly situated to AOL at a rate that is more favorable to such Third Party
than the consideration payable by AOL under this subpart (a), then IMGIS shall
provide the Ad Serving Services requested by AOL at such Third Party's rate.
(b) If, at the time any Ad Serving Services are requested by AOL or
are to be performed by IMGIS: (i) the Implementation Date has not yet
occurred under the Demographic Data Agreement and no more than twelve months
have passed since the execution of the Demographic Data Agreement, then AOL
shall pay to IMGIS the Fully Burdened Costs of the provision by IMGIS
Personnel of such Ad Serving Services plus twenty-five percent (25%) of such
costs; or (ii) if the Implementation Date has not yet occurred under the
Demographic Data Agreement and more than twelve months have passed since the
execution of the Demographic Data Agreement, then AOL shall pay to IMGIS the
Fully Burdened Costs of the provision by IMGIS Personnel of such Ad Serving
Services plus forty percent (40%) of such costs.
(c) If, following the occurrence of the Implementation Date, at the
time any Ad Serving Services are requested by AOL or are to be performed by
IMGIS, AOL is not in compliance with all of its material obligations under the
Demographic Data
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Agreement or Materially Limits or Prohibits the use by IMGIS of Demographic
Data, then AOL shall pay to IMGIS the Fully Burdened Costs of the provision by
IMGIS Personnel of such Ad Serving Services plus twenty-five percent (25%) of
such costs.
6.3 PROVISION OF SERVICES TO OTHER SITES OF AOL PARTNERS. In addition to
the foregoing, upon the request of an AOL Partner, IMGIS agrees to provide Ad
Serving Services to the interactive sites of such AOL Partner which are not
Covered AOL Partner Sites on terms and at rates no less favorable than those
offered by IMGIS to any Third Party that is similarly situated to such AOL
Partner in terms of the volume of advertisements to be served by IMGIS for such
Third Party.
6.4 REIMBURSEMENT FOR AD SERVING SERVICES. In addition to the fees for Ad
Serving Services provided for in Section 6.2 above, AOL shall reimburse the
following costs incurred by IMGIS in the provision of Ad Serving Services
requested by AOL for the purposes set forth in Section 6.1 above, and, at AOL's
option, shall provide financing to IMGIS for such costs on mutually agreeable
terms, but in any event on terms no less favorable to IMGIS than such terms as
are commercially available to entities similarly situated to IMGIS:
(a) Reimbursement for IMGIS' incremental costs for any modification
of the IMGIS AdForce System required to meet AOL's needs for the
provision of Ad Serving Services (other than capitalized costs,
which if financed at the time such costs are incurred, shall be
reimbursed at the time such costs are amortized), excluding any
modifications required to scale the Software or other Technology
to meet AOL's needs;
(b) Reimbursement for IMGIS' incremental costs for any additional
equipment that IMGIS must purchase or lease solely to meet AOL's
needs for the provision of Ad Serving Services for so long as
necessary to meet AOL's needs (and, if AOL provides financing for
such equipment, then, at AOL's option, AOL may become the lessor
of such equipment to IMGIS), unless AOL determines, in its sole
discretion, to lease such equipment on its own; and
(c) Reimbursement for any additional incremental bandwidth costs
incurred by IMGIS solely in connection with the provision of Ad
Serving Services to AOL.
ARTICLE 7
AOL MARKETING EFFORTS
7.1 AOL MARKETING EFFORTS. AOL shall use commercially reasonable efforts to
encourage AOL Partners (but AOL shall not be obligated to actively solicit AOL
Partners)
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to use the IMGIS AdForce System for the serving and management of Internet
advertisements, subject to agreement between IMGIS and such AOL Partners on the
terms and conditions of such use.
7.2 COMMISSIONS. If, as a result of marketing efforts by AOL, an AOL
Partner or any other Person enters into an agreement with IMGIS to utilize the
IMGIS AdForce System, then, provided that, as of the time that IMGIS enters into
such agreement with such AOL Partner or other Person, AOL is in compliance with
all of its material obligations under the Demographic Data Agreement and does
not Materially Limit or Prohibit the use by IMGIS of Demographic Data, IMGIS
shall pay to AOL on a quarterly basis the following commissions on the gross
amount of the consideration charged by IMGIS to such AOL Partner or other Person
for use of the IMGIS AdForce System:
(a) For the first year of such agreement, the greater of 4% and
the highest percentage commission granted by IMGIS at such time
to any employee or agent of IMGIS or to any Third Party for
similar marketing or sales efforts; and
(b) For each succeeding year of such agreement, the greater of 2%
and the highest percentage commission granted by IMGIS at such
time to any employee or agent of IMGIS or to any Third Party for
similar marketing or sales efforts.
7.3 COMMISSION SHARING. Notwithstanding the provisions of Section 7.2
above, if AOL and any employee or agent of IMGIS or any other Third Party claims
commissions with respect to the same Person (and such Person has not entered
into an agreement with IMGIS solely as a result of AOL marketing efforts), IMGIS
shall not be required to pay total commissions to AOL and such Third Party in
excess of the amount specified in Section 7.2 and IMGIS may apportion the
applicable commission specified in Section 7.2 between AOL and the Third Party
in such manner as IMGIS determines in good faith to be equitable.
ARTICLE 8
SALE OF ADVERTISEMENTS ON BEHALF OF IMGIS' CUSTOMERS
8.1 OBLIGATIONS OF IMGIS. IMGIS shall use commercially reasonable efforts
to encourage IMGIS Customers to grant to IMGIS the right to sell interactive
advertisements on their behalf and to obtain the right to assign to AOL the
right to sell such interactive advertisements. Prior to approaching an IMGIS
Customer about obtaining the right to sell interactive advertisements on behalf
of such IMGIS Customer, IMGIS shall discuss with AOL and with no other Person,
within a time period to be agreed upon by the Parties, whether AOL desires to
have IMGIS assign to AOL the right to sell interactive advertisements on behalf
of such IMGIS Customer.
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8.2 ASSIGNMENT OF RIGHTS TO AOL. In the event that IMGIS obtains the right
to sell interactive advertisements on behalf of any IMGIS Customer and AOL
agrees to have IMGIS assign such right to AOL, IMGIS shall grant to AOL, and AOL
shall obtain, the exclusive right (as to IMGIS and Persons deriving rights
through IMGIS) to sell interactive advertisements on behalf of such IMGIS
Customer to the same extent that IMGIS is entitled to sell such interactive
advertisements; provided, however, that (a) such right to sell interactive
advertisements shall convert to a nonexclusive right if AOL fails to meet
reasonable performance milestones for advertisement sales to be mutually agreed
upon by the Parties within 30 days after the date of IMGIS' assignment to AOL of
its right to sell interactive advertisements on behalf of such IMGIS Customer
and (b) such right shall revert to IMGIS in its entirety in the event that, and
for so long as, AOL ceases to be in compliance with all of its material
obligations under the Demographic Data Agreement or Materially Limits or
Prohibits the use by IMGIS of Demographic Data.
8.3 REVENUE SHARING AND OTHER CONSIDERATION. AOL shall pay to IMGIS, on a
quarterly basis, fifty percent (50%) of all revenues received by AOL from the
sale of interactive advertisements on behalf of an IMGIS Customer, net of
selling commissions, expenses related to sales, and amounts payable to operators
of the relevant interactive sites. As consideration for the satisfaction by AOL
of additional performance milestones for advertisement sales to be mutually
agreed upon by the Parties within 30 days after the date of IMGIS' assignment to
AOL of its right to sell interactive advertisements on behalf of such IMGIS
Customer, IMGIS and AOL shall agree to either (i) a reduction in the percentage
of revenues payable by AOL from the sale of interactive advertisements on behalf
of such IMGIS Customer or (ii) the issuance to AOL of warrants to purchase
IMGIS' common stock (in addition to those being issued to AOL simultaneously
with the execution of this Agreement), provided that IMGIS has conducted an
initial public offering of its common stock as of the time of such issuance.
ARTICLE 9
PAYMENT PROVISIONS
9.1 PAYMENT PROCEDURES.
(a) Unless otherwise agreed to in writing by the Parties, all payments
due by AOL for the provision of Services by IMGIS hereunder shall be due and
payable 30 days after the receipt by AOL of a proper invoice therefor from
IMGIS, which invoice shall include such detail and supporting documentation as
AOL may reasonably request.
(b) Unless otherwise agreed to in writing by the Parties: (i) all
payments due by IMGIS under Article 7 in connection with IMGIS' entrance into an
agreement for use of the IMGIS AdForce System with an AOL Partner or other
Person as a result of AOL marketing efforts shall be paid to AOL within 60 days
after the end of the calendar quarter during which such agreement is entered
into and within 60 days after the end of each succeeding calendar quarter
thereafter; and (ii) all payments due by AOL
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under Article 8 in connection with the sale of interactive advertisements on
behalf of an IMGIS Customer shall be paid to IMGIS within 60 days after the end
of the calendar quarter during which IMGIS assigns to AOL its right to sell
interactive advertisements on behalf of such IMGIS Customer and within 60 days
after the end of each succeeding calendar quarter thereafter.
(c) All payments due to the payee Party hereunder shall be paid to the
payee Party in U.S. Dollars by wire transfer, or by such other method mutually
agreed upon by the Parties, in each case at the expense of the payor Party, for
value no later than the due date thereof (with 24 hours advance notice of each
wire transfer) to such bank account or accounts as the payee Party shall
designate in writing within a reasonable period of time prior to such due date.
9.2 LATE PAYMENT. Without limiting the payee Party's rights to pursue any
other remedies at law or in equity, if the payor Party fails to pay any payment
required under this Agreement on or before the due date therefor, then the payor
Party shall pay annually compounded interest on such amount at an annual rate
equal to the lower of (a) the highest rate permitted by applicable law and (b)
the lowest prime rate as published by The Wall Street Journal on or nearest to
such due date plus three percent (3%), which interest shall accrue from the date
the payment not timely made became due until the date such payment is paid in
full.
9.3 APPLICATION OF PAYMENTS. Any payments received by the payee Party shall
be applied first to the satisfaction of the oldest of any unpaid, accrued
interest charges and, following payment of all such interest charges, to the
satisfaction of the oldest of any unpaid fees or other amounts due hereunder.
9.4 TAXES.
(a) All payments required to be made by the payor Party under this
Agreement shall be made free and clear of, and without deduction for, any and
all taxes that are levied on the transfer of such payments to the payee Party.
If any withholding or deductions are required by applicable law, payments shall
be made such that, after such withholding or deductions, the net amount that the
payee Party receives is equal to the amount due hereunder. The payor Party shall
file any information or tax returns with respect to such taxes, and the payor
Party shall indemnify the payee Party from any interest or other payments, fines
or penalties relating to or resulting from any failure, delay or error of the
payor Party in doing so.
(b) IMGIS shall be responsible for the payment of any and all
transfer, sales, use or similar taxes that are levied on or in connection with
the transfer of the Technology to AOL, including any Improvements.
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9.5 BOOKS AND RECORDS. Each Party shall keep full, true and accurate books
of account containing all particulars and reasonable supporting documentation,
in the case of IMGIS, in connection with the provision of Services hereunder and
the determination of any amounts payable to AOL under Article 7, and, in the
case of AOL, in connection with the determination of any amounts payable to
IMGIS under Article 8. All such books of account and reasonable supporting
documentation shall be located at the principal place of business of such Party
and shall be open for inspection by the other Party (the "auditing Party") or
any independent certified public accountant retained by the auditing Party, at a
time mutually acceptable to the Parties during normal business hours but no more
frequently than once each calendar year for three years following the end of the
calendar year to which they pertain (and access shall not be denied thereafter
if reasonably available). If such records are insufficient or any such
inspection discloses a discrepancy in favor of the auditing Party of five
percent (5%) or more of the amounts actually due for any period, then, in
addition to any other rights and remedies available to the auditing Party under
this Agreement, the audited Party shall pay or refund to the auditing Party the
amount of such discrepancy as well as the reasonable cost of such inspection
promptly following such Party's receipt from the auditing Party of the bill or
invoice for such inspection.
ARTICLE 10
REPRESENTATIONS AND WARRANTIES
10.1 MUTUAL REPRESENTATIONS AND WARRANTIES. Each Party represents and
warrants to the other Party that:
(a) Such Party has the full corporate right, power and authority to
execute, deliver and perform this Agreement and to consummate the
transactions contemplated hereby;
(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of
such Party;
(c) This Agreement has been duly executed and delivered by an
authorized officer of such Party, and is a legal, valid and
binding obligation of such Party enforceable against it in
accordance with its terms, except as enforcement may be limited
by general principles of equity (regardless of whether such
enforceability is considered in a proceeding at law or in equity)
and the effect of applicable bankruptcy, insolvency, moratorium
and other similar laws of general application relating to or
affecting creditors' rights generally, including, without
limitation, the effect of statutory or other laws regarding
fraudulent conveyances and preferential transfers;
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(d) Such Party's execution, delivery and performance of this
Agreement shall not constitute a breach or default under any
contract or agreement to which such Party is a party or by which
it is bound or otherwise violate the rights of any Third Party;
and
(e) No consent, approval or authorization of or from any governmental
entity or any other Person not a Party to this Agreement, whether
prescribed by law, regulation, contract or agreement, is required
for such Party's execution, delivery and performance of this
Agreement or consummation of the transactions contemplated
hereby.
10.2 ADDITIONAL REPRESENTATIONS AND WARRANTIES OF IMGIS. IMGIS further
represents and warrants to AOL that:
(a) WORKMANLIKE SERVICES. The Services shall be provided in a
workmanlike manner, in accordance with the standards of care and
diligence and the level of skill, knowledge and judgment normally
practiced by nationally-recognized information technology
services firms in performing services of a similar nature;
(b) NONINFRINGEMENT. The Technology does not, and any Improvements
provided by IMGIS, any Work Products and AOL's use of the
Technology and Work Products as authorized herein shall not,
infringe any copyright, trade secret or other proprietary rights
(except patent rights) of any Third Party or otherwise conflict
with the rights of any Third Party, and, to the best of IMGIS'
knowledge, the Technology does not, and any Improvements provided
by IMGIS, any Work Products and AOL's use of the Technology and
Work Products shall not, infringe any patent of any Third Party;
(c) NO LITIGATION. There is no action, suit, proceeding or
arbitration pending, and, to the best of IMGIS' knowledge, there
is no action, suit, proceeding, arbitration or claim threatened,
concerning the Technology;
(d) NO LIENS OR ENCUMBRANCES. Except for the security interest in
favor of Silicon Valley Bank that has been previously disclosed
to AOL, the Technology is free from any security interests and
other liens and encumbrances of Third Parties arising from the
actions or inactions of IMGIS;
(e) NO UNAUTHORIZED CODE. The Technology does not, and any
Improvements provided by IMGIS shall not, contain any back door,
time bomb, drop dead device, protect codes, data destruct keys,
or other software routine designed to disable a computer program
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automatically with the passage of time or under the control of
any Person other than AOL. To the best of IMGIS' knowledge, the
Technology does not, and any Improvements provided by IMGIS shall
not, contain any virus, Trojan horse, worm or other software
routine designed to permit unauthorized access or to disable,
erase, modify, deactivate or otherwise harm software, hardware or
data; and IMGIS covenants that, prior to or at the time of the
delivery of any Technology (including any Improvement), IMGIS
shall test the Technology using a current version of a reputable
"antivirus" program and remove any such unauthorized codes; and
(f) YEAR 2000 COMPLIANCE. All Software and other operational items
included in the Technology shall: (i) properly execute with all
date data, whether from years in the same century or different
centuries, including by yielding correct results in arithmetic
operations, comparisons and sorting of date fields and in leap
year calculations; and (ii) not abnormally cease to execute or
return an error message due to date-related processing.
10.3 NO OTHER WARRANTIES. THE EXPRESS WARRANTIES IN THIS AGREEMENT SHALL BE
IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
ARTICLE 11
INDEMNIFICATION
11.1 INDEMNITY. AOL shall not be liable to IMGIS, any of its Affiliates or
any other Person for, and IMGIS shall indemnify and hold harmless AOL and all
AOL Affiliates, and their respective directors, officers, employees and agents
(collectively, the "AOL Indemnitees"), from and against any Losses incurred
arising out of or resulting from: (a) any infringement of any patent, copyright,
trade secret or other proprietary right by the Technology or any Work Product,
except to the extent that such infringement arises solely from any Improvement
developed by AOL, or by IMGIS to AOL's specifications if IMGIS could not
reasonably have conformed to such specifications while avoiding the
infringement; or (b) the presence of IMGIS' employees or agents on the premises
of AOL or an AOL Affiliate (except those Losses that result solely from the
gross negligence or willful misconduct of AOL or an AOL Affiliate), including,
but not limited to, Losses resulting from injuries to IMGIS' Personnel and
Losses resulting from injuries caused by IMGIS' Personnel.
11.2 PROCEDURE. Any AOL Indemnitee shall notify IMGIS promptly in writing
of an indemnifiable claim or cause of action under Section 11.1 above upon
receiving notice or being informed of the existence thereof; provided, however,
that failure to notify IMGIS of an indemnifiable claim or cause of action shall
not relieve IMGIS of its
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obligation to provide indemnification hereunder, except to the extent that such
failure prejudices IMGIS' ability to defend or settle such claim or cause of
action. IMGIS shall assume, at its cost and expense, the sole defense of such
claim or cause of action through counsel selected by IMGIS and reasonably
acceptable to AOL, except that in the case of a conflict of interest between
IMGIS and AOL, IMGIS shall, at IMGIS' cost and expense, provide separate counsel
for AOL selected by AOL. IMGIS shall maintain control of such defense, including
any decision as to settlement; provided that, in the event that IMGIS does not
maintain control of such defense on a timely basis, then, without prejudice to
any other rights and remedies available to AOL under this Agreement, AOL may
take over such defense with counsel of its choosing, at IMGIS' cost and expense.
AOL may, at its option and expense, participate in IMGIS' defense, and if AOL so
participates, the Parties shall cooperate with one another in such defense.
IMGIS shall bear the total costs of any court award or any settlement of such
claim or cause of action approved by IMGIS and all other costs, fees and
expenses related to the resolution thereof (including reasonable attorneys'
fees, except for attorneys' fees for which AOL is responsible in the event that
AOL participates in IMGIS' defense of such claim or cause of action).
11.3 ABATEMENT OF INFRINGEMENT. If IMGIS reasonably believes it necessary
to do so to minimize its liability under Section 11.1 above, IMGIS may, at its
expense, procure the right for AOL to continue using the Technology or any Work
Product, replace the Technology or any Work Product with a functionally
equivalent noninfringing item, or modify the Technology or any Work Product so
that it is functionally equivalent but noninfringing.
ARTICLE 12
LIMITATION ON LIABILITY
EXCEPT FOR A CLAIM OF INDEMNIFICATION PURSUANT TO ARTICLE 11 OR A BREACH OF
ANY OF THE WARRANTIES SET FORTH IN SECTION 10.2 ABOVE, NEITHER PARTY SHALL BE
LIABLE TO THE OTHER PARTY HEREUNDER FOR ANY INDIRECT, INCIDENTAL, SPECIAL, OR
CONSEQUENTIAL DAMAGES.
ARTICLE 13
CONFIDENTIALITY
13.1 CONFIDENTIALITY OBLIGATION. Each of AOL and IMGIS (the "Receiving
Party") shall keep, and shall cause their Affiliates to keep, strictly
confidential any information disclosed by the other Party (the "Disclosing
Party") or otherwise made available to the Receiving Party concerning the
Technology or either Party's performance of this Agreement or otherwise
concerning the business, operations, trade secrets or other proprietary
information of the Disclosing Party (whether in written media or otherwise)
("Confidential Information"), using the same degree of care that it uses to
protect its own
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confidential or proprietary information of a like nature but in no event less
than a reasonable degree of care. "Confidential Information" shall not include
information: (a) which is or becomes generally available to the public other
than as a result of disclosure thereof by the Receiving Party; (b) which is
lawfully received by the Receiving Party on a nonconfidential basis from a Third
Party that is not itself under any obligation of confidentiality or
nondisclosure to the Disclosing Party or any other Person with respect to such
information; (c) which is independently developed by the Receiving Party; or (d)
which was in the Receiving Party's possession prior to receipt from the
Disclosing Party. Each Party shall treat any Technology or Work Product owned by
or assigned to the other Party as Confidential Information of such Party.
13.2 NONDISCLOSURE OF CONFIDENTIAL INFORMATION. The Receiving Party shall
use Confidential Information solely for the purposes of this Agreement and shall
not disclose or disseminate any Confidential Information to any Person at any
time, except for disclosure to its Affiliates and to those of its own and its
Affiliates' directors, officers, employees, accountants, attorneys, advisers and
agents whose duties reasonably require them to have access to such Confidential
Information, provided that such directors, officers, employees, accountants,
attorneys, advisers and agents are bound to maintain the confidentiality of such
Confidential Information to the same extent as if they were Parties hereto.
13.3 EXCEPTION. The foregoing confidentiality and nondisclosure obligations
shall not apply to Confidential Information: (a) incidentally retained in the
memory of Persons to whom the Receiving Party is permitted to disclose
Confidential Information, other than as the result of an intentional effort to
commit Confidential Information to memory to circumvent the provisions of this
Article 13; or (b) which is required to be publicly disclosed by law or by
regulation; provided, however, that, in such event, the Receiving Party provides
the Disclosing Party with prompt advance notice of such disclosure so that the
Disclosing Party has the opportunity if it so desires to seek a protective order
or other appropriate remedy.
13.4 SURVIVAL. The confidentiality and nondisclosure obligations of this
Article 13 shall remain in effect for three years following the date hereof or
two years following the termination of this Agreement, whichever is greater,
except with respect to source code and related source code documentation, for
which the obligations of this Article 13 shall survive for so long as the source
code and documentation remain Confidential Information.
13.5 SOURCE CODE PROTECTION. The Receiving Party shall protect Confidential
Information consisting of source code and related source code documentation from
unauthorized use and disclosure to the same extent that it protects its own
source code (but no less than to a reasonable degree).
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13.6 OTHER BUSINESS ACTIVITIES.
(a) The Disclosing Party agrees that the Receiving Party may currently
or in the future acquire information, either independently developed or legally
received from Third Parties, which may be similar to the Confidential
Information. Nothing in this Agreement shall be construed as a representation
that the Receiving Party does not or shall not have such independently developed
or legally received information.
(b) Nothing in this Agreement shall be construed as a representation
or agreement to restrict reassignment of the Receiving Party's employees, or in
any manner to affect or limit either Party's present or future business
activities of any nature, including business activities which could be
competitive with the Disclosing Party.
(c) Nothing in this Agreement shall be construed as a representation
or agreement that the Receiving Party shall not develop or have developed for it
products, concepts, systems or techniques contemplated by or embodied in the
Confidential Information, provided that the Receiving Party does not violate any
of its obligations under this Agreement in connection with such development.
ARTICLE 14
TERM AND TERMINATION
14.1 TERM. This Agreement shall commence as of the date hereof and, unless
terminated in accordance with the provisions of Section 14.2 below, this
Agreement shall remain in full force and effect without expiration.
14.2 TERMINATION.
14.2.1 TERMINATION RIGHTS OF AOL. AOL shall have the right to
terminate this Agreement in the event of the breach by IMGIS of, or the failure
of IMGIS to perform, any of its material obligations hereunder and the failure
to remedy such breach or nonperformance within 60 days following the receipt of
written notice of such breach or nonperformance from AOL. Such termination shall
be immediately effective upon the receipt by IMGIS of written notice of
termination from AOL.
14.2.2 TERMINATION RIGHTS OF IMGIS. IMGIS shall have the right to
terminate this Agreement in the event of:
(a) The breach by AOL of, or the failure of AOL to perform, any
of its material obligations under this Agreement (except for
its obligations under Articles 3, 4, 5 and 6 above) and the
failure to remedy such breach or nonperformance within 60
days following the receipt of written notice of such breach
or nonperformance from IMGIS;
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(b) The breach by any wholly-owned subsidiary of AOL that is a
sublicensee of AOL's licenses hereunder and that is a
recipient of source code for the Software of, or the failure
of such subsidiary to perform, any of its material
obligations under its sublicense with AOL, the failure to
remedy such breach or nonperformance within 60 days
following the receipt of written notice of such breach or
nonperformance from AOL, and the failure of AOL to terminate
its sublicense with such subsidiary with 60 days of such
failure; or
(c) A "Data Agreement Material Breach" by AOL. For purposes of
this Agreement, a "Data Agreement Material Breach" means the
breach by AOL of, or the failure of AOL to perform, any of
its material obligations under the Demographic Data
Agreement, the failure of AOL to remedy such breach or
nonperformance within 60 days following the receipt of
written notice of such breach or nonperformance from IMGIS,
and, in the event that such breach or nonperformance is
disputed by the Parties, the final determination of such
breach or nonperformance by a court of competent
jurisdiction from which no further appeal may be taken.
Such termination shall be immediately effective upon the receipt by AOL of
written notice of termination from IMGIS.
14.2.3 IMGIS RIGHT TO DISCONTINUE SERVICES. IMGIS shall have the right
to discontinue the provision of Services pursuant to Sections 3.2, 4.1, 5.1 and
6.1 above for which it is entitled to reimbursement or other payment from AOL,
but shall not have the right to terminate this Agreement or the licenses granted
pursuant to Section 2.1 above, in the event of the material breach by AOL of its
obligation hereunder to reimburse or pay IMGIS for any Services and the failure
to remedy such breach within 60 days following the receipt of written notice of
such breach from IMGIS. Such discontinuation of Services shall be immediately
effective upon the receipt by AOL of written notice of discontinuation from
IMGIS.
14.3 EFFECT OF TERMINATION. Notwithstanding anything herein to the
contrary, in the event of the termination of this Agreement other than upon the
breach by AOL of any of its material obligations under Article 2 or Article 13
and the failure to remedy such breach within the time period set forth in
Section 14.2.2 above, AOL and all AOL Affiliates which are sublicensees of AOL's
license hereunder shall have the right, for a period of one year following
termination, to continue to exercise all license rights granted to them under
Section 2.1 above on all the same terms in effect pursuant to this Agreement
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immediately prior to termination and to retain any Confidential Information
necessary or useful for the exercise of such rights. Notwithstanding anything
herein to the contrary, IMGIS shall in no event be entitled to enjoin or seek to
enjoin any exercise by AOL or any such AOL Affiliate of the rights set forth in
this Section 14.3, and IMGIS hereby expressly waives any right to injunctive or
other equitable relief, whether based on statute, common law or otherwise,
arising out of any alleged default by AOL or any AOL Affiliate that would
adversely affect the exercise by AOL or any AOL Affiliate of its rights under
this Section 14.3.
14.4 RETURN OF CONFIDENTIAL INFORMATION. Within 30 calendar days
following the termination of this Agreement other than termination where Section
14.3 above would be applicable, each Party shall either deliver to the other
Party, or destroy, all copies of any Confidential Information of the other Party
embodied in a tangible medium that is in such Party's possession or under its
control, and shall furnish to the other Party an affidavit signed by an officer
of such Party certifying that, to the best of its knowledge, such delivery or
destruction has been fully effected.
14.5 SURVIVAL. All rights granted to and obligations undertaken by the
Parties hereunder shall terminate immediately upon the termination of this
Agreement, except for the rights and obligations provided for in Sections 14.3
and 14.4 above as well as the following rights and obligations, which shall
survive according to their terms:
(a) The obligation of the payor Party to pay any and all
payments accrued hereunder;
(b) The license to IMGIS granted in Section 5.4;
(c) The right of each Party to inspect the books and records of
the other Party to the extent provided in Section 9.5;
(d) The indemnification obligations of Article 11 and the
limitation on liability of Article 12;
(e) The confidentiality and nondisclosure obligations of Article
13; and
(f) The provisions of Sections 15.1, 15.7, 15.8, 15.10, 15.19
and 15.20 below.
In addition, termination of this Agreement shall not affect the remedies of the
Parties otherwise available at law or in equity in relation to any rights
accrued under this Agreement prior to termination.
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ARTICLE 15
MISCELLANEOUS
15.1 ELECTRONIC REPOSSESSION. In no event shall IMGIS electronically
repossess, de-install, deactivate or disable any Technology in the absence of a
final, unappealable judgment of a court of competent jurisdiction that the
license rights granted under Section 2.1 above have been validly terminated.
15.2 PERIODIC DISCUSSIONS. Commencing within 30 days following the
execution of this Agreement and on a quarterly basis thereafter, AOL shall
engage in discussions with IMGIS concerning AOL's deployment of the Technology
and shall endeavor to provide IMGIS with non-binding, 180 day forecasts of the
Services that AOL intends to request from IMGIS hereunder. Within 45 days after
the Deployment Date, the Parties shall execute a more detailed development,
support and maintenance agreement with respect to IMGIS' obligations to provide
development, support and maintenance for the Technology, including, without
limitation, IMGIS' obligations for the delivery of Improvements and other
Technology, IMGIS' obligations to provide Development Services and Technical
Services, and IMGIS' obligations to cure any nonperformance or other failure
with respect to the Technology.
15.3 MUTUAL NON-SOLICITATION. For a period of one year following the date
hereof, without the prior written approval of the other Party, neither Party or
any of its Affiliates shall actively solicit for hire any Personnel of the other
Party with responsibility for the development or maintenance of the Technology
or Work Products or for the provision of interactive advertisement serving,
trafficking, targeting or related services, excluding independent contractors
that do not spend the majority of their time providing services to such Party.
The foregoing mutual non-solicitation covenant shall terminate at any time in
the event of the acquisition by a Third Party of more than fifty percent (50%)
of the voting power of IMGIS, the acquisition by a Third Party of all or
substantially all of the assets of IMGIS, or the consummation of a merger,
consolidation or similar corporate transaction of IMGIS with or into a Third
Party where the voting securities of IMGIS outstanding immediately prior to
consummation of such transaction are converted into cash or securities
possessing less than fifty percent (50%) of the voting power of the surviving
entity. The obligations of the Parties under this Section 15.3 shall not survive
the termination of this Agreement.
15.4 FAILURE TO ASSERT RIGHTS IN BANKRUPTCY. AOL's failure to assert its
rights to retain its benefits under this Agreement in accordance with 11 U.S.C.
Section 365(n)(1)(B) shall not be construed as a termination of this Agreement
by AOL under 11 U.S.C. Section 365(n)(1)(A).
15.5 FURTHER ASSURANCES. Upon the request of either Party, the other Party
shall sign and deliver any assignments or other necessary documents and
otherwise assist the requesting Party to obtain, maintain, perfect or enforce
any of the requesting Party's rights hereunder.
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15.6 RELATIONSHIP OF THE PARTIES. Nothing in this Agreement is intended or
will be deemed to constitute a partnership, agency or joint venture relationship
between the Parties hereto.
15.7 APPLICABLE LAW. This Agreement shall be governed by the laws of the
Commonwealth of Virginia applicable to contracts made and to be performed
entirely within such jurisdiction and without giving effect to the choice or
conflict of laws rules or principles of the Commonwealth of Virginia or of any
other jurisdiction.
15.8 CONSENT TO JURISDICTION. Each of the Parties irrevocably submits to
the exclusive jurisdiction of the courts of the Commonwealth of Virginia and of
any United States federal court sitting in the Commonwealth of Virginia in any
action or proceeding arising out of or relating to this Agreement, and
irrevocably agrees that all claims in respect of such action or proceeding shall
be heard and determined in any such Virginia or United States federal court.
Each Party further agrees that service of any process, summons, notice or
document by registered mail to the address of such Party set forth in Section
15.10 below shall be effective service of process for any action or proceeding
brought against such Party in any such court. Each Party hereby irrevocably and
unconditionally waives any objection to the laying of venue of any action or
proceeding arising out of or relating to this Agreement in any such court and
further irrevocably and unconditionally waives and agrees not to plead or claim
in any such court that any such action or proceeding brought in any such court
has been brought in any inconvenient forum. Each Party further agrees that a
final, nonappealable judgment in any such action or proceeding shall be
conclusive and may be enforced in any other jurisdictions by suit on the
judgment or in any other manner provided by law.
15.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and may be executed by facsimile. All counterparts shall
collectively constitute one and the same Agreement.
15.10 NOTICES. In any case where any notice or other communication is
required or permitted to be given hereunder, such notice or communication shall
be in writing and deemed to have been duly given and delivered (a) if delivered
in person, on the date of such delivery, (b) if sent by confirmed facsimile
transmission (with answer back received), on the date of such facsimile
transmission, or (c) if sent by overnight express or registered or certified
mail (with return receipt requested), on the date of receipt of such mail, and
shall be sent to the following address (or such other address as either Party
may designate from time to time in writing):
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If to AOL:
America Online, Inc.
22000 AOL Way
Dulles, VA 20166
Telephone: (703) 265 2365
Telefax: (703) 265 1202
Attention: Senior Vice President, Business Affairs
Copy to:
America Online, Inc.
22000 AOL Way
Dulles, VA 20166
Telephone: (703) 265 2120
Telefax: (703) 265 2208
Attention: General Counsel
If to IMGIS:
Imgis, Inc.
10101 N. DeAnza Boulevard
Suite 210
Cupertino, CA 95014
Telephone: (408) 873-3680
Telefax: (408) 873-3690
Attention: Charles W. Berger
Copy to :
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Telephone: (650) 494-0600
Telefax: (650) 494-1417
Attention: Gordon K. Davidson
15.11 FORCE MAJEURE. If any circumstance beyond the reasonable control of
either Party occurs which delays or renders impossible the performance of that
Party's obligations under this Agreement on the dates herein provided, such
obligation shall be postponed for such time as such performance necessarily has
had to be suspended or delayed on account thereof, provided such Party shall
notify the other Party in writing as soon as practicable, but in no event more
than ten days after the occurrence of such force majeure. In such event, the
Parties shall meet promptly to determine an equitable solution to the effects of
any such event, provided that such Party who fails because of force majeure to
perform its
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obligations hereunder shall upon the cessation of the force majeure take all
reasonable steps within its power to resume with the least possible delay
compliance with its obligations. Events of force majeure shall include, without
limitation, war, revolution, invasion, insurrection, riots, mob violence,
sabotage or other civil disorders, acts of God, limitations imposed by exchange
control regulations or foreign investment regulations or similar regulations,
laws, regulations or rules of any government or governmental agency, and any
inordinate and unanticipated delays in the regulatory review or governmental
approval process that are within the control of such government or governmental
agency. In no event shall the failure or nonperformance of the Technology as
described in Section 4.3 above constitute an event of force majeure.
15.12 BINDING EFFECT; ASSIGNMENT. This Agreement may not be assigned, in
whole or in part, by either Party without the prior written consent of the other
Party, except that: (a) AOL may assign any of its rights or obligations
hereunder to a wholly-owned subsidiary of AOL without IMGIS' consent; and (b)
the rights and obligations of either Party under this Agreement may be assigned
without the other Party's consent to a Third Party acquiring all or
substantially all of the assets of the assigning Party or to the surviving
entity upon the consummation of any merger, consolidation or similar corporate
transaction of the assigning Party with or into a Third Party. Any attempted
assignment by either Party without the consent of the other Party in any
circumstances other than those described in the immediately preceding sentence
shall be null and void. This Agreement shall inure to the benefit of and be
binding upon each of the Parties hereto and their respective successors and
permitted assigns.
15.13 ENTIRE AGREEMENT. The terms and conditions herein contained
constitute the entire agreement between the Parties relating to the subject
matter of this Agreement and shall supersede all previous communications between
the Parties with respect to the subject matter of this Agreement, except for the
Letter Agreement between the Parties dated as of April 14, 1998 and the
Confidential Non-Disclosure Agreement between the Parties dated as of April 15,
1998, each of which shall survive according to their terms. Neither Party has
entered into this Agreement in reliance upon any representation, warranty,
covenant or undertaking of the other Party that is not set out or referred to in
this Agreement.
15.14 RECITALS. The recitals set forth at the start of this Agreement and
the terms and conditions incorporated in such recitals shall be deemed integral
parts of this Agreement, and all references in this Agreement to this Agreement
shall encompass such recitals and the terms and conditions incorporated in such
recitals.
15.15 AMENDMENT. This Agreement may be varied, amended or extended only by
the written agreement of the Parties through their duly authorized officers or
representatives, specifically referring to this Agreement.
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15.16 SEVERABILITY. In the event that any provision of this Agreement is
held to be illegal, invalid or unenforceable in a final, unappealable order or
judgment (each such provision, an "invalid provision"), then such provision
shall be severed from this Agreement and shall be inoperative, and the Parties
promptly shall negotiate in good faith a lawful, valid and enforceable provision
that is as similar to the invalid provision as may be possible, while the
remaining provisions of this Agreement shall remain binding on the Parties
hereto.
15.17 HEADINGS. The descriptive headings of the several articles and
sections of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
15.18 NO WAIVER OF RIGHTS. No failure or delay on the part of either
Party in the exercise of any power or right hereunder shall operate as a waiver
thereof. No single or partial exercise of any right or power hereunder shall
operate as a waiver of such right or of any other right or power. The waiver by
either Party of a breach of any provision of this Agreement shall not operate or
be construed as a waiver of any other or subsequent breach hereunder.
15.19 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. All rights and
remedies granted to either Party under this Agreement are cumulative and in
addition to, and not in lieu of, any other rights or remedies otherwise
available to such Party at law or in equity. The Parties agree that any breach
by either Party of, or failure of either Party to perform, any obligation under
this Agreement shall constitute immediate and irreparable damage to the other
Party which cannot be fully and adequately compensated in money damages and
that, in the event of such breach or failure, the other Party shall be entitled
to injunctive relief and specific performance in addition to any other remedies
to which it may be entitled at law or in equity.
15.20 CONFIDENTIALITY OF AGREEMENT. Each Party shall maintain the
confidentiality of this Agreement and all provisions of this Agreement and,
without the prior consent of the other Party, neither Party shall make any press
release or other public announcement of or otherwise disclose this Agreement or
any of its provisions to any Third Party (a) other than to its Affiliates and to
its own and its Affiliates' directors, officers, employees, attorneys and
accountants, and to the lead underwriter engaged by IMGIS in connection with any
offering of securities of IMGIS, whose duties reasonably require familiarity
with this Agreement, provided that such Persons (including any such lead
underwriter) are bound to maintain the confidentiality of this Agreement, and
(b) except for such disclosure as may be required by applicable law or
regulation, in which case the disclosing Party shall provide the other Party
with prompt advance notice of such disclosure so that the other Party has the
opportunity if it so desires to seek a protective order or other appropriate
remedy; provided that, in connection with any offering of securities of IMGIS,
IMGIS shall provide in advance to AOL for review the form and content of any
disclosure of this Agreement or any of its provisions that may be required by
applicable law or regulation and, to the extent consistent with its disclosure
obligations under applicable law, include
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such modifications to such disclosure as may be reasonably requested by AOL
(except that IMGIS may file this Agreement as an exhibit to its registration
statement if it would constitute a "material agreement" under applicable law or
regulation and IMGIS shall use its reasonable best efforts to obtain
confidential treatment of the portions of this Agreement that meet the SEC
qualifications for confidential treatment if so requested by AOL). The
confidentiality obligations of this Section 15.20 would apply, inter alia, to
any disclosure by IMGIS of this Agreement or of any provisions of this Agreement
to any customer or potential customer of IMGIS and any such disclosure would
constitute a breach of this Section 15.20. The Parties agree that any breach of
the provisions of this Section 15.20 by either Party, including, without
limitation, by any directors, officers or employees of such Party, would
constitute a breach by such Party of a material obligation hereunder for which
the other Party shall have the right, notwithstanding the provisions of Section
14.2 above, to immediately terminate this Agreement without allowance of any
period to remedy such breach, such termination to be immediately effective upon
the receipt by the breaching Party of written notice of termination from the
nonbreaching Party.
15.21 USAGE. Wherever any provision of this Agreement uses the term
"including" (or "includes"), such term shall be deemed to mean "including
without limitation" and "including but not limited to" (or "includes without
limitation" and "includes but is not limited to") regardless of whether the
words "without limitation" or "but not limited to" actually follow the term
"including" (or "includes").
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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement
to executed by their duly authorized officers as of the date first above
written.
AMERICA ONLINE, INC.
By: /s/ David M. Colburn
--------------------
David M. Colburn
Senior Vice President, Business Affairs
IMGIS, INC.
By: /s/ Charles W. Berger
---------------------
Charles W. Berger
Chairman and Chief Executive Officer
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ADFORCE-TM- SERVICE AGREEMENT 24/7 Media Agreement
- --------------------------------------------------------------------------------
This Service Agreement ("Agreement") is entered into as of January 1, 1999 (the
"Effective Date") between 24/7 Media, Inc., a Delaware corporation with its
principal executive offices at 1250 Broadway, New York, New York 10001-3701
("24/7 Media"), and Imgis, Inc., d/b/a "AdForce," a California corporation with
offices at 10590 North Tantau Avenue, Cupertino, CA 95014 ("AdForce").
1. ADFORCE SERVICE DEFINITION. The AdForce service is an Internet advertising
administration system that will allow 24/7 Media to manage advertising
across its network of multiple Web sites. As part of the AdForce service,
AdForce will provide 24/7 Media the AdForce client application ("Client"),
through which 24/7 Media will be able to (a) generate ad tags, (b) schedule
advertising to run in the online environments in which 24/7 Media places
those ad tags, and (c) generate reports on such advertising. In addition,
AdForce will maintain an AdForce server complex from which AdForce will
electronically deliver advertising scheduled by 24/7 Media to the online
environments containing the ad tags placed by 24/7 Media. The delivery of
"Impressions," defined as the transmission of advertisements by AdForce to
an AdForce ad tag, will be verified by monthly third-party audits of the
AdForce service, conducted by the Audit Bureau of Verification Services,
Inc. or other third party chosen by AdForce.
2. ADFORCE SERVICE. (a) GENERALLY. The AdForce service includes the
targeting features and reports listed in Exhibit A. AdForce will use best
efforts to accommodate 24/7 Media's custom report requests; any custom
reports agreed to by both parties will be developed by AdForce at the rate
set forth on Exhibit A. Features added to the AdForce service in the
future (e.g. demographic targeting, behavior tracking) may be included
without charge in the AdForce service, or in AdForce's sole discretion, be
subject to additional fees. The AdForce services include the functionality
described in Section 1 and Exhibit A, plus telephone client services
support from the hours of 6 a.m. to 6 p.m., Pacific Standard Time,
Monday-Friday, excluding major holidays. AdForce will also maintain 24 x 7
technical service support via phone, cell phone or pager. Pricing for the
AdForce service is detailed in Exhibit A. AdForce will exercise all
commercially reasonable efforts at all times to correct errors in the
Client and in software used to operate the AdForce server complex.
(b) CERTAIN TECHNICAL AND INTEGRATION SUPPORT. (i) AdForce
shall participate when reasonably requested, in technical meetings with
24/7 Media staff, and shall furnish 24/7 Media within ninety (90) days from
the Effective Date a production monitoring page and access to AdForce's
customer issues tracking system (excluding in either case metrics or issues
unique to non-24/7 Media customers or campaigns). (ii) AdForce will use
commercially reasonable efforts to design and implement, at 24/7 Media's
request and at 24/7 Media's expense on a time and materials basis, an
interface to access 24/7 Media's Profilz database to enable 24/7 Media, on
an exclusive basis, to deliver targeted advertising to its customers.
Promptly following execution of this Agreement, and at 24/7 Media's
request, AdForce and 24/7 Media personnel will develop a plan and budget
for such development, and determine any incremental pricing to be charged
by AdForce for ad management and delivery on such new service. AdForce
shall not, however, be precluded in any way from developing its own
targeting advertising products or from cooperating with third parties on
other advertising services or products, whether targeted or otherwise.
(iii) AdForce is presently delivering advertisements on behalf of 24/7
Media using a combination of 24/7 Media ad tags and AdForce ad tags.
AdForce agrees to cooperate with 24/7 Media in good faith to convert any
existing AdForce ad tags to 24/7 Media ad tags, and that 24/7 Media may use
the AdForce system to generate 24/7 Media ad tags for all future 24/7 Media
campaigns.
(c) CAPACITY. Provided 24/7 Media provides AdForce the
impression forecasts referenced in Section 3 below, and that 24/7 Media
meets its guarantee (or compensates AdForce for impression deliveries short
of the guarantee) provided in Section 3 below, AdForce covenants and
warrants it will have the capacity to serve properly on behalf of 24/7
Media the impression volumes requested by 24/7 Media in its impression
forecasts.
3. 24/7 MEDIA OBLIGATIONS. 24/7 Media agrees to implement 24/7 Media ad tags
using the process described in the AdForce User Guide and Help
documentation. Should the average file size of 24/7 Media's advertisements
exceed [*] kilobytes, as reasonably determined by AdForce on a monthly
basis, 24/7 Media agrees to pay the incremental fee listed in Exhibit A to
compensate for AdForce's higher bandwidth costs. 24/7 Media agrees to
provide AdForce quarterly volume forecasts (with expected monthly volumes)
of Impressions to be delivered using the AdForce service; these forecasts
will be provided no later than thirty (30) days prior to the beginning of
each calendar quarter. Finally, 24/7 Media agrees that during the Term
(as defined in Exhibit A below) hereof, 24/7 Media will manage and deliver
through the AdForce service not less than [*] percent ([*]%) of the
impressions anticipated in its quarterly forecasts; if, for any reason
other than AdForce's default, 24/7 Media fails to deliver this guaranteed
amount, 24/7 Media will pay to AdForce the difference between [*] of the
guaranteed amount and the amount actually served, multiplied by the
applicable CPM rate set forth on Exhibit A.
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REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
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4. OWNERSHIP/LIMITATIONS ON USE. Subject to the terms and conditions of this
Agreement, 24/7 Media will have the right to use the Client in its offices
solely for purposes of using the AdForce service. AdForce shall at all
times have sole and exclusive ownership of all right, title and interest in
and to such Client and the AdForce service as a whole, any enhancements
thereto and in any materials and data AdForce provides to 24/7 Media.
Notwithstanding anything contained elsewhere in this Agreement, the parties
acknowledge that 24/7 Media owns the domain name www.247media.com and that
this ownership shall survive the termination of this Agreement. 24/7 Media
may not copy, modify, alter, sell, distribute or sublicense the Client or
reverse assemble, reverse compile or otherwise attempt by any other method
to create or derive the source programs of the AdForce service or the
Client, nor authorize or contract with third parties to do the same.
5. DATA RIGHTS. All data AdForce collects or stores in managing and delivering
ads for 24/7 Media which specifically pertain to 24/7 Media or its
customers and is used for designing, scheduling or administering campaigns,
generating reports and generating future media plans, including information
about sites in the media plan, impression limits, ad costs, creatives,
campaign results, click-through rates or transaction rates (collectively
"Campaign Data"), shall be owned by and is proprietary and confidential to
24/7 Media. Accordingly, AdForce may not use such Campaign Data for any
purpose where such data can be specifically associated with the identity of
24/7 Media or its clients; provided, however, that AdForce may use such
Campaign Data for reporting where such information is aggregated with
information from other AdForce customers and/or not specifically
identifiable as 24/7 Media information. Further, 24/7 Media shall own all
data collected or stored as a side effect of serving or tracking ads that
is not Campaign Data ("Clickstream Data"). However, AdForce can use
Clickstream Data for any purposes that do not expose Campaign Data to any
third party, and will not be required to store such information for more
than twelve (12) months. 24/7 Media may request at any time during the
term of the Term Sheet, or any renewal term, to receive copies of
Clickstream Data from AdForce. AdForce will supply such data at the
following rates: $[*] per month for files delivered daily, $[*] per
month for files delivered monthly for the preceding month, and $[*] for
files generated in the preceding 12 months (provided 24/7 Media makes the
request within thirty (30) days of the end of such year).
6. CONFIDENTIALITY. Any 24/7 Media passwords to AdForce, AdForce user guides,
the AdForce Client, and the AdForce "help" documentation, whether on-line
or in printed form, are confidential and proprietary to AdForce. As
indicated above, all Campaign Data is proprietary and confidential to 24/7
Media. Such information shall not be used, disclosed or reproduced by the
other party without the consent of the party providing said information,
except for any information, data or material which: (a) at the time of
disclosure to the receiving party was known or in the possession of the
receiving party; (b) is independently developed by the receiving party; (c)
is generally available to the public without any breach of this Agreement.
7. INDEMNIFICATION. (a) 24/7 MEDIA. Subject to subsection (b), 24/7 Media
shall indemnify and hold harmless AdForce from any liability and damages
and costs (including reasonable costs and attorneys' fees) arising out of
or relating to advertising placed by 24/7 Media using the AdForce service,
including, without limitation, failure of the AdForce service or the
Client, content, libel, invasion of privacy, and rights of publicity;
provided: (i) AdForce promptly notifies 24/7 Media of such claims; (ii)
24/7 Media has sole control of the defense and settlement of such claims
and is not responsible for any settlement that it does not approve in
writing; and (iii) AdForce renders all assistance required.
(b) ADFORCE. AdForce shall indemnify and hold harmless 24/7
Media from any third party claims and liabilities for infringement arising
out of or relating to 24/7 Media's use of the Client pursuant to this
Agreement, provided that: (i) 24/7 Media promptly notifies AdForce of such
claims; (ii) AdForce has sole control of the defense and settlement of such
claims and is not responsible for any settlement that it does not approve
in writing; and (iii) 24/7 Media renders all assistance required. If an
injunction is entered against 24/7 Media's use of the Client, AdForce will,
at its option, (A) obtain a license permitting such use, (B) modify the
Client to avoid the infringement, or (C) if it cannot reasonably do either
of the foregoing, terminate 24/7 Media's access to the Client and this
Agreement.
8. WARRANTY. 24/7 Media warrants that it is free to enter into this Agreement
and that this Agreement constitutes the valid and binding obligation of
24/7 Media, enforceable in accordance with its terms. AdForce warrants that
it is free to enter into and perform this Agreement and, except for events
beyond AdForce's control, including but not limited to Internet service
disruptions or access outages and other events of force majeure, (a) the
AdForce service will conform in all material respects to the functionality
described in Sections 1 and 2; (b) AdForce either owns, has, or will
otherwise acquire the right (and will, during the term hereof maintain such
right) to use all hardware and software components of the AdForce service,
and will not infringe on any United States federal or state intellectual
property rights of any third party.
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SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
Y2K. AdForce warrants to 24/7 that without any requirement for any
human intervention whatsoever (i) the overall operation, functions and
performance of the AdForce system will employ in connection with its
obligations under this Agreement (the "AdForce System") will be unaffected
in any way by any date data, date setting, date value, date input or other
date related data and any combination thereof (collectively with records
using such data, the "DATE DATA"), whether falling on, after or before
September 9, 1999, December 31, 1999 or January 1, 2000 (collectively, the
"MILLENNIUM DATES"); (ii) the AdForce System will correctly and accurately,
without human intervention, store, define, merge, archive, display,
recognize, return, manage, extract, support, calculate, compare,
manipulate, interpret, sort, accept, sequence, tag, present and conduct any
other operation or process on, any Date Data, will not abnormally end as a
result of Date Data, will not result in or cause logical or mathematical
errors or inconsistencies in any user-interface functionalities or
otherwise, and will move backwards and forwards across Date Data without
error relating to or occasioned by Date Data; and (iii) the AdForce System
shall correctly accommodate same century and multi-century formulas in data
calculations, shall process two digit century Date Data and the fields
assigned special values in a manner that correctly resolves any ambiguities
as to intended century date and shall correctly reflect each century in
Date Data values and Date Data interface values, and the AdForce System
does and will have the ability to properly interface with internal and
external applications or systems of third parties with whom AdForce
exchanges data electronically, including vendors, suppliers, customers,
banks and governmental agencies. AdForce warrants to 24/7 that the AdForce
System shall conform to the warranties in this SECTION from and at all
times during the term of this Agreement, before, on or after a Millennium
Date, regardless of whether 24/7 uses the AdForce System on, before or
after a Millennium Date.
EXCEPT AS SPECIFIED IN THIS SECTION 8, ADFORCE HEREBY DISCLAIMS ALL
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY AND ALL
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND
NON-INFRINGEMENT, IN CONNECTION WITH THIS AGREEMENT.
9. LIABILITY. EXCEPT IN CASES OF WILLFUL MISCONDUCT, NEITHER PARTY WILL BE
LIABLE FOR CONSEQUENTIAL, INCIDENTAL, SPECIAL OR EXEMPLARY DAMAGES, EVEN IF
IT HAS BEEN WARNED OF THE POSSIBILITY OF SUCH DAMAGES.
10. TERMINATION. The term of this Agreement is as described in Exhibit A.
Either party may terminate this Agreement in the event that the other party
ceases to do business, or undergoes a bankruptcy or insolvency proceeding,
or an assignment for the benefit of creditors. Upon the expiration or
termination of this Agreement for any reason, the parties will use best
efforts to effect an orderly transition of 24/7 Media to another ad serving
solution, and each party will return all Confidential Information of the
other party in its possession. All accrued payment obligations of 24/7
Media shall survive expiration or termination of the Agreement, as shall
the parties' rights and obligations under Sections 4 through 9, Sections 11
through 13, and Sections 15 and 16.
11. ASSIGNMENT. This Agreement is not assignable or transferable by either
party without the prior written consent of the other party, except that a
party may assign the Agreement (a) by operation of law, or (b) to any
entity acquiring substantially all of assignor's assets. 24/7 Media
specifically consents to AdForce's March/April 1999 reincorporation into
Delaware.
12. PAYMENT TERMS. 24/7 Media shall pay to AdForce the dollar amounts
determined from the pricing schedule set forth in Exhibit A within [*]
([*]) days from date of invoice. All payments to AdForce shall be remitted
in U. S. Dollars. Fees for the AdForce service are subject to change at
the expiration of the initial Term and upon renewal of this Agreement.
13. GENERAL. This Agreement is the complete and exclusive statement of the
mutual understanding of the parties and supersedes and cancels all previous
written and oral agreements and communications relating to the subject
matter of this Agreement. No failure or delay in exercising any right
hereunder will operate as a waiver thereof, nor will any partial exercise
of any right or power hereunder preclude further exercise. Any waivers or
amendments shall be effective only if made in writing. If any provision of
this Agreement shall be adjudged by any court of competent jurisdiction to
be unenforceable or invalid, that provision shall be limited or eliminated
to the minimum extent necessary so that this Agreement shall otherwise
remain in full force and effect and enforceable. This Agreement shall be
governed by the law of the State of New York without regard to the
conflicts of law provisions thereof. The prevailing party in any action to
enforce this Agreement will be entitled to recover its attorney's fees and
costs in connection with such action. Nothing contained herein shall be
construed as establishing a partnership, joint venture, employment or other
business relationship between the parties hereto other than that of
independent contractors. This Agreement may be executed in counterparts.
14. SERVICE GUARANTEES. 24/7 Media may demand "make-goods," (free ad
deliveries for ads not delivered during down times exceeding the allowable
amounts) for: (i) failure of ad delivery to maintain [*]% up time,
calculated on a
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REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
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calendar monthly basis, for four (4) consecutive calendar months; (ii)
failure of the AdForce administration system to maintain [*]% up time,
excluding reasonable scheduled downtime and events beyond AdForce's
reasonable control, calculated on a calendar monthly basis, for four (4)
consecutive calendar months; (iii) failure to maintain average AdForce ad
selector internal response time for ad delivery at equal to or less than
[*] ([*]) milliseconds, calculated on a calendar monthly basis, for four
(4) consecutive months; (iv) persistent documented failure of AdForce's
customer support to 24/7 Media over four (4) consecutive calendar months;
and (v) AdForce's failure to provide technical support for any period in
excess of [*] ([*]) consecutive business days.
15. NON-SOLICITATION. For a period commencing on the date hereof and
terminating [*] ([*]) months after the end of the Term, neither party may
solicit employees of the other, nor hire any employees or ex-employees of
the other within sixty (60) days following termination of employment with
the other party. Further, during the Term hereof, AdForce agrees not to
solicit Web sites in the 24/7 network for any purpose, including the
providing of ad serving services or for purchasing registration or other
data, without the written consent of 24/7 Media.
16. DISPUTE RESOLUTION. Any controversy or claim arising out of or relating to
this Agreement, or the breach hereof, shall be settled exclusively by
arbitration, and neither party shall under any circumstance cease
performance of its obligations under the Agreement notwithstanding any
alleged breach by the other. Such arbitration shall be conducted before a
single arbitrator in accordance with the Commercial Arbitration Rules of
the American Arbitration Association then in effect. The arbitration shall
take place in Palo Alto, California, if commenced by 24/7 Media and in New
York, New York, if commenced by AdForce. Judgment may be entered on the
arbitrator's award in any court having jurisdiction, and the parties
irrevocably consent to the jurisdiction of the California and New York
courts for that purpose. The parties waive personal service in connection
with any such arbitration; any process or other papers under this provision
may be served outside California or New York by registered mail, return
receipt requested, or by personal service, provided a reasonable time for
appearance or response is allowed. The decision of the arbitrator shall be
final and binding on the parties. The parties shall equally divide all
costs of the American Arbitration Association and the arbitrator. Each
party shall bear its own legal fees in any dispute. The arbitrator may
grant injunctive or other relief.
17. INTERNATIONAL SUPPORT. AdForce is presently serving ads for 24/7 Media
Europe Ltd. out of its data center in California pursuant to a contract
with Euroserve Media GmbH. , AdForce will make every commercially
reasonable effort to ensure adequate support of 24/7 Media in Europe.
AdForce shall supplys such services under direct contract with 24/7 Media
Europe Ltd. and shall provide such services on a most favored nation basis
for contracts entered into for ad delivery in Europe.
18. PUBLICITY AdForce and 24/7 agree to consult with one another prior to
making any disclosures, publicly or privately, about this Agreement.
AdForce and 24/7 agree that neither party shall issue a press release
announcing this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of January 1,
1999 (the "Effective Date").
By: /s/ Accepted: /s/
------------------------- -----------------------------
Print Name: C. Andrew Johns Name: Rex S. Jackson
-------------------- -----------------------------
Title: EVP & CFO Title: VP/GC
-------------------- -----------------------------
Company: 24/7 Media, Inc. Imgis, Inc., d/b/a "AdForce"
Page 4 of 6
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
EXHIBIT A
REPORTING AND TARGETING
REPORTS AVAILABLE - The following reports are currently available in the
AdForce service:
AdForce Reporting
The following reports are currently available with all levels of the AdForce
service:
<TABLE>
<CAPTION>
NETWORK REPORTS WEBSITE REPORTS ADVERTISER REPORTS
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Daily Campaign Details Activity by Advertiser Campaign On-line Summary
Daily Campaign Summary Activity by Area Code Summary by Area Code
Monthly Billing Report Activity by Browser Summary by Banner
Summary by Advertiser Activity by Content Unit Summary by Browser
Summary by Area Code Activity by Country Summary by Category
Summary by Browser Activity by Date Summary by Country
Summary by Category Activity by Domain Summary by Date
Summary by Country Activity by Keyword Summary by Domain
Summary by Date Activity by Hour Summary by Hour
Summary by Domain Activity by Operating System Summary by Operating System
Summary by Hour Activity by Pay Type Summary by Service Provider
Summary by Operating System Activity by Service Provider Summary by SIC Code
Summary by Payment Type Activity by SIC Code Summary by Website
Summary by Service Provider Website Revenue Campaign Summary
Summary by SIC Code Monthly Billing Report
Summary by Website
Website Revenue
</TABLE>
ALL OTHER REPORTS CURRENTLY PROVIDED BY ADFORCE TO 24/7 MEDIA.
ADFORCE TARGETING CAPABILITIES - The ADFORCE service includes targeting on
the following parameters, when ADFORCE databases allow the parameter to be
resolved:
- BROWSER TYPE - Different campaigns can be delivered to visitors of
different browsers.
- OPERATING SYSTEM - Different campaigns can be delivered to visitors
with different operating systems
- DOMAIN TYPE - Different campaigns can be delivered to visitors from
different domain types.
- SERVICE PROVIDER - Different campaigns can be delivered to visitors
with different ISPs.
- TELEPHONE AREA CODE - Different ads can be delivered to visitors in
different area codes.
- SIC CODE - Different ads can be delivered to visitors working for
companies with different SIC codes.
- COUNTRY - Different campaigns can be delivered to visitors from
different countries.
- FREQUENCY - An advertisement can be shown a specified number of times
to each visitor.
- SEQUENCE - A series of advertisements can be shown in sequence to a
visitor.
- KEYWORDS - Advertisements can be targeted on the basis of a search
word or phrase.
- SITE DATA - Ads can be targeted on the basis of a site's data (i.e.
with registered users).
Page 5 of 6
<PAGE>
- DAY / DATE / TIME OF DAY - Ads can be scheduled to run during specific
times and on specific days.
- CONTENT AREA - Ads can be targeted to a specific area of a site.
TERM; LEVEL OF SERVICE. The initial term ("Term") shall commence on the
Effective Date and end on the fifth (5th) anniversary of such date;
provided, however, that at any time 24/7 Media may terminate this Agreement
for any reason, or for no reason, by giving AdForce three (3) months prior
written notice of its election to terminate. 24/7 Media may renew this
Agreement for subsequent one (1) year terms by giving written notice to
AdForce within ninety (90) days from expiration of the Term, or any renewal
term.
24/7 Media agrees to pay AdForce for all Impressions delivered through the
AdForce service after the Effective Date at the applicable rate set forth
below, which shall be subject to change upon renewal of this Agreement.
<TABLE>
<CAPTION>
ADFORCE SERVICE
----------------------------------------------
<S> <C>
Campaign Management Scheduling
Features Delivery
Inventory Forecast
Reporting
Targeting
----------------------------------------------
Auditing Free monthly audit
</TABLE>
-------------------------------------------------------------
CPMs for Ad Delivery
-------------------------------------------------------------
1/1/99-3/31/99: all ads, [*]
-------------------------------------------------------------
On or after 4/1/99: first [*] ads, [*]
-------------------------------------------------------------
Remainder of term: [*]
-------------------------------------------------------------
- - Beginning April 1, 1999: Buttons (ad size limit [*] kilobytes) will be
$[*] CPM. House ads and unpaid ads that are redirected will be $[*]
CPM, subject to a maximum cap of [*] percent ([*]%) of volume in any
given month; any excess will be billed at $[*] CPM. Unpaid ads that
are served directly will be $[*] CPM, subject to a maximum cap of [*]
percent ([*]%) of volume in any given month; any excess will be billed
at $[*] CPM.
- - AdForce pricing and fees for processing and delivering demographically
targeted advertising via TARGETFORCE or for AdForce's TRACKFORCE product
are not included in the above pricing and will be covered in a separate
agreement.
- - AdForce will use commercially reasonable efforts to accommodate 24/7
Media's requests for custom reports. If the parties agree to one or more
custom reports, AdForce shall develop such report(s) at the rate of $[*]
per hour, plus direct out-of-pocket expenses. Should 24/7 Media make a
request for any such custom work, AdForce shall first prepare a written
quote for such work for 24/7 Media's review and approval. There may also
be additional charges for other reports that AdForce adds to its service in
the future.
- - At 24/7 Media's request, AdForce will supply on-site training to 24/7 Media
personnel at the rate of $[*] per day, plus reasonable travel and
out-of-pocket expenses.
- - An additional $[*] per thousand Impressions will be applied for each [*]
kilobytes (or fraction thereof) that the average size of advertisements
placed by 24/7 Media through the AdForce service in a calendar month
exceeds [*] kilobytes.
Page 6 of 6
[*] CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
ADFORCE-TM- SERVICE AGREEMENT 24/7 Media Agreement
- --------------------------------------------------------------------------------
<PAGE>
CONFIDENTIAL
EXHIBIT 10.31
LICENSE AGREEMENT
By and Between
NETSCAPE COMMUNICATIONS CORPORATION
and
IMGIS, INC.
Dated as of February 1, 1999
<PAGE>
CONFIDENTIAL
LICENSE AGREEMENT
This LICENSE AGREEMENT (the "Agreement") is entered into as of
February 1, 1999 (the "Effective Date") by and between Netscape
Communications Corporation, a Delaware corporation having its principal
office at 501 East Middlefield Road, Mountain View, California 94043
("NETSCAPE"), and IMGIS, INC., a California corporation doing business as
"AdForce" and having its principal office at 10101 N. DeAnza Boulevard, Suite
210, Cupertino, California 95014 ("ADFORCE").
WITNESSETH:
WHEREAS, the parties hereto wish to provide the terms and conditions
under which ADFORCE will supply NETSCAPE Ad Serving Services (as defined
below) for the term provided herein; and
WHEREAS, NETSCAPE desires to obtain, and ADFORCE is willing to grant
to NETSCAPE at the times and on the specific conditions stated herein, a
worldwide, perpetual and nonexclusive license to use, and to serve interactive
advertisements using, ADFORCE's ad serving, trafficking, targeting and related
technology on the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing, of the mutual
covenants and undertakings contained herein and of other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the Parties, intending to be legally bound, hereby agree as follows:
ARTICLE 1
DEFINITIONS
In addition to other terms defined elsewhere herein, the following
terms will have the following meanings when used herein (any term defined in
the singular will have the same meaning when used in the plural and vice
versa, unless stated otherwise):
1.1 "AD SERVING SERVICES" has the meaning set forth in Section 6.1
below.
1.2 "AFFILIATE" of any specified Person means any other Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with the specified Person.
1.3 "BANNER EXCHANGE" means the NETSCAPE advertising program which
offers companies the opportunity to promote their site, which site may or may
not have a NETSCAPE domain name, by contributing impressions into a banner
exchange network
<PAGE>
CONFIDENTIAL
that would in turn give such site the right to impressions on other sites
within that banner exchange network. Typically, such sites receive one
impression on the banner exchange network for every two they give, with the
balance available for the banner exchange network to sell to advertisers. The
program is targeted at small sites with low-value inventory which are not
candidates for the AdForce Service and, therefore, noncompetitive with
ADFORCE. Examples of banner exchange networks include LinkExchange, SmartAge
and Hyperbanner.
1.4 "NETSCAPE AFFILIATE" means any Affiliate of NETSCAPE, where the
term "control" for purposes of Section 1.2 means the direct or indirect
ownership or control by NETSCAPE of twenty-five percent (25%) or more of the
stock or other equity interests of such Person entitled to vote for the
election of members of the Board of Directors or similar governing body of
such Person; provided, however, that such Person shall cease to be a NETSCAPE
Affiliate if and when such equity interest becomes less than twenty-five
percent (25%) for any reason other than as a result of dilution, and
provided, further, that if such equity interest becomes less than twenty-five
percent (25%) as a result of dilution, such Person shall cease to be a
NETSCAPE Affiliate if and when such percentage equity interest is further
reduced for any reason other than as a result of dilution.
1.5 "COVERED NETSCAPE PARTNER SITE PAGES" means the interactive site
pages of a NETSCAPE Partner provided that: (a) such site pages are marketed
or promoted, and intended to be accessible, to Netcenter visitors only,
meaning links to such Site Pages are available only through Netcenter and not
from the Partner site; and (b) NETSCAPE or a NETSCAPE Affiliate has the right
to serve and to sell the advertising inventory for such site.
1.6 "NETSCAPE NETCENTER" means the United States, English language
NETSCAPE brand online website and information service, including future
modifications to, implementations of and successors of such service.
1.7 "NETSCAPE NETWORK" means: (a) NETSCAPE Netcenter, (b) any other
domestic U.S. online product or service owned or operated by NETSCAPE,
excluding mere links to Third Party products or services that are accessible
through distribution channels other than NETSCAPE Netcenter and excluding any
products consisting of the Technology, or any repackaged or reengineered
version of the Technology, that are distributed commercially to Third Parties
other than NETSCAPE Affiliates; and (c) any other product or service
distributed under the brand name of NETSCAPE other than under a mere
trademark license of such brand name, provided that NETSCAPE contributes
substantially to the creation or development of such product or service; (d)
Banner Exchange NETSCAPE Partner site; and (e) Covered NETSCAPE Partner Site
Pages.
1.8 "NETSCAPE PARTNER" means any Person with which NETSCAPE or a
NETSCAPE Affiliate has a joint venture, partnership or other contractual
relationship for
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CONFIDENTIAL
the purposes of commerce, advertising, online access, or the provision by such
Person of content or information for the NETSCAPE Network.
1.9 "DATA AGREEMENT MATERIAL BREACH" has the meaning set forth in
Section 14.2.2 below.
1.10 "DEMOGRAPHIC DATA" has the meaning set forth in the Demographic
Data Agreement.
1.11 "DEMOGRAPHIC DATA AGREEMENT" means the Demographic Data
Agreement between NETSCAPE and ADFORCE, should the parties elect to proceed
with such and agreement.
1.12 "DEPLOYMENT DATE" has the meaning set forth in Section 3.2 below.
1.13 "DEVELOPMENT SERVICES" has the meaning set forth in Section 5.1
below.
1.14 "FULLY BURDENED COSTS" of ADFORCE Personnel in the provision of
Services hereunder means, for each ADFORCE Personnel providing any Services
to NETSCAPE, an amount equal to the sum of the following:
(a) (i) If such Personnel is an employee of ADFORCE, the wages
and benefits payable by ADFORCE to such employee multiplied
by the percentage of time spent by such employee in the
provision of such Services to NETSCAPE relative to the
total amount of time spent by such employee in his or her
employment with ADFORCE, as measured on a daily basis and
charged on an hourly basis, which amount shall in no event
exceed $100 per hour, or
(ii) if such Personnel is an independent contractor of
ADFORCE, the fees (excluding out-of-pocket expenses paid to
such contractor) payable to such contractor by ADFORCE
multiplied by the percentage of time spent by such
contractor in the provision of such Services to NETSCAPE
relative to the total amount of time spent by such contractor
in the provision of services to ADFORCE, as measured on a
daily basis and charged on an hourly basis, which amount
shall in no event exceed $100 per hour; plus
(b) ADFORCE's direct out-of-pocket costs in the provision by
such Personnel of such Services to NETSCAPE but only to the
extent that NETSCAPE is not otherwise obligated hereunder to
provide reimbursement to ADFORCE for such direct costs; plus
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<PAGE>
CONFIDENTIAL
(c) An amount (representing a reasonable allocation of overhead
expenses) equal to ten percent (10%) of the direct out-of-pocket
costs provided for in subpart (b) above.
Out-of-pocket costs and expenses, for purposes of this definition, means
travel, lodging and other non-compensatory costs or expenses. The $100 per
hour maximum amount referred to in subparts (a)(i) and (a)(ii) above shall be
adjusted by mutual agreement of the Parties three (3) years following the
Effective Date hereof to reflect any applicable increase or decrease in the
cost of living.
1.15 "ADFORCE SYSTEM" means any software owned and/or used by, and/or
licensed to, ADFORCE that enables operators of interactive sites and
interactive advertisers to schedule, monitor, serve, traffic and/or target
interactive advertising, including the system used by ADFORCE to provide
services under the AdForce service mark and any related or successor system.
1.16 "IMPLEMENTATION DATE" means the date as of which NETSCAPE first
provides Demographic Data (as defined in the Demographic Data Agreement) to
ADFORCE.
1.17 "IMPROVEMENT" means any modification, customization, upgrade,
update, enhancement, patch, "bug" fix or other improvement to the Technology.
1.18 "LOSSES" means losses, liabilities, suits, claims, costs, expenses
(including reasonable attorneys' fees), penalties, fines, judgments and/or
damages (including personal injury or property damages, but excluding
indirect, incidental, special or consequential damages suffered by the
indemnified Party).
1.19 "MATERIALLY LIMIT OR PROHIBIT" shall have the meaning to be set
forth in the Demographic Data Agreement. In addition, for purposes of this
Agreement, NETSCAPE shall be deemed to "Materially Limit or Prohibit" the use
by ADFORCE of Demographic Data: (a) six months following the expiration of
the term (including any renewal term) of the Demographic Data Agreement; or
(b) six months following the termination of the Demographic Data Agreement
(other than as a result of breach or nonperformance by NETSCAPE) provided
that, if the event giving rise to such termination is disputed by the
Parties, there has been a final determination of such termination event by a
court of competent jurisdiction (excluding any determination in connection
with the granting of equitable relief).
1.20 "PARTY" means NETSCAPE or ADFORCE, and "PARTIES" means NETSCAPE and
ADFORCE.
1.21 "PERMITTED PURPOSES" means to serve, traffic and/or target
advertisements or other information or materials, and to perform such other
functions as the Technology
4
<PAGE>
CONFIDENTIAL
(including any Improvements) is capable of, for NETSCAPE's own internal
purposes or for or on behalf of any of the NETSCAPE Network.
1.22 "PERSON" means a natural person, a corporation, a partnership, a
trust, a joint venture, any governmental authority, or any other entity or
organization.
1.23 "PERSONNEL" means employees and/or independent contractors.
1.24 "SERVICES" means any services provided by ADFORCE pursuant to this
Agreement, including Ad Serving Services, Development Services and
Technical Support Services.
1.25 "SOFTWARE" means software included in the Technology.
1.26 "TECHNICAL SUPPORT SERVICES" has the meaning set forth in Section
4.1 below.
1.27 "TECHNOLOGY" means all software (in both source code and object
code form), inventions, discoveries, designs, tools, know-how and other
technology, including any Improvements thereto, now or hereafter developed,
owned and/or used by, and/or licensed to, ADFORCE or any of its Affiliates
relating to the serving, trafficking and/or targeting of advertisements or
other information or materials (including all software, inventions,
discoveries, designs, tools, know-how and other technology comprising or used
in connection with the AdForce System and all Third Party software and other
Third Party technology integrated in or necessary for the successful
operation of such technology (except for commercially available Third Party
software that has not been modified to meet ADFORCE's needs, where ADFORCE
does not have the right to provide such software to NETSCAPE)), and all
documentation for such technology. Without limiting the generality of the
foregoing, in no event shall "Technology" include (a) demographic data owned
by or licensed to ADFORCE from any Third Parties or (b) Third Party software
that is not integrated in or necessary for the successful operation of such
technology which is developed by ADFORCE as a "work made for hire" for a
Third Party that is not an Affiliate of ADFORCE. For purposes of the
foregoing definition, an "Affiliate" of ADFORCE means any Affiliate of
ADFORCE where the term "control" means the direct or indirect ownership or
control by ADFORCE of twenty-five percent (25%) or more of the stock or other
equity interests of such Person entitled to vote for the election of members
of the Board of Directors or similar governing body of such Person.
1.28 "THIRD PARTY" means any Person that is not a Party to this
Agreement.
1.29 "WORK PRODUCTS" means any Improvements, designs, drawings,
specifications, documentation, computer software, reports, training
materials, inventions, discoveries and other items made by or on behalf of
ADFORCE in connection with the provision of Development Services.
5
<PAGE>
CONFIDENTIAL
ARTICLE 2
GRANT OF LICENSE
2.1 LICENSE GRANT.
(a) Subject to the terms and conditions hereof, and effective upon
completion by NETSCAPE of its pending merger (the "AOL Merger") with a
wholly-owned subsidiary of America Online, Inc., ADFORCE grants to NETSCAPE
a perpetual, worldwide, nonexclusive, nontransferable (except as set forth in
Section 15.12 below), royalty-free license under all of ADFORCE's patent,
copyright, trade secret and other proprietary rights to use, reproduce,
adapt, transmit, perform, display and otherwise practice the Technology or
any part thereof, other than commercially available Third Party software that
ADFORCE has the right to provide to NETSCAPE only upon payment of a fee to
the Third Party, solely for the Permitted Purposes. If for any reason the AOL
Merger is affirmatively canceled or does not otherwise occur within six (6)
months from the date hereof, then the license grants set forth herein and the
provisions set forth in Articles 3 and 4.1 and 4.2 below shall be null and
void, and NETSCAPE shall have no license rights whatsoever to the Technology.
In such event, within sixty (60) days from the earlier of (i) the date the
AOL Merger is affirmatively canceled or (ii) August 1, 1999, NETSCAPE and
ADFORCE will enter into a source code escrow agreement in form and substance
mutually acceptable to the parties. Under such agreement, ADFORCE will
deposit the source and object code for the Technology into an escrow with a
third party escrow company acceptable to the Parties. Such source code escrow
agreement will provide for the release of the source and object code to
NETSCAPE if ADFORCE ceases to do business, undergoes a bankruptcy or
insolvency proceeding, makes an assignment for the benefit of creditors or
experiences similar occurrences. In the event of a critical failure as
described in Section 4.3 below, such source code escrow agreement will
provide for the temporary release of the source and object code to NETSCAPE
for the duration of such critical failure. If ADFORCE breaches this
Agreement, the source code escrow agreement will provide for the release of
the source and object code to NETSCAPE, which NETSCAPE will then be able to
use for a period of one year from the date of such breach, after which period
NETSCAPE shall have no further rights of use. For purposes of this section
only, in order to be in breach of the Performance Metrics of Exhibit A,
ADFORCE must be in breach of at least 2 of the 4 Performance Metrics
described in Exhibit A, including at least one of either Exhibit A, Section
7(A) or 7(B).
(b) Subject to subsection 2.1(a) above, if any Technology consists
of commercially available Third Party software that ADFORCE has the right to
provide to NETSCAPE only upon payment of a fee to the Third Party, NETSCAPE
may, by written notice to ADFORCE and payment of such fee, require ADFORCE to
grant to NETSCAPE a perpetual, worldwide, nonexclusive, nontransferable
(except as set forth in Section 15.12 below), royalty-free (except for such
fee) license under all applicable patent, copyright, trade secret and other
proprietary rights to use, reproduce, adapt, transmit perform, display and
otherwise practice such Technology or any part thereof solely for the
Permitted Purposes (but only to the extent of ADFORCE's rights in such
Technology).
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<PAGE>
CONFIDENTIAL
(c) The Parties agree that neither the licenses to be granted in
this Section 2.1 nor any other provisions of this Agreement impose or shall
be construed to impose any obligation upon NETSCAPE to use or otherwise
practice the Technology. ADFORCE agrees that it shall not bring any action in
law or equity, or any other judicial or nonjudicial proceeding, against
NETSCAPE asserting that the use by NETSCAPE of any patent rights claiming the
Technology that are now or hereafter owned by or licensed to ADFORCE or any
other Technology infringes or otherwise violates any patent, copyright, trade
secret or other proprietary rights of ADFORCE.
2.2 EXERCISE OF RIGHTS. Following effectiveness of the licenses to be
granted herein pursuant to Section 2.1(a) above, NETSCAPE may exercise its
rights in and to the Technology at any location, on any hardware, and with
respect to all, none or any portion or combination of the Technology.
Notwithstanding the foregoing, any proposed exercise by NETSCAPE of such
rights shall be subject to the provisions of Section 15.2 below. Except as
set forth in Section 6.1 below, nothing in this Agreement shall obligate
NETSCAPE to use the Technology or to use a designated server or site in
connection with such Technology.
2.3 USE OF PERSONNEL. NETSCAPE may exercise its rights hereunder through
Personnel who are obligated by written agreement to maintain the Technology
in confidence and restrict their use of the Technology pursuant to terms
comparable to those set forth in Article 13.
ARTICLE 3
DELIVERY
3.1 INITIAL DELIVERY. Provided the license becomes effective per
Section 2.1(a) above, within forty-five (45) days after the effective date of
the AOL Merger, ADFORCE shall deliver to NETSCAPE: (a) one machine-readable
copy of the object code for the Software; (b) one copy of available technical
and user documentation for the Technology in printed and machine-readable
format as available; and (c) one machine-readable copy of the source code for
the Software. Such delivery shall be transmitted electronically or by any
other means agreed upon by ADFORCE and NETSCAPE.
3.2 DELIVERY OF IMPROVEMENTS AND OTHER TECHNOLOGY.
(a) Provided the license becomes effective per Section 2.1(a)
above, ADFORCE shall use commercially reasonable efforts regularly to develop
Improvements to adapt the Technology to changes in related technologies and
in market and user requirements and to remain competitive with alternative
technologies for the serving, trafficking and/or targeting of advertisements
or other information or materials.
(b) Provided the license becomes effective per Section 2.1(a)
above, at such times as reasonably requested by NETSCAPE, ADFORCE shall
provide NETSCAPE with any Improvements made by or on behalf of ADFORCE and
any other Technology
7
<PAGE>
CONFIDENTIAL
requested by NETSCAPE that is existing and not then in the possession of
NETSCAPE. In addition, provided the license becomes effective per Section
2.1(a) above and commencing no later than forty-five (45) days after such
time that NETSCAPE determines to deploy the Technology in whole or in part
(the "Deployment Date"), ADFORCE shall provide to NETSCAPE on a quarterly
basis the then current version of the source code for the Software and shall
provide to NETSCAPE any and all Improvements, including upgrades, updates,
enhancements, patches and "bug" fixes, prior to or concurrently with their
installation or release, by any means requested by NETSCAPE (including
electronically), along with the applicable documentation related to such
Improvement.
(c) Provided the license becomes effective per Section 2.1(a)
above, ADFORCE shall provide all Improvements and other Technology, other
than Improvements provided in the provision of Development Services, to
NETSCAPE without any additional charge or fee. Notwithstanding the foregoing,
(i) if the license becomes effective under Section 2.1(a) above, but the
Parties have not executed a Demographic Data Agreement, or (ii) if the
license becomes effective under Section 2.1(a) above and the Parties have
executed a Demographic Data Agreement but NETSCAPE ceases to be in compliance
with all of its material obligations under the Demographic Data Agreement or
Materially Limits or Prohibits the use by ADFORCE of Demographic Data, and
NETSCAPE desires to continue receiving Improvements from ADFORCE, then
NETSCAPE shall pay to ADFORCE on an annual basis a reasonable update fee to
be agreed upon by the Parties for all Improvements developed for so long as
NETSCAPE is not in compliance with all of its material obligations under the
Demographic Data Agreement or Materially Limits or Prohibits the use by
ADFORCE of Demographic Data; provided that such fee shall not exceed (i)
ADFORCE's customary update fees for such Improvements in arm's length
transactions with its licensees, if ADFORCE then licenses the Technology to
Third Parties, or (ii) update fees charged by other licensors of comparable
systems for serving, trafficking and/or targeting of advertisements or other
information or materials, but not less than ADFORCE's cost of providing such
Improvements, if ADFORCE does not then license the Technology to Third
Parties.
(d) Provided the license becomes effective per Section 2.1(a) above,
at NETSCAPE's request, ADFORCE shall identify to NETSCAPE, and provide
NETSCAPE reasonable information and assistance in furtherance of NETSCAPE's
efforts to acquire, at NETSCAPE's own expense, commercially available Third
Party software licensed to ADFORCE for use in connection with the Technology
and not sublicensed to NETSCAPE under Section 2.1(a) or (b) above.
ARTICLE 4
TECHNICAL SUPPORT SERVICES
4.1 SCOPE OF SERVICES.
(a) Provided the license becomes effective per Section 2.1(a)
above, during the term of this Agreement ADFORCE shall provide to NETSCAPE, at
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NETSCAPE's written request, reasonable technical training, support,
documentation and assistance relating to the interactive content (including
interactive advertisement) serving, trafficking, targeting and related
functions of the Technology (collectively, "Technical Support Services").
The Technical Support Services shall, at a minimum, enable NETSCAPE, without
the aid of ADFORCE or any other Person, to develop, enhance and maintain the
Technology (including the source code for the Software) for use by NETSCAPE
to the same extent as ADFORCE.
(b) Commencing no later than forty-five (45) days after the
Deployment Date, the Technical Support Services, if required hereunder, shall
include, without limitation: (i) the regular provision by ADFORCE of
qualified Personnel able to resolve problems in the operation of the
Technology on-site at NETSCAPE's data centers in Silicon Valley; and (ii) the
provision by ADFORCE of telephone access twenty-four (24) hours a day, seven
(7) days a week, to qualified Personnel able to resolve problems in the
operation of the Technology, via a designated telephone support number.
4.2 FEES FOR TECHNICAL SERVICES SUPPORT.
(a) Subject to subsection 4.2(b) below, provided that at the time
any Technical Support Services are requested by NETSCAPE or are to be
performed by ADFORCE hereunder, NETSCAPE is in compliance with all of its
material obligations under a validly executed Demographic Data Agreement and
does not Materially Limit or Prohibit the use by ADFORCE of Demographic Data,
ADFORCE shall provide the Technical Support Services requested by NETSCAPE
for no additional consideration other than reimbursement of the Fully
Burdened Costs of the provision by ADFORCE Personnel of such Technical
Support Services.
(b) If, at any time prior to July 15, 1999 any Technical Support
Services are requested to be performed by ADFORCE hereunder and (i) the
parties have not executed a Demographic Data Agreement, or (ii) the
Implementation Date has not yet occurred under a validly executed Demographic
Data Agreement, then NETSCAPE shall pay to ADFORCE the Fully Burdened Costs
of the provision by ADFORCE Personnel of such Technical Support Services plus
twenty-five percent (25%) of such costs. If, at any time on or after July 15,
1999 any Technical Support Services are required to be performed by ADFORCE
hereunder and (i) the parties have not executed a Demographic Data Agreement,
or (ii) the Implementation Date has not yet occurred under a validly executed
Demographic Data Agreement, then NETSCAPE shall pay to ADFORCE the Fully
Burdened Costs of the provision by ADFORCE Personnel of such Technical
Support Services plus forty percent (40%) of such costs.
(c) If, following the occurrence of the Implementation Date under
a validly executed Demographic Data Agreement, at the time any Technical
Support Services are requested to be performed by ADFORCE hereunder, NETSCAPE
is not in compliance with all of its material obligations under the
Demographic Data Agreement or Materially Limits or Prohibits the use by
ADFORCE of Demographic Data, then
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NETSCAPE shall pay to ADFORCE the Fully Burdened Costs of the provision by
ADFORCE Personnel of such Technical Support Services plus twenty-five percent
(25%) of such costs.
4.3 WARRANTY. If the Technology or Services as described in Exhibit A
fail to conform to or perform in accordance with the technical or user
documentation provided by ADFORCE (other than as a result of operator error,
accident, or misuse or alteration of the Technology by a Person not under
ADFORCE's direction or control), or in the event of a breach of the
warranties set forth in Section 10.2(e) or 10.2(f) below, then ADFORCE, at
its expense and without any payment by NETSCAPE for Technical Support or
other Services, shall use commercially reasonable efforts to cure such
failure or breach as soon as practicable, but in any event:
(a) For a "critical" failure or breach, such as the Technology, or
other software, hardware or other technology with which the
Technology is interfacing or integrating, ceasing to execute a
function that NETSCAPE reasonably deems critical to its
business, ADFORCE shall provide at least a temporary
workaround or fix within two (2) hours of receiving notice of
such failure or breach and shall cure such failure or breach
within three (3) business days of receiving notice of such
failure or breach; and
(b) For any other failure or breach that is not a "critical"
problem, ADFORCE shall provide at least a temporary workaround
or fix within three (3) business days of receiving notice of
such failure or breach and shall cure such failure or breach
within fifteen (15) days after receiving notice of such
failure or breach.
Without limiting the generality of the foregoing, ADFORCE agrees, by way of
example, that it shall not be unreasonable for NETSCAPE to deem a failure or
breach "critical to its business" as provided in subpart (a) above if such
failure or breach results or would result in the breach or nonperformance by
NETSCAPE of any obligation to any advertiser on the NETSCAPE Network.
ARTICLE 5
DEVELOPMENT SERVICES
5.1 SCOPE OF SERVICES. At NETSCAPE's written request, ADFORCE
shall undertake the reasonable development of Improvements as necessary to
customize the interactive content (including interactive advertisement)
serving, trafficking, targeting and related functions of the Technology to
meet NETSCAPE's needs (collectively, "Development Services"). Notwithstanding
the foregoing, NETSCAPE shall have no obligation to request or to use
Development Services of ADFORCE and may undertake
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similar work itself or through independent contractors other than ADFORCE,
subject to the provisions of Section 2.3 above.
5.2 FEES FOR DEVELOPMENT SERVICES.
(a) Provided that, at the time any Development Services are
requested to be performed by ADFORCE hereunder, NETSCAPE is in compliance
with all of its material obligations under a validly executed Demographic
Data Agreement and does not Materially Limit or Prohibit the use by ADFORCE
of Demographic Data, ADFORCE shall provide the Development Services requested
by NETSCAPE for no additional consideration other than reimbursement of the
Fully Burdened Costs of the provision by ADFORCE Personnel of such
Development Services.
(b) If, at any time prior to July 15, 1999 any Development
Services are requested to be performed by ADFORCE hereunder and (i) the
parties have not executed a Demographic Data Agreement, or (ii) the
Implementation Date has not yet occurred under a validly executed Demographic
Data Agreement, then NETSCAPE shall pay to ADFORCE the Fully Burdened Costs
of the provision by ADFORCE Personnel of such Development Services plus
twenty-five percent (25%) of such costs. If, at any time on or after July 15,
1999 any Development Services are required to be performed by ADFORCE
hereunder and (i) the parties have not executed a Demographic Data Agreement,
or (ii) the Implementation Date has not yet occurred under a validly executed
Demographic Data Agreement, then NETSCAPE shall pay to ADFORCE the Fully
Burdened Costs of the provision by ADFORCE Personnel of such Development
Services plus forty percent (40%) of such costs.
(c) If, following the occurrence of the Implementation Date
under a validly executed Demographic Data Agreement, at the time any
Development Services ARE requested to be performed by ADFORCE, NETSCAPE is
not in compliance with all of its material obligations under the Demographic
Data Agreement or Materially Limits or Prohibits the use by ADFORCE of
Demographic Data, then NETSCAPE shall pay to ADFORCE the Fully Burdened Costs
of the provision by ADFORCE Personnel of such Development Services plus
twenty-five percent (25%) of such costs.
5.3 ORIGINAL WORK. Any Work Products either shall be the original
work of ADFORCE and its Personnel or shall be items licensed by Third Parties
that ADFORCE has the right to provide to NETSCAPE and that ADFORCE identifies
as such to NETSCAPE in writing. ADFORCE shall not disclose to NETSCAPE, or
induce NETSCAPE to use, the trade secrets or other confidential information
of any Third Parties, except to the extent that the Technology includes
Software licensed from Third Parties which ADFORCE has the right to provide
to NETSCAPE.
5.4 WORK FOR HIRE.
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(a) The Parties intend that each Work Product that is a work of
authorship shall be deemed a "work made for hire" within the meaning of the
copyright laws of the United States and any similar laws of other
jurisdictions. To the extent, if any, that ADFORCE or its Personnel have
rights in any Work Product notwithstanding the foregoing, including because a
Work Product does not qualify as a "work made for hire," ADFORCE hereby
irrevocably assigns to NETSCAPE, and agrees that NETSCAPE shall be the sole
and exclusive owner of, all right, title and interest in and to the Work
Product, including all patent, copyright, trade secret and other proprietary
rights therein that may be secured in any place under laws now or hereafter
in effect.
(b) To extent that ADFORCE provides Development Services in support
of any modification of the Technology, NETSCAPE hereby grants to ADFORCE a
perpetual, worldwide, nonexclusive, nontransferable license to use,
reproduce, adapt, transmit, perform and display such modification in
connection with the provision of such Development Services and for no other
purpose without NETSCAPE's prior written approval. In the event that ADFORCE
desires to integrate such modification in the Technology and obtains
NETSCAPE's approval thereto, then ADFORCE shall reimburse NETSCAPE for any
payment made by NETSCAPE for such Development Services, or waive such payment
by NETSCAPE, in consideration for the grant of such license to ADFORCE.
ADFORCE may exercise its rights under the foregoing license through Personnel
who are obligated by written agreement to maintain such modification in
confidence and restrict their use of such modification pursuant to terms
comparable to those set forth in Article 13.
(c) ADFORCE shall have valid and enforceable written agreements
with all of its Personnel providing Development Services hereunder containing
confidentiality and nondisclosure obligations comparable in scope to those
set forth in Article 13 and giving ADFORCE all rights and authority necessary
to effectuate the provisions of this Section 5.4. ADFORCE shall provide
copies of these agreements to NETSCAPE upon NETSCAPE's request.
(d) To the extent that ADFORCE delivers to NETSCAPE any
Improvements, designs, drawings, specifications, documentation, computer
software, reports, training materials, inventions, discoveries and other
items that are not Work Products, such items shall be deemed included in the
Technology and licensed pursuant to Section 2.1 above.
5.5 CHANGE MANAGEMENT PROCESS. Notwithstanding the foregoing
provisions of this Article 5, if NETSCAPE implements a version of the
Technology containing any modification to the source code for the Software
that adds a substantially new feature or function to the version of the
Technology used by ADFORCE (in contrast to merely correcting what are
colloquially known as "bugs" in such Software or making any other minor
modification to an existing feature or function) then: (a) ADFORCE shall not
be obligated to provide Development Services or Technical Support Services
for such Improvement; and (b) in the event that NETSCAPE does not request, or
ADFORCE does
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not agree to provide, such Services, the Parties shall work together to
devise a change management process to facilitate the technical support and
maintenance of NETSCAPE's version of the Technology containing such
Improvement.
ARTICLE 6
AD SERVING SERVICES
6.1 SCOPE OF SERVICES. From the Effective Date through November 22,
1999 (the "initial Ad Serving Services Term"), ADFORCE shall provide to
NETSCAPE interactive advertisement serving, trafficking, targeting and
related services (collectively, "Ad Serving Services") for NETSCAPE
Netcenter, and such other parts of the NETSCAPE Network as NETSCAPE shall
reasonably request. The terms for such Ad Serving Services shall be as attached
hereto in Exhibits A and B and as set forth below.
6.2 FEES FOR AD SERVING SERVICES.
(a) Provided that, at the time any Ad Serving Services are to be
performed by ADFORCE, NETSCAPE is in compliance with all of its material
obligations under a validly executed Demographic Data Agreement and does not
Materially Limit or Prohibit the use by ADFORCE of Demographic Data, ADFORCE
shall provide the Ad Serving Services requested by NETSCAPE for no additional
consideration other than reimbursement of the Fully Burdened Costs of the
provision by ADFORCE Personnel of such Ad Serving Services; provided,
however, that in the event that ADFORCE agrees to provide any Ad Serving
Services to any Third Party that is similarly situated to NETSCAPE at a rate
that is more favorable to such Third Party than the consideration payable
by NETSCAPE under this subpart (a), then ADFORCE shall provide the Ad Serving
Services requested by NETSCAPE at such Third Party's rate.
(b) If, at any time prior to July 15, 1999 any Ad Serving Services
are required to be performed by ADFORCE hereunder and (i) the parties have
not executed a Demographic Data Agreement, or (ii) the Implementation Date
has not yet occurred under a validly executed Demographic Data Agreement,
then NETSCAPE shall pay to ADFORCE the Fully Burdened Costs of the provision
by ADFORCE Personnel of such Ad Serving Services plus twenty-five percent
(25%) of such costs. If, at any time on or after July 15, 1999 any Ad Serving
Services are required to be performed by ADFORCE hereunder and (i) the
parties have not executed a Demographic Data Agreement, or (ii) the
Implementation Date has not yet occurred under a validly executed Demographic
Data Agreement, then NETSCAPE shall pay to ADFORCE the Fully Burdened Costs
of the provision by ADFORCE Personnel of such Ad Serving Services plus forty
percent (40%) of such costs.
(c) If, following the occurrence of the Implementation Date under
a validly executed Demographic Data Agreement, at the time any Ad Serving
Services are to be performed by ADFORCE, NETSCAPE is not in compliance with
all of its material
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obligations under the Demographic Data Agreement or Materially Limits or
Prohibits the use by ADFORCE of Demographic Data, then NETSCAPE shall pay to
ADFORCE the Fully Burdened Costs of the provision by ADFORCE Personnel of such
Ad Serving Services plus twenty-five percent (25%) of such costs.
6.3 REIMBURSEMENT FOR AD SERVING SERVICES. In addition to the fees for Ad
Serving Services provided for in Section 6.2 above, NETSCAPE shall reimburse the
following costs incurred by ADFORCE in the provision of Ad Serving Services
requested by NETSCAPE for the purposes set forth in Section 6.1 above, and, at
NETSCAPE'S option, NETSCAPE shall provide financing for such costs on mutually
agreeable terms, but in any event on terms no less favorable than such terms are
commercially available to entities similarly situated.
(a) Reimbursement for ADFORCE's incremental costs for any
modification of the AdForce System required to meet NETSCAPE's
needs for the provision of Ad Serving Services (other than
capitalized costs, which if financed at the time such costs are
incurred, shall be reimbursed at the time such costs are
amortized), excluding any modifications required to scale the
Software or other Technology to meet NETSCAPE's needs;
(b) Reimbursement for ADFORCE'S incremental costs for any additional
equipment that ADFORCE must purchase or lease solely to meet
NETSCAPE's needs for the provision of Ad Serving Services for so
long as necessary to meet NETSCAPE's needs; and
(c) Reimbursement for any additional incremental bandwith costs
incurred by ADFORCE solely in connection with the provision of Ad
Serving Services to NETSCAPE.
6.4 APPLICATION OF FEE METHODOLOGY. Attached hereto as Exhibit B is the
Parties' agreed upon pricing for the Ad Serving Services for the Initial Ad
Services Term per the provisions of Sections 6.2 and 6.3 above.
ARTICLE 7
NETSCAPE MARKETING EFFORTS
7.1 NETSCAPE MARKETING EFFORTS. NETSCAPE shall use commercially
reasonable efforts to encourage NETSCAPE Partners (but NETSCAPE shall not be
obligated to actively solicit NETSCAPE Partners) to use the AdForce System for
the serving and management of Internet advertisements, subject to agreement
between ADFORCE and such NETSCAPE Partners on the terms and conditions of such
use.
7.2 COMMISSIONS. If, as a result of marketing efforts by NETSCAPE, a
NETSCAPE Partner or any other Person enters into an agreement with ADFORCE to
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utilize the AdForce System, then, provided that, as of the time that ADFORCE
enters into such agreement with such NETSCAPE Partner or other Person, the
Parties have executed a Demographic Data Agreement, NETSCAPE is in compliance
with all of its material obligations thereunder and does not Materially Limit or
Prohibit the use by ADFORCE of Demographic Data, ADFORCE shall pay to NETSCAPE
on a quarterly basis the following commissions on the gross amount of the
consideration charged by ADFORCE to such NETSCAPE Partner or other Person for
use of the ADFORCE AdForce System:
(a) For the first year of such agreement, the greater of 4% and the
highest percentage commission granted by ADFORCE at such time to
any employee or agent of ADFORCE or to any Third Party for
similar marketing or sales efforts; and
(b) For each succeeding year of such agreement, the greater of 2% and
the highest percentage commission granted by ADFORCE at such
time to any employee or agent of ADFORCE or to any Third Party
for similar marketing or sales efforts.
7.3 COMMISSION SHARING. Notwithstanding the provisions of Section 7.2
above, if NETSCAPE and any employee or agent of ADFORCE or any other Third Party
claims commissions with respect to the same Person (and such Person has not
entered into an agreement with ADFORCE solely as a result of NETSCAPE marketing
efforts), ADFORCE shall not be required to pay total commissions to NETSCAPE and
such Third Party in excess of the amount specified in Section 7.2 and ADFORCE
may apportion the applicable commission specified in Section 7.2 between
NETSCAPE and the Third Party in such manner as ADFORCE determines in good faith
to be equitable.
ARTICLE 8
INTENTIONALLY OMITTED
ARTICLE 9
PAYMENT PROVISIONS
9.1 PAYMENT PROCEDURES.
(a) Unless otherwise agreed to in writing by the Parties, all
payments due by NETSCAPE for the provision of Services by ADFORCE hereunder
shall be due and payable thirty (30) days after the receipt by NETSCAPE of a
proper invoice therefor from ADFORCE, which invoice shall include such detail
and supporting documentation as NETSCAPE may reasonably request. Notwithstanding
the foregoing, NETSCAPE agrees to pay to ADFORCE the amount set forth in Exhibit
B within forty-five (45) days from the
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Effective Date, which represents a prepayment of the estimated fees for Ad
Serving Services for the Initial Ad Serving Services Term ("Prepayment").
The Prepayment shall be credited against the Ad Serving Service fees accruing
under this Agreement during the Initial Term, which ADFORCE shall calculate
monthly in accordance with Exhibits B and C and submit to NETSCAPE for its
review and approval. For each $1.00 of fees due up to the Prepayment, $1.00
shall be credited against the Prepayment. Upon exhaustion of the Prepayment,
ADFORCE shall invoice NETSCAPE monthly in arrears for the Ad Serving Services
provided to NETSCAPE based on the rates for such Services as set forth in
Exhibit B.
Each month and coincident with the impression forecast NETSCAPE will provide per
Exhibit A, Section 1(C), the Parties will review the estimates that form the
basis of the prepayment described in Exhibit B and discuss any adjustments to
the forecast, principally the impression forecast and the headcount forecast.
Unless the parties mutually agree otherwise, if the changes to the forecasts in
Exhibit C are estimated to have a sum total impact greater than 10% on the fees
(as measured against the prior adjustment to fees), the Parties will make a
mutually agreed to adjustment in the fees going forward.
On or before August 1, 1999, the Parties will evaluate if there is a significant
change in the payment forecast for the remainder of the term. If there is a
significant decline in the forecast (greater than 30%), ADFORCE will make an
adjusting refund at that time, including interest on the amount of the refund
equal to the lower of (i) the prime rate on August 1, 1999 or (ii) the maximum
amount permitted by law.
If Netscape opts to deploy ADFORCE's Banner Exchange technology to provide a
Banner Exchange to NETSCAPE Banner Exchange Partner sites outside of NETSCAPE
Netcenter or NETSCAPE Affiliates, NETSCAPE may do so solely on a "barter" basis
as described in the Banner Exchange definition above. For ads served by
NETSCAPE to such external sites, NETSCAPE will make additional payments to
ADFORCE based on a CPM rate equal to 50% of NETSCAPE's imputed CPM at the end of
the Initial Term or a $0.04 CPM, whichever is higher, provided that the rate
shall never exceed the lowest CPM rate ADFORCE is offering other banner exchange
customers. NETSCAPE shall make these payments for as long as it requests the
delivery of improvements to ADFORCE's Banner Exchange technology or a minimum of
two years after NETSCAPE first deploys ADFORCE's Banner Exchange technology,
whichever is greater.
(b) Unless otherwise agreed to in writing by the Parties: (i) all
payments due by ADFORCE under Article 7 in connection with ADFORCE's entrance
into an agreement for use of the AdForce System with an NETSCAPE Partner or
other Person as a result of NETSCAPE marketing efforts shall be paid to
NETSCAPE within sixty (60) days after the end of the calendar quarter during
which such agreement is entered into and within sixty (60) days after the end
of each succeeding calendar quarter thereafter.
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(c) All payments due to the payee Party hereunder shall be paid to
the payee Party in U.S. Dollars by wire transfer, or by such other method
mutually agreed upon by the Parties, in each case at the expense of the payor
Party, for value no later than the due date thereof (with 24 hours advance
notice of each wire transfer) to such bank account or accounts as the payee
Party shall designate in writing within a reasonable period of time prior to
such due date.
9.2 LATE PAYMENT. Without limiting the payee Party's rights to pursue any
other remedies at law or in equity, if the payor Party fails to pay any payment
required under this Agreement thirty days after written notice of past due
amount, then the payor Party shall pay annually compounded interest on such
amount at an annual rate equal to the lower of (a) the highest rate permitted by
applicable law and (b) the lowest prime rate as published by The Wall Street
Journal on or nearest to such due date plus three percent (3%), which interest
shall accrue from the date the payment not timely made became due until the date
such payment is paid in full.
9.3 APPLICATION OF PAYMENTS. Any payments received by the payee Party
shall be applied first to the satisfaction of the oldest of any unpaid, accrued
interest charges and, following payment of all such interest charges, to the
satisfaction of the oldest of any unpaid fees or other amounts due hereunder.
9.4 TAXES.
(a) All payments required to be made by the payor Party under this
Agreement shall be made free and clear of, and without deduction for, any and
all taxes that are levied on the transfer of such payments to the payee Party.
If any withholding or deductions are required by applicable law, payments shall
be made such that, after such withholding or deductions, the net amount that the
payee Party received is equal to the amount due hereunder. The payor Party
shall file any information or tax returns with respect to such taxes, and the
payor Party shall indemnify the payee Party from any interest or other payments,
fines or penalties relating to or resulting from any failure, delay or error of
the payor Party in doing so.
(b) ADFORCE shall be responsible for the payment of any and all
transfer, sales, use or similar taxes that are levied on or in connection with
the transfer of the Technology to NETSCAPE, including any Improvements.
9.5 BOOKS AND RECORDS. ADFORCE shall keep full, true and accurate books
of account containing all particulars and reasonable supporting documentation,
in connection with the provision of Services hereunder and the determination of
any amounts payable to NETSCAPE under Article 7. All such books of account and
reasonable supporting documentation shall be located at the principal place of
business of ADFORCE and shall be open for inspection by NETSCAPE or any
independent certified public accountant retained by NETSCAPE, at a time mutually
acceptable to the Parties during normal business hours but no more frequently
than once each calendar year for three years
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following the end of the calendar year to which they pertain (and access shall
not be denied thereafter if reasonably available). If such records are
insufficient or any such inspection discloses a discrepancy in favor of NETSCAPE
of five percent (5%) or more of the amounts actually due for any period, then,
in addition to any other rights and remedies available to NETSCAPE under this
Agreement, ADFORCE shall pay or refund to NETSCAPE the amount of such
discrepancy as well as the reasonable cost of such inspection promptly following
ADFORCE's receipt from NETSCAPE of the bill or invoice for such inspection.
ARTICLE 10
REPRESENTATIONS AND WARRANTIES
10.1 MUTUAL REPRESENTATIONS AND WARRANTIES. Each Party represents and
warrants to the other Party that:
(a) Such Party has the full corporate right, power and authority to
execute, deliver and perform this Agreement and to consummate the
transactions contemplated hereby;
(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of
such Party;
(c) This Agreement has been duly executed and delivered by an
authorized officer of such Party, and is a legal, valid and
binding obligation of such Party enforceable against it in
accordance with its terms, except as enforcement may be limited
by general principles of equity (regardless of whether such
enforceability is considered in a proceeding at law or in equity)
and the effect of applicable bankruptcy, insolvency, moratorium
and other similar laws of general application relating to or
affecting creditors' rights generally, including, without
limitation, the effect of statutory or other laws regarding
fraudulent conveyances and preferential transfers;
(d) Such Party's execution, delivery and performance of this
Agreement shall not constitute a breach or default under any
contract or agreement to which such Party is a party or by which
it is bound or otherwise violate the rights of any Third Party;
and
(e) No consent, approval or authorization of or from any governmental
entity or any other Person not a Party to this Agreement, whether
prescribed by law, regulation, contract or agreement, is required
for such Party's execution, delivery and performance of this
Agreement or consummation of the transactions contemplated
hereby.
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10.2 ADDITIONAL REPRESENTATIONS AND WARRANTIES OF ADFORCE. ADFORCE
further represents and warrants to NETSCAPE that:
(a) WORKMANLIKE SERVICES. The Services shall be provided in a
workmanlike manner, in accordance with the standards of care
and diligence and the level of skill, knowledge and judgment
normally practiced by nationally-recognized information
technology services firms in performing services of a similar
nature;
(b) NONINFRINGEMENT. The Technology does not, and any
Improvements provided by ADFORCE, any Work Products and
NETSCAPE's use of the Technology and Work Products as
authorized herein shall not, infringe any copyright, trade
secret or other proprietary rights (except patent rights) of
any Third Party or otherwise conflict with the rights of any
Third Party, and, to the best of ADFORCES's knowledge, the
Technology does not, and any Improvements provided by
ADFORCE, any Work Products and NETSCAPE's use of the
Technology and Work Products shall not, infringe any patent
of any Third Party;
(c) NO LITIGATION. There is no action, suit, proceeding or
arbitration pending, and, to the best of ADFORCE's knowledge,
there is no action, suit, proceeding, arbitration or claim
threatened, concerning the Technology;
(d) NO LIENS OR ENCUMBRANCES. The Technology is free from any
security interests and other liens and encumbrances of Third
Parties arising from the actions or inaction of ADFORCE;
(e) NO UNAUTHORIZED CODE. The Technology does not, and any
Improvements provided by ADFORCE shall not, contain any back
door, time bomb, drop dead device, protect codes, data
destruct keys, or other software routine designed to disable
a computer program automatically with the passage of time or
under the control of any Person other than NETSCAPE. To the
best of ADFORCE's knowledge, the Technology does not, and any
Improvements provided by ADFORCE shall not, contain any
virus, Trojan horse, worm or other software routine designed
to permit unauthorized access or to disable, erase, modify,
deactivate or otherwise harm software, hardware or data; and
ADFORCE covenants that, prior to or at the time of the
delivery of any Technology (including any Improvement),
ADFORCE shall test the Technology using a current version of
a reputable "antivirus" program and remove any such
unauthorized codes; and
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(f) YEAR 2000 COMPLIANCE. All Software and other operational
items included in the Technology shall: (i) properly execute
with all date data, whether from years in the same century or
different centuries, including by yielding correct results
in arithmetic operations, comparisons and sorting of date
fields and in leap year calculations; and (ii) not abnormally
cease to execute or return an error message due to
date-related processing.
10.3 NO OTHER WARRANTIES. THE EXPRESS WARRANTIES IN THIS AGREEMENT
SHALL BE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THE
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
ARTICLE 11
INDEMNIFICATION
11.1 INDEMNITY. NETSCAPE shall not be liable to ADFORCE, any of its
Affiliates or any other Person for, and ADFORCE shall indemnify and hold
harmless NETSCAPE and all NETSCAPE Affiliates, and their respective
directors, officers, employees and agents (collectively, the "NETSCAPE
Indemnitees"), from and against any Losses incurred arising out of or
resulting from: (a) any infringement of any patent, copyright, trade secret
or other proprietary right by the Technology or any Work Product, except to
the extent that such infringement arises solely from any Improvement
developed by NETSCAPE, or by ADFORCE to NETSCAPE's specifications if ADFORCE
could not reasonably have conformed to such specifications while avoiding the
infringement; or (b) the presence of ADFORCE's employees or agents on the
premises of NETSCAPE or an NETSCAPE Affiliate (except those Losses that
result solely from the gross negligence or willful misconduct of NETSCAPE or
a NETSCAPE Affiliate), including, but not limited to, Losses resulting from
injuries to ADFORCE's Personnel and Losses resulting from injuries caused by
ADFORCE's Personnel.
11.2 PROCEDURE. Any NETSCAPE Indemnitee shall notify ADFORCE promptly
in writing of an indemnifiable claim or cause of action under Section 11.1
above upon receiving notice or being informed of the existence thereof;
provided, however, that failure to notify ADFORCE of an indemnifiable claim
or cause of action shall not relieve ADFORCE of its obligation to provide
indemnification hereunder, except to the extent that such failure prejudices
ADFORCE's ability to defend or settle such claim or cause of action. ADFORCE
shall assume, at its cost and expense, the sole defense of such claim or cause
of action through counsel selected by ADFORCE and reasonably acceptable to
NETSCAPE, except that in the case of a conflict of interest between ADFORCE
and NETSCAPE, ADFORCE shall, at ADFORCE's cost and expense, provide separate
counsel for NETSCAPE selected by NETSCAPE. ADFORCE shall maintain control of
such defense, including any decision as to settlement; provided that, in the
event that
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ADFORCE does not maintain control of such defense on a timely basis, then,
without prejudice to any other rights and remedies available to NETSCAPE
under this Agreement, NETSCAPE may take over such defense with counsel of its
choosing, at ADFORCE's cost and expense. NETSCAPE may, at its option and
expense, participate in ADFORCE's defense, and if NETSCAPE so participates,
the Parties shall cooperate with one another in such defense. ADFORCE shall
bear the total costs of any court award or any settlement of such claim or
cause of action approved by ADFORCE and all other costs, fees and expenses
related to the resolution thereof (including reasonable attorneys' fees,
except for attorneys' fees for which NETSCAPE is responsible in the event
that NETSCAPE participates in ADFORCE's defense of such claim or cause of
action).
11.3 ABATEMENT OF INFRINGEMENT. If ADFORCE reasonably believes it
necessary to do so to minimize its liability under Section 11.1 above,
ADFORCE may, at its expense, procure the right for NETSCAPE to continue using
the Technology or any Work Product, replace the Technology or any Work
Product with a functionally equivalent noninfringing item, or modify the
Technology or any Work Product so that it is functionally equivalent but
noninfringing.
ARTICLE 12
LIMITATION ON LIABILITY
NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY HEREUNDER FOR ANY
INDIRECT, INCIDENTAL, SPECIAL, OR CONSEQUENTIAL DAMAGES.
ARTICLE 13
CONFIDENTIALITY
13.1 CONFIDENTIALITY OBLIGATION. Each of NETSCAPE and ADFORCE (the
"Receiving Party") shall keep, and shall cause their Affiliates to keep,
strictly confidential any information disclosed by the other Party (the
"Disclosing Party") or otherwise made available to the Receiving Party
concerning the Technology or either Party's performance of this Agreement or
otherwise concerning the business, operations, trade secrets or other
proprietary information of the Disclosing Party (whether in written media or
otherwise) ("Confidential Information"), using the same degree of care that
it uses to protect its own confidential or proprietary information of a like
nature but in no event less than a reasonable degree of care. "Confidential
Information" shall not include information: (a) which is or becomes generally
available to the public other than as a result of disclosure thereof by the
Receiving Party; (b) which is lawfully received by the Receiving Party on
a nonconfidential basis from a Third Party that is not itself under any
obligation of confidentiality or nondisclosure to the Disclosing Party or any
other Person with respect to such information; (c) which is independently
developed by the Receiving Party; or (d) which was in the Receiving Party's
possession prior to receipt from the Disclosing Party. Each Party shall
treat any Technology or Work Product owned by or assigned to the other Party
as Confidential Information of such Party.
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13.2 NONDISCLOSURE OF CONFIDENTIAL INFORMATION. The Receiving Party
shall use Confidential Information solely for the purposes of this Agreement
and shall not disclose or disseminate any Confidential Information to any
Person at any time, except for disclosure to its Affiliates and to those of
its own and its Affiliates' directors, officers, employees, accountants,
attorneys, advisers and agents whose duties reasonably require them to have
access to such Confidential Information, provided that such directors,
officers, employees, accountants, attorneys, advisers and agents are bound
to maintain the confidentiality of such Confidential Information to the same
extent as if they were Parties hereto.
13.3 EXCEPTION. The foregoing confidentiality and nondisclosure
obligations shall not apply to Confidential Information: (a) incidentally
retained in the memory of Persons to whom the Receiving Party is permitted
to disclose Confidential Information, other than as the result of an
intentional effort to commit Confidential Information to memory to circumvent
the provisions of this Article 13; or (b) which is required to be publicly
disclosed by law or by regulation; provided, however, that, in such event,
the Receiving Party provides the Disclosing Party with prompt advance notice
of such disclosure so that the Disclosing Party has the opportunity if it so
desires to seek a protective order or other appropriate remedy.
13.4 SURVIVAL. The confidentiality and nondisclosure obligations of
this Article 13 shall remain in effect for three years following the date
hereof or two years following the termination of this Agreement, whichever is
greater, except with respect to source code and related source code
documentation, for which the obligations of this Article 13 shall survive for
so long as the source code and documentation remain Confidential Information.
13.5 SOURCE CODE PROTECTION. The Receiving Party shall protect
Confidential Information consisting of source code and related source code
documentation from unauthorized use and disclosure to the same extent that it
protects its own source code (but no less than to a reasonable degree).
13.6 OTHER BUSINESS ACTIVITIES.
(a) The Disclosing Party agrees that the Receiving Party may
currently or in the future acquire information, either independently
developed or legally received from Third Parties, which may be similar to the
Confidential Information. Nothing in this Agreement shall be construed as a
representation that the Receiving Party does not or shall not have such
independently developed or legally received information.
(b) Nothing in this Agreement shall be construed as a
representation or agreement to restrict reassignment of the Receiving Party's
employees, or in any manner to affect or limit either Party's present or
future business activities of any nature, including business activities which
could be competitive with the Disclosing Party.
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(c) Nothing in this Agreement shall be construed as a
representation or agreement that the Receiving Party shall not develop or have
developed for it products, concepts, systems or techniques contemplated by or
embodied in the Confidential Information, provided that the Receiving Party
does not violate any of its obligations under this Agreement in connection
with such development.
ARTICLE 14
TERM AND TERMINATION
14.1 TERM.
14.1.1 TECHNOLOGY LICENSE TERM. Provided the license grant to
NETSCAPE pursuant to Section 2.1(a) becomes effective, this Agreement with
respect to such Technology license grant and related provisions herein shall
commence as of the Effective Date and, unless terminated in accordance with
the provisions of Section 14.2 below, shall remain in full force and effect
without expiration.
14.1.2 TECHNOLOGY LICENSE GRANTED BY DEFAULT TERM. If the license
grant to NETSCAPE does not become effective pursuant to Section 2.1(a) but
Netscape obtains access to ADFORCE's source and object code as a result of
ADFORCE's default hereunder as described in such Section 2.1 (a), then this
Agreement with respect to such license grant and related provisions herein
shall commence as of the Effective Date and remain in full force and effect
through the date NETSCAPE's one-year right to use said source and object code
expires.
14.1.3 AD SERVING SERVICES TERM. The term of this Agreement with
respect to the Ad Serving Services and related provisions herein shall
commence as of the Effective Date and remain in full force and effect through
November 22, 1999. If both Parties assent in writing prior to the expiration
of this Agreement, this Agreement with respect to such Ad Serving Services
will renew on the same terms and conditions for an additional one year period.
14.2 TERMINATION.
14.2.1 TERMINATION RIGHTS OF NETSCAPE. NETSCAPE shall have the
right to terminate this Agreement in the event of the breach by ADFORCE of,
or the failure of ADFORCE to perform, any of its material obligations
hereunder and the failure to remedy such breach or nonperformance with sixty
(60) days following the receipt of written notice of such breach or
nonperformance from NETSCAPE. Such termination shall be immediately effective
upon the receipt by ADFORCE of written notice of termination from NETSCAPE.
On expiration or termination of this Agreement for any reason, the parties
agree to work in good faith to ensure a smooth transition of the Service and
Technology (if applicable) to NETSCAPE within 60 days of such termination or
expiration date.
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14.2.2 TERMINATION RIGHTS OF ADFORCE. ADFORCE shall have the right
to terminate this Agreement in the event of:
(a) The breach by NETSCAPE of, or the failure of NETSCAPE
to perform, any of its material obligations under
this Agreement (except for its obligations under
Articles 3, 4, 5 and 6 above) and the failure to
remedy such breach or nonperformance within sixty
(60) days following the receipt of written notice of
such breach or nonperformance from ADFORCE; or
(b) A "Data Agreement Material Breach" by NETSCAPE. For
purposes of this Agreement, a "Data Agreement Material
Breach" means the breach by NETSCAPE of, or the
failure of NETSCAPE to perform, any of its material
obligations under the Demographic Data Agreement, the
failure of NETSCAPE to remedy such breach or
nonperformance within sixty (60) days following the
receipt of written notice of such breach or
nonperformance from ADFORCE, and, in the event that
such breach or nonperformance is disputed by the
Parties, the final determination of such breach or
nonperformance by a court of competent jurisdiction
from which no further appeal may be taken.
Such termination shall be immediately effective upon the receipt by NETSCAPE
of written notice of termination from ADFORCE.
14.2.3 ADFORCE RIGHT TO DISCONTINUE SERVICES. ADFORCE shall have
the right to discontinue the provision of Services pursuant to Sections 3.2,
4.1, 5.1 and 6.1 above for which it is entitled to reimbursement or other
payment from NETSCAPE, but shall not have the right to terminate this
Agreement or the licenses granted pursuant to Section 2.1(a) above, if
effective, in the event of the material breach by NETSCAPE of its obligation
hereunder to reimburse or pay ADFORCE for any Services and the failure to
remedy such breach within sixty (60) days following the receipt of written
notice of such breach from ADFORCE. Such discontinuation of Services shall be
immediately effective upon the receipt by NETSCAPE of written notice of
discontinuation from ADFORCE. On expiration or termination of this Agreement
for any reason, the parties agree to work in good faith to ensure a smooth
transition of the Service and Technology (if applicable) to NETSCAPE within
60 days of such termination or expiration date.
14.3 EFFECT OF TERMINATION. Provided the license grant to NETSCAPE
under Section 2.1(a) becomes effective, and notwithstanding anything herein
to the contrary, in the event of the termination of this Agreement other than
upon the breach by NETSCAPE of any of its material obligations under Article
2 or Article 13 and the failure to remedy
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such breach within the time period set forth in Section 14.2.2 above,
NETSCAPE shall have the right, for a period of one year following
termination, to continue to exercise all license rights granted to it under
Section 2.1 above on all the same terms in effect pursuant to this Agreement
immediately prior to termination and to retain any Confidential Information
necessary or useful for the exercise of such rights. Notwithstanding anything
herein to the contrary, ADFORCE shall in no event be entitled to enjoin or
seek to enjoin any exercise by NETSCAPE of the rights set forth in this
Section 14.3, and ADFORCE hereby expressly waives any right to injunctive or
other equitable relief, whether based on statute, common law or otherwise,
arising out of any alleged default by NETSCAPE that would adversely affect
the exercise by NETSCAPE of its rights under this Section 14.3.
14.4 RETURN OF CONFIDENTIAL INFORMATION. Within thirty (30)
calendar days following the termination of this Agreement other than
termination where Section 14.3 above would be applicable, each Party shall
either deliver to the other Party, or destroy, all copies of any Confidential
Information of the other Party embodied in a tangible medium that is in such
Party's possession or under its control, and shall furnish to the other Party
an affidavit signed by an officer of such Party certifying that, to the best
of its knowledge, such delivery or destruction has been fully effected.
14.5 SURVIVAL. All rights granted to and obligations undertaken by
the Parties hereunder shall terminate immediately upon the termination of
this Agreement, except for the rights and obligations provided for in
Sections 14.3 and 14.4 above as well as the following rights and obligations,
which shall survive according to their terms:
(a) The obligation of the payor Party to pay any and all
payments accrued hereunder;
(b) The license to ADFORCE granted in Section 5.4;
(c) The right of NETSCAPE to inspect the books and records
of ADFORCE to the extent provided in Section 9.5;
(d) The indemnification obligations of Article 11 and the
limitation on liability of Article 12;
(e) The confidentiality and nondisclosure obligations of
Article 13; and
(f) The provisions of Sections 15.1, 15.7, 15.8, 15.10,
15.19, and 15.20 below.
In addition, termination of this Agreement shall not affect the remedies of
the Parties otherwise available at law or in equity in relation to any rights
accrued under this Agreement prior to termination.
ARTICLE 15
MISCELLANEOUS
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15.1 ELECTRONIC REPOSSESSION. In no event shall ADFORCE
electronically repossess, de-install, deactivate or disable any Technology in
the absence of a final, unappealable judgment of a court of competent
jurisdiction that the license rights granted under Section 2.1 above have
been validly terminated.
15.2 PERIODIC DISCUSSIONS. Commencing within thirty (30) days
following the execution of this Agreement and on a quarterly basis
thereafter, NETSCAPE shall engage in discussions with ADFORCE concerning
NETSCAPE's deployment of the Technology and shall endeavor to provide ADFORCE
with non-binding, 180 day forecasts of the Services that NETSCAPE intends to
request from ADFORCE hereunder. Within forty-five (45) days after the
Deployment Date, the Parties shall execute a more detailed development,
support and maintenance agreement with respect to ADFORCE's obligations to
provide development, support and maintenance for the Technology, including,
without limitation, ADFORCE's obligations for the delivery of Improvements
and other Technology, ADFORCE's obligations to provide Development Services
and Technical Services, and ADFORCE's obligations to cure any nonperformance
or other failure with respect to the Technology.
15.3 MUTUAL NON-SOLICITATION. For a period of one year following
the date hereof, without the prior written approval of the other Party,
neither Party or any of its Affiliates shall actively solicit for hire any
Personnel of the other Party with responsibility for the development or
maintenance of the Technology or Work Products or for the provision of
interactive advertisement serving, trafficking, targeting or related
services, excluding independent contractors that do not spend the majority of
their time providing services to such Party. The foregoing mutual
non-solicitation covenant shall terminate at any time in the event of the
acquisition by a Third Party of more than fifty percent (50%) of the voting
power of ADFORCE, the acquisition by a Third Party of all or substantially all
of the assets of ADFORCE, or the consummation of a merger, consolidation or
similar corporate transaction of ADFORCE with or into a Third Party where the
voting securities of ADFORCE outstanding immediately prior to consummation of
such transaction are converted into cash or securities possessing less than
fifty percent (50%) of the voting power of the surviving entity. The
obligations of the Parties under this Section 15.3 shall not survive the
termination of this Agreement.
15.4 FAILURE TO ASSERT RIGHTS IN BANKRUPTCY. NETSCAPE's failure to
assert its rights to retain its benefits under this Agreement in accordance
with 11 U.S.C. Section 365(n)(1)(B) shall not be construed as a termination
of this Agreement by NETSCAPE under 11 U.S.C. Section 365(n)(1)(A).
15.5 FURTHER ASSURANCES. Upon the request of either Party, the
other Party shall sign and deliver any assignments or other necessary
documents and otherwise assist the requesting Party to obtain, maintain,
perfect or enforce any of the requesting Party's rights hereunder.
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15.6 RELATIONSHIP OF THE PARTIES. Nothing in this Agreement is
intended or will be deemed to constitute a partnership, agency or joint
venture relationship between the Parties hereto.
15.7 APPLICABLE LAW. This Agreement shall be governed by the laws
of the State of California applicable to contracts made and to be performed
entirely within such jurisdiction and without giving effect to the choice
or conflict of laws rules or principles of the State of California or of any
other jurisdiction.
15.8 CONSENT TO JURISDICTION. Each of the Parties irrevocably
submits to the exclusive jurisdiction of the courts of the State of California
and of any United States federal court sitting in the State of California in
any action or proceeding arising out of or relating to this Agreement, and
irrevocably agrees that all claims in respect of such action or proceeding
shall be heard and determined in any such California or United States federal
court. Each Party further agrees that service of any process, summons, notice
or document by registered mail to the address of such Party set forth in
Section 15.10 below shall be effective service of process for any action or
proceeding brought against such Party in any such court. Each Party hereby
irrevocably and unconditionally waives any objection to the laying of venue
of any action or proceeding arising out of or relating to this Agreement in
any such court and further irrevocably and unconditionally waives and agrees
not to plead or claim in any such court that any such action or proceeding
brought in any such court has been brought in any inconvenient forum. Each
Party further agrees that a final, nonappealable judgment in any such action
or proceeding shall be conclusive and may be enforced in any other
jurisdictions by suit on the judgment or in any other manner provided by law.
15.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and may be executed by facsimile. All counterparts shall
collectively constitute one and the same Agreement.
15.10 NOTICES. In any case where any notice or other communication
is required or permitted to be given hereunder, such notice or communication
shall be in writing and deemed to have been duly given and delivered (a) if
delivered in person, on the date of such delivery, (b) if sent by confirmed
facsimile transmission (with answer back received), on the date of such
facsimile transmission, or (c) if sent by overnight express or registered or
certified mail (with return receipt requested), on the date of receipt of
such mail, and shall be sent to the following address (or such other address
as either Party may designate from time to time in writing):
If to NETSCAPE:
Netscape Communications Corporation
501 East Middlefield Road
Mountain View, CA 94043
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Telephone: (650)937-2669
Telefax: (650)937-5543
Attention: Mike Homer, Executive Vice President
Copy to:
Netscape Communications Corporation
501 East Middlefield Road
Mountain View, CA 94043
Telephone: (650)937-2764
Telefax: (650)528-4123
Attention: General Counsel
If to ADFORCE:
ADFORCE, Inc.
10101 N. DeAnza Boulevard
Suite 210
Cupertino, CA 95014
Telephone: (408)873-3680
Telefax: (408)873-3690
Attention: Charles W. Berger
cc: General Counsel
Copy to:
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Telephone: (650)494-0600
Telefax: (650)494-1417
Attention: Gordon K. Davidson
15.11 FORCE MAJEURE. If any circumstance beyond the reasonable
control of either Party occurs which delays or renders impossible the
performance of that Party's obligations under this Agreement on the dates
herein provided, such obligation shall be postponed for such time as such
performance necessarily has had to be suspended or delayed on account
thereof, provided such Party shall notify the other Party in writing as soon
as practicable, but in no event more than ten days after the occurrence of
such force majeure. In such event, the Parties shall meet promptly to
determine an equitable solution to the effects of any such event, provided
that such Party who fails because of force majeure to perform its obligations
hereunder shall upon the cessation of the force majeure take all reasonable
steps within its power to resume with the least possible delay compliance
with its obligations. Events of force majeure shall include, without
limitation, war, revolution, invasion, insurrection, riots, mob violence,
sabotage or other civil disorders, acts of God,
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limitations imposed by exchange control regulations or foreign investment
regulations or similar regulations, laws, regulations or rules of any
government or governmental agency, and any inordinate and unanticipated
delays in the regulatory review or governmental approval process that are
within the control of such government or governmental agency. In no event
shall the failure or nonperformance of the Technology as described in Section
4.3 above constitute an event of force majeure.
15.12 BINDING EFFECT; ASSIGNMENT. This Agreement may not be
assigned, in whole or in part, by either Party without the prior written
consent of the other Party, except that: (a) NETSCAPE may assign any of its
rights or obligations hereunder to America Online, Inc. or a wholly-owned
subsidiary of NETSCAPE without ADFORCES's consent; and (b) the rights and
obligations of either Party under this Agreement may be assigned without the
other Party's consent to a Third Party acquiring all or substantially all of
the assets of the assigning Party or to the surviving entity upon the
consummation of any merger, consolidation or similar corporate transaction of
the assigning Party with or into a Third Party. Any attempted assignment by
either Party without the consent of the other Party in any circumstances
other than those described in the immediately preceding sentence shall be
null and void. This Agreement shall inure to the benefit of and be binding
upon each of the Parties hereto and their respective successors and permitted
assigns.
15.13 ENTIRE AGREEMENT. The terms and conditions herein contained
constitute the entire agreement between the Parties relating to the subject
matter of this Agreement and shall supersede all previous communications
between the Parties with respect to the subject matter of this Agreement,
except for the Confidential Non-Disclosure Agreement between the Parties
dated as of January 1, 1999, and attached hereto as Exhibit D, each of which
shall survive according to their terms. Neither Party has entered into this
Agreement in reliance upon any representation, warranty, covenant or
undertaking of the other Party that is not set out or referred to in this
Agreement.
15.14 RECITALS. The recitals set forth at the start of this
Agreement and the terms and conditions incorporated in such recitals shall be
deemed integral parts of this Agreement, and all references in this Agreement
to this Agreement shall encompass such recitals and the terms and conditions
incorporated in such recitals.
15.15 AMENDMENT. This Agreement may be varied, amended or extended
only by the written agreement of the Parties through their duly authorized
officers or representatives, specifically referring to this Agreement.
15.16 SEVERABILITY. In the event that any provision of this
Agreement is held to be illegal, invalid or unenforceable in a final,
unappealable order or judgment (each such provision, an "invalid
provision"), then such provision shall be severed from this Agreement and
shall be inoperative, and the Parties promptly shall negotiate in good faith
a lawful, valid and enforceable provision that is as similar to the invalid
provision as may
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be possible, while the remaining provisions of this Agreement shall remain
binding on the Parties hereto.
15.17 HEADINGS. The descriptive headings of the several articles
and sections of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
15.18 NO WAIVER OF RIGHTS. No failure or delay on the part of
either Party in the exercise of any power or right hereunder shall operate as
a waiver thereof. No single or partial exercise of any right or power
hereunder shall operate as a waiver of such right or of any other right or
power. The waiver by either Party of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any other or
subsequent breach hereunder.
15.19 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. All rights and
remedies granted to either Party under this Agreement are cumulative and in
addition to, and not in lieu of, any other rights or remedies otherwise
available to such Party at law or in equity. The Parties agree that any
breach by either Party of, or failure of either Party to perform, any
obligation under this Agreement shall constitute immediate and irreparable
damage to the other Party which cannot be fully and adequately compensated in
money damages and that, in the event of such breach or failure, the other
Party shall be entitled to injunctive relief and specific performance in
addition to any other remedies to which it may be entitled at law or in
equity.
15.20 CONFIDENTIALITY OF AGREEMENT. Each Party shall maintain the
confidentiality of this Agreement and all provisions of this Agreement and,
without the prior consent of the other Party, neither Party shall make any
press release or other public announcement of or otherwise disclose this
Agreement or any of its provisions to any Third Party (a) other than to its
Affiliates and to its own and its Affiliates' directors, officers, employees,
attorneys and accountants, and to the lead underwriter engaged by ADFORCE in
connection with any offering of securities of ADFORCE, whose duties
reasonably require familiarity with this Agreement, provided that such
Persons (including any such lead underwriter) are bound to maintain the
confidentiality of this Agreement, and (b) except for such disclosure as may
be required by applicable law or regulation, in which case the disclosing
Party shall provide the other Party with prompt advance notice of such
disclosure so that the other Party has the opportunity if it so desires to
seek a protective order or other appropriate remedy; provided that, in
connection with any offering of securities of ADFORCE, ADFORCE shall provide
in advance to NETSCAPE for review the form and content of any disclosure of
this Agreement or any of its provisions that may be required by applicable
law or regulation and, to the extent consistent with its disclosure
obligations under applicable law, include such modifications to such
disclosure as may be reasonably requested by NETSCAPE (except that ADFORCE
may file this Agreement as an exhibit to its registration statement if it
would constitute a "material agreement" under applicable law or regulation
and ADFORCE shall use its reasonable best efforts to obtain confidential
treatment of the portions of this Agreement that meet the SEC qualifications
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for confidential treatment if so requested by NETSCAPE). The confidentiality
obligations of this Section 15.20 would apply, inter alia, to any disclosure
by ADFORCE of this Agreement or of any provisions of this Agreement to any
customer or potential customer of ADFORCE and any such disclosure would
constitute a breach of this Section 15.20. The Parties agree that any breach
of the provisions of this Section 15.20 by either Party, including, without
limitation, by any directors, officers or employees of such Party, would
constitute a breach by such Party of a material obligation hereunder for
which the other Party shall have the right, notwithstanding the provisions of
Section 14.2 above, to immediately terminate this Agreement without allowance
of any period to remedy such breach, such termination to be immediately
effective upon the receipt by the breaching Party of written notice of
termination from the nonbreaching Party.
15.21 USAGE. Wherever any provision of this Agreement uses the
term "including" (or "includes"), such term shall be deemed to mean
"including without limitation" and "including but not limited to" (or
"includes without limitation" and "includes but is not limited to")
regardless of whether the words "without limitation" or "but not limited to"
actually follow the term "including" (or "includes").
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to
be executed by their duly authorized officers as of the date first above
written.
NETSCAPE COMMUNICATIONS CORPORATION
REVIEWED BY By: /s/ Mike Homer
NETSCAPE LEGAL ---------------------------
Mike Homer
INITIAL /s/ [ILLEGIBLE] 3/10/99 Executive Vice President
------------------------
IMGIS, INC.
By: /s/ Charles W. Berger
------------------------------------
Charles W. Berger
Chairman and Chief Executive Officer
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EXHIBIT A
AD SERVING SERVICES
1. ADFORCE AD SERVING SERVICES.
A. ADFORCE SERVICE DEFINITION. The AdForce service ("AdForce Service")
is a proprietary Internet advertising administration system that will allow
NETSCAPE to manage advertising on its Internet properties. As part of the
AdForce Service, ADFORCE will provide NETSCAPE the ADFORCE "client"
("Client"), which NETSCAPE will use to (i) generate ad tags, (ii) schedule
advertising to run in the online environments in which NETSCAPE places those
ad tags, and (iii) generate reports on such advertising. In addition, ADFORCE
will maintain a centralized ADFORCE server complex from which ADFORCE will
electronically deliver advertising scheduled by NETSCAPE to the online
environments containing the ad tags placed by NETSCAPE. The delivery of
"Impressions," defined as the transmission of advertisements by ADFORCE to an
ADFORCE ad tag, will be verified by monthly third-party audits of the
AdForce Service, conducted by the Audit Bureau of Verification Services, Inc.
or another third party of comparable reputation chosen by ADFORCE. The
AdForce Service includes the targeting features and a suite of standard
reports available in the ADFORCE system listed below.
B. THE ADFORCE SERVICE. The AdForce Service includes the functionality
described in Section 1.A. above and as described below, with telephone client
services support from the hours of 6 a.m. to 6 p.m., Pacific Standard Time,
Monday-Friday, excluding major holidays. ADFORCE will also maintain 24 x 7
level technical service support via phone, cell phone or pager. In addition,
ADFORCE will provide up to four (4) days of account management support on
site at NETSCAPE each calendar month at no charge; unused days will not carry
over to subsequent calendar months. NETSCAPE may select the days and must
provide ADFORCE five (5) business days advance notice. Any additional days of
on-site training or support will be at a cost of $1,000 per day. The twelve
(12) days of monthly on-site account support to be provided by ADFORCE will
not include training for major ADFORCE releases, which will be provided to
NETSCAPE separately at no cost.
C. CERTAIN NETSCAPE OBLIGATIONS. NETSCAPE agrees to implement the ad
tags per the ADFORCE User Guide and Help documentation, and to use the
ADFORCE Client to schedule advertising it wishes ADFORCE to serve onto
NETSCAPE's Web sites. NETSCAPE confirms its commitment to use the AdForce
Service and Technology to serve not less than ninety percent (90%) of the ad
Impressions NETSCAPE controls on its NETSCAPE Netcenter online property, as
measured beginning April 15, 1999. However, if ADFORCE fails for any period
of time to meet its obligations under Sections 3.2, 4.3, 5.1, or 10.2 of the
Agreement or Section 7 of Exhibit A, then NETSCAPE may at its option reduce
its percentage commitment to a level NETSCAPE deems necessary until such time
as ADFORCE has come back into compliance. NETSCAPE agrees to provide ADFORCE
monthly volume forecasts of Impressions to be delivered using the AdForce
Service; these forecasts will be provided no later than three (3) days prior
to the beginning of each calendar month. NETSCAPE shall indemnify and hold
harmless ADFORCE from any liability and damages and costs (including
reasonable costs and attorney's fees) arising out of or relating to
advertising placed by NETSCAPE using the AdForce Service, including, without
limitation, content, libel, invasion of privacy, and rights of publicity.
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2. OWNERSHIP OF CLIENT AND LIMITATIONS ON USE. Subject to the terms and
conditions of this Agreement, NETSCAPE may use the Client on its premises
solely for purposes of using the AdForce Service. ADFORCE shall at all times
have sole and exclusive ownership of all right, title and interest in and to
such Client and the AdForce Service as a whole, any enhancements thereto
(except as provided in Section 2 above) and in any materials and data ADFORCE
provides to NETSCAPE. NETSCAPE may not copy, modify, alter, sell, distribute
or sublicense the Client, or reverse assemble, reverse compile or otherwise
attempt by any other method to create or derive the source programs of the
AdForce Service or the Client, nor authorize or contract with third parties
to do the same.
3. CONFIDENTIALITY. All passwords to ADFORCE, ADFORCE user guides, the
ADFORCE Client, and the ADFORCE "help" documentation, whether on-line or in
printed form, are confidential and proprietary to ADFORCE. All account
information input into the AdForce Service by NETSCAPE or ADFORCE for
campaigns running on NETSCAPE Web sites, such as advertiser contacts, costs
and billing information, and any NETSCAPE campaign-specific reports generated
by the AdForce Service are confidential to NETSCAPE.
4. ADFORCE SYSTEM DATA. As set forth in Section 3 above, ADFORCE
acknowledges the confidentiality of the account information input into the
AdForce Service by NETSCAPE or ADFORCE for NETSCAPE campaigns and any
NETSCAPE campaign-specific reports generated by the AdForce Service. However,
during the course of delivering advertising to visitors to NETSCAPE's sites
or to any other site of any other ADFORCE customer, ADFORCE will collect and
maintain information necessary to target advertising on behalf of all its
customers, including NETSCAPE. This information includes, but is not limited
to the user's IP address, cookie, browser type and operating system, as well
as the time, date and ad tag of the request. ADFORCE will provide NETSCAPE
the ability to run any reports referenced on Exhibit A against such
information, ADFORCE and NETSCAPE both own all right, title and interest in
and to such information. Use of such information by either party shall at all
times comply with NETSCAPE's privacy policy, set forth at
http://home.netscape.com/legal_notices/privacy.html or at such other URL as
NETSCAPE may designate from time to time. ADFORCE shall have full freedom of
use of such information without need for accounting, however, such use shall
not expand beyond ADFORCE's actual use of such information as of the
Effective Date. Specifically, ADFORCE will provide to NETSCAPE on a weekly
basis the detailed HTTP server logs pertaining to user accesses on Netcenter.
The parties shall mutually agree to a procedure by which such logs will be
provided to NETSCAPE. Other logs may be requested with reasonable notice by
Netscape and such requests will not be unreasonably refused by ADFORCE.
Request for logs not generally provided by ADFORCE shall be subject to the
terms of Development Services as described in Article 5. All NETSCAPE requests
for system data will be on a prospective basis.
5. ADFORCE SERVICE DESCRIPTION
<TABLE>
<CAPTION>
-------------------------------------------
AdForce BASIC
-------------------------------------------
<S> <C>
Campaign Management Scheduling
Features Delivery
Inventory Forecast
Reporting
Targeting
-------------------------------------------
Auditing Free monthly audit
-------------------------------------------
</TABLE>
33
<PAGE>
CONFIDENTIAL
ADFORCE Reporting
The following reports are currently available with all levels of the AdForce
Service:
<TABLE>
<CAPTION>
Network Reports Website Reports Advertiser Reports
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Daily Campaign Details Activity by Advertiser Campaign On-line Summary
Daily Campaign Summary Activity by Area Code Summary by Area Code
Monthly Billing Report Activity by Browser Summary by Banner
Summary by Advertiser Activity by Content Unit Summary by Browser
Summary by Area Code Activity by Country Summary by Category
Summary by Browser Activity by Date Summary by Country
Summary by Category Activity by Domain Summary by Date
Summary by Country Activity by Keyword Summary by Domain
Summary by Date Activity by Hour Summary by Hour
Summary by Domain Activity by Operating System Summary by Operating System
Summary by Hour Activity by Pay Type Summary by Service Provider
Summary by Operating System Activity by Service Provider Summary by SIC Code
Summary by Payment Type Activity by SIC Code Summary by Website
Summary by Service Provider Website Revenue Campaign Summary
Summary by SIC Code Monthly Billing Report
Summary by Website
Website Revenue
</TABLE>
NETSCAPE will have the right to receive all current and future reports that
are part of the standard reports made available to ADFORCE customers. Fees
for any additional reports added in the future and not included as part of the
standard reports made available to ADFORCE customers will be charged
according to the terms of Article 5.
6. TARGETING CAPABILITIES. The AdForce Service includes targeting on the
following parameters, when ADFORCE databases allow the parameter to be
resolved:
- - BROWSER TYPE - Different campaigns can be delivered to visitors of
different browsers.
- - OPERATING SYSTEM - Different campaigns can be delivered to visitors with
different operating systems.
- - DOMAIN TYPE - Different campaigns can be delivered to visitors from
different domain types.
- - SERVICE PROVIDER - Different campaigns can be delivered to visitors with
different ISPs.
- - TELEPHONE AREA CODE - Different ads can be delivered to visitors in
different area codes.
- - SIC CODE - Different ads can be delivered to visitors working for
companies with different SIC codes.
- - COUNTRY - Different campaigns can be delivered to visitors from different
countries.
- - FREQUENCY - An advertisement can be shown a specified number of times to
each visitor.
- - SEQUENCE - A series of advertisements can be shown in sequence to a
visitor.
- - KEYWORDS - Advertisements can be targeted on the basis of a search word
or phrase.
- - SITE DATA - Ads can be targeted on the basis of a site's data (i.e. with
registered users).
- - DAY/DATE/TIME OF DAY - Ads can be scheduled to run during specific times
and on specific days.
- - CONTENT AREA - Ads can be targeted to a specific area of a site.
34
<PAGE>
CONFIDENTIAL
7. PERFORMANCE METRICS
The Parties will measure real-world performance using a standard vendor such
as Keynote, Inverse Networks or another service mutually agreed upon.
NETSCAPE will be liable for the cost of the auditing services, not to exceed
$50,000. The ADFORCE system must provide:
A. Average ad delivery availability: 99.98%, measured each calendar month,
with no scheduled downtime. This metric also includes tracking functions
such as impressions and click through counting. If the AdForce Service
fails to meet this target level of performance, in addition to the
response times referenced in Section 4.3, ADFORCE will provide NETSCAPE a
"make good" on any ads which did not serve during any downtime in excess
of the required availability metric (for example, if ad delivery is down
0.03% of a given calendar month, then AdForce's make good shall apply
only to the 0.01% excess over the required metric). Accordingly, AdForce
will serve free of charge a number of ads equal to twice the number of ads
not served during such excess downtime. Finally, failure by the AdForce
Service to meet this performance metric for any four consecutive months
shall, at NETSCAPE's option, constitute a breach of the Agreement.
B. Administration system availability: 99.95%, less scheduled maintenance,
measured each calendar quarter, with no scheduled downtime during Pacific
Standard Time working hours (8 a.m.-6 p.m.). Maximum scheduled downtime in
any given work week shall be 4 hours; measure also excludes monthly
rebuilding of summary tables, provided they are executed only during
weekend hours. Includes order entry/administration and reporting. Finally,
failure by the AdForce Service to meet this performance metric for any four
consecutive months shall, at NETSCAPE's option, constitute a breach of the
Agreement.
C. Single http-ad server delivery latency of no more than 2.5 seconds. This
requirement will not apply at times when the Keynote Business 40 Benchmark
Page latency is greater than three times its weekly average. Schedule for
regular weekly measurements to be mutually agreed upon.
D. Multiple ad delivery (maximum 9 ad requests) latency of no more than 10
seconds. This requirement will not apply at times when the Keynote Business
40 Benchmark Page latency is greater than three times its weekly average.
Schedule for regular weekly measurements to be mutually agreed upon.
35
<PAGE>
CONFIDENTIAL
EXHIBIT B
FEES AND PAYMENT SCHEDULE
The current estimated obligation by NETSCAPE for the Initial Ad Serving
Services Term of the Agreement is:
<TABLE>
<CAPTION>
FOR THE QUARTER BEGINNING: THE ESTIMATE IS:
<S> <C>
February 1, 1999 $ 776,159
May 1, 1999 $ 778,133
August 1, 1999 $ 866,529
November 1, 1999 $ 261,550
----------
TOTAL: $2,692,372
</TABLE>
* The figure for the quarter beginning November 1, is a prorated amount based
on the 22 days from November 1, 1999 until the end of the Initial Ad Serving
Services Term.
NETSCAPE will pre-pay an amount equal to $2.7 million, per Section 9.1.
Based on NETSCAPE's current impression forecast, this converts to an imputed
CPM rate as follows, and under no circumstances will NETSCAPE's CPM rate
exceed ADFORCE's own audited allocated CPM cost for the same period (defined
as ADFORCE's total cost of goods sold divided by ADFORCE's total
impressions), unless NETSCAPE chooses to increase ADFORCE's headcount
requirements:
<TABLE>
<CAPTION>
FOR THE QUARTER BEGINNING: THE CPM ESTIMATE IS:
<S> <C>
February 1, 1999 $0.10
May 1, 1999 $0.10
August 1, 1999 $0.10
November 1, 1999 $0.08
</TABLE>
ADFORCE may use its audited allocation accounting methodology to bill
NETSCAPE; however, this amount may not exceed the computation of direct
obligations contained in Exhibit C, after updating Exhibit C for actual
impressions, headcount and other calculations. Specifically, those updates
will be made in an electronic version of Exhibit C, and the maximum
obligation for any given quarter will be the sum of those calculations, which
are described below.
1. Actual impressions will be as measured and mutual agreed to by each party.
2. Headcount:
- - Estimates will be adjusted per Section 9.1. It is currently estimated
that there are 9 full-time-equivalents at ADFORCE working on the NETSCAPE
account. It is agreed that 6 of these headcount, covering operations and
account support, will not increase in number at any time. The three
remaining headcount will work on providing quality assurance for campaign
management, and this number could increase or decrease at NETSCAPE's
option, depending on how NETSCAPE organizes this work in the future.
- - The formula for calculating headcount costs will be: [Number of headcount]
multiplied by [$35,000] multiplied by [1.25 if before July 15, 1.40 if after
July 15, 1999, or 1.0 if Section 6.2(a) controls]
36
<PAGE>
CONFIDENTIAL
3. Facilities costs will be calculated according to the following formula:
[Number of headcount in 1 above] multiplied by [$5,000] multiplied by
[1.25 if before July 15, 1.40 if after July 15, 1999, or 1.0 if
Section 6.2(a) controls]
4. G&A will not change from Exhibit C, unless mutually agreed upon
5. Bandwidth will not change from Exhibit C, unless mutually agreed upon
6. Amortized capital, equipment and related costs will be based on Exhibit
C. Specifically, the formula for any given quarter in which NETSCAPE is
using the ADFORCE Ad Serving Service equals the sum of [the capital
depreciation for capital expenses in that same quarter] and [the capital
depreciation for capital expenses in any previous quarter in which NETSCAPE
used the ADFORCE Ad Serving Service where the depreciation schedule has not
expired].
(a) The initial calculations for any three-month quarter are:
(1) Small System units purchased in quarter = [[Average NETSCAPE
impressions served by ADFORCE per day] divided by [1,000,000]
multiplied by [0.83] less [the sum of the total number of Small
System units purchased in previous quarters]
(2) Small System units required in quarter = [Average NETSCAPE
impressions served by ADFORCE per day] divided by [1,000,000]
multiplied by [0.83]
(3) Cost of Small System purchased in quarter = [total small system
units purchased in the quarter] multiplied by [$25,000]
(4) PC units purchased in quarter = [Small System units purchased in
the quarter] divided by [1.0]
(5) Cost of PC's purchased in quarter = [PC units purchased in
quarter] multiplied by [$5,000]
(6) Square footage required for Infrastructure build-out in quarter
= [Small System units purchased in quarter] divided by [8] and
then multiplied by [6]
(7) Cost of Infrastructure build-out in quarter = [square footage
required for Infrastructure build-out in quarter] multiplied by
[$350]
(b) Summary calculations are:
(1) Capital expenses in the quarter = the sum of [5.a.3], [5.a.5]
and [5.a.7] above in the same quarter
(2) Depreciation for the capital expenses incurred in the quarter =
[5.b.1] divided by [8].
Not withstanding the foregoing, if less than a full quarter is completed the
maximum amount due will be prorated accordingly.
Not withstanding the foregoing, changes that may impact these actual
obligations include but are not limited to: NETSCAPE's assumption of
activities and operations that are provided by ADFORCE in the current
estimate, such as headcount, hardware, bandwidth, and facilities; and changes
to the impression forecast which impact these costs.
Specifically, unless the parties mutually agree otherwise, if NETSCAPE were
to assume any such activities and operations, NETSCAPE's obligation for the
subsequent periods would be reduced by a ratable amount in the
corresponding line item in Exhibit C, after adjusting for changes to Exhibit
C described above.
37
<PAGE>
CONFIDENTIAL
Unless the parties mutually agree otherwise, milestones regarding the timing
and adjustment of payments will be made per Section 9.1 of the Agreement.
38
<PAGE>
CONFIDENTIAL
EXHIBIT C
MODEL AND FORMULA FOR ADJUSTMENTS
FINAL
ADFORCE COST ESTIMATE - WITH CORRECTION TO SURCHARGES
<TABLE>
<CAPTION>
SURCHARGE QUARTER BEGINNING ON...
-------------------------------------------------------------------------------
OPERATING EXPENSES: Year 1 Year 2 2/1/99 5/1/99 8/1/99 11/1/99* Total
- ----------------------------------------------------------------------------------------------------------------------------------
Headcount (FTE) up to 7/15/1999 7/16/99 on 9.0 9.0 9.0 1.00
--------------------------- --- --- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Headcount Expense $35,000 per/qtr 25% 40% $393,750 $393,750 $441,000 $490,000 1,718,500
-------------------------------------------------------------------------------------------------
G&A 0% 0% $ 10,000 $ 10,000 $ 10,000 $ 10,000
HW Depreciation 0% 0% $226,199 $238,550 $262,529 $399,977
Bandwith 0% 0% $ 90,000 $ 90,000 $ 90,000 $ 90,000
Facilities/IS Allocation $5,000 per head 25% 40% $ 56,250 $ 55,833 $ 63,000 $ 70,000
-------------------------------------------------------------------------------------------------
Total Op Ex $177,159 $788,155 $866,529 $1,067,977
- ----------------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses
(prorated to term) $177,159 $788,155 $866,529 $261,550
- ----------------------------------------------------------------------------------------------------------------------------------
CAPITAL EXPENSE ESTIMATE - DYNAMICALLY ADJUSTED BY IMPRESSION FORECAST
- ----------------------------------------------------------------------------------------------------------------------------------
Large Servers $500,000 per unit
Capital Expense - Large Servers
Small Systems (Sun U2) $25,000 per unit 70 4 7 43
CUMULATIVE SYSTEMS 70 4 7 43
Capital Expense - Small Servers $1,755,723 $96,193 $186,158 $1,067,010 3,105,114
PC's $5,000 per unit 7 0 1 4
Capital Expense - PC's $ 35,114 $ 1,924 $ 3,723 $ 21,341 62,102
Infrastructure Build-out $350 per sq. ft. 53 3 6 32
Capital Expense -
Infrastructure Build-out $ 18,435 $ 1,010 $ 1,955 $ 11,304 32,594
- -----------------------------------------------------------------------------------------------------------------------------------
Total Capital Expense $1,009,275 $99,127 $191,835 $1,044,585 3,199,820
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NETSCAPE IMPRESSION ESTIMATE - LAST UPDATED ON FEBRUARY 19
- ----------------------------------------------------------------------------------------------------------------------------------
QUARTER BEGINNING ON...
----------------------------------------------------------------------------------------
NOVEMBER QUARTER IS PRORATED TO TERM 2/1/99 5/1/99 8/1/99 11/1/99 Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sito Impressions 7,615,184,253 7,980,786,459 8,765,278,617 13,370,628,352 37,731,879,681
BannerX Impressions 51,621,717 74,559,805 97,335,486 223,516,990
- ----------------------------------------------------------------------------------------------------------------------------------
Total Impressions 7,615,184,253 8,032,408,176 8,939,838,422 13,467,963,320 37,955,394,671
- ----------------------------------------------------------------------------------------------------------------------------------
Total Impressions Prorated to Term 7,615,184,253 8,032,408,176 8,939,838,422 13,467,963,320 37,955,394,671
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CPMs IMPLIED BY ADFORCE COST ESTIMATE
- ----------------------------------------------------------------------------------------------------------------------------------
SURCHARGE QUARTER BEGINNING ON...
- ----------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES: up to 7/15/1999 7/16/99 on 2/1/99 5/1/99 8/1/99 11/1/99 Total
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Headcount Expense 25% 40% $0.05 $0.05 $0.05 $0.04 0.05
G&A 0% 0% $0.00 $0.00 $0.00 $0.00 0.00
HW Depreciation 0% 0% $0.03 $0.03 $0.03 $0.03 0.03
Bandwith 0% 0% $0.01 $0.01 $0.01 $0.01 0.01
Facilities/IS Allocation 25% 40% $0.01 $0.01 $0.01 $0.01 0.01
- ----------------------------------------------------------------------------------------------------------------------------------
Total Op Ex $0.10 $0.10 $0.10 $0.08 0.09
Total Operating Expenses $0.10 $0.10 $0.10 $0.08 0.09
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE>
CONFIDENTIAL
EXHIBIT D
MUTUAL CONFIDENTIAL DISCLOSURE AGREEMENT
This Mutual Confidential Disclosure Agreement ("Agreement") is entered into
between NETSCAPE Communications Corporation ("NETSCAPE") and IMGIS, INC, dba
ADFORCE ("Company"), and is effective as of the date of execution by NETSCAPE
("Effective Date"). Each party (the "Receiving Party") understands that the
other party (the "Disclosing Party") may disclose certain Confidential
Information (as defined in Section 1 below) under this Agreement. NETSCAPE
and Company agree as follows:
1. DEFINITION. "Confidential Information" shall mean (i) all information
disclosed in tangible form by the Disclosing Party and marked
"confidential" or "proprietary", and (ii) all information disclosed
orally or otherwise in intangible form by the Disclosing Party and
designated as confidential or proprietary at the time of disclosure.
Confidential Information may include, without limitation, computer
programs, code, algorithms, names and expertise of employees and
consultants, know-how, formulas, processes, ideas, inventions (whether
patentable or not), schematics and other technical, business, financial
and product development plans, forecasts, strategies and information.
2. PURPOSE. The Receiving Party shall use the Confidential Information only
for the following purposes:
a) To evaluate whether to enter into a contemplated business transaction;
and
b) if NETSCAPE and Company enter into such contemplated business
transaction, to fulfill each party's commitments under the agreement for
such business transaction.
3. CONFIDENTIALITY OBLIGATION. The Receiving Party agrees to protect the
Confidential Information by using the same degree of care, but not less
than a reasonable degree of care, to prevent the unauthorized use,
dissemination or publication of the Confidential Information as the
Receiving Party uses to protect its own confidential or proprietary
information of a like nature. The Receiving Party shall limit the use of
and access to the Disclosing Party's Confidential Information to the
Receiving Party's employees or independent contractors who need to know
such Confidential Information for the purposes set forth in Section 2
above and who have entered into binding obligations of confidentiality
substantially similar to the obligations set forth herein.
4. TERM. The Receiving Party's obligations to protect Confidential
Information hereunder shall expire 3 years from the date of each such
disclosure of Confidential Information, except when such Confidential
Information disclosed by the Disclosing Party is source code, in which
case the Receiving Party's obligations to protect such Confidential
Information shall be perpetual.
5. EXCLUSION. Confidential Information as defined in Section 1 above shall
not include Confidential Information that: (i) is or becomes a matter of
public knowledge through no fault of the Receiving Party; or (ii) was in
the Receiving Party's possession or known by it prior to receipt from the
Disclosing Party; or (iii) was rightfully disclosed to the Receiving
Party by another person without restriction; or (iv) is independently
developed by the Receiving Party without access to Disclosing Party's
Confidential Information. The Receiving Party may disclose Confidential
Information pursuant to any statutory or regulatory authority or court
<PAGE>
CONFIDENTIAL
order, provided the Disclosing Party is given prompt written notice of
such requirement and the scope of such disclosure is limited to the
extent possible.
6. INDEPENDENT DEVELOPMENT. The terms of confidentiality under this Agreement
shall not be construed to limit either party's right to independently
develop or acquire products without use of the other party's Confidential
Information. Further, Confidential Information as defined in Section 1
above shall not include the Residuals resulting from access to such
Confidential Information. The term "Residuals" means information in
intangible form which may be retained in the unaided memories of
Receiving Party's employees or independent contractors who have had
access to the information. An employee's or contractor's memory will be
considered to be unaided if the employee has not intentionally memorized
the Confidential Information for the purpose of retaining and
subsequently using or disclosing it. Neither party shall have any
obligation to limit or restrict the assignment of such persons or to pay
royalties for any work resulting from the use of Residuals. However, the
foregoing shall not be deemed to grant to either party a license under
the other party's copyrights or patents.
7. RETURN OF CONFIDENTIAL INFORMATION. Upon written request by the Disclosing
Party at any time, the Receiving Party shall: (i) turn over to the
Disclosing Party all Confidential Information of the Disclosing Party,
all documents or media containing the Confidential Information, and any
and all copies or extracts thereof, or (ii) destroy the Confidential
Information, and any and all copies or extracts thereof, and provide the
Disclosing Party with written certification of such destruction signed
by an authorized representative of the Receiving Party.
8. EQUITABLE RELIEF. The Receiving Party acknowledges and agrees that due to
the unique nature of the Disclosing Party's Confidential Information,
there may be no adequate remedy at law for any breach of its obligations.
The Receiving Party further acknowledges that any such breach may allow
the Receiving Party or third parties to unfairly compete with the
Disclosing Party resulting in irreparable harm to the Disclosing Party
and, therefore, that upon any such breach or any threat thereof, the
Disclosing Party shall be entitled to seek appropriate equitable relief
in addition to whatever remedies it may have at law. The Receiving Party
will notify the Disclosing Party in writing immediately upon the
occurrence of any such unauthorized release or other breach.
9. INTELLECTUAL PROPERTY RIGHTS. Neither party acquires any intellectual
property rights or any other rights under this Agreement or through any
disclosure hereunder, except the limited right to use the Confidential
Information in accordance with this Agreement.
10. WARRANTY. THE CONFIDENTIAL INFORMATION IS DISCLOSED UNDER THIS AGREEMENT
IS DELIVERED "AS IS," AND ALL REPRESENTATIONS OR WARRANTIES, WHETHER
EXPRESS OR IMPLIED, INCLUDING WARRANTIES OR CONDITIONS FOR FITNESS FOR A
PARTICULAR PURPOSE, MERCHANTABILITY, TITLE AND NONINFRINGEMENT, ARE
HEREBY DISCLAIMED.
11. NETSCAPE SUBSIDIARIES. NETSCAPE's wholly owned subsidiaries, by signing
this Agreement on behalf of NETSCAPE and returning a fully executed
original or copy to the NETSCAPE Legal Department, shall be entitled to
disclose NETSCAPE's Confidential Information and receive Company's
Confidential Information on a need to know basis only on behalf of
NETSCAPE under this Agreement, provided such subsidiaries comply with the
terms and conditions of this Agreement and further provided such
disclosures or receipt of
2
<PAGE>
CONFIDENTIAL
Confidential Information are governed by the terms and conditions of this
Agreement.
12. GENERAL. This Agreement supersedes all prior discussions and writings
with respect to the subject matter hereof, and constitutes the entire
agreement between the parties with respect to the subject matter hereof.
No waiver or modification of this Agreement will be binding upon either
party unless made in writing and signed by a duly authorized
representative of each party and no failure or delay in enforcing any
right will be deemed a waiver. The parties understand that nothing herein
requires either party to proceed with any proposed transaction or
relationship in connection with which Confidential Information may be
disclosed. In the event that any of the provisions of this Agreement
shall be held by a court or other tribunal of competent jurisdiction to
be unenforceable, the remaining portions hereof shall remain in full force
and effect. This Agreement shall be governed by the laws of the State of
California without regard to conflicts of laws provisions thereof and each
party submits to the jurisdiction and venue of any California State or
federal court generally serving the Santa Clara county area with respect to
the subject matter of this Agreement. The headings to the Sections of
this Agreement are included merely for reference and shall not affect the
meaning of the language included herein. If applicable, this Agreement
may be executed in counterparts or by facsimile, each of which shall be
deemed an original, and all of which together shall constitute one and
the same agreement. This Agreement is written in the English language
only, which language shall be controlling in all respects. Les parties
aux presentes confirment leur volonte que cette convention de meme que
tous les documents y compris tout avis qui s`y rattache, soient rediges
en language anglaise (translation: "The parties confirm that this
Agreement and all related documentation is and will be in the English
language.").
NETSCAPE COMMUNICATIONS COMPANY
CORPORATION
By: /s/ Mike Homer By: /s/ Charles W. Berg
--------------------------------- ---------------------------------
Name: Mike Homer Name: Charles W. Berg
---------------------------- -----------------------------
Print or Type Print or Type
Title: EVP, GM Netcenter Title: Chairman & CEO
-------------------------- -----------------------------
Date: January 1, 1999 Date: January 1, 1999
-------------------------- -----------------------------
Address: Address:
501 East Middlefield Road 10101 N. DeAnza Boulevard, Ste. 210
Mountain View, CA 94043 Cupertino, CA 95014
3
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report dated February 5,
1999, except for Note 11, as to which the date is April 30, 1999, with respect
to AdForce, Inc. and our report dated October 29, 1998 with respect to StarPoint
Software, Inc. in Amendment No. 4 to the Registration Statement (Form S-1) and
related Prospectus of AdForce, Inc. for the registration of shares of its common
stock.
Our audits also included the financial statement schedule of AdForce,
Inc. listed in Item 16(b). This schedule is the responsibility of AdForce's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
San Jose, California
May 7, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 MAR-31-1999
<CASH> 10,045 9,727
<SECURITIES> 0 0
<RECEIVABLES> 2,195 2,535
<ALLOWANCES> 1,035 1,187
<INVENTORY> 0 0
<CURRENT-ASSETS> 11,780 11,751
<PP&E> 6,972 10,666
<DEPRECIATION> 2,764 3,447
<TOTAL-ASSETS> 20,935 24,269
<CURRENT-LIABILITIES> 3,805 8,707
<BONDS> 0 0
0 0
5 5
<COMMON> 5 5
<OTHER-SE> 14,031 10,369
<TOTAL-LIABILITY-AND-EQUITY> 20,935 24,269
<SALES> 0 0
<TOTAL-REVENUES> 4,286 3,220
<CGS> 0 0
<TOTAL-COSTS> 5,539 2,284
<OTHER-EXPENSES> 14,216 5,866
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 151 73
<INCOME-PRETAX> (15,620) (5,003)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (15,620) (5,003)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (15,620) (5,003)
<EPS-PRIMARY> (5.49) (1.26)
<EPS-DILUTED> (5.49) (1.26)
</TABLE>
